Factors Affecting the Imported Input Use in Manufacturing Industry

success in the export increase of economy, the current account deficit continues to deteriorate. This situation shows that the production and export structure of Turkish economy depends on the import goods. While the share of import input in total production was 57 % in 1996, it increased to 69 % in the period of 2000s, and 72 % after 2010. In other words, the ratio of the added value in the production is only 31 % in 2006 and 28 % after 2010. When we look at the sub-items of the manufacturer sectors that have high share in the export of economy, we see worse picture than above table. The import input rate of electronic is 74 %, iron-steel 76 %, non-ferrous metal 76 % and automobile 66 %, (Türeli, 2008; 15).

128 There are many factors to guide companies to provide the intermediate and investment goods from abroad. We can categorize the reasons of imported input use as structural and conditional reasons. The structural reasons are the globalization, quality of goods, technologic transfer, widespread of multinational companies and organization of the firms.

The conditional reasons are exchange rate changes, custom duties, tax incentives and foreign credits (Saygılı at al, 2010;73-120).

The absence or inadequate domestic production of raw and intermediate goods is the main reason of the imported input use in Turkey. For example, the energy sector is completely dependent on the imported input because the production of crude oil, natural gas, and other energy resources are very limited in Turkey and the production level cannot meet the total demand of the country. Like energy sector, the transportation sector is also highly dependent on the imported input, because some parts of the automobile, such as motor and electronic equipment, are not produced in Turkey and in order to create final production, the sector has to import those commodities. In other words, domestic contribution of the transportation vehicles is very low or at an insufficient level. Therefore, lack of domestic production of the raw materials and intermediate goods are forcing the firms to use imported inputs in Turkey. In some kind of goods, such as electronics, the imported inputs may contain nearly 80 % of the total cost of that production. In this case, the montage industry’s contribution may turn negative due to the domestic consumption in Turkey (Saygılı at al, 2010;73-120).

There is a linear relationship between the quality of goods and intermediate goods, used for the production of final goods. Because of the rapid globalization, today the consumers can buy high quality goods by comparing the quality of them, even if they are not produced in their country. With the development of the high quality standard and competition in the global area, the firms pay attention to use high quality intermediate goods in their production. According to the survey result, this factor is the second important factor for the Turkish firms to use import inputs in their production (Saygılı at al, 2010;73-120).

Because of the domestic and foreign competition, the firms try to produce their goods at a cheapest price. Therefore, when the firms find the same quality goods at a cheaper price,

129 they tend to use import input in their production. With the integration of China, India and other South-East Asian countries to the global system, the countries can find cheaper goods in these countries. The organization of the companies and exchange rate also contribute to this situation. When the money appreciate, the foreign goods becomes relatively cheaper than the domestic ones and all these factor force the companies to use imported inputs (Saygılı at al, 2010;73-120).

Apart from above mentioned factors, the organization of the companies and foreign credit facilities are very important factors that affect the decision of companies in their production. When the multinational companies make investment in one country, they take into account the highest profit facilities. Therefore, if a countries’ labor cost is low, they produce the goods, which needs more labor power, in that country. Like labor cost, the multinational companies may make investment in a country to take advantage of their cheap raw material cost. These and similar reasons develop the vertical integration and specialization of the companies in their production (Saygılı at al, 2010;73-120).

In fact all of above factors are affected by each other. Globalization, widespread of multinational companies, exchange rates, lack of or abundance of raw materials, price and quality of the goods are interrelated with each other and a change in one of the factor directly or indirectly affects the others. Therefore, in contemporary world, the production process is internationalized and the firms are organized in a vertical specialization model.

Turkey, like being in other countries, is also affected from this development and its production and economic structure is designed according to this development. However, the main problem of Turkish economy is the supply-demand disequilibrium. In other words, rather than cheaper price of the foreign goods, the supply-demand disequilibrium affects the country.

This situation is also felt in production structure. In order to produce goods and services Turkey has to import raw or intermediate goods because Turkeys’ raw and intermediate goods production cannot meet or support its demand. In some categories, such as oil, natural gas and energy, the natural resources of the country is not sufficient. In the period of economic expansion, this deficiency is felt very severely and while the economy is

130 growing, the import and current account deficit is also extended. In order to get sustainable development and economic growth, Turkey has to overcome this structural problem (Saygılı at al, 2010;73-120).

To close the foreign deficit, the performance of the export is very important. However, when the import input dependency is high, the contribution of the export becomes very limited and in some cases it turns to the negative because of the domestic consumption (Saygılı at all, 2010; 120).