Assessing Opportunities and Challenges in Turkey’s Tech Sector
An advertisement for Trendyol.com, “2020’s most loved e-commerce site,” in the Istanbul Metro. Source: Sam Harshbarger
In June, Turkey’s expanding tech sector marked a major milestone. In U.S. gaming company Zynga’s acquisition of Peak Games, a Turkish start-up, Turkey boasts its first start-up firm valued at over $1 billion. In early October, Zynga doubled down on its investment in Turkey’s tech space, acquiring Istanbul-based Rollic, a casual gaming developer, for $180 million.
Zynga’s Turkish acquisitions have followed on an impressive run in recent years for Turkey’s developing technology and innovation economy. In 2015, Delivery Hero, a Berlin-based European food delivery company, purchased Turkish delivery start-up Yemeksepeti for $589 million. In 2018, Chinese payments and technology firm Alibaba invested $728 million in Turkey’s largest e-commerce platform, Trendyol.com.
For all the hardship its current economic crisis has wrought, Turkey’s young population still works to its advantage. At a recent panel discussion hosted by the German Marshall Fund and sponsored by the Union of Chambers and Commodity Changes of Turkey, Didem Altop, the founder of Endeavor Türkiye, a start-up incubator, noted the country has become a preferred test market for start-ups looking to the broader Middle East-North Africa market. Istanbul’s position as a major financial hub and Turkey’s access to European markets through the E.U.-Turkey customs union makes it an attractive bridge between Central Asia, Europe, and the Middle East.
No firm embodies these more than the e-commerce giant Trendyol.com. Since its 2018 investment, Alibaba has worked as a strategic partner to Trendyol.com and contributed to its recent expansion into the European market. Within its domestic market, Trendyol.com has seen its best year yet, as the COVID-19 pandemic introduced many Turkish consumers to making purchases online.
Turkey’s education system has also made an impressive contribution to the emerging domestic tech scene. Chris Schroeder, co-founder of Next Billion Ventures and a venture capitalist specializing in the Middle East, notes that Turkish universities graduate 52 thousand engineers annually at a sixth of the cost of their U.S. peers. Young Turks have led the charge in establishing new ventures, which according to the pro-government Daily Sabah saw an increase of 66 percent in investments over 2019. Altop says that over 100 universities of Turkey’s 207 have launched entrepreneurship training programs.
But even while boasting robust figures in STEM education and an entrepreneurial youth, the country has experienced significant brain drain. Recent political turbulence and the country’s ongoing currency and debt crises have led many young people to look abroad. “The biggest obstacle is finding talent and retaining it,” said Dr. Ömer Faruk Alış, founding partner and Chief Technology Officer of Organon Analytics, a data science firm working on applications of machine learning and artificial intelligence in cybersecurity, e-commerce, and education. “Of the top tier of Boğaziçi University [Turkey’s most prestigious university] computer science graduates last year, almost all go on to Germany, the Netherlands, and the United States. That leaves us with not a great pool for innovation.”
“Young people have lost confidence in the future of this country,” he says. “Anybody who can go is going. They look at the history of Turkey in the ’70s, the ’80s, the 2000s — it’s all the same story, I wouldn’t blame the current government.”
Alış says Turkey’s struggling economy has made it very difficult for Turkish start-ups. “It would take a lot of courage to start a start-up now. Considering 2011, it was much easier then.” The Turkish lira’s freefall in exchange markets and persistent inflation have battered Turkey’s economy.
But even while boasting robust figures in STEM education and an entrepreneurial youth, the country has experienced significant brain drain. Recent political turbulence and the country’s ongoing currency and debt crises have led many young people to look abroad. “The biggest obstacle is finding talent and retaining it,” said Dr. Ömer Faruk Alış *01, founding partner and Chief Technology Officer of Organon Analytics, an AI company working on applications of machine learning and artificial intelligence in banking, cybersecurity, e-commerce, and telecommunications. “Of the top tier of Boğaziçi University [Turkey’s most prestigious university] computer science graduates last year, almost all go on to Germany, the Netherlands, and the United States. That leaves us with not a great pool for innovation.”
“Young people have lost confidence in the future of this country,” he says. “Anybody who can go abroad is going. They look at the history of Turkey in the ’70s, the ’80s, the 2000s — it’s all the same story, I wouldn’t solely blame the current government.”
Alış says Turkey’s struggling economy has made it very difficult for Turkish start-ups and scale-ups. “It would take a lot of courage to initiate a start-up now. Considering 2011, it was easier then.” The Turkish lira’s freefall in exchange markets and persistent inflation have battered Turkey’s economy.
“Yet another challenge facing start-ups and scale-ups is that the Turkish domestic market per se is small which makes scaling very hard,” says Alış. “Turkey needs to open up to global markets to scale and this is probably the most significant challenge they would face in their journey.”
But while this context has been challenging for Turkey’s tech sector, some see the emergence of start-ups as a transformational reshaping of Turkey’s economy, and one that could offer a way out of its present malaise. Altop first envisioned Endeavor as a means to bring more dynamism to Turkey’s economy, responsibly manage technological change, and address youth unemployment. Turkey’s nearly 13 million young people between the ages of 15 and 24, representing 15.6 percent of Turkey’s population, are more tech-savvy than previous generations and more educated, but also more likely to be unemployed. She and others view innovation and increasing investment as the best way out.
In the end, Turkish technology firms will continue to face limitations on account of their country’s broader economic problems. As Altop acknowledges, while Ankara has sought to promote tech through tax incentives and grants, it lacks a unifying innovation policy that would provide more direction to the development of this crucial sector. Should Ankara get serious about tech, it might offer a new way out of the crisis. It would be wise to take it.