V. MARKETING U.S. PRODUCTS AND SERVICES DISTRIBUTION AND SALES CHANNELS Marketing of most foreign products in Turkey is through foreign suppliers' agents or distributors. Depending on the location of the products' consumers/end-users, most distributors have a dealer network throughout the country or in areas where the product is most used. Commission agents, on the other hand, periodically visit their customers together with their foreign principals to keep a strong personal contact, a very important marketing tool in Turkey. USE OF AGENTS/DISTRIBUTORS: FINDING A PARTNER Unless a U.S. firm's interests are large enough to warrant opening an office in the country, the most effective means of selling in Turkey is through a reliable and qualified local representative. Personal contact is extremely important in Turkish business in the private and public sectors. When dealing with government tenders an agent is an absolute necessity in view of complicated bureaucratic procedures and the language barrier. A U.S. firm must carefully investigate the reputation and possible conflicting interest of any prospective agents before signing agreements. Agency agreements under Turkish law are private contracts between two parties and their stipulations vary according to mutual consent. There are no fixed commission rates. It is strongly recommended that sole agents/distributors be appointed, either for the whole country or for specifically designated areas or types of business. In cases where a large volume of government business is expected, it is essential either to appoint an Ankara firm or an Istanbul firm with a branch office in the capital. USFCS/Turkey, through its Istanbul office, provides Commerce's Agent/Distributor Service for U.S. companies wishing to enter the Turkish market. FRANCHISING Since 1985 when McDonald's entered Turkey as the country's very first franchise operation, the sector has grown and diversified significantly, extending into smaller towns from urban centers. The Turkish National Franchising Association (UFRAD) acts as a meeting point for prospective franchisors and franchisees. Foreign franchises in Turkey are concentrated in fast foods and apparel; other areas are increasingly represented as well. In terms of a legal framework, franchising is considered in the same category as foreign investment. The government agency responsible for reviewing foreign franchise transactions is the Foreign Capital General Directorate of the Undersecretariat for Foreign Trade (UFT). Foreign franchise proposals are generally favorably received by UFT in view of their potential for employment opportunities, transfer of technology and know-how, and the positive effects of their competition/role modeling on local quality standards. The laws that apply are the Foreign Capital Incentive Law 6224 (promulgated in 1984) and Decree No. 86/10353 dated February 1, 1986, with its communique No. I. These regulations stipulate that an applicant provide the UFT with: -the draft of the franchising agreement; -documents confirming the existence of the physical facilities for the franchise operation; -a feasibility report; -information on the foreign entity making the application (sales volume, assets etc.); and -documentation of the product or service's patent (if it is patented). Contacts for various aspects of franchising are: National Franchising Association (UFRAD) Istiklal Caddesi 65, Emgen Han 80060 Beyoglu, Istanbul, Turkey Tel/Fax: (90-212) 252-5561 Contact: Mr. Sermet Isin, President Undersecretariat for Foreign Trade Foreign Investment Department Eskisehir Yolu, Inonu Bulvari Emek Mevkii, Ankara, Turkey Tel: (90-312) 212-8800 Fax: (90-312) 212-8916 Finally, the International Franchising Association in Washington, D.C. (1350 New York Avenue, N.W. Washington, D.C. 20005-4709, tel. 202-628-8000; fax: 202-628-0812), has been active in Turkey, organizing visits to Turkey by potential U.S. franchisors and cooperating with UFRAD in putting them in contact with potential local franchisees. Most U.S. accounting/auditing/consultancy firms, many U.S. banks, and two U.S. law firms also have offices in Turkey. DIRECT MARKETING Unless a U.S. firm has established an office in Turkey, direct marketing from the U.S. without an agent is not recommended. In fact, it is virtually impossible to surmount complicated bureaucratic requirements, language obstacles and purchasing transactions without a competent local agent. Especially for those firms whose sales potential is large enough to warrant it, a local affiliate is the best possible way of selling to this market without an agent or distributor. JOINT VENTURES/LICENSING Most U.S. investment in Turkey is in the form of joint- venture/licensing operations. Basic infrastructure for a specific industry usually exists within the operation of the potential local licensee or joint-venture partner who also has easy access to the market. The U.S. firm brings the required advanced technology or know-how. Most Turkish companies prefer to establish joint ventures with U.S. suppliers to overcome shipping costs and European competition. Especially in view of higher customs taxes applied to U.S. products vis-a-vis European- origin goods (Turkey is set to adopt the EU's common external tariff in 1995), local production is usually one way a U.S. firm can profitably penetrate the Turkish market. Law No. 6224 and Decree No. 86/10353 govern joint ventures/licensing as well as direct foreign investment in the country. The government authority in charge is the Undersecretariat for Foreign Trade, General Directorate of Foreign Investment. Especially in large urban centers, a highly sophisticated infrastructure exists in terms of legal support, as well as financial or consultancy services which may be required by potential foreign investors or joint venture partners. Major U.S. accounting/auditing firms, law firms and banks have established branches in Turkey. STEPS TO ESTABLISHING AN OFFICE Foreign investment and the establishment of offices in Turkey are governed by Public Law number 6224 - "The Law Concerning the Encouragement of Foreign Capital," and the "Foreign Capital Framework Decree" number 92/2789. Under these regulations, foreigners may invest in Turkey, engage in commercial activities, participate in parterships, purchase shares, open branch offices, and establish liaison offices. The General Directorate of Foreign Investment (GDFI) of the Undersecretariat for Foreign Trade (UFT) is responsible for implementing foreign investment regulations. A foreign company is free to choose between a corporation (A.S.), private limited company, or branch office as the form for its operations in Turkey. Company formation. Application for the establishment of a new company, opening a branch office, or initiating participation in an existing company is made to the GDFI in writing. The investment law requires that each partner invest a minimum of $50,000. This may be in cash or in kind. After the permission is granted, the foreign investor can form his or her company or branch office or begin participation in an existing company. Liaison Offices. Application to establish a liaison office is also made to the GDFI in writing. A liaison office cannot engage in any activity in Turkey which generates revenue. The expenditures of a liaison office must be met entirely from foreign currency brought in from abroad. FCS suggests that a lawyer be retained to handle the application process and entity formation. SELLING FACTORS/TECHNIQUES Once a U.S. firm appoints an agent, the agent or distributor expects--and should receive--the principal's full support in regard to literature, technical information and advertisement material. Possible government buyers and potential private- sector importers should receive catalogs and other literature clearly indicating the name and address of the local agents/distributors. A common and very effective support practice by European principals is to invite the agent to the principal's country every year for an annual sales meeting. Both agents and, if possible, their principals, should periodically visit existing and potential customers since personal contact in Turkey cannot be emphasized enough. Especially in larger Turkish cities, international trade promotional events such as fairs, exhibits, and seminars are a common method of sales promotion. These fairs are also opportunities for U.S. companies to assess (and meet) existing competition, since all major foreign and local suppliers participate in such events. The catalogs of the events serve as "trade lists" on a specific product categories. Major international fair and exhibit organizers are Interteks, Tuyap, and CNR. USFCS/Turkey has been promoting attendance by prospective Turkish buyers at exhibits in the U.S. Turkish visitors to those fairs return highly impressed by the U.S. products. U.S. firms with prospects of large "package" sales could consider inviting some buyers to these events. ADVERTISING AND TRADE PROMOTION (INCLUDING LISTING OF MAJOR NEWSPAPERS AND BUSINESS JOURNALS) Chambers of commerce and industry, various associations, and specific sectoral publications serve as potential channels for advertisement. TV commercials or ads in major newspapers are also highly effective. In Turkey there are approximately ten major TV channels. Major newspapers are Sabah, Hurriyet, Milliyet, and Cumhuriyet, all of which have their headquarters in Istanbul. The country's foremost commercial/economic daily newspaper is Dunya, also headquartered in Istanbul. Major weekly periodicals are: Anba Haber (economy), Barometre (economy), Detay (economy--also publishes tenders on equipment procurements and infrastructure projects), and Eba-Rapor (economy). There are many periodicals issued monthly. The most important publications in this category are: Bilgisayar (computer and related equipment), Bilisim (computer and related equipment), Dunya Insaat (construction machinery), Finans Dunyasi (finance and economy), Turkey (economy), Travel Tour News (tourism), and Yazilim and Donanim (Software). PRICING PRODUCT Price is the most important consideration in Government tenders. Private-sector buyers emphasize quality, but they are also affected by price and financing arrangements offered by most European companies. U.S. firms are, therefore, advised to keep their prices as low as possible and consider alternative payment methods until their quality is firmly established in the market. SALES SERVICE/CUSTOMER SUPPORT Local agents/distributors of U.S. suppliers should have the required service and maintenance ability. Through personal contact the potential customer should be convinced about this ability. It is a further advantage if the U.S. firm has established its own office in Turkey and has servicing facilities throughout the country's major centers. SELLING TO THE GOVERNMENT The Turkish Government Procurement System is often frustrating and inconsistent, but it does not generally discriminate against U.S. suppliers who succeed in winning a large number of international tenders. The main law which administers government procurement is the State Procurement Law No. 2886 (dated September 8, 1983). This law covers the agencies which have budgets allocated to them from the central budget. In Turkey, many state-owned corporations (the state economic enterprises-- SEE's) generate revenues through sales of raw materials, semi- finished and finished products and services. Each of these has its own procurement rules and regulations in its operating charter. These regulations are much more flexible than Law No. 2886 since these SEEs operate as quasi-private sector companies. In terms of financial obligations and practices, their procurement regulations are largely based upon a government decree called "the Decree on the Operations of the State Economic Enterprises" no. 233 (dated June 8, 1984), Turkey's Law of Obligations No. 818 (dated April 22, 1926), and the Turkish Commercial Code No. 6762 (dated June 29, 1956). Other exceptions are the Undersecretariat of Defense Industries (SSM) and Ministry of National Defense. SSM procurement is financed off-budget, through special taxes, and is not subject to Law 2886. Price, quality and financial credit terms and length of repayment period are the most important factors in purchasing decisions. Other factors which affect sourcing decisions are the suppliers' reputation, the reputation of their products for quality and reliability, and previous experience in dealing with suppliers. In government tenders, state organizations give particular importance to the way proposals are prepared and to their adherence to administrative and technical specifications. Generally, the validity of the proposal must be three to six months from the bid date and the same validity is to be given for the bid bond. (A bid bond is required, so that the bidder later on does not retract his offer. If he does, the bid bond is forfeited.) The bid bond is usually obtained from the actual supplier for three percent of the bid amount. The performance bond is usually six percent of the contract amount and is valid throughout the delivery or final acceptance beginning from the contract date. All bonds have to be counter-guaranteed by a Turkish national bank. BOT investments are nowadays the most preferred procurement method by the Turkish Government especially in power, airport and port projects. In BOT projects, usually a consortium of companies arranges financing without government guarantees. The length of the operations agreement is determined by a feasibility study which is agreed to by the Turkish Government in negotiations. A new BOT Law No. 3996 (dated June 8, 1994) became effective from June 13, 1994. The subject law describes regulations and procedures to be followed in BOT practices. According to the law, Turkish Government can have private firms and foreign firms make investments on BOT basis for bridges, tunnels, dams, irrigation, potable water, treatment plants, sewage systems, telecommunications, power generation, transmission, distribution, mining, environmental prevention investments, ports and airports. PROTECTING YOUR PRODUCT FROM INFRINGEMENT Turkey lacks adequate, modern laws concerning intellectual property protection, and even in cases of clear infringement enforcement is lax and penalties are not severe. In order for action to be taken, a company must present authorities with an iron-clad case. In this environment, protecting products becomes a creative challenge for vulnerable companies. NEED FOR A LOCAL ATTORNEY English-speaking attorneys specialized in commercial law, investment legislation, joint ventures, corporate law, tax law, bankruptcy law, public finance, banking corporations, criminal law, civil law and in other areas are available for consultation by U.S. businesspeople. A list of specialized attorneys is available in US&FCS offices in Turkey. The list includes the following U.S. law firms operating in Turkey: White & Case, and Arnold & Porter (liaison office).