Turkey - National innovation and technology system : recent progress and ongoing challenges by World Bank Turkey Office

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Report No. 48755-TR

Turkey National Innovation and Technology System Recent Progress and Ongoing Challenges

Europe and Central Asia Region

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National Innovation and Technology System

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Turkeyâ&#x20AC;&#x192;

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June 2009

Document of the World Bank

Abbreviations and Acronyms BEEPS BTYK CEM CMB CPS EBRD EPO ERA EU EU-15 EU-8 EU-25 EU-27 FDI GDP GERD HR KOSGEB ICA ICs ICT IPR IS0 ITP KE M&E MAM MARA MIS MoF

MoIT MSI MSTQ OECD NIS NGO R&D RDI S&T SMES SPO

TAEA TARAL TDF TEKMER TEP TOBB

Business Environment and Enterprise Performance Survey Supreme Council of Science and Technology Country Economic Memorandum Capital Markets Board Country Partnership Strategy European Bank for Reconstruction and Development European Patent O f f i c e EuropeanResearch Area European Union Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden, United Kingdom Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, Slovenia E U - 1 5 plus the ten Member States that joined in May 2004 E U - 1 5 plus E U - 8 plus Romania and Bulgaria Foreign D i r e c t Investment Gross Domestic Product Gross Expenditures on R&D Human Resources Small and Medium IndustryDevelopment Organization I n v e s t m e n t Climate Assessment I n v e s t m e n t C h a t e Survey Information and Communication Technology Intellectual Property Rtghts International Standards Organization IndustrialTechnology Project Knowledge-basedEconomy Monitoring and Evaluation Marmara Research Center Ministry of Agriculture and Rural Affairs Management Information Systems M i n i s t r y of Finance Ministry of I n d u s t r y and Trade Mdlennium Science Initiative Metrology, Standards, Testing and Quality Organization for Economic Cooperation and Development National Innovation (and Technology) System Non-Governmental Organization Research and Development Research and Development Institution Science and Technology Small and Medium-Size Enterprises State Planning Organization Turhsh Atomic Energy Authority Turhsh Research Area Technology Development Financing Center of Technology Building Total Factor Productivity Union o f Chambers o f Industry and Commerce

Abbreviations and Acronyms (Contâ&#x20AC;&#x2122;d.)

TPE TTGV TRY TSE TTO TUBA

TUBITAK

TURKAK UFT UME USAMP

UT VAT

VCITs YOK

Turkish Patent I n s t i t u t e

Technology Development Foundationof Turkey New Turkish L i r a Turhsh Standards Institution Technology Transfer Office Turkish Academy of Sciences

Scientific a n d Technological Research Council o f T u r k e y Turkish Accredltation Agency Undersecretariat o f Foreign Trade National Metrology I n s t i t u t e University-IndustryJoint Research Centers Program

United States

Undersecretariat o f Treasury Value Added Tax Venture Capital Venture Capital Investment T r u s t s Council o f Higher Education

Table o f Contents Executive Summary ................................................................................................................................................... i

I. 11.

Introduction

..................................................................................................................................................

Turkeyâ&#x20AC;&#x2122;s National Innovation System........................................................................................................ A . Overview of Institutions, Policies and Programs ..................................................................................... B. Intellectual Property Rights Regime ......................................................................................................... C. Collaboration between t h e Enterprise and Research Sectors .............................................................. D. Innovation Finance: Venture Capital and Business Angels ................................................................. E. Human Resources: Skills and Education................................................................................................ I11. Technology Upgrading and Innovation by the Enterprise Sector ..................................................... A . Technology Adoption and Diffusion ..................................................................................................... . B. International Technology Transfer .......................................................................................................... C. Innovation and R&D at the Enterprise-Level....................................................................................... D. Possible Causes for Low Technology Diffusion ................................................................................... E. Enterprise Case Studies ............................................................................................................................. I V. Summary and Conclusions ....................................................................................................................... V. References ...............................................................................................................................................

1 4 4 10 12 15 18 20 20 23 25 26 27 29 32

ANNEXES Annex I: Annex 11: Annex 111: Annex IV: Annex V:

Key Actors o f the National Innovation System......................................................................... Main ImplementingAgencies of Public R&D Support Programs ......................................... Policy Measures in the National Innovation System................................................................. Summary of Main R&D Related Legislation.............................................................................. Innovation S u p p o r t Programs in Turkey ....................................................................................

33 41 43 52 53

FIGURES Figure 1: Innovation Conceptual Framework....................................................................................... 2 Figure 2: Turkey Gross Expenditures on R&D (GERD) as a share of GDP (YO),1998-2007 ...............7 Figure 3: International Comparisons o f R&D Intensity and High Tech Exports ............................... 8 Figure 4: Technology Diffusion in Manufacturing and Services .......................................................... 21 Figure 5: U s e of I C T in Interaction with Clients and Suppliers .......................................................... 22 Figure 6: Share o f Imported Inputs, 2005 ........................................................................................... 2 3 Figure 7: Distribution of FDI by Sector, 2005 .................................................................................... 2 3 Figure 8: International Comparisons of Firms Developing and Upgrading Products......................... 25

TABLES Table 1: Public Expenditures on Innovation and Technology Programs...................................................... Table 2: Public R&D Support to Turkish Enterprises ...................................................................................... Table 3: K e y Findings from Case Studies of S M E s in Labor-Intensive Sectors .........................................

6 6 27

Acknowledgements T h i s r e p o r t was prepared, in collaboration with the Turkish Government, by a World B a n k T e a m l e d by Paulo Correa (TTL) a n d comprised by Vinod K. Goel, Chris J. Uregian, S i r i n Elci, I r e m Guceri,

I a n Cooper, Alasdak Reid, I h s a n Karatayli, D o h a Cebotari, Naotaka Sawada a n d D o n a t o de Rosa. T h e r e p o r t has been prepared in the context of the “Turkey: N a t i o n a l I n n o v a t i o n a n d Technology System (NIS) Assessment” Study b e i n g conducted jointly by t h e Turkish G o v e r n m e n t a n d the World Bank. T h e r e p o r t reviews the recent progress a n d ongoing challenges of Turkey’s N a t i o n a l I n n o v a t i o n a n d Technology System a n d identifies potential areas for further analysis. Special thanks are given to U h c h Zachau (Country Director, ECCU6), Fernando Montes-Negret (Director, ECSPF) a n d L a l i t Raina (Sector Manager, ECSPFi) who supported the team in the preparation a n d c o m p l e t i o n of t h i s report. T h e team i s grateful to Carl D a h l m a n (Georgetown University), M a r k A D u t z (World Bank), a n d M a u r e e n M c L a u g h l t n (World Bank) who were peer reviewers for t h i s paper.

Executive Summary I n Januay 2008, the Turkish Government has requested the World Bank to j o i n t 4 undertake an assessment of its National Innovation System in order to help guide the Turkish Government’s ongoing eforts to deepen innovation in the Turkish economy. The World Bank/ T u r k y Country Partnership Strategv (CPJ) 2008-20 I 1 ident$es ‘Improved Competitiveness and Employment Opportunities” as one of the ky areas of engagement, and within this context, recommendr studies related to technolog adoption, R&D and innovation. This document is a first attempt t o address this request. Itfocuses on the recent progress and ongoing challenges ofthe Turkish NIS,p a r t i d r b in terms

of developing innovation and technologv policies that enable sustainedgrowthandjob creation.

1. Turkey’s Ninth Development Plan (NDP, 2007-2013) envisages doubling nominal per capita income and raising employment by 2.7% per year during the 2007-2013 period. To sustain rapid growth in the years ahead, Turkey will also need among other things (boosting ICT, labor skills, innovation etc) to raise labor productivity, which i s currently at less t h a n 40% o f the EU25 average (or 29% of t h e us). 2.

Innovation and technology diffusion can be critical factors for enhancing productivity gains that underpin competitiveness, growth and employment generation. Innovation and technology diffusion lead to more efficient processes and lower costs of production for new (or higher quality) products, thereby raising overall levels o f productivity. T h e National Innovation System (NIS determines innovation and technology diffusion in an economy and thus i s indrectly related to labor productivity.

3. T h e Turkish Government recognizes the importance o f technology diffusion and innovation, having set ambitious targets with a focus on the enterprise sector. These targets include (i) increasing total R&D expenditures from less than 0.6% to 2% o f GDP; (i raising ) the share o f privately realized R&D from 29% to 60% o f t h e total; (ii)expanding the number o f researchers from under 24,000 to 80,000; and (iv) augmenting the internet penetration rate from 20% to 60%.

4. Accordingly, public expenditures o n Science and Technology have increased substantially in recent years. T h e Government increased the allocation of funds for R&D in recent years, especially since 2005, with more than US$1.5 billton allocated to the Scientific and Technological Research Council o f Turkey (TUBITAK) alone for 2005-08. Total R&D expenditures as a share o f GDP in Turkey rose from 0.67% in 2002 to 0.76% in 2006. T h i s trend i s expected to continue.

I n addition, fourteen new policy measures and programs have been introduced. Most of these measures a i m to facihtate industry-researcher cooperation and to support innovative start-up companies. More broadly, systematic efforts to improve Turkey’s innovation and technology performance have been made throughout the last decade, including the creation of Technology Development Zones and the alignment o f the intellectual p r o p e r t y rights (IPR) regime with t h e European Union.

6. Turkey’s National Innovation System i s fairly well developed by international standards. Nevertheless, some challenges remain to b e addressed. T h e s e challenges are particularly relevant in order to position Turkey’s Innovation and Technology policies to contribute effectively to sustaining economic growth and raising employment. For that purpose i t i s important to understand the obstacles for the transformation of knowledge into productivity gains and innovation. 7. T h e private sector‘s share o f total R&D expenditures has been increasing steadily. Total R&D expenditures in Turkey rose by 50% between 2003 and 2005, up from US$2.9 bLUton (FPP) to US$4.4 billion (PPP). T h i s reflects the highest growth rate globally (with China) and i s substantially higher than in the E U - 2 7 countries (9”/0). From 2003 to 2006, the share of total R&D financed by the

enterprise sector (that includes p u b l i c a n d private f m s ) also increased significantly by 10% to reach 46% of total expenditures.

8. However, R&D i s largely performed by Universities and Research and Development Institutes (RDIs) with public financing. Despite steady increases, the enterprise sector performed a smaller share o f R&D in T u r k e y (37%) than the OECD average (62.5%), a n d foreign financing of R&D i s m u c h l o w e r t h a n in emerging economy comparators. Risk-aversion m a y b e one reason against greater R&D financing by the enterprise sector, along with the possible “crowding-out” effect o f publicly financed R&D due to a scarcity of researchers. T h e n e w R&D L a w , enacted in February 2008, i s expected to increase both foreign a n d local private participation in R&D activities.

9. Turkey’s intellectual property rights framework i s broadly aligned with the EU but implementation needs to be strengthened. N o t w i t h s t a n d i n g certain divergences, the IPR legislative f r a m e w o r k i s in h e with EU standards, yet i m p l e m e n t a t i o n a n d enforcement m o s t notably in the area o f industrial p r o p e r t y rights, needs to b e strengthened to reach EU levels. T h i s requires legislative changes, capacity building o f key institutions (IP courts, Turkish Patent Institute) a n d greater cooperation between the public, private a n d non-governmental actors.

10. T h e Government i s increasing measures to further collaboration between the enterprise and research sectors, but progress i s slow. L i m i t e d collaboration between public research institutes, universities a n d the enterprise sector contributes to the low productivity o f Turkey’s N I S . O n e cause i s the regulatory framework that creates disincentives for researchers to o f f e r consulting services to enterprises (university r e v o l v i n g fund regulations) a n d to establish start-ups, a n d for universities to commercialize research (distribution of royalty rights). In addition, the quantity a n d quality o f m a n y i m p o r t a n t N I S intermediaries (technology transfer offices, venture capital) that facilitate collaboration between industry a n d research institutes can b e raised a n d the Turkish G o v e r n m e n t i s m a l u n g efforts in t h i s direction, most n o t a b l y with the expansion o f technology transfer offices in m a j o r universities. 11. Scarcity o f human capital i s another critical bottleneck. T h e r e are 2.0 researchers p e r thousand of total employed in Turkey, w h i c h i s l o w e r t h a n the EU-27 average o f 5.8. O n e o f the m a i n reasons for this scarcity i s a brain-drain that claims a significant share o f Turkish researchers who reside abroad upon completion of their PhDs. To tackle this problem, TUBITAK, the M i n i s t r y o f N a t i o n a l E d u c a t i o n a n d the M i n i s t r y o f Industry a n d T r a d e have developed programs, a n d G o v e r n m e n t efforts to modernize the higher education system are in place.

12. A lack o f innovation finance due to the underdevelopment o f the venture capital (VC) and business angel sector i s another constraint to the performance o f Turkey’s N I S . T h e r e are only three Venture Capital Investment Trusts in Turkey, with annual investments l o w e r than US$lOO d o n . T h e regulatory framework a n d government incentives to the financial sector constrain development of these services. In addition, the d e m a n d (deal flow) for VC a n d business angels’ services i s also low, further constraining development o f t h s sector. 13. Currently, technology adoption in Turkey i s low. T h e World B a n k Enterprise Survey o f 2005 reveals that Turkish firms generally choose to purchase machinery a n d equipment, rather than developing a n d adapting their own technology. In addltion, fewer Turkish firms r e p o r t to have purchased n e w machinery in the preceding year t h a n those in comparator countries. In 2005, 42% o f firms in T u r k e y reported the acquisition o f n e w machinery, w h i c h i s a l o w e r technology acquisition rate t h a n in m a n y other emerging economies such as B r a z i l (68%). 14. Technology transfer from abroad remains relatively limited as well. T h e n u m b e r o f joint ventures established with foreign f m s , a m a j o r source o f technology upgrading for developing countries, seems to b e l o w e r in T u r k e y than comparator countries. Furthermore, although Foreign D i r e c t Investment (FDI) inflows have increased significantly in recent years, manufacturing sectors did not get the largest share o f t h i s increase a n d levels o f investment seem m u c h l o w e r than in most n e w EU m e m b e r states. T h e r e i s also scope to increase global knowledge transfer to T u r k e y v i a the large Turhsh Diaspora.

15. Both large-scale survey data and case studies show that firm-level innovation i s limited, especially in labor-intensive sectors. T h e percentages of firms i n t r o d u c i n g a n e w product, or upgradmg their products, remain b e l o w those of comparators such as Brazil, Thailand, Chile a n d Poland. On the other hand, private R&D intensity i s similar to comparators: expendltures on R&D as a share o f sales are 0.3%, about the same as a selection o f comparable economies. 16. Case studies of S M E s in certain sectors suggest that the main constraints to upgrading innovation and technology in the enterprise sector are deficient labor skills, limited access to credit, and a lack of knowledge transfer. These factors, along with additional costs incurred by Turhsh firms such as high prices a n d inconsistent supply o f energy as w e l l as high tax rates, negatively affect the capacity o f enterprises to innovate a n d a d o p t technology, hurting their global competiveness. 17. These findings suggest areas for further analysis. At the strategic level, there are i m p o r t a n t questions related to the emphasis o f the national i n n o v a t i o n p o l i c y f r a m e w o r k a n d the interaction between NIS institutions. These questions include: (i) I s the balance between p u b l i c support for R&D in industry vs. a g c u l t u r e optimum, given the large share o f e m p l o y m e n t in agriculture a n d service sectors in Turkey?; (ii) Could the recent surge in p u b l i c R&D expenditures b e â&#x20AC;&#x153;crowding-outâ&#x20AC;? private R&D?; a n d (iii) A r e there mechanisms employed in N I S systems in OECD economies that c o u l d b e used in T u r k e y to h e l p i m p r o v e p o l i c y coordination a n d enhance communication a n d knowledge sharing between the different N I S actors?

18. There are also other issues in the policy and institutional framework that would benefit from further analysis, such as IPR protection, enterprise-research-university sector collaboration, and the innovation finance industry. G i v e n the recent surge in n e w support programs in the Turkish N I S , useful insights c o u l d b e gained from the establishment o f monitoring a n d evaluation mechanisms for k e y programs, using techniques c o m m o n in OECD economies. T h e key programs that c o u l d b e assessed include private R&D s u p p o r t schemes (tax incentives, soft loans a n d m a t c h n g grants), T e c h n o p a r k incentives, a n d technology diffusion programs. In addltion, further analysis of firm-level surveys a n d case-study data c o u l d p r o v i d e a deeper understanding o f the relative constraints to i n n o v a t i o n a n d technological upgrading in the Turkish enterprise sector, a n d thus i m p r o v e future p u b l i c p o l i c y design a n d implementation.

iii

Turkey- National Innovation and Technology System Recent Progress and Ongoing Challenges

I. Introduction 1. In January 2008, the Turkish Government requested the World Bank to jointly undertake an assessment o f its National Innovation System in order to help guide i t s ongoing efforts to deepen the role of innovation (and i t s performance) in the Turkish economy. T h e World B a n k / T u r k e y Country Partnership Strategy (CPS) 2008-2011 identifies the enhancement o f technology a d o p t i o n a n d i n n o v a t i o n as a key priority for engagement within the context of improving competitiveness a n d employment opportunities. U n d e r the CPS framework, a series of analytical studies are planned, i n c l u d i n g one focused on technology adoption, R&D a n d i n n o v a t i o n for t h e 2008-2009 period. T h e G o v e r n m e n t requested t h i s Study in order to p r o v i d e critical input to i t s efforts in this area a n d t h i s R e p o r t has been prepared in the context o f t h i s Study. 2.

Sustaining economic growth, expanding employment and raising labor productivity i s a key development challenge in Turkey. To sustain r a p i d growth in the years ahead, T u r k e y will need to a m o n g o t h e r things raise l a b o r productivity, w h i c h i s currently at less than 40% o f the EU-25 average (or 29% o f the US). As indicated in the World Bank‘s 2007 T u r k e y E c o n o m i c M e m o r a n d u m (CEM), raising l a b o r p r o d u c t i v i t y wdl require increasing total factor productivity (TFP) a n d the a m o u n t o f capital p e r worker. T h i s , in turn, entails the challenge o f raising investment levels w h i l e addressing the savings-investment gap a n d Turkey’s structurally high current account deficit. Despite strong economic growth since 2002, employment has not been increasing commensurately. Generating m o r e a n d better jobs i s the principal channel for distributing the benefits of economic growth to Turhsh citizens. E m p l o y m e n t g r e w by a n annual average o f about 0.7% in 2002-2006, considerably l o w e r t h a n the required level to keep pace with the r a p i d expansion o f the working age population. Turkey’s employment rate in 2006 was 46%, b e l o w all EU countries a n d the Lisbon Agenda target o f 70%.

3. A favorable investment climate enables the private sector investment and productivity improvements needed to sustain long-term competiveness, growth and employment generation.’ A good investment clunate i s comprised of a n u m b e r o f fundamental factors that determine the private sector’s capacity to invest a n d i m p r o v e productivity. These factors include: macroeconomic stabdity; sound legal institutions a n d r u l e o f l a w that ensure predictable contract a n d p r o p e r t y rights enforcement; a n d competitive p r o d u c t markets support by strong c o m p e t i t i o n a n d o p e n trade policies. A regulatory e n v i r o n m e n t a n d tax regime that are not overly burdensome also play a n i m p o r t a n t r o l e on f m s ’ incentives to invest. O t h e r i m p o r t a n t factors include efficient financial markets that a l l o w firms to get access to funding for their ventures a n d good infrastructure that enables fEms to connect with their customers a n d suppliers a n d helps t h e m take advantage of m o d e r n p r o d u c t i o n techniques. Finally, flexible l a b o r market institutions that a l l o w f m s to r e s p o n d to m a r k e t changes w h i l e helping workers deal with change a n d a skilled w o r k f o r c e are essential for f m s to a d o p t new, m o r e productive technologies.

4. Innovation and technology diffusion can be critical factors for enhancing productivity gains that underpin competitiveness, growth and employment generation.2 I (<

A Better Investment C h a t e for Everyone,” World Development Report 2005, World Bank, Washington DC

For economic theory and empincal evidence o f the links between compemon, innovation, producuvity growth, and overall cconomic growth, sce Aghion (2006), Aghion, Bloom, and others (2005), and Aghion, Blundcll, and otherq (2006)

I n n o v a t i o n a n d technology d f f u s i o n p r o m o t e technological progress w h i c h in turn leads to m o r e efficient processes a n d l o w e r costs o f p r o d u c t i o n for n e w (or h i g h e r quality) products, thereby raising overall levels o f productivity. F i g u r e 1 shows a conceptual f r a m e w o r k that defines i n n o v a t i o n a n d technology diffusion a n d depicts their relationship with h i g h e r p r o d u c t i v i t y in a n economy. I n n o v a t i o n , d e f i n e d as knowledge creation a n d commercialization, a n d technology (or knowledge) diffusion a n d a b s o r p t i o n can p r o m o t e p r o d u c t i v i t y gains a n d growth w h e n c o m p l e m e n t e d with a favorable investment climate that creates incentives (most notably through strong competition) for the enterprise sector to invest in activities that increase p r o d u c t i v i t y . At the same time, i n n o v a t i o n a n d technology Qffusion n e e d to b e supported by mechanisms that deliver strong education a n d s l d s , hgh quality i n f o r m a t i o n a n d c o m m u n i c a t i o n technology (ICT) infrastructure, a n d accessible a n d affordable i n n o v a t i o n finance.

Figure 1: Innovation Conceptual Framework

Y KNOW LEDGE DIFFUSION AND ABSORPTION

CREATIOK AND

Spurring enhanced global inowledge flows

Increasing private R & D efforts * Improving the allocation and efficiency o f public R&D

Strengthening commercialization o f knowledge

Harnessing formal creation ictivities for the poor Promoting and diffusing ndegenous grassroots nnovation

Strengthening absorptive :apacity o f small and medium size enterprises (SMEs) Helping . - informal sector bette

INFO RRI A’r ION INFRASI’RIIC‘I‘tIHE

(improving primary and secondary education, and informal sector skills) Building worker and manager skills Increasing highly skilled engineers and researchers (improving Turkey’s university systems)

Improving the quality, difYusion and absorption o f netrology, standards, testing, 2nd quality services 1

Expanding I C T infrastructures in urban and rural areas Developing I C T infrastructure for high-end research institutions and other applications

INNO\‘ A T 1ON FINANCE

Providing financial support for early-stage technology development Deepening early-stage venture capital *Promoting pro-poor finance Strengthening finance for technology absorption by SMEs

Source: Adapted based on “Unleashing India’s Innovation.” The World Bank. Washington D C (2007)

5. T h e Turkish Government has recognized the need to enhance innovation and technology diffusion in the economy, particularly through the private sector, in order to sustain competitiveness and growth. Turkey’s Ninth D e v e l o p m e n t P l a n (NDP, 2007-2013), a p p r o v e d by the N a t i o n a l G e n e r a l Assembly in 2006, lays out the Government’s r e f o r m strategy for sustained e c o n o m i c development in the 2007-13 p e r i o d a n d sets targets i n c l u d m g the doubling o f n o m i n a l p e r capita i n c o m e by 2013 a n d the increase o f e m p l o y m e n t by 2.7% p e r year. T h e strategy also emphasizes the i m p o r t a n c e o f increasing i n n o v a t i o n a n d technology Qffusion as “one o f the

most i m p o r t a n t factors” for Turkey’s competitiveness a n d sets t h e following targets for the p e r i o d 2007-2013: (i) increase total R&D expenditures from less t h a n 0.7 to 2% of GDP; (ii) raise the share o f privately realized R&D from less t h a n 30% to 60% o f the total; (iii) expand the n u m b e r of researchers from u n d e r 24,000 to 80,000; a n d (iv) augment the internet penetration rate from 20% to 60%. To achieve these targets, the Turkish G o v e r n m e n t has in recent years substantially increased public expendltures on R&D a n d o t h e r programs supporting i n n o v a t i o n a n d technology diffusion a n d implemented a n u m b e r of institutional a n d legislative reforms. Since late 2006, 14 n e w measures have been introduced, most o f w h i c h have been aimed p r i m a r i l y at strengthening collaboration between the enterprise sector a n d the research community, a n d increasing investments in innovation by the enterprise sector, most n o t a b l y by supportingthe creation of high-tech start-up companies.

6. The Turkish Government requested the World Bank to jointly undertake an assessment of the National Innovation System in order to help guide i t s ongoing efforts to improve the economy’s innovation and technology performance. T h e N a t i o n a l I n n o v a t i o n System PIS)relates to the institutions, policies a n d programs that underlay the interaction o f public, private a n d non-profit sectors that drive i n n o v a t i o n a n d technology/knowledge dlffusion.3 T h e p u b l i c sector has a key r o l e in all of these components, p r i m a r i l y in terms o f creating the appropriate policy a n d regulatory f r a m e w o r k but in some cases also by providing financial support through programs. T h e G o v e r n m e n t recognizes that in order to maximize returns on publicly funded R&D investments, a n d to i m p r o v e the economy’s i n n o v a t i o n a n d technology performance, i t needs to further r e f o r m its N I S in line with EU standards a n d international best practices. I n order to p r o v i d e analytical input into these r e f o r m efforts, the Turkish G o v e r n m e n t a n d the World B a n k are jointly u n d e r t a h n g a n analytical study assessing the N a t i o n a l I n n o v a t i o n System. W h i l e recognizing the broader elements of the Turkish N I S , the Turkish G o v e r n m e n t requested the World B a n k to focus the Study on three main areas of i t s N I S : (i) the i n n o v a t i o n policy, legal a n d institutional framework; (ii)the evaluation o f selected i n n o v a t i o n a n d technology support programs; a n d (iii) a review o f private sector i n n o v a t i o n a n d technology performance a n d potential determinants.

7. This Report identifies the recent progress and key ongoing challenges facing Turkey’s National Innovation System and draws on international experience to outline potential issues for further analysis. T h e n e x t section provides a n overview o f the institutional structure, policy f r a m e w o r k a n d main programs of Turkey’s N I S a n d identifies issues in three main areas that hinder i n n o v a t i o n performance: the intellectual p r o p e r t y right (IPR) r e g m e , collaboration between the research a n d enterprise sectors, a n d i n n o v a t i o n finance. T h e third section uses available i n f o r m a t i o n (aggregate a n d firm-level data a n d a set o f 20 case studies) to p r o v i d e a review o f the i n n o v a t i o n a n d technology performance o f the enterprise sector in T u r k e y a n d preliminarily address i t s possible determinants. Areas for further potential study a n d analysis are identified based on the key findlngs in each section.

As defined in P. Patel and K. Pavitt (1994): “National Innovation Systems: Why They Are Important, And How They Might Be Measured And Compared.” Economics ofInnovation andNew Technolog, Volume 3, Issue 1 1994, pages 17 - 95.

11.

Turkey’s N a t i o n a l Innovation System

A. Overview o f Institutions, Policies and Programs This section summarizes the main institutions, policies and programs of the Turkish 8. N I S at the macro-level. The key findings are that:

. . .

T u r k e y has a well-developed N I S structure that encompasses most of the actors a n d institutions existent in OECD economies; T h e scope of p u b l i c programs supportingi n n o v a t i o n a n d technology i s large; T h e r e h a v e been institutional improvements recently, h o w e v e r there i s s t i l l some level o f fragmentation a n d overlap in institutions a n d programs and, as in most countries, coordination a m o n g N I S players i s challenge; I n d e p e n d e n t evaluation a n d international b e n c h m a r k i n g o f institutions a n d programs i s in the process of evolvement;

Following the EU experience, T u r k e y i s currently interested in raising the i m p a c t of i n n o v a t i o n policies on t h e development o f regions.

9. M a i n Institutions of Innovation Policy Formulation. A p a r t from the Turkish N a t i o n a l General Assembly a n d the C o u n c i l o f Ministers, the main actors in the formulation o f Science a n d Technology Policies in T u r k e y are the Supreme C o u n c i l of Science a n d Technology (BTYK), the Scientific a n d Technological Research C o u n c i l of T u r k e y (TUBITAK), the State Planning Organization (SPO), a n d the C o u n c i l o f H i g h e r E d u c a t i o n (YOIC, a n d Universities. BTYK i s the highest body for designing, coordinating a n d monitoring science a n d research policy a n d in addition provides advisory support to the G o v e r n m e n t in the f o r m u l a t i o n o f long-term i n n o v a t i o n strategy policy. I t s meetings take place semi-annually a n d are chaired by the Prime-Minister a n d composed o f representatives of the government, universities, industry a n d NGOs. TUBITAK functions as the Secretariat to BTYK a n d i s t h e central player in the N I S with several key responsibhties: (i) formulating a n d coordinating implementation of Turkey’s science, technology a n d i n n o v a t i o n policies that are decided by the Supreme C o u n c i l o f Science a n d Technology; (ii) implementing science, technology a n d i n n o v a t i o n support programs; (iii) managing the “Turlush Research Area” (TARAL), a p l a t f o r m for public, private a n d NGO stakeholders to coordinate future R&D priorities a n d collaboration, a n d to integrate i t with t h e E u r o p e a n Research A r e a (ERA); a n d (iv) owning a n d operating a n e t w o r k o f public R&D institutions PIS) a n d other organizations such as M a r m a r a Research Center (MAW, N a t i o n a l M e t r o l o g y Institute (UME), Electronics Institute a n d others. O t h e r i m p o r t a n t actors include the Technology D e v e l o p m e n t F o u n d a t i o n o f T u r k e y (TTGV), the Turkish Patent Institute (TPE), the Turkish Standards Institution (TSE), the M i n i s t r y o f Industry a n d T r a d e (MoIT); the Ministry o f A p c u l t u r e a n d R u r a l Affairs (MARA); the Undersecretariat of F o r e i g n Trade (UFT); the Undersecretariat o f Treasury (UT); the M i n i s t r y o f Finance (MoF), the Small a n d Medium-Sized Enterprises D e v e l o p m e n t Organization (KOSGEB); the Turlush A t o m i c E n e r g y Authority (TAEA); a n d the Turkish Academy of Sciences (TUBA). These institutions have sector specific p o l i c y roles (as in the cases o f MoIT a n d MARA), i m p l e m e n t certain support programs (MoF, U l T a n d ‘ITGV) while TUBITAK also p e r f o r m s R&D activities through i t s 14 institutes. T h e Turhsh N I S also includes technology intermedlaries such as incubators, Technoparks, venture-capital funds, other knowledge institutions a n d the enterprise sector (Annex I).

10. The Turkish Government has made strong efforts to strengthen key institutions o f the N I S in recent years. I n the past decade, the G o v e r n m e n t has modernized several N I S institutions i n c l u d i n g the Turkish Standards Institution, TUBITAK’s M a r m a r a Research Centre a n d N a t i o n a l M e t r o l o g y Institute, the Turkish Patent I n s t i t u t e a n d supported establishment of the TTGV. T h e M a r m a r a Research Center, the largest p u b l i c sector R&D organization, has been restructured a n d now i s o n e o f the most active contract research centers in the country. I t provides

extensive services (both R&D and other services) to industry and currently earns 50-60% of i t s expenses from contract work. However, a majority o f i t s work i s focused on the public sector. TLJBITAK also has five more R&D I n s t i t u t e s in t h e areas of information technologies and electronics, defense, cryp tology, bio-technology, and genetics.

11. TUBITAK’s funding increased after 2005 (US$1.5 billion during 2005-08) when, for the first time, public funds were allocated in the national budget specifically for R&D. As a result, disbursements under the TEYDEB-managed Industrial R&D Funding program, for instance, more t h a n doubled, from US$193 d o n during 1995-2004 to US$422 million during 2005-2007. T h e ARDEB managed Program for Scientific and Technological Research Projects in 2004 supported 1353 ongoing R&D projects with a budget o f US$35.6 d o n while by 2006 i t was fundmg 3091 projects worth US$272.7 million and another 898 projects worth US$82 d o n were approved by October 2007. I n addition, the S u p p o r t Program for Research Projects o f Public Institutions (KAMAG) came into effect on March 2005 with 7 2 projects totaling US$166 d o n approved by May 2007 and another 65 being evaluated in October 2007.4 12. The overarching policy framework for Innovation, Science and Technology in Turkey i s outlined in a set of publications composed of the Ninth Development Plan for 200713, the Medium T e r m Program for 2008-2010 (prepared under the coordination of SPO) and the decisions of the Supreme Council, including the National Science and Technology Strategy (20052010) and the “National Innovation Strategy 2008-2010” (prepared by TUBITAK). T h i s policy framework i s completed by the following documents: “Industrial Policy for Turkey” (towards EU Membership), “ S M E Strategy and Action Plan”, and “Vision 2023” (includmg the preparation of a Technology Foresight Project, a National Technology Competences Inventory Project, a Researcher Information System Project and a National Research Infrastructure Information System Project with the objective o f identifying strategic technologies for Turkey under t h e coordination o f TUBITAK). Anchored in t h e challenge o f raising employment by 2.7% per year and sustaining economic growth at 7’10, the Ninth Development Plan establishes the following complementary goals in the field of Innovation and Technology for t h e 2007-13 period: (i) increase R&D expenditures from less t h e n 0.7 to 2% o f GDP; (ii)raise t h e share o f privately financed R&D from less than 30% to 60%; (iii) expand the number of researchers from under 24,000 to 80,000; and (iv) augment the internet penetration rate from 20% to 60%.

13. The documents that constitute the basis for the National Innovation Policy framework converge around four main policy objectives: (i) increase the rates of expenditures on research and technological diffusion (particularly ICT) by enterprises; (ii) strengthen co-operation between public or higher education research organizations and enterprises on R&D activities; (iii) increase the number o f new innovation intensive enterprises created and their survival; and (iv) increase the rate o f commercialization o f R&D activities by t h e research sector. Until late 2006, innovation policy measures in T u r k e y were very h t e d in scope, focused primarily on the f i r s t two objectives. T h e large number o f new measures introduced since then (doubling the previous total) have primarily been aimed at addressing the last two categories outlined above, substantially enriching the policy mix. 14. M a i n Public Innovation Support Programs. T h e Turkish Government’s investments in public innovation and technology support programs have risen substantially in recent years and are projected to continue to increase. As mentioned earlier, during the 2005-08 period, the Government allocated a significant amount o f additional resources (over U S $ l . 5 billion) from i t s budget, primardy to TUBITAK. Public resources allocated to innovation and technology support programs have more than tripled in the last t e n years with public R&D expenditures as a share o f GDP rising from 0.67% These numbers do not include the 34 defense and space projects carried out in cooperation with the Ministry of Defense under the SAVTAG program, as of October 2007 that are worth US$332.7million.

in 2002 to 0.8% in 2006, and the number o f full t i m e equivalent researchers growing from 23,995 to 28,000 during the same period.5 T h e main public agencies in the Turlush N I S t h a t implement R&D and innovation support programs are TUBITAK, TTGV, K O S G E B , MoIT and Universities. A summary o f the main allocation o f funds within Turkey’s N I S between 2005-08 (latest data available) i s provided below in Table 1. An extended summary o f the key implementing agencies and their public support programs i s included in Annex 11. Table 1: Public Expenditures on Innovation and Technology Programs I M P L E M E N T I N G AGENCY Universities TUBfTAK (TUBITAK Research Centers) TUBITAK Furkey Research Area Programs)* Academic Research Projects Industrial Research Projects (of companies) Research Projects of Public Institutions Defense and Space Research Projects Researcher Development Science & Technology Awareness

Public Institutions (outside TUBITAK)

Nuclear Energy Council (TAEK) Ministry of Industry and Trade** Ministry of Agriculture and Rural Affairs Ministry of Health National Boron Research Institute*** M i n i s t r y of Energy***

2005 274.2 108.8 346 0 90.0 116.0 50.0 50.0 25.0 15.0 36.2 6.3

2006 278.7 155.0 415.0 80.0 215.0 50.0 60.0 5.0 5.0 49.3 13.1

2.2 0.1 0.1

2.5 6.2 3

2007 256.3 141.8 425.0 85.0 215.0 50.0 65.0 5.0 5.0 80.2 20 16.9 4 5.2 6

12.5 8.9 1.I 40.0

5.4 35.6 10.0 42.0

4.6 35.4 18 63.5

KOSGEB TTGV State Planning Organization Undersecretary of Foreign Trade

2008 253.5 183.3 450.0 105.0 175.0 65.0 80.0 15.0 10.0 78.2 18.9 17.6 3.6 4.9 6.3 1 6.5 35.5 18 n/a

Notes

*TUBITAK funds the projects o f other institutions’R&D projects **Includes SAN-TEZ program that supports PhD students’ theses that aim to solve company specific problems, and the support for t h e physical infrastructure of Technoparks. ***Includesprograms in which the projects of other institutionsare supported. Source: State Planning Organization

15. T h e r e has been a surge in new policy measures in recent years aimed at strengthening the links between t h e research c o m m u n i t y and the private sector, and promoting the creation of science based start-ups in Turkey. In 2006-2008, 15 new policy measures were introduced to increase R&D, doubling the total number o f measures that are summarized in Annex 111. Table 2 summarizes the amount o f public support for private R&D between 2006-2008. Grants, tax exemptions/credits, Table 2: Public R&D Support to Turkish Enterprises payment of social security 2006 2007 2008 contributions of new personnel, and TUBITAK UFT KOSGEB TI’GV Miustry o f Industry and Trade Total Source:: State Planning Organization

215’0 42.0 5’4 35.6 ‘I 319.0

215’0 175’0 63.5 n’a 4.6 6.5 35s4 35*5 ’Ii.’ 353.4 252.6 “a6

low interest loans are some examples o f the various incentives. T h r e e new measures incentivized research in clean technologies and energy efficiency/renewable energy. Among others, the following measures were h e c t e d to finance the development

o f innovation-intensive start-ups: the “Technopreneurship” (Teknogirisim) program implemented under the new R&D Law N o . 5 7 4 6 by all public administrations with an R&D budget, “R&D S u p p o r t for S M E s ” o f TUBITAK, and the “Pre-incubation Support” and “Start-up Support” of TTGV are some examples. Turkish entrepreneurs’ patent applications are supported by a program jointly coordinated by TUBITAK and Data from Turkstat, 2007

TPE. Ministry o f Industry and Trade i s in the process o f designing a new program to support patent applications of enterprises. Along with the patent support, various programs are also designed to boost commercialization o f R&D, examples of which include MoIT’s “San-Tez” project, “Commercialization Project Supports” and “Joint Technology Development Projects” of ‘ITGV. T h e Ministry of Industry and Trade designs “R&D Products Investment Support Program’’ and “Marketing and Promotion S u p p o r t Program” to facilitate commercialization o f industrial R&D activities starting from 2009. Incentives provided to the companies located in the technology development zones managed by the M i n i s t r y of Industry and Trade stimulates private sector R&D and research-industry collaboration. T h e “Scientific and Technological Cooperation Networks and Platforms Support” (ISBAP) o f TUBITAK serves the purpose of intensifylng the national and international collaboration between research institutions.

18-

GERD/GDPnew senes

to US$4.4 billion (PPP). T h i s represents a growth rate substantially higher than in the EU 27 (9Yo) and matched globally only by China. Growth in R&D intensity in Turkey

+GERD/GDPold series

16-

14g12-

2 0

I -

io8VI

0 59

0 0 6 -

04 02

0 47

0 48 0 37

0 71

0 48

0 54

0 53

0 52

has been s t e a d y increasing from 0.64% in 2000 to 0.76% in 2006 and ranks just lower than in the most impressive performers in Eastern Europe @e., the R&D intensity increased by 0.16% in H u n g a r y and 0.21% in the Czech Republic between 2000-05), but not as fast as in China (where R&D intensity grew

17. A key issue, however, i s how effectively R&D expenditures are being translated into innovation and productivity gains. W e Turkey’s public and private R&D expenditures are growing substantially and i t s R&D gap with many emerging economies in Eastern Europe i s narrowing, a key question i s how productively these expenditures are being employed to generate innovation and productivity gains. As shown in Figure 3 preliminary evidence from 2005 suggests that the extent to which R&D was translated into productivity gains by the Turkey’s N I S was relatively limited. Around 5.6 percent of Turkey’s manufactured exports in 2005 were high-tech, which i s among the lowest in the OECD where t h e average i s 22 percent. Notably, most Central and Eastern European emerging economies had s d a r R&D intensities to Turkey but produced relatively more high-tech products. D a t a on patents awarded by the European Patent Office (EPO) also suggest that Turkish f m s may not be as inventive as their counterparts: In 2005 Turkey accounted for 1.9 patents per million o f population, versus 4.2 in Poland, 4.3 in the Czech Republic and 18.9 in Hungary.

Figure 3: International Comparisons of R&D Intensity and High Tech Exports s w A

? I

& r

FIN

3.0 2.5 2.0

1.8 1 .o

0.5

0.0

10.0

20.0

30.0

40.0

50.0

High Tech Exports (% of Total Manufactured Exports)

80.0

Source: OECD

18. Aggregate indicators of innovation and technology performance also suggest that Turkey may still lag behind its peers. For instance, a c c o r d m g to t h e Etlropean Innovation Scoreboard (EIS) that monitors t h e i n n o v a t i o n p e r f o r m a n c e of t h e EU-27 nations plus t e n OECD economies, T u r k e y was considered to have t h e weakest p e r f o r m a n c e a m o n g t h e 37 countries in 2007. Turlush G o v e r n m e n t officials have expressed reservations a b o u t t h e accuracy o f s o m e o f the statistics used in calculating the EIS, but w h i l e better data are needed, t h e overall d i r e c t i o n seems valid. Turkey's enterprise sector p e r f o r m a n c e on technology a n d i n n o v a t i o n seems b e l o w that o f most comparable countries. This i s s u p p o r t e d by evidence from o t h e r indicators o f i n n o v a t i o n a n d technological sophistication. For example, t h e World Bank's Knowledge Economy Indicator (KEI) shows T u r k e y u n d e r p e r f o r m i n g relative to t h e t e n n e w EU m e m b e r countries a n d t h e average for u p p e r - m i d d l e i n c o m e countries. I n 2007-08, T u r k e y was better r a n k e d globally ( 5 3 9 t h a n R o m a n i a a n d Bulgaria in terms o f the World E c o n o m i c Forum's G l o b a l Competitiveness Report's Technological Readiness a n d Innovationpillars but lagged b e h m d the o t h e r n e w EU m e m b e r states in E a s t e r n E u r o p e .

19. This may be because most of R&D in Turkey i s performed by the university sector and the share of the private sector, while increasing, i s still low relative to EU and OECD levels. D e s p i t e a surge in the last two years, Turkey's enterprise sector (including both p r i v a t e a n d state-owned enterprises) i s s t i l l a relatively small player in terms of p e r f o r m i n g R&D relative to EU a n d OECD levels. Enterprises (public a n d private) p e r f o r m e d 41% o f t o t a l R&D in T u r k e y in 2007 (compared to 23% in 2003), substantially l o w e r t h a n the EU-27 a n d OECD averages o f 63% a n d 68% respectively in 2005. Conversely, 48% o f t h e R&D e x p e n d t u r e s in T u r k e y in 2007 were p e r f o r m e d by 97 Turlush universities (of w h i c h 30 are privately-owned), relative to j u s t 23% on average in the EU-27 a n d 14.3% in the OECD. Yet, the share o f R&D financed by enterprises in T u r k e y i s higher a t 48% a n d m u c h closer to t h e EU-27 a n d OECD averages o f 54% a n d 62.5%, respectively. T h i s i s in contrast to the EU-27 or OECD countries w h e r e t h e enterprise sector accounts for a higher share o f R&D p e r f o r m e d t h a n of R&D financed. Indeed, as it i s less risky to p e r f o r m t h a n to finance R&D, a n d as p u b l i c R&D expenditures in T u r k e y expand, o n e would expect t h e private sector share in p e r f o r m i n g R&D to b e larger, as i t i s t h e case o f E U - 2 7 . T h e fact t h a t the Turkish enterprise sector currently accounts for a larger share o f t o t a l R&D financed relative to R&D p e r f o r m e d m a y indicate " c r o w d i n g out'' by t h e h i g h e r education a n d g o v e r n m e n t sectors, perhaps d u e to a scarcity of scientists a n d researchers, a n d enterprises are o u t s o u r c i n g their R&D.

20. Also, the share of multinational’s R&D in the total private R&D in Turkey appears to be small compared to its peer countries. I n 2000, T u r k e y was a m o n g the group o f countries for w h i c h business R&D was essentially l e d by local enterprises with multi-national corporations (MNCs) playing a secondary role. W h i l e this i n f o r m a t i o n needs to b e updated, the possibllity to attract large foreign drrect investments i s welcome. A c c o r d i n g to OECD Science a n d Technology Indicators, in 2006 only 0.5% of total R&D expenditures in T u r k e y were financed by foreign sources, versus 7.6% in Russia a n d 10.7% in Hungary in 2005. I n p a r t to change t h i s situation, in February 2008, the G o v e r n m e n t approved a n e w L a w on “Supporting Research a n d D e v e l o p m e n t Activities” (Law No. 5746), i m p l e m e n t e d by t h e DG I n d u s t r i a l R&D of the M i n i s t r y o f Industry a n d Trade, that provides a range o f fiscal incentives for R&D activities by the private sector, (as w e l l as for projects supported by public agencies a n d international institutions). T h e G o v e r n m e n t hopes to induce a concentration o f R&D activities that will enable gains from economies of scale as w e l l as attract R&D-intensive FDI. A summary o f the key R&D-related legislations i s presented in A n n e x

IV.

21. The impact of Turkey’s innovation policy and programs may be enhanced with more coordination amongst the key players as well regular monitoring and evaluation of institutions, programs and policies. I n v i e w o f the significant changes a n d developments in the Turkish N I S in a relatively short p e r i o d of time, a n u m b e r of stakeholders m e n t i o n e d the need to develop the necessary institutional set-ups, procedures a n d practices for agenda setting a n d prioritization, implementation a n d policy learning between the different p u b l i c N I S institutions. International experience suggests that the increased importance a n d complexity o f i n n o v a t i o n policy a n d institutional arrangements of N I S can b r e e d n e w challenges that m a y affect p o l i c y a n d institutional coherence a n d effectiveness (OECD 2005). This does not only relate to public institutions but also refers to the establishment o f a n effective a n d systematic n e t w o r k o f communication between all N I S actors. A n o t h e r i m p o r t a n t t r e n d in m a n y OECD economies i s the establishment of systematic monitoring a n d evaluation systems for N I S institutions, programs a n d policies. I n Turkey, such practices are s t i l l l i m i t e d but c o u l d b e increasingly relevant as public expenditures are rising rapidly towards EU standards a n d n e w policy initiatives are being designed a n d implemented.

22. I n light of these findings, future analysis could include the in-depth benchmarking of institutional mechanisms, policies and programs within the Turkish N I S against EU and international best practices: Some areas that c o u l d b e addressed include: G i v e n the current emphasis on p u b l i c support for industrial R&D, should relatively m o r e support b e p r o v i d e d to the agriculture a n d service sectors (given their larger employment share)?

I n the context o f a scarce supply o f h u m a n resources in the research sector, c o u l d rising public R&D expenditures b e possibly “crowding-out” private R&D? W h a t i s the i m p a c t of the main support programs promoting R&D a n d technology diffusion in T u r k e y versus international practices a n d can their i m p a c t b e increased through changes in design a n d / o r implementation? K e y programs include private R&D tax exemptions, TfGV’s soft loans, TUBITAK’s m a t c h i n g grant schemes, K O S G E B ’ s I C T up-grading a n d machinery i m p r o v e m e n t support, etc. A r e there mechanisms employed in N I S systems in OECD economies that c o u l d b e used in Turkey’s N I S that m a y i m p r o v e policy coordination a n d enhance c o m m u n i c a t i o n a n d knowledge sharing between the various N I S actors?

B. Intellectual Property Rights R e g i m e 23. This section compares Turkey’s IPR regime to that of the EU and identifies legislative and institutional issues that limit the protection of intellectual property and thus may hinder incentives for R&D and innovation activities. K e y findings include:

. .

T h e legislative framework for intellectual p r o p e r t y rights i s broadly aligned with EU, n o t w i t h s t a n d i n g certain divergences, most notably in the area o f industrial p r o p e r t y rights. T h e i m p l e m e n t a t i o n a n d enforcement o f IPR legislation in T u r k e y however has not reached EU levels, in t e r m s of legislative changes, capacity of key institutions (IP courts, TPE) a n d cooperation b e t w e e n public, private a n d non-profit sectors. T h e lack o f a u t o n o m y of the Turkish Patent Institute i s affecting t h e quality o f i t s services.

24. Turkey’s IPR legislative framework i s broadly in line with the EU but the enforcement o f the IPR framework in Turkey still needs to be strengthened to reach EU levels. Overall, t h e E u r o p e a n Commission’s most recent T u r k e y Progress R e p o r t found that Turkey’s legislative framework in the area o f IPR i s broadly aligned with EU6 a n d the G o v e r n m e n t i s currently preparing four m a i n pieces of IPR legislation in line with t h e EU requirements expected to b e ratified by 2008.’ T h e r e are s t d l certain required legislative changes outstanding for w h i c h there i s no clear i m p l e m e n t a t i o n plan, i n c l u d i n g a n e w TPE Establishment L a w to ensure i t s autonomy, a legislative f r a m e w o r k for industrial p r o p e r t y rights8 a n d legislation to establish a professional society for patent a n d trademark attorneys. T h e key issue highlighted by the E u r o p e a n Commission’s Progress R e p o r t relating to the IPR regime i s enforcement. A c c o r d i n g to OECD data, T u r k e y was the fourth highest origin o f seized counterfeit a n d pirated products into the EU in 2006 (accounting for 7% of seized goods) after China (38%), T h a i l a n d (loyo) a n d Hong Kong (8%).9 E n f o r c e m e n t i s i m p a i r e d by three m a i n factors: a n inadequate regulatory f r a m e w o r k for enforcement @articularly in the case o f industrial p r o p e r t y rights), weak capacity of enforcement institutions, a n d insufficient cooperation a m o n g different players. 25.

The regulatory framework for the enforcement both commercial and industrial property rights legislation can be improved. T h e Turkish G o v e r n m e n t has made changes to the “ L a w on Intellectual a n d Artistic W o r k s ” to give m o r e incentives to copyright enforcement in line with EU law, but there r e m a i n some problematic aspects, i n c l u d i n g inaccurate terminology, incompatibhties with other relevant Turkish legislation, a n d omissions relative to EU a n d international laws ( i.e. no articles for digital literary a n d artistic works). T h e implementation a n d enforcement of industrial p r o p e r t y rights i s even m o r e problematic as there are “severe deficiencies” in the regulatory framework.fO For example, the police can currently take ex-officio action in case o f copyright violation but not in cases o f trademark infringement. As a result, there are infringements to w e l l - k n o w n trade marks (registered packaging a n d three-dimensional trade marks) by Turkish companies that have negative externalities on technology diffusion a n d the ability o f other f m s to absorb advanced foreign technology as foreign firms are discouraged from transferring technology.

Building the capacity of key institutions in the IPR regime i s critical to ensure better enforcement. A c c o r d i n g to the above m e n t i o n e d E u r o p e a n Commission report, Turkey’s

26.

“Turkey 2007 Progress Report”, Chapter 7: IntellectualProperty Law, European Commission, November 2007.

’These pieces of legislation include adjustments to the Laws on Geographical indications, Industrial Design, and Trade

Marks and a new Patent and IntellectualProperty Law. a T h e “Law Amending the Treaty on Granting European Patents”, which regulates the procedures of European Patents within the Member States of the European Patent Organisation, entered into force and the Law on the accession of Turkey to the Protectionof New Varieties o f Plants (UPOV) Convention was ratified and published. “The Economic Impact o f Counterfeiting and Piracy,” O E C D (2008). “Turkey 2007 Progress Report”, Chapter 7: IntellectualProperty Law, European Commission, November 2007.

administrative capacity remains insufficient to ensure the level o f enforcement required by the EU Customs Union Decision, due to regular inconsistencies between TPE a n d IPR speciahzed courts. This relates to t h e small n u m b e r a n d weak capacity o f IP Courts: there are just 20 specialized IP courts located in the three main cities (13 in Istanbul, 5 in A n k a r a a n d 2 in I z m i r ) a n d a shortage o f judges trained in IPR (of the 7 judges who have received some I P training, only three are currently active, a n d others need further training). I n cities without specialization courts, IPR cases are handled by the First Instance Civil a n d First Instance C r i m i n a l Courts where the judges a n d prosecutors do not have sufficient knowledge in the IPR field, resulting in delays (appeals can take up to 2 years) a n d inconsistencies. T h e lack o f suitable training a n d experience amongst prosecutors a n d expert witnesses i s also a p r o b l e m as i t leads to the i n i t i a t i o n o f c o u r t proceedings in instances w h e n it i s not appropriate a n d reduce confidence in the c o u r t judgments a n d wider IPR regime. In order to overcome these problems, the Turkish Patent Institute a n d the Ministry o f Justice currently organize training programs a n d international workshops for judges in cooperation with t h e E u r o p e a n Patent O f f i c e (EPO), a n d are also trying to establish expert witness training activities. In addition to these activities, to further i m p r o v e the consistency between TPE a n d IP c o u r t judgments, n e w joint institutional mechanisms for knowledge sharing a n d evaluation o f national a n d international developments in IPR l a w (particularly in the field o f industrial p r o p e r t y rights) are planned between the TPE a n d Ministry o f Justice that need to b e adequately designed, f u n d e d a n d implemented.

27. Coordination and cooperation amongst different stakeholders to improve enforcement has been strengthened but further progress i s required, particularly in the enforcement of copyright and related rights. A C o o r d m a t i o n B o a r d has been established in T u r k e y for the enforcement of intellectual p r o p e r t y rights, with a specific mandate to ensure cooperation a n d coordmation a m o n g related agencies includes representatives from the Ministry o f Justice, Ministry o f Interior, Ministry of Culture a n d Tourism Copyrights a n d Cinema Directorate General, Customs Under-secretariat a n d various other p u b l i c agencies. Strategies have been designed to i m p r o v e coordination with positive results but ongoing efforts are needed, for example with the cooperation between police a n d customs. In addition, greater efforts need to b e made in ensuring efficient p r o t e c t i o n o f intellectual p r o p e r t y rights of Turkish enterprises a n d in enhancing p u b l i c awareness of intellectual property right protection. 28. The lack of functional autonomy i s affecting the quality of services provided by the Turkish Patent Institute. I n recent years the TPE has m o d e r n i z e d i t s entire institution i n c l u d m g physical fachties, i m p r o v e d search systems, staffing skills, internal a n d external I T structure, online services a n d public relations, a n d the establishment o f a n on-line trademarks application system. T h i s has i m p r o v e d significantly the speed a n d consistency o f i t s services a n d in 2007, the TPE carried out 83 patent research a n d investigation requests, almost three times the n u m b e r in 2005 (28). However, TPE does not have enough qualified permanent staff to m a t c h the d e m a n d for i t s services a n d as a result i t does not have a solid reputation for consistent, timely decision-mahng. Moreover, i t currently covers j u s t 40% o f the International Patent Classifications (IPC), with the examination o f almost all Turkish patent applications (there were 1,838 applications in the f u s t 9 months o f 2007) outsourced abroad (to Sweden, Denmark, Russia a n d Austria, a n d by the EPO). Patent applications that are outsourced overseas are up to 50% m o r e expensive t h a n that of applications dealt with by the TPE b v e n the translation costs, preparation charges a n d hlgher fees o f foreign patent offices) a n d in a d d t i o n there are o f t e n logistical delays. T h e TPE i s short-staffed, in part, because the L a w establishing the TPE sets l i m i t s on the n u m b e r o f staff to b e recruited for each cadre, restricting the n u m b e r o f permanent staff that can b e h i r e d to m e e t t h e substantial rise in domestic d e m a n d for patents in recent years. I n t h i s context, there i s a n urgent need to increase the n u m b e r o f technology areas where TPE patent specialists undertake patent researches a n d investigations, a n d patent specialists with appropriate qualifications must b e employed a n d trained according to research areas.

. .

29.

Given these findings, issues that merit further analysis to guide reform include: How i m p o r t a n t i s the IPR regune in affecting R&D investment decisions for different types o f enterprises (SMEs, large, foreign) as w e l l as in the commercialization of R&D? How m u c h does the IPR regime affect the inflow o f R&D-intensive FDI, the technology transfer from foreign f i r m s to domestic subsidiaries or partners, a n d the licensing o f proprietary foreign technology to domestic f i r m s ? W h a t i s the i m p a c t o f the IPR regime on i n n o v a t i o n in key sectors such as agriculture, I C T / s o f t w a r e (including financial services) a n d clean technology?

How effective are government incentives for IPR enforcement relative to EU practices?

C. Collaboration between the Enterprise and Research Sectors

This section examines the institutional and regulatory fiamework for collaboration 30. between the enterprise and research sectors and identifies the following issues: Some regulations (e.g., the university r e v o l v i n g fund regulations) create disincentives for researchers to p r o v i d e services to t h e enterprise sector a n d thus reduce the mobhty o f researchers. T h e current IP laws favor researchers in the allocation of royalties for commerciahzed research, hindering universities to commercialize R&D outputs. Incentives a n d support for universities a n d researchers to commercialize R&D are weak. T h e n u m b e r a n d i m p a c t of intermediary institutions that encourage collaboration between the enterprise a n d research sectors c o u l d b e increased (e.g., techno-parks, technology transfer offices, early stage financing).

. ..

A central issue for the commercial outputs o f any N I S i s the collaboration between the private sector and the knowledge institutions. T u r k e y has a solid knowledge-base with wellknown R D I s a n d universities, a n d scientific output has risen substantially during 1990-2006 and, in particular, in the last five years, following changes in promotion criteria a n d greater p u b l i c support for researchers. T h e n u m b e r o f published articles by scientists p e r d o n inhabitants in T u r k e y rose from 95 in 2000 to 252 in 2006, the highest growth in the world, with Turkey’s world r a n k i n g in output of scientific a n d technical articles i m p r o v e d from 34th to 19th.11 Similarly, patent applications a n d registrations by Turlush residents both domestically a n d overseas have grown quickly during this period, with patent applications to the E u r o p e a n Patent O f f i c e growing by 360% during 2000-05 the second highest growth rate in the world. Y e t this growth stems partly from Turkey’s low base, as in 2006 1.9 EPO patents were granted to T u r k e y p e r million o f population, versus 18.9 to H u n g a r y a n d 128 to the EU-27 as a whole. However, Turkey’s N I S performance in commeniah@g (wing) knowledge i s .not following the same pace as i t s performance in terms o f generating knowledge. Although data on spin-off start-ups a n d technology licensing are not avadable, the i n f o r m a t i o n gathered in Section I11 suggest otherwise. I t i s thus i m p o r t a n t to consider whether the existing institutional a n d regulatory framework underlying the collaboration between these institutions a n d the private sector creates a n appropriate conducive environment. 31.

32. O n e o f the important elements affecting the collaboration between the public universities and the enterprise sector are the “University Revolving Fund Regulations.” A c c o r d i n g to the m o d i f i e d regulations issued by the M i n i s t r y o f Finance in 2004, academicians at public universities who p r o v i d e consultancy services have to pay 55% of their i n c o m e to the university, such that their n e t i n c o m e after tax amounts to 25% of the total service income.12 In addition, a deduction i s made from the monthly salary o f a n academician i f he/she has been paid for Thomson’s I S 1 Web o f Science. University pays to the Treasury 15% o f i t s 55% share (on January 24, 2008, the Minister of Finance announced that t h i s share would be decreased from 15% to 5%).

a service in the respective month. T o b e exempted from t h i s regulation, a company should b e located in a Technopark, following the provisions o f the “2001 Technology D e v e l o p m e n t Zones W Z ) Law.” Interviews with the private sector revealed that the r e v o l v i n g fund seems to work the same way as that a tax-wedge affects economic activity: limiting voluntary transaction a n d therefore reducing the gains from trade between researchers w i h g to supply technical skills a n d f i r m s willing to buy t h e m to t h e benefit o f a third party (university). W h i l e a closer assessment o f the revolving fund i s needed, i t s effect over the Technoparks industry was equivalent to a subsidy with the consequent expansion of the supply of Technoparks. As i t i s c o m m o n in the case of the provision of any subsidy, the hypothesis o f a n over-supply o f Technoparks can not b e rejected apkok.

33. T h e regulation o f the ownership o f commercialized inventions, and thus the distribution o f royalties between the researcher and the host institution, i s also important. Current legislation allows the successful i n v e n t o r to reap substantially m o r e o f the benefits than his/her host institution, with any legal rights obtained as a result o f research carried out in universities hosting the academicians.13 I f the results o f research are commercialized, the m a x i m u m a m o u n t o f royalties that can b e obtained by universities i s h t e d to t h e a m o u n t of support they have p r o v i d e d to the academician for t h e duration o f the research. T h i s i s seen as one possible reason for the lack of university investment a n d support for applied research a n d commercialization services, i n c l u d i n g the support for patent applications, the cost of w h i c h i s too high for m a n y researchers. T h e risk of under-investment from both sides, either the host institution or the researcher, i s a central p r o b l e m o f the legal f r a m e w o r k underpinning the contractual relationship between these two agents. Untd recently at least, the OECD economies seemed to b e convergmg to an overall design that, with some variation, m i r r o r e d the U n i t e d States’ Buyb-Dole Act (1980) that established a uniform patent p o l i c y a m o n g the m a n y federal agencies that f u n d e d research in the U S a n d w h i c h p r o v e d highly successful in incentivizing researchers to pursue applied research, develop intellectual property, a n d start their own companies or find other ways to commercialize their research (i.e., licensing to companies) a n d universities to develop institutional mechanisms (licensing programs, technology transfer offices) to support researchers’ commercialization efforts. T h e r e are a variety of other mechanisms employed in national IPR regunes to increase incentives for hinovators14 that Turkish policy-makers c o u l d consider a n d adapt to the T u r k i s h context to strengthen incentives a m o n g both researchers a n d universities to undertake m o r e applied research a n d m o r e importantly with the enterprises to commercialize it.

34. Another factor affecting the commercialization o f research i s the legal provision regulating the start-up o f new companies. M a n y universities throughout the OECD economies have replicated the U S experience by allowing scientists to f l o a t / o w n start-ups whde working at universities, as w e l l by providing “entrepreneurial” sabbaticals for researchers to start a business based on a n e w i n v e n t i o n instead of licensing it. V e r y o f t e n the sabbatical takes up to two years a n d re-entry i s guaranteed in case o f f d u r e . I t appears that, b e y o n d the n o r m a l academic sabbatical, there are no s d a r provisions in Turkey. Mobihty between the academic a n d the business sectors i s supposed to b e encouraged through participation in joint-research projects in Technoparks. In addition, entrepreneurial (profit-oriented) activities are not always. w e l l accepted culturally by academicians a n d rules for promotion in universities rely almost exclusively on academic achievement. 35. Rules regarding academic promotion do not encourage collaboration with the business sector, with the number o f scientific articles produced being the m a i n criterion for career ascension. F e w private universities use R&D related indicators (such as the n u m b e r o f research projects, co-operation with the private sector, n u m b e r of patents, etc) in addition to output l3Intellectual Property Law N o 551,

Article 41.

for example, introduced an “innovation patent” system in 2001 to provide simple, inexpensive protection for inventions deemed insufficientlyinventive to meet the threshold required for standard patents. l4Austraha,

of articles.15 T h i s however m a y not b e sustainable on a competitive basis if large p u b l i c o w n e d institutes that do not place the same requirement are able to o f f e r equally attractive bonuses for researchers. Academicians with successful R&D commercialization track records n o t e that there i s a strong culture within universities w h i c h does not favor profit-oriented research or a closer cooperation with t h e private sector. As a result, entrepreneurial activities, as those associated with the spill-over of inventions a n d start-up o f companies by f o r m e r academicians, are also not favorably seen. 36. Under-investment in the commercialization o f research activities i s also reflected in the limited development o f key institutional intermediaries such as technology transfer offices. Technology transfer offices (’TTOs) can play a n i m p o r t a n t coordmation role during the commercialization stage o f research, a n d in encouraging researchers a n d firms to initiate n e w collaborative projects. Researchers also need training a n d m e n t o r i n g on business planning a n d other key topics like IPR management a n d commercialization. T h e lack o f specialized institutions makes i t d i f f i c u l t for firms to b e aware o f scientific a n d technological experts as w e l l as research results a n d patented inventions produced at universities that c o u l d b e useful to them. T h e absence o f a specialized organization to deal with technology transfer a n d commercialization o f R&D outputs also leads to problems in sharing a n d the use o f IPR. Recently TUBITAK a n d TPE have begun providing support to researchers for patenting, with the f i r s t , pilot “Patent a n d Technology Transfer O f f i c e ” b e i n g established at G a z i University in Ankara. T h e r e are also attempts by a f e w universities to create technology transfer offices, as illustrated by the case o f Inovent, a company created at Sabanci University (in GOBS Technopark located in the G e b z e Organized Industrial Zone) to undertake technology transfer a n d commercialization activities a n d t h e Turkish G o v e r n m e n t has shown interest in supporting these efforts.16 37. M a n y universities and companies have expressed interest in establishing and joining, respectively, Technoparks in Turkey, but collaboration between f i r m s and research sectors within the Technoparks and the creation o f high-tech start-ups i s low. By 2008, 31 Technoparks have been approved in T u r k e y by the MoIT (under the Technology D e v e l o p m e n t Zones L a w o f 2003) with 18 o f t h e m currently active a n d housing 890 companies (of w h i c h 32 are foreign) that e m p l o y 7,437 R&D staff a n d 2,308 technical support personnel a n d i m p l e m e n t 2,671 R&D projects (in ICT, electronics, defense, telecommunication, medical/bio-medical, advance materials, industrial design a n d environmental technologies) a n d account for some US$250 million of export revenues (US$144 million in 2006).17 Technoparks are supposed to encourage start-ups a n d spin-offs from universities a n d p u b l i c R D I s by o f f e r i n g a c o m b i n a t i o n of infrastructure support a n d business development services in addition to the natural advantages o f proximity to the host research institution. In the case of Turkey, given the generosity of the tax incentives p r o v i d e d by the Technology D e v e l o p m e n t Zones Law, there i s a concern that the infrastructure-support side o f the business has expanded to the detriment of the provision of value-added services, w h i c h are very m u c h needed a n d are a key p a r t o f successful Technoparks a r o u n d the world. Indeed, r e n t costs in m a n y Technoparks can b e up to three times the m a r k e t rates. Further, Technoparks seem to b e dominated by the R&D departments of large companies seekmg to take advantage o f the additional tax incentives, raising concerns about the additionality o f the scheme in terms of private R&D investment. As the n e w R&D L a w extends the benefits o f p r o v i d e d by Technoparks to R&D activities larger than a certain threshold a n d thus will reduce, to some extent, the attractiveness o f Technoparks for large companies. By law, the tax incentives for Technoparks were to b e phased out by 2013 but - as i t i s c o m m o n in such cases - there are segments o f society, especially Technopark owners, arguing for the extension of the incentives until 2023. D e s p i t e all these caveats, some l5I t should also be noted that there are different rules and practices applied for academic promotion at different universities, and even at different faculties of the same university in Turkey. l6 Inovent has evaluated over 1000 projects in the last 2 years from 7 universities, and has accepted 130 of these. Other universities moving in this direction include METLJ,Mersin, Yeditepe and Gazi that are taking steps to pilot 3 3 ’ 0 s . l7 Ministry of Industry and Trade, 2008.

potentially interesting cases are identifiable, as illustrated by the nurturing of a v i b r a n t software industry by Cyberpark a n d METUTECH that have started to o f f e r some value-added services to their tenants but this i s s t d l evolving a n d has a long way to go in Turkey.

38. I n light o f the findings of this section, future work could b e taken in the following areas: Benchmark the strength o f the links between researchers a n d t h e enterprise sector, drawing from the methodology in the OECD B e n c h m a r k i n g Industry-Science Relations R e p o r t (OECD 2001). Review Turkish laws a n d regulations covering the collaboration between industry, researchers a n d universities, with particular attention to the legal framework relating to technology transfer a n d royalty distribution for collaborative research projects that c o u l d b e benchmarked against equivalent frameworks in the U S (Bayh-Dole Act) a n d E u r o p e . E x p l o r e regulatory obstacles that m a y hinder the mobdity o f research personnel to move: (i) a m o n g f i r m s (e.g. within n e t w o r k s a n d clusters); (ii)a m o n g institutional sectors (e.g. between public a n d private sectors); a n d (iii) internationally. Compare rationale, design, a n d service provision of Turkish a n d global pm-active policy a n d institutional initiatives (i.e. support for TTOs) aimed at increasing industry-science collaborations; Evaluate one or two Technoparks c o u l d b e evaluated against i n t e p a t i o n a l standards in terms of service provision a n d i m p a c t in relation to the objective o f the Technology D e v e l o p m e n t Z o n e Law. Compare key features o f Turkish s u p p o r t programs to spur consortia projects a n d collaboration o f enterprises with researchers with successful international programs, such as the US. Small Business I n n o v a t i o n Research (SBIR) p r o g r a m or the Canadlan I n d u s t r i a l Research Assistance ( I M P ) Program.

D. Innovation Finance: Venture Capital and Business Angels This section examines the extent to which innovation finance i s available in Turkey and what institutional and regulatory factors prevent i t s expansion. T h e key findings are: 39.

I n n o v a t i o n finance from the venture capital (VC) a n d business angels sector i s insufficient in T u r k e y relative to the U S a n d EU, with early-stage funding particularly scarce. T h e underdevelopment o f the sector i s in p a r t due to the low level o f institutional savings in the domestic capital m a r k e t but the regulatory framework also hinders the operation o f VC firms; T h e financial incentives p r o v i d e d to spur i n n o v a t i o n finance have not been designed specifically for the promotion o f venture capital investments; G i v e n the scarcity of private savings a n d lirmted understanding o f venture capital that breeds risk aversion, public support, in particular for early stage financing, in T u r k e y i s low; T h e demand for venture capital a n d business angelsâ&#x20AC;&#x2122; services e.g., deal flow, m e n t o r i n g a n d awareness programs for entrepreneurs a n d researchers i s also weak in Turkey; T h e r e are a range o f successful p u b l i c programs w o r l d w i d e promoting VC both from the supply side (Fund-of-Fund initiatives, tax incentives regimes) a n d demand-side (researcher incentives a n d support tools) that c o u l d b e relevant in the Turkish context.

T h e start up o f science-based companies i s also hindered b y the underdevelopment o f the venture capital and business angels sector. T h e p r i m a r y i m p e d u n e n t faced during the commercialization stage i s the lack of sufficient funding options, hke seed a n d start-up capital. Researchers need training a n d m e n t o r i n g on business p l a n n i n g -- from the design a n d the development of a prototype, to market research a n d testing a n d IPR management -- w h i c h requires some early stage fundmg. T h u s , â&#x20AC;&#x153;business angelsâ&#x20AC;? finance a n d early-stage funds to b e p r o v i d e d through public VC initiatives are o f particular importance for academic entrepreneurs. T h e r e are just

40.

three V e n t u r e Capital I n v e s t m e n t T r u s t s (VCITs) in Turkey, two o f w h i c h are currently publicly traded on the I s t a n b u l Stock Exchange with a total portfolio value o f a b o u t US$G9 milhon.18 T h e total fund size for venture capital a n d private equity industries i s estimated as around US9400 d o n a n d annual investments are not m o r e t h a n U S $ l O O d o n (0.02% of GDP). By contrast, venture capital investment in the U S a m o u n t e d to US929 billion (or 0.18% o f GDP) in 2005 a n d in the EU15 a m o u n t e d to m o r e t h a n US$32 billion (0.19% of GDP).19 Moreover, t h e share ofprivate early stage investments i s almost negligible in T u r k e y whereas in the U S they accounted for almost 20% of total investments in 2005 a n d close to 28% in the EU-15 in 2006.

41. The growth o f the venture capital sector i s to some extent hindered by an inadequate legal and regulatory framework. T h e underdevelopment of the venture capital sector i s to large extent h i n d e r e d by a n inadequate legal a n d regulatory f r a m e w o r k that was established in 1993 by the Capital Markets B o a r d (SPK) a n d has been amended several times since t h e n in response to demands by m a r k e t participants. However, the regulatory f r a m e w o r k needs to b e m o r e flexible (for example, a c o m m o n l y heard complaint relates to the requirement that VCITs invest at least 50% o f their funds in t h e companies that b e l o n g to their portfolio) to accommodate the unique nuances o f i n n o v a t i o n financing. I t i s apparent that the SPK i s not necessarily the most appropriate institution for establishing t h e overarching framework for the entire VC sector as i t s mandate i s related only to the regulation of listed companies (that require tighter regulation t h a n non-listed companies), w h i c h VCITs are not necessarily. A n o t h e r body, most likely the Ministry o f Finance, would b e better placed to establish a n e w f r a m e w o r k l a w for the VC sector, drawing on, where appropriate, the legislative frameworks established in Spain a n d L u x e m b o u r g recently to p r o m o t e their own nascent venture capital sectors a n d that are also in line with EU rules. 42. The incentives provided by the existing legislation of the financial sector have not been specifically designed for the promotion o f venture capital in Turkey. With a different risk profile t h a n any other fmancial sector services, existing incentives for t h e fmancial sector exemption from corporate tax, not subjecting the portfolio administration gains to withholding tax, a m o n g others - are almost ineffective. Meanwhile, there are financial burdens, e.g., stamp duty (the stamp duty i s equal to 0.75% out o f the contract a m o u n t a n d each contract amendment requires a similar payment). T a x incentives have played a n i m p o r t a n t r o l e in the development of VC sectors in a n u m b e r o f countries, either with low capital gains tax for business angel investments, or via tax breaks for eligible investments that m a k e business angel investments attractive. T h e UK, for example, adopted a tax regune that stimulated early stage investments a n d p r o v i d e i n c o m e tax a n d capital gains tax relief to business angels investing in small, high-risk u n q u o t e d companies under the “Enterprise I n v e s t m e n t Scheme.” 43.

There are other relevant supply-side barriers to the growth o f the venture capital sector, most notably a poor understanding o f the sector that breeds risk aversion. N o n e of the existing VC companies invest in high-risk businesses (tech start-ups), largely because of the traditionally risk averse culture they have as subsidiaries o f banks a n d because they do not have special expertise a n d experience in high-tech fields a n d in m e n t o r i n g o f small entrepreneurs, essential in the survival a n d growth o f VCs as w e l l as f i r m s . Although V a k i f Girisim has supported high-tech sector, it prefers to invest in expansion stage a n d does not specifically target high-tech start-ups. T h e VCITs v i e w investing in small deals as a p r o b l e m due to the heavy due dhgence requirements a n d the SPK legislative requirement that 50% o f funds b e invested in a short p e r i o d o f time. Extensive promotion a n d training/education activities with success stories a n d role models can b e h e l p f u l for VC a n d business angel investors (as w e l l as for potential entrepreneurs a n d companies) in Turkey.

’’

These are Vakif Girisim Sermayesi Y a h Ortakligi, I s Girisim Sermayesi Yatirim Ortakligi. and KOBI Girisim Sermayesi Yatirim Ortakligi. The size o f I s Girisim and KOBI Yatirim are US4678 million and USS20 million, respectively, while that of Vakif Girisim i s not disclosed by i t s managers. l9 Eurostat Science and Technology Indicators.

F u r t h e r integration into E u r o p e a n a n d international networks o f investors such as the E u r o p e a n Business Angels Organization a n d the E u r o p e a n Private Sector I n v e s t m e n t Venture Capital Association should also b e p r o m o t e d .

44. T h e low level o f institutional savings and a lack o f maturity o f the domestic capital markets further constrain the development o f the venture capital sector in Turkey. A c c o r d m g to OECD data, t o t a l assets o f institutional investors a m o u n t to 4% o f GDP in T u r k e y versus 62% in Spain, 95% in I t a l y a n d 191% in the USA. Furthermore, w h i l e L a w No. 4632 on “Private Pension Savings a n d I n v e s t m e n t System” enacted in 2001 permits private pension funds to invest in venture capital fEms, they have not d o n e so in large volumes due to the l i m i t e d sophistication a n d risk exposures o f their strategies, a n d lack o f incentives. For example, in the UK’s Venture Capital T r u s t s , investors that maintain their investments for at least five years receive a n i n c o m e tax deduction o f 20% o f a n investment up to a m a x i m u m threshold p e r tax year of E100,000, w h i l e dividends are not subject to further tax in the hands of the investor a n d capital gains are tax free.20 Such instruments, i f carefully m o n i t o r e d a n d evaluated, m a y b e considered as alternatives to h e l p to m o b h e institutional a n d private investors. Risk aversion of VC investors i s exacerbated by the l i m i t e d n u m b e r of exit mechanisms in Turkey. A c q u i s i t i o n through a strategic buyer i s the most c o m m o n w a y o f exit from investments a n d w h i l e the market for mergers a n d acquisitions i s growing in Turkey, i t remains small.

45.

I n Turkey, there i s scarcity o f private financial resources (and public support) and limited understanding o f VC and early stage funding. Publicly-supported early stage Funds that are however privately managed have acted as a catalyst in the creation o f VC sectors in m a n y countries by preparing the conditions for private sector a n d foreign investors to set up n e w VC funds. T h e Y o z m a p r o g r a m in Israel i s one successful example of Fund-of-Funds (FOF) programs that are initially government funded (with subsidies for fund management costs, deals due diligence a n d fund manager training) but are subsequently privatized. Currently, all p u b l i c support programs p r o v i d e grants a n d loans a n d there are no equity investments in venture capital in Turkey. A w h o l e range o f financing options from the early to the later stages o f innovative businesses should b e designed a n d i m p l e m e n t e d with G o v e r n m e n t support accordmg to international best practice a n d experience. A positive development in this direction i s the anticipated p u b l i c launch in June 2008 of the I s t a n b u l V e n t u r e Capital Initiative (iVCi), a Fund-of-Funds that i s envisaged as a catalyst for the private equity sector, by the E u r o p e a n I n v e s t m e n t Fund with the participation o f the TTGV, K O S G E B a n d the p u b l i c D e v e l o p m e n t B a n k o f T u r k e y (TKB).A small group of blue chip Turkish a n d international institutions will b e i n v i t e d to participate in this p r o g r a m a n d €150 million has been committed. In addltion, Business A n g e l N e t w o r k s ( B A N s ) have p r o v e d to b e successful in m a n y countries, encouraging contact between entrepreneurs a n d business angels by increasing f i r m s ’ investment readiness, facilitating m a t c h n g , a n d organizing awareness-raising, training a n d other support activities. In m a n y EU m e m b e r states, p u b l i c support i s p r o v i d e d to local, regional a n d sectoral as w e l l as national BANs.

46.

A t the same time, measures are needed to strengthen the limited demand for venture capital and business angels’ services. D e m a n d side issues are closely related with the low quality a n d quantity o f deal flows that i m p e d e the development of VC industry in Turkey. L i k e in m a n y other countries, several factors affects the low deal flow to VC in T u r k e y including low R&D levels, weak R&D commercialization culture (and support) at universities, l i m i t e d collaboration between industry a n d research sector, a lack o f intermediaries (such as TTOs), a n d the large n u m b e r o f i n f o r m a l f m s in T u r k e y that makes valuation difficult for investors a n d negatively affects the quality a n d n u m b e r o f VC deals. Furthermore, m a n y f i r m s (in particular those S M E s w h i c h are f a d y o w n e d a n d owner-managed) have a h t e d understandmg of VC investment a n d o f t e n are not attractive investment propositions given the l i m i t e d capabilities o f their managers. T h e r e i s however substantial demand from younger entrepreneurs who show strong interest in business p l a n Zn

www.lowtax.net

competitions (for instance, m o r e t h a n 500 proposals were submitted to a business p l a n c o m p e t i t i o n organized in 2006 by t h e I n f o r m a t i c s Association o f T u r k e y in Eskisehir for a n e w pre-incubator). T h e “CONNECT” p r o g r a m in t h e USA i s a good example o f a f o r m a l m e n t o r i n g system that c o u l d p r o v i d e substantial benefits to young companies at a n early stage a n d prepare t h e m for VC lnves tment.

47.

The findings of this section point to a number of areas where future work could help identify appropriate public policy options for Turkey: T h e Turkish VC regulatory a n d incentive framework c o u l d b e benchmarked against those o f E u r o p e a n (Luxemburg, Spain) a n d emerging economies that have successfully developed a venture capital sector in recent years a n d appropriate lessons drawn. Analysis c o u l d b e d o n e on the types of p u b l i c support mechanisms for projects at different stages (early stage, seed, or post-early stage phase) a n d in different sectors, a n d for promoting greater understanding by n e w entrants o f the unique aspects o f i n n o v a t i o n finance. G i v e n the severe lack of early stage financing in Turkey, successful international models of public support, such as Fund-of-Fundinitiatives a n d fiscal incentive regimes c o u l d b e reviewed. T h e key features o f successful p u b l i c initiatives globally that increased the d e m a n d for i n n o v a t i o n finance (i.e., entrepreneurship training, s u p p o r t for researchers) a n d enabled the success o f n e w technology-based companies c o u l d b e identified.

. .

E. H u m a n Resources: Skills and Education A n ongoing challenge for the Turkish N I S i s the shortage of researchers, which in turn i s related to the educational enrollment and attainments in tertiary education. T h e n u m b e r o f researchers in R&D p e r thousand o f total employed in 2007 in T u r k e y (2.3) i s h a l f that of P o l a n d (4.7) in 2005 a n d substantially l o w e r than the EU27 average (5.8). W h i l e participation in higher education has increased, enrollment a n d attainment rates r e m a i n low by international standards. E n r o l l m e n t rates in higher education are l o w e r for T u r k e y t h a n for most countries with similar or higher levels o f income-especially for high i n c o m e countries. Turkey’s higher education degree attainment rate o f 11% a m o n g 25-34 year-olds i s the lowest a m o n g all OECD countries where the average i s 31%. T u r k e y h a d 5.7 n e w science a n d engineering graduates p e r 1000 population in 2005, w h i c h corresponded to 44% of the EU-27 average. However, developments are going in a positive direction: between 1995 a n d 2004, Turkey’s average annual growth in R&D personnel was as high as Finland’s a n d a m o n g the top three in the world (even though t h i s was partially caused by a m u c h l o w e r starting point). 48.

The problem with the availability of human resources for R&D activities in Turkey could be mitigated in part by attracting back Turkish PhD students living abroad. T h e n u m b e r of PhD students from T u r k e y that remains in the U n i t e d States for five or m o r e years i s close to 6O%, the fifth largest after China, India, I r a n a n d Argentina. W h i l e China’s a n d India’s supply of PhDs i s known to b e superior to their local demands, a n d I r a n a n d Argentina were countries affected by political a n d economic crisis, the explanation for T u r k e y i s less obvious a n d i s probably related to the conditions o f t h i s segment o f the labor market in the country. T h e G o v e r n m e n t recogrmes that the Turkish H i g h e r E d u c a t i o n System faces a deficit o f young scientists a n d has taken some initiatives to increase the international mobllity of students a n d scientists. By enhancing the mobility o f local researchers, the G o v e r n m e n t hopes to further integrate the local research c o m m u n i t y to the international scientific community, a n d increase the willingness o f expatriates to engage in R&D activities in the country.

49.

50. A range of initiatives are under consideration by Turkish policymakers to improve the human resource base of the N I S . T h e strong links between education a n d s k i l l s on o n e h a n d a n d i n n o v a t i o n a n d technology diffusion on the other, with the associated long-term implications for productivity gains, sustainable growth a n d employment generation, makes i m p r o v e m e n t o f the

h u m a n resource base a n essential c o m p o n e n t o f N I S strengthening. Hence, policymakers in T u r k e y have been discussing a range o f initiatives for achieving t h i s objective, i n c l u d i n g improvements in the quantity a n d quality o f education at all levels, life-long learning, vocational training a n d enterprise training. O n e example o f measures to develop h u m a n resources for the research sector i s TUBITAKs “National Young Researcher Career D e v e l o p m e n t Program” initiative. T h e Industrial Thesis (San-Tez) Project links masters a n d doctorate students with industry financing thesis that are related to enterprise sector needs. T h e M i n i s t r y of E d u c a t i o n has initiated the “Technology a n d D e s i g n Program” that requires a m o d u l e on i n n o v a t i o n to b e i n c l u d e d in the national curricula for compulsory secondary s c h o o l education. A bdl approved by t h e Parliament in 2006 paved the way for the establishment o f 32 n e w state universities. T h e current A d m i n i s t r a t i o n i s also engaged in a broader e f f o r t to m o d e r n i z e the education curricula in h e with the needs o f the enterprise sector so as to raise employability of tertiary students, i n c l u d i n g engineers a n d scientists, by the private sector. T h i s agenda i s b e y o n d the scope o f t h i s R e p o r t as it i s b e i n g addressed elsewhere but it has i m p o r t a n t implications for the performance o f the N I S .

111. Technology Upgrading and Innovation by the Enterprise Sector 51. I n this section, findings are summarized from the enterprise survey data and case studies on technology diffusion, international technology transfer and innovation in Turkey. K e y findings include: T h e rate o f technology diffusion (including foreign technology) seems to b e l o w e r in T u r k e y relative to other emerging economies, with potentially i m p o r t a n t implications in terms of productivity, competitiveness a n d employment. T h e purchase o f machinerylequipment i s the p r e d o m i n a n t channel o f “know-how” acquisition. T h e use of I C T varies across regions, size o f the enterprise a n d sector; for example, enterprises those are small, in labor-intensive sectors, a n d located in the K a r d e n i z region show l o w e r levels o f I C T use. Quality standards are diffused a m o n g enterprises of the industrial sector but the supply o f internationally accepted accreditation services i s insufficient. T h e s k i l l o f the w o r k f o r c e i s a m a j o r obstacle to technology upgrading across all sectors, while for medium-sized enterprises in the food, textde, c l o t h i n g a n d furniture sectors, access to a n d the cost o f credit w e r e also important; tax-breaks were considered relatively unimportant. Infrastructure concerns, especially p o w e r outages, also seem to h i n d e r technology upgrading, with firms outside t h e Organized Industrial Zones refraining from larger investments due to the risks o f damage a n d high repair costs.

A. Technology Adoption and Diffusion” 52. In Turkey, the ratio o f capital employed per worker, a rough indicator o f technology diffusion within the country, i s low by international standards. Enterprises m a y obtain updated technology through acquisition of n e w machinery (embedded technology), through spill-over effects (e.g. hiring professionals, interacting with clients), through direct acquisition (licensing or through parent company), by developing n e w technology in house or in cooperation with research a n d development institutes ( R D I s ) , a m o n g other means. A c c o r d i n g to the World B a n k Enterprise Survey, in 2005, 87% of t h e firms reported the purchase o f n e w equipment/machinery as the most c o m m o n m e t h o d o f technology upgrading in Turkey, compared to a n average of 75% across the E u r o p e a n d Central Asia region. T h i s was f o l l o w e d by hiring staff (37%) a n d development of adaptation o f technology (24%). However, investments (roughly at 20% o f GDP) are b e l o w the levels o f the fastgrowing economies (e.g., 28% in India). As a result, capital-labor ratios in T u r k e y are i n f e r i o r to those in Poland, Croatia a n d the Czech Republic, yieldmg relatively l o w e r rates o f output p e r w o r k e r in both the manufacturing a n d the service industries (Figure 4). T h e low capital accumulation in the service industry i s at odds with the trend, f i r s t in the U S a n d later in EU economies, of higher investments and, therefore, the diffusion o f ICT. T h e a d o p t i o n of ICT, particularly computers, in the retail sector (the “Wal-Mart Revolution”) was the underlying cause o f these productivity gains.

The firm-level findings reported in this section relating to technology upgrading and innovation by enterprises in Turkey

are drawn primarily from the Turkey Investment Climate Assessment (World Bank, 2007a) that i s based on data from the

Investment Climate Surveys conducted by the World Bank in 2005.

Figure 4: Technology Diffusion in Manufacturing and Services Figure 4 . b Technology diffusion in the service sector

Figure 4.a: Technology diffusion in the manufacturing sector

Value-added per worker vs Capital per worker, 200405

Trade Sector --Value-added Der worker worker, 200406

HUN

-6

1.00

Capital . Der . 1

CRO

HUN

0 L

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0.80

0.40

0 V

0 U

0.20

0.00 0

Source: E r n 2 0 0 5

Capital per worker ('000 USD)

â&#x201A;Ź4

Capital per worker ('000 USD)

53. Fewer f i r m s reported to have purchased n e w equipment in Turkey than in comparator countries in 2005, possible evidence o f technological outdating. W h i l e i n f o r m a t i o n at t h i s stage i s l i m i t e d (one year data), i t i s worth noting that 42% o f Turkish enterprises r e p o r t e d to have acquired n e w technology in the last two years, versus 47% in Poland, 52% in T h a i l a n d a n d 68% in Brazil. Large enterprises, exporters a n d foreign-owned firms are also substantially m o r e likely to acquire n e w technologies than S M E s , non-exporters a n d locally-owned f i r m s in Turkey: only 31% o f small firms2 reported purchasing n e w machinery in 2005, versus 46% o f medium-sized enterprises a n d 47% of large enterprises. Firms operating in labor intensive sectors are less hkely to acquire updated equipment: 36% a n d 38% of f i r m s in the texules a n d food industries, respectively, reported to have purchased n e w machmery in the last two years. By contrast, the equivalent shares in the m e t a l a n d electronic machinery sectors were 51%. W h i l e there i s evidence o f technological heterogeneity between large companies a n d SMEs, the sector divide i s less clear (also with the presence of some intra-sector heterogeneity). This in turn highlights the importance o f competition (particularly exit o f less efficient f i r m s ) so that the technologically advanced firms constitute a larger share of the sector output.

54. T h e share o f enterprises that have adopted internationally recognized quality standards in Turkey lags behind when non-industrial sectors are taken into account. Internationally recognized quality certification measures a firm's achievements of industry standards a n d technical regulations, a n d therefore represent a channel for the absorption of codified knowledge. In particular, I S 0 9000 norms are a set of international standards a n d g u i d e h e s that serve as the basis for establishmg quality management systems at manufacturing a n d services firms. T h e r e are only three I S 0 9000 certificates for every thousand establishments in Turkey, six times fewer certificates than in Spain on a p e r firm basis. In addition, I S 0 9000 a d o p t i o n rates in T u r k e y in 2005 a m o n g smaller firms were substantially l o w e r than a m o n g larger firms: 24.2% o f the small a n d 45.4% o f the medium-sized firms were certified, as compared to 64.1% o f the large enterprises. At the current diffusion rates, i t would take - on average -- six years for T u r k e y to reach the levels o f I S 0 certification currently present in Ireland, w h i c h i s a b o u t the average for ECA countries but higher than the Czech Republic, P o l a n d a n d R o m a n i a (World B a n k 2007b). 22

Firm size i s defined by the number of employees: small: 1-49; medium: 50-249; large: 250+

55. Firms in Turkey make relatively frequent use of information technologies in their ongoing operations yet I C T use varies significantly by region and by size o f enterprise. Eighty percent o f firms surveyed in 2005 regularly use e-mail in their interactions with clients a n d customers. This proportion i s relatively high as compared to that o f firms in P o l a n d but i s s t i l l b e l o w that o f firms in L a t i n A m e r i c a n countries such as Chile a n d Brazil. T h e use of websites as the interface for communication i s .also high, but consistently less t h a n the use of e-mail (Figure 5). However, the proportion o f firms in T u r k e y that use such websites (70%) i s in l i n e with that of non-Asian comparator countries. However, while 85% o f f i r m s surveyed in the M a r m a r a R e g i o n regularly use e-mail in external communications, t h i s proportion i s only 56% a m o n g f m s based in the B l a c k Sea a n d East Anatolia Regions. M o r e t h a n 90% o f large f i r m s using e-mail for external communications, as compared to 63% o f small firms. A similar pattern exists in the use o f websites to interact with clients a n d suppliers (Figure 5). 56. When there i s tremendous variation in the use of technology employed by f i r m s within a given sector/country, the process of technological ‘catch-up’ by lagging firms represents major potential for productivity gains. I n India, as shown in a recent World B a n k

report, 23 most firms, especially small ones, t e n d to use low levels o f technology, a n d only a f e w operate near the national technological frontier. I n most sectors, p r o d u c t i v i t y at the national technological frontier i s a b o u t five times the m e a n level for all firms. For small f o r m a l enterprises, average productivity i s even lower: about one-sixth of the level at the technological frontier for each sector a n d only one-eighth that of top local performers. Smaller i n f o r m a l enterprises are likely to b e even less productive. T h e skewed distribution o f enterprise p r o d u c t i v i t y implies potentially huge productivity a n d output gains, if existing within-country knowledge w e r e to diffuse from top performers to the rest of the economy.

Figure 5: Use of I C T in Interactionwith Clients and Suppliers Figure 5.a: Use of I C T in interaction with clients and suppliers, regional comparison

Figure 5.b: U s e o f I C T in interaction with clients and suppliers, by firm size 100

100 .D Io

-e

* 40 L

40 20

Source: Turkey Investment Climate Survey 2005

sma

Ksdium

Large

Source: Turkey Investment Climate Survey 2005

23 See Dutz, Mark (editor): “Unleashing India’s Innovation.” The World Bank. Washington D C

(2007).

B. International Technology Transfer

57. T h e share o f imported intermediate goods a source o f embodied technology - as a portion of total inputs o f Turkish firms i s m u c h lower than in new EU member countries. J u s t fewer than 15% of inputs in Turkey were imported, as compared to more than 30% in Bulgaria and 40% in Slovakia (Figure 6: Share of Figure 6: Share of Imported Inputs, 2005 Imported Inputs, 2005). In particular, imports 50 1 o f capital goods represent 29% o f total fixed g 45 investment in Turkey in 2005, compared to 40 66% in Bulgaria (World Bank, 2007). 2g 35 Interestingly, the share of intermediary and .-E 30 capital goods in total imports has accounted I 25 -Pc 20 for no less than 87% o f total imports in 2002- r 2007. T h e s d a r i t y with B r a z i l suggests that one reason for that may be that t h e overall trade integration of Turkey i s s t i l l insufficient: indeed, i t s trade share in GDP (at 62.8% for t h e period 2005-06) i s s t i l l considerably below the regional and middle income mean

: 0

10 5 0

openness ratios (both of which are over Source: World Bank Enterprise Survey, 2005 100%).24 Limited integration may reflect an anti-export bias of trade or other restrictive domestic policies or may simply reflect the current pattern of trade specialization.

58. Inflows o f Foreign Direct Investment in Turkey in the manufacturing sector remains low relative to Eastern European emerging economies. Only 2.7% o f Turkish enterprises declared to have established a new joint-venture with foreign firms in 2002-05. T h l s compares with 6.1% o f the enterprises in the Czech Republic and 5.6% in Bulgaria. I t reflects, in part, a relatively low inflow o f FDI in Turkey. FDI inflows have surged from 1% o f GDP in 2004 to 5% in 2006, Figure 7: Distribution of FDI b y Sector, 2005 close to the rates seen in the ten emerging EU economies o f Eastern Europe (the average rate was 7.5%) but those are essentially concentrated in non-manufacturing sectors (Figure 7). In addtion, FDI inflows to Turkey remain low relative to Eastern Europe in per capita terms a t US$179 (vS$2,000 constant) in 2006 relative to the average o f US$343 in Eastern Europe. Interestingly, the World Bank 2007 Investment Climate Assessment (ICA) also notes that t h e probability to receive FDI i s higher for those companies that have introduced a new product or have Manufacturing Setices Other acquired a n international license, possibly Turkey Country Economic Memorandum 2007 evidence that foreign investors may be “picking-winners” (rather than upgrading technology and transferring know-how). 59. . Technology licensing in 2002-05 seemed restricted to less than 5% o f Turkey’s enterprises, roughly one third the levels o f Romania and Bulgaria. Interestingly, there i s no 24

See the World Bank 2007 “Trade At-A-Glance Tables” available at http://wti2007.worldbank.org

discernible difference between sectors in the rates o f licensing of technology by f m s with 21% of textile firms a n d 17% o f food-processing companies using licensing, versus 14% o f firms in the m e t a l processing sector a n d 21% o f firms p r o d u c i n g electronic machinery. F u r t h e r analysis c o u l d b e undertaken to ascertain the type a n d quality o f technology licensed in different sectors a n d whether the source i s domestic or foreign. Moreover, the level o f royalty a n d license fees paid by Turkish firms to foreign entities p e r capita, very low relative to other emerging economies, suggests i t i s used p r i m a r i l y for relatively simpler a n d low-cost technologies: for example, in 2006, total royalty a n d license fee payments from T u r k e y amounted to US$5.09 p e r capita versus US$17.46 on average in u p p e r m i d d l e i n c o m e countries.

60. Importing international technology i s an important component o f global experience in industrial upgrading and competiveness but countries take different paths. China, India, a n d Turkey, all started from a relatively sirmlar degree o f industrial specialization a b o u t 10 years ago but in q n g to stimulate industrial upgrading a n d their global competitiveness since t h e n they have f o l l o w e d divergent paths in terms o f integrating with the gIobal economy25. China has become a n export-oriented assembly country, strongly integrated into the international segmentation-ofp r o d u c t i o n processes in Asia, with parts a n d components forming the largest share o f i t s imports of h g h - t e c h products that are predominantly incorporated into the p r o d u c t i o n o f exports a n d are not u s e d to modernize domestic p r o d u c t i o n capacities. G i v e n i t s level of development, China’s exports display an exceptionally high level o f high-tech content. India i s characterized by l i m i t e d participation in international division-of-production processes a n d by a low level of imports in high-tech products. These h g h - t e c h imports are evenly distributed a m o n g the different stages of p r o d u c t i o n a n d the different sectors, while high-tech exports are concentrated in chemical industries. Tttrky’~h g h - t e c h imports consist mainly o f capital goods a n d correspond to a classical form of technology transfer aimed at upgrading indigenous industrial capacities. Turkey’s foreign trade i s strongly structured by i t s traditional complementarities with Europe.

61. National Diasporas are a huge potential channel for international technology transfer to their countries of origin, i n c l u d i n g China, India, Korea, Taiwan, a n d S o u t h Africa.26 T h e technical a n d marketing knowledge o f Diasporas i s a huge resource as i t can p r o m o t e trade a n d FDI (the other main channels o f global knowledge transfer). Outside actual return, migrants overseas can transfer knowledge a n d technology though several channels including: (a) licensing agreements between Diaspora-owned or managed firms in host countries a n d f m s in sending countries; @) investments in the h o m e c o u n t r y financed by remittances; (c) expatriate knowledge networks created to foster regular contacts; transfers o f skills, a n d opportunities for business with researchers, scientists, a n d entrepreneurs in the c o u n t r y of origin, and; (d) “virtual” returns through extended v i s i t s a n d electronic communication in fields such as medicine a n d engineering. Based on the numerous successful examples o f government initiatives in t h i s area a r o u n d the world, T u r k e y c o u l d benefit from further efforts to p r o m o t e these flows from the almost 5 d o n strong Turhsh Diaspora27 by strengthening the support infrastructure such as a f o r m a l Diaspora n e t w o r k for D i a s p o r a knowledge initiatives. Initiatives c o u l d include joint research projects, spin-offs, short v i s i t s a n d seminars, assistance in formulating i n n o v a t i o n strategies a n d methodologies; participation in teaching at management bodies o f scientific institutions, m e n t o r i n g o f local innovators a n d liaisons with technology institutions a n d markets.

Lemoine and Unal-Kesenci(2003) highlight the following divergent integration paths. ‘‘Global Economic Prospects 2008: Technology Diffusion in the DevelopingWorld.” World Bank 2008. 27 Turkey has among the highest rates of nationals staying in the US after the completion of their PhDs (close to 60°/0) after China, India, Iran and Argentina. 25 See 26

C. Innovation and R&D at the Enterprise-Level 62. The number of firms that have introduced a new product or upgraded an existing product line also appears to be lower in Turkey than comparators. Only 36% of surveyed f m s in T u r k e y have i n t r o d u c e d a n e w p r o d u c t in 2003-05, versus 50% in V i e t n a m a n d 68% in Brazil. T h e i m p r o v e m e n t o f a n existing p r o d u c t line i s also less widespread in T u r k e y t h a n in comparators: only 61% of Turkish f m s upgraded a p r o d u c t line in the past two years, versus 70% in Chile a n d 95% in Brazil. I n Turkey, as in all other comparators, p r o d u c t l i n e u p g r a d i n g i s m o r e c o m m o n than development of a n e w p r o d u c t a n d the gap with other countries seems to b e smaller in the case o f p r o d u c t upgrade. W h i l e n e w discoveries are a n i m p o r t a n t p a r t of the sustainable growth of the leading developed economies, most o f the productivity gains in emerging economies result from dayto-day i n t r o d u c t i o n of technological solutions a n d incremental i m p r o v e m e n t s to products a n d processes o f production. Technology solutions m a y require t h e introduction of n e w equipment, reorganization o f t h e p r o d u c t i o n process or a n e w form o f transportation.28 63. Innovation i s more common among firms in capital-intensive sectors that require relatively sophisticated technologies and among foreign, exporting and larger firms. I n n o v a t i o n performance seems to b e related to industry characteristics: a larger share o f f i r m s operating in the motor vehicle a n d auto component, electrical a n d metals a n d machinery, a n d chemicals sectors were r e p o r t e d to have introduced a n e w p r o d u c t or to have upgraded existing products in 2005, relative to o t h e r less capital intensive sectors such as textiles a n d food processing. A greater portion o f large f m s introduce n e w products or upgrade existing products relative to smaller ones. A larger share o f exporters in T u r k e y i s likely to innovate relative to non-exporters. S d a r l y , foreign f i r m s are m o r e likely to introduce n e w products t h a n domestic f i r m s , (although the dlfference i s m u c h smaller with regard to upgradmg existing products), supporting the Turkish Government's current plans to attract research-intensive FDI (Figure 8). Figure 8: International Comparisons of Firms Developing and Upgrading Products Figure 8.a: Introduction of a new product and product upgrade by industry

Figure 8.b: Introduction of new product or product upgrade by size, exporting status and ownership 80 62

m New product

is Product upgrade

Product upgrade

Source: Turkey Investment Climate Survey 2005

64. The intensity of R&D of Turkish f i r m s seems close to the average of i t s peers. Private expenditures in R&D as a share of sales in T u r k e y (0.29%) was larger t h a n in several n e w EU m e m b e r economies such as H u n g a r y a n d the Czech Republic in 2005, closer to Slovakia's a n d As Mokyr (1990) has argued, when taken together, these incremental innovations and their providers may be the t r u e unsung hero of economic growth (Hall et al, 2005).

Romania’s levels in that same period, but l o w e r t h a n China (2.47%), B r a z i l (1,51Yo), I n d a (1.04%), a n d Chile (1.0%) in early 2000. Foreign-owned firms spent five times m o r e t h a n the domestic ones (2.26% versus 0.44%). Medium-sized fums were the most R&D intensive (1.3%, compared to 0.87% a n d 0.41% o f large a n d small enterprises respectively). W h i l e t h e manufacturing a n d construction sectors reported investment ratios close to 1%, the service sector share i s m u c h l o w e r (0.37’). Among the manufacturing industries, the m e t a l a n d machinery segment - a sector known to b e research intensive - reported the highest level of R&D intensity. T h i s i s consistent with i t s sustained e x p o r t performance in recent years: in 2004-06, for instance, the exports o f machinery a n d equipment grew 23%, m o r e t h a n vehicles (20%) a n d the e x p o r t total (17%).

65. T h e decisions o f enterprises to invest in technology upgrading and innovation seem to be as closely linked in Turkey as in other economies. T h e relatively large share o f f m s that both innovate a n d upgrade their technology in T u r k e y as w e l l as in m a n y other e m e r p g economies suggests that there are strong synergies between these two activities. These synergies should b e explored in order to better design p u b l i c policy. For example, m o r e t h a n 50% of Turkish firms that invested in R&D in 2005 also developed a n e w product, w h i l e 48% o f Turkish f m s that licensed foreign technology also i n t r o d u c e d a n e w product. V e r y o f t e n countries not only generate technological k n o w - h o w by their own R&D, but they also benefit from the advances in the world technology frontier, w h i c h accelerates the process o f catching up. Turkish enterprises can e m p l o y the knowledge that underpins advances in the technology globally through patent databases that contain documents with detailed technical i n f o r m a t i o n on innovations w o r l d w i d e to develop their own products, equipment a n d processes. T h ~ implies s that investments in basic i n n o v a t i o n (investment in R&D), non-patentable i n n o v a t i o n (introduction o f n e w products) a n d technology adoption (kensing) are complementary a n d thus the incentives a n d obstacles for investment in any of these activities can have i m p o r t a n t externalities in terms o f a n enterprise’s decision to invest in i n n o v a t i o n a n d technology upgrading.

D. Possible Causes for Low Technology Diffusion 66. Labor skills, access to credit and “know-how” currently seem to discourage technological progress in Turkey. T h e share of s u e d p r o d u c t i o n workers in T u r k e y (49% o f total) i s only slightly higher t h a n in ECA countries (47%), w h d e the n u m b e r o f s u e d workers receiving training (18% compared to 25%) a n d firms o f f e r i n g f o r m a l training (53% compared to 75%) are m u c h lower. T h ~ sprobably implies a higher cost o f (labor) adjustment for technology a d o p t i o n a n d therefore l o w e r levels o f technology adoption.” T h e rigid labor regulation adds to the p r o b l e m as i t induces i n f o r m a l employment relations which, in turn, discourage training, t h u s h i n d e r i n g the acquisition o f m o d e r n ,skill-intensive technology. A n o t h e r complementary input i s access to a n d cost o f credit, not only for the acquisition o f equipment - w h i c h i s sometimes p r o v i d e d by the supplier - but for the organizational changes that are o f t e n required to enable the firm to fully reap the benefits of t h e i n t r o d u c t i o n o f the n e w equipment. Access to fmance i s ranked one of the top ten obstacles for entrepreneurship, particularly for medium-sized enterprises. A third factor i s access to knowledge, whether i t i s d f f u s e d by standards, acquired through qualified managers or generated by engineers a n d R&D activities o f enterprises. T h e n u m b e r of “professional managers” in Turkey’s enterprises (24%) i s relatively low compared to ECA countries (32% on average in ECA countries), the share of science a n d engineering graduates i s less than h a l f the E U - 2 7 average a n d R&D intensity, as d m u s s e d above, although similar to o t h e r regional peers, i s b e l o w the levels shown by f m s in Brazil, China, Chile a n d I n d a .

Data from 2005 - Business Environment and Enterprise Performance Survey (BEEPS). See also European Commission, Enterprise Directorate-General(2007) Turkey Annual Innovation Policy Trends and Appraisal Report, European Trend 29

Chart on Innovation.

67. In terms o f market incentives, competition seems relatively l o w and marginal taxes high in Turkey. T h e pressure o f foreign competitors appears to b e limited, as only 33% o f Turkey’s

companies considered foreign c o m p e t i t i o n a n i m p o r t a n t influence on l o w e r i n g p r o d u c t i o n costs or developing products in 2005. This m a y b e problematic as evidence suggests that economic specialization - p r o x i e d by the share o f f m s that discontinued at least o n e p r o d u c t line in the previous three years - i s positively associated with p r o d u c t upgrades. Also o f some concern i s the deceleration o f the privatization process: in the ECA region, recently privatized companies seem m o r e likely to a d o p t m o d e r n technologies (e.g., web-use a n d I S 0 certification) t h a n other companies, possibly because new-owners have better defined ownership rights, w h i l e i n d u c i n g management improvements. T h e average personal i n c o m e tax rate (30.5%) in T u r k e y remains high in comparison to most OECD m e m b e r countries despite recent reductions in the marginal tax rates, a n d reduces incentives for profit-seeking investments i n c l u d m g technological update.30 T a x rates m a y affect Turkey’s technological performance also by setting a n i m p l i c i t “cap” on fm growth. As firms choose to p r o d u c e at sub-optimal scale to benefit from tax exemptions, scale-intensive techniques b e c o m e unprofitable a n d obsolete techniques are chosen. T a x rates were considered the f i r s t obstacle for the expansion of the private sector in T u r k e y by entrepreneurs in 2005, according to the 2005 World B a n k Enterprise Survey.

E. Enterprise Case Studies 68. Case studies o f 20 SMEs in labor intensive industries were undertaken to complement the findings o f the empirical analysis on the determinants o f enterprise investment in innovation and technology diffusion3’. T h e objective o f these case studles was to address whether technological upgrading was a n obstacle for business expansion and, if so, w h a t were the possible causes. Following a recent OECD studq2, the focus of case studies has been on S M E s in labor intensive industries that are located outside Istanbul a n d have shown r a p i d growth in output a n d exports in the past two decades. A “theoretical sample” was constructed with five f m s taken from each of four key sectors, namely food processing, textiles, clothing, a n d furniture. These firms were interviewed using a detailed questionnaire that follows the conceptual framework presented in the i n t r o d u c t i o n to identify the sources a n d determinants of Turkish S M E s ’ i n n o v a t i o n a n d technology a d o p t i o n activities. Table 2 b e l o w summarizes the main findmgs of the interviews. T h e questionnaire a n d a summary o f each interview are presented in A n n e x V. Table 3: Key Findings from Case Studies of S M E s in Labor-Intensive Sectors Key Findings

support

Companies in labor-intensive sectors (furniture, food processing, textile and clothing) are usually not the pioneers o f innovation, but followers.

Less than 50% of f m s (and just 15% or less o f SMEs) in labor-intensive sectors are innovative relative to more than 50% in c a p i t a h t e n s i v e sectors (machine-building, automotives and chemicals).

SMEs technological awareness depends on the level o f education of i t s owner/manager, and whether the fm i s a joint venture or exports.

Firms with young managers/owners have m o r e interest in i n n o v a t i o n w h i l e firms with a foreign partner or who export are m o r e aware of global M S T Q a n d technological requirements.

T h e inadequacy of labor skills at all levels i s a key constraint on the capacity of enterprises to acquire

Firms in all sectors cited weak vocational education for technicians that need training when employed,

30 By contrast, the corporate income tax rate of 20% in Turkey i s low by current standards in OECD member countries. 31

See Yin R.K “Case Study Research: Design and Methods” (1994) for the seminal review of the literature.

32 OECD (2007): “Enhancing Turkey’s Growth Prospects by Improving Formal Sector Business Conditions.” Economics

DepartmentWorking Papers No.542

a n d use new, m o r e advanced technology.

a n d inadequate university preparation o f engmeers.

L i m i t e d access to fmancing i s another major constraint often cited by enterprises.

Collateral requirements hinder SME financing but even m e d u n sized f i r m s do not use b a n k credit out of m i s t r u s t of the financial system; and

Only large enterprises or those with foreign partners (e.g., clothing) do not see financing as m a j o r constraint on technology upgrading. Poor electricity provision, with high prices and

80% of Turkish frrms suffer from p o w e r outages33

unpredictable p o w e r outages discourage investment in n e w technologies and hurt competitiveness.

(particularly prevalent for f i r m s outside Organized Industrial Zones) that damage machinery.

Fiscal incentives for the acquisition of capital goods do n o t seem to b e a decisive factor for most h s .

T h e f e w f i r m s t h a t found incentives decisive saw VAT exemptions as h e l p f u l w h i l e customs duty exemptions less so as technology i s bought from l o c a l representatives o f f o r e i g n sellers.

T h e impact of public support programs on technology adoption i s mixed.

KOSGEB programs are seen as bureaucratic while support for the attendance o f business fairs i s m o r e

popular a n d effective; a n d

h s have used TUBITAK-TEYDEB support to collaborate with researchers but many

Few

expressed the need for such partnership schemes. International quality certification i s particularly important for the food industry but provision o f MSTQ services i s reported to b e insufficient.

Some exporters emphasized that they are generally required to send their goods abroad for testing, as some destination countries do not accept the laboratoriesâ&#x20AC;&#x2122; approval in Turkey. T h e numbers of accredited laboratories by the TSE as w e l l as independent laboratories remain fairly low, and t h i s constitutes a major p r o b l e m for exporters in the sector.

Technological upgrading in the textde sector has been driven by intense global competition a n d key constraints are access to s u e d labor a n d financing.

T h e r e are deficiencies a t technician a n d engineer levels a n d with t h e phase-out o f p u b l i c incentives, technology acquisition i s d i f f i c u l t for many SMEs.

Close relationships with foreign buyers have the competitiveness and been v i t a l for technology sophistication o f t h e c l o t h i n g sector.

F o r e i g n partners t h a t are pioneers globally (Italians mostly) have facilitated p r o d u c t a n d technological u p g r a d i n g by Turkish enterprises.

L i m i t e d access to skilled labor a n d fmancing, and infrastructure bottlenecks constrain S M E s in the furniture sector outside Organized Industrial Zones. Source: Study Team

2005 World Bank Enterprise Survey.

IV. Summary and Conclusions 69.

This section summarizes the main conclusions o f the R e p o r t a n d identifies some possible directions for t h e Study. Turkish G o v e r n m e n t wants to i m p r o v e i t s economic growth a n d employment levels. Among others factors (such as political a n d macro-economic stabdtty along with a conducive business environment), i n n o v a t i o n is a k e y driver for improving competitiveness, sustained growth a n d employment, a n d reducing p o v e r t y in Turkey. 70. Status o f Turkeyâ&#x20AC;&#x2122;s N I S . T h e Turkish G o v e r n m e n t accords high priority to R&D a n d i n n o v a t i o n a n d T u r k e y has a well-developed N I S that encompasses most o f the actors a n d institutions existent in OECD economies: B u d g e t allocation for the support of p u b l i c a n d private R&D increased sigtllficantly in recent years, as p a r t o f the measures aiming at the 2% target. O t h e r policy-measures have also been adopted, i n c l u d m g the approval o f a n e w R&D L a w that encourages FDI in R&D a n d extends financial incentives for enterprises outside Technoparks undertaking R&D activities. T h e scope o f p u b l i c support programs for R&D a n d i n n o v a t i o n i s large, but technology adoption levels are low. T h e r e have been institutional i m p r o v e m e n t s recently, however there i s s t i l l some level of fragmentation a n d overlap in institutions a n d programs and, as in most countries, coordmation a m o n g N I S players i s a challenge. Independent evaluation a n d international b e n c h m a r h n g o f most institutions a n d programs have not been applicable yet.

Following the EU experience, T u r k e y i s interested in raising the i m p a c t o f i n n o v a t i o n policies on the development o f i t s regions.

Despite recent progress in the harmonization of i t s IPR regime, some legislative measures are s t i l l pendmg, i n c l u d i n g the o n e related to the a u t o n o m y o f the Turhsh Patent Institute. Progress with enforcement o f IPR legislation was also achieved but this i s s u l l the main challenge ahead. T h e R&D activity in T u r k e y i s essentially p e r f o r m e d by universities a n d p u b l i c research institutes a n d the R&D intensity of affiliates o f foreign f i r m s i s significantly l o w e r in Turkey. m

T h e performance o f Turkeyâ&#x20AC;&#x2122;s N I S in terms of driving productivity, competitiveness a n d i n n o v a t i o n in t h e economy (as measured by high-tech exports or patents for example) lags b e h i n d that of other emerging economies in the region a n d c o u l d b e improved. Increasing the supply o f engineers a n d researchers a n d strengthening collaboration between p u b l i c research institutes, universities a n d the business sector c o u l d help i m p r o v e the performance o f Turkeyâ&#x20AC;&#x2122;s N I S . Some R&D Institutes in T u r k e y have been restructured (e.g., TUBITAK-MAM) to become market-oriented. But, for most of them, cooperation with t h e enterprise sector i s limited. Cooperation between universities a n d the enterprise sector i s also limited. Venture capital, especially early stage a n d business angel finance, i s almost non-existent in Turkey, hindering the commercialization of R&D a n d start-up o f n e w companies. T h e Technopark industry in T u r k e y has b o o m e d during the last f e w years with the support of the TDZ L a w but this expansion m a y have been biased t o w a r d the provision of infrastructure to the detriment of business development services a n d promoting collaboration between the research sector a n d industry.

71. Firm Level Innovation and Technology Diffusion. C o n t r a r y to the widespread realization o f i t s importance for Turkey’s development, technology diffusion, including international technology transfer, i s occurring at a slow pace. T h i s i s a missed opportunity in terms o f raising labor productivity, competitiveness a n d employment in Turkey. W h e n compared to alternative means such as M g personal or developing technology “in house,” the purchase of machinery a n d equipment i s s t i l l considered the predominant w a y through w h i c h “know-how” i s acquired by the f i r m s . T h e use o f ICT varies according to the region, size of the enterprise a n d type of industry -- with t h e small firms; the enterprises from labor intensive sectors; a n d the companies located in the K a r d e n i z region showing systematic l o w e r levels of I C T use. Quality standards are diffused a m o n g enterprises o f the industrial sector but the supply of internationally accepted accreditation services i s insufficient. T h i s m a y b e particularly relevant for food industry’s exports requiring phyto-sanitary certification. P r o d u c t upgrades a n d i n n o v a t i o n are even less frequently employed by S M E s . T h e insufficient supply of researchers a n d engineers m a y b e a constraint to the expansion of private sector R&D a n d technology absorption.

72. Directions for Future Analysis. F u t u r e work on the T u r k e y N I S c o u l d assess the existing consistency with declared objectives; (ii) coherence policy-measures a n d assess t h e m in terms of: (i) (internal); a n d (iicomprehensiveness. ) For example, the p o l i c y to raise private R&D encompasses the tax-incentives p r o v i d e d by the M i n i s t r y o f Finance; the grants p r o v i d e d by TUBITAK; the softloans p r o v i d e d by K O S G E B ; a n d the current IPR regime. T h e analysis c o u l d try to r e s p o n d how fum’s R&D investments are likely to react to t h i s set of measures. A d d i t i o n a l issues that c o u l d b e addressed include:

On the Overall Strategy. G i v e n the goal o f raising l a b o r productivity, the relative emphasis on industrial R&D appears at odds with the large share of employment in agriculture a n d service sectors. Should diffusion of technology to agriculture a n d service sectors b e a priority objective? On PVate R&D. M o r e p u b l i c funding i s b e i n g allocated for both p u b l i c a n d private R&D, with the goal o f expanding the v o l u m e o f R&D as a share of GDP. But in the context of insufficient supply o f h u m a n resources, c o u l d p u b l i c R&D b e “crowding-out’’ private R&D a n d therefore not b e fully compatible with the goal expandmg private R&D? On Knowledge Commercialiqation. A review of the incentives for universities a n d researchers to focus on applied research (along with basic research), patenting a n d the commercialization o f research, bringing ideas from “labs to the market a n d create wealth,” embedded in the regulatory a n d policy framework c o u l d b e very useful in guiding future r e f o r m .

On Sciencebased Stae-t-tlps: T h e establishment a n d survival o f innovative science-based start-up enterprises i s hindered by the lack o f early stage fundmg a n d a n undeveloped venture capital industry. W h a t regulatory a n d policy reforms a n d w h a t hnd o f mechanisms for p u b l i c financing are most appropriate to stimulate the development of the venture capital industry in T u r k e y a n d support the growth a n d survival o f innovative start-up enterprises? On Technology Dzfusion. Most programs supporting technology absorption were developed in the 1990s. A r e the legal framework a n d the ongoing government programs sufficient to p r o m o t e the diffusion of technology in the current environment? On Skills and Education. W h a t can b e d o n e to i m p r o v e enterprise-level training provision a n d support programs.

73. I n addition, impact evaluation techniques used in other OECD economies could be used to assess selected public support programs. T h e issues outlined above can p r o v i d e the broader context for the evaluation o f key support programs for i n n o v a t i o n a n d technology dffusion

. .

includmg:

Private R&D. T a x breaks p r o v i d e d by t h e Ministry of Finance; 7TGV’s soft loans (one program); a n d TUBITAK’s m a t c h i n g grant schemes for firms (one program).

Science-BasedStart-upx O n e or two Technoparks (e.g. Cyberpark, METUTECH).

Technology DzffuJion. KOSGEB’s p r o g r a m (1 or 2) o f support for technology u p g r a d m g a n d hiring business a n d labor-training consultants.

74.

Further work could also be undertaken to deepen knowledge about the determinants of the innovative and technological performance o f the enterprise sector in Turkey including:

. .

E x p l o r i n g the possibhty to estimate empirically t h e determinants o f (i) technology absorption by

S M E s with an emphasis on s k i l l s a n d access to fmance, a n d (ii)private investment in R&D a n d

innovation.

E x t e n d i n g the case studies for successful S M E s (possibly in t h e software a n d defense sectors) to understand how they overcame the existing obstacles to upgrade t h e quality o f their products a n d to innovate.

V. References Aghion, P. (2006). “A Primer on Innovation and Growth.” Bruegel Policy Brief, ISSUC 6, Brussels. Aghion, P., N. Bloom, R. Blundell, R. Griffith, and P. Howitt (2005). “Competition and Innovation: An Inverted U Relationship.”Quarfer~JournalofEconomi‘~120 (2): 701-28. Aghion, P., R. Blundell, R. Griffith, P. I-lowitt, and S. Prantl. (2006). “’The Effects o f Entry on Incumbent Innovation and Productivity.” NBER Working Paper No. 12027, National Bureau o f Economic Research, Cambridge, hM. European Commission, Enterprise Directorate-General(2007). “Turkey Annual Innovation Policy Trends and Appraisal Report, European Trend Chart on Innovation.” European Commission (2007). “Turkey 2007 Progress Report.” Lemoine, F. and D. unal-Kesenci (2003), “Trade and Technology Transfers: a Comparative Study of Turkey, I n d i a and China,” Working Papers 2003-16, CEPII Research Center. hlokyr, J. (1990). “The Lever of Riches: Technological Creativity and Economic Progress.” New York: Oxford University Press. OECD (1997). “Diffusing Technology to Industry: Government Policies and Programmes.” OECD Publications, Paris, 1997 OECD (2007): “Enhancing Turkey’s Growth Prospects by Improving Formal Sector Business Conditions.”

Economics Department Working Papers No.542

P. Pate1and K. Pavitt (1994). “National Innovation Systems: Why They Are Important, And How They Might Be Measured And Compared.” Economics fInnovation and New TechnoloD, Volume 3, I s s u e 1 1994 , pages 77 -95. Scientific and TechnologicalResearchCouncil o f Turkey (1989-2005). “Decisions of the BTYK.”

http:/ /www.tubitak.gov.tr/b~d/btyk/

Scientific and Technological Research Council o f Turkey (2004). “Vision 2023 Project.” http:/ /www.tubitak.gov.tr/home.do?ot=l&sid= 1005&~id=547 Scientific and Technological Research Council o f Turkey (2007). “National Innovation Strategies.” Scientific and Technological Research Council o f Turkey, Ankara, Turkey. State PlanningOrganization (2003). “ S M E Strategy and Action Plan.” State Planning Organization, Ankara, Turkey. State PlanningOrganization (2003). “Industrial Policy for Turkey: Towards EU Membership.” State Planning

Organization, Ankara, Turkey.

State PlanningOrganization (2006). “Ninth Development Plan: 2007-2013.” State Planning Organization, Ankara, Turkey.

World Bank (2005). “World Development Report 2005: A Better Investment Climate for Everyone.” Report No. 28829, World Bank, Washington, DC. World Bank (2007a). “Turkey Investment Climate Assessment.” Report No. 41611, Europe and Central Asia Region, World Bank, washington, DC. World Bank (2007b). “Turkey Country Economic Memorandum.” Report No. 39194, Poverty Reduction and Economic Management, Europe and Central Asia Region, World Bank, Washington, DC. World Bank, (2007~).“Unleashing India’s Innovation: Toward Sustainable and Inclusive Growth.” (edited by Mark A. Dutz), Report No. 41611, South Asia Region, World Bank, Washington, DC. World Bank (2008). “Global Economic Prospects 2008: Technology Diffusion in t h e Developing World.” Report No. 42097, Global Prospects Group, World Bank, Washington, DC. Yin R.K (1994). “Case Study Research: Design and Methods. ” A p p h d Social Research Method Series, 5, 2nd ed

ANNEX I

KEY ACTORS OF THE TURKISH NATIONAL INNOVATION SYSTEM

T h e main actors in the N a t i o n a l I n n o v a t i o n System P I S ) of T u r k e y a n d their roles a n d functions are explained below. T h e Sumeme C o u n c i l of Science a n d T e c h n o l o w ( B m: I t i s the highest-level science a n d technology p o l i c y m a h n g a n d co-ordination body in Turkey. Established in 1983, the BTYK i s legally formalized for determining, h e c t i n g a n d c o o r d n a t i n g science a n d technology policies. T h e C o u n c i l proposes policies a n d decides on policies designed by the Scientific a n d Technological Research C o u n c i l o f T u r k e y (TUBITAK); approves the action p l a n for implementation o f the policies; assigns t h e responsible b o d e s a n d coordinators for each policy measure, a n d follow-ups a n d coordinates i m p l e m e n t a t i o n o f p o l i c y actions. T h e BTYK has the highest representation from the G o v e r n m e n t level. Chaired by the P r i m e Minister, i t i s constituted by the related State Ministers: the Ministers o f C o m m u n i c a t i o n a n d Transportation, E n e r g y a n d N a t u r a l Sources; Defense; Finance; N a t i o n a l Education; Health; Forestry, A g c u l t u r e a n d R u r a l Affairs; Industry a n d Trade; the President o f the H i g h e r E d u c a t i o n Council; the Undersecretaries o f the State P l a n n i n g Organization (SPO); Treasury, a n d F o r e i g n Trade; the President a n d one o f the V i c e Presidents of TUBITAK, the President o f the A t o m i c E n e r g y C o u n c i l o f Turkey; the General D i r e c t o r o f the Broadcasting C o r p o r a t i o n of Turkey; the President of the Union of Chambers o f C o m m e r c e a n d Industry (TOBB), a n d the representatives o f two l e a d n g universities. Presidents o f other related governmental organizations, not-for-profit foundations, chambers a n d m a j o r technical universities are i n v i t e d to the meetings.

Hich Planning C o u n c i l IYPK): YPK i s the hghest-level body for the preparation a n d implementation o f the development plans which also covers i n n o v a t i o n a n d technology p o l i c y actions for Turkey. State P l a n n i n g Organization (SPO) i s the Secretary to the YPK, w h i c h i s chaired by the P r i m e M i n i s t e r a n d composed o f the ministers appointed by the P r i m e M i n i s t e r (currently, members include the two State Ministers (one o f t h e m i s also the D e p u t y P r i m e Mmister), Ministers o f Finance; P u b l i c Works a n d Settlement; Transport; Industry a n d Trade, a n d Energy a n d N a t u r a l Sources), a n d the Under-Secretary o f SPO. T h e main tasks o f the YPK include the following: Assisting the C o u n c i l of Ministers in the p l a n n i n g a n d identification of policy targets in economic, social a n d cultural development, a n d examining development plans a n d annual programs with respect to objectives a n d sufficiency before submitting to the C o u n c i l of Ministries, T a h n g high level decisions on country's economy, Identifying the principles related to investment a n d exports promotion, T a h n g decisions on state economic enterprises in line with the development plans a n d annual programs,

Approving housing development fund budget, a n d

T a h n g decisions on subjects on w h i c h the C o u n c i l i s authorized by laws a n d related legislation.

M i n i s t r v o f I n d u s t r v a n d Trade (MoIT): I t i s responsible for the determination o f the objectives for the Turkish industrial policy, the assignment of Technoparks (the so-called 'technology development

zones’, TDZ, as d e f m e d by the Law), support o f industrial R&D a n d the establishment o f Industrial Estates a n d Organized Industrial Zones. T h e MoIT (through i t s Directorate-General for Industrial Research & D e v e l o p m e n t w h i c h also implements the TDZ scheme) manages the Industrial Thesis (San-Tez) Projects P r o g r a m a n d aims to start n e w programs to support R&D a n d i n n o v a t i o n in the industry. T h e MoIT DG Industrial R&D also implements the R&D L a w enacted in February 2008 together with the M i n i s t r y o f Finance as w e l l as the schemes such as Technopreneurship Support a n d Precompetitive R&D S u p p o r t u n d e r this legislation. I t i s also in the process o f starting a R&D support p r o g r a m for the private sector w h i c h will b e operational in 2009. T h e n e w programs include R&D investment support, marketing a n d promotion support a n d patent support. T h e MoIT through i t s Directorate-General for Small Industrial Estates a n d Industrial Zones implements studies to stimulate cluster development activities in T u r k e y a n d designs a cluster support p r o g r a m w h i c h will b e initiated in 2009. T h e Small a n d M e d i u m Size Industry D e v e l o p m e n t Organization (KOSGEB), Turkish Patent Institute (”PE), Turhsh Accreditation Agency (TURKAK) a n d the Turkish Standards Institute (TSE) are connected to t h e MoIT. M i n i s t r v of Finance fMoF>: I t i s responsible for the implementation of the R&D tax postponement a n d tax exemption schemes a n d the tax exemptions p r o v i d e d to the companies located in Technoparks. T h e MoF co-operates with the MoIT in implementation of tax exemptions in Technoparks a n d in the implementation of the R&D L a w No.5746. Ministrv o f N a t i o n a l E d u c a t i o n IMoNE) a n d the H i g h e r E d u c a t i o n C o u n c i l WOK): Both institutions are the key players in the N I S for the development o f the h u m a n capital for innovation. T h e y design a n d i m p l e m e n t the education a n d training policies a n d coordinate p o l i c y implementation. T h e Inter-Universities C o u n c i l connected to the YOK i s responsible for the coordination a n d evaluation o f research activities o f universities a n d advising the YOK on the subject.

T h e Scientific a n d Technolomcal Research C o u n c i l o f T u r k e v (TUBITAK): As a n autonomous body affihated to the P r i m e Ministry, TUBITAK has dual r o l e in the N I S . First, i t i s responsible for the formulation of Turkey’s science a n d technology p o l i c y as the Secretary to the BTYK; a n d second acts as an i m p l e m e n t i n g agency for science, technology a n d i n n o v a t i o n support programs. T h e science a n d technology p o l i c y f o r m u l a t i o n r o l e o f TUBITAK i s mainly handled by i t s Science a n d Technology Policies Directorate, w h i l e research a n d i n n o v a t i o n support programs are managed by i t s three departments, namely the TUBITAK-ARDEB (Research Projects S u p p o r t Directorate), TUBITAK-TEYDEB (Technology a n d I n n o v a t i o n Projects S u p p o r t Programs Directorate) a n d TUBITAK-BIDEB (Scientist S u p p o r t Directorate). TUBITAK-TEYDEB i s the division w h i c h provides grants for the R&D a n d i n n o v a t i o n activities o f the private sector (see the ‘Implementing Agencies’ section below). TUBITAK i s also the N a t i o n a l C o o r d i n a t i o n O f f i c e for T u r k e y in the EU Research F r a m e w o r k Programs. A n o t h e r responsibihty recently assigned by the BTYK to TUBITAK i s to p r o v i d e effective f u n c t i o n i n g of the “Turkish Research Area” ( T A W ) w h i c h i s defined as the p l a t f o r m where the private a n d p u b l i c sectors a n d non-governmental organizations strategically focus a n d collaborate for R&D. TUBITAK i s also responsible for the integration o f T A W with the E u r o p e a n Research A r e a (ERA). State Planning Orsanization (SPO): T h e SPO i s responsible for the preparation a n d implementation o f the D e v e l o p m e n t Plans a n d other policies a n d programs related to innovation, such as regional development a n d the establishment a n d coordination o f regional development agencies, a n d the ‘eTransformation Turkey’ project, a m o n g other things. T h e D e v e l o p m e n t Plans include i n n o v a t i o n a n d technology p o l i c y items for the purposes o f budget allocations. SPO allocates the TARAL

budget a n d budgets o f R&D a n d i n n o v a t i o n funds except those b e l o n g to t h e Under-Secretariat of Foreign T r a d e ( U Ta n d K O S G E B .

SPO i s composed of three m a i n b o d e s : T h e Undersecretariat of the State P l a n n i n g Organization (DPM), the €-hgh P l a n n i n g C o u n c i l (YPKJ a n d the M o n e y - C r e d i t a n d C o o r d i n a t i o n C o u n c i l (DKKK). P-KKK i s responsible for the determination o f policies for G o v e r n m e n t s u p p o r t programs a n d allocation of funds for t h i s purpose. I t i s chaired by the State M i n i s t e r for the SPO a n d consists o f the various Ministers appointed by the P r i m e Minister, the Undersecretary of the M i n i s t r y of Finance, the Undersecretary of the SPO, t h e Undersecretary of the Treasury, the Undersecretary of Foreign T r a d e a n d the G o v e r n o r o f the Central Bank. T h e SPO, together with a n d TOBB also act as the Secretariat o f the ‘Permanent Specialization C o m m i s s i o n on Increasing the Competitiveness of the Industry, established in 2007.

Under-Secretariat of Treasurv (HM): I t i s i n v o l v e d in the f o r m u l a t i o n o f policies in connection with the design o f mechanisms to support innovation. HM manages the ‘Support for R&D Investment’ p r o g r a m a n d co-operates with TUBITAK-TEYDEB on i m p l e m e n t a t i o n of that program. I t also acts as a guarantor for international funds available for supporting innovation. Under-Secretariat o f F o r e i n T r a d e fUF‘I) : L i k e HM, UFT is also i n v o l v e d in the formulation o f policies in connection with the i n n o v a t i o n design o f mechanisms to support innovation. UFT provides finance to the TUBITAK-TEYDEB a n d the Technology D e v e l o p m e n t F o u n d a t i o n o f T u r k e y WGV) (see ‘Implementing Agencies’ below) for supporting R&D a n d i n n o v a t i o n activities of industry based on the decree o f the P-KKK.

Turhsh Academv o f Science fTUBA): I t i s affiliated to the P r i m e Minister, a n d i s mainly engaged in co-operation with the academia a n d supporting academic research. TUBA implements programs a n d awards to p r o m o t e development o f scientists a n d their research activities, a n d carries out foresight activities to determine the scientific priorities of Turkey.

Turkish Patent Institute fTPE): AffLLiated to the MoIT, TPE responsible for carrymg out the procedures related to industrial a n d intellectual p r o p e r t y rights, a n d for informing a n d guiding the industrialists, R&D institutes a n d individuals on IRP related issues. Turhsh Accredltation A z e n c v fI’U . RKAK): TURKAK i s connected to the MoIT a n d deals with increasing competitiveness level o f industry by accrediting organizations a n d ensuring that. these organizations operate in accordance with national a n d international standards. Turkish Standards Institute (‘BE): Also connected to the MoIT, T S E i s responsible for standards preparation, p r o d u c t certification a n d testing.

Turkish Statistics Institute (TUIK): TUIK i s connected to one of the State Mitllsters a n d i s responsible for providmg statis tical i n f o r m a t i o n related to R&D, i n n o v a t i o n a n d industry, a m o n g others.

T h e T e r m a n e n t SDecialization Commission on Increasinp the ComDetitiveness of the Industrv’ carries out studies to design mid a n d long t e r m policies a n d strategies for increasing the competitiveness o f the industry; to submit the p o l i c y a n d strategy recommendations a n d their results to the decision m a l u n g b o d e s ; to ensure that these studies are conducted in a sustainable manner a n d monitored. Members include the Parliamentary Specialization Commissions (2 members), P r i m e Ministry (1 member), M i n i s t r y o f Finance (1 member), M i n i s t r y o f L a b o r a n d Social Security (1 member), M i n i s t r y o f Industry a n d T r a d e (1 member), Undersecretariat o f State Planning Organization (1 member), Undersecretariat of Treasury (1 member), Undersecretariat o f Foreign Trade (1 member), Scientific a n d Technological Research C o u n c i l o f T u r k e y (TUBITAK) (1

member), Universities (3 members), T h e Union of Chambers a n d Stock Exchanges (TOBB) (5 members), Turkish Industrialists’ a n d Businessmen’s Association ( T U S I A D ) (1 member), Independent Industrialists’ a n d Businessmen’s Association (MUSIAD) (1 member), Exporters Assembly of T u r k e y (1 member) a n d two experts selected by the SPO. CaDital M a r k e t B o a r d (SPK): A f f h a t e d to one o f the State Ministers appointed by the P r i m e Minister, SPK is, a m o n g others, responsible for the development a n d implementation of the regulations for v e n t u r e capital a n d private equity. ComDetition Authority: As a n autonomous body, the C o m p e t i t i o n Authority i s a n i m p o r t a n t actor in the N I S for stimulation o f competition as one of the dnving forces b e h i n d innovation.

Implementing Agencies for State Supports T h e Scientific a n d T e c h n o l o d c a l Research C o u n c i l of T u r k e v (TUBITAW: TUBITAK i s one of the three m a i n i m p l e m e n t i n g agencies o f i n n o v a t i o n programs a n d measures, a n d provides grants for industrial R&D u n d e r five different programs (Support P r o g r a m for Industrial R&D Projects, Support P r o g r a m for Project Brokerage Events, Support P r o g r a m for the First R&D Projects of SMEs, S u p p o r t P r o g r a m for Technology- a n d Innovation-focused Entrepreneurshlp, a n d Support P r o g r a m for M u l t i n a t i o n a l Industry R&D Projects). In addttion, i t assists the MoF in the execution o f the R&D tax postponement a n d tax exemption schemes a n d to the HM in the R&D investment incentive. R&D p r o j e c t support activities o f TUBITAK-TEYDEB are partly funded by the UFT a n d the other programs are financed out o f TUBITAKs annual budget. T e c h n o l o r n DeveloDment F o u n d a t i o n o f T u r k e v (TTGV): TTGV, established in 1991 with support under a World B a n k project (TDP-I), i s a n o t - f o r - p r o f i t foundation managing research a n d technology development support programs through the finance p r o v i d e d by the UFT a n d by their own resources. TTGV was one o f the i m p l e m e n t i n g agencies o f the World B a n k financed ITP. T h e y helped establishment o f venture capital funds a n d Technoparks, a n d p r o v i d e d technology development p r o j e c t supports for the industry a n d technology support services to S M E s u n d e r the ITP. Currently, TTGV implements the Technology D e v e l o p m e n t Project Support (TDP) Program, Commercialization Project Support P r o g r a m a n d the Joint Technology D e v e l o p m e n t Projects Supports P r o g r a m in order to increase private sector investments in R&D a n d innovation. T h e y i m p l e m e n t Pre-Incubation Support Program, Risk Sharing Facility S u p p o r t P r o g r a m a n d Start-up Support P r o g r a m through their company T e k n o l o j i Y a t i r i m AS. in order to stimulate the establishment o f n e w technology based firms. Finally, TTGV implements environmental project support programs u n d e r the headings o f the Renewable E n e r g y S u p p o r t Program, the P r o g r a m for E n e r g y E f f i c i e n c y in Industry, a n d the E n v i r o n m e n t a l Technologies Support Program. Small a n d Medium-Size Industry D e v e l o p m e n t Organization (KOSGEB): As a n a f f h a t e of the MoIT, K O S G E B i s a n autonomous p u b l i c body i m p l e m e n t i n g a w i d e range of schemes for increasing competitiveness o f small a n d medium-size enterprises (SMEs) a n d promoting entrepreneurship. I t also provides a n environment for establishment o f high-tech firms through i t s incubators (called as Technology D e v e l o p m e n t Centers, TEKMERs) in co-operation with the technical universities a n d industrial chambers. K O S G E B runs a Regional D e v e l o p m e n t Centre, regional offices a n d establishes fachties for c o m m o n use o f the private sector (ORTKAs a n d ORTLABs) together with regional umbrella organizations.

Private Sector Establishments Private sector enternrises are the main actors of N I S as i n n o v a t i o n takes place in enterprises o f all sizes a n d sectors. A c c o r d i n g to the provisional results o f t h e ‘2002 General Census of Industry a n d Business Establishments’ conducted by the DIE, there are 1,720,598 enterprises in T u r k e y 14.4 percent o f w h i c h are manufacturing industry companies. N e t w o r k s a n d Clusters are two i m p o r t a n t ingredients o f N I S as they facllitate transfer o f knowledge a n d foster collaboration. Both n e t w o r k i n g a n d clustering for i n n o v a t i o n are underdeveloped in T u r k e y due to poor cooperation culture a n d lack of incentives. I n 2007, TUBITAK started the Support P r o g r a m to Build Scientific a n d Technological Cooperation N e t w o r k s a n d Platforms to facllitate establishment o f technology platforms. F i v e pilots were started in the sectors o f textiles, electric/electronics, metal, automotive a n d marine sciences. T h e r e are also actions initiated by NGOs. T h e most notable activities i s the p r o j e c t started by TUSIAD to establish regional i n n o v a t i o n centers, structures w h i c h will act as hubs o f sectoral i n n o v a t i o n networks in 8 regions. T h e other activities supported by the government are the ‘Sectoral F o r e i g n T r a d e Companies,’ established by UFT as a f o r m a l n e t w o r k between SMEs, a n d the Common Facility Workshops (ORTKAs) a n d the Common Purpose Laboratories (ORTLABs) f o u n d e d by KOSGEB. T h e r e are n e w initiatives a remarkable step in the f o r m a t i o n o f clusters i s the “Development o f a Clustering Policy in T u r k e y Project” w h i c h has recently been initiated by the UFT with the support o f the EU. T h e project addresses the 16th chapter of the N a t i o n a l Programme for the Adaptation o f Acquis a n d falls mainly into priority 16.2, namely “Implementation o f SME Strategy a n d A c t i o n Plan.” T h e project i s geared towards improving competitiveness o f S M E s , hence serves duectly to the achievement o f the overall objectives o f broader policies i n c l u d i n g the national S M E Strategy a n d A c t i o n P l a n a n d national development plan. Previously there were a f e w local clustering initiatives; the most notable one i s the A d i y a m a n textde cluster project i m p l e m e n t e d by local a n d international resources.

Knowledge and Skill Providers Universities p e r f o r m a significant proportion of Turkey’s R&D spending, w h i c h represents 54.6 percent o f total R&D expenditures according to the results o f the 2005 R&D survey. Also 51.6 percent o f researchers are employed by universities. T h e r e are 97 universities, in the country. L i f e l o n g Learning Centers, w h i c h mainly b e l o n g to regional universities all over the country, p r o v i d e short-term training a n d certificate programs for the participants from the business sector. T h e r e are a large n u m b e r o f public, private a n d non-governmental organizations that p r o v i d e consultancy a n d training on various topics that are mostly induectly related to innovation. Two m a j o r institutions in that respect are the Turkish Institute for Industrial Management ITUSSIDE) a n d N a t i o n a l Productivity Centre (MPM). T h e f o r m e r i s a n autonomous institution afflliated to TUBITAK a n d managed with the MoNE. MFM i s connected to the MoIT a n d provides consultancy, training a n d research services on productivity related issues. I n addition, there are a f e w private fums that p r o v i d e consultancy a n d training on innovation, w h i c h are mainly located around Istanbul, a n d not able to h e l p companies countrywide. KOSGEB’s regional offices a n d the Business D e v e l o p m e n t Centers established with t h e World B a n k a n d EU support are the m a i n regional organizations to p r o v i d e information, consultancy a n d training to entrepreneurs for starting up or developing their businesses. T h e G o v e r n m e n t i s in the process o f establishing regional development agencies (RDAs). Currently there are two pilot RDAs active in I z m i r a n d Cukurova (Adana-Mersin) regions. I t i s expected that RDAs dplay a n i m p o r t a n t r o l e in regional i n n o v a t i o n issues.

’

Innovation Intermediaries

There are two I n n o v a t i o n Relay Centers (IRC-Ege a n d IRC-Anatolia) established through the support of the EC from the Sixth F r a m e w o r k P r o g r a m in 2004 foster international technology trans fer activities. T h e Union o f Chambers o f C o m m e r c e a n d Industrv fTOBB) i s o n e of the most i m p o r t a n t i n n o v a t i o n intermediaries as a bridging institution between the private a n d p u b l i c sectors. I t s role as a hub o f a n e t w o r k of industrial a n d commercial chambers as w e l l as non-governmental organizations fachtates the flows in t h e N I S . Chambers o f Industrv a n d C o m m e r c e a r o u n d the c o u n t r y also has i m p o r t a n t roles as intermediaries. However, only a f e w o f t h e m are active on i n n o v a t i o n related issues, such as the Istanbul Chamber o f Industry a n d M e r s i n Chamber of Industry a n d Trade.

Turkish Industrialists’ a n d Businessmen’s Association (TUSIAD)

i s another i m p o r t a n t bridging organization for innovation. T h e y also started to play a m o r e active r o l e in this respect by initiating a project for the establishment o f 20 regional i n n o v a t i o n centers throughout the country. T U S I A D , a m o n g other activities, deals with i n f o r m a t i o n dissemination a n d stimulation o f industry by means of awards on innovation-related matters. T h e y organize the Technology A w a r d a n d Congress together with TTGV a n d TUBITAK, a n d the N a t i o n a l Quality A w a r d a n d Congress together with the Ouality Association o f T u r k e v (KalDer) w h i c h also undertakes a n i m p o r t a n t r o l e from innovation management perspective. O t h e r non-governmental organizations with mediating r o l e in i n n o v a t i o n related issues include the F o r e i m Investors Association (YASED), the E c o n o m i c D e v e l o p m e n t F o u n d a t i o n (IKV) a n d sectoral bodies such as the LCT F o u n d a t i o n o f T u r k e v (TBV), I n f o r m a t i c s Association o f T u r k e y (TBD’) a n d the A u t o m o t i v e Manufacturers Association of T u r k e v (OSD). T h e y all carry out activities for raising awareness, dlsseminating i n f o r m a t i o n a n d facilitating flows between the p u b l i c a n d private sectors. Other Stakeholders

O t h e r significant stakeholders in Turkish i n n o v a t i o n system include the research centers, technology parks, venture capital companies a n d incubators.

TUBITAK’s M a r m a r a Research Centre ( M A Ni s the largest contract research center in the country. T h e technological fields covered by the center include materials a n d chemistry, ICT, genetic engineering a n d biotechnology, energy systems a n d environment, food technology, a n d earth a n d marine sciences. TUBITAK-MAM also r u n s a T e c h n o p a r k a n d a technology free zone for high-tech enterprises. TUBITAK-MAM i s one of the i m p l e m e n t i n g agencies o f the World B a n k financed ITP. TUBITAK has five m o r e R&D institutes that are active in i n f o r m a t i o n technologies a n d electronics, defense industries, cryptology, agro-technology. There are nearly 90 p u b l i c research institutes, w h i c h m a i n l y b e l o n g to various ministries a n d are not active in collaborating with the business sector. M a j o r i t y o f these institutes work on traditional sectors, such as agriculture (there are 64 R&D centers operating u n d e r the M i n i s t r y o f Agriculture a n d R u r a l Affairs, MARA) a n d forestry. There are also university-industry joint research centers established by regional universities, industrialists a n d U S A M P (Ceramics Research Center in Eskisehir A n a d o l u University, ‘ T e x t i l e Research Center in E g e University, Biomedical Technologies Center in Hacettepe University, A d a n a University-Industry Joint Research Centre in C u k u r o v a University, A u t o m o t i v e Technologies R&D

Centre in Istanbul Technical University a n d M E T U - O S T I M A d v a n c e d M a n u f a c t u r i n g Systems a n d Technologies Center in O S T I M Organized Industrial Zone). Established through a "Triple H e l i x " m o d e l of university-industry-government interactions to p r o m o t e innovation, U S A M s initiate a n d sustain both university/industry a n d i n t e r - f i r m collaboration for innovation. T e c h n o l o w Darks a n d incubators are other significant elements o f t h e N I S . T h e r e are 28 Technoparks established (of these 18 are operational) i n c l u d i n g by t h e universities a n d research centers under the 'Law o f Technology D e v e l o p m e n t Regions'. KOSGEB operates 20 incubators (TEKMERs) in the universities in collaboration with universities a n d industrial chambers. There are also private incubators established by Ericsson (Ericsson Mobdity World) a n d Siemens (Siemens Business Accelerator). T h e Cyberpark I n c u b a t o r established jointly by B i l k e n t University a n d KOSGEB a n d located in A n k a r a Cyberpark i s the fmt incubator f o u n d e d through private-public partnership supported by the World B a n k project (ITP). There are three venture capital companies established in t h e c o u n t r y (VakifRisk, I s Girisim a n d KOBI Yatirimlarina Ortakllk). T h e r e are also other private initiatives by local a n d foreign investors, such as L a b , T u r k v e n a n d TTGV Girisim Fund. TTGV invested in I s R i s k a n d T u r k v e n a n d established the Girisim Fund from the finance p r o v i d e d by t h e World B a n k u n d e r ITP. T h e m a j o r b a n k providing credlts to S M E s i s the Halkbank. T h e Industrial D e v e l o p m e n t B a n k o f T u r k e y (TSKB), Turk E x i m b a n k a n d the D e v e l o p m e n t B a n k o f T u r k e y (TKB) are the other relevant financial institutions. T h e Credlt Guarantee Fund (KfW) which was established in partnership with TOBB, Confederation of Tradesmen a n d Craftsmen PSK), Turhsh F o u n d a t i o n For Small a n d M e d l u m Business (TOSYOV) the F o u n d a t i o n for S u p p o r t i n g Vocational Training a n d Small Industry (MEKSA), K O S G E B a n d Halkbank, provides guarantees on S M E loans for facilitating risksharing a n d l e n d i n g a m o n g Turkish banks.

A N N E X I,ATTACHMENT TURKEYS NATIONAL I N N O V A T I O N SYSTEM (INSTITUTIONS SCHEMATIC REPRESENTATION)

E$:n I lndusby8Trade I

Finance

Stale

Source: Nci S, INNO-Policy Trendchart Policy Trends and Appraisal Report, 2008

Treasury Foreign Trade State Planning

Money Credit Cwrdination

ANNEX I 1

MAIN PUBLIC AGENCIES IMPLEMENTING PUBLIC R&D SUPPORT PROGRAMS 1. Scientific and TechnoloPy Research Council of Turkey fTUBITAQ

TUBITAK i s the largest disburser of public funds for R&D in Turkey for academic and industrial research and has grown rapidly in the last three years. Government commitments for R&D expendlture during 2005-08 increased by US$1.5 billion for TUBITAK, enabling the establishment of new programs as well as the substantial expansion o f existing programs. Research and innovation

project support programs implemented by TUBITAK are organized under three main divisions: (i) nine programs support academic research projects o f universities and research institutions (although private sector companies may also apply) under the coordination o f ARDEB (Research Projects Support Directorate); (ii)five programs support R&D in the private sector under the coordination of TEYDEB (Technology and Innovation Projects Support Programs Directorate); and (iii) nineteen programs, coorlnated by BIDEB (Scientist S u p p o r t Directorate), aim at increasing the quality and quantity o f scientists in Turkey. TUBITAKs funding increased after 2005 when, for the f i r s t time, public funds for research and development were allocated in the national budget. As a result, disbursements under the TEYDEB-managed Industrial R&D Funding program, for instance, more than doubled, from US$193 million during 1995-2004 to US$422 d o n during 2005-2007. T h e ARDEB managed Program for Scientific and Technological Research Projects in 2004 supported 1353 ongoing R&D projects with a budget o f US$35.6 million whde by 2006, i t was funding 3091 projects worth US$272.7 million and another 898 projects worth $82 million were approved by October 2007. In addition, t h e S u p p o r t Program for Research Projects of Public Institutions (KAMAG), came into effect on March 2005 with 7 2 project totaling US$166 d o n approved by May 2007 and another 65 being evaluated in October 2007.34 2. Technolo? Development Foundation o f Turkev CTTGQ T h e TTGV i s a key player in t h e N I S in promoting R&D activities by the private sector and fostering collaboration between f i r m s and t h e research community. T h e Agency, established in 1991 under the World Bank's fust Technology Development Project (1991-1997), i s a non-profit foundation aimed a t promoting R&D among Turlush firms and increasing the level o f collaboration between the private sector and research community. I t currently has three types of activities: (i) favorable financing and commerciahation services to support private sector investments in R&D and innovation (Technology Development Project S u p p o r t Program, Commerciahation Project Support Program and the Joint Technology Development Projects Supports Program); (ii) technological entrepreneurship support (Pre-Incubation S u p p o r t Program, Risk Sharing Facility Support Program and Start-up Support Program) in order to stimulate the establishment of new technology based firms; and (iii)three programs promoting environmental projects by t h e private sector with a focus on energy efficiency (Renewable Energy S u p p o r t Program, the Program for Energy Efficiency in Industry, and the EnvironmentalTechnologies S u p p o r t Program). Overall, during 1991-2007, the 7TGV supported about 1,400 S M E s with TA matching grants and 260 R&D projects through matching foreign currency loans with a commercialization rate o f 90%. I t s Technology Development Project program alone from 1991 to 2007 supported 730 new technology initiatives with US$245 million. Moreover, the TTGV has enabled the establishment o f two Technoparks, and has partnered with private domestic and international investors to set up two venture capital/private equity funds (Is Girisim and Turkven) and a S t a r t - u p Fund (Teknoloji Yatirim AS). T h e TTGV has also facilitates university-industry cooperation by employing 34 These

numbers do not include the 34 defense and space projects carried out in cooperation with the M i n i s t r y of Defense under the SAVTAG program as October 2007 that are worth USg332.7 million.

academicians for p r o j e c t evaluation a n d monitoring processes for i t s R&D support programs, a n d a r o u n d 55% of support beneficiaries between 1991-2007 h a d used consulting services from universities at least. I n addition, TTGV has also supported two Technoparks a n d has initiated a biannual c o m p e t i t i o n ((‘Dr. Akin Cakmakp A w a r d ’ ? awarding the student theses successfully implemented by enterprises. W h i l e TTGV’s generous support (in terms o f maturity a n d a m o u n t of loans) mechanisms are considered broadly successful in partly alleviating domestic private capital market failures and promoting R&D a n d i n n o v a t i o n in the private sector, beneficiaries have expressed concerns about i t s financial instruments. For example, some enterprises have found TTGV’s service charge to b e higher than the interest rate o f private banks, risks in borrowing in U S $ denominated loans, excessive collateral requirements (especially for S M E s but w h i c h are required by the Undersecretariat of Foreign T r a d e a n d are binding on TTGV currently), strict eligibhty criteria, a n d overly conservative nature of the organization.

3. Small and M e d i u m Industrv Development OrFanization (KOSGEB) K O S G E B , established in 1990, i s a n autonomous p u b l i c body a f f h a t e d with the M i n i s t r y o f Industry a n d Trade that focuses on improving the competitiveness of S M E s . I t offers services a n d financial support mechanisms in a range of fields (information dissemination, consulting a n d training, entrepreneurship, p r o d u c t quality improvement, export m a r k e t research a n d development) including technology u p g r a d l n g a n d I C T investment. K O S G E B also supports the establishment o f high-tech firms through incubators called Technology D e v e l o p m e n t Centers (TEKMERs) that bring together technical universities a n d industrial chambers. I n 2006, there were 2405 projects supported by K O S G E B worth US$11.65 d o n , substantially l o w e r than the 21,500 projects undertaken in 2004 at a cost of US$90 million. A c c o r d i n g to the agency’s own data, by June 2007 K O S G E B has supported 1130 projects with a total allocation of just u n d e r US$5 million have been supported. T h e technological R&D support p r o g r a m that offers a m i x t u r e o f grants a n d soft loans to S M E s with n e w technological ideas funded 105 projects worth US$3.2 d o n in 2006, from 767 projects a n d US$16.75 d o n in 2004. S d a r l y , software support fell dramatically during the same p e r i o d from 2001 projects costing US$26 d o n in 2004 to 227 projects worth US$1.1 d o n in 2006. T h e p r i m a r y reason for the decline in the use of K O S G E B technology programs i s that the TUBITAKTEYDEB a n d TTGV programs o f f e r very s d a r support but at better terms, suggesting there i s scope for reducing duplication a n d changing K O S G E B ’ s p r o g r a m portfolio.

4. Other kpencies G o v e r n m e n t ministries, in particular the Ministry o f Industry a n d Trade, also have support programs but these are relatively small a n d p r i m a d y centered round tax incentives for R&D. T h e M i n i s t r y of Finance with the administrative assistance o f TUBITAK-TEYDEB provides tax incentives for R&D investment35, a f f o r d i n g companies tax exemption o f 40% of their total R&D expenditures. T h e Treasury implements the “Support for R&D Investments” scheme that provides exemption from value added tax a n d customs duty as w e l l as interest support for private loans used for purchasing R&D equipment but the Treasury has not received applications in the last 4 years. T h e Ministry o f I n d u s t r y a n d T r a d e i s the most active in the field of i n n o v a t i o n a n d technology, i n t r o d u c i n g in 2006 the Industrial Thesis P r o g r a m (San-Tez) that allocated US$10 d o n towards co-financing (25% o f the cost i s financed by the private sector) graduate students’ theses on promising n e w technologybased products’ a n d processes relevant to industry. In addition, u n d e r the L a w on Technology D e v e l o p m e n t Z o n e s (TDZs) o f 2001, the M u l i s t r y approves the establishment of Technoparks that a i m to encourage collaboration between the private a n d research sector a n d raise private R&D investment by providing financial (mainly tax) incentives a n d logistical support for n e w technology based f i r m s a n d spin-offs.

U U Y

.!@

ANNEX I V SUMMARY OF M A I N R&D RELATED LEGISLATION

DECREE/LAW

L a w on Technology D e v e l o p m e n t Zones L a w No:4691 D a t e : 26.06.2001 L a w on Changes in Some Previous L a w s L a w No: 5228 D a t e : 16.07.2004 (‘Decree on T a x Postponement to S u p p o r t R&D’)

Short description

This l a w sets the incentives a n d the rules for the

Decree 98/10 on R&D Aid Decree No: 23513 D a t e : 04.10.1998

establishment a n d operations of the technology development zones. This l a w sets the rules for tax postponement for the R&D expenditures ( f i r s t issued in 1986). I t i s i m p l e m e n t e d by the M i n i s t r y of Finance. T h e 20% o f yearly corporate tax that should not exceed the total annual R&D expenses i s p o s t p o n e d for a p e r i o d o f three years without interest to b e paid in n o m i n a l amount. However, the n u m b e r of companies applied for the incentive i s very low as i t i s not financially attractive for the companies (particularly w h e n compared with the incentives p r o v i d e d by the ‘Law on Corporate Tax’). T h i s decree sets down the rules for R&D state a i d p r o v i d e d to private companies through TTGV a n d

Decree on K O S G E B Supports O f f i c i a l gazette N o : 25795 Date:

T h i s decree sets down the rules for the supports p r o v i d e d by K O S G E B for S M E s .

T h e L a w on the A m e n d m e n t o f M i n i s t r y o f T r a d e a n d Industry’s Organization a n d Tasks L a w No:5593 D a t e : 01.03.2007

This l a w allows MOIT to design R&D a n d i n n o v a t i o n support programs to stimulate technological R&D

24/4/2005

Decree on G o v e r n m e n t a l Supports for Investments, O f f i c i a l gazette N o : 26311 Date: 06.10.2006 L a w on Corporate T a x L a w No. 5520 (as amended by L a w No. 5746 passed in February 2008) Personal I n c o m e T a x L a w No. 193 (as amended by L a w No. 5746 passed in February 2008) R&D L a w No. 5746, (February 2008)

San-Tez Regulation (published on the O f f i c i a l Gazette No.26573 dated July 5,

2007)

TUBITAK-TEYDEB.

activities o f industry a n d university-industry cooperation, to support enterprises a n d entrepreneurs on‘malung investments, patenting a n d marketing o f technological products developed as a result o f R&D, a n d to prepare regulations on the implementation o f these programs. T h e decree sets down the rules for support p r o v i d e d by the g o v e r n m e n t for investments o f private sector companies i n c l u d i n g R&D investments. T h e l a w allows companies to deduct 100% of their R&D ’ costs from the a m o u n t of calculated i n c o m e used for calculation o f corporate tax. U n d e r this l a w individuals can deduct up to 100% of their R&D expenses from the a m o u n t of calculated i n c o m e used for the calculation o f personal i n c o m e tax. T h i s l a w i m p l e m e n t e d by MoIT in cooperation with MoF provides tax incentives for the R&D activities o f private sector, especially for firms located outside Technoparks a n d encourages FDI in R&D. This regulation has been prepared to support, monitor a n d finalize masters a n d / o r PhD theses identified in line with the needs o f the industry in order to institutionalize university-industry relations, to develop n e w or i m p r o v e d products and/or processes to create added value a n d increase international competitiveness.

ANNEX V I N N O V A T I O N SUPPORT PROGRAMS IN TURKEY Table o f Contents I. I1.

INTRODUCTION ................................................................................................................................... 55 P R O G R A M S / P O L I C Y M E A S U R E S IMPLEMENTED BY TUBITAK ..................................... 56 1001 T h e Support Program for Scientific and Technological (Academic) Research Projects ............56 1501 T h e Support Program for Industrial R&D Projects ......................................................................... 6 1 1002 - Rapid Support Program ..................................................................................................................... 65 1007-Support Program for Research Projects o f Public Institutions ...................................................... 65 Preparation o f Research Programs for Public Institutions ........................................................................ 67 1008- Patent Application Promotion and Support Program..................................................................... 68 1010- Global Researcher Support Program ................................................................................................. 69 1011- The Participation Program for International Scientific Research Projects .................................. 70 1301- S u p p o r t Program to Build Scientific and Technological Cooperation Networks and Platforms............................................................................................................................................................ 70 3501- National Young Researcher Career Development Program.......................................................... 71 1503- S u p p o r t Program for Project Brokerage Events .............................................................................. 72 1507 S u p p o r t Program for First R&D Projects o f S M E s.......................................................................... 7 2 1508- Techno-Entrepreneurship Funding Program................................................................................... 73 1509 S u p p o r t Program for International Industry R&D Projects ............................................................ 75 I11. P R O G R A M S / P O L I C Y M E A S U R E S IMPLEMENTED BY TTGV ............................................ 7 6 Technology Development Supports Program............................................................................................. 76 Commercialization Project Support .............................................................................................................. 7 9 Joint Technology Development Projects ..................................................................................................... 79 Pre-Incubation Support ................................................................................................................................... 80 Risk Sharing F a c d q Support .......................................................................................................................... 81 Start-up S u p p o r t ............................................................................................................................................... 8 1 Environmental Project Support Programs................................................................................................... 8 2 I V. P R O G R A M S / P O L I C Y M E A S U R E S IMPLEMENTED BY K O S G E B ...................................... 84 R&D and Technological Innovation Support Program............................................................................. 84 S O F T W A R E Support ..................................................................................................................................... 87 Electronic Signature Support .......................................................................................................................... 88 E-commerce Support ....................................................................................................................................... 89 E - S M E Informatics Standby Credit .............................................................................................................. 89 Machinery/Equipment Support for Common U s e by S M E s ................................................................... 90 Supports for m i n g Qualified Personnel by S M E s .................................................................................... 9 1 Special Training Support ................................................................................................................................. 92 Consultancy Support for S M E s ..................................................................................................................... 93 General Training Programs............................................................................................................................. 94 New Entrepreneur Support ............................................................................................................................ 94 General Entrepreneurship Training.............................................................................................................. 95 Young Entrepreneur Development Program.............................................................................................. 96 Quality Development....................................................................................................................................... 96 Industrial Property Rights Support ................................................................................................................ 98 Bank Interest Rate Supports ........................................................................................................................... 99 V P R O G R A M S / P O L I C Y M E A S U R E S IMPLEMENTED BY M I N I S T R Y OF I N D U S T R Y AND TRADE (MoIT) ............................................................................................................................ 101 Law on the Establishment o f Technology Development Zones ........................................................... 102 Industrial T h e s i s (San-Tez) Projects ............................................................................................................ 106

R&D Support ProgramBased on Law No.5746....................................................................................... Support programs by MoIT to be introducedin 2009: ............................................................................ V I . R&D TAX EXEMPTION BY THE MINISTRY OF FINANCE................................................ VI1. THE SUPPORT FOR R&D INVESTMENTSBY THE TREASURY ....................................... VI11. STATE PLANNING ORGANIZATION (SPO) FUNDING FOR R&D INFRASTRUCTURES...........................................................................................................................

107 108 109 110 111

INNOVATION SUPPORT PROGRAMS INTURKEY I.

INTRODUCTION

This report38 provides i n f o r m a t i o n on the i n n o v a t i o n a n d technology programs/policy measures in T u r k e y p r o v i d e d by TUBITAK, TTGV, K O S G E B , M i n i s t r y o f Industry a n d Trade, Ministry o f Finance, Undersecretariat o f Treasury a n d State Planning Organization. I n f o r m a t i o n on the five key programs i s given in d e t d . These programs are as follows: T h e S u p p o r t P r o g r a m for Scientific a n d T e c h n o l o g c a l (Academic) Research Projects i m p l e m e n t e d by the Scientific a n d Technological Research C o u n c i l o f T u r k e y (TUBITAK) T h e S u p p o r t P r o g r a m for Industrial R&D Projects by TUBITAK T h e S u p p o r t P r o g r a m for Technology D e v e l o p m e n t Projects by the Technology D e v e l o p m e n t F o u n d a t i o n of T u r k e y (ITGT T h e S u p p o r t P r o g r a m for R&D a n d Technological I n n o v a t i o n by the Small a n d M e d i u m Industry D e v e l o p m e n t Organization (KOSGEB) T h e Law on the Establishment of Technology D e v e l o p m e n t Zones implemented by the M i n i s t r y o f Industry a n d Trade (MoIT) T h e S u p p o r t P r o g r a m for Industrial R&D Projects ( S A N - T E Z ) by MoIT

38 I t should be noted t h i s report, prepared o n the basis o f prelirmnary available information, i s work in progress and in many cases data and analysis will need to be updated.

11.

PROGRAMS/POLICY MEASURES IMPLEMENTED BY TUBITAK

1001 T h e Support Program for Scientific and Technological (Academic) Research Projects 39 a.

I m d e m e n t i n g . agency

T h e Scientific a n d Technological Research C o u n c i l of T u r k e y P B I T A K ) was established in 1963 to organize, coordinate a n d encourage basic a n d applied research activities especially in natural sciences. By the establishment o f the f i r s t research centre in 1971, it also started to conduct research. TUBITAK has undertaken the r o l e of science a n d technology (S&T) policy-making by the preparation of the f i r s t science policy d o c u m e n t o f T u r k e y (Turkish Science Policy: 1983-2003). I t started to act as the S&T policy-making a n d advisory body after the establishment o f the Supreme C o u n c i l o f Science a n d Technology (BTYK) in 1983. T h e word "technical" in the n a m e of TUBITAK was replaced with "technological" in 2005. T h e 2005 i s also characterized as the year for w h i c h the G o v e r n m e n t has allocated funds for research in the national budget for the f i r s t time in T u r k e y to b e d s b u r s e d by TUBITAK. Activities o f TUBITAK include the following: Develops science a n d technology policies o f T u r k e y a n d acts as the secretary to BTYK, the hlghest level science a n d technology p o l i c y co-ordination body; Supports, encourages a n d monitors academic research a n d development (R&D); Supports, encourages a n d monitors industrial research, technology development a n d i n n o v a t i o n (RTDI); Develops academic-industrial relations; Operates R&D institutes conducting RTD activities in line with the national priorities; Operates units facllitating a n d providing technical services for R&D activities; Identifies a n d encourages scientists of the future; A w a r d s annual prizes to incite scientific excellence; Organizes a n d manages international scientific a n d technological co-operation; Publishes scientific journals, popular science books a n d periodicals.

TUBITAK has fourteen Institutes: T U B I T A K - M a r m a r a Research Center (www.mam.pov.tr) o I n f o r m a t i o n Technologies Institute (www.mam.aov,tr/eng./institutes/bte) o E n e r g y Institute (www.mam.g.ov.tr/enc/institutes/ee) o Food Institute (www.mam.g.ov.tr/enE/institutes/ge) o Genetic Engmeering a n d Biotechnology Institute (www.mam.eov.tr/endinstitutes/mbe) o Chemistry a n d E n v i r o n m e n t Institute (www.mam.g.ov.tr/eng./institutes/kce) o Materials Institute (www.mam.gov.tr/en_p/institutes/me) o E a r t h a n d M a r i n e Sciences Institute (www.mam.pov.tr/eng./institutes/vdbe) T U B I T A K - N a t i o n a l Research Institute o f Electronics a n d Cryptology (www.uekae.tubitak.Pov.tr) T U B I T A K - D e f e n s e Industries Research a n d D e v e l o p m e n t Institute (www.sag.e.tubitakzov.tr) T U B I T A K - S p a c e Technologies Research Institute (www.uzav.tubitak,g.ov,tr) T U B I T A K - F u n d a m e n t a l Sciences Research Institute (www.eursev.pov,tr) 39 Information provided in t h i s section i s taken from the resolutions o f t h e Supreme Council o f Science and Technology (2004-2007), TUBITAK website (www.tubitak.gov.tr), E C - E R A W A T C H Country Profiles for Turkey (http: / /cordis.euroDa.eu/erawatch/).

T U B I T A K - N a t i o n a l M e t r o l o g y Institute (www.ume.tubitak.g.ov.tr)

T U B I T A K - T u r k i s h Institute for Industrial Management ( m . t u s s i d e . p v . t r )

TUBITAK-TurkishAcademic N e t w o r k a n d I n f o r m a t i o n Center (www.ulakbim.gov.tr) TUBITAK has four m a i n organs a n d units: T h e Science Board, Presidency, Research Groups a n d

Research Institutes, Centers a n d s d a r units. T h e highest-level management a n d decision-mahng organ o f TUBITAK is the Science Board. T h e Science B o a r d i s composed o f a chairman a n d 14 members. T h e president of TUBITAK chairs the Science Board. T h e r e are three vice presidents a n d a secretary general reporting directly to the president. T h e research institutes, laboratories a n d centers are also directly connected to the president. O n e o f the vice presidents i s responsible for the international relations a n d co-ordination o f research centers a n d institutes; the other o n e for the science a n d technology policy-making a n d science a n d society; a n d the last o n e for the research supports, industrial R&D supports a n d scientist development. T h e Secretary General i s responsible for the administrative a n d financial matters.

Research supports are in the responsibility o f three departments, w h i c h are D e p a r t m e n t for Supporting Science People (BIDEB), D e p a r t m e n t for Research Support Programs (ARDEB) a n d D e p a r t m e n t for Technology a n d I n n o v a t i o n S u p p o r t Programs (TEYDEB), w h i c h are working u n d e r the responsibility of one of the vice presidents. ARDEB, the responsible department for the execution o f the 'Support P r o g r a m for Scientific a n d Technological (Academic) Research, Projects', has nine sub-sectoral groups working for the assessment o f projects. These committees are as follows: Basic Science Research Group ("BAG) H e a l t h Sciences Research Group (SBAG) Electric-Electronics a n d Informatics Research Group (EEEAG) Engineering Research Group (MAG) Environmental, Atmospheric, Ground a n d N a v a l Sciences Research Group (CAYDAG) A q c u l t u r e , Forestry a n d Veterinary Sciences Research Group (TOVAG) Social a n d Humanitarian Sciences Research Group ( S O B A G ) Defense a n d Security Technologies Research Group ( S A V T A G ) Public Research Group (KAMAG) T h e r e i s also another department u n d e r ARDEB whose main responsibility i s the management o f contracts, w h i c h are signed between beneficiaries, a n d ARDEB. Programs that are in responsibility o f ARDEB are the following: T h e Support P r o g r a m for Scientific a n d Technological Research Projects P r o g r a m S h o r t T e r m R&D Funding P r o g r a m Support P r o g r a m for Research Projects o f P u b l i c Institutions P r o g r a m Patent Application Promotion a n d S u p p o r t P r o g r a m G l o b a l Researcher P r o g r a m T h e Participation P r o g r a m for International Scientific Research Projects T h e Support P r o g r a m for the Initiative to Build Scientific a n d Technological Cooperation N e t w o r k s a n d Platforms N a t i o n a l Young Researcher Career D e v e l o p m e n t P r o g r a m

Obiective & B a c k m o u n d

T h e p r o g r a m started in 1994 a n d no e n d date i s foreseen. T h e p r o g r a m i s t h e c o n t i n u a t i o n o f the f u s t research support p r o g r a m in Turkey, w h i c h has b e e n i m p l e m e n t e d since mid-1960 by TUBITAK. I t has also b e c o m e o n e o f the m a j o r programs to m e e t n a t i o n a l targets o f the S&T policy. T h e a i m o f the p r o g r a m i s to support research projects targeting the creation of n e w scientific knowledge a n d solutions to existing technological p r o b l e m s in o r d e r to increase competitiveness of Turkey. Projects targeting high-tech applications a n d priority areas, carried out by m o r e t h a n o n e partner, especially focused on solving t h e p r o b l e m s o f enterprises of any size, partnerships i n c l u d i n g a t least o n e partner, w h i c h can c o m m e r c i a h e t h e results o f projects, have a higher chance o f g e t t i n g support from the p r o g r a m . Beneficiaries m a i n l y i n c l u d e the universities a n d research institutes. W h i l e the private sector can also apply to the p r o g r a m i t i s unknown how m a n y companies benefited from i t so far, a n d the p r o g r a m i s widely known as “academic research support scheme”. T h e r e are n i n e research themes in a d d i t i o n to research on basic sciences a n d engmeering u n d e r the p r o g r a m : health sciences; electrics, electronics a n d informatics; environment, atmosphere a n d m a r i n e sciences; agriculture, forestry a n d veterinary; defense a n d security; social a n d humanitarian sciences; a n d space. In addition, as a r e q u i r e m e n t o f t h e program, projects foreseeing advanced technology applications should fall within t h e priority technology areas. c.

Target mouds)

All companies, scientists/researchers

(as individuals), h i g h e r education institutions’ research units/centers, o t h e r non-profit research organizations (not HEI), higher education institutions (education function) a n d technology a n d i n n o v a t i o n centers (non-profit) are e l i g b l e for support. Beneficiaries are m a i n l y from t h e universities a n d research institutes. W h i l e t h e private sector can also apply to the p r o g r a m a n d the p r o g r a m i s w i d e l y known as “academic research support scheme”.

M o d e o f finance

Finance in the m o d e o f grants i s available through t h e p r o g r a m . For the year 2008, the u p p e r lunit for p r o j e c t support i s approximately US$103,230 p e r year (scholarships included, c o p y r i g h t fees not included). M a x i m u m d u r a t i o n for the projects i s 36 months. T h e r e are three calls for proposals during the year for w h i c h the last day for application i s determined by t h e Science B o a r d of TUBITAK. D u r a t i o n for p r o j e c t assessment i s around 4 m o n t h s . e.

Statistical data (number o f Drojects. allocated amount. disbursed amount. etc.)

Yearly statistics on t h e a m o u n t o f academic R&D projects s u p p o r t e d during 2000-2006 are given below. D a t a do not i n c l u d e research supports p r o v i d e d for social sciences. T h e n u m b e r s of projects applied a n d s u p p o r t e d as o f O c t o b e r 2007 are 4,570 a n d 898, respectively. T o t a l a m o u n t o f funds allocated for these projects are US$82 miUion.

Average N o of Expenditures Expendture Projects P e r Year* P e r Year** Completed

No of

B u d g e t of

Average B u d g e t p e r Project ('000 US$)

2000

843

13.2

15.6

297

9.6

11.3

2001

1001

15.7

242

10.1

2004

1353

35.6

26.3

337

11.5

8.5

2005

2353

142.8

60.7

426

78.8

33.5

2006

3091

272.7

88.2

559

108.5

35.1

Years

Ongoing Ongoing Projects (rvnn US$) Projects

Administrative procedures

T h e p r o g r a m i s i m p l e m e n t e d by ARDEB. T h e funding for the p r o g r a m comes from the national budget. M a x i m u m level o f funding p e r project i s determined annually by TUBITAK. T h e fmal decision for support i s given by the Executive Committees u n d e r ARDEB a n d with the approval of the TUBITAK's President. Project proposals can b e submitted to TLJBITAKin three d f f e r e n t terms. Submission deadlines for 2008 are determined as January 2nd, M a y 5th a n d September 1st. Starting with the f i r s t t e r m of 2008 applications, p r o j e c t proposals .can b e submitted thrbugh the w e b application interface developed by

TUBITAK.

Since 2004, TUBITAK has adopted a new, independent, panel-based proposal review process to evaluate the proposals received from academia, private a n d p u b l i c sectors. T h e general structure o f the TUBITAK proposal review process i s depicted in the Figure 1. All proposals are received a n d classified by their fields o f research into appropriate research divisions. P r o g r a m directors within each research division t h e n further divide the proposals they receive into groups by topics a n d identify panelists whose expertise can cover the research topics of the proposals in each such group. O n c e a panel i s determined for a group of proposals, between 8 a n d 12 proposals are sent to the panelists for assessment with respect to intellectual merit, broader impact, a n d feasibility criteria. This review process i s generally concluded within two weeks of a scheduled panel meeting. T h e n the panel convenes to evaluate all the proposals collectively. During the panel meeting, each proposal i s d m u s s e d at length a n d given a score between 0 a n d 10 with respect to each o f the three criteria o f intellectual merit, broader impact, a n d feasibhty. Proposals are f u n d e d accordmg to their weighted scores a n d a v d a b h t y of funds.

Figure 1. T h e Project Review Process

Acadsmic Research TU6iTAK Headquarter

Evaluation Criteria Intellectual Merit Broader Impact Feasibility

Project Evaluation

Source. TUBITAK, 2008

Project r e p o r t i n g i s a critical p a r t o f the fundmg decision process. Research projects that p r o d u c e articles that are published in high quality journals are rewarded with a d d t i o n a l funding. All proposals are required to include a section that summarizes the accomplishments of the project manager in previous TUBITAK projects that were awarded to the project manager. Table 2 shows the various indicators for the TUBITAK proposal evaluation process for years 2004, 2005 a n d 2006; a b o u t a third o f all proposals have been recommended for funding. During the last three years, m o r e t h a n 7000 proposals have been received a n d assessed. T h e c o m p o s i t i o n o f a panel i s largely determined by the subjects o f the proposals that are to b e reviewed by the panel. Table 2. TUBITAK Proiects Assessment Indicators

I Indcator

I N u m b e r o f panels I N u m b e r o f panelists I N u m b e r o f proposals evaluated

1 I 1

2004 71 423 980

I 1 I

2005 286 1722 3364

1 1 I

2006 389 2329 2715

1 1 I

Total

746 4474 7059

Average n u m b e r of proposals in a panel

13.8

11.8

7.0

9.5

N u m b e r ' o f proposals funded

327

1070

912

2309

Fundmg rate

33%

32%

33%

I I I

T h e managers o f the projects should at least have a PhD degree for applications from universities. I f a project i s applied from a p u b l i c institution or private enterprise, the project manager should have at least a bachelor's degree a n d have expertise on the research topic. Scientists without any managerial duties can b e project managers o f two projects or manager in o n e project a n d researcher in two other projects, or researcher in m a x i m u m four projects simultaneously. Any researchers who have not submitted final reports o f their previous projects cannot apply for n e w projects. Managers of the applying institutes such as rectors, directors o f research institutes a n d centers, general managers of companies cannot apply to the p r o g r a m as project managers a n d can b e stated as research personnel in at most two projects at the same time.

Payments in the form of scholarships are available for research personnel who are masters or doctorate students as a p a r t o f the project. Scholarships are also avadable for those project personnel who have a doctorate degree, b e l o w the age o f 40 a n d are not worhng at any o t h e r place. Payments are also available for international researchers living in Turkey.

Commentam

T h e majority o f projects financed u n d e r the programs are p r o p o s e d by academia. I t i s considered that the programs contributed to the increase of Turkey's r a n k i n g in the Science Citation I n d e x (which i s increased from 40th in 1993 to 22nd in 2004). In addition, increased d e m a n d in the p r o g r a m i s an indication o f i t s success: T h e n u m b e r of project proposals in 2004 was a r o u n d 1000 a n d it rose four-fold in 2005. TUBITAK has also increased the a m o u n t o f funds in 2005. O n e o f the challenges TUBITAK faces i s the l i m i t e d pool o f active researchers to form reliable panels. A c c o r d m g to TUBITAK, this i s both a short a n d l o n g - t e r m p r o b l e m that must b e resolved in order to m a k e the proposal evaluation process m o r e robust a n d reliable. O n e option that i s being considered i s to tap reviewers from other countries. A n o t h e r issue raised by TUBITAK in proposal evaluation i s how to compose a panel for a given set o f proposals. Several constraints must simultaneously b e satisfied. These include (i) the cost o f panels as determined mostly by the n u m b e r of panelists, (ii) covering the subject o f each proposal, (iii)managmg conflicts o f interests, a n d (iv) ensuring a reliable evaluation o f proposals. Typically, a reliable evaluation o f a proposal requires at least two expert panelists so that each proposal i s assigned to two panelists, a n d each panelist i s assigned four proposals at maximum.' Some beneficiaries r e p o r t that sometimes there are delays in the assessment o f proposals a n d inconsistencies between the p d a n c e p r o v i d e d by &fferent staff of ARDEB on the same issue related to a project. Universities also feel that sometimes there i s insufficient transparency in the implementation of the program, particularly with respect to the allocation o f funds between the universities a n d research centers of TUBITAK, w h c h can also b e financed from the same program. I t should b e n o t e d that substantial progress has been made in &versifying the recipients o f TUBITAK public funds: B e f o r e 2005, just 5% o f TUBITAK funding was allocated to external stakeholders (such as universities a n d private sector) but by 2006 some 66% o f TUBITAK funds were allocated to universities a n d private sector a n d only 34% w e n t to T U B I T A K - a f f d i a t e d institutes.40

1501 The Support Program for Industrial R&D Projects41 a.

Imdementing. apency

I m p l e m e n t i n g agency for the p r o g r a m i s TUBITAK. Technology a n d I n n o v a t i o n Funding Programs Directorate (IEYDEB) i s the responsible department for the execution of the program. There are currently five technology groups w o r h g for the assessment a n d monitoring o f R&D projects in TEYDEB. These groups are Machinery a n d M a n u f a c t u r i n g Electrical a n d Electronics Material, Metallurgical a n d Chemical 40

Imp:I' / \ ~ ~ ~ ~ . t u l ) i t atr~home.do?sid=34~ k.~o~r.

Information provided in this section i s taken from the resolutions of t h e Supreme Council of Science and Technology (2004-2007), TUBITAK website (www.&itak.cov.tr), EC-ERAWATCH Country Profiles for Turkey (http: / /cordis.europa.eu/erawatch/ ) 41

Biotechnology, Agricultural, E n v i r o n m e n t a l a n d Food I n f o r m a t i o n Technologies A c c o r d i n g to TUBITAK, these technology groups w e r e established not only to evaluate a n d monitor R&D projects in their domains but also to assist companies to m a t u r e their project ideas, give a n impetus to t h e m to m a k e collaborations with academia. Programs that are u n d e r the responsibhty of the TEYDEB are as follows: S u p p o r t P r o g r a m for Industrial R&D Projects S u p p o r t P r o g r a m for International Industrial R&D Projects

P r o j e c t brokerage events funding p r o g r a m

S M E funding p r o g r a m Techno-entrepreneurship funding p r o g r a m

Obiective & B a c k m o u n d

T h e p r o g r a m has been developed in order to increase the R&D capacities in the private sector (manufacturing a n d software companies) a n d h e l p t h e m increase their c a p a b h t y of carrying out R&D projects. T h e p r o g r a m also targets to help increase the GERD as a percentage o f GDP a n d the share o f business in R&D spendmg in Turkey. T h e program, i m p l e m e n t e d by TEYDEB, i s co-financed through the budget o f U n d e r Secretariat of Foreign Trade (UTW . h e n the p r o g r a m started in 1995, i t was fully financed from the resources o f the UFT. Since 2005, 75% o f the fundmg i s p r o v i d e d through TUBITAKs resources (from the national budget) a n d 25% i s p r o v i d e d from the U F T ' s budget. c.

Tarnet

ETOUD(S)

T h e only group eligible for support u n d e r this p r o g r a m i s the private sector companies.

M o d e of finance

M o d e o f finance i s grant for the projects supported u n d e r this program. T h e a m o u n t of support i s determined dependmg upon the size of company ( S M E s receive 10% additional support); the education levels o f the project personnel k e r s o n n e l costs with PhD degree are supported up to 100%); the percentage of revenue from the products developed by the company, existence o f collaboration with a university or a research center (an addltional 30% support i s p r o v i d e d for costs belonging to such a collaboration), a n d whether the project i s in one o f the priority areas such as bio/nanotechnology, advanced manufacturing technologies (an additional 20% support i s p r o v i d e d for such projects). I n any case, total a m o u n t o f support p r o v i d e d cannot exceed 60% o f the total eligible R&D costs o f the project. M a x i m u m project duration for support i s 36 months. Eligible costs u n d e r the scheme are as follows: L a b o r costs (including overheads) E q u i p m e n t & materials

T r a i n i n g (including study trips) E x t e r n a l expertise (consultants, studies, etc.) O t h e r (Patenting)

Statistical data

Statistics regarding t h e p r o g r a m are g i v e n in T a b l e 3.

for Industrial R&D Proiects Table 3. Support Prc Tram L Year I 2000 2001 2002 I2003 I2004 I2005 Number of Project Proposals N u m b e r of Evaluation Completed N u m b e r of Projects E l i g i b l e for

1 I I I 1 1

2006

2007

2008* 2008** rotal+*

418

503

595

711

809

4269

344

431

553

647

731

3812

279

374

449

534

566

260

333

374

200

328

330

180

275

286

113

186

298

580

410

3093

Support

Rejected Proiects Projects Com l e t e d Number of Com anies First T i m e

* Projections from 20

233

269

130

154

192

230

254

165

719

384

1966

481

538

605

290

278

300

1-2013 strategic p l a n

492

3015

216

1706

** T o t a l as of O c t 31,2008.

Source: Resolutions ofthe BTYK (www.tubitak.gov,tr)

The amount disbursed by TUBITAK since 1995 i s given in Table 4. The total amount o f disbursement (projected) for 2007 i s US$194 million. Year

TEYDEB support

1995-1999 2000 2001 2002 2003 2004 2005 2006 TOTAL

34.8 19.7 29.9 24.8 38.2 46.6 100 128.1 421.1

P r i v a t e sector contribution

184.4 71.7 136.7 81 54.9 56.4 100 199.4 884.5

Total

219.2 91.4 166.6 105.8 93.1 102 200 327.5 1305.6

To apply to t h e program, companies prepare a p r o j e c t p r o p o s a l a c c o r d i n g to the f o r m a t p r o v i d e d by TEYDEB. O n c e the p r o p o s a l i s received, i t i s sent by TEYDEB to the related technology group a n d a n expert i s assigned for the project. T h e n . T E Y D E B appoints academics from universities for the assessment o f project. E a c h academic assesses the p r o j e c t independently a n d prepares a r e p o r t a b o u t

the eligibility o f the project. T h e reports are t h e n assessed by the sectoral boards within TEYDEB a n d decision for support i s given by this board. Expenditures three months prior to application date a n d during the assessment duration are considered eligible i f the project proposal i s accepted by

TEYDEB.

T o b e eligible for support, the projects proposed should target at least one of the following: (a) n e w p r o d u c t development, @) increasing the quality or standards of a n existing product, (c) application o f n e w techniques for decreasing costs a n d increasing standards, (d) development o f n e w p r o d u c t i o n technologes. Quality o f the scientific, technological a n d economic aspects o f the project, quality o f the project planning, a n d quality of the applicant are considered during the assessment o f the proposals. Successful projects o f private sector companies are p r o v i d e d with grant support. O n c e the project proposal has been accepted, the companies carry out project activities through their own funds, prepare technical a n d fmancial reports in six monthly intervals, a n d send their reports to TEYDEB. An academician, usually o n e o f the assessors, i s assigned for monitoring the technical developments aclueved through the project. TEYDEB sends a c o p y of the technical a n d financial r e p o r t to the monitor in order to get their v i e w on the technical progress a n d the eligibhty o f expenditures. T h e monitor v i s i t s the c o m p a n y sends h i s r e p o r t to TEYDEB. During t h i s period, TEYDEB also examines the viability o f financial documents provided. O n c e all the reports are completed, order i s given by the expert in order to process the performance payment to the company. Seventy five percent of the payments are actuahzed through TEYDEB budget a n d the resting a m o u n t i s disbursed through the budget of Under-secretariat of F o r e i g n Trade.

At the e n d o f each project, a final r e p o r t i s expected from the companies about the technical a n d economical achievements o f the project. A c c o r d i n g to TEYDEB, the targeted duration for completing both the assessment a n d disbursement procedure i s three months once the reports reach TEYDEB. T h e r e are no official data but the assessment procedure i s usually completed within s i x to eight months a n d disbursement takes twelve to eighteen months.

Commentaq T h e calculation o f the support a m o u n t includes percentage o f revenue from the products developed by the companies with respect to their overall revenues as a parameter. This parameter lowers the a m o u n t o f support for companies, w h i c h have a w i d e p r o d u c t range. Application procedures are considered complex a n d long (assessment approximately m a y take between 8-12 months) T i m e for disbursement i s long (sometimes up to a year), but steps are b e i n g taken to reduce

this.

Currently construction a n d overhead costs related to R&D activities are not eligible through this support program, whereas according to the EC Community F r a m e w o r k for State A d for R&D a n d I n n o v a t i o n these kinds o f costs are considered eligible.

Academiciansâ&#x20AC;&#x2122; expectations from the projects they assess are sometimes high w h e n compared with technological capacities of Turkish f m s (in particular those o f S M E s ) .

T h e agreement between TTGV a n d TEYDEB about automatically supporting a project supported by the other party i s not always working efficiently.

1002 Rapid Support Program a.

Obiective a n d b a c k m o u n d

T h e p r o g r a m has been derived from the 1001 coded S u p p o r t P r o g r a m for Scientific a n d Research Projects p r o g r a m in 2005. I t has been developed in order to fund R&D projects w h i c h are required to b e completed quickly in a short p e r i o d o f t i m e (so-called “ T y p e A” projects) a n d those w h i c h h a d to b e stopped or about to b e stopped for any reasons (“Type B” projects).

b. Target GrouDfs) Only projects from universities, research hospitals a n d research institutes with small budgets can apply to the scheme. c.

M o d e o f Finance

For the year 2008, the u p p e r limit for project s u p p o r t i s approximately US$21,500 p e r year (scholarshbs included, copyright fees not included). M a x i m u m d u r a t i o n for the projects i s 12 months.

Statistical D a t a

N u m b e r o f projects supported within “rapid support p r o g r a m ” a n d a m o u n t spent for t h e m by TUBITAK in years 2000 to 2007 are given in the Table 5 below.

Table 5. Projects and Amount of Support for Rapid Support Program Year

2007 2006 2005 2004 2003 2002 2001 TOTAL e.

N u m b e r of Projects

448 508 349 105 95 126 87 1802

Amount of S u p p o r t ( d o n YTL)

4.1 3.4 2 0.3 0.2 0.3 0.2 10.8

Administrative Procedures

Applications are submitted online through TUBITAK website. T h e r e are no defined application periods; applications can b e submitted any t i m e during the year. Applicants should b e a registered user of A R B I S i n f o r m a t i o n system for submission. Project manager should at least have a PhD degree, a n d a manager or researcher o f a successful project can b e supported under this p r o g r a m only once.

1007-Support Program for Research Projects of Public Institutions a.

Objective a n d B a c k m o u n d

Within the context of the decision taken at the BTYK meeting on M a r c h 10, 2005, regardmg the preparation o f research programs for public institutions, a n e w support p r o g r a m was initiated by TUBITAK to support R&D projects to develop n e w products a n d processes to meet the needs of

public institutions. A f t e r the BTYK meeting the n e w “Support P r o g r a m for Research Projects of Public Institutions” (KAMAG), came into effect on M a r c h 12, 2005. Defense a n d space programs are managed separately in accordance with another decision taken by the BTYK: C o n d u c t the defense projects according to the Turkish Defense Industry Policy a n d Strategy decision (98/11173) of the C o u n c i l of Ministers, Identify a n d prioritize the project topics on development of systems a n d infrastructures, w h i c h will b e used to b d d up R&D capacity at the p u b l i c institutions’ a n d defense industries’ for projects that are critical for Turkey; integrate the defensive a n d civdian requirements within science a n d technological strategy of the country, Increase the opportunity o f using the domestic industry a n d m i n i m i z i n g the dependence on i m p o r t e d products by developing the technological capacity of Turkish defense industry, Disseminate technology a n d i t s p r o d u c t i o n at national level by transferring the projects to nationwide industries, universities, research institutions a n d SMEh, Increase competitiveness o f national industry, C o n d u c t studies in order to have qualified h u m a n resources.

Target Grouds)

Ministries, independent Under-Secretariats, general directorates, city a n d metropolitan municipalities a n d city governorships can apply for the project. These establishments can define universities, public research institutes, c.

M o d e o f Finance

T h e r e i s no h

t for the budget o f the project. M a x i m u m p r o j e c t duration i s 4 8 months.

Statistical D a t a

As o f M a y 2007, a total n u m b e r o f 262 projects have been submitted to TUBITAK with a total budget o f approximately US$585 million through KAMAG. Out o f these applications the evaluation was completed for 225 projects a n d contracts was signed with 72 o f t h e m totahng a budget o f US$lGG d o n . N i n e projects revised, 150 projects were rejected or w i t h d r a w n by the applicants. As O c t o b e r 2007 199 n e w project proposals were received. T h e r e will b e panel to evaluate 65 o f these projects, the rest of 1 3 4 projects were rejected.

These numbers do not include the defense a n d space projects carried out in cooperation with the M i n i s t r y o f Defense u n d e r the p r o g r a m called SAVTAG. U n d e r S A V T A G , out o f a total 51 applications with a budget o f US$571.5 d o n , contracts for 3 4 projects with a budget of US$332.7 million were signed as O c t o b e r 2007. Four projects are b e i n g revised, n i n e were w i t h d r a w n a n d two projects are at the stage o f evaluation. e.

Administrative Procedures

T h e f i r s t calls for projects were announced on M a y 31,2005, but since most o f the p u b l i c institutions were preparing research projects for the f i r s t time, they were not able to meet the deadline. T h e application deadline was extended until the e n d of 2005 a n d TUBITAK decided to accept project proposals without any f i x e d calls. TUBITAK started to apply fixed calls starting from June 2007. Two calls are planned for 2008 (with d e a b e s in February a n d August). Potential beneficiaries prepare project proposals according to the template p r o v i d e d by TUBITAK. At least one p u b l i c institution must exist in the proposal as a customer. A consortium f o r m e d by

universities, research centers a n d private sector i s sought out as the project i m p l e m e n t i n g organizations. Proposals are reviewed by a panel o f external experts based on the evaluation criteria p r o v i d e d by TUBITAK. Projects c o m p l y i n g with strategic documents prepared by related ministries, five yearly plans a n d priorities set in the Vision 2023 project (i.e. the technology foresight project implemented during 2002-2004 are given priority. Evaluation process takes a b o u t three months. Implementation of the selected projects i s started as soon as their contracts are signed.

Preparation of Research Programs for Public Institutions A c c o r d m g to TUBITAK, p u b l i c institutions in T u r k e y are significant demanders o f technological product, system a n d p r o d u c t i o n processes a n d current system of procurement i s through purchasing, instead of a system based on R&D. For t h s reason, a large portion o f t h e current technology supply i s through i m p o r t e d products. T h e p r o g r a m towards p u b l i c institutions was developed in order to increase the R&D-based purchasing activities. A c c o r d i n g to the decision taken by the Supreme C o u n c i l for Science a n d Technology (BTYK) at i t s meeting on M a r c h 10, 2005, p u b l i c institutions have to set up research programs related to their needs a n d thus increase the awareness a n d the need for R&D. T h e p r o g r a m has not been given a n u m b e r a n d i s currently b e i n g carried out by TUBITAK. T h e aim i s to create programs for p u b l i c institutions, w h c h wdl b e used as a n input for the 1007 coded support program.

Within the framework of this decision, TUBITAK u n d e r t o o k the task o f moderating the workshops for the preparation o f such programs, primarily with the ministries a n d with other p u b l i c institutions.

I n the preparation p e r i o d o f the programs, related ministries a n d p u b l i c institutions organized â&#x20AC;&#x153;joint consultation meetingsâ&#x20AC;? with the participation of related universities a n d research institutions. In this meeting, the short a n d m i d - t e r m research areas were defined a n d plausible research projects in these areas were discussed. T h e final l i s t o f objectives a n d research priorities, resulting from these meetings, was transformed into a research p r o g r a m by a core group that was composed of experts in various areas (such as universities, p u b l i c institutions, non-governmental organizations). T h e research programs have to b e approved by BTYK.

As of O c t o b e r 2007, the following programs were prepared by p u b l i c bodies in corporation with TUBITAK a n d approved by the BTYK: ,

Defense Research P r o g r a m a n d Space Research P r o g r a m N a t i o n a l Earthquake Research P r o g r a m N a t i o n a l H e a l t h Research P r o g r a m N a t i o n a l A g n c u l t u r e Research P r o g r a m N a t i o n a l E n e r g y a n d N a t i o n a l Resources Research P r o g r a m N a t i o n a l L a w Research P r o g r a m N a t i o n a l F a d y And Social Research P r o g r a m N a t i o n a l I n t e r n a l Security Research P r o g r a m N a t i o n a l E n v i r o n m e n t a l a n d Forestry Research P r o g r a m N a t i o n a l Foundations Research P r o g r a m N a t i o n a l Transportation Research P r o g r a m N a t i o n a l Population a n d Citizenship Affairs Research P r o g r a m N a t i o n a l Cultural a n d Tourism Research P r o g r a m N a t i o n a l E d u c a t i o n Research P r o g r a m

S d a r studies will b e conducted with ministries, self-governing general directorates, municipalities a n d the other p u b l i c institutions. Related p u b l i c institutions announce these national programs to all organizations that will conduct R&D activities.

1008- Patent Application Promotion and Support Program a.

Objective a n d B a c k m o u n d

T h e aim of the p r o g r a m is to raise awareness towards industrial p r o p e r t y rights in T u r k e y a n d to increase the a m o u n t o f national a n d multinational patent applications filed by the Turkish citizens. Turkish citizens, a n d companies established in T u r k e y u n d e r Turkish l a w can apply for support. T h e p r o g r a m i s run by TUBITAK in cooperation with the Turktsh Patent Institute ("E).

Tareet GrouD(s)

Any researcher or company, who has filed a patent application to TPE after August 23, 2006 (the date on w h c h the p r o g r a m came into effect), can apply for support. c.

M o d e o f Finance

T h e grant a m o u n t for applications i s determined in January each year by TUBITAK. T h e u p p e r h t for finance i s a r o u n d US$2,500 (3,000 YTL) for 2008 (there i s not a n u p p e r h i t for percentage o f grants). N a t i o n a l a n d international applications are f u n d e d separately. Soft l o a n i s p r o v i d e d for the stages following the research reports of international a n d r e g o n a l patent applications. A company m a y receive grants for a m a x i m u m o f 20 patent applications p e r year a n d a n individual m a y b e funded for a m a x i m u m o f five patents.

Statistical D a t a

Some 316 project proposals were received by TUBITAK a n d 252 of t h e m were approved for support as o f September 2007.

T h e annual growth in domestic n a t i o n a l p a t e n t applications f i l e d with TPE r o s e by 70%, from 1,090 in 2006 to 1,838 in 2007 a n d i t i s estimated that TUBITAKs assistance c o n t r i b u t e d 5 -1Oo/o to this rate o f increase. T h e annual growth in t h e n u m b e r o f i n t e r n a t i o n a l p a t e n t applications in t h e p e r i o d 2006-2007 was a r o u n d 21%, rising from 413 in 2006 to 498 in 2007. As t h e cost of international patent applications i s m u c h higher, t h e subsidy p r o v i d e d by mBITAK i s estimated to have h a d a l o w e r i m p a c t (3 -5%) on international p a t e n t applications. e.

A d m i n i s t r a t i v e Procedures

T h e i n v e n t o r s should f u s t apply to Turkish P a t e n t I n s t i t u t e ("E) for their inventions. O n c e the application has b e e n completed, another application file should b e f i l e d for grant support p r o v i d e d by TUBITAK. O n c e t h e decision for support i s given, TUBITAK transfers TRY 3000 to TPE's account a n d i f a p a t e n t attorney has been u s e d during the application, TRY 450 i s transferred to the i n v e n t o r s account. Any costs o c c u r r i n g at the application stage i s compensated through the allocated amount. T h e i n v e n t o r starts p a y i n g for the costs once the u p p e r support h t i s exceeded.

1010- Global Researcher Support Program a.

Obiective a n d Backmound

This p r o g r a m a i m s to h e l p Turkish researchers by supporting the i n c l u s i o n o f international experts in their research projects. I f a foreign expert with experience on a specific f i e l d needs to b e h i r e d for a research project, t h e costs o f the expert c o u l d b e covered by TUBITAK through t h l s p r o g r a m . b. T a r g e t Grouds) T h e support p r o g r a m can b e u s e d by any research i n s t i t u t e or c o m p a n y for hiring international experts needed in their research projects. E x p e r t s c o u l d b e from any c o u n t r y as long as they have the necessary expertise. c. M o d e o f Finance T h e p r o j e c t d u r a t i o n i s m a x i m u m 36 months a n d the u p p e r h u t for support i s US$103,230 for 2008.

Statistical D a t a

N o statistical data i s available on t h e usage of this support p r o g r a m . e.

A d m i n i s t r a t i v e Procedures

T h e r e are three f i x e d calls for proposals, w h i c h are d e t e r m i n e d a t the b e g m n i n g o f each year. Proposals are r e v i e w e d by a p a n e l o f external experts based on t h e evaluation criteria p r o v i d e d by TUBITAK. Four m a i n criteria are taken into account for t h e selection o f applications: the quality a n d relevance o f the projects with Turkey's research targets, availabihty o f expertise in Turkey, t h e quality a n d experience o f international researcher a n d the d m e m i n a t i o n of p r o j e c t results. E v a l u a t i o n process takes a b o u t four months. I m p l e m e n t a t i o n s of t h e selected projects start as soon as their contracts are signed.

1011- The Participation Program for International Scientific Research Projects a. Obiective a n d B a c k m o u n d T h e p r o g r a m has started in 2007; the p r o g r a m aims to encourage the Turkish researchers to join international projects, w h i c h are implemented, by researchers a n d organizations from different countries.

Target Grouds) Beneficiaries m a i n l y include universities a n d research institutes. c. M o d e o f Finance M a x i m u m support a m o u n t p e r project i s US$103,230 p e r year a n d support duration i s m a x i m u m 36 months.

Statistical D a t a

T h e p r o g r a m started in 2007 a n d yet there i s no data avadable on the implementation of the program. e.

Administrative Procedures

T h e r e are three calls planned for 2008. Universities a n d p u b l i c a n d private organizations can apply to this program. I f applied by a university, the p r o j e c t manager should at least have a PhD degree. I f applied by a p u b l i c a n d private organization, the project manager should have at least a bachelorâ&#x20AC;&#x2122;s degree a n d have expertise on the research topic. Scientists without any managerial duties can b e project managers of two projects or manager in o n e project a n d researcher in two other projects or researcher in m a x i m u m four projects simultaneously. Any researchers who have not submitted final reports of their previous projects cannot apply for n e w projects.

1301- Support Program to Build Scientific and Technological Cooperation Networks and Platforms

Objectives a n d B a c k m o u n d

T h e a i m of the p r o g r a m i s to assist the establishment o f sector specific or technological networks/platforms by national a n d international enterprises, p u b l i c research institutes a n d scientific communities w o r h g on basic research, applied research, social sciences a n d related technology areas. T h e p r o g r a m has been inspired from the technology platforms developed u n d e r the 6th F r a m e w o r k P r o g r a m o f E u r o p e a n Union. T h e networks/platforms to b e established are expected to carry out technological r o a d m a p p i n g activities a n d conduct research in order to meet the needs of network/program.

With the enforcement o f t h i s program, the â&#x20AC;&#x153;University-Industry Joint Research Centers (USAMs) Programâ&#x20AC;? o f TUBITAK, w h i c h helped the establishment o f joint research centers by a triple helix m o d e l o f university-industry-government interactions, was abolished by the e n d of 2006. Activities o f previously established six U S A M s will b e f u n d e d through this n e w program.

Target Grouds)

T h e p r o g r a m launched for the benefit o f both research a n d industry establishments. Organizations interested in establishing a n e t w o r k should c o m e together a n d prepare a n action plan.

M o d e of Finance

T h e u p p e r limit for TUBITAK support i s approximately US$215,000 p e r year for the applications to b e m a d e in 2008. Grants are p r o v i d e d for 50% of the eligible project costs. T h e c o n t r i b u t i o n o f TUBITAK i s m a d e available after the n e t w o r k partners collect their c o n t r i b u t i o n at a b a n k account. Eligible project costs include meetings a n d organization, travel a n d accommodation, r e n t a n d operational costs, equipment purchase, w e b site development a n d software, marketing, consultancy, copyright fees a n d scholarships. M a x i m u m duration of support i s three years where a n extension o f one year i s available with the approval o f TUBITAK.

Statistical D a t a

T h e p r o g r a m has been introduced in January 2007. F i v e pilot sectors were chosen by TUBITAK a n d in order to establish technology platforms for these sectors TUBITAK organized meetings for potential people from industry, p u b l i c sector a n d academia. T h e technological sectors chosen include textiles, electric/electronics, metal, automotive a n d marine sciences. O n c e a temporary management b o a r d i s established for a potential platform, TUBITAK leaves coordination activity to this board. T h e b o a r d needs to prepare a proposal for establishing the proposal a n d apply to TUBITAK for funding. O n c e TUBITAK accepts the project proposal, the p l a t f o r m members should put their contribution to a b a n k account before TUBITAKs funding i s avadable. T h e p l a t f o r m prepares s i x monthly development reports a b o u t the p l a t f o r m activities to TUBITAK.

3501- National Young Researcher Career Development Program a.

Objective a n d B a c k F o u n d

T h i s p r o g r a m a i m s to support research activities of young scientist with PhD degrees by providing grants for their research projects. T h e objective i s to help t h e m continue their careers as successful researchers a n d educators a n d to increase the r o l e of science in the development o f the country. T h e p r o g r a m was initiated in 2005 in order to increase the quality a n d quantity o f researchers in the country. T h e projects o f young researchers are f u n d e d through t h i s scheme.

Target Grouds)

T h i s program's beneficiaries are researchers holding PhD degree. c. M o d e o f Finance M a x i m u m level o f funding p e r project i s approximately â&#x201A;Ź45,000 a n d m a x i m u m project duration i s three years.

Statistical D a t a

N o statistical data i s publicly avadable for the program. e.

Administrative Procedures

T h e r e i s one call for application p e r year. Conditions for application by a researcher are as follows: Potential beneficiaries should apply within five years after earning their PhD degrees; they should b e workmg full-time for a higher education institute or research institute other t h a n the universities they earned their PhD degrees; they cannot apply for the P r o g r a m m o r e t h a n twice a n d should not have

received support from the P r o g r a m before. Four main criteria are taken into account for the selection o f applications: Originality o f the project, potential for dissemination, feasibility a n d i t s social impact.

1503- Support Program for Project Brokerage Events a.

Objective a n d B a c k m o u n d

T h e a i m o f the p r o g r a m i s to support activities targeting cooperation between universities, research centers a n d industrial companies in order to increase technology transfer. TUBITAK supports meetings coordmated by universities, research centers or umbrella organizations such as industrial associations, w h e r e academics can present the findings o f their research activities to the interested enterprises.

Target Grouds)

Universities a n d research centers can apply for this program. c.

M o d e o f Finance

U p p e r h t for t h e project support i s specified every year by TUBITAK. Prepayment i s given to the project coordinator, a n d invoices are expected withm the two months after the event date.

Statistical D a t a

N o statistical data i s publicly available for the program. e.

Administrative Procedures

Universities, research centers a n d umbrella organizations apply to the p r o g r a m by fang out the standard application f o r m s p r o v i d e d by TUBITAK. T h e event planned must b e targeting a specific industrial sector or a specific technology area. T h e application should b e filed at least three months prior to event date. T h e application i s assessed by the technology area committee a n d support i s p r o v i d e d with the approval of TEYDEB president. Prepayment i s g w e n to t h e project coordmator, a n d invoices are expected within the two months after the event date. A final r e p o r t a b o u t the effectiveness of activity i s submitted together with invoices, a n d a follow up r e p o r t has to b e prepared one year following the event.

1507 Support Program for First R&D Projects of SMEs a.

Obiective a n d B a c k m o u n d

Ths n e w p r o g r a m has been developed by TUBITAK in order to increase the n u m b e r o f R&D projects carried out by S M E s by o f f e r i n g a m u c h faster a n d easier access for fundtng. This p r o g r a m aims to support S M E s to develop n e w products, cost m i n i m i z i n g techniques, p r o d u c t i o n technologies a n d to enhance the existing products qualifications, standards, quality. T h e S M E s are expected to gain the capacity to develop n e w R&D projects a n d t h e n apply to the 1501 coded program. T h e legal framework has been published on the official gazette dated January 16,2007 a n d the rules a n d regulations o f the p r o g r a m have been published by TUBITAK after the 15th meeting o f the BTYK on M a r c h 7,2007.

Target Grouds’)

All S M E s can apply for support within this p r o g r a m for their f i r s t two R&D projects. c.

M o d e of Finance

T h e total budget of the project should b e less t h a n US$344,000 a n d project duration should b e less t h a n 1 8 months. T h e u p p e r limit of total project budget d b e revised by the Science B o a r d o f TUBITAK every year. Grants are p r o v i d e d up to 75% o f the total eligible costs o f project. T h e disbursement takes place after the beneficiary company actually makes the payments a n d sends invoices to TUBITAK. An advance payment o f up to 40% o f the project budget for six-monthly intervals i s available i f the beneficiary provides collaterals acceptable to TUBITAK. Eligible costs u n d e r the scheme are as follows: 0

L a b o r costs (including overheads) E q u i p m e n t & materials

Training (including study trips) E x t e r n a l expertise (consultants, accountants, studies, etc) O t h e r (Patenting)

d. Statistical D a t a Some 288 S M E s applied for the p r o g r a m with 303 projects. Some 80 projects are b e i n g supported; 23 were rejected a n d the rest i s u n d e r evaluation. e.

Administrative Procedures

For applying to the program, beneficiaries prepare a project proposal in the f o r m a t o f TUBITAK. O n c e the proposal i s submitted, TUBITAK appoints academics from universities for the evaluation o f project. E a c h academic assesses the p r o j e c t independently a n d prepares a r e p o r t about the eligibdtty o f the project. T h e reports are t h e n assessed by the sectoral boards within TUBITAK a n d decision for support i s given by this board.

1508- Techno-Entrepreneurship Funding Program Based on the new R&D Law (No. 574@, the “TechnopreneurshipSupport Program”is implemented by aU public administrations with an R&D budget. a.

Obiective a n d B a c k m o u n d

T h e p r o g r a m has been developed by TUBITAK in order to encourage .technology a n d i n n o v a t i o n based entrepreneurship. Funding as grants i s available for entrepreneurs who have ideas with high potential to create high value-added products a n d to create jobs. T h e legal framework has been published on the official gazette dated January 16,2007 a n d the rules a n d regulations o f the p r o g r a m have been published by TUBITAK after the 15th m e e t i n g o f the BTYK on M a r c h 7,2007.

Target Grouds),

Entrepreneurs who are about to graduate from a four-year p r o g r a m o f any university in one-year time, or who are currently in a masters or doctorate program, or who received their bachelors,

masters or doctorate degrees at the m a x i m u m five years prior to the application for funding are eligible for support. c.

M o d e o f Finance

T h e disbursement i s made after the beneficiary company actually makes the payments a n d sends invoices to TUBITAK. Invoices are sent to TUBITAK in six monthly intervals with a progress report. An advance payment of up to 40% of the project budget o f s i x monthly intervals i s available i f the company c a n p r o v i d e acceptable collaterals to TUBITAK. M a x i m u m duration for support i s 12 months. Invoices belonging to 12-month interval whose payments are realized in the six-month interval after the project has been completed are acceptable. Up to 75% o f the total eligible costs o f project are given as grants. T h e m a x i m u m a m o u n t o f support available i s approximately US$86,000 for 2007. T h e upper h t of total p r o j e c t budget i s reviewed by the Science B o a r d o f TUBITAK every year. As opposed to 1501 coded R&D support program, communication costs (internet a n d telephone), office rent, water, electricity a n d heating costs are also considered a m o n g eligible costs. M a r k e t i n g costs, trademark registration costs a n d services purchased from abroad are not eligible for support.

Statistical D a t a

Some 75 entrepreneurs with 78 business ideas applied to the program. T h e f E s t training on business p l a n preparation was realized in August 2007. Some 12 business plans were submitted by O c t o b e r 2007. e.

Administrative Procedures

T h e candidate entrepreneur applies to TEYDEB with the â&#x20AC;&#x153; N e w Enterprise Application Formâ&#x20AC;? where he/she summarizes the innovative high-tech enterprise idea a n d gives i n f o r m a t i o n about the potential partners. A TEYDEB expert is assigned for the assessment o f each application. T h e expert assesses the application to find out (a) R&D a n d i n n o v a t i o n focus, @) T h e targets, results a n d methodology to b e used, (c) Technological c o n t r i b u t i o n o f the idea to national targets, (d) Technological assessment/comparison, (e) Reliability o f economic a n d technological assumptions. T h e expert assessment i s t h e n presented to related technology area committee. T h e committee decides whether to (a) reject the project, (b) revise the application form (c) to ask for the detailed business p l a n for the idea. T h e committee might ask t h e entrepreneur to take trainings on the preparation of feasibility, market reports, business p l a n a n d the establishment o f a n e w business, management o f a n enterprise. T h e courses wrll b e g v e n to the entrepreneurs free of charge by TUBITAK. O n c e the business p l a n i s prepared, TUBITAK appoints a n expert or a group o f experts from university, research institutes a n d industry for the assessment of the business plan. W h e n the assessment reports are available, TEYDEB expert responsible for the p r o j e c t consolidates the findings o f the expert evaluations. Finally, the decision for support i s given by the related technology area committee. T h e entrepreneur gives a presentation to the committee before the final decision.

I f the committee approves support for the project, the entrepreneur should establish company in the following three m o n t h s a n d s i g n the contract for the project with TUBITAK. Companies registered prior to the application to TUBITAK are not eligible for support.

1509 Support Program for International Industry R&D Projects a.

Obiective a n d B a c k m o u n d

T h i s p r o g r a m aims to support international R&D projects within the context o f international programs such as the EUREKA, EUROSTARS a n d EU F r a m e w o r k Programs. T h e purpose i s to increase technical efficiency a n d knowledge, to facilitate technology transfer between m e m b e r countries, to develop n e w technologies a n d to h e l p Turkish firms enter international markets.

Target Grouds)

TUBITAK-TEYDEB i s the responsible agency for funding the EUREKA a n d E U R O S T A R S labeled projects. Regardless of the sector a n d size, every firm established in T u r k e y can apply to the EUREKA program. For E U R O S T A R S projects, the project coordinator must b e an S M E that allocate at least 10% o f i t s revenue a n d personnel to R&D activities. O t h e r project members can b e large companies, universities a n d research institutes. c.

M o d e o f Finance

Of the total project budget, 60% i s financed for the large companies a n d 75% for S M E s . T h e r e i s no budget h u t s for both of the programs. T h e r e is no limit for the project duration for EUREKA.

M a x i m u m duration for E U R O S T A R S projects i s three years a n d the project result must b e in market in two years.

Statistical Data: N o t available publicly.

Administrative Procedures:

T h e procedure i s sirmlar to that of 1508 p r o g r a m a n d i s as follows: 1) T h e candidate entrepreneur applies to TEYDEB with the â&#x20AC;&#x153;R&D S u p p o r t Request Formâ&#x20AC;? where he/she summarizes the innovative high-tech enterprise idea a n d gives i n f o r m a t i o n about the potential partners. Starting from July 1, 2008, the p r o g r a m i s only b e accepting online applications from http://eteydeb.tubitak.gov.tr. TEYDEB experts are assigned for the assessment o f each application. T h e experts assess the applications on the basis of: (a) R&D a n d i n n o v a t i o n focus, level o f technology; @) Project p l a n a n d the suitabiltty o f enterprise infrastructure; a n d (c) Technological c o n t r i b u t i o n o f the idea to economic benefits a n d national goals.

2) O n c e the application i s submitted, TUBITAK appoints a n expert or a group of experts from university, research institutes a n d industry for the assessment of the business plan. W h e n the assessment reports are avadable, TEYDEB expert responsible for the project consolidates the findmgs o f the expert evaluations. Finally, the decision for support i s given by the related technology area committee. T h e entrepreneur gives a presentation to the committee before t h e final decision.

3) I f the committee approves support for the project, the entrepreneur should establish company in the following three months a n d s i g n the contract for the p r o j e c t with TUBITAK. Companies registered prior to the application to TUBITAK are not eligible for support.

111.

PROGRAMS/POLICY MEASURES IMPLEMENTED BY TTGV' Technology Development Supports Program

ImDlementinP aeencv

'ITGV was established in 1991 u n d e r the World Bank's supported Technology D e v e l o p m e n t Project (TDP-I, U S $ 100 d o n , 1990-1997). I t mainly a i m s to p r o m o t e R&D culture a m o n g Turkish firms a n d increase the level o f collaboration between the private sector a n d research

c o m m u n i t y . T h e founders include the p u b l i c institutions, private sector firms, non-governmental organizations a n d individuals. U n d e r the TDP-I, TTGV p r o v i d e d US$170 d o n to 480 projects of the private sector. R&D spendlng for these projects reached approximately US$340 d o n with the co-finance p r o v i d e d by the beneficiary companies. Starting from 1995, 'ITGV received additional funding for technology development financing from the UFT. TTGV also managed the M o n t r e a l P r o t o c o l M u l t i p a r t y Fund in T u r k e y to assist industry in moving towards non-ozone depleting technologies. U n d e r the M o n t r e a l Fund, 'ITGV p r o v i d e d private sector companies with approximately US$26 million as grants.

With the Industrial Technology Project (TI",U S $ 1 5 5 million, 1999-2006), i t was aimed to continue 'ITGV support for technological upgrading activities (R&D fundmg). T h i s was intended to b e done through: (i) supporting TTGV institution buildmg efforts for a successful transformation to a greater r i s k - t a h n g a n d a m o r e hands-on approach; (ii)providing funding for n e w initiatives where 7TGV would have a catalyzing r o l e (technology service centers (TSC), VCFs for high-tech industries a n d Technopark investment); (iii) o f f e r i n g technical a n d managerial support to SMEs; a n d (iv) assisting in the establishment o f the Turkish Accredltation C o u n c i l (TURKAK). Because o f the ITP, the 7TGV has become a n i m p o r t a n t agency for R&D financing in T u r k e y a n d has supported about 1,400 S M E s with m a t c h i n g TA grants a n d 260 R&D projects through m a t c h n g foreign currency loans with a commercialization rate of 90 percent for all R&D projects. T h e TTGV has attracted about U S $ l 5 0 million of R&D financing, mostly from the private sector, a majority o f i t s R&D projects are b e i n g put into commercial production, a n d synergy between the industry a n d academic/research c o m m u n i t y has increased. T h e 'ITGV has supported two Technoparks, w h i c h currently house 198 technoIogy-based companies e m p l o y m g m o r e t h a n 2,500 staff. I n addition, i t i s a partner in two venture capital funds (Is Girisim a n d Turkven) in collaboration with private sector a n d international investors as w e l l as in one S t a r t - u p Fund (Teknoloji Y a t i r i m AS). T h e TTGV has facllttated collaborative links between industrial companies a n d universities/R&D institutes via the project evaluation a n d monitoring process. However, most importantly, TTGV has p r o m o t e d the creation o f a n R&D financing culture in Turkey, w h i c h dld not exist before.

b. Obiective & B a c k m o u n d T h e p r o g r a m has been developed to increase the R&D capacities in the private sector (manufacturing a n d software companies) a n d h e l p t h e m increase their capability o f carrying out R&D projects. T h e p r o g r a m i s very similar to the support p r o g r a m o f TEYDEB for industrial R&D. Only the funding m o d e i s dlfferent (grant support versus soft loans).

Information i s mainly taken from the Implementation Completion and Results Report o f ITP, World Bank, 2006; ?TGV website (www.ttw.orq.tr) and data provided b y TTGV. 42

Fundmg for Technology D e v e l o p m e n t projects started with TDP-1 through the funds p r o v i d e d by the World Bank. In 1995, TTGV started receiving funds from the UFT for the same purpose. Currently 75% o f the support i s p r o v i d e d through UFT a n d the r e m a i n i n g 25% i s p r o v i d e d by

T T G V ' s own funds. T T G V ' s own funds c o m e from the repayments of previous projects, w h i c h were supported through the funds p r o v i d e d by World Bank. For the UFT f u n d e d projects, w h e n the companies repay their debts TTGV reimburse to the UFT the a m o u n t they p r o v i d e d for projects. c.

Tarpet

QTOUD(S)

T h e only group eligible for support u n d e r t h i s p r o g r a m i s the private sector companies.

d. M o d e o f finance M o d e o f finance i s soft loans for the projects supported u n d e r this program. T h e a m o u n t o f support i s 50% o f all the eligible costs i n c u r r e d during the projects with a n u p p e r limit o f US$1d o n of TTGV c o n t r i b u t i o n p e r project (the loans are p r o v i d e d in US$).O n c e the p r o j e c t idea i s accepted by TTGV the companies should pay a fee a m o u n t i n g 1.5 percent of the total budget in fifteen days following the signing of project contract. A n o t h e r 3 percent i s taken by TTGV from i t s own contribution as service fee from the monthly disbursements for the project. T h e m a x i m u m project duration for support i s 24 months. O n c e the project activities are completed, after a grace p e r i o d o f one year, the companies pay back the a m o u n t of contribution p r o v i d e d by TTGV in seven equal installments in a p e r i o d of three years. T h e payments are interest free. Eligible costs under the scheme are L a b o r costs (including overheads) E q u i p m e n t & materials External expertise (consultants, studies, etc.) O t h e r (Travel, communication, etc.. e.

Statistical data

2007 2006 2005 2004 2003 2002 2001 2000

1997 1996 Total

Support Amount (US$ , d o n ) 29.5 29.7 0 0.2

N u m b e r of firms

Year

96 85 0 1 0 3 1 8

I I

0 1.6 0.8 1.9

22 4

254

8.5 0.5

86.20

Administrative Drocedures

To apply to the program, beneficiaries prepare a p r o j e c t proposal in the f o r m a t p r o v i d e d by TTGV. T h e proposal includes both technical i n f o r m a t i o n about the project a n d financial capability of the company. Companies can apply to TTGVâ&#x20AC;&#x2122;s p r o g r a m anytime a n d the projects are assessed every two months. O n c e t h e proposal i s submitted, a n expert (TTGVâ&#x20AC;&#x2122;s staff) i s assigned for the project by TTGV. T h e expert v i s i t s the companies at the f i r s t stage a n d TTGV management decides whether the project should continue with the second stage o f assessment. At this stage, only projects, w h i c h are investment oriented, are eluninated.

For the projects, w h i c h are considered as eligible for the second stage, TTGV appoints both academics from universities a n d a private sector representative for the assessment o f project. E a c h assessor v i s i t s the firm independently a n d prepares a r e p o r t about the eligibility o f the project. At the same time, financial assessment of the company takes place by the experts o f TTGV regarding the capabhty o f the c o m p a n y both for the execution of project activities a n d for repayments. O n c e both assessments have been completed, TTGV b o a r d decides whether the project will b e supported or not. A c c o r d i n g to the financial assessment results, TTGV might ask for collaterals from the company. Lastly, the b o a r d decision i s presented to the UFT for further approval before the contracts are signed. Project expenditures four months prior to approval o f the projects by the TTGV b o a r d are considered eligible. O n c e the project proposal has been accepted, the companies carry out project activities through their own funds, prepare technical a n d financial reports in monthly intervals, a n d send their reports to TTGV. A supervisor, usually one o f the assessors, i s assigned for monitoring the technical developments achieved through the project. TTGV sends a c o p y o f the technical a n d financial r e p o r t submitted by the c o m p a n y to the supervisor in order to get their v i e w on the technical progress a n d the eligibhty of expenditures. T h e supervisor investigates the reports a n d sends his r e p o r t to TTGV. T h e supervisor i s also expected to visit the company in two monthly intervals. During this period, TTGV also examines the viabihty of financial documents provided. O n c e all the reports are completed, order i s given by the TTGV staff in order to disburse the a m o u n t requested by the company.

At six monthly intervals a development r e p o r t a n d at the e n d of each project, a final r e p o r t i s

expected from the companies about the technical a n d economical achievements o f the project. A c c o r d i n g to TIâ&#x20AC;&#x2122;GV, the target for completing both the assessment procedure i s three months a n d disbursement procedure i s o n e month once the reports reach TTGV. However, it i s known that some latency exist especially at the UFT approval stage.

Commentaq S o f t loans p r o v i d e d by TTGV were o f m o r e interest to companies w h e n i n f l a t i o n was high. Nowadays, especially for big companies, TTGV funding i s considered m o r e costly w h e n compared with b a n k loans. Companies believe that there i s high risk for getting credits on US$currency. This also tends to hinder undertaking m o r e r i s k y (but rewardmg) R&D projects. Collaterals required from companies increase the costs o f companies even further. Collaterals required from companies are determined according to the financial strength of the beneficiary. W h i l e no collaterals are required from, big companies a n d b a n k guarantees are asked from young companies, w h i c h i s almost impossible for t h e m to obtain. I n particular, companies in hi-tech sectors, w h i c h do not have physical assets either to p r o v i d e to TTGV as collaterals or to the banks to, received b a n k guarantee for TTGV. As with TEYDEB support, construction a n d overhead costs related to R&D activities are not eligible for this support program, whereas accordmg to the E C Community F r a m e w o r k for State Aid for R&D a n d I n n o v a t i o n these kinds of costs are considered eligible.

Commercialization Project Support a.

Obiective a n d B a c k m o u n d

TTGV has b e e n providing support for R&D projects of industrial companies since 1991. T h e evaluation o f these support programs have revealed that companies getting support for their R&D activities h a d difficulties in findmg finance for the commercialnation of the products a n d services developed. Finance requirement for commercialization was m u c h higher t h a n R&D costs a n d interest rates for finance available through banks were high. Commercialization support has been stated as one o f the biggest barriers for enterprises against carrying out R&D activities. TTGV designed t h i s support in order to p r o v i d e a n alternative commercialization funding opportunity for companies developing successful products through the R&D support programs p r o v i d e d by TTGV.

b. Tarpet GrouDCs) T h e companies, w h i c h were supported u n d e r the 'Technology D e v e l o p m e n t Projects Support Program' o f TTGV a n d developed a p r o t o t y p e successfully, can apply to the 'Commercialization Project Supports Program'. c.

M o d e of Finance

U p p e r limit o f finance i s US$1 d o n p e r project a n d i s p r o v i d e d up to 50 percent o f the project budget as loans. Repayment p e r i o d i s 4 years i n c l u d m g l-year grace period. A service fee o f 3% o f the TTGV l o a n i s paid within 15 days after signing the contract. In addtion, fees totaling 3% are deducted from each dlsbursement.

d. Statistical D a t a T h e p r o g r a m was launched in 2006. Eight projects were supported a n d the total a m o u n t of funds allocated to these projects i s US$2.8 million. e.

Administrative Procedures

Companies applying to the p r o g r a m should apply to the p r o g r a m using the application forms p r o v i d e d by TTGV. T h e application procedure requires companies to present a commercialization p l a n i n c l u d m g the costs for p r o d u c t i o n machinery a n d equipment. O n c e the project i s approved by TTGV b o a r d collaterals should b e p r o v i d e d by the companies.

Joint Technology Development Projects a.

Obiective a n d B a c k m o u n d

T h e objective o f the p r o g r a m i s to increase the collaboration a m o n g companies, research centers a n d universities. TTGV supports technology development projects comprised o f basic a n d applied research stages.

b. Target GrouDfs) T h e projects are required to b e p r o p o s e d from consortia f o r m e d from one or m o r e company(s) a n d / o r supplier(s) working in the same sector, i n c l u d i n g universities a n d research centers, a n d are aimed to p r o m o t e division of labor a n d cooperation starting from design a n d development phase. c.

M o d e of Finance

T h i s support i s given as loans. T h e u p p e r h t of support i s US$2.5 d o n (up to 50% o f the project budget). Full (100%) finance can b e p r o v i d e d for service procurement from universities a n d research centers i f T T G V ' s c o n t r i b u t i o n does not exceed 60% o f the p r o j e c t budget. Project duration for support i s 2 years. A service fee o f 2% o f the TTGV l o a n i s p a i d within 15 days after signing the contract. I n addition, fees totaling 2% are deducted from each disbursement. Repayment p e r i o d i s 4 years including l-year grace period.

d. Statistical D a t a T h r e e projects were supported a n d the total a m o u n t of support allocated for these projects i s US$2.5 d o n .

Administrative Procedures

A consortium agreement should b e signed a m o n g the partners b e f o r e applying to the program. An application form very s d a r to the Technology D e v e l o p m e n t Projects should b e fded a n d presented to the TTGV. O n c e the project i s approved the TTGV assigns a monitor to for the project through w h i c h monitors the development of the projects in two month intervals. A development r e p o r t should b e prepared by the c o n s o r t i u m leader in six monthly intervals a n d a final r e p o r t at the e n d of the project.

Pre-Incubation Support a.

Obiective a n d B a c k m o u n d

T h e need for this p r o g r a m was emerged from the evaluation results of TTGV programs financed by the World Bank. T h e p r o g r a m i s considered as the f u s t (entry) step support for entrepreneurs with innovative ideas. Pre-Incubation Support's scope includes creation o f high quality business ideas that wdl later b e evaluated u n d e r Start-up Support Program. Only business p l a n preparation a n d feasibihty study i s supported through the project.

b. Target GrouDfs) Entrepreneurs with ideas on high tech sectors can apply for support. c.

M o d e of Finance

T h e entrepreneurs must accept sharing 50% share of any IPR created at the e n d o f the project with TTGV. M a x i m u m project duration i s 8 months for the preparation of business p l a n a n d a n additional 16 months for the pre-feasibility studies. O n c e the f i r s t phase has successfully been completed a n d start up funding i s available, TTGV buys shares o f the company to b e f o u n d e d as a repayment of the finance. M a x i m u m a m o u n t of funds p r o v i d e d i s US$50,000, excluding the office space r e n t (in a p e r i o d o f m a x i m u m 2 years).

d. Statistical D a t a Only o n e p r o j e c t i s s u p p o r t e d since 2006. e.

A d m i n i s t r a t i v e Procedures

Entrepreneurs with ideas in high tech areas can apply to TTGV with business idea d e f i n i t i o n form. ?TGV can use e x p e r t opinion in the assessment process. O n c e t h e idea i s found to b e eligible for support a n d c o n t r a c t signed TTGV starts monitoring the established c o m p a n y both technically a n d financially. O n c e t h e idea i s successfully, i m p l e m e n t e d TTGV holds t h e rights to ask for applying to the risk sharing facdtty support. I f the entrepreneur does not w a n t to apply to t h e risk sharing facllity support p r o g r a m t h e n 10 times the support p r o v i d e d through p r e - i n c u b a t i o n support p r o g r a m should b e p a i d b a c k by t h e entrepreneur.

Risk Sharing Facility Support a.

Obiective and Backmound

T h e p r o g r a m aims to p r o v i d e financial support to n e w or i m p r o v e d p r o d u c t a n d process development projects by sharing costs of R&D projectsâ&#x20AC;&#x2122; capital requirements. T h e scheme i s very sirmlar to the TDP Support P r o g r a m w h e r e soft loans are p r o v i d e d for R&D projects o f industrial companies.

b. Target Groutds) Start-ups that have low b u d g e t a n d high-risk projects can use this support. c.

M o d e o f Finance

Entrepreneurs can apply to this support without forming a company. U p p e r limit o f finance i s US$200,000 (provided as loans up to 50% o f the p r o j e c t budget). Minimum d u r a t i o n o f t h i s support i s 2 years.

d. Statistical D a t a N o projects were s u p p o r t e d through the p r o g r a m so far. e.

A d m i n i s t r a t i v e Procedures

T h e main difference i s t h a t soft l o a n i s p r o v i d e d without any collateral for high-tech projects where high r e t u r n i s expected. Instead, a royalty agreement i s signed with t h e c o m p a n y where up to 10 times the p r o v i d e d support c o u l d b e paid b a c k by the c o m p a n y to TTGV.

Start-up Support a.

Obiective and Backmound

T h e a i m o f t h i s support i s to h e l p b r i d g e the gap of financing i n n o v a t i v e start-ups by investing in talented entrepreneurs t h a t have creative, u n i q u e a n d advanced-technology ideas a n d vision. TTGV seeks for leading-edge technologies a n d rational business models. T h e r i s k s o f the target m a r k e t sector a n d those i n h e r e n t in early-stage companies are assessed to find companies that have a clear p a t h to success.

b. T a m e t Grouds) Start-up support i s p r o v i d e d to entrepreneurs for i m p l e m e n t i n g their business plans.

M o d e o f Finance

T h e upper h

t o f finance i s US$750,000 in the form o f equity capital.

d. Statistical D a t a Three investments were made since 2006. e.

Administrative Procedures

T h e application for the support p r o g r a m is carried out through T e k n o l o j i Y a t i r i m company, w h i c h was established by TTGV in order to p r o v i d e start-up support. In order to apply for this support, a business p l a n must b e developed. Applicant's business p l a n i s reviewed according to the following criteria: Capable Management Team: People with deep domain knowledge of their technology a n d market, a n d entrepreneurial vision a n d drive. Large M a r k e t Potential: Products, w h i c h address dynamic markets with high growth rates a n d substantial size. Products a n d companies that c o u l d have global m a r k e t potential. M a r k e t Edge: L e a d i n g edge or breakthrough technology with a proprietary a n d / o r a leadershp position.

Exit Strategy: Viable strategies to obtain liquidity. N a t u r a l merger or acquisition opportunities a n d clear paths leading to a successful p u b l i c o f f e r i n g must b e evident.

R e t u r n on Investment: An opportunity for a n investment r e t u r n o f at least 10 times the invested total in 4-7 years.

An investment committee provides the decision for support. Environmental Project Support Programs a.

Obiective a n d B a c k m o u n d

T h e programs were designed a n d are b e i n g implemented by TI'GV in order to increase the a m o u n t o f investment towards environmental technologies. Currently the a m o u n t of research a n d interest towards environmental technologies i s low. Prior to these programs, any means o f financial support did not exist. T h e programs also aim to raise awareness on environmental technologies in Turkey. TTGV started its n e w environmental support programs in August 2006.

b. Target Grouds) Target companies are those industrial companies, w h i c h either use energy intensely in their processes or w a n t to carry out some pilot activities for p r o d u c t i o n o f energy u s i n g renewable sources or those developing renewable energy technologies. c.

M o d e o f Finance

T h e size o f the project must b e minimum US$lOO,OOO a n d m a x i m u m U S $ 1 d o n . T h e support i s p r o v i d e d as loans a n d up to 50% o f project budget. T h e project duration cannot exceed 1 8 months. A service fee o f 3% o f the TTGV l o a n i s p a i d within 15 days after signing the contract. In a d d t i o n , fees totaling 3% are deducted from each dsbursement. T h e s u p p o r t i s paid back in 4 years i n c l u d i n g 1-year grace period.

d. Statistical D a t a Two projects with a total a m o u n t o f US$2 d o n have been supported so far since 2006. e.

A d m m s t r a t i v e Procedures

Implementation Rules are the same for all of t h e three programs. Companies should apply to the p r o g r a m through the application forms p r o v i d e d by TTGV. Both the application forms a n d the assessment process are very similar to the Technology D e v e l o p m e n t Projects Support Program. O n c e the project support contract i s signed, I T G V monitors the projects in two monthly intervals. T h e companies should p r o v i d e progress reports in six monthly intervals a n d a final r e p o r t i s required from the companies at the e n d o f the projects.

IV.

PROGRAMS/POLICY MEASURES IMPLEMENTED BY KOSGEB

R&D and Technological Innovation Support Program 43 a.

ImDlementinp apency

Small a n d Medium I n d u s t r y D e v e l o p m e n t Organization (KOSGEB) i s a semi-governmental institution affiliated with M i n i s t r y o f Industry a n d T r a d e o f Turhsh Republic. K O S G E B was established in 1990 to h e l p S M E s in their r a p i d adaptation to technological innovations, enhancing their efficiency a n d competitive capacity in order to increase their contribution to the national economy. KOSGEB provides services a n d programs to S M E s in the fields of I n f o r m a t i o n Dissemination, Financial Guidance, Technology Development, E x p o r t Promotion, Regional D e v e l o p m e n t a n d Entrepreneurship D e v e l o p m e n t . T h e division o f KOSGEB providing services a n d support programs directly to S M E s are: Entrepreneurship D e v e l o p m e n t Center established in A n k a r a together with Enterprise D e v e l o p m e n t Centers (IGEMs= 35) Technology D e v e l o p m e n t Centers (TEKMERs=20) a n d

V i r t u a l Technology Incubators (DTIs = 7) w h i c h are f u n c t i o n i n g all over the country Synergy Centers (73)

I n addition, K O S G E B has four main divisions that design, i m p l e m e n t a n d monitor support mechanisms (including the preparation of legislation): Entrepreneurship D e v e l o p m e n t Center M a r k e t Research a n d Export Promotion Center Regional D e v e l o p m e n t Center Training a n d Consultancy Center

b. Objective & B a c k m o u n d T h e p r o g r a m aims to support research a n d development activities of SMEs. A m i x t u r e o f grants a n d soft l o a n i s p r o v i d e d to S M E s h a v i n g n e w technological ideas a n d inventions, in order to i m p r o v e these ideas, start p r o d u c t i o n a n d compete in national a n d international markets. Entrepreneurs who would like to start up their businesses by developing a p r o t o t y p e are also supported through this measure. T h e p r o g r a m started in 1991 a n d has been revised over the years. T h e last revision about the p r o g r a m procedures was completed in December 2007.

Information provided in t h i s section i s taken from KOSGEB website (www.kos_eeb.pov.tr) and Report t o t h e World Bank on Technology and Innovation Support Programs o f KOSGEB. 43

Tareet

ETOUD(S)

All S M E s and entrepreneurs developing new/improved products/processes are eligible ‘for support. Quality o f the technological and economic aspects o f the project, quality of the project planning, and that of the applicant are considered during the assessment o f proposals.

d. Mode of finance Loan supports include (a) financing 80% o f expenses with an upper limit of US$172,300 (200,000 TRY) for procurement o f equipment and materials required to develop a prototype; (b) financing improvement of the prototype that was developed through K O S G E B support (as a second phase finance) up to 80% with an upper limit o f US$43,000 (50,000 TRY). S M E s can receive grants up to 50% with an upper limit o f US$43,000 (50,000 TRY) and US$12,900 (15,000 TRY), respectively if they lease equipments for their projects supported under (a) and (b). I n addition, grant finance i s provided for publication of the results of R&D up to 80% with an upper h i t of US$2,580 (3,000 TRY), procurement of consultancy up to 80% with an upper h t o f US$17,230 (20,000 TRY), renting office in Technoparks up to 80% with an upper h t of US$17,230 (20,000 TRY), work space allocation in K O S G E B TEKMER (incubator) buildings (for 24 + 12 months), provision o f publications and for participation in congress), conferences and fairs abroad up to 80% with an upper limit o f US$17,230 (5,000 TRY), start-up capital up to US$8,600 (10,000 TRY), business development up to US$12,900 (15,000 TRY) without remuneration.

Statistical data

*as o f June 2007

Source: KOSGEB (www..koceb. ~ o v . t r )

Administrative Drocedures

T h e f E s t step for applying to the K O S G E B supports i s to register the company to K O S G E B database. T h i s i s a five-step procedure where the companies fill in information about the current state of their businesses. At t h s stage, the companies should provide a “strategic road map” for themselves. T h e information provided by the companies i s used to determine which support schemes they can apply to get support. The strategic plans are monitored by K O S G E B personnel to see achievement progress.

Applicants then need to submit their project applications for R&D and Technological Innovation Support Program to Technology Development Centers (TEKh4ERs) or Virtual Technology Incubators (DTIs) in their region. Although the maximum project duration for support i s 24 months, financial projections are provided for 3 6 months. I n these units, an expert investigates the

documents using the definitions in Frascati a n d Oslo manuals a n d prepares a pre-evaluation report. T h e n the pre-evaluation r e p o r t i s passed onto a related department o f the University for scientific pre-evaluation by academic review. T h e n the project i s considered by the Evaluation a n d Decision Committee, w h i c h i s f o r m e d according to the procedures, specified in TEKMER/DTI collaboration protocols. T h e committee can directly approve the projects or can decide to send t h e m to a n academician for m o r e detaded assessment. Decisions on w h i c h fundmg schemes the company wdl benefit from a n d the a m o u n t of l o a n a n d grant support to b e p r o v i d e d from each one o f the funding schemes will also b e taken at the approval stage.

I f the applicant with a p r o j e c t selected does not already have a n established a company, establishment process should b e completed within 90 days after K O S G E B ’ s approval. A f t e r the establishment o f the company, the registration procedure for the databases given above should b e completed before signing any contracts. For those beneficiaries who already h a d a n established company a n d applied through that company are given 60 days for u p d a t i n g their strategic roadmaps. T h e duration o f support stated in the application d o c u m e n t starts after the contract signature. M a x i m u m project duration i s 24 months but the Evaluation a n d D e c i s i o n C o m m i t t e e c o u l d p e r m i t a n a d d t i o n a l 12 months i f i t i s needed or requested. An applicant can apply to the p r o g r a m for a m a x i m u m o f three projects. T h e total duration for incubation cannot b e longer than 24 months even if m o r e than one project of the applicant has been accepted. O n c e the contract has been signed with the company, the company should apply for each o n e o f the support schemes separately. For example, the applicant needs to apply for the start up capital in at most three months. Applications for the consultancy support are available any t i m e during the project. T h e companies can only get consultancy from the academic personnel of the university where the TEKMER (incubator) i s situated. Only if academicians on t h e topic o f consultancy do not exist in the region t h e n a n academician out o f the region c o u l d b e used for consultancy.

For equipment a n d materials purchases, l o a n support can b e demanded any t i m e through the project duration as long as timing i s consistent with the cash flow projections submitted at the beginning of the project. Firms need to p r o v i d e b a n k guarantee or treasury bdls in order to get the support. A f t e r successfully completing a project supported by K O S G E B , a c o m p a n y can once m o r e apply for financial support, within 1 year. I n order to apply to these so called “after graduation loan supports”, beneficiaries should present a b r i e f r e p o r t concerning their request while submitting the ‘Project C o m p l e t i o n F i n a l Report’ of the previous project. With the approval o f h s request by the Evaluation a n d D e c i s i o n Committee, company will b e entitled to the grant without any further evaluation procedure i f they apply within o n e year. “After graduation l o a n supports” are given u n d e r three headmgs: quality development a n d technological enhancement, Technopark office rental a n d job development supports. Application for quality development a n d technological enhancement support should b e based on company’s development studes concerning any o n e o f p r o d u c t quality, p r o d u c t i o n technology, company’s overall technological level or collaboration between m a i n a n d supplier/related industries in critical a n d strategically i m p o r t a n t sectors. T h e beneficiaries o f R&D or Technological I n n o v a t i o n S u p p o r t schemes who have successfully completed their projects can also b e supported in their job development process if they initiate p r o d u c t i o n related to the project within o n e year.

Figure 1. Application procedure for R&D and Technological Innovation Support Program

Application t o TEKMER/DTI

Committee Aproval

U Contract Signing

Equipment /Materials

lncubatlon

Technopark rent

Consukancy

Publication of results

Conference attandance

Business Development

Commentam Collateral requirements for beneficiary companies increase the costs for S M E s even further and, in m a n y cases, are considered a n obstacle for t h e m to apply for support. T h e r e are lunits on how m u c h the p r o g r a m will cover costs o f a project such as personnel, technical consultancy. For example K O S G E B has supported for hinng quality personnel but does not support all project personnel. M a n y o f these costs are covered by TUBITAK programs but companies have to fde in separate application f o r m s for different organizations. Some S M E s c o m p l a i n a b o u t the paperwork a n d the delays in the process o f project assessment. T h e support programs o f KOSGEB, TUBITAK-TEYDEB a n d TTGV explained in this d o c u m e n t are o f the same nature. D u p l i c a t i o n issue should b e further investigated during the evaluation study (an enterprise can apply for support for the same project from K O S G E B , TUBITAK-TEYDEB a n d TTGV at the same time. However, the company i s not funded by K O S G E B for the e x p e n d m e items financed TEYDEB).

SOFTWARE Support a.

Obiective a n d B a c k m o u n d

T h e p r o g r a m aims to increase the competitiveness o f S M E s by providing finance for the procurement o f software. T h e evaluation criteria a n d conditions about the software, suppliers a n d businesses are determined by K O S G E B .

b. Tarnet Grouds) S M E s operating in the manufacturing industry can apply to the program.

M o d e o f Finance

S M E s can receive grants up to 50% with a n u p p e r limit o f US$6,800.

d. Statistical D a t a T h e n u m b e r o f procurements supported a n d fund disbursed are given in b e l o w table.

Year

N u m b e r of Projects

S u p p o r t Amount ( d o n US$)

2006

227

1.2

2005

0.4

2004

2,001

26.4

2003

248

3.7

Total

2,572

A d m m s t r a t i v e Procedures

T h e f i r s t step for a p p l p g to the support p r o g r a m i s to register the c o m p a n y to K O S G E B database. T h ~ iss a five-step procedure where the companies fill in i n f o r m a t i o n about the current state o f their businesses. At this stage, the companies should p r o v i d e a â&#x20AC;&#x153;strategic r o a d m a p â&#x20AC;? for themselves. O n c e the strategic p l a n i s accepted, the companies can apply for their software needs using the application forms p r o v i d e d by K O S G E B . Software programs that can b e supported are Material Resource Planning (MRP) programs C o m p u t e r aided design a n d p r o d u c t i o n programs Enterprise Resource Planning (ERP) programs Maintenance Following Programs T h e r e are also some prerequisites depending on the kind of p r o g r a m requested (e.g. to b e able to buy maintenance software the company should own at least 20 machines). For industrial organized areas, companies can prefer using the support through a c o m m o n server used by all the companies in the zone. A follow up visit by KOSGEB personnel i s carried out o n e year after the support to find out whether the p r o g r a m i s effectively utilized by the company.

Electronic Signature Support a.

Objective a n d B a c k m o u n d

I t aims i s to m a k e the e- signature a n d electronic applications widespread a m o n g the S M E s

within

the framework o f e-transformation project. T h e S M E s in the K O S G E B database can apply for the program. T h e applications are made duectly to the Electronic Certificate Service Providers.

b. Tareet Grouds) S M E s willing to use electronic signature in their business i s t h e target group o f t h i s support p r o g r a m

M o d e o f Finance

G r a n t support i s p r o v i d e d S M E for up to five authorized representatives. T h e u p p e r h certificate i s US$344 a n d 100% o f it i s supported.

t per

d. Statistical D a t a T h e r e are no statistical data publicly available for t h i s support program.

E-commerce Support a.

Objective a n d B a c k m o u n d

T h e p r o g r a m supports the procurement o f computer, printer, scanner, internet connection hardware (modem, hub) a n d software (operating system, antivirus program) by the organizations (NGOs, m a i n l y chambers) w h i c h p r o v i d e services to S M E s under a n agreement signed with K O S G E B . T h e S M E s without internet connection can use this infrastructure their e-commerce activities.

b. Tarvet Grouds) NGOs providing services to S M E s u n d e r a n agreement with K O S G E B are the beneficiaries o f t h i s program. c.

M o d e o f Finance

S M E s can receive grants up to 10Oo/o with a n u p p e r h

t o f US$2,580 for e-commerce.

d. Statistical D a t a

Year

2007* 12006

N u m b e r o f Projects

S u p p o r t Amount (US$)

6.645

2005

I Total

22.531

51,518

80,694

E-SME Informatics Standby Credit a.

Obiective a n d B a c k m o u n d

T h e main target o f t h i s p r o g r a m i s to ensure that the S M E s â&#x20AC;&#x2122; i n f o r m a t i o n processing a n d c o m m u n i c a t i o n infrastructure catch up with the international standards. V a k i f B a n k accepts the application.

b. TarFet Grouds)

All S M E s operating in the manufacturing industry a n d included to the K O S G E B field screening application can apply for the program.

M o d e of Finance

T h e duration o f the l o a n i s 24 m o n t h s a n d the a m o u n t p r o v i d e d varies from US$8,600 to US$43,000 based on the companyâ&#x20AC;&#x2122;s technical infrastructure. T h e l o a n i s paid back by eight equal installments in 3-month intervals.

d. Statistical D a t a As o f July 2008, 210 S M E s have been supported by this credit, with a total credlt allocation o f 2.97 d o n YTL, or w h i c h 0.55 million YTL have been used. e.

Administrative Procedures

Companies can apply to V a l u f B a n k with the documentation showing that they are a p a r t of the K O S G E B field screening process. T h e b a n k might require collaterals from companies.

Machinery/Equipment Support for Common U s e by S M E s a.

Objective a n d B a c k m o u n d

T h e p r o g r a m targets to support for the use o f S M E s the machinery a n d equipment expenditures o f Common F a c h t y Workshops (ORTKAs) a n d the Common Purpose Laboratories (ORTLABs). T h e companies, working in the same or complementary sector, can benefit from ORTKAs a n d ORTLABs collectively. With this support, they can get the machinery a n d equipment for the production, quality control, mass production, p r o d u c t development, that they cannot a f f o r d to buy by themselves. T h e main goal of the p r o g r a m i s to develop a culture o f co-operation a n d to create a n e t w o r k between S M E s for the purposes o f increasing productivity, production, employment a n d p r o d u c t quality while decreasing p r o d u c t i o n costs. I t has been i m p l e m e n t e d since 2000 by K O S G E B in co-operation with S M E s a n d regional umbrella organizations.

All S M E s in T u r k e y clustered in groups o f at least five can apply for the program. A companyâ&#x20AC;&#x2122;s share in the cluster must b e in the 5-30% interval. c.

M o d e of Finance

G r a n t support i s p r o v i d e d if the machine/equipment i s leased. T h e u p p e r duration h i t for leasing i s 4 years. M a x . a m o u n t p r o v i d e i s US$86,000, a n d can increase to US$129,000 for the clusters having

m o r e than five members. Interest free l o a n on security i s granted for the procurement o f machine/equipment. (with up to US$344,000 a n d US$430,000 for the clusters h a v i n g m o r e than five partners) I

d. Statistical D a t a N u m b e r o f projects supported a n d fundmg p r o v i d e d for these projects are as follows:

Table 11. Number o f Projects and Total Amount o f Support

Year

2007*

I I

N u m b e r ofProjects

Support Amount ( d o n US$)

0.8

2005

1.6

2004

3.0

2003

3.6

TOTAL

9.5

*as o f June 2007

0.5

2006

A d m i n i s t r a t i v e Procedures

A p p l i c a t i o n s for the support p r o g r a m have to b e carried out by t h e ORTKA/ORTLAB management c o m p a n y in o n e - m o n t h i n t e r v a l after the decision has been taken. I f prior to application a n ORTKA/ORTLAB does not exist, the p a r t n e r companies should establish a new company, w h i c h wdl later act as the ORTKA/ORTLAB. During t h e evaluation process if a regional development r e p o r t has been prepared previously, the results o f this r e p o r t are taken into account during t h e assessment. O n c e t h e a p p r o v a l for support i s g v e n , n e w partners can enter the c o n s o r t i u m or o n e o f t h e m e m b e r s can h a n d o v e r their shares to n e w partners as long as the n e w partners are working in t h e same sector. T h e equipment/machinery c a n n o t b e placed as a p a r t o f the existing operations o f a partner company, but t h e o n e of t h e partners can p r o v i d e the working space r e q u i r e d for t h e machinery/equipment. Only n e w e q u i p m e n t can b e purchased through t h i s program.

Supports for Hiring Qualified Personnel by SMEs a.

Objective and Backmound

With this program, grants are p r o v i d e d for S M E s to l u r e qualified personnel with a university or vocational h i g h e r s c h o o l degree to i m p r o v e S M E s access to n e w technologies a n d expertise. T h e supportâ&#x20AC;&#x2122;s main target i s to h e l p S M E s h i r e qualified personnel for increasing their competitiveness through technology watch, increased quality a n d p r o d u c t i v i t y . I t also a i m s to create jobs for university a n d v o c a t i o n a l higher s c h o o l graduates. V o c a t i o n a l high s c h o o l graduates c a n n o t benefit from this support in t h e developed r e g o n s . Support amounts v a r y with the level o f development o f the region.

b. T a r p e t Grouds) All S M E s r e d s t e r e d on the KOSGEB database are elizible for t h e sumort. c.

M o d e o f Finance

G r a n t support i s p r o v i d e d to t h e S M E s . T h e d u r a t i o n u p p e r limit for the p r o g r a m i s 18 months. M o r e t h a n o n e qualified personnel can work at the same time, but w h e n the w h o l e support a m o u n t i s used, the support i s o v e r regardless of the duration. T h e u p p e r limit for support i s US$14,000 for university graduates a n d US$9,500 for vocational high s c h o o l graduates. T h e a m o u n t p r o v i d e d o v e r this u p p e r h t i s has to b e compensated 100% by the companies.

d. Statistical D a t a Table 12. Number of Personnel S U D D O ~Proiects ~ and Total Amount of SUDDOI? Year

N u m b e r o f Projects

S u p p o r t Amount (million US$)

2007*

547

2.3

2006

784

3.1

2005

1,542

12.2

2004

1.865

10.5

2003

489

2.9

TOTAL

5,227

31.3

S M E s h a v i n g their strategic plans approved by KOSGEB can apply to the s u p p o r t program. O n c e the application i s approved a n d the contract i s signed with K O S G E B , the companies should e m p l o y the personnel in 30 days. W h i l e the u p p e r hntt changes according to the r e g i o n where the company i s located, companies employing the relatives o f martyred can get another 10% support. I f the personnel are f u e d for any reason during the 18-month employment period, the companies have to e m p l o y n e w personnel in the three months following the dscharge o f old personnel. Special Training Support a.

Objective a n d B a c k m o u n d

T h e p r o g r a m aims to increase the competitive advantage o f S M E s by upgradmg their h u m a n resources with the a i m o f gaining necessary qualification, knowledge a n d s k i l l s to apply n e w a n d high technologies. Special Training Support i s p r o v i d e d at firm level based on the specific needs o f S M E s on the topics like n e w a n d advanced technologies, m o d e r n p r o d u c t i o n a n d management techniques, planning, investment, marketing, informatics, legislation, etc. T h e p r o g r a m also helps establishment o f a pool o f qualified trainers. At the e n d of each training program, performance o f trainers i s evaluated using a r a n k i n g system.

b. Tarvet Grouds) All SMEs, registered to K O S G E B database, are eligible for the support. c.

M o d e o f Finance

Amount o f finance i s p r o v i d e d up to US$5,161 (6000 YTL) p e r year p e r company, a n d the u p p e r h u t of finance changes between 60% a n d 80% depending on the level o f development o f the region where the S M E i s located.

d. Statistical D a t a N o statistical data i s available for t h i s support program.

Administrative Procedures

T h e companies h a v i n g their strategic plans approved can apply to the p r o g r a m for the training needs they have. E i t h e r training should b e carried out by a consulting company existing in the KOSGEB database or the consultant should apply at the same t i m e for approval by K O S G E B . T h e daily rates for consultancy depend on the topic of training a n d the experience o f the consultants. At the e n d o f the training, the companies should p r o v i d e a r a n k i n g on the performance of the consulting companies. L a t e r these ranlungs are used by other companies in fmdmg the right consultants for their training needs.

Consultancy Support for S M E s a.

Obiective a n d B a c k m o u n d

T h e p r o g r a m foresees fostering innovative organizational a n d management practices in S M E s by supporting procurement o f consultancy. I t was designed to upgrade S M E s technology adaptation, technology development, production, marketing, informatics, modernization, investment, management know-how a n d sktlls, increase their competitiveness by encouraging t h e m h i r e consultants.

b. Tareet Grouds) All SMEs, registered to KOSGEB database, are eligible for the support. c.

M o d e of Finance

Grants are p r o v i d e d up to US$12,900 (20,OOOYTL.) p e r S M E s . Percentage o f finance varies between 60% a n d 80% dependmg on the level o f development of the region where the S M E i s located. Full (100%) support i s p r o v i d e d for start-ups.

d. Statistical D a t a

Year

N u m b e r of Projects

Support Amount (million US$)

2007*

115

0.3

2006

346

1.0

2005

963

4.3

2004

1,370

5.4

2003

131

0.5

TOTAL

2,925

11.5

Administrative Procedures

T h e companies h a v i n g their strategic plans approved can apply to the p r o g r a m for the consultancy needs they have. E i t h e r consultancy should b e carried out by a consulting company existing in the K O S G E B database or the consultant should apply at the same t i m e for approval by K O S G E B . T h e dady rates for consultancy depend on the topic of training a n d the experience of the consultants. T h e support also helps establishment o f a pool o f qualified trainers. ,At the e n d o f each training program, performance o f trainers i s evaluated using a ranlung system.

General Training Programs a.

Obiective a n d B a c k m o u n d

S M E s , w h i c h participate in the training programs organized by K O S G E B , can benefit from this support. T h e p r o g r a m aims to increase the competitive advantage o f S M E s by upgradmg their h u m a n resources with the aim o f gaining necessary qualification, knowledge a n d s k i l l s to apply n e w a n d high technologies. General T r a i n i n g S u p p o r t i s p r o v i d e d on the topics like technologic R&D,

technology adaptation, m o d e r n p r o d u c t i o n a n d management techniques, planning, investment, marketing, informatics, legislation, etc.

b. Target Grouds)

All S M E s , registered to KOSGEB database, are eligible for the support. c.

M o d e of Finance

T h e u p p e r limit o f finance changes between 80% a n d 60% dependmg on the level o f development of the region where the S M E i s located.

d. Statistical D a t a

Year

N u m b e r o f Projects

S u p p o r t Amount (thousand US$)

2007*

24.2

2006

41.6

2005

135

573.7

2004

7,705

3,054.7

2003

11,509

998

TOTAL

19,410

4,692.2

Administrative Procedures

K O S G E B determines the general trainings to b e p r o v i d e d through K O S G E B departments or through other S M E supporting organizations. T h e trainings are p r o v i d e d through consultants existing in the consultancy database.

N e w Entrepreneur Support a.

Obiective a n d B a c k m o u n d

This p r o g r a m aims to p r o m o t e a n d disseminate the culture of entrepreneurship by financially supporting the establishment o f successful enterprises. T h i s p r o g r a m was designed to p r o m o t e entrepreneurship as a tool for economic growth a n d job creation a n d to stimulate start-up o f n e w technology based firms.

b. Target Grouds) Applicants must b e graduates o f K O S G E B ’ s ‘Young Entrepreneur D e v e l o p m e n t Program”, located in the Technology D e v e l o p m e n t Centers for 1 year, or prepared a business p l a n successfully u n d e r the “Small Business Start-up Consultancy Support” of KOSGEB, or received entrepreneurship training within the context o f national a n d international KOSGEB controlled projects. c.

M o d e of Finance

G r a n t support i s p r o v i d e d for starting up the business up to US$3,440. F i x e d investment costs are financed as grants i f the equipment a n d machinery are leased; other v i e w they are financed as loans. Applicants should b e able to p r o v i d e collaterals for loans. U p p e r l i m i t s for grant a n d l o a n are US$8,600 a n d US$34,400, respectively. Percentage o f the project budget for the leasing costs changes from 50% to 70%, a n d for the loans changes from 70% to 90% to b e financed depending on the level o f development o f the region where the S M E i s located.

d. Statistical D a t a

Table 15. Number o f Projects Supported and Total Amount o f Support

Year

I N u m b e r of Proiects I

S u m o r t Amount (thousand USSF’,

2007*

20.6

2006

468.5

2005

310

1,658.7

2004

147

807.5

2003

40.1

522

2,995.4

I TOTAL 1 e.

Administrative Procedures

Entrepreneurs apply to the p r o g r a m by preparing a business plan. Applicants must b e graduates of K O S G E B ’ s ‘Young Entrepreneur D e v e l o p m e n t Program” w h i c h are organized free of charge by K O S G E B . O n c e the decision for support i s given, a contract has to b e signed between KOSGEB a n d the entrepreneur. At this stage, the entrepreneur s h o u l d establish their companies a n d register to the K O S G E B database by preparing their business plans. Support i s p r o v i d e d for three years beginning from the contract date for the starting up the business a n d the machine/equipment costs. B e f o r e getting the l o a n p a r t o f the support, the entrepreneurs should p r o v i d e collaterals.

General Entrepreneurship Training a. Obiective a n d B a c k m o u n d T h e p r o g r a m a i m s to train potential entrepreneurs a b o u t the business idea development, market research, business p l a n a n d marketing p l a n preparation, business management a n d project management. By this way, the success r a t i o of the probable businesses will b e increased. T h e r e i s no precondition to apply for the program. T h e participant does not pay any fees. T h e p r o g r a m comprises 30-hour trainings.

b. Tareet Groutds) T h e target group i s t h e p o t e n t i a l entrepreneurs who are willing to apply to t h e entrepreneurship support program. c.

M o d e o f Finance

T h e trainings are p r o v i d e d free of charge

by KOSGEB.

d. Statistical D a t a N o statistics i s avadable a b o u t t h e p r o g r a m . e.

Administrative Procedures

P o t e n t i a l entrepreneurs can apply to t h e training p r o g r a m w h e n t h e trainings are available.

Young Entrepreneur Development Program a. . Obiective a n d B a c k m o u n d

T h i s p r o g r a m targets d e v e l o p m e n t a n d dissemination o f entrepreneurship culture a m o n g university students. I t i s run together with the universities to train a n d educate undergraduate a n d graduate students for starting up their own businesses. T h e p r o g r a m was designed to h e l p increase the

awareness on entrepreneurship, to stimulate start-up o f t h e n e w technology based firms a m o n g university students a n d graduates a n d to create n e w jobs. T h e participants do not p a y fee for t h i s course.

b. Tareet Grouds) U n i v e r s i t y undergraduates a n d graduates with a clear business idea are eligible. c.

M o d e of Finance

T h e trainings are free o f charge.

d. Statistical D a t a N o statistical data i s available for the p r o g r a m . e.

A d m i n i s t r a t i v e Procedures

During the 102 hours course, participants are assisted with developing their business ideas, m a r k e t research, p r o j e c t management a n d business plans.

Quality Development a.

Objective and Backmound

T h e p r o g r a m p r o v i d e s grants for t h e costs o f Management System Certificates received from TSEITURKAK, test, analysis a n d a u d i t costs within the c o n t e x t o f calibration a n d CE m a r k i n g eligiblllty evaluation operations.

b. Target Grouds) S M E s registered into the K O S G E B database are eligible for support. c.

M o d e o f Finance

G r a n t support i s p r o v i d e d for S M E s . T h e support amounts are as follows: Up to US$8,600 p e r S M E for the general test, analyses a n d calibration costs

to US$17,200 p e r S M E for the CE m a r k i n g test a n d analyses costs, (Percentage o f finance vanes between 50% a n d 70% depending on t h e level o f development of the r e g i o n where the S M E i s located. Up to US$2,150 p e r certificate a n d US$8,300 p e r S M E for the costs of Management System Certificates (TS-IS0 9000, T S - I S 0 14000, T S - I S 0 22000, T S EN I S O / I E C 17020, T S EN I S O / I E C 17025) taken from T S E / T U R K A K .

d. Statistical D a t a Table 16. N u m b e r o f Projects Supported and Total Amount of Support

Year

N u m b e r o f Projects

Support Amount (thousand US$)

2007*

2006

155

148

2005

147

494

2004

282

713

2003

672

1,457

I TOTAL I e.

Administrative Procedures

T h e applicants should have filled their strategic plans a n d getting quality certificates should b e given as a target in their strategic plans. T h e company should apply for the certification to T S E / T U R K A K . T h e companies can apply for the costs o f m o r e t h a n one quality certificates as long as the m a x i m u m a m o u n t of support i s not passed over.

Market Research and Improvement of Export a. Obiective a n d B a c k m o u n d Various sub-programs are implemented to encourage S M E s to participate in national a n d international fairs are supported u n d e r t h i s program. A n o t h e r sub-program i s the â&#x20AC;&#x153;Advertisement Supportâ&#x20AC;? where grants are p r o v i d e d to S M E s , w h i c h i n t r o d u c e their products in international markets. A sub-program aiming to help S M E s develop brands i s also implemented under t h i s program.

b. Tareet Groutds) All S M E s registered in the K O S G E B database are eligible for support. T h e organizations can apply on behalf o f m o r e t h a n one S M E at one time.

M o d e o f Finance

Grants support up to US$17,200 for the expenses of the Trademark Registration Certificate; a n d the costs o f the advertisement in periodic related line of business magazines, international airport periodic magazines, a n d billboards in national international airports.

d. Statistical D a t a

N u m b e r o f Projects

2007* 2006 2005 2004 2003

6 11 39 647 57

19 37 590 5,183 204

760

6,033

TOTAL e.

S u p p o r t Amount (thousand US$)

Year

Administrative Procedures

T h e companies h a v i n g their strategic plans approved can apply to the program. Professional marketing companies or NGOs working for SMEs can apply on behalf o f a group o f companies. T h e support i s p r o v i d e d once the expenses are i n v o i c e d by the organization. Both the services o f the organization a n d the fairs are ranked after the organization by the beneficiary S M E s . K O S G E B does support neither the organization nor the fair if the total r a n k i s b e l o w 70 over a total o f 100 points.

Industrial Property Rights Support a.

Obiective a n d B a c k m o u n d

T h i s p r o g r a m aims to support protection of IPR by S M E s . Grants are p r o v i d e d for patent, useful m o d e l a n d industrial design applications of S M E s to the Turkish Patent Institute. I t was designed to h e l p increase the awareness on intellectual p r o p e r t y rights a m o n g S M E s . b. Tarnet Grouds)

All S M E s submitting required documents a n d the invoice from the Turhsh Patent Institute for patent, useful m o d e l a n d industrial design applications are eligible for support. c.

M o d e o f Finance

By this support, 70% o f the application fee i s financed with a n u p p e r limit of US$5,160 for patent, useful model, industrial design a n d integrated circuit topography applications made in Turkey. US$8,600 i s p r o v i d e d for such applications abroad.

d. Statistical D a t a

Year

2007*

Number o f Projects

Total Support Amount (US$)

2,546

2006

16.611

2005

9,377

2004

45,762

2003

667

TOTAL

74,963

Administrative Procedures

Companies apply to K O S G E B with the documentation showing that fees for the patent, useful model, industrial design and integrated circuit topography applications have been paid to TPE.

Bank Interest Rate Supports a.

Objective and Backmound

Under h s program, K O S G E B provides Standby Credit for Registered Employment, Standby Credit for Exports, Standby Credit for Leather Sector to Move to Industrial Zones and Standby Credit f o i the Food Sectorâ&#x20AC;&#x2122;s Machine and Equipment N e e d and new 1000+1000 S M E Machine and Equipment Investment Project.

b. Tarpet Grouds) S M E s registered in the K O S G E B Database are eligible for support. c.

Mode of Finance

Credit with zero interest rate i s provided to the S M E s through banks. For registered employment, t h e maximum amount o f loan i s USg677,OOO with a payback period of 18 months. The amount of support per person employed depends on the education level o f the personnel and the development level o f the region where S M E i s located. For exports, standby credit for the leather sector and machine and equipment procurement o f food sector the maximum amount o f loan available i s around

us$loo,ooo.

d. Statistical D a t a Table 19. Number of Prckjects Supported and Total Amount of Support Amount of support Created Credit K O S G E B Credlt Interest Credit Interest Rate Volume ( d o n YTL) Rate Total (mdhon YTL)

Total Number of Enterprises

Supported 4218 6847 SMEs, 26,850 New

725,21

24,99

New Employment Credit

579,64

121,08

Credit for the movement o f the Leather Sector to

11,76

3â&#x20AC;&#x2122;89

103

42,24

13,79

468

Industrial Zones

Machinery &Equipment credit for Food Sector

employment

1000+1000 Project

Administrative Procedures

The application for the loan support i s f i r s t done to K O S G E B , and once approved; the companies should apply to the banks. Collaterals are required before the support i s realized.

100

PROGRAMS/POLICY MEASURES IMPLEMENTED BY MINISTRY OF INDUSTRY AND TRADE (MoIT)

I m d e m e n t i n g . agency T h e Ministry of Industry a n d T r a d e administers industrial a n d tradulg activities of Turkey. I t was established in 1920 as the Ministry of E c o n o m y a n d c o n t i n u e d to operate u n d e r different names in coordination o f other ministries until 1983, w h e n Ministry o f Industry joined with M i n i s t r y o f T r a d e forming i t s current structure.

Ministry of Industry a n d T r a d e i s responsible for ensuring development o f Turkish industry in a well-balanced manner w i t h the general economic policy structure. In addition, the M i n i s t r y i s responsible for the implementation o f e x p o r t a n d import plans in accordance with the annual objectives.

Main services a n d functions o f the Ministry are: a

Measurement a n d adjustment: Testing, inspection a n d authorization o f measurement instruments

Standards: D e t e r m i n i n g standards for industrial applications, authorization, inspection of these standards

Cooperative tradmg system: D e f i n i n g the actors a n d uses of cooperative societies

E u r o p e a n Union regulations a n d adjustment studies: D e f i n i n g a n d executing the r o l e a n d responsibilities o f Turkish industry a n d trade development in EU adjustment process,

Oil market supervision

Measurements a n d standards market supervision

Industry regstrations

D e f i n i n g a n d executing company establishment rules a n d regulations: Both for domestic a n d foreign investments

Protecting consumer rights: B l o c k i n g domestic a n d foreign bogus sales by executing the laws

Small industrial estates: D e f i n i n g the need for establishment of small industrial estates, credlting a n d supporting t h e m

Organized industrial zones: D e t e r m i n i n g the regions to establish n e w industrial zones, crediting a n d c o n t r o h n g the organized industrial zones

Industrial zones: Feasibllity studies, supporting the companies

Technology D e v e l o p m e n t Zones (TDZs): D e t e r m i n i n g the regions to establish n e w TDZs, crediting a n d controlling the TDZs

Supporting industrial R&D a n d i n n o v a t i o n projects

Main units o f the M i n i s t r y dealing with R&D a n d i n n o v a t i o n related policies a n d programs are the DG Industrial R&D, DG Industrial Estates a n d Industrial Zones, DG Measures a n d Standards a n d DG E u r o p e a n Union Coordination. K O S G E B a n d Turkish Patent Institute are dependent establishments functioning under the Ministry of Industry a n d Trade. Supports p r o v i d e d to companies by the Ministry are mainly p r o v i d e d through K O S G E B . T h e support programs run directly by the Ministry (through i t s DG Industrial R&D) include the Industrial Thesis P r o g r a m (San-Tez), R&D Products Investment Support, Patent Support, a n d M a r k e t i n g a n d Promotion Support Programs (the f o r m e r i s currently operational a n d other three programs w d b e initiated in 2009). DG Industrial R&D also manages t h e scheme for the establishment of technology development zones.

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Law o n the Establishment of Technology Development Zones4 a.

Objective & B a c k m o u n d

T h e L a w on Establishment o f Technology D e v e l o p m e n t Z o n e s issued in 2001 aims to foster establishment o f Technoparks in universities a n d / o r research centers. T h e measure was designed to bridge the gap between the industry a n d academic communities, a n d to increase the n u m b e r of companies conducting R&D as w e l l as raising the share o f business in R&D spending in Turkey. I t also stimulates the mobllity o f h u m a n resources for i n n o v a t i o n a n d research between the research c o m m u n i t y a n d business by providing incentives for researchers to work with private companies located in Technoparks. In order to achieve these objectives tax incentives are p r o v i d e d for companies workmg in these zones a n d the l a w allows academicians to work together directly with companies without any extra payments to the universities’ r e v o l v i n g funds. Discussions about budding technology development zones in T u r k e y started in 1980s. T h e SPO has been assigned by the related State M i n i s t r y with the duty o f initiating necessary studies on January

17, 1989.

In relation with the N a t i o n a l Science a n d Technology Policy, the m a i n articles of the 1997-1998 Implementation Agenda prepared by TUBITAK was composed o f the institutional a n d legislative studies for the establishment o f the N a t i o n a l I n n o v a t i o n System a n d the preparatory work required to issue Technology D e v e l o p m e n t Zones L a w . In addition, i t has been i n c l u d e d in the Seventh D e v e l o p m e n t P l a n with the statement of “legislative actions will b e taken to develop Technology D e v e l o p m e n t Zones in cooperation with local a n d foreign capital organizations o f universities a n d research institutions”. Then, the M i n i s t r y o f Industry a n d Trade conducted necessary studies a n d developed the Technology D e v e l o p m e n t Zones D r a f t L a w .

A n o t h e r attempt affecting the current Technology D e v e l o p m e n t Z o n e s L a w was the TEKMERs (incubators) established through the support o f K O S G E B . K O S G E B started establishing TEKMERs in cooperation with the universities at the beginning o f 1990s. Two incubators were established in cooperation with I s t a n b u l Technical University (ITU) a n d M d d l e E a s t Technical University (METU) in 1991. L a t e r on, the experiences gained from these incubators were used whde developing the Technology D e v e l o p m e n t Zones Law, w h i c h was put into force in 2001. A f t e r the l a w was put into force, MAM a n d METU Technoparks were announced as the f u s t two official technology development zones in Turkey. T h r e e Technoparks were supported u n d e r the World B a n k project (In)-Cyberpark in Ankara, ITU Technopark in Istanbul, a n d MAM Technopark in Gebze.

b. Target

~OUD(S)

T h e l a w provides incentives for three different target groups: (a) companies w h i c h carry out R&D activities in a TDZs get tax incentives, @) academicians are another target group since the l a w allows t h e m to work directly with companies a n d establish their own companies in TDZs w h i c h otherwise i s not possible; (c) the third group i s defined directly by the l a w as the management companies o f TDZs on behalf o f the MoIT.

Information provided in t h i s section i s taken from the M i n i s t r y o f Industry and Trade’s website (www.sanayi.gov.tr), Turlush Development Bank Report, “Examples of Technoparks from the World and Turkey”, 1999, and Presentation o f Ahmet Basalp, the manager o f Erciyes University Technopark o n “Technoparks in Turkey and Main Problems” 44

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M o d e o f finance

N o direct funding i s available for companies working in TDZs a n d all o f the current incentives are tax incentives. I n c o m e s out o f the R&D a n d software development activities o f companies in the Technoparks designated by the MoIT are exempted from i n c o m e a n d corporate taxes, a n d i n c o m e o f the R&D staff working in those companies i s exempted from all taxes untd the e n d of 2013. T h e measure also allows the companies to work directly with the academicians, w h i c h lowers their costs since there are no payments for the revolving funds o f the universities. T h e measure also encourages establishment of n e w technology based f m s a n d spin-offs as i t i s only possible for a n academician to start up a company in Technoparks established in accordance with the L a w . D i r e c t fundmg i s only available to the so-called management companies, w h i c h must b e established by the founders o f the TDZs before applying to the MoIT. A f t e r the zone i s declared as a TDZ by the MoIT, the administrator company m a y ask for support from the MoIT for construction a n d establishment costs o f the Technopark. E v e r y year MoIT negotiates with the SPO a n d funds the requesting management companies from the available budget in the form o f grant support.

d. Statistical data Ministry o f T r a d e a n d Industry collects yearly statistics from all the f o u n d e d TDZs about the predetermined performance indicators. Statis tics on the performance o f current TDZs are p r o v i d e d below

Table 20. D a t a on TDZs by year 2001 2002

2003

2004

2005

2006

2007

2008

TOTAL

169

318

500

604

802

890

N u m b e r o f personnel in TDZs

2,453

4,196

5,042

8,843

9,770

9,745

N u m b e r o f projects in TDZs

250

700

1,500

2,513

2,525

2,671

144

340

400

157

181

N u m b e r o f TDZs N u m b e r o f firms in

TDZs

Amount o f exports from TDZs ( d o n

US$)

N u m b e r o f foreign firms N u m b e r o f patents in

TDZs

Source: Mintsty ofhdustty and Trade

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T h e amounts allocated by the SPO for TDZs for 2004-2008 are given below.

B u d g e t Available for TDZs (thousand TRY)

2004 3,000

2005 3,500

2006 6,000

2007 6,900

2008 13,060

TOTAL 37,459

Administrative Drocedures

I n order to establish a TDZ, a founding committee i n c l u d m g at least one university or research center should b e present in the region. M a i n criteria include the level o f existent R&D a n d industrial potential in the region; capabllities of the cooperating university or research institute; technological fields to b e covered in R&D activities; a n d contributions to b e made in economic, technological, social a n d cultural developments o f the region a n d the country. I n order to show this potential the founding committee prepares a feasibility study accordmg to the f o r m a t p r o v i d e d by the MoIT. T h e potential o f the region i s assessed by a n evaluation committee, whose members are f o r m e d from MoIT, M i n i s t r y o f Public Works a n d Settlement, SPO, H i g h e r E d u c a t i o n C o u n c i l (YOK), TUBITAK, TOBB, T h e Union o f Chambers a n d Commodity Exchanges of T u r k e y (TOBB) a n d a m e m b e r from the private sector related to technology. T h e MoIT has chosen TTGV as the m e m b e r from private sector. T h e decision of the evaluation committee i s passed onto the C o u n c i l of Ministers for approval. O n c e the zone has been approved as a TDZ, the founding committee establishes a management company. T h e foundmg contract of the company a n d any changes to i t needs to b e approved by MoIT. T h e shares o f the company are distributed a m o n g the founding members accordmg to the a m o u n t o f their contribution to the company capital. T h e management company i s a n autonomous, profit seeking company whose main duty i s to manage the TDZ activities on behalf o f MoIT. T h e management company takes all the necessary investment decisions a n d assesses the companies applying to the TDZ for renting space. T h e l a w states that the unaffordable p a r t o f the a m o u n t necessary for acquiring the land, a n d establishment o f infrastructure a n d buildings can b e p r o v i d e d by the MoIT withm the l i m i t s o f the M i n i s t r y â&#x20AC;&#x2122; s budget reserved for regional development actions. A f t e r declaration o f the TDZ, management company m a y apply for grant support from the MoIT for the unavailable p a r t o f construction a n d establishment costs. T h e management company should request support for every investment year, by filling out the allowance sections in annual expenses table that i s p r o v i d e d by the M i n i s t r y . S u p p o r t requests for the following year are made until the e n d o f June. M i n i s t r y sends the requests to the SPO. M i n i s t r y assesses the support requests for acquiring land, a n d establishment o f infrastructure a n d buildings, a n d makes analysis a n d examination in the region if necessary. In addition to the financial support, the management company i s exempt from all kinds of taxes a n d fees at t h e establishment phase.

A p a r t from the management company, entrepreneurs who w a n t to take p a r t in the TDZs are exempt from the taxes o f their earnings from R&D a n d software production. T h e same i s applied for the earnings of employees o f those companies. T h e administrative company assesses whether the activities o f the companies are R&D or not. T h e approval of the management company i s submitted to the M i n i s t r y o f Finance in order to benefit from the tax incentives.

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Finally, as n o t e d above, academic personnel o f the universities can work in the R&D projects of companies located in TDZs or establish n e w companies in these areas. Both o f these actions require the approval of the university where the academician i s worhng.

Commentary

O n e o f the key challenges for Technoparks currently i s findmg the necessary finance for foundmg the TDZs. A c c o r d m g to the current legislation, participation o f universities i s necessary while applying for the approval o f a TDZ. Most of the current TDZ applications are headed by universities, where the university provides the l a n d for the TDZ a n d seeks for finance for the construction activities. Current legislation does not allow universities to transfer funds from their own budgets even for paying their own c o n t r i b u t i o n to the management company capital. Universities prefer putting their c o n t r i b u t i o n through the l a n d that they p r o v i d e a n d usually do not w a n t to loose their c o n t r o l to the management company. Partly, for this reason, although 31 TDZs were approved by the Ministry only 18 are known to b e active currently. T h e a m o u n t of support p r o v i d e d by the MoIT c o u l d b e expanded according to some participants. A n o t h e r concern i s a lack of adequate funds a v d a b l e for supporting tenants of TDZs for their R&D commercialization activities through h f f e r e n t measures such as early stage venture capital. T h e one exception i s the KOSGEBâ&#x20AC;&#x2122;s T E K M E R s where support i s a v d a b l e for newly established research-intensive firms. However, the current structure of TEKMER scheme does not allow TDZ management companies a n d KOSGEB to work together effectively. T h e tools for increasing the level o f university-industry collaboration a n d i n t e r - f i r m cooperation are limited. Both academicians a n d companies complain about not knowing w h a t each other i s doing. A n o t h e r concern expressed by tenants a b o u t the TDZs i s the high rental rates. Because of the tax incentives, universities are known o f seeing TDZs as a source of income. On the other hand, although evolving, the T e c h n o p a r k management companies do not p r o v i d e enough value-added services for the companies. For example, in m a n y cases, companies have to establish the infrastructures regarding c o m m u n i c a t i o n by themselves, or value-added services or activities for n e t w o r k i n g between firms are not provided. N e w l y established firms do not usually pay taxes since they cannot profit in the f i r s t years o f operations. As a result, TDZs are seen as places where only big established software companies can benefit from the incentives. T a x incentives are mainly used by software companies. O t h e r sectors cannot benefit from TDZs since necessary infrastructure (such as R&D labs) for different sectors are not available. I t i s also observed that, most o f the time, large companies m o v e their R&D departments to the Technoparks in order to benefit from the incentives. T h e synergies a n d collaboration between the researchers at the universities a n d f m s in Technoparks i s also very little. Recent R&D L a w N o 5746 (implemented by the MoIT) on Supporting Research a n d D e v e l o p m e n t activities o f enterprises, w h i c h was ratified by the Parliament on February 28, 2008, allows companies outside Technoparks to benefit from the tax incentives on the wages o f R&D personnel (for details, see the Background on I n n o v a t i o n a n d Technology Policies, System a n d Incentives). A c c o r d m g to the Law, 80% o f the i n c o m e tax calculated from the wages o f the R&D staff a n d 90% of the i n c o m e tax calculated through the wages o f the R&D staff with a doctorate degree wdl not b e subject to taxation whereas this rate i s 100% for all R&D personnel in technology development zones. T h i s should p r o v i d e some competitions to the TDZs. T h e only advantage for companies located in TDZs i s the tax incentive p r o v i d e d for the incomes out of the R&D activities.

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Industrial Thesis (San-Tez) Projects a.

Objective a n d B a c k m o u n d

T h e p r o g r a m was designed to bridge the gap between the industry a n d academic communities. I t aims to stimulate co-operation between firms a n d universities by supporting M.S. a n d PhD thesis, w h i c h were carried out by graduate level students in order to develop n e w technology-based products a n d processes a n d to transform the university research into innovative products a n d processes in line with the needs a n d requirements o f the industry. T h e p r o g r a m was launched in 2006 a n d the amended version of the A p p l i c a t i o n Regulation was published in the O f f i c i a l Gazette dated 5 July 2007. Projects with high scientific, technologic a n d economic benefits, sound performance criteria a n d high commercialization potential are eligible for support. T h e a i m of the p r o g r a m i s to Commercialize academic knowledge, Transfer academic knowledge into high value added technological products, Solve the problems of industry during p r o d u c t i o n process in cooperation with universities, Increase the competitive p o w e r o f innovative a n d R&D capacity o f Turkish industry,

D e v e l o p R&D a n d technological culture of SMEs.

b. Target Grouds) Universities can apply to the p r o g r a m with the participation of at least o n e private sector enterprise. T h e private sector enterprise should p r o v i d e a statement regarding how the results wdl b e used in the industry a n d that they d b e financing 25 percent o f the w h o l e project budget. c.

M o d e o f Finance

Eligible projects are p r o v i d e d with grant financed up to 75 percent o f the project budget. T h e rest i s financed by the private sector w h i l e test a n d laboratory services are covered by the universities where the projects are b e i n g carried out. T h e project duration c o u l d b e m a x i m u m 3 years. Additional 6 months c o u l d b e given according to the requirements o f the project.

d. Statistical D a t a T h e budget allocated for the p r o g r a m for 2007 was US$10 million. As o f 2008, 111 projects were supported. e.

Administrative Procedures

San-Tez project proposals are prepared in line with the i n f o r m a t i o n p r o v i d e d in the application guide a n d sent to the DG Industrial R&D by project manager a n d / o r the company. Already started projects can also b e applied to San-Tez. Pre-screening o f projects i s d o n e by the DG Industrial R&D according to the i m p l e m e n t i n g regulations a n d in line with the targets o f the program. Projects targeting investments a n d basic research, a n d those with incomplete documentation are not evaluated. Then, the projects are evaluated by the â&#x20AC;&#x2DC;Project Evaluation Groupsâ&#x20AC;&#x2122; f o r m e d by experts in the field of the application. I f necessary, project partners are i n v i t e d to the evaluation meeting in order to p r o v i d e further i n f o r m a t i o n on projectâ&#x20AC;&#x2122;s aim, research methodology, work program, scientific, technological, economic a n d social benefits expected from the project, success criteria, budget justification a n d commercialization potential o f the project. I f needed, experts in the Project

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Evaluation Group m a y visit the c o m p a n y b e f o r e the evaluation meeting. Project evaluation meetings are completed in m a x i m u m of four months after the date of application. Results of evaluation are i n f o r m e d to the applicant a n d project partners. Contracts are signed with the owners of selected projects.

R&D Support Program Based on L a w No.5746 I m p l e m e n t a t i o n of the R&D L a w has been initiated after the issuance of the regulations in July 2008 a n d applications are b e i n g received on R&D centers from large companies. These applications are reviewed by the ‘R&D Centers Auditing a n d Evaluation Board’ w h i c h i s composed o f five members (one from the MoF (Deputy DG of I n c o m e Policies), one from the MoIT (DG Industrial R&D) a n d three academicians who are experts on the field o f projects. First two members are permanent members of the B o a r d a n d academicians are changed according to the technological area o f the project.) A f t e r the fust review has been done by the Board, projects are evaluated by another three academicians who visit companies a n d prepare a r e p o r t based on the main selection criteria. Reports are t h e n reviewed by the B o a r d w h i c h makes the final decision on applications. T h e MoIT DG Industrial R&D also announced the ‘precompetitive R&D support scheme’ a n d “Technopreneurship support” covered by the Law. M a i n Features of the N e w R&D.L a w Features

Identified Issues

Big companies with over 50 full t i m e R&D

R&D discount :volume o f R&D)

100% o f R&D a n d i n n o v a t i o n expenditures made by technology centers’ enterprises, by R&D centers, in R&D or i n n o v a t i o n projects supported by p u b l i c administrations or international funds, i s

R&D discount :Increment of

H a l f the a m o u n t o f increase compared to previous Large companies with year in R&D a n d i n n o v a t i o n expendltures m a d e over 500 R&D personnel by R&D centers w h i c h e m p l o y m o r e than 500 full can use the incentive t i m e equivalent R&D personnel i s discounted (in addition to 100% o f R&D expenditures) in the calculation o f corporate earnings

Cax exemption for 3&D personnel

T h e i n c o m e tax o f R&D a n d support personnel working for technology centers’ enterprises, in R&D centers a n d for R&D a n d i n n o v a t i o n projects w h i c h are supported by p u b l i c administrations or international organizations or for those projects w h i c h are carried out by TUBITAK, those working in pre-competitive research projects a n d in those enterprises benefiting from Technopreneurship capital support will not b e paid at a rate o f 90% for those with doctorate degrees a n d 80% for others

R&D)

personnel can benefit from incentives. discounted in the calculation o f corporate earnings For SMEs, companies getting support from TUBITAK, ‘ITGV a n d K O S G E B (and Intl agencies) are eligible.

H a l f the a m o u n t o f social security payments social security iayments for R&D w h i c h i s required to b e p a i d by the employer o f

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Large companies with over 50 R&D personnel can benefit directly from incentives For S M E s , only those getting support from TUBITAK, ‘ITGV a n d K O S G E B (and Intl agencies) are eligible

Large companies with w e r 50 R&D personnel

personnel

R&D personnel workmg for technology centersâ&#x20AC;&#x2122; enterprises, in R&D centers a n d for R&D a n d i n n o v a t i o n projects supported by p u b l i c

Stamp tax exemption

Any documents to b e prepared for R&D a n d i n n o v a t i o n activities within the framework o f this

can use the incentives duectly For S M E s companies administrations or international organizations, or getting support from i m p l e m e n t e d by TUBITAK will b e covered by the TUBITAK, TTGV a n d KOSGEB (and Intl Ministry of Finance for five years. agencies) are eligible

l a w shall b e exempt from stamp tax

Technopreneurship P u b l i c administrations can p r o v i d e o n e t i m e support Technopreneurship capital support up to TRY 100,000 without collateral Pre-competitive research

Budgets created for pre-competitive projects will not b e treated as i n c o m e for the partner organization holding the special account on b e h a l f o f the other partners

T a x exemption for R&D incentives

G r a n t support p r o v i d e d for R&D activities of companies will not b e considered as i n c o m e if k e p t in a special fund

Only recent university graduates can benefit from the support

Support programs by MoIT to be introduced in 2009: Patenting Support Program; providing financial support for covering the costs of intellectual a n d industrial property rights (Patent, Utility model, IndustrialDesign) registration. Industrial R&D Investment S u p p o r t Program; providing a n investment support (Seed Capital) necessary for the patented e n d products of R&D projects. Industrial R&D Products M a r k e t i n g S u p p o r t Program; providing financial support for marketing activities for the high value added innovative products or p r o d u c t i o n methods.

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VI.

R&D TAX EXEMPTION BY THE MINISTRY OF FINANCE

Obiective a n d B a c k m o u n d

T h i s measure aims at stimulating investment in R&D by the industry through tax incentives. T h e companies have to account R&D expenses separately in their balance sheets to b e able to benefit from the incentive. I t i s i m p l e m e n t e d by the General Directorate o f Revenues o f the Ministry. Technology a n d I n n o v a t i o n Projects S u p p o r t Programs Division o f the Scientific a n d Technological Research C o u n c i l of T u r k e y (TUBITAK-TEYDEB) assists to the M i n i s t r y in implementation o f the scheme.

b. Tarpet Grouds)

All companies conducting R&D in T u r k e y a n d submitting required documents a n d i n f o r m a t i o n as proof o f their R&D expendtures are eligible for support. c.

M o d e of Finance

Based on the implementation principles a n d procedures have been set out in the General CommuniquC on Corporate I n c o m e T a x (Serial No. 1) published in April 2007 (Official Gazette no. 26482), tax exemption accounting to 100 percent of R&D expenditures o f companies i s applied. Expenditures eligible for exempting from tax are the cost of R&D personnel, overheads, materials, consultancy, depreciation, taxes a n d duties, a n d finance costs

d. Statistical D a t a N o statistics on the a m o u n t o f support p r o v i d e d through the p r o g r a m i s available. e.

Administrative Procedures

As a p a r t o f their e n d o f the year financial reports companies use their tax discounts regarding the R&D expenditures they have applied. At the same time, a technical a n d financial r e p o r t i s sent to the Ministry o f Finance. M i n i s t r y o f Finance then sends the reports to TUBITAK in order to get their expert opinion on whether the activities stated are R&D expendtures. For the project expenses that were already supported by TUBITAK, TUBITAKs opinion i s directly provided. For those costs, w h i c h were not a p a r t o f TUBITAK projects, TUBITAK carries out a n assessment very similar to the assessment procedure used for technology development projects support program.

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VII. a.

THE SUPPORT FOR R&D INVESTMENTS BY THE TREASURY

Obiective a n d B a c k m o u n d

T h i s measure aims at stimulating investment in R&D by the industry through providing VAT exemption for R&D investments.

b. Tarpet Grouds)

All companies conducting R&D in T u r k e y a n d s u b m i t t i n g required documents a n d i n f o r m a t i o n as proof o f their R&D expenditures are eligible for support. c.

M o d e o f Finance

T h e â&#x20AC;&#x2DC;Support for R&D Investmentsâ&#x20AC;&#x2122; scheme w h i c h has been i m p l e m e n t e d by the Treasury provides exemption from value-added tax a n d customs duty. I t provides interest support as w e l l for loans received from banks to purchase R&D equipment.

d. Statistical D a t a Based on the statistics published by the Treasury, no applications have been received for this scheme for the last 4 years. e.

Administrative Procedures

Companies apply to the M i n i s t r y o f Treasury for their R&D investments using the application forms available at the ministries w e b site. T h e M i n i s t r y of Treasury t h a n sends the application documents to TUBITAK in order to get their opinion on whether the investment will b e used for R&D applications or not. O n c e the decision for support i s p r o v i d e d a n exemption certificate b e issued to the company through w h c h they can p r o c u r e their equipments without paying VAT or duty fees.

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VIII.

STATE PLANNING ORGANIZATION (SPO) FUNDING FOR R&D INFRASTRUCTURES

Obiective a n d B a c k m o u n d

Big investment projects of public organizations are planned in the budget by SPO. Thus, large R&D investments o f universities are directly f u n d e d by SPO instead o f through TUBITAK funds. SPO finances projects in the following - areas: G u i d e d Research Projects: SPO a i m s to support R&D projects, w h i c h are carried out jointly by

universities a n d private a n d p u b l i c sector organizations. Minimum project budget must b e approximately US$667,000. T h e r e are priority fields identified for t h e project applications, such as ICT, defense a n d space technologies, etc. Research Infrastructure Projects: With t h i s support, SPO a i m s to finance modernization a n d i m p r o v e m e n t o f existing research infrastructure or establishment o f n e w infrastructures for a specific research activity within the priority fields. Researcher D e v e l o p m e n t Project: U n d e r this heading, SPO implements “Academician D e v e l o p m e n t Program” (PhD students who would become an academician are supported during their research in other countries), “Advanced Research a n d E d u c a t i o n Program” (graduate level student are supported during their studies a n d research activities) a n d “Industrial D o c t o r a t e Program” (graduate level students are jointly supported by universities a n d the private sector for their research activities w h i c h are defined according to the needs o f the industry). Tarvet Grouds)

Universities (both p u b l i c a n d private) a n d p u b l i c research institutes are eligible for infrastructure

support through SPO. c.

M o d e o f Finance

G r a n t support i s p r o v i d e d through SPO.

d. Statistical D a t a Institutions Universities Research Centers o f TUBITAK Total

2007 135 69 204

2008 138 70 208

2009 163 77 240

Adrmnistrative Procedures

SPO opens a call for proposals once a year. Universities apply through the project application forms p r o v i d e d by SPO until the e n d o f June each year. SPO forms a project assessment team with the inclusion o f people from TUBITAK. Projects are assessed by talung into account both the current projects being projects where universities or p r o v i d e d at the

supported a n d the targets defined in the five yearly development plans. For the support will b e p r o v i d e d the budgets are placed into the yearly budgets o f the research centers from the national budget according to the financial proposals beginning o f each year.

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Commentary

SPO support has been quite h e l p f u l in strengthening R&D infrastructure a t the universities. T h e support i s based on specific requests from i n d v i d u a l sponsors a n d on broader data available on the

capabllities on t h e universities a n d regional needs, rather t h a n on an analysis o f national priorities or a n a t i o n a l strategy.

112