Entrepreneur's Handbook
ECONOMIC CONDITIONS AND VENTURE PROCESSES
The economic environment in which the venture takes place will primarily affect the demand for products and services to be put on the market. Demand is the most important element for any venture to earn income and survive through sales. Conditions that occur in the economy of a country also have a very important effect on the resource costs of ventures and companies in that country. Depending on the developments in the economy, the costs of the resources necessary for the operation of the venture with all processes, especially product, semi-finished product, raw material, machinery, energy, labor and financing costs, may show significant changes and sometimes lead to bankruptcy. Finally, changes in economic conditions can also be determinant for ventures in terms of availability and comfortable use of resources. Even if it is possible to bear the costs, some critical resources that become unavailable and unavailable due to insufficient supply in the current economic system can seriously affect the success of the venture. From time to time, there may be shortages in the energy supply, which can be reduced; likewise, difficulties in finding educated, qualified and qualified workforce in many sectors are frequently mentioned.
Entrepreneurs have to closely monitor the economic conditions and analyze the changes that may occur in them in the short, medium and long term, then determine the possible effects in terms of demand, costs and access to resources related to their business processes and take precautions. There are many economic indicators developed to analyze and understand economic conditions and to compare different economies. The most important of these are indicators such as growth rate, interest rates, exchange rates, unemployment rates and inflation rates. Beyond these basic indicators, there are many technical indicators that can be used to better understand and analyze the current economic conditions. Using many different indicators such as capacity utilization rates that can be evaluated for different sectors, basic labor force indicators on the basis of provinces, employment calculations, wage and earnings accounts for different social groups, foreign trade indices, state budget items and budget balance information, income distribution accounts and consumer confidence index, it will be possible to analyze the general economic situation and its reflections in a specific sector or region. In this section, focusing only on very basic economic indicators, their possible effects on enterprises will be discussed. It is possible to reach the data related to these basic indicators and others on the website of the Turkey Statistical Institute (www.tuik.gov.tr).
1.1. Growth rate
Economic growth means the long-term increase of real national income, more precisely the total production in the economy (Growth Rate of Gross Domestic Product). Economic growth can take place through an increase in the amount of production factors, an improvement in their productivity, or the combination of these two processes. In economies that are growing and have positive growth prospects, the investment and enterprise environment will naturally be favorable.
A growing economy means increasing consumption possibilities, expanding investment opportunities and establishing an optimistic perspective. An economy that grows at a higher rate than the population growth rate also means an increase in per capita income, that is, enrichment. For these reasons, entrepreneurs should closely follow the actual and expected economic growth figures and strive to invest in the fastest growing sectors as much as possible.
However, another point that should not be forgotten is that demand increase and business volume expansion in some sectors and markets, albeit small in number, may be in the opposite direction with the growth performance of the economy. The best known example of this type of enterprise environment is the Higher Education market. Especially the demand for graduate programs increases significantly during periods when economic growth performance is very low, even in times of crisis, and may decrease significantly when the economy starts to grow again. As the labor market shrinks significantly in times of crisis, many people aim to find jobs with better opportunities after the crisis by improving their education rather than looking for a job. The important point for entrepreneurs will be to evaluate the effect of growth performance and expectations in the economy on their sectors and initiatives and to realize their investments in this direction.
1.2. Interest rates
Since interest rates determine the cost of funds other than equity, which is essential for investment in an economy, it is an extremely important economic indicator for entrepreneurs. Most entrepreneurs have difficulties in accessing the financial resources needed to start a business, as well as to grow and maintain the business. It may not always be possible to benefit from the support provided by KOSGEB, TÜBİTAK and various ministries. In such cases, entrepreneurs will want to access the resources they need by either finding new partners or using loans. In case of using credit, interest rates will be one of the most important determinants of sustainable maintenance of the business as it will constitute the loan costs.
In an economy with very high interest rates, the cost of investments will increase significantly and investments will be restricted. Likewise, in an economy with very high interest rates, consumers will have difficulty in accessing the consumer loans they need at reasonable costs. As a result, not only investments but also consumer demand in the economy will be negatively affected. For example, when interest rates increase too much, consumer demand in the housing sector decreases significantly, and this situation can significantly affect other sectors that provide input to the construction sector and the secondary sectors fed by the additional expenditures of housing buyers.
1.3. Exchange rates
Exchange rates represent the exchange values of Turkish Lira (TL) in currencies of other countries. High exchange rate means low exchange value of TL, low or decrease in exchange rate means high exchange value of TL in the said foreign currency or increase. If entrepreneurial businesses do not closely monitor exchange rates and cannot predict future values reliably, they may be in a very difficult situation with radical changes in exchange rates.
Exchange rates can affect entrepreneurial businesses in at least three different processes. First of all, costs in foreign currency must be considered as an important factor in terms of energy, product, semi-finished product, raw material, machinery, service and labor inputs. Business initiatives with relatively high input costs in foreign currency may be seriously adversely affected by the increase in exchange rates. Unfortunately, the number of entrepreneur companies of this nature who had to declare bankruptcy due to the unexpected increase in exchange rates is very high. A similar situation is the case for businesses that borrow in foreign currency. On the other hand, it should be noted that enterprises of this nature will be in a more advantageous position in times of low exchange rates. The second important effect of exchange rates for entrepreneurial businesses occurs on the demand side. Businesses that make their sales in foreign currency, operate in foreign markets or appeal to customers whose income is in foreign currency as in the tourism sector will naturally become more profitable and more competitive when exchange rates increase. Businesses of this nature will prefer high exchange rates rather than low levels.
The third important process of influence of exchange rates on entrepreneurial enterprises occurs when the exchange rates fluctuate very quickly, unstable and unpredictably. In such cases, both types of businesses described above will have difficulties in determining both their costs and the demand for their products and their prices. Because the exchange rates fluctuate very rapidly, there are frequent cases where companies cannot see the future, cannot predict at what price they should sell their products, demand very high prices in order to be a guarantee, or stop doing business for a while. As a result, changes in exchange rates must be taken into account as an important economic factor that can expose the enterprise processes to unexpected difficulties, bottlenecks and uncertainties with their direct and indirect effects.
1.4. Labor Supply and Unemployment Rates
The vast majority of enterprise processes require labor employment. Many entrepreneurs, unfortunately, start their ventures with very optimistic expectations on this issue and then encounter significant problems. Even if unemployment rates seem quite high, serious difficulties may be experienced in finding the desired qualifications. In terms of the supply of trained, experienced and qualified workforce, there are significant differences, especially on a regional basis, and in some regions it is not possible to employ such personnel. It would be the right approach for entrepreneurs to carry out their preliminary studies carefully and to be sure that they will not have any difficulties in the workforce they will need before making their irreversible investments related to the enterprise process. Otherwise, the enterprise process is tried to be carried out by using unqualified workforce instead of the required skilled labor, and very serious quality problems arise. Sometimes, cost concerns come to the fore and entrepreneurs prefer to turn to unskilled personnel instead of paying high wages to qualified labor force. In this sense, it is very important to examine the basic labor force indicators, taking into account the sector breakdowns in the region, and then to carry out detailed labor force research and employment studies in the field and market where the enterprise will take place. Unfortunately, the number of new business ventures that cannot carry out their business processes at the desired quality level and fail in a competitive environment due to the lack of qualified workforce is unfortunately very high.