M. Ü. iktisadi ve idari Bilimler Fakültesi Dergisi Yı/:2000, Cilt: XVJ, Sayı: !, Sayfa: 1-18
PERFORMANCES OF FOREIGN FIRMS iN TURKISH
MANUFACTURING INDUSTRY
Erhan ASLANOGLU*
Abstract
in this paper, performances of foreign firms are examined in terms of different indica-tors. Those indicators are productivity, capital-labour ratio, profitability, export propensity, patents and R&D expenditures. Foreign and domestic firms are compared for the first three of those indicators. Performances of foreign firms are examined on their own for the remaining three indicators. Our findings indicate no complete superiority of foreign firms. However, sec-. tora) analyses indicate predominance of foreign firms in some industries like transport equip-ment, rubber products, tobacco, electrical and non-electrical machinery. Particularly, the indi-cators like productivity, export propensity and R&D expenditures also testify the potential to be created by foreign firms on the development of the domestic economy.
This paper aims to examine the performances of foreign firms in Turkish ma-nufacturing industry. There will be two main sections in the analysis. In the first sec-tion, domestic and foreign firms will be compared in terms of different perfonnance criteria like productivity, capital-labour ratio and sales profitability. In the second section, performances of foreign firms will be examined on their own. The criteria to be examined for that purpose are export propensities of foreign firms, patents grant-ed to foreign firms and their R&D expenditures. Those criteria are chosen due to their significance on the economic growth of nations. It is widely accepted that both exports and technological capacity measured by patents and R&D expenditures play a major role on the economic growth of nations. Hence, It is expected that perform-ance analysis will help to understand whether foreign firms in Turkish manufactur-ing industry have signifıcant ownership advantages to be positively reflected on domestic firms. In the conclusion part, our findings will be assessed in the context of world integrated intemational production.
1) Comparison of domestic and foreign firms
Foreign and domestic firms are compared in terms of productivities, capital -labour ratios and sales profitabilities for the years 1993 and 1994. Indeed, a more
comprehensive comparison requires various financial indicators or firm specific <lata on wages, labour quality, R&D expenditures and so on. However, the only available <lata and few indicators derived from them at firm level is the annual publication of İstanbul Chamber of Commerce (ISO) on the 500 largest industrial organisations of Turkey 1• Since about half of the industrial production in Turkey is supplied by these firms, the sample seems to be enough to do comparison. In the regular survey of ISO, firms are ranked according to sales from production. This ranking of firms are given with information about their sales on production, sales revenue, gross value added, net equity, net assets, profit on balance sheet, exports and average number of employ-ees. In a separate list of firms given in alphabetical order, there are information about the composition of capital (shares of public, private and foreign sectors) and activi-ty codes of firms in three digit classification. In order to manipulate the <lata, the information about firms is sorted out with respect to their activities at three-digit clas-sification. These sorted <lata has been re-sorted in terms of composition of capital to see the information on foreign and domestic firms separately. The comparison is done both for the years 1993 and 1994. it is because completely different features of those years. The Turkish economy witnessed a substantial economic growth in the year 1993 whereas the year 1994 was a year of deep economic recession. That might have influenced the performances of firms. Hence, the comparisons for those two subsequent years are expected to allow us to derive more reliable results.
Performance indicators, productivity, capital-labour ratio and sales profitabil-ity are defined as follows;
Productivity: Productivity is calculated by dividing gross value added of firms to their total employment. It might be considered as the most important performance criterion of firms since it reflects the productive capacity, technology and organisa-tional structure of firms
Capital -labour ratio: This is defined as the ratio of net assets of firms to their total employment. This ratio gives an idea about whether firms use capital intensive or labour intensive techniques at their production units.
Sales profitability of firms is defined as the ratio of balance sheet profits to sales revenue. Profitability indicator might also reflect the technology, cost structures and organisational specific characteristics of firms.
Ali the above performance indicators calculated for domestic and foreign firms and the averages of both category ha ve taken for comparison2. The Table 1 shows the calculated values of indicators for the year 1993 both for domestic and for
-eign firms. For each performance indicator, there are three columns, (FF) for-eign firms, (FSDF) foreign size domestic firms and (TDF) total domestic firms, showing ISO surveys are conducted regularly for about 4000 industrial establishments every year since 1 967.
Initially, the <lata covered the largest 100 firms. The number increased to 500 in 1980. The <lata for the top 500 firms are being published in special issues of the joumal of ISO every year.
2 The definition of foreign firms might differ across studies. in this study, we accepted a common approach considering firms having at least l 5 per cent foreign share as foreign firms or subsidiary. This
is the definition mostly accepted in the publications of United Nations Centre on Transnational Corporations.
Prof Dr. ismail Özaslan 'a Armağan
the calculate'd values by sectors. Domestic firms divided into two different categories as (FSDF) and (TDF) since there are considerable differences among the sizes of domestic firms as well as between domestic and foreign firms. This is mainly sourced by the presence of some state economic enterprises with extremely high sizes. A direct comparison of foreign firms with total domestic firms might produce bias~d results since those extremely high sizes cause significant changes in the aver-ages of domestic firms. Moreover, it is well known that the performances of state economic enterprises ha ve been well below the averages in 1990s. Therefore, the averages of foreign firms (FF) ha ve also been compared with the averages of similar foreign size domestic firms ((FSDF). It is expected that the comparison of (FF) and (FSDF) will allow deriving more reliable results. When the productivities of domes-tic and foreign firms compared in 1993, it is seen that the productivity of foreign firms (FF) is greater than foreign size domestic firms (FSDF) in 78 per cent of the industries. The rate is 83 per cent when (FF) is compared with total domestic firms (TDF) suggesting that inclusion of state economic enterprises decrease the average productivity of domestic firms.
Table 1. Foreign - Domestic Firm Comparisons, 1993
Productivity K/ L Ratio Sales Profitability
(mill. TL (mili. TL) Sectors FF FSDF TDF FF FSDF TDF FF FSDF TDF 210- Mining 441.86 343.39 283.76 l 0.54 0.53 0.22 -0.08 -0.62 310-Food Man. 416.72 293.71 238.39 1.11 0.86 0.81 0.07 0.004 -0.19 312- Other Food 287 376.8 321.32 0.65 1.18 0.9 0.02 0.04 -0.12 3 13-Beverage 958.42 858.32 810.37 1.45 0.9 0.96 0.11 O.l l 0.07 314-Tobacco 376.32 256.52 241.99 1.77 3.06 1.95 -0.07 o O.Ol 321Textile 477.03 260.33 249.76 1.26 0.91 0.85 0.12 0.03 -0.04 322- Wearing Appar. 324.63 142.9 144.24 0.59 0.75 0.69 0.12 0.05 0.06 341-Paper 515.91 489.93 296.38 1.7 0.9 0.73 0.04 0.16 -0.09 351-Ind. Chemicals 703.7 598.69 483.38 0.95 1.42 1.86 0.09 0.09 -0.04 352-0ther Chem. 584.68 599.66 Same 1.12 1.4 Same 0.08 0.07 Same 354-Misc. Petrol. 1552.9 1086.0 973.93 3.64 1.72 1.28 0.06 0.14 0.09 355-Rubber 782.34 48.98 330.05 1. 16 1.9 1.43 O. 12 -0.55 -0.2 369-Non-metal. mineral 695.81 794.63 Same 1.75 1.82 Same 0.08 0.17 Same 371 -lron and Steel 476.27 488.96 473.97 1.43 2.01 1.96 0.08 o -0.03 381-Metal Prod. 702.85 463.77 503.73 1.02 1.35 1.24 0.21 0.06 0.09 382-Non-elect. machi. 546.5 427.8 378.24 0.65 l. 18 1.1 0.13 -0.09 -0.02 383-Electrical Mach. 497.15 471.57 Same 1.22 1.23 Same 0.08 0.08 Same 384-Transport equip. 796.72 450.72 Same 1.81 0.82 Same 0.17 0.07 Same
Source: It is calculated from the annual survey of ISO on 500 largest fırms, 1993.
On the other hand, the comparison of capital-labour ratios indicates that the capital intensities of both (FSDF) and (TDF) are greater than (FF). While the pre-dominance of (FSDF) to (FF) is at about 67 percent of industries, that ratio decreas-es 61 per cent when (TDF) and (FF) compared. This means that production units of foreign firms are likely to be more labour intensive. Higher productivities of foreign firms might arise from their organisational specific and managerial advantages rather than capital and technology intensive production units. When sales profitability's are compared, it is seen that (FF) have predominance in 67 per cent of industries
com-pared to (FSDF) and in 78 per cent of industries comcom-pared to (TDF). Understanding
the sources of higher profıts of foreign firms might require a firm specific balance sheet analyses since the profıtability indicators are defined in terms of balance sheet profıts. However, in general terms, it can be argued that lower cost of production or
. higher sales revenue leads to higher profıts. Assuming that there is no significant dif-ferences on the physical technologies of domestic and foreign firms, it can be argued that better marketing practices and organisational advantages source lower costs or higher sales.
in order to find out the relative divergence in performance indicators between domestic and foreign firms, divergence ratios are calculated for each indicator in line with (Blomström, 1989; 17). The divergence ratios are calculated by dividing
absolute difference between the performance of foreign and domestic firms to the performance of foreign firms. For example, relative divergence in the productivity's
of foreign firms (FF) and foreign size domestic firms (FSDF) is calculated by the
fol-lowing formula and its called, productivity difference 1, (PD 1 );
(PD 1) = (Productivity of foreign firm in sector j -productivity of domestic firm in sector j) / (Productivity of foreign firm in sector j).
Using the same formula, the divergence ratio between (FF) and total domestic firms (TDF) is calculated and called as (PD2). Hence, divergence ratios for capital-labour ratio and sales profitability are calculated by the same formulas and called
(KLDl), (KLD2) and (SPDl), (SPD2) respectively, where; (KLDl) = capital -labour ratio divergence 1, (KLD2) = capital -labour ratio divergence 2, (SPDl)=Sales prof-itability divergence 1, (SPD2) = Sales profprof-itability divergence 2. Divergence ratios by sectors are shown in Table 2 for the year 1993. That table tells us the significance of divergences between domestic and foreign firms by sectors. When the columns of (PD 1) and (PD2) are examined, it seems that there is a predominance of foreign firms particularly in the sectors of manufacture of food products, beverage industries, manufacture of textiles, manufacture of rubber products, manufacture of fabricated products except machinery and equipment and manufacture of transport equipment. The predominance of foreign firms tend to increase when (FF) is compared with (TDF) as lower productivity's of state economic enterprises drugs down the produc-tivity's of domestic firms. Examining columns (KLD 1) and (KLD2) suggest that cap-ital intensity of foreign firms is higher in mining industry, beverage industries, man-ufacture of miscellaneous products of petroleum and coal, manman-ufacture of paper and paper products and manufacture of transport equipment.
Prof Dr. ismail Özaslan 'a Armağan
Table 2. Relative Divergence Between Domestic and Foreign Firms, 1993
SECTOR PDl PD2 KLDl KLD2 SPDl SPD2 210- Mining 0.22 0.36 0.46 0.47 1.36 3.82 311-Food 0.30 0.43 0.23 0.27 0.94 3.71 3 12-0ther Food -0.31 -0.12 -0.82 -0.38 -1.00 7.00 313-Beverage lnd. 0.10 0.15 0.38 0.34 0.00 0.36 314- Tobacco Man. 0.32 0.36 -0.73 -0.10 1.00 1. 14 321-Textile 0.45 0.48 0.28 0.33 0.75 1.33 322-Wearing Appar. 0.56 0.56 -0.27 -0.17 0.58 0.50 341- Paper 0.05 0.43 0.47 0.57 -3.00 3.25 351 - lndustr. Chem. 0.15 0.31 -0.49 -0.96 0.00 1 .44 352- Other Chem. -0.03 ... -0.25 .... 0.13 . ....
354-Miscel. Pet. Prod. 0.30 0.37 0.53 0.65 -1 .33 -0.50 355-Rubber 0.94 0.58 -0.64 -0.23 5.58 2.67 369-Non-metal. mineral -0.14 .... -0.04 .... -1. 13 . ...
371 - Iron and Steel -0.03 0.00 -0.41 -0.37 1.00 1.38 381- Metal Products 0.34 0.28 -0.32 -0.22 0.71 0.57 382-Non-elect. mac. 0.22 0.31 -0.82 -0.69 1.69 1.15 383-Elect. mach. 0.05 .... -O.Ol ... 0.00 . ..
3 84-Transport Equip. 0.43 .... 0.55 . ... 0.59 . ..
Average 0.22 0.32 -0.11 -0.04 0.44 1.99
Sourcc: Our calculations from thc anıma] survcy of ISO on 500 largest fırms, 1994.
When the divergence of sales profı.tability's are compared, the most important
sectors in which foreign firms exhibit higher profı.tability are mining, manufacture of
food products, beverage industries, manufacture of textile, manufacture of rubber products, iron and steel basic industries, manufacture of fabricated products except machinery and equipment and manufacture of transport equipment. If the three per-formance indicators simultaneously considered, only the food manufacturing, manu-facture of textiles and manumanu-facture of transport eq\lipment industries appears with the predominance of foreign firms.
Nevertheless, performance indicators calculated for 1994 prevents us to deri ve
defınite results. Table 3. documents the values of performance criteria, productivity,
capital-labour ratio and sales profı.tability for 1994 defined exactly as in 1993. The
results suggest that the predominance of foreign firms (FF) to foreign size domestic firms (FSDF) in productivity decrease from 78 per cent to 44 per cent of the indus-tries in 1994. Similarly, the productivity comparison of (FF) and (TDF) suggest a decrease from 83 per cent to 61 per cent of industries in 1994. it implies that there is no permanent predominance of foreign firms or there is almost no difference between the productivities of foreign and domestic firms.
Table 3. Foreign - Domestic Firm Comparisons, 1994
Productivity Ki L Ratio Sales Profıtability
(mili. TL) Mili. TL.)
SECTOR FF FSDF TDF FF FSDF TDF FF FSDF TDF
210 Mining 1544 994.75 787.46 5.3 1.62 1.21 0.26 0.3 -0.6
311 Food 691.25 692.91 574.52 2.21 1.7 1.54 0.07 0.08 O.Ol
313 Beverage Jnd. 1780.63 2025.32 Same 3. 1 2.9 Same 0.14 0.2 Same
314 Tobacco Man. 1699. 19 324.68 579.96 8.3 1.4 1.8 0.09 0.03 O. 11 321 Textile 398.12 658.58 640.81 1.67 2.12 2.02 0.11 0.09 0.08
322 Wearing App. 182.91 362.25 Same 0.75 2. 11 Same 0.48 0.08 Same
341 Paper 1359.02 1119.69 878.75 3.83 2. 16 1.83 0.1 l 0.22 0.08
35 1 Industr. Chem. 1409.06 1697.6 1343.43 2.3 3.45 4. 19 0.09 0.2 0.14
352 Other Chem. 766.25 1317.86 Same 2.26 3.6 Same 0.06 0.1 Same
354 Miscel. pet. pr. 2332.86 2236.56 1575.49 7.61 4.35 3.06 0.06 0.2 0.13
355 Rubber 1303.24 -81.39 Same 2.93 3.74 Same 0.17 -1.06 Same
369 Non.met. min. 1894.35 1560.4 Same 3.55 4.73 Same o. 1 0.2 Same
371 Jron and Sıeel 669.23 1007.26 972.68 1.7 5.34 5.21 0.05 0.19 0.15 372 Non. fer. met. 150.98 507.08 559.47 1.92 2.26 1.95 -0.03 -O.Ol -0.09 381 Metal Prod. 1381.58 912.66 935.21 5.04 2.45 2.4 0.31 0.06 0.08 382 Non Elect. Mac 641.27 682.78 428.57 1.82 2.24 1.94 0.08 0.07 -0.77
383 Elecı. mach. 572.36 678.57 673.03 2.44 1.96 3.03 0.14 o. 1 0.07
384 Trans. equip. 1211.61 605.41 Same 3.62 1.68 Same 0.25 -O.Ol Same
Sourcc: it is calculated from the annual survey of ISO on 500 largest fırms.
Indeed, one has to be careful in interpreting the values for 1994 since it's a year of deep economic crises. Productivity's of fırms can be expected to be adversely affected by the crises of the economy. According to given defınition, productivity might decrease either by excess employment or decrease in gross value added. Firms could slow down the productivity decrease by reducing the level of employment. Domestic fırms might have applied this procedure more than the foreign fırms and therefore the decline in productivity of foreign fırms ha ve been more dramatic than the domestic fırms have. All at all, both domestic and foreign fırms faced with the same economic structure and particularly the comparison of (FF) and (FSDF) strong-ly suggest no signifıcant productivity differences between the two groups.
The picture is not different when capital-labour ratios compared. There is no considerable difference of capital-labour ratio in 1993 and in 1994. Foreign fırms capital intensity is greater than (FSDF) only at 33 per cent of the industries in 1994. This rate rises slightly to 39 per cent when (FF) and (TDF) compared. When sales
profıtability's are compared, it is observed that the profıtability of foreign fırms is greater than (FSDF) in 50 per cent of the industries. The ratio is 61 per cent if (FF) is compared with (TDF). These percentages suggest that there is a decline in the pre-dominance of foreign fırms in 1994 as far as sales profıtability is concemed.
The divergence ratios of perform.ance indicators also calculated for 1994 and documented in Table 4. The notations and the method of calculation are exactly the same with that of 1993. Calculated divergence ratios suggest that productivity pre-dominance of (FF) is particularly apparent in tobacco manufactures, manufacture of rubber products, manufacture of fabricated metal products except machinery and equipment and manufacture of transport equipment. If these sectors are compared with the sectors of 1993, it is seen that there is a defınite predominance of foreign
Prof Dı'. ismail Özaslan 'a Armağan
firms in all these sectors in both years. When the divergence ratios for capital-labour ratio is examined, the predominance of foreign firms are observed in mining, food manufacturing, tobacco manufacturing, manufacture of paper and paper products, manufacture of chemical products and petroleum, manufacture offabricated products and manufacture of transport equipment. lt seems that the relative capital intensity between domestic and foreign firms remained more or less same in two subsequent years
Table 4. Relative Divergence Between Domestic
and Foreign Firms, 1994
SECTOR PDI PD2 KLD KLD SPDI SPD2 1 2 210 Mining 0.36 0.49 0.69 0.77 -0. 15 3.31 311 Food 0.00 0.17 0.23 0.30 -0. 14 0.86 3 13 Other food -0.14 .... 0.06 .... -0.43 .... 314 Tobac. man. 0.81 0.66 0.83 0.78 0.67 -0.22 321 Textile -0.65 -0.61 -0.27 -0.21 0.18 0.27 322 Wear. App -0.98 .... -1.81 .... 0.83 . ... 341 Paper 0.18 0.35 0.44 0.52 -1.00 0.27 351 Indust. Chem. -0.20 0.05 -0.50 -0.82 -1.22 -0.56 352 Other Chem. -0.72 .... -0.59 . .. -0.67 .. . 354 Mis. Pet. pr. 0.04 0.32 0.43 0.60 -2.33 -1. 17 355 Rubber 1.06 .... -0.28 .... 7.24 . .. 369 Non-met. min 0.18 .... -0.33 ... -1.00 . .. 371 lron and Stell -0.51 -0.45 -2. 14 -2.06 -2.80 -2.00 372 Non-fer. met. -2.36 -2.71 -0. 18 -0.02 0.67 -2.00 381 Metal produc 0.34 0.32 0.51 0.52 0.81 0.74 382 Non elec. mac -0.06 0.33 -0.23 -0.07 0.13 10.63 383 Elect. Mac. -0.19 -0. 18 0.20 -0.24 0.29 0.50 384 Trans. equip. 0.50 . .... 0.54 . ... 1.04 . ...
Average -0.13 -0.10 -0.13 O.Ol 0.12 0.89 Source: Our calculations from the annual survey of ISO on 500 largest firms, 1994.
Finally, divergence ratios for sales profitability indicates predominance of for-eign firms in tobacco manufacturers, manufacturing of wearing apparel, manufacture of rubber products, iron and steel basic industries, manufacture of fabricated prod-ucts and manufacture of transport equipment. The most important change seems to be change in the predominance of foreign firms in food manufacturing industries. While the divergence ratio was 0.94 per cent in 1993, it decreased to -0. 14 per cent in 1994.
If the three performance indicators are considered together, only tobacco man-ufacturers, manufacture of fabricated products and manufacture of transport equip-ment are the predomitıant sectors of foreign firms. If the overall results of two sub-sequent years are examined, manufacture of transport stands as the sole sector at which foreign firms have definite predominance in all performance indicators. This could be very restrictive assessment. Assuming that the most important performance indicator is productivity, number of predominant sectors of foreign firms would increase to four by the addition of manufacture of rubber products and manufacture
of fabricated products except machinery and equipment and tobacco manufacturers. Few sectors, like manufacture of paper and paper products, would be added to this list by further easing restrictions. The case of the manufacture of textile, on the other hand, is ambitious. Though the foreign fırms have strong predominance in all per-formance criteria's in the manufacture of textiles in 1993, perper-formances of domestic
fırms signifıcantly exceed foreign fırms in almost all indicators in 1994. That con-siderable difference in a year time necessitates a further detailed research in this sec-tor to better understand the differences between domestic and foreign fırms. Comparison results suggest that there is no identifıed predominance of foreign fırms in technology intensive sectors like manufacture of industrial chemicals, manufac-ture of non-electrical machinery and manufacmanufac-ture of electrical machinery, apparatus, appliances and supplies.
Thus, it can be concluded that there are no considerable differences in the per-formances of domestic and foreign fırms with the exception of few sectors. There seems to be no difference between domestic and foreign fırms in traditionally strong industries, like textile and food manufacturing, as well as in technology intensive sectors, like manufacture of electrical machinery, apparatus, appliances and sup-plies3. However, that does not mean that the presence of foreign fırms could not ha ve any impact on the activities of domestic fırms. Performances of foreign fırms in their own might be promising. A bette:r assessment would be done after that analysis of foreign fırms.
2) Export propensities, patents and R&D expenditures of foreign fırms.
In this section, performances of foreign fırms will be examined in their own and results will be compared with the examples of other developing countries for some indicators. The performance indicators to be examined are; export propensities of foreign fırms, patents granted to foreign fırms and their R&D expenditures.
i) Export propensity of foreign firms
Export propensity can be defıned as the proportion of export sales in total sales
ofa fırın. According to this defınition, average export propensities of foreign fırms by sectors have been calculated using the sample of 500 largest fırms of Turkish manufacturing industry. The period of analyses is chosen as 1986 - 1994. The begin-ning period is chosen as 1986 since the year 1987 has been a year of signifıcant jump in the FDI inflows to Turkey. So the 1986 and the following years would tell us the real trend of export propensity. in order to calculate the average export propensity of foreign fırms, annual data on 500 largest fırms have been sorted with respect to com-position of capital4 . it is re-sorted with respect to activities of fırms for each year between the peri od 1986-1994. Then, total exports of foreign fırms in each sector are
As is noted, the case of textile is ambiguous. Further research is necessary.
4 Indeed, the dat~ on the composition of capital of 500 largest firms began to be published by the year 1988. Therefore, we determined foreign firms (having at least 15 per cent foreign share) in the 500 largest firms by checking each of them from the annual foreign capital reports of Undersecretariat of Treasury for the years 1986 and 1987.
Pro/ Dı: İsmail Özaslan 'a Armağan
divided to their total sales to find out export propensity by sector annuaııys. Calculated average values of export propensities by sector and average export
propensity of total foreign firms for each year is given in Table 56. If the annual
aver-age export propensities of foreign firms are examined from the last row, it is seen that
the significant change in export propensity occurs in the year 1994. Though the export propensity fluctuates around 1 O -15 per cent between the years 1986-1994, it
rises to about 24 per cent in 1994. If export propensities are examined by sectors, a
similar trend can be observed. Individually, export propensity has been higher in food manufacturing, manufacturing of textiles, iron and steel basic industries and non-ferrous metal basic industries. in recent years, export propensity have been
increasing in manufacturing of wearing apparel, manufacture of rubber products and
manufacture of electrical machinery, apparatus, appliances and supplies. The export
propensity of almost all sectors has substantially increased in 1994. Among them,
manufacture of transport equipment is noteworthy since it's one of the strongest
sec-tors of foreign firms. Export propensity in this sector increased from about 0.05 per
cent to O. 18 per cent in 1994.
Table 5. Export Propensities of Foreign Firms by Sectors, 1986 - 1994
SECTORS 1986 1987 1988 1989 1990 1991 1992 1993 1994
311- Food marıufacıuring 0.05 0.12 0.08 0.13 0.26 0.33 0.14 0.27
312- Manufacturc of food products not 0.17
clscven; classifıcd
313-Bcveragc induslrics .... 0.11 0.11 0.21 0.007 0.11 0.03 0.04 0.08
314-Tobacco manufactures 0.8 0.76 0.57
32 l-Manufacture of textiles 0.27 0.17 0.31 0.29 0.25 0.26 0.33 0.38 0.53
322- Manufacture ofwearing apparel, exccpt .... " ' . ... 0.37 0.56
footwcar
341- Manufacturc ofpapcr and paper 0.05 0.01 0.04 0.003 0.02 0.22 0.15 0.28
products
35 l-Manufacıure of industrial chcmicals 0.02 0.05 0.009 0.04 0.005 0.001 0.003 0.003 0.01 352- Manufacturc of other chcmical products 0.16 0.06 0.09 0.14 0.1 0.07 0.09 0.09 0.11 354-Manufacturc ofmisccllancous products 0.005 0.006 O.Ol 0.03 O.Ol 0.04 0.06 ofpetrolcum and coal
355-Manufacture of rubber producıs 0.11 0.1 0.13 0.16 O.l 0.27 0.28 0.26 0.45
369-Manufacture of other non-metallic 0.008 0.14 0.02 0.09 0.02 0.07
mineral producıs
371- lron and steel basic industrics 0.24 0.28 0.29 0.27 0.37 0.3 0.31 0.29 0.28
372-Non-ferrous metal basic indusıries 0.33 0.44 0.42 .... 0.28
381- Manufacture of fabricaıcd products 0.07 0.11 0.25 0.39 .... 0.08 0.06 0.5 l excepl machincry and cquipmcnl
382- Manufacture ofmachincry (excepl 0.02 0.02 0.03 0.04 0.03 0.03 0.09 0.07 0.23 clectrical)
383- Manufactun; of clcctrical machincry, 0.003 0.05 0.09 0.08 0.16 0.12 0.17 0.15 0.37 apparatus, applianccs and supplics
384-Manufacturc of transport cquipmcnt 0.06 0.03 0.08 0.11 0.05 0.06 0.05 0.05 0.18 385-Manufacıurc ofprofcssional scicnıific. 0.002 0.006 0.002 0.07 oplical. controlling goods
Avcragcs 0.12 0.11 0.13 0.15 0.11 0.10 0.14 0.13 0.24
Source: it is calculated from the annual survey of ISO on 500 largest firms, 1986 -1994 and annual
for-eign capital reports of General Directorate of Forfor-eign Investments in 1986 and 1987.
5 The values of sales were given in billion TL. These values have been transformed to $ values using the annual average exchange rates. Export values wcre already given in $ value.
6 For some years and sectors, cxport propensity values can not be calculated because there was no for-eign fırın in 500 largest fırms for these years and sectors.
This picture is promising to argue that foreign fırms tend to contribute to eco-nomic growth of Turkey through by exports. However, few points should be made clear about this trend. The main reason for the considerable rise in export propensi-ty in 1994 should be attributed to the contracting demand in domestic markets. Therefore, few more years necessary to understand whether the rise in manufacture of transport equipment sector is permanent or not. However, the rise in export propensity of sectors like manufacture of rubber products, manufacture of electrical machinery, apparatus and so on by early 1990s indicates a potential that the contri-bution of those sectors to economic growth would further increases. Whether the changes in these sectors is a part of new integrated international production systems or its specific to the structural developments in foreign firms operating in Turkey requires a sector level analyses. A similar potential would be present in traditionally strongest sectors, particularly in manufacture of textiles. Continues and consistent rise in export propensity of foreign firms in this sector since 1991 supports this argu-ment. Nevertheless, a comparison of export propensity values of foreign fırms in Turkey with the examples in other developing countries suggest that the perform-ances of foreign finns in Turkey is far behind the averages of counterparts in this respect. For example, average export propensity of United States affiliates in ali developing countries was 22 per cent and 33.1 percent in the years 1982 and 1989 respectively. Similarly, export propensity of Japanese affiliates was 32.8 per cent and 39.2 per cent for the same years (UNCTC, 1992;201). Considering that the export propensity in Turkey was about 15 per cent in 1989, it is evident that this ratio is far less than the averages of other developing countries7. As far as regional ratios are concerned, it is seen that the divergence is greater when Turkey is compared with Asia and Pacific and divergence is less wh.:n Turkey is compared with Latin America and Caribbean. While the export propensity ofU.S. affiliates in Asia and Pacific was about 56.2 per cent in 1989, it was about 21.4 per cent for Latin America. The ratios for Japanese affiliates are 40.2 per cent and 23.9 per cent respectively (UNCTC, 1992;201).
Thus, it can be concluded that the tendencies in recent years indicate a rising export propensity in some sectors. it suggests the potential that the contribution of foreign firms to economic growth through by exports increases if the trend contin-ues.
ii) Patents granted to foreign firms in Turkish manuf acturing industry
Empirical evidence suggests that TNCs tend to be the foremost producer of technology and technology is one of the major inputs of economic growth. That is why understanding the contribution of foreign fırms on the technological capacity of domestic economy is important. Patent statistics together with R&D statistics are considered to be the most important.proxy measure of technological activities (Patel and Pavitt, 1991; 214-217). Indeed, patents give more disaggragated <lata according
7 It should be noted that thc comparison is with the export propensity of foreign firms in Turkish man-ufacturing industry with that of US and Japanesc affiliates from ali sectors of dcvcloping countries. Howcver, this is the only available data and it may givc an idea about thc diffcrences.
Prof Dı: İsmail Özaslan 'a Armağan
to firm, technical field and geographical location and they capture technological
activities undertaken outside R&D departments. R&D is a rather more general indi-cator of technological activities. There may be two types of R&D expenditures,
namely deep R&D (know why) and adaptive R&D. While the former is directed to the creation of original innovations, the latter aims to adapt the transferred technolo-gies to the local conditions. Therefore the aggregated R&D data could not provide evidence on the centres of innovatory activities and other firm specific details men-tioned above. Patents give more accurate and detailed information on the new inno-vations. However, both measures suffer from not providing evidence on the non-physical aspects, that is organisational and managerial aspects, and software, such as blue prints and process specifications, of technology. As R&D expenditures capture the resources devoted to technological development, it is treated as an input indica-tor. On the other hand, results of R&D often find expression in patents, which can be viewed as an output indicator of technological development. All at all, patents and R&D are the main and only source of data readily available on the measurement of technology and its widely used in technology related literature.
It is also known that R&D centres of finns are mostly located in developed countries and patents of new innovations are granted in these countries. However, integrated intemational production systems of TNCs have started to incorporate some developing regions for more active purposes. It can be expected that R&D cen-tres of TNCs in developing regions could be developed at least for adaptive innova-tion purposes. Patents as an outcome of these adoptive innovainnova-tions can be expected to increase. Thus, patents granted to firms operating in a country could reflect the structure of technological capacity as well as the contribution of foreign firms to this capacity in a country. This has been investigated for Turkish manufacturing industry using the available data.
Turkish institute of patent has been established as a separate and independent unit in 1994. The institute is supposed to undertake all intemational obligations of Paris contract conceming patenting which is signed by Turkey in 1925. A unit with-in the mwith-inistry of with-industry and trade previously undertook that. It is argued that this unit could not work properly and that has been one of the reasons for the lack of con-fidence and limited patenting in Turkey (Yalçıner, 1996;36). Table 6. documents the basic patent statistics of Turkey for the peri od 1981-1995 compiled by the new insti-tute8. There are two main parts in the table; applications and patents granted. Surely,
what is important for us is the patents granted in Turkey. This is also divided as domestic, foreign and total. The column foreign shows the number of patents grant-ed to foreign firms appligrant-ed from abroad. Affiliates of those firms may or may not be operating in Turkey. The purpose of those firms is to protect their products, which are sold or are likely to be sold in Turkey. The column domestic shows the patents granted to firms operating in Turkey and individuals in Turkey. Firms operating in Turkey may be domestic or foreign. In order to find out the patenting of foreign International patent classifıcation is somehow similar to international standard industrial classifıcation of al! cconomic activities. The former includes almost all-manufacturing industries in addition to somc pure sciences likc physics. Therefore, thc <lata provided by Turkish institute of patents havc bccn dircctly used for our analyses.
firms, we first documented the firms and their products patented from the patent research report of the new institute for the period 1986-19959 _ ıo. Then foreign fırms detected from the annual foreign capital reports of General Directorate of Foreign capital. it is fınd that the total number of patents granted to fırms is about 150 between the peri od 1986-1995. Only 6 of those patents were granted to foreign fırms (firms having at least 15 per cent foreign share). The number rises to 8 if the two patents of the fırın Simtel (where only 13 per cent of shares belong to foreigners) is considered. That accounts only 5 per cent of the total patents granted. Both the per-centage value and absolute number of patents indicate a very limited and negligibJe patenting of foreign firms operating in Turkey.
Table 6. Patent Statistics of Turkey, 1981-1995
Applications Patents Granted
Years Domestic Foreign Total Domestic Foreign Total
1981 157 368 525 26 254 280 1982 126 385 511 42 304 346 1983 157 354 511 56 244 300 1984 153 447 600 66 344 410 1985 132 461 593 61 324 385 1986 175 551 726 56 227 283 1987 138 760 898 63 257 320 1988 154 746 900 53 319 372 1989 154 894 1048 31 450 481 1990 138 1090 1228 48 438 486 1991 136 1073 1209 60 632 692 1992 190 1062 1252 54 621 675 1993 168 1071 1239 52 740 792 1994 148 1244 1392 61 1138 1199 1995 178 1519 1697 66 663 729
Source == Turkish lnstitute of Patent, Unpublished Report, 1996
Most ofthe patents of foreign fırms are granted to mechanical devices in petro-leum and gas products sector (as, İpragaz and Aygaz). This picture may not com-pletely reflect the innovative activities of foreign fırms operating in Turkey. The
par-ent fırın might patent an adoptive innovation of an affıliate in Turkey or there may
be partial contribution of an affıliate, which is not patented in Turkey. Likewise, there may be applications of foreign fırms which has not granted yet. These are
possibili-9 The reason to chose 1possibili-986 as the beginning period is the same with the previous analyscs. The jump in FDI inflows in 1987 allows us to see the trend before and after this year.
1 O lt is find that only about 20 per cent of annual domcstic patents were granted to firms. Remaining 80 per cent were granted to individuals.
Pro/ Dr ismail Özaslan 'a Armağan
ties. The actual data at hand suggest that the contribution of foreign firms to techno-logical competence of Turkey is limited.
iii) R&D Expenditures of Foreign Firms
Finally, another indicator of technological competence, R&D expenditures of foreign fırms will be examined. As a matter of fact, R&D expenditures in Turkey is
very limited compared to developed and newly industrialising countries. The share of R&D expenditures was about 0.004 of GDP in Turkey in 1993 whereas the ratio was about 0.03 in some developed and newly industrialising countries in the same year. Moreover, only about 0.20 of the limited R&D expenditures of Turkey was done within the manufacturing industry (While the total R&D expenditure in Turkey was about 8.776.139 bill. TL, R&D expenditure in manufacturing was about 1.784.744 bill TL.).(SIS, 1995;15-21) Hence, what is going to be discussed is the contribution of foreign fırms to this very limited amount. There is no published data
on the R&D expenditures of foreign firrns. Fortunately, State Institute of Statistics (SIS) provided us sorne broad statistics for the years 1992 and 1993. The raw data provided by (SIS) has been rnanipulated and results for 1992 is surnmarised in Table 7.
Table 7. R&D expenditures in Turkey, 1992.
Total manufacturing establishments* (thousand) Total number of foreign manufacturing establishments Number of establishments having R&D activities Number of foreign establishment with R&D activity Total R&D expenditure
R&D expenditure of foreign fırms
Share of foreign firms in total R&D expenditure
5974 225 179 24 1 .168.278 bili. TL. 413.039 bili. TL. % 35 *Total number of establishmcnt indicates total number of firms responding to the
questionnaires of (SiS) with cmploymcnt 25 + pcrsons
Source: it is manipulated and summarised from unpublishcd (SIS) data.
In 1992, total number of rnanufacturing establishrnents surveyed with 25 or rnore persons engaged is about 5974. Only 179 of those fırms ha ve R&D activities.
Arnong these 1 79 firms, 24 of them are foreign fırms (having at least 15 per cent for-eign share). Since the total number of forfor-eign firms in the survey of SIS is 225, it can be suggested that about 1 O per cent of foreign firms ha ve R&D activities.
However, the share of foreign firms in total R&D expenditures of manufacturing industry is about 35 per cent (actual R&D expenditures of foreign fırms, 413.039 bill. TL, is divided to actual total expenditures, 1.168.278 bill. TL). The ratio 35 per cent suggests that the tendency of foreign firms to do R&D activity is considerably high-er than the domestic fırms. Total number of foreign firms, 225, accounts about 5 per
of total fırms make 35 per cent of the total R&D expenditures. Similarly,
24/179=0. 13 which is the share of foreign fırms in total fırms having R&D activity
realise 35 per cent of R&D expenditures. Those ratios strongly indicate the signifı
cance of foreign fırms in R&D expenditures of manufacturing industry. There is no
data on the content, quality and products of R&D expenditures. Sectoral distribution
of R&D expenditures suggest that majority of foreign fırms having R&D activity is
in the manufacture of electrical machinery, apparatus, appliances and supplies (about
30 per cent)''· Manufacture of transport equipment and manufacture of chemical
products follow this. it is normal as these sectors are technology intensive. However,
unless the nature of these R&D activities are known, nothing defınite can be said
about the impact and contribution of these activities on the technological competence of Turkish manufacturing industry.
When the data on R&D expenditures for 1993 is examined, a similar structure
is detected. The share of foreign fırms in total R&D expenditures of manufacturing
industry is about 31 per cent. Majority of fırms having R&D activity is also in
man-ufacture of electrical machinery and apparatus. Manufacture of chemicals and
man-ufacture of transport equipment follow this. The order of these two industries changes in 1993. Thus, it can be concluded that there is a predominance of foreign fırms in the R&D activities ofTurkish manufacturing industry. This means that there
is a potential to be contributed by foreign fırms on the technology input of Turkish
economy. Nevertheless, the absolute volume of R&D expenditures is relatively
small when compared with some developed and developing countries. Whether the
current structure of R&D activities contribute to the technological competence of
Turkey and stimulate domestic fırms to do more R&D activities requires detailed
sector and fırın level analyses.
Conclusion
Performance comparisons of domestic and foreign fırms indicate no complete
superiority of foreign fırms. Although the performances of foreign fırms had been
better in most of the industries in 1993, the difference seems to disappear in 1994.
However, sectoral analyses indicate relatively better performance of foreign fırms
compared to domestic ones in some sectors like manufacture of transport equipment,
manufacture of rubber products, manufacture of fabricated products except
machin-ery and tobacco manufacturers. When the performances of foreign fırms are
exam-ined on their own, export propensity of foreign fırms in Turkey is found considerably
less than the average of developing countries in general. Nevertheless, export propensity seems to be increasing in some sectors like manufacture of rubber prod-ucts, manufacture of electrical machinery and manufacture of transport in recent years. Export propensity has already been relatively higher in some traditional
sec-tors like manufacture of food and m·anufacture of textile. On the other hand, R&D
expenditures of foreign firms and its share in total R&D expenditures of Turkey is
greater than domestic fırms although the total R&D expenditure of Turkey is very
11 This approximate ratio is calculated from the long sectoral list of unpublished SIS <lata on R&D
Pro/ Dı'. ismail Özaslan 'a Armağan
limited compared to world averages. Most of the R&D activities of foreign firms are being done in manufacturing of electrical machinery and appliances, manufacture of transport equipment and manufacture of chemical products.
That indicates the potential of foreign firms in some sectors, which could con-tribute, to the economic growth of Turkey. Our recent econometric spillover analy-ses conducted for the manufacturing industry makes clearer the extent of this poten-tial. Results of the spillover analyses suggest that the presence of foreign firms increases the competition or allocative effıciency in the manufacturing industries (Aslanoglu, 1996). It is known that if the domestic economy is not strong and
com-petitive enough, foreign fırms could develop non-competitive business practices and
inhibit economic growth (Cantwell, 1989, 1994)12. It seems that this is not valid for Turkey. Domestic fırms could respond to foreign firms and hence competition is
increasing in Turkish manufacturing industry. Better performance, rising export propensity and relatively high R&D expenditures of foreign fırms in the above men-tioned sectors are likely to stimulate domestic firms to intemalize those advantages (tangible and intangible technologies)l3 of foreign fırms. However, this is a very recent tendency and it seems that has not been strong enough to create spillover effects to increase the productivity of domestic firms. Another result of our spillover analyses supports that argument. That is the presence of foreign firms does not explain the changes in the productivity of domestic firms or there is no notable con-tribution of foreign fınns on the productivity of domestic fırms.
An overall assessment of the findings suggests that Turkey is at the crossroad. Annual inflows and stock values indicate that the volume of FDI in Turkey is little when it's compared with some similar developing countries. Though its tended to rise, the share of FDI inflows directed to developing countries is signifıcantly less than that of directed to developed countries (the share of developing countries has just reached to one-third ofthe world total). On the other hand, the largest part (about 70 percent) of the inflows directed to developing countries is shared by 1 O country (UNCTC, 1995). Turkey is not among the top ten recipient developing country. The annual FDI inflows to Turkey is fluctuating around 1 billion $ in the fırst half of the l 990s. Annual inflows to the last two of the ten largest recipient country, Taiwan Province of China and Argentina were about 1.3 billion $ in 199414. It implies that Turkey would soon be among the top ten recipient developing countries. However, when the average annual inflow values directed to Mexico and Argentina (till 1994) which were about 4-5 billion $is considered, it can be argued that Turkey hasa long way to go.
12 Indecd, this is a part of argument of competitive international industıy approach in thc literature of intemationalisation of production. (Graham, 1978), (Pavitt, l 987) and (Cantwell, l 989) are the fore-runner of this approach.
l 3 Here, thc technology is defined in broad terms. It covers not only physical technology but organisa-tional and managcrial aspccts of the production process as well.
14 it should be notcd that the annual inflow to Argcntina continuously increased in l 990s reaching to about 6 billion $ in 1993. The inflow valuc of 1994 seems to be an exception. As far as the stock values of FDI is concemcd, the share of Argentina and other top ten recipient devcloping countıy become significantly greater than the share of Turkcy.
It can be argued that there are limits of integrated intemational production
sys-tem ıs. TNCs can not establish identical highest technology production systems
everywhere. The nature of R&D activities, limitations on the qualifıed staff,
strate-gies of fırms and cost of production may not allow identical production systems. A
firm has to consider the life span ofa technology and its cost of production in
invest-ment decisions. The intensity of technological competition makes fırms to update
technologies even if the technology is not obsolete in the most developed locations. Shifting the replaced technologies in order to lower the cost of technology to other locations constitutes the essence of integrated international production systems. Whether a country receives latest technologies or more obsolete technologies through by FDI depends on the technological competence or locational advantages ofa country (Cantwell, 1989). The productivity's and incomes of developed and a group of newly industrialising countries tends to converge in the recent decades. The productivities and incomes of developing as well as less developed countries have been converging among themselves too. (Baumol, 1986: 1072- 1085) Each group of countries can be considered as convergence clubs. Average productivity's particular-ly in developed and developing countries convergence clubs have been rising. However the divergence or the productivity gap among convergence clubs is increas-ing as well. Many less developed countries mostly located in Africa have been expe-riencing negative growth rates fora decade and half (UNCTD, 1994; 10). Similarly, there are developing countries, which had negative growth rates and sharply fluctu-ating economic performance for about two decades. Though the average income
tends to increase in developing countries, this has not been a straithforward process
and covered all developing countries. Hence, it can be concluded that it is possible only for individual countries to catch up and join the highest convergence club. lt is a long run process and necessitates the implementation of determined policies fos-tering the productive and technological competence and keeping the stabilisation of the country. Those candidate countries to catch up become apart of integrated inter-national production system and therefore the contribution of FDI to such a long-term process increases gradually. While the latest technologies replaced by a newer one in developed locations is shifted by TNCs to those candidate countries leading them to integrate the intemational production system more and more, other developing and less developed countries receives more obsolete technologies. The contribution and spillover of FDI on candidate countries becomes greater whereas the contribution on
other developing and less developed countries will be limited. If the domestic
econ-omy is not strong and competitive enough, non-competitive business practices of TNCs and crowding out caused by FDI in domestic economy may inhibit the eco-nomic growth. As the extent of integrated international production increases, more
developing countries could benefıt from the presence of FDI. This would not be a
15 ln thc intcgratcd intcmational production system, TNCs arc trcating ali activitics across thc en tire
valuc chain as potential candidates for bcing pcrfoımcd by onc or more affıliatcs. That allows TNCs
to coordinatc a growing number of activitics in a widcning array of locations. Companics arc
arrang-ing diffcrcnt functions " ... such as R&D, procuremcnt, accounting, data cntry and proccssing, as wcll
as activities for spccific products likc component manufacturing and asscmbly - in a way that rcquircs
closc links bctwcen parent firms and forcign affıliates, among foreign affiliates and thcmselvcs and
Prof Dr. isnıail Özaslan 'a Armağan
one-sided phenomenon. Both rising technological competıtıon among TNCs and
appearance of new candidate countries implementing determined policies to catch up highest convergence club will determine the extent of integrated intemational pro-duction.
All at all, apart from developed and newly industrialising countries, it seems
that some middle-income developing countries could add to gains from FDI depend-ing on the locational advantages and policies implemented in the country concemed. Those middle-income countries from Latin America, Central Europe to Asia could
catch up the convergence club of developed countries. The number of developing
countries receiving significant FDI might increase to 15 or at most to 20 in the fore-seeable future due to limitations of the integrated intemational production system. Those candidate countries to catch-up highest convergence club are likely to be among that 15 or 20 developing countries and obtain maximum benefit for their growth process. TNCs have a potential to contribute to the economic growth of developing countries, but it seems to be feasible only for number of developing
coun-tries and for almost all developed councoun-tries. The results of our analyses suggest that
Turkey is not among that number of developing countries, but it has a potential to be among those countries in the near future. How that potential could be activated is a matter of policy to develop locational advantages which would be the subject of another article.
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