Turkey's globalization, based primarily on international trade since 1980, culminating in the customs union with the EU in 1996, is now being driven strongly by both IFDI and OFDI, through which Turkey is integrated into the international production system. However, Turkey is still relatively under-globalized in terms of the activities of foreign multinationals in Turkey and those of Turkish multinationals abroad.Although developed countries account for over 80 percent of global OFDI flows, developing country OFDI flows have become increasingly important (UNCTAD, World Investment Report 2006). These outflows have been driven by the pressure on developing country firms to enhance their international competitiveness through access to new markets, technologies, brands and natural resources. The relaxation of capital outflow restrictions at home has also helped.
Turkey's OFDI has also increased significantly due to positive as well as negative factors. New markets in the EU, the Balkans, the Middle East, the Caucasus, the Russian Federation and the Central Asian Turkic Republics, North Africa, even in the Far East and the United States, and the ability of Turkish firms to exploit them for either opportunistic or strategic reasons are important positive factors. Back-to-back domestic economic crises and political uncertainty until 2003, as well as high taxes, obstructionist bureaucracy, rising unit labor costs, which have created a harsh business environment at home, are important negative factors.
The bulk of Turkish OFDI is in the Balkans, the Caucasus, the Russian Federation, and the Central Asian Turkic Republics, regions either geographically or culturally close to Turkey. Most of the Turkish firms that have invested in these regions are small and medium-sized enterprises (SMEs) although large enterprises such as Koc Holding and Sabanci Holding account for most of the total value of OFDI. Both the Turkish Treasury data, which understate the actual amounts, and the estimates based on my research commissioned by UNCTAD, clearly indicate that Turkish OFDI has risen rapidly in the last decade, with a current stock of at least $15 billion.
The OFDI motives of large enterprises are mainly strategic, based on long-term planning, whereas those of SMEs are entrepreneurial, innovative and opportunistic, based on their attempts to exploit unique circumstances, to stay competitive and even to survive in reaction to the many problems they face in Turkey's tough business environment.
Turkish OFDI has strengthened the competitiveness of both large enterprises and SMEs, although in varied ways. Geographical risk diversification against both systemic and specific risks, through market access, appears to have benefited most of them in terms of scale economies and quality improvements. Access to technologies and brands has benefited the large enterprises particularly. For some SMEs, OFDI has been not just a means to stronger competitiveness but a lifesaver for survival, as their domestic operations had been seriously endangered by the back-to-back domestic economic crises.
