Foreign Direct Investment in Turkey : Determinant Factors and Advantages for Swedish Firms

Abstract: Turkey’s strategic geographical location, the country’s unique Customs Union with the EU and its growing market potential are all factors that create market opportunities for foreign investors. However, despite the presence of necessary economic prerequisites and a diminishing number of barriers to entry, FDI in Turkey has remained quite low. Further, this area has not been covered extensively in the past and has therefore been of interest to study. The purpose of this study has been to identify the determinant factors behind Swedish firms’ investment decisions in Turkey and thus find the advantages that Turkey provides for Swedish firms. The motives and advantages form a proposal for how to best promote Turkey as an interesting market for Swedish firms interested in FDI. A list of Swedish subsidiaries in Turkey was provided by the Swedish Trade Council in Istanbul and came to represent the selected population. The firms were contacted, using both e-mail and telephone, and were requested to respond to an e-mail survey. The final response rate was 22%. The firms’ responses were then analysed together with secondary data such as general facts about Turkey as well as a business climate report about Turkey made by the Swedish Trade Council in November 2005. Regarding the firms’ ownership-specific advantages, the results showed that firm size is irrelevant to the investment decision, while research and development expenditure as well as a long international experience is a condition. Concerning Turkey’s location-specific advantages, market potential, the country’s geographic position, its labour costs and its educational level, are important determinant factors as well as the business climate and the economic climate in Turkey. Agglomeration benefits, in business areas where they exist, and the possibility to receive assistance from external actors when entering a foreign market are also important determinant factors. Furthermore, infrastructure is an important determinant factor, but not of a conclusive significance to the investment decision. In addition to the specified variables, the political situation in Turkey was cited as an important determinant factor. The cultural distance between Turkey and Sweden was the only location-specific factor that proved not to be a determinant factor at all. Conclusively, the Turkish market offers several advantages to Swedish firms wanting to engage in foreign direct investments. First, Turkey has a strategic geographic position that offers proximity to many other markets. Second, the Turkish market potential is alluring and offers opportunities of long term growth. Third, there are possibilities to receive assistance from external actors which facilitates overcoming probable obstacles that might occur when entering the Turkish market. Fourth, the process of establishing a labour force is freed from complications since labour costs are lower in Turkey than in Sweden and the access to highly educated personnel is good. Last, ongoing development in Turkey’s business and economic climate decreases the investment risk involved when entering the Turkish market.