Turkish citizens will be voting on June 24th in the country’s first elections under the new presidential system. Regardless of the results, Turkey will continue to offer opportunities for MNCs in a highly competitive and challenging operating environment. Turkey general managers (GMs) in multinational companies (MNCs) are already preparing for the country’s long-term outlook by expanding their customer base and investing now to differentiate their offering to customers.
Strong growth is sustaining MNC performance in Turkey
Turkey’s economy has remained relatively resilient against the uptick in political instability, especially since the 2015 general elections. A large population, diversified and dynamic private sector, strong export linkages, robust credit growth, consumers’ aspirational spending habits, and government efforts to increase the quality and provision of public services from healthcare to education to infrastructure, sustain strong demand growth for MNCs across sectors.
More than half of Turkey GMs at FSG’s annual Istanbul Executive Breakfast reported (chart below) they were able to receive additional resources, whether for headcount, acquisitions, or local manufacturing. Strong demand growth and confidence in Turkey’s long-term opportunities seemed to be the main factors sustaining MNC interest in Turkey, and convincing firms to put additional resources to the market amid high volatility.
Turkey’s operating environment will remain complex
Alongside relatively strong growth, however, Turkey’s operational challenges cannot be ignored. MNCs will continue to face exchange rate volatility, high operating costs, strong competition – both from local and foreign firms – localization pressures, regulatory changes, and shifts in public sector institutional structures and processes for decision-making as the country switches to a presidential system.
- The Turkish lira to average 4.15 TRY to US$ 1 in 2018, depreciating 14% on an annual average basis from 2017
- Inflation to average 10.4% YOY in 2018, only minimally below the 11% YOY seen in 2017
- Growth in investment spending to slow down from 7.2% YOY to 4.5% YOY in 2018, but for this growth to be driven by more private rather than public sector investments seen in 2017
Turkey GMs are expanding their customer base and differentiating their offering
Amid relatively resilient demand but an increasingly complex operating environment, Turkey GMs are focused on boosting commercial performance in 2018 but also building resilience against a potential and gradual slowdown in the economy 2019 and onwards. As the cumulative effect of years of currency depreciation and high inflation weighs on consumer budgets and business margins, and the government begins to tighten fiscal policy to limit the rise in the budget deficit, demand growth is likely to slow. FSG expects GDP growth to come down from 7.4% YOY in 2017 to 4.4%YOY in 2018 and average 3.7%YOY by 2023.
Turkey executives are focused on expanding their client base to diversify their customer exposure and differentiate their offering in a highly competitive environment to support margins. They are managing these dual and, at times, contradictory goals by:
- Using new channels, products, and price points to target new customers
- Changing the way they manage their sales force to incentivize the identification and targeting of new customer segments
- Training the sales force in value selling, building relationships with key stakeholders
- In many cases, removing distributors or expanding the local team to have a more direct reach to customers
- Improving demand planning capabilities
- Evaluating the case for local manufacturing
Rather than waiting for stability or certainty to return to the market, companies that are increasing the proactivity and agility of their Turkey business are already seeing strong revenue growth and market share gains and improvements in margins. MNCs that are delaying decision making about investing in Turkey are likely to fall behind competitors that are making strategic investments that build the company’s resilience to risks and position it to capture high margin growth.