Question

Market Entry Plan: Political and Legal Environment

Political stability is commonly related to the type of government and degree of corruption present in a country. In addition, a company may face various business regulations when conducting international business. In this module, your goal is to identify political and legal factors that could affect global business decisions.

Based on the country (Turkey) you are analyzing for your global business enterprise, research information related to the following areas:

1) GOVERNMENT AND POLITICS

·- Describe the type of government and recent political developments that could influence the economic and business environment of the country.

2) FORMAL TRADE BARRIERS

·- Identify formal trade barriers (tariffs and other taxes, foreign exchange controls, ownership restrictions) that might require a company to adapt its business strategy.

·- Discuss the country’s regulations to protect intellectual property, such as brand names, copyrights, patents, software, music, videos. (Some countries do not enforce these laws resulting in the pirating of products and lost profits for companies.)

3) PROMOTING GLOBAL BUSINESS

- Analyze host government efforts to attract foreign investment. What incentives (lower taxes, economic zones, subsidized labor, elimination of tariffs, etc.) are offered to attract foreign capital?

4) RECOMMENDATIONS

- Recommend actions that might be necessary to mitigate potential risks with regard to factors in the political and legal environment.

Subject :International Business Environment and Operations

Answer 1

Ans) a- Government and politics:

Types of Government- The politics of Turkey takes place in a constitutional republic, whereby the President of Turkey is the Head of State and administrative authority to issue executive decrees, appoint magistrates and heads of the institutions of Turkey. A division of powers is the basis of Turkey's political system. The Council of Ministers shall exercise executive powers. The Grand National Assembly of Turkey has legislative authority.

Executive- The President exercises the role of Head of State and Government. Every five years a president is elected according to the present Constitution on the basis of free elections. The President doesn't have to be a parliamentarian, but he/she has to be older than 40 years and have an undergraduate degree. The Turkish President is the cabinet member. Recep Tayyip Erdoğan from the Justice and Development Party is currently holding the position.

Parliament- The legislative power is concentrated in Turkey's 600-seat Grand National Assembly, covering 81 provinces. Members shall be elected for a term of four years with a mitigated 10% electoral threshold. A party shall win at least 10% of the national vote in a national parliamentary election to be represented in parliament. Independent candidates will run and only win enough for a single seat to be elected.

Local Government- Turkey has a highly centralized political system. Nevertheless, it is under an obligation to enforce the European Charter of Local Autonomy as a Member State of the Council of Europe. In its 2011 report, the Council of Europe Monitoring Committee found significant implementing gaps, in particular administrative security and the ban on the use in the delivery of services of public services of languages other than Turkish.

Judiciary- The constitution guarantees the freedom and independence of the justice system. The administration of the courts is not interfering with an agency, individual or entity, which has to respect the exercise of the executive and legislative structures. Every decision must be clarified by the tribunals that are impartial in carrying out their duties in the light of the provisions of the Constitution, the rules, case law and their personal convictions. It is a highly structured judicial system. Turkish courts have no jury system; judges decide on the basis of the evidence presented by lawyers and prosecutors after the facts have been developed in each case. Judges of the peace shall take the case for minor civil disputes and offences. There's one judge at this trial. It is responsible for misdemeanours and minor offences, with sentences ranging from small fines to short jails. Three first-instance court judges have jurisdiction over major civil proceedings and serious crimes. Each conviction may be brought before the judicial review court in a criminal case.

Political changes that might affect the country's economic and business climate. The international community has long recognized Turkey's potential, but for several reasons, the country failed to meet its aspirations. Political disputes and uncertainty produced an immovability that restricted the economy's potential. The need for immediate attention has not always been addressed properly in the areas of structural problems such as high inflation, currency stability, high unemployment and income inequality. In many long-awaited economic and political changes, their reemergence has over time caused uncertainty and interruptions.

b) Formal trade Barriers:

Import tariffs from non-European countries are about 3% above EU level but differ on a product-by-product basis.A VAT applies in Turkey regardless of country of origin. The VAT applies to Turkey. VAT ranges from 1% to 8% for most agricultural products (basic food) and up to 18% for some processed products. Investments with incentive certificates are free of import charges for capital goods, other raw material, purchases by government agencies and State-owned enterprises. Price, insurance and freight value are measured for import duties. The government has adopted similar EU rules for external trade, so that customs rates and duties are equivalent to those in the European Union. Among products originating within EU and the European Free Trade Agreement, Turkey's weighted rate of protection among imports of non-sensitive industrial products is zero; prices for others such as Australia have fallen on the majority of goods to approximately 4.1%.

~Labelling

Turkish translation is required and a registered trademark must be included in all industrial products.

~Packaging

Packing should be tight and must avoid the summer heat, winter humidity and potential open storage times.

~ Important Special Certificate

Commercial invoice

Certificates of origin

Bill of lading

Country’s regulations to protect intellectual property:

The modern inventions, such as an invention, brand name or literary or artistic work, involve intellectual property (IP). Turkey accepts the following IP rights:

- industrial property rights relating to inventions

-trademarks

-industrial designs

-geographical indications

-integrated circuit topographies

-copyright

In Turkey, IP rights are split into two categories: non-registered and registered. Unregistered rights immediately occur without compliance with any processes of formation, while registered rights should be applied to protect them before the appropriate authority. Lex specialis will defend recognized intellectual property rights. Accordingly, general rules such as unfair competition also provide for defence under Turkish law.

c) Incentives are offered to attract foreign capital:

As in other developing countries during the second half of 2008, the global crisis impacted Turkey as well. To order to alleviate the effects of the crisis and increasing the ravaging effect of crises, the countries have implemented the reward program. Investment support during the crisis-era was highly critical and deterministic. While recognizing those advances in other countries, Turkey introduced a robust investment incentive system in 2009. The governments have cut barriers and open new markets for foreign investors to reduce unemployment or raise exports and tax incomes or technological improvements etc. Governments that are hosting increasing numbers are offering various opportunities for international firms to invest in the host country. Measuring government policies in order to attain economic targets is used as incentives. Such benefits and subsidies are characterized by a direct or indirect transfer of funds from the government to the private sector. Investment incentives vary because they impact direct investment in particular from other financial incentives. As the GDP of the countries rises, the investments are very significant. Foreign investment can be described as transferring people and organizations to another country. External direct investments (FDIs), either alone or in collaboration with local investors, made foreign investments beyond portfolio investments. In the transformation of the economy of a globally competitive nation, especially foreign direct investment plays a key role. Foreign direct investment, especially in many developing countries such as Turkey, is becoming increasingly important in the global economy. In the supply of goods and services to foreign markets, FDI has become more relevant than trade.

d) Suggest measures that may be necessary to minimize possible risks to political and legal factors :

Political terrorism, conflict, civil wars or other political violence can harm or ruin the assets of a company and prevent it from carrying out business-essential operations.

So how to protect against these factors?

~Due diligence, ongoing research and policy risk analysis may be the primary foundational elements in any emerging market strategy.

~Consider diversifying your exposure abroad in order not to focus the entire risk on just one or two emerging markets. Have a simple, current policy approach to mitigate risks based on your business. Know how you will react to a variety of risks ahead of time.

~ Imply political risk reduction if necessary by the main external stakeholders. Brief clients, suppliers and agents on your contingency plans and prepare your risk response, if appropriate to manage unexpected political risks.