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Approaches to Depth in the Defence Industry

Özden Özben Corporate Strategies and Business Development Consultant Defence and Security, Information and Communication Technologies Expert

Issue 53

The Turkish defence industry has seen a rapid expansion in the last decade. As a sector that constantly safeguards its strategic nature, the defence sector and our defence industry undertakes to expand its place in the international market that has overall seen intense competition. Although not large in size, our industry has begun to take on a critical role in different near and far geographies.  Additionally, more than half of the needs of the Turkish Armed Forces are now met locally. The ever increasing global commercial competitions, has shown itself, in particular, in the area of defence. With the export efforts of the global players in the defence industry having focused on renewable sales, these players carry out their activities in every area of the globe. 

Whereas the budget of the Ministry of National Defence (MSB) increased to 15 billion TL in 2010 from 5 billion in 2001, bearing in mind the GNP ratio, this figure has declined to 1.3% in 2010 from 3% in 2001. However, it can be said that the Turkish defence industry expenditures, in general, show an upward trend. The global financial crisis in 2008 and in later years has not decreased defence production and sales. On the contrary, in terms of the defence sector seen as a fundamental element among the options in the exit from the crisis, the sector can be seen as a period where collaboration in production, joint ventures and a search for new market strategies has taken place.  In fact, during this period certain countries, among which includes Turkey, while continuing their purchases of defence industry products undertook at the same time intense efforts to develop their domestic capabilities. In the stage that we have reached today, Aselsan is among the top 100 global defence industry firms. Despite all the difficulties, Turkey meets 52.1% of the production in the defence industry domestic market]. Hence, the domestic response rate of the needs of the Turkish Armed Forces (TSK) can be said to be on the increase. 

When looked at in terms of Turkey, we can say that the point arrived at is that the defence industry import volume curve’s direction is downwards and that our world ranking has dropped while the volume of exports, on the other hand, is on an upward trend and our world ranking has risen. All of these developments are parallel to the development that has taken place in our domestic industry and the policies applied by the relevant state organisations. In this article, the progress made by our domestic defence industry, the policies, applications and strategic plans will be roughly outlined and assessments given in terms of the approach to depth in the defence industry. The basic requirement in the development of industrial capabilities, dominance in the domestic market, technological independence, an increase in exports and a decline in imports, obtaining depth in domestic industry, promoting this depth and maintaining a high sustainability are the starting point of this article. 

Strategic Targets

In the few paragraphs below, we will roughly summarise the steps in evaluating the increase in the sectoral depth of relevant organisations and their entry within the coverage of sustainability:

In the Sectoral Strategy Document prepared for the 2012-2015 period by the Undersecretariat for Defence Industries (SSM), the concept of “technologic dominance” has been put forward and has identified the transition to a sustainable defence industry, the development of technological competence, achieving maturity in programme management and the rise in the targets of value creation.  The Document, after stating the previous periods, ready purchases and joint production phases, emphasises the design and production of indigenous products and the level reached in exports. The Document, within the framework of the mission to “manage industrialisation, technology and purchasing programmes that will sustain our country’s development in defence and security capabilities,” presents the promotion and support of increasing exports in defence and aerospace for a sustainable and competitive defence industry as a priority policy. In addition, the Document emphasises that companies that work only for the domestic market are not permanent, that as an important element of sustainability in the defence industry, collaboration with global companies and attaining international quality standards are of strategic importance. The Strategy Document indicates that in areas such as ships, tanks and land vehicles, design, system engineering and product development efforts have taken place but that imports of sub-critical components continue, and based on this, the issue of the development of technological competence is a strategic objective.  Another heading in the Document is carrying the capabilities of project management to the stage of programme management. All of the successes in this process emphasises the need to increase scientific development in the defence industry, the effective use of resources and sustainability. 

The Technology Management Strategy Document prepared by the SSM for the period 2011-2016 states that in terms of the needs of the TSK’s modernisation requirements, forming and supporting the technological base of domestic development projects and that in line with this, focus be given firstly to sub-systems, sub-components and technological gains through R&D. Indicating the need for sustainability in the defence industry and competitive technological capability, the Document touches upon the place and importance of international competition in technological dominance.  In particular, the Technology Management Strategy Document underlines rationality and sustainability in technology management. In line with the aims of this Document, the strategic targets can be summarised as: The formation of a technology infrastructure in tune with the needs of the TSK, ensuring industry-university collaboration, enabling commitment in technology gains, managing, monitoring and directing R&D activities on a sector basis and emphasising importance to innovation . In line with these objectives, the role of the SSM has also been described in this Document.  Reducing foreign dependence on critical sub-systems, components and technology; enabling an effective industry-university collaboration through networks of excellence; developing focused SMEs that can produce high value added solutions; establishing the necessary technological infrastructure in the formation of a strong national defence industry; increasing R&D investments; detailing technology road maps; undertaking non-renewable quality investments and the development of opportunities have been given as the main targets in the medium and long-term. In a similar way, some of the headings were emphasised in the SSM’s 2009-2016 Sectoral Strategy Document. SSM’s approach to give priority to indigenous product development programmes that commenced as of 2000 has been an important milestone in the development of the sector. The development that this approach has provided has been met with appreciation by the representatives of the sector and, in particular, they have indicated the importance in sustainability and depth. 

The information and strategic statements can be roughly summarised as, “Sustainability in the Defence Industry,” “Technological Independence” or as “Possessing the Experience in Technology Development.” The way to achieve experience in an effective manner in sustainability, technological independence and technology development lies through efforts such as increasing collaboration of industrial and research organisations, focus and specialisation by companies, quality clustering, academic and industrial consolidation, non-renewable technology investments, renewable export initiatives and rapid and efficient R&D processes. These concepts also form the basis on the topic of “industrial depth” that is indicated at the beginning of this article. 

R&D and Exports in Sector Depth 

Among the documents that have been published particular to this sector, the issue that is highlighted above all is R&D investments. In the defence industry, 761 million dollars was spent on R&D in 2012 of which approximately 200 million dollars was from equity. This figure stood at 16% of total sales. R&D expenditures from equity, on the other hand, are 4% of total sector sales. In comparing these figures with other sectors, it is considered to be quite high. Total increase in R&D expenditures during the period 2008-2012 was at 49.31% and the average annual rate of increase was approximately 10%. Total sales and export values, the support and incentives provided to R&D and expenditures from equity indicate that the sector has oriented itself to indigenous products and technology development and that investments are in the right direction.

In line with this information, if we need to provide figures on exports realised and targets achieved, according to 2012 data, the Turkish defence and aerospace industry exports increased 79.91% compared to 2008, and 14.7% compared to 2011. The 2012 defence and aerospace industry export amount that SaSaD uses in sector data analysis was 1.262 billion USD. The increase shown in exports parallel to total sales indicates that the sector is in a balanced upward trend. The variety of indigenous systems that sector companies have added to their product portfolio and the entry of these products to the TSK’s inventory are considered as an important factor in the increase of exports.

Based on this information, we can say that the volume of exports have started to increase in a linear proportion after 2009. If this linear growth chart is able to turn to an exponential curve, the 2023 export target set at 25 billion USD will have been attained. By roughly converging export figures up to now with target figures, the following forecast chart is presented.

Areas 1 is the export values we have reached, have included and approximate estimates. Area 2 is the volume of exports we have planned and targeted that is independent of realisation and forecasts. 

If we define Area 1 as the point we have reached as a result of on-going policies, legislation and efforts at sustainability, and define Area 2 as the area to be reached that is under the influence of necessary processes through new generation policies, strategies, sustainability, policies and legislation on industrial depth, we can easily reach the conclusion that a very comprehensive and a rooted process needs to be followed. It is clear that this development can only take place with a sustainable, deep, quality and original defence industry. 

Conclusion and Assessment

The concept of industrial depth that we have tried to emphasize can be considered and summarised in a number of different areas:

Industrial depth that is ground-based expansion with wide participation,

Value added depth that offers high value added as a reference, 

Technological depth in industry with technological competence and independence,

Collaborative depth with a widespread establishment of industry-university collaboration,

Commercial depth with international experience of doing business within a broad range of platforms.

As indicated in many documents given as reference, it is clear that the concept of depth should be perceived as a whole and that gains achieved through an integral approach is clearly required. However, for the sake of convenience if each of the statements given above is separately defined,  ground-based expansion should be as much as possible wide-ranging, as much as possible cover a wide geographical area and as much as possible reach small-scale enterprises which in turn defines the concept of large-scale participation. Even if it does not presently consider itself as a unit of the defence industry within different sectors, there may be many entrepreneurs that should be evaluated based on their capabilities and capacities within the defence industry. For this reason, a wide-ranging participation that is ground-based is seen as a critical factor in industrial depth. Possessing value added that can be offered, having qualified entrepreneurs that can turn their capabilities and capacities to value added and the efforts to increase this courage are yet other aspects in industrial depth in the development of a value added sector. As mentioned in various sections of this article, a competent technologic development experience will lead to independence in technology; this in turn will lead to preferability which in turn will take us to an increase in exports. Thus, in the realisation of commercial targets as well as in technological independence, the concept of technological competence is the most important unit in an industry with depth. Based on this direction, the reason why industry-university collaboration is considered as a separate concept in industrial depth is that it takes place as a basis in the concepts of depth as indicated above and in the effort to offer strategic value under a different heading. Enabling widespread collaboration will enable us commercial, technological, value added depth and competence. Lastly, the development in international commercial competence and thus, the courage created as a result of commercial experience from the smallest industrial unit onwards will, as a feedback element that supports depth in industry, is worth analysing and focusing on. All of the areas we have summarised above require that the capability and capacity inventory on a nationwide scale is put forth in a clear and open manner and that a general and total picture from the smallest industrial unit on must be presented. 

In line with all of these efforts and initiatives, many valuable and strategic steps have currently been undertaken by the relevant companies and organisations and in targets that are considered as critical in attaining the concept of a giant “Turkish Plant” has been put in place. What is left to us in order to fulfil these targets is to do our part and bearing in mind the total picture is to try to capture continuity in development.