CASE
Fatih Terim was in his small office in Antalya, a Mediterranean port in southwestern Turkey. He looked at the clock on the wall and realized he had spent the entire afternoon thinking about one thing and one thing only-the most recent meeting with his Romanian business "connection." Terim had just completed a trip to the Balkans and was in his office evaluating his firm's progress in the region. This was necessary because he was thinking of going to Syria for the same reasons that had taken him to the Balkans: finding goods at cheap prices and selling them with handsome markups at home in Turkey or in other neighboring countries.
Terim had established Tempo Ltd. in 1989 in Antalya. Terim, then fresh out of Akdeniz University, quickly became an entrepreneur. The focus of his business was to buy goods from nearby foreign sources and then find buyers for those products in the domestic Turkish market. The first couple of years were easy for Terim because he was working very hard, and the Turkish economy was soaring. With the fall of communism, Terim saw even more opportunities. He started marketing Turkish-made goods to former communist countries around Turkey and in central Asia.
However, the Turkish economy took a major hit in April 1994. The sudden death of the country's president added to the nation's political instability. The value of Turkish lira (TL) plummeted against the U.S. dollar (USD). In the following years, the Turkish economy took many more hits, including the financial crisis in the Asian markets, the Russian market crash, and most recently, the Argentinean crisis. In 1999, two major earthquakes hit the northwestern part of Turkey, where one-third of the nation's 67 million persons reside and which is the heartland of Turkish industry. Although Turkey recovered quickly from the earthquakes, political instability continued and pushed the entire economy into a slowdown. In 1993, US$1 could buy 7,000 TL. In 2003, that same US$1 could buy 1,567,000 TL. Despite these discouraging events, the Turkish economy still has opportunities for growth. One reason such a major potential still exists is the simple fact that hardworking, sharp-trading people like Fatih Terim never stood still and kept putting together the best deals they could.
Today Terim's company has some connections in almost every European country and is working very hard to maintain these connections by generating steady flows of commerce. Terim's latest trip was to the Balkan nations of Bulgaria, Romania, and Greece. Terim held meetings with key businesspeople in all three nations. In both Bulgaria and Greece, Terim had entered into modest sales agreements that extend into the middle of next year.
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In Romania, matters did not move as quickly. Terim's Romanian connection, George Hagi, was not interested in any of the small transactions that Terim was suggesting. Hagi, in an almost mysterious manner, did tell Terim that he looking for a Turkish partner willing to participate in a substantial, although not exactly legitimate, deal. The first aspect was that the customer wanted to buy Turkish chemicals to be used for fertilizers in agriculture. However, the terms of payment from the prospective customers would be in the form of barter rather than cash, and the goods bartered for the chemicals would be kereste (lumber). Although barter was a term and practice with which Terim was familiar, he had no idea what to do with kereste. Over the years, Tempo Ltd. had concentrated its business on small consumer products. However, he wasn't going to let a detail like this get in the way of new markets. He knew he could find a market in Turkey for lumber because little was produced domestically, and both new construction and earthquake reconstruction were underway.
What worried Terim were his new customers. He learned from Hagi that these new customers were either a large state-owned company in North Korea or the North Korean government itself, which is why Terim spent that entire afternoon thinking about just one thing. All day he tried to justify his possible decisions to himself. The problem was that North Korea was a communist regime, and beyond that, North Korea, according to NATO and the United Nations, was a country that provided support to certain terrorist activities all over the world. In early 2002, U.S. President George W. Bush had described Iran, Iraq, and North Korea as an "axis of evil." North Korea and those with whom it traded were under tight scrutiny from both the United Nations and the United States (which still stationed troops in South Korea).
Terim came up with the excuse that if he didn't sell to the North Koreans, someone else would eventually, so why should he give up this money? However, the solution was not that easy. Hagi said in his e-mail to Terim that if the negotiations went well, a party of North Korean bureaucrats would wish to visit Antalya for "inspection" purposes and that Terim would have to cover the costs of entertainment and accommodations. Those accommodations would range from luxurious hotel rooms to young attractive companions, of both sexes, for business-related dinners and receptions. Terim knew exactly what those inspection purposes were. They were pleasure trips for certain bureaucrats in North Korea. Unfortunately, he was also aware that this was the way things worked in Third World governments. Over the years, he had learned the tricks of the trade, and one thing he knew well was that without the rusvet (bribe: the grease money or large amounts of payments specifically for one-time transactions), such risky situations would end up as a "no sale." He wondered whether he should ask the Turkish agricultural chemical manufacturers to help with the entertainment costs. Also, should he and the chemical manufacturers touch base with each other with respect to the rusvet that would undoubtedly be expected by the North Koreans? Terim's position regarding rusvet was unclear. Indeed, the chemical manufactures should be expected to give him, or Hagi, a kickback for facilitating the sale of chemicals.
"Talk about core competency," Terim mumbled to himself. To get his mind off these sticky issues, he looked into the logistics costs to move the bartered lumber from North Korea. He would need to know those costs before proceeding. He had a couple of options.
The first option would be to ship the lumber by sea from Wonsan, North Korea, through the Sea of Japan, across the Indian Ocean, through the Suez Canal, and into the liman (port) of Antalya, Turkey. (see Exhibits 6-A and 6-B.) This would be the perfect solution, except, he suddenly realized, he would not be able to bring the lumber into Turkey legally because of trade sanctions against North Korea. Hence, this option was dropped.
His second option would be to send the lumber to a country where its entry would be legal. The country to which the kereste could be shipped legally was none other than Romania, one of Turkey's neighbors on the Black Sea. The reason was hidden in history. Since their communist years, Romania and North Korea had had strong ties that remained nearly intact after the fall of communism in Romania. So lumber could be loaded on to a gemi (ship) and could be shipped to Romania via the Dardanelles and the Bosphorus (the two straits that make up the gateway to the Black Sea) and finally to the port of Constanta, Romania, in the Black Sea. Once there, the lumber could be covered by new documents, and eventually the origin of the goods could be stated as "Romania," not "North Korea." The lumber could then move by tir (truck) to Turkey. This sounded like a feasible solution, but how much would such an operation cost? Terim recalled that Hagi had said that redoing documents in situations like this cost about 16,000,000,000 TL, including rusvets.
Terim's mind then shifted to a third option. From Wonsan, the lumber could be shipped to a port in Syria, in this case Latakia. From there, tirs could haul the lumber to Iskenderun at the southeastern border of Turkey. Because the border at Iskenderun is the most laxly guarded border in Turkey, small rusvets to low-ranking officers at the gates would allow the kereste to
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enter Turkey without any problems. The rusvets would be about 10 percent of the kereste shipment's value.
EXHIBIT 6-A Korean Peninsula
The same could be done at the Liman of Antalya. However, the chances of getting caught were much higher. If Tempo Ltd. were caught red-handed, it would be fined a sum of double the total value of goods entering the country. Thus, this was a fourth, but discarded, option.
Only two options were feasible, and each came with certain risks. One was to ship the kereste to Romania, have new documents
drawn, falsify the ship-ment's origin, and then send it to Turkey by tir. The other was to send the kereste by ship to Syria, truck it to Turkey, and bribe customs inspectors at the Turkish border. Terim was initially concerned with the logistics costs of getting the kereste inside the Turkish border. The kereste would be of various dimensions, bound together by metal straps into bundles measuring 1 meter by 1 meter by 5 meters, and the North Koreans would deliver and load the kereste aboard a break-bulk vessel in a North Korean port.
If Terim could get the kereste inside Turkey, it should sell for 783,500,000,000 TL. The Turkish chemical
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manufacturers expect to be paid 60 days after the chemicals leave the Turkish port, which will be same date as the kereste leaves North Korea.
EXHIBIT 6-B Mediterranean Sea
Terim gazed at his notes, which were full of numbers and currency exchange rates.
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Ocean transportation costs for Gemi (Shipping lines require payment in U.S. dollars):
Wonsan to Constanta US$42,000
Wonsan to Latakia US$33,000
Suez Canal charges US$3,100
Tir:
Constanta into Turkey US$15,000
Latakia into Turkey US$12,000
Handling fees at the Liman (Syria or Romania) 1.25 percent of the total value of goods
Generating false Romania-origin Documents 16,000,000,000 TL
Projected amount rusvet at Syrian-Turkish border 10 percent of shipment's value
Currency exchange rates US$1 = 1,567,000 TL
Option 1: Wonsan/Constanta/Turkey would take 43 days Option 2: Wonsan/Latakia/Turkey would take 22 days
Questions
1. Should Terim let somebody else complete the transaction because he knows that if he doesn't sell to the North Koreans, someone else will?
2. What are the total costs given in the case for the option of moving via Romania?
3. What are the total costs given in the case for the option of moving via Syria?
4. Which option should Terim recommend? Why?
5. What other costs and risks are involved in these proposed transactions, including some not mentioned in the case?
6. Regarding the supply chain, how-if at all-should bribes be included? What functions do they serve?
7. If Terim puts together this transaction, is he acting ethically? Discuss.
8. What do you suggest should be done to bring moral values into the situation so that the developing countries are somewhat in accordance with Western standards? Keep in mind that the risks involved in such environments are much higher than the risks of conducting business in Western markets. Also note that some cultures see bribery as a way to better distribute the wealth among their citizens.