UN - ECE  Operational Activities

CONTENTS

GENERAL POLICY FRAMEWORK

STRUCTURE And IMPACT Of SME’s In TURKEY

OPERATIONAL FEATURES of SME's

ORGANIZATIONAL FEATURES

• TESK (Turkish Tradesmen and Craftsmen Confederation)
• TOBB (Turkish Union of Chambers and Commodity Exchanges)

THE INSTITUTIONAL And POLICY FRAMEWORK

• Ministry of Industry and Trade
• KOSGEB (Small and Medium Industry Development Organization)
• Ministry of National Education
• MPM (National Productivity Center)
• TSE (Turkish Standards Institute)
• TUBITAK (The Scientific and Technical Research Council of Turkey)
• IGEME (Export Promotion Center )
• DİE (State Institute of Statistics)

FINANCIAL ORGANIZATIONS

COOPERATIVES

SOCIAL SECURITY And INSURANCE DEPARTMENTS

NON-GOVERNMENTAL ORGANIZATIONS

• TTGV (Technology Development Foundation Of Turkey)
• DEIK (Foreign Economic Relations Board )
• TOSYÖV (Turkish Foundation for Small And Medium Business)

DEFINITION  of SME's

PROBLEMS HAMPERING EFFICIENCY and GROWTH OF SMALL-MEDIUM SCALE INDUSTRY in TURKEY

STATE AIDS for INVESTMENT to SME’s

FOREIGN TRADE POLICY ( New State Aids For The SME’s )

GENERAL POLICY FRAMEWORK

From the establishment of the Turkish Republic in 1923 until 1980, Turkey was insulated state-directed economy. During the 1930's, development Strategies were based on rapid industrialization through State Economic Enterprises(SEE) and import substitution. During this years, priority was given to capital-intensive investments, manufacturing basic products and large public investments were realized through SEE. Main reasons for the development of SEE were the belief that rapid economic growth depended on heavy investment in large, capital-intensive industrial projects and private sector had neither the financial resources nor the technical expertise to undertake projects of this magnitude alone, so state intervention was deemed essential. Main thought behind those policies was to self-sufficiency and try to meet most of its import requirements through the revenues of agricultural exports. On those years popular phrase was ‘big is beautiful’.

 Until 1960's both number and role of State Economic Enterprises in Turkish Economy steadily increased. During the 1960's and 1970's, the rapid industrialization is the main issue in the development strategies of Turkish Republic. Priority was also given to capital-intensive investments as well as utilizing up-to-date technology. In these years, Turkey accomplished high economic and industrial growth rates of approximately 7% per annum while value added in industry grew at approximately 10% a year.

After 1960s, on the other hand, serious evaluations on the problems of SEE's started. The foreign exchange requirements of Turkish Republic, in 1970's, strikingly increased because of the industries are highly capital-intensive and require economies of scale. In late 1970's mainly due to the sudden increases in oil price, the consequent acceleration of the rate of inflation, inefficiencies in production and product pricing and, unprofitable administration, SEE's turned out to be a burden to economy. Today SEE's which account for some 35 percent of manufacturing value-added, continues substantial drain on the economy and contribute to high inflation.

Since 1980's, Turkey’s development strategy has been based on free market economy strategy. Many structural reforms had been introduced in the general framework of Turkish Economy. Those are:

• Liberalization of foreign trade, currency and investments
• Free floating exchange rates
• Elimination of price controls
• New interest rate policy to enhance saving
• Strictly controlled government expenditures
• An open and flexible foreign investment policy

Additionally liberal economic policies were initiated by the governments after 1980's such as;

• Turkey has invested largely to build its infrastructure in telecommunications, energy, transportation network (high ways) and tourism;
• Turkey has taken necessary steps to developed its financial system and the institutional framework to developed the capital market, presented new financial instruments along with liberal trade policies to promote exports and remove barriers on imports;
• Turkey has established a well regarded and respected Central Bank as well as developed banking sector;
• Export promotion: the duties were abolished for imported materials used to manufacture exported products;
• Liberal import regimes; all taxes and duties on a very large list of imports to prepare Turkish Industry to meet the challenges of international competition were removed;
• Liberalization of the Exchange Control System: Realistic and flexible exchange rate policies; and
• Elimination of Quato System: More liberal foreign trade policies.

In this framework of Turkish Economy, the privatization program was initiated and was presently executed by Public Participation Administration (KOI) in order to minimize state involvement in the economy; to confine the role of the state in the economy to areas like health, basic education ,social and national security, large scale infrastructure investment and provide the suitable legal and structural environment for free enterprise to operate; to enhance the competition in the economy; to broaden and deepen the existing capital market by promoting wider share ownership; to provide efficient allocation resources, etc.

Turkey is convinced that a liberal internetional trade system based on the principles of free competition, non-discrimination and elimination of barriers will serve the interests and welfare of the whole global community.

In this respect, the integration of Turkey into the European Union is both important and unique since Turkey is the first and only country to implement the Customs Union before being a full member.

The Customs Union which entered into force on 1.1.1996, initially covers industrial and processed agricultural products. After the entry to the Custums Union,Turkey had eliminated all customs duties and charges having equivalent effect on imports of industrial products from the community. For Products imported into from third countries, Turkey started to apply the rates of protection specified in the Community's common customs tariff.

 STRUCTURE AND IMPACT OF SME’s IN TURKEY

 In the last decades, both developed and developing countries having different social, political and cultural structures, paid a great attention to the Small and Medium Industries which are generating significant percentages of overall production and employment. One of the key solutions proposed for developing economies which are being affected by world-wide economic activities is to support, strengthen and promote SME’s.

 Industrialization process has always played an effective role in the development of Turkish Economy. The key role which the small and medium scale industry plays in the economic life of Turkey has been appreciated very well and promoted not only because of their number and variety but also because of their

• involvement in every aspect of the economy;
• contribution to industrialization and regional development;
• effect on unemployment problems;
• integration support and complement of large industries;
• flexibility in manufacturing fields;
• respond to market forces;
• easy adaptation to new technologies;
• reaction readily to economic fluctuations;
• success in mobilization of untapped resources of capital and skills; and
• stability in political, economical and social structures.

 It is assumed that, by supporting Small and Medium Scale Industry where capital, manpower return ratios are low as far as the economy is concerned will create more employment and thus resources will be utilized more efficiently.

According to the 1994 Census of Industry and Business Establishments, the total number of industrial establishments is 198264 and the Small and Medium Industrial establishments comprises the 197297 of them. The Table 1 , gives the number and share of the Turkish small, medium and large industrial enterprises in terms of the total number of establishments, and the number of workers employed.

 It is clear from the Table 1, that, Small and Medium Industrial Enterprises are predominant in Turkey, account for 99.5 % of overall manufacturing industry and 61.4 % of total employees. When the people who are not affiliated with social security organizations are taken into account , this ratio is evidently grow.

The sectoral distribution by size of firm in the Turkish manufacturing industry is given in Table 2 .

 Within the general manufacturing industry, the sectors which have the highest number of enterprises are given as following:

• With 29% textile, wearing apparel and leather;
• With 25% fabricated metal products;
• With 22% wood products including furniture ;
• With 11% food, beverages and tobacco; and
• The remaining sectors constitute the 13 % of the enterprises.

The highest employment is realized in the following sectors respectively:

•  With 28 % textile, wearing apparel and leather;
• With 22 % fabricated metal products; and
• With 16 % food, beverages and tobacco.

The firm size-sector groups which the small industrial enterprises (1-9 workers) are highly concentrated are given as follows:

•  With 27.6 %, the enterprises employing 1-9 workers in textile, wearing apparel and leather sector;
• With 23.9 %, the enterprises employing 1-9 workers in fabricated metal products;
• With 22.2 %, wood products including furniture; and
• The food, beverages and tobacco sector follows the above mentioned sectors with 10.3 %.

 It is therefore a most important task to create and foster an environment that will enable small and medium industry sector to reach their full economic potential. In parallel with this, an Organization of a small and medium industry business would be the backbone of a healthy economy and prerequisite for a balanced development. It can obviously be seen that one of the key solutions proposed for developing economies is to support and strengthen the SME’s.

 Table 1 : Enterprises of Industry Sector in Turkey and Employees Thereto *.

* Source SSI-Annual Manufacturing Industry Statistics 1994

** According to Definition of KOSGEB ,Small Industry 1-49,Medium Industry 50-150,Large Industry 150 +, workers

Table 2: Sectoral Distribution of Firms In Manufacturing Industry*

* Source SSI-Annual Manufacturing Industry Statistics 1992

OPERATIONAL FEATURES of SME's

a. Forms of Ownership

The most common forms of ownership in SMI segment of industry are the individual proprietorship and partnership. Joint stock companies to be found among the larger of medium enterprises are the exception and mostly, family controlled. Enterprises employing 1-9 workers which constitute the bulk of manufacturing establishments in Turkey, remain predominantly single proprietorships. Establishments employing 10-24 workers are frequently organized as partnerships and establishments with more than 25 employees are usually in the form of joint stock companies. The fact that the joint stock company provides greater access to institutional credit and continuity than individual family businesses seems to have prompted the adoption of the corporate form of business Organization among medium scale establishments in recent years.

b. Origin of Entrepreneurship

Most owners of small workshops (employing up to 10 workers) originate from the shop floor. This is especially true in the metalworking, shoemaking and wood-working industries and to some degree in the garment industry. In some other branches of the textile industry, chemicals, plastics, rubber and some branches of the food industry, where the required initial investment is larger, the entrepreneur is generally a trader who has commercial acumen and has accumulated capital from wholesaling or retailing operations. In the case of medium size enterprises, entrepreneurs are usually businessmen or professionals with considerable industrial experience.

c. Specialization of Management Functions

A characteristic of the small scale manufacturing sector in Turkey is the concentration of managerial and production functions in the person of the owner. The proprietor carries out all the activities-except the actual production operations-involved in running of his business. Some degree of specialization of management functions commences when the enterprise reaches the 15-20 employment bracket, depending on the industry and technology employed, and increases with the size of establishment.

d. Labor Skills and Training

Entrepreneurs in traditional workshops generally start their careers through the guild system. They begin working at age 13-16 as apprentices, and after gaining experience they become journeymen. Thereafter one attains a status of master and goes into business on his own. There are no formal demarcations between successive phases of the learning process. An alternative is for somebody to complete vocational training before starting his business. Workers from larger enterprises also enter the small enterprise sector after accumulating savings and purchase machinery. The Ministry of Education has enacted a law regulating the informal training. This law mandates renumeration of the apprentices and enrolling them in social security schemes. These have been important steps to create favorable environments for informal training.

e. Forms of Employment

Employment in small scale industry comprises mainly:

(i) self employed proprietors and partners in small workshops and factories;

(ii) dependent workers such as apprentices, journeymen, etc.

(iii) seasonal laborers with fixed-term contracts. In medium sized enterprises, workers are hired with work contracts. Seasonal and casual labor is also employed. Workers in larger enterprises are usually members of labor unions, have set working hours, and are covered by social security. Casual labor is recruited on the open market at daily wages for incidental work. Family members, paid or unpaid, can be found in all, but the largest individually owned enterprises. Female participation is generally low and the ready-made garment and weaving industrial branches are the main employers of female labor. Child employment is common, particularly in small industry.

As regards labor mobility, upward mobility is the basis of the apprentice system as apprentices become journeyman who, upon reaching a certain age and skill level, set themselves up as independent craftsmen/masters.

ORGANIZATIONAL FEATURES

ORGANIZATIONS of SME’s

TESK (Turkish Tradesmen and Craftsmen Confederation) with 2 Million registered members is the most important establishment binding together the small enterprises. The legal status of this organization was based on the;

• Law of Unions and Associations of Petty Traders (enact. 1949)
• Law No. 507 for Petty Traders and Artisans (enact. 1964)

These unions act to promote a variety of interests of its members as pressure groups. They are instrumental in setting up cooperatives for building industrial estates. In some instances they are involved in training their members. The unions are organized at the regional level in regional associations, which represent all crafts and professions, and act as channels of communication. At the national level, all the regional associations form TESK.

Federations of TESK related with Manufacturing industry are:

• Metal Works Artisan Federation ;(Foundry works, Machining, Metal works.)
• Electricity and Electronics Technicians Tradesman and Craftsman Federation ;
• Wood Craft Artisans Federation ;

TOBB (Turkish Union of Chambers and Commodity Exchanges)

TOBB covers medium and large industrialists and small and medium enterprises and this union accommodates 700,000 members.TOBB and Chambers and Commodity Exchanges under the organization of TOBB are professional associations which qualify as public utility organizations.

The legal status of this Organization was based on the ;

• Law of Chambers of Comers and Industry (enact. 1924)
• Law of Chamber of Comers, Industry, Petty Traders and Commodity Exchange (enact. 1943)

Table 3: Total Number of Chambers and Commodity Exchanges

• The Medium And Small Enterprises Board (OKIK): OKIK was established in 1988 under the sponsorship of the Union of Chambers (TOBB). This Advisory Board is composed of the Union of Chambers executives and large number of representatives from Government agencies. The Small- and Medium-Scale Enterprises Board has a subcommittees

Additionally, in January, 1995

• Technology Board was established by TOBB in order to prepare industry sector to 21st century within university-industry relationship, to direct the industry sector toward the adaptation of new technology, to inform industrialists, and to make a technology inventory,to construc technology development regions ,sites and technopolicies. The Technology Board established by TOBB is composed of many representatives from the Ministry of Industry and Trade, YÖK, TÜBITAK, DPT, KOSGEB, Istanbul Technical University, Bosphorus University, Middle East Technical University, Aegean University, Nine September University, TTGV, and eleven members of Industry Chambers. The Silicon Valley Science Park is an example for the TOBB’s Technology Board and the Technology Development Region Scheme was initiated by them.

THE INSTITUTIONAL AND POLICY FRAMEWORK

Since the importance of small-scale enterprises has been recognized in most of the developed or developing countries, appropriate policies by the government have been considered to foster such units and some special organizations have been established.The organizational structure which directly related to the promotion of SME’s in Turkey can namely be listed below:

Ministry of Industry and Trade

Ministry of Industry and Trade makes studies to facilitate and encourage the activities of Small and Medium Scale Industries, prepares credit possibilities for Industrial Estates and Organized Industrial Zones, and determines the objectives for the Turkish Industrial Policy. General Directorate of Crafts, Organized Industrial Zones and Small Industrial Estates, as the name implies, gives services to develop handicrafts and help small industrialists to have their own modern workshops in Industrial Estates and to allocate the credits for infrastructures of Organized Zones, generally medium scale industrialist are located.

Patent Institutes coordinates all the activities related with the registers of patents and trademarks belonging to the industrial property rights.

KOSGEB (Small and Medium Industry Development Organization)

KOSGEB, a non-profit semi-autonomous Organization was established by the Government by a special Act No:3624. in 1990 incorporating earlier KÜSGET (Small Industry Development Organization) and SEGEM (Industrial Training and Development Center) programs which were established as a joint project of UNIDO and Turkish Government to deliver all forms of nonfinancial services needed by the small scale industry.

KOSGEB has embraced the experience already accumulated by KÜSGET and SEGEM and with more than 30 extension service offices with competent professional staff it continues to provide diverse technical, management and consulting services to small and medium industries. KOSGEB not only assumed responsibility for numerous functions but also developed new programs aimed at strengthening the SME's component of Turkey’s industrial structure.

Main functions of KOSGEB:

• Access to informative means
• Adaptation of technological developments
• Environment for entrepreneurship support
• Develop ancillary industrial relations
• Quality assurance
• Training

All functions and activities are being carried out by the KOSGEB’s so called Development Centers which are namely:

• Sector Specific Development Centers ( Foundry, Wood Products, Plastic & Rubber)
• Consultancy and Quality Improvement Centers
• Technology Development Centers/ Technoparks
• Information Centers
• Investment Development Centers
• Market Research Centers
• Training Centers
• Common Facility Workshops (Metal, Fine Mechanics, Leather)

Ministry of National Education

Organized Technical Education, Apprenticeship Training , Master Workman Training , Vocational Courses, are being carried out under the responsibility of General Directorate of Apprenticeship Training. It is mandated by law to open an apprentice training center in small industrial estates having more than 100 enterprises . Apprentices, Workers and Master workman are trained in Apprenticeship Training Centers and Training schools. The centers offers to apprentices and workers of the estate programs, which can satisfy not only the technical / theoretical requirements but also the vocational / practical needs from the part of the SME’s. The branches are fitting and leveling, metal works, installation, electrical works, construction works, printing, textile , etc.....

MPM (National Productivity Center)

MPM was established in the early 1950's as a public agency in order to improve the productivity of industrial enterprises. The center provide services to individual enterprises and its activities are geared towards all enterprises without any priority.

TSE (Turkish Standards Institute)

TSE was established by a special law in order to prepare Turkish Standards and to assist the standardization of industrial products by conducting quality control. TSE may play a crucial supporting role in this connection, especially for ancillary industries.

 TUBITAK(The Scientific and Technical Research Council of Turkey)

TUBITAK was founded on July 24, 1963, pursuant to Act. 278. as a public research institute to conduct scientific research, to follow technological developments in other countries and collect related information, to pursue the technological developments of specific products, to conduct seminars on scientific issues, and to provide technical advice. Most of the staff of TUBITAK composed of high-level scientists. TUBITAK may play an important role by undertaking SME-related research studies through KOSGEB corresponding directly to SME requests, concentrating on pursuing new commercial technological developments and their applications, studying the Research Development Institutions in other developed countries in terms of their interaction with SMEs, and so on.

IGEME (Export Promotion Center)

IGEME was established to prepare reports on the development of trade in foreign markets, coordinate the business relations of national and foreign companies and organize fairs.

DIE (State Institute of Statistics)

DIE provides Statistical information related with SMEs. DIE has indirect help for marketing activities of SMEs both at the business planning stage and in further development stages by conducting at short intervals specially designed household surveys and processing them quickly.

New sections of Undersecretaries of the Treasury and Foreign Trade have been created for the purpose of studying the ways and means of applying state aids to SMEs,

FINANCIAL ORGANIZATIONS

There is no financial institution established for the purpose of financial support to SMEs, however, the Halkbank currently bears this task.

HALKBANK: Halkbank was established in 1933 to act as a financial agent for petty traders, artisans and small industries. Following 1963, by which Turkey has marched into planned periods, Halkbank has begun to play a more pronounced role in giving financial support to SMEs. The source of Halkbank's credits are either domestic or foreign. The former category covers the term credits to cooperatives, industrial credits and the fund credits.

Term Credits to Manufacturing Cooperatives : Since 1964 Ministry of Industry and Trade and Halkbank have collaborated effectively in administering a special fund to encourage and support SMI manufacturing cooperatives. These are generally short-term and mid-terms loan, which can be classified as direct credits and credits granted through the cooperatives. Those who register with cooperatives and comply with the definition of petty trader, artisan and small enterprise are entitled to get the credits. The loans are granted for machinery and working capital and they are either directly lent by the Bank or the guarantee cooperatives do the procurement. Interest rates vary between 40-50 % and maturity period is between 1 mounth-5 years in varying number of installments. Halkbank has the largest share in the overall amount of credits provided for SMI's.

Industrial Credits: These are medium to long term credits which the Bank provides for investments with encouragement certificate from its own sources towards the cost of investment and working capital. Those who certify their inauguration, provide collateral’s for the loan, enroll with the register of petty traders, artisans and small enterprises, and are equipped with a tax register are eligible for the credits. Interest rates very between 40-85 % depending on the size of the borrowing entity.

Fund Credits: Ministry of Industry and Trade (MIT) is responsible for providing credits for the establishment of small industry estates and organized industrial zones. The allocations from the MIT fund is disbursed through Halkbank for the establishment of these industrial areas. Halkbank also administers credits financed through a fund jointly established by Turkish and German Governments.

Women Entrepreneur Credits and Credit For Young Entrepreneurs: Those credits are given to the Women Entrepreneurs and Young Entrepreneurs who would like to start up their own small sized business at home or in a shop.

Vakıflar Bank , Industrial Investment and Credit Bank and Development Bank of Turkey also issue special credits to Small and Medium Industrialists through various funds.

The studies related with the establishment of a Venture Capital Fund is continuing , and a pilot project related with Credit Guarantee Fund aimed alleviating the corresponding problems of SMEs has been established.

COOPERATIVES

Although there are not clear lines of demarcation between small industries and petty traders and artisans, when their problems and interests are evaluated on different platforms, there are presently 3 main types of cooperatives,directly related with SME's: The Credit Guarantee Cooperatives which assist their members (mostly petty traders) to obtain credit through Halkbank, Craft Cooperatives which help their members with their financial and marketing problems and other issues. Construction Cooperatives for Small Industrial Estates and Shopping Centers.

Credit Guarantee Cooperatives : The only financial reserve for these cooperatives is Halkbank. The main duties of guarantee cooperatives are:

• To act as a guarantor for the loans obtained by the members
• To negotiate with the Bank for low interest loans in up-to-date sums
• To help the members solve their credit-finance problems

Small Craft Cooperatives : These cooperatives have been founded by small craftsmen and artisans in accordance with Law No 1163 (law on foundation of cooperatives). The duties of small craft cooperatives include:

• To provide necessary inputs of production for their members.
• To sell the products of the members, to look for local and external markets for rapid sale of these products
• To give advance payments in return for the delivered products
• To support the members to improve the quality of their products

These cooperatives and their members are generally involved in labor-intensive activities and their production is based on "putting out" trend. In this way, they create an important source for employment. Another important aspect is the sub-contracting linkages between these small producers and the large enterprises.

Small Industrial Estate Construction Cooperatives : The cooperatives formed by the small industrialists have become effective institutions in the Industrial Estates. Most of them are being credited by the Ministry of Industry and Trade.

SOCIAL SECURITY AND INSURANCE DEPARTMENTS

BAĞ-KUR: Bag-kur is the Organization responsible for social security of entrepreneurs in Turkey and has almost all the entrepreneurs as members.

NON-GOVERNMENTAL ORGANIZATIONS

TTGV (Technology Development Foundation Of Turkey)

TTGV was established by the collaboration of private and public sectors on 1 June 1991. There are 40 founder. 300,000 US $ for the assets of the Foundation is donated by the founders and 43,3 million US $ obtained through the Loan Agreement between Word Bank and Turkey.

Three members of the nine member Board Directors of the Foundation do hold office by appointment from , The Undersecreteriat of the Treasury and Foreign Trade, KOSGEB and The Scientific and Technical Research Council of Turkey (TUBITAK).The aims of the Foundation are :

• to encourage Turkish industry to increase in real terms its investments in research and development and to carry out all activities in accordance with the requirements there of.
• to provide funds and expertise supportive of industrial technology projects to enhance technology and technological infrastructure.
• to identify technological research areas and carry out research and projects in such areas by itself or by contract to bridge the technology gap between Turkey and other nations and strengthening Turkey’s position in some global trade sectors.
• to strength the ties between the Turkish industry and higher education institutions, TUBITAK and other public and private research organizations.

DEIK(Foreign Economic Relations Board)

DEIK was founded in 1986 by the Union of Chambers (TOBB) , TUSIAD, the Turkish Foreign Trade Association, the Chambers of Agriculture, the Association for Foreign Capital Coordination, and Istanbul and Izmir Exporters Unions in order to participate in improving Turkey’s external economic relations, and facilitating Turkey’s integration with the world economy through bilateral business councils.

TOSYÖV (Turkish Foundation for Small And Medium Business)

TOSYÖV was founded in Ankara on February 21, 1990 for the purpose of providing support and service to her members from Small and Medium Enterprises in Turkey. TOSYÖV has created an Organization network of 1500 registered members, 17 support associations and two branches (Istanbul, Izmir) to provide support to its members and the other SMEs. TOSYÖV offers training for the SMEs through organized conferences, panels and seminars.

Turkish Grand National Assembly SME Working Group ; studies the problems of SMEs to be prepared for the discussions at the Turkish Grand National Assembly and obtain new administrative and legal regulations and rules.

TES-AR (Turkish Artisans and Small Industry Research Institute) and MEKSA (Vocational Training and Small Industry Support Foundation) organizations are the others.

DEFINITION  of SMEs

There are variety of definitions adopted for SMEs in Turkey. Different agencies have set up different criteria for entitlement to their services. Chambers of Commerce&Industries, Halk Bank, The State Institute of Statistics ( DIE ), The State Planing Organization (SPO), Chamber of Industry , and KOSGEB have been using different criteria’s for defining SMIs, but the main criteria are the number of persons employed and total fixed assets. There is no distinction made between the value- added and non value-added industries and between the sectors of industries.

ISO (Istanbul, Chamber of Industry) classifies the industry as