15 Nisan 2011 Cuma

Global brands abandoning Turkish partners in profit scramble, executives say

Eager to tap into Turkey’s booming technology retail sector alone, global giants are abruptly terminating their contracts with local partners, leaving them with millions of dollars in losses. The practice has left many companies looking for huge compensation, electronics distributor Kont Bilişim says. Foreign companies are treating Turkey like a ‘third-world country,’ one executive tells the Daily News 
Kont filed a suit against Samsung, demanding nearly $18 million on grounds that a three-month advance notice of the partnership's termination was unfair.

Kont filed a suit against Samsung, demanding nearly $18 million on grounds that a three-month advance notice of the partnership's termination was unfair.
Turkish distributors are increasingly falling victim to the economic success they helped create as a series of South Korean brands choose to drop their local partners in favor of tapping the booming local market themselves.

“Unfortunately, there are some foreign firms who leave their Turkish distributors to their fate,” Kurthan Tarakçıoğlu, who was suddenly let go by Hyundai Turkey in April, recently told the Hürriyet Daily News & Economic Review.

“Turkish distributors worked hard and secured market share for foreign companies during the worst days of the global crisis. Now they have been abandoned with great losses,” he said.

One of the most spectacular “divorce cases” is between Kont Bilişim, a Turkish distributor and producer of personal computers, notebooks, PC components and consumer electronic goods, and Korean giant Samsung. After a decade of partnership with Kont, Samsung in abruptly announced the end of the partnership in September 2009.

The Korean giant controlled just 0.5 percent of the digital-camera market in Turkey a few years ago, but had increased that figure to 25 percent by 2008.

Kont filed a suit against Samsung, demanding nearly $18 million on grounds that a three-month advance notice was not fair in such a partnership.

“We were left with no choice but to file,” Okay Nasır, general manager of Kont, recently told the Hürriyet Daily News & Economic Review.

Kont reached revenues of $300 million in 2008, with nearly half of the amount coming from the distribution of Samsung products, he said.

“Our losses are great,” said Nasır, adding that the company would be lucky if it closed 2010 with revenue of $150 million.

Increasingly confident partly due to the backing of Samsung, Kont built a new logistics base of 40,000 square meters in 2008 in Kurtköy, close to Sabiha Gökçen International Airport, investing nearly $40 million into the center.

The investment came at a time of an upsurge in domestic demand for home appliances and electronics in Turkey that is expected to grow further, according to a report by the Economist Intelligence Unit. A Deloitte report on the sector also noted that Turkish consumer demand has been rising steadily. In 2006, the market totaled a volume of $8.41 billion, while in 2008 the figure rose to $12.96 billion. Thanks to booming demand, the volume is expected to reach $16.03 billion by 2013, Deloitte said.

“We were shocked to see the Samsung letter announcing the end of our partnership after only 13 months of the investment,” Nasır told the Daily News.
After the termination, Kont had to lay off roughly 300 workers, reducing its workforce to 200 people, Nasır said.
“We took the issue to Turkish courts, demanding our loss back,” Nasır said, adding that the main reason for Samsung’s sudden decision was its “rising appetite thanks to the growing market.”
In an interview with the Daily News last year, Nasır noted that the simultaneous presence of three European technology retailers – Electroworld, MediaMarkt/Saturn, Darty – and a U.S. giant, BestBuy, pointed toward robust demand.

Other ‘divorces’ between Korean and Turkish companies

Kont is not the only Turkish company to be recently dropped by a Korean partner. A court case between Turkey’s Digicom and Korean electronic giant LG was launched in 2008 and is still ongoing following an announcement by the latter that it was to establish a brand-new company in Turkey, LGETK, to distribute its products.

Like Kont, Digicom’s agreement was also canceled with a three-month notice, leading the company to claim 210 billion Turkish Liras in compensation for its losses.

Digicom also claimed in the past that the 37LY95 model LCD TV sets had “a production failure,” adding that it had received a number of complaints from consumers.

“We have lost the trust of our clients, in addition to our financial losses,” a Digicom executive told the Daily News on condition of anonymity. “Many foreign companies tend to increase their share in Turkey through local distributors and then cancel these agreements unfairly.”
The executive said the government had to take measures to secure the rights of distributors. “A three-month advance notification to terminate a partnership cannot be considered fair, however you look at it.”
“If we succeed in Turkey, we will be successful in neighboring countries as well,” Christopher Kim, president of LGETK, said at a past press conference.
Kim had said Turkey’s “huge potential and dynamic younger generation” were the primary reasons for LG’s decision to proceed alone in the market.

‘Ominous tactics’

“Some foreign companies know the gaps in Turkey’s legal framework. They know that court cases take many years to be resolved,” the Digicom source said. “The aim is to have us down on our knees due to financial losses and force us to accept a couple of million dollars in the end.”

“We have been treated unjustly,” Digicom Chairman Sabri Yiğit recently told daily Akşam.
“Some foreign electronic companies might reduce the amount of tax paid by narrowing the price gap between the cost of the imported product and the sales price,” the anonymous Digicom executive told the Daily News.
“Such tactics are common as the manufacturer, importer and final seller of the product is the same company,” said Nasır, urging authorities to be alert.

Some foreign companies treat Turkey as “a third-world country,” Tarakçıoğlu told the Daily News.
“I was about to file a suit due to the termination of [my contract] with Hyundai, but then we reached a settlement,” said Tarakçıoğlu, who is now the chief executive of Isoto, a Turkish truck manufacturer.
According to him, the only solution for Turkish companies is to create global brands themselves. 

Paradise for electronics retailers

Domestic sales of home appliances reached 4.93 million units last year while total revenues reached $8 billion, according to the Turkish Electronic Manufacturers Association, or TESİD.

Computer hardware constitutes an important share and amounted to $4.5 billion in 2008, TESİD said. Television sets, portable media players, DVD players, cameras and mobile handset sales reached $1.52 billion in 2008 and $1.16 billion in 2009.

In 2008, 818,000 units of DVD players, 546,000 portable media players, 587,000 cameras and 7.4 million mobile phones were sold in Turkey.

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