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POLITECNICO DI MILANO DEPARTMENT OF MANAGEMENT

ENGINEERING

The Effects of Foreign Direct Investment in ICT Industry on the Host Country: The Case of Turkey

Supervisor : Prof. Lucia Tajoli

Submitted by : Bulut Can -‐ 816206

April 2015

Como

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ABSTRACT

Several studies have been carried out in the recent years to analyze the

effects of foreign direct investments in both developed and developing countries.

The Information and Communication Technologies (ICT) sector has dramatically

become more popular in the 21st century with continuously advanced ever-‐evolving

technologies around the world. In order to make a profitable investment the

location plays a significant role. Turkey as one of the largest growing economies in

the developing countries has become popular for foreigners to make investments in

many sectors including ICT sector.

There are various effects that the FDI in ICT sector brings into the host

country mainly such as technology know-‐how, human resources capabilities and

increased competitiveness between the firms in the sector.

In this study, the analysis has been made based on the ICT Development

Index, which is determined by the International Telecommunication Union every

year. This ICT Index has three categories, which enables to calculate a country’s

development level in terms of ICT such as ICT Skills, ICT Access and ICT Use. Each

cluster has several different indicators that help calculating the index such as the

percentage of households with connection to internet, mobile broadband width,

mobile subscription rate, secondary school enrollment rate and so on.

Thanks to the indicators mentioned above, an analysis has been made to

show how Turkey has changed over the time with the help of FDI in ICT sector.

Keywords: Foreign Direct Investment; ICT; Information and Communication

Technologies; Turkey

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ITALIAN ABSTRACT

Negli ultimi anni sono stati condotti numerosi studi con lo scopo di analizzare

gli effetti degli investimenti diretti esteri sia in paesi sviluppati che in quelli in via di

sviluppo.

Il settore delle tecnologie dell’informazione e della comunicazione (ICT) ha

raggiunto nel ventunesimo secolo un livello di popolarità importante grazie alla

continua e costante evoluzione delle tecnologie in tutto il mondo. Per far sì che

l’investimento sia profittevole, la scelta del luogo è di cruciale importanza. La

Turchia, che vanta una delle più grandi economie in crescita nei paesi in via di

sviluppo, è diventata famosa per tra gli investitori esteri in molti settori, tra i quali

anche l’ICT.

Gli effetti che gli investimenti esteri diretti nel settore dell’ICT portano al

paese che li accoglie, sono diversi e numerosi: know-‐how in campo tecnologico,

competenze di risorse umane e un aumento della competitività tra le aziende nello

stesso settore.

L’analisi condotta in questo studio è stata costruita sulla base dell’indice di

sviluppo del settore ICT che viene determinato ogni anno dall’International

Telecommunication Union. Questo indice si compone di tre parametri che

permettono di stimare il livello di sviluppo di una nazione nell’ICT: abilità, accesso e

uso. Ogni parametro comprende numerosi e diversi indicatori che concorrono al

calcolo dell’indice, quali per esempio la percentuale di case con connessione a

internet, l’ampiezza della banda larga mobile, il tasso di abbonamenti alla telefonia

mobile, il tasso d’iscrizione al livello d’istruzione secondaria e così via.

Grazie a tutti questi indicatori, è stata effettuata un’analisi che mostra come

la Turchia sia cambiata nel tempo anche grazie all’aiuto degli investimenti diretti

esteri nel settore dell’ICT.

Keywords: Investimento; Tecnologie dell’Informazione e della Comunicazione;

Turchia

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List of Figures Figure 1 FDI inflows, global and by group of economies between 1995 and 2014, and projections 2014-‐2016 (billions of dollars) .......................................................................................... 8 Figure 2 FDI inflows in Developed Countries, 2007 -‐ 2013 .......................................................... 10 Figure 3 FDI inflows between the EU, the US and intra-‐EU against global flows, 2004-‐2012 ....................................................................................................................................................................... 11 Figure 4 Cumulative FDI in the United States by country, 2012 ................................................. 11 Figure 5 Comparison of FDI inflows in Developing Countries, 2010-‐2012 (billion $) ...... 12 Figure 6 FDI inflow of Developing Asia, 2012-‐2013 (billion $) ................................................... 13 Figure 7 FDI inflows Top 5 Countries Asia, 2012-‐2013 .................................................................. 13 Figure 8 FDI inflows to Turkey, 2005-‐2014 (millions of dollars) ............................................... 14 Figure 9 GDP % annual, Turkey and Developing Countries, 2012-‐2017 ................................ 17 Figure 10 Share of Total Incentives Granted for ICT Industry in Turkey ................................ 20 Figure 11 ICT Development Index Conceptual Framework .......................................................... 21 Figure 12 ICT Development Indicators and Weights ....................................................................... 23 Figure 13 Share of Internet Users in the total population ............................................................. 25 Figure 14 Internet users by age and by development level, 2011 ............................................. 26 Figure 15 Home ICT Access, 2011 ............................................................................................................ 27 Figure 16 Mobile Subscriptions, 2006-‐2011 ....................................................................................... 27 Figure 17 International Internet bandwidth (bit/s), per Internet user, 2011 ...................... 28 Figure 18 FDI inflows to Turkey in ICT Sector, 2007-‐2012 .......................................................... 29 Figure 19 ICT Expenditure in Turkey (billions of $) ........................................................................ 30 Figure 20 ICT Spending 2012-‐2017 (forecasted CAGR) ................................................................. 30 Figure 21 Number of computers used in Turkey, 2009-‐2017 ..................................................... 31 Figure 22 Development of Internet Subscriptions, 2010-‐2017 ................................................. 31 Figure 23 Percentage of young people (15-‐24) in populations, 2011 ...................................... 32 Figure 24 Percentage of R&D centers in Turkey, by fields of activity ....................................... 38 Figure 25 The percentage of Internet users in Turkey, 2006-‐2013 .......................................... 40 Figure 26 Percentage of Fixed Broadband Internet Subscribers in Turkey, 2006-‐2013 . 41 Figure 27 Mobile Cellular Subscriptions in Turkey, 2006-‐2013 ................................................. 41 Figure 28 Unemployment, total % of the labor force in Turkey, 2005-‐2013 ........................ 44 Figure 29 Employment in ICT Sector in Turkey, 2012-‐2013 (thousands) ............................. 44 Figure 30 Employment Increase in Information Technology Sector and Defense, Software and Services Sector in Turkey, 2012-‐2013 (thousands) ............................................. 45 Figure 31 Adult Literacy Rate in Turkey, 2005-‐2013 (% of population aged over 15) .... 46 Figure 32 Secondary School Enrollment Rate in Turkey, 2005-‐2012 (%net) ...................... 47 Figure 33 Tertiary School Enrollment Rate, 2005-‐2013 (%net) ................................................ 47 Figure 34 Analysis of ICT Related Higher Education in Turkey, 2012 ..................................... 48 Figure 35 Researchers in Turkey, 2005-‐2011 (per million people) .......................................... 49 Figure 36 Technicians in R&D in Turkey, 2005-‐2011 (per million people) ........................... 50

List of Tables Table 1 FDI inflows by Region, 2011-‐2013 ............................................................................................ 9 Table 2 FDI inflows in Turkey by industry, 2001-‐2010 (millions of dollars) ........................ 15 Table 3 FDI inflows in Turkey, by geographical origin, 2001-‐2010 (millions of $) ............ 16 Table 4 Incentive Systems in Turkey ...................................................................................................... 19 Table 5 ICT Development Index Ranking, 2012-‐2013 ..................................................................... 24

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Table of Contents

1. Introduction ..................................................................................................................................... 6 2. Foreign Direct Investment Trends ......................................................................................... 6 2.1 Global Trends ........................................................................................................................... 7 2.2 Regional Trends ...................................................................................................................... 8 2.2.1 Developed Countries .................................................................................................... 9 2.2.2 Developing Countries ................................................................................................ 12

3. FDI in Turkey ................................................................................................................................ 14 3.1 Overview of FDI Trends in Turkey ............................................................................... 14 3.2 Investment Incentive Systems ....................................................................................... 17 3.2.1 Incentive Systems in Turkey .................................................................................. 18 3.2.2 Incentive programs to support the ICT Industry in Turkey ..................... 19

4. Outlook of Information and Communication Industry ............................................... 20 4.1 How to measure the ICT Level of a Country: ICT Development Index (IDI) ............................................................................................................................................................. 20 4.1.1 Definition and Objectives ........................................................................................ 20 4.1.2 Methodology ................................................................................................................. 21

4.1.3 How different countries compete and rank in terms of ICT Development Index ................................................................................................................................................. 23 4.2 ICT in the Globe .................................................................................................................... 25 4.3 Information and Communication Industry in Turkey ......................................... 29

5. The effects of FDI in ICT industry ........................................................................................ 32 5.1 How do FDI and ICT affect each other: The correlation between FDI and ICT ...................................................................................................................................................... 34 5.2 Technology Transfer and Know-‐How ......................................................................... 36 5.2.1 Turkey’s situation in “Technology Transfer and Know-‐How” by ICT .. 37 5.2.1.1 Increasing ICT Research Centers in Turkey ............................................ 38 5.2.1.2 Increase in ICT Infrastructure and Usage ................................................ 39

5.3 Human Resources Capabilities ...................................................................................... 42 5.3.1 Turkey’s situation in “Human Resources Capabilities” by ICT ............... 42 5.3.1.1 Employment in the ICT Sector ...................................................................... 43 5.3.1.2 Skill Development and Improving the Capabilities ............................. 45

5.4 Increased Competition between local firms ............................................................ 50 5.4.1 Turkey’s situation in “Increased Competition between Firms” by ICT 51

6. Conclusion ...................................................................................................................................... 52

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1. Introduction

In today’s globalized world, information and communication technologies has

become an essential part of several dynamics as well as in economics. One of the

most common ways to transfer a technology to another country or to make

researches in another geographical area is the foreign direct investment.

Foreign Direct Investment bringing an advanced technology is already a

common fact that has been studied often. However, especially an investment in

Information and Communication Sector does not only bring the advanced

technology to the country, but also it becomes a technologic tool that can be utilized

by other different sectors in the host country such as finance, banking, government,

trade and so on.

The Information and Communication Technology can be used in many forms

in the host country as a database system in a firm’s data structure. Furthermore,

more commonly firms tend to adapt ERP systems. In addition, the improvements in

the telecommunication sector in the host country enable the firms to reach and have

an access to a broader audience.

Another essential way to use the ICT investment is to make investments in

the research centers in the host country.

In this study, we will start explaining the FDI trends in the globe by narrowing

it down to developing countries and Turkey finally. As the next chapter, an outlook

to ICT sector will be deeply analyzed for both the world and Turkey as well as

identifying how to measure the ICT Development Index. Finally, various effects of FDI

in ICT sector in Turkey will be illustrated in-‐depth level by using several indicators

determined by the International Telecommunication Union.

2. Foreign Direct Investment Trends

OECD defines Foreign direct investment enterprise as an enterprise

(institutional unit) in the financial or non-‐financial corporate sectors of the economy

in which a non-‐resident investor owns 10 per cent or more of the voting power of an

incorporated enterprise or has the equivalent ownership in an enterprise operating

under another legal structure.

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Each year more than $1 trillion in FDI flows into countries around the world,

but the distribution is far from equal (UNCTAD). There are several factors that makes

a host country desirable for a FDI such as natural resources development, financial

business services, GDP level, political situation, economic liberalization policies and

so on. All these factors contribute several changes on the trends which shape the FDI

flows.

2.1 Global Trends As it is shown in the Figure 1, the contribution of developed countries in FDI

inflows were higher respectively until 2009, where developing economies became

more popular for FDI. Global FDI has shown a growth in 2013 with inflows reaching 9

per cent to $1.45 trillion. As it is illustrated in the Figure 1 , an increase to $1.6

trillion in 2014, $1.7 trillion in 2015 and $1.8 trillion in 2016 has been projected by

UNCTAD. (UNCTAD, World Investment Report 2014). This projection is estimated

due to the fact that global economic growth gains momentum, which might

encourages investors to turn their cash holdings into new investments. Nonetheless,

uneven levels of growth, fragility and unpredictability in a number of economies, and

risks related to the tapering of quantitative easing could dampen the FDI recovery

(Al-‐Sadig, IMF Working Paper, 2013). Relatively a larger part of this growth is due to

the increase inflow in the developed countries since the FDI inflows in developing

countries seems stable in the projection area between 2014 and 2016. This stability

in FDI could be related to the instability in the political and economical issues in

emerging countries.

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Figure 1 FDI inflows, global and by group of economies between 1995 and 2014, and projections 2014-‐2016 (billions of dollars)

Source: UNCTAD, World Investment Report 2014

2.2 Regional Trends The analysis of the FDI trends by regions can be accomplished by

subcategorizing the regions in two main clusters such as Developed Countries, and

Developing Countries.

According to Table 1 by UNCTAD, FDI-‐TNC-‐GVC Information System, FDI/TNC

database, concerning the developing countries’ role in FDI flows, it reached $778

billion which accounts for 54 per cent of global inflows. Among the developing

countries in the world, the majority share of the FDI inflows counts for Developing

Asia with $426 billion in 2013, which is followed by Latin America and the Caribbean

with $292 billion, Africa with $57 billions.

On the other hand, FDI flow to the developed economies has seen a sharp

slump in 2012 from $880 billions to $517 billions. However they have recovered

their selves after the decrease in 2012, and reached to contribute the 39% share of

the total FDI inflows, which is considered as a low share comparing to the developing

countries. Therefore, developing countries has protected their lead over the

developed countries in the share of FDI inflows with a margin of $212 billions in

2013.

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Table 1 FDI inflows by Region, 2011-‐2013

Source: UNCTAD, FDI-‐TNC-‐GVC Information System, FDI/TNC database

2.2.1 Developed Countries

The FDI inflows to developed countries have seen a sharp decrease in 2012,

with a global share from 51.8% to 38.8% respectively. Comparing to its level of FDI

inflow in 2007, they showed almost a half level with 39% of total inflows in the

world.

Even though there was an overall increase in inflows, this recovery after 2012

has been concentrated on some part of all developed countries: only 15 out of 39

developed countries has shown an increase in inflows (WIR, 2014).

xiv World Investment Report 2014: Investing in the SDGs: An Action Plan

Although FDI to developed economies resumed its recovery after the sharp fall in 2012, it remained at a historically low share of total global FDI !ows (39 per cent), and still 57 per cent below its peak in 2007. Thus, developing countries maintained their lead over developed countries by a margin of more than $200 billion for the second year running.

Developing countries and transition economies now also constitute half of the top 20 economies ranked by FDI in!ows ("gure 2). Mexico moved into tenth place. China recorded its largest ever in!ows and maintained its position as the second largest recipient in the world.

FDI by transnational corporations (TNCs) from developing countries reached $454 billion – another record high. Together with transition economies, they accounted for 39 per cent of global FDI out!ows, compared with only 12 per cent at the beginning of the 2000s. Six developing and transition economies ranked among the 20 largest investors in the world in 2013 ("gure 3). Increasingly, developing-country TNCs are acquiring foreign af"liates of developed-country TNCs in the developing world.

Megaregional groupings shape global FDI

The share of APEC countries in global in!ows increased from 37 per cent before the crisis to 54 per cent in 2013 ("gure 4). Although their shares are smaller, FDI in!ows to ASEAN and the Common Market of the South (MERCOSUR) in 2013 were at double their pre-crisis level, as were in!ows to the BRICS (Brazil, the Russian Federation, India, China and South Africa).

Table 1. FDI flows, by region, 2011–2013(Billions of dollars and per cent)

Region FDI in!ows FDI out!ows2011 2012 2013 2011 2012 2013

World 1 700 1 330 1 452 1 712 1 347 1 411Developed economies 880 517 566 1 216 853 857

European Union 490 216 246 585 238 250North America 263 204 250 439 422 381

Developing economies 725 729 778 423 440 454Africa 48 55 57 7 12 12Asia 431 415 426 304 302 326

East and South-East Asia 333 334 347 270 274 293South Asia 44 32 36 13 9 2West Asia 53 48 44 22 19 31

Latin America and the Caribbean 244 256 292 111 124 115Oceania 2 3 3 1 2 1

Transition economies 95 84 108 73 54 99Structurally weak, vulnerable and small economiesa 58 58 57 12 10 9

LDCs 22 24 28 4 4 5LLDCs 36 34 30 6 3 4SIDS 6 7 6 2 2 1

Memorandum: percentage share in world FDI !owsDeveloped economies 51.8 38.8 39.0 71.0 63.3 60.8

European Union 28.8 16.2 17.0 34.2 17.7 17.8North America 15.5 15.3 17.2 25.6 31.4 27.0

Developing economies 42.6 54.8 53.6 24.7 32.7 32.2Africa 2.8 4.1 3.9 0.4 0.9 0.9Asia 25.3 31.2 29.4 17.8 22.4 23.1

East and South-East Asia 19.6 25.1 23.9 15.8 20.3 20.7South Asia 2.6 2.4 2.4 0.8 0.7 0.2West Asia 3.1 3.6 3.0 1.3 1.4 2.2

Latin America and the Caribbean 14.3 19.2 20.1 6.5 9.2 8.1Oceania 0.1 0.2 0.2 0.1 0.1 0.1

Transition economies 5.6 6.3 7.4 4.3 4.0 7.0Structurally weak, vulnerable and small economiesa 3.4 4.4 3.9 0.7 0.7 0.7

LDCs 1.3 1.8 1.9 0.3 0.3 0.3LLDCs 2.1 2.5 2.0 0.4 0.2 0.3SIDS 0.4 0.5 0.4 0.1 0.2 0.1

Source: UNCTAD, FDI-TNC-GVC Information System, FDI/TNC database (www.unctad.org/fdistatistics). aWithout double counting.

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Figure 2 FDI inflows in Developed Countries, 2007 -‐ 2013

Source: UNCTAD, Bilateral FDI Statistics (http://unctad.org/en/Pages/DIAE/FDI%20Statistics/FDI-‐Statistics-‐Bilateral. aspx)

There were various overall trends in EU zone among major European

countries. Germany took the lead with an increase in FDI inflows from $12 billions in

2012 to $27 billions in 2013 (WIR, 2014). On the other hand, there was a big

correlation in the FDI flows between the United States and European Union between

2004 and 2012 as it can be seen in figure 3 below. The most significant FDI flows can

be seen in Intra-‐EU FDI in the figure 3. Between 2004-‐2012 on average 63% of the

EU’s FDI inflows come from the other EU countries. The majority of this intra-‐EU FDI

flows are done by the top investors in the EU such as the United Kingdom, Germany

and France. FDI inflows between the EU, the US and intra-‐EU against global flows,

2004-‐2012

CHAPTER II Regional Investment Trends 77

5. Developed countries

Figure A. FDI !ows, top 5 host and home economies, 2012–2013(Billions of dollars)

Fig. FID !ows - Developed

(Host) (Home)

0 50 100 150 200

United Kingdom

Spain

Australia

Canada

United States

0 50 100 150 200 250 300 350 400

Canada

Germany

Switzerland

Japan

United States

2013 2012 2013 2012

Figure C. FDI outflows, 2007–2013(Billions of dollars)

Figure B. FDI inflows, 2007–2013(Billions of dollars)

Fig. B - DevelopedFDI in!ows

Fig. C - DevelopedFDI out!ows

Share in world total

66.1 56.8 50.6 49.5 51.8 38.8 39.0 83.3 80.0 72.3 67.4 71.0 63.3 60.8

0

300

600

900

1 200

1 500

2007 2008 2009 2010 2011 2012 2013 0

400

800

1 200

1 600

2 000

2007 2008 2009 2010 2011 2012 2013

North America Other developed Europe Other developed countries European Union

North America Other developed Europe Other developed countries European Union

Table A. Distribution of FDI flows among economies, by range,a 2013

Range In!ows Out!owsAbove $100 billion United States United States and Japan

$50 to $99 billion Canada Switzerland and Germany

$10 to $49 billion

Australia, Spain, United Kingdom, Ireland, Luxembourg, Germany, Netherlands, Italy, Israel and Austria

Canada, Netherlands, Sweden, Italy, Spain, Ireland, Luxembourg, United Kingdom, Norway and Austria

$1 to $9 billion

Norway, Sweden, Czech Republic, France, Romania, Portugal, Hungary, Greece, Japan, Denmark and Bulgaria

Denmark, Australia, Israel, Finland, Czech Republic, Hungary and Portugal

Below $1 billion

New Zealand, Estonia, Latvia, Slovakia, Croatia, Cyprus, Lithuania, Iceland, Gibraltar, Bermuda, Slovenia, Finland, Malta, Belgium, Switzerland and Poland

New Zealand, Iceland, Estonia, Latvia, Cyprus, Bulgaria, Romania, Lithuania, Slovenia, Bermuda, Malta, Croatia, Slovakia, Greece, France, Poland and Belgium

a Economies are listed according to the magnitude of their FDI flows.

Table B. Cross-border M&As by industry, 2012–2013(Millions of dollars)

Sector/industry Sales Purchases2012 2013 2012 2013

Total 268 652 239 606 183 914 151 752Primary 50 161 39 346 -10 406 -41 903

Mining, quarrying and petroleum 43 032 37 906 -10 411 -42 154Manufacturing 109 481 86 617 117 068 79 993

Food, beverages and tobacco 20 616 19 708 24 945 25 231Chemicals and chemical products 16 411 21 132 19 705 4 822Pharmaceuticals, medicinal chem. & botanical prod. 11 638 742 17 951 20 443Computer, electronic optical prod. & electrical equipt. 22 061 10 776 23 909 11 808

Services 109 010 113 643 77 252 113 662Trade 12 581 7 406 19 537 -2 067Information and communications 22 395 29 374 9 372 22 476Financial and insurance activities 9 905 9 081 27 461 64 741Business services 31 406 35 965 16 865 22 220

Table C. Cross-border M&As by region/country, 2012–2013(Millions of dollars)

Region/country Sales Purchases2012 2013 2012 2013

World 268 652 239 606 183 914 151 752Developed economies 175 408 165 650 175 408 165 650

Europe 45 246 34 225 93 865 112 545North America 103 729 85 138 67 732 40 618Other developed countries 26 432 45 287 13 811 12 487

Japan 32 276 44 872 -1 548 2 576Developing economies 79 982 65 035 3 760 -6 307

Africa 635 2 288 -3 500 -8 953Latin America and the Caribbean 17 146 7 274 1 699 -7 188Asia and Oceania 62 201 55 473 5 561 9 833

China 27 009 37 405 3 251 6 201Singapore -1 039 2 745 6 004 4 386

Transition economies 4 848 1 682 4 746 -7 591

Table D. Greenfield FDI projects by industry, 2012–2013(Millions of dollars)

Sector/industryDeveloped countries

as destinationDeveloped countries

as investors2012 2013 2012 2013

Total 224 604 215 018 413 541 458 336Primary 9 222 1 687 16 979 17 878

Mining, quarrying and petroleum 9 220 1 683 16 977 15 712Manufacturing 88 712 92 748 186 278 197 086

Textiles, clothing and leather 6 579 13 711 10 080 18 269Chemicals and chemical products 13 165 15 615 26 090 32 542Electrical and electronic equipment 10 604 13 853 15 108 20 716Motor vehicles and other transport equipment 21 423 15 944 52 736 49 247

Services 126 670 120 584 210 285 243 372Electricity, gas and water 27 023 25 463 41 758 69 487Transport, storage & communications 17 070 19 436 40 067 41 630Finance 11 120 10 260 23 106 21 309Business services 31 316 33 689 50 188 56 767

Table E. Greenfield FDI projects by region/country, 2012–2013(Millions of dollars)

Partner region/economyDeveloped countries

as destinationDeveloped countries

as investors2012 2013 2012 2013


Europe 107 093 112 784 109 572 107 921North America 47 082 54 615 45 010 57 582Other developed countries 16 744 17 488 16 337 19 383

Japan 9 818 11 212 4 317 7 920Developing economies 50 625 27 804 213 530 253 816

Africa 1 802 2 080 17 541 27 254Asia and Oceania 46 650 24 475 139 280 146 140

China 6 232 9 171 50 451 48 894India 8 553 3 530 21 249 13 571

Latin America and the Caribbean 2 172 1 249 56 709 80 421Transition economies 3 060 2 327 29 092 19 633

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Figure 3 FDI inflows between the EU, the US and intra-‐EU against global flows, 2004-‐2012

Source: UNCTAD, based on data from Eurostat

FDI inflows between the EU, the United States and intra-‐EU against global

flows, 2004-‐2012 Furthermore, concerning the United States side, the importance

of the EU as a destination for the United States is highly significant with its share in

flows ranging from 41 per cent to 59 per cent over 2004–2012 (Figure 4). While

around 10 countries account for most foreign direct investment inflows of the

United States, the largest share is contributed by the United Kingdom with $487B in

2012 as the largest investor in the US’s economy (Figure 4). Cumulative FDI in the

United States by country, 2012

Figure 4 Cumulative FDI in the United States by country, 2012

Source: Bureau of Economic Analysis – Organization for International Investment


The EU and the United States together constitute more than 45 per cent of global GDP. FDI !ows within the TTIP bloc accounted for, on average, half of global FDI !ows over the period 2004–2012 ("gure II.19). Intra-EU FDI has tended to be volatile, but FDI !ows between the EU and the United States have remained relatively stable in recent years.

Viewed from the United States, the EU economies make up about 30 per cent of the outside world in terms of GDP. The EU’s importance as a destination for United States FDI has been much more signi"cant, with its share in !ows ranging from 41 per cent to 59 per cent over 2004–2012, and its share in outward stocks at over 50 per cent by the end of that period.61 In contrast, the EU’s share in United States exports averaged only 25 per cent over the same period. Major host countries of United States FDI are listed in table II.7.

The industry breakdown shows that about four "fths of United States FDI stock in the EU is in services, in which “Holding Companies (nonbank)” account for 60 per cent and “Finance (except depository institutions) and insurance” for another 20 per cent. Manufacturing takes up 12 per cent.

From the EU’s perspective, much of the in!ows to EU countries arrive from other EU countries. Over the period 2004–2012, on average, 63 per cent of FDI !ows to the region came from other EU

Source: UNCTAD, based on data from Eurostat.

Figure II.19. FDI in!ows between the EU and the United States and intra-EU against global !ows,

2004–2012(Billions of dollars)

500

1 000

1 500

2 000

2 500

2004 2005 2006 2007 2008 2009 2010 2011 2012

Rest

Intra-EU

From the United States to the EU

From the EU to the United States

Table II.7. United States FDI stock abroad, by major recipient economies, 2012

Destination FDI stock($ million)

Share(%)

Netherlands 645 098 14.5 United Kingdom 597 813 13.4 Luxembourg 383 603 8.6 Canada 351 460 7.9 Ireland 203 779 4.6 Singapore 138 603 3.1 Japan 133 967 3.0 Australia 132 825 3.0 Switzerland 130 315 2.9 Germany 121 184 2.7 European Union 2 239 580 50.3 All countries total 4 453 307 100.0

Source: UNCTAD, Bilateral FDI Statistics (http://unctad.org/en/Pages/DIAE/FDI%20Statistics/FDI-Statistics-Bilateral.aspx).

Note: Excludes Bermuda and United Kingdom Caribbean islands (British Antilles, British Virgin Islands, Cayman Islands, Montserrat).

countries and 15 per cent from the United States. The combined share of the EU and the United States in FDI stock in the EU at the end of 2012 was 76 per cent. Considering the EU as a single block, the United States was the largest investment partner, accounting for one third of all investment !ows from outside the EU.

For the United States, the share of the EU in its

in!ows ranged from 45 per cent to 75 per cent over the period 2004–2012. In terms of FDI stock, the EU’s share was 62 per cent at the end of 2012 (table II.8). The top investors include the larger economies in the EU, such as France and Germany, along with the United Kingdom. Luxembourg and the Netherlands rank high as source countries of FDI in the United States, too. One explanation for the high share of these economies is that they have become preferred locations for incorporating global companies. The merger between two of the largest suppliers of chip-making equipment, Applied Materials (United States) and Tokyo Electron (Japan), in 2013 illustrates the case. To implement the merger, the two companies set up a holding company in the Netherlands. The existing companies became United States and Japanese af"liates of the Dutch holding company through share swaps.

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2.2.2 Developing Countries

According to Figure 5, FDI flows to developing economies reached a peak

with $778 billion, accounting for 52% of global FDI inflows in 2013. As the largest

host region in FDI inflow in the world, Developing Asia followed a similar trend as it

did in 2012 with 55% of all FDI inflows in developing countries, while Latin America

and the Caribbean accounts for the 37% of all FDI inflows in developing countries. A

graphical illustration of the details above is also compiled from the UCTAD Statistics

website as shown below.

Figure 5 Comparison of FDI inflows in Developing Countries, 2010-‐2012 (billion $)

Source: UNCTAD Statistics

Asia maintained its position as the world’s largest recipient region for FDI in

2013 with $426 billion, which is 3% higher than its value in 2012. There were various

trends in different sub-‐regions in Asia. West Asia was the only sub-‐region that

showed a decrease in 2013 with 9% to $38 billion, while South Asia saw a rise of 3%

and reached to $33 billion. South-‐East Asia saw an rise by 3% and reached to $116

billions, while East Asia saw a rise by 4% and reached to $219 billions with the

highest share of total FDI inflows in the developing Asia region.

13

Figure 6 FDI inflow of Developing Asia, 2012-‐2013 (billion $)

Source: UNCTAD FDI-‐TNC-‐GVC Information System, FDI/TNC database (www.unctad.org/fdistatistics).

China has maintained its position as the second largest recipient country in

FDI inflow in the world with $127 billion, which makes it closer to the FDI inflow level

of the United States comparing to 2012. In the South Asia, India has shown a rise of

17% and reached to $28 billions as the biggest recipient in the South Asia sub-‐region.

The trend seems to be increasing in the next years in South-‐East and Eastern Asia

especially infrastructure, finance and manufacturing (OECD).

West Asia, however, is the only country that saw a decline in FDI inflows in

2013 by experiencing a total FDI inflow of $38 billions.

Figure 7 FDI inflows Top 5 Countries Asia, 2012-‐2013

Source: UNCTAD FDI-‐TNC-‐GVC Information System (www.unctad.org/fdistatistics)


c. West Asia

Figure A. FDI !ows, top 5 host and home economies, 2012–2013(Billions of dollars)

Figure C. FDI outflows, 2007–2013(Billions of dollars)

Figure B. FDI inflows, 2007–2013(Billions of dollars)

Fig. B - West AsiaFDI in!ows

Fig. C - West AsiaFDI out!ows

Other West Asia Turkey Other West Asia Turkey Gulf Cooperation Council (GCC)

Share in world total

4.0 5.1 5.9 4.3 3.1 3.6 3.0 1.5 1.9 1.5 1.1 1.3 1.4 2.2

0

20

40

60

80

100

2007 2008 2009 2010 2011 2012 2013 0

10

20

30

40

2007 2008 2009 2010 2011 2012 2013

Gulf Cooperation Council (GCC)

Fig. FID flows - West Asia

(Host) (Home)

Lebanon

Iraq

Saudi Arabia

United Arab Emirates

Turkey

United Arab Emirates

Turkey

Saudi Arabia

Qatar

Kuwait

2013 2012 2013 2012

0 2 4 6 8 10 12 14 0 2 4 6 8 10

Table A. Distribution of FDI flows among economies, by range,a 2013

Range In!ows Out!ows

Above $10 billion Turkey and United Arab Emirates ..

$5.0 to $9.9 billion Saudi Arabia Kuwait and Qatar

$1.0 to $4.9 billion

Iraq, Lebanon, Kuwait, Jordan and Oman

Saudi Arabia, Turkey, United Arab Emirates, Oman and Bahrain

Below $1.0 billion

Bahrain, State of Palestine, Yemen and Qatar

Lebanon, Iraq, Yemen, Jordan and State of Palestine

a Economies are listed according to the magnitude of their FDI flows.

Table B. Cross-border M&As by industry, 2012–2013(Millions of dollars)

Sector/industry Sales Purchases2012 2013 2012 2013

Total 8 219 2 065 11 390 8 077Primary 233 357 21 476

Mining, quarrying and petroleum 233 344 21 466Manufacturing 2 568 451 1 668 61

Food, beverages and tobacco 1 019 186 1 605 -Pharmaceuticals, medicinal chem. & botanical prod. 700 40 27 -

Services 5 419 1 257 9 700 7 540Electricity, gas and water 284 140 - 1 908Construction 125 14 1 126 -47Transportation and storage 874 55 -132 483Information and communications 3 357 21 2 803 1 137Financial and insurance activities - 298 465 6 543 3 972Business services 1 039 371 73 184

Table C. Cross-border M&As by region/country, 2012–2013(Millions of dollars)

Region/country Sales Purchases2012 2013 2012 2013

World 8 219 2 065 11 390 8 077Developed economies -1 083 406 5 223 2 739

European Union -3 007 714 5 319 1 312Germany 72 3 456 -584 -654United Kingdom -214 390 1 318 1 527

United States 1 700 -573 -244 67Developing economies 4 228 1 160 4 585 4 913

Egypt - - 9 3 150West Asia 3 855 1 039 3 855 1 039

Iraq -14 - 1 503 630Qatar 3 357 449 - -

Transition economies 4 023 3 1 582 425 Russian Federation 3 873 3 1 582 425

Table D. Green"eld FDI projects by industry, 2012–2013(Millions of dollars)

Sector/industry West Asia as destination West Asia as investors2012 2013 2012 2013

Total 44 668 56 527 35 069 39 240Primary 2 5 990 37 1 701

Mining, quarrying and petroleum 2 5 990 37 1 701Manufacturing 20 249 18 692 12 401 17 880

Coke, petroleum products and nuclear fuel 5 002 3 769 5 768 9 666Chemicals and chemical products 6 181 4 178 103 202Motor vehicles and other transport equipment 1 019 5 750 130 111

Services 24 417 31 845 22 630 19 659Electricity, gas and water 2 608 13 761 601 1 777Construction 6 693 3 253 5 105 4 313Hotels and restaurants 3 809 3 555 3 302 3 142Finance 2 226 1 641 3 993 2 305Business services 2 038 6 155 588 3 953

Table E. Green"eld FDI projects by region/country, 2012–2013(Millions of dollars)

Partner region/economy West Asia as destination West Asia as investors2012 2013 2012 2013


Europe 9 883 15 801 1 640 2 509North America 5 102 10 009 342 1 976

Developing economies 25 860 16 496 30 874 31 016North Africa 1 047 109 10 511 3 906

Egypt 1 047 86 7 403 1 552East Asia 4 901 1 058 820 500South-East Asia 2 827 984 427 9 678South Asia 4 100 1 367 4 972 2 293West Asia 12 746 12 729 12 746 12 729

Transition economies 3 156 12 779 2 140 3 653 Russian Federation 122 12 710 313 1 345


Asia continues to be the world’s top FDI spot, accounting for nearly 30 per cent of global FDI in!ows. Thanks to a signi"cant increase in cross-border M&As, total in!ows to the region as a whole amounted to $426 billion in 2013, 3 per cent higher than in 2012. The growth rates of FDI in!ows to the East, South-East and South Asia subregions ranged between 2 and 10 per cent, while in!ows to West Asia declined by 9 per cent ("gure II.7). FDI out!ows from subregions showed more diverging trends: out!ows from East and South-East Asia experienced growth of 7 and 5 per cent, respectively; out!ows from West Asia increased

by about two thirds; and those from South Asia plummeted to a negligible level ("gure II.7).

For some low-income countries in the region, weak infrastructure has long been a major challenge in attracting FDI and promoting industrial development. Today, rising intraregional FDI in infrastructure industries, driven by regional integration efforts (section a) and enhanced connectivity through the establishment of corridors between subregions (section b), is likely to accelerate infrastructure build-up, improve the investment climate and promote economic development.

Figure II.7. FDI in and out of developing Asia, by subregion, 2012–2013(Billions of dollars)

Source: UNCTAD FDI-TNC-GVC Information System, FDI/TNC database (www.unctad.org/fdistatistics).

0

50

100

150

200

250

East Asia South-East Asia South Asia West Asia

FDI in!ows

0

50

100

150

200

250

East Asia South-East Asia South Asia West Asia

2012 2013

2012 2013

FDI out!ows

2. Asia

14

As shown in Figure 7, in West Asia Turkey has received the majority of the

FDIs in 2013 with around $13 billions, which is slightly close to its level in 2012. In

West Asia region, there are mainly two different categories such as Turkey and Gulf

Cooperation Council (GCC) that have different trends that are mainly shaped by oil

related activities and petro-‐chemical industry.

3. FDI in Turkey

3.1 Overview of FDI Trends in Turkey Turkey has experienced a sharp increase in FDI inflows to the country in 2006

after a long period of low growth. Due to the global economic crisis it has shown a

low FDI inflow in the country in 2009 with $8.3 millions. However it has recovered its

instability and the FDI levels reached a peak in 2011 with $18.1 millions after the

economic crisis. FDI inflows have shown a decline of 14 % after 2012 by decreasing

to $13.2 billions in 2013. This decline can be attributed to the high volatility in

financial markets, unstable macroeconomic conditions and euro crisis (Ernst &

Young, 2013). After 2013 Turkey has experienced a slightly close level of FDI inflows

around $12.5 billions in 2014.

The recent trend of FDI inflows to Turkey is due to the increased privatization

in several sectors such as energy, telecommunications and banking (UNCTAD

Investment Country Profiles, 2013). Furthermore, the strong economic growth has

played a crucial role in this trend.

Figure 8 FDI inflows to Turkey, 2005-‐2014 (millions of dollars)

Source: UNCTAD, FDI/TNC database based on data from the Central Bank of Turkey

15

The majority of the FDI inflows has been counted for the Services sector with

69% of the total FDI inflow in 2010. Among the services sector, financial services was

taking the lead with 25% of the overall as $1582 millions (Table 2). Apart from the

service sector, manufacturing is the leading industry, accounting for 27 percent of all

inflows.

Table 2 FDI inflows in Turkey by industry, 2001-‐2010 (millions of dollars)

Source: UNCTAD, FDI/TNC database based on data from the Central Bank of Turkey.

As an emerging and developing market, Turkey has received the majority of

the FDI inflows from the developed countries with around 87% of the total FDI

inflows. Therefore, Turkey’s economy is manly driven by the developed country’s

economic conditions in terms of FDI. It has been recorded that 63 percent of the

capital, almost $3.8 billion, came from the European Union (World Bank, 2014).

Foreign capital inflow is of great importance for Turkey as its savings ratio would not

be adequate to meet its GDP growth target of 5% (Ozbekci, N. 2014). As it is seen

from the Table 3, the financial uncertainties in the United States have caused a

significant decline in flows of FDI to Turkey after 2006.

Table 5. FDI flows in the host economy, by industry, 2001–2010

(Millions of dollars)

Sector / industry 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010Total 3 374 571 696 1 190 8 535 17 639 19 137 14 747 6 252 6 294

Primary - 2 14 79 47 128 346 192 138 279Agriculture, hunting, forestry and fishing - - 1 6 7 6 9 41 49 82

Agriculture and hunting - - 1 4 5 5 6 23 48 77Forestry and fishing - - - 2 2 1 3 18 1 5

Mining, quarrying and petroleum - 2 13 73 40 122 337 151 89 197Mining and quarrying - 2 13 73 40 122 337 151 89 197

Manufacturing 932 95 440 190 785 1 866 4 211 3 955 1 565 890Food, beverages and tobacco - 14 249 78 68 608 766 1 252 196 123Textiles, clothing and leather - 5 2 9 184 26 232 189 77 92Wood and wood products - - - 11 23 - - - - 20

Paper and paper products - - - 11 23 - - - - 19Coke, petroleum products and nuclear fuel - - 2 - - - - - - 5Chemicals and chemical products - 8 9 38 174 601 1 109 200 336 103Rubber and plastic products - 1 10 12 8 - - - - 8Non-metallic mineral products - - - 1 53 - - - - 54Metal and metal products - 18 1 6 139 - - - - 194Machinery and equipment - 13 16 6 13 54 48 226 220 64Electrical and electronic equipment - 2 4 2 13 53 117 236 59 178Motor vehicles and other transport equipment - 34 145 27 106 63 70 77 225 38Other manufacturing - - 2 - 4 461 1 869 1 775 452 11

Services 2 439 474 242 921 7 703 15 645 14 580 10 600 4 549 5 125Electricity, gas and water - 68 86 66 4 112 568 1 068 2 126 1 814Construction - - 8 3 80 222 285 336 208 328Trade - 75 58 72 68 1 166 165 2 085 389 425Hotels and restaurants - - 4 1 42 23 33 24 54 113Transport, storage and communications - 1 1 639 3 285 6 696 1 117 170 391 212Finance - 246 51 69 4 018 6 957 11 662 6 069 666 1 583Business activities - - 3 3 29 99 560 641 560 409Education - - - - 17 - - - - 17Health and social services - 4 21 35 74 265 177 149 106 111Community, social and personal service activities - 80 10 33 86 105 13 58 49 113

Unspecified 3 - - - - - - - - -

Source : UNCTAD, FDI/TNC database based on data from the Central Bank of Turkey.Note : Data refer to equity capital only and do not cover disinvestments and real estate.

Turkey______________________________________________________________________________________________________7

______________________________________________________________________________________________________

16

Table 3 FDI inflows in Turkey, by geographical origin, 2001-‐2010 (millions of $)

Source: UNCTAD, FDI/TNC database based on data from the Central Bank of Turkey.

Recently, it seems certain that political and financial instability cause a

decline in FDI inflows in the country, and directly to the economic growth of the

country as it can be seen in the GDP growth chart extracted from the World Bank

site. Turkey has been following a privatization policy to meet its growth rate target

Table 6. FDI flows in the host economy, by geographical origin, 2001–2010(Millions of dollars)

Region / economy 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010World 3 374 571 696 1 190 8 535 17 639 19 137 14 747 6 252 6 294

Developed economies 2 640 540 692 1 136 5 195 15 762 17 213 12 282 5 580 5 652Europe 2 640 468 576 1 033 5 047 14 567 12 864 11 278 5 209 4 920

European Union 2 640 455 565 1 027 5 006 14 489 12 601 11 076 4 928 4 724Austria - - - 1 9 1 108 370 586 1 019 1 584Belgium - 5 54 25 1 090 3 435 358 571 201 49Bulgaria - - 8 - 9 3 6 - - 2Denmark - 14 23 - 7 7 15 164 12 13Finland - - - 142 - 110 36 26 4 1France - 22 121 34 2 107 439 367 679 617 621Germany - 86 142 73 391 357 954 1 237 498 593Greece - - 24 38 11 2 791 2 360 775 59 436Hungary - - - - 2 - - 10 3 -Ireland - - - - 21 2 21 - 8 -Italy - 241 1 14 692 189 74 249 314 25Lithuania - - - - 1 - 2 15 - -Luxembourg - - - - 39 251 583 3 140 493 287Netherlands - 72 51 568 383 5 069 5 442 1 343 718 505Portugal - - - - 1 24 701 32 - 1Romania - - - 3 3 8 1 - 1 -Spain - 5 - 3 66 53 583 838 145 202Sweden - 2 - - 8 1 21 55 6 39United Kingdom - 8 141 126 166 628 703 1 335 350 245

Other developed Europe - 13 11 6 41 78 263 202 281 196Norway - - - - 8 2 5 1 106 19Switzerland - 9 11 6 33 73 257 201 163 122

North America - 9 58 97 114 969 4 223 891 312 371Canada - 7 6 61 26 121 11 23 52 55United States - 2 52 36 88 848 4 212 868 260 316

Other developed countries - 63 58 6 34 226 126 113 59 361Australia - - - - 1 108 26 2 12 5Israel - - - - 1 112 98 100 44 9Japan - 63 58 6 32 1 2 11 3 347

Developing economies - 7 1 50 1 689 1 862 1 181 2 357 558 560Africa - - - - 3 21 5 82 2 -

North Africa - - - - 3 13 - 82 1 -Libyan Arab Jamahiriya - - - - 3 12 - 82 1 -

Latin America and the Caribbean - - - - 8 28 494 60 19 7Central America - - - - 4 - - - 3 -

Panama - - - - 4 - - - 3 -Caribbean - - - - 4 27 27 8 9 -

Bahamas - - - - 1 10 2 - 2 -British Virgin Islands - - - - 3 1 10 5 - -

Asia - 7 1 50 1 678 1 813 682 2 215 537 553West Asia - 5 - 50 1 675 1 785 497 2 041 218 417

Bahrain - 4 - - 24 89 36 47 96 -Iraq - - - - 4 1 5 - - -Kuwait - - - 38 20 123 77 330 73 193Lebanon - - - 7 - 2 84 34 9 29Saudi Arabia - - - 5 2 22 10 1 312 34 39United Arab Emirates - 1 - - 1 625 1 548 183 148 6 104

South, East and South-East Asia - 2 1 - 3 28 185 174 319 136China - - - - 2 3 1 - 1 -Korea, Republic of - 2 1 - 1 3 74 57 169 20

South-East Europe and CIS - - 1 4 1 650 8 731 108 105 82CIS - - 1 4 1 650 8 731 90 101 79

Azerbaijan - - 1 4 2 1 10 18 69 12Kazakhstan - - - - 43 - 613 1 20 2Russian Federation - - - - 1 605 7 108 71 12 60

Unspecified 734 24 2 - 1 7 12 - 9 -

Source : UNCTAD, FDI/TNC database based on data from the Central Bank of Turkey.Note : Data refer to equity capital only and do not cover disinvestments and real estate.

Turkey______________________________________________________________________________________________________8

______________________________________________________________________________________________________

17

and stable its economy (YASED Report, 2014).

Figure 9 GDP % annual, Turkey and Developing Countries, 2012-‐2017

Source: Worldbank http://www.worldbank.org/en/publication/global-‐economic-‐prospects/data?region=ECA

As estimated by the World Bank, Turkey’s GDP growth rate seems to follow a

lower level than the developing country’s average, and a slightly higher than the

Europe& Central Asia level with 3.8% in 2014. In order to meet the target GDP rates,

Turkey will need to attract more foreign investors in the country and improve its

economic growth.

3.2 Investment Incentive Systems Over the last decade many countries -‐ no matter they are developed or

developing – have been actively promoting their countries and attracting more

investment from abroad in order to reach their development goals by transferring

the advanced technologies, know-‐how, highly skilled labor, and economic growth.

They do so by increasing the FDI inflows to their home countries as host country.

The main channels and methods to attract higher FDI inflow are liberalizing the

laws and regulations, providing guarantees for investments and profits, and tax

incentives.

18

The incentive systems in promoting FDIs may have both positive and negative

effects depending on the context, and the scope. According to UNCTAD’s report on

Tax Incentives and Foreign Direct Investment (2000), foreign investor’s action plan

on investing have two phases. The first phase is the fundamental determinants such

as the market size, labor force, access to raw materials. These are the primary

determinants, which affect investor’s decision on FDI. For those countries, which

pass this first step, the further criteria are the variety of incentives, tax rates and

grants. This is where incentive systems play an important role.

The incentive systems may be clustered depending on regional investment,

sectorial investment, performance enhancement, transfer of technology, and

variable tax rates (UNCTAD, 2000).

3.2.1 Incentive Systems in Turkey

The degree and content of incentive systems have been changing depending on

the country’s economic targets and strategies. The objective of the latest investment

incentive systems in Turkey has been aimed at reducing the dependency on the

imports on intermediary goods in the strategic sectors.

The prior objectives of the latest investment incentive programs can be listed

as following (Turkey Investment Support Agency):

• Reducing the current account deficit

• Improving investment support for lesser developed regions

• Increasing the level of support instruments

• Promoting the clustering activities

• Focusing more on the sectors that will generate technology transfer

According to the Investment Incentive System Report by the Ministry of

Economy (January 1, 2012), the new systems has four different schemes such as

General Investment Incentive Scheme, Regional Investment Incentive Scheme,

Large-‐Scale Investment Incentive Scheme, and Strategic Investment Incentive

Scheme.

Different supporting tools has been shown in the below table 4.

19

Table 4 Incentive Systems in Turkey

Source: The Republic of Turkey, Investment Support Agency, www.invest.gov.tr

3.2.2 Incentive programs to support the ICT Industry in Turkey

As it is previously mentioned, Turkey offers a wide variety of ease and

advantages for foreigners to invest in the Turkish market. When it comes to the

incentive supports especially in ICT industry, the number is increasing

inevitably.

There are five main incentive and regulation programs in Turkey apart from

the general incentive programs mentioned previously. As it can be seen in the Figure

10, the largest share is contributed by TUBITAK-‐TEYBED Program with 25%, which is

followed closely by TUBITAK Industry R&D Projects and Law No.4691 on Technology

Development Zones with 22.7% each.

20

Figure 10 Share of Total Incentives Granted for ICT Industry in Turkey

Source: Ministry of Science, Industry and Technology Turkey

Apart from these main incentives and support programs, some other

incentives are granted for TDZ Investors such as income tax gain exemption,

corporate tax gain exemption, income tax exemption for researchers, developers

and R&D personnel, social security premium support, and value added tax

exemption (Turkey Investment Support and Promotion Agency, 2013).

4. Outlook of Information and Communication Industry

The Information and Communication (ICT) Industry, and ICT-‐enabled

technologies and their usage in other sectors highly contribute country’s economic

growth in many aspects. In this section, we will be focusing on more what the ICT

Industry is, the main actors in the globe in ICT sector, what are its determinants, and

why it is important on the world’s economy. Afterwards, a further analysis will be

done for Turkey’s ICT Sector.

ICT is a highly general term that comprises any communication device or

application, the integration of telecommunications such as telephone lines and

wireless signals, radio, television, computer, network hardware and software,

satellite systems and many various service systems associated with these.

4.1 How to measure the ICT Level of a Country: ICT Development Index (IDI)

4.1.1 Definition and Objectives

The ICT Development Index (IDI) is an index aimed at measuring, monitoring,

and making comparisons between country’s ICT developments by using 11 indicators

Investment Support and Promotion Agency of Turkey ©2014 Deloitte Turkey. Member of Deloitte Touche Tohmatsu Limited

There are different incentive programs to support the industry

39

• In 2012, 50% of ICT companies benefited from these incentives. The TÜBITAK-TEYDEB Program’s incentives have the largest total share.

25.0%

22.7% 22.7%

15.9%

9.1%

TÜBİTAK-TEYDEB Programme

TUBİTAK Industry R&D ProjectsSupport ProgrammeLaw No. 4691 on TechnologyDevelopment ZonesLaw No. 5746 on SupportingR&D ActivitiesEntrepreneur Supports(TÜBİTAK / KOSGEB)

• In addition to the New Investment Incentive Program, ICT sector investments and initiatives are supported through several regulations and incentive programs.

TÜBITAK-TEYDEB Program

TÜBITAK Industry R&D Projects Support Program

Law No. 4691 on Technology Development Zones

Law No. 5746 on Supporting R&D Activities

Entrepreneur Support (TÜBITAK / KOSGEB)

Figure 22: Share of Total Incentives Granted

Figure 23: Total Amount of Support and Exemptions Provided to Companies in TDZs from 2001 to March 2012

Source: Ministry of Science, Industry and Technology

Income and Corporate Tax Exemption TL 448.87 million

VAT Exemption TL 365.26 million

Employee Income Tax Exemption TL 482.09 million

Social Security Premium Support TL 95.30 million

Total TL 1.44 billion

• Companies in Technology Development Zones (TDZs) are granted various supports and exemptions totaling TL 1.4 billion.

• Income tax gain exemption

• Corporation tax gain exemption

• Income tax exemption for researchers, developers and R&D personnel

• Social security premium support

• Value added tax exemption

Some Incentives for TDZ Investors

21

which are grouped under three main clusters. The IDI was developed by ITU in 2008

and first presented in the 2009 edition of Measuring the Information Society (ITU,

2009a).

ICT Development Index has been published yearly by ranking the countries in

the world. The primary aims of using such an index are to see the level and

improvement of development of ICT in various countries, to see how they differ in

developed and developing countries since it is a global index, the digital divide (as it

was initiated by ICT4D mentioned previously), and to foresee the development

potential of ICT in several countries.

4.1.2 Methodology

The methodology has 11 indicators with three main stages applied as previously

mentioned such as ICT Readiness, ICT Intensity, ICT Impact.

Figure 11 ICT Development Index Conceptual Framework

Source: International Telecommunication Union (ITU)

These three stages and their application depend on three different factors such as

the access and the availability of the ICT infrastructure, a high level of usage ,and the

capability to use this ICT infrastructure effectively (ITU Geneva, 2010). ICT Access

and ICT Use can be accomplished through the first two stages. However, in order to

go further to the final stage, it is crucial to optimize using the ICT Skills. These ICT

Capability and Skills play an important role to maximize the effectiveness of this use.

16

Chapter 2. The ICT Development Index (IDI)

their bene!ts. Therefore, the IDI includes a measure of the capability to use ICTs e"ectively.

A single indicator cannot track progress in all three components (access, usage and skills) of the ICT development process, thus requiring the construction of a composite index such as the IDI. The IDI aims to capture the evolution of the information society as it goes through its di"erent stages of development, taking into consideration technology convergence and the emergence of new technologies.

Based on this conceptual framework, the IDI is divided into the following three sub-indices:

Access sub-index: This sub-index captures ICT readiness, and includes !ve infrastructure and access indicators (!xed-telephone subscriptions, mobile-cellular telephone subscriptions, international Internet bandwidth per Internet user, percentage of households with a computer, and percentage of households with Internet access).

Use sub-index: This sub-index captures ICT intensity, and includes three ICT intensity and usage indicators (percentage of Internet users, fixed (wired)-broadband subscriptions, and active mobile-broadband subscriptions).2

&ŝŐƵƌĞϮϭdŚƌĞĞƐƚĂŐĞƐŝŶƚŚĞĞǀŽůƵƟŽŶƚŽǁĂƌĚƐĂŶŝŶĨŽƌŵĂƟŽŶƐŽĐŝĞƚǇ

^ŽƵƌĐĞ/dh

ICT Development Index

ICT Readiness (infrastructure,

access)

ICT Impact

(outcomes)ICT Use

(intensity)

ICT Capability

(skills)

Skills sub-index: This sub-index captures ICT capability or skills as indispensable input indicators. It includes three proxy indicators (adult literacy, gross secondary enrolment and gross tertiary enrolment), and therefore is given less weight in the computation of the IDI compared with the other two sub-indices.3

The choice of indicators included in the sub-indices reflects the corresponding stage of transformation to the information society. Therefore, the indicators in each sub-index may change over time to re#ect technological developments related to ICTs, and as more and better data become available. For example, what was considered basic infrastructure in the past – such as !xed-telephone lines – is fast becoming less relevant in the light of increasing !xed-mobile substitution. Similarly, broadband is currently considered an advanced technology, characterizing intense Internet use, and is therefore included in stage 2 (as an indicator in the use sub-index). However, in the future it may become essential and be moved to stage 1 (as an indicator in the access sub-index), while another, new technology may appear in stage 2.

DĞƚŚŽĚŽůŽŐǇ

The IDI includes 11 indicators (Figure 2.2). A detailed de!nition of each indicator is provided in Annex 1.

22

Country’s capability to exploit its technological capabilities, and skills in order

to reach a maximum outcome depends also on its economy and its potential. If a

given country fails to exploits using its full potential, then it will not have a

maximized outcome, which will result in a lower measure and lower IDI.

Considering the overall impact of every single indicator, the 11 indicators

have been categorized under three main categories:

• ICT Access: This category corresponds to the ICT Readiness previously

mentioned, and comprise five indicators such as fixed telephone

subscriptions, mobile-‐cellular telephone subscriptions, international internet

bandwidth per user, percentage of households with a computer, percentage

of household with an internet access. As it can be seen, all these indicators

have been showed in global trends in the previous section by making a brief

and general comparison between several countries.

• ICT Use: This category corresponds to the ICT Intensity, and comprises three

indicators such as percentage of internet users, fixed-‐broadband

subscriptions, active mobile broadband subscriptions.

• ICT Skills: This category corresponds to ICT capability, and comprises three

indicators. The indicators in this category strictly depend on the socio-‐cultural

level of country. The indicators are adult literacy, gross secondary

enrollment, and gross tertiary enrollment.

23

Figure 12 ICT Development Indicators and Weights

Source: International Telecommunication Union (ITU)

These three categories have different weights contributing to the final ICT

Development Index. ICT Access and ICT Use count fro 40% each, while ICT Skills

count for 30% to the final index. Among each category, the indicators count equal.

The methodology followed to determine and calculate a country’s ICT Development

Index starts with collecting and preparing the complete date sets, then normalizing

them into the same unit measure, rescaling the data and counting the weights for

each indicator and category.

4.1.3 How different countries compete and rank in terms of ICT Development Index

By following the IDI methodology explained previously, each year the ICT

Development Index of each country has been calculated and published in ITU World

Telecommunication Report annually. Below table shows the ranking of countries in

2012 in terms of ICT Development Index.

18

Chapter 2. The ICT Development Index (IDI)

The access and use sub-indices were given equal weight (40 per cent each). The skills sub-index was given less weight (20 per cent), since it is based on proxy indicators.

This chapter presents the IDI results for 2011 in comparison with 2010. It should be noted that the 2010 IDI values have changed from those published in the previous edition of this report as a result of:

Country data revisions. As more accurate data become available, countries provide ITU with revised statistics for previous years, which have been taken into consideration. This also allows ITU to identify inconsistencies and revise previous estimates. For this edition, in particular,

ICT access Ref. value (%)

1. Fixed-telephone lines per 100 inhabitants

2. Mobile-cellular telephone subscriptions per 100 inhabitants

3. International Internet bandwidth (bit/s) per Internet user

4. Percentage of households with a computer

5. Percentage of households with Internet access

60

180

408’813*

100

100

20

20

20

20

20

ICT use Ref. value (%)

6. Percentage of individuals using the Internet

7. Fixed (wired)-broadband Internet subscriptions per 100 inhab.

8. Active mobile-broadband subscriptions per 100 inhab.

100

60

100

33

33

33

ICT skills Ref. value (%)

9. Adult literacy rate

10. Secondary gross enrolment ratio

11. Tertiary gross enrolment ratio

100

100

100

33

33

33

ICT

Development

Index

40

40

20

Figure 2.2: ICT Development Index: indicators and weights

^ŽƵƌĐĞ/dhEŽƚĞ ΎdŚŝƐĐŽƌƌĞƐƉŽŶĚƐƚŽĂůŽŐǀĂůƵĞŽĨϱϲϭǁŚŝĐŚǁĂƐƵƐĞĚŝŶƚŚĞŶŽƌŵĂůŝǌĂƟŽŶƐƚĞƉ

many countries have updated the 2010 values for the indicator “active mobile-broadband subscriptions”.8

Di!erences among countries included in the IDI. Since the IDI is a relative measure, the calculation of the IDI value depends on the values of the other countries included. In each new edition, some countries are excluded and others added based on data availability. Overall, this version of the IDI includes 155 countries/economies as compared with 152 in last year’s edition.

The remainder of the chapter is structured as follows. Section 2.2 presents the IDI results at the global level. It highlights some of the top performers, as well as the most dynamic

24

Table 5 ICT Development Index Ranking, 2012-‐2013

Source: ITU World Telecommunication/ICT Indicators database

The ICT Development Index report has been made for 157 economies in

2012. As it is illustrated in the Table 5, the Korean Republic and the Nordic Countries

maintain their position in top 5 again in 2012. For those countries with high ICT

Development Index did not show a significant change in the ranking, while

developing countries with respectively lower ICT Development Indexes experienced

ϳ

DĞĂƐƵƌŝŶŐƚŚĞ/ŶĨŽƌŵĂƟŽŶ^ŽĐŝĞƚǇ 2013

EŽƚĞ ΎdŚĞ'E/ƉĞƌĐĂƉŝƚĂŝƐďĂƐĞĚŽŶƚŚĞtŽƌůĚĂŶŬƐƚůĂƐDĞƚŚŽĚSource: ITU.

dĂďůĞϮϭ/dĞǀĞůŽƉŵĞŶƚ/ŶĚĞǆ;//ͿϮϬϭϭĂŶĚϮϬϭϮ

ĐŽŶŽŵǇ ZĂŶŬϮϬϭϮ //ϮϬϭϮ ZĂŶŬϮϬϭϭ //ϮϬϭϭ ĐŽŶŽŵǇ ZĂŶŬϮϬϭϮ //ϮϬϭϮ ZĂŶŬϮϬϭϭ //ϮϬϭϭ<ŽƌĞĂ;ZĞƉͿ 1 ϴϱϳ 1 ϴϱϭ ůďĂŶŝĂ ϴϬ ϰϭϭ ϴϬ ϯϴϬ^ǁĞĚĞŶ 2 ϴϰϱ 2 ϴϰϭ ĐƵĂĚŽƌ ϴϭ ϰϬϴ ϴϯ ϯϳϯ/ĐĞůĂŶĚ 3 ϴϯϲ ϰ ϴϭϮ Fiji ϴϮ ϯϵϵ ϴϭ ϯϳϵĞŶŵĂƌŬ ϰ ϴϯϱ 3 ϴϭϴ Mexico ϴϯ ϯϵϱ ϴϮ ϯϳϴ&ŝŶůĂŶĚ 5 ϴϮϰ 5 ϳϵϵ ^ŽƵƚŚĨƌŝĐĂ ϴϰ ϯϵϱ ϴϱ ϯϲϳEŽƌǁĂǇ ϲ ϴϭϯ ϲ ϳϵϳ DŽŶŐŽůŝĂ ϴϱ ϯϵϮ ϵϬ ϯϱϵEĞƚŚĞƌůĂŶĚƐ ϳ ϴϬϬ ϳ ϳϴϱ ŐǇƉƚ ϴϲ ϯϴϱ ϴϳ ϯϲϱhŶŝƚĞĚ<ŝŶŐĚŽŵ ϴ ϳϵϴ 11 ϳϲϯ ^ƵƌŝŶĂŵĞ ϴϳ ϯϴϰ ϴϰ ϯϳϯ>ƵǆĞŵďŽƵƌŐ ϵ ϳϵϯ ϵ ϳϳϲ sŝĞƚEĂŵ ϴϴ ϯϴϬ ϴϲ ϯϲϱ,ŽŶŐ<ŽŶŐŚŝŶĂ ϭϬ ϳϵϮ ϭϬ ϳϲϲ Morocco ϴϵ ϯϳϵ ϴϵ ϯϱϵƵƐƚƌĂůŝĂ 11 ϳϵϬ 15 ϳϱϰ /ƌĂŶ;/ZͿ ϵϬ ϯϳϵ ϴϴ ϯϲϭ:ĂƉĂŶ 12 ϳϴϮ ϴ ϳϳϳ dƵŶŝƐŝĂ ϵϭ ϯϳϬ ϵϮ ϯϱϴ^ǁŝƚǌĞƌůĂŶĚ 13 ϳϳϴ 12 ϳϲϮ WĞƌƵ ϵϮ ϯϲϴ ϵϭ ϯϱϴDĂĐĂŽŚŝŶĂ ϭϰ ϳϲϱ 13 ϳϱϳ :ĂŵĂŝĐĂ ϵϯ ϯϲϴ ϵϯ ϯϱϰ^ŝŶŐĂƉŽƌĞ 15 ϳϲϱ ϭϰ ϳϱϱ ŽŵŝŶŝĐĂŶZĞƉ ϵϰ ϯϱϴ ϵϱ ϯϯϲEĞǁĞĂůĂŶĚ ϭϲ ϳϲϰ ϭϴ ϳϯϭ dŚĂŝůĂŶĚ ϵϱ ϯϱϰ ϵϰ ϯϰϮhŶŝƚĞĚ^ƚĂƚĞƐ ϭϳ ϳϱϯ ϭϲ ϳϯϱ ĂƉĞsĞƌĚĞ ϵϲ ϯϱϯ ϵϲ ϯϭϴ&ƌĂŶĐĞ ϭϴ ϳϱϯ ϭϵ ϳϮϲ /ŶĚŽŶĞƐŝĂ ϵϳ ϯϰϯ ϵϳ ϯϭϰ'ĞƌŵĂŶǇ ϭϵ ϳϰϲ ϭϳ ϳϯϯ WŚŝůŝƉƉŝŶĞƐ ϵϴ ϯϯϰ ϵϴ ϯϭϰĂŶĂĚĂ ϮϬ ϳϯϴ ϮϬ ϳϭϰ ŽůŝǀŝĂ ϵϵ ϯϮϴ ϭϬϮ ϯϬϴƵƐƚƌŝĂ 21 ϳϯϲ 21 ϳϭϬ ů^ĂůǀĂĚŽƌ ϭϬϬ ϯϮϱ ϭϬϯ ϯϬϲƐƚŽŶŝĂ 22 ϳϮϴ 25 ϲϳϰ dŽŶŐĂ ϭϬϭ ϯϮϯ ϭϬϭ ϯϬϵ/ƌĞůĂŶĚ 23 ϳϮϱ 22 ϳϭϬ ^ǇƌŝĂ ϭϬϮ ϯϮϮ ϵϵ ϯϭϯDĂůƚĂ Ϯϰ ϳϮϱ Ϯϰ ϲϴϱ WĂƌĂŐƵĂǇ ϭϬϯ ϯϮϭ ϭϬϬ ϯϭϬĞůŐŝƵŵ 25 ϳϭϲ 23 ϲϴϱ hǌďĞŬŝƐƚĂŶ ϭϬϰ ϯϭϮ ϭϬϰ ϯϬϮ/ƐƌĂĞů Ϯϲ ϳϭϭ Ϯϲ ϲϳϬ 'ƵǇĂŶĂ ϭϬϱ ϯϬϴ ϭϬϲ Ϯϵϲ^ƉĂŝŶ Ϯϳ ϲϴϵ Ϯϳ ϲϲϱ ůŐĞƌŝĂ ϭϬϲ ϯϬϳ ϭϬϱ Ϯϵϴ^ůŽǀĞŶŝĂ Ϯϴ ϲϳϲ Ϯϴ ϲϲϬ ^ƌŝ>ĂŶŬĂ ϭϬϳ ϯϬϲ ϭϬϳ ϮϵϮĂƌďĂĚŽƐ Ϯϵ ϲϲϱ ϯϲ ϲϬϭ ŽƚƐǁĂŶĂ ϭϬϴ ϯϬϬ ϭϬϴ Ϯϴϯ/ƚĂůǇ ϯϬ ϲϱϳ Ϯϵ ϲϰϯ EĂŵŝďŝĂ ϭϬϵ Ϯϴϱ 111 ϮϲϬYĂƚĂƌ 31 ϲϱϰ ϯϬ ϲϰϭ ,ŽŶĚƵƌĂƐ ϭϭϬ Ϯϳϰ ϭϬϵ ϮϳϬ'ƌĞĞĐĞ 32 ϲϰϱ 33 ϲϮϭ ƵďĂ 111 ϮϳϮ ϭϭϬ ϮϲϲhŶŝƚĞĚƌĂďŵŝƌĂƚĞƐ 33 ϲϰϭ ϰϱ ϱϲϴ 'ĂďŽŶ 112 Ϯϲϭ 112 ϮϰϲǌĞĐŚZĞƉƵďůŝĐ ϯϰ ϲϰϬ 31 ϲϯϬ 'ŚĂŶĂ 113 ϮϲϬ ϭϭϰ ϮϯϬ>ĂƚǀŝĂ 35 ϲϯϲ ϯϳ ϲϬϬ EŝĐĂƌĂŐƵĂ ϭϭϰ Ϯϱϰ 113 ϮϯϵWŽƌƚƵŐĂů ϯϲ ϲϯϮ 35 ϲϬϳ ŝŵďĂďǁĞ 115 ϮϱϮ ϭϭϵ ϮϭϲWŽůĂŶĚ ϯϳ ϲϯϭ 32 ϲϮϮ <ĞŶǇĂ ϭϭϲ Ϯϰϲ ϭϭϲ ϮϮϯƌŽĂƟĂ ϯϴ ϲϯϭ ϯϰ ϲϭϰ ^ǁĂǌŝůĂŶĚ ϭϭϳ Ϯϰϰ 115 ϮϮϳĂŚƌĂŝŶ ϯϵ ϲϯϬ ϰϮ ϱϳϵ ŚƵƚĂŶ ϭϭϴ ϮϰϬ ϭϭϳ ϮϭϵZƵƐƐŝĂŶ&ĞĚĞƌĂƟŽŶ ϰϬ ϲϭϵ ϯϴ ϱϵϰ ^ƵĚĂŶ ϭϭϵ Ϯϯϯ ϭϭϴ ϮϭϵĞůĂƌƵƐ ϰϭ ϲϭϭ ϰϲ ϱϱϳ ĂŵďŽĚŝĂ ϭϮϬ ϮϯϬ 121 ϮϬϱ,ƵŶŐĂƌǇ ϰϮ ϲϭϬ ϯϵ ϱϵϭ /ŶĚŝĂ 121 ϮϮϭ ϭϮϬ Ϯϭϯ^ůŽǀĂŬŝĂ ϰϯ ϲϬϱ ϰϬ ϱϴϱ EŝŐĞƌŝĂ 122 Ϯϭϴ 123 ϭϵϲ>ŝƚŚƵĂŶŝĂ ϰϰ ϱϴϴ ϰϭ ϱϳϵ >ĂŽWZ 123 ϮϭϬ 122 ϭϵϵǇƉƌƵƐ ϰϱ ϱϴϲ ϰϯ ϱϳϭ ^ĞŶĞŐĂů ϭϮϰ ϮϬϮ 125 ϭϴϴƵůŐĂƌŝĂ ϰϲ ϱϴϯ ϰϳ ϱϱϬ ^ŽůŽŵŽŶ/ƐůĂŶĚƐ 125 ϭϵϳ ϭϮϰ ϭϵϭhƌƵŐƵĂǇ ϰϳ ϱϳϲ ϱϬ ϱϯϴ >ĞƐŽƚŚŽ ϭϮϲ ϭϵϱ ϭϮϲ ϭϴϰ<ĂǌĂŬŚƐƚĂŶ ϰϴ ϱϳϰ ϰϵ ϱϰϭ zĞŵĞŶ ϭϮϳ ϭϴϵ ϭϮϵ ϭϳϲŶƟŐƵĂΘĂƌďƵĚĂ ϰϵ ϱϳϰ ϰϰ ϱϳϬ 'ĂŵďŝĂ ϭϮϴ ϭϴϴ ϭϮϳ ϭϳϵ^ĂƵĚŝƌĂďŝĂ ϱϬ ϱϲϵ ϰϴ ϱϰϲ WĂŬŝƐƚĂŶ ϭϮϵ ϭϴϯ ϭϮϴ ϭϳϴŚŝůĞ 51 ϱϰϲ 52 ϱϬϴ hŐĂŶĚĂ ϭϯϬ ϭϴϭ ϭϯϬ ϭϳϮ>ĞďĂŶŽŶ 52 ϱϯϳ ϲϭ ϰϲϮ ũŝďŽƵƟ 131 ϭϳϳ 131 ϭϳϭƌŐĞŶƟŶĂ 53 ϱϯϲ 53 ϱϬϲ ĂŵďŝĂ 132 ϭϳϳ ϭϯϳ ϭϲϰKŵĂŶ ϱϰ ϱϯϲ ϱϴ ϰϴϬ DĂƵƌŝƚĂŶŝĂ 133 ϭϳϲ 133 ϭϳϬZŽŵĂŶŝĂ 55 ϱϯϱ ϱϰ ϱϬϱ DǇĂŶŵĂƌ ϭϯϰ ϭϳϰ 132 ϭϳϬ^ĞƌďŝĂ ϱϲ ϱϯϰ 51 ϱϯϴ ĂŶŐůĂĚĞƐŚ 135 ϭϳϯ ϭϯϵ ϭϲϮd&zZDĂĐĞĚŽŶŝĂ ϱϳ ϱϭϵ 55 ϰϵϯ ĂŵĞƌŽŽŶ ϭϯϲ ϭϳϮ ϭϯϲ ϭϲϲƌƵŶĞŝĂƌƵƐƐĂůĂŵ ϱϴ ϱϬϲ ϱϲ ϰϵϯ ƀƚĞĚΖ/ǀŽŝƌĞ ϭϯϳ ϭϳϬ 135 ϭϲϲDĂůĂǇƐŝĂ ϱϵ ϱϬϰ ϱϳ ϰϴϭ ŽŵŽƌŽƐ ϭϯϴ ϭϳϬ ϭϯϰ ϭϲϴŽƐƚĂZŝĐĂ ϲϬ ϱϬϯ ϲϱ ϰϰϳ ŶŐŽůĂ ϭϯϵ ϭϲϴ ϭϯϴ ϭϲϯǌĞƌďĂŝũĂŶ ϲϭ ϱϬϭ ϲϬ ϰϲϮ ŽŶŐŽ ϭϰϬ ϭϲϲ ϭϰϬ ϭϱϴƌĂǌŝů ϲϮ ϱϬϬ ϲϮ ϰϱϵ ZǁĂŶĚĂ ϭϰϭ ϭϲϲ ϭϰϯ ϭϱϰ^ƚsŝŶĐĞŶƚĂŶĚƚŚĞ'ƌ ϲϯ ϰϴϭ ϱϵ ϰϳϭ dĂŶǌĂŶŝĂ ϭϰϮ ϭϲϱ ϭϰϭ ϭϱϳ^ĞǇĐŚĞůůĞƐ ϲϰ ϰϳϱ ϳϬ ϰϯϲ ĞŶŝŶ ϭϰϯ ϭϲϬ ϭϰϮ ϭϱϳDŽůĚŽǀĂ ϲϱ ϰϳϰ ϲϳ ϰϰϲ DĂůŝ ϭϰϰ ϭϱϰ ϭϰϰ ϭϰϯdƌŝŶŝĚĂĚΘdŽďĂŐŽ ϲϲ ϰϳϯ ϲϯ ϰϱϰ DĂůĂǁŝ ϭϰϱ ϭϰϯ ϭϰϱ ϭϰϭŽƐŶŝĂĂŶĚ,ĞƌǌĞŐŽǀŝŶĂ ϲϳ ϰϳϭ ϲϰ ϰϰϵ >ŝďĞƌŝĂ ϭϰϲ ϭϯϵ ϭϰϴ ϭϮϳhŬƌĂŝŶĞ ϲϴ ϰϲϰ ϲϵ ϰϯϴ ŽŶŐŽ;ĞŵZĞƉͿ ϭϰϳ ϭϯϭ ϭϰϲ ϭϯϬdƵƌŬĞǇ ϲϵ ϰϲϰ ϲϲ ϰϰϳ DŽǌĂŵďŝƋƵĞ ϭϰϴ ϭϯϭ ϭϰϵ ϭϮϲWĂŶĂŵĂ ϳϬ ϰϲϭ ϲϴ ϰϯϴ DĂĚĂŐĂƐĐĂƌ ϭϰϵ ϭϮϴ ϭϰϳ ϭϮϴ'ĞŽƌŐŝĂ ϳϭ ϰϱϵ ϳϯ ϰϮϰ 'ƵŝŶĞĂͲŝƐƐĂƵ ϭϱϬ ϭϮϲ 152 ϭϭϵDĂƵƌŝƟƵƐ ϳϮ ϰϱϱ ϳϰ ϰϮϯ ƚŚŝŽƉŝĂ 151 ϭϮϰ ϭϱϬ ϭϮϮDĂůĚŝǀĞƐ ϳϯ ϰϱϯ ϳϭ ϰϯϭ 'ƵŝŶĞĂ 152 ϭϮϯ 151 ϭϮϬƌŵĞŶŝĂ ϳϰ ϰϰϱ ϳϱ ϰϭϴ ƌŝƚƌĞĂ 153 ϭϮϬ 153 ϭϭϱ^ĂŝŶƚ>ƵĐŝĂ ϳϱ ϰϰϯ ϳϮ ϰϮϴ ƵƌŬŝŶĂ&ĂƐŽ ϭϱϰ ϭϭϴ ϭϱϰ ϭϭϭ:ŽƌĚĂŶ ϳϲ ϰϮϮ ϳϳ ϯϵϬ ŚĂĚ 155 ϭϬϭ ϭϱϲ ϬϵϰŽůŽŵďŝĂ ϳϳ ϰϮϬ ϳϴ ϯϴϵ ĞŶƚƌĂůĨƌŝĐĂŶZĞƉ ϭϱϲ ϭϬϬ 155 ϭϬϬŚŝŶĂ ϳϴ ϰϭϴ ϳϵ ϯϴϲ EŝŐĞƌ ϭϱϳ Ϭϵϵ ϭϱϳ ϬϵϯsĞŶĞǌƵĞůĂ ϳϵ ϰϭϳ ϳϲ ϰϬϬ

^ŽƵƌĐĞ/dh

25

more dramatic changes in the rankings. Developing countries on the other hand

catching the ICT Use index since the internet usage, mobile phone penetration and

the access keep increasing these countries.

It is evident to see that the ICT Development Index is increasing throughout

the world with both technological infrastructure improvements, and ICT capabilities.

The digital divide seems not to change a lot in the period since it takes time to catch

the developed economies in terms of IDI. The average IDI of developed countries are

twice as those developing countries also in 2012 as similar to 2011.

With a focus on the low ICT Development Index countries, around 2.4 billion

people, which is a third of the whole world population, live in the least connected

countries in terms of ICT development (ITU, 2013).

4.2 ICT in the Globe

According to European Commission (2004), the importance of the ICT is not

only the technology itself, but also the easy access to many areas that ICT creates. It

has been lately focused more on the access that it creates to the areas with no ICT

coverage in the world, mainly developing countries. United Nations have initiated

ICT4D in order to fill the gap between the “have” and “have not” technology regions

aimed at bridging the digital distance. As one of its primary objectives, ICT4D is

aimed at assisting the economic development by ensuring access to up-‐to-‐date

communication technologies (Kleine, 2015).

Figure 13 Share of Internet Users in the total population


The World in

2011 ICT FaCTs and FIgures

One third of the world’s population is online 45% of Internet users below the age of 25

Share of Internet users in the total population

Not using Internet: 82%

Users, developed

China:28%

India: 6%

Other developing

countries: 66%

Developed

Developing

Users

China: 37%

Otherdeveloping

countries: 53%

India: 10%


Developing

Developed

Total population: 6.5 billion Total population: 7 billion

Note: * Estimate Source: ITU World Telecommunication/ICT Indicators database

The world is home to 7 billion people, one third of which are using the Internet. 45% of the world’s Internet users are below the age of 25.

2YHUWKHODVWÀYH\HDUVGHYHORSLQJFRXQWULHVKDYHLQFUHDVHGWKHLUVKDUHRIWKHZRUOG·VWRWDOQXPEHURI,QWHUQHWXVHUVIURPLQWRLQ7RGD\,QWHUQHWXVHUVLQ&KLQDUHSUHVHQWDOPRVWRIthe world’s total Internet users and 37% of the developing countries’ Internet users.

Internet users by age and by development level, 2011*

77%71% 30% 23%

36%34%

23%

29%

70%77%

64%

66 %

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Under 25 Over 25 Under 25 Over 25 Under 25 Over 25

Developed Developing World


2006 2011*

Not using Internet

Using Internet

Billi

ons

of p

eopl

e

Using Internet: 18%

Using Internet: 35%

Younger people tend to be more online than older people, in both developed and developing countries.

In developing countries, 30% of those under the age of 25 use the Internet, compared to RIWKRVH\HDUVDQGROGHU

$W WKHVDPHWLPHRI WKHXQGHU\HDUolds — a total of 1.9 billion — are not online \HW D KXJH SRWHQWLDO LI GHYHORSLQJ FRXQWULHVcan connect schools and increase school enrolment rates.

26

The world has been showing a dramatic increase in the number of people

who use internet by mainly due to the access to ICT technologies. As it is illustrated

in Figure 12, internet users have increased to 35% in 2011, while it was only 18% in

2006. What is more significant is that the majority of this increase is attributed to the

increased usage in developing countries as it is increased to 62% in 2011 from 44% in

2006. China has the biggest share in total internet usage with 25% of the all

population who use the internet.

Figure 14 Internet users by age and by development level, 2011

Source: ITU World Telecommunication/ICT Indicators database)

A further research has been done for the age interval of internet users in

different cluster of countries such as developed and developing compared with the

global trend. It can be seen that younger people (aged under 25) are more active on

Internet in both developed and developing countries, and 45% of all internet users

are under 25. Furthermore, in developing countries 30% of the population that use

internet is under 25, while 23% of those is over 25. On the other hand, in developed

countries the majority of of the internet users are over 25. There is great potential in

developing countries for young people to increase the internet usage since 70% of

them are not using internet yet.

The World in

2011 ICT FaCTs and FIgures

One third of the world’s population is online 45% of Internet users below the age of 25

Share of Internet users in the total population


Users, developed

China:28%

India: 6%

Other developing

countries: 66%

Developed

Developing

Users

China: 37%

Otherdeveloping

countries: 53%

India: 10%


Developing

Developed

Total population: 6.5 billion Total population: 7 billion


The world is home to 7 billion people, one third of which are using the Internet. 45% of the world’s Internet users are below the age of 25.

2YHUWKHODVWÀYH\HDUVGHYHORSLQJFRXQWULHVKDYHLQFUHDVHGWKHLUVKDUHRIWKHZRUOG·VWRWDOQXPEHURI,QWHUQHWXVHUVIURPLQWRLQ7RGD\,QWHUQHWXVHUVLQ&KLQDUHSUHVHQWDOPRVWRIthe world’s total Internet users and 37% of the developing countries’ Internet users.

Internet users by age and by development level, 2011*

77%71% 30% 23%

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27

Figure 15 Home ICT Access, 2011


We can divide the ICT access by two clusters as home and mobile access. In

below figure CC, the home ICT access in 2011 has been illustrated. One third of the

whole world’s population – 1.8 billions -‐ has access to internet. As it can be seen, the

penetration in developed countries is sufficiently high, while the penetration in

developing countries is low which creates a potential for more investments in those

areas. 25% of homes have a computer in developing countries, and 20% of them

have internet access.

Figure 16 Mobile Subscriptions, 2006-‐2011


When it comes to the mobile access, the subscriptions in many clusters have

been compared between the years 2006-‐2011 in above figure 15. The most

significant fact illustrated in the figure is that in 2011 the number of mobile

The World in 2011 — ICT Facts and Figures

Almost

6 billion mobile-cellular subscriptions

0

1

2

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4

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2006 2007 2008 2009 2010 2011*

Billio

ns

Active mobile -broadband subscriptions

Fixed(wired) - broadband subscriptions

Fixed -telephone lines

Internet users

Mobile-cellular telephone subscriptions


Home ICT access, 2011*

Penetration developed countries

Penetration developing countries

1.8 billion households 0.7 billion households with a PC 0.6 billion households with Internet


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With 5.9 billion mobile-cellular subscriptions, global penetration reaches 87%, and 79% in the devel-oping world.

Mobile-broadband subscriptions have JURZQ DQQXDOO\ RYHU WKH ODVWIRXU\HDUVDQGWRGD\WKHUHDUHWZLFHDVPDQ\PRELOHEURDGEDQGDVÀ[HGbroadband subscriptions.


Almost

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0

1

2

3

4

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6

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2006 2007 2008 2009 2010 2011*

Billio

ns

Active mobile -broadband subscriptions

Fixed(wired) - broadband subscriptions

Fixed -telephone lines

Internet users

Mobile-cellular telephone subscriptions


Home ICT access, 2011*

Penetration developed countries

Penetration developing countries

1.8 billion households 0.7 billion households with a PC 0.6 billion households with Internet


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With 5.9 billion mobile-cellular subscriptions, global penetration reaches 87%, and 79% in the devel-oping world.

Mobile-broadband subscriptions have JURZQ DQQXDOO\ RYHU WKH ODVWIRXU\HDUVDQGWRGD\WKHUHDUHWZLFHDVPDQ\PRELOHEURDGEDQGDVÀ[HGbroadband subscriptions.

28

subscriptions in the whole world is around 6 billion. The penetration reached 87% in

the world, and 79% in developing countries with 5.9billions of total number of

mobile subscriptions. There is a dramatic increase in the mobile broadband

subscriptions recently with a 45% rise between 2006-‐2011. The significant increase

of the mobile broadband subscriptions can be a great potential to focus on

developing economies.

Figure 17 International Internet bandwidth (bit/s), per Internet user, 2011


One of the most significant key factors defining the high-‐speed access to Internet

is the bandwidth. According to ITU World Telecommunication, the international

internet bandwidth per internet user has been increased exponentially over the last

five years and reached to 80000Gbit/s in 2011 from 11000 Gbit/s in 2006 (2011).

When it comes to the differences between various regions in the world, Europe is

taking the lead with 87396 Gbit/s by passing the world average which is around

35000 Gbit/s in 2011. The technological infrastructure can be seen easily by looking

at the graph comparing different regions. Those regions with lower international

internet bandwidth creates a great potential for investing in those areas especially

with the initiation of ICT4D which is mainly aimed at filling the gap between the

areas having and not having internet and digital access.

In most developing countries, the market for the mobile broadband is still


Growth in bandwidth facilitates broadband uptake

0

10’000

20’000

30’000

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Developed

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Note: * Estimate


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Disparities between regions in terms of available Internet bandwidth per Internet user remain, with on

average almost 90’000 bit/s of bandwidth per user in Europe, compared with 2’000 bit/s per user in

Africa.

0

5’000

10’000

15’000

20’000

25’000

30’000

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Africa Arab States Asia & Paci!c CIS Americas World Europe

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International Internet bandw

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29

immature and open to greater opportunities. It can easily be predicted that the

market will grow and offer many opportunities for low-‐income market segments in

the near future.

4.3 Information and Communication Industry in Turkey

In this chapter, we will explain how Turkey stand out in Information and

Communication Industry by mainly analyzing the country with its ICT Development

Index criterias such as ICT Access, ICT Use, ICT Skills considering all aspects.

Furthermore, in the last chapter the effects of FDI and ICT will be analyzed in-‐depth

detail.

Turkey offers investments and business opportunities for foreign investors in

many sectors with a total FDI inflow of $12.5 billions in 2013 according to UNCTAD

(2014). On average 2.5% of total FDI inflows in Turkey was to the ICT Sector which

comprises many areas such as communication, IT Services, software and hardware.

Figure 18 FDI inflows to Turkey in ICT Sector, 2007-‐2012

Source: Central Bank of Turkey

Turkey had a peak in FDI inflows in also ICT in 2007, which is decreased with

the global crisis in 2008.


Turkey is expected to attract further FDI inflow in the coming years

Source: Ministry of Economy

Figure 2: FDI Inflows to Turkey

0

100

200

300

400

500

2007 2008 2009 2010 2011 2012

Manufacture of Computers, Electronic-Electrical and

Optical Equipment

Information and Communication Services

US

D M

illio

n

Figure 3: FDI Inflows to the ICT Sector in Turkey

11

• The majority of FDI inflows to Turkey have come

primarily from the EU, followed by North America and

Asia.

• Turkey had a peak in FDI inflows in 2007, following a

decrease in inward FDI in 2008 and 2009 due to the

global economic crisis. With promising

macroeconomic figures from the Central Bank and

the potential the country has shown in the past 5

years, forecasts show that FDI will steadily increase

in upcoming years.

• FDI directed to the ICT sector has been - on average

- 2.5% of the total FDI inflows to Turkey for the last

five years.

• Turkey has become an attractive destination for FDI.

Sluggish FDI inflows after 2002 experienced an

incremental increase and reached a record level of

USD 22 billion in 2007. The decrease in 2009 can be

explained by the global crisis which lowered FDI all

around the globe as well as in Turkey.

• The volume of FDI inflows directed to Turkey shows

a promising recovery. 2012 FDI inflow rose to USD

12.4 billion, compared to USD 8.4 billion in 2009.

US

D B

illio

n

Source: Central Bank of Turkey

0

5

10

15

20

25

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

30

Figure 19 ICT Expenditure in Turkey (billions of $)

Source: Gartner

Spending in ICT sector including communication, IT services, hardware and

software is expected to increase in the next years and reach $25 billions by 2016

(Yildirim, 2013). The increasing spending on IT can be explained with the growing

GDP, in other words the spending on IT will be increased parallel to the increase in

GDP in the next years. Binali Yildirim – The Minister of Transportation, Maritime

Affairs and Communication-‐ has explained this objective by “Our aim is to increase

the contribution of the ICT sector to the country’s growth, the GDP and the prosperity

of the community” (2013).

Figure 20 ICT Spending 2012-‐2017 (forecasted CAGR)

Investment Support and Promotion Agency of Turkey ©2014 Deloitte Turkey. Member of Deloitte Touche Tohmatsu Limited 14

22.6 21.8

22.5 23.4 24.2

25.0

2011 2012 2013f 2014f 2015f 2016fData Center Systems

Software

IT Services

Devices

Telecommunications Services

Source: Gartner f: Forecast

US

D B

illio

n

Figure 8: ICT Expenditure in Turkey 2011-2016 • The industry grows every year as new technologies and ways to access information come to the fore.

• There is sizeable demand for various ICT sub-sectors in Turkey.

• In recent years, the number of computer and computer related product exportation has begun to increase and it will continue to do so in order to reach EU average.

• According to Gartner forecasts, the expected spending in the information and communication technology sub-sectors – namely, telecommunication services, devices, IT services, software, data center systems - is expected to be more than USD 25 billion by 2016.

• With the increasing importance of IT in business, most Turkish companies have started to invest heavily in IT to gain a competitive advantage.

Turkey is expected to have an ICT expenditure of over USD 25 billion in 2016

CAGR 2 %


7.4%

11.6%

7.6% 7.5% 6.8%

6.0% 5,5%

3.1% 3.0% 2.8%

0.1% 0,00%

2,00%

4,00%

6,00%

8,00%

10,00%

12,00%

The Middle East & Africa: 9.6%

Latin America: 6.1% World: 4.8%

Western Europe: 2.4%

Source: EIU Gartner: Emerging Market Analysis: IT, Turkey, 2013 and Beyond * IT spending in this analysis covers IT hardware spending, packaged software spending and IT services spending but excludes communication.

Figure 9: ICT Spending 2012-2017 Forecast CAGR

The expectation for growth in Turkey’s ICT spending* suggests a promising domestic market

Turkey is expected to grow faster in ICT spending than the world average. Turkey has a large domestic market with sizeable potential in the ICT sector. Future sector growth is expected at a CAGR of 7.4% between the years 2012-2017. Turkey has been moving in a similar pattern to global consumer preferences in mobile phones and PC’s. PC spending is expected to shift to mobile phones and tablets. These will become more affordable as the market continues to grow.

31

Source: Deloitte , Emerging Market Analysis: IT, Turkey, 2013 and Beyond

Turkey has a great internal market for ICT including its contribute to the

other sectors such as banking, manufacturing, communication and so on. According

to the Deloitte Emerging Market Analysis (2013), Turkey is expected to experience a

higher ICT Spending than the world average in 2012-‐2017 as it can be seen in the

above figure. Future ICT Industry growth is forecasted at a 7.4% of CAGR between

2012-‐2017.

Another important factor is the use of computers, and mobile phones in the

country. Turkey has been following a similar trend with the other developing

countries in use of technological devices.

Figure 21 Number of computers used in Turkey, 2009-‐2017

Source: EIU, Possession of Internet-‐Enabled Computers: Euromonitor

Computer usage and its sales are expected to grow in the next years, even

though people make a shift to smartphones and tablets. Since the market of

computer sales is important for the hardware spending, it is beneficial to see an

upward trend in computer sales. According to ITU (2013), half of the Turkish

households have computers with internet access, and it forecasted to increase and

reach 65% over the next four years. The possession of a computer then affect many

other sectors related to ICT at the same time such as banking, government.

Figure 22 Development of Internet Subscriptions, 2010-‐2017


Sources: PCs: EIU Possession of Internet-Enabled Computers: Euromonitor * Technology, Communications and Media: Turkey Euromonitor International

• The market for personal computers (PCs) is an important part of hardware spending and is expected to grow significantly.

• Currently, more than half of all households in Turkey have computers with internet access. The percentage of households with computers that have internet access is expected to rise to 65.6% of total households over the next 5 years.

• By 2020, this number is expected to rise to 70%. Government investment is the main reason for this growth in the market as a result of the infrastructure created in rural (underserved) areas*.

• The prevalence of internet-enabled computers offers a potential for a market in cloud computing, broadband internet and cloud computing businesses in Turkey.

15.729 17.322 18.740 20.203 21.676 23.154 24.638 26.141 27.635

0

5.000

10.000

15.000

20.000

25.000

30.000

2009 2010 2011 2012 2013f 2014f 2015f 2016f 2017f

Personal Computers

Figure 13: Development of PCs

Sales of computers are expected to increase significantly in 5 years

Nu

mb

er o

f P

Cs

(th

ousa

nd

)


0

10

20

30

40

2010 2011 2012 2013f 2014f 2015f 2016f 2017f

Broadband internet subscriptions Total internet subscriptions

Source: Turkstat (2010-2012), Information and Communications Technologies Authority, Deloitte Analysis (2013-2017) Notes: Almost 100% of the internet subscriptions are also broadband subscriptions f: forecast

• With better infrastructure, internet subscriptions are expected to increase and pave the way for more development in rural areas.

• Currently, the percentage of internet users in Turkey is around 42% and it is forecasted to rise above 47% in 2017. According to an EIU analysis, in 2017 the number of potential internet subscriptions will triple.

• According to a study in 2010, Turkish firms find 46% of new business markets and customers through the internet. It is obvious that internet subscriptions will increase with the development of businesses.

• Blogging and social networking play a significant role in internet usage. Facebook users in Turkey totaled over 40% of the population in the beginning of 2013. The average internet user is spending 32.7 hours online per month in Turkey.

• Broadband internet subscriptions, mobile internet subscriptions and internet retailing are increasing. The youthful population, increasing usage, expected spending and popularity of internet on mobile phones, tablets and/or personal computers show that the sector will continue to grow, thus making the country’s ICT sector a gold mine for investments.

Figure 14: Development of (Broadband) Internet Subscriptions

In Turkey, internet usage and its potential is increasing because of its young population and interest in social media

Mill

ion

s o

f U

sers

32

Source: Turkstat (2010-‐2012), Information and Communications Technologies Authority, Deloitte Analysis (2013-‐2017

The population plays a crucial role in the penetration of ICT technologies,

internet usage and other clusters related to ICT. As it was mentioned before in the

3rd chapter, young populations with no internet access or internet subscription might

be a great potential to invest. The percentage of internet users in Turkey is 42% and

is expected to grow significantly by mainly improving the infrastructure and reaching

an access to the rural areas of the country. Considering Turkey a young populated

country, the usage of social media, smartphones, tablet/PC, blogs increase day by

day and this is of a great potential of ICT investments.

Figure 23 Percentage of young people (15-‐24) in populations, 2011

Source: United Nations Economic Commissions for Europe

There are several major ICT companies with Turkey as a Regional

headquarters such as Microsoft, Adobe, Intel, Turkcell, HP, LG and so on. For

instance, Microsoft manages 79 countries, and 3 continents from Turkey due to its

advantageous geostrategic location and advantages in ICT sector. Microsoft mainly

focuses on the Middle East and Africa offices managed from Istanbul. On the other

hand, Adobe has its regional headquarters in Istanbul for the Balkans such as

Croatia, Albania, Macedonia, Serbia, Bosnia and Herzegovina, Kosovo and Israel.

Intel manages Middle East and Africa from Turkey since 2004.

5. The effects of FDI in ICT industry In this section, we will start with explaining how FDI affects developing

countries as host country, then we will go in deeper analysis for each cluster


0

5

10

15

20

25

30

2004 2005 2006 2007 2008 2009 2010 2011 2012

Mill

ion

CAGR 3%

Figure 16: Employment in Turkey, 2004-2012

Source: Turkstat

Turkey has one of the highest percentages of young people in the world and an increasing employment rate

27

0%2%4%6%8%

10%12%14%16%18%

Source: Turkstat, United Nations Economic Commission for Europe

Figure 17: Percentage of Young People (15-24) in Populations, 2012

• According to Turkstat, a total of approximately 25 million people are employed in Turkey, which is an increase of a CAGR of 3% between 2004 and 2012.

• From 2011 to 2012, 711,000 jobs were added to the Turkish economy. Even at the onset of the global crisis in 2008 there were no job cuts, in fact, there were an additional 83,000 jobs created from 2008 to 2009.

• Turkey has one of the highest percentages of young people (between the ages of 15 to 24) in the world. The population of young people is 16.8% higher than the EU-27 average.

• A high percentage of young people within a population is a crucial indicator of a country’s potential employees. As education programs continue to expand and as the economy continues to grow, Turkey provides an exceptionally well educated and highly skilled workforce to its economy.

• Domestic and foreign investments will also have a positive impact on Turkey’s employment rate.

33

considering Turkey’s ICT Industry situation and relate it with the impacts.

FDI inflows can affect host country’s economy in several ways. FDI inflows

can affect the economic welfare, growth and development of host countries in

several ways (WIR93, WIR99). The benefits of FDI concerning the capital market,

technology transfer, market access, management know-‐how, investment

opportunities and export promotion are among the factors attracting FDI inflows

from a host country perspective. However all these factors may have various impacts

depending on the specific host country receiving the FDI. These countries can be

categorized and analyzed in two main clusters such as developed and developing

countries since they have different internal and external conditions on their

economy.

From the TNC’s (Transnational Company) standpoint, FDI functions as their

local operations through affiliates. These foreign affiliates have various interactions

with the local economy. To begin with, since these foreign affiliates are the TNC’s

representatives in the host country, they physically use these production plants and

make many connections with local suppliers, distributors and sales organizations. All

these connections by stimulating the relationship between different firms create a

channel to transfer the technology from the home country. Especially for developing

countries FDI eases the transfer of technology more significantly. Technology

transfer involves the transfer of physical goods and the transfer of tacit knowledge.

This aspect is an indirect effect on the host country’s economy rather than its initial

effect by local operations.

Furthermore, these interactions may be due to building production facilities,

hiring workers, and training the workers (UNCTAD, 2006). FDI fosters economic

development in the host country by increasing its productive capacity due to the

improvement of the labor force. FDI does not only provide and generate

employment, but also strengthens the skills of workers. FDI is a tool for the adoption

of new technologies in the host country and because of this, it is necessary that the

labor force is able to use them. What happens often is the lack of this capacity,

which leads the multinationals to provide the necessary training and thus increase

capacities in the host country (Borensztein et al. 1998).

34

Additionally, the FDI has a significant effect on host country’s international

trade, which will differ, depending on its motive – whether it is efficiency-‐seeking,

market-‐ seeking, resource-‐seeking or strategic asset-‐ seeking. Output resulting from

efficiency-‐seeking FDI is typically intended for export, and therefore the impact of

such FDI is likely to be an increase in exports from the host country (Peter

Nunnenkamp and Julius Spatz, 2004). With the increased exports, domestic

enterprises may access to international markets. FDI inflows contribute host

country’s role on global economy, and enables it to open in wider markets

predominantly through the financial flows received from abroad.

According to Lee and Tcha (2004), FDI plays an important role in improving

the factors of production and accumulation of capital in the host country, due to the

competition it creates. Mainly the supply in the market increases with the entry of

the TNCs into the host economy, which has a positive impact on productivity since

the local players try to continuously catch the trends and supplies entering the

market and trying to maintain market share’s by allocating their resources more

effectively. On the other hand, this competition may cause a negative effect in the

host country by leading some local firms to closure.

The impact and extent of all the above factors may vary depending on the

technology used, the number of people employed and the training and wages

offered, the market orientation of foreign affiliates in the economy, the degree to

which the affiliates procure goods and service inputs locally, and the proportion of

profits reinvested, as well as the conditions prevailing in the host economy (World

Investment Report, 2006).

5.1 How do FDI and ICT affect each other: The correlation between FDI

and ICT

There are several factors in the literature that could be determinants of FDI

inflow to a country such as human capital, infrastructure of the host country, labor

force, economic and political instability, country’s incentives and so on. However,

one major factor which has become highly essential as a determinant of FDI is the

ICT level and development. In today’s global world, ICT and its variety use shapes the

35

world balances.

The last era is decided to call as the technology/internet era due to its high

importance and impacts on many activities, including economics. Countries

successfully adopt and use the ICT may have various comparative advantages on

overcoming the barriers on international trade, and become an important actor in

global economy (Addison and Rahman, 2002).

The wide use of internet and other communication services has enabled

many countries to access both political and economic details and information.

According to Matambalya and Wolf (2001), ICT helped reducing the majority of the

transaction costs of joining contracting and created an access to low-‐cost suppliers

thanks to the IT services especially in developing countries.

ICT has become a really important determinant of FDI in many countries.

According to a study done by Addison and Rahman (2002), they have sampled many

countries and tried to determine the factors of FDI. They have found that ICT

increases the FDI inflows in developing countries. This is mainly due to the reduced

production and operation costs, and the access to the information about several

opportunities in developing economies thanks to ICT.

According to a study done by Gholami, Lee and Hashmati (2004), they have

used time series and casualty test in order to investigate the relationship between

ICT and FDI, for 23 developed and developing countries. They have found that in

developing countries the positive effect of ICT on FDI is more significant and can be

explained by ICT indirectly attracts more foreign direct investment. The reason

behind is that already existing ICT infrastructure in the host country attracts FDI,

hence higher level of ICT investment results in higher level of FDI inflows due to the

fact that ICT enables and contributes to productivity and economic growth.

Considering that in developing countries the ICT infrastructure is poor and

low, they can not internally finance them selves. Therefore in developing countries

ICT causes FDI inflows in order to facilitate the production potential by new ICT

investments.

36

Furthermore, higher ICT knowledge results in higher coordination and

cooperation. Coordination and cooperation play an important role in commerce. ICT

and IT services enable having an access to various information regarding the goods

and prices, which helps commerce and indirectly increase the country’s economic

growth by attracting more foreign investors to invest in internal market (Gholami,

Lee, Hashmati, 2004).

Another aspect is the reducing operation and transaction costs as mentioned

previously. ICT technologies help finding new markets and reducing the transactions

costs. Hence, it increases the attractiveness of doing business and increases the

competition. This increased competition results in higher productivity and efficiency.

Telecommunications and ICT services are widely used in many other sectors such as

manufacturing, services, banking, finance and so on. Therefore, a more developed

ICT level results in increasing the other sector’s efficiency, which results in an

increase in economic competitiveness and economic growth (Addison and Heshmati,

2002).

5.2 Technology Transfer and Know-‐How

When considering the possible ways to transfer technology to developing

countries, FDI takes the lead. Technology transfer through FDI generates benefits

that are unavailable when using other modes of transfer (OECD, 2001). FDI does not

only bring the technological capabilities to the host country, but also management

experience and entrepreneurial abilities, which could be highly useful in know-‐how

and training of the current employees in the host country in order to widen their

knowledge and abilities in areas indirectly related to technology (Baldwin et al,

1999).

Since the foreign affiliates affect country by altering the existing equilibrium

and create a competitive environment, the local firms need to protect their market

share. Hence, this results in increasing the productivity in the host country for the

local firms (WTO, 1998).

According to Borensztein, the economic growth of a country can basically

depends on the implementation of the advanced technologies that it has received by

37

multinational companies (Borensztein et al., 1998). Consequently, as local firms

receive this technological transfer from the multinational companies, the costs of

R&D reduces, and the market becomes even more competitive (Berthélemy and

Démurger, 2000). The productivity of the firm, therefore, contributes in increasing

the GDP, which is a measure of economic growth in a country.

The transfer of technology can be defined in its three main characteristics

such as products, processes and practices (Bassant and Chandra, 1999). Products

basically explain how things work, their design, and fuction, whereas Processes

illustrate the knowledge how a product can be produced or changed. Practices

comprises the management of product-‐process combination and the knowledge re-‐

generation. A study has been done by OECD in 2002 shows that multinational

companies enable their local suppliers and foreign affiliates in the host country to

purchase raw materials, products and help them to improve their facilities (OECD,

2002).

As an opposite effect, the transfer of the technology may affect the host

country negatively as argues by Vissalt and Roolaht (2005). The multinational

companies may leak only the inappropriate technologies to the host country in order

to maintain their technological competitive advantage over the host country.

Furthermore, the host countries may become technologically dependent to these

multinational firms.

5.2.1 Turkey’s situation in “Technology Transfer and Know-‐How” by ICT

With high FDI inflows in Turkey in the last years, it directly enables the

country to receive many advanced technologies from foreign investors. When it

comes to ICT sector, it is highly related to the technology transfer since all FDI

inflows in ICT sector flows different technologies to the country, or enables foreign

affiliates in Turkey to invest in researches by using these technologies.

As mentioned previously ICT Development Index can be calculated by eleven

different indicators and 3 different categories. The technology transfer and know-‐

how basically determines the first two categories such as ICT Access and ICT Use.

38

Since the increase in FDI inflows increase the ICT sector, in this section we will see

how it affects the ICT infrastructure in Turkey.

5.2.1.1 Increasing ICT Research Centers in Turkey

In order to become globally competitive and innovative, it is essential for a

country to invest in research centers. Turkish government has published many

incentive and exemptions programs for foreigners to invest in R&D centers in Turkey

according to Ministry of Economics (2006).

The objective is to become globally competitive by mainly increasing the

quality of products/services, increasing the productivity, setting high standards for

manufacturing, reducing production costs and operation costs, maximizing the usage

of technical knowledge, and increasing the FDI inflows in R&D and ICT sector.

Percentage of different operating R&D centers in Turkey has been

demonstrated in Figure 23 based on different fields. As it can be seen from the

figure, 9% of the total R&D centers in Turkey is oriented to ICT field. This percentage

corresponds to 13 ICT R&D centers out of 142 centers in total.

Figure 24 Percentage of R&D centers in Turkey, by fields of activity

Source: TUBITAK

Apart from the R&D centers, Turkey has been a popular location for ICT

research centers as well. There are currently 129 important ICT research centers in

Turkey according to Ministry of Science, Industry and Technology, TUBITAK (2012).


There are more than 13 operating R&D centers established through law no. 5746

• The law no. 5746 supports and encourages development of technology for Turkish economy to become globally competitive through R&D and innovation, increasing product quality and standards, innovation in products and manufacturing, decreasing production costs, increasing productivity, commercializing technical knowledge, developing pre-competitive R&D cooperation between rival companies, increasing technology-intensive production and entrepreneurship, increasing the amount of FDI directed to R&D and innovation funding, and increasing employment for R&D personnel and qualified workforce.

• This law encompasses the support, incentives and exemptions given to R&D centers employing at least 50 R&D employees, R&D projects funded by public institutions or international funds, institutions that are in partnership with at least one R&D center (these institutions and R&D centers may operate in the same or different sectors), pre-competitive R&D collaboration projects, entrepreneurs supported by the Techno-enterprise Capital Support, and technology centers established by SME Development Administration in 12.4.1990 with the law 3624.

• The Turkish ICT sector has 13 operating R&D centers out of the total 142 in the country, all of which are based in Istanbul with the exception of one center in Ankara. The ratio of the number of ICT oriented R&D centers to the total number of R&D centers in Turkey is 9.2%.

31%

13%

9% 9%

8%

8%

7%

6% 6% 3%

AutomotiveancillaryOther industries

ICT

Durableconsumer goodsAutomotiveancillaryDefence

Electronic

Chemistry

Textile

Figure 24: Percentage of operating R&D Centers broken down by fields of activity

Source: ISPAT

39

The majority of these research centers – 32 centers -‐ are located around Istanbul

and Marmara Region.

One of the most important research centers in Turkey has been established

by Ericsson. Company’s portfolio mainly comprises mobile and fixed phone

broadband infrastructure and multimedia solutions for consumers and enterprises.

Ericsson made their first R&D investments in Turkey in 1925, and kept growing its

R&D activities over the time. In 2008, Ericsson acquired 100% a technology

company, Bizitek, and in 2012 incorporated all its R&D activities in Ericsson Research

Center for CEMA (Central Europe, Middle East and Africa Region) Region (ISPAT,

2013). The main activity areas of Ericsson Research Center are digital media,

telecommunications equipment, networks, web-‐based services and applications,

cloud computing, advanced internet technologies, digital preservation and so on

(Deloitte Investment Report, 2012). Furthermore, Ericsson invests in searching many

different areas by utilizing ICT such as health, mobile learning, energy efficiency and

smartgrids.

Another leader company in telecommunication sector is Huawei. Huawei

started its first R&D activities in Turkey in 2009 aiming mainly at software solutions,

and it has become the second largest software solution center in Europe with more

than $60millions investment (ISPAT, 2013). Other operations made in Huawei R&D

center are wireless technologies, fixed and mobile convergence technologies, new

generation networks and software products.

5.2.1.2 Increase in ICT Infrastructure and Usage

As previously mentioned, ICT Infrastructure is one of the categories – group

of indicators – that determine the ICT development index of a country. When we

analyze the ICT infrastructure of a country, several indicators that should be

investigated are the number of percentage of household with access to internet,

fixed broadband internet subscribers, percentage of household having a computer,

international broadband speed.

Increase in FDI inflows in ICT sector in Turkey helps country to improve its ICT

infrastructure directly since the foreign investors transfer their advanced technology

40

in country so that Turkey can directly apply this know-‐how.

Figure 25 The percentage of Internet users in Turkey, 2006-‐2013

Source: World Bank Data Statistics

According to the graph extracted from the World Bank, the percentage of

internet users in Turkey has increased significantly over the time period 2006-‐2013

and reached 46.3% in 2013. Even though it seems to be beyond the world average, it

is highly below the EU average, which was counted as 75.4% in 2013 mainly due to

the fact that EU is a developed economy and the internet user trend seems to follow

a steady and high average. The increase in the number of internet users in Turkey in

the last years can be attributed as the higher advanced technologies the FDI inflows

brought to country. Hence, these advanced technologies helped Turkey to improve

its ICT infrastructure and expand it to the rural areas.

Another important ICT development indicator is the fixed broadband

subscribers in the population. Fixed broadband internet subscribers are the number

of broadband subscribers with a digital subscriber line, cable modem or other high

speed technology according to the definition of ITU (International

Telecommunication Union). As it can be seen in the figure YY, the percentage of

fixed broadband internet subscribers has reached to 11.2% in Turkey in 2013, slightly

higher than the world average 9.6 %.

41

Figure 26 Percentage of Fixed Broadband Internet Subscribers in Turkey, 2006-‐2013


Another important indicator is the Mobile Cellular Subscription rates of the

population to determine the ICT development index. According to International

Telecommunications Union (ITU), Mobile cellular telephone subscriptions are

defined as the subscriptions to a public mobile telephone service using cellular

technology, which provide access to the public switched telephone network-‐

including both prepaid and postpaid. As it can be seen in the figure, the percentage of mobile cellular subscriptions has reached 93% in Turkey, which is equal to the

World average. On the other hand, the average in EU zone seems to pass the 100%

mainly due to the fact that people in most cases own more than one number, which

could be personal or business number.

Figure 27 Mobile Cellular Subscriptions in Turkey, 2006-‐2013


42

5.3 Human Resources Capabilities

FDI highly affects the host country’s economy through human resources

channel such as labor force and the training. This may affect the host country’s

economy both positively and negatively.

Since FDI generates a wider employment potential in the host country, the

workers also becomes more trained by basically observing the new operations with

new technologies brought by multinational firms. This increases the productivity and

results in highly skilled workers (Loungani and Razin, 2001; Alfaro et al., 2004). Apart

from these informal trainings, since the multinationals bring new technologies, the

workers should be able to capable of using this new technology. Therefore, the

multinationals must also organize a formal training for the workers, which increases

their profile, capabilities, and skills.

As the skills and capabilities of the workers get higher, more local firms would

be interested in hiring these highly skilled workers, which increases the host

country’s economic growth (Hanson, 2001). Considering that a capable worker will

always have a chance to change their job and contribute other local firms, or even

open their own business and apply the new technologies for their own company, this

will be a long-‐term positive effect on host country’s economy.

The increasing capability of the labor force may, on the other hand, have

negative effects on host country. The advanced technologies will cause the higher

automatization in manufacturing and many sectors, which in long-‐term will result in

lower need for workers. The lower need for workers will have an important impact

on the increase of unemployment in the host country (OECD, 2002). Furthermore,

again in the long-‐term highly educated workers may want to leave the country due

to the absence of enough R&D activities in the country in which they can take part

(Vissak and Roolaht, 2005).

5.3.1 Turkey’s situation in “Human Resources Capabilities” by ICT

When talking about Human Resources Capabilities of a country, two main

clusters can describe it in an effective way such as employment generation and

43

talent/skill development. These two factors are both the positive effects of foreign

direct investment in high-‐tech industry on a host country since it generates several

opportunities in the filed it operates.

Several indicators, which are also a part of ICT Development Index will be

analyzed in the following sections in order to see the change, trends, and

development in employment, skills, adult literacy, and education related to ICT in

Turkey.

As defined by International Telecommunications Union (ITU) in 2008, the

third cluster of ICT Development Index is so called ICT Skills. ICT Skills can be

calculated by three main indicators such as Adult Literacy Rate, Percentage of

Secondary Education Enrollment and Percentage of Tertiary Education Enrollment

Rate. In this section, we will also analyze the employment in the ICT industry in

Turkey and the number of students enrolled in ICT related subjects.

5.3.1.1 Employment in the ICT Sector

Foreign Direct Investment inflow to a host country especially in ICT sector

provides with several employment generation opportunities for the host country

which could be considered both as an economic and social benefit.

Below Figure 27 shows the unemployment rate of Turkey between 2005 and

2013 as a percentage of the total labor force (World Bank Data, 2014). The total

unemployment rate has been a peak in 2009 with 14% of the total labor force mainly

due to the global economic crisis, however it has recovered itself and gradually fell.

It can be seen from the graph that the unemployment rate has been decreasing

since 2009 after the recovery of the global economic crisis thanks to the severe

investments made in Turkey, and the direct employment generation it creates.

44

Figure 28 Unemployment, total % of the labor force in Turkey, 2005-‐2013

Source: The World Bank Data

According to ICT Market Report published by TUBISAD – Turkey Information

Industry Association (2014), the employment increase in especially ICT sector can be

seen in the figure BB. Compared to 2012, in 2013 additionally 16,241 people have

been added to the workforce in ICT sector in Turkey due to the increased number of

new firms and their need of employment. Call Center and the Retail Technology

sectors are the sectors that support to the Information and Communication Sector

counting 71,203 in 2012.

Figure 29 Employment in ICT Sector in Turkey, 2012-‐2013 (thousands)

Source: TUBISAD, The ICT Market Data, 2014

Employment in the sector

12

153,849

82,646 100,518

(71,203)

1,632 16,241

Total employment in 2012

Call centers and corrections

2012 - Base employment

Employment increase in existing

companies

Incerase that comes from new

firms

2013 - Total employment

Workforce excluded from the scope in 2013

Workforce added to the scope in 2013

1

1 2,533 firms in total

45

The Information Technology and Defense Industry, Software and Services

Sector are the main subcategories of the ICT Industry that have shown a gradual

increase in the employment generation in Turkey in 2013 (TUBISAD, ICT Market

Data, 2013). As it is illustrated in the graphs below, the majority of the increase in

employment in ICT sector can be attributed to these two sectors with 61% and 54%

of increase respectively. Employment Increase in Information Tech Sector and

Defense, Software and Services Sector in Turkey, 2012-2013 (thousands)

Figure 30 Employment Increase in Information Technology Sector and Defense, Software and Services Sector in Turkey, 2012-‐2013 (thousands)

Source: TUBISAD, The ICT Market Data, 2013

According to the figures above, the ICT market in Turkey is growing both by

local and foreign investments that create new employment generation in the sector.

These investment do not only create employment generation, but also helps the

current employees to develop their skills, improve their capabilities, and finally result

in more capable, talented, and skilled workforce in the industry which make a high

quality and more competitive environment in the sector.

5.3.1.2 Skill Development and Improving the Capabilities

As previously mentioned, advanced technologies and higher investments do

not only generate employment, but also increase the capabilities of the workforce.

While the foreign investments bring the advanced technologies to the host country,

there must be an adequate amount of workforce which will be capable of applying

these technologies in the host country.

As the third cluster of the ICT Development Index so called ICT Skills, we will

analyze the three indicators in this category such as Adult Literacy Rate, Secondary

46

School Enrollment Rate and Tertiary School Enrollment Rate. Furthermore, we will

analyze the current academic situation in Turkey by analyzing the number of

students studying ICT related subjects at university, the number of researchers work

in R&D in ICT Sector and the number of technicians in ICT Sector.

To begin with, we will analyze the adult literacy rate in Turkey. UNESCO

defines adult literacy rate as the percentage of the population age 15 and above who

can, with understanding, read and write a short, simple statement on their everyday

life (2015). As it can be seen in the Figure 30, the adult literacy rate has been

gradually increasing in Turkey for the last 8 years and reached 95% in 2012 (The

World Bank Data, 2014). There are many factors affecting the adult literacy rate in

today’s globalized world. The increase in adult literacy rate also makes it possible to

access information by the citizens. Adult Literacy Rate accounts for the 33% of the

ICT Skills when calculating the ICT Development Index. Turkey seems to be

respectively low comparing to developed countries in this category, however the

increase in both youth and adult literacy rate can help estimating that this number

will soon reach the level of the developed countries, who are at their saturated level.

Figure 31 Adult Literacy Rate in Turkey, 2005-‐2013 (% of population aged over 15)

Source: The World Bank Data, 2015

Another indicator to calculate the ICT Skills is the Secondary School

Enrollment Rate. According to the graph extracted from the World Bank Data

Statistics (UNESCO Institute for Statistics), the secondary school enrollment rate has

been increased by around 8% over the last 8 years reaching 82.1% in 2012. Except

for the decrease in 2009, the secondary school enrollment rate has been followed a

47

steadily increasing trend for the last few years. This makes a big potential to invest

and work on in order to improve the ICT Development Index of the country.

Figure 32 Secondary School Enrollment Rate in Turkey, 2005-‐2012 (%net)


As the last indicator, the Tertiary School Enrollment Ratio affect the ICT

Development Index of the country as a part of the ICT Skills counting for the 33% out

of it. According to UNESCO, Tertiary School Enrollment Ratio has been defined as the

total enrollment in tertiary education (ISCED 5 and 6), regardless of age, expressed

as a percentage of the total population of the five-‐year age group following on from

secondary school leaving (2014). As it can be seen in the graph extracted from the

World Bank Data (2015), the enrollment in tertiary school has been doubled in the

last 8 years by reaching 69.4% in 2012. This significant increase in the tertiary school

enrollment ratio helps growing more capable, and skilled talents in the sector.

Figure 33 Tertiary School Enrollment Rate, 2005-‐2013 (%net)


48

Furthermore, it is inevitable to see the significant increase in the number of

students who study ICT related engineering fields in both bachelor’s and master’s

degrees. According to Deloitte ICT Industry Report in Turkey (2014), a large

proportion of the total students enter ICT related programs in university, which

result in a potential high quality workforce. In 2012, a total of 140,713 students have

been enrolled in ICT related associate degrees, while 115,428 students enrolled in

ICT related undergraduate programs. There is a significant increase in the number of

students in ICT related graduate programs, which has been increased by 29% in 2012

and reached 18,446. The main study fields in those graduate programs related to ICT

are Electronics & Automation, Electricity & Energy, Computer Science and

Engineering.

Figure 34 Analysis of ICT Related Higher Education in Turkey, 2012

Source: Deloitte ICT Industry Report, Turkey, 2014

Additionally, as a direct effect of the foreign direct investment on ICT sector


Associate and Undergraduate

27,750

48,774

140,713

13,612

26,945

115,528 Total

New

Graduate

Associate Degrees Related to ICT

Undergraduate Degrees Related to ICT

Graduate Graduate Students

Related to ICT New Graduate Admissions

Related to ICT

Graduate Students by Field of Study

490

3320

4784

1056

4478

150

783

1199

346

1840

0 1000 2000 3000 4000 5000

Library, Information,Archive

Engineering

Computer Science

Electricity & Energy

Electronics & Automation

DoctorateMaster

2011 2012

+29%

14,299 18,446

2011 2012

+17%

5,490 6,398

• In Turkey, the engineering fields related to the ICT sector are among the most popular choices for undergraduate and graduate studies. Every year, a significant portion of the best students in Turkey join programs related to the ICT sector, which will provide a high-quality workforce.

• In 2012, there were 115,528 students enrolled in undergraduate programs and 140,713 students enrolled in associate programs.

• The number of graduate students in ICT related departments increased by 29% in 2012 compared to 2011.

• Due to an increase in number of TDZs and research centers, the quality of engineering departments is improving as well as the quantity of students in the field.

• Besides universities, there are private education and training centers that grant certifications in coding, system & network management, database management, graphics & digital design and the like.

The best students in Turkey are choosing associate, undergraduate and graduate education related to ICT

49

in Turkey, it is inevitable to see a significant increase in the number of researchers in

R&D. Researchers in R&D can be defined as the number of professionals who work in

creation and conception of new expertise, knowledge, technology, product, process

and methods in the management of projects including the post-‐graduate PhD

students (UNESCO). As it can be seen in the graph extracted from the World Bank

Data (2015), there has been a dramatic increase in the number of researchers in

R&D in Turkey between the years 2005 and 2012, and reached 987 people per

million in 2012. Increasing tertiary school enrollment ratios affect positively this

number. Increasing number of researchers in R&D will play an important role in

applying the advanced technologies coming from abroad by foreign direct

investment, create higher technologies in the local market and result in a positive

economic growth eventually.

Figure 35 Researchers in Turkey, 2005-‐2011 (per million people)

Source: The World Bank Data Statistics, 2015

Apart from the academic aspect, the number of technicians who work in R&D

play a significant role in the ICT development. Technicians are those with main tasks

of requiring technical knowledge and expertise in engineering, physical and life

sciences. They basically perform under researchers to perform operational methods

and concepts. As it is shown in the Figure 35, the number of technicians in R&D has

shown a significant increase over the last 6 years in Turkey and reached 173.2

people per million in 2011 (The World Bank Data, 2015).

50

Figure 36 Technicians in R&D in Turkey, 2005-‐2011 (per million people)


5.4 Increased Competition between local firms

According to De Mello (1999), FDI’s significantly affects the capital and the

productivity of the host country due to the increased competition between the local

firms. As mentioned previously, FDI provides a higher supply in the local market,

which results in the increase in the competition between the local firms since they

want to protect their market share and profits. This competition causes a positive

effect such as lower prices, higher productivity and a more efficient allocation of the

resources (Pessoa, 2007).

Existing firms in the host country invest more on R&D and forced to invest in

its employees and new technologies as a part of the competition (De Mello, 1997).

As the local firms get more capable of new technologies, they may even become the

supplier of the multinational firms. Consequently, the impact of this increased

competitiveness may be either positive or negative depending on the firm’s

capability to respond the competition.

On the other hand, in case the local firms are not able to respond this

competitiveness, the competition may result in closure of these local firms. With the

disappearance of some local firms, the concentration will be higher in the sector. As

a result of the strong competition from the multinationals, local firms may want to

gain share and increase their economy of scale by reducing the competition

(Loungani and Razin, 2001). Since the competition might not be equal for all firms in

51

the market, some firms may not be able to afford the higher income levels and may

not reach as high as the multinationals do. Hence, this will result in the

disappearance of those local firms in the market (Hanson, 2001).

From a human resources standpoint, multinational firms make it difficult for

local firms to attract the talents and highly skilled workers due to the fact that

multinational firms offer a better economic power and better career opportunities

(Slywester, 2005).

5.4.1 Turkey’s situation in “Increased Competition between Firms” by

ICT

Due to the various effects of FDI inflows previously mentioned, in the last

years Turkey has seen an increase in the competitiveness between the firms in the

ICT sector. There have been new firms entered in the Turkish market, as well as

M&As and closures. FDI inflows into Turkey bring advanced technology, and result in

higher quality infrastructure, which causes higher productivity. Therefore, the

existing firms try to protect their market shares and profits.

Main sub areas of ICT sectors can be listed as IT services, e-‐Business, software

and hardware market. There are three main players in the telecommunication sector

in Turkey such as Turkcell, Vodafone and Avea. All these three operators have seen

many changes over the last years, as well as merger and acquisitions. Vodafone

entered the Turkish market in 2005 by winning an auction and buying Turkey’s

second largest mobile company Telsim for $4.5billion. The total investment of

Vodafone Turkey has exceeded TRY 11 billion including acquisitions since 2006

(Deloitte ICT Industry Report, Turkey, 2014). In order to remain its position and even

increase the market share, Vodafone has invested on increasing the cable and base

station infrastructure in the country. Vodafone increased the total number of base

stations by 81% in Turkey at the end of 2009 and reached 10897 stations throughout

Turkey (Deloitte ICT Industry Report, Turkey, 2014).

On the other hand, as the largest player in the telecommunication sector in

Turkey, Turk Telekom has seen several changes in its investors in the last years. In

52

2005, 55% of Turk Telekom was privatized for $6.5 billion (Deloitte ICT Industry

Report, Turkey, 2014) by Oger Telecom owned by The United Arab Emirates.

The increased competition in the sector resulted in higher productivity, and

therefore lower prices in the communications sector. This has become an advantage

for the citizens since they are the ones benefit from the higher technology, higer

productivity with lower prices due to the competition between the largest

telecommunication firms such as Vodafone, Turk Telekom and Turkcell in the sector.

6. Conclusion

Foreign Direct Investment has always been one of the most common ways to

transfer technology to another country. Other than the technology transfer, the

human resources capabilities are the main effects in the host country since the

investments open up new job opportunities. In case of Turkey, the improving ICT

Sector offer many job positions to the job seekers, and in the recent years it helped

reducing the unemployment rate in Turkey as it was explained previously. In this

study we have analyzed the Foreign Direct Investment in ICT Sector in Turkey and its

effects. We may conclude the study with interpretation of each ICT Development

Index indicator as following.

Firstly, ICT Access is determined by readiness of ICT in the area. Increased

investments in ICT sector has resulted in better infrastructure of lines, international

broadband bandwidth and radio frequency signaling base stations. Higher quality in

the technical aspect also led to a competition between the main telecommunication

firms such as Vodafone, Turkcell and TurkTelekom. On the other hand, increased

number of research centers has resulted in better technologies such as HuaWei’s

cyber security, 4G and LTE researches. All these improvements have resulted in a

higher ICT Access rate for Turkey.

Secondly, ICT Use is determined by the ICT intensity such as percentage of

Internet users, and mobile subscription rates. Investments in ICT Sector in Turkey

have led telecommunication firms to access a broader audience and therefore the

percentage of Internet users and mobile subscriptions have been increased. In

53

addition, another reason of increasing subscription is due to the lower prices offered

by the firms, which can be attributed to the competition between the firms.

Lastly, ICT Skills are determined by how much the citizens are able to use the

technology, which is calculated by the adult literacy rate, secondary and tertiary

school enrollment rate. This was the weakest section that Turkey has been facing in

the recent years as many other developing countries. However, growing technology

help transferring the high technologies in rural areas of Turkey and therefore

increases the ICT skills in the country.

54

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