Why is Vestel not able to become like Samsung although Turkey smothers it companies with incentives?

My nephew Sarp just turned 8 years old. He can read now and he likes reading everything he sees. The other day we were driving in Ankara, K on the Konya-Samsun road, when he asked me a question about the sign.  In a confused tone, he asked “is there a place called Samsung?” Such is the world today. An eight year old child living in Turkey learns about Samsung before he learns about the Turkish province Samsun. Playing Sugar Rush on a Galaxy S3, children learn about Korea’s Samsung, but they do not know Turkey’s Samsun. Turkey’s electronics giant Vestel, for instance, does not have a prominent place in their lives, but Samsung’s products come into their lives before you know it. Product diversification is important. My nephew’s question, “is there a place named Samsung?” has been lingering in my head ever since. Have you ever compared the development stories of Samsung and Vestel? Let’s do it together. Then I have a question for you: why is Vestel not able to become like Samsung although Turkey smothers companies with incentives? Can Turkey achieve its $500 billion export target by 2023 at this rate? Hear me first.

Vestel is one of the most prominent electronics companies in Turkey. When the subject is televisions, Vestel is the answer. According to the data for 2006, one in every four televisions sold in Europe is produced by Vestel. The production facility is based in Manisa, Turkey. Vestel had 12,000 employees as of 2012. The company was founded in 1984 and was taken over by the current owner, Zorlu Holding, in 1994. Samsung Electric Industries was founded in 1969 and renamed Samsung Electronics in 1988, in accordance with Korea’s industrial policy back then. Samsung is the largest electronics company in the world, unrivalled since 2009. It produces a large range of consumer electronics. It has production and research facilities in more than 50 locations throughout the world. Currently the company employs more than 220,000 people in total.

Just two figures for the starters: Samsung has 220,000 employees compared to Vestel’s 12,000. And now the second point: in 1998, the turnovers of Samsung and Vestel were $4 billion and $1 billion, respectively. It was reasonable to search for ways to catch up with Samsung. By 2012, however, Vestel had achieved $3.5 billion while Samsung had leaped to $148 billion. In 2012, Vestel converged with Samsung’s turnover of 1998 while the latter was in a completely different position by then.

Here is the third point: Thanks to the smart incentive schemes of the Korean government, Samsung has become a global electronics giant. Vestel remains the same. It is still a television brand, basically. What is more, it has failed to manage the switch from the tube- to panel-television technology successfully. Meanwhile, Samsung has become one of the leaders in the new television technology, gaining a 40 percent share in the world’s panel television production. It has expanded its product range and turned into a pioneering company in the mobile and smart phone markets.

This has nothing to do with the managerial skills at Vestel and Samsung. It relates directly to the environment of investment and doing business in the two countries. Theirs is conducive to industry; ours is harmful. They have a smart incentive system, but we don’t. In Turkey, industrial sector is the first resort and easy picking when budget revenues fall. And we all see the outcome. It is this crippled business environment that entrenches Turkey in the middle income trap. The system is corrupt.

Here is the million dollar question: can Turkey achieve $500 billion export volume by 2023 within the same product range? The Vestel-Samsung comparison says no.

This commentary was published in Radikal daily on 08.02.2013