June 2009

Document of the World Bank

Report No. 48755-TR

TurkeyNational Innovation and Technology System

Europe and Central Asia Region

Recent Progress and Ongoing Challenges

Report N

o. 48755-TR

Turkey N

ational Innovation and Technology System

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Abbreviations and Acronyms

B E E P S BTYK CEM CMB CPS EBRD EPO ERA EU E U - 1 5

E U - 8 E U - 2 5 EU-27 FDI GDP GERD HR K O S G E B ICA ICs ICT IPR I S 0 ITP KE M&E MAM MARA M I S MoF MoIT M S I M S T Q OECD N I S NGO R&D RDI S&T S M E S 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 European Research 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 jo ined 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 Smal l and Medium Industry Development Organization Investment Climate Assessment Investment C h a t e Survey Information and Communication Technology Intel lectual Property Rtghts International Standards Organization Industrial Technology Pro ject Knowledge-based Economy 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 Indus t r y and Trade Mdlennium Science Init iat ive Metrology, Standards, Testing and Quality Organization for Economic Cooperation and Development Nat ional Innovation (and Technology) System N on-Governmental Organization Research and Development Research and Development Institution Science and Technology Smal l and Medium-Size Enterpr ises State Planning Organization Turhsh Atomic Energy Authority Turhsh Research Area Technology Development Financing Center of Technology Building Total Factor Product iv i ty Union of Chambers of Industry and Commerce

Abbreviations and Acronyms (Cont’d.)

TPE TTGV TRY T S E TTO TUBA TUBITAK TURKAK UFT UME U S A M P us UT VAT vc VCITs YOK

Turkish Patent Inst i tu te Technology Development Foundation of Turkey New Turkish Li ra Turhsh Standards Institution Technology Transfer Off ice Turkish Academy of Sciences Scientif ic a n d Technological Research Council o f Tu rkey Turkish Accredltation Agency Undersecretariat o f Foreign Trade National Metrology Ins t i t u te University-Industry Joint 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 . Introduction .................................................................................................................................................. 1

Turkey’s National Innovation System ........................................................................................................ 4

B . Intellectual Proper ty Rights Regime ......................................................................................................... 10 C . Collaboration between the Enterprise and Research Sectors .............................................................. 12 D . Innovation Finance: Venture Capital and Business Angels ................................................................. 15

Technology Upgrading and Innovation by the Enterpr ise Sector ..................................................... 20

B . International Technology Transfer .......................................................................................................... 23 C . Innovation and R&D at the Enterprise-Level ....................................................................................... 25

Summary and Conclusions ....................................................................................................................... 29

11 . A . Overview of Institutions, Policies and Programs ..................................................................................... 4

E . Human Resources: Sk i l l s and Education ................................................................................................ 1 8

A . Technology Adoption and Diffusion ..................................................................................................... 20 I11 .

.

D . Possible Causes for Low Technology Diffusion ................................................................................... 26 E . Enterprise Case Studies ............................................................................................................................. 27

IV . V . References ............................................................................................................................................... 3 2

ANNEXES

Annex I: Key Actors o f the National Innovation System ......................................................................... 33 Annex 11: Main Implementing Agencies of Public R&D Suppor t Programs ......................................... 41 Annex 111: Policy Measures in the National Innovation System ................................................................. 43 Annex IV: Summary of Main R&D Related Legislation .............................................................................. 52 Annex V: Innovation Suppor t Programs in Turkey .................................................................................... 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 ........................................................................................... 23 Figure 7: Distribution of FDI by Sector, 2005 .................................................................................... 23 Figure 8: International Comparisons of Firms Developing and Upgrading Products ......................... 25

TABLES

Table 1: Public Expenditures on Innovation and Technology Programs ...................................................... 6 Table 2: Public R&D Suppor t to Turkish Enterprises ...................................................................................... 6 Table 3: Key Findings from Case Studies of S M E s in Labor-Intensive Sectors ......................................... 27

Acknowledgements

T h i s repo r t was prepared, in col laboration with the Turkish Government , by a World B a n k T e a m l e d by Paulo Correa (TTL) and compr ised by Vinod K. Goel, Chris J. Uregian, S i r i n Elci, I r e m Guceri, I a n Cooper, A lasdak Reid, I hsan Karatayli, D o h a Cebotari, Naotaka Sawada and D o n a t o de Rosa. T h e repo 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 and Technology System (NIS) Assessment” Study be ing conducted jointly by the Turkish Governmen t and the World Bank. T h e repo r t reviews the recent progress a n d ongoing challenges of Turkey’s Na t iona l I n n o v a t i o n a n d Technology System a n d identi f ies potent ia l areas for fur ther analysis.

Special thanks are g iven 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 suppor ted the team in the preparat ion and comp le t i on of t h i s report. T h e team i s grateful to Car l D a h l m a n (Georgetown University), M a r k A D u t z (World Bank), a n d Maureen McLaugh l tn (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 to address this request. It focuses on the recent progress and ongoing challenges ofthe Turkish NIS, p a r t i d r b in terms of developing innovation and techno logv policies that enable sustainedgrowth andjob 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 ski l ls, innovation etc) to raise labor productivity, which i s currently at less t han 40% o f the EU- 25 average (or 29% of the 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 eff ic ient processes and lower costs of production for new (or higher quality) products, thereby raising overall levels of 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% of GDP; (i) raising the share o f privately real ized R&D from 29% to 60% of t h e total; (ii) expanding the number of researchers from under 24,000 to 80,000; and (iv) augmenting the internet penetration rate from 20% to 60%.

4. Accordingly, public expenditures on 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 Scientif ic and Technological Research Council of Turkey (TUBITAK) alone for 2005-08. Total R&D expenditures as a share of GDP in Turkey rose from 0.67% in 2002 to 0.76% in 2006. T h i s trend i s expected to continue.

5. In addition, fourteen new policy measures and programs have been introduced. Most of these measures a im 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 of the intellectual p roper 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 be addressed. These 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 product iv i ty 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 pub l i c a n d private f m s ) also increased significantly by 10% to reach 46% of to ta l expenditures.

8. However, R&D i s largely performed by Universities and Research and Development Institutes (RDIs) with public financing. Despi te steady increases, the enterprise sector per formed a smaller share o f R&D in Turkey (37%) than the OECD average (62.5%), a n d foreign f inancing of R&D i s m u c h l o w e r than in emerging economy comparators. Risk-aversion may b e one reason against greater R&D financing by the enterprise sector, along with the possible “crowding-out” effect of publ ic ly f inanced R&D due to a scarcity of researchers. T h e n e w R&D Law, enacted in February 2008, i s expected to increase both fore ign a n d local private par t ic ipat ion in R&D activities.

9. Turkey’s intellectual property rights framework i s broadly aligned with the EU but implementation needs to be strengthened. Notw i ths tand ing certain divergences, the IPR legislative f ramework i s in h e with EU standards, yet imp lemen ta t i on a n d enforcement m o s t notably in the area of indust r ia l p roper t y rights, needs to b e strengthened to reach EU levels. T h i s requires legislative changes, capacity building of key institutions (IP courts, Turkish Patent Institute) and greater cooperat ion between the public, private and non-governmenta l 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 col laboration between publ ic research institutes, universit ies a n d the enterprise sector contr ibutes to the low product iv i ty of Turkey’s N I S . O n e cause i s the regulatory f ramework that creates disincentives for researchers to o f fe r consult ing services to enterprises (university revo lv ing fund regulations) a n d to establish start-ups, a n d for universit ies to commercial ize research (distribution of royalty rights). In addition, the quanti ty and quali ty of m a n y impor tan t N I S intermediaries (technology transfer offices, venture capital) that facilitate col laboration between industry and research institutes can b e raised and the Turkish G o v e r n m e n t i s ma lung efforts in t h i s direction, most no tab ly with the expansion of technology transfer offices in m a j o r universities.

11. Scarcity o f human capital i s another critical bottleneck. There are 2.0 researchers p e r thousand of to ta l employed in Turkey, w h i c h i s l ower than the EU-27 average of 5.8. O n e of the m a i n reasons for this scarcity i s a brain-drain that claims a significant share of Turkish researchers who reside abroad upon complet ion of their PhDs. To tackle this problem, TUBITAK, the M i n i s t r y o f Na t iona l Educa t ion and the M i n i s t r y of Industry a n d T rade have developed programs, and Governmen t efforts to modern ize the h igher education system are in place.

12. A lack of innovation finance due to the underdevelopment o f the venture capital (VC) and business angel sector i s another constraint to the performance of Turkey’s N I S . There are only three Venture Capital Investment Trusts in Turkey, with annual investments l ower than US$lOO d o n . T h e regulatory f ramework a n d government incentives to the financial sector constrain development of these services. In addition, the demand (deal flow) for VC and business angels’ services i s also low, fur ther 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 and equipment, rather than developing and adapting their own technology. In addltion, fewer Turkish firms repor t to have purchased n e w machinery in the preceding year than those in comparator countries. In 2005, 42% o f firms in Turkey repor ted the acquisit ion o f n e w machinery, w h i c h i s a l ower technology acquisit ion rate than in many other emerging economies such as B raz i l (68%).

14. Technology transfer from abroad remains relatively limited as well. T h e n u m b e r of 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 lower in Turkey than comparator countries. Furthermore, a l though Fore ign D i r e c t Investment (FDI) inflows have increased significantly in recent years, manufactur ing sectors did not get the largest share o f t h i s increase and levels o f investment seem m u c h lower than in most n e w EU member states. There i s also scope to increase g lobal knowledge transfer to Turkey v ia the large Turhsh Diaspora.

ii

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 in t roduc ing a n e w product, or upgradmg their products, remain b e l o w those of comparators such as Brazil, Thailand, Chi le a n d Poland. On the other hand, pr ivate R&D intensity i s similar to comparators: expendltures on R&D as a share of 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, a long with addit ional costs incurred by Turhsh firms such as high prices a n d inconsistent supply of energy as w e l l as high tax rates, negatively affect the capacity o f enterprises to innovate a n d adop t technology, hurting their global competiveness.

17. These findings suggest areas for further analysis. At the strategic level, there are impor tan t questions related to the emphasis o f the nat ional i nnova t ion po l i cy f ramework a n d the interaction between NIS institutions. These questions include: (i) I s the balance between pub l i c support for R&D in industry vs. a g c u l t u r e optimum, given the large share of emp loymen t in agriculture and service sectors in Turkey?; (ii) Could the recent surge in pub l i c R&D expenditures b e “crowding-out” private R&D?; a n d (iii) A r e there mechanisms employed in N I S systems in OECD economies that cou ld b e used in Turkey to he lp i m p r o v e po l i cy coord inat ion a n d enhance communicat ion and knowledge sharing between the d i f ferent 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 , usefu l insights c o u l d b e gained from the establishment o f monitoring and evaluation mechanisms for key programs, using techniques c o m m o n in OECD economies. T h e key programs that cou ld b e assessed inc lude pr ivate R&D suppor t schemes (tax incentives, soft loans and m a t c h n g grants), Technopark incentives, a n d technology diffusion programs. In addltion, further analysis of f irm-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 innova t ion a n d technological upgrading in the Turkish enterprise sector, a n d thus improve fu ture pub l i c po l i cy 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 of its National Innovation System in order to help guide i ts ongoing efforts to deepen the role of innovation (and i ts performance) in the Turkish economy. T h e World Bank /Tu rkey Country Partnership Strategy (CPS) 2008-201 1 identif ies the enhancement o f technology adop t ion and innova t ion as a key priority for engagement within the context of improving competit iveness a n d employment opportunit ies. U n d e r the CPS framework, a series of analytical studies are planned, i nc lud ing one focused on technology adoption, R&D a n d innova t ion 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 rov ide crit ical input to i t s efforts in this area a n d t h i s Repor t has been prepared in the context of 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, Tu rkey will need to a m o n g o the r things raise l abo r productivi ty, w h i c h i s currently a t less than 40% of the EU-25 average (or 29% of the US). As indicated in the World Bank‘s 2007 Tu rkey E c o n o m i c M e m o r a n d u m (CEM), raising labo r p roduc t i v i t y wdl require increasing to ta l factor product iv i ty (TFP) and the amoun t o f capital pe r worker . T h i s , in turn, entails the challenge of raising investment levels wh i l e addressing the savings-investment gap a n d Turkey’s structurally high current account deficit. Despi te strong economic growth since 2002, employment has not been increasing commensurately. Generat ing m o r e a n d bet ter jobs i s the pr inc ipa l channel for distributing the benefits of economic growth to Turhsh citizens. E m p l o y m e n t g rew by a n annual average o f about 0.7% in 2002-2006, considerably l o w e r than the requi red level to keep pace with the r a p i d expansion o f the working age populat ion. Turkey’s employment rate in 2006 was 46%, b e l o w al l EU countries and the Lisbon Agenda target of 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 compr ised of a n u m b e r of fundamental factors that determine the pr ivate sector’s capacity to invest a n d i m p r o v e productivi ty. These factors include: macroeconomic stabdity; sound legal institutions a n d ru le of l a w that ensure predictable contract a n d p roper t y rights enforcement; a n d compet i t ive p r o d u c t markets support by strong compe t i t i on a n d open trade policies. A regulatory env i ronmen t a n d tax regime that are not over ly burdensome also p lay an i m p o r t a n t ro le on f m s ’ incentives to invest. O t h e r impor tan t factors inc lude eff icient f inancial markets that a l l ow firms to get access to funding for their ventures a n d good infrastructure that enables fEms to connect with their customers and suppliers and 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, f lexible l abo r market institutions that a l l ow f m s to respond to marke t changes wh i l e he lp ing workers deal with change and a skil led work fo rce are essential for f m s to adop t new, m o r e product ive technologies.

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

A Better Investment Chate for Everyone,” World Development Report 2005, World Bank, Washington DC I ( <

For economic theory and empincal evidence of 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)

1

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 eff icient processes and lower costs of p roduc t i on for n e w (or h igher quality) products, thereby raising overal l levels o f productivi ty. F igure 1 shows a conceptual f ramework that defines i nnova t ion and technology diffusion and depicts their relat ionship with higher p roduc t i v i t y in an economy. Innovat ion, def ined as knowledge creation and commercialization, and technology (or knowledge) diffusion and absorpt ion can p r o m o t e product iv i ty gains a n d growth w h e n complemented with a favorable investment climate that creates incentives (most notably through strong competit ion) for the enterprise sector to invest in activities that increase product iv i ty . At the same time, innovat ion and technology Qffusion need to b e supported by mechanisms that deliver strong education and s l d s , hgh quali ty i n fo rma t ion a n d communicat ion technology (ICT) infrastructure, and accessible and affordable i nnova t ion finance.

Figure 1: Innovation Conceptual Framework

CREATIOK AND

Increasing private R&D efforts

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

Strengthening commercialization o f knowledge

(improving primary and secondary education, and informal sector ski l ls)

Bui lding worker and manager sk i l l s

Increasing highly skilled engineers and researchers (improving Turkey’s university systems)

Harnessing formal creation

Promoting and diffusing

ictivities for the poor

ndegenous grassroots nnovation

Helping informal sector bette . -

INFO RRI A’r ION INFRASI’RIIC‘I‘tIHE

Expanding I C T infrastructures in urban and rural areas

Developing ICT infrastructure for high-end research institutions and other applications

KNOW LEDGE DIFFUSION AND

ABSORPTION 1 Y Spurring enhanced global inowledge flows

1 Improving the quality, dif- Yusion and absorption o f netrology, standards, testing, 2nd quality services t Strengthening absorptive :apacity o f small and medium size enterprises (SMEs)

I N N O\‘ A T 1 ON 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 Deve lopmen t P lan (NDP, 2007-2013), approved by the N a t i o n a l Genera l Assembly in 2006, lays out the Government’s r e f o r m strategy for sustained economic development in the 2007-13 per iod and sets targets i n c l u d m g the doubling of nomina l pe r capita i n c o m e by 2013 and the increase o f employment by 2.7% p e r year. T h e strategy also emphasizes the impor tance of increasing innovat ion and technology Qffusion as “one of the

2

most impor tan t factors” for Turkey’s competit iveness a n d sets the following targets for the pe r iod 2007-2013: (i) increase to ta l R&D expenditures from less than 0.7 to 2% of GDP; (ii) raise the share o f privately real ized R&D from less than 30% to 60% of the total; (iii) expand the number of researchers from u n d e r 24,000 to 80,000; a n d (iv) augment the in ternet penetrat ion 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 publ ic expendltures on R&D a n d o the r programs supporting innova t ion a n d technology diffusion and implemented a n u m b e r of inst i tu t ional and legislative reforms. Since late 2006, 14 n e w measures have been introduced, most of w h i c h have been a imed p r imar i l y a t strengthening col laboration between the enterprise sector a n d the research community, a n d increasing investments in innovat ion by the enterprise sector, most no tab ly by supporting the creation of h igh- 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 nnova t ion System PIS) relates to the institutions, policies a n d programs that underlay the in teract ion o f public, private a n d non-profit sectors that dr ive i nnova t ion a n d technology/knowledge dlffusion.3 T h e pub l i c sector has a key r o l e in al l of these components, p r imar i l y in terms of creating the appropriate po l icy a n d regulatory f ramework 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 publ ic ly funded R&D investments, and to i m p r o v e the economy’s i nnova t ion a n d technology performance, i t needs to further r e f o r m i ts N I S in l ine with EU standards and international best practices. In order to p rov ide 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 an analytical study assessing the Na t iona 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 innova t ion policy, legal a n d inst i tu t ional framework; (ii) the evaluation o f selected i nnova t ion a n d technology support programs; a n d (iii) a rev iew of private sector i nnova t ion a n d technology per formance a n d potent ia l 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 prov ides an overv iew of the inst i tut ional structure, po l icy f ramework a n d main programs of Turkey’s N I S a n d identi f ies issues in three main areas that h inder i nnova t ion performance: the intellectual p roper t y right (IPR) regme, col laboration between the research and enterprise sectors, and innova t ion finance. T h e third section uses available i n fo rma t ion (aggregate a n d f irm-level data a n d a set of 20 case studies) to p r o v i d e a rev iew o f the i nnova t ion and technology per formance of the enterprise sector in T u r k e y a n d prel iminari ly address i t s possible determinants. Areas for fur ther potent ia l study and analysis are ident i f ied 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 3

Might Be Measured And Compared.” Economics ofInnovation andNew Technolog, Volume 3, Issue 1 1994, pages 17 - 95.

3

11. Turkey’s Nat ional Innovation System

A. Overview o f Institutions, Policies and Programs

8. N I S at the macro-level. The key findings are that:

This section summarizes the main institutions, policies and programs of the Turkish

. T u r k e y has a well-developed N I S structure that encompasses most of the actors and institutions existent in OECD economies; . T h e scope of pub l i c programs supporting innova t ion a n d technology i s large; . T h e r e have been inst i tu t ional improvements recently, however 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, coord inat ion a m o n g N I S players i s challenge; . Independen t evaluation a n d in ternat ional benchmark ing 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 impac t of i nnova t ion policies on the development of regions.

9. Main Institutions of Innovation Policy Formulation. A p a r t from the Turkish Nat iona l General Assembly a n d the Counc i l of Ministers, the main actors in the formulat ion o f Science and Technology Policies in Turkey are the Supreme Counc i l of Science a n d Technology (BTYK), the Scientif ic and Technologica l Research Counc i l of T u r k e y (TUBITAK), the State Planning Organizat ion (SPO), a n d the Counc i l of H i g h e r Educa t ion (YOIC, a n d Universit ies. BTYK i s the highest body for designing, coord inat ing a n d monitoring science a n d research policy a n d in addi t ion prov ides advisory support to the G o v e r n m e n t in the fo rmu la t i on of long- term innova t ion strategy pol icy. I t s meetings take place semi-annually a n d are chaired by the Pr ime-Min is ter and 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 he central player in the N I S with several key responsibhties: (i) formulat ing a n d coord inat ing implementat ion of Turkey’s science, technology and innova t ion policies that are decided by the Supreme Counc i l o f Science a n d Technology; (ii) imp lemen t ing science, technology a n d innova t ion 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 fu ture R&D priori t ies a n d collaboration, a n d to integrate i t with the European Research A rea (ERA); and (iv) owning and operating a n e t w o r k o f publ ic R&D institutions PIS) a n d other organizations such as Marmara Research Center (MAW, N a t i o n a l Me t ro logy Inst i tu te (UME), Elect ron ics Inst i tu te a n d others. O t h e r impor tan t actors inc lude the Technology Deve lopmen t Founda t ion o f Tu rkey (TTGV), the Turkish Patent Inst i tu te (TPE), the Turkish Standards Institution (TSE), the M i n i s t r y of Industry and T rade (MoIT); the Ministry of A p c u l t u r e a n d Rura l Affairs (MARA); the Undersecretariat of Fo re ign Trade (UFT); the Undersecretariat o f Treasury (UT); the M i n i s t r y o f Finance (MoF), the Small and Medium-Sized Enterprises Deve lopmen t Organizat ion (KOSGEB); the Turlush A t o m i c Energy Authority (TAEA); a n d the Turkish Academy of Sciences (TUBA). These institutions have sector specific po l i cy roles (as in the cases of MoIT a n d MARA), imp lemen t certain support programs (MoF, UlT a n d ‘ITGV) whi le TUBITAK also pe r fo rms 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 and the enterprise sector (Annex I).

10. The Turkish Government has made strong efforts to strengthen key institutions of the N I S in recent years. In the past decade, the G o v e r n m e n t has modern ized several N I S institutions inc lud ing the Turkish Standards Institution, TUBITAK’s Marmara Research Centre and Na t iona l Me t ro logy Inst i tute, the Turkish Patent I ns t i t u te a n d suppor ted establishment of the TTGV. T h e Marmara Research Center, the largest pub l i c sector R&D organization, has been restructured a n d now i s one o f the most active contract research centers in the country. I t provides

4

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 major i ty o f i t s work i s focused on the public sector. TLJBITAK also has f ive more R&D Inst i tu tes in the areas of information technologies and electronics, defense, cryp tology, bio- technology, and gene tics.

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 than doubled, from US$193 d o n during 1995-2004 to US$422 million during 2005-2007. T h e ARDEB managed Program for Scientif ic and Technological Research Projects in 2004 supported 1353 ongoing R&D projects with a budget of 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. In addition, the Suppor 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 2007- 13, 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 (2005- 2010) 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 Pro ject and a National Research Infrastructure Information System Pro ject with the objective o f identifying strategic technologies for Turkey under t h e coordination o f TUBITAK). Anchored in the 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 then 0.7 to 2% o f GDP; (ii) raise the 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 of new innovation intensive enterprises created and their survival; and (iv) increase the rate o f commercial izat ion of R&D activities by the research sector. Until late 2006, innovation policy measures in Turkey were very h t e d in scope, focused primarily on the f i r s t two objectives. T h e large number of 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. Main Public Innovation Support Programs. T h e Turkish Government’s investments in public innovation and technology support programs have r isen substantially in recent years and are pro jected to continue to increase. As mentioned earlier, during the 2005-08 period, the Government allocated a significant amount of additional resources (over U S $ l . 5 billion) from i t s budget, pr imardy to TUBITAK. Public resources allocated to innovation and technology support programs have more than tripled in the last ten 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.

5

in 2002 to 0.8% in 2006, and the number o f full t ime 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 that implement R&D and innovation support programs are TUBITAK, TTGV, K O S G E B , MoIT and Universit ies. A summary of the main allocation of 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 IMPLEMENTING AGENCY 2005 2006 2007 2008

Universities 274.2 278.7 256.3 253.5 TUBfTAK (TUBITAK Research Centers) 108.8 155.0 141.8 183.3 TUBITAK Furkey Research Area Programs)* 346 0 415.0 425.0 450.0 Academic Research Projects 90.0 80.0 85.0 105.0 Industrial Research Projects (of companies) 116.0 215.0 215.0 175.0 Research Projects of Public Institutions 50.0 50.0 50.0 65.0 Defense and Space Research Projects 50.0 60.0 65.0 80.0 Researcher Development 25.0 5.0 5.0 15.0

Public Institutions (outside TUBITAK) 36.2 49.3 80.2 78.2 Nuclear Energy Council (TAEK) 6.3 13.1 20 18.9 Ministry of Industry and Trade** 11 16.9 17.6 Ministry of Agriculture and Rural Affairs 2.2 2.5 4 3.6

National Boron Research Institute*** 0.1 3 6 6.3

Science & Technology Awareness 15.0 5.0 5.0 10.0

Ministry of Health 0.1 6.2 5.2 4.9

M i n i s t r y of Energy*** 1 KOSGEB 12.5 5.4 4.6 6.5 TTGV 8.9 35.6 35.4 35.5 State Planning Organization 1. I 10.0 18 18 Undersecretary of Foreign Trade 40.0 42.0 63.5 n/a

Notes *TUBITAK funds the projects of 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 the physical infrastructure of Technoparks. ***Includes programs in which the projects of other institutions are supported. Source: State Planning Organization

15. There has been a surge in new policy measures in recent years aimed at strengthening the links between the 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 of 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 low interest loans are some examples

215’0 215’0 175’0 of the various incentives. Th ree new TUBITAK

42.0 63.5 n’a measures incentivized research in UFT

5’4 4.6 6.5 clean technologies and energy KOSGEB TI’GV 35.6 35s4 35*5 efficiency/renewable energy. Among Miustry o f Industry and Trade ‘ I ’Ii.’ “a6 others, the following measures were

319.0 353.4 252.6 h e c t e d to finance the development Total Source:: State Planning Organization o f innovation-intensive start-ups: the “Technopreneurship” (Teknogirisim) program implemented under the new R&D Law No.5746 by al l public administrations with an R&D budget, “R&D Suppor t for S M E s ” of TUBITAK, and the “Pre-incubation Support” and “Start-up Support” of TTGV are some examples. Turkish entrepreneurs’ patent applications are supported by a program jo int ly coordinated by TUBITAK and

Data from Turkstat, 2007

6

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 commercial izat ion o f R&D, examples of which include MoIT’s “San-Tez” project, “Commercial izat ion Pro ject Supports” and “Joint Technology Development Projects” of ‘ITGV. T h e Ministry of Industry and Trade designs “R&D Products Investment Suppor t Program’’ and “Marketing and Promotion Suppor t Program” to facilitate commercial izat ion o f industrial R&D activit ies 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 Suppor t ” (ISBAP) o f TUBITAK serves the purpose of intensifylng the national and international collaboration between research institutions.

1 8 -

1 6 -

1 4 -

g12-

2 0 I - ;e VI

io8- Y

0 0 6 -

0 4 -

0 2 -

0 ,

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 has been s t e a d y increasing from 0.64% in 2000 to 0.76% in 2006 and

0 59 impressive performers in Eastern 0 54 0 48 0 71 Europe @e., the R&D intensity

increased by 0.16% in Hungary and 0 52 0.21% in the Czech Republic

between 2000-05), but not as fast as in China (where R&D intensity grew

GERD/GDPnew senes + GERD/GDPold series

ranks just lower than in the most

0 47 0 6

0 48 0 53 0 37

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 product iv i ty 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 the 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. Data on patents awarded by the European Patent Off ice (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 of population, versus 4.2 in Poland, 4.3 in the Czech Republic and 18.9 in Hungary.

7

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

s w A

FIN A A 3 5

I? B 3.0

& 2.5

2.0

b

r ii 1.8

1 .o

0.5

0.0 10.0 20.0 30.0 40.0 50.0 80.0 High Tech Exports (% of Total Manufactured Exports)

Source: OECD

18. Aggregate indicators of innovation and technology performance also suggest that Turkey may still lag behind its peers. For instance, accordmg to the Etlropean Innovation Scoreboard (EIS) that monitors the i nnova t ion per formance of the EU-27 nations plus ten OECD economies, T u r k e y was considered to have the weakest per formance a m o n g the 37 countries in 2007. Turlush Governmen t off icials have expressed reservations abou t the accuracy of some o f the statistics used in calculating the EIS, but wh i l e better data are needed, the overal l d i rect ion seems valid. Turkey's enterprise sector per formance on technology a n d innova t ion seems b e l o w that o f most comparable countries. This i s suppor ted by evidence from other indicators of i nnova t ion and technological sophistication. For example, the World Bank's Knowledge Economy Indicator (KEI) shows Turkey underper forming relative to the ten n e w EU m e m b e r countr ies and the average for upper-middle i n c o m e countries. In 2007-08, T u r k e y was better ranked global ly ( 5 3 9 than Romania and Bulgaria in terms o f the World E c o n o m i c Forum's G l o b a l Competit iveness Report's Technological Readiness and Innovationpillars but lagged b e h m d the other n e w EU m e m b e r states in Eastern Europe.

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 st i l l low relative to EU and OECD levels. Despi te a surge in the last two years, Turkey's enterprise sector ( including both pr ivate and 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 and private) p e r f o r m e d 41% o f to ta l R&D in T u r k e y in 2007 (compared to 23% in 2003), substantially l o w e r than the EU-27 and OECD averages o f 63% a n d 68% respectively in 2005. Conversely, 48% o f the R&D expendtures in Turkey in 2007 were p e r f o r m e d by 97 Turlush universit ies (of w h i c h 30 are privately-owned), relative to j u s t 23% on average in the EU-27 and 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% and m u c h closer to the 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 where the enterprise sector accounts for a higher share of R&D per fo rmed than of R&D financed. Indeed, as it i s less risky to p e r f o r m than to finance R&D, a n d as pub l i c R&D expenditures in Turkey expand, one would expect t he 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 the case o f EU-27 . T h e fact that the Turkish enterprise sector currently accounts for a larger share o f to ta l R&D financed relative to R&D p e r f o r m e d may indicate "crowding out'' by the h igher education a n d government sectors, perhaps due to a scarcity of scientists a n d researchers, a n d enterprises are outsourc ing their R&D.

8

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. In 2000, Turkey was a m o n g the group of countries for w h i c h business R&D was essentially l e d by local enterprises with mul t i -nat ional 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 fore ign drrect investments i s welcome. A c c o r d i n g to OECD Science and Technology Indicators, in 2006 only 0.5% of to ta l R&D expenditures in T u r k e y were f inanced by fore ign sources, versus 7.6% in Russia and 10.7% in Hungary in 2005. In 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 “Support ing Research a n d Deve lopmen t Activit ies” (Law No. 5746), imp lemen ted by the DG Indus t r i a l R&D of the M i n i s t r y o f Industry and Trade, that provides a range o f fiscal incentives for R&D activities by the pr ivate sector, (as we l l as for projects suppor ted by publ ic agencies a n d international institutions). T h e Governmen t hopes to induce a concentrat ion of R&D activities that will enable gains from economies of scale as we 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. In v i e w of 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 men t ioned the need to develop the necessary inst i tu t ional set-ups, procedures a n d practices for agenda sett ing and priori t izat ion, implementat ion a n d policy learn ing between the d i f ferent pub l i c N I S institutions. In ternat ional experience suggests that the increased impor tance a n d complex i ty o f i nnova t ion policy and inst i tut ional arrangements of N I S can b reed n e w challenges that m a y affect po l i cy and inst i tut ional coherence a n d effectiveness (OECD 2005). This does not only relate to publ ic institutions but also refers to the establishment o f an effect ive a n d systematic n e t w o r k o f communicat ion between a l l N I S actors. A n o t h e r i m p o r t a n t t rend 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. In 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 publ ic expenditures are rising rapid ly towards EU standards and n e w policy init iatives are being designed a n d implemented.

22. In 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 cou ld b e addressed include:

G i v e n the current emphasis on pub l i c support for industr ial R&D, should relatively m o r e support b e p r o v i d e d to the agriculture and service sectors (given their larger employment share)?

In the context o f a scarce supply o f h u m a n resources in the research sector, cou ld rising publ ic 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 Turkey versus international practices a n d can their impac t b e increased through changes in design and /o r implementat ion? K e y programs inc lude pr ivate R&D tax exemptions, TfGV’s soft loans, TUBITAK’s match ing grant schemes, K O S G E B ’ s I C T up-grading and machinery improvemen t support, etc.

A r e there mechanisms employed in N I S systems in OECD economies that cou ld b e used in Turkey’s N I S that m a y i m p r o v e policy coord inat ion a n d enhance commun ica t i on a n d knowledge sharing between the various N I S actors?

9

B. Intellectual Property Rights Regime

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 f ramework for intel lectual p roper t y rights i s broadly aligned with EU, no tw i ths tand ing certain divergences, most notably in the area o f indust r ia l p roper t y rights. T h e imp lemen ta t i on a n d enforcement o f IPR legislation in T u r k e y however has not reached EU levels, in te rms of legislative changes, capacity of key inst i tu t ions (IP courts, TPE) and cooperation be tween public, private and non-profit sectors. . T h e lack o f a u t o n o m y of the Turkish Patent Inst i tu te i s a f fect ing the quali ty o f i t s services.

.

24. Turkey’s IPR legislative framework i s broadly in line with the EU but the enforcement of the IPR framework in Turkey st i l l needs to be strengthened to reach EU levels. Overall, t he European Commission’s most recent T u r k e y Progress Repor t found that Turkey’s legislative f ramework in the area o f IPR i s broadly al igned with EU6 and the Governmen t i s currently prepar ing four m a i n pieces of IPR legislation in l ine with the EU requirements expected to b e rat i f ied by 2008.’ T h e r e are s t d l certain requi red legislative changes outstanding for w h i c h there i s no clear imp lemen ta t i on plan, i nc lud ing a n e w TPE Establ ishment L a w to ensure i t s autonomy, a legislative f ramework for industr ial p roper t y rights8 and legislation to establish a professional society for patent and trademark attorneys. T h e key issue h igh l ighted by the European Commission’s Progress Repor t re la t ing to the IPR regime i s enforcement. A c c o r d i n g to OECD data, Tu rkey was the fourth highest origin of seized counterfeit and p i ra ted products into the EU in 2006 (accounting for 7% of seized goods) after China (38%), Tha i l and (loyo) a n d Hong Kong (8%).9 Enfo rcemen t i s impa i red by three m a i n factors: an inadequate regulatory f ramework for enforcement @articularly in the case of indust r ia l p roper t y rights), weak capacity of enforcement institutions, and insuff icient cooperation a m o n g d i f ferent 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 “Law on Intel lectual a n d Ar t is t ic Works ” to give m o r e incentives to copyr ight enforcement in l ine with EU law, but there rema in some problemat ic aspects, i nc lud ing inaccurate terminology, incompat ibht ies with other relevant Turkish legislation, a n d omissions relative to EU and international laws ( i.e. no articles for digital l i terary and artistic works). T h e implementat ion and enforcement of indust r ia l p roper t y rights i s even m o r e problemat ic as there are “severe deficiencies” in the regulatory framework.fO For example, the pol ice can currently take ex-off icio act ion in case o f copyr ight v io la t ion but not in cases of trademark infr ingement. As a result, there are infr ingements to we l l - known 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 abil ity o f other f m s to absorb advanced fore ign technology as foreign firms are discouraged from transferr ing technology.

26. 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 men t ioned European Commission report, Turkey’s

“Turkey 2007 Progress Report”, Chapter 7: Intellectual Property 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 Intellectual Property 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 Protection of New Varieties of Plants (UPOV) Convention was ratified and published.

“The Economic Impact o f Counterfeiting and Piracy,” OECD (2008). “Turkey 2007 Progress Report”, Chapter 7: Intellectual Property Law, European Commission, November 2007.

10

administrat ive capacity remains insuf f ic ient 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 Ankara and 2 in Izm i r ) and a shortage o f judges trained in IPR (of the 7 judges who have received some IP training, only three are currently active, and others need further training). In cities without specialization courts, IPR cases are handled by the First Instance Civil and First Instance Cr im ina l Courts where the judges and prosecutors do not have suff icient knowledge in the IPR field, resul t ing in delays (appeals can take up to 2 years) and inconsistencies. T h e lack o f suitable training a n d experience amongst prosecutors and 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 on o f c o u r t proceedings in instances w h e n it i s not appropriate and reduce confidence in the cou r t judgments a n d wider IPR regime. In order to overcome these problems, the Turkish Patent Inst i tu te a n d the Ministry o f Justice currently organize t ra in ing programs and international workshops for judges in cooperat ion with the European Patent O f f i c e (EPO), a n d are also trying to establish expert witness training activities. In addi t ion to these activities, to fur ther i m p r o v e the consistency between TPE a n d IP cour t judgments, n e w joint inst i tu t ional mechanisms for knowledge sharing a n d evaluation o f nat ional and international developments in IPR l a w (particularly in the f ie ld o f indust r ia l p roper t y rights) are p lanned between the TPE and Ministry of Justice that need to b e adequately designed, funded 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 Coordmat ion B o a r d has been established in Turkey for the enforcement of intellectual p roper t y rights, with a specific mandate to ensure cooperat ion and coordmat ion a m o n g related agencies includes representatives from the Ministry of Justice, Ministry of Interior, Ministry of Cul ture a n d Tourism Copyrights and Cinema Directorate General, Customs Under-secretariat a n d various other pub l i c agencies. Strategies have been designed to i m p r o v e coord inat ion with posi t ive results but ongoing ef for ts are needed, for example with the cooperat ion between pol ice and customs. In addition, greater e f for ts need to b e made in ensuring eff icient p ro tec t i on o f intellectual p roper t y rights of Turkish enterprises a n d in enhancing pub l i c awareness of intellectual proper ty right protection.

28. The lack of functional autonomy i s affecting the quality of services provided by the Turkish Patent Institute. In recent years the TPE has modern i zed i t s entire institution inc ludmg physical fachties, i m p r o v e d search systems, staff ing sk i l ls , in ternal and external IT structure, on l ine services a n d publ ic relations, and the establishment o f a n on-l ine 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 and in 2007, the TPE carried out 83 patent research and investigation requests, a lmost three times the n u m b e r in 2005 (28). However , TPE does not have enough quali f ied permanent s ta f f to m a t c h the demand for i t s services a n d as a result i t does not have a solid reputat ion for consistent, t imely decision-mahng. Moreover , i t currently covers j u s t 40% o f the In ternat ional Patent Classifications (IPC), with the examination o f a lmost a l l Turkish patent applications (there were 1,838 applications in the f u s t 9 months of 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 than that of applications dealt with by the TPE b v e n the translation costs, preparation charges a n d h lgher fees o f foreign patent offices) and in a d d t i o n there are o f ten 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 number of s taf f to b e recru i ted for each cadre, restr ict ing the n u m b e r o f permanent s ta f f that can b e h i red to mee t the substantial rise in domestic demand for patents in recent years. In 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 and investigations, and patent specialists with appropriate qualif ications must b e employed and trained according to research areas.

.

11

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 affect ing R&D investment decisions for d i f ferent types o f enterprises (SMEs, large, foreign) as w e l l as in the commercial izat ion 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, and the l icensing of 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 innova t ion in key sectors such as agriculture, ICT /so f tware ( including financial services) and clean technology? How effective are government incentives for IPR enforcement relative to EU practices?

.

. C. Collaboration between the Enterprise and Research Sectors

30. between the enterprise and research sectors and identifies the following issues: . This section examines the institutional and regulatory fiamework for collaboration

Some regulations (e.g., the university revo lv ing fund regulations) create disincentives for researchers to p rov ide services to the enterprise sector a n d thus reduce the mobhty o f researchers. . T h e current IP laws favor researchers in the al location of royalties for commerciahzed research, h inder ing universit ies to commercial ize R&D outputs. . Incentives and support for universit ies a n d researchers to commercial ize R&D are weak. . T h e n u m b e r a n d impac t of in termediary institutions that encourage col laboration 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).

31. 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. Turkey has a solid knowledge-base with well- known R D I s a n d universities, a n d scientif ic output has r isen substantially during 1990-2006 and, in particular, in the last f ive years, following changes in promotion criteria and greater pub l i c support for researchers. T h e n u m b e r o f publ ished articles by scientists p e r d o n inhabitants in Turkey rose from 95 in 2000 to 252 in 2006, the highest growth in the world, with Turkey’s world rank ing in output of scientif ic a n d technical articles i m p r o v e d from 34th to 19th.11 Similarly, patent applications and registrations by Turlush residents both domestically and overseas have grown quickly during this period, with patent applications to the European 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 par t ly from Turkey’s low base, as in 2006 1.9 EPO patents were granted to Turkey p e r million of populat ion, versus 18.9 to Hungary and 128 to the EU-27 as a whole. However , Turkey’s N I S per formance in commeniah@g (wing) knowledge i s .not following the same pace as i t s per formance in terms o f generating knowledge. Although data on spin-off start-ups a n d technology l icensing are not avadable, the i n fo rma t ion gathered in Section I11 suggest otherwise. I t i s thus impor tan t to consider whether the existing inst i tut ional and regulatory f ramework under ly ing the col laboration between these institutions and the private sector creates an appropriate conducive environment.

32. One o f the important elements affecting the collaboration between the public universities and the enterprise sector are the “University Revolving Fund Regulations.” Accord ing to the m o d i f i e d regulations issued by the M in i s t r y of Finance in 2004, academicians at publ ic universities who prov ide consultancy services have to pay 55% of their i ncome to the university, such that their n e t i n c o m e after tax amounts to 25% of the to ta l service income.12 In addition, a deduction i s made from the monthly salary of an academician i f he/she has been paid for

Thomson’s I S 1 Web of Science. University pays to the Treasury 15% of 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%).

12

a service in the respective month. To b e exempted from t h i s regulation, a company should b e located in a Technopark, following the provisions of the “2001 Technology Deve lopmen t Zones W Z ) Law.” In terv iews with the pr ivate sector revealed that the revo lv ing fund seems to work the same way as that a tax-wedge affects economic activity: limiting voluntary transaction and therefore reducing the gains from trade between researchers w i h g to supply technical sk i l l s a n d f i r m s willing to buy t h e m to t h e benef i t of a third par ty (university). W h i l e a closer assessment o f the revolv ing 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 an over-supply of Technoparks can not b e rejected apkok.

33. T h e regulation o f the ownership o f commercialized inventions, and thus the distribution of royalties between the researcher and the host institution, i s also important. Current legislation allows the successful i nven to r to reap substantially m o r e of the benefits than his/her host inst i tut ion, with any legal rights obta ined as a result of research carried out in universit ies hosting the academicians.13 I f the results o f research are commercialized, the m a x i m u m amoun t o f royalties that can b e obta ined by universit ies i s h t e d to the amoun t of support they have p rov ided to the academician for the durat ion 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 commercial izat ion services, i nc lud ing the support for patent applications, the cost of w h i c h i s too high for many 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 of the legal f ramework underp inn ing the contractual relat ionship between these two agents. Untd recently a t least, the OECD economies seemed to b e convergmg to an overal l 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 po l i cy a m o n g the m a n y federal agencies that f unded research in the U S and w h i c h p roved highly successful in incent iv iz ing researchers to pursue applied research, develop intellectual property, a n d start their own companies or find other ways to commercial ize their research (i.e., l icensing to companies) and universit ies to develop inst i tu t ional mechanisms (licensing programs, technology transfer offices) to support researchers’ commercial izat ion efforts. The re are a variety of other mechanisms employed in nat ional 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 among both researchers and universit ies to undertake m o r e applied research and m o r e impor tant ly with the enterprises to commercial ize 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 universit ies throughout the OECD economies have repl icated the U S experience by al lowing scientists to f l oa t /own 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 inven t ion instead of licensing it. V e r y o f t e n the sabbatical takes up to two years and re-entry i s guaranteed in case o f f d u r e . I t appears that, beyond 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 part icipation in joint-research projects in Technoparks. In addition, entrepreneurial (profit-oriented) activities are not always. w e l l accepted culturally by academicians and rules for promotion in universit ies re ly a lmost 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 main criterion for career ascension. F e w pr ivate universit ies 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 addi t ion to output

l3 Intellectual Property Law No 551, Article 41. l4 Austraha, for example, introduced an “innovation patent” system in 2001 to provide simple, inexpensive protection for inventions deemed insufficiently inventive to meet the threshold required for standard patents.

13

of articles.15 T h i s however m a y not b e sustainable on a compet i t ive basis if large pub l i c o w n e d institutes that do not place the same requirement are able to o f fe r equally attractive bonuses for researchers. Academicians with successful R&D commercial izat ion track records no te that there i s a strong culture within universit ies w h i c h does not favor prof i t -or iented research or a closer cooperat ion with the pr ivate sector. As a result, entrepreneurial activities, as those associated with the spi l l -over of invent ions and start-up of companies by fo rmer 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 off ices (’TTOs) can p lay a n i m p o r t a n t coordmat ion ro le during the commercial izat ion stage of research, and in encouraging researchers and firms to init iate n e w col laborative projects. Researchers also need training a n d m e n t o r i n g on business p lanning and other key topics l ike IPR management a n d commercialization. T h e lack o f specialized institutions makes i t d i f f i cu l t for firms to b e aware o f scientif ic and technological experts as w e l l as research results and patented invent ions produced at universit ies that c o u l d b e usefu l to them. T h e absence o f a specialized organization to deal with technology transfer a n d commercial izat ion o f R&D outputs also leads to problems in sharing and the use of 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 ce ” be ing established at G a z i Univers i ty in Ankara. T h e r e are also attempts by a f e w universit ies to create technology transfer offices, as i l lustrated by the case of Inovent , a company created at Sabanci Univers i ty (in GOBS Technopark located in the Gebze Organized Indust r ia l Zone) to undertake technology transfer and commercial izat ion activities a n d the Turkish Governmen t has shown interest in supporting these efforts.16

37. Many universities and companies have expressed interest in establishing and joining, respectively, Technoparks in Turkey, but collaboration between f i rms 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 Turkey by the MoIT (under the Technology Deve lopmen t Zones L a w o f 2003) with 18 of t h e m currently active a n d housing 890 companies (of w h i c h 32 are foreign) that emp loy 7,437 R&D staf f and 2,308 technical support personnel a n d imp lemen t 2,671 R&D projects (in ICT, electronics, defense, telecommunication, medical/bio-medical, advance materials, industr ial design and env i ronmenta l technologies) a n d account for some US$250 million of expor t revenues (US$144 million in 2006).17 Technoparks are supposed to encourage start-ups a n d spin-offs from universit ies and pub l i c R D I s by o f fe r i ng a comb ina t ion of infrastructure support a n d business development services in addi t ion to the natura l advantages o f proximity to the host research institution. In the case of Turkey, given the generosity of the tax incentives p rov ided by the Technology Deve lopmen t Zones Law, there i s a concern that the infrastructure-support side of the business has expanded to the det r iment of the provision of value-added services, w h i c h are very m u c h needed and are a key pa r t o f successful Technoparks a round the world. Indeed, ren t costs in m a n y Technoparks can b e up to three times the marke t rates. Further, Technoparks seem to b e dominated by the R&D departments of large companies seekmg to take advantage of the addit ional tax incentives, raising concerns about the addit ional i ty o f the scheme in terms of private R&D investment. As the n e w R&D L a w extends the benefi ts of 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 of 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 of society, especially Technopark owners, arguing for the extension of the incentives until 2023. Desp i te al l these caveats, some

l5 I 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.

14

potential ly interesting cases are identif iable, as i l lustrated by the nurturing of a v ib ran 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 evo lv ing a n d has a long way to go in Turkey.

38. areas:

In light o f the findings of this section, future work could be taken in the following

Benchmark the strength o f the links between researchers a n d the enterprise sector, drawing from the methodology in the OECD Benchmark ing Industry-Science Relat ions R e p o r t (OECD 2001). Review Turkish laws a n d regulations cover ing the col laboration between industry, researchers and universities, with part icular a t tent ion to the legal f ramework relat ing to technology transfer and royalty distribution for col laborative research projects that cou ld b e benchmarked against equivalent f rameworks in the U S (Bayh-Dole Act) and Europe . E x p l o r e regulatory obstacles that m a y h inder the mobdity o f research personnel to move: (i) a m o n g f i r m s (e.g. within ne tworks a n d clusters); (ii) a m o n g inst i tu t ional sectors (e.g. between publ ic and private sectors); a n d (iii) internationally. Compare rationale, design, a n d service provision of Turkish a n d g lobal pm-active pol icy and inst i tut ional init iatives (i.e. support for TTOs) aimed at increasing industry-science collaborations; Evaluate one or two Technoparks cou ld 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 impac t in re la t ion to the objective o f the Technology Deve lopmen t Z o n e L a w . Compare key features of Turkish suppor t programs to spur consort ia projects and col laboration of 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 Indus t r i a l Research Assistance ( IMP) Program.

D. Innovation Finance: Venture Capital and Business Angels

39. and what institutional and regulatory factors prevent i t s expansion. T h e key findings are:

This section examines the extent to which innovation finance i s available in Turkey

I nnova t ion finance from the venture capital (VC) a n d business angels sector i s insuff icient in Turkey relative to the U S and EU, with early-stage funding part icularly scarce. T h e underdevelopment o f the sector i s in p a r t due to the low level of inst i tu t ional savings in the

domestic capital marke t but the regulatory f ramework also hinders the operation o f VC firms; T h e financial incentives p rov ided to spur innova t ion 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 l i rmted understanding o f venture capital that breeds risk aversion, publ ic support, in part icular for early stage financing, in Turkey i s low; T h e demand for venture capital a n d business angels’ services e.g., deal flow, m e n t o r i n g and awareness programs for entrepreneurs a n d researchers i s also weak in Turkey; There are a range of successful pub l i c programs wor ldw ide promoting VC both from the supply side (Fund-of -Fund initiatives, tax incentives regimes) a n d demand-side (researcher incentives and support tools) that cou ld b e relevant in the Turkish context.

40. T h e start up o f science-based companies i s also hindered by the underdevelopment of the venture capital and business angels sector. T h e p r imary impedunen t faced during the commercial izat ion stage i s the lack of suff icient 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 lann ing -- from the design and the development of a prototype, to market research and testing and IPR management -- w h i c h requires some early stage fundmg. T h u s , “business angels” f inance and early-stage funds to b e p rov ided through publ ic VC initiatives are of part icular impor tance for academic entrepreneurs. There are just

15

three Ven tu re Capi ta l I nves tmen t T r u s t s (VCITs) in Turkey, two of w h i c h are currently publ icly traded on the I s tanbu l Stock Exchange with a to ta l portfolio value o f abou t US$G9 milhon.18 T h e to ta l fund size for venture capital a n d private equity industries i s est imated as around US9400 d o n a n d annual investments are not m o r e than U S $ l O O d o n (0.02% of GDP). By contrast, venture capital investment in the U S amoun ted to US929 billion (or 0.18% of GDP) in 2005 and in the EU- 15 amoun ted to m o r e than US$32 billion (0.19% of GDP).19 Moreover , t he share ofprivate early stage investments i s a lmost negligible in Turkey 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 of 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 inde red by a n inadequate legal a n d regulatory f ramework that was established in 1993 by the Capital Markets B o a r d (SPK) a n d has been amended several t imes since then in response to demands by marke t participants. However , the regulatory f ramework needs to b e m o r e flexible (for example, a c o m m o n l y heard compla in t relates to the requi rement that VCITs invest at least 50% o f their funds in the companies that be long to their portfolio) to accommodate the unique nuances o f i nnova t ion financing. I t i s apparent that the SPK i s not necessarily the most appropriate institution for establishing the overarching f ramework for the entire VC sector as i t s mandate i s related only to the regulat ion of l is ted companies (that require t ighter regulat ion than non- l is ted companies), w h i c h VCITs are not necessarily. A n o t h e r body, most l ikely the Ministry of Finance, would b e better placed to establish a n e w f ramework l a w for the VC sector, drawing on, where appropriate, the legislative frameworks established in Spain and 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 l ine with EU rules.

42. The incentives provided by the existing legislation of the financial sector have not been specifically designed for the promotion of venture capital in Turkey. With a d i f ferent risk prof i le than any other fmancial sector services, exist ing incentives for the fmancial sector - exempt ion from corporate tax, not subjecting the portfolio administrat ion gains to withholding tax, a m o n g others - are a lmost ineffective. Meanwhile, there are f inancial burdens, e.g., stamp duty (the stamp duty i s equal to 0.75% out of the contract amoun t a n d each contract amendment requires a similar payment). T a x incentives have played an i m p o r t a n t ro le in the development of VC sectors in a number o f countries, either with low capital gains tax for business angel investments, or v ia tax breaks for eligible investments that make business angel investments attractive. T h e UK, for example, adopted a tax regune that stimulated early stage investments a n d p rov ide i ncome tax and capital gains tax re l ie f to business angels invest ing in small, high-risk unquo ted companies under the “Enterprise Inves tmen t Scheme.”

43. There are other relevant supply-side barriers to the growth of the venture capital sector, most notably a poor understanding of 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 and experience in high-tech fields and in m e n t o r i n g o f small entrepreneurs, essential in the survival and growth of VCs as we l l as f i r m s . Although V a k i f Girisim has suppor ted high-tech sector, it prefers to invest in expansion stage and 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 and the SPK legislative requirement that 50% of 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 and ro le models can b e he lp fu l for VC and business angel investors (as we l l as for potent ia l 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.

16

Fur the r in tegrat ion into European a n d in ternat ional networks o f investors such as the European Business Angels Organizat ion a n d the European Private Sector I nves tmen t Venture Capital Associat ion should also b e p romoted .

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 ta l assets o f inst i tu t ional investors amoun t to 4% of GDP in Turkey versus 62% in Spain, 95% in I t a l y and 191% in the USA. Furthermore, wh i l e L a w No. 4632 on “Private Pension Savings a n d Inves tmen t System” enacted in 2001 permi ts pr ivate pension funds to invest in venture capital fEms, they have not done so in large vo lumes due to the l i m i t e d sophistication and risk exposures of their strategies, a n d lack of incentives. For example, in the UK’s Venture Capital T r u s t s , investors that maintain their investments for at least f ive years receive a n i n c o m e tax deduct ion of 20% of an investment up to a m a x i m u m threshold p e r tax year of E100,000, wh i l e dividends are not subject to fur ther 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 he lp to m o b h e inst i tut ional and pr ivate investors. Risk aversion of VC investors i s exacerbated by the l im i ted n u m b e r of ex i t mechanisms in Turkey. Acqu is i t i on through a strategic buyer i s the most c o m m o n way o f exit from investments and wh i l e the market for mergers a n d acquisit ions i s growing in Turkey, i t remains small.

45. In 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 of VC sectors in m a n y countries by prepar ing the condi t ions 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 init ial ly government funded (with subsidies for fund management costs, deals due dil igence and fund manager training) but are subsequently privatized. Currently, a l l pub l i c support programs p rov ide grants a n d loans and there are no equity investments in venture capital in Turkey. A who le range o f f inanc ing options from the early to the later stages of innovat ive businesses should b e designed a n d imp lemen ted with Governmen t support accordmg to international best practice a n d experience. A posi t ive development in this d i rect ion i s the anticipated pub l i c launch in June 2008 of the I s tanbu l Ven tu re Capital In i t ia t ive (iVCi), a Fund-of -Funds that i s envisaged as a catalyst for the private equity sector, by the European Inves tmen t Fund with the part icipation of the TTGV, K O S G E B and the pub l i c Deve lopmen t B a n k o f Tu rkey (TKB). A small group of b lue ch ip Turkish and in ternat ional institutions will b e i nv i ted to part icipate in this p r o g r a m and €150 million has been commit ted. 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, facil i tating ma tchng , and organizing awareness-raising, training and other support activities. In m a n y EU m e m b e r states, pub l i c support i s p r o v i d e d to local, regional a n d sectoral as we l l as nat ional BANs.

46. At 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 quali ty and quant i ty o f deal flows that impede 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 Turkey inc lud ing low R&D levels, weak R&D commercial izat ion culture (and support) at universities, l im i ted col laboration between industry a n d research sector, a lack of intermediaries (such as TTOs), and the large n u m b e r o f i n f o r m a l f m s in Turkey that makes valuation d i f f icu l t for investors a n d negatively affects the quali ty and n u m b e r of VC deals. Furthermore, many f i r m s (in part icular 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 and o f ten are not attractive investment propositions given the l im i ted capabilities o f their managers. There i s however substantial demand from younger entrepreneurs who show strong interest in business p lan

Zn www.lowtax.net

17

competit ions (for instance, m o r e than 500 proposals were submi t ted to a business p l a n compe t i t i on organized in 2006 by the In fo rma t i cs Associat ion o f Tu rkey in Eskisehi r for a n e w pre-incubator). T h e “CONNECT” p r o g r a m in the USA i s a good example of a f o r m a l m e n t o r i n g system that cou ld p rov ide substantial benefi ts to young companies at an 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 incent ive f ramework c o u l d b e benchmarked against those of

European (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 cou ld b e done on the types of pub l i c support mechanisms for projects at d i f ferent stages (early stage, seed, or post-early stage phase) and in di f ferent sectors, a n d for promoting greater understanding by n e w entrants of the unique aspects o f i nnova t ion finance. G i v e n the severe lack of early stage f inanc ing in Turkey, successful in ternat ional models of publ ic support, such as Fund-of-Fund initiatives and fiscal incentive regimes cou ld b e reviewed. . T h e key features of successful pub l i c init iatives global ly that increased the demand for innova t ion finance (i.e., entrepreneurship training, suppor t for researchers) a n d enabled the success of n e w technology-based companies cou ld b e identi f ied.

.

E. H u m a n Resources: Skills and Education

48. An 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 of researchers in R&D p e r thousand o f to ta l employed in 2007 in Turkey (2.3) i s h a l f that of Po land (4.7) in 2005 a n d substantially l ower than the EU27 average (5.8). W h i l e part icipation in higher education has increased, enro l lment a n d attainment rates rema in low by international standards. En ro l lmen t rates in higher education are l ower for T u r k e y than for most countries with similar or higher levels o f income-especially for high i n c o m e countries. Turkey’s h igher education degree attainment rate of 11% a m o n g 25-34 year-olds i s the lowest a m o n g a l l OECD countries where the average i s 31%. Turkey h a d 5.7 n e w science and engineering graduates pe r 1000 populat ion in 2005, w h i c h corresponded to 44% of the EU-27 average. However , developments are going in a posit ive direction: between 1995 a n d 2004, Turkey’s average annual growth in R&D personnel was as high as Finland’s and 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 lower start ing point).

49. 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 Turkey that remains in the U n i t e d States for f ive 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 and Argent ina were countries affected by pol i t ica l and economic crisis, the explanation for Turkey i s less obvious and i s probably related to the condit ions of t h i s segment o f the labor market in the country. T h e Governmen t recogrmes that the Turkish H i g h e r Educa t ion System faces a defici t of young scientists and has taken some init iatives to increase the international mobllity of students and scientists. By enhancing the mobility of local researchers, the Governmen t hopes to fur ther integrate the local research commun i t y to the international scientif ic communi ty , a n d increase the wil l ingness of expatriates to engage in R&D activities in the country.

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 and s k i l l s on one hand a n d innova t ion and technology diffusion on the other, with the associated long- term implications for product iv i ty gains, sustainable growth and employment generation, makes improvemen t o f the

18

h u m a n resource base a n essential componen t o f N I S strengthening. Hence, pol icymakers in Turkey have been discussing a range o f init iatives for achieving t h i s objective, i nc lud ing improvements in the quanti ty and quali ty o f education at a l l levels, l i fe- long learning, vocat ional training a n d enterprise training. O n e example of measures to develop h u m a n resources for the research sector i s TUBITAKs “Nat ional Young Researcher Career D e v e l o p m e n t Program” init iative. T h e Indust r ia l Thesis (San-Tez) Pro ject links masters and doctorate students with industry f inancing thesis that are related to enterprise sector needs. T h e M i n i s t r y of Educa t ion has in i t ia ted the “Technology and Des ign Program” that requires a modu le on innova t ion to b e inc luded in the national curricula for compulsory secondary schoo l education. A bdl approved by the Par l iament in 2006 paved the way for the establishment o f 32 n e w state universit ies. T h e current Admin i s t ra t i on i s also engaged in a broader e f fo r t to modern i ze the education curr icula in h e with the needs of the enterprise sector so as to raise employabil i ty of tertiary students, i nc lud ing engineers a n d scientists, by the private sector. T h i s agenda i s beyond the scope of t h i s R e p o r t as it i s be ing addressed elsewhere but it has impor tan t implications for the per formance o f the N IS .

19

111. Technology Upgrading and Innovation by the Enterprise Sector

51. In 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 of technology diffusion (including fore ign technology) seems to b e lower in Turkey relative to other emerging economies, with potential ly i m p o r t a n t impl icat ions in terms of productivi ty, competit iveness a n d employment.

T h e purchase o f machinery lequipment i s the p redominan t channel of “know-how” acquisit ion.

T h e use of I C T varies across regions, size o f the enterprise and sector; for example, enterprises those are small, in labor-intensive sectors, a n d located in the Karden iz reg ion show lower levels of ICT use.

Quality standards are d i f fused a m o n g enterprises of the indust r ia l sector but the supply of international ly accepted accreditation services i s insuff icient.

T h e s k i l l of the work fo rce i s a m a j o r obstacle to technology upgrading across al l sectors, whi le for medium-sized enterprises in the food, textde, c lo th ing a n d furn i ture sectors, access to and the cost of credit were also impor tant ; tax-breaks were considered relatively un impor tant .

Infrastructure concerns, especially p o w e r outages, also seem to h inde r technology upgrading, with firms outside the Organized Indust r ia l Zones ref ra in ing 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 acquisit ion of n e w machinery (embedded technology), through spil l-over effects (e.g. hiring professionals, interacting with clients), through di rect acquisit ion (licensing or through parent company), by developing n e w technology in house or in cooperat ion with research and 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 the firms repor ted 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 and Central As ia region. T h i s was fo l l owed by hiring staf f (37%) a n d development of adaptation of technology (24%). However , investments (roughly at 20% of GDP) are b e l o w the levels o f the fast- growing economies (e.g., 28% in India). As a result, capital-labor rat ios in T u r k e y are i n fe r i o r to those in Poland, Croatia and the Czech Republic, y ie ldmg relatively l o w e r rates of output p e r worke r in both the manufactur ing and the service industries (Figure 4). T h e low capital accumulation in the service industry i s a t 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 adop t ion of ICT, part icularly computers, in the retai l sector (the “Wal-Mart Revolution”) was the under ly ing cause of these product iv i ty gains.

21 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.

20

Figure 4: Technology Diffusion in Manufacturing and Services

Figure 4.a: Technology diffusion in the manufacturing Figure 4 . b Technology diffusion in the service sector sector

Value-added per worker vs Capital per worker, 200405 - 7

HUN

0 10 20 30 40 50 €4 Source: E r n 2 0 0 5 Capital per worker ('000 USD)

1.00

0 9 - 080

0 0 0.80 c

6 L

t 0.40

0 V U 0

a 0) 0.20 - s

0.00

Trade Sector --Value-added Der worker VI Capital Der . . worker, 200406 - -

CRO 1 HUN

0 10 20 30 40 50 Capital per worker ('000 USD)

53. Fewer f i r m s reported to have purchased new equipment in Turkey than in comparator countries in 2005, possible evidence of technological outdating. W h i l e i n fo rma t ion 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% of Turkish enterprises repo r ted to have acquired n e w technology in the last two years, versus 47% in Poland, 52% in Tha i l and and 68% in Brazi l . Large enterprises, exporters a n d foreign-owned firms are also substantially m o r e l ikely to acquire n e w technologies than S M E s , non-exporters and local ly-owned f i r m s in Turkey: only 31% of small firms2 repor ted purchasing n e w machinery in 2005, versus 46% of medium-sized enterprises a n d 47% of large enterprises. Firms operating in labor intensive sectors are less hkely to acquire updated equipment: 36% and 38% of f i r m s in the texules a n d food industries, respectively, repor ted to have purchased n e w machmery in the last two years. By contrast, the equivalent shares in the me ta l and electronic machinery sectors were 51%. W h i l e there i s evidence of technological heterogeneity between large companies a n d SMEs, the sector d iv ide i s less clear (also with the presence of some intra-sector heterogeneity). This in turn highlights the impor tance of compet i t ion (particularly exit of less eff icient f i r m s ) so that the technologically advanced firms consti tute a larger share of the sector output.

54. T h e share of enterprises that have adopted internationally recognized quality standards in Turkey lags behind when non-industrial sectors are taken into account. International ly recognized quali ty cert i f icat ion measures a firm's achievements of industry standards a n d technical regulations, a n d therefore represent a channel for the absorpt ion of codi f ied knowledge. In particular, I S 0 9000 norms are a set of in ternat ional standards and g u i d e h e s that serve as the basis for establishmg quali ty management systems at manufactur ing and services firms. There are only three I S 0 9000 certificates for every thousand establishments in Turkey, six times fewer certificates than in Spain on a pe r firm basis. In addition, I S 0 9000 adop t ion rates in Turkey in 2005 a m o n g smaller firms were substantially l ower than a m o n g larger firms: 24.2% o f the small and 45.4% o f the medium-sized firms were certif ied, as compared to 64.1% of the large enterprises. At the current diffusion rates, i t would take - on average -- six years for Turkey to reach the levels o f I S 0 cert i f icat ion currently present in Ireland, w h i c h i s abou t the average for ECA countries but h igher than the Czech Republic, Po land a n d Roman ia (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+

21

55. Firms in Turkey make relatively frequent use of information technologies in their on- going operations yet ICT use varies significantly by region and by size of enterprise. Eighty percent of firms surveyed in 2005 regularly use e-mail in their interactions with clients and 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 Amer i can countr ies such as Chi le a n d Brazil. T h e use of websites as the interface for communicat ion i s .also high, but consistently less than the use of e-mail (Figure 5). However , the proportion o f firms in Turkey that use such websites (70%) i s in l i n e with that of non-Asian comparator countries. However , whi le 85% o f f i r m s surveyed in the M a r m a r a Reg ion 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 lack Sea and East Anato l ia Regions. M o r e than 90% of large f i r m s using e-mail for external communications, as compared to 63% o f small firms. A similar pat tern exists in the use o f websites to interact with clients and 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. In India, as shown in a recent World B a n k report, 23 most firms, especially small ones, t end to use low levels o f technology, and only a few operate near the nat ional technological frontier. In most sectors, p roduc t i v i t y at the national technological f ront ier i s abou t f ive times the mean level for al l firms. For small f o rma l enterprises, average product iv i ty i s even lower : about one-sixth of the level a t the technological f ront ier for each sector and only one-eighth that of top local performers. Smaller i n f o r m a l enterprises are l ikely to b e even less productive. T h e skewed distribution of enterprise p roduc t i v i t y implies potential ly huge product iv i ty a n d output gains, i f exist ing wi th in-country knowledge were to dif fuse from top performers to the rest of the economy.

Figure 5: Use of ICT in Interaction with Clients and Suppliers

Figure 5.a: Use of ICT in interaction with clients and Figure 5.b: U s e of I C T in interaction with clients and

100

80

,m e - L

* 40

20

0

suppliers, regional comparison

100 Io .D

80

40

20

0

suppliers, by firm size

sma Ksdium Large

Source: Turkey Investment Climate Survey 2005 Source: Turkey Investment Climate Survey 2005

23 See Dutz, Mark (editor): “Unleashing India’s Innovation.” The World Bank. Washington D C (2007).

22

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 of Turkish firms i s much lower than in new EU member countries. Jus 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 Imported Inputs, 2005). In particular, imports of capital goods represent 29% of total fixed investment in Turkey in 2005, compared to 66% in Bulgaria (World Bank, 2007). Interestingly, the share of intermediary and capital goods in total imports has accounted for no less than 87% of total imports in 2002- 2007. T h e s d a r i t y with Braz i l suggests that one reason for that may be that the 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 openness ratios (both of which are over 100%).24 Limited integration may ref lect an

Figure 6: Share of Imported Inputs, 2005 50 1

g 45

2 35 40

g .- E 30

I 25 - c 20 0 15

m 5 0

P

r

: 10 C

Source: World Bank Enterprise Survey, 2005 anti-export bias of trade or other restr ict ive domestic policies or may simply ref lect 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% of 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 enterpr ises in the Czech Republic and 5.6% in Bulgaria. I t reflects, in part, a relatively low inflow of FDI in Turkey. FDI inflows have surged from 1% of 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 at 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 the 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

23

discernible dif ference between sectors in the rates o f l icensing of technology by f m s with 21% of texti le firms a n d 17% o f food-processing companies using licensing, versus 14% o f firms in the me ta l processing sector and 21% of firms produc ing electronic machinery. Fu r the r analysis cou ld b e under taken to ascertain the type a n d quali ty of technology l icensed in di f ferent 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 pe r capita, very low relative to other emerging economies, suggests i t i s used p r imar i l y for relatively simpler a n d low-cost technologies: for example, in 2006, to ta l royalty and 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 idd le 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, a l l started from a relatively sirmlar degree o f industr ial specialization abou t 10 years ago but in q n g to stimulate industr ial upgrading a n d their g lobal competit iveness since then they have fo l l owed divergent paths in terms o f integrating with the gIobal economy25. China has become an export-oriented assembly country, strongly integrated into the in ternat ional segmentation-of- p roduc t i on processes in Asia, with parts a n d components forming the largest share of i t s imports of h g h - t e c h products that are predominant ly incorporated into the p roduc t i on of exports a n d are not used to modern ize domestic p roduc t i on 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 part icipation in international d iv is ion-of -product ion 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 distr ibuted a m o n g the d i f ferent stages of p roduc t i on and the d i f ferent sectors, whi le high-tech exports are concentrated in chemical industries. Tttrky’~ h g h - t e c h imports consist mainly of capital goods a n d correspond to a classical form of technology transfer a imed at upgrading indigenous industr ial capacities. Turkey’s fore ign trade i s strongly structured by i t s tradit ional complementarit ies with Europe.

61. National Diasporas are a huge potential channel for international technology transfer to their countries of origin, i nc lud ing China, India, Korea, Taiwan, a n d Sou th Africa.26 . T h e technical and market ing knowledge of Diasporas i s a huge resource as i t can p r o m o t e trade and FDI (the other main channels o f g lobal knowledge transfer). Outs ide actual return, migrants overseas can transfer knowledge a n d technology though several channels including: (a) l icensing 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 coun t ry f inanced by remittances; (c) expatriate knowledge networks created to foster regular contacts; transfers o f ski l ls, a n d opportunit ies for business with researchers, scientists, and entrepreneurs in the coun t ry of origin, and; (d) “virtual” returns through extended v i s i t s and electronic communicat ion in fields such as medicine a n d engineering. Based on the numerous successful examples o f government init iatives in t h i s area a round the world, Turkey cou ld benef i t from fur ther 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 iaspora knowledge initiatives. Init iat ives cou ld inc lude joint research projects, spin-offs, shor t v is i t s a n d seminars, assistance in formulat ing i nnova t ion strategies a n d methodologies; part icipation in teaching at management bodies o f scientif ic institutions, m e n t o r i n g o f local innovators and liaisons with technology institutions a n d markets.

25 See Lemoine and Unal-Kesenci (2003) highlight the following divergent integration paths. 26 ‘‘Global Economic Prospects 2008: Technology Diffusion in the Developing World.” 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.

24

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 Turkey have in t roduced 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 Brazi l . T h e improvemen t of a n exist ing p r o d u c t l ine i s also less widespread in T u r k e y than in comparators: only 61% of Turkish f m s upgraded a p r o d u c t l ine in the past two years, versus 70% in Chi le a n d 95% in Brazil. In Turkey, as in al l o ther comparators, p roduc t l i ne upgrad ing 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 and 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 an impor tan t pa r t of the sustainable growth of the leading developed economies, most o f the product iv i ty gains in emerging economies result from day- to-day i n t roduc t i on of technological solutions and incremental improvemen ts to products and processes of product ion. Technology solutions m a y require the introduction of n e w equipment, re- organization o f the p roduc t i on process or a n e w form of 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 nnova t ion per formance 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, and chemicals sectors were repo r ted to have in t roduced a n e w p r o d u c t or to have upgraded existing products in 2005, relative to o the r less capital intensive sectors such as textiles and food processing. A greater portion of large f m s in t roduce n e w products or upgrade exist ing products relative to smaller ones. A larger share o f exporters in Turkey i s l ikely to innovate relative to non-exporters. S d a r l y , fore ign f i r m s are m o r e l ikely to in t roduce n e w products than domestic f i r m s , (although the dlf ference i s m u c h smaller with regard to upgradmg exist ing 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 67 68

62 61 63

- m New product is Product upgrade m New product LJ 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 ts peers. Private expenditures in R&D as a share of sales in Turkey (0.29%) was larger than in several n e w EU member economies such as H u n g a r y and the Czech Republ ic in 2005, closer to Slovakia's and

28 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).

25

Romania’s levels in that same period, but lower than China (2.47%), B raz i l (1,51Yo), I n d a (1.04%), a n d Chi le (1.0%) in early 2000. Fore ign-owned firms spent f ive t imes m o r e than the domestic ones (2.26% versus 0.44%). Medium-s ized fums were the most R&D intensive (1.3%, compared to 0.87% a n d 0.41% of large a n d small enterprises respectively). W h i l e the manufactur ing a n d construction sectors repor ted investment rat ios close to 1%, the service sector share i s m u c h lower (0.37’). Among the manufactur ing industries, the me ta l and machinery segment - a sector known to b e research intensive - repor ted the highest level of R&D intensity. T h i s i s consistent with i t s sustained expor t per formance in recent years: in 2004-06, for instance, the exports o f machinery and equipment grew 23%, m o r e than vehicles (20%) a n d the expor t to ta l (17%).

65. T h e decisions of 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 Turkey 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 pub l i c pol icy. For example, m o r e than 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 l icensed fore ign technology also i n t roduced 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 the i r own R&D, but they also benef i t from the advances in the world technology frontier, w h i c h accelerates the process of catching up. Turkish enterprises can emp loy the knowledge that underp ins advances in the technology global ly through patent databases that contain documents with detai led technical i n f o r m a t i o n on innovat ions wor ldw ide to develop their own products, equipment a n d processes. T h ~ s implies that investments in basic i nnova t ion (investment in R&D), non-patentable i nnova t ion ( in t roduct ion of n e w products) a n d technology adopt ion (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 an enterprise’s decision to invest in innova t ion 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 Turkey (49% o f total) i s only slightly h igher than in ECA countries (47%), w h d e the n u m b e r o f s u e d workers receiving t ra in ing (18% compared to 25%) and firms o f fe r i ng fo rma l training (53% compared to 75%) are m u c h lower . T h ~ s probably implies a higher cost of (labor) adjustment for technology adop t ion a n d therefore l ower levels o f technology adoption.” T h e rigid labor regulat ion 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 inde r ing the acquisit ion of m o d e r n ,skil l- intensive technology. A n o t h e r complementary input i s access to and cost of credit, not only for the acquisit ion o f equipment - w h i c h i s sometimes p rov ided by the supplier - but for the organizational changes that are o f t e n requi red to enable the firm to fully reap the benefits of the i n t roduc t i on 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 quali f ied managers or generated by engineers and R&D activities of 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 and R&D intensity, as d m u s s e d above, although similar to o the r regional peers, i s b e l o w the levels shown by f m s in Brazil, China, Chi le and I n d a .

29 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 Chart on Innovation.

26

67. In terms o f market incentives, competition seems relatively low and marginal taxes high in Turkey. T h e pressure o f fore ign compet i tors appears to b e l imited, as only 33% of Turkey’s companies considered foreign compe t i t i on a n i m p o r t a n t inf luence on lower ing p roduc t i on costs or develop ing products in 2005. This m a y b e problemat ic 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 one p roduc t l ine in the prev ious three years - i s posit ively associated with p r o d u c t upgrades. Also o f some concern i s the deceleration of the privatization process: in the ECA region, recently pr ivat ized companies seem m o r e l ikely to adop t m o d e r n technologies (e.g., web-use and I S 0 certif ication) than other companies, possibly because new-owners have bet ter def ined ownership rights, wh i l e i nduc ing management improvements. T h e average personal i n c o m e tax rate (30.5%) in Turkey remains high in compar ison to most OECD member countries despite recent reductions in the marg ina l tax rates, and reduces incentives for profi t-seeking investments i n c l u d m g technological update.30 T a x rates m a y affect Turkey’s technological per formance also by sett ing a n imp l i c i t “cap” on fm growth. As firms choose to p roduce at sub-optimal scale to benef i t from tax exemptions, scale-intensive techniques become unprof i tab le 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 Turkey by entrepreneurs in 2005, according to the 2005 World B a n k Enterpr ise 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 of these case studles was to address whether technological upgrading was a n obstacle for business expansion and, if so, wha 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 Is tanbul and have shown rap id growth in output a n d exports in the past two decades. A “theoretical sample” was constructed with f ive f m s taken from each of four key sectors, namely food processing, textiles, clothing, and furniture. These firms were in terv iewed using a detailed questionnaire that follows the conceptual f ramework presented in the i n t roduc t i on to ident i fy the sources a n d determinants of Turkish S M E s ’ i nnova t ion a n d technology adop t ion activities. Table 2 b e l o w summarizes the main findmgs of the interviews. T h e questionnaire and a summary o f each in terv iew 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, Less than 50% of f m s (and just 15% or less o f food processing, textile and clothing) are usually SMEs) in labor-intensive sectors are innovative not the pioneers o f innovation, but followers. relative to more than 50% in cap i tah tens i ve

sectors (machine-building, automotives and chemicals).

Firms with young managers/owners have m o r e interest in innova t ion wh i l e firms with a foreign par tner or who expor t are m o r e aware of g lobal M S T Q and technological requirements.

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

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.

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

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

32 OECD (2007): “Enhancing Turkey’s Growth Prospects by Improving Formal Sector Business Conditions.” Economics Department Working Papers No.542

See Yin R.K “Case Study Research: Design and Methods” (1994) for the seminal review of the literature. 3 1

27

and use new, more advanced technology.

L imi ted access to fmancing i s another major constraint often cited by enterprises.

Poor electricity provision, with high prices and unpredictable power outages discourage investment in new technologies and hurt competitiveness.

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 impact of publ ic support programs on technology adoption i s mixed.

International quality certif ication i s particularly important for the food industry but provision o f MSTQ services i s reported to b e insuff icient.

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

Close relationships with foreign buyers have been v i ta l for the competit iveness and technology sophist icat ion of the c lo th ing sector.

L imi ted access to skilled labor and fmancing, and infrastructure bottlenecks constrain S M E s in the furniture sector outside Organized Industr ial Zones.

and inadequate university preparation o f engmeers.

Collateral requirements hinder SME financing but even m e d u n sized f i r m s do not use bank 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 major constraint on technology upgrading.

80% of Turkish frrms suffer from power outages33 (particularly prevalent for f i r m s outside Organized Industr ial Zones) that damage machinery.

T h e few f i rms that found incentives decisive saw VAT exemptions as h e l p f u l wh i l e customs duty exemptions less so as technology i s bought from local representatives of fore ign sellers.

KOSGEB programs are seen as bureaucratic while support for the attendance o f business fa i r s i s more popular and effective; and

F e w h s have used TUBITAK-TEYDEB support to collaborate with researchers but many expressed the need for such partnership schemes.

Some exporters emphasized that they are generally required to send their goods abroad for testing, as some destination countries do not accept the laboratories’ approval in Turkey. T h e numbers of accredited laboratories by the TSE as wel l as independent laboratories remain fairly low, and t h i s constitutes a major p rob lem for exporters in the sector.

The re are deficiencies at technician and engineer levels a n d with the phase-out of publ ic incentives, technology acquisit ion i s d i f f icu l t for m a n y S M E s .

Fo re ign partners that are pioneers globally (Italians mostly) have facil i tated p roduc t and technological upgrading by Turkish enterprises.

Source: Study Team

33 2005 World Bank Enterprise Survey.

28

IV. Summary and Conclusions

69. This section summarizes the main conclusions o f the R e p o r t a n d identi f ies some possible directions for the 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 and employment levels. Among others factors (such as pol i t ica l a n d macro-economic stabdtty along with a conducive business environment), i nnova t ion is a key dr iver for improving competitiveness, sustained growth a n d employment, a n d reducing pove r t y in Turkey.

70. Status of Turkey’s N I S . T h e Turkish G o v e r n m e n t accords high priority to R&D and innova t ion and T u r k e y has a well-developed N I S that encompasses most o f the actors and institutions existent in OECD economies:

m

Budge t al location for the support of pub l i c a n d private R&D increased sigtl lf icantly in recent years, as pa r t of 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 of a n e w R&D L a w that encourages FDI in R&D and extends financial incentives for enterprises outside Technoparks under tak ing R&D activities.

T h e scope o f pub l i c support programs for R&D a n d innova t ion i s large, but technology adopt ion levels are low. T h e r e have been inst i tu t ional improvemen ts recently, however there i s s t i l l some level of fragmentation and overlap in institutions and programs and, as in most countries, coordmat ion a m o n g N I S players i s a challenge.

Independent evaluation and international b e n c h m a r h n g o f most inst i tut ions a n d programs have not been applicable yet.

Following the EU experience, Tu rkey i s interested in raising the impac t of i nnova t ion policies on the development o f i t s regions.

Despi te recent progress in the harmonizat ion of i t s IPR regime, some legislative measures are s t i l l pendmg, i nc lud ing the one related to the au tonomy of the Turhsh Patent Inst i tute. 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 activi ty in Turkey i s essentially p e r f o r m e d by universit ies a n d pub l i c research institutes a n d the R&D intens i ty of affiliates o f foreign f i r m s i s signif icantly l ower in Turkey.

T h e per formance o f Turkey’s N I S in terms of driving productivi ty, competit iveness and innova t ion in the economy (as measured by high-tech exports or patents for example) lags beh ind that of other emerg ing economies in the reg ion a n d cou ld b e improved.

Increasing the supply of engineers and researchers a n d strengthening col laboration between pub l i c research institutes, universit ies and the business sector cou ld he lp i m p r o v e the per formance o f Turkey’s N I S .

Some R&D Insti tutes in Turkey have been restructured (e.g., TUBITAK-MAM) to become market-oriented. But, for most of them, cooperation with the enterprise sector i s l imited. Cooperat ion between universit ies and the enterprise sector i s also l imited.

Venture capital, especially early stage and business angel finance, i s almost non-existent in Turkey, h inder ing the commercial izat ion of R&D and start-up o f n e w companies.

T h e Technopark indust ry in Turkey 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 det r iment of business development services and promoting collaboration between the research sector and industry.

29

71. Firm Level Innovation and Technology Diffusion. Cont ra ry to the widespread real izat ion o f i t s impor tance for Turkey’s development, technology diffusion, inc lud ing international technology transfer, i s occurr ing at a slow pace. T h i s i s a missed opportunity in terms of raising labor productivi ty, competit iveness 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 way 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 the small firms; the enterprises from labor intensive sectors; and the companies located in the Karden iz reg ion showing systematic l ower levels of ICT use.

Quality standards are d i f fused a m o n g enterprises o f the industr ial sector but the supply of international ly accepted accreditation services i s insuff icient. T h i s m a y b e part icularly relevant for food industry’s exports requi r ing phyto-sanitary certif ication.

P r o d u c t upgrades a n d innova t ion are even less frequently employed by S M E s .

T h e insuff icient supply of researchers a n d engineers m a y b e a constraint to the expansion of pr ivate sector R&D and technology absorption.

72. Directions for Future Analysis. F u t u r e work on the Tu rkey N I S c o u l d assess the exist ing policy-measures a n d assess t h e m in terms of: (i) consistency with declared objectives; (ii) coherence (internal); and (ii) comprehensiveness. For example, the po l i cy 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 of Finance; the grants p rov ided by TUBITAK; the soft- loans p rov ided 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 respond how fum’s R&D investments are l ikely to react to t h i s set of measures. Add i t i ona 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 labo r productivi ty, the relative emphasis on indust r ia l R&D appears at odds with the large share of employment in agriculture and 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 pub l i c funding i s be ing allocated for both pub l i c and 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 insuff icient supply o f h u m a n resources, c o u l d pub l i c R&D b e “crowding-out’’ pr ivate R&D and therefore not b e fully compatible with the goal expandmg pr ivate R&D?

On Knowledge Commercialiqation. A rev iew of the incentives for universit ies a n d researchers to focus on applied research (along with basic research), patent ing and the commercial izat ion of research, bringing ideas from “labs to the market and create wealth,” embedded in the regulatory a n d policy f ramework cou ld b e very usefu l in guiding future re fo rm.

On Sciencebased Stae-t-tlps: T h e establishment a n d survival o f innovat ive science-based start-up enterprises i s h indered 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 of mechanisms for pub l i c f inancing are most appropriate to stimulate the development of the venture capital industry in Turkey and support the growth a n d survival of innovat ive start-up enterprises?

On Technology Dzfusion. Most programs supporting technology absorpt ion were developed in the 1990s. A r e the legal f ramework a n d the ongoing government programs suff icient to p r o m o t e the diffusion of technology in the current env i ronment?

On Skills and Education. W h a t can b e done to i m p r o v e enterprise-level training provision and suppor t programs.

30

73. In addition, impact evaluation techniques used in other OECD economies could be used to assess selected public support programs. T h e issues out l ined above can p rov ide the broader context for the evaluation o f key support programs for i nnova t ion a n d technology dffusion includmg: . Private R&D. T a x breaks p r o v i d e d by the Ministry of Finance; 7TGV’s soft loans (one program);

and TUBITAK’s match ing grant schemes for firms (one program). . Science-Based Start-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) of support for technology upgradmg a n d hiring business and labor- t ra in ing consultants.

74. Further work could also be undertaken to deepen knowledge about the determinants of the innovative and technological performance of the enterprise sector in Turkey including: . E x p l o r i n g the possibhty to estimate empir ical ly t he determinants of (i) technology absorpt ion 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) pr ivate investment in R&D and innovation. . Extend ing the case studies for successful S M E s (possibly in the software a n d defense sectors) to understand how they overcame the existing obstacles to upgrade the quali ty of their products and to innovate.

3 1

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 of 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, Ind ia 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 (1 997). “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. Pate1 and 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 ssue 1 1994 , pages 77 -95.

Scientific and Technological Research Council 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 Planning Organization (2003). “ S M E Strategy and Action Plan.” State Planning Organization, Ankara, Turkey.

State Planning Organization (2003). “Industrial Policy for Turkey: Towards EU Membership.” State Planning Organization, Ankara, Turkey.

State Planning Organization (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. 391 94, 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 the Developing World.” Report No. 42097, Global Prospects Group, World Bank, Washington, DC.

Yin R.K (1 994). “Case Study Research: Design and Methods. ” A p p h d Social Research Method Series, 5, 2nd ed

32

ANNEX I

KEY ACTORS OF THE TURKISH NATIONAL INNOVATION SYSTEM

T h e main actors in the Na t iona l I n n o v a t i o n System P I S ) of T u r k e y and 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 and technology po l i cy m a h n g and co-ord inat ion body in Turkey. Establ ished in 1983, the BTYK i s legally formal ized 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 Counc i l proposes policies and decides on policies designed by the Scientif ic and Technological Research Counc i l of Tu rkey (TUBITAK); approves the act ion p lan for implementat ion of 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 and coordinates imp lemen ta t i on o f po l i cy 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 const i tu ted by the related State Ministers: the Ministers o f Commun ica t i on and Transportat ion, Energy and N a t u r a l Sources; Defense; Finance; Na t iona l Education; Health; Forestry, A g c u l t u r e a n d Rura l Affairs; Industry a n d Trade; the President o f the H i g h e r Educa t ion Council; the Undersecretaries o f the State P lann ing Organizat ion (SPO); Treasury, and Fo re ign Trade; the President a n d one of the V i c e Presidents of TUBITAK, the President of the A t o m i c Energy Counc i l o f Turkey; the Genera l D i r e c t o r of the Broadcasting Corpo ra t i on of Turkey; the President of the Union of Chambers o f Commerce a n d Industry (TOBB), and the representatives o f two l e a d n g universit ies. Presidents of other related governmenta l organizations, not-for-profit foundations, chambers and ma jo r technical universit ies are i n v i t e d to the meetings.

Hich Planning Counc i l IYPK) : YPK i s the hghest- leve l body for the preparation a n d implementat ion of the development plans which also covers i nnova t ion a n d technology po l i cy actions for Turkey. State P lann ing Organizat ion (SPO) i s the Secretary to the YPK, w h i c h i s chaired by the P r i m e M in i s te r a n d composed o f the ministers appointed by the P r ime M in i s te r (currently, members inc lude the two State Min is ters (one o f t h e m i s also the D e p u t y P r i m e Mmister), Ministers of Finance; Pub l i c Works and Settlement; Transport; Industry a n d Trade, a n d Energy and N a t u r a l Sources), and the Under-Secretary o f SPO.

T h e main tasks o f the YPK inc lude the following: Assisting the Counc i l of Min is ters in the p lann ing and identi f icat ion of policy targets in economic, social a n d cultural development, a n d examin ing development plans and annual programs with respect to objectives and suff iciency before submitting to the Counc i l of Ministries, T a h n g high level decisions on country's economy, Ident i fy ing the principles related to investment a n d exports promotion, T a h n g decisions on state economic enterprises in l ine 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 Counc i l i s authorized by laws and related legislation.

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

33

zones’, TDZ, as de fmed by the Law), support o f industr ial R&D a n d the establishment o f Indust r ia l Estates and Organized Indust r ia l 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 Indust r ia l Thesis (San-Tez) Projects P rog ram and aims to start n e w programs to support R&D a n d innova t ion in the industry. T h e MoIT DG Industr ia l 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 Suppor t and Precompetit ive R&D Suppor t under this legislation. I t i s also in the process of start ing a R&D support p rog ram 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, market ing a n d promotion support and patent support. T h e MoIT through i t s Directorate-General for Small Indust r ia l Estates a n d Indust r ia l Zones implements studies to stimulate cluster development activities in Turkey a n d designs a cluster support p r o g r a m w h i c h will b e init iated in 2009.

T h e Small and M e d i u m Size Industry Deve lopmen t Organizat ion (KOSGEB), Turkish Patent Inst i tu te (”PE), Turhsh Accredi ta t ion Agency (TURKAK) a n d the Turkish Standards Inst i tu te (TSE) are connected to the MoIT.

M i n i s t r v of Finance fMoF>: I t i s responsible for the implementat ion of the R&D tax postponement and tax exempt ion 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 implementat ion of tax exemptions in Technoparks a n d in the implementat ion of the R&D L a w No.5746.

Ministrv of Na t iona l Educa t ion IMoNE) and the H i g h e r Educa t ion Counc 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 imp lemen t the education and training policies a n d coordinate po l i cy implementation. T h e Inter-Universit ies Counc i l connected to the YOK i s responsible for the coord inat ion a n d evaluation o f research activities o f universit ies a n d advising the YOK on the subject.

T h e Scientif ic and Technolomcal Research Counc i l o f Tu rkev (TUBITAK): As a n autonomous body aff ihated to the P r i m e Ministry, TUBITAK has dual ro le in the N I S . First, i t i s responsible for the formulat ion of Turkey’s science a n d technology po l i cy as the Secretary to the BTYK; a n d second acts as an imp lemen t ing agency for science, technology a n d innova t ion support programs.

T h e science and technology po l i cy fo rmu la t i on ro le o f TUBITAK i s mainly handled by i t s Science and Technology Policies Directorate, wh i l e research a n d innova t ion support programs are managed by i t s three departments, namely the TUBITAK-ARDEB (Research Projects Suppor t Directorate), TUBITAK-TEYDEB (Technology a n d I n n o v a t i o n Projects Suppor t Programs Directorate) and TUBITAK-BIDEB (Scientist Suppor t Directorate). TUBITAK-TEYDEB i s the division w h i c h provides grants for the R&D a n d innova t ion activities o f the private sector (see the ‘ Implement ing Agencies’ section below). TUBITAK i s also the Na t iona l Coord ina t i on O f f i c e for Turkey in the EU Research F ramework Programs. A n o t h e r responsibihty recently assigned by the BTYK to TUBITAK i s to p rov ide effective func t i on ing of the “Turkish Research Area” ( T A W ) w h i c h i s def ined as the p l a t f o r m where the private and pub l i c sectors and non-governmenta l organizations strategically focus and collaborate for R&D. TUBITAK is also responsible for the in tegrat ion of T A W with the European Research A r e a (ERA).

State Planning Orsanizat ion (SPO): T h e SPO i s responsible for the preparation a n d implementat ion of the Deve lopmen t Plans and other policies and programs related to innovation, such as regional development and the establishment a n d coord inat ion o f regional development agencies, and the ‘e- Transformat ion Turkey’ project, a m o n g other things. T h e Deve lopmen t Plans inc lude innova t ion and technology po l i cy i tems for the purposes of budget allocations. SPO allocates the TARAL

34

budget and budgets o f R&D a n d innova t ion funds except those b e l o n g to the Under-Secretariat of Fore ign T rade (UT a n d K O S G E B .

SPO i s composed of three m a i n bodes : T h e Undersecretariat of the State P lann ing Organization (DPM), the €-hgh P lann ing Counc i l (YPKJ and the Money -Cred i t a n d Coord ina t i on Counc i l (D- KKK). P-KKK is responsible for the determination o f policies for G o v e r n m e n t suppor t programs and al location of funds for t h i s purpose. I t i s chaired by the State M in i s te r for the SPO and consists o f the various Min is ters 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, the Undersecretary of the Treasury, the Undersecretary of Fore ign T rade a n d the G o v e r n o r o f the Centra l Bank. T h e SPO, together with a n d TOBB also act as the Secretariat o f the ‘Permanent Specialization Commiss ion on Increas ing the Competit iveness of the Industry, established in 2007.

Under-Secretariat of Treasurv (HM) : I t i s i nvo l ved in the fo rmu la t i on o f policies in connect ion with the design of mechanisms to support innovat ion. HM manages the ‘Support for R&D Investment’ p rog ram and co-operates with TUBITAK-TEYDEB on imp lemen ta t i on of that program. I t also acts as a guarantor for in ternat ional funds available for supporting innovat ion.

Under-Secretariat o f F o r e i n T rade fUF‘I) : L i k e HM, UFT is also i nvo l ved in the formulat ion o f policies in connect ion with the i nnova t ion design o f mechanisms to support innovat ion. UFT provides finance to the TUBITAK-TEYDEB a n d the Technology D e v e l o p m e n t Founda t ion o f Tu rkey WGV) (see ‘ Implement ing Agencies’ below) for supporting R&D a n d innova t ion activities of industry based on the decree of the P-KKK.

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

Turkish Patent Inst i tu te fTPE): AffLLiated to the MoIT, TPE responsible for carrymg out the procedures related to indust r ia l and intellectual p roper t y rights, a n d for informing and guiding the industrialists, R&D insti tutes a n d individuals on IRP related issues.

Turhsh Accredltat ion Azencv fI’U . RKAK): TURKAK i s connected to the MoIT and deals with increasing competit iveness level o f industry by accredit ing organizations and ensuring that. these organizations operate in accordance with nat ional a n d international standards.

Turkish Standards Inst i tu te (‘BE): Also connected to the MoIT, T S E i s responsible for standards preparation, p r o d u c t cert i f icat ion and testing.

Turkish Statistics Inst i tu te (TUIK): TUIK i s connected to one of the State Mit l lsters and i s responsible for providmg statis t ical i n f o r m a t i o n related to R&D, innova t ion a n d industry, a m o n g others.

T h e Te rmanen t SDecialization Commission on Increasinp the ComDetit iveness 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 competit iveness o f the industry; to submit the po l i cy a n d strategy recommendations and their results to the decision ma lung bodes ; to ensure that these studies are conducted in a sustainable manner and moni tored. Members inc lude the Parliamentary Specialization Commissions (2 members), P r ime Ministry (1 member), M i n i s t r y o f Finance (1 member), M i n i s t r y of L a b o r and Social Security (1 member), M i n i s t r y of Industry and T rade (1 member), Undersecretariat o f State Planning Organizat ion (1 member), Undersecretariat of Treasury (1 member), Undersecretariat o f Fore ign Trade (1 member), Scientif ic a n d Technological Research Counc i l o f Tu rkey (TUBITAK) (1

35

member), Universit ies (3 members), T h e Union of Chambers a n d Stock Exchanges (TOBB) (5 members), Turkish Industrialists’ a n d Businessmen’s Associat ion (TUSIAD) (1 member), Independent Industrialists’ a n d Businessmen’s Associat ion (MUSIAD) (1 member), Expor ters Assembly of T u r k e y (1 member) and 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 Min is ters appointed by the P r i m e Minister, SPK is, a m o n g others, responsible for the development a n d implementat ion of the regulations for ven tu re capital a n d pr ivate equity.

ComDet i t ion Authority: As an autonomous body, the C o m p e t i t i o n Authority i s a n impor tan t actor in the N I S for st imulat ion o f compet i t ion as one of the dnving forces b e h i n d innovat ion.

Implementing Agencies for State Supports

T h e Scientif ic a n d Techno lodca l Research Counc i l of T u r k e v (TUBITAW: TUBITAK i s one of the three m a i n imp lemen t ing agencies o f i nnova t ion programs a n d measures, and provides grants for industr ial R&D u n d e r f ive d i f ferent programs (Support P r o g r a m for Indust r ia l R&D Projects, Suppor t P r o g r a m for Pro ject Brokerage Events, Support P r o g r a m for the First R&D Projects of SMEs, Suppor t P r o g r a m for Technology- a n d Innovat ion- focused Entrepreneurshlp, and Suppor t P rog ram for Mu l t i na t i ona l Industry R&D Projects). In addttion, i t assists the MoF in the execution of the R&D tax postponement and tax exempt ion schemes a n d to the HM in the R&D investment incentive. R&D pro jec t support activities o f TUBITAK-TEYDEB are par t ly funded by the UFT and the other programs are financed out o f TUBITAKs annual budget.

T e c h n o l o r n DeveloDment Founda t ion o f Tu rkev (TTGV): TTGV, established in 1991 with support under a World B a n k pro ject (TDP-I), i s a no t - fo r -p ro f i t foundat ion managing research and technology development support programs through the finance p r o v i d e d by the UFT and by their own resources. TTGV was one of the imp lemen t ing 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, and p rov ided technology development p ro jec t supports for the industry and technology support services to S M E s under the ITP. Currently, TTGV implements the Technology D e v e l o p m e n t Pro ject Support (TDP) Program, Commerc ia l izat ion Pro ject Suppor t P rog ram and the Joint Technology Deve lopmen t Projects Supports P r o g r a m in order to increase private sector investments in R&D and innovat ion. T h e y imp lemen t Pre- Incubat ion Suppor t Program, Risk Sharing Faci l i ty Suppor t P rog ram 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 of n e w technology based firms. Finally, TTGV implements environmental pro ject support programs under the headings o f the Renewable Energy Suppor t Program, the P rog ram for Energy E f f i c i ency in Industry, and the Env i ronmen ta l Technologies Suppor t Program.

Small a n d Medium-Size Industry Deve lopmen t Organizat ion (KOSGEB): As an a f fha te of the MoIT, K O S G E B i s an autonomous pub l i c body imp lemen t ing a w i d e range of schemes for increasing competit iveness o f small a n d medium-size enterprises (SMEs) and promoting entrepreneurship. I t also provides an env i ronment for establishment o f high-tech firms through i t s incubators (called as Technology Deve lopmen t Centers, TEKMERs) in co-operation with the technical universit ies and industr ial chambers. K O S G E B runs a Regional Deve lopmen t Centre, regional off ices a n d establishes fachties for c o m m o n use o f the private sector (ORTKAs and ORTLABs) together with regional umbre l la organizations.

36

Private Sector Establishments

Private sector enternrises are the main actors of N I S as i nnova t ion takes place in enterprises of al l sizes and sectors. A c c o r d i n g to the prov is ional results o f the ‘2002 Genera l Census of Industry and Business Establishments’ conducted by the DIE, there are 1,720,598 enterprises in Turkey 14.4 percent of w h i c h are manufactur ing industry companies.

’

N e t w o r k s and 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 ne twork ing a n d clustering for innova t ion are underdeveloped in Turkey due to poor cooperat ion culture and lack of incentives. In 2007, TUBITAK started the Support Prog ram to Build Scientif ic a n d Technological Cooperat ion N e t w o r k s and Plat forms to facllitate establishment of technology p la t forms. F i v e pilots were started in the sectors o f textiles, electric/electronics, metal, automot ive and mar ine sciences. There are also actions init iated by NGOs. T h e most notable activities i s the p ro jec t started by TUSIAD to establish regional i nnova t ion centers, structures w h i c h will act as hubs of sectoral i nnova t ion networks in 8 regions. T h e other activities suppor ted by the government are the ‘Sectoral Fo re ign T rade Companies,’ established by UFT as a fo rma l n e t w o r k between SMEs, a n d the Common Faci l i ty Workshops (ORTKAs) and the Common Purpose Laboratories (ORTLABs) founded by KOSGEB. There are n e w init iatives a remarkable step in the fo rma t ion of clusters i s the “Development of a Clustering Pol icy in Turkey Project” w h i c h has recently been in i t ia ted by the UFT with the support of the EU. T h e pro ject addresses the 16th chapter of the Na t iona l Programme for the Adaptat ion o f Acquis and falls main ly into priority 16.2, namely “ Implementat ion o f SME Strategy a n d A c t i o n Plan.” T h e pro ject i s geared towards improving competit iveness o f S M E s , hence serves duect ly to the achievement o f the overall objectives o f broader policies i nc lud ing the nat ional S M E Strategy a n d A c t i o n P lan a n d national development plan. Previously there were a few local clustering initiatives; the most notable one i s the Ad iyaman textde cluster pro ject imp lemen ted by local a n d in ternat ional resources.

Knowledge and Ski l l Providers

Universit ies 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 of 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 universit ies. T h e r e are 97 universities, in the country. L i f e l o n g Learn ing Centers, w h i c h mainly be long to regional universit ies a l l over the country, p rov ide short-term training and certif icate programs for the participants from the business sector.

The re are a large n u m b e r of public, private a n d non-governmental organizations that p rov ide consultancy and training on various topics that are mostly induect ly related to innovat ion. Two ma jo r institutions in that respect are the Turkish Inst i tu te for Indust r ia l Management ITUSSIDE) and Na t iona l Product iv i ty Centre (MPM) . T h e fo rmer i s an autonomous institution aff l l iated to TUBITAK and managed with the MoNE. MFM i s connected to the MoIT and provides consultancy, training and research services on product iv i ty related issues. In addition, there are a few private fums that p rov ide consultancy a n d training on innovation, w h i c h are mainly located around Istanbul, and not able to he lp companies countrywide. KOSGEB’s regional offices a n d the Business Deve lopmen t Centers established with the World B a n k a n d EU support are the m a i n regional organizations to p rov ide in format ion, consultancy and 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). Current ly there are two pilot RDAs active in I z m i r and Cukurova (Adana-Mersin) regions. I t i s expected that RDAs d play an i m p o r t a n t ro le in regional i nnova t ion issues.

37

Innovation Intermediaries

There are two I n n o v a t i o n Relay Centers (IRC-Ege a n d IRC-Anatol ia) established through the support of the EC from the Six th F ramework P rog ram in 2004 foster international technology trans fer activities.

T h e Union of Chambers o f Commerce a n d Industrv fTOBB) i s one of the most impor tan t i nnova t ion intermediaries as a bridging institution between the pr ivate a n d pub l i c sectors. I t s ro le as a hub of a n e t w o r k of indust r ia l a n d commerc ia l chambers as w e l l as non-governmenta l organizations fachtates the f lows in the N I S .

Chambers of Industrv a n d Commerce a round the coun t ry 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 innova t ion related issues, such as the Is tanbul Chamber of Industry and M e r s i n Chamber of Industry a n d Trade.

Turkish Industrialists’ a n d Businessmen’s Associat ion (TUSIAD) i s another impor tan t bridging organization for innovat ion. T h e y also started to p lay a m o r e active r o l e in this respect by in i t ia t ing a project for the establishment o f 20 regional i nnova t ion centers throughout the country. T U S I A D , among other activities, deals with in fo rma t ion dissemination and s t imulat ion 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 Na t iona l Quality A w a r d and Congress together with the Oual i ty Associat ion o f Tu rkev (KalDer) w h i c h also undertakes an i m p o r t a n t ro le from innovat ion management perspective.

O t h e r non-governmenta l organizations with mediat ing ro le in innova t ion related issues include the F o r e i m Investors Associat ion (YASED), the E c o n o m i c D e v e l o p m e n t Founda t ion (IKV) and sectoral bodies such as the LCT Founda t ion o f Tu rkev (TBV) , In fo rma t i cs Associat ion o f Tu rkey (TBD’) and the A u t o m o t i v e Manufacturers Associat ion of Tu rkev (OSD). T h e y a l l carry out activities for raising awareness, dlsseminating i n fo rma t ion a n d facil i tating flows between the pub l i c and private sectors.

Other Stakeholders

O t h e r significant stakeholders in Turkish innova t ion system inc lude the research centers, technology parks, venture capital companies and incubators.

TUBITAK’s Marmara Research Centre (MAN i s the largest contract research center in the country. T h e technological fields covered by the center inc lude materials a n d chemistry, ICT, genetic engineering and biotechnology, energy systems and environment, food technology, and earth and mar ine sciences. TUBITAK-MAM also r u n s a Technopark a n d a technology free zone for high-tech enterprises. TUBITAK-MAM i s one of the imp lemen t ing agencies of the World B a n k financed ITP. TUBITAK has f ive m o r e R&D institutes that are active in i n f o r m a t i o n technologies and electronics, defense industries, cryptology, agro-technology.

There are nearly 90 pub l i c research institutes, w h i c h ma in l y be long to various ministries and are not active in col laborating with the business sector. Ma jo r i t y of these institutes work on tradit ional sectors, such as agriculture (there are 64 R&D centers operating under the M i n i s t r y o f Agriculture and Rura l Affairs, MARA) and forestry.

There are also university- industry joint research centers established by regional universities, industrialists and U S A M P (Ceramics Research Center in Eskisehir A n a d o l u University, ‘Tex t i l e Research Center in E g e University, B iomedica l Technologies Center in Hacettepe University, Adana University-Industry Joint Research Centre in Cukurova University, A u t o m o t i v e Technologies R&D

38

Centre in Is tanbul Technica l Univers i ty a n d M E T U - O S T I M Advanced Manu fac tu r ing Systems and Technologies Center in O S T I M Organized Indust r ia l Zone). Establ ished through a "Tr ip le He l i x " m o d e l of university-industry-government interactions to p r o m o t e innovat ion, U S A M s init iate and sustain both university/ industry and in te r - f i rm col laboration for innovat ion.

T e c h n o l o w Darks a n d incubators are other significant elements o f the N I S . There are 28 Technoparks established (of these 18 are operational) i nc lud ing by the universit ies a n d research centers under the 'Law of Technology D e v e l o p m e n t Regions'. KOSGEB operates 20 incubators (TEKMERs) in the universit ies in collaboration with universit ies a n d indust r ia l chambers. There are also private incubators established by Er icsson (Ericsson Mobdity World) a n d Siemens (Siemens Business Accelerator). T h e Cyberpark Incuba to r established jointly by B i l ken t Univers i ty and KOSGEB a n d located in Ankara Cyberpark i s the fmt incubator founded through private-public partnership suppor ted by the World B a n k pro ject (ITP).

There are three venture capital companies established in the coun t ry (VakifRisk, I s Girisim a n d KOBI Yatir imlarina Ortakl lk). The re are also other pr ivate init iat ives 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 and T u r k v e n and established the Girisim Fund from the finance p r o v i d e d by the World B a n k under ITP.

T h e ma jo r bank providing credlts to S M E s i s the Halkbank. T h e Indust r ia l Deve lopmen t B a n k of Tu rkey (TSKB), Turk E x i m b a n k and the Deve lopmen t B a n k of Turkey (TKB) are the other relevant financial institutions. T h e Credl t Guarantee Fund (KfW) which was established in partnership with TOBB, Confederation of Tradesmen and Craf tsmen PSK), Turhsh Founda t ion For Small and M e d l u m Business (TOSYOV) the Founda t ion for Suppor t i ng Vocat ional Training and Small Industry (MEKSA), K O S G E B and Halkbank, prov ides guarantees on S M E loans for facil i tating risk- sharing and lend ing a m o n g Turkish banks.

39

ANNEX I, ATTACHMENT TURKEYS NATIONAL INNOVATION SYSTEM

(INSTITUTIONS SCHEMATIC REPRESENTATION)

E$:n I lndusby8Trade I Finance I Stale Treasury Foreign Trade State Planning Money Credit Cwrdination

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

40

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 of exist ing programs. Research and innovation pro ject support programs implemented by TUBITAK are organized under three main divisions: (i) nine programs support academic research projects of universities and research institutions (although private sector companies may also apply) under the coordination o f ARDEB (Research Projects Suppor t Directorate); (ii) five programs support R&D in the private sector under the coordination of TEYDEB (Technology and Innovation Projects Suppor t Programs Directorate); and (iii) nineteen programs, coorlnated by BIDEB (Scientist Suppor t Directorate), aim at increasing the quality and quantity of scientists in Turkey. TUBITAKs funding increased after 2005 when, for the f i r s t t ime, 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 Scientif ic 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 Suppor t Program for Research Projects of Public Institutions (KAMAG), came into ef fect on March 2005 with 7 2 pro ject totaling US$166 d o n approved by May 2007 and another 65 being evaluated in October 2007.34

2. Technolo? Development Foundation of Turkev CTTGQ

T h e TTGV i s a key player in t h e N I S in promoting R&D activit ies by the private sector and fostering collaboration between f i r m s and the research community. T h e Agency, established in 1991 under the World Bank's fust Technology Development Pro ject (1991-1997), i s a non-profit foundation aimed at 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 Pro ject Suppor t Program, Commerciahation Pro ject Suppor t Program and the Joint Technology Development Projects Supports Program); (ii) technological entrepreneurship support (Pre-Incubation Suppor t Program, Risk Sharing Facility Suppor t Program and Start-up Suppor t Program) in order to st imulate the establishment of new technology based firms; and (iii) three programs promoting environmental projects by the private sector with a focus on energy efficiency (Renewable Energy Suppor t Program, the Program for Energy Efficiency in Industry, and the Environmental Technologies Suppor 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 commercial izat ion rate o f 90%. I t s Technology Development Pro ject program alone from 1991 to 2007 supported 730 new technology init iatives 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 ta r t -up 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.

41

academicians for p ro jec t evaluation and monitoring processes for i t s R&D support programs, and a round 55% of suppor t beneficiaries between 1991-2007 h a d used consult ing services from universities at least. In addition, TTGV has also suppor ted two Technoparks and has init iated a biannual compe t i t i on ((‘Dr. Akin Cakmakp A w a r d ’ ? award ing the student theses successfully implemented by enterprises. W h i l e TTGV’s generous support (in terms o f matur i ty and amoun t of loans) mechanisms are considered broadly successful in par t ly alleviating domestic private capital market failures and promoting R&D and innova t ion in the private sector, beneficiaries have expressed concerns about i t s f inancial instruments. For example, some enterprises have found TTGV’s service charge to b e h igher than the interest rate o f pr ivate banks, r i sks 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 Fore ign T rade and are binding on TTGV currently), str ict e l ig ibhty criteria, a n d overly conservative nature of the organization.

3. Small and Medium Industrv Development OrFanization (KOSGEB)

K O S G E B , established in 1990, i s a n autonomous pub 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 and Trade that focuses on improving the competit iveness of S M E s . I t offers services and financial support mechanisms in a range of fields ( in format ion dissemination, consult ing and training, entrepreneurship, p r o d u c t quality improvement , expor t marke t research a n d development) inc lud ing technology upgrad lng and ICT investment. K O S G E B also supports the establishment o f high-tech firms through incubators called Technology Deve lopmen t Centers (TEKMERs) that bring together technical universit ies and industr ial chambers. In 2006, there were 2405 projects supported by K O S G E B worth US$11.65 d o n , substantially l ower than the 21,500 projects undertaken in 2004 at a cost of US$90 million. Acco rd ing to the agency’s own data, by June 2007 K O S G E B has suppor ted 1130 projects with a to ta l al location of just under US$5 million have been supported. T h e technological R&D support p r o g r a m that offers a m ix tu re of grants and 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 and US$16.75 d o n in 2004. S d a r l y , software support fe l l dramatically during the same pe r iod from 2001 projects cost ing US$26 d o n in 2004 to 227 projects worth US$1.1 d o n in 2006. T h e p r imary reason for the decline in the use of K O S G E B technology programs i s that the TUBITAK- TEYDEB a n d TTGV programs o f fe 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

Governmen t ministries, in part icular the Ministry o f Industry a n d Trade, also have support programs but these are relat ively 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 administrat ive assistance o f TUBITAK-TEYDEB prov ides tax incentives for R&D investment35, a f fo rd ing companies tax exempt ion of 40% of their to ta l R&D expenditures. T h e Treasury implements the “Support for R&D Investments” scheme that provides exempt ion from value added tax a n d customs duty as we 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 of Indus t r y and T r a d e i s the most active in the f ie ld of i nnova t ion and technology, i n t roduc ing in 2006 the Indust r ia l Thesis P rog ram (San-Tez) that allocated US$10 d o n towards co-f inancing (25% of the cost i s f inanced by the pr ivate sector) graduate students’ theses on promising n e w technology- based products’ a n d processes relevant to industry. In addit ion, under the L a w on Technology Deve lopmen t Zones (TDZs) o f 2001, the M u l i s t r y approves the establishment of Technoparks that a i m to encourage col laboration between the pr ivate a n d research sector and 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 and spin-offs.

42

U Y U

4

a 8

e

I I 1 1 I 1 I

3 r

4 f s F

B F

R % L F

I .!@

rb c

n r W i F

3

v,

ANNEX IV

SUMMARY OF MAIN R&D RELATED LEGISLATION

DECREE/LAW L a w on Technology Deve lopmen t Zones L a w No:4691 Da te : 26.06.2001 L a w on Changes in Some Previous Laws L a w No: 5228 Da te : 16.07.2004 (‘Decree on T a x Postponement to Suppor t R&D’)

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

Decree on K O S G E B Supports O f f i c i a l gazette No: 25795 Date: 24/4/2005 T h e L a w on the A m e n d m e n t of M i n i s t r y of T rade a n d Industry’s Organizat ion and Tasks L a w No:5593 D a t e : 01.03.2007

Decree on Governmen ta l Supports for Investments, O f f i c i a l gazette No: 2631 1 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 Regulat ion (published on the O f f i c i a l Gazette No.26573 dated July 5, 2007)

~~

Short description This l a w sets the incentives a n d the rules for the 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 imp lemen ted 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 pos tponed for a pe r iod 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 incent ive 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 id p r o v i d e d to pr ivate companies through TTGV and TUBITAK-TEYDEB. T h i s decree sets down the rules for the supports p rov ided by K O S G E B for S M E s .

This l a w al lows MOIT to design R&D a n d innova t ion support programs to stimulate technological R&D activities of industry a n d university- industry cooperation, to support enterprises and entrepreneurs on‘malung investments, patent ing a n d market ing o f technological products developed as a result o f R&D, and to prepare regulations on the implementat ion o f these programs. T h e decree sets down the rules for support p rov ided by the gove rnmen t for investments o f pr ivate sector companies i nc lud ing R&D investments. T h e l a w al lows companies to deduct 100% of their R&D ’ costs from the amoun 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 amoun t of calculated i ncome used for the calculation o f personal i ncome tax. T h i s l a w imp lemen ted by MoIT in cooperation with MoF prov ides tax incentives for the R&D activities of private sector, especially for firms located outside Technoparks a n d encourages FDI in R&D. This regulat ion has been prepared to support, monitor and finalize masters and /o r PhD theses ident i f ied in l ine with the needs of the industry in order to inst i tut ional ize 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 competit iveness.

52

ANNEX V

INNOVATION SUPPORT PROGRAMS IN TURKEY

Table of Contents

I . INTRODUCTION ................................................................................................................................... 55 I1 . 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 Suppor t Program for Scientif ic and Technological (Academic) Research Projects ............ 56 1501 T h e Suppor t Program for Industrial R&D Projects ......................................................................... 6 1 1002 - Rapid Suppor t Program ..................................................................................................................... 65 1007-Support Program for Research Projects o f Public Institutions ...................................................... 65 Preparation of Research Programs for Public Institutions ........................................................................ 67 1008- Patent Application Promotion and Suppor t Program ..................................................................... 68 1010- Global Researcher Suppor t Program ................................................................................................. 69 1011- The Participation Program for International Scientif ic Research Projects .................................. 70 1301 - Suppor t Program to Build Scientif ic and Technological Cooperation Networks and Platforms ............................................................................................................................................................ 70 3501- Nat ional Young Researcher Career Development Program .......................................................... 7 1 1503- Suppor t Program for Pro ject Brokerage Events .............................................................................. 7 2 1507 Suppor t Program for First R&D Projects o f S M E s .......................................................................... 7 2 1508- Techno-Entrepreneurship Funding Program ................................................................................... 73 1509 Suppor t Program for International Industry R&D Projects ............................................................ 75

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 ............................................................................................. 7 6 Commercial izat ion Pro ject Suppor t .............................................................................................................. 79 Joint Technology Development Projects ..................................................................................................... 7 9 Pre-Incubation Suppor t ................................................................................................................................... 80 Risk Sharing F a c d q Suppor t .......................................................................................................................... 8 1 Start-up Suppor t ............................................................................................................................................... 81 Environmental Pro ject Suppor t Programs ................................................................................................... 82

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 ...................................... 8 4

I11 .

IV .

V

R&D and Technological Innovation Suppor t Program ............................................................................. 84 S O F T W A R E Suppor t ..................................................................................................................................... 87 Electronic Signature Suppor t .......................................................................................................................... 88 E-commerce Suppor t ....................................................................................................................................... 89 E - S M E Informatics Standby Credit .............................................................................................................. 89 Machinery/Equipment Suppor t 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 Suppor t ................................................................................................................................. 92 Consultancy Suppor t for S M E s ..................................................................................................................... 93 General Training Programs ............................................................................................................................. 9 4 New Entrepreneur Suppor t ............................................................................................................................ 9 4 General Entrepreneurship Training .............................................................................................................. 95 Young Entrepreneur Development Program .............................................................................................. 96 Quality Development ....................................................................................................................................... 9 6 Industrial Proper ty Rights Suppor t ................................................................................................................ 98 Bank Interest Rate Supports ........................................................................................................................... 99

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 of Technology Development Zones ........................................................... 102 Industrial Thes is (San-Tez) Projects ............................................................................................................ 106

53

R&D Support Program Based on Law No.5746 ....................................................................................... 107 Support programs by MoIT to be introduced in 2009: ............................................................................ 108

VI . R&D TAX EXEMPTION BY THE MINISTRY OF FINANCE ................................................ 109 VI1 . THE SUPPORT FOR R&D INVESTMENTS BY THE TREASURY ....................................... 110 VI11 . STATE PLANNING ORGANIZATION (SPO) FUNDING FOR R&D

INFRASTRUCTURES ........................................................................................................................... 111

54

INNOVATION SUPPORT PROGRAMS IN TURKEY

I. INTRODUCTION

This report38 prov ides i n fo rma t ion on the i nnova t ion and technology programs/pol icy measures in Turkey p rov ided by TUBITAK, TTGV, K O S G E B , M in i s t r y o f Industry a n d Trade, Ministry o f Finance, Undersecretariat of Treasury and State Planning Organization. I n f o r m a t i o n on the f ive key programs i s g iven in d e t d . These programs are as follows:

T h e Suppor t P rog ram for Scientif ic and Techno logca l (Academic) Research Projects imp lemen ted by the Scientif ic a n d Technological Research Counc i l o f Tu rkey (TUBITAK) T h e Suppor t P rog ram for Indust r ia l R&D Projects by TUBITAK T h e Suppor t P rog ram for Technology Deve lopmen t Projects by the Technology Deve lopmen t Founda t ion of Tu rkey (ITGT T h e Suppor t P rog ram for R&D a n d Technological I n n o v a t i o n by the Small and M e d i u m Industry Deve lopmen t Organizat ion (KOSGEB) T h e Law on the Establ ishment of Technology Deve lopmen t Zones implemented by the M i n i s t r y of Industry and Trade (MoIT) T h e Suppor t P rog ram for Indust r ia l 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.

5 5

11. PROGRAMS/POLICY MEASURES IMPLEMENTED BY TUBITAK

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

a. Imdement ing . agency

T h e Scientif ic a n d Technological Research Counc i l of T u r k e y PB ITAK) was established in 1963 to organize, coordinate and encourage basic and applied research activities especially in natural sciences. By the establishment of the f i r s t research centre in 1971, it also started to conduct research. TUBITAK has undertaken the ro le of science and technology (S&T) po l icy-making by the preparation of the f i r s t science policy documen t o f Tu rkey (Turkish Science Policy: 1983-2003). I t started to act as the S&T pol icy-making and advisory body after the establishment o f the Supreme Counc i l o f Science a n d Technology (BTYK) in 1983. T h e word "technical" in the name 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 Governmen t has allocated funds for research in the national budget for the f i r s t t ime in Turkey to b e dsbursed by TUBITAK.

Activi t ies o f TUBITAK include the following: Develops science and technology policies o f T u r k e y and acts as the secretary to BTYK, the hlghest level science and technology po l i cy co-ordination body; Supports, encourages a n d monitors academic research a n d development (R&D); Supports, encourages and monitors industr ial research, technology development and innova t ion (RTDI); Develops academic-industrial relations; Operates R&D institutes conduct ing RTD activities in l ine with the national priorities; Operates units facll i tating and providing technical services for R&D activities; Identi f ies and encourages scientists of the future; Awards annual prizes to incite scientif ic excellence; Organizes a n d manages international scientif ic and technological co-operation; Publishes scientif ic 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 Inst i tu te (www.mam.aov,tr/eng./institutes/bte) o Energy Inst i tu te (www.mam.g.ov.tr/enc/institutes/ee) o Food Inst i tu te (www.mam.g.ov.tr/enE/institutes/ge) o Genet ic Engmeer ing and Biotechnology Inst i tu te (www.mam.eov.tr/endinstitutes/mbe) o Chemist ry a n d E n v i r o n m e n t Inst i tu te (www.mam.g.ov.tr/eng./institutes/kce) o Materials Inst i tu te (www.mam.gov.tr/en_p/institutes/me) o E a r t h a n d M a r i n e Sciences Inst i tu te (www.mam.pov.tr/eng./institutes/vdbe) T U B I T A K - N a t i o n a l Research Inst i tu te 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 Industr ies Research and Deve lopmen t Inst i tu te (www. sag.e.tubitakzov.tr) T U B I T A K - S p a c e Technologies Research Inst i tu te (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 Inst i tu te (www.eursev.pov,tr)

39 Information provided in t h i s section i s taken from the resolutions o f the 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/).

56

' e T U B I T A K - N a t i o n a l Me t ro logy Inst i tu te (www.ume.tubitak.g.ov.tr) e T U B I T A K - T u r k i s h Inst i tu te for Indust r ia l Management ( m . t u s s i d e . p v . t r )

TUBITAK-Turkish Academic N e t w o r k and 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 and Research Institutes, Centers a n d s d a r units. T h e highest-level management a n d dec is ion-mahng organ o f TUBITAK is the Science Board. T h e Science B o a r d i s composed of a chairman a n d 14 members. T h e president of TUBITAK chairs the Science Board. There are three vice presidents and a secretary general repor t ing direct ly to the president. T h e research institutes, laboratories and centers are also direct ly connected to the president. O n e o f the v ice presidents i s responsible for the international relations a n d co-ordination of research centers a n d institutes; the other one for the science a n d technology pol icy-making a n d science a n d society; and the last one for the research supports, industr ial R&D supports a n d scientist development. T h e Secretary General i s responsible for the administrative and financial matters.

Research supports are in the responsibi l i ty o f three departments, w h i c h are Depar tmen t for Suppor t ing Science People (BIDEB), Depar tmen t for Research Support Programs (ARDEB) and Depar tmen t for Technology a n d Innova t ion Suppor t Programs (TEYDEB), w h i c h are working under the responsibi l i ty of one of the v ice presidents. ARDEB, the responsible department for the execution o f the 'Support Prog ram for Scientif ic and Technological (Academic) Research, Projects', has n ine 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) Electr ic-Electronics and In format ics Research Group (EEEAG) Engineer ing Research Group (MAG) Envi ronmenta l , Atmospheric, Ground a n d N a v a l Sciences Research Group (CAYDAG) A q c u l t u r e , Forestry and Veterinary Sciences Research Group (TOVAG) Social and Humani tar ian Sciences Research Group (SOBAG) Defense and Security Technologies Research Group ( S A V T A G ) Publ ic Research Group (KAMAG)

T h e r e i s also another department under ARDEB whose main responsibi l i ty i s the management of contracts, w h i c h are signed between beneficiaries, a n d ARDEB. Programs that are in responsibi l i ty o f ARDEB are the following:

G l o b a l Researcher P rog ram

T h e Suppor t P rog ram for Scientif ic a n d Technological Research Projects P rog ram Shor t T e r m R&D Funding Program Suppor t P rog ram for Research Projects of Pub l i c Institutions Prog ram Patent Appl icat ion Promotion and Suppor t P rog ram

T h e Part icipation P rog ram for In ternat ional Scientif ic Research Projects T h e Suppor t P rog ram for the In i t ia t ive to Build Scientif ic and Technological Cooperat ion N e t w o r k s and Plat forms Na t iona l Young Researcher Career D e v e l o p m e n t P rog ram

57

b. Obiective & B a c k m o u n d

T h e p rog ram 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 the cont inuat ion of the f u s t research support p rog ram in Turkey, w h i c h has been implemented since mid-1960 by TUBITAK. I t has also become one of the ma jo r programs to mee t nat ional targets o f the S&T policy. T h e a im o f the p rog ram i s to support research projects targeting the creation of n e w scientif ic knowledge and solutions to exist ing technological problems in order to increase competit iveness of Turkey.

Projects targeting high-tech applications a n d priority areas, carr ied out by m o r e than one partner, especially focused on solving the problems o f enterprises of any size, partnerships inc lud ing at least one partner, w h i c h can c o m m e r c i a h e the results of projects, have a higher chance of get t ing support from the program. Beneficiaries main ly inc lude the universit ies 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 benefi ted from i t so far, and the p rog ram i s widely known as “academic research support scheme”.

There are n ine research themes in addi t ion to research on basic sciences a n d engmeering under the program: health sciences; electrics, electronics a n d informatics; environment, atmosphere and mar ine sciences; agriculture, forestry a n d veterinary; defense and security; social and humanitarian sciences; and space. In addition, as a requi rement of the program, projects foreseeing advanced technology applications should fal l within the priority technology areas.

c. Target mouds)

All companies, scientists/researchers (as individuals), h igher education institutions’ research units/centers, o ther non-profit research organizations (not HEI), higher education institutions (education function) and technology and innova t ion centers (non-profit) are e l i gb le for support. Beneficiaries are ma in l y from the universit ies and research institutes. W h i l e the private sector can also apply to the p r o g r a m and the p r o g r a m i s wide ly known as “academic research support scheme”.

d. M o d e o f finance

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

e.

Yearly statistics on the amoun t o f academic R&D projects suppor ted during 2000-2006 are given below. D a t a do not inc lude research supports p rov ided for social sciences. T h e numbers of projects appl ied and suppor ted as of O c t o b e r 2007 are 4,570 and 898, respectively. T o t a l amoun t o f funds allocated for these projects are US$82 miUion.

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

58

Years N o o f Budge t of Average Budge t N o o f Expenditures Ongoing Ongoing Projects p e r Pro ject Projects Per Year* Projects (rvnn US$) ('000 US$) Comp le ted

2000 843 13.2 15.6 297 9.6

2001 1001 15.7 15.7 242 10.1

Average E x p e n d t u r e Per Year**

11.3

10.1

f. Admin is t ra t ive procedures

2004

2005

2006

T h e p rog ram i s imp lemen ted by ARDEB. T h e funding for the p r o g r a m comes from the nat ional budget. M a x i m u m level of funding p e r pro ject i s determined annually by TUBITAK. T h e fmal decision for support i s given by the Execut ive Commit tees under ARDEB and with the approval of the TUBITAK's President.

1353 35.6 26.3 337 11.5 8.5

2353 142.8 60.7 426 78.8 33.5

3091 272.7 88.2 559 108.5 35.1

Pro ject proposals can b e submi t ted to TLJBITAK in three d f f e r e n t terms. Submission deadlines for 2008 are determined as January 2nd, M a y 5th and September 1 s t . Start ing with the f i r s t t e rm of 2008 applications, p ro jec t proposals .can b e submi t ted thrbugh the w e b application interface developed by TUBITAK.

Since 2004, TUBITAK has adopted a new, independent, panel-based proposal rev iew process to evaluate the proposals received from academia, pr ivate a n d pub l i c sectors. T h e general structure o f the TUBITAK proposal rev iew process i s depicted in the F igure 1. All proposals are received and classified by their fields of research into appropriate research divisions. Prog ram directors within each research division then fur ther d iv ide the proposals they receive into groups by topics and identi fy 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 intel lectual merit , broader impact, and feasibility criteria. This rev iew process i s generally conc luded within two weeks of a scheduled panel meeting. T h e n the panel convenes to evaluate a l l the proposals collectively. During the panel meeting, each proposal i s d m u s s e d at length a n d g iven a score between 0 a n d 10 with respect to each o f the three criteria of intellectual merit, broader impact, and feasibhty. Proposals are funded accordmg to their weighted scores and a v d a b h t y of funds.

59

Figure 1. T h e Project Review Process

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

N u m b e r ' of proposals funded

Acadsmi c Research TU6iTAK

Headquarter

Project Evaluation Evaluation Criteria - Intellectual Merit - Broader Impact - Feasibility Source. TUBITAK, 2008

13.8 11.8 7.0 9.5

327 1070 912 2309

Pro ject repo r t i ng i s a crit ical p a r t o f the fundmg decision process. Research projects that p roduce articles that are publ ished in high quali ty journals are rewarded with a d d t i o n a l funding. All proposals are requi red to inc lude a section that summarizes the accomplishments of the pro ject manager in previous TUBITAK projects that were awarded to the pro ject manager. Table 2 shows the various indicators for the TUBITAK proposal evaluation process for years 2004, 2005 and 2006; abou t a third o f al l proposals have been recommended for funding. During the last three years, m o r e than 7000 proposals have been received a n d assessed. T h e compos i t i on of a panel i s largely determined by the subjects o f the proposals that are to b e rev iewed by the panel.

Table 2. TUBITAK Proiects Assessment Indicators

Fundmg rate

I I n d c a t o r 1 2004 1 2005 I 2006 I T o t a l I

33% 32% 33% 33%

I N u m b e r o f panels 1 71 I 286 1 389 1 746 I I N u m b e r o f panelists I 423 1 1722 1 2329 1 4474 I I N u m b e r o f proposals evaluated 1 980 I 3364 I 2715 I 7059 I

T h e managers o f the projects should at least have a PhD degree for applications from universities. I f a pro ject i s appl ied from a pub l i c institution or pr ivate enterprise, the pro ject manager should have at least a bachelor's degree and have expertise on the research topic. Scientists without any managerial duties can b e pro ject managers o f two projects or manager in o n e pro ject and researcher in two other projects, or researcher in m a x i m u m four projects simultaneously. Any researchers who have not submi t ted f inal 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 inst i tutes and centers, general managers of companies cannot apply to the p r o g r a m as pro ject managers a n d can b e stated as research personnel in at most two projects at the same time.

60

Payments in the form of scholarships are available for research personnel who are masters or doctorate students as a pa r t o f the project. Scholarships are also avadable for those pro ject 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 the r place. Payments are also available for international researchers living in Turkey.

g. C o m m e n t a m

T h e major i ty o f projects financed under the programs are p roposed by academia. I t i s considered that the programs contr ibuted to the increase of Turkey's rank ing in the Science Ci ta t ion I n d e x (which i s increased from 40th in 1993 to 22nd in 2004). In addition, increased demand in the p rog ram i s an ind icat ion o f i t s success: T h e n u m b e r of pro ject proposals in 2004 was a round 1000 and it rose four-fold in 2005. TUBITAK has also increased the a m o u n t of funds in 2005.

O n e o f the challenges TUBITAK faces i s the l im i ted pool of active researchers to form reliable panels. A c c o r d m g to TUBITAK, this i s both a short and long - te rm p r o b l e m that must b e resolved in order to make the proposal evaluation process m o r e robust a n d reliable. O n e option that i s be ing 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 inc lude (i) the cost of panels as determined mostly by the n u m b e r of panelists, (ii) cover ing the subject of each proposal, (iii) managmg confl icts o f interests, and (iv) ensuring a reliable evaluation o f proposals. Typically, a reliable evaluation of a proposal requires at least two expert panelists so that each proposal i s assigned to two panelists, and each panelist i s assigned four proposals at maximum. '

Some beneficiaries repo r t that sometimes there are delays in the assessment o f proposals and inconsistencies between the p d a n c e p rov ided by &fferent s ta f f of ARDEB on the same issue related to a project. Universit ies also feel that sometimes there i s insuff icient transparency in the implementat ion of the program, part icularly with respect to the al location o f funds between the universities and research centers of TUBITAK, w h c h can also b e f inanced 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 publ ic funds: Be fo re 2005, just 5% of TUBITAK funding was allocated to external stakeholders (such as universit ies a n d private sector) but by 2006 some 66% of TUBITAK funds were allocated to universit ies and 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. Imdement ing. apency

Imp lemen t ing agency for the p r o g r a m i s TUBITAK. Technology a n d Innova t ion Funding Programs Di rectorate (IEYDEB) i s the responsible department for the execution of the program. There are currently f ive technology groups w o r h g for the assessment a n d monitoring of R&D projects in TEYDEB. These groups are

Machinery and Manu fac tu r ing Electr ical and Elect ron ics Material, Metal lurgical a n d Chemical

40 Imp: I' / \ ~ ~ ~ ~ . t u l ) i t a k . ~ o ~ r . tr~home.do?sid=34~ 41 Information provided in this section i s taken from the resolutions of the 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/ )

61

I n f o r m a t i o n Technologies Biotechnology, Agricultural, Env i ronmen ta l a n d Food

Accord ing to TUBITAK, these technology groups were established not only to evaluate and monitor R&D projects in thei r domains but also to assist companies to matu re their pro ject ideas, give an impetus to t h e m to make collaborations with academia. Programs that are under the responsibhty of the TEYDEB are as follows:

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

Suppor t P rog ram for Indust r ia l R&D Projects Suppor t P rog ram for In ternat ional Indust r ia l R&D Projects P ro jec t brokerage events funding p r o g r a m

b. Obiect ive & 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) and he lp t h e m increase the i r capabh ty 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 and the share o f business in R&D spendmg in Turkey.

T h e program, imp lemen ted by TEYDEB, i s co-f inanced through the budget of U n d e r Secretariat of Fore ign Trade (UT. W h e n the p r o g r a m started in 1995, i t was fully f inanced from the resources o f the UFT. Since 2005, 75% of the fundmg i s p rov ided 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 under this p r o g r a m i s the pr ivate sector companies.

d. M o d e of f inance

M o d e o f finance i s grant for the projects supported under this program. T h e amoun t of support i s determined dependmg upon the size of company ( S M E s receive 10% addit ional support); the education levels o f the pro ject personnel k e r s o n n e l costs with PhD degree are suppor ted up to 100%); the percentage of revenue from the products developed by the company, existence o f col laboration with a university or a research center (an addlt ional 30% support i s p rov ided for costs belonging to such a collaboration), a n d whether the pro ject i s in one of the priority areas such as bio/nanotechnology, advanced manufactur ing technologies (an addi t ional 20% support i s p rov ided for such projects). In any case, to ta l amoun t o f support p r o v i d e d cannot exceed 60% o f the to ta l eligible R&D costs of the project. M a x i m u m pro ject durat ion for support i s 36 months.

El ig ib le costs under the scheme are as follows:

L a b o r costs ( including overheads) E q u i p m e n t & materials T ra in ing ( including study trips)

O t h e r (Patenting) Ex te rna l expertise (consultants, studies, etc.)

62

e. Statistical data

Statistics regarding the p rog ram are g iven in Table 3.

N u m b e r o f Pro ject Proposals N u m b e r of Evaluat ion Completed N u m b e r of Projects El ig ib le for Support Rejected Proiects

Tram for Industrial R&D Proiects

260

200

180

20

Table 3. Support Prc I Year I 2000

286 279 374 449 580 410

Year TEYDEB support Pr ivate sector T o t a l

1995-1999 34.8 184.4 219.2 con t r i bu t i on

2000 19.7 71.7 2001 29.9 136.7

91.4 166.6

2002 2003

24.8 81 105.8 38.2 54.9 93.1

2004 2005

46.6 56.4 102 100 100 200

2006 128.1 199.4 327.5 TOTAL 421.1 884.5 1305.6

L

2001 2008* 2008** - 2007 rotal+*

4269

3812

3093

2002 I2003 I2004 I2005 2006

374 1 418 I 503 I 595 71 1 809 333

330 I 344 1 431 1 553 647 731 328

566 275 534

165

384

538

-

- 605 492

719

1966

3015

53

186

233

113

298

481

Projects Com leted N u m b e r o f Com anies 269

130 154 I 192 1 230 I 254 290 278 300 1 216 1706 First T i m e

* Projections from 20 1-2013 strategic p lan ** 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.

To apply to the program, companies prepare a pro ject proposal accord ing to the fo rma t p rov ided by TEYDEB. O n c e the proposal i s received, i t i s sent by TEYDEB to the related technology group and an expert i s assigned for the project. T h e n . T E Y D E B appoints academics from universit ies for the assessment of project. E a c h academic assesses the pro ject independently and prepares a repo r t about

63

the eligibil i ty o f the project. T h e reports are then assessed by the sectoral boards within TEYDEB and decision for support i s g iven by this board. Expenditures three months prior to application date and during the assessment durat ion are considered eligible i f the pro ject proposal i s accepted by TEYDEB.

To b e eligible for support, the projects proposed should target a t least one of the following: (a) n e w p r o d u c t development, @) increasing the quali ty or standards of an existing product, (c) appl icat ion of n e w techniques for decreasing costs and increasing standards, (d) development o f n e w p roduc t i on technologes. Quality of the scientific, technological a n d economic aspects o f the project, quality o f the pro ject planning, and quali ty of the applicant are considered during the assessment o f the proposals. Successful projects o f private sector companies are p rov ided with grant support.

O n c e the pro ject proposal has been accepted, the companies carry out pro ject activities through their own funds, prepare technical and fmancial reports in six monthly intervals, a n d send their reports to TEYDEB. An academician, usually one o f the assessors, i s assigned for monitoring the technical developments aclueved through the project. TEYDEB sends a copy of the technical and financial repo r t to the monitor in order to get their v i e w on the technical progress a n d the e l ig ibhty o f expenditures. T h e monitor v i s i t s the company sends h i s repo r t to TEYDEB. During t h i s period, TEYDEB also examines the viabi l i ty o f financial documents prov ided. O n c e a l l the reports are completed, order i s g iven by the expert in order to process the per formance payment to the company. Seventy f ive percent of the payments are actuahzed through TEYDEB budget and the rest ing amoun t i s disbursed through the budget of Under-secretariat of Fo re ign Trade.

At the end o f each project, a f ina l repo r t i s expected from the companies about the technical and economical achievements o f the project. Acco rd ing to TEYDEB, the targeted durat ion for complet ing both the assessment a n d disbursement procedure i s three months once the reports reach TEYDEB. There are no of f ic ia l data but the assessment procedure i s usually completed within s i x to eight months and disbursement takes twelve to eighteen months.

g. C o m m e n t a q

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 overal l revenues as a parameter. This parameter lowers the amoun t o f support for companies, w h i c h have a w ide p r o d u c t range. Appl icat ion procedures are considered complex a n d long (assessment approximately may take between 8-12 months) T i m e for disbursement i s long (sometimes up to a year), but steps are be ing taken to reduce this. Currently const ruct ion a n d overhead costs related to R&D activities are not eligible through this support program, whereas accord ing to the EC Community Framework for State A d for R&D and I n n o v a t i o n these kinds o f costs are considered eligible. Academicians’ expectations from the projects they assess are sometimes high w h e n compared with technological capacities of Turkish f m s (in part icular those of S M E s ) . T h e agreement between TTGV a n d TEYDEB about automatically supporting a pro ject supported by the other par ty i s not always working efficiently.

64

1002 - Rapid Support Program

Year 2007 2006 2005 2004 2003 2002 2001

TOTAL

a. Obiect ive a n d b a c k m o u n d

T h e p rog ram has been der ived from the 1001 coded Suppor t P r o g r a m for Scientif ic a n d Research Projects p rog ram 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 quick ly in a short p e r i o d o f t ime (so-called “Type 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).

N u m b e r of Projects Amount of Suppor t ( d o n YTL) 448 4.1 508 3.4 349 2 105 0.3 95 0.2 126 0.3 87 0.2

1802 10.8

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

c. M o d e o f Finance

For the year 2008, the upper limit for pro ject suppor t i s approximately US$21,500 per year (scholarshbs included, copyr ight fees not included). M a x i m u m dura t i on for the projects i s 12 months.

d. Statistical D a t a

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

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

e. Admin is t ra t ive Procedures

Applications are submi t ted onl ine through TUBITAK website. T h e r e are no def ined application periods; applications can b e submi t ted any t ime during the year. Appl icants 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. Pro ject manager should at least have a PhD degree, a n d a manager or researcher o f a successful pro ject can b e suppor ted under this p rog ram only once.

1007-Support Program for Research Projects of Public Institutions

a. Object ive and B a c k m o u n d

Within the context of the decision taken at the BTYK meet ing on M a r c h 10, 2005, regardmg the preparation of research programs for publ ic institutions, a n e w support p rog ram was init iated by TUBITAK to support R&D projects to develop n e w products a n d processes to meet the needs of

65

publ ic institutions. A f t e r the BTYK meet ing the n e w “Support P r o g r a m for Research Projects of Publ ic Institutions” (KAMAG), came into effect on M a r c h 12, 2005. Defense and space programs are managed separately in accordance with another decision taken by the BTYK:

Conduc t the defense projects according to the Turkish Defense Industry Policy and Strategy decision (98/11173) of the Counc i l of Ministers, Ident i fy a n d pr ior i t ize the pro ject topics on development of systems and infrastructures, w h i c h will b e used to b d d up R&D capacity at the pub l i c institutions’ and defense industries’ for projects that are cri t ical for Turkey; integrate the defensive a n d civdian requirements within science and 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 and i t s p roduc t i on at nat ional level by transferr ing the projects to nat ionwide industries, universities, research institutions a n d SMEh, Increase competit iveness o f nat ional industry, Conduc t studies in order to have quali f ied h u m a n resources.

b. Target Grouds)

Ministries, independent Under-Secretariats, general directorates, c i ty a n d metropol i tan municipalit ies and city governorships can apply for the project. These establishments can define universities, publ ic research institutes,

c. M o d e of Finance

There i s no h t for the budget of the project. M a x i m u m p ro jec t durat ion i s 4 8 months.

d. Statistical D a t a

As o f M a y 2007, a to ta l n u m b e r of 262 projects have been submi t ted to TUBITAK with a total budget o f approximately US$585 million through KAMAG. Out of these applications the evaluation was completed for 225 projects and contracts was signed with 72 o f t h e m totahng a budget o f US$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 Oc tober 2007 199 n e w pro ject proposals were received. There will b e panel to evaluate 65 o f these projects, the rest of 134 projects were rejected.

These numbers do not inc lude the defense and space projects carr ied out in cooperation with the M i n i s t r y o f Defense under the p rog ram 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 Oc tober 2007. Four projects are be ing revised, n i n e were w i thd rawn and two projects are at the stage o f evaluation.

e. Admin is t ra t ive Procedures

T h e f i r s t calls for projects were announced on M a y 31,2005, but since most of the pub l i c institutions were prepar ing 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 end of 2005 a n d TUBITAK decided to accept pro ject proposals without any f i xed calls. TUBITAK started to apply f ixed calls start ing from June 2007. Two calls are p lanned for 2008 (with d e a b e s in February a n d August).

Potent ia l beneficiaries prepare pro ject proposals according to the template p rov ided by TUBITAK. At least one pub l i c institution must exist in the proposal as a customer. A consor t ium f o r m e d by

66

universities, research centers a n d pr ivate sector i s sought out as the pro ject imp lemen t ing organizations. Proposals are reviewed by a panel o f external experts based on the evaluation criteria p rov ided by TUBITAK. Projects comp ly ing with strategic documents prepared by related ministries, f ive yearly plans and priori t ies set in the Vision 2023 pro ject (i.e. the technology foresight pro ject implemented during 2002-2004 are g iven priority. Evaluat ion process takes abou t three months. Implementat ion 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, pub l i c institutions in Turkey are significant demanders o f technological product, system and p roduc t i on 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 of the 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 pub l i c inst i tut ions was developed in order to increase the R&D-based purchasing activities. Acco rd ing to the decision taken by the Supreme Counc i l for Science a n d Technology (BTYK) at i t s meet ing on M a r c h 10, 2005, pub l i c institutions have to set up research programs related to their needs and thus increase the awareness a n d the need for R&D. T h e p rog ram has not been given a n u m b e r and i s currently be ing carr ied out by TUBITAK. T h e aim i s to create programs for pub l i c institutions, w h c h wdl b e used as an input for the 1007 coded support program.

Within the f ramework of this decision, TUBITAK under took the task of moderat ing the workshops for the preparation of such programs, primarily with the ministr ies a n d with other pub l i c institutions. In the preparation pe r iod o f the programs, related ministr ies and pub l i c inst i tut ions organized “joint consultat ion meetings” with the part icipation of related universit ies a n d research institutions. In this meeting, the short and m id - te rm research areas were def ined a n d plausible research projects in these areas were discussed. T h e f ina l l i s t o f objectives and research priorit ies, result ing from these meetings, was t ransformed 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, pub l i c institutions, non-governmenta l organizations). T h e research programs have to b e approved by BTYK.

As of Oc tober 2007, the following programs were prepared by pub l i c bodies in corporat ion with TUBITAK and approved by the BTYK: ,

Defense Research P rog ram a n d Space Research P rog ram Na t iona l Ear thquake Research P rog ram Na t iona l H e a l t h Research P rog ram Na t iona l Agncu l tu re Research P rog ram Na t iona l Energy a n d Na t iona l Resources Research P rog ram N a t i o n a l L a w Research P rog ram Na t iona l F a d y And Social Research P rog ram N a t i o n a l I n te rna l Security Research P rog ram Na t iona l Env i ronmen ta l and Forest ry Research P rog ram Na t iona l Foundat ions Research P rog ram Na t iona l Transpor tat ion Research P rog ram Na t iona l Populat ion and Cit izenship Af fa i rs Research P rog ram Na t iona l Cul tura l a n d Tourism Research P rog ram Na t iona l Educa t ion Research P rog ram

67

S d a r studies will b e conducted with ministries, self-governing general directorates, municipalit ies and the other pub l i c institutions. Related pub l i c institutions announce these nat ional programs to a l l organizations that will conduct R&D activities.

1008- Patent Application Promotion and Support Program

a. Object ive 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 indust r ia l p roper t y rights in Turkey and to increase the amoun t o f nat ional and mul t inat ional patent applications f i led by the Turkish citizens. Turkish citizens, and companies established in Turkey under Turkish l a w can apply for support. T h e p rog ram i s run by TUBITAK in cooperation with the Turktsh Patent Inst i tu te ("E).

b. Tareet GrouD(s)

Any researcher or company, who has f i led a patent appl icat ion to TPE after August 23, 2006 (the date on w h c h the p rog ram came into effect), can apply for support.

c. M o d e of Finance

T h e grant amoun t for applications i s determined in January each year by TUBITAK. T h e upper h t for finance i s a round US$2,500 (3,000 YTL) for 2008 (there i s not a n upper h i t for percentage of grants). Na t iona l a n d international applications are funded separately. Soft l oan i s p rov ided 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 an ind iv idual may b e funded for a m a x i m u m of f ive patents.

d. Statistical D a t a

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

68

T h e annual growth in domestic nat ional patent applications f i led with TPE rose by 70%, from 1,090 in 2006 to 1,838 in 2007 and i t i s estimated that TUBITAKs assistance contr ibuted 5 -1Oo/o to this rate of increase.

T h e annual growth in the n u m b e r o f in ternat ional patent applications in the p e r i o d 2006-2007 was a round 21%, rising from 413 in 2006 to 498 in 2007. As the cost of international patent applications i s m u c h higher, the subsidy p rov ided by mBITAK i s estimated to have h a d a l ower impac t (3 -5%) on international patent applications.

e. Admin is t ra t ive Procedures

T h e inventors should f u s t apply to Turkish Patent Inst i tu te ("E) for their inventions. O n c e the application has been completed, another appl icat ion f i le should b e f i led for grant support p rov ided by TUBITAK. O n c e the decision for support i s given, TUBITAK transfers TRY 3000 to TPE's account a n d i f a patent attorney has been used during the application, TRY 450 i s transferred to the inventors account. Any costs occurr ing at the application stage i s compensated through the allocated amount. T h e inven to r starts pay ing for the costs once the u p p e r support h t i s exceeded.

1010- Global Researcher Support Program

a. Obiect ive a n d B a c k m o u n d

This p rog ram a i m s to he lp Turkish researchers by supporting the inc lus ion o f international experts in their research projects. I f a foreign expert with experience on a specific f ie ld needs to b e h i red for a research project, the costs o f the expert cou ld b e covered by TUBITAK through t h l s program.

b. Target Grouds) T h e support p r o g r a m can b e used by any research inst i tu te or company for hiring international experts needed in their research projects. Exper ts cou ld b e from any country as long as they have the necessary expertise. c. M o d e of Finance

T h e pro ject durat ion i s m a x i m u m 36 months a n d the upper h u t for support i s US$103,230 for 2008.

d. Statistical D a t a

No statistical data i s available on the usage of this support program.

e. Admin is t ra t ive Procedures

There are three f ixed calls for proposals, w h i c h are determined at the begmning o f each year. Proposals are rev iewed by a panel of external experts based on the evaluation criteria p rov ided by TUBITAK. Four m a i n criteria are taken into account for the selection o f applications: the quali ty and relevance of the projects with Turkey's research targets, availabihty o f expertise in Turkey, the quali ty and experience of international researcher a n d the d m e m i n a t i o n of pro ject results. Evaluat ion process takes abou t four months. Implementat ions of the selected projects start as soon as their contracts are signed.

.

69

1011- The Participation Program for International Scientific Research Projects

a. Obiect ive 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 and organizations from di f ferent countries.

b. Target Grouds) Beneficiaries ma in l y inc lude universit ies a n d research institutes.

c. M o d e o f Finance M a x i m u m support amoun t p e r pro ject i s US$103,230 p e r year a n d support durat ion i s m a x i m u m 36 months.

d. Statistical D a t a

T h e p rog ram started in 2007 and yet there i s no data avadable on the implementat ion of the program.

e. Admin is t ra t ive Procedures

There are three calls p lanned for 2008. Universit ies a n d pub l i c a n d private organizations can apply to this program. I f applied by a university, the p ro jec t manager should at least have a PhD degree. I f applied by a pub l i c and private organization, the pro ject manager should have at least a bachelor’s degree and have expertise on the research topic. Scientists without any managerial duties can b e pro ject managers of two projects or manager in one pro ject and researcher in two other projects or researcher in m a x i m u m four projects simultaneously. Any researchers who have not submi t ted f inal reports of their previous projects cannot apply for n e w projects.

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

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

T h e a i m of the p rog ram i s to assist the establishment o f sector specific or technological networks/p la t forms by national a n d international enterprises, pub l i c research institutes and scientif ic communi t ies w o r h g on basic research, appl ied research, social sciences a n d related technology areas. T h e p rog ram has been inspi red from the technology p la t forms developed under the 6th F ramework P rog ram o f European Union. T h e networks/p la t forms 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 “University-Industry Joint Research Centers (USAMs) Program” o f TUBITAK, w h i c h helped the establishment of joint research centers by a t r ip le hel ix m o d e l of university- industry-government interactions, was abolished by the e n d of 2006. Activi t ies o f previously established six U S A M s will b e funded through this n e w program.

b. Target Grouds)

T h e p rog ram launched for the benef i t o f both research a n d industry establishments. Organizations interested in establishing a n e t w o r k should come together a n d prepare an act ion plan.

70

c. M o d e of Finance

T h e upper limit for TUBITAK support i s approximately US$215,000 p e r year for the applications to b e made in 2008. Grants are p r o v i d e d for 50% of the eligible pro ject costs. T h e con t r i bu t i on o f TUBITAK i s m a d e available after the n e t w o r k partners col lect their con t r i bu t i on at a b a n k account. E l ig ib le pro ject costs inc lude meetings a n d organization, travel a n d accommodation, r e n t and 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 durat ion of support i s three years where an extension o f one year i s available with the approval o f TUBITAK.

d. Statistical D a t a

T h e p rog ram has been in t roduced in January 2007. F i v e pilot sectors were chosen by TUBITAK and in order to establish technology p la t forms for these sectors TUBITAK organized meetings for potent ia l people from industry, pub l i c sector a n d academia. T h e technological sectors chosen include textiles, electric/electronics, metal, automot ive a n d mar ine sciences. O n c e a temporary management b o a r d i s established for a potent ia l p la t form, TUBITAK leaves coord inat ion activi ty to this board. T h e board needs to prepare a proposal for establishing the proposal a n d apply to TUBITAK for funding. O n c e TUBITAK accepts the pro ject proposal, the p l a t f o r m members should put their cont r ibut ion 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 abou t the p l a t f o r m activities to TUBITAK.

3501- National Young Researcher Career Development Program

a. Object ive a n d B a c k F o u n d

T h i s p rog ram a ims 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 cont inue their careers as successful researchers and educators and to increase the r o l e of science in the development o f the country. T h e p rog ram was init iated in 2005 in order to increase the quali ty and quant i ty o f researchers in the country. T h e projects o f young researchers are funded through t h i s scheme.

b. 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 pro ject i s approximately €45,000 and m a x i m u m pro ject durat ion i s three years.

d. Statistical D a t a

No statistical data i s publ ic ly avadable for the program.

e. Administrat ive Procedures

There i s one call for application p e r year. Conditions for application by a researcher are as follows: Potential beneficiaries should apply within f ive years after earning their PhD degrees; they should b e workmg ful l- t ime for a h igher education inst i tute or research inst i tute other than the universit ies they earned their PhD degrees; they cannot apply for the P rog ram m o r e than twice a n d should not have

71

received support from the Prog ram before. Four main criteria are taken into account for the selection of applications: Or ig ina l i ty of the project, potent ia l for dissemination, feasibility and i t s social impact.

1503- Support Program for Project Brokerage Events

a. Object ive 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 suppor t activities targeting cooperat ion between universities, research centers and indust r ia l companies in order to increase technology transfer. TUBITAK supports meetings coordmated by universities, research centers or umbrel la organizations such as industr ial associations, where academics can present the findings of the i r research activities to the interested enterprises.

b. Target Grouds)

Universit ies and research centers can apply for this program.

c. M o d e o f F inance

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

d. Statistical D a t a

N o statistical data i s publ ic ly available for the program.

e. Admin is t ra t ive Procedures

Universities, research centers a n d umbrel la organizations apply to the p r o g r a m by fang out the standard application fo rms p r o v i d e d by TUBITAK. T h e event p lanned must b e targeting a specific industr ial sector or a specific technology area. T h e application should b e f i led at least three months prior to event date. T h e application i s assessed by the technology area commit tee and support i s p rov ided with the approval of TEYDEB president. Prepayment i s g w e n to the pro ject coordmator, and invoices are expected within the two months after the event date. A f ina l repo r t abou t the effectiveness of activi ty i s submi t ted together with invoices, a n d a follow up repor t has to b e prepared one year following the event.

1507 Support Program for First R&D Projects of SMEs

a. Obiect ive and B a c k m o u n d

Ths n e w p rog ram 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 fe r i ng a m u c h faster and easier access for fundtng. This prog ram 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 roduc t i on technologies and 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 then apply to the 1501 coded program. T h e legal f ramework has been publ ished on the of f ic ia l gazette dated January 16,2007 and the rules and regulations of the p r o g r a m have been publ ished by TUBITAK after the 15th meet ing o f the BTYK on M a r c h 7,2007.

72

b. Target Grouds’)

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

c. M o d e of Finance

T h e total budget of the pro ject should b e less than US$344,000 a n d pro ject durat ion should b e less than 1 8 months. T h e upper limit of total pro ject budget d b e revised by the Science B o a r d of TUBITAK every year. Grants are p rov ided up to 75% of the to ta l eligible costs o f project. T h e disbursement takes place after the beneficiary company actually makes the payments and sends invoices to TUBITAK. An advance payment of up to 40% o f the pro ject budget for six-monthly intervals i s available i f the beneficiary provides collaterals acceptable to TUBITAK. El ig ib le costs under the scheme are as follows:

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

0 Training (including study trips)

O t h e r (Patenting) Ex te rna l expertise (consultants, accountants, studies, etc)

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 be ing supported; 23 were rejected a n d the rest i s under evaluation.

e. Admin is t ra t ive Procedures

For applying to the program, beneficiaries prepare a pro ject proposal in the fo rma t of TUBITAK. O n c e the proposal i s submitted, TUBITAK appoints academics from universit ies for the evaluation o f project. E a c h academic assesses the p ro jec t independently a n d prepares a repo r t about the eligibdtty o f the project. T h e reports are then assessed by the sectoral boards within TUBITAK a n d decision for support i s g iven by this board.

1508- Techno-Entrepreneurship Funding Program

Based on the new R&D Law (No. 574@, the “Technopreneurship Support Program”is implemented by aU public administrations with an R&D budget.

a. Obiect ive and 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 and innova t ion based entrepreneurship. Funding as grants i s available for entrepreneurs who have ideas with high potent ia l to create high value-added products a n d to create jobs. T h e legal f ramework has been publ ished on the of f ic ia l gazette dated January 16,2007 a n d the rules a n d regulations of the p r o g r a m have been publ ished by TUBITAK after the 15th mee t ing of the BTYK on M a r c h 7,2007.

b. 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,

73

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

c. M o d e o f F inance

T h e disbursement i s made after the beneficiary company actually makes the payments and sends invoices to TUBITAK. Invoices are sent to TUBITAK in six monthly intervals with a progress repor t . An advance payment of up to 40% of the pro ject budget o f s i x monthly intervals i s available i f the company can p rov ide acceptable collaterals to TUBITAK.

M a x i m u m durat ion for support i s 12 months. Invoices belonging to 12-month interva l whose payments are real ized in the six-month interval after the pro ject has been completed are acceptable. Up to 75% of the total eligible costs of pro ject are g iven as grants. T h e m a x i m u m amoun t of support available i s approximately US$86,000 for 2007. T h e upper h t of to ta l p ro jec t budget i s reviewed by the Science B o a r d of TUBITAK every year. As opposed to 1501 coded R&D support program, communicat ion costs (internet a n d telephone), o f f ice rent, water, electricity a n d heating costs are also considered a m o n g eligible costs. Marke t i ng costs, trademark registrat ion costs a n d services purchased from abroad are not eligible for support.

d. 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 lan preparation was realized in August 2007. Some 12 business plans were submi t ted by Oc tober 2007.

e. Admin is t ra t ive Procedures

T h e candidate entrepreneur applies to TEYDEB with the “ N e w Enterpr ise Appl icat ion Form” where he/she summarizes the innovat ive h igh- tech enterprise idea and gives i n fo rma t ion about the potent ia l 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 innova t ion focus, @) T h e targets, results a n d methodology to b e used, (c) Technological con t r i bu t i on of the idea to nat ional targets, (d) Technological assessment/comparison, (e) Reliabi l i ty of economic and technological assumptions. T h e expert assessment i s t hen presented to related technology area committee. T h e commit tee decides whether to (a) reject the project, (b) revise the application form (c) to ask for the detailed business p lan for the idea. T h e commit tee might ask the entrepreneur to take trainings on the preparat ion of feasibility, market reports, business p lan and the establishment o f a n e w business, management o f an 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 lan i s prepared, TUBITAK appoints an expert or a group of experts from university, research institutes and industry for the assessment of the business plan. W h e n the assessment reports are available, TEYDEB expert responsible for the p ro jec t consolidates the findings o f the expert evaluations. Finally, the decision for support i s g iven by the related technology area committee. T h e entrepreneur gives a presentation to the commit tee before the f inal decision.

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

74

1509 Support Program for International Industry R&D Projects

a. Obiect ive 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 and knowledge, to facilitate technology transfer between member countries, to develop n e w technologies and to he lp Turkish firms enter international markets.

b. 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 and size, every firm established in Turkey can apply to the EUREKA program. For E U R O S T A R S projects, the pro ject coord inator must b e an S M E that allocate at least 10% of i t s revenue and personnel to R&D activities. O t h e r pro ject members can b e large companies, universit ies and research institutes.

c. M o d e o f F inance Of the total pro ject budget, 60% i s f inanced for the large companies a n d 75% for SMEs. There i s no budget h u t s for both of the programs. There is no limit for the pro ject durat ion for EUREKA. M a x i m u m durat ion for E U R O S T A R S projects i s three years a n d the pro ject result must b e in market in two years.

d. Statistical Data: Not available publ icly.

e. Admin is t ra t ive Procedures:

T h e procedure i s sirmlar to that of 1508 p rog ram a n d i s as fol lows: 1) T h e candidate entrepreneur applies to TEYDEB with the “R&D Suppor t Request Form” where he/she summarizes the innovat ive high-tech enterprise idea a n d gives i n fo rma t ion about the potent ia l partners. Start ing from July 1, 2008, the p r o g r a m i s only b e accepting onl ine 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 and innova t ion focus, leve l of technology; @) Pro ject p lan and the suitabiltty of enterprise infrastructure; and (c) Technologica l con t r i bu t i on o f the idea to economic benefits and nat ional goals.

2) O n c e the application i s submitted, TUBITAK appoints an expert or a group of experts from university, research institutes and industry for the assessment of the business plan. W h e n the assessment reports are avadable, TEYDEB expert responsible for the pro ject consolidates the findmgs o f the expert evaluations. Finally, the decision for support i s g iven by the related technology area committee. T h e entrepreneur gives a presentation to the commit tee before the f ina l decision.

3) I f the commit tee approves support for the project, the entrepreneur should establish company in the following three months and s i g n the contract for the p ro jec t with TUBITAK. Companies registered prior to the application to TUBITAK are not eligible for support.

75

111. PROGRAMS/POLICY MEASURES IMPLEMENTED BY TTGV'

a.

Technology Development Supports Program

ImDlement inP aeencv

'ITGV was established in 1991 under the World Bank's suppor ted Technology Deve lopmen t Pro ject (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 of col laboration between the private sector and research commun i t y . T h e founders inc lude the pub l i c institutions, pr ivate 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. Start ing from 1995, 'ITGV received addit ional funding for technology development f inancing from the UFT. TTGV also managed the M o n t r e a l P r o t o c o l Mu l t i pa r t y Fund in Turkey to assist industry in moving towards non-ozone deplet ing technologies. U n d e r the Mon t rea l Fund, 'ITGV p r o v i d e d private sector companies with approximately US$26 million as grants.

With the Indust r ia l Technology Pro ject (TI", U S $ 1 5 5 million, 1999-2006), i t was aimed to cont inue 'ITGV support for technological upgrading activities (R&D fundmg). T h i s was in tended to b e done through: (i) supporting TTGV institution buildmg efforts for a successful t ransformat ion to a greater r i s k - t a h n g and a m o r e hands-on approach; (ii) providing funding for n e w init iatives where 7TGV would have a catalyzing ro le (technology service centers (TSC), VCFs for high-tech industries and Technopark investment); (iii) o f fe r i ng technical a n d managerial support to SMEs; and (iv) assisting in the establishment o f the Turkish Accredl ta t ion Counc i l (TURKAK).

Because o f the ITP, the 7TGV has become an i m p o r t a n t agency for R&D financing in Turkey and has suppor ted about 1,400 S M E s with match ing TA grants a n d 260 R&D projects through m a t c h n g foreign currency loans with a commercial izat ion rate of 90 percent for a l l 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 major i ty o f i t s R&D projects are be ing put into commercial product ion, a n d synergy between the industry and academic/research commun i t y has increased. T h e 'ITGV has suppor ted two Technoparks, w h i c h currently house 198 technoIogy-based companies emp loymg m o r e than 2,500 staff. In addition, i t i s a par tner in two venture capital funds (Is Girisim a n d Turkven) in col laboration with private sector and international investors as we l l as in one S ta r t -up Fund (Teknolo j i Y a t i r i m AS). T h e TTGV has facllttated col laborative links between industr ial companies a n d universit ies/R&D institutes v ia the pro ject evaluation a n d monitoring process. However , most importantly, TTGV has p r o m o t e d the creation o f an R&D financing culture in Turkey, w h i c h dld not exist before.

b. Obiect ive & 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) and he lp t h e m increase the i r capabil ity 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 of TEYDEB for industr ial R&D. Only the funding m o d e i s d l f ferent (grant support versus soft loans).

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

76

Fundmg for Technology Deve lopmen t projects started with TDP-1 through the funds prov ided by the World Bank. In 1995, TTGV started receiving funds from the UFT for the same purpose. Currently 75% o f the suppor t i s p r o v i d e d through UFT and the rema in ing 25% i s p rov ided by T T G V ' s own funds. T T G V ' s own funds c o m e from the repayments of prev ious projects, w h i c h were supported through the funds prov ided by World Bank. For the UFT funded projects, w h e n the companies repay their debts TTGV reimburse to the UFT the amoun t they p r o v i d e d for projects.

Year 2007 2006 2005 2004 2003

c. Tarpet QTOUD(S)

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

Support Amount N u m b e r of firms (US$ , d o n )

96 29.5 85 29.7 0 0 1 0.2 0 0

d. M o d e o f finance M o d e o f finance i s soft loans for the projects suppor ted under this program. T h e amoun t o f support i s 50% o f al l the eligible costs i ncu r red during the projects with an upper limit of US$1 d o n of TTGV con t r i bu t i on pe r pro ject (the loans are p r o v i d e d in US$). O n c e the p ro jec t idea i s accepted by TTGV the companies should pay a fee amoun t ing 1.5 percent of the to ta l budget in fi f teen days following the signing of pro ject contract. A n o t h e r 3 percent i s taken by TTGV from i t s own contr ibut ion as service fee from the monthly disbursements for the project. T h e m a x i m u m pro ject durat ion for support i s 24 months. O n c e the pro ject activities are completed, after a grace pe r iod of one year, the companies pay back the amoun t of contr ibut ion 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.

E l ig ib le 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.. .)

2002 2001 2000

e. Statistical data

3 1.6 1 0.8 8 1.9

1997 I 22 8.5

Total 1 254 I 1996 I 4 I 0.5 I

86.20

77

f. Admin is t ra t ive Drocedures

To apply to the program, beneficiaries prepare a p ro jec t proposal in the fo rma 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 pro ject a n d financial capabil ity of the company. Companies can apply to TTGV’s p r o g r a m anytime a n d the projects are assessed every two months. O n c e the proposal i s submitted, a n expert (TTGV’s staff) i s assigned for the pro ject by TTGV. T h e expert v is i t s the companies at the f i r s t stage and TTGV management decides whether the pro ject should cont inue 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 universit ies a n d a private sector representative for the assessment of project. E a c h assessor v i s i t s the firm independently and prepares a r e p o r t about the eligibil i ty of the project. At the same time, f inancial assessment of the company takes place by the experts o f TTGV regarding the capabhty o f the company both for the execution of pro ject activities a n d for repayments. O n c e both assessments have been completed, TTGV b o a r d decides whether the pro ject will b e supported or not. Acco rd ing 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 fur ther approval before the contracts are signed. Pro ject 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 pro ject proposal has been accepted, the companies carry out pro ject activities through their own funds, prepare technical a n d financial reports in monthly intervals, and send their reports to TTGV. A supervisor, usually one of the assessors, i s assigned for monitoring the technical developments achieved through the project. TTGV sends a copy of the technical and financial repo r t submi t ted by the company to the supervisor in order to get their v i e w on the technical progress and the e l ig ibhty of expenditures. T h e supervisor investigates the reports and sends his repor 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 prov ided. O n c e a l l the reports are completed, order i s g iven by the TTGV staf f in order to disburse the amoun t requested by the company.

At six monthly intervals a development repo r t and at the end of each project, a f ina l repo r t i s expected from the companies about the technical and economical achievements o f the project. Acco rd ing to TI’GV, the target for complet ing both the assessment procedure i s three months a n d disbursement procedure i s one month once the reports reach TTGV. However , it i s known that some latency exist especially a t the UFT approval stage.

g. C o m m e n t a q So 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 in f l a t i on 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 get t ing credits on US$ currency. This also tends to h inder under tak ing m o r e r i s k y (but rewardmg) R&D projects. Collaterals requi red from companies increase the costs o f companies even further. Collaterals requi red from companies are determined accord ing to the financial strength of the beneficiary. W h i l e no collaterals are requi red from, big companies and b a n k guarantees are asked from young companies, w h i c h i s almost impossib le for t h e m to obtain. In particular, companies in hi-tech sectors, w h i c h do not have physical assets either to p rov ide 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 suppor t program, whereas accordmg to the EC Community Framework 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.

78

Commercialization Project Support

a. Obiect ive a n d B a c k m o u n d

TTGV has been providing support for R&D projects of industr ial companies since 1991. T h e evaluation of these support programs have revealed that companies get t ing support for their R&D activities h a d dif f icult ies in findmg finance for the commerc ia lnat ion of the products and services developed. F inance requirement for commercial izat ion was m u c h higher than R&D costs and interest rates for finance available through banks were high. Commerc ia l izat ion 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 rov ide a n alternative commercial izat ion funding opportunity for companies developing successful products through the R&D support programs p rov ided by TTGV.

b. Tarpet GrouDCs)

T h e companies, w h i c h were suppor ted under the 'Technology Deve lopmen t Projects Support Program' of TTGV a n d developed a p ro to type successfully, can apply to the 'Commercial izat ion Pro ject 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 pro ject a n d i s p r o v i d e d up to 50 percent of the pro ject budget as loans. Repayment pe r iod 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 loan i s paid within 15 days after signing the contract. In addt ion, fees total ing 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 suppor ted a n d the to ta l a m o u n t of funds allocated to these projects i s US$2.8 million.

e. Admin is t ra t ive Procedures

Companies apply ing to the p rog ram should apply to the p r o g r a m using the application forms prov ided by TTGV. T h e application procedure requires companies to present a commercial izat ion p lan i nc ludmg the costs for p roduc t i on machinery a n d equipment. O n c e the pro ject i s approved by TTGV b o a r d collaterals should b e p rov ided by the companies.

Joint Technology Development Projects

a. Obiect ive and B a c k m o u n d

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

79

b. Target GrouDfs)

T h e projects are requi red to b e p roposed from consort ia f o r m e d from one or m o r e company(s) and /o r supplier(s) working in the same sector, i nc lud ing universit ies a n d research centers, and are aimed to p r o m o t e division of labor and cooperat ion start ing from design and development phase.

c. M o d e of Finance

T h i s support i s g iven as loans. T h e upper h t of support i s US$2.5 d o n (up to 50% o f the pro ject budget). Full (100%) finance can b e p r o v i d e d for service procurement from universit ies and research centers i f T T G V ' s con t r i bu t i on does not exceed 60% of the p ro jec t budget. Pro ject durat ion for support i s 2 years. A service fee of 2% of the TTGV loan i s p a i d within 15 days after signing the contract. In addition, fees total ing 2% are deducted from each disbursement. Repayment pe r iod i s 4 years inc lud ing l -year grace period.

d. Statistical D a t a

Th ree projects were suppor ted and the to ta l a m o u n t of support allocated for these projects i s US$2.5 d o n .

e. Administrat ive Procedures

A consor t ium agreement should b e signed a m o n g the partners be fo re applying to the program. An application form very s d a r to the Technology Deve lopmen t Projects should b e fded and presented to the TTGV. O n c e the pro ject i s approved the TTGV assigns a monitor to for the pro ject through w h i c h monitors the development of the projects in two month intervals. A development repo r t should b e prepared by the consor t i um leader in six monthly intervals and a f inal repo r t at the end of the project.

Pre-Incubation Support

a. Obiect ive and 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 innovat ive ideas. Pre- Incubat ion Support's scope includes creation of high quali ty business ideas that wdl later b e evaluated under 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 of the pro ject with TTGV. M a x i m u m pro ject durat ion i s 8 months for the preparat ion of business p lan and an addit ional 16 months for the pre-feasibil i ty studies. O n c e the f i r s t phase has successfully been completed and start up funding i s available, TTGV buys shares of the company to b e founded 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 of f ice space r e n t (in a pe r iod o f m a x i m u m 2 years).

80

d. Statistical D a t a

Only one pro ject i s suppor ted since 2006.

e. Admin is t ra t ive Procedures

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

Risk Sharing Facility Support

a. Obiect ive a n d B a c k m o u n d

T h e p rog ram aims to p rov ide financial support to n e w or i m p r o v e d p r o d u c t and process development projects by sharing costs of R&D projects’ capital requirements. T h e scheme i s very sirmlar to the TDP Support Prog ram where soft loans are p r o v i d e d for R&D projects of industr ial companies.

b. Target Groutds)

Start-ups that have low budget 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% of the pro ject budget). Minimum durat ion o f t h i s support i s 2 years.

d. Statistical D a t a

N o projects were suppor ted through the p r o g r a m so far.

e. Admin is t ra t ive Procedures

T h e main difference i s that soft l oan i s p rov ided without any collateral for high-tech projects where high re tu rn i s expected. Instead, a royalty agreement i s signed with the company where up to 10 times the p rov ided support cou ld b e paid back by the company to TTGV.

Start-up Support a. Obiect ive and B a c k m o u n d

T h e a i m o f t h i s support i s to he lp br idge the gap of f inancing innovat ive start-ups by investing in talented entrepreneurs that have creative, un ique a n d advanced-technology ideas and vision. TTGV seeks for leading-edge technologies and rat ional business models. T h e r i s k s o f the target market sector and those inherent in early-stage companies are assessed to find companies that have a clear p a t h to success.

b. Tamet Grouds)

Start-up support i s p r o v i d e d to entrepreneurs for imp lemen t ing their business plans.

81

c. M o d e o f F inance

T h e upper h t o f finance i s US$750,000 in the form of equity capital.

d. Statistical D a t a

Three investments were made since 2006.

e. Admin is t ra t ive Procedures

T h e application for the support p rog ram 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 rov ide 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 rev iewed according to the following criteria:

Capable Management Team: People with deep domain knowledge of their technology and 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 and companies that c o u l d have g lobal marke t potential. M a r k e t Edge: Lead ing edge or breakthrough technology with a propr ie tary and /o r a leadershp position. Exit Strategy: V iab le strategies to obta in liquidity. N a t u r a l merger or acquisit ion opportunit ies and clear paths leading to a successful pub l i c o f fe r i ng must b e evident. Re tu rn on Investment: An opportunity for a n investment re tu rn o f at least 10 times the invested to ta l in 4-7 years.

An investment commit tee provides the decision for support.

Environmental Project Support Programs

a. Obiect ive a n d B a c k m o u n d

T h e programs were designed a n d are be ing implemented by TI'GV in order to increase the amoun t o f investment towards environmental technologies. Current ly the amoun t of research and interest towards env i ronmenta l 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 envi ronmenta l technologies in Turkey. TTGV started i ts n e w envi ronmenta l support programs in August 2006.

b. Target Grouds)

Target companies are those industr ial companies, w h i c h either use energy intensely in their processes or wan t to carry out some pilot activities for p r o d u c t i o n of energy us ing renewable sources or those developing renewable energy technologies.

c. M o d e of Finance

T h e size o f the pro ject must b e minimum US$lOO,OOO and m a x i m u m US$1 d o n . T h e support i s p rov ided as loans and up to 50% o f pro ject budget. T h e pro ject durat ion cannot exceed 18 months. A service fee o f 3% of the TTGV loan i s p a i d within 15 days after signing the contract. In add t ion , fees total ing 3% are deducted from each dsbursement . T h e suppor t i s paid back in 4 years i nc lud ing 1 -year grace period.

82

d. Statistical D a t a

Two projects with a to ta l amoun t o f US$2 d o n have been suppor ted so far since 2006.

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

Implementat ion Rules are the same for a l l of the three programs. Companies should apply to the p rog ram through the application forms p r o v i d e d by TTGV. Both the application forms and 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 pro ject support contract i s signed, ITGV monitors the projects in two monthly intervals. T h e companies should p rov ide progress reports in six monthly intervals a n d a f ina l r e p o r t i s required from the companies at the e n d o f the projects.

83

IV. PROGRAMS/POLICY MEASURES IMPLEMENTED BY KOSGEB

R&D and Technological Innovation Support Program 43

a. ImDlement inp apency

Small and Medium Indus t ry Deve lopmen t Organizat ion (KOSGEB) i s a semi-governmental institution affi l iated with M i n i s t r y o f Industry and T rade o f Turhsh Republic.

K O S G E B was established in 1990 to he lp S M E s in their r a p i d adaptation to technological innovations, enhancing their eff iciency a n d compet i t ive capacity in order to increase their cont r ibut ion to the nat ional economy. KOSGEB prov ides 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 Deve lopmen t a n d Entrepreneurship Deve lopmen t .

T h e division of KOSGEB providing services and support programs direct ly to S M E s are: Entrepreneurship Deve lopmen t Center established in Ankara together with Enterprise Deve lopmen 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 tua l Technology Incubators (DTIs = 7) w h i c h are func t i on ing al l over the country Synergy Centers (73)

In addition, K O S G E B has four main divisions that design, imp lemen t a n d monitor support mechanisms (including the preparat ion of legislation):

Entrepreneurship Deve lopmen t Center

Regional Deve lopmen t Center Training a n d Consultancy Center

Marke t Research a n d Export Promotion Center

b. Object ive & B a c k m o u n d

T h e p rog ram aims to support research and development activities of SMEs. A mix tu re of grants and soft l oan i s p rov ided to S M E s hav ing n e w technological ideas a n d inventions, in order to improve these ideas, start p r o d u c t i o n a n d compete in nat ional a n d in ternat ional markets. Entrepreneurs who would l ike to start up their businesses by developing a p ro to type are also supported through this measure.

T h e p rog ram started in 1991 a n d has been revised over the years. T h e last rev is ion about the p rog ram procedures was completed in December 2007.

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

84

c. 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 of the project, qual i ty of the pro ject 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 of US$43,000 (50,000 TRY). S M E s can receive grants up to 50% with an upper limit of 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).

In addition, grant f inance 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 off ice 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 of publications and for participation in congress), conferences and fa i rs 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.

e. Statistical data

*as of June 2007 Source: KOSGEB (www..koceb. ~ o v . t r )

f. 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 pro ject applications for R&D and Technological Innovation Suppor t 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 project ions are provided for 3 6 months. In these units, an expert investigates the

85

documents using the definit ions 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 depar tment of the Univers i ty for scientific pre-evaluation by academic review. T h e n the pro ject i s considered by the Evaluat ion a n d Decis ion Committee, w h i c h i s f o r m e d accord ing to the procedures, specified in TEKMER/DTI collaboration protocols. T h e commit tee can direct ly 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 benef i t from a n d the amoun t of l oan and grant support to b e p rov ided from each one o f the funding schemes will also b e taken at the approval stage.

I f the applicant with a p ro jec 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 registrat ion procedure for the databases g iven above should b e completed before signing any contracts. For those beneficiaries who already h a d an established company and applied through that company are g iven 60 days for upda t ing their strategic roadmaps. T h e durat ion o f support stated in the application documen t starts after the contract signature. M a x i m u m pro ject durat ion i s 24 months but the Evaluat ion a n d Dec is ion Commi t tee cou ld p e r m i t an 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 of three projects. T h e to ta l durat ion for incubat ion cannot b e longer than 24 months even if m o r e than one pro ject of the applicant has been accepted.

O n c e the contract has been signed with the company, the company should apply for each one o f the support schemes separately. For example, the applicant needs to apply for the start up capital in at most three months. Appl icat ions for the consultancy support are available any t ime 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 the top ic o f consultancy do not exist in the reg ion then an academician out of the reg ion cou ld b e used for consultancy.

For equipment a n d materials purchases, l o a n support can b e demanded any t ime through the pro ject durat ion as long as timing i s consistent with the cash flow projections submi t ted at the beginning of the project. Firms need to p rov ide b a n k guarantee or treasury bdls in order to get the support.

A f t e r successfully complet ing a pro ject suppor ted by K O S G E B , a company can once m o r e apply for financial support, within 1 year. In order to apply to these so called “after graduation loan supports”, beneficiaries should present a b r i e f repo r t concerning their request whi le submitting the ‘Project Comp le t i on F ina l Repor t ’ of the previous project. With the approval o f h s request by the Evaluat ion and Dec is ion Committee, company will b e enti t led to the grant without any further evaluation procedure i f they apply within one year.

“Af ter graduation l oan supports” are g iven under three headmgs: qual i ty development and technological enhancement, Technopark of f ice renta l a n d job development supports. Appl icat ion for quality development and technological enhancement support should b e based on company’s development s tudes concern ing any one of p r o d u c t quality, p roduc t i on technology, company’s overal l technological level or col laboration between m a i n a n d supplier/related industries in crit ical and strategically impor tan t sectors.

T h e beneficiaries o f R&D or Technological I nnova t ion Suppor t schemes who have successfully completed their projects can also b e suppor ted in their job development process i f they init iate p roduc t i on related to the pro ject within one year.

86

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

Equipment lncubatlon /Materials

Application t o TEKMER/DTI

Technopark Consukancy Publication Conference Business rent of results attandance Development

Committee Aproval

Contract Signing U

g. C o m m e n t a m

Collateral requirements for beneficiary companies increase the costs for S M E s even further and, in m a n y cases, are considered an obstacle for t h e m to apply for support. There are lun i ts on how m u c h the p rog ram will cover costs o f a pro ject such as personnel, technical consultancy. For example K O S G E B has suppor ted for hinng quality personnel but does not support al l pro ject personnel. M a n y o f these costs are covered by TUBITAK programs but companies have to fde in separate appl icat ion fo rms for dif ferent organizations. Some S M E s comp la in abou t the paperwork a n d the delays in the process o f pro ject assessment. T h e support programs o f KOSGEB, TUBITAK-TEYDEB a n d TTGV explained in this documen t are o f the same nature. Dup l i ca t i on issue should b e fur ther investigated during the evaluation study (an enterprise can apply for support for the same pro ject from K O S G E B , TUBITAK-TEYDEB and 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. Obiect ive a n d B a c k m o u n d

T h e p rog ram aims to increase the competit iveness o f S M E s by providing finance for the procurement of software. T h e evaluation criteria and condit ions about the software, suppliers and businesses are determined by K O S G E B .

b. Tarnet Grouds)

S M E s operating in the manufactur ing industry can apply to the program.

87

c. M o d e o f Finance

S M E s can receive grants up to 50% with an upper limit of US$6,800.

Year

d. Statistical D a t a

T h e n u m b e r o f procurements suppor ted a n d fund disbursed are g iven in b e l o w table.

N u m b e r of Projects Suppor t Amount ( d o n US$)

2006

2005

2004

2003

T o t a l

227 1.2

43 0.4

2,001 26.4

248 3.7

2,572 32

e. 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 company to K O S G E B database. T h ~ s i s a five-step procedure where the companies fill in i n f o r m a t i o n about the current state of their businesses. At this stage, the companies should p rov ide a “strategic r o a d map” 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 rov ided by K O S G E B . Software programs that can b e suppor ted are

Mater ia l Resource Planning (MRP) programs Compute r aided design a n d p roduc t i on programs Enterpr ise Resource Planning (ERP) programs Maintenance Following Programs

There 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 al l the companies in the zone. A follow up visit by KOSGEB personnel i s carried out one year after the support to find out whether the p r o g r a m i s effectively u t i l ized by the company.

Electronic Signature Support

a. Object ive a n d B a c k m o u n d

I t aims i s to make the e- signature and electronic applications widespread among the S M E s within the f ramework of 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 Elect ron ic Certif icate Service Providers.

b. Tareet Grouds)

S M E s willing to use electronic signature in their business i s t he target group o f t h i s support p rog ram

88

c. M o d e o f Finance

Year

2007*

G r a n t support i s p rov ided S M E for up to f ive authorized representatives. T h e upper h t pe r certif icate i s US$344 and 100% of it i s supported.

N u m b e r o f Projects Suppor t Amount (US$)

3 6.645

d. Statistical D a t a

2005

There are no statistical data publ ic ly available for t h i s support program.

17 51,518

E-commerce Support

I Total

a. Object ive and B a c k m o u n d

32 80,694

T h e p rog ram supports the procurement of computer, printer, scanner, in ternet connect ion hardware (modem, hub) and software (operating system, antivirus program) by the organizations (NGOs, ma in l y chambers) w h i c h p rov ide services to S M E s under an agreement signed with K O S G E B . T h e S M E s without internet connect ion can use this infrastructure their e-commerce activities.

b. Tarvet Grouds) NGOs providing services to S M E s under 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 upper h t o f US$2,580 for e-commerce.

d. Statistical D a t a

12006 I 12 I 22.531 I

E-SME Informatics Standby Credit

a. Obiect ive and 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 ’ i n fo rma t ion processing and commun ica t i on 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 manufactur ing industry a n d inc luded to the K O S G E B f ie ld screening application can apply for the program.

89

c. M o d e of Finance

T h e durat ion o f the l oan i s 24 m o n t h s and 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 company’s technical infrastructure. T h e loan 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 suppor ted by this credit, with a to ta l credlt al location of 2.97 d o n YTL, or w h i c h 0.55 million YTL have been used.

e. Admin is t ra t ive Procedures

Companies can apply to V a l u f B a n k with the documentat ion 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 Use by S M E s

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

T h e p rog ram targets to support for the use o f S M E s the machinery and equipment expenditures o f Common F a c h t y Workshops (ORTKAs) and the Common Purpose Laboratories (ORTLABs). T h e companies, working in the same or complementary sector, can benef i t from ORTKAs and ORTLABs collectively. With this support, they can get the machinery a n d equipment for the production, qual i ty control, mass product ion, 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 and to create a ne twork between S M E s for the purposes o f increasing productivi ty, product ion, employment and p roduc t quality whi le decreasing p roduc t i on costs. I t has been imp lemen ted since 2000 by K O S G E B in co-operation with S M E s a n d regional umbre l la organizations.

All S M E s in Turkey clustered in groups o f at least f ive can apply for the program. A company’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 rov ided if the machine/equipment i s leased. T h e upper durat ion h i t for leasing i s 4 years. Max . amoun t p rov ide i s US$86,000, a n d can increase to US$129,000 for the clusters hav ing m o r e than f ive members. In terest free l oan on security i s granted for the procurement o f machine/equipment. (with up to US$344,000 and US$430,000 for the clusters hav ing m o r e than five partners) I

d. Statistical D a t a

N u m b e r o f projects suppor ted a n d fundmg prov ided for these projects are as follows:

90

Table 11. Number of Projects and Total Amount of Support I i

2007*

2006

2005

Year I N u m b e r o fP ro jec ts I Support Amount ( d o n US$) I I

4 0.5

3 0.8

9 1.6

2004 23 3.0

2003 19 3.6 TOTAL 58 9.5

-

*as of June 2007

e. Admin is t ra t ive Procedures

Appl icat ions for the support p rog ram have to b e carr ied out by the ORTKA/ORTLAB management company in one-mon th in terva l after the decision has been taken. I f prior to application an ORTKA/ORTLAB does not exist, the par tner companies should establish a new company, w h i c h wdl later act as the ORTKA/ORTLAB. During the evaluation process if a regional development r e p o r t has been prepared previously, the results o f this repor t are taken into account during the assessment. O n c e the approval for support i s g v e n , n e w partners can enter the consor t i um or one o f the members can h a n d over their shares to n e w partners as long as the n e w partners are working in the same sector. T h e equipment/machinery cannot b e placed as a pa r t o f the exist ing operations of a partner company, but the one of the partners can p rov ide the working space requi red for the machinery/equipment. Only n e w equipment can b e purchased through t h i s program.

Supports for Hiring Qualified Personnel by SMEs

a. Object ive a n d B a c k m o u n d

With this program, grants are p rov ided for S M E s to lure qual i f ied personnel with a university or vocational h igher school degree to i m p r o v e S M E s access to n e w technologies and expertise. T h e support’s main target i s to help S M E s h i re qual i f ied personnel for increasing their competit iveness through technology watch, increased quali ty and product iv i ty . I t also a i m s to create jobs for university a n d vocat ional higher school graduates. Vocat ional high school graduates cannot benefi t from this support in the developed regons . Support amounts vary with the level o f development o f the region.

b. Tarpet Grouds)

All S M E s redstered on the KOSGEB database are elizible for the 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 the S M E s . T h e durat ion upper limit for the p rog ram i s 18 months. M o r e than one quali f ied personnel can work at the same time, but w h e n the who le support amoun t i s used, the support i s over regardless of the duration. T h e upper limit for support i s US$14,000 for university graduates and US$9,500 for vocational high school graduates. T h e amoun t p rov ided over this upper h t i s has to b e compensated 100% by the companies.

91

d. Statistical D a t a

Year

2007*

2006

2005

2004

Table 12. Number of Personnel SUDDO~~ Proiects and Total Amount of SUDDOI? N u m b e r o f Projects Suppor t Amount (million US$)

547 2.3

784 3.1

1,542 12.2

1.865 10.5 2003

TOTAL 489 2.9

5,227 31.3

S M E s hav ing their strategic plans approved by KOSGEB can apply to the suppor t program. O n c e the application i s approved and the contract i s signed with K O S G E B , the companies should emp loy the personnel in 30 days. W h i l e the upper hntt changes according to the reg ion where the company i s located, companies employ ing the relatives of 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 emp loy n e w personnel in the three months following the dscharge o f old personnel.

Special Training Support

a. Object ive and B a c k m o u n d

T h e p rog ram aims to increase the compet i t ive advantage of S M E s by upgradmg their h u m a n resources with the a i m o f gaining necessary qualif ication, knowledge and 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 of S M E s on the topics l ike n e w and advanced technologies, m o d e r n p roduc t i on and management techniques, planning, investment, marketing, informatics, legislation, etc. T h e p rog ram also helps establishment of a pool of quali f ied trainers. At the e n d of each training program, per formance o f trainers i s evaluated using a rank ing 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 of Finance

Amount of finance i s p rov ided up to US$5,161 (6000 YTL) p e r year pe r company, and the upper h u t of finance changes between 60% a n d 80% depending on the level of development of 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.

92

e. Admin is t ra t ive Procedures

Year

2007*

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 t ra in ing needs they have. E i t h e r t ra in ing should b e carr ied out by a consul t ing company exist ing in the KOSGEB database or the consultant should apply at the same t ime for approval by K O S G E B . T h e dai ly rates for consultancy depend on the top ic of training and the experience o f the consultants. At the end o f the training, the companies should p rov ide a rank ing on the per formance of the consul t ing companies. La te r these ranlungs are used by other companies in fmdmg the right consultants for their training needs.

N u m b e r of Projects Suppor t Amount (million US$)

115 0.3

Consultancy Support for S M E s

2006

2005

2004 2003

TOTAL

a. Obiect ive a n d B a c k m o u n d

346 1.0

963 4.3

1,370 5.4 131 0.5

2,925 11.5

T h e p r o g r a m foresees fostering innovat ive organizational a n d management practices in S M E s by supporting procurement of consultancy. I t was designed to upgrade S M E s technology adaptation, technology development, product ion, marketing, informatics, modernization, investment, management know-how a n d skt l ls , increase their competit iveness by encouraging t h e m h i re 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% and 80% dependmg on the level o f development of the reg ion where the S M E i s located. Full (100%) support i s p rov ided for start-ups.

d. Statistical D a t a

e. Administrat ive Procedures

T h e companies hav ing 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 consul t ing company existing in the K O S G E B database or the consultant should apply at the same t ime for approval by K O S G E B . T h e dady rates for consultancy depend on the top ic of t ra in ing and the experience of the consultants. T h e support also helps establishment o f a pool o f quali f ied trainers. ,At the e n d of each training program, performance o f trainers i s evaluated using a ran lung system.

93

General Training Programs

Year

2007*

a. Obiect ive a n d B a c k m o u n d

N u m b e r of Projects Suppor t Amount (thousand US$) 18 24.2

S M E s , w h i c h part icipate in the training programs organized by K O S G E B , can benef i t from this support. T h e p r o g r a m aims to increase the compet i t ive advantage o f S M E s by upgradmg their h u m a n resources with the aim of gaining necessary qualif ication, knowledge a n d s k i l l s to apply n e w a n d high technologies. General T ra in ing Suppor t i s p rov ided on the topics l ike technologic R&D, technology adaptation, m o d e r n p roduc t i on a n d management techniques, planning, investment, marketing, informatics, legislation, etc.

2005

2004

2003 TOTAL

b. Target Grouds)

135 573.7

7,705 3,054.7

1 1,509 998

19,410 4,692.2

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

c. M o d e of Finance

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

d. Statistical D a t a

2006 I 43 I 41.6 I

e. Admin is t ra t ive Procedures

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

N e w Entrepreneur Support

a. Obiect ive a n d B a c k m o u n d

This p rog ram aims to p r o m o t e and 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 of n e w technology based firms.

94

b. Target Grouds)

2007*

2006

2005

2004

2003

Appl icants 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 Deve lopmen t Centers for 1 year, or prepared a business p l a n successfully under the “Small Business Start-up Consultancy Support” of KOSGEB, or received entrepreneurship t ra in ing within the context o f nat ional a n d international KOSGEB contro l led projects.

6 20.6

52 468.5

310 1,658.7

147 807.5

7 40.1

c. M o d e of Finance

I TOTAL 1 522

G r a n t support i s p rov ided for start ing up the business up to US$3,440. F i x e d investment costs are f inanced as grants i f the equipment and machinery are leased; o ther v i e w they are financed as loans. Appl icants should b e able to p rov ide collaterals for loans. U p p e r l i m i t s for grant and loan are US$8,600 and US$34,400, respectively. Percentage o f the pro ject budget for the leasing costs changes from 50% to 70%, a n d for the loans changes from 70% to 90% to b e f inanced depending on the level of development of the reg ion where the S M E i s located.

2,995.4

d. Statistical D a t a

Table 15. Number of Projects Supported and Total Amount of Support I Year I N u m b e r of Proiects I S u m o r t Amount (thousand USSF’, 1

e. Adminis t ra t ive Procedures

Entrepreneurs apply to the p r o g r a m by prepar ing a business plan. Applicants must b e graduates of K O S G E B ’ s ‘Young Entrepreneur Deve lopmen 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 shou ld establish their companies a n d register to the K O S G E B database by prepar ing their business plans. Suppor t i s p rov ided for three years beginning from the contract date for the start ing up the business a n d the machine/equipment costs. Be fo re gett ing the l oan pa r t o f the support, the entrepreneurs should p rov ide collaterals.

General Entrepreneurship Training

a. Obiect ive and 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 potent ia l entrepreneurs abou t the business idea development, market research, business p lan and market ing p lan preparation, business management and pro ject management. By this way, the success ra t i o of the probable businesses will b e increased. There i s no precondi t ion to apply for the program. T h e part icipant does not pay any fees. T h e p r o g r a m comprises 30-hour trainings.

95

b. Tareet Groutds)

T h e target group i s the potent ia l entrepreneurs who are willing to apply to the 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

No statistics i s avadable about the program.

e. Administrat ive Procedures

Potent ia l entrepreneurs can apply to the training p rog ram w h e n the trainings are available.

Young Entrepreneur Development Program

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

T h i s p rog ram targets development a n d dissemination of entrepreneurship culture a m o n g university students. I t i s run together with the universit ies to train a n d educate undergraduate and graduate students for starting up their own businesses. T h e p r o g r a m was designed to help increase the awareness on entrepreneurship, to stimulate start-up o f the n e w technology based firms a m o n g university students and graduates a n d to create n e w jobs. T h e participants do not pay fee for t h i s course.

b. Tareet Grouds)

Univers i ty undergraduates and graduates with a clear business idea are eligible.

c. M o d e of Finance

T h e trainings are free of charge.

d. Statistical D a t a

No statistical data i s available for the program.

e. Admin is t ra t ive Procedures

During the 102 hours course, participants are assisted with developing their business ideas, market research, pro ject management a n d business plans.

Quality Development

a. Object ive and B a c k m o u n d

T h e p rog ram prov ides grants for the costs o f Management System Certif icates received from TSEITURKAK, test, analysis a n d audi t costs within the context o f cal ibrat ion and CE mark ing eligibll l ty evaluation operations.

96

b. Target Grouds)

Year

2007*

S M E s registered into the K O S G E B database are eligible for support.

N u m b e r of Projects Support Amount (thousand US$)

71 82

c. M o d e o f Finance

2006

2005

2004 2003

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 pe r S M E for the general test, analyses a n d cal ibrat ion costs Up to US$17,200 per S M E for the CE mark ing test and analyses costs, (Percentage of finance vanes between 50% a n d 70% depending on the level of development of the reg ion where the S M E i s located. Up to US$2,150 p e r certif icate a n d US$8,300 p e r S M E for the costs of Management System Certif icates (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 .

155 148

147 494

282 713 17 20

d. Statistical D a t a

Table 16. Number of Projects Supported and Total Amount of Support I I I I

I TOTAL I 672 1,457

e. Admin is t ra t ive Procedures

T h e applicants should have f i l led their strategic plans and get t ing quali ty certificates should b e given as a target in their strategic plans. T h e company should apply for the cert i f icat ion 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 than one quali ty certificates as long as the m a x i m u m amoun t of support i s not passed over.

Market Research and Improvement of Export

a. Obiect ive and B a c k m o u n d Var ious sub-programs are implemented to encourage S M E s to part icipate in nat ional and international fa i rs are suppor ted under t h i s program. A n o t h e r sub-program i s the “Advert isement Support” where grants are p rov ided to S M E s , w h i c h i n t roduce 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 behal f o f m o r e than one S M E at one time.

97

c. M o d e o f Finance

Grants support up to US$17,200 for the expenses of the Trademark Registrat ion Certificate; a n d the costs o f the advertisement in per iod ic related l ine of business magazines, international airport per iod ic magazines, and bi l lboards in nat ional international airports.

Year N u m b e r of Projects 2007* 6 2006 11 2005 39 2004 647 2003 57

d. Statistical D a t a

Suppor t Amount (thousand US$) 19 37 590

5,183 204

TOTAL I 760 6,033

e. Admin is t ra t ive Procedures

T h e companies hav ing their strategic plans approved can apply to the program. Professional market ing companies or NGOs working for SMEs can apply on behal f o f a group of companies. T h e support i s p rov ided once the expenses are i nvo i ced by the organization. Both the services o f the organization and 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 to ta l rank i s b e l o w 70 over a to ta l o f 100 points.

Industrial Property Rights Support

a. Obiect ive and B a c k m o u n d

T h i s p r o g r a m aims to support protect ion of IPR by S M E s . Grants are p rov ided for patent, useful m o d e l a n d industr ial design applications of S M E s to the Turkish Patent Inst i tute. I t was designed to he lp increase the awareness on intellectual p roper t y rights a m o n g S M E s .

b. Tarnet Grouds)

All S M E s submitting required documents and the invo ice from the Turhsh Patent Inst i tu te for patent, usefu l m o d e l and industr ial design applications are eligible for support.

c. M o d e o f Finance

By this support, 70% of the application fee i s f inanced with an upper limit of US$5,160 for patent, usefu l model, industr ial design and integrated c i rcu i t topography applications made in Turkey. US$8,600 i s p rov ided for such applications abroad.

98

d. Statistical D a t a

Year Number of Projects Total Suppor t Amount (US$) I I

2007*

2006

3 2,546

16 16.611

2005

2004

2003 TOTAL

e. Administrative Procedures

5 9,377

66 45,762

1 667 91 74,963

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 foi the Food Sector’s Machine and Equipment Need 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, the maximum amount of loan i s USg677,OOO with a payback period of 18 months. The amount of support per person employed depends on the education level of the personnel and the development level o f the region where S M E i s located. For exports, standby credi t for the leather sector and machine and equipment procurement of food sector the maximum amount o f loan available i s around us$loo,ooo.

99

d. Statistical D a t a

kjects Supported and Total Amount of Support Created Credit Amount of support Total Number of

Volume ( d o n K O S G E B Credlt In terest Enterpr ises YTL) Rate Total (mdhon YTL) Suppor ted 725,21 24,99 421 8

6847 SMEs, 579,64 121,08 26,850 New

employment

11,76 3’89 103

Table 19. Number of Prc

Credit Interest Rate

New Employment Credit

42,24

Credit for the movement of the Leather Sector to

Industrial Zones Machinery &Equipment credit for Food Sector

1000+1000 Pro ject

13,79 468

e. 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

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

Imdement ing . agency

T h e Ministry of Industry and T rade administers indust r ia l a n d t radulg activit ies of Turkey. I t was established in 1920 as the Ministry of E c o n o m y a n d con t inued to operate under d i f ferent names in coord inat ion o f other ministries until 1983, w h e n Ministry of Industry jo ined with M i n i s t r y o f T rade forming i t s current structure.

Ministry of Industry and T rade i s responsible for ensuring development of 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 implementat ion of expor t a n d import plans in accordance with the annual objectives.

Main services and functions of the Ministry are: a

a

a

a

a

a

a

a

a

a

0

a

a

a

Measurement and adjustment: Testing, inspect ion and authorization of measurement instruments Standards: De te rm in ing standards for indust r ia l applications, authorization, inspection of these standards Cooperative t radmg system: D e f i n i n g the actors a n d uses of cooperative societies European Union regulations a n d adjustment studies: D e f i n i n g and executing the ro le a n d responsibil i t ies o f Turkish industry a n d trade development in EU adjustment process, Oil market supervision Measurements and standards market supervision Industry regstrat ions D e f i n i n g and executing company establishment rules and regulations: Both for domestic and foreign investments Protect ing consumer rights: B l o c k i n g domestic a n d foreign bogus sales by executing the laws Small industr ial estates: D e f i n i n g the need for establishment of small industr ial estates, credlt ing a n d supporting t h e m Organized industr ial zones: D e t e r m i n i n g the regions to establish n e w industr ial zones, credit ing and c o n t r o h n g the organized industr ial zones Indust r ia l zones: Feasibll i ty studies, supporting the companies Technology Deve lopmen t Zones (TDZs): D e t e r m i n i n g the regions to establish n e w TDZs, credit ing and contro l l ing the TDZs Suppor t ing industr ial R&D and innova t ion projects

Main units o f the M i n i s t r y dealing with R&D and innova t ion related policies a n d programs are the DG Industr ia l R&D, DG Industr ia l Estates and Indust r ia l Zones, DG Measures and Standards and DG European Union Coordination.

K O S G E B and Turkish Patent Inst i tu te are dependent establishments funct ion ing under the Ministry of Industry and Trade. Supports p rov ided to companies by the Ministry are mainly p rov ided through K O S G E B . T h e support programs run directly by the Ministry (through i t s DG Indust r ia l R&D) inc lude the Indust r ia l Thesis P rog ram (San-Tez), R&D Products Investment Support, Patent Support, a n d Marke t i ng and Promotion Support Programs (the fo rmer i s currently operational and other three programs w d b e init iated in 2009). DG Industr ia l R&D also manages the scheme for the establishment of technology development zones.

101

Law on the Establishment of Technology Development Zones4

a. Object ive & B a c k m o u n d

T h e L a w on Establ ishment of Technology Deve lopmen t Zones issued in 2001 aims to foster establishment o f Technoparks in universit ies and /o r research centers. T h e measure was designed to br idge the gap between the industry and academic communit ies, a n d to increase the n u m b e r of companies conduct ing R&D as w e l l as raising the share of business in R&D spending in Turkey. I t also stimulates the mobllity of h u m a n resources for i nnova t ion a n d research between the research commun i t y and business by providing incentives for researchers to work with private companies located in Technoparks. In order to achieve these objectives tax incentives are p rov ided 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’ revo lv ing funds.

Discussions about budding technology development zones in Turkey 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 in i t ia t ing necessary studies on January 17, 1989.

In relat ion with the Na t iona l Science and Technology Policy, the m a i n articles of the 1997-1998 Implementat ion Agenda prepared by TUBITAK was composed o f the institutional and legislative studies for the establishment of the Na t iona l I nnova t ion System and the preparatory work requi red to issue Technology Deve lopmen t Zones L a w . In addition, i t has been inc luded in the Seventh Deve lopmen t P lan with the statement of “legislative actions will b e taken to develop Technology Deve lopmen t Zones in cooperation with local and foreign capital organizations o f universit ies and research institutions”. Then, the M i n i s t r y of Industry and Trade conducted necessary studies and developed the Technology Deve lopmen t Zones D r a f t L a w .

Ano the r attempt affect ing the current Technology Deve lopmen t Zones 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 universit ies at the beginning of 1990s. Two incubators were established in cooperation with Is tanbu l Technical Univers i ty (ITU) a n d M d d l e Eas t Technical Univers i ty (METU) in 1991. La te r on, the experiences gained from these incubators were used whde developing the Technology Deve lopmen 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 of f ic ia l technology development zones in Turkey. Th ree Technoparks were suppor ted under the World B a n k pro ject (In)-- Cyberpark in Ankara, ITU Technopark in Istanbul, and MAM Technopark in Gebze.

b. Target ~ O U D ( S )

T h e l a w provides incentives for three d i f ferent 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 and establish their own companies in TDZs w h i c h otherwise i s not possible; (c) the third group i s def ined direct ly by the l a w as the management companies o f TDZs on behal f of the MoIT.

44 Information provided in t h i s section i s taken f rom 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 f rom the World and Turkey”, 1999, and Presentation o f Ahmet Basalp, the manager o f Erciyes University Technopark on “Technoparks in Turkey and Main Problems”

102

c. M o d e o f finance

Table 20. Data on TDZs by 2001

N u m b e r o f TDZs 2

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

N u m b e r of personnel in TDZs

N u m b e r o f projects in TDZs

Amount of exports from TDZs ( d o n 0

0

0

US$)

0 N u m b e r o f foreign firms

N u m b e r o f patents in TDZs 0

Source: Mintsty ofhdustty and Trade

No direct funding i s available for companies working in TDZs a n d al l o f the current incentives are tax incentives. I ncomes out o f the R&D and software development activities of companies in the Technoparks designated by the MoIT are exempted from i n c o m e a n d corporate taxes, and income o f the R&D staf f working in those companies i s exempted from al l taxes untd the end 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 revolv ing funds o f the universit ies.

year 2002 2003 2004 2005 2006 2007 2008 TOTAL

3 7 4 4 2 6 3 31

0 169 318 500 604 802 890 890

0 2,453 4,196 5,042 8,843 9,770 9,745 9,745

0 250 700 1,500 2,513 2,525 2,671 2,671

0 0 28 71 144 340 400 400

0 0 7 20 25 25 32 32

0 0 38 63 94 157 181 181

(p

T h e measure also encourages establishment of n e w technology based f m s and 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 Law.

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 and establishment costs o f the Technopark. E v e r y year MoIT negotiates with the SPO and funds the requesting management companies from the available budget in the form o f grant support.

d. Statistical data

Ministry of T rade a n d Industry collects yearly statistics from al l the founded TDZs about the predetermined per formance indicators. Statis tics on the per formance of current TDZs are p rov ided b e l o w

103

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

2004 2005 2006 Budge t Avai lable for TDZs 3,000 3,500 6,000 (thousand TRY)

2007 2008 TOTAL 6,900 13,060 37,459

e. Admin is t ra t ive Drocedures

In order to establish a TDZ, a founding commit tee i nc ludmg at least one university or research center should b e present in the region. M a i n criteria inc lude the level o f existent R&D and industr ial potent ia l in the region; capabllities of the cooperating university or research institute; technological fields to b e covered in R&D activities; and contr ibut ions to b e made in economic, technological, social and cultural developments o f the reg ion a n d the country. In order to show this potent ia l the founding commit tee prepares a feasibility study accordmg to the fo rma t p r o v i d e d by the MoIT. T h e potent ia l o f the reg ion i s assessed by an evaluation committee, whose members are f o r m e d from MoIT, M i n i s t r y of Publ ic Works a n d Settlement, SPO, H i g h e r Educa t ion Counc i l (YOK), TUBITAK, TOBB, T h e Union o f Chambers a n d Commodity Exchanges of Tu rkey (TOBB) a n d a m e m b e r from the pr ivate sector related to technology. T h e MoIT has chosen TTGV as the member from private sector. T h e decision of the evaluation commit tee i s passed onto the Counc i l of Min is ters for approval.

O n c e the zone has been approved as a TDZ, the founding commit tee 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 of the company are distr ibuted a m o n g the founding members accordmg to the a m o u n t o f their cont r ibut ion to the company capital. T h e management company i s an autonomous, profit seeking company whose main duty i s to manage the TDZ activities on behal f o f MoIT. T h e management company takes a l l the necessary investment decisions a n d assesses the companies apply ing to the TDZ for rent ing space.

T h e l a w states that the unaffordable pa r t of the amoun t necessary for acquir ing the land, and establishment o f infrastructure and buildings can b e p rov ided by the MoIT withm the l i m i t s of the M i n i s t r y ’ s budget reserved for regional development actions. A f t e r declaration of the TDZ, management company m a y apply for grant support from the MoIT for the unavailable pa r t of const ruct ion and 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 rov ided by the M i n i s t r y . Suppor t requests for the following year are made until the e n d of 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 acquir ing land, and establishment o f infrastructure and buildings, a n d makes analysis a n d examination in the reg ion if necessary.

In addi t ion to the financial support, the management company i s exempt from al l kinds of taxes and fees at t he establishment phase.

A p a r t from the management company, entrepreneurs who w a n t to take pa r t in the TDZs are exempt from the taxes o f their earnings from R&D and software product ion. T h e same i s appl ied 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 submi t ted to the M i n i s t r y of Finance in order to benef i t from the tax incentives.

104

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

f. 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, part icipation of universit ies i s necessary whi le applying for the approval of a TDZ. Most of the current TDZ applications are headed by universities, where the university prov ides the l and for the TDZ a n d seeks for finance for the construction activities. Current legislation does not a l low universit ies to transfer funds from their own budgets even for paying their own con t r i bu t i on to the management company capital. Universit ies prefer putting their con t r i bu t i on through the l a n d that they p rov ide a n d usually do not wan t to loose their c o n t r o l to the management company.

Partly, for this reason, a l though 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 rov ided 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 commercial izat ion 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 KOSGEB’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 a l low TDZ management companies and KOSGEB to work together effectively.

T h e tools for increasing the level o f university-industry col laboration a n d in te r - f i rm cooperation are l imited. Both academicians and companies compla in about not knowing w h a t each other i s doing.

A n o t h e r concern expressed by tenants abou t the TDZs i s the high rental rates. Because of the tax incentives, universit ies are known of seeing TDZs as a source of income. On the other hand, although evolving, the Technopark management companies do not p rov ide enough value-added services for the companies. For example, in m a n y cases, companies have to establish the infrastructures regarding commun ica t i on by themselves, or value-added services or activities for ne twork ing 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 benef i t from the incentives. T a x incentives are mainly used by software companies. O t h e r sectors cannot benef i t from TDZs since necessary infrastructure (such as R&D labs) for dif ferent 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 benef i t from the incentives. T h e synergies and col laboration between the researchers at the universit ies and f m s in Technoparks i s also very l itt le.

Recent R&D L a w N o 5746 (implemented by the MoIT) on Supporting Research and Deve lopmen t activities o f enterprises, w h i c h was rat i f ied by the Parl iament on February 28, 2008, allows companies outside Technoparks to benef i t from the tax incentives on the wages of R&D personnel (for details, see the Background on I n n o v a t i o n and Technology Policies, System a n d Incentives). A c c o r d m g to the Law, 80% o f the i ncome tax calculated from the wages o f the R&D staff and 90% of the i ncome 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 a l l R&D personnel in technology development zones. T h i s should p rov ide some competit ions 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.

105

Industrial Thesis (San-Tez) Projects

a. Object ive 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 br idge the gap between the industry a n d academic communit ies. I t aims to stimulate co-operation between firms and universit ies by supporting M.S. a n d PhD thesis, w h i c h were carr ied out by graduate level students in order to develop n e w technology-based products and processes a n d to t ransform the university research into innovat ive products and processes in l ine 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 and the amended vers ion of the App l i ca t i on Regulat ion was publ ished 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 per formance criteria and high commercial izat ion potent ia l are eligible for support.

T h e a i m of the p r o g r a m i s to Commercial ize academic knowledge, Transfer academic knowledge into high value added technological products, Solve the problems of industry during produc t ion process in cooperat ion with universities, Increase the compet i t ive power o f innovat ive and 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)

Universit ies can apply to the p r o g r a m with the part icipation of at least one private sector enterprise. T h e private sector enterprise should p rov ide a statement regarding how the results wdl b e used in the industry and that they d b e f inancing 25 percent o f the w h o l e pro ject budget.

c. M o d e of Finance

Eligible projects are p r o v i d e d with grant f inanced up to 75 percent of the pro ject budget. T h e rest i s f inanced by the private sector wh i l e test and laboratory services are covered by the universities where the projects are be ing carr ied out. T h e pro ject durat ion cou ld b e m a x i m u m 3 years. Addi t ional 6 months cou ld b e given according to the requirements of the project.

d. Statistical D a t a

T h e budget allocated for the p rog ram for 2007 was US$10 million. As of 2008, 111 projects were supported.

e. Administrative Procedures

San-Tez pro ject proposals are prepared in l ine with the i n f o r m a t i o n p rov ided in the application guide a n d sent to the DG Indust r ia l R&D by pro ject manager and /o r the company. Already started projects can also b e applied to San-Tez. Pre-screening of projects i s done by the DG Industr ial R&D according to the imp lemen t ing regulations and in l ine with the targets o f the program. Projects targeting investments and basic research, and those with incomplete documentat ion are not evaluated. Then, the projects are evaluated by the ‘Project Evaluat ion Groups’ f o r m e d by experts in the f ie ld of the application. I f necessary, pro ject partners are i nv i t ed to the evaluation meet ing in order to p rov ide fur ther i n fo rma t ion on project’s aim, research methodology, work program, scientific, technological, economic and social benefits expected from the project, success criteria, budget just i f icat ion and commercial izat ion potent ia l of the project. I f needed, experts in the Pro ject

106

Evaluat ion Group m a y visit the company be fo re the evaluation meeting. Pro ject 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 pro ject partners. Contracts are signed with the owners of selected projects.

R&D Support Program Based on Law No.5746

Imp lemen ta t i on of the R&D L a w has been init iated after the issuance of the regulations in July 2008 and applications are be ing received on R&D centers from large companies. These applications are reviewed by the ‘R&D Centers Auditing and Evaluat ion Board ’ w h i c h i s composed o f f ive members (one from the MoF (Deputy DG of I n c o m e Policies), one from the MoIT (DG Industr ia l R&D) and three academicians who are experts on the f ie ld 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 rev iew has been done by the Board, projects are evaluated by another three academicians who visit companies a n d prepare a repo r t based on the main selection criteria. Repor ts are then reviewed by the B o a r d w h i c h makes the f ina l decision on applications. T h e MoIT DG Industr ia l R&D also announced the ‘precompetit ive R&D support scheme’ a n d “Technopreneurship support” covered by the Law.

Main Features of the N e w R&D. Law

R&D discount :volume of R&D)

R&D discount :Increment of R&D)

Cax exemption for 3&D personnel

social security iayments for R&D

Features

100% o f R&D and innova t ion expenditures made by technology centers’ enterprises, by R&D centers, in R&D or innova t ion projects suppor ted by pub l i c administrations or international funds, i s discounted in the calculation o f corporate earnings

H a l f the amoun t o f increase compared to previous year in R&D and innova t ion expendltures made by R&D centers w h i c h emp loy m o r e than 500 full t ime equivalent R&D personnel i s discounted (in addi t ion to 100% of R&D expenditures) in the calculation o f corporate earnings

T h e income tax o f R&D and support personnel working for technology centers’ enterprises, in R&D centers a n d for R&D and innova t ion projects w h i c h are supported by pub l i c administrations or international organizations or for those projects w h i c h are carr ied out by TUBITAK, those working in pre-competit ive research projects and in those enterprises benef i t ing from Technopreneurship capital suppor t will not b e paid at a rate of 90% for those with doctorate degrees and 80% for others

H a l f the amoun t of social security payments w h i c h i s required to b e p a i d by the employer o f

Identified Issues

Big companies with over 50 full t ime R&D personnel can benefi t from incentives. For SMEs, companies gett ing support from TUBITAK, ‘ITGV and K O S G E B (and Intl agencies) are eligible.

Large companies with over 500 R&D personnel can use the incentive

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

Large companies with w e r 50 R&D personnel

107

personnel

Stamp tax exemption

Technopreneurship support

Pre-competitive research

T a x exemption for R&D incentives

R&D personnel workmg for technology centers’ enterprises, in R&D centers and for R&D a n d innova t ion projects suppor ted by pub l i c administrat ions or international organizations, or imp lemen ted by TUBITAK will b e covered by the Ministry of Finance for f ive years.

Any documents to b e prepared for R&D a n d innova t ion activities within the f ramework o f this l a w shall b e exempt from stamp tax

Pub l i c administrat ions can p rov ide one t ime Technopreneurship capital support up to TRY 100,000 without collateral

Budgets created for pre-competit ive projects will not b e treated as i ncome for the par tner organization holding the special account on beha l f of the other partners

G r a n t support p rov ided for R&D activities of companies will not b e considered as i ncome if k e p t in a special fund

can use the incentives duect ly For S M E s companies get t ing support from TUBITAK, TTGV a n d KOSGEB (and Intl agencies) are eligible

Only recent university graduates can benef i t from the support

Support programs by MoIT to be introduced in 2009:

Patent ing Support Program; providing financial support for cover ing the costs of intellectual and industr ial proper ty rights (Patent, Utility model, Industrial Design) registration.

Indust r ia l R&D Investment Suppor t Program; providing an investment support (Seed Capital) necessary for the patented end products of R&D projects.

Indust r ia l R&D Products Marke t i ng Suppor t Program; providing financial support for market ing activities for the high value added innovat ive products or p roduc t i on methods.

108

VI. R&D TAX EXEMPTION BY THE MINISTRY OF FINANCE

a. Obiect ive and B a c k m o u n d

T h i s measure aims at st imulat ing 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 benef i t from the incentive. I t i s imp lemen ted by the General Di rectorate o f Revenues of the Ministry. Technology and I n n o v a t i o n Projects Suppor t Programs Division of the Scientif ic and Technological Research Counc i l of T u r k e y (TUBITAK-TEYDEB) assists to the M i n i s t r y in implementat ion of the scheme.

b. Tarpet Grouds)

All companies conduct ing R&D in Turkey and submitting requi red documents and in fo rma t ion as proof o f their R&D expendtures are eligible for support.

c. M o d e of Finance

Based on the implementat ion 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) publ ished in April 2007 (Of f ic ia l Gazette no. 26482), tax exempt ion accounting to 100 percent of R&D expenditures of companies i s applied. Expenditures eligible for exempt ing from tax are the cost of R&D personnel, overheads, materials, consultancy, depreciation, taxes and duties, and finance costs

d. Statistical D a t a

N o statistics on the amoun t o f support p rov ided through the p r o g r a m i s available.

e. Admin is t ra t ive Procedures

As a pa r t of their end o f the year financial reports companies use the i r tax discounts regarding the R&D expenditures they have applied. At the same time, a technical a n d financial repo r t i s sent to the Ministry of 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 pro ject expenses that were already suppor ted by TUBITAK, TUBITAKs opinion i s direct ly prov ided. For those costs, w h i c h were not a p a r t of TUBITAK projects, TUBITAK carries out an assessment very similar to the assessment procedure used for technology development projects support program.

109

VII. THE SUPPORT FOR R&D INVESTMENTS BY THE TREASURY

a. Obiect ive and B a c k m o u n d

T h i s measure aims at st imulat ing investment in R&D by the industry through providing VAT exempt ion for R&D investments.

b. Tarpet Grouds)

All companies conduct ing R&D in Turkey a n d submi t t i ng requi red documents and in fo rma t ion as proof o f their R&D expenditures are eligible for support.

c. M o d e o f Finance

T h e ‘Support for R&D Investments’ scheme w h i c h has been imp lemen ted by the Treasury provides exempt ion from value-added tax and customs duty. I t prov ides 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 publ ished by the Treasury, no applications have been received for this scheme for the last 4 years.

e. Admin is t ra t ive 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 ministr ies w e b site. T h e M i n i s t r y of Treasury than 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 rov ided an exempt ion certif icate b e issued to the company through w h c h they can p rocu re their equipments without paying VAT or duty fees.

110

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

Institutions Universit ies Research Centers o f TUBITAK T o t a l

a. Obiect ive a n d B a c k m o u n d

2007 2008 2009 135 138 163 69 70 77

204 208 240

Big investment projects of publ ic organizations are p lanned in the budget by SPO. Thus, large R&D investments o f universit ies are direct ly f unded by SPO instead of 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 carr ied out jointly by universities a n d private and pub l i c sector organizations. Minimum project budget must b e approximately US$667,000. T h e r e are priority fields ident i f ied for the pro ject applications, such as ICT, defense and space technologies, etc. Research Infrastructure Projects: With t h i s support, SPO a i m s to finance modern izat ion and improvemen t o f existing research infrastructure or establishment o f n e w infrastructures for a specific research activity within the priority fields. Researcher Deve lopmen t Project: U n d e r this heading, SPO implements “Academician Deve lopmen t Program” (PhD students who would become an academician are suppor ted during their research in other countries), “Advanced Research and Educa t ion Program” (graduate level student are supported during their studies and research activities) a n d “Industr ial Doc to ra te Program” (graduate level students are jointly supported by universit ies and the private sector for their research activities w h i c h are def ined according to the needs o f the industry).

Tarvet Grouds)

Universit ies (both pub l i c and private) a n d pub 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 rov ided through SPO.

d. Statistical D a t a

e. Adrmnistrat ive Procedures

SPO opens a call for proposals once a year. Universit ies apply through the pro ject appl icat ion forms p rov ided by SPO until the end of June each year. SPO forms a pro ject assessment team with the inc lus ion o f people from TUBITAK. Projects are assessed by talung into account both the current projects be ing supported and the targets def ined in the five yearly development plans. For the projects where support will b e p r o v i d e d the budgets are placed into the yearly budgets of the universities or research centers from the national budget according to the financial proposals p rov ided at the beginning of each year.

111

f. Commenta ry

SPO support has been quite he lp fu l in strengthening R&D infrastructure at the universities. T h e support i s based on specific requests from i n d v i d u a l sponsors and on broader data available on the capabllities on the universities and regional needs, rather than on an analysis o f national priori t ies or a nat ional strategy.

112