enterpreneur factor analysis

Entrepreneurs in Turkey: A Factor Analysis ofMotivations, Success Factors, and Problemsby Cynthia Benzing, Hung Manh Chu, and Orhan Kara

One hundred and thirty-nine entrepreneurs in Ankara, Turkey were surveyed todetermine their motivations for business ownership, the factors contributing to theirsuccess, and their problems. Based on survey responses, the primary reasons forstarting a business are to increase income, to obtain job security, and to secureindependence. According to the factor analysis, small and medium-sized enterprisesowners are driven more by income rewards than intrinsic rewards. The most impor-tant business success variables are the entrepreneurs’ reputation for honesty andfriendliness. Social skills and good customer service were also cited as critical successfactors. The most serious problem faced by entrepreneurs in Turkey is the complexand confusing tax structure. Other important problems include unreliable employees,the inability to maintain good records, and a weak economy.

IntroductionTurkey has long been regarded as a

strategic link between Europe, Asia andthe Middle East. Its unique geographicposition and political system are majorreasons why Turkey has caught the inter-est of business researchers in recentyears. Turkey straddles two continentsand two economic worlds: in the westare the more developed economies of

the European Union (EU), while in thesouth and east are less-developed coun-tries from the Middle East and the formerSoviet Union. It shares borders withAzerbaijan, Armenia, Bulgaria, Georgia,Greece, Iran, Iraq, and Syria, and con-trols shipping traffic in and out of theBlack Sea. In addition to its strategicgeographical position, Turkey has apolitical system unique among Muslimcultures. Although 99.8 percent of

Cynthia Benzing is a professor of economics and finance at West Chester University ofPennsylvania.

Hung Manh Chu is a professor of management at West Chester University of Pennsylvania.Orhan Kara is an associate professor of economics at West Chester University of

Pennsylvania.Address correspondence to: Cynthia Benzing, Economics and Finance Department, West

Chester University, West Chester, PA 19380. Tel.: 610-436-2217 (work); Fax: 610-436-2592;E-mail: [email protected]; [email protected].

Journal of Small Business Management 2009 47(1), pp. 58–91

JOURNAL OF SMALL BUSINESS MANAGEMENT58

mailto:[email protected]

mailto:[email protected]

Turkey’s population is Muslim, it is asecular democracy with the potentialfor even greater individual rights andfreedoms.

Europe has long recognized Turkey’simportance as a trading partner and amilitary partner. Turkey has been aNATO member since 1952, and was anassociate member of the EU, formerly theEuropean Economic Community from1963 to 1999. In 1999, Turkey was rec-ognized as a candidate for full member-ship in the EU, but the membership talksthat began in October 2005 have beencontentious. Turkey has made someprogress in meeting EU requirements,but its lack of progress on minorityrights, freedom of speech, and recogni-tion of Cyprus has hurt Turkey’s progresstoward accession.

Europe has always had an ambiguousattitude toward Turkey’s membership inthe EU. Although most Europeans under-stand the need for a close relationshipwith Turkey, some nations fear beingoverwhelmed by the economic needs ofTurkey’s 71 million citizens. As of 2005,20 percent of the Turkish population stilllived below the poverty line, and Tur-key’s GDP per capita (in purchasingpower standards) was just 28.5 percentof the EU’s GDP per capita. (Eurostat2007; Turkish Statistical Institute 2007).To help Turkey meet its economic goals,the EU has committed €682.7 million in“preaccession financial assistance” for2008, and has plans to continue financialaid through its many outreach programs.(European Commission 2007a).

Even if Turkey does not become a fullmember of the EU, it will need to con-tinue to work with the InternationalMonetary Fund (IMF) and its other eco-nomic partners to create an environmentconducive to the development of entre-preneurship. Because a strong privatesector is essential to long-term economicgrowth, this study examines the behaviorof 139 small business owners in Ankara,Turkey to determine their motives,

needs, and problems. Through a betterunderstanding of their concerns, Turkeycan work toward creating a businessenvironment that will contribute to astronger, more stable economy and bringTurkish incomes closer to those of otherEU nations.

BackgroundIt has been widely agreed that there is

a positive correlation between economicgrowth and entrepreneurship (Acs andAudretsch 2003; Audretsch and Keilbach2003; Carree et al. 2002). Empirical re-searchers indicate that the contributionof entrepreneurship to economic devel-opment is significant, especially in thearea of employment creation. The impor-tance of small firms to the strengthof economies in the United Kingdom,Europe, and the emerging countries ofthe Far East is well established. In theUnited Kingdom, 99 percent of the busi-nesses are small businesses that accountfor 59 percent of the nation’s employ-ment (Small Business Service 2006). InEurope, 99.8 percent of the businessenterprises are small and medium-sizedenterprises (SMEs) that employ two-thirds of the total workforce (WorldBank 2007a; European Commission2003). Japan has 6 million SMEs thataccount for 99.7 percent of all businessesin the country and 70 percent of the totallabor force (METI 2007), while SouthKorean SMEs provide 80 percent of alljobs in the country (Euromonitor Inter-national 2006). According to Schaper’s(2006) study, at least 97 percent of allfirms in 19 European countries, Australia,New Zealand, the United Kingdom, andthe United States are SMEs. And ofthose SMEs, the largest single groupis microenterprises, which make up 82percent of the firms in Australia and 92percent of the firms in 19 Europeancountries.

SMEs play a similar role in Turkey’seconomy. As of 2000, SMEs accountedfor 99.8 percent of the total number of

BENZING, CHU, AND KARA 59

enterprises and 76.7 percent of totalemployment (OECD 2004). AmongTurkish manufacturing firms, 99.3percent are SMEs (1–150 employees),employing 56 percent of all manufactur-ing workers (Republic of Turkey Ministryof Industry and Trade 2006).

Because of its importance, the Turkishgovernment has made a commitment tosupport the growth of the SME sector byratifying the European Charter for SmallEnterprises in 2002 and participating inthe Multi-Annual Programme for Enter-prise and Entrepreneurship (OECD 2004).The government’s major agency of SMEsupport is the Small and Medium IndustryDevelopment Organization (KOSGEB),which is part of the Ministry of Industryand Trade. Its primary goal is to “improve[the] SMEs share and efficiency in [the]Turkish economy and enhance their com-petitive capability” (Republic of TurkeyMinistry of Industry and Trade 2006). Inthis role, it is charged with improvingthe training, financing and managerialskills of SME entrepreneurs (Republic ofTurkey Ministry of Industry and Trade2006). Turkey’s Ninth Five-Year Develop-ment Plan includes objectives and targetsto improve the country’s business envi-ronment. The plan would increase SMEaccess to financial markets, improveTurkey’s infrastructure, and facilitate theusage of new communication technolo-gies (Republic of Turkey 2007). As will bediscussed later, the five-year plan alsorecognizes the need to reduce the com-plexity of the tax system.

Although EU membership could stillbe 10–15 years away, the Turkish govern-ment has been preparing for accession tothe EU for many years. As part of itspreparation, Turkey has curtailed govern-ment debt as a percentage of GDP,reduced the size of the public sector,reduced inflation, and freely floated theTurkish lira. The Turkish economy hasimproved dramatically since its financialcrisis in 2001. Inflation has dropped from70 percent in 1999 to about 9 percent in

2006 (Turkish Statistical Institute 2006).Real GDP growth was a healthy 7 percentin 2006, and is expected to amount to6 percent in 2007, putting its real GDPper person slightly lower than Romania(Madslien 2006). In 2006, unemploy-ment was approximately 9.1 percent,although nonagricultural unemploymentwas slightly higher at 12 percent (TurkishStatistical Institute 2006).

Despite these improvements, Turkey’seconomy faces ongoing fiscal problems.Increases in government spendingplanned for 2007 may increase the debtand current deficit, which could lead todouble-digit inflation again. As a result,the International Monetary Fund (IMF)and Organisation for Economic Coopera-tion and Development (OECD) havecalled for renewed fiscal vigilance re-quiring improvements in Turkey’s taxsystem, financial sector, and pensionplanning (Today’s Zaman 2007; Mad-slien 2006; OECD 2006).

Because of the importance of entre-preneurship to the growth and stabilityof the Turkish economy, this studyexamines the motivations, successfactors, and problems facing entrepre-neurs in Turkey. However, the results ofthis survey go beyond Turkey, and canbe applied with caution to other econo-mies as well. The study of entrepreneur-ship is still in its nascent stage, and muchremains to be understood about themotivations of entrepreneurs and theirsuccess factors. This study contributes toa better understanding of entrepreneurialtheory by providing further evidenceabout the primary motivators, whatentrepreneurs believe they need forsuccess, and their problems.

Literature ReviewBecause literature on Turkish entre-

preneurship is somewhat limited, reli-ance on studies of small businesses inother countries and regions of the worldis necessary for a more complete under-standing of the motivations, perceived


success factors, and problems of smallbusiness owners in Turkey.

Motivations of EntrepreneursA number of surveys of entrepreneurs

provide insight into the motivationalaspects of the entrepreneurial experi-ence. Kuratko, Hornsby, and Naffziger(1997) and Robichaud, McGraw, andRoger (2001) surveyed North Americanentrepreneurs to determine how motiva-tion relates to business success. Findingsfrom their studies show that motivationfalls into four categories: (1) extrinsicrewards, (2) independence/autonomy,(3) intrinsic rewards, and (4) family secu-rity. Extrinsic motives are the economicreasons that entrepreneurs work,whereas intrinsic motives are related toself-fulfillment and growth. BecauseKuratko, Hornsby, and Naffziger andRobichaud, McGraw, and Roger concen-trated on the relationship between moti-vation and business success, they did notindicate which motivations were thestrongest among entrepreneurs.

The motivating factors may differacross countries due to differences inincome levels and employment opportu-nities. In their study of Vietnamese smallbusiness owners, Swierczek and Ha(2003) found that challenge and achieve-ment were more significant motivatorsthan necessity and security. A study ofmotivation by Benzing, Chu, and Cal-lanan (2005), however, discovered aregional difference in Vietnam. Entrepre-neurs in Ho Chi Minh City were moremotivated to start a business for personalsatisfaction and growth, whereas entre-preneurs in Hanoi were more motivatedby the need to create a job for them-selves and family members. Since Hanoisuffers from a weaker economy and ahigher jobless rate than Ho Chi MinhCity, entrepreneurs in Hanoi may bemore motivated by income and securityneeds. In Romania, income and job secu-rity needs were significantly strongermotivators than self-satisfaction and per-

sonal needs (Benzing, Chu, and Szabo2005). In contrast, entrepreneurs inAndhra Pradesh, India were moststrongly motivated by the desire forinterdependence/autonomy, that is, tobe their own boss. The second strongestmotivator was to increase their income(Benzing and Chu 2005). In their studyof entrepreneurship in China, Pistruiet al. (2001) found that personal andfamily security were the primary reasonsfor entrepreneurs to start a business.

In Africa, Ugandan entrepreneursindicated that “making a living” or“making money” is the most importantreason for their business ownership(Bewayo 1995). Findings from the studyalso showed that a majority of entrepre-neurs (61 percent) preferred businessownership over working for a corpora-tion because of autonomy, freedom, andindependence (Bewayo 1995). A study ofentrepreneurs in Kenya and Ghana (Chu,Benzing, and McGee 2007) found thatthe strongest two motivators were toincrease income and to provide them-selves with employment. Similarly, Royand Wheeler (2006) found that microen-terprise owners in West Africa weremotivated by a desire to satisfy basicphysiological needs—food and shelter.In general, it appears that micro and SMEentrepreneurs in low-income countriesare more likely to be motivated byincome needs, whereas those in higherincome countries are driven by higher-order needs like self-esteem and self-realization.

According to Ozsoy, Oksoy, andKozan (2001), entrepreneurs in Turkeyare motivated to start their own busi-nesses to provide security for themselvesand their family, “to make a direct con-tribution to the success of a company,”and to increase income. Other importantmotivations are a desire for flexibility,work freedom, and to be his/her ownboss. According to Cetindamar (2005),gaining work independence is the mostimportant motivation for Turkish entre-


preneurs working in technology-producing firms. Other crucial motivesinclude the creation of employmentopportunities, high income, and per-sonal satisfaction. Female businessowners in Turkey indicate that gainingwork independence and creating anemployment opportunity are the mostimportant reasons for starting a business(Cetindamar 2005). Based on a 1996survey of Turkish female entrepreneurs,Ufuk and Ozgen (2001a) found theprimary motives for becoming an entre-preneur were, in order of importance, tomeet the family’s needs, to initiate socialcontacts, and to experience self-actualization.

Because the Turkish economy hasexperienced erratic performance, onemay speculate that business ownersmight be more motivated by extrinsicrewards such as increasing income andcreating a job for themselves than byintrinsic or independence motives.However, at the same time, Turkey isconsidered a middle-income country;consequently, higher-order needs forpersonal fulfillment may have takenhold. This study will hopefully contrib-ute to an understanding of the forces thatmotivate entrepreneurs to start a busi-ness. Learning more about businessowners’ motives could help policymak-ers design a variety of programs to moti-vate the creation of new businesses andto support the continuation of existingSMEs.

Success VariablesThe variables that contribute to the

success of small businesses are notunanimously agreed upon by research-ers. Most entrepreneurial studies haveconcentrated on a few sets of variables:(1) the psychological and personalitytraits of entrepreneurs; (2) the manage-rial skills and training of entrepreneurs;and (3) the external environment. Withrespect to psychological and behavioraltraits, Frese, Brantjes, and Hoorn (2002),

Hodgkinson (2001), and Olson andBokor (1995) found that the ability toengage in strategic planning is related toentrepreneurial success. Other psycho-logical attributes such as a drive forindependence, innovative orientation,attitude toward risk, and a competitivenature have also been found to relate tosuccess (Frese, Brantjes, and Hoorn2002; Koop, Reu, and Frese 2000; Dess,Lumpkin, and Covin 1997; Covin andSlevin 1989). According to Frese,Brantjes, and Hoorn, these attributes areespecially important when an entrepre-neur is working in a difficult businessenvironment. Other researchers (Rauchand Frese 1998; Dess, Lumpkin, andCovin 1997; Covin and Covin 1990;Covin and Slevin 1989) agree that psy-chological traits contribute to businesssuccess, but they are often moderated byexperience and training, specific mana-gerial skills, and the business environ-ment. Since the accurate measurement ofpsychological traits requires psychologi-cal testing, and these traits are ofteninherent in the entrepreneur’s psycho-logical make-up, this study does notattempt to measure or determine thesetraits in the survey respondents. Instead,this study seeks to determine what otherfactors the entrepreneurs themselvesperceive as necessary for businesssuccess. In contrast to psychologicaltraits, managerial skills, training, andenvironmental conditions are factorsmore easily developed and altered bypolicymakers. Managerial skills wouldinclude the ability to manage personneland maintain accounting records,whereas environmental conditionswould be related to satisfactory govern-ment support, access to capital, andsupport of family and friends.

Numerous studies of entrepreneurs indeveloping countries (Chu, Benzing, andMcGee 2007; Benzing, Chu, and Callanan2005; Benzing, Chu, and Bove 2005;Benzing, Chu, and Szabo 2005; Yusuf1995; Gosh, Kim, and Meng 1993; Huck


and McEwen 1991; Busch 1989) havesought to determine the managementskills and environmental conditions mostcritical for their success. In Huck andMcEwen’s (1991) study of Jamaican smallbusiness owners, three areas were iden-tified as the most important competencyareas: management, planning and bud-geting, and marketing/selling. Specificcompetencies within those areas weremaintaining financial records, possessinghuman relations skills, and establishinggoals and objectives. In a study doneby Yusuf (1995), South Pacific islandersconsidered good management skills,access to financing, personal qualities,and satisfactory government support themost critical success factors. In a 2003survey, Vietnamese entrepreneursselected “friendliness toward customers”as the most important success factor,with “a good product at a good price” aclose second (Benzing, Chu, and Cal-lanan 2005). Romanian entrepreneursranked friendliness to customers, a repu-tation for honesty, and good customerservice as the top three success factors(Benzing, Chu, and Bove 2005). Percep-tions of success factors may be partiallydetermined by the education of theentrepreneurs, the competitive level ofthe market, and/or the extent of govern-ment assistance.

In a study conducted among Kenyanentrepreneurs Neshamba (2000) foundthat the owner–manager’s previous expe-rience, understanding the needs of cus-tomers, access to capital, and hard workwere viewed as important success vari-ables. Similarly, Pratt’s (2001) study ofKenyan entrepreneurs found the avail-ability of capital, possession of businessskills, previous experience, and supportof family members are essential for busi-ness success. According to a study ofGhanaian and Kenyan entrepreneurs,hard work was considered the mostimportant success factor, with customerservice the second most important vari-able (Chu, Benzing, and McGee 2007).

Ibrahim and Goodwin (1986) con-ducted a factor analysis of the variablescontributing to successful small busi-nesses in Canada and the United States.They found four success factors: entre-preneurial values, managerial skills,interpersonal skills, and environmentalcharacteristics. The entrepreneurialvalues were psychological in nature andincluded characteristics such as intuition,extroversion, attitude toward risk, flex-ibility, and a sense of independence.Managerial skills included variables suchas having a niche strategy, an effectivebudget system, experience, education,and a simple organization structure. Theinterpersonal skills factor was comprisedof good customer relations, goodemployee relations, and good interper-sonal skills. Finally, the environmentalcharacteristics included interest rates,taxes, and governmental assistance.

In a recent study of small businessowners in Pakistan, entrepreneurs ratedthree factors as particularly important totheir success: hard work, good customerservice, and good product quality (Coyet al. 2007). Factors that were not con-sidered important were government pro-grams and training programs.

In a study of Turkish entrepreneurs,Kozan, Oksoy, and Ozsoy (2006) foundthat business management training andfinancing are significantly related to anSME owner’s expansion plans. To be spe-cific, Turkish entrepreneurs need marketinformation, technical assistance, infor-mation resources, and training in financeand marketing to accumulate theresources necessary for expansion.

Problems Facing EntrepreneursThe problems facing entrepreneurs

in developing countries are often quitesimilar. First, entrepreneurs in mostdeveloping countries face an unstable,highly bureaucratic business environ-ment. The laws governing private enter-prise, especially business registrationand taxation systems, are overly complex


and difficult to understand. Contract andprivate property laws are often poorlydesigned and/or enforced. As describedby Gray, Cooley, and Lutabingwa (1997),Ivy (1997), Kiggundu (2002), Pope(2001), and Stevenson (1998), the unfa-vorable institutional/regulatory environ-ment is often accompanied by the addedexpenses of corruption and bribery.According to Benzing, Chu, and Callanan(2005), Chu, Benzing, and McGee (2007),and Pratt (2001), other problems facedby entrepreneurs in developing and tran-sition economies include a generallyweak economy, limited access to finan-cial capital, an inability to hire reliableemployees, and too much competition.

As described by Benzing, Chu, andBove (2005), Cook (2001), Gray, Cooley,and Lutabingwa (1997), Levy (1993),Little, Mazumdar, and Page (1987), Mroc-zkowski (1995), Peel and Wilson (1996),and Spring and McDade (1998), SMEowners in developing and transitioneconomies often complain about insuffi-cient capital. According to Ozsoy, Oksoy,and Kozan (2001), small business ownersin Turkey report similar problems obtain-ing loans from governmental and/orprivate institutions. Business ownersmust rely on family resources to meettheir financial needs. As pointed out byKozan, Oksoy, and Ozsoy (2006), TurkishSMEs only received a paltry 3–4 percent ofloanable funds in 2005, although theyemployed 50 percent of the workforcethat same year. Kozan, Oksoy, and Ozsoy(2006) contend that inadequate financingsignificantly impedes the ability ofTurkish business firms to grow. Althoughthe microfinance system is underdevel-oped in Turkey, KOSGEB has recentlyestablished Business DevelopmentCenters to provide training as well asstart-up financing for 500 women entre-preneurs over the next three years (Can2007). With support from the EU, theWorld Bank, and the InternationalFinance Corportation (IFC), other micro-finance projects are under consideration.

Another problem common to entre-preneurs in developing countries is over-regulation, which often results in lengthyand costly delays in clearances andapprovals (Macculloch 2001). In Kenya,entrepreneurs complain of long delays ingetting approval for trade licenses andbusiness registration. Complicated taxforms, heavy control by government, andoutright misinterpretation of laws arecommon problems faced by small busi-ness owners in Kenya (Chu, Benzing,and McGee 2007; Pratt 2001). Turkishentrepreneurs appear to face some of thesame bureaucratic difficulties. Accordingto Cetindamar (2005), the bureaucracy inpublic offices, municipalities, and atcustoms is viewed as the most seriousproblem facing entrepreneurs in Turkey.The second most critical problem isunstable and uncertain state policies.Every government has the potential toencourage and support business devel-opment through effective tax policies,licensing procedures, and employmentlaws, but when a bureaucracy becomestoo burdensome or redundant, it canstifle the very economic growth it wasdesigned to promote.

The Effect of Gender on ProblemsThe gender of a business owner may

influence the problems he or she faces inTurkey. Turkish women entrepreneursexperience many difficulties in startingand running a business. A majority ofthese problems are derived mostly fromthe community’s view of a woman’splace in society (Ufuk and Ozgen 2001b).With regard to the problems encounteredduring the start-up phase, Ufuk andOzgen found that 88 percent of womenentrepreneurs consider an inability toobtain capital the most importantobstacle. Bureaucratic procedures and alack of prior experience are also criticalbarriers to their success.

As described above the major prob-lems reportedly facing entrepreneurs inTurkey relate to government bureau-


cracy, lack of financing, a weak economyand a traditional view against businessownership by women. Results of thisstudy will provide more insight into theongoing problems encountered by en-trepreneurs so that better measurescan be taken to promote the growth ofentrepreneurship.

Survey and MethodologyThe definition of an SME varies from

organization to organization and fromcountry to country. The definition usedin this study is based on the number ofemployees and is currently used by theOECD (OECD 2005) and the UnitedNations Economic Commission forEurope (UN-ECE 2006). According to theOECD and UN-ECE, an SME has less than250 employees.

Data used in this study was collectedunder the supervision of Dr. MustafaCelikten, an associate professor of edu-cation at Erciyes University in Turkey,during the summer of 2006. The twointerviewers were educational specialistsemployed by the Presidency of ReligiousAffairs of the Republic of Turkey as gov-ernment employees. The surveys werenot conducted as part of their govern-mental jobs, but outside their officialcapacities.

Using simple random sampling Dr.Celikten selected 200 businesses fromthe 37,922 entrepreneurial establish-ments (proprietors) registered with theAnkara Chamber of Commerce Direc-tory. (The total number of businessesregistered with the Ankara Chamber ofCommerce Directory is 115,001, whichincludes all types of businesses, fromsmall businesses to corporations.) Of the200 businesses selected, 23 businesseswere excluded because they employedover 250 persons. Of the 177 remainingbusinesses, six businesses were closed orotherwise not reachable and 32 busi-nesses either declined to answer thesurvey or ended the survey prematurely.Out of the 177 businesses in the sample,

139 businesses answered the surveyquestions, which is a 78.5 percentresponse rate. Surveys lasted from 20minutes to one hour, with an averageinterview lasting 30 minutes.

Ankara was chosen for the surveybecause of its potential for economicgrowth through the development of itssmall business sector. As the capital ofTurkey, Ankara serves as the country’sadministrative and diplomatic center andis home to all foreign embassies. It isalso the educational center of Turkey,with 10 well known universities.Although Istanbul is larger, Ankara’sstrategic location, population, andindustrial/administrative base create anattractive domestic market. Located inthe center of Turkey, Ankara lies alongthe main East–West rail line acrossTurkey and is connected to Europe viathe Trans-European Motorway. A newAnkara–Istanbul high-speed train isplanned for 2008, which will cut traveltime by almost two-thirds (Today’sZaman 2007). The city is also home tothe second largest airport in Turkey.Compared with Istanbul’s 12–14 millionresidents, Ankara’s population may seemsmall. However, Ankara’s current popu-lation of 3.2 million is expected to growto 4.6 million by 2010 (Ankara Chamberof Industry 2007). The city’s populationis already large enough to create asizable domestic market for services andproducts. In recent years, some of thecountry’s largest construction companiesand defense industries have relocated toAnkara. Other industries include tractors,lumber, furniture, pasta, flour, vegetableoil, paint, carpets and textiles, and beerand wine. Tourism has become increas-ingly important and has stimulatedgrowth in the service industry. Althoughsome businessmen concede that Ankarawill never be bigger than Istanbul, it hasbecome a modern retailing center, withnine large shopping malls already builtand a dozen other shopping centers inthe planning stages (Hawkes 2007).


The questionnaire was originallydesigned and written in English. It wastranslated into Turkish and checked forintertranslator consistency. The question-naire used in this study was developedby Hung M. Chu (Chu and Katsioloudes2001) and has been used in studies ofentrepreneurs in Vietnam, Romania,India, Kenya, and Ghana (Chu, Benzing,and McGee 2007; Benzing and Chu 2005;Benzing, Chu, and Callanan 2005;Benzing, Chu, and Szabo 2005). Themotivation variables are similar to thosesuggested in the work of Robichaud,McGraw, and Roger (2001), and Kuratko,Hornsby, and Naffziger (1997). Manyproblems in the survey are common toentrepreneurs in both transition anddeveloping countries. The reliability ofthe survey instrument was deemed satis-factory since the Cronbach alphas andGuttman split-half coefficients were rela-tively high for the motivation items,perceived success variables, and theproblem items. The alpha and the split-half coefficient for the motivation itemswere 0.758 and 0.754, respectively. Forthe perceived success variables, thealpha was 0.850, and the split-half coef-ficient was 0.745. For the problem items,the alpha was 0.837, and the split-halfcoefficient was 0.795.

The strengths of the motivation vari-ables, perceived success variables andproblems were measured using a five-point Likert scale. For motivations andperceived success variables: 5 was“extremely important,” 4 was “veryimportant,” 3 was “mildly important,” 2was “not very important,” and 1 was“unimportant.” For problem variables: 5was a “very serious problem,” 4 was a“serious problem,” 3 was a “problem,” 2was a “minor problem,” and 1 was “not aproblem.” A higher mean score on a vari-able would indicate greater importance.To determine if the score on one variableis significantly different from the scoreon another, the Wilcoxon rank sum testwas used (also called the Mann–Whitney

test). The Wilcoxon rank sum test wasused instead of a t-test because thescores were not normally distributed asdetermined by the Anderson–Darlingtest. When analyzing ordinal data thathas non-normal distribution, the Wil-coxon test provides a more powerful testof the difference between two popula-tion medians (Hollander and Wolfe1999).

The item-by-item analysis was fol-lowed by a factor analysis to determinewhether the motivations, success vari-ables, and problems group together onsignificant factors. Correlation analysis,principal component analysis, and ascree plot were used to establish thefactors. Then, a principal componentfactor analysis with an equamax rotationwas used to determine the factor load-ings and communalities. A summatedscale or score was calculated for eachfactor to determine which factor hadthe greatest influence on the businessowners. Each summated scale is anaverage of the Likert scores on the vari-ables included in that factor. TheWilcoxon rank sum test was used todetermine if one summated scale (factor)was “significantly” different fromanother. As explained earlier, the Wil-coxon test is a more powerful statisticaltest of the differences given that the datais non-normally distributed.

ResultsSample Characteristics

As shown in Table 1, 91 percent ofentrepreneurs surveyed identified them-selves as male, and 9 percent as female.This finding is consistent with previousstudies on Turkish entrepreneurs(Kozan, Oksoy, and Ozsoy 2006; Cetin-damar 2005; Ozsoy, Oksoy, and Kozan2001) and the role of Turkish women inthe labor force. Women only comprise26.7 percent of the Turkish labor force,with the highest participation rates in the25–29-year-old group. Once Turkishwomen marry, they often leave the labor


force to become housewives andmothers (Turkish Statistical Institute2006). When the Republic was foundedin 1923, a secular European law wasadopted, allowing women to play a moreimportant role in every aspect of Turkish

life, but the number of women in busi-ness and in the work force has remainedlow (Ufuk and Ozgen 2001b; Arslan2000).

Table 1 also shows that the averageage of entrepreneurs is 41 years. With

Table 1Sample Characteristics of Small and Medium-Sized

Entrepreneurs in Turkeya (N = 139)

Frequency Percent

Entrepreneurial CharacteristicsGender

Male 127 91.4Female 12 8.6

Average Age of Entrepreneur (years) 41.1Level of Education

No Formal Education 1 0.7Some Grade School 21 15.3Completed Grade School 17 12.4Some High School 7 5.1Completed High School 44 32.1Some College 9 6.6Completed College 32 23.4Graduate Degree 6 4.4

Enterprise CharacteristicsHow the Business Was Established

Established by You 92 66.2Bought from Another 28 20.1Inherited 10 7.2

Average Age of Business (years) 13.6Average No. of Full-Time Employees 24.9Average No. of Part-Time Employees 1.4Type of Business

Retailing 42 30.2Wholesaling 14 10.1Service 27 19.4Manufacturing 24 17.3Agriculture 16 11.5Multiple Types of Business 16 11.5

aNot all respondents answered all questions; consequently percentages may not totalto 100 percent. Two respondents declined to answer the question related to theireducation, nine respondents declined to answer how their business was established.Percentages are based on the total number of respondents (139).


respect to education, 32 percent of therespondents finished high school (andcontinued no further), and 28 percentcompleted college. When asked howtheir businesses were established, 66percent indicated that they had createdthe business themselves, 20 percenthad bought from others and 7 percentreported that they had inherited theirbusinesses. Nine respondents declined toanswer this question. Perhaps issuesrelated to inheritance, etc., were viewedas too personal.

The sample is dominated by microand small-sized enterprises. The numberof full-time employees per firm rangesfrom 1 (self-employed) to 250, with anaverage of 24.9 full-time employees perfirm. Based on the UN-ECE definition ofSMEs, 58 percent of the firms would beconsidered microenterprises, since theyemploy 10 full-time persons or less.Eighty-nine percent of the sample wouldbe considered micro and small-sizedenterprises because they employ 50 full-time persons or less. Ten firms (or 11percent) are large enough to be consid-ered medium sized. The average numberof part-time employees per firm is 1.4,and the average age of the businesses is14 years.

Retail businesses comprise 30 percentof the sample, while service and manu-facturing businesses represent 19 and 17percent, respectively. This is similar tothe sample obtained by Ozsoy, Oksoy,and Kozan (2001) and Ufuk and Ozgen(2001a). Eighteen of the businesses werefranchises, and 22 were partnerships.

Turkish entrepreneurs reportedworking an average of 70 hours perweek. The time devoted to business byTurkish business owners is comparablewith that found in countries likeVietnam, Romania, and India (Benzingand Chu 2005; Benzing, Chu, and Cal-lanan 2005; Benzing, Chu, and Szabo2005). Kenyan business owners,however, reported working an averageof 45 hours per week, while Ghanaian

entrepreneurs reported working anaverage of 38 hours per week in theirbusinesses (Chu, Benzing, and McGee2007). The lower hourly commitmentmay be the result of a business strategycommon to African entrepreneurs. Theyoften maintain multiple businesses toreduce the potential for loss associatedwith any one business failure; thus,fewer hours are devoted to any oneenterprise. In the case of Turkish entre-preneurs, multiple business ownershipdoes not appear to be a common busi-ness strategy.

When asked from whom they soughtadvice before establishing their busi-ness, 67 percent of the entrepreneurssurveyed had sought advice from familymembers. The second and third mostfrequently consulted groups werefriends and other business owners,respectively. Relatively few SME ownersconsulted legal advisors, financial advi-sors, and/or banks.

Motivations of EntrepreneursRespondents were asked to rate 11

reasons for deciding to own a business.The results are shown in Table 2. On afive-point Likert scale, with five (5) being“extremely important” and one (1) being“the least important,” it was found thatthe two most important reasons were “toincrease income” and “to have job secu-rity.” The mean score for “to increaseincome” is significantly higher (at the 95percent level) than the next closest moti-vation “to have job security.” Given thefact that Turkey’s income is relativelylow and employment is unpredictable,becoming a business owner is not only away to increase income, but it can alsoreduce an entrepreneur’s fear of losing ajob. With respect to entrepreneurs inTurkey, these results support the work ofOzsoy, Oksoy, and Kozan (2001). In pre-vious surveys of entrepreneurs in otherdeveloping nations (Chu, Benzing, andMcGee 2007; Benzing, Chu, and Szabo2005; Benzing, Chu, and Callanan 2005),


the income and job security motivationwere also prime motivators.

“To have job security” was the secondmost important motivation, because, inmany cases, small business owners starta business to create their own employ-ment opportunity. Turkey’s working agepopulation has been growing at a fasterrate than jobs have been created.Between 1980 and 2004, the working agepopulation grew by 23 million, whereasonly 6 million jobs were created (WorldBank 2006). The official unemploymentrate in Turkey was 9.1 percent in 2006,but labor conditions are much weakerthan this number illustrates, with nonag-ricultural unemployment at 12 percent(Turkish Statistical Institute 2006). Oneof the groups hit hardest by unemploy-ment is educated young people. Accord-ing to the World Bank (2006), there is agap between the jobs being created andthe skills and knowledge of educatedyoung persons. Overall, youth unem-ployment was 17.5 percent in 2006,while youth unemployment in urbanareas was even higher at 22.2 percent

(Turkish Statistical Institute 2007).Turkey introduced an unemploymentinsurance plan in 1999, with the firstbenefits paid in 2002. Unfortunately, dueto strict eligibility requirements and theextensive informality of the labormarket, the payment of such benefits hasbeen severely limited. According to theWorld Bank (2006), only 4 percent ofunemployed workers are actuallycovered by Turkey’s unemploymentcompensation program. As a result, mostunemployed persons rely on savings andfamily resources to survive. As a result ofthe “jobs deficit” and uncertainty in thelabor market, job security is one of themost important forces driving businesscreation.

Maintaining “personal freedom andindependence” was cited as the thirdmost important reason for business own-ership among respondents. It has beenargued that being a predominantlyMuslim society, Turkey could notproduce “the spirit of capitalism” or Prot-estant work ethic characteristics (Weber1985). However, individual initiative cor-

Table 2Mean Score for Motivation of Turkish Entrepreneursa

Motivational Factors Mean StandardDeviation

1. To Be My Own Boss 3.48 1.482. To Be Able to Use My Past Experience and Training 3.47 1.403. To Prove I Can Do It 3.39 1.504. To Increase My Income 4.38 0.925. To Provide Jobs for Family Members 3.47 1.296. For My Own Satisfaction and Growth 3.47 1.487. So I Will Always Have Job Security 3.86 1.128. To Build a Business to Pass On 2.29 1.489. To Maintain My Personal Freedom 3.68 1.46

10. To Be Closer to My Family 3.11 1.2011. To Have Fun 2.18 1.27

a5 = extremely important, 4 = very important, 3 = mildly important, 2 = not veryimportant, 1 = unimportant.


responds to the “freedom and indepen-dence” that entrepreneurs in Turkeyenjoy through business ownership. Thisresult suggests that the Islamic entrepre-neurial class in Turkey is rising andbridging the cultural gap between theWest and the Islamic world (Arslan2000). Research on Turkish entrepre-neurs by Ozsoy, Oksoy, and Kozan(2001) also supports this survey’s resultsby suggesting that the desire for flexibil-ity and work freedom are driving forcesbehind the motive to go into business.

As Adas (2006) pointed out, the Islamicentrepreneurial class is relatively new inTurkey in that it really developed in the1980s and 1990s. Operating in all areas ofthe economy, many of the businessesowned by this entrepreneurial class arefamily-owned small and medium-scalecompanies in addition to some holdingcompanies (Adas 2006). Many associa-tions have been developed in order topromote and support Islamic entrepre-neurs in a secular business environment.Some of these business associations, likeMUSIAD (Mustakil Sanayici ve Is Adam-lari Dernegi, or Independent Industrialistand Businessman Association) seek to“contribute to [the personal] development[of businesspersons] in becoming morepositive and productive human beings[and] to contribute to the emergenceof a society of people who haveinner depth . . . and have a notion ofsolidarity” (http://www.musiad.org.tr).MUSIAD’s objectives include the per-sonal, institutional, sectoral, cultural,and social development of its members.These groups contribute to the indepen-dence of Turkish entrepreneurs whilesupporting their personal and humandevelopment.

As shown in Table 3, a factor analysisof the motivations led to four factors: asecurity factor, an income factor, anindependence factor, and an intrinsicfactor. The “best fit” factor analysisaccounts for 70.8 percent of the varianceand was obtained by using principal

component factor analysis with anequamax rotation. As recommended byHair et al. (2006), all factor loadings aregreater than 0.40, and all communalitiesexceed 0.50.

The first factor is referred to as a“security factor” and contains motives 3,5, 7, and 10. These variables includeobtaining job security, providing jobs forfamily, and being closer to family, andexplain 25.5 percent of the variability.Motive 3, “to prove I can do it,” alsoloads on this variable, indicating that it iscorrelated with the other variables on thesame factor. Although motive 3 appearsrelated to independence, it loads on afactor with three other motives, indicat-ing that entrepreneurs who rated vari-ables 5, 7, and 10 highly were also morelikely to rate motive 3 highly. Thesemotives may be correlated, becauseproving to others that you can createa successful business simultaneouslymeans you have created a job for your-self and others. Succeeding in such anendeavor provides security, and, at thesame time, pride in its success.

The second factor can be called an“income factor,” and consists of motives 4and 8, which are “to increase income” and“to build a business to pass on.” Thisfactor accounts for 17.6 percent ofthe variability. Entrepreneurs appear tobelieve that the regular cash flow and thecreation of an inheritable asset (i.e.,wealth) are related aspects of a business.A business is a financial asset that pro-vides a flow of income to the currentowner and may well provide another flowof income to the owner’s successors.

The third factor, referred to as the“independence factor,” contains motives1 and 2, which are “to be my own boss”and “to be able to use my past experi-ence and training.” The fourth factor,referred to as the “intrinsic factor,” con-sists of motives 6, 9, and 11, which are“to maintain personal freedom,” “for myown satisfaction and growth,” and “tohave fun.”


http://www.musiad.org.tr

The variance row of numbers inTable 3 represents the eigenvalues andindicates the relative importance of afactor in explaining the variance associ-ated with the variables. Although factor 1has the highest explanatory value (25.5percent), that does not mean that factor 1is the most important motivation factorto the entrepreneurs. According to thesummated scale scores shown in Table 4,the highest mean score (4.131) was for

factor 2, the income factor. This indicatesthat entrepreneurs in Turkey are mostmotivated to create a business by theprospects of increasing income andcreating an inheritable asset. The leastimportant motivation factor (significancelevel 95 percent) is factor 4, the intrinsicfactor, which relates to self-satisfaction,freedom, and enjoyment.

Two of the factors obtained in thisstudy align with Robichaud, McGraw,

Table 3Principal Component Factor Analysis (Equamax Rotation)

Factor Loadings (Sorted) and Communalities forMotivation Variables

Motivation Factor 1 Factor 2 Factor 3 Factor 4 Communality

10. To Be Closer toFamily

0.853 0.245 0.077 -0.066 0.797

7. For Job Security 0.835 -0.056 0.282 0.038 0.7823. To Prove I Can

Do It0.706 -0.038 0.510 0.102 0.770

5. To provide Jobsfor My Family

0.684 -0.151 0.084 0.379 0.641

4. To Increase MyIncome

-0.076 0.892 -0.022 0.029 0.803

8. To Build aBusiness to PassOn

0.031 0.812 0.154 0.239 0.742

2. To Be Able toUse PastExperience andTraining

0.097 -0.005 0.838 -0.026 0.712

1. To Be My OwnBoss

0.490 0.314 0.576 -0.039 0.672

9. To MaintainPersonal Freedom

-0.103 0.027 0.120 0.841 0.734

6. For My OwnSatisfaction andGrowth

0.136 0.411 -0.233 0.564 0.560

11. To Have Fun 0.360 0.357 -0.316 0.471 0.578Variance 2.805 1.939 1.579 1.468 7.789Percentage of

Variance0.255 0.176 0.144 0.133 0.708

Cronbach’s Alpha 0.838 0.731 0.539 0.545


and Roger (2001). The “security factor”obtained in this study has two motiva-tions in common with Robichaud et al.’s“security/well-being of the family factor”:to be closer to the family and providejobs (a secure future) for familymembers. The “extrinsic motivations”factor obtained by Robichaud mostclosely corresponds to the “incomefactor” obtained in this study, but thelegacy motivation appears on a differentfactor in this study and Robichaud et al.’sstudy. The desire “to build a business topass on” appears on the “income factor”in this study, but appears in the“security/well-being of the family factor”in Robichaud’s study. Inclusion of thisvariable on either factor can be logicallyexplained, but further study must beundertaken to understand what under-lies the inheritance motivation and towhich factor it is most closely related.The results of this study’s factor analysismay be influenced by the preponderanceof males (91 percent) in the sample.Based on research by Ufuk and Ozgen(2001a, 2001b), one could hypothesizethat a sample with greater numbersof female entrepreneurs would have

weighed the independence and securityfactors more heavily.

Success VariablesOn a five-point Likert scale, with five

(5) being extremely important and one(1) being least important, entrepreneursin Turkey rated their reputation forhonesty as the most important successvariable. As shown in Table 5, “friendli-ness and charisma” was ranked secondamong the elements necessary for build-ing a thriving enterprise. Social skills andproviding good customer service werealso cited by respondents as important.In two similar surveys conducted byBenzing, Chu, and Callanan (2005), andBenzing, Chu, and Bove (2005), entre-preneurs in Vietnam and Romania alsorated honesty, friendliness, and goodcustomer service as the three mostimportant success factors. Pakistanientrepreneurs placed customer service intheir top three success factors (Coy,Shipley, and Rao 2007). These resultssuggest a certain commonality amongentrepreneurs in the rating of perceivedsuccess variables despite differences inculture and religion.

Table 4Mean Scores of Turkish Entrepreneurs by Factor Related

to Motivationa

Summated Scales MeanScore

StandardDeviation

Scale 1—Factor 1: Security 3.521 1.187Scale 2—Factor 2: Income 4.131 0.905Scale 3—Factor 3: Independence 3.470 1.195Scale 4—Factor 4: Intrinsic 2.955 0.960

aSummated scales were calculated as average score across items contained in thatfactor. Scale 1 is the average of the scores on motivations 3, 5, 7, and 10, scale 2 isthe average of the scores on motivations 4 and 8, scale 3 is the average of the scoreson motivations 1 and 2, and scale 4 is the average of the scores on motivations 6, 9,and 11.


Honesty may be cited as the mostimportant ingredient of a successful busi-ness, in part because Islamic values playan important role in conducting business(Arslan 2000). Entrepreneurs areexpected to adhere to Islamic valuessuch as honesty, respect, and obedienceto elders. As discussed by Zapalska,Brozik, and Shuklian (2005), Muslimentrepreneurs should avoid dishonesty,fraud, deception, and coercive practices,as well as hoarding, speculation, andcollusion among producers. Graafland,Mazereeuw, and Yahia (2006) discussedseveral principles of Islam that should beincorporated into all business practices.These principles include the right to ownproperty, freedom, justice, honesty, sin-cerity, truthfulness, exactness in weight

and measurement, leniency, and servi-tude. Furthermore, Islam prohibits cheat-ing and lying. Graafland, Mazereeuw,and Yahia (2006) also remind entrepre-neurs that Islam requires equal paymentsfor equal work, thus forbidding discrimi-nation based on gender and other per-sonal characteristics.

Entrepreneurs in Turkey gave theleast importance to “satisfactory govern-ment support.” This could indicate thatentrepreneurs in Turkey understandand accept the vagaries of the marketeconomy without relying on governmen-tal protection or subsidies for success.However, this score could also indicatethat entrepreneurs harbor a fear thatgreater governmental assistance couldbe a precursor to greater governmental

Table 5Mean Score for Variables Contributing to Business

Successa

Success Factors Mean StandardDeviation

1. Good Management Skills 3.87 1.172. Charisma: Friendliness 4.42 0.833. Satisfactory Government Support 2.68 1.534. Appropriate Training 3.50 1.345. Access to Capital 3.50 1.336. Previous Business Experience 3.29 1.497. Support of Family and Friends 3.53 1.428. Marketing/Sales Promotion 3.04 1.319. Good Product at Competitive Price 3.68 1.30

10. Good Customer Service 4.21 1.1711. Hard Work 3.95 1.2312. Position in Society 3.36 1.6813. Maintenance of Accurate Records 3.29 1.1214. Ability to Manage Personnel 3.99 1.0415. Social Skills 4.39 0.9416. Political Involvement 3.35 1.3817. Reputation for Honesty 4.82 0.67

a5 = extremely important, 4 = very important, 3 = mildly important, 2 = not veryimportant, 1 = unimportant.


interference. Sometimes, the helpinghand of government can become more ofa burden than a help to the small busi-ness owner. Pakistani entrepreneurs alsoranked “government programs” as rela-tively unimportant to their success (Coy,Shipley, and Rao 2007).

As shown in Table 6, the factor analy-sis indicates that 15 of the 17 successvariables could be grouped into sixfactors. All the variables in this modelhave a factor loading greater than 0.50,and all communalities exceed 0.65. Thetotal percentage of variance (trace)explained by the factor solution is 75.7percent. The factor analysis processselects the variables that should begrouped together on a factor. The factorsare not necessarily easily named orexplained, because sometimes responseson a success item are highly correlatedwith a seemingly unrelated success item.However, given the high factor loadingsand the fact that both varimax andequamax rotations resulted in the sameitems being associated on the samefactors, this indicates that the results ofthis factor analysis are robust.

The first factor can be called “charac-teristics related to the individual,” andincludes success variables 6, 7, and 11.This factor includes previous businessexperience, support of family andfriends, and hard work, and explains14.7 percent of the variability. Thesecond factor relates to “social connec-tions” and includes success variables 10,12, and 16. This factor includes positionin society, political involvement, andgood customer service. Factor 3 can bereferred to as a “competition” factorbecause it consists of success variables 8and 9, which are having a good productat a competitive price and marketing/sales promotion. Factor 4 can be called“reputation/social skills” and includestwo variables—having a reputation forhonesty and having social skills. Factorfive relates to general management skillsand having an ability to manage person-

nel. This factor might best be called“management skills.” And, finally, factor6 is called a “market support” factorbecause it consists of success items 3, 4,and 5. The three success variables infactor 6 are satisfactory governmentsupport, appropriate training, and accessto capital. Appropriate training andaccess to capital may be linked to satis-factory government support becausethey are items that the government canfinancially support. The fact that traininghas been relatively unavailable is partly aproduct of government policy. All threeitems are necessary for the marketgrowth of a small business. Success item2, friendliness, and success item 13, theability to maintain accurate records, didnot combine with any other items on afactor. As a result, those two successvariables were not included in the finalfactor analysis. This does not mean thatthey are unimportant to success. As dis-cussed earlier, the entrepreneur’s friend-liness is actually seen as the second mostimportant success variable.

Table 7 shows the summated scalescore for each factor. The summatedscale is the average score of the items inthat factor. The mean score of 4.607 forthe reputation/social skills factor is sig-nificantly higher (99 percent level) thanany other success factor. This indicatesthat among the six reported factors,Turkish entrepreneurs believe theirsuccess is most closely related to theirreputation for honesty and their socialskills. Interestingly, factor 6, whichincludes government support, appropri-ate training, and access to capital, isviewed as the least important factoramong the six factors.

Problems Facing EntrepreneursAs shown by the mean scores in

Table 8, the four most critical problemsfaced by Turkish entrepreneurs are (1) aconfusing and complex tax structure; (2)the inability to attract and retain goodemployees; (3) the inability to maintain


Tab

le6

Pri

nci

pal

Com

ponen

tFac

tor

Anal

ysis

(Equam

axR

ota

tion)

Fac

tor

Load

ings

(Sort

ed)

and

Com

munal

itie

sfo

rP

erce

ived

Succ

ess

Var

iable

s

Succ

ess

Var

iable

sFac

tor

1Fac

tor

2Fac

tor

3Fac

tor

4Fac

tor

5Fac

tor

6C

om

munal

ity

6.Pre

vious

Busi

nes

sExp

erie

nce

0.81

20.

078

-0.1

870.

088

0.01

30.

246

0.76

97.

Support

of

Fam

ily

and

Frie

nds

0.79

10.

163

-0.0

740.

100

0.18

10.

219

0.74

911

.H

ard

Work

0.62

50.

400

0.24

00.

039

0.31

70.

071

0.71

512

.Posi

tion

inSo

ciet

y0.

565

0.68

9-0

.003

-0.0

70-0

.118

0.03

80.

814

10.

Good

Cust

om

erSe

rvic

e0.

130

0.67

5-0

.413

0.10

9-0

.016

-0.1

520.

678

16.

Politica

lIn

volv

emen

t0.

028

0.66

9-0

.022

0.33

90.

272

0.33

00.

746

9.G

ood

Pro

duct

/Com

pet

itiv

ePri

ce0.

007

0.05

3-0

.855

-0.0

090.

065

0.03

60.

739

8.M

arket

ing

Fact

ors

0.05

70.

170

-0.8

220.

178

0.15

20.

164

0.78

917

.Rep

uta

tion

for

Hones

ty0.

184

-0.0

06-0

.147

0.88

40.

045

-0.0

260.

839

15.

Soci

alSk

ills

-0.0

770.

127

0.02

20.

848

0.20

80.

186

0.81

814

.A

bility

toM

anag

ePer

sonnel

0.10

20.

194

-0.0

460.

293

0.78

9-0

.021

0.75

81.

Good

Gen

eral

Man

agem

ent

Skills

0.05

5-0

.099

-0.1

590.

042

0.77

40.

305

0.73

34.

Appro

pri

ate

Tra

inin

g0.

172

-0.0

250.

005

0.17

70.

085

0.83

00.

758

3.Sa

tisf

acto

ryG

ove

rnm

ent

Support

0.22

90.

540

-0.2

16-0

.080

0.20

50.

595

0.79

25.

Acc

ess

toCap

ital

0.21

80.

040

-0.4

10-0

.009

0.41

90.

510

0.65

2V

aria

nce

2.19

91.

959

1.94

01.

808

1.74

01.

707

11.3

52Per

centa

geof

Var

iance

0.14

70.

131

0.12

90.

129

0.11

60.

114

0.75

7Cro

nbac

h’s

Alp

ha

0.75

90.

620

0.75

50.

734

0.62

70.

676



to Perceived Success Variablesa


StandardDeviation

Scale 1—Factor 1: Characteristics Related to the Individual 3.591 1.139Scale 2—Factor 2: Social Connections 3.642 1.078Scale 3—Factor 3: Competition Issues 3.350 1.173Scale 4—Factor 4: Reputation/Social Skills 4.607 0.724Scale 5—Factor 5: Management Skills 3.925 0.951Scale 6—Factor 6: Market Support 3.232 1.094

aSummated scales were calculated as average score across items contained in thatfactor. Scale 1 is the average of the scores on variables 6, 7, and 11; scale 2 is theaverage of the scores on variables 10, 12, and 16; scale 3 is the average of the scoreson variables 8 and 9; scale 4 is the average of the scores on variables 15 and 17; scale5 is the average of the scores on variables 1 and 14; and scale 6 is the average of thescores on variables 3, 4, and 5.

Table 8Problems Faced by Small Businessesa

Problems Mean StandardDeviation

1. Unreliable and Undependable Employees 3.28 1.432. Too Much Competition 2.88 1.373. Unable to Obtain Short-Term Financial Capital 2.30 1.434. Unable to Obtain Long-Term Financial Capital 2.47 1.385. Too Much Government Regulation 2.54 1.286. Limited Parking 2.21 1.497. Unsafe Location 2.13 1.408. Weak Economy 3.19 1.559. Lack of Management Training 2.60 1.27

10. Lack of Marketing Training 2.81 1.2511. Inability to Maintain Accurate Accounting Records 3.24 1.2812. Complex/Confusing Tax Structure 3.53 1.3613. Complicated Business Registration Process 2.63 1.2914. Poor Roads/Transportation 3.11 1.6615. Electricity Problems 2.84 1.53

a5 = very serious problem, 4 = serious problem, 3 = problem, 2 = minor problem,1 = not a problem.


accurate accounting records; and (4) aweak economy. Entrepreneurs in Turkeydo not appear to be as constrained byfinancial capital as entrepreneurs inother countries, such as Ghana (Chu,Benzing, and McGee 2007), Romania(Benzing, Chu, and Bove 2005) andVietnam (Benzing, Chu, and Callanan2005). In a study of Turkish womenentrepreneurs, Ufuk and Ozgen (2001b)found that the heaviest burden imposedon entrepreneurs was debt and taxpayments.

The results of the European Commis-sion (2007b) survey of SMEs in 30 Euro-pean countries partially support theresults of this survey. The EuropeanCommission survey found that the fourmost important barriers to innovationwere lack of financing, scarcity of skilledlabor, a lack of market demand, and thehigh cost of human resources. Half of theEuropean SME managers who were inter-viewed said they had recruitment prob-lems. In addition, SME owners in Europewere frustrated by a lack of marketdemand, which is sometimes attributableto a weak economy. The entrepreneursin the European sample were very con-cerned about government regulationwith 44 percent of owners indicating thatthey were operating in an overregulatedenvironment. In this study, entrepre-neurs in Ankara, Turkey do not believegovernment regulation is a very seriousproblem, nor do they report a seriousinability to obtain financial capital.

The four most critical problems toTurkish entrepreneurs will be discussedin the following subsections.

Confusing and Complex Tax Structure.According to the World Bank (2007b),Turkey’s overall business tax rate is notexcessive compared with the region orthe OECD. The total tax rate (as a per-centage of profit) facing a medium-sizecompany in Turkey is 45.1 percent. Thiscompares favorably with the region (50.8percent) and the OECD (46.2 percent).

However, when compared with othereconomies, the comparison is not asfavorable. For instance, in Singapore, thetotal tax rate facing a medium-size busi-ness is 23.3 percent, and in the UnitedKingdom, it is 35.7 percent. Many wouldargue that businesses in Turkey and theOECD pay too high an overall tax rate,which creates a drag on the economy.Excessively high payroll taxes lead to anincrease in informal hiring arrangementsand slower company growth. In addi-tion, by increasing noncompliance,higher tax rates undermine the taxsystem and reduce government receipts.

The complexity of a tax system isindependent of the tax rate, and accord-ing to this survey, is a serious problem inTurkey. The total hours a medium-sizedcompany spends preparing, filing, andpaying taxes in one year gives a goodindication of the administrative burdencreated by a tax system. According to theWorld Bank’s (2007b) Doing Businessreport, an average medium-sized busi-ness in Turkey spends 223 hours peryear paying its taxes. In contrast, similarcompanies in OECD countries spend183.3 hours paying taxes. When com-pared with other business-friendlyeconomies, the contrast is even moreapparent. In Hong Kong and Singapore,a medium-sized company only spends 80hours and 49 hours, respectively, inadministering its tax payments. High-income countries tend to have bothlower tax rates and less complex taxsystems. This decreases the cost burdenassociated with taxes and increasescompliance.

The Inability to Attract and Retain GoodEmployees. Although the inability toobtain good employees is a challenge forentrepreneurs in every country (Euro-pean Commission 2007b; Benzing, Chu,and Bove 2005; Benzing, Chu, and Cal-lanan 2005), the problem is more acutein Turkey because of the expense andburden related to hiring and firing


employees. According to the OECD(2006), Turkey has one of the mostrestrictive labor codes in the OECD. First,Turkey’s minimum wage is too high, asshown by Turkey’s ratio of minimumwage to the average value added perworker. Whereas this ratio is 0.57 forTurkey, it is 0.14 and 0.27 for Franceand Romania, respectively (World Bank2007b). Second, exorbitant firing costs(severance pay) increase the risk ofhiring incompetent employees. To fire anemployee in Turkey costs 95 weeks ofwages, whereas the cost in an OECDcountry averages 25.7 weeks of wages(World Bank 2007b). Third, Turkishlabor law places restrictions on nightwork, on “weekly holiday” work, andhours worked. As a result of these laborcost burdens, Turkish entrepreneursmust hire only the most competent, pro-ductive workers to survive. The pool ofthese workers is limited—as it is in everycountry.

Inability to Maintain Accurate Account-ing Records. Entrepreneurs in thissurvey also show a concern over theirinability to maintain good accountingrecords. Only 28 percent of the samplehad graduated college. As a result, themajority of the entrepreneurs in thissample are probably lacking in account-ing and marketing training. This may be aconcern across Turkey due to the insuffi-cient availability of business programs inthe higher education system. AlthoughTurkey has 76 institutions of higher learn-ing, only 33 percent of those personsbetween 18–21 participate in higher edu-cation. Of the students enrolled in highereducation, 45 percent are enrolled in theapplied social sciences, of which businessmanagement is one possible major (T.C.Yüksekögretim Kurulu 2007). The resultsof this study imply that there might begreat interest in two-year or nondegreeprograms in business. Because access touniversities is limited, Turkey’s two-yearschools might be better suited to provide

accounting and business coursework.A better understanding of accountingwould help entrepreneurs better measuretheir profitability and how to improve it.

Weak Economy. Finally, a weakeconomy was reported as another criticalobstacle preventing Turkish small busi-ness owners from achieving their goals.Cetindamar (2005) found that manyTurkish entrepreneurs experienced diffi-culties due to uncertainty in the eco-nomic and political environment. A studyof Kenya and Ghana (Chu, Benzing, andMcGee 2007) found that entrepreneursranked “a weak economy” as the mostserious problem experienced by smallbusiness owners. Among entrepreneursin Romania (Benzing, Chu, and Bove2005) “a weak economy” was the thirdmost serious problem. In a similar surveybeing done in Bulgaria, a weak economyis also emerging as a serious problem.Entrepreneurs in Vietnam and India didnot consider this a serious problem(Benzing and Chu 2005; Benzing, Chu,and Callanan 2005). A “weak economy”is a problem to entrepreneurs because itleads to a decline in consumption spend-ing and business investment. Thatdecline in demand decreases the rev-enues and profitability of all companies.

Thirteen of the 15 problem variablesloaded onto five factors. The results of aprincipal component factor analysis withan equamax rotation are reported inTable 9. Problem 4: “unable to obtainlong-term capital” and problem 8: “weakeconomy” did not load on any factor,and so they were omitted from the finalfactor model. The best fit model accountsfor 73.1 percent of the variability. Allfactor loadings are greater than 0.50, andall communalities are greater than 0.60.

The first factor includes problems 1, 2,and 3 and accounts for 15.9 percent ofthe variability. This factor includesproblem 1, which relates to unreliableand undependable employees, problem2: “too much competition,” and problem


Tab

le9

Pri

nci

pal

Com

ponen

tFac

tor

Anal

ysis

(Equam

axR

ota

tion)

Fac

tor

Load

ings

(Sort

ed)

and

Com

munal

itie

sfo

rP

roble

mV

aria

ble

s

Pro

ble

mFac

tors

Fac

tor

1Fac

tor

2Fac

tor

3Fac

tor

4Fac

tor

5C

om

munal

ity

1.U

nre

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1


3: “unable to obtain short-term capital.”The first factor has been named “marketproblems” as it relates to three importantmarkets: the labor market, the productmarket, and the financial market. Thesecond factor accounts for 15.6 percentof the variability and includes problems9, 10, and 11, and has been named “lackof business training.” The three problemsin this factor relate to the lack ofmanagement, marketing, and accountingtraining. The third factor is called the“location factor,” and includes limitedparking and an unsafe location. Thefourth factor is called “governmentalbureaucracy,” and is related to the busi-ness environment created by the govern-ment. The three problems in this factorare the business registration process,complex/confusing tax structure, and toomuch government regulation. The fifthfactor deals with infrastructure problemsand includes electricity problems andpoor roads/transportation.

As shown by the factor analysis resultsin Table 10, the summated scores onthese factors indicate that Turkish entre-preneurs are least concerned about loca-

tional issues related to parking andsafety. Based on the results of a Mann–Whitney test of the differences amongthe factor scores, the summated scale forfactor 3 was significantly lower thanevery other factor. Apparently, problemsof crime and parking are not rated veryseriously by entrepreneurs in Ankara.Locational issues might be more relevantfor small business owners in Istanbuldue to the overcrowding and traffic prob-lems there. Because there were no sig-nificant differences among the summatedscores on the other four factors, the item-by-item analysis of problems is more rel-evant when determining how to improvethe environment for SME businessowners in Turkey.

Discussion and PolicyRecommendations

Although the benefits of entrepre-neurship to economic development arebecoming clearer (Carree and Thurik2003; Audretsch and Thurik 2000; Acs,Carlsson, and Karlsson 1999; Reynolds1999), Turkish entrepreneurship must bemore actively supported by the Turkish


to Problema


StandardDeviation

Scale 1—Factor 1: Market Problems 2.819 1.153Scale 2—Factor 2: Lack of Business Training 2.899 1.040Scale 3—Factor 3: Location Problems 2.178 1.294Scale 4—Factor 4: Governmental Problems 2.900 1.011Scale 5—Factor 5: Infrastructure Problems 2.966 1.377

aSummated scales were calculated as average score across items contained in thatfactor. Scale 1 is the average of the scores on problems 1, 2, and 3; scale 2 is theaverage of the scores on problems 9, 10, and 11; scale 3 is the average of the scoreson problems 6 and 7; scale 4 is the average of the scores on problems 5, 12, and 13;and scale 5 is the average of the scores on problems 14 and 15.


government. According to Kozan, Oksoy,and Ozsoy (2006), Turkish small busi-nesses suffer from a lack of financialsupport, a high burden of taxes andregulations, and too few governmentprograms. This survey supports the per-ception that the tax system is viewed asa serious problem, with 57 percent ratingits complexity as a very serious orserious problem. However, this surveydoes not support the conclusion that alack of financial support and excessivegovernment regulation are serious prob-lems for Turkish entrepreneurs. Only 26percent saw the inability to secure short-term financial capital as a very serious orserious problem, and only 24 percentrated government regulation as a veryserious or serious problem. The Euro-pean Commission’s 2007 survey of SMEsin Europe supports this study’s conclu-sion that government regulation inTurkey is not a serious problem. Accord-ing to their results only, 25 percent ofTurkish entrepreneurs believe that gov-ernment regulations are too strict (Euro-pean Commission 2007b).

In addition, entrepreneurs in thissurvey did not appear to believe govern-mental programs are a significant ingre-dient for success. Forty-nine percent ofthe respondents to this survey thoughtthat governmental programs were eithernot very important or unimportant.Although governmental programs werenot viewed as a significant ingredient forsuccess, many of the problems facingbusiness owners could be reduced withchanges to the government’s tax policies,educational system, and labor laws. Rec-ommendations for each of the four mostserious problems are addressed in thenext four subsections.

Complexity of the Tax SystemThe most serious problem facing

entrepreneurs is Turkey’s confusing andcomplex tax system. Turkey has recog-nized this problem in its Ninth Develop-ment Plan. According to the Plan,

“. . . due to the complexity of the taxsystem and the large number of taxes,the cost of tax transactions remains high”(Republic of Turkey 2007, p. 83). Turkeyhas already made some improvements inits tax system. In its Doing Business2008, the World Bank (2007b) indicatesthat Turkey decreased its total tax rate onbusinesses from 53 percent in 2007 to45.1 percent in 2008 while also decreas-ing the time spent preparing, filing, andpaying taxes from 254 to 223 hours peryear. (The corporate income tax rateitself was recently decreased from 30percent to 20 percent.) This improvedTurkey’s ranking on paying taxes from85th place to 54th place out of 178nations, making Turkey the secondbiggest reformer in the world after Bul-garia (World Bank 2007b). However,more improvement can be made. As dis-cussed earlier, the number of hours abusiness spends dealing with tax issuesvaries widely, and can be as low as Sin-gapore’s 49 hours per year.

In 2006, Turkey began a process ofimproving the collection, service andadministration of the tax system. Forinstance, Turkey improved the techno-logical infrastructure of the RevenueAdministration and began an e-TaxDepartment automation project to allowfor electronic filing. In addition, a data-base (VERIA) was created to maintaininformation on the public and privatesectors (Republic of Turkey 2007).Finally, Turkey has moved toward onecitizen identification number for both taxidentification and social security iden-tification. The previous two numbersystems were causing a breakdown inthe ability to control and audit busi-nesses and individuals.

One of the goals of the Ninth Devel-opment Plan is to enact a new incometax law and tax procedure law in 2007.The objective reads: “Significant contri-butions will be made to combat the infor-mal economy through a simpler andmore effective tax system” (Republic of


Turkey 2007, p. 90). Turkey needs towork toward this goal with urgency toinsure a broadening of the tax base,lower tax rates, and greater compliance.By further automating and simplifyingthe tax system, Turkey will reduce theburden on small businesses, reduce thesize of the unregistered economy, andpromote macroeconomic stability.

Expanding and Improving theQuality of the Workforce

According to this study’s results, SMEentrepreneurs in Turkey believe that theinability to attract and retain reliableemployees is their second most seriousproblem. As described earlier, this mayrelate to the excessively high level ofpayroll taxes and an overly restrictivelabor code. It is difficult for employersin Turkey to find workers who will con-tribute a productive value in excess oftheir wage and the payroll taxes relatedto their employment. As a result, com-panies are unable to grow, and theyremain in the informal or unregisteredsector to avoid labor code compliance.Many SMEs find ways to avoid laborregulations and taxes by underreportingwages, firing workers before theybecome eligible for severance, andusing fewer female employees to avoidpaid maternity leave requirements. TheWorld Bank (2006) indicates thatapproximately one-third of all urbanworkers are employed in the informalsector, which means they are not regis-tered with the social security system, donot receive health insurance and unem-ployment insurance, and rarely receivethe full severance pay required underthe labor code. Turkey itself estimatesthat over 50 percent of the economy isunregistered, which amounts to a lossof $80 billion in tax revenues per year(Today’s Zaman 2007c). In an effort toprotect workers, the overly restrictivelabor code has instead led to their lackof protection as more are employed inthe informal sector.

In an effort to create more jobs andprovide incentives for companies to reg-ister, the World Bank (2006), and OECD(2006) have recommended that Turkeyreduce severance pay and other laborrestrictions while also reducing employerpremiums for unemployment insuranceand social security. Although the 2003Labour Code revision allowed for greaterusage of temporary employees, Turkeystill remains the OECD country with thesecond most restrictive employment lawsonly after Portugal. Streamlining therestrictions related to employment anddecreasing payroll taxes will increase theincentive for SME companies to hireworkers and expand. When companiesbecome part of the formal sector, it iseasier to enforce labor laws and broadenthe tax base, thereby increasing taxrevenue. In the long run, greater eco-nomic and fiscal stability will lead tomore job creation and growth.

Another way that Turkey couldincrease its available labor pool is toimplement programs that promotefemale participation in the labormarket. In 2004, only 44 percent of theadult population was employed, whichis one of the lowest employment par-ticipation rates in the world. This islargely the result of the low participa-tion rate of women. According to theWorld Bank (2006), only 27 percent ofTurkey’s working age women work. Arecent SEEurope.net paper (BulgariaEconomic Forum 2007) indicates thatthe female participation rate in urbanareas in Turkey is even lower at 17percent. The major reason that womendo not work is cultural. Women areexpected to marry and take care of thehome, children, and aging parents. Inrural areas of Turkey, 79 percent of thewomen work in unpaid agriculturalemployment. One of the goals of EU isto increase the employment rate to 60percent among EU countries and thoseseeking membership (Bulgaria Eco-nomic Forum 2007).


An increase in the Turkey’s labor poolmust be accompanied by an improvementin the level of worker education andskills. According to the World Bank(2007c), Turkey’s workforce is severelydeficient in its level of education andskills. As of 2005, only 40 percent of 20 to24 year olds in Turkey had a secondarydegree, which is half the rate forthe 15 EU countries and far below the85-percent target established by the EU(World Bank 2007c). Low secondaryenrollments and graduation rates coupledwith the relatively poor quality of second-ary education constrain the ability of stu-dents to pursue tertiary education. As of2004, Turkey’s enrollment rate in tertiaryeducation was 30 percent, and the gradu-ation rate was 11 percent among 25–34year olds. This is the lowest rate amongall OECD countries, where the averagegraduation rate is 31 percent (World Bank2007c). Female rates of participation arefar below the European Community (EC)norm as well. At the same time that uni-versity participation rates are low, theskills obtained at the universities are notadequate to meet the needs of potentialemployers. Turkish firms indicate thatuniversity graduates need better foreignlanguage skills, computer skills, commu-nications skills, and more practical expe-rience (World Bank 2007c).

The Ministry of Education in Turkeyrecently announced its education actionplan for 2008–2012. This plan is basedon the strategies and goals establishedin Turkey’s Ninth Development Plan(Republic of Turkey 2007). To improvethe information and communication skillsof all students, the government plans toprovide every school in Turkey withInternet access. To better match studentskills to the demands of the job market,the government will expand vocationaleducation, with special emphasis on pro-fessional and technical curricula. In addi-tion, the government has plans to expandaccess to tertiary education by increasingstudent stipends for tuition and allowing

expansion of private vocational schoolsand universities (World Bank 2007c;Republic of Turkey 2007).

Businesses themselves can influencethe labor pool and improve hiring out-comes by engaging in partnerships withuniversities and MYOs and using moresophisticated recruitment techniques.Small firms can benefit from internshiprelationships because they allow firms toassess employee performance beforemaking a permanent hire. In addition,internship pay is usually less. Businessesshould contact universities and MYOsthat have internship programs to seehow they can get involved. In addition,small business owners need to haveaccess to training in recruitment tech-niques. The use of newspaper advertis-ing and employment agencies couldincrease the size and quality of applicantpools and improve hiring outcomes.Finally, with improved access to unem-ployment compensation, more jobseekers will be listed as unemployed onthe government rolls. The Turkish gov-ernment could use that list to help matchjob openings to unemployed persons.

Providing Business TrainingEntrepreneurs in this survey were also

concerned about their inability to main-tain accounting records. Turkey hasstruggled to make higher educationavailable to those graduating from thesecondary education system, but moreresources need to be channeled towardimproving the availability of businesseducation in Turkey. Like most coun-tries, there is a shortage of studentsgraduating with accounting degrees.Incentives must be created to increasethe numbers of such graduating stu-dents. Expanding distance education,particularly in business disciplines,might partially address the trainingneeds of small business owners. Turkey’suniversities have already tried to meetthe growing demand for higher educa-tion by expanding distance education,


but more can be done (T.C. Yüksekö-gretim Kurulu 2007). Partnering withother European and U.S. universitiescould help attract the needed resources.In addition, offering more part-time,nondegree business classes in facilitiescloser to entrepreneurs could improveavailability. According to Ufuk andOzgen (2001b), entrepreneurs in Turkeyare willing to participate in training pro-grams aimed at improving their businessknowledge of communication methods,marketing, and accounting.

Finally, the Ninth Development Planplans to expand access to business infor-mation by establishing a single pointinformation portal for information on dif-ferent industries, Information and Com-munication Technologies (ICT) usage,and how to conduct business. The Minis-try of Industry and Trade will most prob-ably be in charge of such outreach andbusiness training; however, the involve-ment of many overlapping governmentagencies, as suggested by the Plan, couldlead to less effective implementation. Oneagency or group needs to coordinate thiswith the help of local educational institu-tions and business associations. Perhapsthe information portal could be foldedinto the already existing one-stop-shopsestablished in 2006. Although these one-stop-shops were designed to coordinatestart-ups and help with permits, theycould be expanded to include the busi-ness training of entrepreneurs. Sincemaintaining accounting records seems tobe a serious concern, these informationportals should also provide subsidizedtraining in accounting software like Quik-books and aid in the purchase of account-ing software and computers.

It is important to make entrepreneursaware of the availability of businesstraining by appropriate outreach activi-ties. The Turkish government shouldundertake a public relations campaign toensure that small business owners areknowledgeable about training coursesand other initiatives.

Economic StabilityA weak, unstable economy is of

concern to entrepreneurs in any countrybecause it leads to reduced purchasingpower and demand. According to theEuropean Commission (2007b) 46percent of SMEs in the EU-27 are con-cerned with customers’ purchasingpower or limited demand. Luckily forsmall business owners in Turkey, thenation’s economy has been surprisinglystrong and stable since its financial crisisin 2001. The Turkish economy has aver-aged 7 percent real annual GDP growthduring the last five years, and hasachieved single-digit inflation and unem-ployment. (Turkey is expecting its 2007real GDP growth rate to slow to 5–6percent.) Fiscal and monetary restraint,political stability, and a probusiness gov-ernment are largely responsible for thisgrowth. Turkey is on track for continuedgrowth and low inflation, but there arestill a number of challenges facing theTurkish government.

To remain on the right economictrack, Turkey must expedite reformssuggested by the IMF (2007). The IMFhas urged Turkey to continue financialsector privatization, to reform socialsecurity and bank supervision, and tocontrol government spending (especiallyon pensions and health). Turkey hasalso been urged to maintain tight mon-etary and fiscal policy in an effort tocontinue GDP growth at 5 percent whilemoving toward its 4 percent target infla-tion rate. Turkey is working with theIMF to keep its economy moving in theright direction. Turkey plans to continuereducing its ratio of public debt tonational income and modernizing itstax administration (Republic of Turkey2007). In addition, Turkey plans toimplement social security and healthcare reforms sometime during 2008.Under the current proposal, the socialsecurity system will encourage all busi-nesses through a system of incentivesand penalties to pay employee insur-


ance premiums, which will increasesocial security receipts thereby reducingthe social security deficit. It will alsoplace all workers under a single socialsecurity system, increase the minimumretirement age, and provide free healthcare for anyone under 18 years old(Today’s Zaman 2007c).

If Turkey continues its fiscal and mon-etary vigilance, combined with other IMFrecommendations, it can insure the busi-ness community that economic growthand stability will continue. This eco-nomic strength will encourage SMEgrowth and promote private sectorhealth in Turkey.

The Role of Business AssociationsEntrepreneurs in Turkey can influence

the private economy and their chancesfor business success by actively lobbyingfor probusiness legislation. Businessassociations provide the structure andsupport for successful lobbying activi-ties. Business owners who wish to influ-ence Turkey’s economic future shouldseek active membership in organizationssuch as the Chamber of Commerce,Chamber of Industry, MUSIAD, and/or asector-based association. Because allcompanies must register with theChamber of Commerce (Turkish Law no.5174), Turkey already has one of thelargest Chambers of Commerce in theworld. The Istanbul Chamber of Com-merce, which was voted the “BestChamber in Europe,” has 300,000members (http://www.ito.org.tr).

These organizations also have theability to provide business trainingthrough various outreach activities. TheIstanbul Chamber established the ISTAN-BUL University of Commerce, whereasthe Izmir Chamber established the IzmirEconomics University to provide voca-tional and business training. Ankara hasboth a Chamber of Commerce and aChamber of Industry, but they have yetto develop the clout that the IstanbulChamber has.

Other more specialized associationslike the Istanbul Textile and Raw Mate-rials Exporters Association and the Shop-ping Malls and Retailers Association(AMPD) promote the interests of Turkishbusinesspersons by lobbying govern-ment officials and providing informationon technological advances and foreigncompetition within a sector. Some ofthese industry associations supportsimilar goals such as tax simplificationand public debt reduction, but in somecases, their goals are in conflict. Whilelobbying for their own interests, associa-tion members must learn to balanceindustry needs with the goals of othersectors and the country as a whole.

Summary and ConclusionThis survey of 139 SME entrepreneurs

in Ankara, Turkey indicates that likemany other entrepreneurs around theworld, the primary motivations for start-ing a business are to increase incomeand obtain job security. These incomemotivations dominate the internalreward motivations related to indepen-dence and intrinsic motives. If entrepre-neurs are motivated primarily by incomepotential, then increasing the profitabil-ity of business ownership should encour-age more SME start-ups. Simplifyingregistration/licensing, revising the laborcode, and reducing payroll taxes area few ways to increase businessincome and encourage further SMEdevelopment.

According to this survey’s results,entrepreneurs in Turkey believe the mostimportant SME success items are a repu-tation for honesty, and friendliness, andcharisma. Based on the factor analysis, afactor we call the “reputation” factor,which included honesty and social skills,was the most important success factor.Because these factors are largely underthe entrepreneur’s locus of control, itmeans that entrepreneurs in Turkeybelieve they can influence their ownbusiness success. This attitude empowers


http://www.ito.org.tr

entrepreneurs and can lead to lowerlevels of stress. Based on the resultsof this study, entrepreneurs in Turkeyview government support and politicalinvolvement as relatively unimportant totheir success.

Finally, the item analysis of problemsindicates that entrepreneurs in Turkeyare most concerned about the complexand confusing tax system, as well as theirinability to attract and retain reliableemployees. These concerns can beaddressed with a decrease in payroll taxrates, a revision in the labor code toallow greater employment flexibility, andan improved educational system. Thethird and fourth most serious problemitems were the inability to maintain accu-rate accounting records and a weakeconomy. As discussed earlier, the gov-ernment needs to actively support busi-ness education at the vocational anduniversity level, especially accounting, inconjunction with increases in govern-ment and association-sponsored busi-ness training. With respect to economicpolicy, Turkey should stay the course onfiscal and monetary policy. However,Turkey must also expedite IMF recom-mendations to reform the financialsector, reduce the public debt, andmodify the social security system.

To date, some positive steps havebeen taken by the Turkish governmentto assist SME owners, such as the estab-lishment of the KOSGEB, but moreshould be considered. Turkey canencourage the creation of more SMEs bymaking entrepreneurship a more profit-able employment opportunity. A simpli-fication of the labor code, a decrease inpayroll taxes, and greater technical assis-tance and business education, especiallyin the areas of accounting, marketresearch, human resources management,and technological support, would helpenergize the Turkish economy. In sodoing, a new class of well-trained, highlymotivated entrepreneurs can createmuch-needed jobs and make Turkey’s

economy more competitive with that ofcountries already in the EU.

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