Foreign Direct Investment in the Cement Industry of Turkey: Overall Contribution by Multinational Businesses and Potential Impacts on the Economy

Foreign Direct Investment in the Cement Industry of Turkey: Overall Contribution by Multinational Businesses and Potential Impacts on the Economy

Aytaç Gökmen (Çankaya University, Turkey)
DOI: 10.4018/978-1-4666-7288-8.ch023
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Abstract

The cement sector contributes to the development of the GDP and also the creation of employment opportunities in Turkey. The cement production is made of 100% national inputs and it is exported to 90 countries in the world. Additionally, it attracted an important portion of foreign direct investment (FDI) by means of the privatization operations. However, despite its importance, the cement sector of Turkey is very fragile, especially in times of global crisis and economic downturns. Eventually, the aim of this chapter is to review the cement sector of Turkey, analyze the foreign participation and work out its overall contribution to the entire economic capacity of Turkey depending on credible national and international publications.
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Introduction

Cement is one of the indispensable elements of the construction industry all over the world. It is fundamental for both developed and developing countries in order to correspond to the necessities of civil engineering. Turkey is one of the largest economies in the world and keeps developing. It is in need of more civil construction to keep up with the momentum. Thus, the aim of this study is to review the facts on the cement industry, its differentiating traits, foreign investments in the Turkish cement industry and its overall contribution and impact of the industry on the Turkish economy.

Cement is an indispensable substance for both developed and especially for developing and underdeveloped countries no different than energy, fuel or iron. Cement is also no match for any other building material when it is used for the construction of highways, bridges, buildings and various other infrastructures and superstructures. It is an immense business sector in both the developed and emerging countries too. The pioneers of the world market in cement manufacturing are Cemex, Buzzi, Heidelberg, Holcim, Lafarge and Italcementi. These international businesses account for about 40% of the global cement market. Cement is the most basic form of ingredient of the construction industry which has been manufactured for decades with little variation. What is changed profoundly is the manufacturing process of this substance as to produce more efficient. Also, the market for cement industry has developed in accordance with the developments on the global basis parallel to the necessities of increasing cement usage across the world. However, there are also adverse developments in this issue too. Cement is a pollutive substance and there must be a considerable amount of energy source to run the process. Therefore, this very beneficial material for the advent of humanity and development of construction industry along with the economic development is also quite energy consuming and environmentally pollutive (Kumar et al., 2013; Habert et al., 2010; Schneider et al., 2011; The Economist, June 22, 2013; Tsekuras & Skuras, 2005; Altcin, 2000; Barker et al., 2013; European Cement Association, n.d.).

Yet, another important trait of cement is its reasonable cost when produced efficiently, but it is also a bulky material. Therefore, in order to make the production process more efficient and decrease the costs, it must be produced in huge volumes and plants should be located close to the necessary markets and suppliers. Being close to markets is very important; because, the liquid form of cement cannot be transported in its regular form more than 300 kms. Besides, since it is easier in comparison to other industries to manufacture cement, the more a manufacturer produces, the more it can lower the prices. Thus, producing the cement more efficiently at lower prices means that it becomes easier to crowd out possible existing firms out of the market or to have access to various markets across the world. This is also true for countries that have excess cement manufacturing capacity. Turkey is one of the leading cement producing countries in the world. It has got a great potential in this sector. Thus, the aim of this study is to focus on some data and facts that make the cement sector considerable for the Turkish Republic and assess the situation with respect to foreign investments and the operations of international enterprises (Altcin, 2000; Schneider et al., 2011; The Economist, June 22, 2013; Kumar et al., 2013).

Key Terms in this Chapter

Privatization: Is the transfer of a public asset, facility or entity to a private entity.

International Business: Involves all investment and commercial transactions whether private or state, between or among two or more states and regions. It includes importation, exportation, licensing & franchising, M&As, IJV and greenfield investments.

Joint Venture: Is a legal business agreement between two or among more parties to develop a new business entity and pool their resources in order to develop a new competitive product or to access a new market with an advantageous position. Partner to a joint venture share the risk, expenses, assets and revenues.

Economic Growth: Is the positive increase in the value of goods and services produced in a national economy. It is generally delineated as the GDP growth. GDP is the total value of goods and services produced in an economy over the course of a period, generally one year.

Merger and Acquisitions: Merger is the legal integration of two or more companies into one new entity. Merging businesses pool their resources to establish a new business entity. Parties to the merger share the risk and profit of the new enterprise. Mergers are beneficial to share the experience, technology, know-how and other investment specific resources to have advantage competing businesses in the same market. On the other hand, acquisition is the purchase of a host country business by a home country business. It is a quick way of internationalization and to have access to a bundle of assets and opportunities at once.

Export: Is the shipment of nationally produced goods and services over the national borders. It involves direct and indirect exportation. Direct exportation is implemented without using an intermediary. Indirect exportation is executed by using various intermediaries.

Foreign Direct Investment (FDI): Foreign direct investment is to transfer the factors of production (such as capital, technology, know-how, manpower, equipment) of a home country business to another country in order to make long lasting physical investment. FDI is the ultimate level of internationalization. It is quite risky but offers the outmost control on business operations and assets. It is sometimes quite beneficial for FDI receiving countries to have possible access to technology, knowledge and managerial talent.

Import: Is the cross border acquisition of goods and services from a foreign source across the national borders.

Greenfield Investment: Is the establishment of a foreign sales office, manufacturing facility or any commercial physical investment which has never existed before. It is the ultimate level of FDI and the riskiest form. In case of a political, economic, currency or commercial risk, the investment cannot be relocated. However, the investing firm has the full authority on operations and profit.

Multinational Enterprise (MNE): Is a business entity which conducts business operations in various countries with its subsidiaries and affiliates. MNEs possess considerable and wide human resources, finance, expertise and technology as well as enjoy substantial competitive advantage.

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