Koç Holding Aș

Meclisi Mebusan Caddesi 53
Findliki-Istanbul
Turkey
(1) 143 29 00

Public Company
Incorporated: 1963
Employees: 31,075
Sales (group): TL 1.544 trillion (US$ 2.083 billion)
Market Value (total assets): TL 616 billion (US$830 million)
Stock Index: Istanbul

Koç (pronounced “coach”) is a name immediately recognized in Turkey, but virtually unknown elsewhere. It is the name of several of Turkey’s most prominent companies, including Koç Holding, the largest private capital firm in Turkey. The founder of the Koç group of companies is Vehbi Koç, the first Turkish businessman to gain national prominence. Known as a generous philanthropist, he is also responsible for introducing a number of modern Western business practices to Turkey.

Vehbi Koç was born and raised in Ankara, at that time a city of 30,000 located in central Anatolia. When he was a boy he recognized that the most prosperous families in Ankara were non-Turkish minorities such as Greeks, Jews, and Armenians. They were successful traders and businessmen, occupations which were discouraged for Moslem Turks. Still, the minorities lived comfortably and many were rich, while Turks lived more modest lives as hodja (priests), civil servants, wardens, farmers, and grocers.

In 1917 Vehbi Koç convinced his father, a literary scholar, to help him establish a small grocery store in Ankara. Although he was only 16 years old, Koç recognized that commerce was the only means to wealth for a man such as himself. He pursued his trade diligently and endured the economic hardships of both World War I and the subsequent collapse of the 600-year old Ottoman Empire.

When Turkey became a republic in 1923, President Kemal Atatürk moved the nation’s capital from Istanbul to Ankara. Koç entered new lines of business in construction and building supplies, and later won a prestigious contract to replace the roof of the Turkish parliament when the old one was blown away in heavy winds. Vehbi Koç worked tirelessly, often for more than 16 hours a day. Although he became a millionaire at the age of 26, he continued to display unusual dedication. For eight months during 1930 he labored at a construction site to ensure that a hospital project was completed on schedule.

In 1928, as the company continued to diversify, Koç became a local agent for the Ford Motor Company and established several Ford dealerships throughout the country. Koç signed an exclusive agreement with the Mobil Oil Company in 1931 to search for oil in Turkey, and by 1940 had secured exclusive Turkish import and distribution rights for a variety of European and American products, including Ford cars and Socony Vacuums. During this period the company headquarters were moved to the port city of Istanbul so that trading operations could be more closely monitored.

Turkey was a neutral power during most of World War II and never became directly involved in any military action. Despite this, Koç experienced a significant distruption in its international trading business.

German forces occupied Greece and nearly succeeded in reaching the Caucasus oil fields northeast of Turkey before the war turned in favor of the Allies. After German troops were driven out of southeastern Europe and Germany had fallen, the Soviet Union attempted to gain control over the Dardanelles and Bosporus Straits, strategic Turkish sea lanes which connect the Black Sea and the Mediterranean. Between 1945 and 1947 a number of developments in Yugoslavia and Greece reduced Soviet influence in the area, and a conservative Turkish government with strong ties to the United States came into power. As the government consolidated control, it instituted a series of isolationist commerical policies which were intended to protect the domestic economy.

Foreign companies were obliged to sell their products through local agents such as Koç, who maintained import and distribution rights for foreign products in Turkey. Koç concluded agreements with several companies, including General Electric and Burroughs. Competition was greatly reduced and limited to only a few Turkish companies, operated by compradore capitalists like Vehbi Koç, Danis Koper, Uzeyir Avunduk, and Y. Selek, who held a virtual monopoly over imported products which were greatly in demand.

The company’s profits were heavily reinvested, helping to make the 1950’s a period of impressive growth. Koç became affiliated with United States Rubber and Siemens, and in 1955 purchased a small steel furniture and home appliance manufacturer called Arçelik (Turkish for “pure steel”).

Koç was criticized in academic and political circles for allowing Western “imperialist” corporations to drain Turkish capital and foreign exchange which could have been used to develop Turkish industries. Koç, however, did generate a small amount of foreign exchange through its export operations. While defending its role as a net importer, Koç started to expand its domestic production facilities, and eventually negotiated licensing agreements to domestically manufacture products which had previously been imported. While this still required the importation of parts and components, Koç redirected a considerable amount of its production payments to Turkish interests.

In 1963 Vehbi Koç established a holding company for his diverse business interests. Koç Holding was founded as an anonim şirket (the Turkish form of incorporation) and designated as the coordinating organ for the 28 companies which comprised the Koç group. In 1966 the company made its first public stock offering. The infusions of private capital further increased the companies’ capitalization and made even greater expansion possible.

Vehbi Koç slowly relinquished control of the group to his only son Rahmi, whom he later appointed chairman of the Koç Holding executive committee, and his three daughters. Such a graceful move into retirement was uncommon in Turkey, where patriarchical autocracy is practiced in business as well as family affairs. In fact, the elder Koç did not retire. He maintained a light work schedule and continued to serve as chairman of the board, which preserved his right to veto any decision made by his son’s executive committee.

In 1966 a wholly-owned subsidiary of Koç called Otosan began to manufacture an automobile based on the Ford Cortina design. Sold under the name of Anadol, it was the first automobile to be completely manufactured in Turkey. Another Koç company called Tofaş continued to assemble Fiat automobiles, sold under the brand name Murat.

Offering highly competitive salaries, the Koç group attracted the best qualified managers and businessmen in Turkey from a variety of ethnic and religious backgrounds. Many were educated at West European and American universities and business schools (Rahmi Koç graduated from Johns Hopkins University). They brought with them the latest managerial skills and strategies, and formed an innovative and dynamic group which was largely responsible for the institutionalization of five year plans in 1971 as part of a broader scheme of long range planning.

When import companies purchase materials from a foreign country, they are usually required to pay for them in terms of the foreign country’s currency. Companies which have not accumulated enough foreign currency for the transaction are forced to purchase it from commercial or government banks. When their foreign currency reserves are depleted, they are obligated to sell the local currency. This depresses the value of the local currency and makes it even harder to import foreign goods. Koç was a company in just this position. It never accumulated foreign currencies because it imported substantially more than it exported; in other words, Koç was a net importer.

During this period the Koç group continued to experience problems with foreign currencies. As a net importer it was unable to meet its requirements for foreign exchange. In order to meet their obligations to foreign suppliers, Koç companies were forced to drain foreign exchange from government accounts. In time, this became a considerable political liability. Once again Koç began to explore options which would allow them to substitute domestically produced products for those which were imported.

During this period Koç helped to establish a steel alloy plant at Bursa called Asil £elik. It was planned that Asil Çelik would produce engine blocks and component parts for other Koç group manufacturing operations. Although the plant was built to help reduce the company’s dependence on foreign imports, it may also have been intended to win the sympathies of certain politicians and elements in the military who strongly believed that for strategic and economic reasons, Turkey should develop its industrial infrastructure.

Asil Çelik, the centerpiece of the company’s import substitution drive, took several years to complete. While progress was made in reducing the company’s foreign exchange, the company remained a net importer. The Turkish economy, however, deteriorated so seriously that at one point even government foreign exchange reserves were depleted. Koç, which generated only 10% of its foreign exchange needs, was forced to suspend import payments and temporarily scale down its operations.

In response to the crisis, Rahmi Koç set up a new company agency called Ram diş Ticaret, specifically devoted to the promotion of exports and internal generation of foreign exchange. Koç also won a year long battle with the rival Sabanci group for control over the country’s fifth largest bank, the Türkiye Garanti Bankasi. The bank was restructured to perform more international transactions for the Koç group. The Koç companies experienced record growth during 1977 and 1978, the worst years of Turkey’s economic crisis. Rahmi Koç redoubled his company’s efforts to promote exports, recognizing that “the country cannot be poor while we are making money.”

Koç became impatient with what was termed the “sluggish bureaucracy” of government officials in Ankara. He assembled a team of trade representatives from the Koç group to meet with officials from Soviet bloc nations, who were told to narrow their trade surpluses with Turkey by puchasing more Turkish products. Next, Middle Eastern oil-exporting nations were asked to increase their imports of Turkish products. Soon, however, Turkey’s economic crisis began directly to affect Koç. The company’s growth virtually halted by 1979 and 5000 workers had been laid off.

On September 11, 1980, as the Turkish economy approached a state of virtual chaos, elements of the Turkish armed forces under General Kenan Evren seized control of the government and imposed martial law. As part of the military government’s stabilization policy, severe restrictions were placed on foreign exchange payments. As a result, Koç was forced significantly to alter its business strategies. Operations in the group’s divisions (many of which were operating at 30% of capacity) were further scaled down, and some were closed completely. The Asil Çelik steel plant was the most seriously affected Koç interest. The plant was closed and later nationalized by the military government.

The Koç financial division, consisting of a bank and an insurance company, were expanded to provide the group with greater foreign exchange services. When the financial division was etablished in the mid-1970’s, it ended a 50-year policy of Vehbi Koç that the company remain out of this line of business.

With control restored to the Turkish economy, the military government authorized a general election for the return of civilian government. The Motherland Party led by Turgut Özal came to power in 1983 and began a campaign to “Westernize” the economy by lifting protectionist trade restrictions. Beginning in 1985 foreign companies were permitted to export products directly to Turkey.

Imported Japanese and Soviet automobiles began to compete directly with automobiles manufactured by Koç’s Tofaş and Otosan divisions. Koç also faced competition from imports in such areas as refrigerators, office supplies, canned goods and textiles. The company protested strongly, arguing that the sudden implementation of a liberal trade policy would upset the economy and eliminate domestic investment incentives. Prime Minister Özal responded that the people of Turkey were suffering under a trade policy which forced them to purchase inferior goods, and which provided Turkish companies with no incentive to improve their products in order to make them internationally competitive. While presenting Koç with a serious challenge to its livelihood, the trade policy was not considered to be a ruinous development.

Koç maintained its association with a variety of Western corporations, and in 1985 concluded an agreement with American Express to establish a joint venture bank called the Koç-Amerikan Bank. Koç was also a partner in the Istanbul Fruehauf Corporation, which began to produce full and semi-trailers in 1985.

Vehbi Koç took another step into retirement during 1984 when he passed the board chairmanship to his son Rahmi. He continued to advise the executive committee of his opinions and concerns through daily memos. Koç, a strong proponent of free trade and Turkish membership in the European Community, was regarded as a distinguished elder statesman.

Koç Holding and the various group companies have largely succeeded in maintaining profits and growth, despite the government’s liberalization of import policies. Rahmi Koç has proved himself to be a highly competent and well-trained business strategist. Based on its past record of success and current managerial talent, Koç promises to remain the most prominent member of Turkey’s corporate community.

Principal Subsidiaries

Tofaş Group (Automotive): Bursa Oto, Egemak, Gün Oto, Istanbul Fruehauf, Istanbul Oto, Karsan, Karsan Pazarlama, Opar, Ormak, Otobüs Karoseri, Otokar Pazarlama, Otoyol, Otoyol Pazarlama, Ottar, Setur Oto, Türk Traktör, Tofaş, Tofaş Oto, Tormak, Trakmak; Otosan Group (Automotive): Düktaş, Ege Oto, Kuzey Motolari, Motor Ticaret, ötokoc, Otosan, Standard Belde, Nasoto, Otomotor; Automotive Supplies Group: Bebimot, Beldesan, Endiksan, Mako, Royal Tevzi, Takosan, Tekersan, Uniroyal Endüstri; Durable Goods Group: Alpa, Arçelik, Ardem, Atilim, Beko, Bekoteknik, Destek, Egemen, Gelişim, Hamle, Türk Elektrik Endüstrisi; Consumer Products Group: Aymar, Besan, Beytaş, Bozkurt, Bürosan, Düzey, Kav, Kurt Mensucat, Maret, Migros, Tat, Türkay; Construction and Mining Group: Demir Export, Garanti Inşaat, Izocam, Kimkat, Koçtaş, Koza, Mavi Çelik, Merkez Ticaret, Türk Demir Döküm, Tarko, Tek-Iz; Energy and Trade Group: Ak-Yak, Akpa, Ankara Gaz, Aygaz, Bilar, Bürokur, Bursa Gaz, Gazal, Haliç Antrepoculuk, Koç Burroughs; Energy and Trade Group: Lipet, Mobil Gaz, Porsuk Ticaret, Setur, Setur Diners, Setur Avis, Tataş, Turistik Işletmeler; Financial, Foreign Trade and Siemens Companies: Koç Yatirim, Şark Sigorta, Etmaş, Hataş, Simko, Günsu, Kofisa Diş Ticaret, Ram. Koç also has interests in 22 non-consolidated companies.