A country that has not decided what to do in the field of intellectual property rights cannot improve its domestic value added.

Nowadays we have become obsessed with the idea of developing a domestic automobile brand. I believe that this is another manifestation of rightist populism in Turkey. In the past, we had the heavy industry move. When Jet Fadıl, who was then the owner of the automobile marketing firm JetPA, said he planned to manufacture automobiles, it became clear that he struck a deep chord. Now we are at the final stage; as a nation we are seeking a way. Can we do this, to begin with? Why not? But it would be wise not to voice this desire without thinking through how to fulfill it. Today let me draw a line and join the discussion.

There is a lot to say. But let this be today’s subject: a country which has not decided what to do in the field of intellectual property rights cannot improve its domestic value added. Neither can it reduce the import dependency and manufacture a domestic automobile. If you start the dance with a wrong step, you cannot catch the rhythm. If you start wrongly, you will only be able to make a few large companies rich. You cannot manufacture a domestic automobile even if you have the means.

Apple gets the lion’s share

Lately I have been thinking that there are two types of countries in the world: those that can produce iPads and those that can produce iPad cases. Unfortunately, Turkey is in the second group. So is China. In my consideration, countries the production capacity of which does not go beyond iPad cases cannot manufacture domestic automobiles. Let me elaborate what I mean since, after all, China is manufacturing automobiles, too. A few days ago I read a study on the role of global value chains in Apple’s iPad and iPhone production. According to this, Apple is getting the largest share out of the sales price of a standard iPad. The company earned 30% of the sales price of the earliest model of iPad. The share of Apple in the sales of the iPhone 4 is 58%. Both products go through a value chain that passes through a number of countries including Korea, Japan, Taiwan and China. But the lion’s share is earned by the American company Apple, which created the value chain. The Korean companies LG and Samsung produce graphic and memory cards. Their shares in sales prices are around 5 to 7 percent. The shares earned by Taiwan and other suppliers from the US and Japan vary from 1 to 2 percent. China holds around 1.8% of the sales prices corresponding to labor costs only. From this perspective, I think that the US is in the first category while China is in the second. Please note that there is no direct and easy way to make it to the first group. Saying “Let’s produce iPads” does not actually make you an iPad producer. Korea, which was in the same league with Turkey in the early 1980s, has worked hard to make it to the first league.

Why are no innovations made in Turkey?

So, what does Apple do? Does it make anything unique? Yes, it does. Apple and other high-tech producers tend to carry out the high value-added segments of production in their home countries. Why? These companies know where they can best protect their intellectual property rights. They do not shift the high-value added segments of the value chain including product design, software development, production management and marketing out of the US. This way, Apple makes sure that it will continue to receive the lion’s share out of production for a long time. Turkey suffers from a similar phenomenon concerning automobile production. The value added created in Turkey out of the sales price of an automobile is only around €250 to €300. The same situation applies.

From this perspective, one who seeks to manufacture a domestic automobile should not start by asking “who would like to do this?” What is needed at the outset is to ask, “why are no innovations made in this country?” and to get started creating an investment climate. If you are not managing a billion-dollar economy craving consumption, as is the case in China and India, the first step to take should be to introduce a regulation to govern intellectual property rights. I will continue with details on how Turkey must address the domestic automobile manufacture issue. This is the first point: Intellectual property rights must be guaranteed so that your invention will not be imitated easily. Turkey first has to decide clearly whether it prefers informal businesses or globally competitive modern companies. Informal businesses can at best produce cases for iPads and domestic sunblinds for automobiles.

This commentary was published in Radikal daily on 11.10.2011