Turkey restructures defense industries

Top Turkish government officials say the country is aiming to consolidate its defense industry so it has fewer, but more powerful, defense companies.

“We want to have one or two leading companies in every field rather than dozens like we have today,” said a top aide to Prime Minister Ahmet Davutoglu. “That will increase efficiency in the sector and prevent waste of resources and energy.”

A senior official from the country’s procurement agency, the Undersecretariat for Defense Industries (SSM), confirmed the plan. “We cannot afford to have unnecessarily large numbers of companies that compete with each other in a cutthroat rivalry. We expect one or two leading companies to specialize in their fields of expertise.”

The prime minister’s aide said: “It is crazy, for instance, that we have nearly 20 shipyards seeking the same contracts. Even in the whole world there are not as many serious shipyards. Instead of 20 small shipyards, we want to have one big shipyard that can compete with the world’s biggest.”

A recent audit report released by the president’s office recommended restructuring the local industry “so as to create powerful companies.”
The auditors also recommended that the state-controlled defense companies should float at least 51 percent of their shares on the stock market.

The SSM official explained that public offerings are necessary to pressure corporate boards to maintain transparency and accountability to shareholders. “With their present structure, it is hard for the state auditors to make sure corporate boards make the decisions to the best interests of their companies,” he said.

Of the half dozen or so state-controlled defense concerns, only military electronics specialist Aselsan, Turkey’s biggest defense firm, is listed on the stock market.

The presidential auditors also recommended that those defense companies producing similar equipment should merge to maximize efficiency.

They said defense companies should specialize in areas “with strategic value,” and Turkey should aim to have at least one defense company in the world’s top 50. Aselsan and aerospace concern Tusas Turkish Aerospace Industries were ranked at 67 and 80 in this year’s Defense News Top 100 list of worldwide defense companies. They are the only firms on the list.

Reviewing the procurement cycle between 2010 and 2012, the auditors’ report concludes that the main structural problem hindering the sector was “traditional approaches in the decision-making mechanism.”

President Recep Tayyip Erdogan has said his government aims to make Turkey one of the top 10 manufacturers of weapon systems by 2023, the Turkish republic’s centennial.

But the audit report finds the bureaucratic relationship between the defense industry and politicians is one reason local industry has failed to progress more.

The auditors reported that Turkey was the world’s 24th top exporter of arms and 11th largest importer from 2008 to 2012.

But the auditors warn that, despite a plausible level of research and development spending, Turkish companies have failed to become sufficiently competitive against foreign rivals when bidding for contracts abroad.

Source: Defencenews / Sept. 29, 2014


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