Perfect Progress

What is the history and background of FNSS in the Turkish defense sector?

FNSS was the first private defense company in Turkey, established back in 1988. It became operational in 1990. At the beginning we thought this was going to be an eight-year company with just a single contract, because the purpose of the company was to produce 1,700 armored combat vehicles (ACVs) for the Turkish Armed Forces under a single contract signed with the Undersecretariat for Defence Industries (SSM). That program was extended for another two years and it went on until 1999. In the meantime, we had offset obligations that brought the question of whether we could export products. We started to investigate export possibilities, and there turned out to be real opportunities. The first 10 years of FNSS were taken up by licensed production. From 2000 on, it became more focused on the development of new products, more engineering, and, of course, it became more export oriented. After 2005, we won two indigenous development products with the Turkish Ministry of Defense: the amphibious assault bridge and the amphibious earthmover.

As Turkey’s first private sector defense company, what kind of unique challenges did you face?

During the very first days of the ACV contract, nobody knew how to conduct the acceptance process or how to handle the changes. The user was experienced in employing equipment simply given to it previously. For us and the user, though, it became a challenge to come up with a platform upon which we agreed what was required and how we were to meet all of the customer’s requirements and produce according to budgetary and time constraints. In our first contracts there were terms and conditions missing that today are very essential to conducting business. It was a learning process at first. The big challenge was to gain the confidence of the customer and manage the contract effectively. Since then, over the last 22 years, not only FNSS but also the rest of the Turkish defense sector has shown perfect progress, where we can manage very complex international defense programs.

How has that experience benefited your current operations?

It was a big experience—everybody learned a lot. In retrospect, what we did proved to be right, even considering the mistakes we made. It was a big experience for SSM and for FNSS. Most of the people in top management positions at SSM have been raised through the Turkish ACV program. After struggling for the first couple of years, it turned out to be one of the best examples within the Turkish defense industry.

How has the perception of the Turkish defense sector changed since FNSS has been in business?

To make a defense export contract successful, a few factors are required. These include a strong proven product, a good price, and sound relations between the two countries involved. In addition, trust in the company is also a must. At that time, however, FNSS was still a new, unproven company. Of course, the American brand names that we were working with provided comfort to our customers. They then saw the quality of our products and our level of service. Today, however, we hide the US flag in many cases. I would not compare FNSS with the rest of the industry. However, as a private entity, everybody knows and respects FNSS in the regions we operate, and that sort of reputation does not happen overnight. It is the result of several successful contracts, timely delivery, overall quality, and, moreover, sticking behind your product after the sale, which is an important thing in defense. You do not gain confidence through advertisements or by appearing in newspapers. This is not the way it works. This is a sector in which you deal with the end user directly, so you cannot lie or manipulate events. The product either works or it does not. In many ways the sector is different from others, but that is an important distinction: there are no layers in between the manufacturer and the end user.

How would you characterize the availability of technical education in Turkey?

There is definitely an engineering workforce available in terms of good schools and university education. However, in terms of experience there is a problem, and it started to be an issue after the Turkish defense industry started working on indigenous programs. Today, with TAI and Aselsan, we are talking about companies with 3,000 to 4,000 employees. Given the amount of work given by SSM to the industry, there is a huge amount of development work going on and we are about to reach a bottleneck in terms of finding people who have experience. This gives us another burden, as we have to hire young people and spend time on their development and education. It is a bit critical at the moment. Will all of those foundation companies continue this level of work? I think, as a minimum, in the next four or five years it will continue. To increase our engineering workforce we need to do something.

What does Turkey need to do to increase the availability of local content for defense manufacturers and to allow its defense industry to move up the value chain?

What I will say is consistent with SSM’s strategy. We have top-level companies, like FNSS and TAI, and we must not increase the number of these companies. We need to support the development of second-tier companies, and those should be coming from the bottom. That takes a lot of R&D, some basic studies, and the incorporation of all of the authorities, organizations, and universities. A good example for land systems is gearboxes. On the subject of gearbox design and production, we can do something here and we are doing something. In an ideal world, I want to be in a position where I can call my gearbox company and say I want such and such a design and I am sending you inputs and outputs—just design me something. And that is the biggest strength of Western companies. In Germany you have that support; in the US you do as well. Here we have to struggle with all of these subcomponents and try to educate vendors . An option is to do everything in house, but then I would need a facility 10 times the size and another 5,000 people to deal with. This is not the right way. We need experienced companies to support not just FNSS, but all of the top-level companies. That way they would not have big business risks. If my business goes down a little bit they could balance their load with other companies. For land systems, another example is that we need some basic capabilities with materials like armor steel. We need to invest in that area in Turkey. Again, basic industries like power packs, engines, and transmissions are needed. I know this cannot happen overnight, and I am not talking about conventional engines and power packs necessarily. Everybody produces those. I am talking maybe about fuel cells and electric drives, which are the future. We need to spend time on things that will make Turkey unique in certain areas. There is not much left to do with internal combustion engines.

What is your vision for FNSS over the next decade?

We want FNSS to be the biggest land systems company in Turkey. We want to be the local defense company for foreign and friendly countries. That means we are going to work very hard to get more business, aggressively, within Turkey. Also, we will continue to explore in order to spread our products throughout the world, mainly in the Middle East and Far East. However, Eastern Europe is also coming into our focus. The next target—once they are released from their Russian influence in terms of old military equipment—are the Turkic republics. Based on our research and analysis, our plan is to reach turnover levels of $400 million to $500 million a year. We want to reach that level in the next five years, and in the five years after that we intend to stay at that level while getting ready for the next jump. This is based on our current strategic plan, and we are about to revise our strategic plan in the coming years. We think this is achievable. For 15 years we have been on average a $100 million company. From 2005 to 2008 we dropped down to $25 million to $30 million a year, which put us into survival mode. We reached levels above $100 million for the last four years, and in 2012 we are jumping up to $180 million. Over these periods we have gone from being a company with 450 people, to 140 people, to nearly 800 people currently. So over the last four years there has been a huge jump, and we want to reinforce our current position for some time before making the next big jump, which has already been planned.

© The Business Year – November 2012