Will Turkey Hit the Target of $ 25 Billion Set for the Year 2023?

During the Turkish Union of Chambe

Issue 65 - February 2016

Turkish Union of Chambers and Commodity Exchanges (TOBB) Defense Industry Board Meeting was held at TOBB premises with the participation of Prof. İsmail Demir - Undersecretary for Defense Industries (SSM), Dr. Celal Sami Tüfekçi - Deputy Undersecretary for Defense Industries, Ms. Asuman Vangölü - Department Head of the International Cooperation of SSM, Mr. Latif Aral Aliş – Chairman of Defense and Aerospace Industry Exporters’ Association, representatives of the sector and many invitees. Addressing the opening speech, Mr. Yılmaz Küçükseyhan - TOBB Turkey Defense Industry Board President was the moderator of the meeting during which the sector’s problems and solution offers were examined. In his speech Küçükseyhan stated that sector’s 2014 foreign sales revenue was $ 1,855 billion, pointing out sector’s export increase of 15 percent throughout the period of 2010-2014. Küçükseyhan noted that as part of the export target of $  25 billion within the framework of 2023 vision, Turkey set a $5 billion target for the Defense Industry, $10 billion for Civil Aviation, $ 5 billion for Security and a target of $ 5 billion for Civil Aviation MRO (Maintenance, Repair and Overhaul) were identified and added, “In order to reach the determined figures, starting from today, the sector needs 35 percent of export growth annually”.

Defense Budget Constitutes 1.7% of the Defense Products

TOBB Defense Industry Board Vice Chairman Mr. Haluk Bulucu made a presentation titled “Facts about Homeland Defense and Turkish Defense Industry Revolution 2015” in the meeting. Touching upon the inadequacy of the 1.7 % share Turkey allocated to the Defense Industry, Mr. Bulucu mentioned the amounts allocated by Turkey’s neighbours in the region. Telling that despite the NATO’s advice to its allies that at least 2 percent of the GNP should be allocated to defense budget, Turkey remained under this bar where Greece allocated 4 percent of its Gross National Product to defense budget while Russia allocated 3.5 – 4 percent of its GNP.

Mr. Bulucu stated that the budget allocated for the defense products announced as $ 30 billion in 2005, decreased to the level of $ 7 billion in 2015 according to unofficial figures and added the fact that according to the latest report issued by the Eurasian Strategic Research Institute of Turkey (TASAM), currently 168 of the 257 projects in the agenda were represented by the industry. Pointing out that the sector reached the level of satisfaction according to the recent report, Mr. Bulucu continued: “There are some remarkable facts in the report prepared by TASAM. In the report, it is stated that the Turkish Defense Industry reached its peak and that the medium and long term requirements of the Turkish Armed Forces –Turkish Defense Industry’s main customer- were mostly fulfilled while the existing capacity aligning to the project schedule reached its saturation point and therefore our Defense Industry needed to direct its activities towards the export”. Mr. Bulucu emphasized that within the context of the on-going conflicts and balances of power in the region, Turkey would always need a powerful army capable of coping with all types of threat and attack and added that the sector has not yet reached its peak within this scope and said, “It is not quite possible to agree with this view. Turkey needs to put forward its national strategy with the participation of the government and the opposition parties along with challenging projects. We have to spend 3.5% of our revenue to our army. As the companies, we are capable of conducting the export, export is a different area. Then again, we have to spend at least the amounts allocated by Russia and Greece”.

Head of Foreign Trade Department Mr. Ali Rıza Oktay: “Turkey aims to reach foreign trade volume of $ 1.1 trillion in 2023”

Ministry of Economy’s Undersecretariat for Foreign Trade Department Head Mr. Ali Rıza Oktay made an overall assessment on the incentives given to the defense industry and extended information to the participants on the overall financial targets identified for 2023. 

Mr. Oktay expressed that they aimed to have a share of 1.5 percent in the world export in 2023 with Turkey’s foreign trade volume of $ 1.1 trillion and added that they identified these figures as a result of a study conducted in coordination with all the shareholders from all sectors. Mr. Oktay spoke of the export target of $ 25 billion of Turkish Defense Industry for 2023 and expressed as the Ministry of Economy, they launched the governmental incentives in three phases consisting of investment incentives, export incentives and business regimen on the path to be identified by the Ministry of National Defense and Undersecretary for Defense Industries to this end. Mr. Oktay pointed that Turkey became 25th in the world ranking in 2014 with its total Defense, Aerospace and Space Industry export of $ 1.827 billion, adding that they aimed to exist amongst the first 6 countries in 2023.

Turkey’s Defense Expense of $  17.94 Billion in 2014

On behalf of Undersecretariat for Defense Industry’s International Cooperation Department, Mr. Ersoy Aksoy - Expert made a presentation titled “Development of an Export and International Cooperation Strategy” in the meeting. In his presentation Aksoy mentioned Turkey’s current export status, potential export performance in the upcoming period and shared the details of SSM’s export strategy report prepared by the Undersecretariat covering the period of 2017-2021. Stating the fact that Turkey allocated $ 17.94 billion to defense exports according to SIPRI data of 2014, Mr. Aksoy mentioned that Turkey became 18th in the world with a share of 0.43% in defense industry export between 2007 and 2014, while it was the tenth country in world’s import ranking during the same period. Aksoy said that, in light of the data of the last seven years, if the existing export increase of 15 percent is preserved, the revenue from the Defense and Aerospace activities is estimated to reach to $ 6.02 billion in year 2023.

Undersecretariat for Defense Industry’s Export and International Cooperation Strategy for 2017-2021

Stressing that as the Undersecretariat for Defense Industry’s International Relations Department they have been working on the Project for developing an export and international cooperation strategy, Mr. Aksoy enlightened the participants on the strategy model and project schedule they planned to introduce soon. Mr. Aksoy stated that the preparation and planning period was initiated in August 2015, that they would be conducting the situation analysis in September and December 2015 and announced that the strategy development process would be launched during January – March 2016. Aksoy also informed the audience that the strategies would be implemented in the level of projects and activities as of April 2016 and they would be moving on to performance management starting from the last quarter of 2016. Sharing some details on the on-going process, Mr. Aksoy mentioned that they included their in-house views in the Strategic Planning and Situation Analysis activities adding that they asked the views of the relevant institutions and companies, that they focused on developing country’s procurement reports, examined the world defense markets in detail and exerted efforts to initially identify the products and services bearing export/cooperation potential.

Mr. Aksoy added that, within the scope of 2017-2021 Export and International Strategy, they would be conducting product and country targeting through institutional/global strategy, forming potential international cooperation programs and identifying regions to execute the potential foreign investments, joint ventures and technology transfer while reconsidering the reconstruction of the foreign offices as part of this strategy. Mr. Aksoy stressed that the companies conducting export activities within the framework of the Export Strategy should develop institutional and global strategies, business strategies and functional strategies under the caption of strategic management and marketing approaches and added that these companies should especially focus on market/product diversification, civil market orientation, merger and acquisition, foreign joint venture aspects.

Mr. Aksoy expressed that while shaping their institutional strategies the companies should ask themselveson which products’ (military or civilian) export they should focus and at which stages of the Procurement Chain (raw material, compound by-product, integration and production, marketing, sales, after sales services, logistical support) should theybe involved in. Mr. Aksoy added that during the establishment of Global Strategies, companies should initially identify their strategies by identifying the regions of the world they would aim as well as their market entry method (export, licensing, company acquisition, cooperation agreements, investing on shares, joint venture).

Within this context, Mr. Aksoy shared a Strategy Development Example with the participants over the case of a company operating in Space Sub Sector. Mr. Aksoy expressed that in the given case, Company A asked itself the Product Diversification question (What shall I produce?) as part of the Institutional Strategy and decided to operate in Communication Satellites (Military/Civilian), Task Computer (Software and Hardware), Encryption and Test services. In the following step, Company A asked itself where it should be standing on the Vertical Integration and Procurement Chain and placed itself on integration and production, after sales services regarding the Communication Satellites and task computer, encryption, test services considering other satellites and continued, “After this stage our company worked on its Global Strategy that is the identification of the regions to conduct its sales and prepared its market entrance strategy by determining the countries it is capable of reaching in Africa. Eventually, Company A identified its strategy by establishing that it could sustain its existence in Country A through exports, in Country B by joint production and in Country C through Joint Venture and thus positioned itself in that region and market”.

Undersecretary for Defense Industries Prof. Demir: “It is a tough yet achievable target” 

In his assessment, Undersecretary for Defense Industries Prof. İsmail Demir claimed that reaching the export target would not be easy, yet still could be achieved and mentioned that the sales figures would be increasing severely as soon as the export of the platforms were launched. Saying that “Our sector’s export performance is an important indicator for us besides its function of a dynamic enabling the sustainability of the sector”, Demir asked the representatives of the sector to attach importance to the approaches that add intelligence to the products in order to create added value.

Prof. Demir emphasized on the need for adopting more aggressive and effective methods in marketing of the platform products in the future and drew the attention of the audience to the necessity of creating the “common sense products” and “integrated working environment”. Prof. Demir said, “In order to receive our assistance, you need to complete the necessary preparations and identify your strategic targets. Asking for our help in issues that require governmental support and your arrival with concrete expectations would be more meaningful. You, industrialists, should closely follow the Undersecretariat’s strategy. Besides, you must be aware of Armed Forces’ defense strategies and plans. This should continue as a bilateral information exchange and hopefully carry us to our export target”.

Stating that the defense industry is not an industry that could survive merely through good and high quality products, Undersecretary Prof. Demir underlined the importance of the international relations and the political conjuncture of the world among the required dynamics. Prof. İsmail Demir, “We are experiencing an interesting situation especially in our activities conducted in the friendly and allied nations. The official negotiations are conducted in a highly positive atmosphere. Yet, as soon as the subject moves onto the initiation, execution of the business and cooperation, the tempo slows down. We are experiencing difficulties in abolishing the western or eastern dominance still existing in these countries. We need to remain patient. The quality and performance of the products, approach of our companies, and their transparent and honest attitude would be effective in overcoming the prejudices. I would like all of you to know that our leaders are supporting us to this end as long as we are successful and assertive about certain subjects.”

Following the presentations, the current status of the sector and forecasts regarding the future were examined within the scope of the problems and solution suggestions and the participants searched for the responses. Considering the opinions of the prominent representatives of the sector during the Q&A session and the overall atmosphere of the meeting, it was observed that each day Turkey lagged behind its $ 25 billion export target set as part of the 2023 vision. Defense authorities underlined the importance of the common sense and synergy in order to elevate sector’s export to desired levels and told that despair should be avoided. On the other hand, in order to reach the determined figures, the need to skip the barriers of export restrictions and foreign dependency considering the critical areas such as the systems and sub-systems with added value namely the engines, transmissions, electrical – electronics, sensor technologies wash emphasized throughout the meeting. The necessity of decreasing Turkey’s foreign dependence regarding the abovementioned areas was stressed. In light of all these, the message underlining Turkey’s obligation to immediately take the required steps was uttered once again by the whole sector. It may seem hard to hit the identified targets now when the current status is taken into consideration but, the technological depth to be acquired in the compound and system – sub-system level and the indigenous system products emerging as a result of this depth will allow these competencies to function for the main platform products as well and additionally assure the figures bearing great importance regarding imports remain within the country. The matured, developed and multiplied portfolio of qualified products, companies with depth of field, correct and effective marketing strategies and launch of Government to Government Sale (G2G) mechanisms such as the FMS, the sector will become more competitive in the foreign markets and gain trust. Meanwhile, the indigenous products emerging as a result of the rapidly increasing interaction between the locomotive sectors of Turkey will find new markets in civilian and commercial fields in addition to their market for defense industry sales and thus create new opportunities. In order to activate all these facts, the capabilities should be identified correctly, capacities should be initiated in a cost-efficient manner in line with a time schedule, and without doubt the government should support the sector at all levels with proper and effective strategies. As a result, Turkey will absolutely achieve outstanding success.