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SOFTWARE INDUSTRY IN TURKEY

DOĞAN UFUK GÜNEŞCHAIRMAN, YASAD

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Board of Directors

Doğan Ufuk Güneş

Chairman

Korgün Yazılım

Gönül Kamalı

Vice Chairman

Netaş

Zeynep Sarılar

Vice Chairman

Mobilera

Atila Zeybek

Accountant

Model Kurumsal Çözümler

D. Zafer İnkaya

Board Member

Bilin Yazılım

Bülent Erbaş

Board Member

Koç Sistem

Bilgi ve İletişim

Nejat Sağtekin

Board Member

Likom Yazılım

Sadun Anık

Board Member

Logo Yazılım

Hayguyi Antikacıoğlu

Board Member

Link Bilgisayar

Agenda

• YASAD – Turkish Software IndustryAssociation

• Turkish ICT, Telecom and SW Markets

• Why to Invest in Turkey?

• Turkey’s 2023 Vision

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• A non-governmental organization representing the software sector in Turkey

• Established in 1992; celebrating 21st anniversary with 367 members comprising most of the local software producers, including the leading, the fastest growing and the largest software companies..

• 50% of total software revenues in Turkish market

• 75% of software export revenue holders

• 65% of Deloitte Technology Fast50 Turkey software companies

• 45% of Turkish companies in Deloitte Technology Fast500 EMEA

…are members

YASAD - Turkish Software Industry Association

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Mision:

• To place Turkey in the list of major global players who export software and related high value-added technological products, and continuously improve its position

• Converting the sector into one of the driving forces of the Turkish economy

YASAD: As an active leader

Well connected with Ministries- Ministry of Transport, Maritime Affairs and- Communications

- Turkcell, Vodafone and AVEA meetings with YASAD members

- Ministry of Economy - Regulations and Incentives for Software Export

- Ministry of Science, Industry and Technology- Working on state of art technologies for various ministries as Health,

Justice

Well connected with other organizations as- Exporters' Associations – Common projects to increase SW Export with

Istanbul Electrical Electronics, Machinery & ICT Exporters' Association, IEEMBIB & TET

- Trade Office of Istanbul - ITO- The Union of Chambers and Commodity Exchange of Turkey – TOBB- Universities – CO-OP (Cooperative Education) with Bahcesehir Unv.

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YASAD: The Power in Turkish Software Market

• The largest sector companies with the highest revenues by covering all sectors are members…

6Source: 2011 Turkey Top 500 ICT Companies Report by Interpromedya

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Turkish ICT, Telecom and SW Markets

• Huge ICT market growth - 14% CAGR between 2002 and 2010, reaching 20 billion € in 2010 (9th in all Europe and 2nd in Eastern Europe) and estimated 22.3 billion € for 2012*

• Increased interest in the ICT sector - Started the necessary studies such as newregulations, initiatives and R&D law

• The young and dynamic population of Turkey - Continuous demand for new products

• Much more ICT users than most of EU countries – Excellent subscriber numbers and penetration rates**

• Broadband Internet: 19.3 million subscribers, increased more than three times in last four years (6 million subscribers in 2008), which corresponds to almost 50 million Internet users and 67% penetration rate • Mobile: Total 67.2 million subscribers (40.3 million 3G and 26.9 million 2G) and90% penetration rate

• Fastest growing ICT companies - 29 of the 500 ICT companies in the EMEA region in 2012 Deloitte Technology Fast500 EMEA Survey

• Others - More than 1.5 M Small and Medium Sized Enterprises who have the capacity to use IT

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Turkey: An attractive ICT market

Sources: * EITO 2011 European Information Technology Observatory** Turkish Information and Communication Technologies Authority (ICTA) Q3’12 Annual Report

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ICT Market in Turkey

Source: EITO 2011 European Information Technology Observatory

ICT Market Volumes of EU25, Turkey, Russia and Switzerland in 2010 (in million €)

• Market size anticipated to surpass 22.3 billion € in 2012 with 6.5% increase

• Telecom market is the largest piece, 78.7% in total ICT, 2010

• Software and IT services are growing rapidly in aligment with overall ICT growth

9th in all Europe and2nd in Eastern Europe

Total ICT Market Volume (in Billion €) and GrowthRate (%)

17.48

19.159.6%

19.984.4%

20.934.7%

22.306.5%

* Estimated

ICT Market in Turkey – IT and TelecomTotal IT Market Volume

10* EstimatedSource: EITO 2011 European Information Technology Observatory

Total Telecom Market Volume

Total IT Market Volume – 2012*

Total Telecom Market Volume - 2012*

• 7th greatest Telecom Market in Europe in 2010***

• Rate of Mobile Phone Usage over than EU Average with the 1st

highest rate*

• Mobile subscribers reached 67.2 million with the 90% penetration rate in Q3’12****

• Tremendous growth in 3Gsubscribers; from 7.1 million to40.3 million within 3 years****

• Internet users incread rapidly to 50 million**

• 3rd place at social media following

– 43 million Web users

– 35 million Facebook users

Telecom Market in Turkey

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245%421% 535% 632% 757% 833%168%

1730%2069%

2922%

5646%

7778%

1998-2000 1998-2002 1998-2004 1998-2006 1998-2008 1998-2010

Increase in the number of internet users in TurkeyCompared to EU average**

EU Average Turkey Usage

Sources: * Wireless Intelligence ** 2011 ITU -- ICT Indicators Database, Eurostat, SocialBakers*** EITO 2011 European Information Technology Observatory**** Turkish Information and Communication Technologies Authority (ICTA) Q3’12 Annual Report

Average: 186

Turkish Economy - A Rising Star

Sources: * A.T. Kearney** Turkey’s Statistical Yearbook 2011 (TurkStat)

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Foreign Direct Investment Confidence Index 2012*

Confident, Big, Stable, Promising, Attractive, and Dynamic Economy

• Booming Economy - more than tripling itsGDP, reaching 772 B$ in 2011, up from 231B$ in 2002**

• 18th largest economy in the world and 7th

when compared to the EU Countries in 2011(IMF, GDP at current prices)

• Stable Economic Growth - an average annualreal GDP growth rate of 5.2 percent over thelast 9 years

• Promising Economy - with a bright future asit is expected to become the fastest growingeconomy among the OECD members during2011-2017 with an annual average real GDPgrowth rate of 6.7 percent (OECD EconomicOutlook No. 86)

• Attractive Economy - fueled by 110 B$ of FDIin the last 9 years and ranked as the 13thmost attractive FDI destination in 2012 (A.T.Kearney FDI Confidence Index)

• A Dynamic and Mature Private Sector - with135 B$ worth of exports and an increase of275 percent between 2002 and 2011**

TURKEY’s Position: Fastest growing ICT companies in the EMEA region

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According to DeloitteTechnology Fast500 EMEA 2012 Survey

- 29 companies in Fast500, two of them in the Top 10:

ELKOTEK, 5th andTEKTRONIK, 6th

Order Country Ave. 2012 2011 2010 2009 2008

1 France 86.4 90 93 94 80 75

2 United Kingdom 80.4 74 86 86 87 69

3 Netherlands 53.4 46 53 52 58 58

4 Sweden 52.6 55 54 65 38 51

5 Norway 49.4 52 48 48 50 49

6 TURKEY 26.8 29 27 28 30 207 Germany 26.4 24 23 20 32 33

8 Finland 24.6 27 23 22 23 28

9 Israel 22.8 14 18 20 25 37

10 Republic of Ireland 17.6 20 17 16 18 17

11 Poland 11.6 21 15 6 8 8

12 Hungary 7.6 5 2 7 10 14

13 Czech Republic 7.0 4 8 7 5 11

14 Portugal 4.6 12 3 6 2 0

15 Belgium 4.6 9 7 5 2 0

16 Romania 4.0 4 4 6 4 2

17 Denmark 3.8 0 4 3 5 7

18 Russia 3.2 3 4 1 4 4

19 Slovak Republic 2.2 1 2 2 3 3

20 Italy 1.6 4 3 1 0 0

Rest of Europe 4 5 5 16 14

Other 2 1 0 0 0

Country Performance Trends in Deloitte Technology Fast500 EMEA Surveys

Competitiveness in Different Aspects

Turkey has got great investment opportunities14

Number of days required

to register a property Number of days required

to establish the company

Labor Market & Management PracticesInfrastructureBasic Infrastructure

Infrastructure – Technological Infrastructure Doing Business

Well

Educated

Engineers

Young

Population and

Big Market Size

Technology

Usage High

Doing Business

so Easy

Source: IMD World Competitiveness Yearbook 2012, IMD WCY executive survey based on an index from 0 to 10

Resources in ICT- Highly Qualified

Availability of Qualified Engineers 2011, 0-10*** Availability of IT Skills 2011, 0-10***

15Sources: * Turkey’s Statistical Yearbook 2012 (TurkStat)

** Turkish ICT Report by International Investors Association (YASED)*** IMD World Competitiveness Yearbook 2011, IMD WCY executive survey based on an index from 0 to 10

⁻ 15,858 graduates from Engineering and Engineering Sciences in 2012*

⁻ Total 274,000 employees working in ICT sector as of Dec 2012**

Source: IMD World Competitiveness Yearbook 2012, IMD WCY executive survey based on an index from 0 to 10 16

The Key Comparisons: Globalization, Flexibility, Adaptability

Great Business Efficiency

Best scores in

• Attitudes toward Globalization

• Flexibility and Adaptability

Source: EIU, February 2011; Average cost of labor per hour (pay and non-pay costs)

Productive and Cost-effective Labor Force

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Turkeyas Near-Shore Outsourcing Location

Key Findings

• Turkey is an attractive option for foreign direct investors due to its low cost of living, low labor rates and relatively low cost of travel to the country.

• There is also a relatively short travel time to Turkey from anywhere in Europe. It is therefore fast emerging as a low-cost destination to handle Pan-European outsourcing work.

• The government has plans to work with private organizations to promote IT education in 2011.

• The Turkish government has continued consistent investment during the past few years in information and communication technology (ICT). It also has introduced tax incentives to boost the local IT industry.

• Many Turkish workers speak English as well as the other European languages, German, French and Dutch.

Recommendations

• Consider Turkey as an outsourcing destination for its convenient location and cultural compatibility with many countries. Turkey has made efforts with several countries around the world to boost economic and cultural cooperation.

• Consider Turkey as an outsourcing destination for low-cost software development services.

Gartner view 2011:

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Intensity of Computer Use during Language of Instruction Lessons

19Source: OECD, 2011. Notes: OECD average 29 is the average value for the non-OECD participating countries in this survey.

• Turkey has one of the highest intensity of computer use during language of instruction

lessons, 5th one

• Using technology during education is the key aspect in Turkey

Minutes per week

Turkey - over

the average

Turkey initiates huge ICT projects• E-Learning/Teaching/School Mobile Information System

– FATIH - Education system with tablet and interactive boards

• 15 million tablets to be bought and Completely digitalized content

– Intel Teach&Learn Programs for Teachers and Students respectively

– Cisco Networking Academy Project, Microsoft Innovate Teaching Program

– WEB Based Educational Content Development Project and Dyned Language Project

• GEN6 - Governments ENabled with IPv6 - IPv6 upgrade of e-Government Network Infrastructures, e-Identification, Services and Applications (Germany, Spain, Netherlands and Turkey)

• PARDUS - National Operating System

• Satellite - First National Communications Satellite: TURKSAT 5A

• Automotive - A local car brand

– A consortium to be built to implement a local car brand in Turkey

• Healthcare - A medicine tracking system

– First version launched with a 2D barcode system, Second to track each medicine box on its way

• Defense - Developing a local defense vehicle

– First version delivered and exported to Malaysia , Second version is on its way

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Why to Invest in Turkey?

Access to Multiple Markets

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Why to Invest in Turkey ?

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50M internet users in 2012, up from 4 million in 2002

67.2M GSM users in 2012

54M credit card users in 2012

131M airline passengers in 2012

29.3M international tourist arrivals in 2011

Large Domestic Market

Tax benefits and incentives in Technology Development Zones, and Free Zones

New R&D and Innovation Support Law

R&D grants from different bodies

Incentives for strategic investments

Low Taxes & Incentives

Customs Union with the EU since 1996, and a total of 22 Free Trade Agreements(FTAs), 19 in force , 3 pending ratificationand more FTAs underway

Accession negotiations with the EU since 2005

Customs Union with the EU since 1996

18th largest economy in the world and 7th when compared to the EU Countries in 2011 (IMF)

Successful Economy

Best in people skills and availability scores in Eastern European countries

~274,000 employees working in ICT sector

Qualified and Cost-effective Labor Force

A natural bridge between both East-West and North-South axes, hence creating an efficient and cost effective outlet to major markets having 1.5 billion customers, worth USD 25 trillion of GDP

Centrally Located

The largest youth population when compared to the EU countries, with continuous demand for new products

Population

The second biggest reformer among OECD countries in terms of its restrictions on FDI since 1997

Business-friendly environment with average of 6 days to set up a company(ECD average is more than 12 days)

Around 30,000 companies with international capital

Liberal and Reformist Investment Climate

New and highly developed technological infrastructure in transportation, telecom and energy

Infrastructure

Advantages of Turkey –Jeopolitic, Demographic status and Incentives

• Young Population: ⁻ Average age is 30.1 and 49.9% of population is under age 29

• Strong Communication and Internet Network: ⁻ 50M Internet Users, 4th highest in Europe

• Important Jeopolitic Position of Turkey:⁻ Gateway to the Middle East and Caucasus

• Religious, ethnic and commercial relationships in ⁻ Europe, Turkish Republics and Middle East markets

• Important Tax Exemptions for Software Developers placed in⁻ 34 TechnoParks, 19 Free Trade Zones, 35 R&D Centers

• Subsidies for R&D Projects and Sales & Marketing of Software Export⁻ Research and Development Law 5746 boost local R&D also attracting R&D

sections of global corporations to the Turkey⁻ Incentives for ICT Export

• Very Flexible and Enthusiastic Government Approach 24

Structural Reforms - Low Taxes & Incentives

Public Sector Reform

Financial Sector Reform

Social Security Reform

Tax Reform

Enhancing Private Sector’s Role in the Economy

• Opening the Key Markets to Competition, and Regulation by Independent Agencies

• Improving the Investment Environment

• Accelerated Privatization

• Comprehensive Incentives

Investment Incentives

R&D and Innovation Supports

Incentives for ICT Export

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Investment Incentives

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R&D and Innovation Supports Supporting Research and Development Activities (Law No: 5746) - Boost local R&D also attracting

R&D sections of global corporations to the Turkey, such as Ericsson, Alcatel Lucent, Huawei, Genband• Certification as R&D Center – 35 R&D Centers in the context of ICT as of July 2012• R&D Deductions, Tax and Stamp Duty Exemptions, and Insurance Premium Supports

Technology Development Zones, TDZs (Law No: 4691) - The development of special investmentareas for investments involving high technology

• 34 TDZs currently operational as of Jan 2013• Income tax , corporate tax and value added tax exemptions

R&D fund provided by The Scientific and Technological Research Council of Turkey (TÜBİTAK) –• 10 National Industry Programs and International Programs (EU Framework Programs, EUREKA,

ERA-NET and EUROSTARS)• Grants to R&D Projects in the rate of 40%-75%• 1.5 B$ delivered between 1995 and 2011, 80% of it in 2004-2011

SME Supports provided by Republic of Turkey Small and Medium Enterprises DevelopmentOrganization (KOSGEB)

• Comprehensive scope: Grants from R&D and Innovation to export, training, fair, etc.

R&D Supprts provided by Republic of Turkey, Ministry of Transport, Maritime Affairs andCommunications - Grants up to 100% and 10 MTL per an R&D Projects

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Incentives for ICT Export

Incentives for Service Export - Outsourced SW services by foreign companies to Turkish Companies• Corporate tax and value added tax exemptions

Promoting Trade in Foreign Exchange Receiver Services, including ICT sector (2012/4)• Market Entry Supports – Report, Computer Games, Mobile Phone and Tablet Applications• International Promotion, Organization (Fair, Convention, etc.) and Search Engine Supports• Rental Support against International Units• Certification Support to take international document, certificate and accreditation• Supports for Trade Commitee and Purchasing Committee• Consultancy Support

Improvement of International Competitiveness (URGE) - A Cluster Project with approx. 5 M$ budget• Training and/or Consultancy, including Requirement Analysis• Employment• International Marketing and Purchasing Committee• Consultancy on the company basis

• Turquality – The first and only government-backed brandization program in the world• Aims to develop global Turkish brands - 10 global Turkish brands within 10 years• Supports in the rate of 50% without upper limit; 127 brands into two programmes• About 125 M$ financial support as of Nov 2009• Also offers an opportunity to SW companies: Sell services (ERP, CRM, SCM, etc.) to the

companies in the scope of Turquality when accredited as ICT Consultancy into 3 groups 28

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Turkey’s 2023 Vision

ICT in Turkey – Target 2023

• In the top 10 economies of the world in 2023

• Economic size = 1,700 Billion USD

• ICT share = 160 Billion USD

• Export = 500 Billion USD

• Preferred sectors = Software, Optics, Bio-Technology, Nano-Technology

• Expected Software Export in 2023 = 10 Billion USD

• Till 2023, yearly increase rates shall be:

• Total Income 6.7 %

• Export 12.1 %

• ICT 13.8 %

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ICT in Turkey – Target 2023

• Reaching 30 million broadband subscribers

• Supplying 50 percent of the ICT sector with domestic products and services

• Reaching 8 percent of GDP as the ICT sector’s share

• Becoming one of the top 10 countries in

e-transformation

• Providing all public services

electronically by 2019

• Having 80 percent of population

computer literate

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Thank you

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www.yasad.org.tr

dogan.gunes@yasad.org.tr