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What Is So Special About The Defence Industry?

By Kaya Yazgan, Defence Turkey Magazine Member of Advisory Board

Issue 47

For a number of years –in spite of various difficulties in industrial investment atmosphere- we have observed a continuous progress in the performance of the Turkish defence industry. If we want to compare the performance of the Turkish defence industry with Turkish manufacturing industry production in general, we can use annual defence industry turnover figures provided by SASAD and manufacturing industry index for the last 7 years.

In order to make an acceptable comparison we should prepare a production index for defence industry (2010=100) and draw the data on a graph to see the difference clearly. In general defence industry had a better performance in this period and particularly 2007/2008 crises had a severe impact on general manufacturing industry; but defence industry weathered the storm in a much better shape.

I believe that the critical difference is the bilateral trust of two pillars in the defence industry. From the procurement side, a long range perspective and willingness to share this view with industry are paramount. From the industry side financial capability and willingness to invest for new products are overriding. In the form of current economic model, the concept of “market economy” contradicts the concept of “long range planning” and defence industry is not an exception. Although there are documents like “Ten Year Procurement Plan” of the armed forces or “Strategic Plan” of the procurement authority SSM, we cannot say that there is a long range detailed “plan” running effectively. Maybe such efforts can’t be ratified as long range “plans”; but have very considerable positive outcomes to develop a “long range approach” for the demand side as well as the supply side.

In Turkey financial sources for the defence industry, begun with direct government financing (MKEK), developed with foundation (Aselsan, Havelsan, TAI, Roketsan…) and continued with private companies (FNSS, Otokar, RMK, Milsoft…). The major “special” feature of all these enterprises have been allocation of considerable funds and effort for new product development. If we compare the ratio of “R&D expenses /Turnover” for defence industry with manufacturing industry in general, we see this significant factor in favour of defence industry. As an important example we can remember the case of Aselsan. The company was established in 1976. Parallel to technology transfer and licenced production of VHF-FM military radios, R&D work was started to design a new series of radio which were in production in early 80’s.  

In the case of consumer market there is not any single organized procurement authority; but individual customers. Of course we can imagine many advantages and disadvantages of this “disorganised” situation over the single procurement authority case. But for a successful industrial enterprise, the importance of the long range perspective and wiliness for investment for technology is crucial for the consumer market as well.

Let’s view the case of Italian automotive industry. The long range perspective is clearly seen by looking at the establishment years of some companies: Fiat (1899), Alfa Romeo (1910), Maseratti (1914), Lombardini (1922), Ferrari (1929). 

Surely the automotive industry is not isolated. It flourished together with two main technological ingredients: iron-steel and synthetic-rubber. We can mention Ansaldo (1853) Dalmine (1909) Danieli (1914) etc. for iron-steel industry and Pirelli (1872) for synthetic-rubber-tire production. 

A noticeable feature of these enterprises is the geographical vicinity. Fiat in Torino, Alfa Romeo in Milan, Maseratti in Bologna, Lombardini in Novellara, Ferrari in Modena and Pirelli in Milan. All within a circle with a diameter of a few hundred kilometres.

In few decades, transportation and synthetic-rubber became major war targets as enemy capabilities. On 23 August 1944, US Mediterranean Theater of Operations reports “Fifteenth Air Force …hitting a synthetic rubber factory at Ferrara, Italy” among the strategic operations (http://www.usaaf.net/chron/44/aug44.htm).

Today we trace this tradition in National Science and Technology Museum in Milan (Museo Nazionale della Scienza e della texhnologia Leonardo da Vinci) in addition to the transportation section, collection shows instruments, machines and techniques used to extract natural rubber, to create synthetic rubber and thermoplastic elastomers. The first electric arc furnace for melting steel invented in 1898 by Ernesto Stassano is also in display.

I took the case of automotive industry. Because it is an industry for global individual customers and operates in a highly competitive environment with very rapid and great technological developments. It is not possible to make a “long term plan” in this atmosphere. During the long period of progress automotive industry remodelled many times. In addition to many technological revolutions, end user transformed from special production for automobile races to mass production for global consumers.  Some enterprises could not adapt to this environment and disappeared. But many maintained the “long term perspective” and did not hesitate to invest in new technologies.

If we return to the case of Turkish defence industry we can say that Turkey developed the necessary long term perspective and industry proved its willingness for investment for technology.