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FNSS drives defence industry growth

Interview - July 23, 2013
Nail Kurt, CEO of FNSS (a leading land combat systems solutions supplier), speaks with World Report about the Turkish company’s strong local and global competiveness and relations with the West

The growth of Turkey’s defence industry has been truly phenomenal over the last five to ten years. From a trade value of roughly $1.8 billion in 2006, it has grown to over $4.4 billion in 2011. In addition, the Turkish defence sector exports to over 60 countries around the world, with a total value of over $1 billion in 2012. What impact has this impressive growth had on FNSS?

It has no impact on FNSS, because FNSS is one of the factors driving this growth. We were the very first defence systems exporter out of Turkey. We signed an agreement with the UAE back in 1998. In early 2000, we signed an agreement with Malaysia, which was the biggest single export contract at that time. That also included defence technology transfer.

Subsequently, we had a series of contracts in Saudi Arabia. We are operating their army factories now, which was another first in the Turkish defence sector. In 2011, we signed a contract with Malaysia, which was the biggest ever defence export contract signed by Turkey. FNSS has achieved a lot of firsts, and I think that gave a lot of confidence to the Turkish defence industry.

Any exports we achieved were based on a competitive tender. We compete with the giants of the West, and sometimes with the Koreans. Any export contract we sign is a result of competitive tenders. I think a lot of Turkish defence companies are following this, and they are also starting to win competitive tenders abroad.

We played a large role in the Turkish defence industry’s success and we are an excellent example for the potential for Turkish defence industry.

And to what extent would you say growth in the defence sector reflects growth in the overall Turkish economy?

I think the growth in the defence sector is greater than in most other sectors. When we started 20 to 25 years ago, it was almost nothing. There has been a huge percentage increase in the Turkish defence sector; however, in terms of dollar volume, it may not be so high compared to other important sectors. Hence, the growth does not represent a huge proportion of Turkish growth, but strategically, it is a very important sector, because it creates technology. Value added is much greater then the automotive and textiles sectors. So it is really strategically important for Turkish policies. I would say it encourages innovation as well. Also, no single company does things on its own. Subcontractors are involved. FNSS employs 600 people, but we are feeding 10,000 people including subcontractors. We are dealing with a lot of universities. This is how the defence industrial base is growing in Turkey. A lot of other defence companies are also doing it in the same way.

We have been doing this for 25 years, but now it is a Turkish Government policy to provide work to SMEs. It is in the contracts – like it or not, you have to do it. I think FNSS has also been a role model in terms of not doing everything in-house, but rather sharing it with the rest of the industry.

The eyes of the global defence industry were really on Turkey recently, with the International Defence Industry Fair (IDEF) that was held in Istanbul. What does the IDEF mean to Turkey as a whole, and what impact did it have on FNSS specifically?

In the first instance, I think it demonstrates our capabilities, because not everyone really believes that Turkey can achieve such a level of technology and capability. Compared to other sectors, defence is a little bit ahead of the others. This is a good message to all of our potential buyers, to show that we are in the game, and that we have the technology base. We have 10 to 15 big companies that are supported by hundreds of smaller companies (SMEs) with the technology in place. Most of it is there. Some things of course are related to other industries – automotive for instance is not generating all the sub-systems required, like transmissions, engines and this and that. You cannot develop such systems only for the defence industry, so it has to be somewhat related to other industries. That is what we are lacking now. I must say however that Turkey has started investing in that area as well.

Do you think you could get them from the UK?

Yes, of course – from the UK, Germany and the US. Turkish users are smart, and they all want proven sub-systems of course.

Where do you see the armoured vehicle weapons sector system going and therefore what are your top priorities for 2013 and beyond?

We will be focusing on systems integration and producing and developing new products, which will enable us to export more. The only way you can increase your exports is by coming up with indigenous solutions for potential customers. We have a good product range in the industry now, but it is not enough.

Secondly, the Turkish army is a very large army, and they need to continue updating their systems and buying new products, which really supports our exports. The big question comes when you want to sell products to foreign customers. The big question is whether the Turkish army is using it. Even if they do not need it, the fact that they do not buy it is a big minus. But having said that, we had a big contract with Malaysia, and we are selling a product that the Turkish army did not buy. I think that is another big success for FNSS. We have had a long history with Malaysia – we sold ACVs before, which the Turkish army is using. That is how our first exports to Malaysia took place. I think we signed four or five different contracts with the Malaysian government. We paved the way for a very long-term and trusting relationship with the customer. So they accepted the new product as their main project.

How do you work with the government and SSM and even other top defence sector companies to improve the Turkish defence sector overall?

There are common grounds, where we discuss such things. One is the Defence Industry Association, of which I am a board member. We have another platform, which is more supported by the government. This is a platform under the Ministry of Economy, the Defence and Aviation Exporters Association. I am also the deputy chairman of that. We are always looking for ways to increase our collaboration. I think there is a great synergy here, where everybody should agree on the targets for increasing our exports. The Turkish Armed Forces is large enough to support a base industry, but we do not want to stay at that base – we want to increase beyond that. So the only way is to export.

There is a saying that football is not just football. Defence exports are not just defence exports – you need long-term relations between two countries. It is not just about buying and selling – it is a long-term relationship that requires alignment in your long-term policies. It takes a lot to sell a defence product to a country. There is a lot of support required from the government side. Once you sell something, you cannot just get out of the country easily – you have to stay there. A happy customer is the best kind of marketing – you cannot fool customers in this sector. You are face to face with the customer. The only way you can make them happy is to work with them.

Can you tell us about some of the top products you have currently?

In very general terms, we have tracked and wheeled armoured vehicles from a 10 to 35 ton range. We have also been involved in M113 modernisation, which is the most famous and widely used armoured vehicle in the world. More than 100,000 are still in operation today. We are probably doing the most advanced M113 upgrades in the world today for some of our customers. In addition, weapon stations from 12.7 calibres to 25 to 30 mm calibres. We do not produce canons but we produce platforms to carry those stations. In addition we have some niche products such as Amphibious Assault Bridge and Amphibious Earth Mover vehicles.

Could you please tell us a little about your partnership with BAE Systems?

At that time it was FMC Corporation, which designed the famous M113 vehicles and produced more than 100,000 of them in the world. They also had the famous Bradley fighting vehicles. FMC then merged with BMY, which was another land systems company and became UDLP. This continued up until 2005, when BAE Systems took over UDLP Shares, and then FNSS’ partner became BAE Systems. But then the partnership changed from 51% foreign ownership to 49%. Having said that, the partners managing this company definitely on a 50/50 basis. To be frank we have a lot of independence in the day-to-day running of the business. They are involved in board meetings every three months; they are very professional and they monitor our budget performance and help us whenever we ask for help. We are 100% compliant with their business conduct regulations. But other than that, we are free. There have been times even when we  competed  with our parent companies.

As a JV, we are always the stepchild of either of the companies and we know that our only option is to be very successful. I read from a credible source somewhere that international JV lifespans are seven years on average. FNSS celebrated our 24th year, and nobody is thinking about dissolving this partnership.

Can you give us your unique insights on British defence sector ties with Turkey, and the impact the treaty signed between both countries has had?

We report to BAE Inc in the US. But in general terms, I think our relationship has been great. The dollar value is not so high for many reasons, but whenever there is an opportunity, the will is there. Over the last 15-20 years, the government decided to support this industry and make it independent and grow it more, but we have not had significant industrial cooperation with any other country in the West. At times, we have cooperated with Israel and Korea, but not so much from the West. It is not that Turkey did not want to, but there have been a lot of limitations imposed by the West, including Germany, the UK and the US. Turkey wanted to use western technology, but not with such limitations, of course.

A good example I give to people is that yes, I would like to drive a Mercedes, but if they do not let me drive to Bodrum or Antalya, I would rather go anywhere I want in a Fiat or Renault. Nothing would be worse than keeping the Mercedes in my parking lot, and not being able to drive it. That is what the West did to Turkey. The Cyprus case was a very good example of this. Turkey, which has been one of the most loyal countries to the West, has been penalised for doing whatever the West wanted us to do in the past. Being in the Middle East is not something you can afford with such embargos; you need to be strong and flexible. You cannot afford not to be able to use your military equipment. This is what the West has done to Turkey. That is the basic reason why Turkey has grown its defence industry.

Do you think technology transfers with Western nations will become more common?

The West is very smart, and they realise that this is not the way to treat Turkey. Now that Turkey is growing its defence industries, you had better walk hand-in-hand with them and make it a win-win situation, as opposed to watching it from a distance. At some point, you will not be able to sell anything, because Turkey will not want to buy from the West if there are embargos and limitations. It is not like we are going to attack someone, but the West needs to appreciate where we are in the world. I think the past few years have shown that Turkey is in a very delicate and risky part of the world.

I have been here for 24 years now. The general managers of companies did not talk to us for the past 10-15 years, but now they are coming to us and asking for us to go to this market together with them and if we can do something together. It also concerns Turkey’s strength in the region, and its influence. It comes with political support. Capability and being a well-organised company is a must as well, but you also need government support in order to penetrate some markets. There are a lot of giant companies coming to FNSS to cooperate. It is in our genes, being a JV. We are open to such cooperation, unlike some other Turkish companies, which view it as a threat.

Do you feel like an ambassador for Turkey when engaging in your activities? You are representing not only FNSS, but Turkey as a whole.

Of course. On many occasions in our sector when you meet customers, they see you as a Turkish representative. Having said that, with all due respect to our ambassadors, they are also supporting us. That mentality has changed a lot. Twenty years ago if I went to a Turkish embassy and asked for support, they would think twice before they talked to me, but today they find me in my hotel and ask me to call them as I am in the country. It is not just the ambassadors, but also the trade and military attachés. This is a big synergy, and that is a good thing to have. We saw that in the past with foreign embassies in Turkey, and it is very good to see that Turkey is now doing it, maybe even better in some cases.

If we were to come back here again and interview you in say five years, optimally what achievements or accomplishments would you like to have made as CEO of FNSS?

Our main objective is healthy, sustainable growth. We have just completed our recent ten-year strategic plan. We have a well-defined five-year target to achieve $500 million in sales per annum, with a reasonable and acceptable return to the partners of course. When I took over in December 2007, our annual sales were down to $30 million, which was unusual for FNSS, because our average for the first 15 years has been $120 to $130 million with an average of 350 to 400 people between 1990 to 2005. From 2008, we started ramping up, and as of 2012 our sales were $220 million. There are 600 people in the facility in Ankara, and another 300 people abroad, most of whom are in Saudi Arabia. We have two facilities now. A third workforce will develop in Malaysia as we proceed with the contract further. It is a multi-location and multi-project environment.

What final message would you like to send to our readers about FNSS or even about Turkey as a whole?

Turkey is growing. It is going to be a different Turkey in 10-15 years’ time. There will be a lot of growth, and for our western friends, if you walk hand-in-hand, it will be a stronger alliance. I think from many perspectives, we are aligned with the West, and we do not want that to go away. As Atatürk put it, we look to the West.