Justin Vela in Istanbul -

Turkey is known more for copying ideas and products that originate in western countries than for innovation. But a young, increasingly skilled population, together with a developing venture capital industry, is changing this stereotype.

In the past, cargo ships unloaded in Karakoy, a bustling waterfront district in central Istanbul known for its brothels that served the sailors. Even in Muslim Turkey, consecutive governments lauded Matild Manukyan, the Armenian women who owned 32 of the legal brothels. During the 1990s, she was Istanbul's top taxpayer five years in a row; in 1992 alone, she reportedly paid $1.2m to the city - a massive amount in Turkey, where shrinking the grey economy is among the government's top economic priorities.

However, with Manukyan's death in 2001, the brothels closed and Karakoy became a desolate neighbourhood of architecturally quaint, but ill-kept buildings. Until recently that is - today, a growing number of small businesses are setting up shop and the neighbourhood is fast becoming the city's new creative hotspot.

Brain gain

Adapting ideas from the West brought a certain amount of investor money to Turkey. Those years of copying models for e-commerce and manufacturing has made a difference for the next generation, who are more skilled and worldly, says Elmira Bayrasli, formerly of Endevor Global, a company that seeks to foster entrepreneurship in developing countries.

Bayrasli points out that Turkey's recent economic prosperity is bringing Turks back home from the US and Europe. "You are seeing a lot of 'brain gain' in Turkey," she says. "Turkish expats are returning and taking the skills they have acquired and transferring those skills into the Turkish market. This is building confidence in investors."

Esra Sonmez Islek and Bediha Gungor, two founders of lab::istanbul, an architecture and design firm, also describe a new creative era for Turkey. They give the example of Turkish furniture makers copying French and Italian furniture designers to illustrate how a new consumer mentality is fostering a change in Turkey. Among a growing segment of the population, mass produced copies are no longer satisfactory - there is a growing demand for the unique, such as the furniture that Islek and Gungor created by "hacking" mass produced products and putting them together into new ones. "They want the original and new," says Gungor. "In the old times, people wanted the classic product. They saw something in someone's house and they wanted [that]. It's not the same any more."

The architecture projects they have been commissioned for also reflect this change. Currently, their projects in Istanbul include a reception for the new Intel headquarters, a sports centre, and university buildings in other parts of the country. The desire for new looks is expensive, but fosters greater cooperation between government and private business, says Gungor. For example, though the local municipality owns the building where the sports centre will be built, a private investor is funding the construction. In return for fronting the money for construction, the investor will be allowed to rent the space from the municipality for 10 years at TRY7,500 per month, a small amount in comparison to the TRY50,000 per month the space was worth.

Another innovative Turkish company is Sestek, a voice recognition technology company founded in 2000. Sestek claims to have developed the world's first voice conversion system for commercial use. "Voice conversion basically tries to mimic the voice of the target speaker," says CEO Levent Arslan. "This is the first commercial application in use, though there is academic researches going on [in this field]."

Along with voice conversion, Sestek is focused on voice verification, text-to-voice services, outbound interactive voice response systems, and speech analytics. Voice technology is increasingly important as the world becomes more reliant on machines and electronic devices, Arslan says. "We have to communicate with these devices," he says. "The most basic input is voice," adding that voice recognition technology greatly reduces the cost of doing business by, for example, reducing the amount of human resources needed for a call centre.

Developing voice recognition software for mobile devices is one area Sestek is particularly focused on. "Instead of typing something, it would be nice if you could say what you are going to type and get the response immediately," Arslan adds.

Another firm ahead of the curve in Turkey is Zumbara.com, an online "time bank". At Zumbara, a person performs a good service for another individual and acquires time credits that can be spent on good services from other people. The site's founder, Aysegul Guzel, told Turkish media it can earn money as a tool used to foster corporate responsibility and in-house bonding and innovation.

Other Turkish companies with ideas to watch are PI Works, which is becoming known as having among the best technology for preventing dropped calls in the region; Trendyol, a retailer that sells expensive brand clothes at discount en masse during certain blocks of time; and Artesis, a company founded by a former Nasa employee that manufactures intelligent monitoring systems.

For instance, Hurriyet, Turkey's most widely read newspaper, is seeking to answer one of the most pressing questions of the new media age: how to attract and grow traffic to a publication's website and generate revenue from it?

Erhan Acar, vice-president of the Hurriyet Internet Group, tells bne that a variety of regularly updated unique content across a range of platforms and digital communities that visitors can interact with kept users at Hurriyet.com.tr longer. Since they had made interaction with the content a priority, the site's traffic had grown from 500,000 unique daily visitors in 2006 with ad revenues of TRY1.5m annually to TRY2m daily unique visitors and TRY15m in ad revenues annually.

After proving themselves successful with an established theory for growing readership, Hurriyet has now established a new system called Bumerang, which aims to generate revenues beyond traditional Internet ads. With Bumerang, companies pay Hurriyet to offer their advertorials to its 10,000 member blogger community. The bloggers are not obligated to post the advertorials, which come as a copy-and-paste html code. But if they do, Hurriyet pays them between TRY1-50 per advertorial, depending on the number of clicks the advertorials receive on an individual's blog and social media. The bloggers are also motivated by their blog appearing in the results when individuals search for the products that Hurriyet asks them to advertise. Acar says that Bumerang is a model that can be applied to any web publication that has built a large enough blogger community around it.

New capital

Along with the skills, Turkey has traditionally lacked the venture capital necessary to foster innovation. But now more VC money is coming into the country due to the confidence that the ruling Justice and Development Party's (AKP) running of the economy has inspired in investors, says Bayrasli.

The party's growing authoritarianism is watched warily, but it has ushered in an unprecedented level of stability to Turkey, which had been wracked by decades of military coups and short-lived coalition governments. In the short term, the country's macroeconomic picture might look shaky, but Bayrasli says investors see innovation and business growing in Turkey and take a long-term view on the country. "Investors are willing to be patient and look at the Turkish market," she says.

The government reported in September that it was on course to take in $11bn of foreign direct investment and there is a real buzz in London about Turkey's high grouwth rates, robust fundamentals and strong demographics turning the country into an "investment hot spot," said delegates to an Informa conference on Private Equity investment into CEE in Septmeber. "Over the long-term the Turkish story looks really strong," says Chris Buckle, managing partner at Messanine Management who invests in the region. "It stands out in almost every way from the rest of the CEE region - especially the demographics. Over the last year or two most of the major funds have been opening offices there even if the deal flow is still small."