Franchising Possibilities in Turkey
November 2007 Franchising World
The U.S. Commercial Service in Turkey has a number of programs and services available to assist the U.S. business community in establishing a presence in this market.
By Ebru Olcay
Turkey is an exciting country for international business enthusiasts. The country is considered one of the fastest growing and most attractive emerging markets in the world with an economy that has, been growing at an average annual rate of 6 percent in the last five years. This positive market reality is supported by a falling inflation rate (around 7 percent) and increasing income per capita ($5,500 as of April 2007). The country is open to international commerce with foreign trade volume of the country expected to hit $250 billion at the end of 2007. Additionally, Turkey is successful in attracting foreign-direct investment and drew a record-high figure of $20 billion worth of investments in 2006. The country has a population of 70 million people; 54 percent of this population is under the age of 30 years and 29 percent is between the ages of 30 to 50.
Considering these developments, the U.S. Commercial Service of the U.S. Dept. of Commerce in Turkey believes that it is one of the best times for U.S. franchise companies to come and analyze the market and eventually decide to start looking for master franchising partners to start their operations in Turkey. It should be noted that the U.S. Commercial office assists an increasing number of Turkish companies or private investors who are looking to diversify their businesses and who consult with the office to identify U.S. franchise firms they might align with in the Turkish market.
The term of “franchising” entered the terminology of the Turkish business world back in the early 1980s when a well-known fast-food company entered the market. Subsequent market entries of other U.S. franchising brands were still mainly on food concepts; until lately when, with the obvious effect of the economic improvements experienced in the market, service companies started recruiting master franchisees.
If one is to analyze the U.S. franchising concepts in the Turkish market today, it is seen that the dominant category is in fast-food and coffee businesses. These are followed by various service concepts in car-care services, business services, children’s services, real estate services, foreign language training, janitorial services and hospitality busines.
Sales of franchised brands in the country, of both local and foreign origin, are approximately $1.5 billion. Considering the accelerating penetration of domestic and foreign brands into the Turkish market, this figure is expected to reach $10 billion by 2010. The current number of brands with master franchises in the market is 200, approximately 50 of these being U.S. brands.
Approximately 4,000 businesses are working as franchisees or sub-franchisees. In the last two years, more franchise companies have been entering the market and many Turkish companies are starting their own concepts to franchise. Many of the major commercial banks launched franchise support loans for franchisees that are entering the system for the first time or for those that are already franchisees, but want to upgrade their systems. The loans are generally targeted to franchisees that plan to operate food, maintenance, facility management or apparel related operations.
On the legal side, it should be noted that there is no specially-designed regulation for franchise agreements under Turkish Law. Therefore, it is very important that U.S. franchise systems prepare the franchise agreements they will have with their master franchisees under the guidance of a local law firm with experience in this area. However; the Turkish Commercial Code and the Trademark Code protect registered trademarks in Turkey. Internationally-known trademarks not registered in Turkey are protected under the general provisions of the Turkish Commercial Code regarding Unfair Competition, and the Paris Treaty, to which Turkey is a party.
The U.S. Commercial Service notes that there is room for further development and growth in the following areas of franchising:
Fast food/casual dining and coffee franchises
Many of the major U.S. franchise companies in the fast food/casual dining and coffee concepts are already in the Turkish market. However, due to the size of the population and the improving economic conditions, demand from Turkish investors for contacts with U.S. franchise systems remains strong. Improving economic conditions are producing large investments in commercial real estate and shopping mall projects. All of these projects are designed to include food courts, and Turkish companies are always looking for new U.S. brands to offer in these new venues. Additionally, American cuisine is widely accepted and liked in Turkey.
Construction of housing is expected to be a target for major investments in the coming years. The total housing stock in Turkey is 16.2 million units, 83.8 percent of which are within the boundaries of towns and cities. Even when only legally-registered houses are taken into account, the number of new houses needed is 2.5 million. By 2010, the urban population is expected to increase by 11 million and this will boost the need for new houses to 2.9 million units. Projections made up to 2015 state that, on an annual basis, 900,000 houses must be built to meet demand during this period. Currently, there is a shortage of 300,000 houses, a shortage which is estimated to increase to 500,000 in the near term.
Another factor that is expected to trigger demand for housing projects is the mortgage law, passed in the Turkish Parliament in February 2007. This measure is expected to dramatically increase the base number of people who can afford to buy a house.
Non-residential construction is another area of growth in this industry. Approximately 30 percent of the construction permits given are for the construction of commercial buildings.
Approximately 15 percent of the population is at the elementary school age. The rate of mothers who return to work following their official maternity leave is increasing, demonstrating a trend that is pushing the demand for quality child care and development centers.
Domestic and foreign department stores stocking primarily clothing items are growing in number and are spreading to various parts of the country through their franchisees. Stores that cater specifically to consumer groups with higher-purchasing power are increasingly evident in the Turkish market.
There is potential for many types of service enterprises in Turkey, with demand for maintenance or repair services, stemming largely from the insurance industry. As the number of commercial offices and residences rises, facility management services of high quality are needed. This service is also necessary in hospitals, as investment in new hospitals is a growing segment in Turkey due to the government’s decision to integrate the private sector into the health-care system.
Tourism is currently one of the largest service sectors in the country, a sector that will continue to expand as investments rise with growing tourist figures. New hotels are under construction and they are looking for hotel-management companies. Additionally, spa tourism is growing and U.S. companies in the spa business could develop a healthy market in Turkey. Finally, given the increase in purchasing power in the country, demand for personal care services, such as beauty centers, fitness centers and hair saloons, is on the rise.
Ebru Olcay is a commercial specialist with the U.S. Commercial Service in Istanbul, Turkey and assists U.S. franchisors to identify master franchisees in the country. She can be reached at firstname.lastname@example.org.
The U.S. Commercial Service in Turkey has a number of programs and services available to assist the U.S. business community in establishing a presence in this market. To find out more about what we do to help you, please visit our web site at www.buyusa.gov/turkey/en.