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"Make or Buy Analysis for Local Manufacture or Import Decisions in Defense System Procurements Using AHP: The Case of Turkey

Abstract - This research discusses different choices for technology sourcing of countries following strategic "make or buy" analysis in private firms. It also develops a methodology for "local manufacture or import" decisions. All needs of countries should be investigated strategically in order to decide "to manufacture locally or to import". Because of its long-term effects on the industry, governments should examine carefully acquisition processes for the economical welfare of their countries. This approach strengthens the current "cost/effectiveness" based acquisition approach of Turkey by adding long-term strategic factors that evaluate capabilities and competencies present in the national industrial base. The paper reports a multi-criteria decision model and its application in Turkey. Key Words: Technology sourcing, make or buy decision, local manufacture or import, national industries, acquisition, technological innovation, capability, core competence.

I. INTRODUCTION With new technology advances being made in just a few years, countries need to continue to insert new technologies and improvements into existing defense systems. Should a country buy a new system or modernize the existing one? And should a country import new systems or should countries finance local development and manufacture of needed systems? These decisions are strategic decisions for all of the countries. There are many factors affecting these decisions. Countries' technological infrastructure must be defined well and authorities must decide according to capabilities of their national industries. These are critical decisions and the presence of multiple criteria to be taken into account makes them more complex. The options of the decision "local manufacture" or "import" can be related with the "make or buy" decision of for-profit firms. The local manufacture or import decisions can involve two alternatives, modernizing and buying new one. The decision criteria of the "make or buy" in literature are adapted to "local manufacture or import" decision for the countries. To assist the Turkish government officials in developing a renewal policy, we have examined the economics and business management literature to find theories and evidences, because literature about defense or governmental buying exist in fewer numbers than the analysis for private firms. There is no research about "local manufacture or import "decisions for countries. A "make or buy" problem arises from variety of ways. Sometimes problems arises as a result of [36]: 1. unsatisfactory vendor performance, 2. poor quality, 3. delivery problems, 4. unreasonable vendor price increases, 5. addition of a new product or substantial modifications of an existing one 6. changes in sales volume and related variations in plant capacity, 7. reduced sales, 8. idle plant, equipment and manpower. "Make or buy" decision was argued most frequently by the economists. The economists have considered the "make or buy" problem especially with the perspective of costs. But the "make or buy" decision considerations should not only focus on costs. There are many points that must be considered before decision, because of nature of the defense systems; specificity, security, high technology and need for great performance capability. The concept of "strategic sourcing" is related with the importance and longer-term considerations of acquiring. By examining various dimensions, the pitfalls of the classic "make or buy" exercise can be avoided where cost alone is used as deciding factor. Many companies decide to "buy" rather than "make" for short-term reasons of cost reduction and capability. But countries have to think for longer term for their national interests. According to Venkatesan [34], "today manufacturing focus means learning how not to make things". Countries have to determine what to "make" or what to manufacture locally in their National Industries. Technological innovations can be made through a variety of methods, which can benefit companies in many ways, from the design process to management techniques to marketing the final product. Industrial modernization encompasses the idea of analyzing new technologies as they relate to particular industries and aiding in the decisions of a firm in a particular industry to adopt or reject a new technology. The decision of adoption of the new technology would bring with it the firm's hopes of success. This success could manifest itself in realization of increased productivity, increased quality, growth in market share, raised product/process performance, increased workforce skills, etc. The emphasis of the industrial modernization concept tends Decisions made with the consideration of cost and time will lead TAF to import the product. The idea of the people for an ideal process give us hope, because they are aware to be within the area of manufacturing. According to Shapira [29] industrial modernization is linked to: 1. National industrial competitiveness strategies, by promoting high performance in the industry, 2. Technology policy and transfer, by diffusing innovation, 3. Economic and regional development, by jobs especially higher-wage jobs, 4. Social capital and community development, by building learning and knowledge infrastructures, 5. Management of technology, by developing firm capabilities, 6. Reinvented government, by new performance-based strategies. The goal of this paper is to develop a multi-criteria a decision model for military systems acquisitions and have it used by Turkish decision-makers. VI. CONCLUSION Technology sourcing decisions are complex because of numerous factors that need to be considered. Sourcing dilemma "to buy or to make" is another important aspect of the technology sourcing. Basing this decision only on cost is a common way for consideration. While the cost is always undoubtedly important in any decision, decision-makers should consider strategic and technological issues in connection with the decision. Buying provides a shortcut to a product, but it contributes little to future skills of the organization. To align with the technological advances and rapid obsolescence rate, technology sourcing is an obligation for the defense systems. While deciding on the procurement of technologies for defense systems, a similar process to "make or buy" decision occurs. Since short-term gains will add no value to the national interests, all the sourcing decisions should be investigated from strategic perspectives. Technology infrastructure and technological capabilities are critical because of their effect on strategic power, economical competition and the wealth of a country. Countries can decide according to strategic, long term factors like private firms for the benefit of their welfare. This study points out the remarkable difference of the factors affecting "local manufacture or import" decisions in the present and the ideal procurement process according to the officers that participate in any phase of the decision process. The difference stems from the lack of strategic approach for the procurement. The short-term factors like cost and time have great effects on TAF's procurement.

Decisions made with the consideration of cost and time will lead TAF to import the product. The idea of the people for an ideal process give us hope, because they are aware of the drawbacks of the short-term objectives and have great desire to produce locally with the development of capability. Another result of this study is to show that people think that system capabilities have too much importance than the other knowledge, people and organizational capabilities. Rapid advances in technology cause tremendous effects on the systems, but procurement of a defense requirement is not only buying the system. While procuring a new system TAF should consider people and organizational structure. And TAF should try to accumulate knowledge or form organizational memory, because human resources, which we had, carry their knowledge and experiences with them while leaving the organization.