SMEs are a Key Component to Achieving Turkey’s 2023 Goals

April 13, 2015

There I was, being led into the business owner’s office in the sweltering heat of summertime Gaziantep. As I sat down, it felt like a game as I tried to decipher which man in the office was the actual owner, which man was his son, and which man was just there to chat. As I began explaining the basis for the research, the noise of grinding metal bled through from the factory below as I was served hot tea and some fresh figs from a nearby tree. Before the business owner dove into an unprompted monologue about domestic politics with a hint of religion thrown in, he asked me where I had learned Turkish.

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This scenario illustrates a typical start to one of the 35 interviews my research partner Jennie Vader and I conducted in the Marmara and Southeastern regions of Turkey. While each interview was certainly unique, the conversations gave us a glimpse into what many small- to medium-sized enterprises (SMEs) are up against. Throughout the summer, it became apparent that the majority of the participants were hardworking, shrewd businessmen generally focused on achieving their immediate goals. They could fill in on the job in the factory, as they too, tended to be skilled technicians and engineers. Yet, what we uncovered is that SMEs in Turkey have a lot going against them and face significant barriers to growth and expansion.

As you may already know, SMEs have the ability to make large contributions to economic growth. In Turkey alone, SMEs comprise 99% of enterprises and employ nearly 81% of the workforce, thus they have the potential to contribute significantly to the long-term growth of the country. Yet, Turkey’s growth story has relied significantly on domestic consumption and portfolio investment, without sufficiently leveraging its prolific SME segment. With President Erdogan and the ruling Justice and Development Party (AKP) having recently established ambitious goals aimed at propelling Turkey from the 17th largest economy to the 10th largest by 2023, Turkey now has the sense of urgency needed to capitalize on its SMEs and drive the country to the next level.

Inspired by this economic promise of SMEs, we spent 3 months in Turkey interviewing business owners, financial service providers, and government officials to ascertain what makes SMEs tick, what their greatest constraints are, and what existing or potential solutions need to be put in place to help SMEs thrive. As we did this, we didn’t necessarily expect to uncover all of the problems SMEs face, but we did expect to learn a lot.

And we did just that.  Here are the top 4 insights, which are elaborated on in our report.

  1. Patrons have the final say: The patriarch of many family-run businesses could benefit from more knowledge of hard business skills and management practices or they should relinquish control to those with the appropriate skills.
  2. Discordant relationship: Businesses need to keep more accurate financial records so that they are perceived to be less of a risk vis-à-vis banks. Banks, on the other hand, can help by providing increased transparency in terms of loan applications and better tailored services to individual businesses.
  3. Skills gap: The skills of potential workers do not suit the needs of SMEs. Potential solutions include reorienting curricula at educational institutions and vocational schools to be less theoretical and leveraging existing institutions such as the Turkish Public Employment Agency (ISKUR) to better match employees to employers. Furthermore, educated women are not being utilized in the labor market to their full extent and that alone can contribute to the economic growth of Turkey.
  4. Investment wanted: Self-awareness about a given SME’s actual position in the market, in additional to increased knowledge about how to export to new markets and investments in research and development (R&D) are needed. Furthermore, many business owners described hesitancy in either expanding, investing in their future, committing to one sector for the long haul.

As an outsider, I was humbled by the open dialogue and trust that many SME participants afforded my research team. Perhaps it had something to do with my familiarity and comfort with the Turkish culture, both in terms of language and norms, which eased the process and opened up new avenues to engage in conversations with unlikely participants. It may also have had something to do with the fact that many SMEs are thirsty for more support and potential solutions to their woes. Whether public or private sector driven, the solutions in our report have the potential to boost the growth of the SME segment, and in turn, help enable Turkey to reach its 2023 goals.

If you are interested in contacting Sarah about her research, please email her at sarah.ertur@gmail.com.

AUTHOR:

Sarah Willis-Ertür
Sarah Willis-Ertür worked for over four years in Germany and Turkey for private sector and nonprofit organizations. She has a bachelor’s degree from the University of Minnesota-Duluth in German Studies and International Studies. Most recently, she completed her master’s at The Fletcher School of Law and Diplomacy at Tufts University, where she concentrated on development economics and market-based approaches to human and economic development. Sarah currently works as an International Associate on the Mediterranean team at the Clinton Global Initiative in New York City.

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