Turkey s Competitiveness: National Economic Strategy and the Role of Business

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(1)

Turkey’s Competitiveness:

National Economic Strategy and the Role of Business

Professor Michael E. Porter

Institute for Strategy and Competitiveness

Harvard Business School

Istanbul, Turkey

16 October 2009

This presentation draws on ideas from Professor Porter’s articles and books, including, The Competitive Advantage of Nations (The Free Press, 1990), “The Microeconomic Foundations of Economic Development,” in The Global Competitiveness Report, (World Economic Forum), “Clusters and the New Competitive Agenda for Companies and Governments” in On Competition (Harvard Business School Press, 2008) and ongoing

(2)

Agenda

Turkey’s Economic Performance

• Principles of Competitiveness

• Assessment of Turkey’s Competitive Position

• Towards an Economic Strategy

(3)

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

Turkey’s Prosperity Performance

GDP per Capita

(in 2008 PPP US$)

CAGR:

+3.27%

CAGR:

+3.27%

CAGR:

+4.74%

CAGR:

+4.74%

CAGR:

+2.57%

CAGR:

+2.57%

(4)

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

0%

5%

10%

15%

20%

PPP-adjusted GDP per

Capita, 2008 ($USD)

Growth of Real GDP per Capita (PPP-adjusted), CAGR, 2001 to 2008

Source: EIU (2009), authors calculations

Bahrain China Vietnam South Africa Latvia Germany Oman Croatia Czech Republic Saudi Arabia Thailand Estonia Russia Lebanon Yemen UAE France Brazil Syria India

Turkey

Egypt Lithuania Israel Slovakia Hungary Iran Mexico Slovenia Jordan Chile Other countries Neighboring countries

Prosperity Performance

Selected Middle and Upper Middle Income Countries

Malta Greece Korea Italy Japan Spain Poland Ukraine Georgia Azerbaijan Armenia Bulgaria Tunisia Pakistan Cyprus New Zealand Bosnia Belarus Malaysia Colombia Kazakhstan Libya Panama Portugal Romania Argentina

(5)

0%

2%

4%

6%

8%

10%

12%

14%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

Unemployment Performance

Selected Middle and Upper Middle Income Countries

Unemployment

Rate, 2008

Improving

Deteriorating

France Malta Greece Hong Kong Germany Italy Tunisia Sweden Lithuania South Korea Czech Republic Poland Estonia Mexico Slovenia USA Malaysia Portugal

New Zealand Japan

Hungary Philippines China

Turkey

Slovakia Australia Indonesia Canada Spain Thailand Brazil Russia India Chile Sri Lanka Singapore Romania Bulgaria Egypt South Africa (22.9%) Croatia Saudi Arabia Vietnam Latvia Pakistan Argentina (-14.6%) Morocco Switzerland Austria Ireland Netherlands Finland Israel Denmark Albania Iran Colombia Syria Kazakhstan Ukraine Azerbaijan

(6)

Source: Economist Intelligence Unit (2009)

Labor Force Utilization

Participation Rates, Selected Countries

25% 30% 35% 40% 45% 50% 55% 60% 65% -3% -2% -1% 0% 1% 2% 3% 4% 5% 6% 7%

Labor Force

Participation Rate, 2008

Change in Labor Force Participation Rate, 2001 to 2008

Germany Korea Mexico Slovenia USA Pakistan Japan

Turkey

Slovakia Australia Denmark Brazil Indonesia China Argentina Philippines Russia Vietnam India Malaysia Chile Thailand Croatia Lithuania Tunisia Bulgaria South Africa Egypt Libya Saudi Arabia Colombia Ghana Cote d’Ivoire Romania Kuwait Singapore Iceland Macedonia Ireland Spain Latvia Cyprus Estonia Ukraine Moldova (-4.98%) Israel Hungary Austria Greece Netherlands Italy Canada New Zealand Finland UAE Yemen Syria Jordan Iran France Poland Portugal Switzerland Kazakhstan Azerbaijan (66.4%) Bahrain Belgium Czech Rep.

(7)

Turkey’s Export Share Trends

World Export Market

Share

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1.8%

Processed Goods

Semi-processed Goods

Unprocessed Goods

Services

TOTAL

(8)

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% -15% -10% -5% 0% 5% 10% 15% 20%

Export Performance

Selected Middle and Upper Middle Income Countries

Exports of Goods and

Services (% of GDP), 2008

Change in Exports of Goods and Services (% of GDP), 2001 to 2008

Russia Thailand Jordan Estonia China Germany Philippines UK Cyprus South Africa Ireland (-18.4%) USA India Romania Brazil Cambodia Chile France Indonesia Australia Czech Rep. Greece Slovakia

Turkey

Mexico Korea Pakistan Argentina Vietnam Malaysia (103.5%) Canada Hungary Croatia

Source: EIU (2008), authors’ analysis

Japan Netherlands Egypt (27.2%) Bangladesh Poland New Zealand Slovenia Denmark Albania Lithuania Ukraine Belarus Bulgaria Finland Iceland Malta Yemen

United Arab Emirates

Qatar Syria Kuwait Oman Lebanon Iran Kazakhstan Israel Armenia Belgium Georgia Latvia Moldova Spain Italy Austria Switzerland Saudi Arabia (31.2%) Azerbaijan (35.3%) Vietnam (25%)

(9)

0%

10%

20%

30%

40%

50%

60%

Inbound Foreign Investment Performance

Stocks and Flows, Selected Countries

Inward FDI Stocks as % of GDP, Average 1990-2008 Japan Russia Saudi Arabia

Turkey

Slovenia Jordan Hungary Vietnam Slovakia Czech Republic Kazakhstan Chile Netherlands Poland Estonia Malaysia Croatia South Africa New Zealand Indonesia China Ukraine Lithuania Lebanon Brazil Bulgaria Korea Austria Latvia Switzerland Spain Kazakhstan Mexico Portugal Philippines Greece Romania Cyprus Egypt Oman Belarus UAE Qatar Syria Thailand Georgia (60.1%) India Iran Bahrain Malta Turkey (1990-2000) Turkey (2001-2008) Bosnia Georgia Macedonia Cambodia

(10)

0

1

2

3

4

5

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

Note: Blue shaded countries have similar GDP per capita to Turkey. Source: USPTO (2008), EIU (2008)

Average U.S. patents per 1

million population, 2004-2008

CAGR of US-registered patents, 2004 – 2008

Innovative Capacity

Innovation Output of Selected Countries

Saudi Arabia Russia Portugal

Turkey

India Poland Kuwait Czech Republic China South Africa UAE Greece Indonesia Hungary Cyprus

120 patents =

Argentina Brazil Croatia Malaysia Bulgaria Philippines Egypt Chile Lebanon Thailand Ukraine Romania Mexico Colombia

(11)

Strategic Issues Facing Turkey in 2009

• There have been significant

policy improvements

since 2001, such

as opening the economy to trade and competition, streamlining

regulations, and improving infrastructure

• However, the

slowdown of reforms

during 2008 exposed Turkey to

the brunt of the global crisis

– Investors and consumers are still wary given Turkey’s historical track

record

• Improving Turkey’s future economic performance will require

addressing

numerous challenges

– Turkey has only reached the first stage in becoming a truly competitive

economy

• Second stage reforms are considerably

more challenging

• Turkey needs a coherent

economic strategy

in order to continue its

progress

(12)

Agenda

• Turkey’s Economic Performance

Principles of Competitiveness

• Assessment of Turkey’s Competitive Position

• Towards an Economic Strategy

(13)

What is Competitiveness?

• Nations compete to offer the

most productive environment for business

• The public and private sectors play

in

• Competitiveness depends on the

productivity

with which a nation uses

its human, capital, and natural resources.

– Productivity

sets the sustainable standard of living

(wages, returns on

capital, returns on natural resources)

– It is not

what

industries a nation competes in that matters for prosperity, but

how productively

it competes in those industries

– Productivity in a national economy arises from a

combination of domestic

and foreign firms

– The productivity of

“local” or domestic industries

is fundamental to

competitiveness, not just that of export industries

– Relentless

innovation

in technology, products, and organizational methods

(14)

Macroeconomic Competitiveness

Microeconomic Competitiveness

Sophistication

of Company

Operations and

Strategy

Quality of the

National

Business

Environment

Macroeconomic

Policies

Social

Infrastructure

and Political

Institutions

State of Cluster

Development

• Macroeconomic competitiveness creates the potential for high productivity, but is

not sufficient

• Productivity ultimately depends on improving the

microeconomic capability

of

the economy and the

sophistication of local competition

Determinants of Competitiveness

(15)

Determinants of Competitiveness

Macroeconomic Competitiveness

Microeconomic Competitiveness

Sophistication of Company Operations and Strategy Quality of the National Business Environment Social Infrastructure and Political Institutions State of Cluster Development

Natural Endowments

• Human Development:

basic education and

health care

• Rule of Law: property

rights and due process

• Political Institutions:

stable and effective

political and

governmental

processes and

organizations

Social

Infrastructure

and Political

Institutions

Macroeconomic Policies

(16)

Macroeconomic Competitiveness

Microeconomic Competitiveness

Sophistication of Company Operations and Strategy Quality of the National Business Environment Social Infrastructure and Political Institutions State of Cluster Development

Natural Endowments

Macroeconomic Policies

Determinants of Competitiveness

• Fiscal policy: public

spending aligned with

revenues over time

• Monetary policy: low

levels of inflation

• Macroeconomic

management: avoiding

structural imbalances

and cyclical

overheating

Macroeconomic

Policy

(17)

Macroeconomic Competitiveness

Microeconomic Competitiveness

Sophistication of Company Operations and Strategy Quality of the National Business Environment Social Infrastructure and Political Institutions State of Cluster Development

Natural Endowments

Macroeconomic Policies

Determinants of Competitiveness

• The

internal

skills,

capabilities, and

management practices

needed to attain the

highest level of

company productivity

and innovation possible

Sophistication

of Company

Operations and

(18)

Determinants of Competitiveness

• The general

external

business environment

conditions that allow

companies to reach

high levels of

productivity and

innovation

Quality of the

National Business

Environment

Macroeconomic Competitiveness

Microeconomic Competitiveness

Sophistication of Company Operations and Strategy Quality of the National Business Environment Social Infrastructure and Political Institutions State of Cluster Development

Natural Endowments

Macroeconomic Policies

(19)

Determinants of Competitiveness

• The depth of

specialized skills and

assets and the ability to

capture

synergies

across related firms

and industries

State of Cluster

Development

Macroeconomic Competitiveness

Microeconomic Competitiveness

Sophistication of Company Operations and Strategy Quality of the National Business Environment Social Infrastructure and Political Institutions State of Cluster Development

Natural Endowments

Macroeconomic Policies

(20)

Quality of the Business Environment

Context for

Firm

Strategy

and Rivalry

Context for

Firm

Strategy

and Rivalry

Related and

Supporting

Industries

Related and

Supporting

Industries

Factor

(Input)

Conditions

Factor

(Input)

Conditions

Demand

Conditions

Demand

Conditions

Sophisticated

and

demanding

local

customers and needs

– e.g., Strict quality, safety, and

environmental standards

– Consumer protection laws

Many things matter

for competitiveness

• Successful economic development is a process of

successive upgrading

, in which the

business environment improves to enable increasingly sophisticated ways of competing

• Efficient access to high quality

business inputs

– Efficient utilization of natural

endowments

– Human resources

– Capital availability

– Physical infrastructure

– Administrative and information

infrastructure (e.g. registration,

permitting, transparency)

– Scientific and technological

infrastructure

• Availability of

suppliers

,

supporting

industries and institutions, and firms in

related fields

Open and vigorous

local

competition

– Openness to foreign competition

– Competition laws

• Local

rules and incentives

that

encourage investment and

productivity

– e.g. incentives for capital

investment, intellectual property

protection, corporate governance

standards

(21)

Hotels

Hotels

Attractions and

Activities

e.g., theme parks,

casinos, sports

Attractions and

Activities

e.g., theme parks,

casinos, sports

Airlines,

Cruise Ships

Airlines,

Cruise Ships

Travel agents

Travel agents

Tour operators

Tour operators

Restaurants

Restaurants

Property

Services

Property

Services

Maintenance

Services

Maintenance

Services

Government agencies

e.g. Australian Tourism Commission,

Government agencies

e.g. Australian Tourism Commission,

Great Barrier Reef Authority

Educational Institutions

e.g. James Cook University,

Educational Institutions

e.g. James Cook University,

Cairns College of TAFE

Industry Groups

e.g. Queensland Tourism

Industry Groups

e.g. Queensland Tourism

Industry Council

Food

Suppliers

Food

Suppliers

Public Relations &

Market Research

Services

Public Relations &

Market Research

Services

Local retail,

health care, and

other services

Local retail,

health care, and

other services

Souvenirs,

Duty Free

Souvenirs,

Duty Free

Banks,

Foreign

Exchange

Banks,

Foreign

Exchange

Local

Transportation

Local

Transportation

State of Cluster Development

(22)

Development of the Australian Wine Cluster

1955

Australian Wine

Research

Institute founded

1970

Winemaking

school at Charles

Sturt University

founded

1980

Australian Wine

and Brandy

Corporation

established

1965

Australian Wine

Bureau

established

1930

First oenology

course at

Roseworthy

Agricultural

College

1950s

Import of

European winery

technology

1960s

Recruiting of

experienced

foreign investors,

e.g. Wolf Bass

1990s

Surge in exports

and international

acquisitions

1980s

Creation of

large number of

new wineries

1970s

Continued inflow

of foreign capital

and

management

1990

Winemaker’s

Federation of

Australia

established

1991 to 1998

New collective

organizations created

for education,

research, market

information, and

export promotions

(23)

Develop Related Clusters

Develop

Related Clusters

Upgrade Existing Export

Products and Services

Upgrade Existing

Export

Products and Services

Clusters and Economic Diversification

Deepen Existing Clusters

Deepen Existing

Clusters

Turn Products Into Clusters

Turn

Products

Into Clusters

• Local firms

(24)

The Evolution of Regional Economies

San Diego

U.S.

Military

U.S.

Military

Communications

Equipment

Sporting Goods

Analytical Instruments

Power Generation

Aerospace Vehicles

and Defense

Transportation

and Logistics

Information Technology

1910

1910

1930

1930

1950

1950

1970

1970

1990

1990

Bioscience

Research

Centers

Bioscience

Bioscience

Research

Research

Centers

Centers

Climate

and

Geography

Climate

and

Geography

Hospitality and

Tourism

Medical Devices

Biotech / Pharmaceuticals

Education and

Knowledge Creation

(25)

Furniture Building Fixtures, Equipment & Services Fishing & Fishing Products Hospitality & Tourism Agricultural Products Transportation & Logistics

Clusters and Economic Diversification

Linkages Across Clusters

Plastics Oil & Gas Chemical Products Biopharma-ceuticals Power Generation Aerospace Vehicles & Defense Lightning & Electrical Equipment Financial Services Publishing & Printing Entertainment Information Tech. Communi-cations Equipment Aerospace Engines Business Services Distribution Services Forest Products Heavy Construction Services Construction Materials Prefabricated Enclosures Heavy Machinery Sporting Automotive Production Technology Motor Driven Products

Mining & Metal Manufacturing Apparel Leather & Related Jewelry & Precious Metals Textiles Footwear Processed Food Tobacco Medical Devices Analytical Instruments Education & Knowledge Creation

(26)

Specialization of Regional Economies

Leading Clusters by U.S. Economic Area, 2007

Boston, MA-NH

Analytical Instruments

Education and Knowledge Creation Medical Devices

Financial Services

Boston, MA-NH

Analytical Instruments

Education and Knowledge Creation Medical Devices Financial Services Los Angeles, CA Entertainment Apparel Distribution Services Hospitality and Tourism

Los Angeles, CA

Entertainment Apparel

Distribution Services Hospitality and Tourism

San Jose-San Francisco, CA

Business Services Information Technology Agricultural Products Communications Equipment Biopharmaceuticals

San Jose-San Francisco, CA

Business Services Information Technology Agricultural Products Communications Equipment Biopharmaceuticals

New York, NY-NJ-CT-PA

Financial Services Biopharmaceuticals

Jewelry and Precious Metals Publishing and Printing

New York, NY-NJ-CT-PA

Financial Services Biopharmaceuticals

Jewelry and Precious Metals Publishing and Printing

Seattle, WA

Aerospace Vehicles and Defense Information Technology

Entertainment

Fishing and Fishing Products

Seattle, WA

Aerospace Vehicles and Defense Information Technology

Entertainment

Fishing and Fishing Products

San Diego, CA

Medical Devices Analytical Instruments Hospitality and Tourism

Education and Knowledge Creation

San Diego, CA

Medical Devices Analytical Instruments Hospitality and Tourism

Education and Knowledge Creation

Chicago, IL-IN-WI

Metal Manufacturing

Lighting and Electrical Equipment Production Technology

Plastics

Chicago, IL-IN-WI

Metal Manufacturing

Lighting and Electrical Equipment Production Technology

Plastics

Pittsburgh, PA

Education and Knowledge Creation Metal Manufacturing

Chemical Products

Power Generation and Transmission

Pittsburgh, PA

Education and Knowledge Creation Metal Manufacturing

Chemical Products

Power Generation and Transmission

Denver, CO

Business Services Medical Devices Entertainment

Oil and Gas Products and Services

Denver, CO

Business Services Medical Devices Entertainment

Oil and Gas Products and Services

Raleigh-Durham, NC

Education and Knowledge Creation Biopharmaceuticals

Communications Equipment Textiles

Raleigh-Durham, NC

Education and Knowledge Creation Biopharmaceuticals

Communications Equipment Textiles

Atlanta, GA

Transportation and Logistics Textiles

Motor Driven Products Construction Materials

Atlanta, GA

Transportation and Logistics Textiles

Motor Driven Products Construction Materials

Dallas

Aerospace Vehicles and Defense Oil and Gas Products and Services Information Technology

Transportation and Logistics

Dallas

Aerospace Vehicles and Defense Oil and Gas Products and Services Information Technology

Transportation and Logistics

Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director.

Houston, TX

Oil and Gas Products and Services Chemical Products

Heavy Construction Services Transportation and Logistics

Houston, TX

Oil and Gas Products and Services Chemical Products

Heavy Construction Services Transportation and Logistics

(27)

Regions and Competitiveness

• Economic performance

varies significantly

across sub-national

regions (e.g., provinces, states, metropolitan areas)

• Many essential levers of competitiveness reside at the

regional level

• Region’s

specialize

in different sets of clusters

Cluster strength

directly impacts regional performance

• Each region needs its own distinctive

competitiveness agenda

• Competitiveness requires

effective policy collaboration

between

regions and the national government

Decentralization

of economic policy is especially important in large

countries to foster regional specialization, internal competition, and

accountability

(28)

Economic Integration Among Neighboring Countries

Turkey’s Neighborhood

• Turkey sits at the crossroad between Europe and the Middle East

• Economic coordination among neighboring countries can significantly enhance competitiveness

• Integration offers greater opportunities than participation in broader economic forums (e.g., EU)

(29)

Competitiveness and the Neighborhood

• Opening

trade and investment

among neighbors

– A nation’s

neighbors

are its most natural trading and investment partners

– The natural path of

internationalization

for local firms is the neighborhood

– Open trade and investment make each a more attractive location for

investment

• Economic coordination to drive

improvements in the business

environment

– Capturing

synergies

in policy and infrastructure

– Gaining greater clout in

international negotiations

• External agreements to help

overcome domestic political and

(30)

• Eliminating

trade and

investment

barriers

within

the region

• Simplifying and

harmonizing

cross-border

regulations and

paperwork

• Coordinating anti-monopoly andfair competition policies

• Harmonizing

environmental

standards

• Harmonizing

product

safety

standards

• Establishing

reciprocal

consumer

protection laws

• Opening

government

procurement

within the region

• Improving the

efficiency of the

regional

transportation

infrastructure

• Creating an efficient

energy

network

• Enhancing regional

communications

and

connectivity

• Linking

financial

markets

• Opening the

movement of

students for

higher

education

• Harmonizing

administrative

requirements

for

businesses

• Facilitating

cross-border cluster

development

– e.g., Supplier

networks

– Transport &

Logistics

– Quality

standards

Factor

Conditions

Factor

Factor

Conditions

Conditions

Context for

Strategy

and Rivalry

Context for

Context for

Strategy

Strategy

and Rivalry

and Rivalry

Related and

Supporting

Industries

Related and

Supporting

Industries

Demand

Conditions

Demand

Demand

Conditions

Conditions

Economic Integration Among Neighbors

Capturing Synergies

Macroeconomic

Competitiveness

Macroeconomic

Competitiveness

• Coordinating

macro-economic

policies

• Coordinating

programs to

improve

public

safety

(31)

• A prioritized agenda to

create a

unique

competitive position

for

the country or region

• Implementing

best

practices

in each policy

area

• There are a

huge number

of policy areas that matter

• No country can or should

make

progress in all areas

simultaneously

Policy

Policy

Improvement

Improvement

Economic

Economic

Strategy

Strategy

(32)

National Value Proposition

National Value Proposition

The Need for an Economic Strategy

Refining Unique Strengths

Refining Unique Strengths

Addressing Crucial Constraints

Addressing Crucial Constraints

• What elements of the

business

environment

and

institutional context

can be unique strengths relative to

peers/neighbors?

• What

existing

and

emerging clusters

can be developed?

• What are the crucial

weaknesses

and

constraints

that must be addressed to

achieve parity with peer countries and

allow the country to move to the next

level?

• What are the

distinctive competitive assets

of the nation’s

economy given its location, legacy, rate of progress, existing

strengths, and potential strengths?

– What unique value as a business location?

– In what types of fields / clusters?

– What roles with neighbors, the broad region, and the wider world?

(33)

The Process of Economic Development

Shifting Roles and Responsibilities

Old Model

Old Model

• The

central government

drives

economic development through

policy decisions, spending and

incentives

• The

central government

drives

economic development through

policy decisions, spending and

incentives

New Model

New Model

• Economic development is a

collaborative process

involving

government at multiple levels,

companies, educational and

research institutions, and private

sector organizations

• Economic development is a

collaborative process

involving

government at multiple levels,

companies, educational and

research institutions, and private

sector organizations

• Competitiveness must be a

bottom-up process

in which many

(34)

Role of the Private Sector in Economic Development

• The competitive advantage of companies depends partly on the

quality of

the business environment

at the national and regional level

• A company gains advantages from being part of a strong

cluster

Corporate role in competitiveness

• Inform government on

business needs

and

constraints

bearing on

company and cluster development

• Nurture local

suppliers

and attract foreign suppliers

• Work closely with local

educational

and

research institutions

to improve

their

quality

and

create specialized programs addressing the cluster’s

needs

• Collaborate with other companies to enhance competitiveness through

trade associations

and other mechanisms

Participate actively

in national and regional competitiveness initiatives

• Focus

corporate social responsibility initiatives

on enhancing the

(35)

Private Sector Role in Economic Development

Turkcell in Anatolia

• Turkcell was facing wage pressure and high turnover in its

Istanbul

call center operations, where employees faced long commutes and had

many alternative job opportunities

• Turkcell opened new call centers in

Erzerum

and

Diyarbakir,

which

had become much more accessible by improved air travel and

infrastructure

Turkcell

was able to attract a highly loyal staff from local universities at

significantly lower wage costs

Erzerum

and

Diyarbakir

each gained jobs and momentum in

(36)

Agenda

• Turkey’s Economic Performance

• Principles of Competitiveness

Assessment of Turkey’s Competitive Position

(37)

$0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000

Comparative Labor Productivity

Selected Countries

Real GDP per employee (PPP adjusted US$), 2008

Turkey (Avg. growth 2001to 2008)

Mexico New Zealand Australia Iran Slovakia Pakistan Brazil Malaysia Germany Poland Slovenia Argentina China Philippines Russia Indonesia Bosnia Korea India Thailand Japan Egypt Belarus Czech Republic Georgia Romania Saudi Arabia South Africa Syria Spain Croatia Chile Oman Cambodia Kazakhstan UAE Ukraine Portugal Lithuania Kuwait Israel Jordan Greece Hungary Azerbaijan Cyprus Armenia Albania Macedonia Austria Malta Estonia Singapore Bulgaria Switzerland Latvia Vietnam Serbia

Turkey

(38)

Decomposing Turkey’s GDP per Capita Growth

-$200

-$150

-$100

-$50

$0

$50

$100

$150

$200

$250

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Contribution to change in real GDP per Capita (PPP adjusted)

Labor Force

Participation

Labor

Productivity

(39)

Turkey’s Competitiveness Profile, 2009

Macroeconomic

Competitiveness (71)

Political Institutions

(92)

Rule of Law (75)

Human Development

(73)

Microeconomic

Competitiveness (53)

Social

Infra-structure and Pol.

Institutions (78)

Macroeconomic

Policy (68)

Business

Environment Quality

(56)

Company

Sophistication

(41)

(40)

-20

-15

-10

-5

0

5

10

15

20

Corruption Perception Index, 2007

Note: Ranks only countries available in both years (91 countries total) Source: Global Corruption Report, 2008

Change in Rank, Global Corruption Report, 2007 versus 2001 Rank in Global Corruption Index, 2007

91

1

Finland Canada Bangladesh Indonesia Ireland Portugal Egypt Iceland Czech Republic Slovakia South Korea Latvia India Slovenia Thailand Switzerland France Romania Turkey Estonia Austria Germany Japan Vietnam China Norway UK Malaysia Lithuania Colombia Hungary Taiwan Spain Hong Kong Chile United States South Africa Mexico Croatia Italy Poland Brazil Argentina Israel Venezuela Russia Uruguay New Zealand Sweden Tunisia Peru Tanzania Uganda Senegal Philippines

Zimbabwe Cote d’Ivoire Nigeria

Pakistan Greece Jordan Ukraine Panama

Worsening

Improving

High

corruption

Low

corruption

(41)

Human Development

Turkey vs. Peer Countries

GDP per capita Human Development Index (HDI) Life Expectency Index Education index Gender Development Index (GDI) Slovakia $ 20,076 45 42 59 46 40 Hungary $ 18,755 46 43 73 28 37 Lithuania $ 17,575 49 46 94 20 42 Latvia $ 16,377 51 48 86 26 44 Croatia $ 16,027 52 45 48 51 43 Poland $ 15,987 53 41 51 33 39 Gabon $ 15,167 54 103 154 103 85 Russia $ 14,690 55 71 133 43 59 Libya $ 14,364 57 55 67 61 54 Mexico $ 14,104 58 53 48 78 48 Chile $ 13,880 59 44 35 49 41 Botswana $ 13,604 60 125 170 122 105 Malaysia $ 13,518 61 66 61 99 58 Argentina $ 13,238 62 49 56 37 46 Turkey $ 12,955 63 79 95 111 70 Romania $ 12,369 64 63 83 53 52 Venezuela $ 12,156 65 58 69 47 55 Montenegro $ 11,699 66 65 64 66 .. Panama $ 11,391 67 60 51 72 51 Mauritius $ 11,296 68 81 91 106 67 Bulgaria $ 11,222 69 61 75 44 50 Uruguay $ 11,216 70 50 46 31 45 Iran $ 10,955 71 88 104 119 76 Kazakhstan $ 10,863 72 82 140 22 66 Costa Rica $ 10,842 73 54 33 84 47

Country GDP per capita

(PPP US$), 2007

(42)

Turkey’s Macroeconomic Competitiveness - Continued

Action Priorities

• Strengthen the

independence

of institutions like the Central Bank

• Stronger fiscal discipline

– Create greater stability in government spending through

fiscal rules

• Agree on a process of resolving the

domestic political tensions

among key institutions and interest groups

• Improve the

quality of governmental organizations

, including at the

provincial level

• Continue efforts to improve the accessibility and quality of

education

(43)

Turkish Company Sophistication

Assessment

• Significant

improvements

, especially among large companies

• Solid

operational efficiency

in manufacturing but weaker performance

in

services

• A

huge gap

between the large business groups, that compare

favorably to international peers, and the huge number of SMEs that are

far behind

• The World Bank reports significant entry and exit of new companies,

but

little sustained growth

of small companies in the Turkish

economy

Action Agenda

Consolidate

efforts to improve the performance of SMEs

• Strengthen the

linkages

between large business groups and SMEs

(44)

WEAKNESSES

STRENGTHS

Turkey’s Business Environment

Overall Strengths and Weaknesses

• Domestic transportation and

communication infrastructure

• Rules and regulations for starting new

companies

• Openness to foreign investment

• Moderate level of tariff barriers

• Domestic rivalry improving

• Availability of local suppliers

• IT policies

• Improving sophistication of the financial

system

• Tax system

• Access to credit, especially for SMEs

• Limited workforce skills

• Low sophistication of local buyers

• Weak governance and auditing

• Distortive effects of government-owned

companies on competition

• Unreliable electricity supply

• Innovation infrastructure

• Burdensome customs procedures

• Intellectual property protection

• Low patenting rates

• Limited management schools

• Labor rigidity

• Regulatory quality

Note: Rank versus 128 countries; overall, Turkey ranks 57thin 2008 PPP adjusted GDP per capita and 64thin Global Competitiveness

(45)

0

20

40

60

80

100

120

140

Ease of

Doing ContractsEnforcing RegisteringProperty Starting aBusiness ProtectingInvestors TradingAcross GettingCredit PayingTaxes Closing aBusiness Dealingwith EmployingWorkers

Ease of Doing Business

Turkey, 2009

Ranking, 2009 (of 183 countries)

Favorable

Unfavorable

Turkey’s per capita GDP rank: 57

73 27 36 56 57 67 71 75 121 133 145

(46)

0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0%

Cluster Development

Turkey’s National Cluster Export Portfolio, 1997 to 2007

Change in Turkey’s world export market share, 1997 to 2007

Source: Prof. Michael E. Porter, International Cluster Competitiveness Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director. Underlying data drawn from the UN Commodity Trade Statistics Database and the IMF BOP statistics.

Turke y ’s world export market share, 2007

Change In Turkey’s Overall World Export Share: +0.18%

Turkey’s Average World Export Share: 0.87%

Exports of US$3.3 Billion =

Hospitality and Tourism

Automotive Processed Foods

Business Services (-1.59%)

Transportation and Logistics

Biopharmaceuticals

Production Technology Motor Driven Products

Oil and Gas

Marine Equipment

Information Technology Aerospace Vehicles and Defense Plastics Textiles Construction Services (-5.2%) Agriculture Products Construction Materials Financial Services

Lighting and Electrical Equipment Heavy Machinery

Prefabricated Enclosures and Structures

Entertainment

Jewelry, Precious Metals and Collectibles Communications Equipment

Metal, Mining and Manufacturing Apparel

Furniture Footwear

Leather and Related Products

Building Fixtures and Equipment Tobacco

(47)

Furniture Building Fixtures, Equipment & Services Fishing & Fishing Products Hospitality & Tourism Agricultural Products Transportation & Logistics

Share of World Exports by Cluster

Turkey, 2007

Plastics Oil & Gas Chemical Products Biopharma-ceuticals Power Generation Aerospace Vehicles & Defense Lightning & Electrical Equipment Financial Services Publishing & Printing Information Tech. Communi-cations Equipment Business Services Distribution Services Forest Products Heavy Construction Services Construction Materials Prefabricated Enclosures Apparel Leather & Related Jewelry & Precious Metals Textiles Footwear Processed Food Tobacco Medical Devices Analytical Instruments Education & Knowledge Creation Marine Aerospace Engines Heavy Machinery Sporting Automotive Production Technology Motor Driven Products

Mining & Metal Manufacturing

0.9% - 1.5%

1.5% - 3%

> 3%

Enter-tainment

(48)

Real Estate Development Firms

Real Estate Development Firms  Housing projects  Hotels  Office space  Road construction  Dams  Energy projects Contractors, Subcontractors, Design Services Contractors, Subcontractors, Design Services  Builders  Architects  Engineering firms Institutions of Collaboration Tourism Tourism Transport / Logistics Transport / Logistics Building Fixtures & Equipment Building Fixtures & Equipment Construction Materials Construction Materials Other: Furniture, Mining, Heavy Machinery Other: Furniture, Mining, Heavy Machinery  9th largest exporter in world  28thlargest exporter in the world  19thlargest exporter in the world  8thlargest exporter in the world Related Clusters National / Local Government National / Local Government  Domestic  Foreign Real Estate Investors Real Estate Investors Households Households  TOKI  Southeastern Anatolia Project Administration  Primary & Secondary Housing Industry Industry  Energy  Manufacturing Equity Financing Ministry of Public Works & Settlement Ministry of Public Works & Settlement  Laws Setting Standards Town Urban Planning Depts. Town Urban Planning Depts.  Awarding of Licenses  Inspections Regulatory Bodies Banking Institutions Banking Institutions  Mortgages  Construction Services Co Funding  Project Finance Debt Financing Professional Associations / Chambers Professional Associations / Chambers  Contractors, construction employees  Engineers, city planners, architects Related Cluster Assoc. Related Cluster Assoc. Real Estate Investment Associations Real Estate Investment Associations Univ. Degrees Univ. Degrees Educational Institutions  BillKent (Private)  Middle East Technical Univ. (Public)  Istanbul Technical Univ. (Public)  Private Universities  One major association

 Urban Planning firms

 Repair & Maintenance professionals

200,000 companies with 100,000 in informal sector 15 large companies

Construction Services

 Multiple associations for each related cluster  Multiple successful related clusters Sources: HBS student team research (2007) – Yannis Katsarakis, Amr Rezk, Emrah Sazak, Hayder Shaydurrllin, Bahadir Yadikar

(49)

State of Turkish Cluster Development

Assessment

• Turkey’s economy has

naturally developed

around clusters

Organized collaboration

within these clusters remains

low

• Economic policy has

not leveraged cluster development

as a tool to

create synergies and deliver government policies more effectively

– Recent EU-financed cluster programs have

not yet

had a significant

impact in Turkey

Action agenda

• Pursue an aggressive

national cluster development

agenda to

support existing clusters and enable the emergence of new clusters in

related fields

• Utilize clusters as a central tool for upgrading company sophistication,

stimulating growth in SMEs, and driving regional competitiveness

(50)

Develop Related Clusters

Develop

Related Clusters

Upgrade Existing Export

Products and Services

Upgrade Existing

Export

Products and Services

Clusters and Economic Diversification

Deepen Existing Clusters

Deepen Existing

Clusters

Turn Products Into Clusters

Turn

Products

Into Clusters

• Local firms

(51)

0.0% 0.5% 1.0% 1.5% 2.0% 0.4% 0.6% 0.8% 1.0% 1.2% 1.4% 1.6% 1.8% Su bcluster’ s share of World exports , 2006

Turkey’s Automotive Cluster, 1997 – 2007

Exports by Subcluster

Motor Vehicle Assembly

Subcluster Overall Export Share: 1.37%

Overall change in Subcluster World Export Share : +1.21%

Glass

Automotive Components

Engines

Automotive Parts

Production Equipment

(52)

$0

$2,000

$4,000

$6,000

$8,000

$10,000

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

Regional Economic Performance

Turkish Provinces

Unweighted Turkish Average: 0.81%

Note: 2001 is latest available data for Turkish provinces. Source: OECD Regions at a Glance: 2009

Unweighted Turkish

Average: $4,888

Adana Izmir Muğla Yalova Eskişehir Kirklareli Kirikkale Nevşehir Bursa Ankara Istanbul Kocaeli ($17,036) Bolu (10.82%, $11,649)

Çanakkale Mersin Edirne

Artvin Zonguldak (8.37%) Antalya Tekirdağ

GDP per Capita, 2001

(USD, PPP-adjusted)

Growth of Real GDP per Capita (PPP-adjusted), CAGR, 1995-2001

Manisa Bilecik Sakarya Kayseri / Kastamonu Kütahya Tunceli Hatay Giresun Sivas Düzce (-13.13%) Bayburt Osmaniye Sinop Batman Aydin / Karaman Balikesir

Burdur Rize Kilis Ordu Bingöl Şirnak Muş Agri Yozgat Aksaray Adiyaman Ezrincan Uşak Bitlis Niğde Elaziğ Kahramanmaraş Denizli Van Hakkari Afyon Isparta Samson Çorum Diyarbakir

MaltyaKanya Kirşehir

Gümüşhane Siirt

Çankiri Ardahan

(53)

Specialization by Cluster of Turkish Regions, 2007

Istanbul

Textiles

Leather and Apparel Distribution Services Jewelry

Istanbul

Textiles

Leather and Apparel Distribution Services Jewelry Bati Anadolu Furniture Construction Materials Distribution Services Bati Anadolu Furniture Construction Materials Distribution Services Akdenziz Textiles

Hospitality and Tourism

Akdenziz

Textiles

Hospitality and Tourism

Orta Anadolu

Furniture Textiles

Agricultural Products

Metal Mining and Manufacturing

Orta Anadolu

Furniture Textiles

Agricultural Products

Metal Mining and Manufacturing

Bati Karadeniz

Tobacco Apparel

Metal Mining and Manufacturing Forest Products

Bati Karadeniz

Tobacco Apparel

Metal Mining and Manufacturing Forest Products Dogu Karadeniz Food Processing Distribution Services Furniture Forest Products Dogu Karadeniz Food Processing Distribution Services Furniture Forest Products Ortadogu Anadolu Textiles Agricultural Products Ortadogu Anadolu Textiles Agricultural Products Guneydogu Anadolu Textiles Tobacco Oil and Gas Food Processing

Guneydogu Anadolu

Textiles Tobacco Oil and Gas Food Processing Bati Marmara Apparel Textiles Chemicals Construction Materials Bati Marmara Apparel Textiles Chemicals Construction Materials Dogu Marmara Textiles Automotive Apparel Furniture Dogu Marmara Textiles Automotive Apparel Furniture Ege Tobacco Textiles Construction Materials Apparel Ege Tobacco Textiles Construction Materials Apparel Kuzeydogu Anadolu Agricultural Products Footwear Distribution Services Hospitality and Tourism

Kuzeydogu Anadolu

Agricultural Products Footwear

Distribution Services Hospitality and Tourism

(54)

Regional Economic Development in Turkey

Action Agenda

• Decentralize economic policy making to enhance

regional leadership

while creating

incentives / accountability for performance

• Create a sound

development platform

in each region, including

sound physical infrastructure and the provision of basic public services

• Create

regional governmental capability

to assume responsibility for

regional economic development

• Decentralization of economic policy should be seen as a

long term

process

, with devolution taking place in stages as regional

(55)

Economic Integration Among Neighboring Countries

Turkey’s Neighborhood

(56)

Economic Coordination with Neighboring Countries

Assessment

• Turkey’s geographic position between a number of important global

regions provides

huge opportunities

• While government policy has focused on

politically stable relations

with neighbors

, companies have started to extend their operations

into these neighboring countries

Action Agenda

• Turkey should pursue economic coordination with neighboring

countries as a

critical tool of economic policy

to reap the full benefits

of its geographic location

• Turkey has a great opportunity to

create a new Eastern

(57)

Agenda

• Turkey’s Economic Performance

• Principles of Competitiveness

• Assessment of Turkey’s Competitive Position

Towards an Economic Strategy

(58)

Toward a Turkish Economic Strategy

Implications

Maintain a sound macroeconomic

policy platform

Achieve political stability

Continue to strengthen workforce skills

Consolidate efforts for SME development

Mobilize cluster development

• Large workforce with a strong

work ethic at competitive wage

levels

• Strong entrepreneurial “trading”

legacy

• Significant and growing domestic

market

• Large, spread out geographic

area with heterogeneous regions

• Geographic position at the

crossroads of major world regions

• Companies with experience to

operate in challenging policy

environments

• Stronger market institutions than

other emerging economies

• Large workforce with a strong

work ethic at competitive wage

levels

• Strong entrepreneurial “trading”

legacy

• Significant and growing domestic

market

• Large, spread out geographic

area with heterogeneous regions

• Geographic position at the

crossroads of major world regions

• Companies with experience to

operate in challenging policy

environments

• Stronger market institutions than

other emerging economies

Unique Strengths

Decentralize economic policy and

strengthen regional institutions

Simplify trade of goods and services

Intensify economic collaboration with

neighbors

Strengthen physical infrastructure

connecting provinces and neighbors

(59)

Turkey: Moving to Action

• Strong

private sector leadership

is needed to address the well

documented competitiveness challenges facing Turkey

• Encourage

Provincial Competitiveness Councils

working with the

new economic development agencies to drive consensus on

provincial plans which monitor implementation

– Involve representatives from the public, private and academic sectors as

well as federal government participation

• Work towards the creation of a private-sector led

National Council

on Competitiveness

to build consensus on an overall economic

strategy and track implementation

– Public sector and academia participation is critical in order to develop

effective national policy and coordinate implementation

(60)

Moving the Next Level of Turkish Competitiveness:

The Role of the Private Sector

• The recent improvements in Turkish economic policy have created new

opportunities

for Turkish companies to grow and upgrade

• The next stage of economic development will require companies to

become a more

active partner

in the design and implementation of

economic policy

– Participate in national and regional competitiveness efforts

– Collaborate with other companies in upgrading the business environment

• A

coherent economic strategy

for Turkey will be crucial to allow the

country to be able to fundamentally enhance competitiveness

• Such a strategy will only be effective only if it is based on a new

model

Figure

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References

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