Turkish Defence Industry in Export Markets

Total turnover and export

Date: Issue 27 - May 2011

Competition – Co-operation in Export Markets
We all know that word market for defence equipment is dominated by a limited number of high technology countries. Based on the data given by Stockholm International Peace Research Institute - SIPRI only five countries, USA, Russia, Germany, France and UK accounts for 76 % of the total exports in the 2005 – 2009 period From the perspective of Turkish Defence Industry, this implies that we have to compete with leading companies of major world powers. Hence the first point we must consider is this very powerful competition.

On the other hand, defence industry which had been traditionally a “national” activity, becomes “global”. Shrinking national markets, mergers and acquisitions developed a strong co-operative trend in parallel to fierce competition. Hence Turkish Defence Industry should proceed along the knife-edge of competition / co-operation as well.
Diplomatic Relations
If I quote the famous expression of Carl von Clasewitz and say that “war is a continuation of politics by other means”, I can also say that “defence exports are also another extension of diplomacy”. In case national and international barriers prohibit good relations and bilateral trust between countries it is impossible to receive related approvals for export / import procedures.

For the case of Turkey we know that we are a NATO ally and traditionally a country with Western oriented policies. In the recent years we observe a trend in the diplomatic opening to Middle East. This opening has not been -yet- reflected to the export statistics of the Turkish defence industry. SaSaD concentrates its efforts to support activities of our defence establishments and observes export trends in absolute figures and distribution to different regions.
Technological Image of Turkey
This, I believe, one of the most difficult issues. It takes a great effort and time to establish the image of a country. I guess the classic example is Japanese industry. Back in 1960’s the image of Japanese industry was not positive. Cars made in German and USA had a far better image. On the other hand, today Japan industry is known for quality products and reliable cars. Of course this development is the result of very effective work for decades and should be studied as an example for such efforts.

Over the past years, Turkey became well known in tourism and some labour intensive industrial sectors such as textile, confection, food industry, automotive part manufacturing and assembly. “Turquality” programme to provide state support for world wide brand name recognition can be considered as an example. Out of 61 trade marks in the programme only 3 of them are in the industrial/machinery sector. With this structure the “Turquality” programme can not improve the “high technology image” of Turkish industry and we should consider programmes beyond this scope.

On the other hand we must note a very important advantage of Turkish Defence Industry. Turkish Armed Forces is part of NATO forces, the most prestigious and high technology defence forces. Our industry is proud to deliver “NATO quality” products, provide about 50% of the requirements of Turkish Armed Forces and has this very important reference.

We must admit that in order create a good image for high technology sectors; we have quite a long way to go. In this perspective, SaSaD is planning to concentrate its efforts to create a positive image for Turkish Defence Industry. “Defence Industry Day” organised in Riyadh on 2 March 2011, various activities planned for IDEF’11 and ASD 2011 Convention on 6-7 October 2011 should be considered in this context.
Indigenous Products
Products designed and developed in other countries and produced under licence in Turkey have only a limited possibility for export. In many cases licence agreements restrict the sale of the product to certain markets if any. In some cases international relations between Turkey and some countries may have comparative advantage over the licensors’. Only in such exceptional cases the licensee in Turkey has some possibility of export. Even in such cases licensor imposes some restrictions and compels sale of some important parts of their production.

Many companies in our industry started with technology transfer programmes and initially they had very little chance of export. But they assimilated the technology, Undersecreteriat of Defence Industry (SSM) and Turkish Armed Forces followed a consistent policy, companies concentrated their efforts to design and development of new equipment/systems (Figure - 3).
As the result of these efforts today our industry has started to export.
Width of Spectrum and Depth of Technologies
Indigenous products are the first compulsory steps. Afterwards the composition of these products should be considered. It is not reasonable to expect to find all components of the exported system/equipment to be designed and produced in Turkey. But critical sections/components of the system/equipment should be available in local technological base. This will provide “independence” in the export market not only in technological sense, but also in the political and financial aspects.

As I noted above, collectively we managed to reach a position to export some of our equipment/systems. Now we must concentrate on the increase of depth of technologies. Small and Medium Size Enterprises (SME), TÜB?TAK, Technopolises in Universities and Universities should play a major role in this respect. Only with development of such lower tiers in the pyramid, our main contractors will be able to climb another step.
The use of the Product by the Army of Exporting Country
When you want to promote a product designed and produced by your company in a foreign market the first question you will be facing is: “does Turkish Army use your equipment?” We must admit that this is not –always- a fair question. Every army has different requirements and priorities. But at least a reasonable explanation is required to convince your customer. Recently years we see a positive development in Turkish Armed Forces in this respect. Some products are delivered to Turkish Army in small quantities for evaluation and constitute a reference for export. We also started to observe cooperative attitude in offices of the Ministry and by our military attachés in embassies abroad. When I remember a US General in uniform explaining advantages of their main battle tank on an Abrams in one of the former IDEF fairs, I feel that we still have a long way to go.

Although the support of the “own armed force” is quiet a general rule. There are contrary examples as well. I remember MILSOFT Company which exported products for years before any sale to Turkish Army. Recently similar cases are materialised by FNSS and OTOKAR as well.
Export Markets of Turkish Defence Industry
As can be expected, because of cultural and traditional ties Middle East, central Asia, Pakistan and Malaysia are important markets for Turkey. On the other hand over 60 years Turkey has developed very close relations with USA and Europe, Turkish Armed Forces is part of NATO since 1952. Hence Turkish Forces have a number of systems and equipment of western origin and Turkish defence industry has cooperated with western producers. To name a few, we can mention the first programme of ASELSAN, VHF radios with the technology transfer from the Netherlands; F-16 co-production programme of TAI; APV programme of FNSS and Stinger programme of ROKETSAN. Today we are proud of indigenous systems and equipment of all of these companies.

In addition to such major co-production programmes, Turkey has pursued a consistent offset – industrial participation policy and this should be considered as an important source of export to US and Europe.

Figure - 4 shows the distribution of exports of Turkish Defence Industry based on SaSaD survey of 2009. Of course such data should be collected for a number of years to allow for a reliable interpretation. But based on this limited data we can say that exports are not confined to a specific region, not limited to Islamic word or based on offset requirements of western companies. On the contrary we are active in a wide geography with a wide spectrum of products.
Government to Government Export Credit
For a number of years the firs request of Turkish Defence Industry is provision of a government – to - government credit to support its exports. As mentioned above the competition in the export market is mostly with big and high technology companies of powerful nations. In most cases our competitors come with an “US Foreign Military Sale – FMS” type of credit. Turkish defence industry does not have such a support and start the competition with a considerable disadvantage. If we consider that some of the candidate markets of our industry are “developing countries” a credit arrangement beyond the limitations of the purely commercial arrangement is especially important.
As the result of consideration of some prominent aspects of defence markets, we can say that Turkish Defence Industry has a number of advantages and disadvantages. We need to analyse these points and take necessary actions. It is clear that we should continue effort to materialise exports of system level products and increase the local technology content in subsystems/component of these systems. Only with condensed efforts, the progress in the defence exports of our defence industry will be sustainable.