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

58–91

Entrepreneurs in Turkey: A Factor Analysis of Motivations, Success Factors, and Problems
by Cynthia Benzing, Hung Manh Chu, and Orhan Kara

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

Introduction
Turkey has long been regarded as a strategic link between Europe, Asia and the Middle East. Its unique geographic position and political system are major reasons why Turkey has caught the interest of business researchers in recent years. Turkey straddles two continents and two economic worlds: in the west are the more developed economies of

the European Union (EU), while in the south and east are less-developed countries from the Middle East and the former Soviet Union. It shares borders with Azerbaijan, Armenia, Bulgaria, Georgia, Greece, Iran, Iraq, and Syria, and controls shipping traffic in and out of the Black Sea. In addition to its strategic geographical position, Turkey has a political system unique among Muslim cultures. Although 99.8 percent of

Cynthia Benzing is a professor of economics and finance at West Chester University of Pennsylvania. 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: cbenzing@wcupa.edu; cdbenzing@aol.com.

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Turkey’s population is Muslim, it is a secular democracy with the potential for even greater individual rights and freedoms. Europe has long recognized Turkey’s importance as a trading partner and a military partner. Turkey has been a NATO member since 1952, and was an associate member of the EU, formerly the European Economic Community from 1963 to 1999. In 1999, Turkey was recognized as a candidate for full membership in the EU, but the membership talks that began in October 2005 have been contentious. Turkey has made some progress in meeting EU requirements, but its lack of progress on minority rights, freedom of speech, and recognition of Cyprus has hurt Turkey’s progress toward accession. Europe has always had an ambiguous attitude toward Turkey’s membership in the EU. Although most Europeans understand the need for a close relationship with Turkey, some nations fear being overwhelmed by the economic needs of Turkey’s 71 million citizens. As of 2005, 20 percent of the Turkish population still lived below the poverty line, and Turkey’s GDP per capita (in purchasing power standards) was just 28.5 percent of the EU’s GDP per capita. (Eurostat 2007; Turkish Statistical Institute 2007). To help Turkey meet its economic goals, the EU has committed €682.7 million in “preaccession financial assistance” for 2008, and has plans to continue financial aid through its many outreach programs. (European Commission 2007a). Even if Turkey does not become a full member of the EU, it will need to continue to work with the International Monetary Fund (IMF) and its other economic partners to create an environment conducive to the development of entrepreneurship. Because a strong private sector is essential to long-term economic growth, this study examines the behavior of 139 small business owners in Ankara, Turkey to determine their motives,

needs, and problems. Through a better understanding of their concerns, Turkey can work toward creating a business environment that will contribute to a stronger, more stable economy and bring Turkish incomes closer to those of other EU nations.

Background
It has been widely agreed that there is a positive correlation between economic growth and entrepreneurship (Acs and Audretsch 2003; Audretsch and Keilbach 2003; Carree et al. 2002). Empirical researchers indicate that the contribution of entrepreneurship to economic development is significant, especially in the area of employment creation. The importance of small firms to the strength of economies in the United Kingdom, Europe, and the emerging countries of the Far East is well established. In the United Kingdom, 99 percent of the businesses are small businesses that account for 59 percent of the nation’s employment (Small Business Service 2006). In Europe, 99.8 percent of the business enterprises are small and medium-sized enterprises (SMEs) that employ twothirds of the total workforce (World Bank 2007a; European Commission 2003). Japan has 6 million SMEs that account for 99.7 percent of all businesses in the country and 70 percent of the total labor force (METI 2007), while South Korean SMEs provide 80 percent of all jobs in the country (Euromonitor International 2006). According to Schaper’s (2006) study, at least 97 percent of all firms in 19 European countries, Australia, New Zealand, the United Kingdom, and the United States are SMEs. And of those SMEs, the largest single group is microenterprises, which make up 82 percent of the firms in Australia and 92 percent of the firms in 19 European countries. SMEs play a similar role in Turkey’s economy. As of 2000, SMEs accounted for 99.8 percent of the total number of

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enterprises and 76.7 percent of total employment (OECD 2004). Among Turkish manufacturing firms, 99.3 percent are SMEs (1–150 employees), employing 56 percent of all manufacturing workers (Republic of Turkey Ministry of Industry and Trade 2006). Because of its importance, the Turkish government has made a commitment to support the growth of the SME sector by ratifying the European Charter for Small Enterprises in 2002 and participating in the Multi-Annual Programme for Enterprise and Entrepreneurship (OECD 2004). The government’s major agency of SME support is the Small and Medium Industry Development Organization (KOSGEB), which is part of the Ministry of Industry and Trade. Its primary goal is to “improve [the] SMEs share and efficiency in [the] Turkish economy and enhance their competitive capability” (Republic of Turkey Ministry of Industry and Trade 2006). In this role, it is charged with improving the training, financing and managerial skills of SME entrepreneurs (Republic of Turkey Ministry of Industry and Trade 2006). Turkey’s Ninth Five-Year Development Plan includes objectives and targets to improve the country’s business environment. The plan would increase SME access to financial markets, improve Turkey’s infrastructure, and facilitate the usage of new communication technologies (Republic of Turkey 2007). As will be discussed later, the five-year plan also recognizes the need to reduce the complexity of the tax system. Although EU membership could still be 10–15 years away, the Turkish government has been preparing for accession to the EU for many years. As part of its preparation, Turkey has curtailed government debt as a percentage of GDP, reduced the size of the public sector, reduced inflation, and freely floated the Turkish lira. The Turkish economy has improved dramatically since its financial crisis in 2001. Inflation has dropped from 70 percent in 1999 to about 9 percent in

2006 (Turkish Statistical Institute 2006). Real GDP growth was a healthy 7 percent in 2006, and is expected to amount to 6 percent in 2007, putting its real GDP per person slightly lower than Romania (Madslien 2006). In 2006, unemployment was approximately 9.1 percent, although nonagricultural unemployment was slightly higher at 12 percent (Turkish Statistical Institute 2006). Despite these improvements, Turkey’s economy faces ongoing fiscal problems. Increases in government spending planned for 2007 may increase the debt and current deficit, which could lead to double-digit inflation again. As a result, the International Monetary Fund (IMF) and Organisation for Economic Cooperation and Development (OECD) have called for renewed fiscal vigilance requiring improvements in Turkey’s tax system, financial sector, and pension planning (Today’s Zaman 2007; Madslien 2006; OECD 2006). Because of the importance of entrepreneurship to the growth and stability of the Turkish economy, this study examines the motivations, success factors, and problems facing entrepreneurs in Turkey. However, the results of this survey go beyond Turkey, and can be applied with caution to other economies as well. The study of entrepreneurship is still in its nascent stage, and much remains to be understood about the motivations of entrepreneurs and their success factors. This study contributes to a better understanding of entrepreneurial theory by providing further evidence about the primary motivators, what entrepreneurs believe they need for success, and their problems.

Literature Review
Because literature on Turkish entrepreneurship is somewhat limited, reliance on studies of small businesses in other countries and regions of the world is necessary for a more complete understanding of the motivations, perceived

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Chu. and problems of small business owners in Turkey. entrepreneurs in Turkey are motivated to start their own businesses to provide security for themselves and their family. A study of entrepreneurs in Kenya and Ghana (Chu. income and job security needs were significantly stronger motivators than self-satisfaction and per- sonal needs (Benzing. In their study of Vietnamese small business owners. Similarly.success factors. and Szabo 2005). India were most strongly motivated by the desire for interdependence/autonomy. work freedom. According to Ozsoy. Other important motivations are a desire for flexibility. however. entrepreneurs in Andhra Pradesh. and Roger concentrated on the relationship between motivation and business success. and Naffziger and Robichaud. Because Kuratko. A study of motivation by Benzing. Entrepreneurs in Ho Chi Minh City were more motivated to start a business for personal satisfaction and growth. and to be his/her own boss. AND KARA 61 . CHU. discovered a regional difference in Vietnam. McGraw. (2001) found that personal and family security were the primary reasons for entrepreneurs to start a business. Roy and Wheeler (2006) found that microenterprise owners in West Africa were motivated by a desire to satisfy basic physiological needs—food and shelter. whereas those in higher income countries are driven by higherorder needs like self-esteem and selfrealization. Findings from their studies show that motivation falls into four categories: (1) extrinsic rewards. they did not indicate which motivations were the strongest among entrepreneurs. freedom. and Naffziger (1997) and Robichaud. Benzing. (2) independence/autonomy. According to Cetindamar (2005). In general. and independence (Bewayo 1995). and Callanan (2005). Hornsby. Chu. Pistrui et al. and (4) family security. “to make a direct contribution to the success of a company. that is. Hornsby. whereas intrinsic motives are related to self-fulfillment and growth. In Africa. and Roger (2001) surveyed North American entrepreneurs to determine how motivation relates to business success. whereas entrepreneurs in Hanoi were more motivated by the need to create a job for themselves and family members. to be their own boss. gaining work independence is the most important motivation for Turkish entre- BENZING. Since Hanoi suffers from a weaker economy and a higher jobless rate than Ho Chi Minh City. The motivating factors may differ across countries due to differences in income levels and employment opportunities. In contrast. Findings from the study also showed that a majority of entrepreneurs (61 percent) preferred business ownership over working for a corporation because of autonomy. it appears that micro and SME entrepreneurs in low-income countries are more likely to be motivated by income needs.” and to increase income. entrepreneurs in Hanoi may be more motivated by income and security needs. Kuratko. and Kozan (2001). The second strongest motivator was to increase their income (Benzing and Chu 2005). and McGee 2007) found that the strongest two motivators were to increase income and to provide themselves with employment. Extrinsic motives are the economic reasons that entrepreneurs work. Ugandan entrepreneurs indicated that “making a living” or “making money” is the most important reason for their business ownership (Bewayo 1995). McGraw. In Romania. (3) intrinsic rewards. Motivations of Entrepreneurs A number of surveys of entrepreneurs provide insight into the motivational aspects of the entrepreneurial experience. Oksoy. Swierczek and Ha (2003) found that challenge and achievement were more significant motivators than necessity and security. In their study of entrepreneurship in China.

Reu. and Hoorn. Gosh. According to Frese. Kim. this study does not attempt to measure or determine these traits in the survey respondents. to meet the family’s needs. high income. Hodgkinson (2001). Covin and Slevin 1989). and (3) the external environment. at the same time. managerial skills. Koop. Frese. consequently. Learning more about business owners’ motives could help policymakers design a variety of programs to motivate the creation of new businesses and to support the continuation of existing SMEs. one may speculate that business owners might be more motivated by extrinsic rewards such as increasing income and creating a job for themselves than by intrinsic or independence motives. and the business environment. attitude toward risk. and Covin 1997. and Hoorn 2002. to initiate social contacts. this study seeks to determine what other factors the entrepreneurs themselves perceive as necessary for business success. but they are often moderated by experience and training. Chu. whereas environmental conditions would be related to satisfactory government support. Based on a 1996 survey of Turkish female entrepreneurs. Instead. Most entrepreneurial studies have concentrated on a few sets of variables: (1) the psychological and personality traits of entrepreneurs. Other researchers (Rauch and Frese 1998. Yusuf 1995. and Meng 1993. Other psychological attributes such as a drive for independence. specific managerial skills. Benzing. higher-order needs for personal fulfillment may have taken hold. Because the Turkish economy has experienced erratic performance. and Hoorn (2002). and Callanan 2005. and personal satisfaction. Dess. training. and Covin 1997. This study will hopefully contribute to an understanding of the forces that motivate entrepreneurs to start a business. Lumpkin. and Olson and Bokor (1995) found that the ability to engage in strategic planning is related to entrepreneurial success. Other crucial motives include the creation of employment opportunities. in order of importance. and Bove 2005. Covin and Slevin 1989) agree that psychological traits contribute to business success.preneurs working in technologyproducing firms. However. Brantjes. Dess. and environmental conditions are factors more easily developed and altered by policymakers. With respect to psychological and behavioral traits. Brantjes. Covin and Covin 1990. and support of family and friends. Benzing. and a competitive nature have also been found to relate to success (Frese. and to experience selfactualization. In contrast to psychological traits. Turkey is considered a middle-income country. and these traits are often inherent in the entrepreneur’s psychological make-up. Female business owners in Turkey indicate that gaining work independence and creating an employment opportunity are the most important reasons for starting a business (Cetindamar 2005). Ufuk and Ozgen (2001a) found the primary motives for becoming an entrepreneur were. (2) the managerial skills and training of entrepreneurs. Managerial skills would include the ability to manage personnel and maintain accounting records. Since the accurate measurement of psychological traits requires psychological testing. Benzing. Benzing. Huck 62 JOURNAL OF SMALL BUSINESS MANAGEMENT . innovative orientation. Chu. and Frese 2000. Numerous studies of entrepreneurs in developing countries (Chu. Success Variables The variables that contribute to the success of small businesses are not unanimously agreed upon by researchers. these attributes are especially important when an entrepreneur is working in a difficult business environment. Brantjes. and McGee 2007. Lumpkin. and Szabo 2005. Chu. access to capital.

the environmental characteristics included interest rates. managerial skills. Finally. Oksoy. Specific competencies within those areas were maintaining financial records. interpersonal skills. According to a study of Ghanaian and Kenyan entrepreneurs. attitude toward risk. and a sense of independence. access to capital. In a study of Turkish entrepreneurs. with customer service the second most important variable (Chu. CHU. In Huck and McEwen’s (1991) study of Jamaican small business owners. education. and a simple organization structure. The laws governing private enterprise.and McEwen 1991. Problems Facing Entrepreneurs The problems facing entrepreneurs in developing countries are often quite similar. AND KARA 63 . Chu. In a study conducted among Kenyan entrepreneurs Neshamba (2000) found that the owner–manager’s previous experience. technical assistance. Turkish entrepreneurs need market information. Chu. Pratt’s (2001) study of Kenyan entrepreneurs found the availability of capital. extroversion. The entrepreneurial values were psychological in nature and included characteristics such as intuition. are overly complex BENZING. Benzing. They found four success factors: entrepreneurial values. entrepreneurs rated three factors as particularly important to their success: hard work. Perceptions of success factors may be partially determined by the education of the entrepreneurs. entrepreneurs in most developing countries face an unstable. Factors that were not considered important were government programs and training programs. and governmental assistance. and training in finance and marketing to accumulate the resources necessary for expansion. Similarly. and good product quality (Coy et al. First. experience. personal qualities. possessing human relations skills. In a 2003 survey. In a recent study of small business owners in Pakistan. and support of family members are essential for business success. 2007). and good interpersonal skills. and Callanan 2005). Kozan. with “a good product at a good price” a close second (Benzing. and hard work were viewed as important success variables. taxes. access to financing. good employee relations. Managerial skills included variables such as having a niche strategy. information resources. an effective budget system. and/or the extent of government assistance. the competitive level of the market. To be specific. highly bureaucratic business environment. a reputation for honesty. and Ozsoy (2006) found that business management training and financing are significantly related to an SME owner’s expansion plans. In a study done by Yusuf (1995). flexibility. South Pacific islanders considered good management skills. The interpersonal skills factor was comprised of good customer relations. planning and budgeting. possession of business skills. understanding the needs of customers. Ibrahim and Goodwin (1986) conducted a factor analysis of the variables contributing to successful small businesses in Canada and the United States. Romanian entrepreneurs ranked friendliness to customers. especially business registration and taxation systems. Vietnamese entrepreneurs selected “friendliness toward customers” as the most important success factor. hard work was considered the most important success factor. Busch 1989) have sought to determine the management skills and environmental conditions most critical for their success. and Bove 2005). and McGee 2007). and environmental characteristics. and satisfactory government support the most critical success factors. good customer service. three areas were identified as the most important competency areas: management. and marketing/selling. and establishing goals and objectives. and good customer service as the top three success factors (Benzing. previous experience.

Little. and employment laws. and McGee 2007. and Ozsoy (2006) contend that inadequate financing significantly impedes the ability of Turkish business firms to grow. and Pratt (2001). although they employed 50 percent of the workforce that same year. Pratt 2001). Kozan. Mazumdar. Benzing. and Kozan (2001). and Stevenson (1998). the World Bank. entrepreneurs complain of long delays in getting approval for trade licenses and business registration. Although the microfinance system is underdeveloped in Turkey. A majority of these problems are derived mostly from the community’s view of a woman’s place in society (Ufuk and Ozgen 2001b). Contract and private property laws are often poorly designed and/or enforced. According to Cetindamar (2005). the bureaucracy in public offices. and too much competition. Benzing. With regard to the problems encountered during the start-up phase. and Lutabingwa (1997). and Lutabingwa (1997). Oksoy. Complicated tax forms. limited access to financial capital. and outright misinterpretation of laws are common problems faced by small business owners in Kenya (Chu. Turkish entrepreneurs appear to face some of the same bureaucratic difficulties. Every government has the potential to encourage and support business development through effective tax policies. and Page (1987).and difficult to understand. licensing procedures. and McGee (2007). KOSGEB has recently established Business Development Centers to provide training as well as start-up financing for 500 women entrepreneurs over the next three years (Can 2007). As pointed out by Kozan. Chu. and at customs is viewed as the most serious problem facing entrepreneurs in Turkey. Ivy (1997). other problems faced by entrepreneurs in developing and transition economies include a generally weak economy. Oksoy. Pope (2001). and Ozsoy (2006). Another problem common to entrepreneurs in developing countries is overregulation. Bureaucratic procedures and a lack of prior experience are also critical barriers to their success. and Callanan (2005). it can stifle the very economic growth it was designed to promote. With support from the EU. and Spring and McDade (1998). Chu. other microfinance projects are under consideration. The Effect of Gender on Problems The gender of a business owner may influence the problems he or she faces in Turkey. Business owners must rely on family resources to meet their financial needs. Turkish SMEs only received a paltry 3–4 percent of loanable funds in 2005. As described by Gray. SME owners in developing and transition economies often complain about insufficient capital. small business owners in Turkey report similar problems obtaining loans from governmental and/or private institutions. The second most critical problem is unstable and uncertain state policies. the unfavorable institutional/regulatory environment is often accompanied by the added expenses of corruption and bribery. Turkish women entrepreneurs experience many difficulties in starting and running a business. Cooley. and the International Finance Corportation (IFC). Cook (2001). Chu. but when a bureaucracy becomes too burdensome or redundant. According to Ozsoy. which often results in lengthy and costly delays in clearances and approvals (Macculloch 2001). Peel and Wilson (1996). As described by Benzing. In Kenya. Cooley. Ufuk and Ozgen found that 88 percent of women entrepreneurs consider an inability to obtain capital the most important obstacle. municipalities. As described above the major problems reportedly facing entrepreneurs in Turkey relate to government bureau- 64 JOURNAL OF SMALL BUSINESS MANAGEMENT . Kiggundu (2002). Levy (1993). According to Benzing. and Bove (2005). Mroczkowski (1995). an inability to hire reliable employees. Oksoy. Gray. heavy control by government.

lumber. Other industries include tractors. carpets and textiles. Compared with Istanbul’s 12–14 million residents. a weak economy and a traditional view against business ownership by women. Survey and Methodology The definition of an SME varies from organization to organization and from country to country.cracy. The city’s population is already large enough to create a sizable domestic market for services and products.001. which includes all types of businesses. and industrial/administrative base create an attractive domestic market. Ankara serves as the country’s administrative and diplomatic center and is home to all foreign embassies. six businesses were closed or otherwise not reachable and 32 businesses either declined to answer the survey or ended the survey prematurely. which is a 78. Ankara’s strategic location. an associate professor of education at Erciyes University in Turkey. According to the OECD and UN-ECE. with nine large shopping malls already built and a dozen other shopping centers in the planning stages (Hawkes 2007). It is also the educational center of Turkey.6 million by 2010 (Ankara Chamber of Industry 2007). Tourism has become increasingly important and has stimulated growth in the service industry. an SME has less than 250 employees. Surveys lasted from 20 minutes to one hour. some of the country’s largest construction companies and defense industries have relocated to Ankara. The two interviewers were educational specialists employed by the Presidency of Religious Affairs of the Republic of Turkey as government employees. Using simple random sampling Dr. lack of financing. furniture. CHU. Ankara was chosen for the survey because of its potential for economic growth through the development of its small business sector. from small businesses to corporations. and beer and wine. Results of this study will provide more insight into the ongoing problems encountered by entrepreneurs so that better measures can be taken to promote the growth of entrepreneurship.2 million is expected to grow to 4. but outside their official capacities. vegetable oil.) Of the 200 businesses selected. flour. (The total number of businesses registered with the Ankara Chamber of Commerce Directory is 115. Mustafa Celikten.5 percent response rate. Although Istanbul is larger. paint. population. 139 businesses answered the survey questions. BENZING. with an average interview lasting 30 minutes. The city is also home to the second largest airport in Turkey. which will cut travel time by almost two-thirds (Today’s Zaman 2007). Although some businessmen concede that Ankara will never be bigger than Istanbul. A new Ankara–Istanbul high-speed train is planned for 2008. Located in the center of Turkey. AND KARA 65 . Data used in this study was collected under the supervision of Dr. The definition used in this study is based on the number of employees and is currently used by the OECD (OECD 2005) and the United Nations Economic Commission for Europe (UN-ECE 2006). Ankara’s population may seem small. In recent years. The surveys were not conducted as part of their governmental jobs. 23 businesses were excluded because they employed over 250 persons. However. it has become a modern retailing center.922 entrepreneurial establishments (proprietors) registered with the Ankara Chamber of Commerce Directory. pasta. during the summer of 2006. As the capital of Turkey. Celikten selected 200 businesses from the 37. Ankara’s current population of 3. Out of the 177 businesses in the sample. with 10 well known universities. Of the 177 remaining businesses. Ankara lies along the main East–West rail line across Turkey and is connected to Europe via the Trans-European Motorway.

758 and 0. the alpha was 0. and Ghana (Chu. and McGee 2007. Chu. and Kuratko. perceived success variables. A summated scale or score was calculated for each factor to determine which factor had the greatest influence on the business owners. and 9 percent as female. For the perceived success variables.” and 1 was “not a problem. Benzing. For the problem items. Romania.850. Many problems in the survey are common to entrepreneurs in both transition and developing countries. the alpha was 0. Hornsby.” 2 was a “minor problem. and the split-half coefficient was 0. Benzing. Correlation analysis. For motivations and perceived success variables: 5 was “extremely important. success variables. Kenya. Once Turkish women marry. This finding is consistent with previous studies on Turkish entrepreneurs (Kozan.7 percent of the Turkish labor force. perceived success variables and problems were measured using a fivepoint Likert scale. It was translated into Turkish and checked for intertranslator consistency. Each summated scale is an average of the Likert scores on the variables included in that factor. McGraw. Ozsoy. respectively. The item-by-item analysis was followed by a factor analysis to determine whether the motivations. and Kozan 2001) and the role of Turkish women in the labor force. The Wilcoxon rank sum test was used instead of a t-test because the scores were not normally distributed as determined by the Anderson–Darling test.The questionnaire was originally designed and written in English. and the split-half coefficient was 0. Oksoy.754.795. principal component analysis. To determine if the score on one variable is significantly different from the score on another. and Callanan 2005. Cetindamar 2005. and problems group together on significant factors.” 4 was a “serious problem. and the problem items. the Wilcoxon rank sum test was used (also called the Mann–Whitney test). and a scree plot were used to establish the factors.” 3 was “mildly important. Chu (Chu and Katsioloudes 2001) and has been used in studies of entrepreneurs in Vietnam. and Roger (2001).745. and Szabo 2005). Benzing. Results Sample Characteristics As shown in Table 1. The questionnaire used in this study was developed by Hung M.” 4 was “very important. and Naffziger (1997). When analyzing ordinal data that has non-normal distribution. Benzing and Chu 2005.” 2 was “not very important.” 3 was a “problem. The reliability of the survey instrument was deemed satisfactory since the Cronbach alphas and Guttman split-half coefficients were relatively high for the motivation items. and Ozsoy 2006. the Wilcoxon test provides a more powerful test of the difference between two population medians (Hollander and Wolfe 1999). India. 91 percent of entrepreneurs surveyed identified themselves as male.” A higher mean score on a variable would indicate greater importance. Women only comprise 26. The strengths of the motivation variables. a principal component factor analysis with an equamax rotation was used to determine the factor loadings and communalities. The alpha and the splithalf coefficient for the motivation items were 0. The Wilcoxon rank sum test was used to determine if one summated scale (factor) was “significantly” different from another. they often leave the labor 66 JOURNAL OF SMALL BUSINESS MANAGEMENT . the Wilcoxon test is a more powerful statistical test of the differences given that the data is non-normally distributed. Oksoy. with the highest participation rates in the 25–29-year-old group.837. The motivation variables are similar to those suggested in the work of Robichaud. As explained earlier.” and 1 was “unimportant. Then. Chu.” For problem variables: 5 was a “very serious problem.

4 42 14 27 24 16 16 66.1 32. a secular European law was adopted.1 6. Arslan 2000).4 4.4 92 28 10 13.3 12. Percentages are based on the total number of respondents (139).Table 1 Sample Characteristics of Small and Medium-Sized Entrepreneurs in Turkeya (N = 139) Frequency Entrepreneurial Characteristics Gender Male Female Average Age of Entrepreneur (years) Level of Education No Formal Education Some Grade School Completed Grade School Some High School Completed High School Some College Completed College Graduate Degree Enterprise Characteristics How the Business Was Established Established by You Bought from Another Inherited Average Age of Business (years) Average No. Two respondents declined to answer the question related to their education.4 17. When the Republic was founded in 1923.6 0.4 5.2 10.6 23. CHU.5 11. Table 1 also shows that the average age of entrepreneurs is 41 years. With BENZING. consequently percentages may not total to 100 percent.4 8. nine respondents declined to answer how their business was established.1 7.9 1.1 1 21 17 7 44 9 32 6 91.1 19.3 11.6 24. of Part-Time Employees Type of Business Retailing Wholesaling Service Manufacturing Agriculture Multiple Types of Business a Percent 127 12 41.7 15.2 20. but the number of women in business and in the work force has remained low (Ufuk and Ozgen 2001b.5 Not all respondents answered all questions. allowing women to play a more important role in every aspect of Turkish life. of Full-Time Employees Average No. force to become housewives and mothers (Turkish Statistical Institute 2006). AND KARA 67 .2 30.

and Szabo 2005). Retail businesses comprise 30 percent of the sample. Benzing. Benzing. Nine respondents declined to answer this question. while Ghanaian entrepreneurs reported working an average of 38 hours per week in their businesses (Chu. with an average of 24. and/or banks. The average number of part-time employees per firm is 1. respectively. becoming a business owner is not only a way to increase income. Eighty-nine percent of the sample would be considered micro and small-sized enterprises because they employ 50 fulltime persons or less. Chu. and 28 percent completed college. 66 percent indicated that they had created the business themselves. Ten firms (or 11 percent) are large enough to be considered medium sized. In the case of Turkish entrepreneurs. and Callanan 2005). and India (Benzing and Chu 2005. and Szabo 2005.” The mean score for “to increase income” is significantly higher (at the 95 percent level) than the next closest motivation “to have job security. with five (5) being “extremely important” and one (1) being “the least important.. With respect to entrepreneurs in Turkey. since they employ 10 full-time persons or less. Chu. Based on the UN-ECE definition of SMEs. Chu. Benzing. 68 JOURNAL OF SMALL BUSINESS MANAGEMENT . The results are shown in Table 2. This is similar to the sample obtained by Ozsoy. were viewed as too personal. The lower hourly commitment may be the result of a business strategy common to African entrepreneurs. Benzing. Chu. Oksoy. They often maintain multiple businesses to reduce the potential for loss associated with any one business failure.9 full-time employees per firm. The number of full-time employees per firm ranges from 1 (self-employed) to 250. multiple business ownership does not appear to be a common business strategy. however. Relatively few SME owners consulted legal advisors. Turkish entrepreneurs reported working an average of 70 hours per week. and McGee 2007. and 22 were partnerships. Kenyan business owners. and Kozan (2001). Benzing.respect to education.” Given the fact that Turkey’s income is relatively low and employment is unpredictable. The sample is dominated by micro and small-sized enterprises. these results support the work of Ozsoy. The time devoted to business by Turkish business owners is comparable with that found in countries like Vietnam. Motivations of Entrepreneurs Respondents were asked to rate 11 reasons for deciding to own a business. and McGee 2007). etc. When asked from whom they sought advice before establishing their business. respectively. Eighteen of the businesses were franchises. Oksoy.” it was found that the two most important reasons were “to increase income” and “to have job security. In previous surveys of entrepreneurs in other developing nations (Chu. When asked how their businesses were established. 32 percent of the respondents finished high school (and continued no further). On a five-point Likert scale. 67 percent of the entrepreneurs surveyed had sought advice from family members. 58 percent of the firms would be considered microenterprises. 20 percent had bought from others and 7 percent reported that they had inherited their businesses. Romania. Perhaps issues related to inheritance. reported working an average of 45 hours per week. thus. and Callanan 2005.4. financial advisors. while service and manufacturing businesses represent 19 and 17 percent. Benzing. and Kozan (2001) and Ufuk and Ozgen (2001a). but it can also reduce an entrepreneur’s fear of losing a job. fewer hours are devoted to any one enterprise. and the average age of the businesses is 14 years. The second and third most frequently consulted groups were friends and other business owners.

48 3.68 3. 4 = very important.46 1. 5. Turkey introduced an unemployment insurance plan in 1999. youth unemployment was 17. It has been argued that being a predominantly Muslim society. only 4 percent of unemployed workers are actually covered by Turkey’s unemployment compensation program. 10. small business owners start a business to create their own employment opportunity.47 3. 1 = unimportant. because.2 percent (Turkish Statistical Institute 2007). the working age population grew by 23 million. Unfortunately. job security is one of the most important forces driving business creation. 3. As a result of the “jobs deficit” and uncertainty in the labor market. most unemployed persons rely on savings and family resources to survive. whereas only 6 million jobs were created (World Bank 2006).48 1. a To Be My Own Boss To Be Able to Use My Past Experience and Training To Prove I Can Do It To Increase My Income To Provide Jobs for Family Members For My Own Satisfaction and Growth So I Will Always Have Job Security To Build a Business to Pass On To Maintain My Personal Freedom To Be Closer to My Family To Have Fun 3. 4.27 1.29 1. As a result.12 1.48 1.50 0. The official unemployment rate in Turkey was 9. there is a gap between the jobs being created and the skills and knowledge of educated young persons. the payment of such benefits has been severely limited. According to the World Bank (2006).47 3. 8.92 1. in many cases.1 percent in 2006. 2.48 1.47 3. but labor conditions are much weaker than this number illustrates. One of the groups hit hardest by unemployment is educated young people.5 percent in 2006. with nonagricultural unemployment at 12 percent (Turkish Statistical Institute 2006). Maintaining “personal freedom and independence” was cited as the third most important reason for business ownership among respondents. 11. 9. 7. with the first benefits paid in 2002. Turkey’s working age population has been growing at a faster rate than jobs have been created.86 2. However. “To have job security” was the second most important motivation.11 2. According to the World Bank (2006).29 3. 3 = mildly important.40 1. AND KARA 69 . the income and job security motivation were also prime motivators.39 4. while youth unemployment in urban areas was even higher at 22.38 3. Overall.18 5 = extremely important. individual initiative cor- BENZING. CHU. due to strict eligibility requirements and the extensive informality of the labor market. Between 1980 and 2004.20 1. 6.Table 2 Mean Score for Motivation of Turkish Entrepreneursa Motivational Factors Mean Standard Deviation 1. Turkey could not produce “the spirit of capitalism” or Protestant work ethic characteristics (Weber 1985). 2 = not very important.

Although motive 3 appears related to independence. and an intrinsic factor. These motives may be correlated. The second factor can be called an “income factor. .. indicating that entrepreneurs who rated variables 5. Operating in all areas of the economy. As shown in Table 3. and explain 25.” This factor accounts for 17.” “for my own satisfaction and growth. an independence factor.40. Oksoy. The “best fit” factor analysis accounts for 70. Research on Turkish entrepreneurs by Ozsoy. 7. cultural.musiad. and being closer to family. 5. Motive 3. These variables include obtaining job security.tr). it loads on a factor with three other motives. “to prove I can do it.” consists of motives 6. (2006). referred to as the “intrinsic factor. The third factor.8 percent of the variance and was obtained by using principal component factor analysis with an equamax rotation. providing jobs for family. because proving to others that you can create a successful business simultaneously means you have created a job for yourself and others.” and “to have fun. which are “to maintain personal freedom.” also loads on this variable. sectoral. 7. and 11. Some of these business associations. indicating that it is correlated with the other variables on the same factor. A business is a financial asset that provides a flow of income to the current owner and may well provide another flow of income to the owner’s successors. As recommended by Hair et al.responds to the “freedom and independence” that entrepreneurs in Turkey enjoy through business ownership. pride in its success.” The fourth factor.5 percent of the variability.” 70 JOURNAL OF SMALL BUSINESS MANAGEMENT .” contains motives 1 and 2. and social development of its members.50.” and consists of motives 4 and 8.org. wealth) are related aspects of a business. or Independent Industrialist and Businessman Association) seek to “contribute to [the personal] development [of businesspersons] in becoming more positive and productive human beings [and] to contribute to the emergence of a society of people who have inner depth . which are “to increase income” and “to build a business to pass on. at the same time. Entrepreneurs appear to believe that the regular cash flow and the creation of an inheritable asset (i.e. referred to as the “independence factor. MUSIAD’s objectives include the personal. As Adas (2006) pointed out. and 10 highly were also more likely to rate motive 3 highly. The first factor is referred to as a “security factor” and contains motives 3. institutional. many of the businesses owned by this entrepreneurial class are family-owned small and medium-scale companies in addition to some holding companies (Adas 2006). and. and have a notion of solidarity” (http://www. a factor analysis of the motivations led to four factors: a security factor. 9.6 percent of the variability. all factor loadings are greater than 0. and 10. These groups contribute to the independence of Turkish entrepreneurs while supporting their personal and human development. the Islamic entrepreneurial class is relatively new in Turkey in that it really developed in the 1980s and 1990s. and Kozan (2001) also supports this survey’s results by suggesting that the desire for flexibility and work freedom are driving forces behind the motive to go into business. This result suggests that the Islamic entrepreneurial class in Turkey is rising and bridging the cultural gap between the West and the Islamic world (Arslan 2000). an income factor. like MUSIAD (Mustakil Sanayici ve Is Adamlari Dernegi. Succeeding in such an endeavor provides security. which are “to be my own boss” and “to be able to use my past experience and training. and all communalities exceed 0. . Many associations have been developed in order to promote and support Islamic entrepreneurs in a secular business environment.

038 -0.084 -0. the income factor.841 0.314 0.029 0. CHU.712 0.038 0.939 0.838 0.510 0. To Be My Own Boss 9.Table 3 Principal Component Factor Analysis (Equamax Rotation) Factor Loadings (Sorted) and Communalities for Motivation Variables Motivation 10.005 Factor 3 0.892 0.564 0.066 0.154 Factor 4 -0. To Prove I Can Do It 5. McGraw. To provide Jobs for My Family 4. Although factor 1 has the highest explanatory value (25. According to the summated scale scores shown in Table 4.282 0.255 0. Two of the factors obtained in this study align with Robichaud.097 0.176 0.077 0.102 0.770 0.5 percent).838 0. To Increase My Income 8. freedom.039 0.803 0.578 7.151 0.031 Factor 2 0. the highest mean score (4.576 0. that does not mean that factor 1 is the most important motivation factor to the entrepreneurs.471 1.782 0.360 2. The least important motivation factor (significance level 95 percent) is factor 4.789 0. AND KARA 71 .120 -0. This indicates that entrepreneurs in Turkey are most motivated to create a business by the prospects of increasing income and creating an inheritable asset.708 The variance row of numbers in Table 3 represents the eigenvalues and indicates the relative importance of a factor in explaining the variance associated with the variables.379 0.812 -0. the intrinsic factor.233 -0.056 -0.026 Communality 0. For Job Security 3. For My Own Satisfaction and Growth 11.316 1.239 -0. To Be Closer to Family 7. which relates to self-satisfaction.133 0.579 0.853 0.641 0.835 0.706 0.357 1. and enjoyment.684 -0.742 0.539 -0. To Build a Business to Pass On 2.560 0.805 0. To Have Fun Variance Percentage of Variance Cronbach’s Alpha Factor 1 0.490 -0. To Be Able to Use Past Experience and Training 1.131) was for factor 2.672 0.734 0.076 0.411 0.731 0.245 -0.144 0.103 0.136 0.468 0.545 0.022 0.797 0. BENZING.027 0. To Maintain Personal Freedom 6.

and Benzing. Chu. but appears in the “security/well-being of the family factor” in Robichaud’s study.521 4. In two similar surveys conducted by Benzing. 72 JOURNAL OF SMALL BUSINESS MANAGEMENT .131 3. 5. The results of this study’s factor analysis may be influenced by the preponderance of males (91 percent) in the sample. Social skills and providing good customer service were also cited by respondents as important. and good customer service as the three most important success factors.’s “security/well-being of the family factor”: to be closer to the family and provide jobs (a secure future) for family members. and 10.960 Scale Scale Scale Scale a 1—Factor 2—Factor 3—Factor 4—Factor 1: 2: 3: 4: Summated scales were calculated as average score across items contained in that factor.955 Standard Deviation 1. and 11. entrepreneurs in Turkey rated their reputation for honesty as the most important success variable. one could hypothesize that a sample with greater numbers of female entrepreneurs would have weighed the independence and security factors more heavily. with five (5) being extremely important and one (1) being least important. but the legacy motivation appears on a different factor in this study and Robichaud et al. The “security factor” obtained in this study has two motivations in common with Robichaud et al. but further study must be undertaken to understand what underlies the inheritance motivation and to which factor it is most closely related.195 0. scale 2 is the average of the scores on motivations 4 and 8. Scale 1 is the average of the scores on motivations 3. scale 3 is the average of the scores on motivations 1 and 2. These results suggest a certain commonality among entrepreneurs in the rating of perceived success variables despite differences in culture and religion. Pakistani entrepreneurs placed customer service in their top three success factors (Coy.470 2.905 1. and Rao 2007). and Roger (2001). 2001b). Inclusion of this variable on either factor can be logically explained. Based on research by Ufuk and Ozgen (2001a. and Bove (2005). and scale 4 is the average of the scores on motivations 6. The desire “to build a business to pass on” appears on the “income factor” in this study. 7. Shipley. As shown in Table 5. The “extrinsic motivations” factor obtained by Robichaud most closely corresponds to the “income factor” obtained in this study. “friendliness and charisma” was ranked second among the elements necessary for building a thriving enterprise.’s study.Table 4 Mean Scores of Turkish Entrepreneurs by Factor Related to Motivationa Summated Scales Mean Score Security Income Independence Intrinsic 3.187 0. 9. Success Variables On a five-point Likert scale. friendliness. Chu. and Callanan (2005). entrepreneurs in Vietnam and Romania also rated honesty.

Muslim entrepreneurs should avoid dishonesty.53 3.83 1. 2. and collusion among producers.67 1. 1 = unimportant.04 0.Table 5 Mean Score for Variables Contributing to Business Successa Success Factors Mean Standard Deviation 1. As discussed by Zapalska. and obedience to elders. Graafland.31 1. Entrepreneurs are expected to adhere to Islamic values such as honesty.68 4. sincerity. exactness in weight and measurement. Graafland. deception. Mazereeuw.30 1. Mazereeuw. 15. leniency.34 1. and Yahia (2006) discussed several principles of Islam that should be incorporated into all business practices.38 0. 4 = very important. thus forbidding discrimination based on gender and other personal characteristics. 3 = mildly important. justice. this score could also indicate that entrepreneurs harbor a fear that greater governmental assistance could be a precursor to greater governmental BENZING.82 a 5 = extremely important. AND KARA 73 .23 1. and servitude. freedom.39 3.50 3.95 3. fraud.42 2. 17.99 4. 4. 10. respect. and Shuklian (2005). 14. and coercive practices. Good Management Skills Charisma: Friendliness Satisfactory Government Support Appropriate Training Access to Capital Previous Business Experience Support of Family and Friends Marketing/Sales Promotion Good Product at Competitive Price Good Customer Service Hard Work Position in Society Maintenance of Accurate Records Ability to Manage Personnel Social Skills Political Involvement Reputation for Honesty 3.” This could indicate that entrepreneurs in Turkey understand and accept the vagaries of the market economy without relying on governmental protection or subsidies for success.35 4. as well as hoarding.33 1. truthfulness.53 1.29 3. 11. 3. 13.68 1. honesty. 2 = not very important. These principles include the right to own property.29 3.50 3.49 1. Brozik. in part because Islamic values play an important role in conducting business (Arslan 2000). 9.21 3.12 1. 8. CHU. speculation. However. 7. Islam prohibits cheating and lying. 6. Honesty may be cited as the most important ingredient of a successful business. 5.17 0.17 1.87 4.04 3.94 1.68 3.36 3. Entrepreneurs in Turkey gave the least importance to “satisfactory government support. 16.42 1. Furthermore. and Yahia (2006) also remind entrepreneurs that Islam requires equal payments for equal work. 12.

4. factor 6 is called a “market support” factor because it consists of success items 3. friendliness. the entrepreneur’s friendliness is actually seen as the second most important success variable. This indicates that among the six reported factors. Interestingly. This factor might best be called “management skills.” and includes success variables 6. and access to capital. finally. support of family and friends. Success item 2. The fact that training has been relatively unavailable is partly a product of government policy. The summated scale is the average score of the items in that factor. Appropriate training and access to capital may be linked to satisfactory government support because they are items that the government can financially support. The total percentage of variance (trace) explained by the factor solution is 75. (3) the inability to maintain 74 JOURNAL OF SMALL BUSINESS MANAGEMENT . Problems Facing Entrepreneurs As shown by the mean scores in Table 8. given the high factor loadings and the fact that both varimax and equamax rotations resulted in the same items being associated on the same factors.607 for the reputation/social skills factor is significantly higher (99 percent level) than any other success factor.interference. The mean score of 4. the helping hand of government can become more of a burden than a help to the small business owner. the four most critical problems faced by Turkish entrepreneurs are (1) a confusing and complex tax structure. the factor analysis indicates that 15 of the 17 success variables could be grouped into six factors. Pakistani entrepreneurs also ranked “government programs” as relatively unimportant to their success (Coy. factor 6. and 11. Factor 4 can be called “reputation/social skills” and includes two variables—having a reputation for honesty and having social skills. Table 7 shows the summated scale score for each factor. The second factor relates to “social connections” and includes success variables 10. and explains 14. The first factor can be called “characteristics related to the individual. and hard work. (2) the inability to attract and retain good employees. The three success variables in factor 6 are satisfactory government support. this indicates that the results of this factor analysis are robust. Shipley. This does not mean that they are unimportant to success. appropriate training. political involvement. the ability to maintain accurate records. appropriate training. All three items are necessary for the market growth of a small business. All the variables in this model have a factor loading greater than 0. and good customer service. which includes government support. However.” And. those two success variables were not included in the final factor analysis. and 16. because sometimes responses on a success item are highly correlated with a seemingly unrelated success item.7 percent of the variability. 12. Factor five relates to general management skills and having an ability to manage person- nel. did not combine with any other items on a factor. This factor includes position in society. and 5. As discussed earlier. Sometimes. The factors are not necessarily easily named or explained. and all communalities exceed 0. This factor includes previous business experience. and access to capital.50. which are having a good product at a competitive price and marketing/ sales promotion. and success item 13. 7. Turkish entrepreneurs believe their success is most closely related to their reputation for honesty and their social skills. As shown in Table 6.7 percent. and Rao 2007). Factor 3 can be referred to as a “competition” factor because it consists of success variables 8 and 9. is viewed as the least important factor among the six factors. The factor analysis process selects the variables that should be grouped together on a factor. As a result.65.

Good General Management Skills 4.074 0.199 0.595 0.053 0.218 2.330 0.088 0.055 0.147 0.080 -0.769 0.791 0.759 0.774 0.172 0.164 -0.045 0. AND KARA 6.100 0.046 -0. Previous Business Experience 7.812 0.163 0.317 -0.734 0.009 1.413 -0.675 0. Good Customer Service 16.129 0.178 0.085 0.040 1.159 0.884 0.194 -0.038 -0.005 -0.131 0.219 0. Position in Society 10. Reputation for Honesty 15.757 Success Variables BENZING.114 0.733 0.822 -0.689 0.246 0.746 0.792 0.814 0.009 0. Hard Work 12.240 -0.025 0.186 -0.187 -0.216 -0.208 0.102 0.147 0.419 1.028 0.022 -0.789 0.758 0. Marketing Factors 17.625 0.669 0.170 -0.026 0.229 0. Appropriate Training 3.627 Factor 2 Factor 3 Factor 4 Factor 5 Factor 6 0.400 0.749 0. Access to Capital Variance Percentage of Variance Cronbach’s Alpha 75 .036 0.057 0.510 1.652 11. Good Product/Competitive Price 8.006 0.152 0.620 -0.022 -0.740 0.177 -0.940 0.042 0.021 0.959 0. CHU.818 0.071 0.830 0.078 0.715 0.016 0.065 0.678 0.707 0.540 0.758 0.855 -0.127 0.003 -0. Support of Family and Friends 11.755 0.116 0.808 0.130 0.305 0.739 0.293 0.077 0.129 0. Satisfactory Government Support 5. Political Involvement 9.352 0.181 0.099 -0.565 0.676 Communality 0. Ability to Manage Personnel 1.109 0.789 0.013 0.007 0.039 -0.272 0.839 0.152 0.205 0.184 -0.118 -0.339 -0. Social Skills 14.410 1.848 0.Table 6 Principal Component Factor Analysis (Equamax Rotation) Factor Loadings (Sorted) and Communalities for Perceived Success Variables Factor 1 0.070 0.

951 1. and 11.66 1.55 1. 7.27 1.29 1.49 1.43 1. 2.88 2. 12.53 2.173 0.19 2. 3.38 1. scale 4 is the average of the scores on variables 15 and 17. Scale 1 is the average of the scores on variables 6. 4. 12.Table 7 Mean Scores of Turkish Entrepreneurs by Factor Related to Perceived Success Variablesa Summated Scales Mean Score Characteristics Related to the Individual Social Connections Competition Issues Reputation/Social Skills Management Skills Market Support 3.11 2. 13.232 Standard Deviation 1.078 1.642 3. 9. and scale 6 is the average of the scores on variables 3.36 1. 76 JOURNAL OF SMALL BUSINESS MANAGEMENT .591 3.43 1.139 1.47 2.350 4.37 1.40 1. Table 8 Problems Faced by Small Businessesa Problems Mean Standard Deviation 1. 3 = problem.28 1. 4 = serious problem. scale 2 is the average of the scores on variables 10. scale 5 is the average of the scores on variables 1 and 14.84 5 = very serious problem.81 3. 2 = minor problem. 4. a Unreliable and Undependable Employees Too Much Competition Unable to Obtain Short-Term Financial Capital Unable to Obtain Long-Term Financial Capital Too Much Government Regulation Limited Parking Unsafe Location Weak Economy Lack of Management Training Lack of Marketing Training Inability to Maintain Accurate Accounting Records Complex/Confusing Tax Structure Complicated Business Registration Process Poor Roads/Transportation Electricity Problems 3.607 3. 8.30 2. 7.13 3.28 1. 5. 6.53 1. 1 = not a problem.28 2. 10. 14. and 16.63 3.25 1. scale 3 is the average of the scores on variables 8 and 9.094 Scale Scale Scale Scale Scale Scale a 1—Factor 2—Factor 3—Factor 4—Factor 5—Factor 6—Factor 1: 2: 3: 4: 5: 6: Summated scales were calculated as average score across items contained in that factor.24 3. 11. 15.21 2.925 3.60 2.724 0. and 5.54 2.

and Bove 2005) and Vietnam (Benzing. the problem is more acute in Turkey because of the expense and burden related to hiring and firing BENZING. In Hong Kong and Singapore. in administering its tax payments. For instance. such as Ghana (Chu. The entrepreneurs in the European sample were very concerned about government regulation with 44 percent of owners indicating that they were operating in an overregulated environment. However. nor do they report a serious inability to obtain financial capital. Benzing. Chu. The total tax rate (as a percentage of profit) facing a medium-size company in Turkey is 45. the total tax rate facing a medium-size business is 23. When compared with other business-friendly economies. In contrast. In addition. Entrepreneurs in Turkey do not appear to be as constrained by financial capital as entrepreneurs in other countries. Although the inability to obtain good employees is a challenge for entrepreneurs in every country (European Commission 2007b. SME owners in Europe were frustrated by a lack of market demand. Chu. In addition. which is sometimes attributable to a weak economy. which creates a drag on the economy. The total hours a medium-sized company spends preparing. The European Commission survey found that the four most important barriers to innovation were lack of financing. AND KARA 77 .3 hours paying taxes. and Callanan 2005). Half of the European SME managers who were interviewed said they had recruitment problems. Excessively high payroll taxes lead to an increase in informal hiring arrangements and slower company growth.accurate accounting records. respectively. and (4) a weak economy. Benzing. Highincome countries tend to have both lower tax rates and less complex tax systems. similar companies in OECD countries spend 183. Many would argue that businesses in Turkey and the OECD pay too high an overall tax rate. Turkey’s overall business tax rate is not excessive compared with the region or the OECD. higher tax rates undermine the tax system and reduce government receipts. This compares favorably with the region (50. scarcity of skilled labor. In this study. Chu.8 percent) and the OECD (46.1 percent. The four most critical problems to Turkish entrepreneurs will be discussed in the following subsections. The Inability to Attract and Retain Good Employees. it is 35. a medium-sized company only spends 80 hours and 49 hours. and McGee 2007). Confusing and Complex Tax Structure. entrepreneurs in Ankara. and paying taxes in one year gives a good indication of the administrative burden created by a tax system. an average medium-sized business in Turkey spends 223 hours per year paying its taxes. and Bove 2005. Ufuk and Ozgen (2001b) found that the heaviest burden imposed on entrepreneurs was debt and tax payments. Romania (Benzing. the comparison is not as favorable. According to the World Bank’s (2007b) Doing Business report. The complexity of a tax system is independent of the tax rate. and in the United Kingdom.2 percent). According to the World Bank (2007b). The results of the European Commission (2007b) survey of SMEs in 30 European countries partially support the results of this survey. in Singapore. This decreases the cost burden associated with taxes and increases compliance. when compared with other economies. Benzing. the contrast is even more apparent. In a study of Turkish women entrepreneurs. is a serious problem in Turkey. and according to this survey. a lack of market demand. by increasing noncompliance. Turkey do not believe government regulation is a very serious problem. CHU. and Callanan 2005). and the high cost of human resources.3 percent. filing.7 percent. Chu.

Among entrepreneurs in Romania (Benzing. Chu. it is 0. Although Turkey has 76 institutions of higher learning. Turkey has one of the most restrictive labor codes in the OECD. The results ˘ of this study imply that there might be great interest in two-year or nondegree programs in business. whereas the cost in an OECD country averages 25.50. Only 28 percent of the sample had graduated college. which relates to unreliable and undependable employees. Benzing. exorbitant firing costs (severance pay) increase the risk of hiring incompetent employees. Entrepreneurs in Vietnam and India did not consider this a serious problem (Benzing and Chu 2005. Finally. Cetindamar (2005) found that many Turkish entrepreneurs experienced difficulties due to uncertainty in the economic and political environment. Weak Economy.57 for Turkey. Turkish entrepreneurs must hire only the most competent. respectively (World Bank 2007b). a weak economy is also emerging as a serious problem. 45 percent are enrolled in the applied social sciences. 2. Yüksekögretim Kurulu 2007). The best fit model accounts for 73. problem 2: “too much competition. Thirteen of the 15 problem variables loaded onto five factors. and 3 and accounts for 15. a weak economy was reported as another critical obstacle preventing Turkish small business owners from achieving their goals. This factor includes problem 1. and Callanan 2005). First.C. and hours worked. This may be a concern across Turkey due to the insufficient availability of business programs in the higher education system. as shown by Turkey’s ratio of minimum wage to the average value added per worker. and Bove 2005) “a weak economy” was the third most serious problem.14 and 0. Of the students enrolled in higher education. According to the OECD (2006). Turkey’s two-year schools might be better suited to provide accounting and business coursework. As a result of these labor cost burdens. of which business management is one possible major (T. As a result. The first factor includes problems 1. only 33 percent of those persons between 18–21 participate in higher education. on “weekly holiday” work. Benzing. All factor loadings are greater than 0. Whereas this ratio is 0.” and problem 78 JOURNAL OF SMALL BUSINESS MANAGEMENT .1 percent of the variability.60. A study of Kenya and Ghana (Chu. A “weak economy” is a problem to entrepreneurs because it leads to a decline in consumption spending and business investment. Turkey’s minimum wage is too high.9 percent of the variability. Turkish labor law places restrictions on night work. Problem 4: “unable to obtain long-term capital” and problem 8: “weak economy” did not load on any factor. The pool of these workers is limited—as it is in every country. and all communalities are greater than 0. Inability to Maintain Accurate Accounting Records. and McGee 2007) found that entrepreneurs ranked “a weak economy” as the most serious problem experienced by small business owners. The results of a principal component factor analysis with an equamax rotation are reported in Table 9. Third.employees. A better understanding of accounting would help entrepreneurs better measure their profitability and how to improve it.7 weeks of wages (World Bank 2007b). In a similar survey being done in Bulgaria. and so they were omitted from the final factor model. productive workers to survive. That decline in demand decreases the revenues and profitability of all companies.27 for France and Romania. Chu. Second. Entrepreneurs in this survey also show a concern over their inability to maintain good accounting records. Because access to universities is limited. the majority of the entrepreneurs in this sample are probably lacking in accounting and marketing training. To fire an employee in Turkey costs 95 weeks of wages.

753 0. Limited Parking 7.849 -0.145 0.379 0.159 0.126 -0. CHU.723 0.208 -0.508 0.000 0.004 -0.032 0.663 Factor 2 Factor 3 Factor 4 Factor 5 -0.144 0.731 Problem Factors BENZING. Obtaining Short-Term Capital 10.659 0.116 0.248 0.154 0.275 0.887 0. Lack of Management Training 11.706 0.739 -0.059 -0.071 0.033 -0. Unsafe Location 13.Table 9 Principal Component Factor Analysis (Equamax Rotation) Factor Loadings (Sorted) and Communalities for Problem Variables Factor 1 0.671 -0.743 0.127 0.661 Communality 0.176 -0.000 2.234 0.760 0.018 2. Unreliable/Undependable Employees 2.763 1.259 1. Too Much Competition 3.171 0. Inability to Maintain Accounting Records 6.299 0.086 -0.296 -0.452 -0.048 -0.635 0.808 -0.115 -0. Poor Roads/Transportation Variance Percentage of Variance Cronbach’s Alpha 79 .156 0.247 1.833 0.750 -0.247 -0.669 0.430 -0. Too Much Government Regulation 15.754 -0.703 0.106 -0.115 0.865 -0.823 0. Electricity Problems 14.831 0. AND KARA 1.116 -0.664 0.062 -0.136 -0.037 -0.710 9.169 0. Complex/Confusing Tax Structure 5.791 0.620 -0.061 -0.032 0.070 0.147 0.030 -0.120 0.079 0.898 0.310 0.006 0.754 -0.561 0. Lack of Marketing Training 9.771 0.866 0.654 0.058 -0.208 -0.093 0. Business Registration Process 12.262 -0.093 0.159 0.324 0.787 -0.379 0.184 -0.072 0.

The fourth factor is called “governmental bureaucracy.377 Scale Scale Scale Scale Scale a 1—Factor 2—Factor 3—Factor 4—Factor 5—Factor 1: 2: 3: 4: 5: Summated scales were calculated as average score across items contained in that factor. Audretsch and Thurik 2000. The third factor is called the “location factor. and 3. Reynolds 1999). and has been named “lack of business training. and the financial market. Scale 1 is the average of the scores on problems 1. 10.040 1. and scale 5 is the average of the scores on problems 14 and 15. Carlsson. 12. Turkish entrepreneurship must be more actively supported by the Turkish 80 JOURNAL OF SMALL BUSINESS MANAGEMENT . marketing. As shown by the factor analysis results in Table 10.Table 10 Mean Scores of Turkish Entrepreneurs by Factor Related to Problema Summated Scales Mean Score Market Problems Lack of Business Training Location Problems Governmental Problems Infrastructure Problems 2.178 2. Based on the results of a Mann– Whitney test of the differences among the factor scores. complex/confusing tax structure.” The first factor has been named “market problems” as it relates to three important markets: the labor market. The second factor accounts for 15.” and is related to the business environment created by the government. the product market. the summated scores on these factors indicate that Turkish entrepreneurs are least concerned about loca- tional issues related to parking and safety.” and includes limited parking and an unsafe location. scale 2 is the average of the scores on problems 9. scale 3 is the average of the scores on problems 6 and 7. and Karlsson 1999. Apparently. scale 4 is the average of the scores on problems 5. 3: “unable to obtain short-term capital. the itemby-item analysis of problems is more relevant when determining how to improve the environment for SME business owners in Turkey.011 1.899 2. 10. and 11. the summated scale for factor 3 was significantly lower than every other factor. and 13.294 1. 2.” The three problems in this factor relate to the lack of management. The three problems in this factor are the business registration process. Because there were no significant differences among the summated scores on the other four factors. The fifth factor deals with infrastructure problems and includes electricity problems and poor roads/transportation.966 Standard Deviation 1. problems of crime and parking are not rated very seriously by entrepreneurs in Ankara. Locational issues might be more relevant for small business owners in Istanbul due to the overcrowding and traffic problems there.900 2. Acs. and accounting training. and too much government regulation.819 2. Discussion and Policy Recommendations Although the benefits of entrepreneurship to economic development are becoming clearer (Carree and Thurik 2003.153 1. and 11.6 percent of the variability and includes problems 9.

However.government. The previous two number systems were causing a breakdown in the ability to control and audit businesses and individuals. According to their results only. One of the goals of the Ninth Development Plan is to enact a new income tax law and tax procedure law in 2007. AND KARA 81 .1 percent in 2008 while also decreasing the time spent preparing. and only 24 percent rated government regulation as a very serious or serious problem. service and administration of the tax system. (The corporate income tax rate itself was recently decreased from 30 percent to 20 percent. Turkey improved the technological infrastructure of the Revenue Administration and began an e-Tax Department automation project to allow for electronic filing. Turkey has already made some improvements in its tax system. As discussed earlier. p. Turkish small businesses suffer from a lack of financial support. a database (VERIA) was created to maintain information on the public and private sectors (Republic of Turkey 2007). due to the complexity of the tax system and the large number of taxes. . the cost of tax transactions remains high” (Republic of Turkey 2007. . Oksoy. Turkey has moved toward one citizen identification number for both tax identification and social security identification. According to the Plan. According to Kozan. and paying taxes from 254 to 223 hours per year. a high burden of taxes and regulations. the number of hours a business spends dealing with tax issues varies widely. and can be as low as Singapore’s 49 hours per year. For instance. Finally. In its Doing Business 2008. more improvement can be made. the World Bank (2007b) indicates that Turkey decreased its total tax rate on businesses from 53 percent in 2007 to 45. CHU. many of the problems facing business owners could be reduced with changes to the government’s tax policies. this survey does not support the conclusion that a lack of financial support and excessive government regulation are serious problems for Turkish entrepreneurs. Although governmental programs were not viewed as a significant ingredient for success. The European Commission’s 2007 survey of SMEs in Europe supports this study’s conclusion that government regulation in Turkey is not a serious problem. In addition. and labor laws. 83). “. Turkey began a process of improving the collection. making Turkey the second biggest reformer in the world after Bulgaria (World Bank 2007b). In 2006. However. Turkey has recognized this problem in its Ninth Development Plan. entrepreneurs in this survey did not appear to believe governmental programs are a significant ingredient for success. Complexity of the Tax System The most serious problem facing entrepreneurs is Turkey’s confusing and complex tax system. Recommendations for each of the four most serious problems are addressed in the next four subsections. with 57 percent rating its complexity as a very serious or serious problem. and too few government programs. In addition. Only 26 percent saw the inability to secure shortterm financial capital as a very serious or serious problem.) This improved Turkey’s ranking on paying taxes from 85th place to 54th place out of 178 nations. 25 percent of Turkish entrepreneurs believe that government regulations are too strict (European Commission 2007b). Forty-nine percent of the respondents to this survey thought that governmental programs were either not very important or unimportant. educational system. filing. This survey supports the perception that the tax system is viewed as a serious problem. and Ozsoy (2006). The objective reads: “Significant contributions will be made to combat the informal economy through a simpler and more effective tax system” (Republic of BENZING.

only 44 percent of the adult population was employed. and rarely receive the full severance pay required under the labor code. When companies become part of the formal sector. and aging parents. Many SMEs find ways to avoid labor regulations and taxes by underreporting wages. and they remain in the informal or unregistered sector to avoid labor code compliance. In an effort to protect workers. Turkey itself estimates that over 50 percent of the economy is unregistered. the overly restrictive labor code has instead led to their lack of protection as more are employed in the informal sector. Turkey still remains the OECD country with the second most restrictive employment laws only after Portugal. Another way that Turkey could increase its available labor pool is to implement programs that promote female participation in the labor market.Turkey 2007. According to the World Bank (2006). One of the goals of EU is to increase the employment rate to 60 percent among EU countries and those seeking membership (Bulgaria Economic Forum 2007). lower tax rates.net paper (Bulgaria Economic Forum 2007) indicates that the female participation rate in urban areas in Turkey is even lower at 17 percent. As described earlier. this may relate to the excessively high level of payroll taxes and an overly restrictive labor code. which amounts to a loss of $80 billion in tax revenues per year (Today’s Zaman 2007c). The major reason that women do not work is cultural. Expanding and Improving the Quality of the Workforce According to this study’s results. greater economic and fiscal stability will lead to more job creation and growth. Streamlining the restrictions related to employment and decreasing payroll taxes will increase the incentive for SME companies to hire workers and expand. children. which is one of the lowest employment participation rates in the world. only 27 percent of Turkey’s working age women work. Although the 2003 Labour Code revision allowed for greater usage of temporary employees. SME entrepreneurs in Turkey believe that the inability to attract and retain reliable employees is their second most serious problem. 82 JOURNAL OF SMALL BUSINESS MANAGEMENT . 90). In an effort to create more jobs and provide incentives for companies to register. do not receive health insurance and unemployment insurance. and greater compliance. the World Bank (2006). This is largely the result of the low participation rate of women. and OECD (2006) have recommended that Turkey reduce severance pay and other labor restrictions while also reducing employer premiums for unemployment insurance and social security. thereby increasing tax revenue. reduce the size of the unregistered economy. A recent SEEurope. The World Bank (2006) indicates that approximately one-third of all urban workers are employed in the informal sector. it is easier to enforce labor laws and broaden the tax base. firing workers before they become eligible for severance. It is difficult for employers in Turkey to find workers who will contribute a productive value in excess of their wage and the payroll taxes related to their employment. Turkey needs to work toward this goal with urgency to insure a broadening of the tax base. p. and promote macroeconomic stability. 79 percent of the women work in unpaid agricultural employment. Turkey will reduce the burden on small businesses. By further automating and simplifying the tax system. In rural areas of Turkey. In the long run. and using fewer female employees to avoid paid maternity leave requirements. which means they are not registered with the social security system. As a result. Women are expected to marry and take care of the home. In 2004. companies are unable to grow.

As of 2004. Turkey has struggled to make higher education available to those graduating from the secondary education system. the skills obtained at the universities are not adequate to meet the needs of potential employers. Low secondary enrollments and graduation rates coupled with the relatively poor quality of secondary education constrain the ability of students to pursue tertiary education. Turkey’s workforce is severely deficient in its level of education and skills. but more resources need to be channeled toward improving the availability of business education in Turkey. According to the World Bank (2007c). Small firms can benefit from internship relationships because they allow firms to assess employee performance before making a permanent hire. As of 2005. with special emphasis on professional and technical curricula. where the average graduation rate is 31 percent (World Bank 2007c). AND KARA 83 . only 40 percent of 20 to 24 year olds in Turkey had a secondary degree. Finally. Turkish firms indicate that university graduates need better foreign language skills. BENZING. Republic of Turkey 2007). there is a shortage of students graduating with accounting degrees. particularly in business disciplines. In addition. This plan is based on the strategies and goals established in Turkey’s Ninth Development Plan (Republic of Turkey 2007). To better match student skills to the demands of the job market. more job seekers will be listed as unemployed on the government rolls. internship pay is usually less. communications skills. Female rates of participation are far below the European Community (EC) norm as well. small business owners need to have access to training in recruitment techniques. might partially address the training needs of small business owners. with improved access to unemployment compensation. At the same time that university participation rates are low.An increase in the Turkey’s labor pool must be accompanied by an improvement in the level of worker education and skills. In addition. the government has plans to expand access to tertiary education by increasing student stipends for tuition and allowing expansion of private vocational schools and universities (World Bank 2007c. the government plans to provide every school in Turkey with Internet access. The use of newspaper advertising and employment agencies could increase the size and quality of applicant pools and improve hiring outcomes. and more practical experience (World Bank 2007c). the government will expand vocational education. Turkey’s universities have already tried to meet the growing demand for higher education by expanding distance education. computer skills. This is the lowest rate among all OECD countries. which is half the rate for the 15 EU countries and far below the 85-percent target established by the EU (World Bank 2007c). Incentives must be created to increase the numbers of such graduating students. Like most countries. Turkey’s enrollment rate in tertiary education was 30 percent. CHU. In addition. The Turkish government could use that list to help match job openings to unemployed persons. and the graduation rate was 11 percent among 25–34 year olds. Expanding distance education. Businesses themselves can influence the labor pool and improve hiring outcomes by engaging in partnerships with universities and MYOs and using more sophisticated recruitment techniques. Providing Business Training Entrepreneurs in this survey were also concerned about their inability to maintain accounting records. To improve the information and communication skills of all students. Businesses should contact universities and MYOs that have internship programs to see how they can get involved. The Ministry of Education in Turkey recently announced its education action plan for 2008–2012.

unstable economy is of concern to entrepreneurs in any country because it leads to reduced purchasing power and demand. It is important to make entrepreneurs aware of the availability of business training by appropriate outreach activities. The Ministry of Industry and Trade will most probably be in charge of such outreach and business training. Since maintaining accounting records seems to be a serious concern.but more can be done (T. to reform social security and bank supervision. political stability. universities could help attract the needed resources. offering more part-time. In addition. Turkey plans to continue reducing its ratio of public debt to national income and modernizing its tax administration (Republic of Turkey 2007). they could be expanded to include the business training of entrepreneurs. and how to conduct business. According to Ufuk and Ozgen (2001b). One agency or group needs to coordinate this with the help of local educational institutions and business associations. the social security system will encourage all businesses through a system of incentives and penalties to pay employee insur- 84 JOURNAL OF SMALL BUSINESS MANAGEMENT . Perhaps the information portal could be folded into the already existing one-stop-shops established in 2006. and a probusiness government are largely responsible for this growth. Turkey plans to implement social security and health care reforms sometime during 2008. Turkey is on track for continued growth and low inflation. entrepreneurs in Turkey are willing to participate in training programs aimed at improving their business knowledge of communication methods. but there are still a number of challenges facing the Turkish government. and has achieved single-digit inflation and unemployment. marketing. Finally. as suggested by the Plan. Turkey must expedite reforms suggested by the IMF (2007). the nation’s economy has been surprisingly strong and stable since its financial crisis in 2001. To remain on the right economic track. the involvement of many overlapping government agencies. Although these onestop-shops were designed to coordinate start-ups and help with permits. Turkey is working with the IMF to keep its economy moving in the right direction. Under the current proposal. Luckily for small business owners in Turkey. (Turkey is expecting its 2007 real GDP growth rate to slow to 5–6 percent. Economic Stability A weak. Turkey has also been urged to maintain tight monetary and fiscal policy in an effort to continue GDP growth at 5 percent while moving toward its 4 percent target inflation rate. nondegree business classes in facilities closer to entrepreneurs could improve availability. and to control government spending (especially on pensions and health). The IMF has urged Turkey to continue financial sector privatization. The Turkish economy has averaged 7 percent real annual GDP growth during the last five years. the Ninth Development Plan plans to expand access to business information by establishing a single point information portal for information on different industries.) Fiscal and monetary restraint. According to the European Commission (2007b) 46 percent of SMEs in the EU-27 are concerned with customers’ purchasing power or limited demand. and accounting. In addition. The Turkish government should undertake a public relations campaign to ensure that small business owners are knowledgeable about training courses and other initiatives. these information portals should also provide subsidized training in accounting software like Quikbooks and aid in the purchase of accounting software and computers.S. could lead to less effective implementation. Information and Communication Technologies (ICT) usage. Partnering with ˘ other European and U.C. Yüksekögretim Kurulu 2007). however.

was the most important success factor. Turkey already has one of the largest Chambers of Commerce in the world. Some of these industry associations support similar goals such as tax simplification and public debt reduction. These organizations also have the ability to provide business training through various outreach activities. Other more specialized associations like the Istanbul Textile and Raw Materials Exporters Association and the Shopping Malls and Retailers Association (AMPD) promote the interests of Turkish businesspersons by lobbying government officials and providing information on technological advances and foreign competition within a sector. which will increase social security receipts thereby reducing the social security deficit. revising the labor code. Because all companies must register with the Chamber of Commerce (Turkish Law no. Because these factors are largely under the entrepreneur’s locus of control. and friendliness. MUSIAD. Turkey indicates that like many other entrepreneurs around the world. If entrepreneurs are motivated primarily by income potential. Business associations provide the structure and support for successful lobbying activities. AND KARA 85 . If Turkey continues its fiscal and monetary vigilance. Summary and Conclusion This survey of 139 SME entrepreneurs in Ankara. Chamber of Industry. it means that entrepreneurs in Turkey believe they can influence their own business success. which included honesty and social skills. According to this survey’s results. but they have yet to develop the clout that the Istanbul Chamber has. and reducing payroll taxes are a few ways to increase business income and encourage further SME development. This attitude empowers BENZING. a factor we call the “reputation” factor.org.ito. 5174).000 members (http://www. While lobbying for their own interests. increase the minimum retirement age. It will also place all workers under a single social security system. it can insure the business community that economic growth and stability will continue. but in some cases. which was voted the “Best Chamber in Europe.ance premiums. CHU. Ankara has both a Chamber of Commerce and a Chamber of Industry. The Istanbul Chamber of Commerce. The Role of Business Associations Entrepreneurs in Turkey can influence the private economy and their chances for business success by actively lobbying for probusiness legislation. whereas the Izmir Chamber established the Izmir Economics University to provide vocational and business training. These income motivations dominate the internal reward motivations related to independence and intrinsic motives.” has 300. and charisma. This economic strength will encourage SME growth and promote private sector health in Turkey. their goals are in conflict. Business owners who wish to influence Turkey’s economic future should seek active membership in organizations such as the Chamber of Commerce.tr). Simplifying registration/licensing. then increasing the profitability of business ownership should encourage more SME start-ups. combined with other IMF recommendations. and provide free health care for anyone under 18 years old (Today’s Zaman 2007c). and/or a sector-based association. the primary motivations for starting a business are to increase income and obtain job security. association members must learn to balance industry needs with the goals of other sectors and the country as a whole. The Istanbul Chamber established the ISTANBUL University of Commerce. Based on the factor analysis. entrepreneurs in Turkey believe the most important SME success items are a reputation for honesty.

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