Protecting Turkey business against external risks: Key takeaways from FSG’s Istanbul Breakfast

Istanbul - Bosphorus

Despite remaining a key market in MNCs’ EMEA portfolios, Turkey has become an increasingly difficult place to do business in. Rising insecurity, political uncertainty, regulatory unpredictability, and a slowdown in growth are making it even more challenging for executives to hit their targets in Turkey’s already highly competitive environment. Last week, FSG held an executive breakfast in Istanbul that brought together executives to share best practices and strategies for navigating Turkey’s complex operating conditions. Below are key takeaways from the event, which was attended by 21 executives across different sectors, such as consumer goods, healthcare and industrials.

Turkey remains an attractive EMEA market

Despite all the uncertainty and negative press, Turkey retains most of the qualities that make it an attractive market: large demand size driving opportunities across many sectors, a sophisticated business environment, strong regulatory and banking foundations, and a strategic location, amongst others. Turkey’s attractive fundamentals and the lack of a large, stable and fast growing EMEA market are making it difficult to de-prioritize Turkey. Therefore, evaluating the country’s sector specific opportunities amid the rising macro-level risks has been particularly difficult for EMEA executives.

90% of attendees at FSG’s executive breakfast believed their HQ’s perceptions about Turkey had worsened in the last 12 months, but that either Turkey remained a priority and/or that their corporate leadership was in a wait-and-see mode with regards to investing in the country. Almost no one was planning or considering to leave the market altogether, evidence of Turkey’s continued attractiveness.

This is an opportunity for Turkey general managers to maintain HQ support for the business, but it requires that they do two things:  communicate a clear strategy for how they will drive growth to their HQ, and also address comprehensively how they will mitigate the impacts of external risks to their business.

Constitutional referendum isn’t the single and most important determinant of Turkey’s outlook

FSG believes the constitutional referendum coming up on April 16 should not be the determinant factor for evaluating Turkey’s business opportunities by senior executives. Numerous political and economic factors exist independent of the referendum, that will ensure the country’s operating environment remains volatile and challenging, but also that sector specific opportunities will continue to grow.

To navigate this complex external environment and mitigate risks, participants in the breakfast discussed a range of tactics, all focused on narrowing down the list of practical problems and vulnerabilities for their businesses created by external conditions, and then systematically tackling them. For that, FSG suggests the following structured approach:

  1. Create a very narrow list of the specific risks that are critical to address for their Turkey business, rather than being distracted by alarmist headlines (i.e. falling tourism numbers should be at the top of the list for some companies, while not at all in the list for others)
  2. Evaluate both the short- and long-term implications of those risks on:
    1. Demand for their products and services
    2. Operating environment for their business, customers, and partners
    3. Competitive environment shifts
  3. Make the necessary enhancements to their business that increases the resilience to those risks (i.e. by increasing the number of government engagement personnel in case of heightened public sector disruptions as government institutions transition to a presidential system following a potential “yes” win in the upcoming referendum)

Turkey executives are under pressure

While working to mitigate the risks from external factors, Turkey executives also face pressures from:

  • The mandate from HQ to de-risk the Turkey business, such as reducing FX exposure and days outstanding, and limiting large investments
  • The mandate to continue growing the Turkey business in a highly competitive environment, which could require introducing highly innovative and differentiated products and services, and marketing and training investments to go with it
  • Rising costs that require a much closer focus on increasing operational efficiencies

Businesses are focused on expanding to new customers with the right value proposition

These pressures are causing Turkey general managers to work towards creating a long-term Turkey strategy that would increase the business’ competitiveness and grow sales in an environment of slower macro-economic growth. However, executives we spoke with also revealed that they are simultaneously under pressure to focus on short-term priorities such as payment collection, limiting operational costs, and finding optimum prices.

Therefore, Turkey executives at our event ranked the following three strategies as having the potential to make the biggest commercial impact on their businesses in 2017:

  1. Expanding to new customer segments; i.e. many B2B companies are targeting customers they haven’t traditionally focused on before, but that require minimal product adaptation or marketing push
  2. Adopting the value proposition; i.e. many healthcare companies are increasing their focus on high quality and innovative products as operational costs increase but price increases are almost impossible
  3. Increasing operational efficiencies; i.e. some executives are building awareness within their Turkey teams, through initiatives across all functions to execute cost effectively

Wining in Turkey’s highly complex and competitive business environment will require a very nuanced Turkey strategy; one that doesn’t lose sight of enhancing the business’ long-term competitiveness, but that also exhibits a highly flexible and agile local presence that adapts both operational structures and the value proposition to changing realities on the ground.

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