Development of a White Paper on a Policy Framework for Total Factor Productivity

Support to Development of a Policy Framework on
Total Factor Productivity Project
WHITE PAPER

Support to Development of a Policy
Framework on Total Factor Productivity Project
WHITE PAPER
(c) All rights reserved.
November 2018, Ankara
This publication may be used or reproduced for educational purposes and other non-commercial purposes without
prior permission of the copyright owner with due reference to the source.
Prepared by: Esen Çağlar and Emre Koyuncu
Designed by: Markapala, www.markapala.com
Press: Mi̇ki̇ Matbaacılık San. ve Ti̇c. Ltd. Şti.
The White Paper was prepared within the scope of the Support to Development of a Policy Framework on
Total Factor Productivity Project (TFP Project).
Support to Development of a Policy Framework on Total Factor Productivity is a technical assistance project financed by the
European Union (EU) and Republic of Turkey and it is executed by the United Nations Development Programme (UNDP).
The beneficiary of the Project is the Presidency of Republic of Turkey Strategy and Budget Office and the contracting authority
of the Project is the Central Finance and Contracts Unit (CFCU).
This publication was prepared with the support of the EU and Republic of Turkey. The views expressed in this
publication by no means reflect the view of the EU and Presidency of Republic of Turkey Strategy and Budget Office.

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ACKNOWLEDGEMENT
White Paper was prepared within the Support to Development of a Policy
Framework on Total Factor Productivity Project, which is a technical assistance
project financed by the European Union (EU) and executed by the United Nations
Development Programme (UNDP). The beneficiary of the Project is the Presidency
of Republic of Turkey, Strategy and Budget Office.
This project, which aims to develop a public policy framework with a new
perspective to increase the share of total factor productivity in our country’s
development and secure political activities within this context, has been created
with active participation of public institutions, private enterprises, and non-
governmental organizations.
On behalf of the Presidency of Republic of Turkey Strategy and Budget Office, I
would like to extend my sincere gratitude to all of our stakeholders, especially the
United Nations Development Programme, the Central Finance and Contracts Unit,
the Delegation of the European Union to Turkey for their dedicated efforts within
the Support to Development of a Policy Framework on Total Factor Productivity
Project since November 12 2015, and all other public institutions, private
enterprises, and non-governmental organizations for their active participation in
the Project; to the Scientific Committee, the Steering Committee and members of
all working groups; to Project experts and the Project team; to Istanbul Ready-
Made Garment Exporters’ Association, to Turkish Composites Manufacturers
Association and Turkish Quality Association for undertaking the leadership of our
Pilot Projects; and to the, Head of Economic Modeling Department, Strategy and
Budget Office , as well as all strategy and budget experts.
Kutluhan TAŞKIN
Director General of Economic Modeling and Conjuncture Evaluation
Presidency of Republic of Turkey, Strategy and Budget Office

Table of Contents
Executive Summary
Introduction: Why do Productivity Policies Gain Importance?
How the White Paper was Prepared
Determinants of Productivity in the Turkish Manufacturing Industry
Business Models: Positioning in Value Chains
Integration into Global Supply Chains
Access to information, R&D, Innovation and Technology Transfer
Intercompany Collaborations and Long-Term Customer Relations
Use of Modern Manufacturing Techniques
Company Management Quality and Institutionalization
Labor Productivity and Human Resources Practices
TFP Policy Framework
1. Policies That Accelerate TFP
Accelerating Digitalization
Enhancing Management Quality in Firms
Facilitating Exits from the Market
2. Perfecting the ecosystems of enterprises with global competitiveness targets
Strengthening and Diversification of Financial Support Mechanisms
Development of Marketing and Networking Competencies, Strengthening the
Perception of “Turkish Technology”
Making the Localization (and Nationalization) Agenda Productivity-Driven
3. The Interface Approach for the Effective Use of TFV Policies
Why Do We Need a Different Approach in Policy Implementation?
Definition; What is Interface? A New Layer Between the State and Companies
Aims, Tools, Tasks, and Functions
Transition from Existing Structures Carrying Interface Attributes to New Interfaces
Design Principles for Interfaces
How and Where to Get Started on Experimenting
Sources
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Figure 1: Preparation Process for the White Paper
Figure 2: Stages of Value Chain and Distribution of Added Value, Manufacturing Industry
in the 1970s and 21st Century
Figure 3: Relationship Between Determinants of Policy Priorities and Total Factor Productivity
Figure 4: Number of Industrial Robots in Operation, October 2016
Figure 5: Average Management Quality Scores for Manufacturing Firms (on a scale from 1 to 5), 2014
Figure 6: Early-Stage Venture Capital Investments in Turkey, 2010-2017
Figure 7: Network Map: International Collaborations in Patents Related to Information
Technology, 2010-2012
Figure 8: Domestic Rate in the Defense Industry
Figure 9: Innovation Policy Actor Organization
Table 1: Stages and Required Capabilities in Value Chain Integration
Table 2: Problems Encountered with Long-Term Customers (percentage of the companies
experiencing problems)
Table 3: Transformation of Incentive Systems: First Generation Support Mechanisms and
Second Generation Service Interfaces
Table 4: Suggested Measures to be Taken During the Design Process for Interfaces
Table 5: Governance Structures and Core Characteristics of Applied Research Interfaces
Table 6: Innovation Accounting Performance Indicators
Box 1: TFP Policy Framework: Germany and South Korea Cases
Box 2: Venture Capital Funds and Stages of Investment
Box 3: The Public Procurement Policies in the Medium-Term Program (2018-2010)
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List of Figures
List of Tables
List of Boxes

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Executive Summary
The contribution of increases in productivity on our country’s economic growth
performance remains limited and follows a fluctuating trend. Only 0.8% of the
recent 5.8% growth (2012-2017) is due to increases in Total Factor Productivity
(TFP). On the other hand, it is known that the underlying dynamics behind long-
term economic growth and developments are the increases in productivity.
Limited TFP increases in Turkey pose a disadvantage in terms of the sustainability
of growth.
This White Paper brings forth a policy framework for TFP to contribute more to
economic growth in Turkey. The project’s main beneficiary is the Strategy and
Budget Office of the Presidency of the Republic of Turkey. The project was financed
by the European Union and the Republic of Turkey and implemented by UNDP.
This project established the determining factors for the increase in TFP through
studies conducted at company and value chain levels. A policy framework was
developed in line with the analyses and this framework was tested in pilot studies.
Current Situation: Determinants of Productivity in the Turkish
Manufacturing Industry
The study approached TFP in terms of the company perspective and firstly, the
factors which affect productivity were categorized into internal and external
factors.Factorssuchasthequalityofhumancapital,thetaxsystem,thecompetition
environment, the regulatory framework, and corporate quality were evaluated
within context of the external factors. Since many organizations and policy
frameworks currently have an impact on the external factors, the study aims to
shed light on internal factors. As a result of synthesizing the trends identified in
terms of the internal factors, seven fundamental pillars were established in order
to define TFP at the company level, and the critical research findings regarding
these pillars are summarized below:
1.Businessmodels:Positioninginvaluechains.Theconceptofa“businessmodel”
covers how and at what stage of the value chain companies are positioned and
how they create value. In this context, the fact that the share of manufacturing and
assembly in elements that determine the value of the product is decreasing, while
the share of components such as R&D, design, marketing and services offered with
the product is increasing is a significant trend. It is observed that companies that

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want to develop branding and a higher level of added value invest in marketing/
distribution processes. It is also determined that companies using information,
e-commerce and material technologies are more productive and innovative.
2. Integration into global supply chains. It is seen that companies that are
integrated into the value chain of global companies have made significant progress
intermsoftechnologicaldevelopment. Thedeepeningoftheinteractionwithglobal
companies helps companies internalize elements such as lean manufacturing,
quality processes, cost accounting, and create a motivating environment. On
the other hand, it is also easier for companies that have passed the certification
processes of global companies to reach other networks and markets. Econometric
analyses reveal that those companies with overseas affiliations and engaged in
R&D activities are more productive and have a stronger tendency to develop
technological innovations.
3. Access to information, innovation and transfer of technology. The ability
of a company to access information, to use and develop the information for its
production directly affects the productivity of that company. R&D activities appear
to greatly contribute to trends in productivity and technological innovation. In all
sectors, feedback from users/customers, open sources of information and trade
fairs/overseas trips appear to be the most common sources of information. It is
concluded that companies that transfer “qualified senior executives/technical
personnel” and technology via patents and licenses as well as knowledge from the
company for which it acts as a supplier are more productive.
4. Intercompany collaborations and long-term customer relationships. The
company’s network structure (network) is decisive in terms of the efficiency of
the company. As much as a company’s ability to maintain its position in the supply
chain depends on factors such as quality, speed and cost it is also related to its
ability to develop trust-based relationships with its customers. The companies
engaged in R&D and design activities in collaboration with their customers are
more productive and innovative. On the other hand, companies with a high share
of long-term customers in their turnover are more productive.
5. Use of modern manufacturing techniques. It is seen that companies with
higher productivity scores have developed lean production methods, enhanced
theiremployees’multi-taskingdutiesandtheyoftenoptimizecorporateworkflows

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and production platforms as well as applying specific procedures to evaluate
the performance of employees. The companies that have already overcome
shortcomings in terms of basic production skills often focus on innovation.
6. Company management quality and institutionalization. Studies using
microdata collected at the company level reveal that management quality is
a significant actor in explaining in-country and intercountry differences of
productivity. In the World Management Survey, Turkey ranked 21st out of 35
countries in terms of the quality of management practices. Companies that
can achieve productivity gains out of the digitization processes manage these
processes together with corporate transformation, management quality and a
quality workforce.
7. Labor productivity and human resources practices. The quality of human
capital is a determining factor in corporate functioning, such as the operation of
production tools, corporate decision-making processes, innovation development
and the delivery of goods and services to customers. The companies with a high
rate of white-collar workers among personnel are more productive on average.
In corporate companies, good human resources practices, such as career
opportunities and performance-based promotion, are observed, while stable and
systematic human resource policies are not implemented in most companies that
have not been able to make progress in terms of institutionalization.
Considering these results as a whole, a considerable portion of Turkish companies
appear to attempt to gain competitiveness through cost-reducing, passive
strategies such as labor flexibility, supplier price repression, etc. On the other
hand, more productive companies pursue active strategies such as building
long-term relationships, utilizing collaborative R&D and design activities and
implementing technological innovation. These findings indicate that there is a
need for regulations and incentive mechanisms regarding companies’ adoption of
active strategies in order to increase productivity in the manufacturing industry.
Policy Framework
The policy framework proposed in the White Paper aims to contribute to a new
perspective on economic growth based on productivity gains highlighted in the
Medium Term Program (2019-2021). While this study focuses on micro dynamics
in the manufacturing industry to improve the contribution of TFP to growth, the

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macro dimension of productivity should not be neglected. Increased quality in
human capital and micro-structural reforms in taxation, the labor market and
regulatory institutions play a critical role.
In order to increase the contribution of TFP to economic growth, a policy
framework consisting of three elements is proposed:
1. The first policy level consists of horizontal policies and includes an approach
that aims to increase and incentivize productivity, regardless of technology, sector,
size and region. Policies at this level mainly focus on companies that are far from
the global borders of technology.
2. The second policy level is composed of vertical policies that seek the perfection
of ecosystems in which businesses with a competitive edge find themselves, and
includes interventions that require selectiveness and a focus on specific sectors,
technologies and regions. Policies at this level mainly focus on companies that are
essentially close to the global borders of technology.
3. The third level includes the outlines and principles of a new corporate design
(interface) for implementation and effective execution of policies towards TFP.
1.1 Accelerating Digitalization
Sample interventions:
• A new incentive tool for financing support for
digitalization and automation investments
• Policies and pilot projects to increase
broadband Internet access and speed and the
use of broadband services place Turkey among
the top ten OECD countries with its
performance in these fields and lower the costs
• Supporting logistics centers for e-commerce,
distribution centers abroad, capacity building,
training and payment systems
• Supporting programs to promote cloud
computing and raising awareness in SMEs
Priority #1: Increasing
digital skills of companies
and improving the
software sector
Priority #2: Improving
digital infrastructure
Priority #3: Improvement
of e-commerce capacity
Priority #4: Extending
cloud computing

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• Creating an “Operational Program for
Improving the Human Resources of Companies”
for projects on functional or thematic
issues such as marketing, supply chain, digital
transformation, managing inter-generational
differences and improvement of the work
environment in partnership with consultancy
firms, academic institutions and companies
• Developing a program for enhancing the quality
of working environments at the OIZs
• Extending working practices through similar
programs in cooperation with the consultants
provided within the scope of the Turquality
program
Priority #5: Accelerating
quality and innovation
movement
Priority #6: Extending
access to consultancy
services
1.2 Enhancing Management Quality in Companies

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• Making the Turkey Investment Fund
operational
• The establishment of funds to specialize
in areas to be determined in the Eleventh
Development Plan
• Focusing on creating programs to develop
long-term financing models in high-tech and
innovative areas
• Efficient use of the Eximbank resources for
innovative entrepreneurs on a global scale
• Creating interdisciplinary structures that can
lead to the cooperation of different actors such
as large companies, small-scale technology
firms, research institutions, etc. who do not
cooperate under normal circumstances in order
to solve a defined national problem
• Support mechanisms to involve the
development and commercialization of
products for international markets, particularly
in the areas of priority technology and sectors
• Creating networks and conducting
improvement activities to strengthen the ties
between research labs, R&D centers, technology
development zones, public institutions, and
companies
• Supporting the integration of clusters around
certain technologies with important technology
centers abroad, particularly in the areas of
technology development zones with critical mass
Priority #8: Supporting
venture capital funds
Priority #9: Developing
project funding
opportunities for
innovative initiatives
aimed at expanding the
global scale
Priority #10: Planning a
mission-oriented support
mechanism for innovations
that will meet the strategic
needs of the country
(Industrial Technology
Reward Fund)
Priority #11: Development
of marketing capabilities
Priority #12:
Strengthening networks
(between national and
international enterprises,
researchers, funders and
government executives)
Priority #13: Boosting
the perception of Turkish
Technology and increasing
brand value
2.1 Strengthening and Diversification of Financial Support Mechanisms
2.2 Development of Marketing and Networking Competencies;
Strengthening the Perception of “Turkish Technology”
2. Perfecting the ecosystems of enterprises with global
competitiveness targets

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• For the products to be included in the
localization program, building support projects
on the basis of a global vision with an emphasis
on global dynamics and demand conditions, as
well as prioritizing import substitution
• Giving priority to creating demand for
technologies that can be produced indigenously
outside of public procurement initiatives; for
example, the use of regulations for housing and
development in cooperation with municipalities
to increase the use of composite materials in
the construction industry
Priority #14: Making
the localization agenda
productivity-driven
2.3 Making the Localization (and Nationalization) Agenda Productivity-Driven
3. The Interface Approach for the Effective Use of TFV Policies
It is important to establish and strengthen the interface structures that play a
role in implementing the policies in order to ensure effective implementation
of policies aimed at increasing TFV. Interface structures will provide services
that cannot be adequately provided by the market by functioning as a kind of
public entity between the public sector, academia and the business world. These
include tools such as information, consultancy, networking, and financing. These
structures will not only support the individual companies but also the value chain
and ecosystem. Interfaces will focus on increasing the efficiency and innovation
performance of companies, while implementing programs in strategic areas on
behalf of the public sector and will contribute to the effective use of public funds.
The interface structures should be developed to take on various functions and
focus on various intervention types rather than concentrating on standardization.
In this setting, the basic principle should be to increase the influence and
simplify the forms of intervention in selected areas without making the existing
mechanisms and support programs more complex. Within this framework, it is

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recommended that the new system is initiated in an experimental environment
formed by exceptional arrangements where the results are carefully monitored
and the effects are evaluated, and that three different interface experiments are
implemented. The first two of the three experiments proposed are related to the
innovation policy, while the third experiment focuses on the development of an
interface for the dissemination of technology:
• The First Experiment: Research Institute offering applied research services
• The Second Experiment: Interface that provides a full range of services for
technological SMEs and start-ups
• The Third Experiment: Technology diffusion interface

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INTRODUCTION
Why do Productivity Policies Gain Importance?

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Improvements in productivity are the basis of economic growth and
improved welfare in the long term. Increased added value due to productivity
is reflected as high profitability for capitalists, high wages for workers and low
prices for consumers. The steam machine and electrification in the last century
and innovations in the area of digitalization in the current age, have improved
productivity by transforming production methods and have become the driving
force for economic growth.
Total Factor Productivity (TFP) is one of the three main channels through
which economic growth is achieved; the other two channels are an increase
in employment and capital investments. In essence, productivity is the ability
to produce more output with less input. Inputs can bedivided into five categories:
capital (C), labor (L), energy (E), materials (M) and services (S). Concepts such
as labor efficiency and energy efficiency indicate the relationship of just one of
the inputs with the output (partial efficiency indicators), while the relationship
of all these inputs (C+L+E+M+S) to the output indicates Total Factor Productivity.
Accordingly, the TFP is the portion of the produced output that cannot be explained
by the amount of input used in production. The size of TFP varies based on how
effectively and intensively the inputs are used in production.
In our country’s economic growth, the contribution of TFP remains limited
and fluctuates. This poses a disadvantage in terms of the sustainability of growth.
Intheperiodfollowing1990,Turkey’smainsourceofproductivitygainscamefrom
theprocessoftransitionfromsectorswithlowproductivity(agriculture)tosectors
with higher productivity (industry and services), i.e., structural transformation.
In this period, the contribution of the increase of productivity within the sectors
remained limited. In the period of 2012-2016, the contribution of TFP within
the growth rate of 5.5% was 0.7%. While the contribution of TFP to the growth
rate was 24% in the industrial sector, it was 13% in the overall economy. In this
period, the accumulation of capital contributed most to growth (53%). When
the manufacturing industry is examined in the production of 82 different sub-
sectors during the period of 2003-2014, the share of labor, materials, energy and
other unexplainable factors including TFP was calculated at 9%, 75-80%, 4% and
9%, respectively. The difference between productivity levels of small and large
enterprises is striking. As of 2015, the labor efficiency in companies with 1-19
employeesisapproximatelyonesixthofcompanieswithmorethan250employees.

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While the micro dynamics in the manufacturing industry are focused on in
this study in order to improve the contribution of TFP to growth, the macro
dimension of productivity should not be neglected. In this context, the most
critical issue is the increase in quality of human capital. If the increase in quality of
human capital is not sufficient, the impact of most of the policy recommendations
addressed in this White Paper will be limited. Cultivating an educated workforce
who have comprehensive knowledge of advanced technologies and have the
capacity to develop more advanced technologies could provide a significant
contribution to the productivity to our companies that primarily compete in the
international market by lowering prices. In addition, micro structural reforms
to be implemented in areas such as tax, labor market and regulatory agencies
will accelerate the structural transformation in the manufacturing industry and
increase the contribution of productivity to growth. While productivity-oriented
policies are implemented, skill transformation programs and social policies that
complement those policies must also be taken into consideration. It should not
be overlooked that the increase in digitalization increases the risk of workers
becomingunemployed;thebalancebetweenproductivitygrowthandemployment
should be analyzed and in addition to actions to be taken to improve the level
of digitalization, policy recommendations that will prevent potential job losses
occurring as a result of digitalization should also be put on the agenda.
A new economic growth perspective focusing on TFP improvements must
be designed in order to take action against the negative state that has been
observed in our country’s productivity performance in recent years. Due to
the trend of digitalization in the industry (robotics, 3D printers, smart factories,
etc.), competitive strategies based on a low-quality workforce and low wages are
losing validity. This White Paper aims to contribute to the policies with respect to
increasing productivity in our country by presenting a policy framework for the
consideration of the public in a time like this. The policy framework focuses on
the manufacturing industry and aims at understanding the factors determining
productivity in our country and improving policy responses by shedding light on
micro dynamics in this field.

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How the White Paper was Prepared
The White Paper has been prepared as part of the Support to Development of a
Policy Framework on Total Factor Productivity Project (TFP Project). The project is
executed by the United Nations Development Programme, whose main beneficiary
is the Presidency of Strategy and Budget of the Presidency of the Republic of
Turkey and is jointly financed by the European Union and the Republic of Turkey.
This work includes situational assessment and policy recommendations to
increase the contribution of Total Factor Productivity to growth in Turkey. Within
the scope of the project, a consultation document (Green Paper) was written. This
White Paper was prepared after the opinions of stakeholders were received.
The White Paper is intended to contribute to high-level policy documents such
as the Development Plan in addition to policy documents such as the Mid-Term
Economic Programme and Annual Programme.
Figure 1: Preparation Process for the White Paper
- Background work
- Review of South Korea and Germany
- Value chain analyses
- TFP Company Survey
- Face-to-face negotiations
- Thematic and Sectoral Workshops
- Consultation process
Responses to 42 questions in the
Green Paper were collected beetween
March-April 2018.
Simplification and
addition of questions
Scientific
Committee
Scientific
Committee
SYNTHESIS
REPORT
GREEN PAPER WHITE PAPER

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A research process consisting of the following seven components was carried out
during the preparation process for the White Paper. (Figure 1) The preparatory
work and outputs are shared on the project’s website www.tfvp.org:
(i) Background Studies Analyzes performed on key data for productivity
dynamics in the manufacturing industry; literature reviews on global value chains
and productivity; German and South Korean benchmarking studies; and trends in
selected value chains (food, textile-ready wear, electrical goods, automotive) were
researched.
(ii) TFP Company Survey Prepared for the purpose of analyzing the productivity
and innovation dynamics of companies, the survey was filled out by 2903
companies. Companies that participated in the survey were categorized and
analyzed within 4 categories. The first were companies that are among the top 100
industrial enterprises in Turkey. Companies included in the other categories were
selected from the companies with the largest industrial enterprises and suppliers.
(iii) Face-to-Face Interviews In line with the framework determined for the
survey, in-depth interviews were carried out with the large industrial companies
included in the first category. Assessment and evaluation of growth, productivity
and innovation from the companies’ owners and managers were compiled and
synthesized within a structured framework.
(iv) Thematic and Sectoral Workshops Eight workshops were held with
the participation of 153 representatives from the private sector, civil society
and public institutions within the four value chains selected based on themes
determined in field studies, benchmarking studies, sector evaluations and
trend analysis studies. Themes addressed at the workshops were as follows:
Digitalization in value and supply chains; public policies on the investment needs
during the commercialization of R&D; timely entry of high-tech materials into
our country; and the involvement of SMEs in the production processes and how
SMEs can develop management styles and administrative structures that are more
institutional and globally competitive.

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(v) Synthesis Report It has been prepared by compiling all quantitative and
qualitative data. The report is a technical background document that consists of
basic trends, basic determinants of productivity in the manufacturing industry,
policy framework design rationale and policy recommendations.
(vi) The Green Paper The Green Paper was created from the Synthesis Report
through the process of developing a consultation document and transforming the
report into a policy document. The aim was to collect feedback from stakeholders
on the 42 questions included in the report.
(vii) The White Paper The White Paper has been created through the analysis
of international conferences, regional meetings, and correspondences with state
organizationsregardingtheGreenPaperandthefeedbackreceivedviathewebsite.

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Determinants of Productivity in the
Turkish Manufacturing Industry

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The prerequisite to developing a consistent policy framework for Total
Factor Productivity is having up-to-date and comprehensive knowledge
on the dynamics determining TFP in our country. A series of studies were
conducted for this purpose in order to shed light on the elements that could affect
productivity in companies within the manufacturing industry which are at the core
of the TFP Project. As a result of the field research, analysis of TÜİK data, review
of relevant international and national literature, and the quantitative analyses and
stakeholder meetings conducted for the four selected value chains (automotive
parts, white goods, apparel and food), elements that could affect the productivity
of companies were categorized into two groups as internal and external factors:
• Internal factors: The company’s organizational structure; organization of
production; entrepreneurial qualities; human resources practices; learning
mechanisms within the company; use and dissemination of information; quality
of input; physical capital; machinery and equipment quality; R&D activities;
information technology; product and process innovations; economy of scale;
strategy; and forms and stages of integration in the global value chain
• External factors: Quality of the human capital; tax system; competitive
environment; regulatory framework; institutional quality; flexibility in the
input market; quality and competence of infrastructure; access to finances;
macroeconomic and political stability; policy predictability; technology policies;
demand elasticity; and production location (regional dynamics).
Since many organizations and policy frameworks currently have an impact
on the external factors, the TFP policy framework focuses on internal factors.
As a result of compiling the trends in internal factors at the company level, seven
critical elements that determine TFP at a company level were identified. This
section outlines the findings on these seven critical elements listed below:
1. Business models: Positioning in value chains
2. Integration into global supply chains
3. Access to information, innovation and transfer of technology
4. Intercompany collaborations and long-term customer relationships
5. Use of modern manufacturing techniques
6. Company management quality and institutionalization
7. Labor productivity and human resources practices

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Business Models: Positioning in Value Chains
In interviews held with companies in the manufacturing industry for the
TFP Project, one of the key factors causing a gap in productivity compared
to competing countries/firms was indicated to be the differentiation of the
business models. The concept of a “business model” covers how and at what
stage of the value chain companies are positioned and how they create value.
As technological advancement decreases transaction and coordination costs,
unprecedented business models can arise. In a study undertaken with large
aeronautical and defense companies in the USA, it was identified that companies
that are able to change their business models and adapt to the dynamics of the
market raised their financial performance 7 times more than those who were
not able to do so (Fischer, 2016). It is possible to say that three critical trends
accelerate transformation and increase productivity in business models:
• The quality and quantity of transactions that machines can perform can be
rapidly increased. As such, machines take over the basic functions performed by
the labor force and force them to gain new skills.
• The number and scope of platforms that bring together the product and
customer without an interface institutions (Alibaba in the retail sector, Uber in
transportation services, Facebook in media, Airbnb in hospitality services, etc.)
are increasing with potentially destructive effects on traditional actors.
• Crowdsourcing methods, which allow companies to benefit from the knowledge,
experienceandskillsofpeoplefromallovertheworldinadditiontotheknowledge,
experience and skills that they develop internally or with their suppliers in the
value chain, are on the rise (McAffee and Brynjolfsson, 2017).
In addition to the transformation of business models, the share of
manufacturing and assembly in elements that determine the value of the
product are decreasing while the share of components such as R&D, design,
marketing and services offered with the product are increasing. The level of
adaptation to and utilization of technological advancements at an exponential rate
in the world has a direct impact on improvements in TFP and the competitiveness
of companies in the manufacturing industry. Many different economic and

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technological trends such as globalization, regionalization, smart systems,
advanced materials, digitalization of information and processes and 3D printers
force companies in the manufacturing industry to transform their practices. As a
result of these developments, companies in the manufacturing industry become
sellers of “outcomes” rather than “products” and the importance of being able to
provide solutions tailored to the customers’ needs increases. The key condition
for preserving profit margins in the manufacturing industry is the ability to
enable this transformation, i.e. the ability to manufacture products tailored to the
customers’ needs. For example, what underlies Germany’s ongoing achievement
of high added value in the manufacturing industry is its ability to spread the
value chain to different countries (Eastern Europe, China, Korea) and its ability
to perform mass customization through robotization and automation (The World
Bank, World Trade Organization and OECD, 2017).
These developments across the world also affect the Turkish manufacturing
industry and companies that are able to adopt innovative business
models in line with technological advancements are able to improve their
competitiveness and efficiency. In the field study performed for the TFP Project,
it was found that companies that focus solely on manufacturing and product sales
experience a downward trend in their profit margins, while companies that can
strengthen their functions outside the manufacturing chain are able to increase
their added value, profitability and international competitiveness.
The following findings with respect to the relationship between business
models and company productivity in the manufacturing industry in our
country have been gathered through field studies, surveys and workshops
conducted for the TFP Project:
• Companies that want to achieve branding and a higher level of added value invest
in marketing/distribution processes.
• In addition to divisions such as accounting and purchasing, information
technology within standard business processes is also being relatively commonly
used in areas that are closely related to productivity such as production planning,
supply chain management, product and material management and design.
• Companies using information, e-commerce and material technologies are more
productive and innovative.

24
• Successful companies have independent divisions working on production
planning, procurement, human resources, quality control, productivity, supplier
selection and development.
• The failure of the distribution network to operate effectively is among the
problems for companies. It is stated that information and communication
technologies should be used for more efficient organization of logistics.
Integration into Global Supply Chains
One of the key elements affecting and strengthening the relationship
between export and productivity is the increase in the share of global value
chains in world trade. As the production process can be divided into different
steps, global value chains are spreading to different countries. The share of global
value chains in global added value has entered a period of stagnation following a
steady increase up until the 2008-2009 global financial crisis. It is observed that
protectionist tendencies are gaining power in developed countries. Nonetheless,
60-67% of the total world trade occurs in global value chains (The World Bank,
2017).
One of the primary ways of raising TFP at a company level is the integration
of the company into global value chains. Formal annual data collected from
companies in the Japanese manufacturing industry indicate that companies
which are integrated into global value chains are more productive compared
to those which only operate domestically. This difference in productivity is
independent of the scale, factor intensity and industry branches (Tomiura 2007).
Increases in productivity usually occur along with the trend of “progress in the
value chain” (upgrading) (Gereffi, 2001; Taymaz, 2016c). Such progress occurs on
four different dimensions:
1. By using their resources more effectively and efficiently, companies transition
from workshop production to mass production and from mass production to lean
and stockless production. While companies that only focus on the domestic market
do not consider transition to productivity enhancing practices such as automation

25
to be profitable, those companies that are able to expand their market thanks
to their integration into global supply chains are able to focus on productivity
enhancing investments (Gereffi, 2014).
2. Rather than manufacturing ordinary products, companies transition to
manufacturing more “sophisticated” products demanded by global buyers. Such
products are more complicated and require a high level of skill, better quality
inputs and effective quality management systems. The sophistication level of
these products can be measured by the unit value, labor efficiency or the content
of the required skills (roles).
3. Companies undertake different functions with higher added values in the value
chain (design, R&D, branding, marketing and distribution channels, etc.) including
the transformation of business models which was addressed in the previous sub-
section.
4. Companies begin to use the skills they developed in one value chain for the
value chain of another sector. Companies that transition from the automotive to
the defense industry, as recently observed in our country, are examples of this
trend (Beltramello, De Backer, and Moussiegt, 2012).
The effect of integration into global value chains at the companies’
productivity level are also related to the governance structure of the value
chain. The governance of the value chain determines how profits and risks are
distributed in the overall value chain. The profitability of a company is directly
related to the strength of the leading companies in the value chain that the
company is in (Gereffi, 2014). A significant portion of the power affecting the
value chains driven by the manufacturers is concentrated in the companies that
produce the final product. These value chains usually involve industries related
to capital, technology and information. A high level of obstacles are encountered
in entering these sectors due to economies of scale. In value chains guided by
purchasing companies, a significant portion of the power lies with retailers and
marketers as they are able to shape mass demand. The position of the company

26
in the value chain depends on the supplier selection of the primary company and
this selection depends on the structure of the market. In markets where the main
companies produce more revenue (where demand is flexible), there is an effect
of strengthening and transforming the subcontractors in the value chain, while
the opposite is observed in the markets where demand is not flexible (Antràs
and Chor 2013). Finally, it should be taken into account that some factors (price,
quality, early delivery pressures,etc) that may be considered as a problem for small
firms may be the result of large companies’ pursuit of productivity and the policy
response and the impact analysis must be designed for the overall value chain.
It is possible for companies to be integrated into the global value chain in
different intensities based on their attributes, capacities, goals and the
features of their business environment. Increasing the productivity levels of
companies depends on the improvement of their competencies. In today’s global
value chains, non-price factors such as quality, demand compliance and delivery
times become more important than competitive prices (Taglioni and Winkler,
2016). The following table shows the skills required for integration into global
value chains, the stages of integration, the purchasing side and the sales parties.
It can be stated that there is diversity of companies in the structure of the private
sector in Turkey, that range from the lowest to the highest level. It would be useful
to construct the TFP policy framework by taking into consideration the stages
and capability requirements in this context. In particular, organizations play a
central role in developing high value-added competencies such as research and
development.

27
Table 1: Stages and Required Capabilities in Value Chain Integration
Purchasing party
• Purchasing processes
between the primary
company and the supplier
becoming compatible
• Strong and systematic
relationships with
suppliers
• Strong and systematic
relationships with
technology / R&D
organizations
• Quality of inputs
• Improvement of the
capital intensity
• Research and
development for
implementation /
customization (for the use
of inputs in the product)
• Ensuring consistent
access to inputs
• Development of
investment capabilities
• Overcoming obstacles to
importing and purchasing
Stage of
integration into
the value chain
Level of
matured
interaction
Progressing in
the value chain
(upgrading)
Connecting to
the global value
chain, first
contact
The stage
before the
connection to
the global value
chain
Selling party
• Corporate capital becoming
the most fundamental
capability
• Becoming a leader in
research and development
• Becoming a brand with
global recognition
• Functional development,
the ability to leap into other
sectors
• Gaining intangible capital
capabilities
• Company management and
organizational skills
• Learning the conditions of
demand
• R&D for implementation,
product and process
development
• Effective use of agents and
interfaces
• Learning by imitation
• Overcoming obstacles to
exporting and international
sales
Source: Mariscal and Taglioni, 2017.

28
The core trends that are outlined above enabled the creation of a series
of hypotheses in the TFP Project, which have been tested through the TFP
Survey, face-to-face interviews and thematic workshops. Findings resulting
from these studies are outlined below:
• Companies supplying global firms make significant headway in technological
development. In interviews held as part of the project, it was observed that
a company’s level of internalization of the elements that are critical for the
performance of productivity such as lean production, quality processes, cost
accountingandaworkenvironmentthatdrivesmotivationdependsonthedepthof
the company’s interaction with the global firms. On the other hand, it is also easier
for companies that have passed the certification processes of global companies to
reach other networks and markets. Companies inspect their suppliers in line with
the demands from customers and accordingly, the quality of production processes
increases.
•Today,primarycompanies/customers/buyersadoptamoresystematicapproach
to the organization and management of the supply chains of companies so that the
required quality and rate of production can be maintained. There is a systematic
structure within the scope of both supplier selection and monitoring of suppliers’
performance and development of suppliers, especially in the automotive and white
goodssectors.Supplierselectionintheclothingindustryhasdisplayedasignificant
improvement led by foreign purchasing companies. There is vertical integration
and an associated supplier development in the automotive and white goods
sectors, while there is contract manufacturer development and the supervision of
contract manufacturers in the clothing and food industries, respectively.
• Consolidation tendency is prevalent in the management of the supply chain. In
general, 2-3 alternative suppliers have been identified in order to ensure supply
security in the examined sectors. In company interviews, there were predictions
that there would be a reduction in the number of suppliers in the automotive and
white goods sectors in coming years.
• More than half of the companies that participated in the TFP Survey intend to
maintain customer relations as they have in the past, while 26% indicated that

29
they would pursue new domestic customers. In this context, the second most
stated plan (9%) was the diversification of the goods that are sold to customers.
Approximately 10% of the companies stated that the target market of the company
would change (focus on exports, deal with large-scale customers, etc.).
• Of all the companies that participated in the TFP Survey, the ratio of those with
international connections aside from import and export activities was 21%. For
companies in the automotive and electrical appliance industries that have a direct
position in the supply chain of global companies (OEMs), this ratio was over 60%.
• Based on econometric analyses, large companies with international connections
that were engaged in R&D activities tended to have higher productivity and
stronger technology innovation.
• There was a strong positive correlation between entering international markets,
the availability of foreign capital in the ownership structure of the firm and
productivity performance.
• One of the methods preferred by the companies to improve their international
connections was to buy a foreign brand. There was a tendency in the clothing and
white goods industries, as well as a number of automotive companies, towards
branding by acquiring available foreign brands.
Access to information, R&D, Innovation and Technology Transfer
A company’s access to information and its ability to use information and
process and improve it for its production directly affects the productivity of
that company. While information and technology are considered to be external
factors in neoclassical growth theory (Solow, 1957); in today’s growth models,
information is now assessed to be an internal factor (Romer, 1990). It is difficult
to collect information in this area. Therefore, the required estimates are usually
acquired through information channels such as R&D, patents, use of information
technologies and personnel training. Furthermore, direct foreign investments are
now also considered as a channel of information transfer. In all these models, a

30
special role is attributed to innovation for maintaining technological advancement,
new products, production processes and the emergence of organizational changes
underline the impact of accelerating TFP (UNIDO, 2007). On the other hand,
companies’ access to information through infrastructure that provides speed
is necessary for their access to labor and raw material markets, acceleration of
their business processes, and the development of new consumer practices and
services. Businesses’ rapid access to the internet through broadband improves
factor productivity and contributes to growth (ITU, 2012)1
. Turkey is low on the
list of OECD countries2
in broadband internet access (OECD, 2017).
The following findings were obtained from the field studies, surveys and
workshops carried out within the scope of the TFV Project, on the relationship
between accessibility and innovation dynamics and productivity of companies in
the manufacturing industry in Turkey:
• Key information sources. Key information sources of companies vary
significantly depending on the sectors of the companies. In all sectors, feedback
from users/customers, open sources of information and trade fairs / overseas
trips appear to be the most common information sources. The main sources of
information for companies at the top of the supply chains of automotive and
electrical appliance industries were internal and intercompany R&D activities.
Information sources in the leading automotive and white goods companies were
R&D activities and foreign partners; design activities, global buyer companies and
personnel transfer in the clothing industry; and machinery producers, suppliers
of raw materials and preservatives and personnel transfer in the food sector.
Significant factors that could lead to a productivity gap between competitor
countries/firms include the higher scale of production of foreign competitors,
their higher levels of mechanization/automation, and their higher level of skills in
information and communication technologies.
• Innovation trends. More than half of the companies that participated in the
TFP Survey have had their trademarks registered, while 1/3 of them performed
The relationship between productivity and the companies’ broadband internet access, their website and use of social networks was found
to be inversely related in the TFP Survey. It is believed that this finding which contradicts the mainstream findings in this area should be
researched in more detail through other studies.
In the companies’ access to broadband internet, Turkey ranks 31st out of 35 countries and 29th out of 34 countries in the use of cloud
technology services.
2
1

31
product innovation. Nearly 1/5 of them have industrial design registrations and
patent applications. In a significant portion of the companies that renewed their
products, innovation covers only their own markets (72%), while it covers only the
company’s practices in a higher portion of companies (85%). Income generated
from new products created for the companies’ own markets corresponds to
approximately 1/4 of the total turnover, while income generated from products
which are new only for the companies themselves corresponds to approximately
1/5 of the total turnover3
.
• Process innovation. Of companies which performed process innovation,
approximately 1/3 applied new or improved manufacturing methods while 1/5
supported logistics, delivery and distribution methods.
• Reasons for not innovating. A majority the companies (83%) do not innovate
becausetherearenofactorsforcingthemtoinnovateandtheremainingcompanies
(17%) do not innovate because they encounter factors that prevent the innovation
action. The most cited reason for not innovating is the low demand in the market
for innovation.
• The relationship between productivity and innovation. The relationship
between productivity and innovation has been estimated in line with the model
created by the survey data. When only the variable of innovation is addressed,
the relationship between productivity and innovation is positive and statistically
significant. When the variables of layer and industry, in which the company
is involved, are also incorporated into the model, the correlation between
productivity and innovation shows no change. R&D activities have a strong impact
on innovation and productivity.
• The relationship between R&D and productivity. R&D activities appear to
greatly contribute to productivity and the tendency for technological innovation
in line with the model created by the survey data.
While questions related to innovation in the World Bank Business Survey for the Assessment Study on Regional Investment Climate and the
Total Factor Productivity surveys are conceptually based on similar hypotheses such as product and process innovation and innovation in
terms of the market, they differ from each other. Apart from asking if there is innovation, The World Bank survey requires the innovation to
be explained in an open-ended manner and the responses are filtered based on the content of these explanations.
3

32
• Methods of technology transfer. Firms do not produce the information that
are required for investment, production and innovation activities by themselves,
instead they try to obtain this information from various channels. When
technological information sources that firms benefit from such as design and
product development are examined, it is seen that technology transfer significantly
increases the productivity. It is concluded that companies that transfer know-how
and technology through channels such as “qualified senior executive/technical
personnel transfer”, “knowledge transfer from the primary company” and
“technology transfer via patent and license” are more productive. The use of open
information sources also provides a partially positive contribution to productivity.
Thecompaniestransferringknow-howandtechnologythroughtheemploymentof
qualified personnel and license agreements or directly from the primary company
are more productive, but this source of information fails to make companies more
innovative.
• Use of technology and productivity. Variables of technology use (embedded
software, cloud computing, the internet of things, large data, flexible automation,
smart robots, e-commerce, international digital payment, radio frequency
identification [RFID], new materials, three dimensional printers, etc.) have a
positive impact on productivity. The effect of “Broadband internet access” and
“Website/social networks” appears to be negative. It was found that companies
using information, material and e-commerce technologies are more innovative,
while those using MIS and the web (social networks) are less innovative.
• Reverse engineering. Companies obtaining knowledge and technology by
reverse engineering are less innovative. Companies pursuing a passive imitation
strategy fail to be technologically innovation.However,, for companies with low
capacity, passive imitation practices are a natural stage of development. active
policies, such as R&D and technology transfer, should be pursued by companies
for technological innovationat later stages.
In the thematic workshops held as part of the TFP Project, critical findings
on how the effectiveness of R&D expenses can be improved and particularly
on how commercialization processes can be accelerated were compiled. It
is mentioned that there are significant setbacks in commercialization and the
effective use of funds in our country, despite the recent rapid increase in R&D
spending. One of the main shortcomings in commercialization is not being able to
sufficiently identify/analyze market needs. Prioritization of capacity building for
R&D in the private sector from a productivity point of view is important. For this

33
purpose, elements such as the promotion of the key industry and sub-industry
for working on R&D and design, together with providing flexible conditions for
the setup of R&D centers and capacity development to calculate the effect of
intellectual capital on the assets of companies have been emphasized.
Intercompany Collaborations and Long-Term Customer Relations
As much as a company’s ability to maintain its position in the supply chain
depends on factors such as quality, speed and cost it is also related to its
ability to develop trust-based relationships with its customers. The healthy
development of relationships and collaborations with customers contributes to
the development of the company’s capacity in information management, better
acquisition of knowledge on demand dynamics and the customization of the
support functions of production and after-sales based on the specific needs of
the customers. The positive effects of the collaboration between the key industry
and sub-industry in areas such as product design and R&D on productivity and
innovation are known, particularly at the stage before a new product is launched
(OECD, 2015; Barajas et al. 2011).
As a result of the TFP Survey, company interviews and thematic workshops,
significant findings on the identification of the status of long-term customer
(LTC) relations in the manufacturing industry in our country and how
it effects productivity were obtained. These findings primarily focus on
the identification of the current state. In addition, key problems that limit the
strengthening of collaborations between companies, the effects on productivity
and solutions to improve them were also compiled. Key findings that shed light on
the current situation are outlined below:
• Weight of LTCs. LTCs have an average share of approximately 66% in the
turnover of companies. The sector with the highest share of income generated
from LTCs is the chemicals industry in the second category4
, with 78% of its
turnover generated from LTCs. Out of the companies in the third category, those in
the mineral/metal industry have the highest turnover share generated from LTCs
with a share of 71%.
While the companies within the top 100 industrial organizations in Turkey in the relevant sector are included in the first category in the TFP
Company Survey, companies in other categories are classified based on their supply chain relationships.
4

34
• Intercompany collaborations and areas of support. Approximately 81% of
companies do not receive any support from their customers. 7% of the companies
receivesupportfromtheirclientsontransportation/shipment,whileapproximately
5% receive know-how support on financing, compliance with environmental
standards, mutual input procurement, and market/demand conditions. A very
small portion of the companies receive support from their customers and these
supports can help to reduce costs. The most significant support providing these
benefits is mutual input financing. 29% of those who receive this support and
22% of those who receive financing support gain cost benefits. Those who receive
transportation support are able to lower their costs by 20%.
•Intersectoraldifferences.Thenumberoflong-term(2yearsormore)customers
asked for the purpose of identifying the companies in the supply chain is 95%.
Food industry companies in the second category have the highest number of long-
term customers with 242 customers. Mineral/metal industry companies in the
same category ranks second with 236 long-term customers on average, while
the wood products industry ranks third with 166 customers. Of the companies in
third place in the value chain, the industry with the highest number of long-term
customers is the food industry with 113 customers. The lowest number of long-
term customers was found to be in the machine industry in the third category with
75 long-term customers.
• Domestic and international distribution of LTCs. It has been observed that
the average number of long-term customers that the companies have in Turkey
constitutes 81% of all customers. It has been observed that the companies in the
second category of the value chain serve domestic customers to a greater extent
usually with a rate of over 90%. Turkish customer rates for companies in the third
category are lower. For example, in the food industry this rate can be as low as
72%.
Significant findings on the effects of the practices and trends in this area
have been compiled:
• Being part of a value chain has a positive impact on productivity and innovation.
In this context, the share of LTCs in turnover increases the productivity of
companies, however its effect on technological innovation is not positive nor

35
significant. Companies with an increasing number of LTCs in the last five years
are more productive than those with an unchanged number of LTCs and the latter
are more productive than those with a decreasing number of LTCs. The innovation
tendency of companies with an increasing number of LTCs is higher than those
in other groups, but the innovation tendency of companies with an unchanged
number of LTCs are lower than those with a decreasing number of LTCs.
• Companies with joint R&D and design activities with their customers have higher
productivity, and this effect remains to be valid in all models. Engaging in joint R&D
designs with customers has a positive impact on the tendency for technological
innovation, however it is ineffective in the model where all variables are included.
• The support provided by customers has a positive, but insignificant effect on
productivity. The effect on technological innovation is positive and statistically
significant, but this effect is lost when the variables of technologies, personnel
management and organizational structure are added to the innovation model.
• Joint projects executed with machinery manufacturers reflect positively on the
productivity of companies. It is observed that successful companies in the food
industry, in particular, carry out joint productivity projects with domestic and/or
foreign companies manufacturing machinery equipment.
Finally, key problems and future expectations in this area are outlined below
under four headings:
• Key problems. One of the most frequently mentioned problems with customers
is the irregularity of payments. Around 71% of companies complained about
this issue. There are no significant differences between industries on this matter.
The second problem that companies face most frequently with their customers
is the pressure on prices from customers, with an rate of 51%. The third most
common problem with customers are the time challenges caused by the orders.
The companies that stated that their productivity is high compared to their global
competitors, responded only to the problem areas (33%) over the percentage
of all firms (39%). 32% of the companies indicated receiving orders in very
small batches as the fourth biggest problem. The fifth most significant problem
experienced with customers (28%) were the disruptions in the information flow.

36
• Becoming transparent. Enabling transparency for the improvement of trust
between companies is emphasized. While the most important problems faced in
the development of intercompany relationships used to be related to logistics and
infrastructure,today,themostsignificantproblemwasidentifiedtobetransparency.
An open line of communication between suppliers, logistics companies and the
primary company and software including effective Enterprise Resource Planning
(ERP) systems and end-to-end solutions have gained importance. On the other
hand, processes with respect to the adoption of transparency can create concerns
with SMEs and businesses can have reservations on the openness of their internal
processes. It is emphasized that the key role that the main industry will play in this
ecosystem is to create an environment where the main industry and sub-industry
can act together. At this point, the regulatory role of the state for the sharing and
protection of commercial/financial secrets is important.
Table 2:
Problems Encountered with Long-Term Customers
(percentage of the companies experiencing problems)
Productivity by global competitors
Total
Lower Higher
Nearly
similar
Irregularity of payments
Suppression of prices
Shortage of time for ordered goods
Very small lots of ordered goods
Disruptions in information flow
Failure to comply with the contract
Failure to support supplier development
Frequent change of product specs
Failuretocommunicatemanufacturingscheduleintime
Failure to provide financial support
Lack of production capacity to meet customer
demand
Conflict in quality
81.4
46.4
30.1
32.6
24.7
26.8
26.3
12.5
19.4
17.3
3.6
5.2
70.4
55.2
33.0
34.2
34.0
26.4
20.6
24.2
27.6
22.9
10.7
9.8
56.3
50.9
39.1
27.4
19.4
18.7
18.2
16.1
21.7
12.5
9.0
5.6
70.7
51.3
32.8
32.0
27.6
23.8
20.8
18.5
18.2
18.2
7.9
7.1
NOTE: The companies who have not responded to the productivity.

37
• Turnover rate. The total customer turnover rate of the companies that
participated in the study is 44%. This indicates that an unstable relationship has
been built with customers. This rate reaches up to 60% for mineral/metal industry
companies in the second category, which is the highest rate in the table. The lowest
customer turnover rate is found to be 18%, which is in the chemicals industry. For
companies the third category of the value chain, the outlook of customer relations
is generally even more unstable.
• Future expectations. Companies mostly state that they will not change their
relationships with their suppliers in the future. The most prominent plan for the
future is that they will only work with new supplies that are better than their
existing ones. The second most frequently stated plan is the elimination of
unsatisfying suppliers and a reduction in the number of suppliers. The third plan
is the willingness of companies to give more importance to the development of
their institutional / organizational skills.
Use of Modern Manufacturing Techniques
The studies conducted to measure the productivity of the domestic
manufacturing industry reveal that the production methods adopted by
companies significantly affect corporate productivity. It is seen that companies
with higher productivity scores have developed lean production methods,
improved their employees multi-tasking duties and they often optimize corporate
workflows and production platforms as well as applying specific procedures to
evaluate the performance of employees (McKinsey, 2003). Although public policies
play a minor role in the adaptation of these methods, facilitating integration into
global supply and value chains and thus contributing to the adoption of these
aforementioned practices would significantly impact the effectiveness.
Findings from the TFP Survey, company interviews and thematic workshops
about the use of modern production methods and their impact on
effectiveness are summarized below:

38
• Standard operating procedures (SOP). The rate of companies that apply SOP
is 55%. This rate is far above the average in Tier 1 and Tier 25
companies but
quite below-average in Tier 3 companies. Almost half of the companies apply
SOP for frequently repeated out-of-production activities. The majority of Tier 3
companies do not apply SOP. Almost all of the companies that apply SOP organize
specific training programs for their employees before initiating new assignments.
•Settingtotalequipmenteffectivenesstargets(OEE).Thenumberofcompanies
that have specific targets for OEE is almost half of the sample group. This indicator
shows a similarity with that of SOP practices in terms of both sectoral practices
and multi-tier company classification. In other words, it can be said that companies
that implement the SOP have also set targets for equipment efficiency. The rate of
companies that carry out separate OEE monitoring processes for each equipment
is almost half of all companies. This means that around half of the companies take
necessary measures to improve OEE.
• Quality processes. Quality control processes are at most implemented for
each phase of the quality assurance process or each lot of production. When the
companies are evaluated according to their position in the sector, it is seen that
the quality processes are relatively effective in Tier 1 and Tier 2 companies, but
there are significant shortcomings in almost all of the sectors covered. During the
thematic workshops, it was stated that some companies obtain quality certificates
at low prices for only fulfilling requirements and thus, these certifications do not
reflect effectiveness.
• Kaizen system. It is seen that some companies, particularly those in the
automotive sector, integrate “Kaizen Value Systems” to corporate activities in
order to improve the production processes. Some companies take suggestions of
blue-collar employees into consideration and adopt specific strategies to structure
the production activities, while most of them apply traditional methods.
• Benchmarking and key performance indicators. Almost half of the companies
identify key performance indicators (KPI) for different stages of production
While the largest 100 industrial organizations in Turkey in the relevant sector are included in the TFP Company Survey as Tier 1 companies,
companies in other categories are classified based on their relationships with the supply chain.
5

39
processes. This rate is significantly higher for Tier 1 and Tier 2 companies than
Tier 3 organizations. Only a limited number of countries have “benchmark” values
related to productivity. These values are obtained through the major companies,
business customers/clients, staff transfers, “inventory values” in machine-
equipment installation, sector-based organizations and consulting firms. Cost
structure of production, partial productivity indicators, changeover time, turnover
rates and inventory costs are significant performance indicators monitored by
companies. On the other hand, raw material costs, compensation of employees
and energy costs are intensely monitored; while the production per employee,
capacity utilization rate, production per energy consumption, factory productivity
and production line productivity values are often used as partial productivity
indicators.
• Productivity measurement trends. Measurement and evaluation activities
relatedtoproductivitylevelsandgrowthinproductivityhavegainedwidecurrency
among companies. The leading companies, particularly those in the automotive
and white goods sectors, have developed productivity measurement systems and
necessary policies, and ensured significant improvement in productivity through
post-measurement precautions. It is also seen that the productivity measurement
and evaluation activities have been initiated based on the demands of major
companies or global business customers and affiliations of large-sized holding
companies often perform more intense and comprehensive productivity studies.
On the other hand, especially in the food and clothing sectors, we see large-scale
and branded production but efforts and intentions to perform productivity studies
are still in its early stages.
• Consulting for studies. Companies receiving consulting services for
productivity studies are increasing day by day. Particularly the major companies
in the automotive and white goods sectors often try to improve productivity
levels through corporate activities carried out by their own employees and only
temporarily contracting external consulting services. However, the productivity
studies in the clothing and food sectors are generally conducted with external
support.

40
• Basic skills. Companies that have already overcome deficiencies in terms of
basic production skills often focus on innovation. That is to say that a company
with high turnover rates does not intend to take innovation a priority. Low levels of
innovation show significant ongoing deficiencies in basic production capabilities.
Company Management Quality and Institutionalization
Studies using microdata collected at the company level reveal that
management quality is a significant actor in explaining in-country and
intercountry differences of productivity. Company management practices
include how they monitor internal issues; how they achieve the best performance
from employees; and to what extent they can evaluate and turn results into
measures. These tools, processes and systems integrates new information
containing the company’s optimal methods and technologies with the capabilities
of human resource management, ultimately contributing to the company’s
productivity.
In the World Management Survey that questions basic management practices,
situation of Turkey can be reviewed in comparison to other countries. During the
period of 2013-2014,
• Turkey ranked 21st out of 35 countries in terms of quality of management
practices. A management quality score of 2.7 on a five-point scale obtained by
manufacturing companies in our country indicates a mediocre performance.
• As a method of surveying, this study makes comparisons between the actual
values and those provided by managers and thus evaluates “overconfidence” levels
of managers. Deviation from actual values may lead managers to be resistant to
innovation and incompetent in the pursuit of improvement (Del Carpio and Taşkın,
2016).
• There is a positive and statistically significant relationship between the added
value based on labor time and the quality of management in manufacturing sub-
sectors (ibid).
• Transnational companies have a higher quality of management than local
organizations and family-owned or private companies are superior to other types
of companies in these term. Managers of companies that are better managed

41
often have more authority in significant processes such as recruitment, sales and
production and employees (managers or non-managers) often have higher levels
of education (ibid).
Findings obtained through the TFP Survey, corporate interviews and
thematic workshops are summarized below:
• Holding affiliates. Within the scope of the TFP survey, 25% of the firms in
the sample are affiliates of the holding. This rate is observed to be quite high in
Tier 16
companies in the relevant value chain and decreases in lower tiers. The
highest rate of holding affiliates belongs to the homeware sector with 86% among
Tier 1 companies. On the other hand, holding affiliates among Tier 3 companies
in the machine industry have the lowest rate with 21%. It is observed that in
cases where holdings have affiliates in multiple sector companies inter-sectoral
training and knowledge and information transfer is undertaken. For instance; a
successful practice in the automotive sector can be adapted to electronics. Being
a part of a holding has a positive impact on every model in terms of productivity
and technological innovation. However; as new variables are added to the
measurement processes, this impact weakens and loses its significance.
• Institutionalization. Around 20% of family-owned companies have entered
into the process of institutionalization. Moreover, the rate of companies which
have developed internal organization units is 19%. There are also companies that
have performed minor, mainly geographical changes and structural modifications.
As another indicator of institutionalization, the rate of companies which have
appointed owners’ relatives in executive positions is around 32%. In this context,
the lowest rates (8% and 13%) belong to companies in the automotive and
homeware sectors, respectively. However, for main industrial food (39%), textile
and ready-made clothing (57%) companies, this rate is much higher. For almost all
Tier 2 companies, this rate is far above the average.
• Family businesses. It is observed that the rate of family-owned businesses is
higher among Tier 1 and Tier 2 companies. The general rate of family businesses
was calculated to be approximately 29% of the sample. Among them, the highest
rates of family businesses belong to food and textile and ready-made clothing
6

42
industries. The lowest family business rate, however, is observed in Tier 3
companies of the wood product industry.
• Transition to the second generation. In a significant number of sectors
and regions, industrial companies are in a transition process to the second
generation. It has been observed that the companies that successfully manage this
transformation process have also experienced a change in their business models,
moving towards the higher levels or areas of added value in relevant value chains.
Managers of the second generation are more inclined to implement mentoring,
coaching, clustering and similar other services compared to older generation. The
positive impacts of the transition process to the second generation is substantially
associated with the skills of this new generation. Monitoring and support activities
toward this transition in family businesses, which have a significant place among
SMEs, would be beneficial. It is also thought that facilitating this transition process
with effective tools such as coaching, mentoring and consulting would contribute
to national competitiveness.
• Strategic planning. Around 65% of the companies perform regular strategic
planning activities. Strategic plans are generally drawn up with the participation
of employees and the implementation process is monitored and evaluated.
• Advantages of family businesses. In comparison with companies managed
by a completely professional team, family businesses have certain advantages.
For instance, when family businesses go through difficult times, family members
may sacrifice their own assets to improve the situation. However; this cannot be
expected even from the CEO of a corporate organization. The spirit of a company’s
foundation process should be preserved during the transfer of the business to
the second generation and the “clawing our way to the top” story should be well
communicated. In addition to this, it is often mentioned that managers from the
new generation are more inclined to set corporate rules, although they are not as
challenging as the founding generation. Therefore, it is important to facilitate this
transition process with “coaching” services.
• Institutionalization and resilience. Most institutionalization instruments aim
at stabilization and standardization of processes. On the other hand, we witness
significant changes in these processes due to technological advances. During this

43
transition period, companies, particularly family business, have to be resilient and
prevent transforming into “bureaucratic kingdoms”.
• Impact of different practices on productivity. Productivity of companies
that have changed their organizational structures and established performance
management systems is relatively high, but this effect is weak. Productivity of
companies implementing flexible labor policies, performance based reward
systems and Key Performance Indicators (KPI) is found to be lower compared to
the others. The tendency of companies that have established quality control and
performance systems, changed their organizational structures and implement
KPIs into technological innovation is relatively high. Flexible labor policies also
have a negative effect on technological innovation as well as on productivity.
Companies that have Management Information Systems are found to be more
productive but less innovative.
• Digitalization. Information technologies affect all operations, behaviors,
workflowsandprocessesinacompany,includingrelations(i)insidetheinstitution,
(ii) with suppliers and (iii) with customers. Significant IT breakthroughs must
be supported by organizational change. Information technologies, on one hand
require technological maintenance for machines and software programs together
with a change in culture among individuals who use this machinery and software.
Accordingly, it is necessary to organize regular training programs, use the systems
efficiently and evaluate the data obtained through these systems. However, the
human factor is always a determinant in the process regardless of the extent of
the digital transformation and advancement in artificial intelligence applications.
Information tools and systems can only ensure an increase in productivity when
considered alongside corporate transformation and the quality of management
and human resources.
Labor Productivity and Human Resources Practices
The quality of people is a significant factor in corporate functioning such
as the operation of production tools, corporate decision-making processes,
innovation and the delivery of goods and services to end users. A study
that compares findings of a research about work and education experiences of
citizens of Denmark between 1980 and 2001 and the data obtained by another

44
study examining added values at the corporate level for the1992-2001 period,
proves that human capital inputs have a significantly positive impact on corporate
outcomes (Fox and Smeets, 2011). In another study examining labor data of
26 different sectors in 5 countries between 1979 and 2000, it is suggested that
besides the certified education levels (high school, graduate degree etc.), in-
service training programs and practical experience (human capital) also have a
significantly positive impact on corporate outcomes (Mason and Vecchi, 2012).
Findings obtained through the TFP Survey, corporate interviews and
thematic workshops are summarized below:
• Rate of white-collar employees and their productivity levels. The rate of
white collar employees, which is an indicator of quality concentration, is 20%.
The highest rate in number of white-collar employees belong to the automotive
industry with 36%, which is considered as a Tier 17
sector. In the main food
industry and among Tier 2 companies, the rate of white-collar employees is around
32%. It is followed by the wood products industry with 30%. Companies with
higher rates of white-collar employees often have higher averages of productivity.
The worker to white-collar worker ratio within a company has a positive impact
on productivit However, the rate of white-collar workers has limited effect on
technological innovations when R&D activities are excluded.
• Labor turnover rate. High labor turnover rates pose a significant issue
for companies. Only a limited number of companies among the interviewed
organizations have turnover rates around 2-2.5%. This rate is around 60% in
a large number of companies, which is far above the acceptable threshold. The
labor turnover rate is rather low in the automotive and white goods sectors, but
high in clothing and food industries. This rate is 30.6% for white-collar employees
and 34.6% for blue-collar employees. On the other hand, the labor turnover rate
of white-collar employees is relatively high in the food industry. This rate is also
higher in Tier 3 companies. It is noteworthy that the labor turnover rate in blue-
collar workers is higher in the wood product and textiles / ready-made clothing
sectors.
• Number of shifts. The average number of shifts the companies are running is
1.6. The highest number of shifts is being run in main industrial food companies
with an average of 2.7, while the number of shifts in main industrial textiles
7

45
and ready-made clothing companies with 1.7. Moreover, the number of shifts is
measured as 2.1 in electrical household appliances and motor vehicles industries.
In Tier 2 companies, the average number of shifts in most of the industries is 1.8.
On the other hand, the lowest number of shifts is seen in Tier 3 companies of wood
products and machinery industries with an average of 1.3.
• Human capital policies and labor productivity. Corporate and professional
organizations often perform well in human resources practices, such as career
opportunities and performance-based promotions. Many companies that fall
behind in terms of institutionalization also lack in consistent systematic human
capitalpolicies.Amajorityofcompaniesmonitorperformancelevelsofemployees.
Themostfrequentlyusedstrategiesbycompaniestoincreaselaborproductivityare
regular payment of wages, in-house training programs, non-wage social benefits
andsimilarothers.Theaforementionedfirsttwostrategiesstandoutamongothers
in all tiers of sectors and companies. The effect of personnel management and
organizational structure on productivity and technological innovation activities is
rather complicated. The companies prioritizing labor flexibility are often the non-
productive and less innovative ones. The companies employing quality control, KPI
and performance systems with transformed organizational structures are more
innovative. The productiveness of companies adopting rewarding and analogous
practices for KPI and personnel management is found to be lower on average. In
these companies, confidence precludes qualification in recruitment processes.
The productivity of companies, which adopts performance-based promotion
and rewarding practices in order to increase productivity of employees, is found
to be lower in average. This finding pointing to the contrary of the expectation
may result in inefficiency due to the fact that the personnel management systems
create excessive bureaucracy against the cost of implementation and reduce the
motivation as a result of its strict application. Another reason may be that the
classical methods have become invalid in todays world, which is shaped by the
transformations that technological advances have forced.
• Labor perceptions of businesses. The companies that participated into the
survey rated their employees 3.5 (medium-high) on a 5-point scale, in terms of
their knowledge / skills and motivation levels. Levels of knowledge / skills and
motivation of white-collar employees in all sectors were found to be slightly (on
a limited level) more positive compared to blue-collar workers. Satisfaction with
employees’ level of knowledge / skills and motivation is higher in companies
within the automotive sector than the other companies.

47
Studies conducted in different periods, different countries, and for different
purposes all indicate a number of factors that play significant roles in Total
Factor Productivity (TFP)8
. Use of technology, labor skills, management quality
of companies, investment environment, incentives that support innovation and
entrepreneurship, and ease of access to financing are among many different policy
areas that may play a role in increasing TFP levels. At the macro level, regulations
about both the factors that shape the macroeconomic conditions (policy
predictability, price stability, factor prices) and the regulations that affect the
markets in general (output markets, capital markets, labor markets, deregulation
of professional services) and horizontal policy areas such as human capital and
investment environment may significantly affect TFP trends. At the micro level, on
the other hand, we see a gap that can also be called a “black box” as both domestic
and international studies that examine corporate dynamics in terms of public
policies and responses are inadequate in their scope and frequency. The micro
level can be divided into three main elements:
• Production issues: Scale, capital intensity, production technology, machinery
and quality of equipment, quality of labor, level of capacity utilization
• Issues regarding the quality of management: Organizational structure, human
resources and performance management, cost accounting, cash flow management,
simple production techniques, quality standards, collaboration with suppliers
•Issuesregardingbusinessmodels,productandserviceinnovation:Diversification
of products and services, marketing, design skills, R&D and product development
competence, entrepreneurship and innovation
In order to respond to micro-level issues, countries generally have four main
policy areas:
• Improving the business environment: Infrastructure and improvement, higher
education system, vocational education system and development of labor skills,
free trade agreements, applicability of agreements
• Increasing the demand: Tax incentives, public procurement and naturalization,
regulations, consumer financing, branding
•Encouragingproduction:Transferanddisseminationoftechnology,directforeign
investments, capital support, supply ecosystem, import regulations, development
of industrial and technological areas
• Supporting innovation: R&D supports, university-industry cooperation,
facilitating dissemination of new technologies among companies, financial
incentives for support innovation, incentives for clustering activities
For a detailed literature review, please see: Isaksson, A., 2007, Determinants of Total Factor Productivity: A Literature Review, Research and
Statistics Branch Staff Working Paper 02/2007, United Nations Industrial Development Organization.
8

48
Which of the aforementioned main policy areas should be chosen as a
priority for the Eleventh Development Plan (2019-2023)? In order to answer
this question, a new policy framework has been created after synthesizing the
data obtained through the business survey developed within the scope of the
project; relevant literature review and analysis of foreign good practices; thematic
workshops and studies with value chains; and face-to-face interviews with
decision makers and stakeholders.
According to the results of the business survey, companies consider external
factors such as financing problems, unexpected downsizes/fluctuations in
foreign markets and labor quality, as the most significant factors hindering the
growth of productivity, followed by machinery-equipment quality and supplier
incompetency. Considering these results as a whole, a considerable portion of
Turkish companies appear to attempt to gain competitiveness through cost
reducing passive strategies such as labor flexibility, supplier price repression, etc.
On the other hand, more productive companies pursue active strategies such as
building long-term relationships, utilizing collaborative R&D and design activities
and implementing technological innovation. These findings indicate that there is
a need for enforced regulations and incentive mechanisms regarding companies’
adoption of active strategies in order to increase the productivity in manufacturing
industry.
Synthesis of non-survey studies reveals a set of critical implications that may
shape the policy framework design:
• According to the Germany and South Korea cases that were examined in terms of
background research, it is seen that practices in Turkey do not suffice to increase
TFP. Furthermore, compared to these two countries, three main deficiencies
can be emphasized regarding public policies in Turkey: (i) a perspective to
assess companies in terms of their productivity performance; (ii) an effective
implementation capacity to selectively choose between better and worse firms,
innovative and not innovative entrepreneurs,; (iii) and the willingness to assess
the effects of policy implementations on companies (Çağlar, 2017).
• The main reason for the productivity gap in comparison to competitor countries/
companies can be explained as differences in product ranges and business models.
Today, companies with new business models that integrate new technologies

49
increase their competitiveness through platform revolution, industry-service
integration, selling outcomes rather than products and other similar methods.
According to the companies’ statements, competitive foreign organizations
with higher productivity performances have (i) higher production scales, (ii)
higher mechanization/automation levels, (iii) better skills in information and
communication technologies, (iv) better capacity to employ more innovative
employees and (v) different business models.
• Supporting companies’ integration into global value chains is one of the main
methods to increase productivity and to reduce the gap between large and small
points. On the other hand, manufacturing/assembly operations become the lowest
value-added stages in value chains while some other issues such as identifying
unsatisfied global needs; developing concepts regarding these needs, performing
laboratory experiments; creating prototypes; performing international market
research and studies; improving concepts in line with the results from feedback
studies; creating, testing and developing functional products/prototypes’
performing engineering processes; investing in and promoting small-scale
production activities and ensuring their place in the market; establishing
distribution networks; and providing supplementary services stand out as
important higher value-added stages in the value chain (Figure 2).
Product’s
share
in
total
value
R&D
21th century value chain
1970’s value chain
Pre-manuf. Post-manuf.
Manuf.
Design Parts manuf. Manuf. Assembly Marketing Embedded srvsc
Figure 2: Stages of Value Chain and Distribution of Added Value, Manufacturing Industry in
the 1970s and 21st Century
Source: The World Bank (2017), “The Trouble in the Making? The future of manufacturing-led development”, World Bank
Policy Report, World Bank, Washington DC.

50
In line with the aforementioned findings and synthesis, a new policy framework
consisting of three main components, which are based on the approach that aims
to increase Turkey’s high-value-added industrial product exports, are offered for
the Eleventh Plan (2019-2023) with a view to increasing TFP’s contribution to the
economic growth:
(i) The first policy level consists of horizontal policies and includes an approach
that aims to increase productivity regardless of technology, sector and region.
Policies at this level mainly focus on companies that are far from the borders of
technology.
(ii) The second policy level is composed of vertical policies and includes
interventions that require selectiveness and focus on specific sectors, technologies
and regions. Policies at this level mainly focus on companies that are essentially
close to the global borders of technology.
(iii) The third plane includes the outline and principles of a new implementation
approach to the implementation of policies towards TFV.
The proposed policy framework includes recommendations that aim to ensure
the facilitation of interventions to public authorities and focusing the issues that
are identified as effective for TFP at a micro level and discussed in the second part
of this report. The factors which are expected to explain TFP differences among
companies may vary based on the period and perspective of analyses. However,
it is possible to say that seven main issues, which are discussed in the first part
of the report and mentioned as Determinants of Productivity in the Turkish
Manufacturing Industry, stand out among others within the conditions under
which the domestic manufacturing industry operates:
• Business models: Positioning in value chains
• Integration into global supply chains
• Access to information, innovation and transfer of technology
• Intercompany collaborations and long-term customer relationships
• Use of modern manufacturing techniques
• Company management quality and institutionalization
• Labor productivity and human resources practices

51
The seven fundamental policy titles mentioned in this part of the report are
expected to systematically accelerate the transformation of these TFP elements.
Each of these seven titles should be implemented in such a way that they are not
only accelerating a single factor, but multiple factors. As presented in the figure
below (Figure 3), each policy response has the potential to transform the relevant
components, either directly or indirectly.
Due to the aforementioned holistic and systematic approach, it is inevitable that
the proposed framework will create a more comprehensive set of policies toward
economic development. This is because, increases in TFP is the most fundamental
variable that can explain the differences in economic development between
countries that occur within the long term.
It is suggested that the policy bundles that consist of different tools included in
this tripartite framework be built upon value changes and specific technologies
and regions.
Figure 3: Relationship Between Determinants of Policy Priorities and Total Factor Productivity
Interfaces for state
intervention in leading
and leading candidate
firms
TFP
Enhancing
management quality
in firms
Improving marketing and
network capabilities,
strengthening the perception
of Turkish technology
Strenghening and
diversification of
financial support
mechanism
Facilitating
exits from
the market Accelerating
digitalization
Making
localization agenda
productivity-driven
Use of modern
manufacturing
techniques
Labor productivity
and human resource
application
Access to
information,
innovation and transfer
of technology
Intercompany
collaborations and
long-term customer
relationships
Integration into
global supply
chains
Business models:
positioning in
value chain
Company
managemet quality and
institutionalization

52
The scope of the policy framework proposed by this document is determined by
the following:
• The policy framework essentially focuses on the manufacturing industry
and includes software, design, marketing, e-commerce issues that are closely
associated with the performance of the sector.
• However, a number of issues that are actually critical for TFP have been
excluded so as to preserve the focus point and priorities of the document. These
include energy efficiency, labor productivity, productivity of the public sector,
and effectiveness of market regulations. There are comprehensive strategies and
action plans regarding most of these issues.
• The proposed TFP policy framework is targeted at all companies but provides a
special sub-framework for those that have a potential of growth and make efforts
toward growing, regardless of the scale of organization. The suggested policies
should be considered according to the extent organizations can benefit them not
the definitions of SMEs or large-scale companies determined by legislations based
on number of employees and financial turnover. In this regard, it is important to
support companies that can progress toward productivity and perform necessary
activities to achieve it.
Germany and South Korea cases were examined within the scope of the TFP project.
According to this, at the macro level, the policy frameworks of these countries are
summarized below.
Germany’s approach: To indirectly support global leaders by creating a competitive
environment
Germany’s TFP framework:
i. Government subsidies that aim to increase innovation capacities
ii. Regulations toward the labor market
iii. A vocational education system
Korea’s approach: Enhancing national technological capacities to ensure a rapid
convergence; strengthening large companies and technology entrepreneurs through
efficient public responses
Korea’s TFP framework:
i. Policies that aim to improve the technology ecosystem
ii. Incentives to strengthen innovative entrepreneurship and SMEs
iii. Human resource development and vocational education
iv. Increasing competitiveness and integration into global economic environment
Source: Çağlar (2017)
Box 1: TFP Policy Framework: Germany and South Korea Cases

53
Three horizontal policies that are critical in the near future for the performance of
the manufacturing industry to come into prominence as a result of the synthesis of
all tasks carried out within the scope of the project that aim to increase TFP levels:
(i) Digitalization: E-commerce, cloud computing, infrastructures, development of
software sector for manufacturing industry
(ii) Institutionalization: Quality of management, organizational problems,
production quality processes
(iii) Effectiveness of regulations about exit from markets: Prevention of resource
allocation to companies that do not perform well to increase productivity and
acceleration of exits from relevant markets while at the same time strengthening
necessary social support programs
Within the scope of this policy area, it is recommended to implement programs to
attract firms, sectors and regions that are left behind in terms of productivity. It is
also significant to develop certain approaches to create, improve and coordinate
strategic public responses within these programs that may directly affect increases
in TFP. Moreover, current company support mechanisms in these areas should
be reviewed from a productivity-based perspective and enhanced in terms of
productivity.
Accelerating Digitalization
It can be suggested that the role of digitalization in the future of industrial
productivity is going to be same as that of certain factors, such as energy and
transportation, in the past. It is also expected from new areas that integrate the
Internet of things, artificial intelligence, additive manufacturing and software and
data sciences like cloud computing to have a significant impact on productivity
in addition to providing benefits such as speed, quality and flexibility. Today, a
majority of countries in the world allocate resources to manufacturing projects
and apply research within the scope of “Industry 4.0” or “industrial digitalization”
givingprioritytocapacitybuildingforSMEsactivelyinvolvedinthisfieldofactivity.
According to the World Bank’s World Development Report 2016, Turkey ranks
28th among 173 countries in terms of digitalization level for the public. On the
other hand, Turkey ranks 51st according to the digitalization level of companies.

54
The World Economic Forum (WEF) forecasts that by 2025, machines will perform
more work tasks than humans, compared to 71% being performed by humans
today (WEF, 2018). On the other hand, the awareness of corporate digitalization is
increasing and both public and private sectors at the national level are preparing
to set a course towards digitalization. Digitalization is expected to be a significant
indicator of growth within the scope of the Eleventh Development Plan. Therefore,
looking through the TFP perspective, digitalization comes first among the most
critical horizontal policy areas.
Today, the Internet facilitates access to global markets for local companies and
allows dissemination of value chains to different countries. In the near future, by
2020, the amount of e-commerce (B2B) within the global economy is expected to
reach 6.7 trillion USD (Frost and Sullivan, 2015). E-export systems solve problems
of a lack of knowledge and confidence in traditional methods and significant
advances emerge in terms of rating, feedback, conflict resolution and payment
systems. E-commerce serves as a significant opportunity to ensure access to
overseas markets; improve competences by creating new marketing channels
between products and customers; provide access to markets through the use
of internet technologies by design and information intensive products and thus
encourage online and open innovation platforms. To realize the potential of this
opportunity, policy makers need to proactively support e-commerce activities and
remove the obstacles that are encountered.
Increasing companies’ access to information optimizes management of supply
chains and costumer relations and therefore directly affects capital efficiency
and labor productivity. All these advances in the field of digitalization lead to a
decrease in operation costs in terms of the economy in general and have a potential
to contribute to the growth of TFP. However, in order to fulfill this potential and
manage the risks / negative aspects, labor skill levels should be increased, unfair
competition should be prevented through competition policies and individual
rights should be secured by ensuring accountability.
The agenda of digitalization can be divided into two sub-divisions. The first one is
to facilitate the dissemination of new technologies among companies. To ensure
this,necessarymeasuresshouldbetakentoincreasethelevelofdigitalization,such

55
as decreasing the cost, particularly of infrastructure services, while increasing the
quality. Another way to reduce the productivity gap between large and small-sized
companies is to decrease the digital gap between them. Secondly, it is important
to enhance capacity required for the production of new technologies. As for this
priority, the vertical policy measures, which were discussed in the second part,
can be taken.
According to the data from 2017, the Internet connection speed in Turkey is 7.6
mbps in general and with this value, the country ranks last among European
countries and 75th among 143 countries in the world (Akamai, 2017). The low
connection speed obstructs local cloud services and decreases the possibility that
the country will become a significant actor in global Internet trends.
On the other hand, according to the data of the International Federation of Robotic,
Turkey is at a level close to that of medium technology intensive countries with
about 7.000 robots as of October 2016. (Figure 4) However, in 2016, the numbers
of industrial robots put into use by South Korea and Germany was 38,000 and
20,000, respectively (IFR, 2017).
Figure 4: Number of Industrial Robots in Operation, October 2016
China
Thailand
Mexico
Brazil
India
Turkey
Malaysia
Indonesia
206171
14902
14308
9386
8953
3931
3206
6781
Source: International Federation of Robotics

56
Currently, there is only a limited amount of information and industry actors
in Turkey to accelerate the digital transformation of companies. Even in the
automotive sector, where the level of digitalization is rather high, the major
actors can only partially affect the suppliers’ levels of digitalization. In order to
perform fundamental plans, market research, as well as demand and technology
forecasting, suppliers should make more effective use of the digitalization process.
The number of leading players in the industries, which can drive and accelerate
digital evolution is limited because the development of most sectors is depend on
SMEs. The insufficiency of internal dynamics imposes Public Sector an accelerating
and transformer role in digitalization.
Public institutions need to implement multiple areas horizontally, undertake an
accelerating and facilitating role, ensure coordination among stakeholders and
use the current tools for these purposes, instead of focusing on a specific sector
or technology to improve dissemination of the digitalization movement, which
is a newly-emerging field. The alternative of facilitating companies through tax
incentives should be to provide the necessary infrastructure to help them reach
more customers. Accordingly, in addition to the corporate digitalization efforts,
synergies arising from the digital interaction between suppliers, customers, banks
and investors including the public sector should be used in an efficient way.
Priority#1:Increasingdigitalskillsofcompaniesandimprovingthesoftware
sector
Inordertodecreasethedigitalgapbetweencompanies,theyshouldbeencouraged
to use digital activities and public resources should be increase to improve the
digitalization skills of companies. Within this scope, capacity building processes
for information and content management (ERP, MRP), customer relations
management (CRM), communication and interaction, operational feasibility
(public sector, finance, e-commerce), problem solving with digital instruments,
and the creation of content that will increase customer/employee satisfaction
should be supported.
A new incentive tool should be developed to provide financial support for
digitalization and automation investments of companies and the emphasis should
be placed upon building tripartite project structures that assemble funding,
plaintiff and solution provider companies under the same roof. The projects
should not only focus on selling technologies but include other different factors
such as services to be used permanently for operation and maintenance activities.
In this regard, relatively long-term engagements should be supported and solution

57
provider companies, particularly those in the software industry, should be allowed
in terms of development.
Necessary incentives should be increased to encourage companies to engage in
online activities and the cooperation between chambers, development agencies,
municipalities, non-governmental organizations and large-scale technology
companies should be enhanced by increasing the number of effective local
initiatives.
Capacity building training programs should be organized to increase digital
skills and quality and quantity of the technical labor force who can utilize the
opportunities provided by digital economies. It is also important to increase basic
information literacy and concentrate on information-related topics in life-long
learning programs.
Active investment promotions should be made to attract global actors of the
information technologies sector in Turkey so as to take a share of high-value added
global value chains and technology development areas and organized industrial
zones should be authorized for this purpose.
Priority #2: Improving digital infrastructure
In line with the planned cost-benefit analyses, the aim should be to increase
broadband Internet access and speed and the use of broadband services should be
extended. Moreover, it should be aimed to place Turkey9
among the top ten OECD
countries with its performance in relevant fields and a robust policy target should
be adopted to decrease the costs.
The national broadband strategy should be implemented to extend necessary
infrastructure; competitiveness in new generation and large-scale broadband
infrastructure investments should be increased; and the private sector should be
encouraged in this regard through taxation regulations that stimulate the demand.
Each company in selected organized industrial zones should be provided with
access to fiber Internet services (in accordance with the top values in the OECD
ranking) and pilot areas should be determined to monitor and document the
impact of high-speed Internet access on competitiveness. In addition to the results
of the pilot project, necessary decisions should be made in line with the relevant
cost-benefit analysis.
For OECD statistics about broadband Internet speeds, companies’ access to and use of Internet services, please see:
http://bit.ly/2p6UY7p
9

58
Priority #3: Improvement in e-commerce capacity
To achieve the target to make Turkey both a hub of production and e-commerce
in the region, the e-commerce strategy should be put into effect and the overseas
expansion of Turkish products and services should be accelerated through
e-commerce initiatives. In order to increase the access of SMEs to foreign markets
via e-commerce, the current support framework should be enhanced and the
capacity to develop customer, logistics and payment systems should be increased,
particularly for B2C businesses.
A program should be developed to meet the costs of logistics centers, which is
particularly common infrastructure, and to cover part of the logistics costs in
international e-commerce shipments while not breaching the World Trade
Organization rules.
By giving the companies that export via e-commerce a certain status, facilitating
regulationsinthecustomsandlogisticsprocessesofB2Csalesoftheseenterprises.
Programs need to be developed to provide entrepreneurs with knowledge in this
field through e-export training and support programs at universities, chambers of
commerce and KOSGEB.
Fore-commercestores,trainingprogramsshouldbepreparedtoenablecompanies
that decide to start e-commerce or want to become members of existing external
platforms such as Amazon, eBay, Alibaba, should be organized in order to increase
their capacity to use software and to organize in these networks. Support should
be given to companies that wish to establish new e-commerce platforms as well
as those operating existing platforms to assist with design, software, marketing,
translations into the languages of countries where sales will be made and
compliance to payment systems, etc.
Support should be given also to the offices and information centers as well as
distribution centers being established abroad by the companies, and logistics
possibilities of e-exporters should be enhanced.
Platforms and programs supporting e-export should be created to gather all
departments within the sector, such as logistics, payment systems, location
and content providers in addition to individual e-commerce players, under the

59
same roof. E-commerce collaborations should be therefore encouraged, and a
progress should be made in a manner to compete with international networks of
competitors by improving economies of scale and learning between stakeholders.
Priority #4: Extending cloud computing
The target of “making Turkey the regional data center and extending cloud
computing” stipulated in the Information Society Strategy should be prioritized.
Companies should increase their use of cloud computing. This should be aimed at
enhancing the quantity and quality of enterprises that develop original practices
in this area. Specific support should be given to accelerator programs to enhance
cloud computing enterprises within the scope of incubation support programs.
A campaign on the advantages of cloud computing should be organized under the
control of SMEs.
Inordertoeliminatecompanies’concernsregardingcybersecurity,legalmeasures
should be taken where needed by cloud computing service providers for data
safety in line with European Union legislation.

60
USA
Germany
Sweden
Japan
Canada
France
Australia
Great
Britain
Singapore
Italy
Mexico
Poland
New
Zeland
North
Ireland
Portugal
Irland
Spain
TURKEY
Chile
Greece
Argentina
Brazil
China
Vietnam
Colombia
Kenya
India
Nigeria
Nicaragua
Myanmar
Zambia
Tanzania
Gana
Ethiopia
Mozambique
Enhancing Management Quality in Firms
Studiesusingmicrodatacollectedatacompanylevelrevealthatmanagement
quality is a significant actor in explaining in-country and intercountry
differences of productivity. Company management practices include how they
monitor internal issues; how they achieve the best performance from employees;
and to what extent they can evaluate and turn results into measures. These tools,
processes and systems integrates new information containing the company’s
optimal methods and technologies with the capabilities of human resource
management, ultimately contributing to the company’s productivity. Adoption
of examples of successful management practices by companies lowers the
productivity difference between them and global leaders within their industries
and contributes to enhancing productivity in the overall economy (OECD, 2015).
IntheWorldManagementSurveythatquestionsbasicmanagementpractices,
situation of Turkey can be reviewed in comparison to other countries.
During the period of 2013-2014, Turkey ranked 21st out of 35 countries in terms
of quality of management practices. A management quality score of 2.7 on a five-
point scale obtained by manufacturing companies in our country indicates a
mediocre performance.
Figure 5: Average Management Quality Scores for Manufacturing Firms (on a scale from 1 to 5), 2014
Source: LSE Center for Economic Performance World Management Survey, 2013-14
1,0
2,0
3,0
1,5
2,5
3,5

61
Considering the history of the last 30 years of industry growth in Turkey, a
generational change can be observed in the management of the industrial
companies that contributed to this growth. In order to ensure this generational
transition has a positive influence on companies and to guarantee sustainability of
the companies, an institutional transformation is required. It has been observed
that the companies that successfully manage this transformation process have also
experiencedachangeintheirbusinessmodels,movingtowardsthehigherlevelsor
areas of added value in relevant value chains. It is seen that the second generation
of managers are more inclined to utilize new technology and applications. In this
respect, it is important to support the transition to the second generation or even
to the third generation with correct mechanisms.
Looking at sources of technological information that companies benefit from,
including design and product development, the transfer of knowledge, through
the relationships they establish with the main companies who they supply within
the value chain, increases productivity. Companies using methods such as transfer
of qualified senior manager / technical staff, transfer of information from the
parent company for ensuring manufacturing standards, transfer of information
via patents and licenses make positive contributions to their productivities.
Itisimportantforcompaniestoattractqualifiedhumancapitalandtocontributeto
thecompany’sperformancewithcorrectpoliciestoenableinputanddissemination
of new information within the company. The companies should be able to access
qualified consultancy services so that information on corporate approaches and
systems to help develop and manage the skills of human capital is obtained.
Management quality is pertinent to the management of manufacturing processes
as well as pre- and post-manufacturing phases of value chain such as R&D, design
and marketing. It is important and necessary to establish minimum bureaucratic
processes such as operating management systems and defining processes and
roles. However, there are two critical aspects regarding R&D, design and marketing
phases which have a particularly higher added value in the value chain. The first is
the social aspect of institutionalization. Social/behavioral management practices
increasing the transfer of information and creativity should be improved both
between units/employees within the company and between companies. The
second aspect is the risk-taking ability in line with medium to long-term visions.
Companies should be aware of technological transformation that impacts business
models in a destructive manner and develop their medium to long-term visions to
take advantage of opportunities arising from this transformation. Moreover, they
require a business environment where they will not hesitate to take risks to invest
in such visions.

62
Priority #5: Accelerating Quality and Innovation Movement
Beginning as a private sector initiative in our country, the quality movement
raised awareness about understanding the importance of quality required for
the companies to compete in the European market during the early years after
Turkey signed the Customs Union Agreement. The quality movement should
be accelerated and this acceleration should be reinforced with an innovation
movement that takes the potential structural transformation within the industry
into account and is aimed at increasing global competitive advantages.
The quality and innovation movement should aim not only to increase companies’
motivation to export by improving their management practices and innovation
skills, but also to raise public awareness about the manufacturing industry and
create pride for Turkish goods and Turkish technology.
The main performance indicators of the quality and innovation movement
are prevalence, inclusiveness and appropriation of the movement. Within this
scope, firstly the government, and then employers and employees, universities
and scientific institutions, relevant civil society organizations, professional
organizations, formal and informal educational institutions, and the media/
press should be actively involved in this movement. The main factor ensuring the
sustainability of the quality and innovation movement is the fair distribution of the
gains and rewards among all stakeholders. The following horizontal elements to
improve the ecosystem, such as improving the quality of the working environment,
may be considered within the scope of a quality and innovation movement:
• Strengthening institutionalization
• Improving management skills
• Enhancing the understanding of strategic management and planning
• Extending the understanding of management in processes among manufacturing
industry enterprises in particular
• Promoting creativity by boosting employee motivation and participation
• Improving the business and investment environment
• Building the capacity of companies in terms of renewing their business models
• Raising awareness of problems and needs
Aprogramshouldbedevelopedforenhancingthequalityofworkingenvironments

63
at the OIZs. Within this scope, creative arrangements should be implemented to
meet the expectations of white and blue-collar employees employed in organized
industrial zones in order to find solutions to employees’ transportation problems
and increasing the quality of employee benefits such as nurseries. In particular,
the efforts to understand and fulfill the expectations of the new generation who
were born in the 1990s and who grew up with the internet should particularly
prioritized.
Programs should be prepared to bring the global knowledge into Turkey in
addition to activities such as rewarding the companies’ performance, sharing good
practices, etc. For instance, programs might be developed by collaborating with
universities to attract the international experts in technology towards Turkey for
6 to 12 months.Priority #6: Extending access to consultancy services.
Priority #6: Extending access to consultancy services
As part of government subsidies, expenses to be supported include those for
consultancy services. A detailed analysis of the current situation of the company
is carried out in cooperation with authorized consultancy firms as part of the
Turquality Program carried out by the Ministry of Trade, and road maps and
improvement projects are designed for brand development. The companies and
enterprises within the industry express that the scheme contributes to increasing
the export vision and capabilities of the company. “Experience of working with
consultants” obtained through such a scheme should be expanded.
Access of SMEs, operating in the manufacturing industry, to positive examples and
benchmarking mechanisms should be facilitated. Awareness of particularly small
business managers should be increased regarding technical efficiency gains in the
decisions of SMEs on manufacturing processes and markets. Moreover, expanding
good practices and outcomes across the industry should be accelerated through
a benchmark system to be offered to SMEs. It is an important requirement in this
regard that SMEs are provided with international and national databases as well
as benchmark indicators by public administration, universities and professional
organizations.
Manager development programs are also another activity conducted under
Turquality. Through trainings in collaboration with prominent universities for
the managers of companies receiving support, it is aimed that the companies stay

64
abreast of the latest developments and combine academic knowledge obtained
with business practices. The scale of manager development programs should be
extended beyond the Turquality Scheme to ensure cooperation with interested
companies.
A Human Capital Development Program should be created in the companies.
Through this program, projects to be prepared in partnership with consulting
firms, academic institutions and companies should be accepted. The program
should provide co-financing on capacity issues to be identified (e.g. in line with
functional or thematic issues such as marketing, supply chain management,
human resources management, teamwork, digital transformation, managing
intergenerational differences, improving working environments, etc.).
It should be ensured that academic staff in universities can provide consultancy
services without employment under temporary or flexible working conditions or
revolving fund contributions.
Another way for SMEs to access consultancy services is supplier development
programs conducted by large-scale enterprises. Through these programs, large
enterprises are develop the capacity of SMEs in line with their own manufacturing
goals, and provide the basic skills needed to integrate into global supply chains. On
the other hand, the TFP firm survey shows that the share of long-term customers
in turnover of enterprises increases productivity, yet their impact on technological
innovation is not positive or significant. This situation is considered to indicate the
problem of learning and information transfer from long term customers. In this
respect, there is a public interest in supporting supplier development programs.
In this framework, the general aim is to lower the cost of transformation required
for the SMEs to be able to integrate into global supply chains and specific objective
is to design a support program which is based on consultancy services to develop
quality of management and information transfer. It should be ensured that large-
scale enterprises apply to this program to be conducted by KOSGEB; however,
the beneficiaries of the program should be SMEs within supply chains of large
enterprises.
Facilitating Exits from the Market
While one way of increasing TFP is strengthening the dynamics within
the company (new technologies, operational efficiency, etc.), another way
is to improve the functioning of redistribution dynamics in the market. In

65
other words, separating inefficient companies from the market and allocating
the resources (capital, employment) to more productive companies, positively
contributes to TFP. One aspect of this process is what we call structural
transformation, i.e. increasing the share of high value-added industries and
activities while decreasing the share of relatively low value-added activities
within the economy. With the acceleration of urbanization especially in the last 50
years, the decrease in the weight of the agricultural sector in our country and the
increase in the share of the services and industrial sectors constitutes a significant
achievement of structural transformation. Another dimension of this process
is decreasing the share of relatively less productive companies and allocating
resources to more productive ones in every sector.
Easy exit from the market will increase productivity by accelerating the
creative destruction in the manufacturing industry. How a small number of
barriers to exit contributes to productivity in Asian countries is striking: When
companies that were unable to survive left the market in the 1990s, it positively
contributed to productivity by 19% in Taiwan, 23% in Korea and 39% in Indonesia.
In Turkey, market exits contributed to total productivity by 1.5% annually on
average between 1993-200010
. The contribution of net market penetration
dynamics on increased productivity was near-zero from 2004 to 2007 and 2%
between 2008 and 2011 on the contrary to a negative contribution of -2% in
the period 2012-201411
. Thus, policies that facilitate closing a firm / bankruptcy
should be followed to increase productivity in the manufacturing industry.
Factors such as withdrawal of direct foreign investments and supporting
innovative entrepreneurship ensure that high-efficiency companies enter
the market. The implementation of the processes that prevent the enforcement
of the bankruptcy system and the allocation of public supports to companies with
low productivity accelerate the exit process of non-productive firms from the
market. Turkey ranked 69th in the World Bank’s Ease of Doing Business Index
in 2017, and 126th under the topic of “Resolving Insolvency”. Ranking so low in
this area indicates that a series of steps to facilitate the processes exiting from the
market would have a positively impact on the increase in TFP.
The Ninth Development Plan, Industrial Policy Special Commission Report
World Bank Fact Sheet
10
11

66
Although bureaucratic obstacles in starting a business have decreased
throughreformsin2003,thereductioninthebarrierstomarketexitremains
insufficient. Closing down a company still takes much longer in Turkey compared
to many other countries. Looking at the indicators under the topic of “Resolving
Insolvency” in the World Bank’s Ease of Doing Business Index, the recovery rate is
38 cents in the European and Central Asian Region and only 18.5 cents in Turkey,
while it is 73 cents to the dollar in OECD countries. As for bankruptcy periods, the
OECD average is 1.7 years compared to 2.2 years in the European and Central Asian
Region and 4.5 years in our country. Due to difficult bankruptcy proceedings, many
unproductive companies in the industry continue to survive instead of pulling out
of the market to give way to more productive companies. This implies that a series
of steps regarding the speed and cost of bankruptcy processes could be evaluated
within the framework of the TFV policy framework.
In this context, some changes made to the Enforcement and Bankruptcy Law and
Turkish Commercial Code in early 2018 are critical to simplify and accelerate the
liquidation processes.
Increasing the role of interface structures in the implementation of government
supports,whichistheapproachsuggestedasthethirdaxisofthepolicyframework,
will contribute to making exit dynamics healthier through the allocation of less
public resources to companies that have limited / unaffected performance.
Priority #7: Facilitating exits from the market
Itisimportanttomakenecessarylegislativechangesinordertosolvetheproblems
arising from the “suspension of bankruptcy” system and to ensure criminal and
civil liability to those exploiting this system.
Work to identify, develop and implement the standards for the audit procedures
of the enforcement offices should be finalized by increasing the capacity of
“Department of Execution and Bankruptcy Services” established in 2013 within
the Ministry of Justice.
In addition, regarding the facilitation of market exits, it is of great importance
to increase the number of judges and justice personnel; regulate the ethical

67
principles of the members of the judiciary with respect to the universal criteria;
accelerate the judicial process, increase accessibility to the judiciary; improve the
mechanism of enforcement offices and referral services; and increase the quality
of legal education and training.
2. Perfecting the ecosystems of enterprises with global
competitiveness targets
The manufacturing industry has transformed from a low-technology structure
to a mid-technology one, and the acceleration of its transformation into a high-
technology structure will speed up productivity gains. Increasing the share of
highly productive companies within the industry structure depends on making
technology and innovation ecosystems favorable for such transformation.
Important steps have been taken accordingly in recent years; in particular, the
share of R&D activities in the national income exceeded 1% and the number of
R&D staff exceeded 122 thousand. The share of the private sector, of which R&D
expenditures corresponded to only 20% in the 1990s, has reached 50%. Recently,
critical changes have also been made to incentive systems. Some of our steps
in this regard are: realizing the concept of “Strategic Investment”, which has
integrated the objective of high added value as a “measured criterion” into our
country’s investment incentive system for the first time; clearing the way for fields
of high-technology identified by the OECD to be listed under priority investments
and benefit from 5th Region investment supports and for fields of Medium-High
technology investments (machine equipment, chemicals, motor vehicles) from
4th Region investment supports; and introducing the “Project Based Incentive
System”,whichwasdesignedtomaterializeinvestmentsintheareasofthenational
economy where they are much needed and which constitute a milestone for our
investment incentive policies.
Despitesuchefforts,therearestillalimitednumberofsuccessstoriesthatarebased
on innovation and/or high technology in our production structure and exports.
The rate of high technology exports in OECD countries is 20% whereas it is 2%
in Turkey12
. In terms of efficiency levels, our leaders and leading companies need
to (i) increase their scale, (ii) increase their market share in global competition
Data source: The World Bank’s World Development Indicators;
https://data.worldbank.org/indicator/TX.VAL.TECH.MF.ZS?locations=TR-OE
12

68
and, (iii) open up new markets. It is important that the number of such companies
increases and their value/supply chains are reinforced. In line with this target, a
perspective and set of policies are needed to perfect the elements of ecosystem
that contain the companies with growth potential and intention to grow.
The common feature of the policies to be implemented in this area should be
selectivity. Resources to be allocated within the scope of these policies should not
be distributed equally across the private sector but should be directed towards the
areas with objective/mission oriented and with the highest potential of increasing
their productivity and having a positive influence on the overall economy. Priority
areas to be selected should be clarified as a result of the Eleventh Development
Plan preparations. The following should be taken into consideration during the
selection phase:
• Public procurement. Areas where public procurement can be utilized and
which are open for improvement within the world economy could be prioritized.
The starting point may be areas such as health, energy and transportation that are
mentioned in the Tenth Development Plan. These areas can be elaborated on by
meansofanalyses,andlong-termroadmapscanbepreparedbytakingintoaccount
the perspective of productivity increase. It is important that local competencies
and demand remain at a certain level in the areas to be selected; however, the
perspectiveofglobalcompetitivenessmustbeajointprecondition.Targetingglobal
competitiveness is essential to ensure sustainability of productivity increases.
•Horizontalareas.Horizontalareasthatmightaccelerateincreasesinproductivity
in many sectors should be prioritized. Acceleration of competency acquisition in
general purpose technology areas such as material technologies, informatics and
robotics will have a positive impact on the overall increase in TFV in the economy.
• Intersection and implementation areas. Intersection areas of the sectors
and value chains should be prioritized. For instance, significant interactions may
take place between defense and medical, automotive and electronics, ready-
made clothing and furniture, and creative business models may be revealed as a
result of these interactions. By focusing on multidisciplinary and interdisciplinary
approaches, focusing on the high potential areas of specific technologies in our
country can accelerate the increase in TFV. Important areas of opportunity may
be defined that could influence the manufacturing industry with regards to smart
cities, education, agriculture, health, etc.

69
Within the scope of this policy area, it is discussed how implement a strategic
approach to improve ecosystems in critical technologies and sectors outlined
above. Recommendations are put forward for policy tools and priorities that may
be used accordingly.
During the implementation of said policies, it is foreseen that the interface
structures, which will be discussed in the last section, will assume important tasks
in the process leading from the field selection to the selection of companies.
Strengthening and Diversification of Financial Support
Mechanisms
While manufacturing companies in Turkey do not have significant difficulties in
accessing business capital, it is observed that there are significant restrictions in
accessinginvestmentcapital. Theunderlyingreasonareduetostructuralproblems
such as the low level of domestic savings and dependency on external funding.
In particular, current commercial banking services are insufficient for the long-
term and high-risk financing needs of innovative business models and initiatives
with high-tech enterprises. While many countries have the opportunity of publicly
supportedventurecapitalfundsforearly-stageventuresanddevelopmentbanking
for growth ventures, such tools are limited in Turkey.
Early-stage venture capital is the most important element to support fast-growing
technology companies in a country. Early-stage investments can be classified as
follows: (i) Seed stage: Companies that have a product and business idea with the
potential to create high value despite not yet having a commercialized product; (ii)
Early stage: Companies with final products that have passed the prototype phase
but without positive endorsement in sales; (iii) Early growth stage: Companies
thathavefixedastrongproduct/servicepositioninthemarketandneedadditional
financing to grow.
Having ranked 73rd in the sub-index of venture capital in the 2013 Global
Competitiveness Index, Turkey’s rank dropped back to 93rd in 2016. Even though
it was established in February 2016, the Turkish Investment Fund has not yet
become operational. In 2016, the number of enterprises receiving early phase
investment was 145 and the amount of investment was USD $70 million. In 2017,
167 enterprises received an investment of USD $ 177 million (Figure 6) Again in
2017, venture capital investment was $8.2 billion in the UK, USD $3.6 billion in
Germany and USD $3.1 billion in France.

70
On the other hand, Korea Venture Investment Corporation (KVIC) was established
in 2005 as a fund and fund matching mechanism, and has so far supported 4,300
enterprises investing USD $14 billion. 70% of these funds were directed towards
the manufacturing sector and 20% towards the software sector (Çağlar, 2017).
Similarly, while the Korea Development Bank’s total assets were USD $191 billion
in 2016, the total assets of the Development Bank of Turkey was USD $2.1 billion.
The total assets of all development banks in Turkey (Eximbank, the Bank of
Provinces, Development Bank, Industrial Development Bank) does not exceed
5% of the financial system (Çağlar, 2017). While the German Development Bank
(KfW), established in the 1950s, focused on financing the needs of large companies
during the first period of its establishment, the bank concentrated on investment
and project financing of SMEs in later periods (UNCTAD, 2016).
Beyond various government supports for innovative and high-technology
investments, it is recommended to focus on venture capital and project funding in
the upcoming period. It is critical to take relevant steps in coordination with other
policy priorities and national technological targets.
Figure 6: Early-Stage Venture Capital Investments in Turkey, 2010-2017
Number of
Investments
(Angel & VC & PE)
11
2010 2012 2014 2016
2011 2013 2015 2017
27
$19M
$38M
$29M
$65M
$31M
$65M
$51M
$103M
$74M
$105M
$39M
$55M
$1M $8M
36
78
67
GE& PE
Melek& VC
91
145
167
Source: startups.watch

71
Priority #8: Supporting venture capital funds
In the Medium-Term Program (2018-2020) the objective is to “develop specific
public support, loan guarantee and venture capital systems in order to contribute
to the commercialization of R&D activities and financing innovation”. In this
context, the Turkish Investment Fund, of which legal infrastructure was prepared
in 2016, should be implemented and the fund should function as a platform for
developing a national ecosystem.
By implementing a flexible and innovative strategy, the Turkish Investment Fund
should take a pioneering role in the ecosystem beyond being an investment
platform.Thefundshouldnotonlybeconfinedtofundmanagersbutshouldattract
fund managers with the highest investment performance globally towards Turkey
and encourage them to set up funds with local partners in Turkey. Moreover, it
should attract both global and local institutional investors as well as wealthy
families for venture capital.
In order to increase the number of beneficiaries (deal flow) of venture capital fund,
approaches should be developed to solve the problems of ventures particularly in
the leap phase from Series A to Series B and C (see Box 2). Priority should be given
to measures such as fulfilling necessary legislative amendments particularly in the
Capital Markets Law and the Commercial Code; facilitating the process of market
exits; eliminating uncertainties in the regulations that affect business plans of
enterprises; and improving the perceptions of local technological products.
The establishment of funds to be specialized in areas to be determined in the
Eleventh Development Plan should be encouraged. Initially, in the case that deal
flow does not occur, incentivized funds might be encouraged for specific areas to
enable the development of portfolios suitable for such specialized areas. In the
future, only specialized funds in these areas might be supported.

72
Priority #9: Developing project financing opportunities for innovative
initiatives aimed at expanding the global scale
Implementation of the following policy set out in the Medium-Term Program
(2018-2020) should be prioritized: “The Development Bank will be restructured
to provide long-term funding for innovative and high value-added production
investments in strategic industrial sectors”.
The development banking reform should focus on creating programs to develop
long-term financing models in high-tech and innovative areas. The scope of these
programs should encompass enterprises which have been able to develop a
prototype for an unmet or insufficiently met global need, validate the innovative
business model and reach a certain level of maturity. The primary focus of these
programs should be creating a support network for the enterprise’s functional
product, real prototype, small-scale production, market test, middle- and large-
scale production, marketing, distribution, and sales and after sales. Additionally,
the enterprise should be able to pass the effective management and branding
stages quickly and efficiently.
Box 2: Venture Capital Funds and Stages of Investment
New entrepreneurs grow with the funds raised by venture capital investors at different
stages. Funding usually takes place as a partner to a certain part of the enterprise
established by the entrepreneur. Funding stages are divided according to the maturity
level of ventures. Funding starts with seed capital and continues with series A, B and C.
At the seed stage, the business idea is adapted to the prototype/product and the
market. By becoming partners in the venture to sprout the “seed” at the Series A stage,
venture capital investors finance the employees, market research and product/service
development processes and help develop a business plan to scale the product or
service according to various markets in order to generate long-term profit.
The Series B stage aims to ensure that the investments have a share in the market
among the competitors and generate net profit. To that end, business development,
sales, marketing and similar structures are developed within the company’s
organization.
At the Series C stage, beyond making a successful investment, capital investments are
made to generate significantly more income. These funds may be intended to introduce
the initiative into new markets and merge with another company through acquisition.
As the risk level of company operations decreases, hedge funds, investment banks and
private equity firms may become involved in funding.
Source: Investopedia

73
The efficient use of Eximbank’s resources should be provided for globally
innovative ventures, and the use of country credit and guarantee programs should
be increased.
Other support mechanisms that can be implemented within this context are loan
guarantee mechanisms to support borrowing finances for an enterprise’s project
that has received a venture capital investment. Private loan guarantees granted to
such companies will enable financial input by the venture capital fund to exceed
borrowing (leverage). Thus, by taking into consideration the productivity target,
loan guarantee supports will be provided to protect macroeconomic balances
through selective use.
Priority #10: Planning a Mission-Oriented Support Mechanism for
innovations that will meet strategic needs of the country (Industrial
Technology Reward Fund)
A new incentive approach should be adopted based on mission-oriented support
mechanisms while financing the projects that have the potentially to accelerate an
increase of TFP13
. Mission-oriented support mechanism may focus on enhancing
the productivity of private sector activities in areas to meet middle to long-term
needs of our country. The selection criteria for such areas should be high social
and economic impact, high market potential on a global scale, ability for public
support to raise awareness and local competencies reaching a certain level of
maturity. Within the scope of the mechanism, projects with high impact effect and
with the ability to contribute to the development of strategic patents might be
prioritized.
In order to solve a defined national problem, one aim may be to create
interdisciplinary structures that can lead to the cooperation of different actors
such as large companies, small-scale technology firms, research institutions,
etc. who do not cooperate under normal circumstances. Finding, purchasing or
developing a type of technology might be defined as the responsibilities of project
developers within the rules of the reward. By providing a certain amount of pre-
financing to companies that have technical competence in the open calls, the total
announced reward might be divided between the companies that meet the criteria
within the prescribed time.
In this context, it is recommended to adopt approaches that are based on
supporting the technology platforms to be determined and the ecosystem around
them (electric vehicle ecosystem , etc.) in order to accelerate the change of
For examples similar to industrial challenge fund, see http://www.rcuk.ac.uk/funding/iscf/;
https://www.darpa.mil/program/darpa-robotics-challenge
13

74
R&D and support as an initial step. In this approach, it is important to run the
companies and research institutions by certain critical technology platforms to
meet the objectives set by the state and ensuring the development of ecosystem
with this way.
Also within this scope, should be the development of pre-competitive consortium
projects (emerging technologies at least 3-5 years away from the market) which
are comprised of qualified partners representing a critical mass in Turkey and aim
to develop new, authentic knowledge for the use of the industry. Furthermore, fair
andwidespreaduseoftheknowledgeproduced(e.g.freeuseofsuchknowledgefor
SMEs, universities and research institutions and the obligation to commercialize
this knowledge in three years, etc.) should be encouraged. Within this framework,
the Pre-Competitive Collaboration support program, of which legislation was set
out last year, should be implemented.
Development of Marketing and Networking Competencies,
Strengthening the Perception of “Turkish Technology”
Factors such as the positioning in the value chain; manner of integration into
global supply chains; methods to access information and long-term collaborations
with other firms might determine a company’s ability to increase its productivity.
Such factors increase the importance of the company’s marketing and networking
competencies.
One way of progressing within the value chain is to strengthen the relationship
between innovation activities and marketing operations. In the upcoming period,
the primary goal should be to enhance the economic efficiency of research
conducted while increasing the share of the private sector in R&D activities to
more than 50%. As in many emerging countries, one of the main limitations in
commercialization in Turkey is the weak connection between R&D activities
and market needs assessment/analysis. The economic return of many patents is
limited because of this weakness. And the risk of the commercialization of R&D
activities to meet market demand is lower.
It is seen that our country is quite detached from international networks in these
areas (Figure 7). Human capital should be encouraged to take a more active role
in international cooperation and networks of leaders and leading candidate
companies and the interfaces that support them. Closer follow-up of design, R&D,
production and market trends and development of relevant proactive strategies at
both the ecosystem and company level would significantly contribute to TFP.

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Transition to a high-tech structure brings certain paradigm shifts. One of
these shifts involves the advancement and improvement of the perception of
technologies developed in our country. As in the past, conducting studies that are
similar to those that improve the perception of “Turkish Goods” can also be done
for “Turkish Technology” from low to mid technology and this might positively
contribute to the acceleration of technological transformation processes, and
therefore, increase TFP. In the focus group studies and face-to-face interviews
conducted within the scope of the TFV Project, it was determined that there was
a strong belief that domestic technological skills were limited and problematic
in large-scale companies and public procurement authorities. It is highlighted
that this situation, deriving from our dependency on import input, has a negative
impact on the performance of entrepreneurs operating in high technology areas.
This problem also has an international aspect. It is important for entrepreneurs
who develop high technology and have innovative business models to see state
lobbying support in order to have a share in foreign markets and, particularly,
public tenders. In this process, there should be importance attached to increasing
Figure 7: Network Map: International Collaborations in Patents Related to Information Technology, 2010-2012
Source: OECD, Patent Database, February 2015

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our country’s global “brand value” and measures should be taken to improve the
brand value of Turkey that currently ranks 53rd out of 75 countries in the “Country
Brand Index”14
. High-quality product perception of our domestic products by
foreigners requires them to visit and study in our country, and additionally, their
perception of the quality of our infrastructure are determinant in increasing the
country’s brand value.
Priority #11: Development of marketing capabilities
Marketing processes for branded products and services which have an innovative
business model and/or are based on R&D and have high added value should
be supported and awareness should be raised in this area. In this context,
support mechanisms should be established to include the development and
commercialization of products for international markets, especially in the
priority technology areas and sectors determined especially in the Development
Plan, Medium-Term Program, Annual Program, Science and Technology Council
decisions.
Target market penetration activities, general and sectoral trade missions,
procurement committees, expos, and projects should be supported for selected
technologies and value chains. The number of companies benefitting from
Turquality and brand support programs and conducting intensive R&D activities
should be increased, and a branding and marketing support program should be
created with a particular focus on the needs of such innovative companies.
Impact of branding-oriented support mechanisms such as Turquality and state
assistance in exports that aims to increase access to global supply chains for
our manufacturers of intermediate goods should be analyzed and necessary
improvements should be made.
Capacity of Turkey in terms of overseas trade representations should be enhanced
so that companies that export/have export potential can run more efficient
operations abroad.
Besides country-based approaches, it is important to adopt approaches that aim
to develop city and region-based strategies for marketing.
http://www.futurebrand.com/uploads/CBI2014-5.pdf
14

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In particular, foreign companies and brands operating in high-technology sectors
should be purchased and direct access to distribution channels in external markets
should be ensured. Mechanisms for providing relevant information, consultancy
and technical support should be made operational and their activities should be
increased.
Priority #12: Strengthening Networks (between national and international
enterprises, researchers, funders and government executives)
Due to insufficient international affiliations of our entrepreneurship ecosystem,
business models of new enterprises should not be global but be aimed at local
markets. Globally operating R&D teams should be encouraged to follow global
trends, market conditions and technology trends more closely. An environment
and programs should be prepared for R&D centers to establish closer relationships
with domestic and foreign funders, large technology companies, research
institutions as well as with one another. Mechanisms that enable not only large-
scale companies but also small-scale businesses to monitor the world more
closely should be created, and the development of long-term networks should be
supported.
International affiliations of our entrepreneurial ecosystem should be enhanced. By
increasing affiliation levels of commercializing entrepreneurs across international
markets, establishing more common and more efficient communication and
business relations with the actors in these markets should be encouraged. R&D
incentives should be aimed at increasing the proportion of network-based
incentives, and cooperation of different engineering areas and competencies
should be encouraged.
Foreign early-stage funds should be encouraged to open up offices in Turkey
or become partners to local funds and foreign institutional investors should
be encouraged to invest funds in Turkey to ensure the introduction of foreign
actors into Turkey’s entrepreneurial ecosystem. On the other hand, in parallel
to the “Istanbul Finance Center” studies, Istanbul should be turned into a “hub”
for entrepreneurs not only within Turkey but also including the Balkans, the
Caucasus, Middle Eastern, North African and Central Asian regions. In this context,
the “Turquoise Card” application, launched in March 2017 to make work permits
easier to obtain particularly for young foreign entrepreneurs and qualified

78
human capital, should be facilitated and disseminated and necessary promotional
campaigns should be conducted. A program should be developed to support
competent staff in languages such as Arabic and Russian, which will serve the
consumer during the e-commerce process.
It is recommended that the state partially bears the expenses of networking
and collaboration development activities to be conducted between organized
industrial zones, technology development zones and university research
institutions within a certain program. It is important that the capacity building
processes (the formation of teams that can provide high value-added services)
within the relevant institutions should be publicly supported.
Studies of highly successful undergraduate and post-graduate students in fast-
growing SMEs (start-ups) should be encouraged to accelerate innovation.
University academics are encouraged to participate in private sector research
projects during their sabbaticals.
It is proposed that a program, in liaison with universities, be developed that invites
internationally acclaimed experts in selected fields to Turkey for 6 to 12 months,
support their research in interfaces and enable interaction with the executives of
pioneer companies that match their respective domains. The program should be
financed by beneficiary companies, interfaces, and the public.
In order to improve knowledge and skills of white-collar staff in companies and
investment-recipient entrepreneurs, they should be encouraged to attend quality
post-graduate, doctorate, short-term (1 to 12 months) education programs as well
as capacity improvement activities and research programs.
Experience-sharing programs and cooperation between implementing agencies
and establishments should be remodeled to be more extensive and systematic.
Priority #13: Boosting the perception of Turkish Technology and increasing
brand value
The following steps are proposed for the purpose of improving domestic
perception:

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• Extending the scope of The Technology Awards and improving its visibility
• Conducting studies to document and circulate success stories with case analyses
• Creating networks and conducting improvement activities to strengthen the
ties between research labs, R&D centers, technology development zones, public
institutions, and companies
The following are proposed to assist in altering the perception abroad:
• Conducting publicity, information and capacity building studies to include
more technology companies in the Brand Support and Turquality program, and
accommodating current supporting mechanisms to meet technology companies’
branding needs
•Supportingtheintegrationofclustersaroundcertaintechnologieswithimportant
technology centers abroad, particularly in the areas of technology development
zones which have a critical mass
• Informing trade consultants on overseas missions about the capacity of domestic
technology companies
• Through our international relations and diplomacy, prioritizing measures to
improve our manufacturing industry’s status in the global value chain
• In information processing technologies, prioritizing areas such as SMEs,
the internet of things, and embedded software that prove input accumulation
particularly across the broader industry base within Turkey.
With these investments, we should supply resources for such sectors within our
country and establish a “demonstration” for global investors that proves that we
are capable of realizing such investments in Turkey.

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Making the Localization (and Nationalization) Agenda
Productivity-Driven
The development perspective of improving domestic production capabilities
through public procurements in defense, which began with the founding of the
Defense Industry Directorate in 1985, has proved to be a substantial success.
Having started with the procurement of core equipment at the outset, the process
(1980s), firstly, initiated a stage of joint production with global actors (1990s) and
then continued by focusing on partial design and core platforms (2000s); it is now
in the final stage of authentic design and domestic production. In this process,
while the domestic production ratio of the defense industry was 25 percent in
2001, it increased to 62 percent in 2017 (Figure 8).
The next goal is to fully localize core and advanced technologies. In this context,
domestic product refers to “products whose design, patent, and international
copyrights belong to foreign institutions and agencies but which are manufactured
at home” (for instance: manufacturing passenger cars in our country) while
national product refers to “ domestic/abroad products the design, patent, and
international copyrights of which belong to domestic institutions and agencies
(for instance: manufacturing white goods in our country).
In the preparatory stage of the 10th Development Plan, the manner in which the
experience could be applied to areas other than defense proved to be an important
matter of discussion. The developments and achievements in the defense industry
aswellasthereturnofmanycountriestomoreeffectiveindustrypoliciesfollowing
the 2008 Global Crisis contribute to the importance of localization policies. Even
though the rules of public procurements in the World Trade Organization, EU
Customs Union, and the EU acquis constrain localization programs, the obligations
created by these rules have diminished under the newly-shaped conditions that
have flowed from the global crisis. Out of 117 localization programs in the world,
only 3 of them have been transferred to the enforcement mechanism of the World
Trade Organization (PIIE, 2013).
Figure 8: Domestic Rate in the Defense Industry (%)
70
60
50
40
30
20
10
0
2001 2007 2010 2017
62
52
42
25
Source: Defense Industry Directorate
Note: The Domestic Rate of the
Defense Industry indicates how much
of the public product procurement is
from domestically produced goods.

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As a consequence of these developments, the 10th Development Plan states
that, “Public procurements will be used as an effective tool in increasing the
innovative and green production capacities of local companies. In this context, the
capacity to prepare and assess qualified tender specifications will be developed,
and the introduction and extension of best practices will be conducted publicly”.
Additionally, one of the 25-priority transformation programs is “Program of
Technology Development and Local Production Through Public Procurements.”
Subsequently, an array of programs such as the Industry Cooperation Program and
the establishment of the Health Industries Steering Committee and Renewable
Energy laws were initiated; and in 2018 the Localization Executive Council was
founded. The main goal here is to increase the annual public procurement budget
of approximately 50 billion dollar, not only from the minimum cost perspective, but
also by increasing domestic industry development and technology competencies.
There is significant elbow room for expediting technology transfers, innovations,
and localization processes in public procurements especially in health, transport,
and energy.
There are a number of elements that complicate the transfer of the approaches
that are valid for the defense industry to other industries. The fact that defense
industry procurements are made from a central authority makes orchestration
among market actors more achievable. Concept and prototype development and
verification processes can be coordinated with a minimal number of actors on the
procurement side. Further, the fact that national security concerns remain in the
forefront in these processes makes the factors like cost and efficiency become of
secondary importance. Therefore, despite the fact that these localization programs
have become some of the most critical tools in industrial policy, there is still a
risk that the localization programs contribute nothing to, and that they may even
adversely affect TFP. Managing this risk and transforming it into a gain for TFV
must be one of the fundamental elements of the TFV policy framework.
Priority #14: Making the Nationalization Agenda Productivity-Driven
It is stipulated that industrial policies focused on nationalization will increase in
the long term. Therefore, it is a necessity to develop an approach that is driven to
increase the positive effects of industry policies on TFV.
The public procurement policies (See: Box 3) in the medium-term program (2018-
2020) must be prioritized along with the TFV perspective.

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In the execution of these policies, it is important to adopt the following principles
and take steps for the operationalization of these principles to enhance their
efficiency:
• For the products to be included in the nationalization program, the support
projects should be built upon a global vision with emphasis on global dynamics
and demand conditions as much as import substitution priority. It is important
to carry out these investments in coordination with project-based incentive
mechanisms.
• A long-term perspective for the design, implementation, monitoring, and
evaluation of the programs is essential, and it calls for an approach that consists
of development surpluses and competency construction stages just like in the
development of the defense industry.
• Priority should be given to public development of human resources with a
global perspective in terms of innovation, efficiency and technology to identify the
characteristics of products and services to be procured by the public, for which
capacity building is necessary.
• Nationalization practices should focus on the construction local competences.
In this context, it is necessary to construct complementary measures not only
for individual companies but also for their ecosystem, which should further be
endorsed by an approach that concentrates on the market and coordination
Box 3: The Public Procurement Policies in the Medium-Term Program (2018-2010)
Public procurements will contribute to R&D and innovation activities, and will be
used as investments to promote localization and technology transfer. Within this
scope;
• Long-term supply plans for public procurements and B2B joint procurement
opportunities will be created.
• Priorities will be the pharmaceutical and medical device industry; rail systems
and airline vehicles; defense systems; energy equipment and; information and
communication systems.
• Domestic products will be preferred in State Supply Office (DMO) purchases and
TOKİ projects.
Source: Mid-Term Plan 2018-2020, p. 53

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malfunctions. The decision to expand the implementation of programs should
depend on the supplier’s resources in the relevant field, and focus on enhancing
local productivity advancement and strengthening competencies beyond
mandatory localization. For example, the development of human resources that
can integrate system engineers and different technologies can be a priority.
• Other than the public procurements, a priority to create demand for the locally-
developed technologies should be a priority, for which regulations and support
mechanisms should be vigorously constructed in consultation with technology
developers. For instance, in order to increase the use of composite materials in the
construction sector, construction and development arrangements in cooperation
with municipalities can be used as a tool.
• The formation of a healthy and constructive dialogue between the public and
private sector should be ensured, the localization and nationalization criteria
should be adopted and internalized by private sector players.
• In order to ensure a positive impact on the quality of production, public
procurement should be given priority not only on the tender cost but also the
“total procurement cost”.
• Promoting the use of locally developed materials in public procurements
particularly for railways, airlines, subway cars, and wind turbines can massively
contribute to the increase of Total Factor Productivity in our country.
• Based on the fact that the nationalization process is a long-distance marathon
rather than a short-distance run, it is necessary to develop effective negotiation
processes with international companies. In these negotiations, knowing the extent
of Turkey’s negotiating power in relation to various products, it is necessary
to construct a comparative negotiation framework with Turkey’s potential
competitors such as Eastern European and Middle Eastern countries.

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3. The Interface Approach for the Effective Use of
TFV Policies
Why Do We Need a Different Approach in Policy Implementation?
The recent support mechanisms initiated to increase high-value-added products
andexportationinTurkeyhavefailedtoyieldtheexpectedresults.Hightechnology
exportation has not reached the expected level; the efficiency level has not
improved in a sustainable fashion; no global-scale product, brand, or company has
emerged; and our country has not increased its ranking within competitiveness
and innovation indexes. Therefore, it is very important to review the relevant
public policies and tools in a way that can yield more effective results.
Turkeyhasdevelopedpolicies,institutionsandsupportsthataresimilartoitsglobal
peers. There are institutions that work for the development and implementation of
policies relating to the foundational and applied research, design, manufacturing,
marketing and services of the production value chain; as well as entrepreneurial
awareness, early stage, business foundation stage, the initial stage following the
foundation of the business; loan, grant, and tax-related advantages for the growth
stage; and consultation support for the business policy. However, the efficiency
level in implementation differs. It may be due to three main problems:
(i) Transfer of authority and coordination between policy, program and
implementation tools in the areas of interest, responsibility and jurisdiction of
different ministries
(ii) Evaluation of implementation results
(iii) Shortcomings in technology, theme, company selection and concentration
Therefore, the policy focus for TFV should emphasize the implementation stage.
The policy of interface development and creation should be considered in terms of
perfecting implementation. The new executive corpus, institutions and functions
inventedinthePresidencyGovernmentSystemprovidesaconvenientenvironment
to design and implement a more radical reform towards this end. Therefore, it is
the time for a reform that enhances the efficiency of industry support institutions
and tools.
In the reforms that horizontally intersect with several institutions and policies,
we should address two different kinds of nested problems: General problems, and
specific problems within the relevant public policy. The general problems related
to the Turkish public sector can be identified as follows: Despite the fact that
the budget implementation is focused on inputs rather than results and outputs,

85
the compliance with the legislation comes before the quality or quality of the
work; a short-term and narrow perspective on notions of public welfare-loss; the
ineffectiveness of the implementation of the long-term planning process; the lack
of implementation of performance and impact evaluation; conservativeness in
the delegation of authority and localization; and public personnel policies that
do not reward or hinders taking initiatives. These problems bind the public’s
hand in a policy area that requires risky, time-consuming and collaborative work
with the private sector, such as innovation, narrowing the policy toolkit and
eliminating its flexibility. Resolving these problems in the short-run does not
seem likely. In such cases, the implementation of a pilot implementation before
the dissemination of policy implementations, which are structural reforms, to all
public administrations, the application of a kind of public “experiment” (sand box)
can increase the likelihood of success. Such pilot implementations are currently
being run in Turkey. The main issue is the capacity of an active administration that
is capable of monitoring the pilot implementation, flowing from the evaluations
and implementing change as required. The last section will include more detailed
proposals on this topic.
Another problem that stands out in the corporate structure of the public sector is
the tendency towards “silofication”. Public institutions operating in a particular
policy area are tightening their missions into the narrow interpretation of their
verticalorganizationstructureandestablishmentlegislation.Thoughcoordination
committee-like structures at the ministry level function somewhat as a kind of a
horizontal platform for the discussion of the general policies, the meeting, agenda-
creating and decision-making of these committees is generally time-consuming
and the decisions made in these committees become ambiguous and lose their
significance as they move through to the lower levels of bureaucracy. In addition,
follow-up is inadequate. Unfortunately, such “silos” are commonly seen in different
units and affiliates of the same ministries. Instead of developing and discussing
common policies with other units and other stakeholders (the private sector), the
units focus only on themselves and their limited tool set an narrow interpretation
of regulations. This results in repeated tools, ineffective practices and insufficient
results.
Ingeneral,themainshortcomingsofincentivepolicies(particularlyinnovativeness-
related policies) based on previous investment environment surveys as well
as the survey studies and negotiations conducted within this TFV Project are
summarized as follows:
• The supports are not implemented in accordance with the properties and needs
of the companies, which in turn lead to the low impact of the additionality of the
supports in reaching the intended results.

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• The supports often do not correctly differential between the companies using
standard technologies and the companies with the potential and capacity to
develop new and innovative technologies.
• The bureaucratic formality of the supports creates a burden on both the
companies and the public, decreases its flexibility, and cannot be sufficiently
linked to the performance or results of companies or projects. The supports also
lack integrity in the selectivity level.
• The impacts and results of the supports are not sufficiently evaluated, and public-
company-sector dialog and a long-term partnership on support policies are not
sufficiently established. This situation prevents mutual trust from being built and
reduces the supports to a one-time only and unilateral transfer status.
• The supports are mostly financial and short-term. There is a lack of concern
for issues such as developing companies’ networks, receiving expert consultation,
information transfer and risk sharing.
• Similar public supports are provided by many different organizations; there is
not enough coordination among the organizations and even the support policies
implemented by different departments within the same ministry are applied
independently of each other. Therefore, it does not appeal to the entirety of the
ecosystem of innovation.
• The fact that the “program owner” (resource supplier) role and the “program
executer”(serviceprovider)areinthesameinstitutionwithinthesystemobstructs
performance management and the ability to monitor the channels of support.
• The “post-implementation evaluation” culture in public administration is still in
its infancy; in this context, there are critical shortcomings in assessing, monitoring,
evaluating, and designing more effective supports by learning from the impacts of
the government supports.
Definition; What is Interface? A New Layer Between the State
and Companies
Interface institutions are institutions that assist in the use of tools where the
market falls short, such as in information, consultation, networking, and financing,
with a focus on the companies’ needs in developing their current or prospective
business operations relating to innovation and technological advancement and
for developing the corporate functions between the public sector, academia, and
businesses to ensure the enhancement of Total Factor Productivity.
The general characteristics of the interface institutions that can take on different
missions according to the needs of the sector or the technological area they focus
on are as follows:

87
• In order to efficiently realize the policies of TFV enhancement, these institutions
assumingaroleinpolicyimplementationareexpectedto:redefinetherelationship
between the public sector and the companies based on 21st century needs;
•supportnotonlytheindividualcompaniesbutalsothevaluechainandecosystem;
• focus on strengthening the efficiency and innovative performance of the
companies in implementing the programs in the strategical fields on behalf of the
public;
• ensure the use of public supports in the most fundamental, effective, and efficient
way.
As part of their function working as an interface institution in the application of
public policies and support as well as acting closely with the business side of the
field in which they operate in and in which they build trust, it is possible to remove
the information asymmetry by providing feedback regarding the design of public
policies to the public.
Lookingattheinterfacestructuresinthiscontext,theTFVcanbeseenasstructures
that focus on interventions to companies that are pioneers in the implementation
of the policy framework (on the technology frontier) and leading pioneers (near
the technology boundary). In order to realize the goals for TFV enhancement, the
state should make transparent, objective, and professional preferences, create
structures that work in tandem with the principles that provide consistency for
these preferences in the long-term, or transform the current structures.
Here are some examples of the tasks that the proposed interface structures can
assume:
• Increasing inputs for technology and innovativeness: Providing public resources
for R&D grants and incentives and risk capital; developing programs to improve
shortfalls in the market and system and; reducing the risk of R&D activities
• Increasing non-material (skills, expertise) competencies: Conducting joint
research projects, presenting technological consulting services, using copyrights,
supplying technical support services, attracting highly qualified migrants, and
exercising mobility programs
• Focusing on creating and strengthening ecosystems: Conducting studies to
develop new sectors and technologies (green technologies, biotechnology,
nanotechnology etc.); creating support mechanisms for clustering, networking,
R&D collaborations, TTOs, and incubators

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• Improving environmental aspects: Helping improve investments and businesses;
implementing new policies and programs for the more effective operation of the
innovation ecosystem through an experimental approach
• Developing missions, rhetoric, and preparation: Focusing on studies that target
dramatic change (defense, energy, environment, etc.) rather than slow-paced
improvements that try to resolve major social and economic issues; conducting
visionary and horizon-expanding studies; preparing technology road maps
•Expansionofinformationandinnovation:Conductingstudiesthataimtoimprove
the main skills of companies; developing management quality; improving human
resource management (digital transformation, branding, and marketing skills etc.)
When international implementation samples conducted by states to increase
company efficiency are reviewed, we observe in many countries that there is a
transition from first generation “support” mechanisms to second generation
“service supply” interfaces. In this context, first generation support mechanisms
include elements such as economic incentives (tax reduction, easy access to
financing, infrastructure supports etc.) provided by the state for the progress
of the private sector. Second generation service interfaces focus on an approach
that delivers services that are not sufficiently provided to companies in different
market conditions (R&D competencies, networking, ecosystem creation etc.) (See:
Table 3).
Table 3: Transformation of Incentive Systems: First Generation Support Mechanisms
and Second Generation Service Interfaces
First generation “support” mechanisms Second generation “service” interfaces
- Focus: Economic incentives
(taxes, access to financing)
- Top-down central management
- Same rules for all companies
- Limited interaction and information
sharing between companies and the
state
- Limited flexibility and risk-taking, focus
on procedures
- Sharp contrast between private and
public sectors
- Focus: Enhancing information and
skills, developing networking and
consulting activities
- Localized, horizontal and company-
specific solutions
- Intense dialog and information sharing
between the state and companies by
way of interfaces
- Operational autonomy and flexibility,
risk sharing and experimentation in
implementation
- Cooperation between private and
public sectors, joint decision-making,
and agreement-based service delivery
types

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Aims, Tools, Tasks, and Functions
The ultimate aim of the interfaces is to increase Total Factor Productivity. The
interfaces must exercise the following 3 interim tools to achieve it:
(i) Renewing and upgrading the technological equipment of companies (especially
SMEs) in general, providing technology diffusion (such as digitalization), and
improving work practices (management, quality, network relations etc.)
(ii) Helping technological innovations in scientific (and research) infrastructure
emerge and develop them as commercial products
(iii) Developing technology areas or product groups that are considered to be
strategic and are still in their infancy (autonomous vehicles, space technologies,
etc.)
Exercising these interim aims require different tools and interfaces that will use
these tools. While promoting technological expansion (for SMEs) requires more
horizontal policies and tools (awareness policies, technological consultation,
technological financing), innovative and new technologies require more vertical,
private policies (sector-based, value-specific, company-specific) and tools. It is
essential that the interfaces that use these tools are equipped with different skills
with regard to the realization of the tools used and the desired results.
Forinstance,whiletheorganizationoftheinterfacestousetechnologicalexpansion
both nation-wide and on a local level is enough for the companies in the region to
recognize them, it is necessary that the companies that have the potential to be
the innovative interface, deliver a more extensive support menu and develop a
trust relationship that can accommodate the sharing of tacit knowledge between
companies and entrepreneurs. The connection of the interfaces that develop
strategic technology areas within the public will also emerge as an important
matter. This is because, initially public orientation and resource supply will stand
out, and as the ecosystem improves over time, the public will be able to delegate
several of its functions to interface(s). The main difference between public policies
and others in the area of strategic technology fields/products is the determining
of a specific technology or product that is considered to be strategic for the nation
by the public, and supporting relevant projects-activities of large companies with
various tools. This way, it provides a kind of a regimented project support.
Infact,whenindustrysupportsystemsinTurkeyarereviewedwiththeperspective
of the categorization described above, KOSGEB and Development Agencies can be
said to be the institutions that promote technology expansion while TÜBİTAK is
one of the public interfaces of innovation policies. For the support of some specific
technologies and products, more ad hoc actions are required. For instance, with

90
the guidance of the government, TOBB and a 5-partner company undertook the
initiative leadership for the electric vehicle, while the Ministry of Trade applied
the “Project-Based Incentive System” to support some strategic products and
sectors15
. Additionally, within the project-based incentive system, no relationship
related to development of technology has been established with SMEs so far on
the research infrastructures, technology-oriented companies and the expansion
of technology in line with a larger innovation policy.
The above-mentioned organizations have also had to undertake functions that do
not coincide with the functions or original missions overlapping with each other.
For instance, KOSGEB initially developed a program to support small-scale grant
programs and micro-enterprises as a social policy tool. On the other hand, KOSGEB
formed several programs that fall within TÜBİTAK’s field of work to support the
strategic sectors and innovation. In the meantime, it abandoned its TEKMER
program, a real technological expansion program. One of the things to do is to
create a structure that evaluates the tool portfolio and implementation practices
of the institutions in a more holistic way, to facilitate a simplification that complies
with the institution’s mission, and to ensure institutions work in collaboration.
There are some obvious facts without having to evaluate the current support
tools in detail. For instance, since TGBs are already extended nation-wide without
considering their capacity and implementation performance, most of them work
as property management businesses that provide tax-advantageous office space.
Considering the missions in accordance with the industrial policy components
described above, it may be appropriate for KOSGEB to re-specialize in SMEs in
order to expand technology nation-wide, and to transfer the support programs
that function as social policy tools to other institutions.
Beyond doubt, these policies should be implemented in a mutually complementary
fashion. For instance, there is a direct relation between technology expansion
and innovation. As technology expansion scales up, innovative companies more
frequently stand out nation-wide. Likewise, developing strategic technologies
and strategic products and sectors are related. Therefore, it is necessary to
form horizontal coordination between these policies and the public interface
institutions that apply them. The main policy documents that will determine the
process and objective of the coordination are development plans and related
sector strategies. It was already mentioned that there has not been sufficient
This policy was implemented in Turkey under ordinance numbered 2016/9495 “Ordinance on Project-Based State Support for Investments”
which specifies the procedures and principles for the “Project-Based Incentive System” and article 80 of Code number 6745 “Code for the
Law Amendment of Some of the Laws and Statutory Decrees for the Project-Based Support of Investments” which was published in the
Official Gazette numbered 29824 and dated 7 September 2016 thereafter enacted under the title, “The Project-Based Incentive System”, by
Cabinet as directed by the Ministry of Trade. The Project-Based Incentive System was introduced in a press conference on 9 April 2018.
In 23 projects of the 19 firms, 135 billion TL in super investment incentive certificates were officialized in a ceremony. In order to receive
incentives, the minimum fixed investment amount of the project must be US $100 million.
15

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communication and coordination between these institutions so far. The state also
needs a superstructure to conformably implement these different policy objectives
that are the components of industrial policy. It is essential that the private sector is
active in the execution of this superstructure.
These interface structures should focus on implementing the programs whose
strategic aims and scope are set to be determined in the 11th Development Plan.
The interface structures should use and assist in the usage of its public resources
to support TFV enhancement of the relevant companies and ecosystem through
these programs. The utmost priority in the operationalization processes of these
structures is to build trust of both the state as well as the private sector.
Figure 9 illustrates the organizational layers that implement the industrial policy
in general, and the innovation policy in the private sector. This distinction provides
a favorable indication of the different functions that are valid in many of the public
policies and which are evident in the Presidential System. From the perspective of
TFV policies, we can define this functional distinction as follows:
Figure 9: Innovation Policy Actor Organization
Policy-Making
Institutions
Program-Design
Institutions
Program-
Implementation
Interfaces
Collaborative
Institutions
Specialized
Service Provider
Institutions
Other Institutions
of the Ecosystem

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1. Policy-Making Institutions: These are the public institutions and
establishments that evaluate and design industrial and innovation policies. The
newly-formed “Science Technology and Innovation Policies Committee” in the
Presidential System stands out as the top level policy-making institution. The
Ministry of Industry and Technology can assume this function until this committee
becomes fully operational. The Strategy and Budget Directorate formed within the
Committee of Economic Policies and the Ministry of Economy and the Presidency
(with regard to designing 5-year development plans and budget policies despite
the fact that it does not directly create industrial policies) can be considered to be
among the relevant policy-making institutions.
2. Program-Design Institutions: These are the institutions and units that
develop programs in their field of expertise in order to implement long-term
policies. KOSGEB, which is affiliated with the Ministry of Industry and Technology
in the field of Science Technology and Innovation, has been active in the expansion
of technology and TÜBİTAK has already been focused on the development of
innovation programs. The General Directorate of Development Agencies within
the Ministry of Industry and Technology seem to have assumed a similar role in
terms of Development Agencies. In addition to the Ministry of Trade’s project-
based incentive system, these are the institutions that design (and execute)
programs of internationalization (URGE) and branding (TURQUALITY).
3. Program-Implementation Interfaces: The execution of this function by
different institutions other than the ones above is essential as it assists with both
thedivisionoflabor,andbyextensionbroadeningthescale.Moreimportantly,these
interfaces facilitate a more objective environment for evaluation and performance
assessment. In this respect, as defined above, interfaces are autonomous
institutions with an extensive support menu including financing rather than
merely providing passive, ready-made packages to which public authorities are
delegatedonthebasisoftheiradministrativecapacity,andwhichprovidesolutions
for companies. As proposed within this study and to be explained in detail in the
last section, for the Technology Development Zones, Technology Transfer Offices,
TTGV, and Research Institutes innovation policies, the Development Agencies, too,
can be included in the experimental policy as an interface for the expansion of
technology.
4. Collaborative Institutions: As explained below, these institutions are expected
to work in collaboration with the public in the design and implementation stages
of innovation and technology programs. This definition is already stated in the
Ministry of Trade’s URGE Program16
. These institutions are identified as NGOs
or, as in the TOBB example, Democratic Mass Organization which represent the
collective interests of the companies on the basis of sector or geography. With
such properties, public policy makers can raise awareness and offer consultancy.
The Collaborative Institution in the Ur-Ge Statement: This includes the Turkish Exporters Assembly, Union of Chambers and Commodity
Exchanges of Turkey, The Committee of Foreign Economic Relations, Exporter Unions, Trade and/or Industry Chambers, Organized Industrial
Zones, Industrial Zones, Technology Development Zones, Sectoral Foundations and Associations, Sectoral Foreign Trade Firms, Commodity
Exchange Markets, Employers’ Unions as well as the foundations, unions, and associations founded by manufacturers.
16

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Collaborative organizations can perform these functions in relation to relevant
public institutions at every stage of the policy process.
5. Specialized Service Provider Institutions: These are the institutions that
provide privatized services in certain stages of innovation policies (mentoring,
incubation, and acceleration), specific package programs (education) demanded
by program-executing institutions (companies, associations, foundations etc), and
specialize in certain fields that intersect the business segment horizontally (e.g.
KALDER). Program-executing interfaces might choose to purchase services from
these institutions when needed.
6. Other Institutions in the Ecosystem: Other organizations that make up
the innovation ecosystem are the natural stakeholders of this policy area.
Universities, finance institutions, audit-accounting-consulting-design companies
can be both stakeholders and the subject of public policy in certain parts of the
innovation field. For instance, universities are at the center of innovation policy
in terms of both educating scientists and conducting research. The same can be
said for venture capital companies. One of the main goals of innovation policy is
to improve this ecosystem and facilitate communication and connection among
actors. For instance, TÜBİTAK has support programs in which universities are the
direct subject.
The above categorization has been prepared in order to describe the position of
the interfaces in the public policy chain by aiming to look at through the public
policy window. This does not mean to suggest that the institutions in each category
are in a hierarchic vertical structure limiting access to other categories. In fact,
there is are healthy horizontal relations and communication between the actors
in all categories. However, from the perspective of public policy, mapping of the
functions and institutions is an indispensable component of policy effectiveness.
A result-oriented public policy aims to establish an input-output-result relation
based on the assumption that the institution who executes this policy fulfills
its functions. Any ambiguity in the functions might disconnect or obscure the
causality link in this chain. Additionally, the functions must comply with corporate
structures. This is what necessitates interface institutions.
In the building process of the interfaces, what fields these interfaces will be
formed in is a priority issue. The interfaces need to be formed in the following
fields where they will have a more accelerated and transformative impact. The
11th Development Plan should be a guide at this point. The following three critical
field groups can guide the process from the long list to the short list:
•Publicprocurement.Fieldswherepublicprocurementcanbeutilizedandwhich
are open for improvement within the world economy could be prioritized. The
fields of health, energy, and transportation as indicated in the 10th Development
Plan could serve as the starting point; they can be examined through detailed
analyses, and long-term road maps can be prepared with regard to the perspective
of productivity growth. It is important that local competencies and demand remain

94
at a certain level in the areas to be selected; however, the perspective of global
competitiveness must be a joint precondition. Targeting global competitiveness is
essential to ensure sustainability of productivity increases.
• Horizontal areas. Horizontal areas that might accelerate increases in
productivity in many sectors should be prioritized. Acceleration of competency
acquisition in areas such as material technologies, informatics and robotics will
have a positive impact on the overall increase in TFV in the economy.
• Intersection and implementation areas. Intersection areas of the sectors
and value chains should be prioritized. For instance, significant interactions may
take place between defense and health, automotive and electronics, ready-made
clothing and furniture, as a result of which creative business models can emerge.
By focusing on multidisciplinary and interdisciplinary approaches, focusing on
high potential areas of specific technologies in our country can accelerate the
increase in TFV. Important areas of opportunity may be defined that could impact
the manufacturing industry with regards to smart cities, education, agriculture,
health, etc.
Transition from Existing Structures Carrying Interface
Attributes to New Interfaces
The interface structures proposed to be set up in lieu of the current public
institutions that function as interfaces should be developed to take on various
functions and focus on various intervention types rather than concentrating on
standardization. It is important to provide diversity in the system for different
technological priorities and value chains need different interface structures.
Though the interface institutions might seek to possess different corporate
structures (diversity), it is necessary that all of them have flexibility and autonomy
to an extent, to have human capacity that is capable of evaluating and developing
strategies in certain calibers, and possess recording (accounting-statistic)
infrastructure with transparent management for the provision of good governance
principles as a way of accountability.
InTurkeytherearefewexamplesofservicesthatcouldbecoveredinthesecondary
generationinterfaces.TheTechnologyDevelopmentFoundationofTurkey(TTGV),
founded in 1991 to promote public-private sector collaboration and technology
and innovation activities in the private sector in Turkey, has adopted the model of a
“non-profit interface/implementer institution” and conducts innovation programs
on behalf of the public. The “Interface Supports” (AYDE) component within the
“The Code of Practice Directive of the Innovation Support Program”, enacted on 1
January 2018 and conducted by TÜBİTAK aims to increase the capacity in the fields
of innovation and entrepreneurship and to improve relations between the public,
university and industry by supporting the facilitation of mechanisms for achieving
effective and efficient results from the TÜBİTAK Industry Supports (SADE).

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• With The Code of Practice Directive of the Innovation Support Program, enacted
on 1 January 2018, TÜBİTAK began seeking solutions to the problems mentioned
above. Scores of support programs were simplified and reduced to two different
generalsupportprograms.Thisalsodiminishedthebureaucraticburden.TÜBİTAK
committed to preparing these supports institutionally and will announce them
to the public. It will prepare the supports using a more participatory method
that involves strategic and operational information such as the conceptual
frameworks of the support programs, goals, expected impacts, monitoring and
evaluation methods, and budget. Finally, it has committed to conducting the
program on a 2-year plan (TEYDEB Rota - TİP) which will be updated based on the
implementation results. In this way, transparency and predictability has increased,
and impact assessment has been easier.
• To provide support to the implementing institutions named “Interface” that
are close to the business segment and are located between TÜBİTAK and the
beneficiaries, the Interface Support Program is structured for the implementation
through these institutions. In this way, a significant step has been taken to involve
an actor whose absence is severely felt in the innovation policy in the ecosystem.
This step will also contribute to a more policy-and-result-oriented way of thinking
for TÜBİTAK (TEYDEB Directorate) by transferring its operational functions to
institutions that will become more flexible and expert though the implementation
over time.
• In the long term, the need to distinguish the supports given to medium-size
companies and small-and-micro-size companies might emerge as a topic of
discussion. In order to effectively support every company segment within its
current capacity, it is possible that the support allocated to micro and small
companiesareevaluatedwithinsocialpolicy(exceptforinnovationandtechnology
based start-ups) while the supports allocated to medium-size companies should
form the focus of the institution itself. Even though KOSGEB (Small and Medium
Enterprises Development Organization of Turkey) hasn’t used interfaces in service
provision until now, it may start to effectively use these entities from now on.
• Some TGBs (Technology Development Areas) have developed the capacity to
enable them to provide support to companies and execute multiple programs and
projects at the same time in order to benefit from state support. For example, there
are collaborative organizations in support programs offered by the Ministry of
Commerce for the development of clustering for the Support of the Improvement
of Competitiveness. Their role is one of an implementing organization in
TÜBİTAK’s (the Scientific and Technological Research Council of Turkey) Techno-
entrepreneurship Capital Support (BIGG - Individual Young Entrepreneurship)
Programme and they are the beneficiary organization for TÜBİTAK’s Technology
Transfer Office and KOSGEB’s International Accelerator Support Programme.

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The functions of TGBs included in their establishment law are similar to those of
interfaces organizations defined under this heading.
• The needs of companies in the OSBs (Organized Industrial Zone) for improving
capacity in the areas of design, R&D, marketing, exportation and innovative
businessmodelsareobvious.Intheshort-term,theprovisionofservicesbytheOSB
managers to these companies in these areas as in accordance with the legislation,
together with the mission they have identified for themselves, will only be possible
through collaboration with specialized organizations and the assignment of sites
and resources within the OSBs. It is stated that even in OSBs with the highest
management capacity, significant problems in project management as well as
access to companies can be experienced, and companies can remain indifferent to
event announcements by the OSBs.
• Development Agencies are mechanisms that are equipped with human resource
instruments, governance mechanisms and support for discovering and driving
internal growth potential and competitiveness within regions. However, there
has been too much focus on support programs in agency activities and support
programs have become a local funding instrument rather than being responsive
through leverage functions. The focus and power of agencies as interfaces for
identifying and guiding of companies in the region and for leading or potentially
leading these companies must be improved in upcoming periods.
• Large corporations have begun to assume the role of interface institution for
some of the state programs. For example, Arçelik Garage under the banner of
the Arçelik corporation has become one of the executors of the TÜBİTAK’s BİGG
Acceleration Programme and has begun to execute the first hardware-focused
corporate interface program in Turkey17
.
While the process that TÜBİTAK initiated in early 2018 with the Guidelines for
the Codes of Practice for the Innovation Support Programme has been helpful,
it is possible to categorize the interface functions defined in these guidelines as
follows:
a. Intermediation (sub-contracting)/implementing organizations. A number
of support programs and services previously provided unilaterally by TÜBİTAK
can now be offered through other organizations as interfaces. The interfaces
have no flexibility in this case and the products designed by TÜBİTAK are made
available to companies under the supervision of TÜBİTAK. In this relationship,
TÜBİTAK is not able to obtain any policy information; it is only able to reduce the
bureaucratic burden on it.
https://arcelikgarage.com/bigg
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97
b. Collaborative organizations: These may exist on various levels but their
determiningfeatureistheirabilitytodeveloprelationshipsbilaterally(Tübitak<->
Company or industry)This relationship can be on the basis of information transfer
or as a policy consultancy. These organizations are those that do not necessarily
have the capacity to directly provide managerial or technological support to
companies but can be functional “where necessary” under certain programs
mostly due to their networking abilities. These organizations may have different
advantages: For example, they may be effective through their various features such
as knowledge of a specific industry (having been established by companies in that
industry),acapacitytobringcompaniestogetherorwidespreadaccessthroughout
the country. While these organizations may have had different purposes for their
establishment, they are organizations that TÜBİTAK can benefit from in order to
support its innovation policies. The features of these organizations are compatible
with the definition of a Collaborative Organization included in the UR-GE notice
(Notice on the Support of Improvement of International Competitiveness).
On a higher level, there are organizations that are more likely to be “Interfaces” as
defined in this White Paper. Benefiting from the support of not just TÜBİTAK but
many other institutions, these are organizations that have close relationships with
companies and are therefore able to develop relationships based on mutual trust
or to provide company-specific solutions.
Some TGBs, TTOs (Technology Transfer Office) and Research Institutes in our
country which have a high institutional and financial capacity can be provided as
examples to such organizations. The relationship between them and TÜBİTAK is
muchmorecomprehensiveandisbasedonapartneringrelationship.Relationships
with these organizations can be developed on different dimensions and related
experimental practices can be implemented. Regarding TGBs, a relationship can
be developed with a TGB which is already successful on an experimental basis and
with sufficient managerial infrastructure and financial transfers performance can
be achieved through the initiative of the TGB. In such a relationship, TÜBİTAK can
grant financial resources (for example, matching funding) to a selected TGB for a
certain period of time by entering into an agreement with the TGB under which the
TGB would be able to benefit from the funding for improving its own capacity as
well as providing more financial support to companies through its own initiative.
The agreement may require the TGB to meet defined performance criteria.
In this context, existinginstitutions, (e.g. one of the MAM institutes), can be
restructured or a new institution can be established in partnership with the
private sector and hence these institutions can be enabled to have an autonomous
structure on a more experimental basis for the purposes of obtaining specific
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Design Principles for Interface Institutions
Interface institutions can be existing public entities or private legal entities as
well as any entity (foundation, association, joint-stock company, etc.) assuming
a designated mission based on an agreement. When these structures are being
designed, consideration must be given to the following nine principles:
• Employment of qualified personnel. Within these structures, employees must
not be limited only by what required of them as set out in the legislation, must
be “personally invested” in the mission they are given and must have the ability
to develop creative solutions accordingly. In order to do this, it is necessary to
establish highly qualified teams who are risk takers, who can learn by way of trial
and error and who can direct proceeds to areas displaying future potential.
• Work based on performance. The performance of interface institution must
be monitored based on the programs they execute and subsequently the effects of
those executed programs must be assessed together with the performance of the
interfaces. A competitive environment should be ensured and high performance
should be rewarded in the process of accessing interfaces to public funding
sources. The system and the process required to understand the results must
be established at the outset together with a definition of the method to enable
a general understanding of the value of the organization; in addition, effective
communication must be ensured. When defining the criteria for success, rather
than focusing only on quantitative indicators, there must, as far as possible, also
be a focus on qualitative elements together with a concentration on the quality of
the management of the interface institution, the type of lessons that can be learnt
from its practices and its ability to execute the program.
• Budget and sustainable funding. Interfaces must have their own budgets and
incomes, funding support based on performance, tax exemptions and exceptions.
In addition, fund and portfolio management and investment capacities should
be developed where necessary. Since budgeting is an annual activity within state
organizations, the time period for considering and taking action is inevitably
limitedinareasrequiringlong-termperspectivessuchastechnologyandefficiency.
In order to solve this problem of time limitations, it is useful to design interfaces as
extra-budgetary structures. The time periods for some programs that are critical
in terms of technology development must be allowed to be extended over more
years.
• Result-based evaluation. In policy practice, the public sector traditionally
focuses on inputs and outputs. The focus must shift from inputs and outputs to
results and effects in order to develop effective practices. To this end, interfaces
must be established with a 5-year perspective and it must be possible for them
to make decisions such as closures, continuations, expansions and downsizings
based on result and effect. Under this new system the roles of “program owner”
(resource provider) and “program executor” (service provider) must be separated.

99
• Accountability. The design of accountability mechanisms is quite important
for the continuity of the interfaces. In this context, the notions of public interest
and public harm must be defined from an innovative and realistic point of view
and must be evaluated in the process. Concepts such as “additionality” (additional
contributions) and economic rates of return may allow the extension of the
definition of public interest. As interfaces use more resources from the state
budget, this definition narrows down and, consequently, the risk of incurring
losses cannot be taken. The success of risk-free entities in areas of advanced
technology will be extremely limited.
• Flexibility and integrity. The ability to adapt responses to the requirements
of an individual company is important. In this context, it is necessary to ensure
that support programs are able to solve the specific problems that the companies
experience as well as monitoring the changing requirements of the companies and
developingmeasuresinresponsetothoseproblemsandrequirements.Inaddition,
it is also necessary to ensure that the approach to technological progress is holistic
and that the support programs focus not only on the solution to technical problems
but also on the managerial, organizational and technological changes required.
The capabilities of companies, particularly those with a high level of R&D focus
in areas such as product design, product diversification, branding, marketing and
promotion, must be improved.
• A “high-frequency” relationship with leading and potentially leading
companies. Attention must be paid to the various kinds of interventions affecting
the ecosystem and productivity potential of the companies. Interfaces must
function as mechanisms able to constantly monitor and evaluate the performance
of their related companies rather than being entities that merely provide
funding for a company as a one-off and then end the relationship. They must be
organizations that can contribute through the transformation of aids and grants
into the creation of tools for the company, rather than merely to the end-goal, and
that can then execute support programs for the benefit of a number of groups of
companies within the value chain.
• Coordination and networking improvement initiative. Interfaces must be
able to establish joint infrastructure to be able to show initiative in areas that
require coordination and joint action, establish companies, become partners to
companies and/or engage in activities such as platform creation, networking
improvement and supporting collaborations. Rather than being an agent or a
lobbyist organization that advocates the common interests of certain types of
companies or industries to the government, interfaces must be able to facilitate
coordination between companies and the government as required through the
executed program and must be able to instill confidence in both parties for this
purpose. Interfaces must be able to share information and collaborate with, not
only the actors under their area of responsibility, but also with other interfaces
and must be able to act as part of a network where required and as the central
focus of the network in other cases. In this context, particular attention must be
paid to articulation within international networks.

100
• Spatial connection. Interfaces can exist on a national, regional or local level.
Nonetheless, they must be able to perceive the advantages of spatial scales and
clustering as well as the dynamics of urban economies. To this end, Organized
Industrial Zones, Chambers of Commerce and Industry and Development Agencies
that serve within the restraints of a specific geographical area can assume certain
interface roles or can collaborate with interfaces serving regardless of location.
International examples provide lessons in the design process for the interfaces. In
the table below, lessons learned from international examples under the headings
of personnel regime, funding model, performance management and risk sharing
are discussed along with the situation in Turkey.
Table 4: Suggested Measures to be Taken During the Design Process for Interfaces
What can we learn from foreign
examples?
What is the status in Turkey?
What can be done?
Subject
Arayüzün
yönetişimi
• The roles of research with a focus on
problem-solving, innovation on the cutting
edge of technology and entrepreneurship must
be brought together.
• The fact that interfaces will be using
and providing public resources while having
the freedom to use tools and resources that
provide flexible solutions for companies
in which they are in a special relationship
and their potential for failure in many cases
requires the development of a new type of
relationship between these interfaces and the
central administration.
• Creating an organizational structure
with a horizontal (between interfaces) and
vertical (between interfaces and public policy
makers) network of communication that would
ensure a constructive and guiding means of
communication between multiple interfaces.
• It can be seen that most interfaces are
decentralized both industrially and spatially
but they all have a relationship with a
central management and this relationship
has a structure that facilitates coordination
and communication rather than being in a
hierarchical relationship.
• When the companies, associations or
foundations turn into interfaces there are
no key issues in terms of legislation in areas
such as establishing companies, becoming
partners of companies, employing personnel
and having its own budget. However, some
types of organizations are excluded from the
support programs. For example, foundations
and associations that are not established by
law cannot apply for a grant to function as
an interface organization under the interface
organization support programm(AYDE)
provided through TÜBİTAK’s innovation
support program.
• The compatibility of mechanisms
established by law such as OSBs, Chambers of
Commerce/Industry, Development Agencies
and Technology Development Areas, which
can be considered as interfaces with interface
qualifications, must be addressed within these
special laws.
• While interface entities work with the
companies in the relevant industry in a
contractual relationship in accordance with
their own managerial autonomies, they must
also be able to execute joint programs with
other interface organizations as well as in
horizontally intersecting thematic areas.
• Another critical issue is the design of the
managerial culture and the transition program
that would transform existing organizations.
Performance of this in cooperation with key
stakeholders and the scientific community
would ensure, as far as possible, the formation
of an environment of mutual trust and dialogue
from the outset.

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Personnel
regime
Funding
model
Performance
management
Risk
Sharing
• Information is distributed better in
areas where the level of labor circulation
is high.
• To be able to employ highly-qualified
personnel, salaries must not be below
the alternative salaries within the labor
market where such personnel could
otherwise be employed.
• The transition of personnel between
academia and the private sector increases
the impact.
• It must be ensured that the following
three key revenue items are similar in
size:
1) Revenues from the service provided to
companies
2) Revenues gained through competitive
tenders
3) Results-based government grants
• Performance cannot be realized only
by creating performance indicators. The
role of an evaluation mechanism that
can challenge the created value and go
beyond the indicators is critical.
• The ability of interfaces to be able
to take and share risks in line with
their budgeting responsibility and
accountability liability is an important
element. In most interface models abroad,
it has been observed that these entities
are able to establish companies and form
partnerships with companies.
• Entities that will work as interfaces
must be able to develop salary policies
that are different from those of their
founders or entities of which they are a
part.
• It is possible for faculty members
to engage in consulting activities out of
their office hours and establish their own
companies, however a better-quality part
time or day-based working relationship
should be established during office hours.
• As an indirect revenue item, tax
exemptions and exceptions in Turkey
are used in areas such as investment
incentives and technology development
areas and a certain level of experience in
practice can be gained as a result.
• In order to the state to support
interfaces on a program basis, such
exceptions should not be granted to the
interface organizations just because they
are interfaces and the grants should be
based on minimum requirements such
as the employment of qualified human
resources.
• In the example of the Research
Infrastructures (Law No. 6550) the support
that will be provided for the research
infrastructure is determined by considering
the performance of the infrastructure.
Performance indicators are determined
according to the strategic goals identified
within the annual action plan. The
continuity of the support is determined
according to the status of the indicators
and the evaluation of the research
infrastructures’ board.
• In the case of research infrastructures
(Law No. 6550), the risks related to joint
infrastructures and public shares are
shared through the participation of the
private sector and non-governmental
organizations.
• In government grants where the public
sector contributes as a co-financier, risks
can be shared on a project basis.
What can we learn from foreign
examples?
What is the status in Turkey?
What can be done?
Subject

102
How and Where to Get Started on Experimenting
Statestrytoincreasetheaddedvalueoftheirproductionbyusingvariousindustrial
policy instruments. Even though such instruments are limited, the state’s form of
responses in the research and innovation ecosystem become diversified through
the new combinations created by policy instruments along with the changes in the
structure of the manufacturing value chain. Experimenting with policy practices is
also available through the Turkish public administration experience under the title
of “pilot”18
. In this section, 3 pilot practices or “interface experiment” practices can
be applied in line with the general identification and approach addressed in the
previous sections. It is very important to monitor the experiment from the outset
in line with the success criteria,to identify the lessons learned from the practice
for the experiment and to evaluate and disseminate the results. Since the present
mechanism and support programs have not been designed as an experimental
approach from the start, they cannot be evaluated. Interface experiments should
not be expected to further complicate the present mechanism or the support
programs but rather to simplify the forms of response while increasing the impact
in selected areas.
The first two of the three experiments proposed in this section are related to the
innovation policy, while the third experiment focuses on the development of an
interface for the dissemination of technology.
The First Experiment: Research Institute offering applied research services
The first of the experiments proposed for the concept of an interface addressed
in this section to become operational in Turkey is the establishment of an entity
that will provide applied research services for industry. This entity should be
established with the mission of supporting the R&D capabilities of medium to
large-scale companies in particular and it should be designed as an experiment.
The objectives of the experiment include: supporting the capacity building
process in R&D centers whose numbers have been rapidly increasing and have
reached nearly 1000; contributing to the coordination of Research Infrastructures
and R&D centers; and carrying out project (demand) based research on both the
common needs of companies and specific issues.
This entity will function as a bridge between companies in the sector or sectors of
its focus and the research infrastructure they require. In the design of this entity,
which will fully comply with and also have the purpose of transforming sectoral
and regional dynamics, lessons, particularly in areas such as the use of qualified
human resources, concentration, cooperation and sustainability, which are
addressed in the section on design principles for interfaces, must be learned from
the positive/negative experiences of institutions in our country such as TÜBİTAK
Research Institutes, the National Productivity Center and ABİGEMs (European
Union Business Development Centers) all of which have operated or continue to
operate in similar areas. At the same time, after evaluation of the lessons learned
from the practice and in line with the success of the experiment, it is necessary
to determine how the program can be scaled and how it is to be controlled by the
government.
Public sector experiments in Turkey where the pilot was initially implemented and then generalized include practices such as the Whole
City practice, Development Agencies, Strategic Plans and the sole 112 emergency call center in Antalya.
18

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The services to be provided within the scope of the experiment should be
determined in accordance with the needs analysis and should be sensitive to local
demand; areas such as “technology acceleration“, ”innovation engineering” and
”data analytics” which are newly developing areas in the world should also be
taken into consideration. It is necessary to design the human resources necessary
for the portfolio of services to be offered within the scope of the experiment, as
well as business models and financing models taking sustainability into account.
Issues that would be useful to consider for the construct of this structure are
outlined below.
• It is critical that the services to be offered have a high level of added value that
medium-sized companies cannot obtain from the market. The most important
Table 5: Governance Structures and Core Characteristics of Applied Research Interfaces
Fraunhofer-Germany ITRI - Taiwan Catapult - England
Registered
Institution/Agency
of Interface
N/A
Private, non-profit
foundation
Aggregations in 19
different regions in
Germany
Yes
Yes
12
Technological
Strategies Council
Various private and
public offices
A network of
centers in 31
different regions
Yes
Yes
9
The Ministry of
Economics
Public research agency
The center in Hsinchu region,
the secondary office in the
Tainan region
Yes
Yes
150
Legal entity
Geographical
influence area
Prototype
development service
for companies
Pilot production and
simulation lines
Yearly average public
budget per center
(core government
funding) (millions of
dollars)
Source: National Research Council (2013) 19
21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program (2013)
19

104
way to achieve this is through the nature of the human resources of the entity to be
established. Priority must be given to people with industry experience rather than
new graduates or academics. For example, the experts in the MEP (Manufacturing
Extension Program) entity in the USA have average experience of 15 years in
industry companies. In this context, it would be appropriate for R&D experts and
recently retired managers or those who have retired early from corporations in
our country to be included in the staff of the center.
• In addition to the concentration of the services to be offered in R&D areas in
manufacturing, it is also important to consider other areas with high added values
in the value chain relating to technological improvements. These areas could
include engineering services, embedded services, human resource management
or organizational development.
• This entity must be the first point of contact for medium-sized companies that
have established an R & D center in the region or sector in which they operate. It
should be a priority to respond quickly to the demands of the companies and turn
them rapidly into research projects.
• In the first phase, physical facilities and common areas for which the capacity of
the R&D centers of medium-sized companies will be insufficient can be prioritized.
• Sectors and research themes to be focused on will need to be selected in line
with the areas and regional requirements indicated in the 11th Development Plan.
• These interfaces may take part in the implementation of the innovation voucher
program. Dissemination of the innovation coupon programs across Europe is
supported by the European Commission through the Declaration of Riga. In this
model, the company summaries its request relative to the research area it requires
and files an application with the competent authority (the interface). Where the
application is considered to be technically and administratively appropriate by the
interface organization, the company receives a voucher and refers to the respective
research infrastructure (e.g., the nanotechnology center in a university). After the
research infrastructure presents the results of the research developed in response
to the company’s request, it receives the amount that it is entitled to from the
authorized interface organization.

105
The experiment can also be designed by the assignment of the research function to
an initiative to be selected from the Applied SME Capability Building Center (Model
Factory) which is currently in the project phase and have many features of the
interface institutionsas discussed in this section as well as capacity development
for this. Another alternative is to change the governance structure of one of the
TÜBİTAK MAM institutes or to create a new research institute with a similar
mission that is not available in the TÜBİTAK hierarchy. Certainly, alternatives
other than these could also be available, but whatever the alternative would be,
its identification through a discussion with the stakeholders who are expected
to be involved in the management of the model will create an atmosphere of
collaboration from the outset. The governance structure of the experiment must
be configured to be as localized and autonomous as possible and the involvement
of large global corporations that could provide guidance to SMEs according to
the attributes of the sector on which the experiment will focus should also be
discussed. In any case, it is necessary to ensure that there are representatives of
the private sector and the scientific community in the governance structure of the
organization and that they may even form the majority of management.
The structure of the experiment’s legal entity (company or not) should be decided
following a cost-benefit analysis. The basic criterion in decision-making is that
the institution has an organizational structure consisting of a strong back office
(accounting, statistics, HR, procurement , etc.) that is completely autonomous,
does not pursue profit, and supports managerial flexibility, together with a
middle office (research, monitoring, evaluation, reporting).
As in best practices, the funding model of the organization should be a combination
of the agreements that will be made with the companies and the research funds
thatwill beprovidedbythestate.Ideally,thesetwosourcesoffundingareexpected
to be equal or the agreement revenues are expected to be more than the other.
Although the financing model is a performance indicator, the state also evaluates
the process with various performance criteria to obtain the results.
The Second Experiment: Interface that provides a full portfolio of services to
the technology SMEs and start-ups:
This interface institution will provide technology based enterprises with all
the services and funding they require from the research phase to the product

106
development phase. A significant portion of these services are already provided
by some TGBs, TTOs and accelerators. We recommend building a more
comprehensive and performance-based relationship that goes beyond the
geographical boundaries of the region with one or more TGBs20
to be selected. In
this relationship, it is suggested that TÜBİTAK fully transfers the implementation
of its programs to the selected TGB and that the TGB sets up a fund to be used
as a “matching fund” under these programs. Although the procedures for the use
of this fund will be determined with the TGB, the fundamental principle is that
the TGB will also assume responsibility. There is a need to develop a procedure
for the TGB to contribute to the program funding from its own resources. The
TGB should have the flexibility to support not only the programs developed by
TÜBİTAK but also the non-program activities it deems appropriate and should be
able to provide any service it would like through specialist firms or organizations.
The relationship with this kind of an interface is important for the state in terms of
thescale,theresultsandthequalityofthepolicydialoguebetweentheinterfaceand
the program development organizations. Therefore, the performance relationship
must be designed based on these variables. Performance indicators for innovation
accounting have already been developed over some time. (Table 6) In addition
to these performance indicators, the provision of sector and implementation
information to address the information asymmetry of the public policy makers
should also be part of the performance evaluation of these interfaces.
The TGB with the assumption that the TGB and TTO are under the same roof for purposes of simplicity
20

107
Table 6: Innovation Accounting Performance Indicators
Key
Performance
Indicators
(KPIs)
REPORTING
GOVERNANCE
GLOBAL
Activity
Indicators
Number of
developed
ideas
Number of
selected
ideas
Specified
Assumption
Number of
submitted
ideas
Number of
taken
decisions
Products in
the next
stage
Average
amount of
investments
made
Number of
products
based on
innovation
type (core,
neighboring,
transformative)
Impact
Indicators
Developed
hypotheses
Minimum
failure
criteria set
Compliance
with thesis
Compliance
with
portfolio
Assumption-
knowledge
ratio
Impact
Indicators
Experiment results
Decisions
(changing or
remaining in the
same course)
Cost per learning
Time cost per
learning
Learning speed
Verification speed
Stage-gate
criterion
Assumption-
knowledge ratio
% of products with
problem-solution
compliance
% of products with
product-market
compliance
% of products
ready for scaling
Processes
improvement
indicators
Number of
registered patents
New business
models ready for
scaling
Cost savings
Innovation
transformation
New market
segments added
Impact
Indicators
Cohort analysis
Pirate metrics
(acquisition,
activation,
retention,
suggestion,
reacquisition)
Growth motors
(product life
value, retention
rates, viral
coefficients)
Income and
profit
Stage-gate
criterion
Average growth
rates
Verified growth
hypotheses
Return on
investment
(ARR, IRR, NPV)
Processes
improvement
indicators
Innovation
coefficient
Cost savings
Innovation
transformation
Market share
(new segments,
shelf area,
wallet share,
distribution
footprint)
Patents obtained
Customer
satisfaction
Activity
Indicators
Number of
conducted
experiments
Number of dialogs
with customers
Number of
interviews with
customers
Number of
customer
observations
Number of
developed
prototype/
minimum
developable
products
Hackathon, number
of design contests
Number of products
in the prep stage
Number of
submitted
applications
Number of taken
decisions
Number of products
advancing in stages
Average amount of
expenses in each
stage
Number of
products based on
innovation type
(core, neighboring,
transformative)
Number of products
in each sub-stage
(problem, solution,
task)
% of products
reconciled with
thesis
Number of patent
applications
Partnerships and
collaborations
Activity
Indicators
Tested growth
tactics
Number of
conducted
experiments
Number of
interacted
customers
Number of tested
channels
Number of usability
tests conducted
Verification speed
Number of
products in the
prep stage
Number of
submitted reviews
Number of taken
decisions
Number of
products advancing
in sub-stages
Average amount of
expenses in each
sub-stage
Number of
products based on
innovation type
(core, neighboring,
transformative)
% of products
reconciled with
thesis
Number of patent
applications
Number of
products developed
through simple
methods
Partnerships and
collaborations
Stage of idea generation Stage of idea testing Scaling of ideas
Source: thecorporatestartupbook.com

108
In the medium term, two public policy changes related to the dissemination of such
an interface are required. The first of these is a review of the TGB implementation
and the development of only active, fit for purpose TGBs that are considered
to be operating successfully as interfaces along with the maintenance of TGB
applications in other cities and regions in a revised format. It is necessary to
ensure that the TGB applications in these cities are designed to primarily support
the dissemination of technology rather than innovation policy and innovative
ideas and initiatives that will emerge during this process should be directed to the
interface TGBs.
It is a matter of human capacity that the TGBs are able to operate in a manner that
serves the innovation policy as intended. In geographical locations where such
human capacity is insufficient, a new, smaller format that could be more effective
and whose predominant function would be the dissemination of technology.
The other policies that require review include the rationalization of the different
support programs offered by the state, the establishment of the relationship
between such different programs and consideration of the experimental interface
organizations as the “outlets” for all these public support programs. Even if these
policy components are not immediately realized, this vision will dominate public
policy, improve the effectiveness of the interfaces and increase the chances of
success of the innovation policies.
It is recommended to start this interface experiment with METU (Middle
East Technical University) Teknokent (Technocity) or ITU (Istanbul Technical
University) Arı Teknokent. The past performances of these TGBs, the fact that they
are operating under a state university, that they have already been running the
TTO services and that they have a constructive dialogue with TÜBİTAK makes one
of these choices a reasonable one.
The fact that TGBs are already legal entities allows this experiment to be developed
more rapidly than the first one.
The Third Experiment: Technology diffusion interface
We have mentioned above that technology propagation diffusion from the
innovation policy to a certain extent in that its dimensions are more horizontal
(withmoregenericelements),moregeographicallywide-spreadandthatitdirectly
prioritizes SMEs. On the other hand, we have also mentioned that technology
propagation and innovation policies have dimensions that complement each other.
Even though each technological improvement does not imply an innovation, as the

109
spread of technology improves, it will not just be the productivity of the companies
that will improve but also the likelihood that they will become innovative. In
addition to this, a pilot implementation of the propagation of technology with an
interface approach is recommended due to its advantages, such as, its offering
of special opportunities for companies and its improvements in relationships
based on mutual trust. As we have mentioned above, the institution taking on this
function is KOSGEB, but the impression obtained from the performed analyses and
the interviews is that the functions of KOSGEB are becoming increasingly blurred.
KOSGEB also has support programs with low levels of selectivity that could be
included in the area of social policy as well as programs that are compatible with
innovation policy. On the other hand, the geographical insufficiency of human
resources prevents it from developing an effective relationship with companies on
a local level. Therefore, our third suggestion is bringing the program development
function of KOSGEB to the forefront and performing an experimental practice with
afewDevelopmentAgenciesthatwouldallowKOSGEB’sfunctionstobeperformed
through the Development Agencies.
TheotherreasonbehindthissuggestionisthattheDevelopmentAgencieshavealso
begun to report to the Ministry of Industry and Technology, and the Development
Agencies have the objective of operating on a program basis to a greater extent,
beyond distributing grants (transition to result-based programming) and the
local organizations are relatively strong in capacity. It is suggested that the local
organization of KOSGEB becomes a part of or operates under the Development
Agencies as per the experimental practice and a performance agreement is entered
into between KOSGEB and the Development Agencies.
Otherorganizationsthatcanpotentiallybecometechnologypropagatinginterfaces
are the OSBs. An interface relationship with selected OSBs that could go beyond
the management of infrastructure and provide services for companies to improve
their productivity could be developed on an experimental basis. An agreement
could be executed directly between KOSGEB and the management of an OSB or,
alternatively, this partnership could be developed through a triple model with the
Development Agencies.
It is suggested that these pilot applications be performed through the participation
of stakeholders during, not only the design phase, but also the evaluation phase.
The main principles, objectives, performance metrics, and application models of
each pilot application must be thoroughly discussed and the decision on whether
the pilot application will be generalized or not must be taken following an
assessment at the end of an implementation period of at least 3-4 years.

110
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