There is no doubt that credit crunch drives companies and their managements in some degree; depending on ‘financial strength’ and ‘competitive power’ in broad terms. Considering each government with public resources and world leading companies are struggling to overcome the negative impacts of global economic crisis, would it be realistic to expect a company management to overcome external shocks occurred due to credit crunch? Can any management know how deep and to which extends and/or how long time take the global economic crisis is? When would the deflation period turn into inflationary period? How technological developments, change in foreign exchange rates and competition would create threats and opportunities for the companies? At least, we expect the management would estimate all rationally, but rational estimation does not necessarily mean to a realistic one.

The Turkish banking sector was re-structured in the period of 1999-2001, and the tax payers paid for those years ago. In addition to this, since the cost of work-forces is relatively low, and obligations of environmental investments are flexible in Turkey, those would be advantageous of the Turkish companies. However, the costs of energy, finance and transportation are still high, and also the costs of raw materials and semi-finished goods imported to the Turkish industry are increased due to devaluation of TL, which was devalued about 30% in the last six month period. Moreover, devaluation of TL also means to gain power of competition in the international markets, but it is not so easy to compete with cheap Far-East products, while other countries are also devaluating their national money, and trade volume of the world is declining.

Reduce in consumer credits, sales with instalment plans and income and confidence of consumers have been caused initially to decline in demand for consumer goods and retails, then to change in consumer behaviours and preferences. That hits shopping malls, supermarkets and entertainment sector, wholesalers and manufacturers within the same chain. Declining profit margins, increasing sales and promotional sales, or marketing via advertisement would not beat weakened purchasing power and confidence of consumers. Due to the same reasons, consumer products and retail sector have been followed by automotive industry, mass housing projects and markets as well as sub-sectors within the same supply chain of raw materials, finished or semi finished goods. The rates of capacity usage and production levels sharply reduced in the industry.

The companies are threatened by external shocks and ‘domino effect’ of the global economic crises as well as their structural weaknesses. The combined negative impacts are felt slowly over time, but initially hit small and medium sized companies, and others which have lack of working capital and/or competition power in the markets. The negative impacts of the global crisis and structural weaknessess are seen on the capacity and the capability of purchasing, supplying, production, collection, payment, employment, competition, profitability, cash stocks and credibility of the companies. Therefore, a strong re-structuring trend should be expected in almost all of the industries and sectors so that would be end of individual firms and traditional companies.

All of the managements are talking and discussing about the same external problems and their different internal effects. Therefore they are seeking for the best strategic policies and solutions appropriate with the specific needs and priorities of their companies. We also see some optimistic managers and companies not seeing, thinking or expecting a serious crisis impact for the Turkish market and companies. They are talking about transforming negative effects of the credit crunch of international markets into an advantage for their companies. Of course time is the best judge, but wasted time never comes-back. Also, the method for learning via trying or wasting time would be more costly, especially in economic crisis periods.

The most common management policies against negative impacts of global economic crisis would be:

• increasing working capital,

• redundancy,

• saving on general management expenses, production, marketing and R&D costs,

• putting in the pipe line expenses for environmental and social corporate responsibility projects,

• temporary ceasing operations,

• stopping new investments,

• adjusting inventories and capacity usage,

• re-structuring debts and credits,

• reviewing contracts and commitments,

• process improvements,

• increasing productivity via economic, efficient and effectiveness of the operations,

• maximisation of governmental grants.

The number of the companies faced with risks and threats is increasing over time. Some of the world leading companies are struggling to survive. If the world feels worse, you would not feel better among the market bubbles, even though it is a 'zero-sum game.' Macro-economic and micro-economic environment of the companies are changing dramatically. Therefore, the main problem for the companies, shareholders and the managers is adapting, making and applying decisions accurately in such a changing risky environment. The managers know that having an accurate road-map of global economic crisis is a vital issue. It is obvious that a wrongful road-map or wrongful positioning the company on an accurate road-map would be more costly.

Since financial strengths, competition powers and market positions differs from company to company, their responds to the impacts of global economic crisis in the short-run, mid and long run should also be differ from each others.

We expect more and more mergers and acquisitions all around the world due to global economic crisis. M&A would be an opportunity for the companies with their own reasonable brands and quality policies accredited internationally in such a world that governments and G-20 countries are also in joint efforts to overcome threatening impacts of the global economic crisis.

Optimal timing remains as the crucial issue for M&A cases at the period of economic crisis, since the same opportunity never knocks on your door twice!

Murat Tenekecioglu

This article is to brief you on employment, labor, social security, health and safety rules in Turkey. If you need further information or help please do contact with Granit:

The legal source of employment, Labour and social security is Labour Code No: 4875, Social Security Code No: 5510, Trades Unions Act No: 2821, Collective Labour Agreements, Strikes and Lockouts Law No: 2822 as well as ILO treaties.

The relationship among the workers and employers are supervised and regulated by the Ministry of Labour and Social Security and the regional Labour Departments.

Employee
According to the Labour Code; an employee is a person employed with wages in any sort of work whatsoever on the basis of a labour contract. Whether the work is manual or intellectual, long or short term does not make any difference. It can be any type of work. The individual Labour law imposes on employee duties of loyalty, good faith and performance.

Employer
The employer is the natural or legal person employing a worker. The employer can be a person or a company, an association, a union or even a public enterprise. The representative of the employer is a person who acts on behalf of employer at the work place and takes part in management of the work and the work place. Although the employer is liable for the functions performed by his/her representatives such as the managers, chiefs, foremen, the representatives of employers also have responsibilities and obligations that are the prerogative of employers. The main employer is jointly responsible with the subcontractor for the latter’s obligations toward his/her workers with respect to that workplace. Employer is not allowed to make any kind of discrimination among the workers. The individual Labour law imposes on employer duties of wage payment, health and safety at work. If any occupational accident occurs at the workplace, the employer is held liable even in case of minor shortcoming and may be forced to pay for rather substantial damages. Although in such an event the worker, who suffers from an accident or his/her heirs, in case of his/her death, are pensioned Social Security Institution (SGK), with a maximum limit. The employee or his/her heirs are entitled to sue the employer for damages for the sum exceeding the limit. The employer in that case, can be responsible for the damages even the employer has a very little fault.

Work place
The work place is the site on which the work is carried out. Also, facilities (likewise dining, sleeping, bathing, physical and professional training, yards, gardens etc.) connected to the workplace for performance of work are considered workplace. Every employer is obliged to do all that is necessary at the workplace for protecting the health and safety of the employees, and to ensure the conditions and to maintain all of the equipment necessary for this purpose. The Regulations for Occupational Health and Safety explains all details likewise; measures that must be taken at the workplace, including dimensions of doors, stairways and windows, and safety mechanisms such as machines, planers, lathes, power saws and presses, safety measures against fire, and the cleaning, illumination and heating of workplaces. The Government is about to approving the new Regulations for Occupational Health and Safety, which is sourced from EU and ILO Standards.

Any employer who opens a workplace is obliged to notify to regional Labour office as well as to the Social Security Office within one month.

Contract of Employment
Labour contract is a private law agreement with or without a definite term. No formality is required for the creation of an employment contract. However, employment contracts with a definite term of over one year must be in a written format. A trial period of maximum two months may be agreed upon in the employment contract. We recommend to employers to sign an employment contract with a definite term, which would be subject to renewal at the end of the term.

The employer and employee may at any time terminate the employment contract by consent. In employment contracts with definite term, the contract terminates only when this term expires. If the employment contract does not contain any definite term, normally the cancellation is possible by giving a period of (at least two weeks) notice. Any employer fails to comply the notice period must pay the employee an amount equal to the pay that the employee would receive during the notice period. In practice, an employer may terminate the employment contract at any time by the notice period entitlement. An employee (with one year service) who is dismissed unfairly or dismissed for redundancy has a right to compensation. The compensation or redundancy payment or severance payment is the gross wage for each full year of services. The maximum amount is about USD 1,500 which is subject to the correction on the inflation rate. If the employer can show that the employee had a substantive reason for dismissal (such as serious misconduct) and that he acted in all the circumstances fairly and properly, the claim can be defeated.

The Minimum Age and Wage
The minimum working age is 16. The wages to be paid to the employees cannot be less than minimum wage. The gross minimum wage is about USD 470 per month for the year 2010. Wages are paid to the employees in cash and in the national currency. Wages are paid after they are earned and at least once a month. Hourly or weekly wages are possible. Piecework is also possible. An advance payment equal to the amount the worker has earned up to advance payment date. More than 1/4 of the monthly wages of workers cannot be sized and transferred to other persons in a month.
The cost of the fringe benefits (transportation, lunch etc.) is relatively low in Turkey.
Social Security and the Premiums
Social security of employees working under employment contracts is governed by the Law No:5510. The State fulfills the duty of providing social security in a contributory (social insurance) or non-contributory way. The branches of social insurances are industrial accident and disease insurance, health insurance, maternity insurance, disability insurance, old age (retirement) insurance, death insurance, and community insurance. Unemployment insurance is applicable, but family allowances are not applicable in Turkey. Since the employment contracts are private law contracts, premiums of social insurance are paid by employees and employers. There is no governmental contribution with the exception of 1 % unemployment contribution. A multi-premiums system is applied and premiums are withheld at a certain rate from the wages. Employer’s premium contribution in total is 19,5%-25 % depending on the risk of the business. Worker’s premium contribution is 14 %.

Wages including minimum wages are subject to income tax withholding or stoppage and social security premiums. Any company operates in the Free Trade Zone is not eligible for income tax withholding or stoppage, but social security premiums.

Premiums are calculated on the basis of daily or monthly wages. All kinds of wages, bonuses, monetary rewards are subject to the premiums. Children compensation, heating, birth and death allowances and similar social aids are exempted from the premiums. There are minimum and maximum limits for wages subject to premiums: The minimum limit is about USD 470, where the maximum limit is about USD 3,000. In other words, an employer must take the premium base as USD 470 for the minimum wage, also must take the premium base as USD 3,000 for any wages over USD 3,000.
The premiums are stopaged from the wage of insured and employer share added. Premiums should be paid to the Social Security Office on the last day of the following month.

Working Hours and Overtime
The maximum of working hours is 45 hours per week, and in a six-day working week 7,5 hours per day. If the workplace is closed on Saturdays and Sundays, than the ordinary daily working time is 9 hours. Workers are entitled to have a break at about the midpoint of the daily working time. The break varies between 15 minutes and one hour according with the length of the workday. Overtime is only possible with the consent of the employee. Overtime cannot exceed 3 hours per day or a total of 90 working days per year. For overtime, it is required to obtain a written general permission from the regional Labour department. Overtime is paid as an increase 50% in the normal hourly wage. Employees cannot be forced to work on official public holidays. If employees accept to work on official public holidays their payment should be doubled. The Turkish legislation does not regulate part-time work, but it is affected in accordance with general provisions.

Annual Leave with Pay
A worker who has worked at least one year should be entitled to an annual leave with pay. The period of annual leave with pay depends on the length of services;

The length of services Annual leave with pay
Less than 1 year; up to 7 days (in case of a real excuse exists only)
From 1 year to 5 years (including 5 years); 14 working days
From 5 years to 15 years; 20 working days
Over 15 years; 26 working days

The employer is entitled to determine when the leave shall be used. If the Labour contract is terminated, the pay for the leaves, which for any reason have not been used should be calculated according to the last wage and paid to the worker.
In case of birth or death in their family, the workers are entitled for a 3 day (excuse) leave with pay.

Murat Tenekecioglu