turkey country overview and hotel industry analysis

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TURKEY – COUNTRY OVERVIEW AND ANALYSIS OF HOTEL INDUSTRY MANAGEMENT CONSULTANCY ESB BUSINESS SCHOOL REUTLINGEN UNIVERSITY June 29, 2011 1

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It is a deck prepared by our group for Management Consultancy course for SPJIMR - PGCIM course. It contains Turkey as a country analysis and its hotel industry.

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Page 1: Turkey country overview and hotel industry analysis

TURKEY – COUNTRY OVERVIEW AND ANALYSIS OF HOTEL INDUSTRY

MANAGEMENT CONSULTANCYESB BUSINESS SCHOOLREUTLINGEN UNIVERSITYJune 29, 2011

1

Page 2: Turkey country overview and hotel industry analysis

Project Team

MARINA KRAVTSOVA UMASHANKAR SASE ABHIJEET SINGHAL TANUJ SETH

Mat-Nr. 711556 Mat-Nr. 711614 Mat-Nr. 711570 Mat-Nr. 711553

2

Page 3: Turkey country overview and hotel industry analysis

3

Management Summary

1. Turkey is the birthplace of many great cultures and is a synthesis of east and west, geographically bridging Europe and Asia.

2. Turkey is an investment hub with access to huge market both domestic and international, supported by large working age population.

3. Turkey is a republic based on secular, democratic, and pluralistic principles.4. Turkey has the divisions of power in constitution: judicial, legislative, and executive.5. Turkey is rising economic power moving towards innovation driven economy and has robust infrastructure

to support the growth.6. Services contribute two-third of GDP and among services the tourism has a prominent role and is an

important revenue generator for the country's economy.7. Most of the tourists 'arrivals are from neighboring European countries and CIS countries.8. Non resident Turkish citizens spend 75% more than other foreign nationals arriving in Turkey.9. Hotels have more than 80% of the operational bed capacity among other forms of accommodation.10. Most of the tourists prefers high end accommodation (5-4-3) stars for their stay in Turkey..11. All major international hotel chains are presently doing business in Turkey..12. Overall analysis of the tourism and hospitality sector in Turkey paints a rosy picture for future growth with

strong government support present.13. The Government of Turkey provides with a quick and easy procedural structure at a fairly low cost for starting

a new business in Hospitality sector.14. Turkey Hotel industry is more of labour intensive market, with lower cost of labour and highly skilled labour.15. Hotel industry in Turkey have two dimensions of entry: Ownership of Assets and Control over Marketing and

Operations with each having its own strategic advantages

Page 4: Turkey country overview and hotel industry analysis

Agenda

COUNTRY OVERVIEW

HOSPITALITY SECTOR ANALYSIS

ENTRY OPTIONS IN HOTEL INDUSTRY

4

Page 5: Turkey country overview and hotel industry analysis

Agenda

COUNTRY OVERVIEW

MARKET POTENTIAL

DEMOGRAPHY

GOVERNMENT AND POLITICS

ECONOMY

HOSPITALITY SECTOR ANALYSIS

ENTRY OPTIONS IN HOTEL INDUSTRY

GEOGRAPHY ECONOMYDEMOGRAPHY GOVERNMENT & POLITICSCOUNTRY OVERVIEW

GEOGRAPHY

MARKET POTENTIAL 5

Page 6: Turkey country overview and hotel industry analysis

6

Turkey enjoys a special location at the crossroads between East and West, overlapping Europe and Asia geographically and culturally

1. The center of an economic and political area known as “EURASIA”.

2. Meeting point of three regions of the world, Europe, the former Soviet Union and the Middle East..

3. The proximity to the Balkans, the rest of Europe and to the growing emerging markets in Central Asia, the Middle East and North Africa creates unique business opportunities.

ECONOMIC & POLITICAL IMPORTANCE

Source: 1. CIA World factbook 2.The Foreign Economic Relations Board of Turkey (DEİK)

REPUBLIC OF TURKEY

1. Generally divided into seven regions -- the Black Sea region, the Marmara region, the Aegean, the Mediterranean, Central Anatolia, the East Anatolian and Southeast Anatolia regions

2. Located 97% in Asia and 3% in East Thrace in Europe.

3. Ranks 37 in the world by geographic area .

4. Total Area : 783,562 sq km.

GEOGRAPHY STATISTICS

GEOGRAPHY ECONOMYDEMOGRAPHY GOVERNMENT & POLITICSCOUNTRY OVERVIEW MARKET

POTENTIAL

Page 7: Turkey country overview and hotel industry analysis

7

Turkey has become an investment destination which offers the diverse market opportunities

1.The Foreign Economic Relations Board of Turkey (DEİK), 2. The Global Competitiveness Report 2009-2010

REGIONAL INVESTMENT HUB1

1. The international image of Turkey as an investment destination is generally shaped by both domestic and export-oriented markets, that it offers.

2. The potential of these markets covers over 1 billion consumers, i. A large and growing domestic market (approx. 79 Mn.), ii. High-income European markets (approx. 600 Mn.), iii. Emerging Russia, Caucasia and Central Asia markets (approx. 250 Mn.), iv. Diverse and expanding Middle East and North Africa markets (approx. 160 Mn.).

3. Turkey has the experience of more than 7000 foreign capital establishments, including over 100 of the Fortune Top 500 companies.

4. It is also the regional base for companies like Coca-Cola, Procter & Gamble and Phillip Morris, as well as international investment institutions like the World Bank Group, International Finance Corporation.

INDICATORS2

1.Domestic market size index : 152.Foreign market size index : 25

MARKET SIZE COMPETITIVE ADVANTAGE

GEOGRAPHY ECONOMYDEMOGRAPHY GOVERNMENT & POLITICSCOUNTRY OVERVIEW MARKET

POTENTIAL

Page 8: Turkey country overview and hotel industry analysis

8

Turkey is on the verge of entering a ‘golden demographic period’ with one of the largest populations in the Middle East and Eastern Europe

1. Population: 79 million approx. (July 2011 est.)2. Country comparison to the world: 17 3. Growth rate : 1.21 % per annum

MEDIAN AGE

Total: 28.5 years

Male: 28.1 years

Female: 28.8 years (2011 est.)

PEOPLE

URBANISATION

1. Urban population: 70% of total population (2010)2. Rate of urbanization: 1.7% annual rate of change (2010-15 est.)3. Major cities - population: Ankara (capital) 3.9 Mn.; Istanbul 10.4 Mn.; Izmir 2.7 Mn.; Bursa 1.6Mn.; Adana 1.4 Mn. (2009)

AGE STRUCTURE

Source: CIA World factbook

WORKING AGE POPULATION

GEOGRAPHY ECONOMYDEMOGRAPHY GOVERNMENT & POLITICSCOUNTRY OVERVIEW MARKET

POTENTIAL

Page 9: Turkey country overview and hotel industry analysis

9

1. CORRUPTION PERCEPTIONS INDEX 2010 by Transparency International i. Rank 56 out of 179 countries ii. Best regional rank in Eastern Europe and Middle East .

2. CREDIT RATING:i. Moody’s rating : Ba2ii. Fitch rating : BB+

Turkey is a republic based on secular and democratic principles with diversified foreign relations and gives a positive outlook for future

FOREIGN POLICY AND RELATIONS1

GOVERNMENT1

1. Republican parliamentary democracy2. Developed a strong tradition of secularism.3. Ideology: Conservatism and economic liberalism

LEGAL SYSTEM1

1. Civil law system based on various European legal systems, notably the Swiss civil code.

2. Turkey's constitution governs the legal framework of the country. It sets out the main principles of government and establishes Turkey as a unitary centralized state.

1. Founding member of the UN, the OECD , the OIC, the OSCE and the G-20 economies 2. Elected as a non-permanent member of the United Nations Security Council.

(October 17, 2008)3. Turkey has been in formal accession negotiations with the EU since 20054. Free Trade Agreements with EFTA and 14 countries, and 9 more are on the way.

INDICATORS2

1. The Foreign Economic Relations Board of Turkey (DEİK), 2.http://www.guardian.co.uk/news/datablog/2010/apr/30/credit-ratings-country-fitch-moodys-standard

POSITIVE OUTLOOK

GEOGRAPHY ECONOMYDEMOGRAPHY GOVERNMENT & POLITICSCOUNTRY OVERVIEW MARKET

POTENTIAL

Page 10: Turkey country overview and hotel industry analysis

10

Turkey's economy has evolved in last one century with the transition from Closed Economy till 1980 to Free Market Economy

1920 30 40 50 60 70 80 90 2000 2010

Assembly declares Turkey a republic

Turkey becomes secular

Women’s suffrage

Joins the UN

Joins NATO

Association agreement signed with EEC

Turkey applies for full EEC membership

Turkey enters EU customs union

EU partially freezes Turkey’s membership talks.

Turkish men are no longer regarded in law as head of the family

Source: BBC News, UK

FREE MARKET

ECONOMY

CLOSED ECONOMY

GEOGRAPHY ECONOMYDEMOGRAPHY GOVERNMENT & POLITICSCOUNTRY OVERVIEW MARKET

POTENTIAL

Page 11: Turkey country overview and hotel industry analysis

11

Turkey has a fast growing and robust economy but still has problems that need attention

1. Significant economic growth with an annual GDP growth rate of 6.8% between 2002-2008

2. The inflation rate fell to historic lows, reaching 6.4% in the past year

3. Unemployment is exceedingly high 12,4%

4. Turkey's high deficit reflects structural issues related to the country's trade composition, heavy dependence on imported energy, low external saving rates, and inadequate competitiveness

ECONOMIC SITUATION

Source: IMF, World Economic Outlook Database

GEOGRAPHY ECONOMYDEMOGRAPHY GOVERNMENT & POLITICSCOUNTRY OVERVIEW MARKET

POTENTIAL

2004 2005 2006 2007 2008 2009 2010 2011 2012 20130

200

400

600

800

1000

1200

GROSS DOMESTIC PRODUCT (PPP), BILLION US DOLLARS

(E) (E) (E)

2004 2005 2006 2007 2008 2009 2010 2011 2012 201302468

1012

INFLATION, AVERAGE CONSUMER PRICES, (PERCENT CHANGE)

(E) (E)(E)

Page 12: Turkey country overview and hotel industry analysis

12

Turkey is on the second stage of development and has efficiency-driven economy

0

5

10

Institutions

Macroeconomic en-vironment

Infrastructure

Health and primary education

Higher education and training

Goods market efficiency

Labor market efficiencyFinancial market development

Technological readiness

Market size

Business so-phistication

Innovation

Turkey Efficiency-driven economies

Factor driven

Efficiency driven

Innovation driven

1. Yet Turkey spends only 0.72% of its GDP on research and development

2. 40% of current exports are in the medium or high tech sector compared to 15% in the 1990‘s

3. With a high share of its work force in agriculture, overall productivity remains low

Source: The Global Competitiveness Report 2010-2011

DISTINCTIVE FEATURES STAGE OF DEVELOPMENT

GEOGRAPHY ECONOMYDEMOGRAPHY GOVERNMENT & POLITICSCOUNTRY OVERVIEW MARKET

POTENTIAL

Page 13: Turkey country overview and hotel industry analysis

13

Turkey’s economy is largely dominated by modern industries and the service sector

8,8%

25,7%

65,5%

Agriculture

Industry

Services

GDP STRUCTURE IN 2010

Source: The Central Intelligence Agency, The World Fact Book Source: World Tourism Organization

1. Turkey's economy is increasingly driven by its industry and service sectors, although its traditional agriculture sector still accounts for about 30% of employment

1. Turkey’s T & T industry contributed 11.3 % to total GDP in 2008 and the expected average annual growth is 4.3% between 2009 and 2019

MAIN DRIVEN SECTORS GROWTH OF T&T SECTOR

2005 2006 2007 2008 2009 20100

5

10

15

20

25

TOURISM REVENUES IN 2005-2010 YEARS, BILLION US DOLLARS

GEOGRAPHY ECONOMYDEMOGRAPHY GOVERNMENT & POLITICSCOUNTRY OVERVIEW MARKET

POTENTIAL

Page 14: Turkey country overview and hotel industry analysis

Agenda

COUNTRY OVERVIEW

HOSPITALITY SECTOR ANALYSIS

ENTRY OPTIONS IN HOTEL INDUSTRY

OVERVIEW OF THE TOURISM SECTOR

KPI FOR HOSPITALITY

PORTOR DIAMOND

SWOT

OVERVIEW OF TOURISM SECTOR

PORTER DIAMOND SWOTINDUSTRY ANALYSIS KPI FOR

HOSPITALITY 14

Page 15: Turkey country overview and hotel industry analysis

15

Turkey is amongst the top ten tourist destinations in the world and have become increasingly more popular in last two decades

France

USA

Spain

China

Italy

UK

Ukraine

Turkey

Germany

Mexico

0 25 50 75

INTERNATINOAL TOURIST DESTINATIONS - 2008 TOP 10

Tourist Inflow(mil)1990 1995 2000 2005 2006 2007 2008

05

1015202530

-1%

0%

1%

2%

3%

4%

TOURIST ARRIVALS – TURKEY V/S WORLD

Tourist Arrival (mil) Arrival - Turkey/World (%)

Source: UNWTO

Source: UNWTO

OVERVIEW OF TOURISM SECTOR

PORTER DIAMOND SWOTINDUSTRY ANALYSIS KPI FOR

HOSPITALITY

Page 16: Turkey country overview and hotel industry analysis

16

With increased tourism receipts, Turkey is improving its GDP with main contributors being large tourist and business centers

ANTALYA İSTANBUL MUĞLA İZMİR AYDIN OTHERS0123456789

TOURIST ARRIVAL BY MAIN TOURIST CENTRES (in mil)

2006 2007 2008

2002 2003 2004 2005 2006 2007 20080

5

10

15

20

25

0123456

TOURISM RECEIPTS & SHARE IN GDP (2002-2008)

TOURISM RECEIPTS Share in GDP (%)

Tour

ism R

ecei

pts(

Bn U

S$)

1. Important driver of turkey’s GDP2. Reducing unemployment3. Raising National GDP4. Improving country’s balance of payment

1. Antalya and Istanbul are the most important tourist and business centres

2. They contribute about 60% to the total international arrivals

TOURISM AND ITS POSITIVE EFFECT ON GDP MAIN TOURIST CENTRES - MAJOR CONTRIBUTORS

Source: Ministry of Culture & Tourism, Turkey Source: Ministry of Culture & Tourism, Turkey

OVERVIEW OF TOURISM SECTOR

PORTER DIAMOND SWOTINDUSTRY ANALYSIS KPI FOR

HOSPITALITY

Page 17: Turkey country overview and hotel industry analysis

17

Turkey receives most of its tourist arrivals from citizens hailing from Europe and CIS countries

GermanyRussia

UKBulgaria

NetherlandsIran

FranceGeorgiaUkraine

USA

0 500 1000 1500 2000 2500 3000 3500 4000 4500

TOURIST ARRIVAL BY NATIONALITY – TOP 10

2008 2007 2006

(In ‘000)MAJOR ARRIVALS - EURASIA

1. Large immigrant o f Turkish population in Germany catapults Germany to the top of list

2. Geographical bridge between Europe and Asia contributes to high influx from Europe and Asia

3. Y-o-y, growth for each nationality for last three years

4. Russia, Georgia, and the Ukraine are the fastest growing with CAGR of more than 20% eachSource: Ministry of Culture & Tourism, Turkey

OVERVIEW OF TOURISM SECTOR

PORTER DIAMOND SWOTINDUSTRY ANALYSIS KPI FOR

HOSPITALITY

Page 18: Turkey country overview and hotel industry analysis

18

Most of the leisure tourist arrivals occur during summer season resulting in high occupancy rates at hotels

JanMar

May JulSep

Nov0

1000

2000

3000

4000

0%

20%

40%

60%

80%

TOURIST ARRIVAL & OCCUPANCY RATES (2007)

2006 20072008 Occupancy rates

Tour

ist A

rriv

al (i

n '0

00s)

Occ

upan

cy R

ates

(%)

1. More than half of the arrival each year occur between May and September2. Leisure tourism is most active during the peak season ( May to September)3. Business and meeting demand peaks up during spring and autumn4. Occupancy rates differ during the whole year with tourist tour operators having

discount contracts in the lean season to compensate low business

TOURIST ARRIVAL PEAKS DURING SUMMER

56.3%

14.8%

11.5%

10.0%

7.4%

DISTRIBUTION OF PURPOSE

Leisure

Business

Visiting relatives and friends

Other

Accompanying persons

Source: Foreign Visitor Survey, 2007Source: Ministry of Culture and Tourism

OVERVIEW OF TOURISM SECTOR

PORTER DIAMOND SWOTINDUSTRY ANALYSIS KPI FOR

HOSPITALITY

Page 19: Turkey country overview and hotel industry analysis

19

Turkish citizens are spending much more than foreign nationals during each visit to Turkey

2002 2003 2004 2005 2006 2007 20080

5

10

15

20

25

30

0

200

400

600

800

1000

1200

1400

1600

AVERAGE EXPENDITURE PER VISITORS

Nr. Of Foreigner Nr. Of CitizensExpenditure by foreigners Expenditure by citizen

Visit

ors(

mil)

Expe

nditu

re p

er v

isito

r($)

CITIZENS SPEND MORE

1. Turkish citizens are spending more than 75% compare to other foreign nationals visiting turkey.

2. Both foreign tourists and Turkish citizens are growing at a rate of CAGR 13% and 12% over last 7 years respectively

3. Average expenditure person in 2008 is $ 708

Source: Ministry of Culture and Tourism

OVERVIEW OF TOURISM SECTOR

PORTER DIAMOND SWOTINDUSTRY ANALYSIS KPI FOR

HOSPITALITY

Page 20: Turkey country overview and hotel industry analysis

20

Food & beverages (F&B), accommodation and tourist packages payments are main expenses of the tourists

14%

26%

17%

8%

2%1%

17%

DISTRIBUTION OF INDIVIDUAL EXPENDITURE, 2007

F&B

AccommodationOthers

Transport

Sum of Package Tour

Tour Ser-vices

Health

MAXIMUM EXPENDITURE ON F&B

1. F&B constitutes the majority of the personal expenses

2. Total expenditure for accommodation was $2.6 Billion with a share of 14% in total travel revenue.

Source: Ministry of Culture and Tourism

OVERVIEW OF TOURISM SECTOR

PORTER DIAMOND SWOTINDUSTRY ANALYSIS KPI FOR

HOSPITALITY

Page 21: Turkey country overview and hotel industry analysis

21

Premium hotels have the largest bed capacity and are also preferred by international tourists for accommodation

Hotel

Holiday Villa

ge

Apart Hotel

Others0%

10%20%30%40%50%60%70%80%90%

100%

473.2 59.2

11.723.3

186 26.7 19.7 25.9

BED CAPACITY BY TYPE, 2008

Operational(in '000s) Under Investment ((in '000s)

34%

24%

19%

10%1%7%

4%

DISTRIBUTION OF ARRIVALS IN ACCOMODATION

4

3

2

Holliday Village

1

Others

5

HOTELS DOMINATE THE BED CAPACITY

1. Total Bed capacity in 2008 is 567,470 and total under construction bed capacity is 258,2872. Hotels account for 83% of operational bed capacity, followed by holiday villages with 10%3. 5-4-3 Stars hotels account for 38%, 31 % and 19% of operation hotel bed capacity because of high influx

of tourists in 5-4-3 stars hotels

Source: Ministry of Culture and Tourism Source: Ministry of Culture and Tourism

OVERVIEW OF TOURISM SECTOR

PORTER DIAMOND SWOTINDUSTRY ANALYSIS KPI FOR

HOSPITALITY

Page 22: Turkey country overview and hotel industry analysis

22

With regional development and growth of tourism, investment potential is growing in the hotel business

CITY

INVESTMENT POTENTIAL

LuxuryUpper Class

Mid Market Economy

Istanbul ü ü ü üKocaeli ü üEskisehir ü üDenizli ü üKonya ü üSamsun ü üTrabzon ü üDiyarbakir ü ü

DEMAND AND SUPPLY BALANCE IN 2010

Source: Ministry of Culture and Tourism Source: Colliers International Turkey

1. There is more supply than demand in major tourist attractions and large metropolitan areas 2. The major Anatolian cities, such as Bursa, Denizli, Gaziantep and Konya have relatively less developed

hotel market, even being industrial and commercial centers.3. A huge investment potential of hotel industry in available in smaller tourist attractions and

commercial centers for the niche markets

Denizli

Kocaeli

Izmir

Ankara

Istambul

800

690

1300

1600

4850

720

1380

2730

2080

6800DEMAND SUPPLY

POTENTIAL OF TIER II CITIES

OVERVIEW OF TOURISM SECTOR

PORTER DIAMOND SWOTINDUSTRY ANALYSIS KPI FOR

HOSPITALITY

Page 23: Turkey country overview and hotel industry analysis

23

Because of enormous potential, 10 out of 15 major international hotel chains are present in Turkey

OVERVIEW OF TOURISM SECTOR

PORTER DIAMOND SWOTINDUSTRY ANALYSIS KPI FOR

HOSPITALITY

1. Best western has 15 hotels and IHG group has 8 hotels in Turkey2. Present in large commercial and tourist centres with high-end hotels (5 stars)3. Management agreement and franchise routes for doing buisness

TOP HOTEL CHAINS

Page 24: Turkey country overview and hotel industry analysis

24

Porter’s Diamond model shows that the hospitality sector in Turkey is a promising market with intense competition

• Favourable support from Government

• Tourism strategy 2023 in progress

• High oil prices, • Fluctuating forex,• Civil wars in

neighbouring countries

• High competition between industry rivals

• Professional management

• High Presence of global companies

• Availability of educated and skilled workforce

• Good infrastructure presence

• Demand is rising each year with high influx of international tourists

• Upcoming Business and meeting location

• Developed support industries with good transport facilities

• Evolved F&B places• Reputed health

services

FAVORABLE CONDITIONS FOR INDUSTRY TO GROW IN FUTURE

OVERVIEW OF TOURISM SECTOR

PORTER DIAMOND SWOTINDUSTRY ANALYSIS KPI FOR

HOSPITALITY

Factor Conditions

Firm strategy & rivalry

Government

Chance

Demand Conditions

Related Industry

Page 25: Turkey country overview and hotel industry analysis

25

SWOT analysis also gives a positive picture of the hospitality sector with great future opportunities

• Average prices are lower than the neighboring countries, and there is stiff price competition among the many competitors in the Turkish market.

• Increasing input costs • Unrecorded transactions and tax avoidance

among smaller, less organized businesses in the sector.

• Availability of an excellent coastline, a wide range of natural attractions, unique historical and archaeological sites and a suitable climate.

• Know-how in the hospitality sector • Well-trained workforce • Strong government support behind the

industry

Strengths Weaknesses

Opportunities Threats

• Unutilized potential not only in coastal tourism but also in various other types of tourism including health & thermal resources, winter sports, golfing, yachting.

• Availability of young and knowledgeable workforce

• Further liberalization in aviation market • Istanbul 2010 European Capital of Culture

• Strengthening TL against other main currencies

• High level of special consumption tax on alcohol

• 3% tax on daily accommodation charges

OVERVIEW OF TOURISM SECTOR

PORTER DIAMOND SWOTINDUSTRY ANALYSIS KPI FOR

HOSPITALITY

Page 26: Turkey country overview and hotel industry analysis

Agenda

COUNTRY OVERVIEW

HOSPITALITY SECTOR ANALYSIS

ENTRY OPTIONS IN HOTEL INDUSTRY

STRATEGIC OPTIONS

COMPARATIVE ANALYSIS

PROCEDURE AND COST STRUCTURE

ENTRY DIMENSIONS

COMPARATIVE ANALYSIS

ENTRY DIMENSIONS

STRATEGIC OPTIONS

ENTRY OPTIONS IN HOTEL INDUSTRY

PROCEDURE AND COST STRUCTURE 26

Page 27: Turkey country overview and hotel industry analysis

Turkey is ranked 65th compared to 183 global economies for ease of doing a business as per the global economic practices

1

12

51

56

65

123

SINGAPORE

GEORGIA

BULGARIA

ROMANIA

TURKEY

RUSSIA

COMPARATIVE RANKINGS FOR BUSINESS PROCESSES IN TURKEY

1. The ease of doing business in Turkey is ranked 65 compared to other countries as per the economic practices applied

i. Turkey is ranked 63 in starting a new business in the country

ii. Turkey is ranked 137 with the practices followed in dealing with the construction permits

iii. It is ranked as 59 for protecting investors

iv. It is ranked 75 out of 183 economies globally for paying the taxes

Source: http://www.turkey-now.org/db/Docs/DoingBusiness2010.pdf

COMPARATIVE ANALYSIS

ENTRY DIMENSIONS

STRATEGIC OPTIONS

ENTRY OPTIONS IN HOTEL INDUSTRY

PROCEDURE AND COST STRUCTURE 27

Page 28: Turkey country overview and hotel industry analysis

28

Starting a business in Turkey requires 6 procedures, 6 days and costs 17.20% GNI (Gross National Income) per capita

1 2 3 4 5 60

1

2

3

4

5

6 18

16

14

12

10

8

6

TIM

E (D

AYS)

PRO

CED

URE

S

Execute and notarize articles of association, signature declaration of the managers, copies of each manager’s ID and commercial books

Deposit a percentage of capital to the account of Competition Authority

Deposit the initial capital in a bank and obtain the certificateof paid-in capital

File the incorporation notice form, commitment letter, andChamber registration statement at the Trade Registry Office

Have a notary certify the legal books

Follow up with the tax office on Commercial Registry’s notification

COST LINE

COST TO

COM

PLETE (%

of GN

I per capita)

Source:www.DoingBusiness2010.org

COMPARATIVE ANALYSIS

ENTRY DIMENSIONS

STRATEGIC OPTIONS

ENTRY OPTIONS IN HOTEL INDUSTRY

PROCEDURE AND COST STRUCTURE

Page 29: Turkey country overview and hotel industry analysis

29

Turkey has a lower labor cost compared to other major economies resulting in more labor intensive economy

A COMPARITIVE PRESENTATION OF COSTS OF INPUTS : COST OF CAPITAL VS COST OF LABOUR (in relation with USA economy Indexed at base 10)

COST OF CAPITAL INVESTMENT

RATIO OF CAPITAL TO LABOUR COST

COST OF LABOUR

GROSS FIXED CAPITAL FORMATION PRICE LEVEL

COST OF DEBT FINANCING

USA BRAZIL TURKEY

USA BRAZIL TURKEYUSA BRAZIL TURKEY

USA BRAZIL TURKEYUSA BRAZIL TURKEY

1. Turkey has less expensive labor than capital, as compared to the other major markets like USA

2. Capital utilization in Turkey is less compared to that of the USA and the Brazil

3. The major driving factor for Capital productivity in Turkey is due to more labor usage compared to capital investment

Source: World Development Indicators, Ministry of Culture and Tourism

US$ 385.5US$ 102

US$ 487.5

Net minimum Wage

Cost to Employer

Deduction (Insurance Fund, SSPP Tax)

COST OF LABOR TO EMPLOYER (per month)

1070 9 0

10 20 25 10 14.1 14.6

10 2.9 2.5

10 14 18

TURKEY – A LABOR INTENSIVE MARKET

Source: http://www.fedee.com/minwage.html

COMPARATIVE ANALYSIS

ENTRY DIMENSIONS

STRATEGIC OPTIONS

ENTRY OPTIONS IN HOTEL INDUSTRY

PROCEDURE AND COST STRUCTURE

Page 30: Turkey country overview and hotel industry analysis

30

TAX PAYED BY COMPANIES (% OF TOTAL PROFIT)

20.79%

0.40% 2.14% 1.90%

2.18%

17.04%

Profit Non Taxed: 55.5%

Profit Taxed: 44.5%

Tax rate in Turkey is 44.5% of the profit with major outflow from the company to Corporate Income Tax and Social Security Fund

TAX STRUCTURE IN TURKEY

1. In a year, any company in the Hotel Industry has to pay around 44.5% of its profit as Taxes

2. It is ranked at 75 globally in Tax payment structure which shows the easy and quick tax paying structure compared to many other emerging economies

3. Around 15 payments has to be done per annum for paying the tax

4. It requires around 223 hours per year of time to prepare and file the tax returns in Turkey

Environment Tax: 0.05%Transactional taxes

COMPARATIVE ANALYSIS

ENTRY DIMENSIONS

STRATEGIC OPTIONS

ENTRY OPTIONS IN HOTEL INDUSTRY

PROCEDURE AND COST STRUCTURE

Source: http://www.DoingBusiness.org

Social Security Contribution

Corporate Income Tax

Unemployment Insurance Fund

Fuel Tax and Vehicle Tax

Property Taxes

Page 31: Turkey country overview and hotel industry analysis

31

Physical ownership and control over marketing and operations are the two dimensions of the Turkey hotel market entry decision

CONTROL OVER MARKETS AND OPERATIONS

OWNERSHIP OF PHYSICAL FACILITIES

ENTRY IN HOTEL INDUSTRY IN TURKEY MEMBERSHIP IN A

FRANCHISE SYSTEM OR MARKETING

NETWORK

NO MEMBERSHIP IN A FRANCHISE SYSTEM

OR MARKETING NETWORK

1. Sole Ownership (independent ownership): owner/operator

2. Third party Management Company: No ownership

1. Chain Owned, Affiliated

2. Management Company, Affiliated

1. Chain Owned, Unaffiliated

2. Management Company, Unaffiliated

COMPARATIVE ANALYSIS

ENTRY DIMENSIONS

STRATEGIC OPTIONS

ENTRY OPTIONS IN HOTEL INDUSTRY

PROCEDURE AND COST STRUCTURE

Source: http://cqx.sagepub.com/

Page 32: Turkey country overview and hotel industry analysis

32

Different market entry options will have different levels of competitive risks with varied amount of resources required

RESOURCES REQUIRED

COMPETITIVE RISKS

COMPETITIVE RISKS

RESOURCES REQUIRED

BUSINESS OBJECTIVE

PRODUCT MARKET POSITIONING

SPEED O

F DEVELO

PMEN

T

QUICK

GRADUAL

SMAL NICHE DOMINANCE

Third Party Management Company

Chain Owned Affiliated, Management Company Affiliated: Cautious approach

Sole Ownership: Capture High Market share quickly, higher investment required

Chain Owned Unaffiliated, Management Company Unaffiliated

COMPARATIVE ANALYSIS

ENTRY DIMENSIONS

STRATEGIC OPTIONS

ENTRY OPTIONS IN HOTEL INDUSTRY

PROCEDURE AND COST STRUCTURE

Page 33: Turkey country overview and hotel industry analysis

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