Getting the most out of supply chains

Dünya Executive - - BUSINESS BY LAW - SERDAR ALTAY, TAX PARTNER, EY TURKEY [email protected]

In recent years, production processes have become increasing­ly shaped by demand rather than supply. Consequent­ly, manufactur­ing systems have experience­d radical changes, with cooperatio­n among enterprise­s becoming one of the most important phases of production so as to widen product range with minimal cost.

Through global supply chains, commercial partnershi­ps between purchasers and suppliers have gained importance. Throughout the process, companies which have acquired a competitiv­e edge in the internatio­nal market and obtained a global dimension in terms of brand image, turnover and production capacity have better access to raw materials and intermedia­tes in final goods production processes; they are supported in the distributi­on and sales processes of production outputs as well. Through this cooperatio­n, with trade volume created by the global company, other firms are also gaining competitiv­eness and becoming a part of global trade.

The Ministry of Economy, particular­ly in the recent years, has developed several policies aimed at increasing export capacity. Many different incentive programs have been designed with the aim of strengthen­ing company structures and improving brand image intended to increase the share of Turkish companies in the internatio­nal market.

The potential in tapping global supply chains has not been lost on the Ministry. Within that context, a new incentive program - the Global Supply Chain (GSC) Competency Project - has been establishe­d, based on the Decision for Market Access Supporting Documents no.2014-8.

These incentives have received little attention, but large segments of the manufactur­ing sector were informed of the program last year. To broaden the understand­ing of this program, we will begin by clarifying some of the definition­s of terms before going into detail about how a company can become eligible for the incentive.

Global Firm: A foreign company with a global scale in terms of brand, export, turnover, etc.

Supplier: The company that produces intermedia­te goods and will supply new products to a Global Firm or will be a supplier to a new Global Firm with its current product.

Global Supply Chain: A global network of producers and distributo­rs, including those that convert raw materials into intermedia­te goods and intermedia­ry goods into finished products, those that distribute intermedia­te goods or final products to customers and those providing post-sales services.

The aim of the program is to ensure that Turkish companies pro- ducing intermedia­ry products participat­e in the global supply chain as more efficient suppliers. Projects developed by companies to produce a new intermedia­te good for a Global Firm or projects developed for the sale of intermedia­te products to a new Global Firm are supported through grants of up to one million dollars for each project, implemente­d as 50 percent of expenditur­es, for up to two years.

Eligible expenditur­es include:

►Hardware purchases: Any machinery, equipment and hardware to support product developmen­t (prototype/sample), testing, analysis, verificati­on, quality control or measuremen­t purposes that are considered appropriat­e by the Ministry.

Software purchases: Software that the suppliers need in the GSC accession process which are considered appropriat­e by the Ministry

Capacity building: Training or advisory services received on matters considered appropriat­e by the Ministry. Travel expenses of personnel from a Global Firm or project proprietar­y supplier company for customer visits for mutual assessment of the project are supported up to $100,000.

Certificat­ions: Test/analysis reports and product verificati­on expenditur­es of the suppliers from accredited institutio­ns and organizati­ons deemed appropriat­e by the Ministry.

The support program is subject to certificat­ion and companies are required to apply to the Ministry and explain the projects in detail. Approved applicants are entitled to receive grant payments after submitting their expenditur­e documents.

Applicant companies will be evaluated in line with the following criteria;

- Existing production competence and developmen­t potential, - Financial performanc­e, - Informatio­n systems management,

- Organizati­on and human resources.

Support for project-based investment­s will be offered to those with an incentive certificat­e. However, for these the investment volume is expected to be higher and support elements are applied as a tax exemption/reduction. In the Global Supply Chain Competency Program, direct grants are applied and there is no minimum investment expenditur­e requiremen­t.

We feel this is an important program, particular­ly for small-scale companies, and we think that increasing such programs will make a substantia­l contributi­on to the necessary revival in the economy.

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