Group-3 Vehbi Koc

8/13/2019 Group-3 Vehbi Koc

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VEBHI KOC AND THE MARKETING OF

TUKEY’S LARGEST BUSINESS GROUP

Group 3:

Debolin Dey

Akshay Nigam

Manoj Kumar

Nimish Shah

Arnab Kumar Saha



Case Facts

• Koc Holding - close to 92

companies

• Started taking shape in 1919

when Vehbi Koc closed his

father’s grocery business and

started a leather business

• With Ankara becoming the capital

of Turkey new business

opportunities emerged and• Vehbi started shifting across

different businesses ranging from

• Leather, Kerosene,

Construction Materials

Manufacturing, Construction

business, Automotive etc.

• Vehbi also opened up an office in New York named

Ram Commercial Corporation to deal in US Rubberand also to set up a light bulb factory in 1945

• Automotive division along with Tohfa and Otosan

Group formed the highest revenue share for the Koc

Group



• Desire for diversified businesses

made him enter areas like

• Truck Manufacturing,

• Oxygen Gas Factory,

•

Pipe Manufacturing Company,• Steel Office Furniture Trading

Company,

• Washing Machine

Manufacturing Company etc.

• During Early 1960s, Koc Holding was

established

• The companies were independent in

their operations but their strategic

decisions started and ended with

Vehbi

• Koc Holding held shares in other

group companies and created a sort

of trust which also held shares in the

companies formed for philanthropic

purposes



Should the Management be removed from Family

Control?

• The Family Control must be there within the Management for the reasons as

stated-

• Family Controlled Firms like Chaebols-

Korean Firms are much more capable

to weather away different crises like

Financial, Operational, Governmental

etc.

• It is quick in decision making as all the

decisions are to be done by the family

controlled management body

• Other Group Companies don’t

have any cross stake in each other

so it requires lesser deliberation

and lesser bureaucratic which

helps in faster decision making ina dynamic environment

•

Restructuring Organizations becomeswhole lot easier in case of Financial

Crisis with the decision making power

focused on a few members

• They know the strategic vision of the

company and restructure the firm

accordingly without too much outsideinterference



Vehbi Koc’s life workVerbhi Koc had built a conglomerate that consisted of 92 companies in 7

divisions as of 1988

He had in his own words not put ‘all eggs in one basket’ and gone on

diversifying in different fields from automobiles to consumer goods,

construction and mining , energy and trade to financialsHe understood Turkey’s political and business landscape very well since he

had been part and parcel of this since 1926

Time Range Political Conditions Verbhi Koc method of

adaptation

1945 World War II in progress.

Turkey in urgent need of

trucks

As agency dealer of Ford,

sold Ford Trucks at 90%

profit



Time Range Political Conditions Verbhi Koc method of

adaptation

1959 Rise in disposal income

resulted in increase of

demand for washing

machine and refrigerators

Entered into technical

agreement with a Belgian

company for production of

washing machines andIsraeli company for

refrigerators

1965 Restrictive environment for

business. Import restrictions

Started manufacturing

components locally . This

attracted GE to provide

technical assistance to Koc.

1960’s Government gave support

to Vebhi’s enthusiasm for

automobile industry

Established Tofas company

as a joint venture between

Fiat and Koc. Otosan was

established with the

technocal assistance of Ford



• In the new political landscape of 1988 when the government was planning

to eliminate bureaucratic and legal obstacles to Foreign investment Vehbi’s

life ‘s work would be an advantage because :

• With the widest automotive network in the country FDI in the automobile sector

would ensure direct investment in the two companies since MNC’s would want to

leverage this pre established network• Arcelik was also the largest player in the consumer durables market . It s

established network would also invite investments in the company

• Foreign companies would not want to set up companies on its own knowing

Turkey’s turbulent landscape and hence joint ventures could come up with the

existing companies

•

Though Koc had not entered into the electronics market in a big way , companieswould still want to invest in him knowing his penchant for entering new

interesting businesses

Hence his Life’s work in establishing networks throughout the country will be an

advantage in the changed scenario.



To Divest or not to Divest

Divest

Decrease incontrolling stakes

More publicshareholdings

Morestakeholders indecision making

process

External debtis 1/4th of GDP

Present

Turkey



Success in unrelated businesses

• Turkey was a developing market when Vehbi entered characterized by poor

product information and no mechanism for consumers to redress problems

• In this scenario Vehbi had build his ventures into dependable companies

with a loyal consumer following

• Though the names of companies were different everyone knew that the company

was owned by Vehbi Koc

• However his companies would have been more successful if he had created ‘brand

identities’ for these companies.

• Capital market intermediaries found in developed companies was unreliable

in Turkey as can be seen by the “brokerage crisis” of 1982 which led to the

establishment of the Istanbul Stock Exchange.



Success in unrelated businesses

• Consequently investors leery of investing in stand alone companies invested

in companies owned by Koc Holdings, though the family via the Koc

Holdings retained majority of the shares

• Koc Holdings being the largest business group in Turkey had thus the

advantage [ for above reasons] in accessing both public capital and fundingnew ventures in their beginning stages itself

• Thus Koc Holdings self financed its entry into canned food, supermarket

chains, foreign trade , oil and gas , banking and insurance and others



Influence of Government & Macroeconomic

factors in setting of business group

• Government and macroeconomic factors determine in a big way the growthand sustenance of a business group

• Decades between 1960 and 1980 characterized by planned economicdevelopment and market protectionism. Hence ‘foreign competition’ was nilexcept for presence of Unilver

• It relied on private firms to drive growth , offering them incentives to entermanufacturing, allocate foreign exchange to promote favored sectors andgave state contracts to facilitate construction and international trade

•This shaped Vehbi Koc’s decisions to enter into the industries likeautomobiles, construction and mining group and financial trades

• At least 18 other business groups had their origins in the 1950’s when thesemeasures were announced



Influence of Government & Macroeconomic

factors in setting of business group

• Also when the RPP was overthrown and the rival Democratic party came to

power

• Vehbi Koc met with difficulty in closing the deal with Ford

• Tax records of his businesses were checked

• Expropriation was meted out as he was thrown out from the post of Ankara

Chambers of Commerce• Government ministries stopped buying gasoline from his companies

• All this proved harmful for the sustenance of his business group and finally

he had to step down from the membership of RPP

• After that government gave enthusiastic support to Vehbi in automobile

industry which led him to form Tofas and Otosan the two largest automobile

companies in Turkey which also accounted for 57.2% of total consolidated

sales and 56.6% of the total PBT



Should the group focus on small number of areas where it

possessed competitive advantage?

Automotive Industry andTrading

LPG (Energy)Financial

Companies

Areas where Koc hascompetitive advantage



Strengths- Strong Management

- Pricing Power

- Economies of Scale

- Innovative Culture

- Cost Advantage

- Technology- Customer Loyalty

Weakness- Weak Supply Chain

- Weak Brand

Opportunities

- Fragmented Market

- Innovation

- Loosening Regulations

- Emerging Markets

- International Expansion

Threats

- Volatile Currency

- Mature Markets

- Intense InternationalCompetition

- Government Regulations

- Political Risks

- Volatile Revenue & Costs

SWOT ANALYSIS



Vehbi Koc: An Opportunist

with an Entrepreneurial Spirit• Differences between Muslims and non-Muslims motivated

him to be a tradesman

• Striking the opportunities arising out of lifestyle differencesbetween Istanbul and Ankara

•

Follower of market trend – e.g. leather and constructionbusiness

• Capitalizing on the import restrictions – backward integration

• Government failure in food space - 5% stake in Migros Turk, aSwiss Super market subsidiary in Turkey

• Desire to move into Istanbul market• Always striving to have a First Mover Advantage – evident

from his never dying spirit to enter automobiles and trucksmarket



Is Vehbi KOC only a rent seeker ?

• Vehbi put his hands in different varieties of business irrespective of the

expertise required in that business.

• His ventures varied from business producing tomato concentrate, Iron

radiators, Hotel services, Politics, Refineries, Cable production, Banking,

Automotive etc.

• All strategic decisions were taken by Vehbi only at the top.

•This kind of organizational structure is not sustainable for long term. Nointernal synergy between different businesses.

• The organization needed a professional management structure to run so

much wide variety of businesses where decision making power is given to

each business.

• Vehbi argued that because of the unstable political and economical condition

of Turkey it’s necessary to diversify the risk of any business failure by

venturing into different varieties of businesses.

• Turkey is a small country with limited business potential , difficult to grow

business beyond a certain limit.



Should the group venture into overseas market ??

• As of now the entire business in Turkey is not having a very stable

structure, So immediate expansion without paying attention to current

scenario is not a good idea .

•

No clear leadership succession plan as of now , who will handle theoverseas operations ?

• Adjusting to the new political and economic policy changes happenings

inside Turkey will attract major attention at this time rather than

expanding to overseas market.

• New policy changes may result into some new partnerships which can

be leveraged for overseas expansion, So wait , observe and react would

be the best strategy in current situation.



Another point of view

• Turkey is a very small country relative to world’s developed country so

smaller demand.

• Difficult to grow a business beyond certain stage in Turkey.

• With new policy changes manufacturing could be cheaper in Turkey and

that can be leveraged to export products in the developed countries at a

good margin.

• New policy changes may increase the competition inside the domesticmarket , So Vehbi may want to look at new opportunities .



THANK YOU

Group-3 Vehbi Koc

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