1. Eduardo
Villarreal
Holguera
03320546
GBE
790
-­‐
Global
Business
Experience
in
Turkey
February
10,
2013
B e n t l e y
U n i v e r s i t y ,
M c C a l l u m
G r a d u a t e
S c h o o l
o f
B u s i n e s s
Grupo
Modelo’s
Merger
with
Anadolu
Efes:
An
Investment
Project
Risk
Analysis

2. 2
I. TABLE
OF
CONTENTS
III.
PURPOSE
OF
THE
ANALYSIS
............................................................................................
3
A.
The
Economist
1986
Country
Risk
Model
..............................................................................................................
3
1.
Reasoning
for
the
Use
of
this
Model
...........................................................................................................................
3
2.
Explanation
of
the
Methodology
.................................................................................................................................
3
IV.
EXPLANATION
OF
THE
INVESTMENT
PROJECT
.................................................................
4
V.
ANALYSIS
OF
THE
BEER
MARKET
......................................................................................
5
A.
The
Turkish
Beer
Market
..............................................................................................................................................
5
B.
The
Mexican
Beer
Market
.............................................................................................................................................
6
VI.
THE
COMPANIES
INVOLVED
............................................................................................
7
A.
Grupo
Modelo
.....................................................................................................................................................................
7
1.
Acquisition
negotiations
with
Anheuser-­‐Busch
InBev
.......................................................................................
8
B.
Anadolu-­‐Efes
.......................................................................................................................................................................
8
VII.
THE
TURKISH
ENVIRONMENT
........................................................................................
9
A.
Geography
............................................................................................................................................................................
9
B.
Background
&
History
(extract
from
the
CIA’s
World
Factbook)
.............................................................
10
C.
Demographics
and
Social
Factors
...........................................................................................................................
10
D.
Government
(extract
from
the
U.S.
Department
of
State
website)
..........................................................
12
E.
Economy
............................................................................................................................................................................
13
1.
Gross
Domestic
Product
...............................................................................................................................................
13
2.
Unemployment
.................................................................................................................................................................
14
3.
Inflation
..............................................................................................................................................................................
14
4.
International
Trade
.......................................................................................................................................................
14
5.
EU
Accession
.....................................................................................................................................................................
15
F.
Competitiveness
.............................................................................................................................................................
15
G.
Tourism
..............................................................................................................................................................................
15
VIII.
COUNTRY
RISK
ANALYSIS
............................................................................................
16
A.
The
Economist
1986
Country
Risk
Model
...........................................................................................................
16
1.
Political
Risk
.....................................................................................................................................................................
16
2.
Economic
Risk
..................................................................................................................................................................
17
3.
Social
Risk
..........................................................................................................................................................................
18
IX.
RECOMMENDATION
.....................................................................................................
19
X.
BIBLIOGRAPHY
...............................................................................................................
20

3. 3
III. PURPOSE
OF
THE
ANALYSIS
The
purpose
of
this
project
is
to
analyze
the
risks
that
Grupo
Modelo
would
encounter
if
the
company
decided
to
invest
in
the
expansion
of
Corona
Extra,
Mexico’s
top
selling
brand
and
one
of
the
five
most
valuable
in
the
world,
into
the
Turkish
market.
The
investment
project
analysis
performed
in
this
paper
will
include
first-­‐hand
and
second-­‐hand
data
and
information,
as
well
as
the
use
of
an
adaption
of
The
Economist
1986
Model
to
assemble
a
country
risk
analysis.
A. The
Economist
1986
Country
Risk
Model
1. Reasoning
for
the
Use
of
this
Model
Even
though
the
Economist’s
1986
Country
Risk
Model
is
outdated
and
no
longer
in
use,
it
provides
a
simple,
feasible
way
to
grade
a
country’s
investment
risk.
This
is
a
complete
country
risk
model,
with
an
understandable
structure,
a
linear
grading
and
the
use
of
appealing
variables.
2. Explanation
of
the
Methodology
The
model
works
by
grading
a
country’s
risk
on
a
100-­‐point
scale,
divided
in
three
types
of
risk:
Political,
Economic
and
Social.
In
The
Economist’s
Country
Risk
Model,
a
country’s
risk
grade
is
distributed
as
follows:
50%
to
Political
risk,
33%
to
Economic
Risk
and
17%
to
Social
risk,
with
a
pool
of
variables
considered
in
each
type
of
risk.
For
the
purpose
of
this
analysis
however,
the
weight
assigned
to
each
variable
has
change
in
order
to
represent
the
applicability
of
each
variable
in
this
specific
investment
project,
as
follows:
Political
Risk
Analysis
Variables
=
31
points*
• Bad
Neighbors
(7
points)*
• Authoritarian
Government
(3
points)*
• Staleness
(2
points)*
• Illegitimacy
of
Regime
(3
points)*
• Generals
in
Power
(3
points)*
• War
and
Armed
Insurrection
(13
points)*
Political
50%Social
17%
Economic
33% Political
Social
Economic
Source:
Wise,
Jorge.
Análisis
de
Riesgo
País

4. 4
Economic
Risk
Analysis
Variables
=
32
points
• Falling
GDP
per
person
(8
points)
• High
Inflation
(5
points)
• Capital
Flight
(4
points)
• High
and
rising
foreign
debt
as
proportion
of
GDP
(2
points)
*
• Decline
in
food
production
(2
points)*
• Raw
materials
as
high
%
of
exports
(4
points)
• Transportation
infrastructure
available
(7
points)**
Social
Risk
Analysis
Variables
=
37
points*
• Urbanization
(3
points)
• Islamic
Fundamentalism
(17
points)*
• Corruption
(4
points)*
• Ethnic
Tension
(4
points)
• Rejection
to
Foreign
Brands
(9
points)**
*Denotes
a
change
to
the
weight
assigned
in
The
Economist’s
1986
Country
Risk
Model.
*
Variable
not
included
in
The
Economist’s
1986
Country
Risk
Model.
The
grading
of
each
variable
is
performed
by
assigning
zero
points
to
the
best
possible
scenario,
the
maximum
number
of
points
to
the
worst
possible
scenario,
and
a
grade
to
the
country
according
to
where
it
stands
within
those
scenarios.
(Wise)
IV. EXPLANATION
OF
THE
INVESTMENT
PROJECT
The
beer
market
in
Turkey
is
controlled
mainly
by
one
company:
Anadolu-­‐Efes.
Efes
has
approximately
80%
of
the
market
share,
which
represents
a
very
unique
scenario
for
international
breweries
attempting
to
enter
the
Turkish
market.
For
a
company
like
Grupo
Modelo,
one
of
the
options
to
expand
into
the
Turkish
market
would
be
through
merging
with
an
already
established
company,
and
there
is
no
better
than
Anadolu-­‐Efes.
This
merger
would
be
only
for
operations
in
the
Turkish
market,
with
mutual
distribution
agreements
in
other
markets.

5. 5
A
merger
is
one
of
the
riskiest
ways
to
enter
a
market
but,
besides
the
potential
high
returns
that
such
projects
bring
(Wise),
the
situation
of
the
Turkish
beer
market
might
allows
few
other
options.
This
scenario
could
represent
a
win-­‐win
situation,
providing
Grupo
Modelo
with
better
positioning
in
the
Turkish
market
and
providing
Anadolu-­‐Efes’
brands
with
the
opportunity
to
expand
globally,
taking
advantage
of
Modelo’s
worldwide
distribution
channels.
Please
note
that
this
is
a
hypothetical
investment
project,
especially
since
Anadolu-­‐
Efes
is
under
a
license
agreement
with
SABMiller,
which
owns
24%
of
Anadolu-­‐Efes’
stock.
V. ANALYSIS
OF
THE
BEER
MARKET
A. The
Turkish
Beer
Market
Turkey’s
beer
market
has
been
showing
strong
growth,
which
can
be
accredited
to
increases
in
domestic
demand
as
well
as
the
tourism
industry.
Per
capita
consumption
of
beer
is
still
relatively
low
at
11
liters
per
year.
(Turkey Business Forecast Report)
Turkey’s
largest
beverage
manufacturer
is
the
Efes
Beverage
Group,
part
of
the
Anadolu
Group,
which
accounts
for
around
80%
of
the
beer
market
in
the
country.
The
other
major
brewery
with
19%
of
the
market
is
Turk
Tuborg,
which
is
owned
by
Carlsberg.
The
state-­‐owned
brewery
Tekel
controls
a
relatively
small
share
(1%).
(Turkey Business
Forecast Report)
Efes,
as
well
as
other
companies
in
the
alcoholic
beverage
industry,
performs
its
distribution
and
most
of
its
sales
through
exclusivity
agreements,
in
which
the
company
“sponsors”
businesses
with
the
requirement
that
they
do
not
sell
any
of
the
competitors’
products.
The
magnitude
and
number
of
sponsorships
given
by
the
Anadolu
Group
(for

6. 6
beer
and
all
of
its
other
products)
raise
the
barriers
to
entry
even
for
large,
global
beer
companies
by
not
allowing
them
to
distribute
and
sell
their
products.
(Ozkanca)
B. The
Mexican
Beer
Market
The
Mexican
beer
market,
with
a
value
of
$10,580.3
million
(2010),
accounts
for
7.5%
of
the
Americas
beer
market
value.
In
2015,
the
Mexican
beer
market
is
forecasted
to
have
a
value
of
$11,621.9
million.
(DATAMONITOR)
The
Mexican
beer
market
presents
unique
duopoly
conditions:
it
is
mainly
controlled
by
2
big
groups,
Grupo
Modelo
(brewers
of
Corona
Extra,
Modelo
Especial;
among
others)
and
Cervecería
Cuauhtémoc
Moctezuma
(brewers
of
Sol,
Tecate,
Dos
Equis,
etc.).
Not
only
is
the
market
divided
between
these
two
companies,
the
barriers
to
entry
were
(and
remain)
extremely
high,
since
distribution
and
sales
are
performed
through
exclusivity
agreements.
Mexico
is
the
second
largest
economy
in
Latin
America
and
has
one
of
the
highest
per
capita
beverage
consumptions,
especially
beer,
in
the
world.
With
70%
of
value
share
(representing
about
$22
billion
in
retail
sales
in
2011),
beer
is
the
largest
alcohol
beverage
category
in
Mexico.
(The Wall Street Journal)
The
size
and
growth
of
the
market
however,
made
it
extremely
attractive
for
foreign
brewing
companies.
To
enter
the
Mexican
market,
global
companies
have
had
to
invest
in
existing
Mexican
companies.
Heineken
acquired

7. 7
Cervecería
Cuauhtémoc
Moctezuma
in
2010
and
Anheuser-­‐Busch
has
control
over
50%
of
Grupo
Modelo’s
and
an
ongoing
negotiation
that
attempts
to
buy
the
rest
of
Grupo
Modelo’s
stock.
VI. THE
COMPANIES
INVOLVED
A. Grupo
Modelo
“Grupo
Modelo,
founded
in
1925,
is
the
leader
in
Mexico
in
beer
production,
distribution
and
marketing…
Currently
it
brews
and
distributes
13
brands,
including
Corona
Extra,
the
number
one
Mexican
beer
sold
in
the
world,
Modelo
Especial,
Victoria,
Pacífico
and
Negra
Modelo.
It
exports
six
brands
and
is
present
in
more
than
180
countries.”
(Grupo Modelo)
Grupo
Modelo
is
the
leading
player
in
the
Mexican
beer
market,
generating
a
50%
share
of
the
market’s
volume,
compared
to
the
43.3%
share
generated
by
Heineken-­‐
Moctezuma.
The
high
concentration
of
the
market
(93.3%
between
two
companies)
causes
rivalries
all
over
the
country. (DATAMONITOR)
Corona
Extra
is
currently
sold
in
more
than
170
countries
and
it
is
recognized
to
be
the
leading
imported
beer
in
almost
fifty
countries,
the
number
one
imported
beer
in
the
US,
and
the
most
popular
Mexican
beer
worldwide.
According
to
Grupo
Modelo,
the
Corona

8. 8
Extra
brand
is
“targeted
to
people
who
are
looking
to
relax
responsibly”.
(Grupo Modelo)
It
ranks
among
the
five
most
valuable
brands
in
the
world
according
to
industry
sources.
(The
Wall
Street
Journal)
1. Acquisition
negotiations
with
Anheuser-­‐Busch
InBev
In
June
2012,
Anheuser-­‐Busch
InBev
announced
that
it
intended
to
buy
the
remaining
stake
of
Grupo
Modelo,
and
the
transaction
was
cleared
by
Mexican
authorities
in
December.
Anheuser-­‐Busch
InBev
already
owned
50%
of
Grupo
Modelo’s
stock,
and
the
negotiation
led
to
a
$20
billion
buyout
of
the
remaining
stock.
On
January
31st,
2013
however,
U.S.
regulators
blocked
the
deal
arguing
that
the
combined
share
of
46%
of
the
U.S.
market’s
sales
could
lead
to
price
dominance
and
overcharging.
(Kendall and
Bauerlein)
Anheuser-­‐Busch
Companies,
Inc.
(Anheuser-­‐Busch)
is
one
of
the
leading
alcohol
brewing
companies
in
the
US.
The
company
offers
alcoholic
and
non-­‐alcoholic
beers,
energy
drinks,
bottled
water
and
other
beverages
in
US,
Canada,
and
other
regions
of
the
world.
Along
with
its
subsidiaries,
it
operates
through
four
business
segments:
Domestic
Beer,
International
Beer,
Packaging
and
Entertainment.
(GlobalData Company Profiles)
B. Anadolu-­‐Efes
Founded
in
the
beginning
of
1950s,
the
Anadolu
Group
has
47
production
facilities
and
79
companies
in
13
countries,
including
Turkey.
Anadolu
Group
mainly
operates
in
four
lines
of
business:
beverages,
automotive,
finance
and
retail.
(Anadolu Efes)
“Anadolu
Efes
Biracilik
ve
Malt
Sanayii
A.S.,
the
beverage
division
of
Anadolu
Group,
involves
in
the
production,
bottling,
distribution,
and
sales
of
beer,
malt,
and
soft
drinks.
The
company
reports
its
business
under
three
segments:
Turkey
Beer
Operations,
International
Beer
Operations
and
Soft
Drink
Operations.
The
company
has
around
33
subsidiaries
across
the
Netherlands,
Russia,
Kazakhstan,
Moldova,
Romania,
Germany,
Georgia,
Belarus,
Turkey,
Azerbaijan
and
Northern
Cyprus,
and
about
16
joint
ventures.”
(GlobalData Company Profiles)
The
Turkey
Beer
Operations
segment,
driven
by
its
flagship
brand
Efes
Pilsen,
accounted
to
about
29.97%
of
the
company's
total
revenues
and
generated
revenues
of
about
TRY
1,379.771
million.
The
International
Beer
Operations
segment
of
the
company,
Efes
Breweries
International
N.
V.
(EBI),
represents
about
34.16%
of
the

9. 9
company's
total
revenues
and
generated
revenues
close
to
TRY
1,626.335million
in
2010.
The
Soft
Drink
Operations
segment,
managed
by
Coca-­‐Cola
Icecek
A.S.
(CCI),
with
operations
in
Turkey,
Pakistan,
Kazakhstan,
Azerbaijan,
Kyrgyzstan,
Turkmenistan,
Tajikistan,
Jordon,
Iraq
and
Syria,
represents
35.87%
of
the
company's
total
revenues
and
generates
revenues
close
to
TRY
1,712.948million.
(GlobalData Company Profiles)
The
company
also
markets
alcohol-­‐free
beer
in
neighboring
Arab
countries
that
restrict
or
prohibit
the
consumption
of
alcohol.
(Turkey Business Forecast Report)
VII. THE
TURKISH
ENVIRONMENT
A. Geography
“Being
located
at
the
crossroads
of
Asia,
Europe
and
Africa,
makes
Turkey
one
of
the
most
geopolitically
strategic
countries
of
the
world.
Because
of
having
the
shortest
intercontinental
routes,
it
is
where
the
Eastern
and
Western
civilizations
meet.
The
center
of
major
trade
and
migration
routes,
Turkey
has
Georgia,
Armenia,
Nakhchivan
and
Iran
to
the
east,
Bulgaria
and
Greece
to
the
west
and
Iraq
and
Syria
to
the
south.”
(Turkish News Agency)
Turkey
has
a
total
area
of
over
750
thousand
km2,
similar
to
the
area
that
Germany,
Italia,
Austria
and
Holland
would
cover
all
together.
Its
major
cities
are:
Istanbul,
Ankara,
Izmir,
Bursa,
and
Adana.
“Turkey
is
located
in
the
center
of
the
most
promising
markets
of

10. 10
the
world,
providing
access
within
a
four-­‐hour
flight
to
multiple
markets
that
add
to
1.5
billion
people
and
$23
trillion
GDP.”
(Pehlivan)
B. Background
&
History
(extract
from
the
CIA’s
World
Factbook)
Modern
Turkey
was
founded
in
1923
from
the
Anatolian
remnants
of
the
defeated
Ottoman
Empire
by
national
hero
Mustafa
KEMAL,
who
was
later
honored
with
the
title
Ataturk
or
"Father
of
the
Turks."
Under
his
authoritarian
leadership,
the
country
adopted
wide-­‐ranging
social,
legal,
and
political
reforms.
After
a
period
of
one-­‐party
rule,
an
experiment
with
multi-­‐party
politics
led
to
the
1950
election
victory
of
the
opposition
Democratic
Party
and
the
peaceful
transfer
of
power.
Since
then,
Turkish
political
parties
have
multiplied,
but
democracy
has
been
fractured
by
periods
of
instability
and
intermittent
military
coups
(1960,
1971,
1980),
which
in
each
case
eventually
resulted
in
a
return
of
political
power
to
civilians.
In
1997,
the
military
again
helped
engineer
the
ouster
-­‐
popularly
dubbed
a
"post-­‐modern
coup"
-­‐
of
the
then
Islamic-­‐oriented
government.
A
separatist
insurgency
begun
in
1984
by
the
Kurdistan
Workers'
Party
(PKK)
-­‐
now
known
as
the
Kurdistan
People's
Congress
or
Kongra-­‐Gel
(KGK)
-­‐
has
dominated
the
Turkish
military's
attention
and
claimed
more
than
30,000
lives.
After
the
capture
of
the
group's
leader
in
1999,
the
insurgents
largely
withdrew
from
Turkey
mainly
to
northern
Iraq.
In
2004,
KGK
announced
an
end
to
its
ceasefire
and
attacks
attributed
to
the
KGK
increased.
Turkey
joined
the
UN
in
1945
and
in
1952
it
became
a
member
of
NATO.
In
1964,
Turkey
became
an
associate
member
of
the
European
Community.
Over
the
past
decade,
it
has
undertaken
many
reforms
to
strengthen
its
democracy
and
economy;
it
began
accession
membership
talks
with
the
European
Union
in
2005.
(CIA)
C. Demographics
and
Social
Factors
Turkey
has
a
population
of
over
74
million
habitants
with
a
median
age
of
29.7
years.
The
young
population
results
in
an
output
of
573
thousand
university
students
joining
the
labor
force
every
year.
(Pehlivan)
In
general,
the
Turkish
population
has
an
average
of
6.5
years
of
education,
and
its
weakest
point
may
remain
in
its
female
participation
in
the
labor
force,
which
is
still
at
a
very
low
24%.
(Ozlale)

11. 11
Turkey
has
experienced
a
rapid
urbanization
that
has
resulted
in
a
high
population
density
in
a
few
regions
(see
map
above)
and
an
increase
in
the
income
gap
between
urban
and
rural
communities.
(European Environment Agency)
“Rural
poverty
has
declined
in
the
Republic
of
Turkey
over
the
past
ten
years,
but
extreme
disparities
of
income
and
poverty
levels
persist
across
the
country.
Currently
there
are
more
rural
people
living
in
poverty
than
urban
people.”
(Rural Poverty Portal)
Due
to
the
need
for
investment,
development
and
income
growth
in
areas
away
from
the
main
cities,
the
Turkish
government
has
implemented
a
new
investment
incentive
scheme
(see
map
below).
(Pehlivan)
Source:
ISPAT

12. 12
D. Government
(extract
from
the
U.S.
Department
of
State
website)
The
1982
Constitution,
drafted
by
the
military
in
the
wake
of
a
1980
military
coup,
proclaims
Turkey's
system
of
government
as
democratic,
secular,
and
parliamentary.
The
prime
minister
serves
as
head
of
government,
and
the
president
serves
as
head
of
state.
The
current
president,
Abdullah
Gul,
was
elected
by
Parliament
in
August
2007
for
a
7-­‐year
term.
Pursuant
to
a
constitutional
amendment
package
approved
by
voters
in
an
October
2007
referendum,
the
president
is
directly
elected
by
the
voters
for
a
term
of
5
years
and
can
serve
for
a
maximum
of
two
terms.
Nationwide
local
elections
for
provincial
general
assemblies,
municipal
assemblies,
and
mayoral
positions
were
held
March
29,
2009.
The
AKP
received
38.39%
of
the
votes
in
provincial
general
assemblies
and
a
similar
percentage
in
municipal
assemblies.
The
Republican
People's
Party
(CHP)
and
the
Nationalist
Action
Party
(MHP)
won,
respectively,
23%
and
15%
of
the
votes.
AKP
won
10
of
16
metropolitan
municipality
mayoralties.
The
next
local
elections
are
scheduled
for
March
2013.
In
the
June
2011
parliamentary
election
for
Turkey's
61st
government,
the
Justice
and
Development
Party
(AKP)
captured
49.9%
of
the
total
votes,
and
Recep
Tayyip
Erdogan
became
the
Prime
Minister
of
a
single-­‐party
government
for
a
third
consecutive
term.
(Bureau of European and Euroasian Affairs)
Main
Government
Officials:
President
of
the
Republic-­‐-­‐Abdullah
Gul
Prime
Minister-­‐-­‐Recep
Tayyip
Erdogan
Minister
of
Foreign
Affairs-­‐-­‐Ahmet
Davutoglu

13. 13
E. Economy
“Ever
since
the
late
president,
Turgut
Ozal,
began
lowering
trade
barriers
and
selling
off
state-­‐owned
enterprises
after
1980,
Turkey
has
been
moving
steadily
toward
a
market
economy
and
trying
to
reassert
the
economic
role
it
exercised
in
the
eastern
Mediterranean
in
the
days
of
the
Ottoman
sultanate.”
(Shuman and Rossant)
1. Gross
Domestic
Product
“Turkey
is
a
poor
country—per
capita
income
is
$5,000,
only
one-­‐fifth
of
the
U.S.—but
with
its
location
and
energetic
people,
it’s
on
the
move
economically…
Will
it
realize
its
potential?”
(Shuman
and
Rossant)
Turkey
is
ranked
among
the
20
largest
economies
in
the
world
and
sixth
largest
in
Europe (CIA),
reaching
a
GDP
(PPP)
close
to
$1.3
trillion.
While
Turkey
has
shown
some
instability
(usual
in
developing
countries)
by
having
reductions
in
its
GDP
of
almost
6%
in
some
years,
the
tendency
of
the
last
20
years
allows
a
positive
forecast
for
Turkey’s
future.
“Turkey
is
expected
to
be
the
highest
growing
OECD
member
country
between
2011
and
2017,
with
an
annual
average
growth
of
6.7%.”
(HSBC)
0
200
400
600
800
1,000
1,200
1,400
USD
billions
Turkey's
GDP:
PPP
and
constant
US$,
1990-­‐2011
GDP
(constant
2000
US$)
GDP,
PPP
(current
international
$)
Source:
World
Bank
-­‐8
-­‐6
-­‐4
-­‐2
0
2
4
6
8
10
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
GDP
and
GDP
per
capita
Growth
1990-­‐2009
GDP
growth
(annual
%)
GDP
per
capita
growth
(annual
%)
Source:
World
Bank

14. 14
Probably
the
biggest
driver
of
Turkey’s
economic
growth
has
been
the
services
sector,
which
accounts
for
67%
of
Turkey’s
GDP.
Some
of
the
major
activities
in
the
industrial
sector
are
textiles,
automotive
and
steel
(Foreign and Commonwealth
Office).
2. Unemployment
Unemployment,
which
reached
a
20-­‐
year
high
in
2009,
continues
to
be
an
important
issue
despite
Turkey’s
economic
growth.
Turkey’s
growth
focused
on
developing
the
services
sector
could
be
a
reason
for
the
lack
of
reduction
in
unemployment,
as
the
services
sector
does
not
employ
as
much
labor
as
the
agricultural
or
industrial
sectors.
3. Inflation
After
a
period
of
inflation
over
60%
between
1990
and
2000,
Turkey
was
able
to
bring
its
inflation
under
20%
in
2004,
and
has
managed
to
have
an
inflation
fluctuating
around
10%
since
then.
4. International
Trade
Turkey’s
location,
its
continuous
effort
to
an
open
and
private
economy,
and
its
accession
to
the
World
Trade
Organization
have
made
international
trade
one
of
the
major
components
of
Turkey’s
economy.
Turkey’s
trade
agreements
include all
EU
members
(customs
union),
Albania,
Bosnia
Herzegovina,
Croatia,
Switzerland,
Norway,
Iceland
and
Liechtenstein,
Egypt,
Georgia,
Israel,
Macedonia,
Montenegro,
Morocco,
Palestine,
Georgia,
Serbia,
Chile,
Tunisia
and
Syria
(HSBC).
0
2
4
6
8
10
12
14
16
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
%
of
Total
Labor
Force
Unemployment
(%
of
total
labor
force),
1990-­‐2010
Source:
World
Bank
10%
23%
67%
GDP,
per
sector
Agriculture
Industry
Services
Source:
CIA,
The
Wold
Factobook
0
20
40
60
80
100
120
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
InVlation,
1990-­‐2011
Inslation,
consumer
prices
(annual
%)
Source:
World
Bank

15. 15
5. EU
Accession
“On 14 April 1987, Turkey applied for membership of the European
Communities. In the Opinion of the European Commission, which was issued
in 1989, it was concluded that Turkey was eligible for membership but it
would be appropriate for the time being to postpone the decision to be made
on Turkey’s membership. Following Turkey’s communication declaring the
wish to take part in the new enlargement process launched in 1996, Turkey
was admitted as a candidate for the EU membership on 10-11 December
1999.” (European Environment Agency)
F. Competitiveness
Turkey’s
strategic
geographical
location
is
a
natural
boost
in
its
competitiveness,
which
has
increased
since
the
late
1990s.
However,
in
order
to
continue
the
increase
in
its
competitiveness
a
series
of
reforms
are
needed,
which
go
from
public
administration,
taxation
and
labor
market
rigidities
to
a
new
constitution.
Turkey
has
several
industries
with
a
large
market
share
but
a
slow
growth
rate,
such
as
agriculture,
textiles
and
clothing.
Turkey’s
newer,
faster-­‐growing
industries,
such
as
iron,
steel,
metals
and
electrical
machinery,
have
not
been
able
to
acquire
a
large
market
share.
This
situation
leaves
Turkey
with
several
rising
sectors
but
no
“star
sector”.
(Ozlale)
An
important
factor
that
hampers
Turkey’s
competitiveness,
according
to
researcher
Umit
Ozlale
from
the
Economic
Policy
Research
Foundation
of
Turkey
(TEPAV),
is
the
lack
of
highways
and
infrastructure.
To
this
date,
Eastern
Turkey,
including
the
emerging
“Anatolian
Tigers”,
does
not
export
to
the
EU
because
its
products
are
unable
to
be
transported
across
the
country.
(Ozlale)
G. Tourism
Tourism
has
become
an
important
component
of
Turkey’s
GDP.
Turkey’s
location,
its
first
world,
high-­‐end
city
in
Istanbul,
and
its
paradisiacal
beaches
on
the
coast
of
the
Aegean
and
Mediterranean
Sea,
have
helped
the
country
in
becoming
one
of
the
new
go-­‐to
destination
for
tourists.
In
2011,
Turkey
was
the
6th
most
visited
holiday
destination
in
the
world
receiving
29.3
million
tourists.
(Pehlivan)

16. 16
VIII. COUNTRY
RISK
ANALYSIS
A. The
Economist
1986
Country
Risk
Model
1. Political
Risk
VARIABLE WEIGHT
SCORE
ASSIGNED
ANALYSIS
BadNeighbors
7 7
Considering the most favorable scenario (0 points) as having good,
stable, economically growing neighbors with good relations, and the
worst possible scenario (7 points) as having conflicting neighbors with
economic, social and political instability; Turkey is assigned 7 points.
With Iraq, Iran and Syria (and other MENA countries) and their wars,
conflicts and political instability, the EU with its recent crisis (especially
Greece), and former soviet countries, it is hard to imagine a worse
scenario when it comes to neighbors and nearby countries than
Turkey's.
Authoritarianism
3 2
Considering the most favorable scenario (0 points) as a broad
perception of a democratic government, and the worst scenario (3
points) as the existence of an authoritarian government; Turkey is
assigned 2 points. While the government is broadly seen as
democratic, several actions by the government are still authoritarian,
such as the continuous increase in burdens and taxes to alcoholic
beverages by the current party in power, AKP. (Turkish Muse)
Staleness
2 1
Considering the most favorable scenario (0 points) as a government
administration that changes within every five to ten years, and the
worst scenario (2 points) as a non-changing, long-lasting government
administration; Turkey is assigned 1 point. While the administration
terms are limited to 5 years (with possibility to one re-election),
staleness has been present throughout Turkey's history when it comes
to parties in power. The current party has been in power for over 10
years.
Illegitimacy
3 0
Considering the most favorable scenario (0 points) as a government
administration that is widely recognized as legitimately, and the worst
scenario (3 points) as a government which the majority of the
population consider illegitimate; Turkey is assigned 0 points since its
government administration is generally recognized as legitimate.
Generalsin
Power
3 1
Considering the most favorable scenario (0 points) as the inexistence
of generals in power, and the worst possible scenario (3 points) as a
current military dictatorship; Turkey is assigned 1 point. Turkey has a
few generals in power, however their authority, which took a hit after
the resignation of several generals in 2001 (Matthews), is limited to
military and national security areas. Turkey's current constitution, on
the other hand, was drafted in 1982 by the military.
War,Strife,and
ArmedInsurrection
13 10
Considering the most favorable scenario (0 points) as the absence of
current or potential wars and rebellions, and the worst possible
scenario (13 points) as the existence of a current war; Turkey is
assigned the score of 10 points. While not felt in most of the country,
especially Istanbul, Turkey is currently in conflicts with Afghanistan
(armed conflict), the KPP party, Iraq (sporadic incursions as part of the
KPP conflict), Cyprus (occupation of Northern Cyprus), and Libya
(contribution to military interventions). (ADH-Geneve)
Total
Political
Risk
31 21

17. 17
2. Economic
Risk
VARIABLE WEIGHT
SCORE
ASSIGNED ANALYSIS
FallingGDP
perperson
8 2
Considering the most favorable scenario (0 points) a constantly rising
GDP per capita, and the worst scenario (8 points) an unstable, quickly
declining GDP per capita; Turkey is assigned a score of 2 points.
While Turkey is expected to be the fastest growing OECD member
with a GDP per capita average growth rate of 6%, these numbers are
just expectations and Turkey's GDP per capita has been very unstable
in the past 20 years.
High
Inflation
5 3
Considering the most favorable scenario (0 points) a relatively small or
inexistent inflation, and the worst scenario (5 points) a double-digit
inflation; Turkey is assigned 3 points. While Turkey's inflation is
nowhere near 1990s levels, it still currently fluctuates around 10%.
CapitalFlight
4 0
Considering the most favorable scenario (0 points) as the inflow of
foreign capital, and the worst possible scenario (4 points) as high
levels of capital flight; Turkey is assigned 0 points. "In the last decade,
the number of Turkish firms and FDI outflows has fostered
impressively" (Yavan), however this is just a result of Turkey's
economic growth. The inflow of foreign capital is still much superior
than the outflow of domestic capital.
HighandRising
ForeignDebtasa
ProportionofGDP
2 1
Considering the most favorable scenario (0 points) as a foreign debt
representing a low and declining percentage of the country's GDP, and
the worst scenario (2 points) as a high and growing foreign debt as
percentage of the GDP; Turkey is assigned 1 point. While Turkey
occupies the 26th place in countries with the highest foreign debt as
percentage of GDP (Anatolia News Agency), the foreign debt is still
relatively small (considering it is a developing country) at 40% of GDP
(Pehlivan).
Declinein
Food
Production
perPerson
2 0
Considering the most favorable scenario (0 points) as the increase in
food production per person, and the worst scenario (2 points) as the
rapid decrease in food production per person; Turkey is assigned 0
points. Turkey's food production has increased in the past 10 years,
from 104 to 117 index points. (United Nations Statistics Division)
Transportation
Infrastructure
Available
7 6
Considering the most favorable scenario (0 points) as the availability of
a wide transportation infrastructure network, and the worst scenario (7
points) as the lack of transportation infrastructure being an issue for
commerce, Turkey is assigned a grade of 6 points. While
transportation infrastructure is not an issue in western Turkey, Eastern
Turkey cannot export to the EU due to lack of transportation
infrastructure.
RawMaterials
asaHigh
percentageof
Exports
4 2
Considering the most favorable scenario (0 points) as a low and
decreasing percentage of raw materials as exports, and the worst
scenario (4 points) as a high and increasing percentage of raw
materials as exports; Turkey is assigned 2 points. While Turkey has
diversified its exports and has continuously increased the exports of
industrial goods, raw materials still account for 44% of all merchandise
exports. (Trading Economics; Turkish Muse; Turkish Muse)
Total
Economic
Risk 32 14

18. 18
3. Social
Risk
VARIABLE WEIGHT
SCORE
ASSIGNED
ANALYSIS
Urbanization
3 2
Considering the most favorable scenario (0 points) as a relatively small
or inexistent net migration to cities, and the worst scenario (3 points)
as an accelerated migration from rural areas to major cities, Turkey is
assigned 2 points since 70% of the population live in urban areas,
which have resulted in a loss of productivity in the rural areas. The
annual urbanization rate fluctuates around 2%. (IndexMundi)
IslamicFundamentalism
17 15
Considering the most favorable scenario (0 points) as the absence of
Islamic and religious fundamentalism, and the worst scenario (17
points) as the significant presence of Islamic fundamentalism; Turkey
is assigned 15 points. The Islamic religion accounts for 98% of the
population, and while major cities like Istanbul are less fundamentalist,
other regions remain more conservative (Taran). Islam has not kept
beer consumption from growing, but temperance remains in practice in
some parts of the society. It is also said that a move back to a more
fundamentalist Islamic country is in place, with examples such as the
government slowly taking actions on a "war against alcohol." (Turkish
Muse)
Corruption
4 2
Considering the most favorable scenario (0 points) as the inexistence
of corruption and the shared values of honesty and transparency, and
the worst scenario (4 points) as the perception of corruption amongst
all levels of government and society; Turkey is assigned 2 points.
While not at all levels, corruption is present in Turkey. As a partner of
one of Istanbul's largest restaurant groups mentioned, regulations are
not an issue when you know people. (Ozkanca) Transparency
International ranks Turkey as the 54th most corrupt country in the
world. (Transparency International Organization)
EthnicTension
4 4
Considering the most favorable possible scenario (0 points) the
existence of a balance ethnic diversity amongst the population, and the
worst scenario (4 points) as the existence of a dominant ethnicity with
high tension towards other ethnic groups; Turkey is assigned 4 points.
Throughout its history and continuing in recent years, Turkey's division
between Turkish and Kurds, along with their neighboring countries
ethnics, have resulted in a constant high ethnic tension. (ADH-Geneve)
RejectiontoForeign
Brands
9 7
Considering the most favorable scenario (0 points) as the broad
acceptance of foreign brands and companies, and the worst scenario
(9 points) as the reluctance to accept foreign brands due to a
nationalistic market; Turkey is assigned 7 points. While global brands
have successfully entered the Turkish market, most of these are in the
fast-food sector. It is still very rare to see global brands in products.
Global companies have entered the Turkish market through
agreements, mergers and acquisitions of/with local companies. It is
noticeable that Turkish like to relate to the product/company they are
consuming or doing business with. (Ozkanca)
Total
Social
Risk
37 30
Total
Country
Risk
100 65

19. 19
IX. RECOMMENDATION
After
analyzing
the
Turkish
environment
and
performing
a
country
risk
analysis
on
Turkey,
it
is
clear
that
investing
in
Turkey,
as
in
most
developing
countries,
is
a
risky
expansion
project.
However,
for
a
company
like
Grupo
Modelo,
which
possesses
a
global
brand
as
Corona
Extra,
the
Turkish
market
presents
endless
opportunities.
A
country
risk
grade
of
65
out
of
100
represents
the
risks
all
companies
encounter
in
the
Turkish
market,
certainly
highlighting
the
lack
of
infrastructure
to
transport
goods
across
the
whole
country,
Turkey’s
armed
conflicts
and
the
unstable
situation
of
its
neighbors
and
surrounding
nations,
and
the
historical
and
resurging
Islamic
fundamentalism.
While
the
Turkish
seem
to
have
a
nationalistic
nature
and
therefore
tend
to
reject
foreign
brands,
entering
the
market
through
a
merger
with
Anadolu-­‐Efes
resolves
any
concerns
this
may
cause
on
Grupo
Modelo.
Considering
the
economic
growth
in
Turkey,
which
is
projected
to
have
an
average
rate
of
6.7%
through
2007,
and
the
constant
increase
in
beer
consumption,
Turkey
is
a
great
market
for
Grupo
Modelo
to
invest
in.
The
similarities
between
the
Turkish
beer
market
and
the
Mexican
beer
market
in
matters
of
competition
and
distribution,
along
with
Grupo
Modelo’s
expertise
and
history
of
success,
leverage
the
risks
this
investment
may
present.
Turkey’s
emergence
as
one
of
the
world’s
main
tourist
destinations,
especially
its
paradisiacal
beaches
on
the
Aegean
and
Mediterranean
Sea
coasts,
presents
a
well-­‐known
path
to
success
for
Grupo
Modelo’s
Corona
Extra.
For
Anadolu-­‐Efes,
on
the
other
hand,
a
merger
with
Grupo
Modelo
provides
the
opportunity
to
learn
from
the
Mexican
company’s
expertise
in
transforming
a
nation-­‐
leading
company
into
one
of
the
most
dominant
brewing
companies
in
the
world.

20. 20
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