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 impor-
tant 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.

the European Union (EU), while in the

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 inter-
est of business researchers in recent
years. Turkey straddles two continents
and two economic worlds: in the west
are the more developed economies of
south and east are less-developed coun-
tries from the Middle East and the former
Soviet Union. It shares borders with
Azerbaijan, Armenia, Bulgaria, Georgia,
Greece, Iran, Iraq, and Syria, and con-
trols 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.

58 JOURNAL OF SMALL BUSINESS MANAGEMENT

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 rec-
ognized as a candidate for full member-
ship 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 recogni-
tion 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 under-
stand 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 Tur-
key’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 con-
tinue to work with the International
Monetary Fund (IMF) and its other eco-
nomic partners to create an environment
conducive to the development of entre-
preneurship. 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,
BENZING, CHU, AND KARA
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 re-
searchers indicate that the contribution
of entrepreneurship to economic devel-
opment is significant, especially in the
area of employment creation. The impor-
tance 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 busi-
nesses are small businesses that account
for 59 percent of the nation’s employ-
ment (Small Business Service 2006). In
Europe, 99.8 percent of the business
enterprises are small and medium-sized
enterprises (SMEs) that employ two-
thirds 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 Inter-
national 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
59
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 manufactur-
ing 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 Enter-
prise 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 com-
petitive 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 Develop-
ment Plan includes objectives and targets
to improve the country’s business envi-
ronment. The plan would increase SME
access to financial markets, improve
Turkey’s infrastructure, and facilitate the
usage of new communication technolo-
gies (Republic of Turkey 2007). As will be
discussed later, the five-year plan also
recognizes the need to reduce the com-
plexity of the tax system.
Although EU membership could still
be 10–15 years away, the Turkish govern-
ment has been preparing for accession to
the EU for many years. As part of its
preparation, Turkey has curtailed govern-
ment 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
60 JOURNAL OF SMALL BUSINESS MANAGEMENT
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, unemploy-
ment 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 Coopera-
tion and Development (OECD) have
called for renewed fiscal vigilance re-
quiring improvements in Turkey’s tax
system, financial sector, and pension
planning (Today’s Zaman 2007; Mad-
slien 2006; OECD 2006).
Because of the importance of entre-
preneurship to the growth and stability
of the Turkish economy, this study
examines the motivations, success
factors, and problems facing entrepre-
neurs in Turkey. However, the results of
this survey go beyond Turkey, and can
be applied with caution to other econo-
mies as well. The study of entrepreneur-
ship 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 entre-
preneurship is somewhat limited, reli-
ance on studies of small businesses in
other countries and regions of the world
is necessary for a more complete under-
standing of the motivations, perceived
success factors, and problems of small
business owners in Turkey.
Motivations of Entrepreneurs
A number of surveys of entrepreneurs
provide insight into the motivational
aspects of the entrepreneurial experi-
ence. Kuratko, Hornsby, and Naffziger
(1997) and Robichaud, McGraw, and
Roger (2001) surveyed North American
entrepreneurs to determine how motiva-
tion relates to business success. Findings
from their studies show that motivation
falls into four categories: (1) extrinsic
rewards, (2) independence/autonomy,
(3) intrinsic rewards, and (4) family secu-
rity. Extrinsic motives are the economic
reasons that entrepreneurs work,
whereas intrinsic motives are related to
self-fulfillment and growth. Because
Kuratko, Hornsby, and Naffziger and
Robichaud, McGraw, and Roger concen-
trated on the relationship between moti-
vation and business success, they did not
indicate which motivations were the
strongest among entrepreneurs.
The motivating factors may differ
across countries due to differences in
income levels and employment opportu-
nities. In their study of Vietnamese small
business owners, Swierczek and Ha
(2003) found that challenge and achieve-
ment were more significant motivators
than necessity and security. A study of
motivation by Benzing, Chu, and Cal-
lanan (2005), however, discovered a
regional difference in Vietnam. Entrepre-
neurs in Ho Chi Minh City were more
motivated to start a business for personal
satisfaction and growth, whereas entre-
preneurs in Hanoi were more motivated
by the need to create a job for them-
selves and family members. Since Hanoi
suffers from a weaker economy and a
higher jobless rate than Ho Chi Minh
City, entrepreneurs in Hanoi may be
more motivated by income and security
needs. In Romania, income and job secu-
rity needs were significantly stronger
motivators than self-satisfaction and per-
BENZING, CHU, AND KARA
sonal needs (Benzing, Chu, and Szabo
2005). In contrast, entrepreneurs in
Andhra Pradesh, India were most
strongly motivated by the desire for
interdependence/autonomy, that is, to
be their own boss. The second strongest
motivator was to increase their income
(Benzing and Chu 2005). In their study
of entrepreneurship in China, Pistrui
et al. (2001) found that personal and
family security were the primary reasons
for entrepreneurs to start a business.
In Africa, Ugandan entrepreneurs
indicated that “making a living” or
“making money” is the most important
reason for their business ownership
(Bewayo 1995). Findings from the study
also showed that a majority of entrepre-
neurs (61 percent) preferred business
ownership over working for a corpora-
tion because of autonomy, freedom, and
independence (Bewayo 1995). A study of
entrepreneurs in Kenya and Ghana (Chu,
Benzing, and McGee 2007) found that
the strongest two motivators were to
increase income and to provide them-
selves with employment. Similarly, Roy
and Wheeler (2006) found that microen-
terprise owners in West Africa were
motivated by a desire to satisfy basic
physiological needs—food and shelter.
In general, it appears that micro and SME
entrepreneurs in low-income countries
are more likely to be motivated by
income needs, whereas those in higher
income countries are driven by higher-
order needs like self-esteem and self-
realization.
According to Ozsoy, Oksoy, and
Kozan (2001), entrepreneurs in Turkey
are motivated to start their own busi-
nesses to provide security for themselves
and their family, “to make a direct con-
tribution to the success of a company,”
and to increase income. Other important
motivations are a desire for flexibility,
work freedom, and to be his/her own
boss. According to Cetindamar (2005),
gaining work independence is the most
important motivation for Turkish entre-
61
preneurs working in technology-
producing firms. Other crucial motives
include the creation of employment
opportunities, high income, and per-
sonal satisfaction. 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). Based on a 1996
survey of Turkish female entrepreneurs,
Ufuk and Ozgen (2001a) found the
primary motives for becoming an entre-
preneur were, in order of importance, to
meet the family’s needs, to initiate social
contacts, and to experience self-
actualization.
Because the Turkish economy has
experienced erratic performance, 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.
However, at the same time, Turkey is
considered a middle-income country;
consequently, higher-order needs for
personal fulfillment may have taken
hold. This study will hopefully contrib-
ute to an understanding of the forces that
motivate entrepreneurs to start a busi-
ness. Learning more about business
owners’ motives could help policymak-
ers design a variety of programs to moti-
vate the creation of new businesses and
to support the continuation of existing
SMEs.
Success Variables
The variables that contribute to the
success of small businesses are not
unanimously agreed upon by research-
ers. Most entrepreneurial studies have
concentrated on a few sets of variables:
(1) the psychological and personality
traits of entrepreneurs; (2) the manage-
rial skills and training of entrepreneurs;
and (3) the external environment. With
respect to psychological and behavioral
traits, Frese, Brantjes, and Hoorn (2002),
62 JOURNAL OF SMALL BUSINESS MANAGEMENT
Hodgkinson (2001), and Olson and
Bokor (1995) found that the ability to
engage in strategic planning is related to
entrepreneurial success. Other psycho-
logical attributes such as a drive for
independence, innovative orientation,
attitude toward risk, and a competitive
nature have also been found to relate to
success (Frese, Brantjes, and Hoorn
2002; Koop, Reu, and Frese 2000; Dess,
Lumpkin, and Covin 1997; Covin and
Slevin 1989). According to Frese,
Brantjes, and Hoorn, these attributes are
especially important when an entrepre-
neur is working in a difficult business
environment. Other researchers (Rauch
and Frese 1998; Dess, Lumpkin, and
Covin 1997; Covin and Covin 1990;
Covin and Slevin 1989) agree that psy-
chological traits contribute to business
success, but they are often moderated by
experience and training, specific mana-
gerial skills, and the business environ-
ment. Since the accurate measurement of
psychological traits requires psychologi-
cal testing, and these traits are often
inherent in the entrepreneur’s psycho-
logical make-up, this study does not
attempt to measure or determine these
traits in the survey respondents. Instead,
this study seeks to determine what other
factors the entrepreneurs themselves
perceive as necessary for business
success. In contrast to psychological
traits, managerial skills, training, and
environmental conditions are factors
more easily developed and altered by
policymakers. Managerial skills would
include the ability to manage personnel
and maintain accounting records,
whereas environmental conditions
would be related to satisfactory govern-
ment support, access to capital, and
support of family and friends.
Numerous studies of entrepreneurs in
developing countries (Chu, Benzing, and
McGee 2007; Benzing, Chu, and Callanan
2005; Benzing, Chu, and Bove 2005;
Benzing, Chu, and Szabo 2005; Yusuf
1995; Gosh, Kim, and Meng 1993; Huck
and McEwen 1991; Busch 1989) have
sought to determine the management
skills and environmental conditions most
critical for their success. In Huck and
McEwen’s (1991) study of Jamaican small
business owners, three areas were iden-
tified as the most important competency
areas: management, planning and bud-
geting, and marketing/selling. Specific
competencies within those areas were
maintaining financial records, possessing
human relations skills, and establishing
goals and objectives. In a study done
by Yusuf (1995), South Pacific islanders
considered good management skills,
access to financing, personal qualities,
and satisfactory government support the
most critical success factors. In a 2003
survey, Vietnamese entrepreneurs
selected “friendliness toward customers”
as the most important success factor,
with “a good product at a good price” a
close second (Benzing, Chu, and Cal-
lanan 2005). Romanian entrepreneurs
ranked friendliness to customers, a repu-
tation for honesty, and good customer
service as the top three success factors
(Benzing, Chu, and Bove 2005). Percep-
tions of success factors may be partially
determined by the education of the
entrepreneurs, the competitive level of
the market, and/or the extent of govern-
ment assistance.
In a study conducted among Kenyan
entrepreneurs Neshamba (2000) found
that the owner–manager’s previous expe-
rience, understanding the needs of cus-
tomers, access to capital, and hard work
were viewed as important success vari-
ables. Similarly, Pratt’s (2001) study of
Kenyan entrepreneurs found the avail-
ability of capital, possession of business
skills, previous experience, and support
of family members are essential for busi-
ness success. According to a study of
Ghanaian and Kenyan entrepreneurs,
hard work was considered the most
important success factor, with customer
service the second most important vari-
able (Chu, Benzing, and McGee 2007).
BENZING, CHU, AND KARA
Ibrahim and Goodwin (1986) con-
ducted a factor analysis of the variables
contributing to successful small busi-
nesses in Canada and the United States.
They found four success factors: entre-
preneurial values, managerial skills,
interpersonal skills, and environmental
characteristics. The entrepreneurial
values were psychological in nature and
included characteristics such as intuition,
extroversion, attitude toward risk, flex-
ibility, and a sense of independence.
Managerial skills included variables such
as having a niche strategy, an effective
budget system, experience, education,
and a simple organization structure. The
interpersonal skills factor was comprised
of good customer relations, good
employee relations, and good interper-
sonal skills. Finally, the environmental
characteristics included interest rates,
taxes, and governmental assistance.
In a recent study of small business
owners in Pakistan, entrepreneurs rated
three factors as particularly important to
their success: hard work, good customer
service, and good product quality (Coy
et al. 2007). Factors that were not con-
sidered important were government pro-
grams and training programs.
In a study of Turkish entrepreneurs,
Kozan, Oksoy, and Ozsoy (2006) found
that business management training and
financing are significantly related to an
SME owner’s expansion plans. To be spe-
cific, Turkish entrepreneurs need market
information, technical assistance, infor-
mation resources, and training in finance
and marketing to accumulate the
resources necessary for expansion.
Problems Facing Entrepreneurs
The problems facing entrepreneurs
in developing countries are often quite
similar. First, entrepreneurs in most
developing countries face an unstable,
highly bureaucratic business environ-
ment. The laws governing private enter-
prise, especially business registration
and taxation systems, are overly complex
63
and difficult to understand. Contract and
private property laws are often poorly
designed and/or enforced. As described
by Gray, Cooley, and Lutabingwa (1997),
Ivy (1997), Kiggundu (2002), Pope
(2001), and Stevenson (1998), the unfa-
vorable institutional/regulatory environ-
ment is often accompanied by the added
expenses of corruption and bribery.
According to Benzing, Chu, and Callanan
(2005), Chu, Benzing, and McGee (2007),
and Pratt (2001), other problems faced
by entrepreneurs in developing and tran-
sition economies include a generally
weak economy, limited access to finan-
cial capital, an inability to hire reliable
employees, and too much competition.
As described by Benzing, Chu, and
Bove (2005), Cook (2001), Gray, Cooley,
and Lutabingwa (1997), Levy (1993),
Little, Mazumdar, and Page (1987), Mroc-
zkowski (1995), Peel and Wilson (1996),
and Spring and McDade (1998), SME
owners in developing and transition
economies often complain about insuffi-
cient capital. According to Ozsoy, Oksoy,
and Kozan (2001), small business owners
in Turkey report similar problems obtain-
ing loans from governmental and/or
private institutions. Business owners
must rely on family resources to meet
their financial needs. As pointed out by
Kozan, Oksoy, and Ozsoy (2006), Turkish
SMEs only received a paltry 3–4 percent of
loanable funds in 2005, although they
employed 50 percent of the workforce
that same year. Kozan, Oksoy, and Ozsoy
(2006) contend that inadequate financing
significantly impedes the ability of
Turkish business firms to grow. Although
the microfinance system is underdevel-
oped in Turkey, KOSGEB has recently
established Business Development
Centers to provide training as well as
start-up financing for 500 women entre-
preneurs over the next three years (Can
2007). With support from the EU, the
World Bank, and the International
Finance Corportation (IFC), other micro-
finance projects are under consideration.
64 JOURNAL OF SMALL BUSINESS MANAGEMENT
Another problem common to entre-
preneurs in developing countries is over-
regulation, which often results in lengthy
and costly delays in clearances and
approvals (Macculloch 2001). In Kenya,
entrepreneurs complain of long delays in
getting approval for trade licenses and
business registration. Complicated tax
forms, heavy control by government, and
outright misinterpretation of laws are
common problems faced by small busi-
ness owners in Kenya (Chu, Benzing,
and McGee 2007; Pratt 2001). Turkish
entrepreneurs appear to face some of the
same bureaucratic difficulties. According
to Cetindamar (2005), the bureaucracy in
public offices, municipalities, and at
customs is viewed as the most serious
problem facing entrepreneurs in Turkey.
The second most critical problem is
unstable and uncertain state policies.
Every government has the potential to
encourage and support business devel-
opment through effective tax policies,
licensing procedures, and employment
laws, but when a bureaucracy becomes
too burdensome or redundant, it can
stifle the very economic growth it was
designed to promote.
The Effect of Gender on Problems
The gender of a business owner may
influence the problems he or she faces in
Turkey. Turkish women entrepreneurs
experience many difficulties in starting
and running a business. A majority of
these problems are derived mostly from
the community’s view of a woman’s
place in society (Ufuk and Ozgen 2001b).
With regard to the problems encountered
during the start-up phase, Ufuk and
Ozgen found that 88 percent of women
entrepreneurs consider an inability to
obtain capital the most important
obstacle. Bureaucratic procedures and a
lack of prior experience are also critical
barriers to their success.
As described above the major prob-
lems reportedly facing entrepreneurs in
Turkey relate to government bureau-
cracy, lack of financing, a weak economy
and a traditional view against business
ownership by women. Results of this
study will provide more insight into the
ongoing problems encountered by en-
trepreneurs so that better measures
can be taken to promote the growth of
entrepreneurship.
Survey and Methodology
The definition of an SME varies from
organization to organization and from
country to country. 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). According to the
OECD and UN-ECE, an SME has less than
250 employees.
Data used in this study was collected
under the supervision of Dr. Mustafa
Celikten, an associate professor of edu-
cation at Erciyes University in Turkey,
during the summer of 2006. The two
interviewers were educational specialists
employed by the Presidency of Religious
Affairs of the Republic of Turkey as gov-
ernment employees. The surveys were
not conducted as part of their govern-
mental jobs, but outside their official
capacities.
Using simple random sampling Dr.
Celikten selected 200 businesses from
the 37,922 entrepreneurial establish-
ments (proprietors) registered with the
Ankara Chamber of Commerce Direc-
tory. (The total number of businesses
registered with the Ankara Chamber of
Commerce Directory is 115,001, which
includes all types of businesses, from
small businesses to corporations.) Of the
200 businesses selected, 23 businesses
were excluded because they employed
over 250 persons. Of the 177 remaining
businesses, six businesses were closed or
otherwise not reachable and 32 busi-
nesses either declined to answer the
survey or ended the survey prematurely.
Out of the 177 businesses in the sample,
BENZING, CHU, AND KARA
139 businesses answered the survey
questions, which is a 78.5 percent
response rate. Surveys lasted from 20
minutes to one hour, with an average
interview lasting 30 minutes.
Ankara was chosen for the survey
because of its potential for economic
growth through the development of its
small business sector. As the capital of
Turkey, Ankara serves as the country’s
administrative and diplomatic center and
is home to all foreign embassies. It is
also the educational center of Turkey,
with 10 well known universities.
Although Istanbul is larger, Ankara’s
strategic location, population, and
industrial/administrative base create an
attractive domestic market. Located in
the center of Turkey, Ankara lies along
the main East–West rail line across
Turkey and is connected to Europe via
the Trans-European Motorway. A new
Ankara–Istanbul high-speed train is
planned for 2008, which will cut travel
time by almost two-thirds (Today’s
Zaman 2007). The city is also home to
the second largest airport in Turkey.
Compared with Istanbul’s 12–14 million
residents, Ankara’s population may seem
small. However, Ankara’s current popu-
lation of 3.2 million is expected to grow
to 4.6 million by 2010 (Ankara Chamber
of Industry 2007). The city’s population
is already large enough to create a
sizable domestic market for services and
products. In recent years, some of the
country’s largest construction companies
and defense industries have relocated to
Ankara. Other industries include tractors,
lumber, furniture, pasta, flour, vegetable
oil, paint, carpets and textiles, and beer
and wine. Tourism has become increas-
ingly important and has stimulated
growth in the service industry. Although
some businessmen concede that Ankara
will never be bigger than Istanbul, it has
become a modern retailing center, with
nine large shopping malls already built
and a dozen other shopping centers in
the planning stages (Hawkes 2007).
65
 The questionnaire was originally
designed and written in English. It was
translated into Turkish and checked for
intertranslator consistency. The question-
naire used in this study was developed
by Hung M. Chu (Chu and Katsioloudes
2001) and has been used in studies of
entrepreneurs in Vietnam, Romania,
India, Kenya, and Ghana (Chu, Benzing,
and McGee 2007; Benzing and Chu 2005;
Benzing, Chu, and Callanan 2005;
Benzing, Chu, and Szabo 2005). The
motivation variables are similar to those
suggested in the work of Robichaud,
McGraw, and Roger (2001), and Kuratko,
Hornsby, and Naffziger (1997). Many
problems in the survey are common to
entrepreneurs in both transition and
developing countries. The reliability of
the survey instrument was deemed satis-
factory since the Cronbach alphas and
Guttman split-half coefficients were rela-
tively high for the motivation items,
perceived success variables, and the
problem items. The alpha and the split-
half coefficient for the motivation items
were 0.758 and 0.754, respectively. For
the perceived success variables, the
alpha was 0.850, and the split-half coef-
ficient was 0.745. For the problem items,
the alpha was 0.837, and the split-half
coefficient was 0.795.
The strengths of the motivation vari-
ables, perceived success variables and
problems were measured using a five-
point Likert scale. For motivations and
perceived success variables: 5 was
“extremely important,” 4 was “very
important,” 3 was “mildly important,” 2
was “not very important,” and 1 was
“unimportant.” For problem variables: 5
was a “very serious problem,” 4 was a
“serious problem,” 3 was a “problem,” 2
was a “minor problem,” and 1 was “not a
problem.” A higher mean score on a vari-
able would indicate greater importance.
To determine if the score on one variable
is significantly different from the score
on another, the Wilcoxon rank sum test
was used (also called the Mann–Whitney
66 JOURNAL OF SMALL BUSINESS MANAGEMENT
test). 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. When analyzing ordinal data that
has non-normal distribution, the Wil-
coxon test provides a more powerful test
of the difference between two popula-
tion medians (Hollander and Wolfe
1999).
The item-by-item analysis was fol-
lowed by a factor analysis to determine
whether the motivations, success vari-
ables, and problems group together on
significant factors. Correlation analysis,
principal component analysis, and a
scree plot were used to establish the
factors. Then, a principal component
factor analysis with an equamax rotation
was used to determine the factor load-
ings and communalities. A summated
scale or score was calculated for each
factor to determine which factor had
the greatest influence on the business
owners. Each summated scale is an
average of the Likert scores on the vari-
ables included in that factor. The
Wilcoxon rank sum test was used to
determine if one summated scale (factor)
was “significantly” different from
another. As explained earlier, the Wil-
coxon test is a more powerful statistical
test of the differences given that the data
is non-normally distributed.
Results
Sample Characteristics
As shown in Table 1, 91 percent of
entrepreneurs surveyed identified them-
selves as male, and 9 percent as female.
This finding is consistent with previous
studies on Turkish entrepreneurs
(Kozan, Oksoy, and Ozsoy 2006; Cetin-
damar 2005; Ozsoy, Oksoy, and Kozan
2001) and the role of Turkish women in
the labor force. Women only comprise
26.7 percent of the Turkish labor force,
with the highest participation rates in the
25–29-year-old group. Once Turkish
women marry, they often leave the labor
 Table 1
Sample Characteristics of Small and Medium-Sized
Entrepreneurs in Turkeya (N = 139)
Frequency Percent

Entrepreneurial Characteristics
Gender
Male 127 91.4
Female 12 8.6
Average Age of Entrepreneur (years) 41.1
Level of Education
No Formal Education 1 0.7
Some Grade School 21 15.3
Completed Grade School 17 12.4
Some High School 7 5.1
Completed High School 44 32.1
Some College 9 6.6
Completed College 32 23.4
Graduate Degree 6 4.4
Enterprise Characteristics
How the Business Was Established
Established by You 92 66.2
Bought from Another 28 20.1
Inherited 10 7.2
Average Age of Business (years) 13.6
Average No. of Full-Time Employees 24.9
Average No. of Part-Time Employees 1.4
Type of Business
Retailing 42 30.2
Wholesaling 14 10.1
Service 27 19.4
Manufacturing 24 17.3
Agriculture 16 11.5
Multiple Types of Business 16 11.5

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

force to become housewives and
mothers (Turkish Statistical Institute
2006). When the Republic was founded
in 1923, a secular European law was
adopted, allowing women to play a more
important role in every aspect of Turkish
life, but the number of women in busi-
ness and in the work force has remained
low (Ufuk and Ozgen 2001b; Arslan
2000).
Table 1 also shows that the average
age of entrepreneurs is 41 years. With

BENZING, CHU, AND KARA 67

respect to education, 32 percent of the
respondents finished high school (and
continued no further), and 28 percent
completed college. When asked how
their businesses were established, 66
percent indicated that they had created
the business themselves, 20 percent
had bought from others and 7 percent
reported that they had inherited their
businesses. Nine respondents declined to
answer this question. Perhaps issues
related to inheritance, etc., were viewed
as too personal.
The sample is dominated by micro
and small-sized enterprises. The number
of full-time employees per firm ranges
from 1 (self-employed) to 250, with an
average of 24.9 full-time employees per
firm. Based on the UN-ECE definition of
SMEs, 58 percent of the firms would be
considered microenterprises, since they
employ 10 full-time persons or less.
Eighty-nine percent of the sample would
be considered micro and small-sized
enterprises because they employ 50 full-
time persons or less. Ten firms (or 11
percent) are large enough to be consid-
ered medium sized. The average number
of part-time employees per firm is 1.4,
and the average age of the businesses is
14 years.
Retail businesses comprise 30 percent
of the sample, while service and manu-
facturing businesses represent 19 and 17
percent, respectively. This is similar to
the sample obtained by Ozsoy, Oksoy,
and Kozan (2001) and Ufuk and Ozgen
(2001a). Eighteen of the businesses were
franchises, and 22 were partnerships.
Turkish entrepreneurs reported
working an average of 70 hours per
week. The time devoted to business by
Turkish business owners is comparable
with that found in countries like
Vietnam, Romania, and India (Benzing
and Chu 2005; Benzing, Chu, and Cal-
lanan 2005; Benzing, Chu, and Szabo
2005). Kenyan business owners,
however, reported working an average
of 45 hours per week, while Ghanaian
68 JOURNAL OF SMALL BUSINESS MANAGEMENT
entrepreneurs reported working an
average of 38 hours per week in their
businesses (Chu, Benzing, and McGee
2007). The lower hourly commitment
may be the result of a business strategy
common to African entrepreneurs. They
often maintain multiple businesses to
reduce the potential for loss associated
with any one business failure; thus,
fewer hours are devoted to any one
enterprise. In the case of Turkish entre-
preneurs, multiple business ownership
does not appear to be a common busi-
ness strategy.
When asked from whom they sought
advice before establishing their busi-
ness, 67 percent of the entrepreneurs
surveyed had sought advice from family
members. The second and third most
frequently consulted groups were
friends and other business owners,
respectively. Relatively few SME owners
consulted legal advisors, financial advi-
sors, and/or banks.
Motivations of Entrepreneurs
Respondents were asked to rate 11
reasons for deciding to own a business.
The results are shown in Table 2. On a
five-point Likert scale, with five (5) being
“extremely important” and one (1) being
“the least important,” it was found that
the two most important reasons were “to
increase income” and “to have job secu-
rity.” The mean score for “to increase
income” is significantly higher (at the 95
percent level) than the next closest moti-
vation “to have job security.” Given the
fact that Turkey’s income is relatively
low and employment is unpredictable,
becoming a business owner is not only a
way to increase income, but it can also
reduce an entrepreneur’s fear of losing a
job. With respect to entrepreneurs in
Turkey, these results support the work of
Ozsoy, Oksoy, and Kozan (2001). In pre-
vious surveys of entrepreneurs in other
developing nations (Chu, Benzing, and
McGee 2007; Benzing, Chu, and Szabo
2005; Benzing, Chu, and Callanan 2005),
 Table 2
Mean Score for Motivation of Turkish Entrepreneursa
Motivational Factors Mean Standard
Deviation

1. To Be My Own Boss 3.48 1.48

2. To Be Able to Use My Past Experience and Training 3.47 1.40
3. To Prove I Can Do It 3.39 1.50
4. To Increase My Income 4.38 0.92
5. To Provide Jobs for Family Members 3.47 1.29
6. For My Own Satisfaction and Growth 3.47 1.48
7. So I Will Always Have Job Security 3.86 1.12
8. To Build a Business to Pass On 2.29 1.48
9. To Maintain My Personal Freedom 3.68 1.46
10. To Be Closer to My Family 3.11 1.20
11. To Have Fun 2.18 1.27

a
5 = extremely important, 4 = very important, 3 = mildly important, 2 = not very
important, 1 = unimportant.

the income and job security motivation
were also prime motivators.
“To have job security” was the second
most important motivation, because, in
many cases, small business owners start
a business to create their own employ-
ment opportunity. Turkey’s working age
population has been growing at a faster
rate than jobs have been created.
Between 1980 and 2004, the working age
population grew by 23 million, whereas
only 6 million jobs were created (World
Bank 2006). The official unemployment
rate in Turkey was 9.1 percent in 2006,
but labor conditions are much weaker
than this number illustrates, with nonag-
ricultural unemployment at 12 percent
(Turkish Statistical Institute 2006). One
of the groups hit hardest by unemploy-
ment is educated young people. Accord-
ing to the World Bank (2006), there is a
gap between the jobs being created and
the skills and knowledge of educated
young persons. Overall, youth unem-
ployment was 17.5 percent in 2006,
while youth unemployment in urban
areas was even higher at 22.2 percent
(Turkish Statistical Institute 2007).
Turkey introduced an unemployment
insurance plan in 1999, with the first
benefits paid in 2002. Unfortunately, due
to strict eligibility requirements and the
extensive informality of the labor
market, the payment of such benefits has
been severely limited. According to the
World Bank (2006), only 4 percent of
unemployed workers are actually
covered by Turkey’s unemployment
compensation program. As a result, most
unemployed persons rely on savings and
family resources to survive. As a result of
the “jobs deficit” and uncertainty in the
labor market, job security is one of the
most important forces driving business
creation.
Maintaining “personal freedom and
independence” was cited as the third
most important reason for business own-
ership among respondents. It has been
argued that being a predominantly
Muslim society, Turkey could not
produce “the spirit of capitalism” or Prot-
estant work ethic characteristics (Weber
1985). However, individual initiative cor-

BENZING, CHU, AND KARA 69

responds to the “freedom and indepen-
dence” that entrepreneurs in Turkey
enjoy through business ownership. This
result suggests that the Islamic entrepre-
neurial class in Turkey is rising and
bridging the cultural gap between the
West and the Islamic world (Arslan
2000). Research on Turkish entrepre-
neurs by Ozsoy, Oksoy, and Kozan
(2001) also supports this survey’s results
by suggesting that the desire for flexibil-
ity and work freedom are driving forces
behind the motive to go into business.
As Adas (2006) pointed out, the Islamic
entrepreneurial class is relatively new in
Turkey in that it really developed in the
1980s and 1990s. Operating in all areas of
the economy, 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). Many associa-
tions have been developed in order to
promote and support Islamic entrepre-
neurs in a secular business environment.
Some of these business associations, like
MUSIAD (Mustakil Sanayici ve Is Adam-
lari Dernegi, 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 . . . and have a notion of
solidarity” (http://www.musiad.org.tr).
MUSIAD’s objectives include the per-
sonal, institutional, sectoral, cultural,
and social development of its members.
These groups contribute to the indepen-
dence of Turkish entrepreneurs while
supporting their personal and human
development.
As shown in Table 3, a factor analysis
of the motivations led to four factors: a
security factor, an income factor, an
independence factor, and an intrinsic
factor. The “best fit” factor analysis
accounts for 70.8 percent of the variance
and was obtained by using principal
70 JOURNAL OF SMALL BUSINESS MANAGEMENT
component factor analysis with an
equamax rotation. As recommended by
Hair et al. (2006), all factor loadings are
greater than 0.40, and all communalities
exceed 0.50.
The first factor is referred to as a
“security factor” and contains motives 3,
5, 7, and 10. These variables include
obtaining job security, providing jobs for
family, and being closer to family, and
explain 25.5 percent of the variability.
Motive 3, “to prove I can do it,” also
loads on this variable, indicating that it is
correlated with the other variables on the
same factor. Although motive 3 appears
related to independence, it loads on a
factor with three other motives, indicat-
ing that entrepreneurs who rated vari-
ables 5, 7, and 10 highly were also more
likely to rate motive 3 highly. These
motives may be correlated, because
proving to others that you can create
a successful business simultaneously
means you have created a job for your-
self and others. Succeeding in such an
endeavor provides security, and, at the
same time, pride in its success.
The second factor can be called an
“income factor,” and consists of motives 4
and 8, which are “to increase income” and
“to build a business to pass on.” This
factor accounts for 17.6 percent of
the variability. Entrepreneurs appear to
believe that the regular cash flow and the
creation of an inheritable asset (i.e.,
wealth) are related aspects of a business.
A business is a financial asset that pro-
vides a flow of income to the current
owner and may well provide another flow
of income to the owner’s successors.
The third factor, referred to as the
“independence factor,” contains motives
1 and 2, which are “to be my own boss”
and “to be able to use my past experi-
ence and training.” The fourth factor,
referred to as the “intrinsic factor,” con-
sists of motives 6, 9, and 11, which are
“to maintain personal freedom,” “for my
own satisfaction and growth,” and “to
have fun.”
 Table 3
Principal Component Factor Analysis (Equamax Rotation)
Factor Loadings (Sorted) and Communalities for
Motivation Variables
Motivation Factor 1 Factor 2 Factor 3 Factor 4 Communality

10. To Be Closer to 0.853 0.245 0.077 -0.066 0.797

Family
7. For Job Security 0.835 -0.056 0.282 0.038 0.782
3. To Prove I Can 0.706 -0.038 0.510 0.102 0.770
Do It
5. To provide Jobs 0.684 -0.151 0.084 0.379 0.641
for My Family
4. To Increase My -0.076 0.892 -0.022 0.029 0.803
Income
8. To Build a 0.031 0.812 0.154 0.239 0.742
Business to Pass
On
2. To Be Able to 0.097 -0.005 0.838 -0.026 0.712
Use Past
Experience and
Training
1. To Be My Own 0.490 0.314 0.576 -0.039 0.672
Boss
9. To Maintain -0.103 0.027 0.120 0.841 0.734
Personal Freedom
6. For My Own 0.136 0.411 -0.233 0.564 0.560
Satisfaction and
Growth
11. To Have Fun 0.360 0.357 -0.316 0.471 0.578
Variance 2.805 1.939 1.579 1.468 7.789
Percentage of 0.255 0.176 0.144 0.133 0.708
Variance
Cronbach’s Alpha 0.838 0.731 0.539 0.545

The variance row of numbers in
Table 3 represents the eigenvalues and
indicates the relative importance of a
factor in explaining the variance associ-
ated with the variables. Although factor 1
has the highest explanatory value (25.5
percent), that does not mean that factor 1
is the most important motivation factor
to the entrepreneurs. According to the
summated scale scores shown in Table 4,
the highest mean score (4.131) was for
factor 2, the income factor. This indicates
that entrepreneurs in Turkey are most
motivated to create a business by the
prospects of increasing income and
creating an inheritable asset. The least
important motivation factor (significance
level 95 percent) is factor 4, the intrinsic
factor, which relates to self-satisfaction,
freedom, and enjoyment.
Two of the factors obtained in this
study align with Robichaud, McGraw,

BENZING, CHU, AND KARA 71

 Table 4
Mean Scores of Turkish Entrepreneurs by Factor Related
to Motivationa
Summated Scales Mean Standard
Score Deviation

Scale 1—Factor 1: Security 3.521 1.187

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

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

and Roger (2001). The “security factor”
obtained in this study has two motiva-
tions in common with Robichaud et al.’s
“security/well-being of the family factor”:
to be closer to the family and provide
jobs (a secure future) for family
members. The “extrinsic motivations”
factor obtained by Robichaud most
closely corresponds to the “income
factor” obtained in this study, but the
legacy motivation appears on a different
factor in this study and Robichaud et al.’s
study. The desire “to build a business to
pass on” appears on the “income factor”
in this study, but appears in the
“security/well-being of the family factor”
in Robichaud’s study. Inclusion of this
variable on either factor can be logically
explained, but further study must be
undertaken to understand what under-
lies the inheritance motivation and to
which factor it is most closely related.
The results of this study’s factor analysis
may be influenced by the preponderance
of males (91 percent) in the sample.
Based on research by Ufuk and Ozgen
(2001a, 2001b), one could hypothesize
that a sample with greater numbers
of female entrepreneurs would have
weighed the independence and security
factors more heavily.
Success Variables
On a five-point Likert scale, with five
(5) being extremely important and one
(1) being least important, entrepreneurs
in Turkey rated their reputation for
honesty as the most important success
variable. As shown in Table 5, “friendli-
ness and charisma” was ranked second
among the elements necessary for build-
ing a thriving enterprise. Social skills and
providing good customer service were
also cited by respondents as important.
In two similar surveys conducted by
Benzing, Chu, and Callanan (2005), and
Benzing, Chu, and Bove (2005), entre-
preneurs in Vietnam and Romania also
rated honesty, friendliness, and good
customer service as the three most
important success factors. Pakistani
entrepreneurs placed customer service in
their top three success factors (Coy,
Shipley, and Rao 2007). These results
suggest a certain commonality among
entrepreneurs in the rating of perceived
success variables despite differences in
culture and religion.

72 JOURNAL OF SMALL BUSINESS MANAGEMENT

 Table 5
Mean Score for Variables Contributing to Business
Successa
Success Factors Mean Standard
Deviation

1. Good Management Skills 3.87 1.17

2. Charisma: Friendliness 4.42 0.83
3. Satisfactory Government Support 2.68 1.53
4. Appropriate Training 3.50 1.34
5. Access to Capital 3.50 1.33
6. Previous Business Experience 3.29 1.49
7. Support of Family and Friends 3.53 1.42
8. Marketing/Sales Promotion 3.04 1.31
9. Good Product at Competitive Price 3.68 1.30
10. Good Customer Service 4.21 1.17
11. Hard Work 3.95 1.23
12. Position in Society 3.36 1.68
13. Maintenance of Accurate Records 3.29 1.12
14. Ability to Manage Personnel 3.99 1.04
15. Social Skills 4.39 0.94
16. Political Involvement 3.35 1.38
17. Reputation for Honesty 4.82 0.67

a
5 = extremely important, 4 = very important, 3 = mildly important, 2 = not very
important, 1 = unimportant.

Honesty may be cited as the most
important ingredient of a successful busi-
ness, in part because Islamic values play
an important role in conducting business
(Arslan 2000). Entrepreneurs are
expected to adhere to Islamic values
such as honesty, respect, and obedience
to elders. As discussed by Zapalska,
Brozik, and Shuklian (2005), Muslim
entrepreneurs should avoid dishonesty,
fraud, deception, and coercive practices,
as well as hoarding, speculation, and
collusion among producers. Graafland,
Mazereeuw, and Yahia (2006) discussed
several principles of Islam that should be
incorporated into all business practices.
These principles include the right to own
property, freedom, justice, honesty, sin-
cerity, truthfulness, exactness in weight
and measurement, leniency, and servi-
tude. Furthermore, Islam prohibits cheat-
ing and lying. Graafland, Mazereeuw,
and Yahia (2006) also remind entrepre-
neurs that Islam requires equal payments
for equal work, thus forbidding discrimi-
nation based on gender and other per-
sonal characteristics.
Entrepreneurs in Turkey gave the
least importance to “satisfactory govern-
ment support.” This could indicate that
entrepreneurs in Turkey understand
and accept the vagaries of the market
economy without relying on governmen-
tal protection or subsidies for success.
However, this score could also indicate
that entrepreneurs harbor a fear that
greater governmental assistance could
be a precursor to greater governmental

BENZING, CHU, AND KARA 73

interference. Sometimes, the helping
hand of government can become more of
a burden than a help to the small busi-
ness owner. Pakistani entrepreneurs also
ranked “government programs” as rela-
tively unimportant to their success (Coy,
Shipley, and Rao 2007).
As shown in Table 6, the factor analy-
sis indicates that 15 of the 17 success
variables could be grouped into six
factors. All the variables in this model
have a factor loading greater than 0.50,
and all communalities exceed 0.65. The
total percentage of variance (trace)
explained by the factor solution is 75.7
percent. The factor analysis process
selects the variables that should be
grouped together on a factor. The factors
are not necessarily easily named or
explained, because sometimes responses
on a success item are highly correlated
with a seemingly unrelated success item.
However, 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, this indicates that the results of
this factor analysis are robust.
The first factor can be called “charac-
teristics related to the individual,” and
includes success variables 6, 7, and 11.
This factor includes previous business
experience, support of family and
friends, and hard work, and explains
14.7 percent of the variability. The
second factor relates to “social connec-
tions” and includes success variables 10,
12, and 16. This factor includes position
in society, political involvement, and
good customer service. Factor 3 can be
referred to as a “competition” factor
because it consists of success variables 8
and 9, which are having a good product
at a competitive price and marketing/
sales promotion. Factor 4 can be called
“reputation/social skills” and includes
two variables—having a reputation for
honesty and having social skills. Factor
five relates to general management skills
and having an ability to manage person-
74 JOURNAL OF SMALL BUSINESS MANAGEMENT
nel. This factor might best be called
“management skills.” And, finally, factor
6 is called a “market support” factor
because it consists of success items 3, 4,
and 5. The three success variables in
factor 6 are satisfactory government
support, appropriate training, and access
to capital. Appropriate training and
access to capital may be linked to satis-
factory government support because
they are items that the government can
financially support. The fact that training
has been relatively unavailable is partly a
product of government policy. All three
items are necessary for the market
growth of a small business. Success item
2, friendliness, and success item 13, the
ability to maintain accurate records, did
not combine with any other items on a
factor. As a result, those two success
variables were not included in the final
factor analysis. This does not mean that
they are unimportant to success. As dis-
cussed earlier, the entrepreneur’s friend-
liness is actually seen as the second most
important success variable.
Table 7 shows the summated scale
score for each factor. The summated
scale is the average score of the items in
that factor. The mean score of 4.607 for
the reputation/social skills factor is sig-
nificantly higher (99 percent level) than
any other success factor. This indicates
that among the six reported factors,
Turkish entrepreneurs believe their
success is most closely related to their
reputation for honesty and their social
skills. Interestingly, factor 6, which
includes government support, appropri-
ate training, and access to capital, is
viewed as the least important factor
among the six factors.
Problems Facing Entrepreneurs
As shown by the mean scores in
Table 8, the four most critical problems
faced by Turkish entrepreneurs are (1) a
confusing and complex tax structure; (2)
the inability to attract and retain good
employees; (3) the inability to maintain
 Table 6
Principal Component Factor Analysis (Equamax Rotation) Factor Loadings (Sorted) and
Communalities for Perceived Success Variables
Success Variables Factor 1 Factor 2 Factor 3 Factor 4 Factor 5 Factor 6 Communality

6. Previous Business Experience 0.812 0.078 -0.187 0.088 0.013 0.246 0.769
7. Support of Family and Friends 0.791 0.163 -0.074 0.100 0.181 0.219 0.749
11. Hard Work 0.625 0.400 0.240 0.039 0.317 0.071 0.715
12. Position in Society 0.565 0.689 -0.003 -0.070 -0.118 0.038 0.814
10. Good Customer Service 0.130 0.675 -0.413 0.109 -0.016 -0.152 0.678
16. Political Involvement 0.028 0.669 -0.022 0.339 0.272 0.330 0.746
9. Good Product/Competitive Price 0.007 0.053 -0.855 -0.009 0.065 0.036 0.739
8. Marketing Factors 0.057 0.170 -0.822 0.178 0.152 0.164 0.789
17. Reputation for Honesty 0.184 -0.006 -0.147 0.884 0.045 -0.026 0.839
15. Social Skills -0.077 0.127 0.022 0.848 0.208 0.186 0.818
14. Ability to Manage Personnel 0.102 0.194 -0.046 0.293 0.789 -0.021 0.758

BENZING, CHU, AND KARA

1. Good General Management Skills 0.055 -0.099 -0.159 0.042 0.774 0.305 0.733
4. Appropriate Training 0.172 -0.025 0.005 0.177 0.085 0.830 0.758
3. Satisfactory Government Support 0.229 0.540 -0.216 -0.080 0.205 0.595 0.792
5. Access to Capital 0.218 0.040 -0.410 -0.009 0.419 0.510 0.652
Variance 2.199 1.959 1.940 1.808 1.740 1.707 11.352
Percentage of Variance 0.147 0.131 0.129 0.129 0.116 0.114 0.757
Cronbach’s Alpha 0.759 0.620 0.755 0.734 0.627 0.676

75
 Table 7
Mean Scores of Turkish Entrepreneurs by Factor Related
to Perceived Success Variablesa
Summated Scales Mean Standard
Score Deviation

Scale 1—Factor 1: Characteristics Related to the Individual 3.591 1.139

Scale 2—Factor 2: Social Connections 3.642 1.078
Scale 3—Factor 3: Competition Issues 3.350 1.173
Scale 4—Factor 4: Reputation/Social Skills 4.607 0.724
Scale 5—Factor 5: Management Skills 3.925 0.951
Scale 6—Factor 6: Market Support 3.232 1.094

a
Summated scales were calculated as average score across items contained in that
factor. Scale 1 is the average of the scores on variables 6, 7, and 11; scale 2 is the
average of the scores on variables 10, 12, and 16; scale 3 is the average of the scores
on variables 8 and 9; scale 4 is the average of the scores on variables 15 and 17; scale
5 is the average of the scores on variables 1 and 14; and scale 6 is the average of the
scores on variables 3, 4, and 5.

Table 8
Problems Faced by Small Businessesa
Problems Mean Standard
Deviation

1. Unreliable and Undependable Employees 3.28 1.43

2. Too Much Competition 2.88 1.37
3. Unable to Obtain Short-Term Financial Capital 2.30 1.43
4. Unable to Obtain Long-Term Financial Capital 2.47 1.38
5. Too Much Government Regulation 2.54 1.28
6. Limited Parking 2.21 1.49
7. Unsafe Location 2.13 1.40
8. Weak Economy 3.19 1.55
9. Lack of Management Training 2.60 1.27
10. Lack of Marketing Training 2.81 1.25
11. Inability to Maintain Accurate Accounting Records 3.24 1.28
12. Complex/Confusing Tax Structure 3.53 1.36
13. Complicated Business Registration Process 2.63 1.29
14. Poor Roads/Transportation 3.11 1.66
15. Electricity Problems 2.84 1.53

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

76 JOURNAL OF SMALL BUSINESS MANAGEMENT

accurate accounting records; and (4) a
weak economy. Entrepreneurs in Turkey
do not appear to be as constrained by
financial capital as entrepreneurs in
other countries, such as Ghana (Chu,
Benzing, and McGee 2007), Romania
(Benzing, Chu, and Bove 2005) and
Vietnam (Benzing, Chu, and Callanan
2005). In a study of Turkish women
entrepreneurs, Ufuk and Ozgen (2001b)
found that the heaviest burden imposed
on entrepreneurs was debt and tax
payments.
The results of the European Commis-
sion (2007b) survey of SMEs in 30 Euro-
pean countries partially support the
results of this survey. The European
Commission survey found that the four
most important barriers to innovation
were lack of financing, scarcity of skilled
labor, a lack of market demand, and the
high cost of human resources. Half of the
European SME managers who were inter-
viewed said they had recruitment prob-
lems. In addition, SME owners in Europe
were frustrated by a lack of market
demand, which is sometimes attributable
to a weak economy. The entrepreneurs
in the European sample were very con-
cerned about government regulation
with 44 percent of owners indicating that
they were operating in an overregulated
environment. In this study, entrepre-
neurs in Ankara, Turkey do not believe
government regulation is a very serious
problem, nor do they report a serious
inability to obtain financial capital.
The four most critical problems to
Turkish entrepreneurs will be discussed
in the following subsections.
Confusing and Complex Tax Structure.
According to the World Bank (2007b),
Turkey’s overall business tax rate is not
excessive compared with the region or
the OECD. The total tax rate (as a per-
centage of profit) facing a medium-size
company in Turkey is 45.1 percent. This
compares favorably with the region (50.8
percent) and the OECD (46.2 percent).
BENZING, CHU, AND KARA
However, when compared with other
economies, the comparison is not as
favorable. For instance, in Singapore, the
total tax rate facing a medium-size busi-
ness is 23.3 percent, and in the United
Kingdom, it is 35.7 percent. Many would
argue that businesses in Turkey and the
OECD pay too high an overall tax rate,
which creates a drag on the economy.
Excessively high payroll taxes lead to an
increase in informal hiring arrangements
and slower company growth. In addi-
tion, by increasing noncompliance,
higher tax rates undermine the tax
system and reduce government receipts.
The complexity of a tax system is
independent of the tax rate, and accord-
ing to this survey, is a serious problem in
Turkey. The total hours a medium-sized
company spends preparing, filing, and
paying taxes in one year gives a good
indication of the administrative burden
created by a tax system. According to the
World Bank’s (2007b) Doing Business
report, an average medium-sized busi-
ness in Turkey spends 223 hours per
year paying its taxes. In contrast, similar
companies in OECD countries spend
183.3 hours paying taxes. When com-
pared with other business-friendly
economies, the contrast is even more
apparent. In Hong Kong and Singapore,
a medium-sized company only spends 80
hours and 49 hours, respectively, in
administering its tax payments. High-
income countries tend to have both
lower tax rates and less complex tax
systems. This decreases the cost burden
associated with taxes and increases
compliance.
The Inability to Attract and Retain Good
Employees. Although the inability to
obtain good employees is a challenge for
entrepreneurs in every country (Euro-
pean Commission 2007b; Benzing, Chu,
and Bove 2005; Benzing, Chu, and Cal-
lanan 2005), the problem is more acute
in Turkey because of the expense and
burden related to hiring and firing
77
employees. According to the OECD
(2006), Turkey has one of the most
restrictive labor codes in the OECD. First,
Turkey’s minimum wage is too high, as
shown by Turkey’s ratio of minimum
wage to the average value added per
worker. Whereas this ratio is 0.57 for
Turkey, it is 0.14 and 0.27 for France
and Romania, respectively (World Bank
2007b). Second, exorbitant firing costs
(severance pay) increase the risk of
hiring incompetent employees. To fire an
employee in Turkey costs 95 weeks of
wages, whereas the cost in an OECD
country averages 25.7 weeks of wages
(World Bank 2007b). Third, Turkish
labor law places restrictions on night
work, on “weekly holiday” work, and
hours worked. As a result of these labor
cost burdens, Turkish entrepreneurs
must hire only the most competent, pro-
ductive workers to survive. The pool of
these workers is limited—as it is in every
country.
Inability to Maintain Accurate Account-
ing Records. Entrepreneurs in this
survey also show a concern over their
inability to maintain good accounting
records. Only 28 percent of the sample
had graduated college. As a result, the
majority of the entrepreneurs in this
sample are probably lacking in account-
ing and marketing training. This may be a
concern across Turkey due to the insuffi-
cient availability of business programs in
the higher education system. Although
Turkey has 76 institutions of higher learn-
ing, only 33 percent of those persons
between 18–21 participate in higher edu-
cation. Of the students enrolled in higher
education, 45 percent are enrolled in the
applied social sciences, of which business
management is one possible major (T.C.
Yükseköğretim Kurulu 2007). The results
of this study imply that there might be
great interest in two-year or nondegree
programs in business. Because access to
universities is limited, Turkey’s two-year
schools might be better suited to provide
78 JOURNAL OF SMALL BUSINESS MANAGEMENT
accounting and business coursework.
A better understanding of accounting
would help entrepreneurs better measure
their profitability and how to improve it.
Weak Economy. Finally, a weak
economy was reported as another critical
obstacle preventing Turkish small busi-
ness owners from achieving their goals.
Cetindamar (2005) found that many
Turkish entrepreneurs experienced diffi-
culties due to uncertainty in the eco-
nomic and political environment. A study
of Kenya and Ghana (Chu, Benzing, and
McGee 2007) found that entrepreneurs
ranked “a weak economy” as the most
serious problem experienced by small
business owners. Among entrepreneurs
in Romania (Benzing, Chu, and Bove
2005) “a weak economy” was the third
most serious problem. In a similar survey
being done in Bulgaria, a weak economy
is also emerging as a serious problem.
Entrepreneurs in Vietnam and India did
not consider this a serious problem
(Benzing and Chu 2005; Benzing, Chu,
and Callanan 2005). A “weak economy”
is a problem to entrepreneurs because it
leads to a decline in consumption spend-
ing and business investment. That
decline in demand decreases the rev-
enues and profitability of all companies.
Thirteen of the 15 problem variables
loaded onto five factors. The results of a
principal component factor analysis with
an equamax rotation are reported in
Table 9. Problem 4: “unable to obtain
long-term capital” and problem 8: “weak
economy” did not load on any factor,
and so they were omitted from the final
factor model. The best fit model accounts
for 73.1 percent of the variability. All
factor loadings are greater than 0.50, and
all communalities are greater than 0.60.
The first factor includes problems 1, 2,
and 3 and accounts for 15.9 percent of
the variability. This factor includes
problem 1, which relates to unreliable
and undependable employees, problem
2: “too much competition,” and problem
 Table 9
Principal Component Factor Analysis (Equamax Rotation) Factor Loadings (Sorted) and
Communalities for Problem Variables
Problem Factors Factor 1 Factor 2 Factor 3 Factor 4 Factor 5 Communality

1. Unreliable/Undependable Employees 0.831 -0.061 -0.126 -0.115 -0.000 0.723

2. Too Much Competition 0.771 -0.262 -0.120 -0.154 0.072 0.706
3. Obtaining Short-Term Capital 0.664 -0.430 0.037 0.004 0.275 0.703
10. Lack of Marketing Training 0.234 -0.849 -0.176 -0.106 0.071 0.823
9. Lack of Management Training 0.147 -0.671 -0.379 -0.208 0.033 0.659
11. Inability to Maintain Accounting Records 0.171 -0.620 0.062 -0.452 -0.115 0.635
6. Limited Parking 0.116 -0.030 -0.865 -0.048 0.159 0.791
7. Unsafe Location 0.059 -0.247 -0.808 -0.086 0.169 0.753
13. Business Registration Process -0.093 -0.208 -0.299 -0.787 0.006 0.760
12. Complex/Confusing Tax Structure 0.248 -0.310 0.184 -0.739 0.079 0.743

BENZING, CHU, AND KARA

5. Too Much Government Regulation 0.379 0.136 -0.296 -0.561 0.324 0.669
15. Electricity Problems 0.093 -0.032 -0.058 0.116 0.898 0.833
14. Poor Roads/Transportation 0.018 0.000 -0.247 -0.259 0.763 0.710
Variance 2.070 2.032 1.887 1.866 1.654 9.508
Percentage of Variance 0.159 0.156 0.145 0.144 0.127 0.731
Cronbach’s Alpha 0.750 0.754 0.754 0.663 0.661

79
 Table 10
Mean Scores of Turkish Entrepreneurs by Factor Related
to Problema
Summated Scales Mean Standard
Score Deviation

Scale 1—Factor 1: Market Problems 2.819 1.153

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

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

3: “unable to obtain short-term capital.” tional issues related to parking and

The first factor has been named “market
problems” as it relates to three important
markets: the labor market, the product
market, and the financial market. The
second factor accounts for 15.6 percent
of the variability and includes problems
9, 10, and 11, and has been named “lack
of business training.” The three problems
in this factor relate to the lack of
management, marketing, and accounting
training. The third factor is called the
“location factor,” and includes limited
parking and an unsafe location. The
fourth factor is called “governmental
bureaucracy,” and is related to the busi-
ness environment created by the govern-
ment. The three problems in this factor
are the business registration process,
complex/confusing tax structure, and too
much government regulation. The fifth
factor deals with infrastructure problems
and includes electricity problems and
poor roads/transportation.
As shown by the factor analysis results
in Table 10, the summated scores on
these factors indicate that Turkish entre-
preneurs are least concerned about loca-
safety. Based on the results of a Mann–
Whitney test of the differences among
the factor scores, the summated scale for
factor 3 was significantly lower than
every other factor. Apparently, 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 prob-
lems there. Because there were no sig-
nificant differences among the summated
scores on the other four factors, the item-
by-item analysis of problems is more rel-
evant when determining how to improve
the environment for SME business
owners in Turkey.
Discussion and Policy
Recommendations
Although the benefits of entrepre-
neurship to economic development are
becoming clearer (Carree and Thurik
2003; Audretsch and Thurik 2000; Acs,
Carlsson, and Karlsson 1999; Reynolds
1999), Turkish entrepreneurship must be
more actively supported by the Turkish

80 JOURNAL OF SMALL BUSINESS MANAGEMENT

government. According to Kozan, Oksoy,
and Ozsoy (2006), Turkish small busi-
nesses suffer from a lack of financial
support, a high burden of taxes and
regulations, and too few government
programs. This survey supports the per-
ception that the tax system is viewed as
a serious problem, with 57 percent rating
its complexity as a very serious or
serious problem. However, this survey
does not support the conclusion that a
lack of financial support and excessive
government regulation are serious prob-
lems for Turkish entrepreneurs. Only 26
percent saw the inability to secure short-
term financial capital as a very serious or
serious problem, and only 24 percent
rated government regulation as a very
serious or serious problem. The Euro-
pean Commission’s 2007 survey of SMEs
in Europe supports this study’s conclu-
sion that government regulation in
Turkey is not a serious problem. Accord-
ing to their results only, 25 percent of
Turkish entrepreneurs believe that gov-
ernment regulations are too strict (Euro-
pean Commission 2007b).
In addition, entrepreneurs in this
survey did not appear to believe govern-
mental programs are a significant ingre-
dient for success. Forty-nine percent of
the respondents to this survey thought
that governmental programs were either
not very important or unimportant.
Although governmental programs were
not viewed as a significant ingredient for
success, many of the problems facing
business owners could be reduced with
changes to the government’s tax policies,
educational system, and labor laws. Rec-
ommendations for each of the four most
serious problems are addressed in the
next four subsections.
Complexity of the Tax System
The most serious problem facing
entrepreneurs is Turkey’s confusing and
complex tax system. Turkey has recog-
nized this problem in its Ninth Develop-
ment Plan. According to the Plan,
BENZING, CHU, AND KARA
“. . . 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, p. 83). Turkey
has already made some improvements in
its tax system. In its Doing Business
2008, the World Bank (2007b) indicates
that Turkey decreased its total tax rate on
businesses from 53 percent in 2007 to
45.1 percent in 2008 while also decreas-
ing the time spent preparing, filing, and
paying taxes from 254 to 223 hours per
year. (The corporate income tax rate
itself was recently decreased from 30
percent to 20 percent.) This improved
Turkey’s ranking on paying taxes from
85th place to 54th place out of 178
nations, making Turkey the second
biggest reformer in the world after Bul-
garia (World Bank 2007b). However,
more improvement can be made. As dis-
cussed earlier, the number of hours a
business spends dealing with tax issues
varies widely, and can be as low as Sin-
gapore’s 49 hours per year.
In 2006, Turkey began a process of
improving the collection, service and
administration of the tax system. For
instance, Turkey improved the techno-
logical infrastructure of the Revenue
Administration and began an e-Tax
Department automation project to allow
for electronic filing. In addition, a data-
base (VERIA) was created to maintain
information on the public and private
sectors (Republic of Turkey 2007).
Finally, Turkey has moved toward one
citizen identification number for both tax
identification and social security iden-
tification. The previous two number
systems were causing a breakdown in
the ability to control and audit busi-
nesses and individuals.
One of the goals of the Ninth Devel-
opment Plan is to enact a new income
tax law and tax procedure law in 2007.
The objective reads: “Significant contri-
butions will be made to combat the infor-
mal economy through a simpler and
more effective tax system” (Republic of
81
Turkey 2007, p. 90). Turkey needs to
work toward this goal with urgency to
insure a broadening of the tax base,
lower tax rates, and greater compliance.
By further automating and simplifying
the tax system, Turkey will reduce the
burden on small businesses, reduce the
size of the unregistered economy, and
promote macroeconomic stability.
Expanding and Improving the
Quality of the Workforce
According to this study’s results, SME
entrepreneurs in Turkey believe that the
inability to attract and retain reliable
employees is their second most serious
problem. As described earlier, this may
relate to the excessively high level of
payroll taxes and an overly restrictive
labor code. It is difficult for employers
in Turkey to find workers who will con-
tribute a productive value in excess of
their wage and the payroll taxes related
to their employment. As a result, com-
panies are unable to grow, and they
remain in the informal or unregistered
sector to avoid labor code compliance.
Many SMEs find ways to avoid labor
regulations and taxes by underreporting
wages, firing workers before they
become eligible for severance, and
using fewer female employees to avoid
paid maternity leave requirements. The
World Bank (2006) indicates that
approximately one-third of all urban
workers are employed in the informal
sector, which means they are not regis-
tered with the social security system, do
not receive health insurance and unem-
ployment insurance, and rarely receive
the full severance pay required under
the labor code. Turkey itself estimates
that over 50 percent of the economy is
unregistered, which amounts to a loss
of $80 billion in tax revenues per year
(Today’s Zaman 2007c). In an effort to
protect workers, the overly restrictive
labor code has instead led to their lack
of protection as more are employed in
the informal sector.
82 JOURNAL OF SMALL BUSINESS MANAGEMENT
In an effort to create more jobs and
provide incentives for companies to reg-
ister, the World Bank (2006), 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. Although the 2003
Labour Code revision allowed for greater
usage of temporary employees, Turkey
still remains the OECD country with the
second most restrictive employment laws
only after Portugal. Streamlining the
restrictions related to employment and
decreasing payroll taxes will increase the
incentive for SME companies to hire
workers and expand. When companies
become part of the formal sector, it is
easier to enforce labor laws and broaden
the tax base, thereby increasing tax
revenue. In the long run, greater eco-
nomic and fiscal stability will lead to
more job creation and growth.
Another way that Turkey could
increase its available labor pool is to
implement programs that promote
female participation in the labor
market. In 2004, only 44 percent of the
adult population was employed, which
is one of the lowest employment par-
ticipation rates in the world. This is
largely the result of the low participa-
tion rate of women. According to the
World Bank (2006), only 27 percent of
Turkey’s working age women work. A
recent SEEurope.net paper (Bulgaria
Economic Forum 2007) indicates that
the female participation rate in urban
areas in Turkey is even lower at 17
percent. The major reason that women
do not work is cultural. Women are
expected to marry and take care of the
home, children, and aging parents. In
rural areas of Turkey, 79 percent of the
women work in unpaid agricultural
employment. One of the goals of EU is
to increase the employment rate to 60
percent among EU countries and those
seeking membership (Bulgaria Eco-
nomic Forum 2007).
 An increase in the Turkey’s labor pool
must be accompanied by an improvement
in the level of worker education and
skills. According to the World Bank
(2007c), Turkey’s workforce is severely
deficient in its level of education and
skills. As of 2005, only 40 percent of 20 to
24 year olds in Turkey had a secondary
degree, which is half the rate for
the 15 EU countries and far below the
85-percent target established by the EU
(World Bank 2007c). Low secondary
enrollments and graduation rates coupled
with the relatively poor quality of second-
ary education constrain the ability of stu-
dents to pursue tertiary education. As of
2004, Turkey’s enrollment rate in tertiary
education was 30 percent, and the gradu-
ation rate was 11 percent among 25–34
year olds. This is the lowest rate among
all OECD countries, where the average
graduation rate is 31 percent (World Bank
2007c). Female rates of participation are
far below the European Community (EC)
norm as well. At the same time that uni-
versity participation rates are low, the
skills obtained at the universities are not
adequate to meet the needs of potential
employers. Turkish firms indicate that
university graduates need better foreign
language skills, computer skills, commu-
nications skills, and more practical expe-
rience (World Bank 2007c).
The Ministry of Education in Turkey
recently announced its education action
plan for 2008–2012. This plan is based
on the strategies and goals established
in Turkey’s Ninth Development Plan
(Republic of Turkey 2007). To improve
the information and communication skills
of all students, the government plans to
provide every school in Turkey with
Internet access. To better match student
skills to the demands of the job market,
the government will expand vocational
education, with special emphasis on pro-
fessional and technical curricula. In addi-
tion, the government has plans to expand
access to tertiary education by increasing
student stipends for tuition and allowing
BENZING, CHU, AND KARA
expansion of private vocational schools
and universities (World Bank 2007c;
Republic of Turkey 2007).
Businesses themselves can influence
the labor pool and improve hiring out-
comes by engaging in partnerships with
universities and MYOs and using more
sophisticated recruitment techniques.
Small firms can benefit from internship
relationships because they allow firms to
assess employee performance before
making a permanent hire. In addition,
internship pay is usually less. Businesses
should contact universities and MYOs
that have internship programs to see
how they can get involved. In addition,
small business owners need to have
access to training in recruitment tech-
niques. The use of newspaper advertis-
ing and employment agencies could
increase the size and quality of applicant
pools and improve hiring outcomes.
Finally, with improved access to unem-
ployment compensation, more job
seekers will be listed as unemployed on
the government rolls. The Turkish gov-
ernment could use that list to help match
job openings to unemployed persons.
Providing Business Training
Entrepreneurs in this survey were also
concerned about their inability to main-
tain accounting records. Turkey has
struggled to make higher education
available to those graduating from the
secondary education system, but more
resources need to be channeled toward
improving the availability of business
education in Turkey. Like most coun-
tries, there is a shortage of students
graduating with accounting degrees.
Incentives must be created to increase
the numbers of such graduating stu-
dents. Expanding distance education,
particularly in business disciplines,
might partially address the training
needs of small business owners. Turkey’s
universities have already tried to meet
the growing demand for higher educa-
tion by expanding distance education,
83
but more can be done (T.C. Yüksekö-
ğretim Kurulu 2007). Partnering with
other European and U.S. universities
could help attract the needed resources.
In addition, offering more part-time,
nondegree business classes in facilities
closer to entrepreneurs could improve
availability. According to Ufuk and
Ozgen (2001b), entrepreneurs in Turkey
are willing to participate in training pro-
grams aimed at improving their business
knowledge of communication methods,
marketing, and accounting.
Finally, the Ninth Development Plan
plans to expand access to business infor-
mation by establishing a single point
information portal for information on dif-
ferent industries, Information and Com-
munication Technologies (ICT) usage,
and how to conduct business. The Minis-
try of Industry and Trade will most prob-
ably be in charge of such outreach and
business training; however, the involve-
ment of many overlapping government
agencies, as suggested by the Plan, could
lead to less effective implementation. One
agency or group needs to coordinate this
with the help of local educational institu-
tions and business associations. Perhaps
the information portal could be folded
into the already existing one-stop-shops
established in 2006. Although these one-
stop-shops were designed to coordinate
start-ups and help with permits, they
could be expanded to include the busi-
ness training of entrepreneurs. Since
maintaining accounting records seems to
be a serious concern, these information
portals should also provide subsidized
training in accounting software like Quik-
books and aid in the purchase of account-
ing software and computers.
It is important to make entrepreneurs
aware of the availability of business
training by appropriate outreach activi-
ties. The Turkish government should
undertake a public relations campaign to
ensure that small business owners are
knowledgeable about training courses
and other initiatives.
84 JOURNAL OF SMALL BUSINESS MANAGEMENT
Economic Stability
A weak, unstable economy is of
concern to entrepreneurs in any country
because it leads to reduced purchasing
power and demand. According to the
European Commission (2007b) 46
percent of SMEs in the EU-27 are con-
cerned with customers’ purchasing
power or limited demand. Luckily for
small business owners in Turkey, the
nation’s economy has been surprisingly
strong and stable since its financial crisis
in 2001. The Turkish economy has aver-
aged 7 percent real annual GDP growth
during the last five years, and has
achieved single-digit inflation and unem-
ployment. (Turkey is expecting its 2007
real GDP growth rate to slow to 5–6
percent.) Fiscal and monetary restraint,
political stability, and a probusiness gov-
ernment are largely responsible for this
growth. Turkey is on track for continued
growth and low inflation, but there are
still a number of challenges facing the
Turkish government.
To remain on the right economic
track, Turkey must expedite reforms
suggested by the IMF (2007). The IMF
has urged Turkey to continue financial
sector privatization, to reform social
security and bank supervision, and to
control government spending (especially
on pensions and health). Turkey has
also been urged to maintain tight mon-
etary and fiscal policy in an effort to
continue GDP growth at 5 percent while
moving toward its 4 percent target infla-
tion rate. Turkey is working with the
IMF to keep its economy moving in the
right direction. Turkey plans to continue
reducing its ratio of public debt to
national income and modernizing its
tax administration (Republic of Turkey
2007). In addition, Turkey plans to
implement social security and health
care reforms sometime during 2008.
Under the current proposal, the social
security system will encourage all busi-
nesses through a system of incentives
and penalties to pay employee insur-
ance premiums, which will increase
social security receipts thereby reducing
the social security deficit. It will also
place all workers under a single social
security system, increase the minimum
retirement age, and provide free health
care for anyone under 18 years old
(Today’s Zaman 2007c).
If Turkey continues its fiscal and mon-
etary vigilance, combined with other IMF
recommendations, it can insure the busi-
ness community that economic growth
and stability will continue. This eco-
nomic strength will encourage SME
growth and promote private sector
health in Turkey.
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. Business
associations provide the structure and
support for successful lobbying activi-
ties. Business owners who wish to influ-
ence Turkey’s economic future should
seek active membership in organizations
such as the Chamber of Commerce,
Chamber of Industry, MUSIAD, and/or a
sector-based association. Because all
companies must register with the
Chamber of Commerce (Turkish Law no.
5174), Turkey already has one of the
largest Chambers of Commerce in the
world. The Istanbul Chamber of Com-
merce, which was voted the “Best
Chamber in Europe,” has 300,000
members (http://www.ito.org.tr).
These organizations also have the
ability to provide business training
through various outreach activities. The
Istanbul Chamber established the ISTAN-
BUL University of Commerce, whereas
the Izmir Chamber established the Izmir
Economics University to provide voca-
tional and business training. Ankara has
both a Chamber of Commerce and a
Chamber of Industry, but they have yet
to develop the clout that the Istanbul
Chamber has.
BENZING, CHU, AND KARA
Other more specialized associations
like the Istanbul Textile and Raw Mate-
rials Exporters Association and the Shop-
ping Malls and Retailers Association
(AMPD) promote the interests of Turkish
businesspersons by lobbying govern-
ment officials and providing information
on technological advances and foreign
competition within a sector. Some of
these industry associations support
similar goals such as tax simplification
and public debt reduction, but in some
cases, their goals are in conflict. While
lobbying for their own interests, associa-
tion members must learn to balance
industry needs with the goals of other
sectors and the country as a whole.
Summary and Conclusion
This survey of 139 SME entrepreneurs
in Ankara, Turkey indicates that like
many other entrepreneurs around the
world, the primary motivations for start-
ing a business are to increase income
and obtain job security. These income
motivations dominate the internal
reward motivations related to indepen-
dence and intrinsic motives. If entrepre-
neurs are motivated primarily by income
potential, then increasing the profitabil-
ity of business ownership should encour-
age more SME start-ups. Simplifying
registration/licensing, revising the labor
code, and reducing payroll taxes are
a few ways to increase business
income and encourage further SME
development.
According to this survey’s results,
entrepreneurs in Turkey believe the most
important SME success items are a repu-
tation for honesty, and friendliness, and
charisma. Based on the factor analysis, a
factor we call the “reputation” factor,
which included honesty and social skills,
was the most important success factor.
Because these factors are largely under
the entrepreneur’s locus of control, it
means that entrepreneurs in Turkey
believe they can influence their own
business success. This attitude empowers
85
entrepreneurs and can lead to lower
levels of stress. Based on the results
of this study, entrepreneurs in Turkey
view government support and political
involvement as relatively unimportant to
their success.
Finally, the item analysis of problems
indicates that entrepreneurs in Turkey
are most concerned about the complex
and confusing tax system, as well as their
inability to attract and retain reliable
employees. These concerns can be
addressed with a decrease in payroll tax
rates, a revision in the labor code to
allow greater employment flexibility, and
an improved educational system. The
third and fourth most serious problem
items were the inability to maintain accu-
rate accounting records and a weak
economy. As discussed earlier, the gov-
ernment needs to actively support busi-
ness education at the vocational and
university level, especially accounting, in
conjunction with increases in govern-
ment and association-sponsored busi-
ness training. With respect to economic
policy, Turkey should stay the course on
fiscal and monetary policy. However,
Turkey must also expedite IMF recom-
mendations to reform the financial
sector, reduce the public debt, and
modify the social security system.
To date, some positive steps have
been taken by the Turkish government
to assist SME owners, such as the estab-
lishment of the KOSGEB, but more
should be considered. Turkey can
encourage the creation of more SMEs by
making entrepreneurship a more profit-
able employment opportunity. A simpli-
fication of the labor code, a decrease in
payroll taxes, and greater technical assis-
tance and business education, especially
in the areas of accounting, market
research, human resources management,
and technological support, would help
energize the Turkish economy. In so
doing, a new class of well-trained, highly
motivated entrepreneurs can create
much-needed jobs and make Turkey’s
86 JOURNAL OF SMALL BUSINESS MANAGEMENT
economy more competitive with that of
countries already in the EU.
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