Financial Strategies in Competitive Markets: Multidimensional Approaches to Financial Policies for Local Companies (Contributions to Finance and Accounting) 3030686116, 9783030686116

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Contributions to Finance and Accounting

Hasan Dinçer Serhat Yüksel Editors

Financial Strategies in Competitive Markets Multidimensional Approaches to Financial Policies for Local Companies

Contributions to Finance and Accounting

The book series ‘Contributions to Finance and Accounting’ features the latest research from research areas like financial management, investment, capital markets, financial institutions, FinTech and financial innovation, accounting methods and standards, reporting, and corporate governance, among others. Books published in this series are primarily monographs and edited volumes that present new research results, both theoretical and empirical, on a clearly defined topic. All books are published in print and digital formats and disseminated globally.

More information about this series at http://www.springer.com/series/16616

Hasan Dinçer • Serhat Yüksel Editors

Financial Strategies in Competitive Markets Multidimensional Approaches to Financial Policies for Local Companies

Editors Hasan Dinçer School of Business and Management Istanbul Medipol University Istanbul, Turkey

Serhat Yüksel Istanbul Medipol University Istanbul, Turkey

ISSN 2730-6038 ISSN 2730-6046 (electronic) Contributions to Finance and Accounting ISBN 978-3-030-68611-6 ISBN 978-3-030-68612-3 (eBook) https://doi.org/10.1007/978-3-030-68612-3 © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Switzerland AG. The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

Contents

Determining the Optimal Financial Strategies for Nuclear Energy Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Serhat Yüksel, Hasan Dinçer, Çağatay Çağlayan, and Gülsüm Sena Uluer

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Accelerating the Asset Turnover Ratio as an Effective Cost Cutting Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Arif Orçun Söylemez

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The Schumpeterian Revolution Revisited: On the Linkage Between Financial Development, Technological Innovation and Market Share in Emerging Market Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . Gönül Yüce Akıncı and Merter Akıncı

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Competitive Advantage and Competitive Dynamics in Terms of Strategic Innovation Orientation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Zafer Adiguzel

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Financial Development and Economic Growth: Evidence from Sub-Saharan Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Seydou Oumarou, Nildag Basak Ceylan, and Ayhan Kapusuzoglu

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Succession Planning in Family Companies by “Habits Model” . . . . . . . . Ayhan Dayoğlu and Elif Baykal

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Green Growth and Green Jobs in Turkey: An Opportunity for Youth Employment in Competitive Markets . . . . . . . . . . . . . . . . . . . . . . Halim Baş

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The Possible Threat of Speculative Purpose Investments in Stock Price of the Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 Irfan Ersin

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Contents

Analysis of the Relationship Between Market Share and Technological Development Regarding Companies: An Application on Turkey . . . . . . 123 Mustafa Uysal The Effect of Financial Leverage on Investment Decisions: The Evidence from Emerging Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 Tuğba Akca, Mehmet Baha Karan, and Yılmaz Yıldız Increasing Productivity and Quality in the Production Sector by Digitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151 Fatih Öztürk The Role of Innovative Renewable Energy Investment Strategies on Macroeconomic Stability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165 Esra Serezli, Serhat Yüksel, İdil Tamer, and Hasan Dinçer A Known Innovation for Strategy: A Study on Chaos . . . . . . . . . . . . . . 179 Mustafa Atilla Arıcıoğlu, Beyza Erer, and Nadiye Gülnar Supply Chain Finance: Financial Performance, Competition and Market Value Analyses in Turkey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193 Musa Gün Identifying Innovative Financial Health Management Strategies for Turkey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207 Yaşar Gökalp The Positive Influences of Financial Omni-Channel Marketing Approach on Customer Satisfaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223 Barış Batuhan Geçit and Özgür Kıyak A New Innovation Management Model That Contributes Financially for Better Competitive Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237 Ilker Kose and Seyma Guner Employing Qualified People to Increase Financial Competitive Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251 Pelin Vardarlıer Gaining Financial Competitive Power Through Human Capital: An Evaluation of Turkey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263 Ümit Deniz İlhan Strategies Improving User Loyalty in Terms of User Experience in Digital Games . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277 Ihsan Eken Business Environment Perception of Innovative Firms in Turkey: Problems and Suggestions for Financial Improvement . . . . . . . . . . . . . . 295 Dilek Yomralıoğlu and Hüseyin Çırpan

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Placing Quality Assurance Process in Enterprises to Improve Financial Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311 Sebahattin Kılınç Marketing and Financial Services in the Age of Artificial Intelligence . . . 327 Ayşen Akyüz and Korhan Mavnacıoğlu Discussing Business Innovation and Moral Basis of Redistribution Regarding Economic Equality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 341 Hakan Kalkavan Defining the Main Risk Factors for Solar Energy Companies with Fuzzy Entropy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 355 Serkan Eti and Büşra Çelebi

Determining the Optimal Financial Strategies for Nuclear Energy Companies Serhat Yüksel, Hasan Dinçer, Çağatay Çağlayan, and Gülsüm Sena Uluer

Abstract The aim of this study is to identify the most optimal financial strategies required for nuclear energy investments. In this context, the studies in the literature are examined in detail and 6 different financial strategies are determined. After that, these strategies are weighted with the help of the DEMATEL method. The findings indicate that the commodity price risk is the most appropriate financial strategy for the nuclear energy investors. Similarly, these companies should also give importance to the currency exchange rate and interest rate risks. On the other hand, it is also concluded that debt financing, equity financing and crowdfunding play a lower important role in this regard. It can be said that nuclear energy companies should mainly focus on the volatility of the commodity prices. In nuclear reactors, some commodities are very crucial, such as uranium and boron. Hence, to provide sustainable financial improvement, the price volatility of these products should be minimized. For this purpose, the investors should use financial derivatives to hedge these prices.

1 Introduction Nuclear energy means energy is produced from the nucleus of an atom. There are protons and neutrons in the nucleus of every atom. These protons and neutrons are very strongly linked to each other. It is aimed to separate these elements from each other in nuclear energy production. After the separation of protons and neutrons, a very serious energy emerges. Considering the steam of this temperature, electricity is produced. In order for protons and neutrons in the nucleus to be separated from each other, neutrons are thrown into the nucleus. In order to obtain more electricity from nuclear energy, the uranium atom is taken into account (Berdahl et al. 2016; Aydın

S. Yüksel (*) · H. Dinçer · Ç. Çağlayan · G. S. Uluer The School of Business, Istanbul Medipol University, Istanbul, Turkey e-mail: [email protected]; [email protected]; [email protected]; [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 H. Dinçer, S. Yüksel (eds.), Financial Strategies in Competitive Markets, Contributions to Finance and Accounting, https://doi.org/10.1007/978-3-030-68612-3_1

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2020). The main reason for this is that there are too many protons and neutrons in the uranium atom. Another important issue here is that the fragmentation of the atom must be controlled. Otherwise, if this process cannot be controlled, it turns into a nuclear weapon. Therefore, the process of launching neutrons at atoms should be intervened when necessary. In this process, neutron scavengers such as boron are used. Boron slows down the process of launching neutrons into the nucleus. In this context, there are neutron holders made of boron inside the nuclear reactor (Esposto 2008). When these control rods are inserted into the reactor, the nuclear reaction slows down. In other words, the nuclear energy process is being taken under control. This stated situation prevents a possible problem from occurring. It is possible to talk about many advantages of nuclear energy. First of all, the efficiency of energy obtained from nuclear energy is very high. The main reason for this is that nuclear energy can be obtained around the clock. Generating electricity with nuclear energy increases the energy supply security of the country. Countries can produce their own energy thanks to these power plants (Contu and Mourato 2020). In this way, there will be no need to import the needed energy from abroad. This situation will positively affect the country’s current account balance. Another benefit of nuclear energy is that no carbon emissions occur. As can be understood from here, it would be possible to say that nuclear energy is environmentally friendly (Yildirim and Gün 2016; Dong et al. 2018). However, there are some disadvantages in electricity generation with nuclear energy. The most criticized issue in nuclear energy production is radioactive waste. If these wastes cannot be disposed of effectively, this threatens the lives of living things. Therefore, this process needs to be managed effectively. On the other hand, in the nuclear reactor process, security measures should also be implemented completely. Otherwise, there is a risk of explosion occurring in the nuclear reactor. The explosion in Chernobyl in 1986 is the best example of this. Another disadvantage in the nuclear power process is related to costs. The initial cost of nuclear power plants is very high. This situation prevents investors from focusing on this area. In order to effectively manage the high cost problem, nuclear energy investors need to be able to produce successful financial strategies. First of all, it is necessary to determine how the needed fund will be obtained (Ho et al. 2018). In this context, nuclear energy companies need to determine whether they will finance debt or equity. In addition, the risks encountered in this process must be managed effectively. Exchange rate risk, interest rate risk and price risk of products are also the best examples to this issue (Jensen-Eriksen 2020). In this study, it is to determine the most appropriate financial strategies required for nuclear energy investments. In this context, first of all, a detailed literature review was made. In this process, 6 different financial strategies for nuclear energy investments were determined. In the analysis process of the study, it will be determined which of these strategies are suitable for nuclear energy investments. In this process, an analysis was carried out using the DEMATEL method. The results of the analysis obtained will be a guide for nuclear energy investors. In this way, it will be possible

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to increase nuclear energy investments in countries and thus increase the energy supply security of the country.

2 Theoretical Information About Nuclear Energy Investment Nuclear energy is one of the most important energy sources in the world that promises a future with its sustainability. Therefore, considerable works have been done on nuclear energy. The energy obtained from the nucleus of an atom is called nuclear energy, and a powerful fuel is needed to generate this energy. Uranium, as the element/fuel with the most protons and neutrons, is generally considered to be the most suitable element in nuclear power generation, but in order to build a nuclear power plant, enriched uranium needs to be met. Thus, uranium subjected to the enrichment process is used as a raw material in most reactors. An enormous amount of energy is produced by splitting uranium during the fission reaction (Ho et al. 2018). Neutrons collide with the uranium nucleus at great speed to affect this split. This collision causes a fission reaction that releases powerful energy. After the first fission, the emitted neutrons hit other uranium nuclei and continue until the fission occurs in each atomic nucleus. The important issue here is that the resulting energy can be controlled. Because uncontrollable energy will cause fatal consequences. Therefore, inside the reactor there are control rods made of materials such as boron or silver. These substances are very effective neutron holders, and when they are introduced into the reactor, some of the neutrons released in the reaction are retained and the reaction slows down. Control rods can also be retracted to increase the reaction rate. In this way, the high heat generating nuclear reaction chain is kept under control. Since motion energy is needed to generate electricity, the high temperature heat created by fission turns water into steam and rotates the turbine connected to the generator to generate carbon-free electricity (Markard et al. 2020). The electricity generated in the generator is sent to the area where it is desired to be used by transmission lines. Although the process of generating electricity from nuclear power plants described above seems complex, studies are being made to increase efficiency in nuclear energy production and to ensure nuclear safety. Based on this, the advantages and disadvantages of nuclear energy can be mentioned (Nazlioglu et al. 2011). The first problems encountered when talking about nuclear power plants are that the installation cost of the nuclear power plant is high and necessity of nuclear energy field’s the high-level know-how. Nuclear energy investments are quite large investments. For example, the Akkuyu nuclear power plant being built in Turkey with approximately $20 billion is estimated it would cost (Ozmen 2020). Therefore, investors who want to invest in this field are likely to have problems in finding financial resources. The need for a high level of knowledge in the field of nuclear energy is directly related to nuclear safety. Authorities must have competence in

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matters such as preventing possible accidents, performing their maintenance and repair perfectly. Because the smallest mistakes made while generating nuclear energy cause terrible results. Therefore, this situation will negatively affect the public acceptance of nuclear energy and will have consequences in many areas such as economic, political, health. At this point, public acceptance is a very important parameter. Because the lack of public support may prevent the establishment of a nuclear power plant. Achieving a national consensus will also encourage investors to invest in this area (Nevinitsa et al. 2020). Problems such as explosion risk, earthquakes, terrorism, nuclear waste disposal are also considered among the disadvantages of nuclear energy. Although these disadvantages are among the factors that affect the acceptance of the public, they also make it difficult to invest in this area. Studies that will increase nuclear safety at the maximum level and neutralize the negative effects of the waste disposal process on the environment and human health may present nuclear energy as an indispensable resource to all societies in the future. When talking about nuclear power plants, the advantages of these power plants are quite high as well as their disadvantages. One of the first arguments made is based on environmental factors. For example, carbon emission is a big problem for the Earth’s ecosystem. In terms of reducing climate change, nuclear energy stands out with its zero-carbon feature along with renewable energy sources. Accordingly, it can be said that nuclear energy is at the first stage in the fight against climate change. Pollution caused by non-renewable energy sources, mainly air, is a serious threat to human health. Nuclear energy comes to the fore again at the point of preventing air pollution (Ozturk 2017). In addition to environmental effects, economic factors also make investment in nuclear power plants attractive. Energy need has been increasing day by day on a global scale. Considering that fossil fuels are running out, it is urgency to turn to alternative energy sources from fossil fuels. Nuclear power is more sustainable at this point. Because elements such as uranium and boron used in nuclear power plants are abundant in the world. In addition, nuclear waste has a feature of being reusable. Energy needs constitute a large part of the current account deficits of the countries. Countries that have to import energy invest in areas such as nuclear energy and renewable energy to produce energy and to avoid the current account deficit (Sainati et al. 2019). The fact that renewable energies also vary according to weather conditions further emphasizes the sustainable feature of nuclear power plants that generate uninterrupted electricity for 24 h. Another reason why nuclear energy, which reduces energy dependency and increases energy security, is important for states is that it provides employment. For example, the Akkuyu Nuclear Power Plant, given as an example above, is estimated to provide employment to approximately 10,000 people. On the other hand, meeting the energy needs of the industry in a cheap way thanks to nuclear energy can also increase the efficiency of the production. Along with safety, cost is one of the important parameters for building a nuclear power plant. As mentioned before, energy investments, especially nuclear energy investments, are large investments. Although the operating cost of nuclear power plants is competitively low, the installation cost is quite high, as nuclear power plant

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opponents claim. Additionally, the disposal process of nuclear waste also has a very high cost. Thus, it is clear that cost management is a strong element of nuclear energy investments. Companies that cannot manage their costs cannot meet their expectations and suffer sad consequences, as they lose control of their income and expenses (Rabinowitz 2016). Cost items should be minimized with a correct cost management in nuclear energy investments. Especially the initial setup cost is an important factor here. For example, when choosing the region where the nuclear power plant will be established, the presence of the resource to be used in the field may reduce the operating costs of such enterprises. If the goods to be used are imported, the foreign exchange risk will also strain the companies in question. As an example, if uranium, the raw material used in nuclear power plants, is imported, a possible exchange rate increase will make the cost more expensive than planned. If the interest rates used in the investment are variable, it can be another factor that increases the cost by bringing the interest risk. All these elements show that cost analysis must be done in detail about nuclear power plants. Investors, frightened by the high cost, will abstain from investing in nuclear energy (Vainio et al. 2017). This will result in the inability to meet the energy needs and the increase in foreign dependency in the energy field. An effective cost management will prevent all these pessimistic scenarios and write positive scenarios that increase nuclear energy investments and make them more efficient. As seen above, having a strong cost management by making cost analysis effectively is of great importance to invest in the field of nuclear energy. Because these investors have to manage both costs and potential risks. At this point, it would be appropriate to say that managing costs and risks will not be enough on its own. Financial planning made by balancing profit and risk, and a financial strategy in which the necessary financing and investment decisions are made in order to achieve the targets, must exist. Businesses determine their financial strategies by analyzing their current positions. Because companies try to make investment decisions that include the appropriate features in order to grow. With financial strategies that support these investment decisions, the company can maximize its value and bring the company to a better position. Financial strategy, which includes extents such as investment, financing, dividend distribution, is a long-term element of companies’ policies that comply with the predetermined objectives (Yoo and Ku 2009). In this context, financial strategies should be managed as effectively as cost management. Any wrong decision that can be taken in this process can lead to bad scenarios that end in bankruptcy. Some suggestions can be made to prevent these bad scenarios from happening for investors who will invest in the field of nuclear energy. As an example, debts can be borrowed with a long term due to high installation costs in nuclear power plant investments. Because short-term borrowings increase the liquidity risk. Derivative agreements can also be made to protect against changes in foreign exchange rates and to fix the rate (Yang and Zhan 2017). Another issue is related to changes in the interest rate. Fixed rate loan agreements can be made to protect against interest rate increases. The importance of financial strategies for nuclear energy investors to overcome all these risks and costs and to make new investments is obvious.

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3 Literature Review Nuclear energy is one of the most important and discussed energy type about its efficiency, reliability, security, and risks economically socially, politically, and environmentally. There are various and vast of research related for economic and financial aspects in the literature. Nuclear development is significant for economic growth and economic advantage (Prăvălie and Bandoc 2019; Poinssot et al. 2016). Moreover, Lau et al. (2019) explained as nuclear based electricity production is increasing economic growth and decreasing CO2 emissions in the long run for OECD countries when compared non-renewable energy sources by gathering 1995–2015 data. It is also valid for developed countries. Hence, Sarkodie and Adams (2018) contributed that energy consumption, economic growth, and political institutional quality have impact environmental quality and renewable energy (RE) and nuclear is promoting to mitigate climate change with reducing fossil fuel-based countries’ economic vulnerability. So, nuclear energy, CO2 emission rate, nuclear energy consumption rate, economic growth, labour force, real gross fixed capital, return are affecting each other, and they have role on policies. Moreover, relationships can change over time or, with other factors such as other energy sources price (Piłatowska et al. 2020; Nazlioglu et al. 2011; Yoo and Ku 2009; Wolde-Rufael 2010; Apergis and Payne 2010; Lee and Chiu 2011; Luqman et al. 2019; Ozturk 2017; Saidi and Mbarek 2016). Therefore, nuclear is feasible as economic and environmental if nuclear waste can manage properly (Prăvălie and Bandoc 2018). On the other hand, countries use and invest on nuclear energy to reduce energy dependency and increase energy efficiency. For example, Turkey is dependent to import some energy sources from and it causes huge deficits in national economy. Turkey’s main sources are renewables and thermal resources; coal and gas are imported. Nuclear will reduce dependency (Kok and Benli 2017; Ağbulut 2019). However, Esposto (2008) discussed that Italia stopped electricity generation from nuclear after referendum and it damaged to their economy. Otherwise, Finland is small, cheap, and abundant power industry for business and has alternative energy resources. So, nuclear idea is more attractive to produce cheap electricity, but it is costly and dangerous (AlFarra and Abu-Hijleh 2012; Zhang 2007). Many of time fifth reactors proposals rejected until businesses offered nuclear as green energy (Jensen-Eriksen 2020). Furthermore, Krane et al. (2016) said that Middle East countries take care nuclear even they have oil because of national security, civil liberties, international relations, cost, energy security, technology developments and strategic power. Besides, some countries experienced financial, stakeholder, environmental and political problems to build nuclear power such as Turkey, Czech Republic, Slovakia, and Israel (Aydın 2020; Kratochvíl and Mišík 2020; Rabinowitz 2016). On the other hand, Kim (2017) said that countries can act each other differently because of commercial interest. In addition to these, Nevinitsa et al. (2020) denoted by considering economic and safety indicators, environmental impacts, realization risks, and development, with

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developing technology, nuclear reactors became fast and generation of energy satisfied population’s and workplaces’ demand in Russia. Also, it affects environment and generated demand exports. Therefore, coal and gas consumption can reduce. However, Markard et al. (2020) added that nuclear can be future for China, Russia, and other stated-owned firms’ countries, but for others it is not because of nuclear does not fight climate change as developing RE technologies. Also, nuclear is in decline as global stage because of growing opposition, hard licencing, safety concerns, low life cycle, technology decline in the other resources and high costs. Nuclear energy building construction projects are required huge amount of investments and they are costly too much (Dalton 2019). Buongiorno et al. (2018) explained, nuclear energy has unique and valuable low carbon technology to produce electricity. Nuclear reactor cost is so high and when decreased nuclear reactor cost, decarbonization cost will reduce as well. Furthermore, Kessides (2014) analyzed as Africa has electricity deficit problem and low carbon (C) nuclear reactors can solve problem. However, limited capital and safety creates another problem. Small unit reactors can solve the problem. For example, Gagarinskiy (2018) said that Russia exports nuclear ships for Arctic. So, cost of nuclear buildings and requirement of investments can change to the reactor types, tests and fuel sources will be used in reactor such as uranium (U-235) and thorium (Th-231). Gao et al. (2019) stated as nuclear reactor costs dominates total system costs. Gen IV reactors are more feasible, cost-effective technology. Advanced nuclear fuel cycle technology should provide uranium utilization and lower nuclear electricity cost in Korea. Moreover, Bedenko et al. (2019) tests on high-temperature gas-cooled nuclear reactor operating in a thorium-plutonium nuclear fuel cycle for Gen IV reactor technologies are economical to the computational cost and can solve nuclear power engineering problem. Furthermore, ion beams are more cost effective and useful for testing of nuclear reactors. Development of this technology will improve the system efficiency (Heidrich et al. 2019). Additionally, Yang and Zhan (2017) proposed a ceramic reactor to provide high power generation efficiency, safety, and security. Withal, used uranium sustainability can be recycled again. Also, Ağbulut (2019) studied that Turkey decided to build nuclear power in order to decrease energy dependency. Electricity price will decrease with nuclear energy generation Also, Turkey has thorium reserve as sixth country in the world. This can be used as fuel for nuclear and it can be exported to other countries. Nuclear fuel and technology richness can increase economic growth (Aalto et al. 2017). However, Meng and Yu (2018) denoted as Chinese uranium reserves are limited and imports. On the other hand, construction of nuclear power takes time a long and it has financial effects. Investment amount, time of nuclear construction and management, energy policies, electricity production management among countries’ energy resources with nuclear, public opinion, life cycle and cost management, its technology and location choice are main issues for nuclear and successful management will bring energy/electricity generation security from nuclear (Siqueira et al. 2019; Heffron 2013; Zawalińska et al. 2020). For example, Melikoglu (2016) stated that Turkey spend energy investments as 90% to the estimation with nuclear and renewable investments and

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they should take precaution on financing. As Gozgor and Demir (2017) remarked, nuclear energy could not respond quickly to investments So, funding management, debt and equity financing is significant issue. Berdahl et al. (2016) studied that science communication about nuclear is important for credibility, funding, publication. Another issue is nuclear reactor phase outs became a trend in the world after nuclear accidents and it decreased public acceptance in countries. However, nuclear reactor phases out is decreasing value added of nuclear industry, but this value added can be gained by increasing RE. Also, impacts of nuclear decommissioning on sectors can change to the numbers and expenditures of nuclear phase outs. With regard of these, nuclear energy market share did not meet its value for vendors because it offers electricity generation. Nuclear plants and fuel cycle should improve for generation productivity (Bodde 1998). Additionally, Lopatta and Kaspereit (2014) remarked that high level nuclear support energy companies’ share prices declined. Their market portfolio and returns change to countries’ strong regulatory system. RE support companies were not affected. Also, some of them get abnormal return. Hence, Kunsch and Friesewinkel (2014) added as early nuclear phase-out in Belgium caused benefits on raise in fuel-based resources, foreign dependency, price volatility, high CO2, and supply safety drawbacks, not increase in RE deployment. However, nuclear power importance should keep to the International Atomic Energy Agency (IAEA) and should be given incentives, but requires huge amount investment (Kim and Jeon 2020; Shepherd 2018; Dalton 2019; Dong et al. 2018). Besides, dos Santos et al. (2013) analyzed that nuclear decreases operating cost in business with energy security. Additionally, Kim (2020) clarified as economic growth and urbanization are increasing GHG (greenhouse gas) emission; manufacturing industry share, RE and nuclear energy are decreasing GHG emission in the long run. Foreign direct investment (FDI) is increasing GHG emission but it is not effective too much. Economic growth is increasing GHG; RE and nuclear is decreasing GHG in short run. Urbanization and FDI has no impact on GHG in short run. Furthermore, Tanaka and Zabel (2018) stated that house price was affected negatively. However, people returned pre-Fukishima consideration after a while in USA. On the other hand, Gupta et al. (2019) explained that there is negative relationship between nuclear accidents and nuclear public support and positive relationship between energy security risk and nuclear public support. Also, it depends fossil based resources and alternative resources. For example, nuclear energy supports are raising when oil, gas and coal become expensive and scarce in US. Moreover, shutdown of nuclear reactors is costly too much. As Mauger (2018) specified that Fessenheim nuclear reactor shutdown occurred costly because of wrong legislation and agreement. So, it affects energy production negatively if costly shutdown remains. Another issue, nuclear accidents have impact on risk/benefit perception on people (Ho et al. 2018; Espluga Trenc et al. 2017). Hence, it can damage financially to investments. For example, if perceived nuclear accident risk on people is high, nuclear power support rate will be low and it creates social cost with regard of negative impact on nuclear revenues for future (Huhtala and Remes 2017).

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Moreover, Vainio et al. (2017) stated that CO2 emission rate and information trust shape how nuclear energy risk and benefit are perceived and how changes willingness to pay for other energy resources. However, Murakami et al. (2015) denoted that USA and Japan people are both low preference rate for nuclear. RE willingness to pay higher than nuclear. Otherwise, People are generally willingness to pay Gen IV nuclear energy technology, even some of strong opposers are willingness to pay R&D studies in UK (Contu and Mourato 2020). The reason is that nuclear technology is important for sustainability for willingness to pay (Jun et al. 2010). In addition to that, Sainati et al. (2019) studied that prescriptive regulatory oversight, vast completion risk, and limiting nuclear liability regimes are problems for nuclear project financing. These can be solved with a strong banking law, security interest, providing ownership and financial requirements and indivisibility between operator and licensee. Risk and waste management is so important and crucial as economical, governmental, and environmental impacts on nuclear power (Gralla et al. 2016; Geng et al. 2018; Espluga Trenc et al. 2017).

4 Defining Financial Strategies for Nuclear Energy Investment Companies Under this heading, first of all, financial strategies that can be taken into account in nuclear energy investments will be presented. After that, theoretical information about DEMATEL method will be given. In the last section, the analysis results will be shared.

4.1

Selecting the Criteria

In this process, firstly, a literature analysis on financial strategies was conducted. Later, among these strategies, those suitable for nuclear energy investments were determined. Details of these strategy types are given in Table 1. Table 1 The details of the criteria Dimensions Financing Sources Risk Factors

Criteria Debt Financing (C1) Equity Financing (C2) Crowdfunding (C3) Currency Exchange Rate Risk (C4) Interest Rate Risk (C5) Commodity Price Risk (C6)

Supported Literature Gralla et al. (2016), Gupta et al. (2019) Ho et al. (2018), Heffron (2013) Gozgor and Demir (2017), Ho et al. (2018) Lau et al. (2019), Lopatta and Kaspereit (2014) Murakami et al. (2015), Meng and Yu (2018) Poinssot et al. (2016), Siqueira et al. (2019)

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As can be seen from Table 1, 6 different criteria have been determined in order to determine the most appropriate strategy to be applied by nuclear energy companies. These criteria are divided into 2 different classes. First of all, it is important how to obtain the financing source that companies need. Within this framework, nuclear energy investors can either borrow these resources or utilize their own equity. In addition, whether the debt is short-term or long-term also presents a risk. Crowdfunding is also another alternative for nuclear energy investors to find resources. On the other side, in order to develop effective financial strategies, risk factors should be taken into consideration. In this framework, firstly, currency exchange rate risk plays a significant role. Most of the equipment can be imported from other countries. In this regard, any increase in the currency exchange rate has a rising effect on the cost of these companies. Secondly, interest rate risk should also be accounted in this framework. If companies used floating rate bank loans, the increase in the interest rates makes this debt more expensive. Finally, commodity price risk is also essential for nuclear energy investors with respect to generating optimal financial strategy. The main reason is that some materials are very crucial for these companies, such as uranium and boron. Hence, the price volatility in these elements has an increasing effect on the cost of the companies. In this study, these factors are weighted for the nuclear energy investment companies by considering DEMATEL approach.

4.2

DEMATEL

The DEMATEL approach can be used to determine which of the different criteria that affect a goal are more important (Dinçer et al. 2019). In this process, firstly, the research question is determined (Dinçer and Yüksel 2018). After that, different factors that can affect the research purpose are determined (Korsakienė et al. 2020). In this process, a very detailed literature analysis is required. Subsequently, experts are expected to evaluate these criteria. Using the obtained evaluations, the direct relationship matrix is obtained (Li et al. 2020). Then, the values in this matrix are normalized to make the analysis more robust. After that, the total relationship matrix between variables is created (Zhong et al. 2020). By taking this matrix into consideration, it will be possible to determine the importance of the criteria (Wang et al. 2020). The greatest advantage of the DEMATEL method compared to other similar methods is that it can create an impact relationship matrix between variables (Zhang et al. 2020). This situation helps to determine the causality relationship between factors. Due to this mentioned advantage, the DEMATEL method has been preferred by many researchers in the literature (Jun et al. 2021; Qiu et al. 2020; Zhu et al. 2020).

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Analysis Results

In this part of the study, the importance levels of different financial strategies determined for nuclear energies will be determined. First, 3 different experts were asked to evaluate 6 criteria. These experts consist of academicians who have worked on nuclear energy for at least 15 years. As a result of the obtained evaluations, the direct relationship matrix was created. Details of this matrix are illustrated in Table 2. Later, this matrix is normalized as in Table 3. On the other side, Table 4 represents the total relation matrix. By considering the values of total relation matrix, the weights of the criteria can be calculated. In this framework, the sum of the rows and columns is considered. The details of the analysis results are stated on Table 5. Table 5 demonstrates that focusing on the commodity price risk is the most appropriate financial strategy for the nuclear energy investors. According to this table, it is also concluded that these companies should also give importance to the currency exchange rate and interest rate risks. On the other side, it is also defined that debt financing, equity financing and crowdfunding play a lower important role in this framework. Table 2 Direct relation matrix

Criteria C1 C2 C3 C4 C5 C6

C1 0.00 1.67 2.00 3.00 4.00 5.00

C2 2.00 0.00 2.00 3.00 4.33 5.00

C3 2.00 1.33 0.00 3.67 4.33 5.00

C4 2.00 1.67 1.67 0.00 2.67 5.00

C5 2.00 1.67 1.67 2.00 0.00 5.00

C6 1.00 1.00 1.00 1.67 1.00 0.00

Table 3 Normalized matrix

Criteria C1 C2 C3 C4 C5 C6

C1 0.00 0.07 0.08 0.12 0.16 0.20

C2 0.08 0.00 0.08 0.12 0.17 0.20

C3 0.08 0.05 0.00 0.15 0.17 0.20

C4 0.08 0.07 0.07 0.00 0.11 0.20

C5 0.08 0.07 0.07 0.08 0.00 0.20

C6 0.04 0.04 0.04 0.07 0.04 0.00

Table 4 Total relation matrix

Criteria C1 C2 C3 C4 C5 C6

C1 0.07 0.12 0.14 0.21 0.25 0.36

C2 0.15 0.06 0.14 0.21 0.27 0.37

C3 0.15 0.12 0.07 0.23 0.27 0.37

C4 0.13 0.11 0.12 0.08 0.19 0.33

C5 0.13 0.11 0.11 0.15 0.09 0.32

C6 0.07 0.06 0.07 0.10 0.09 0.08

12 Table 5 Weights of the criteria

S. Yüksel et al. Criteria Debt Financing (C1) Equity Financing (C2) Crowdfunding (C3) Currency Exchange Rate Risk (C4) Interest Rate Risk (C5) Commodity Price Risk (C6)

Weights 0.1572 0.1520 0.1567 0.1656 0.1753 0.1932

5 Conclusion Nuclear energy investments provide serious benefits to the country’s economy. First of all, since the country can produce its own energy, energy supply security will be achieved. In this way, the country will not have to import energy, and this will positively affect the current account balance. On the other hand, thanks to nuclear energy and electricity generation, carbon emissions in the country will be reduced. This means less environmental pollution. In this way, it will be possible to reduce the number of sick people in the country. Thus, the labor force in the country will not decrease and it will be possible to increase the production volume. In addition, by reducing the number of sick people in the country, healthcare spending in the country can also be reduced. As can be seen from here, nuclear energy investments are vital for both social and economic development of the country. However, the initial cost of these investments is very high. If this situation is not managed effectively, the success of nuclear energy investments will be jeopardized. Therefore, nuclear energy companies need to apply the right financial strategies. The main purpose of this study is to determine the most optimal financial strategies required for nuclear energy investments. For this purpose, the studies in the literature were examined in detail and 6 different financial strategies were determined. Later, these strategies were weighted by taking the DEMATEL method into consideration. It is concluded that the commodity price risk is the most appropriate financial strategy for the nuclear energy investors. Additionally, it is also concluded that these companies should also give importance to the currency exchange rate and interest rate risks. On the other side, it is also defined that debt financing, equity financing and crowdfunding play a lower important role in this framework. While considering these results, it is determined that risk management plays more significant role than the financing issues. These results demonstrate that nuclear energy companies should mainly focus on the volatility of the commodity prices. In nuclear reactors, some commodities are very crucial, such as uranium and boron. Hence, in order to provide sustainable financial improvement, the price volatility of these products should be minimized. For this purpose, the investors should use financial derivatives to hedge these prices. In addition, interest rate risk should also be minimized. Within this context, fixed rate bank loans should be used so that this risk can be hedged effectively.

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Accelerating the Asset Turnover Ratio as an Effective Cost Cutting Policy Arif Orçun Söylemez

Abstract From the classical economic point of view, ‘firm’ is a microeconomic agent with one clear objective, i.e. profit maximization. This objective, given the simple linear form of the profit function, requires firms to implement one of the two broad strategies that are available to them at the corporate strategy level. These two broad strategies, namely, are the ‘revenue maximization’ and ‘cost minimization’ strategies. Needless to say, choosing the appropriate strategy depends on the market conditions and the features of the products supplied by the firm. In a typical ‘monopolistically competitive’ environment, firms would be much more inclined to differentiate their products from those of their competitors to be able to enjoy higher mark-ups. However, as competitive pressure intensifies and the number of available substitutes for the firm’s product increases in the marketplace, the profitmaximizing firm may begin to consider cost-cutting strategies more appropriate. Although cost-cutting has generally been accepted from a purely financial perspective as any action that pushes down the marginal production cost of a product and long-run average cost curve of a firm, it indeed may involve more complex operational measures than that. In fact, any action that improves the asset use efficiency might also help firms cut their production costs. Plus, this is not a surprising fact since microeconomic theory has already established the inverse relationship between the costs and efficiency quite convincingly. This chapter is an attempt to underline the significance of this clear, yet generally ignored fact.

1 Introduction The neo-liberal economic theory of ‘firm’ has confronted with harsh criticisms for being a black box theory in the past (Demsetz 1997; Walker 2020; Andersson and Johansson 2018). Nonetheless, given the fondness of academic economists for pure

A. O. Söylemez (*) Economics Department, Marmara University, Istanbul, Turkey e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 H. Dinçer, S. Yüksel (eds.), Financial Strategies in Competitive Markets, Contributions to Finance and Accounting, https://doi.org/10.1007/978-3-030-68612-3_2

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theoretical analysis above practicality, this black box understanding (or lack of understanding) of the firm continued to prevail in the economics textbooks. According to this neo-liberal black box approach, the firm is a microeconomic agent that takes inputs on one side, somehow processes them (this is the black box part) and reveals the output from the other side. That is to say, the firm from a theoretical economic perspective is a simple transformation machine, which transforms the inputs that are received at a certain cost to outputs that are valuable in the marketplace hopefully above the costs. Specifics of that transformation process, however, has usually been not that much interesting to economists so the mechanics of this transformation process such as the HR management issues, the sales and marketing activities, financing, procurement etc. are left to the diligence of business management students. Of course, this sort of a simplification overlooks many points regarding how a firm functions. However, quietly luckily for us, i.e. the economists, the fact that a representative firm is a profit maximizer stands as an iron rule. The meaning of that in plain English is that whatever the firm does in its internal processes, it does these for the sake of maximum profit in the long run. That is why, even in the case of the limited understanding of the economists regarding the firm, economists still have much to say regarding how profits could be boosted. Before the reader objects to this kind of a rough economic caricaturizing of the firm, let us admit the existence of theories within the realm of the discipline of economics according to which firms could seek different objectives other than maximum profit. For example, “the motivations theory of the firm” recognizes the fact that the firms’ objectives are set by the executives of the firms (Gottschalg and Zollo 2006; Hickman 1955). As a matter of fact, Deacon (2004) provides a broad and interesting discussion of the human behavior in relation to different personality types resulting in differing motivations in the general sense. In a more specific way, concentrated only on the firm management, we could argue that if the owners of the firm, or the executive team members, had a stance against the weapons, alcohol etc., (for whatever reason such as religious beliefs, ethical concerns, political views, etc.) they could simply refuse to produce and sell weapons or alcohol even in the case that producing and selling such items would cause a boost in their profits. In short, the religious beliefs, values, moral standards etc. of the key stakeholders such as the investors, entrepreneurs or managers may prevent a firm from investing in the most profitable areas. Likewise, “the agency theory of the firm” is just another theory challenging the simple assumption of an only-for-profit organization. The agency theory of the firm suggests the possibility of internal conflicts in the interests of the owners and the managers of firms, leading the firms to taking managerial decisions that are not in line with the best interests of a profit-maximizing firm but in line with the personal interests of the managers (Gauld 2018). Agency theory (also known as the principle—agent problem) stands as a real challenge to the general assumption about the obsessively profit-maximizing firm. Of course, under ideal conditions, managers (agents) are supposed to take their decisions to maximize shareholders’ (principals’) wealth. Since the value of the firm should increase for this, managers should be

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required to take the decisions that would increase the value of their firms. However, this is the ideal situation and, real life is far from being ideal. Michal C. Jensen, a Harvard Business School professor, claims that so many managers are squeezed in between the pressure to maximize the value of their firms and meet the demands of stakeholders. As explained by the “stakeholder theory”, in such situations, managers are forced to consider the interests of all the stakeholders in a firm. Principle—agent problems, or stakeholder conflicts in a broader context, in real life should be considered from this perspective of the stakeholder theory. If principle—agent problems are far from being so severe, a firm cannot maximize value, Jensen writes, if it ignores the interests of its stakeholders. According to Jensen (2000), if we tell all participants in an organization that the organization’s only purpose is to maximize value, we cannot achieve maximum value for the organization. We somehow need to come up with simple compromises to reconcile the maximum value (maximum profit) motive with the interests of the managers and the other stakeholders. This is the way to achieve the lifetime maximum profit goal. Naturally, there must be mechanisms hindering severe principle—agent issues like performance-based compensations, threat of firing, threat of take-over etc. otherwise these issues might lead to bankruptcies as it was the case in Enron’s bankruptcy. Apart from these theories, there exist real-life situations as well which may cause firms to pursue some other objectives rather than maximum profit from time to time even when the firm is not influenced by any sort of motivations or agency problems. For instance, a firm entering a foreign market may focus on maximizing its sales in the very first years instead of profits. A firm that is illiquid may try to melt down its inventories to create cash and, in order to accelerate the days in inventory (also known as inventory period), may sell the goods in stocks cheaper than the profitmaximizing price level. These are all reasonable actions given the market conditions and the priorities of the firm in its special context. Yet firms cannot deviate from positive profit goal for too long. Other objectives such as expanding market share, increasing sales, accelerating cash creation etc. may be pursued whenever needed but the goal should be the profit in the long run. In sum, profit really seems to be the viable and goal for the representative firm. That brings us to the requirement of a detailed analysis of the profit function. Profit is a simple relationship between the revenues generated and costs made. It could be written in the following form; where π stands for profit, TR stands for total revenue and TC stands for total cost. π ¼ TR – TC Without doubt, profit function is indeed more complex than that since TR, itself, is a function of quantity produced and selling prices while TC depends on various factors such as raw material costs, energy prices, fixed costs etc., which are not under the direct control of the firm in many cases. Nevertheless, the above equation can draw our attention to a very important outcome without loss of generality. A profit maximizing firm should either maximize TR since this would positively affect the

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profits or dampen the costs since TC term carries a minus sign in front of it and hence its dampening would boost the profit. As a third option, it is possible in theory to maximize the revenues while minimizing the costs and so the profits would be maximized as the firm achieves the best of both worlds. However, this theoretical option is hard to realize in practice since a firm should create a premium feeling for its products or services if it wants to achieve revenue maximization. That is so because in order to maximize the revenue gains (from the same amount of sales), firm needs to charge higher price. Charging higher price means the product or service in offer has no close substitute at lesser price levels (hence at least some degree of product differentiation should have been achieved) and the price elasticity of demand on the product or service should have been reduced down effectively by the firm. That could be achieved either by adding some features to the product that would increase the necessity of the product or service for the consumers or increase the addictiveness of the product or service. In short, user experience should be excelled in one way and/or the other. Going both directions would require the firm to spend more under normal circumstances. Hence, boosting revenues and damping costs simultaneously could be a true challenge. Though there are real life cases where we observe brilliant application of ingenious strategies that allow simultaneous achievement of these seemingly contradictory objectives. For example, the famous Asian-style American restaurant chain Benihana is such an example which is very successful in shortening its throughput time like a cheap vendor while able to differentiate its prices like an upscale restaurant at the same time. The remaining parts of this paper are organized as follows. In the second section, different market types will be introduced and the market and product features that call for cost cutting will be discussed. In the third section, the importance of asset turnover in reducing the production costs will be argued with real life cases. The fourth section will conclude.

2 Classification of Markets and the Relevant Profitability Strategies in Each Market The two theoretically opposite market settings for firms, given that the number of consumers stays the same, are the perfect competition and the pure monopoly markets. We assumed that the number of consumers does not change to rule out cases highly rare and self-similar cases like monopsony. More common other cases, like duopolies or oligopolies, on the other hand are in fact nothing but special cases of monopolistically competitive markets. Therefore, everything in between perfect competition and pure monopoly might be classified under monopolistic competition for the purposes of our discussion below. An appropriate spatial representation of this situation could be made with a line spectrum on which the different markets are positioned. The following table is drawn in to provide the reader with a chance to visualize the hypothetical locations of these three different market types. Please note

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Table 1 Different market types with their relevant assumptions and profitability strategies Perfect competition Standardized goods Many sellers, all using similar technologies, all operating under similar conditions Zero mark-up capacity

Market types Monopolistic competition Similar goods with slight differences Handful of sellers enjoying limited and varying degrees of monopolistic power

Pure monopoly Sole producer of goods with no close substitutes Retains monopolistic power even in the long run since external competitive pressure is nil Highest mark-up capacity in accordance with the elasticity structure of the good

Some mark-up power since they can set their own prices thanks to their limited monopolistic powers, yet their pricing power is under competitive pressure The Most Relevant Profitability Strategies in Each Market Type Perfect Price Differentiation Cost-Cutting Strategies Product Differentiation Strategies Leading to Price Differentiation

down the differences in their characteristic features (i.e. their dissimilarities) for the following section. Table 1 states that in a perfectly competitive market setting, by assumption, we believe in the existence of infinitely many producers and consumers. That assumption is highly illuminating for it tells us that we need so small (to be precise, infinitely small) market participants for the sake of having the perfect form of competition in the marketplace. Market participants should be so small to secure the idea that none of them would be able to exert power on the terms of the market. Terms of the market, by the way, are the production quantity and selling price. None of the market participants, i.e. neither the producer(s) or the consumer(s) should be able to influence the selling price or the quantity of production. The chance to create an impact on the market is a monopolistic capacity and monopoly is the most alien element that one could think of in the perfectly competitive setting. In order to render the perfectly competitive firms incapacitated from grasping even the tiniest bit of monopolistic power, we further assume full identicality of the goods produced by them (which means perfectly competitive goods are homogenous and the producers cannot differentiate their goods from the goods of their competitors no matter what they do). Under similar access conditions to these goods, i.e. if the costs of accessing the goods of any firm is the same across consumers, none of the firms would be able to differentiate their prices. In the case that they are unable to come together and form a cartel, which is difficult in this situation because of the mind-boggling number of so small firms, this uniform price would be equal to the marginal production costs of the very last units produced and sold by the firms. That uniformity then implicitly tells us that each firm’s both total and marginal cost structures should be the same, which in essence means the production technology

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adopted by each firm should be the same all across the industry. Uniformity of the production technology coupled with the fact that each and every firm should be pricing their goods at the price that is equal to the marginal cost of the last unit produced and sold by them makes it obvious that these small firms are forced to produce on their efficient scale point on their long-run average cost curves and hence they would possess no ‘excess production’ capacity. Their marginal cost prices should be identical with the minimum of their long-run average costs and they should thus be making profits equal only to their opportunity costs financially (or, in other words, they should be making zero profits economically). Under these harsh competitive conditions then, these small firms simply cannot earn enough income that would allow them to spend on R&D projects or advertisement campaigns. Because should they choose to spend some of their financial earnings, which are equal to their opportunity costs, their net income falls below their opportunity costs. In such a case, it does not make sense for them to stay in their current industry. As a result, the logic of economics dictate that they would not be able to improve or differentiate their products and so they would not be able to gain any degree of monopolistic power even in the long-run. They seem simply stuck at where they are. However, they indeed have an option to boost their profits above the zero economic profit threshold. If they cannot differentiate their products and so they cannot differentiate their price, let them cut costs and lower their sales prices. If they could somehow cut their costs to levels lower than that of their competitors, they would be able to lower their prices more than their competitors and gain the upper hand in competition.

3 Importance of Asset Turnover for Cutting Costs and Improving Profitability As an intriguing example, I would like to first present the case of BİM Birleşik Mağazacılık A.Ş., a Turkish retail giant in the discount stores industry, to shed light to this discussion. Established in 1995, BİM had 7740 discount stores in Turkey, 440 stores in Morocco and 300 stores in Egypt as of the end of 2019. BİM stores are known for their offering of basic food items and simple consumer goods at competitive prices. Once we look at the goods offered by BİM more closely, we see that BİM pays special attention to carrying at most around 600 different items in its stores at a time. This limitation is necessary to contain the stock management and distribution costs along with the sizes of their stores. Second, BİM stores are known for their simple designs. Thus, BİM spends no extra money on fancy light fixtures or attractive interior arrangements. Third, BİM never opens stores on pricy main streets but rather choose to be located on the parallel streets. This policy helps them to pay lower rents for their stores. Fourth, they hire just enough staff to run their stores and all the workers are responsible for different tasks. This is a policy designed to contain labor costs of course. Fifth, it does not sell butchery products because if it did, it

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would be forced to establish and maintain a cold chain, which would require BİM to change its warehouses and delivery fleet drastically. Sixth, entrance to any BİM store is made through double doors, a precaution for air conditioning efficiency. Seventh, BİM does not spare big budgets to advertisement campaigns. It is already readily available on every corner thanks to its thousands of stores scattered around. Plus, this gigantic size enables BİM to enjoy cost gains from scale economies. Last but surely not least, BİM does not invest heavily on rack systems and shelves but tries to use the boxes of the suppliers, whenever it can, for displaying the goods on sale. This is truly interesting once we consider how big a retail chain it is, and racks and shelves are among the necessary fixed capital items that a retail store must invest in. Yet BİM refrains from investing in racks and shelves. What BİM is trying to achieve is understandable though and it is brilliant. BİM is trying to cut its costs and because it is offering highly standardized and easily substitutable products, this is quite ingenious. If BİM could cut its costs more effectively than its competitors, it would have a chance to lower the prices to levels that its competitors cannot test. Hence, it would have a chance to grow by attracting bulk of the customers with an appealing price signal. In sum, under dense competitive pressure, there would be tendency for operating under lower profit margin ratios. What the firm loses on the profit margin ratio should then be compensated somewhere else. Therefore, it is imperative for firms in highly competitive markets to boost up their asset use efficiency by accelerating the asset turnover ratio. In order to understand this point neatly, let us dissect ‘return on equity (ROE)’, one of the most important return-based profitability gauges, into its parts. ROE ¼

Assets Sales Net Income Net Income ✕ ✕ ¼ Equity Equity Assets Sales ðiÞ

ðiiÞ

ðiiiÞ

ROE, which is the ratio of profit (net income) to equity capital is decomposed into three parts above. There is nothing novel in this representation. It is the famous “DuPont decomposition” of ROE. What is interesting here is once we apply the DuPont decomposition, we see that part (i)—i.e. profit margin ratio—would not be contributing heavily to the profits of a firm under dense competitive pressure. The loss from part (i) should then be compensated either by increases in part (ii) and/or part (iii). For a discount stores chain like BİM, sales figure is expected to be high because of attracting the bulk of customers with an attractive price signal. Then assets figure should be kept very low if the firm aims to increase its profitability through part (ii). If assets are going to be kept low, then it is difficult to receive significant contribution from part (iii) since a high (iii)—while assets are low—call for an even lower equity capital. Working with so low equity capital might not be profits-wise rewarding for the firm if the firm goes under financial distress. That is why accelerating the asset turnover ratio, i.e. part (ii), seems to be the better option for companies like BİM.

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Now let us turn to explaining the reason why the acceleration of the asset turnover ratio is not just a positive contributor to the profitability of competitive firms but also an effective cost-cutting strategy by putting some numbers into a hypothetical case. Say a certain branch of BİM needs to make at least 100,000 USD worth of sales in a month to break even. If this branch uses 500,000 USD worth of assets (fixed plus current) while realizing its sales, then asset turnover ratio required to make sure the branch would be breaking even would equal 20%. If the overall profit sales margin is 10%, at the break-even point, profitability of this branch measured as the return on asset (ROA) would be a mere 2%. Now let us assume the branch doubles its asset use efficiency as measured by the asset turnover ratio. Hence, this branch now needs half the assets it once needed to make a given level of sales. Therefore, the asset turnover ratio required to make sure the branch breaks even would equal 40%. If the overall profit sales margin is 10% as before, at the break-even point, profitability of this branch measured as the return on asset (ROA) would now be 4%. The profitability measured by ROA doubled up when the branch doubled up its asset turnover ratio. Moreover, while the profitability went up, the expenditures of the firm on its assets fell down. So, investment costs are less thanks to heightened asset turnover ratio. As another interesting example, I would like to discuss the case of Benihana Restaurants as well. Founded in 1964 in New York City as a small four-table Japanese restaurant, Benihana has since grown to become a giant with 116 restaurants around the world at the end of 2019, owning three different brands as Haru the fusion cuisine, RA sushi, and Benihana Teppanyaki. Among these three, Benihana Teppanyaki presents us an interesting case. Let us first begin our analysis of the asset usage strategy of Benihana by understanding the meaning of Teppanyaki. ‘Teppan’ means iron plate or griddle, while ‘yaki’ means pan-fried or grilled in Japanese. It is believed that teppanyaki culture dates to the eighteenth century. It is believed that it has first spread from the small gatherings of friends and neighbors who used to gather at night and chat while one person cooked for the others. As the origins of the word suggests, teppanyaki is all about gathering around a chef who cooks for you. That is why a Teppanyaki restaurant has many cooking stations where people sit together, and a chef prepares dinner for them. In Benihana restaurants, usually 6 or 8 people sit around a cooking station. As a rule, a chef only starts preparing dinner for the customers only when all the seats are full. That means if you and your friends arrive at a Benihana restaurant as a group of 4 people, you should wait for another two or four people to show up so that your group and the other group make full seating possible around the cooking station. If your group must wait in the meantime, you can do that in a special part of the restaurant where you can drink and eat sushi (at a price of course). Now let us assume that yours is a lucky group of four people and you did not wait for too long before two strangers arrived at the restaurant and so you all can sit together. Would it be possible for you to lose yourself in deep conversations while there are two other people sitting next to you who are total strangers? Highly unlikely. You would most likely be chitchat about trivial matters while you are forced to be accompanied by strangers. But what is the point of that rule? Why cannot four people sit in a table of six? That is because, as I have said above, sitting with strangers prevents friends, family members, lovers from talking

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about serious matters. That naturally speeds up the eating pace. While upscale restaurants used to have 2-h average throughput times, the throughput time of Benihana restaurants is only 45 min on the average. Throughput time, by the way, refers to the time spent from the beginning of an operation to its absolute ending. In dining business, it would be the time spent from the very first moment customers sat a table to the last moment customers paid their bill and left the table so that the table can be used to serve other customers. Of course, interesting seating arrangements is not the only trick of Benihana restaurants. Although it is a Japanese restaurant, the single dessert item available on the menu is ice-cream. The reason behind that choice should be clear: In a Teppanyaki restaurant where the customers are seated close to a cooking station, which is so hot (sometimes as hot as 800 ○ C on the surface), ice cream is surely a dessert that one cannot eat slowly. In brief, the whole operation is carefully planned around fast dining concept, which automatically means reduced throughput times. The benefits of short throughput times for a restaurant are numerous but clearly the most important benefit is that the restaurant can serve more people thanks to fast customer turnover. One of the most interesting facts about the Benihana Teppanyaki is its being an upscale restaurant brand. This is interesting because, until now, we had discussed the necessity of containing costs through effective usage of assets for the competitive companies. Competitive companies were simply unable to increase their prices due to dense competitive pressures in their industries and hence the logic behind increasing asset turnover ratio for them was very self-revealing: Since they were unable to increase their prices in their competitive environments, they had to go the other way and decrease their costs since only then they would be able to make profit. But Benihana is different because Benihana, as an upscale brand, has the chance to follow premium pricing strategy for its services. Benihana restaurants are not famous for their cheap menus anyway. Quite the contrary, Benihana restaurants earn high mark-ups. But, then why do the executives of Benihana group bother themselves with boosting the asset turnover ratios in their restaurants all around the world? The answer to this question must be hidden somewhere in the desire of any firm for maximum profit. That is why Benihana example is a teaching one. It teaches us that firms should find ingenious ways to increase their asset turnover ratios since heightened asset turnover ratios would contribute positively to the profits. They should do so even when they must chance to enjoy some monopolistic power such as selling their goods and services with high mark-ups. In practice, firm managers usually pay excessive attention to return only and may forget about the importance of improving asset turnover for healthy profits. In fact, asset turnover ratio is not just another metric that needs to be followed by the top management. It is one of the primary efficiency metrics that needs to be bettered through thoughtful strategic actions. That said the problem in fact goes beyond the managers or any other practitioners. Even the economic theorists themselves who uphold the profit as the prime motive of the firm usually tend to underestimate the importance of improving the efficiency metrics such as asset turnover ratio (Ballantine et al. 1985). The following discussion inspired from a similar example from Bodie et al. (2014) illustrates this important point in an excellent way. Assume

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Table 2 The impact of asset turnover on ROA Companies ABC Company XYZ Corporation AZ (Merged Company)

Millions of Dollars Sales Profits Assets 30 6 60 10 3 30 30 9 90

Percentage Asset turnover .50 .33 .33

Profit margin 20% 30% 30%

ROA 10% 10% 10%

Source: Inspired from a similar table in Bodie et al. (2014)

ABC Company and its components supplier XYZ Corporation both enjoy 10% ROA. XYZ Corporation however has better operating profit ratio than ABC Company as the following table presents. XYZ’s all output is purchased by ABC. Therefore, ABC’s managers decide to buy out XYZ Corporation hoping that the two companies’ merger would benefit them since they would be merging with XYZ whose operating profits are higher. The following table shows us that decreasing asset turnover ratio in such a case (because of the increase in the total assets value after the merger) would offset the gains from the operating profits and ABC’s ROA would not change at all in the end. When we look at the numbers in Table 2, we see that the company that is formed after the merger, i.e. AZ Company, has the same sales figure as ABC. That is so because the sales of XYZ are now totally internalized (remember, XYZ was making all its sales to ABC before the merger). However, the profits of XYZ are now kept in business so the profits go up. Assets also go up because of this merger. In the end, the asset turnover ratio of ABC falls from .50 to .33. Although the profit margin increases from 20% to 30% in line with the expectations of the managers of ABC, ROA remains unaffected because the increase in the profit margin is totally offset by the decrease in the asset turnover. As our discussions so far must have made it clear, increasing the asset turnover has genuine capacity to boost profitability of any firm. However, this important determinant of profitability is usually overlooked. Only if the managers could understand the importance of accelerating the asset turnover ratios of their organizations, that would require them to make less investment spending for the same profitability results. That, in the end, would serve as a cost-cutting opportunity. This fact is particularly important for the industries where the competitive pressure is so dense since firms in this kind of industries are forced to cut their costs in order to enjoy above normal economic profits. However, as the Benihana case—a monopolistically competitive firm enjoying high mark-ups due to its successful product differentiation strategy—indicates, boosting asset turnovers is important even for companies that are able to exert at least some monopolistic power in their industries. That is why we can claim that increasing the asset turnover ratio is a must for firms in highly competitive industries and it is something that should not be overlooked for the firms in any other market setting. In conclusion, it is an important goal that all the managers should be aware of and pay attention to.

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4 Conclusion Accelerating asset turnover ratio should serve as an important performance goal by itself for the firms, especially for those in the manufacturing sector, because of the direct positive link of asset use efficiency with profits. Another important point that is often overlooked is the relevance of asset turnover acceleration for those firms that are operating under dense competitive pressures. Acceleration of asset turnover is particularly important for them since they would need spending less both on their fixed and current assets if their asset turnover ratios went up. That of course would be an effective cost cutting opportunity for them. Selling and Stickney (1989) provide cross-sectional data for asset turnover ratios and profit margins in 22 different sectors ranging from petroleum industry to health services and from transportation equipment to communications sector, among others. Using their data, we can conduct a simple linear estimation analysis to understand the relationship between the asset turnovers (independent variable) and profit margins (dependent variable). The estimated results indicate a statistically significant negative relationship between the asset turnovers and profit margins in these sectors, with an estimated slope coefficient of –1.54 with t-stat (and p-value) of –2.86 (0.001). That is of course a very simple—almost sketchy—statistical analysis with limited degrees of freedom given the number of observations. Yet even these results from a back of the envelope analysis are in conformity with the related literature since a negative relationship between the asset turnover ratios and profit margins is accepted universally in the literature. The negative relationship is an indicator of two problems: First, it tells us much about the type of companies that pay attention to asset turnover acceleration. Obviously, these are the companies pressed under competitive pressure, so they are companies with limited power of setting their own prices. They are price-taking firms and that hints us that they must be small in their industries (small in the sense that they lack the monopolistic powers), and therefore they are the companies that sell at low profit margins, trying to make profit by the volume of sales. However, as the Benihana case in this paper has shown boosting the asset turnover ratio should not be a concern of only the small companies pressed under dense competition. Asset turnover acceleration must be a cost-cutting strategy for any kind of firm in any kind of market. The observed negative relationship between the profit margins and asset turnover figures for many industries secondly point at another problem. This negative empirical finding between the profit margins and asset turnovers also indicate us the larger firms’ tendencies to overemphasize their profit margins as they grow and their reluctance to pay the required attention to accelerating asset turnovers although a growing firm almost always falls under imminent threat of decreasing asset use efficiency.

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References Andersson ÅE, Johansson B (2018) Inside and outside the black box: organization of interdependencies. Ann Reg Sci 61:501–516 Ballantine JW, Cleveland FW, Koeller CT (1985) Profit differences: a management approach. J Post Keynes Econ 8(2):277–297 Bodie Z, Kane A, Marcus AJ (2014) Investments, 10th edn. McGraw-Hill/Irwin, New York Deacon A (2004) Book review: Julian Le Grand, motivation, agency and public policy: of knights, knaves, pawns and queens. J Soc Policy 33(3):503–506 Demsetz H (1997) The firm in economic theory: a quiet revolution. Am Econ Rev 87(2):426–429. Last retrieved September 16, 2020, from http://www.jstor.org/stable/2950959 Gauld R (2018) Principal-agent theory of organizations. In: Farazmand A (ed) Global encyclopedia of public administration, public policy, and governance. Springer, Cham Gottschalg O, Zollo M (2006) Motivation and the theory of the firm. Last retrieved: 17 September 2020, from https://www.researchgate.net/publication/4884094_Motivation_and_the_Theory_ of_the_Firm Hickman C (1955) Managerial motivation and the theory of the firm. Am Econ Rev 45(2):544–554. Retrieved September 16, 2020, from http://www.jstor.org/stable/1823583 Jensen MC (2000) The effect of agency problems in value maximization. In: Beer M, Norhia N (eds) Breaking the code of change. Harvard Business School Press, Boston Selling TI, Stickney CP (1989) The effects of business environments and strategy on a firm’s rate of return on assets. CFA Institute Walker P (2020) The theory of the firm: an overview of the economic mainstream. Revised: 11 July 2020. Last retrieved: 15 September 2020, from SSRN: https://ssrn.com/abstract¼2000431

The Schumpeterian Revolution Revisited: On the Linkage Between Financial Development, Technological Innovation and Market Share in Emerging Market Countries Gönül Yüce Akıncı and Merter Akıncı

Abstract The capitalist order, which is generally depend on the development of financial system, undertakes the function of directing capital to the investment areas where it will be most productive. Therefore, while the capital gains the highest profit on the one hand, it also brings together the technologic progress, which is the most basic input of the production process, on the other hand. Technologic progress, which enables the economies of scale to increase and the international market share to expand, also paves the way for the raise of foreign competitive advantages. In this context, the main motivation of this paper is to examine the linkage between financial development, technological innovation and market share in the context of the Schumpeterian Revolution using canonical correlation analysis for 16 emerging market countries in the year of 2015. The results of the canonic correlation coefficients and canonic cross loading correlations point out that there are strong correlation relations between the canonical variable groups of financial development, technological innovation and market share. In this context, it is observed that the original variables that contribute the most to canonical variables of financial development, technological innovation and market share are the domestic credit level, R&D expenditures and product concentration level, respectively. Therefore, the results of the analysis showing that the Schumpeterian Revolution is valid reflect the importance of finance-technology-market share nexus in emerging market economies.

G. Yüce Akıncı (*) · M. Akıncı Ünye Faculty of Economics and Administrative Sciences, Ordu University, Ordu, Turkey © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 H. Dinçer, S. Yüksel (eds.), Financial Strategies in Competitive Markets, Contributions to Finance and Accounting, https://doi.org/10.1007/978-3-030-68612-3_3

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1 Introduction One of the most controversial fields in the history of economy is the effects of financial development on economic improvement. Following the pioneering work introduced by Schumpeter (1911), the financial sector mechanisms affecting the economic improvement process have been started to be examined and theoretical foundations have been tried to be constituted. Schumpeter (1911) asserts that improved financial markets provide entrepreneurs with the resources and funds they need and therefore boost economic development by accelerating technological innovations and expanding domestic and foreign market shares for commodities. In this context Schumpeter (1911) notes that liberalized financial markets would allow capital to be used for gaining more profit and that increasing profits would raise the effectiveness of physical capital, strengthen competition, accelerate technical innovations, expand the scale of markets and trigger economic improvement. In this context, as stated by Yüce Akıncı (2019), developed financial markets have two basic functions: (i) to direct resources from traditional sectors with low productivity to modern sectors with high productivity and (ii) to increase and encourage entrepreneurial spirit, technological development and competitive power in modern industries. As it can be understood, Schumpeterian Revolution argues that developed capital markets and institutions, on the one hand, provide investors with the ability to access long-term production technologies by reducing liquidity risks, providing hedge and risk distribution tools and allowing credit opportunities, and on the other hand, increasing technological innovations because of financial development raise profit potentials, competitive power and domestic and foreign market scales (Tadesse 2005). Financial intermediary institutions, the number of which has increased rapidly due to the rise in the development and efficiency of the financial sector in an economy, begin the capital accumulation process in the market. This accumulation of capital is directed to the real sector through various transfer mechanisms. Therefore, every company operating in the real sector reaches more capital and has the chance to choose the level of advanced technology that directs itself to work under lower marginal cost conditions. As a result, in line with the expansion in the capital stock, firms both access new production technologies and expand their market shares due to the increasing efficiency of production conditions provided by advanced technologies. Therefore, as noted by Gong and Zhou (2014), it can be said that an economy with an improved financial sector will both strengthen its technological background and reach a comparative advantage structure. In this context, Schumpeter (1943) states that monopolies and oligopolies market shapes are important for countries and firms because they create large-scale economies of scale, accelerate the standardized production process and transfer the profits to technology and science. However, Schumpeter (1943), who points out that the end of the capitalist system depends on the success of the system, argues that if the effective existence of oligopolies and monopolies continues, capital will be centralized and the entrepreneurial spirit will be lost. Hence the main problem of the system is not

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how capitalism affects existing structures, but how it creates, reshapes and destructs them. In this manner, technological advances that have gained momentum due to the development of the financial system, which is one of the most important elements of capitalism, allow countries to achieve competitive advantages in the domestic and foreign markets and they allow capitalism to maintain its transformative and destructive structure. The production of new technologies with the help of fiscal resources provided by developed financial markets may bring the problem of adaptation to new technologies. As Weaver et al. (2017) noted, since new technologies have not been tried before and their potential benefits have not been proven, the first products produced using new technologies will be more costly and the sales price of the products will be higher than those produced with older technologies. However, new technologies also offer several advantages to some minority users who have lower price flexibility and less risk-averse. Minority producers who can go beyond the technology learning curves by adapting to new technologies more rapidly will slowly increase their sales with the help of technological innovation and marketing channels. Due to the increase in sales sufficiently, adaptation to new technologies, innovation and sales volume can become self-sustainable. After the acceleration of adaptation to new technologies, technology take-off point can be reached. If the take-off phase has been exceeded, the rapid increase in the number of adopters can gain a sustainable acceleration in order to expand its market share, to benefit from economies of scale and to reach new technologies. Increasing competition between producers and efforts to get more shares from the markets will encourage innovations, increase production, and therefore prices will be forced to fall. However, after a certain period of time, the new technology will converge to the existing technical limits and therefore the adaptation rate to the technology will decrease. This process, which has caused the technological diffusion to lose momentum, may bring the potential to restart the cycle between finance, new technology and market share. The main purpose of this study is to examine the relationship between financial development, technological innovation and market share in the context of the Schumpeterian Revolution with the help of canonical correlation analysis for 16 emerging market countries in the year of 2015. For this purpose, the study consists of five sections. After the second section introducing the literature review, the dataset and econometric methodology are presented in the third section, and the findings of the analysis are introduced in the fourth section. The study comes to an end in the fifth section, where a general conclusion and discussion is introduced.

2 Literature Review One of the most emphasized topics in the literature of economics, in which the financial development process is in question, is the examination of the effect of financial development on economic growth. Although the nature of financial development and economic growth relations have a very complex structure, the statement

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that financial development has a positive effect on the economic growth process or vice versa is generally dominant. On the other hand, with the development of the Schumpeterian perspective, the impact of the financial development process on various macroeconomic indicators has begun to be examined and these issues have started to be mentioned frequently. In Schumpeterian perspective, it is emphasized that thanks to developed financial markets, savings can be delivered to the most effective investor and therefore savings can be transformed into capital accumulation, and it is also mentioned that effective technological development can be achieved with capital accumulation. The Schumpeterian Revolution, which claims that advanced technological progress will create competitive markets, states that countries with advanced technology can increase their market share in foreign trade markets and that the increase in market share can be achieved with the product variety created with the technology owned. Therefore, the Schumpeterian Revolution establishes a strong relationship between financial development, technological progress and market share. While the financial development process is the main stimulator of technological progress on the one hand, the progress of technology, on the other hand, is the main determinant that triggers the increase in market share. Hence, it is claimed that the financial development process actually positively affects the market share through the technology channel. Besides, in the Schumpeterian context, thanks to the developed financial markets, countries can access new raw material resources, reach new production markets, develop their existing market shares, increase their production scales, produce new technologies or improve existing technologies and reorganize the production process. As can be understood, the Schumpeterian Revolution is one of the most frequently emphasized topics in economics and finance literature due to its wide scope. However, the fact that most of the study subjects are focused on finance-growth links has caused the problem of not being adequately examined the finance-technologymarket share relations. The studies in the economics and finance literature generally examined either the finance-technology link, the finance-market share relationship, or the technology-market share nexus, but the missing part of the Schumpeterian analysis has often been overlooked. There are scarcely any studies examining the relationships between financial development, technological progress and market share in foreign markets. Therefore, the main motivation of this study is to find the missing piece of Schumpeterian analysis and to examine the main motto of the Schumpeterian Revolution. In this context, the examination of the relations between finance-technology-market shares as a whole distinguishes this study from other studies existed in the literature. Therefore, Table 1 presents summary information of some studies in the literature regarding the subject of financial development, technological progress and market share.

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Table 1 Summary of literature review Time Span 1966– 1995

Method of the analysis Cross-Country Panel Data Analysis

38 Countries

1980– 1995

Cross-Country Panel Data Analysis

MarquezRamos and MartimezZarzoso (2010)

13 Exporters and 77 Importers Countries

2000

Cross-Section Analysis

Lee and Kim (2013)

Various Technology Companies

1999: Q4– 2007: Q4

Panel Data Analysis and Generalized Method of Moments

Meierrieks (2014)

51 Countries

1993– 2008

Panel Data Analysis

Author(s) Beck (2002)

Country 65 Countries

Tadesse (2005)

The main findings The findings of the analysis point out that financial development produce a extensive causal effect on the export level, foreign trade market size and the trade balance of manufactured goods. The results of the analysis show that the impact of financial development on productivity and technology is heterogeneous across countries and sectors. Besides, it is also pointed out that infant firms are depend more on external financial resources to boost technological progress. Therefore, the paper argues that the countries with more developed banking sector provide technologic innovations. The findings of the econometric analysis assert a positive and non-linear impact of technologic progress on export level, which points out that there are cut-off level for positive signs to take place. The findings of the analysis show that the development process of technology by one standard deviation suggest an increase of 2.6 in market share. Besides, Granger causality analysis shows that technologic progress helps to anticipate future market share. The paper generally claims the idea that that higher the financial development level stronger the technologic progress. Besides, the results point out that (continued)

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Table 1 (continued) Author(s)

Country

Time Span

Method of the analysis

Aayale (2016)

Morocco

1993– 2013

Multiple Regression Analysis

Comin and Nanda (2018)

17 Countries

1870– 2000

Cross-Country Panel Data Analysis

Law et al. (2018)

75 Developed and Developing Countries

1996– 2010

Generalized Method of Moments

Subramaniam et al. (2019)

ASEAN Countries

2011– 2016

Data Envelopment Analysis and

The main findings financial development can encourage investment in technologic activities. Therefore, it is asserted that to strengthen a financial development level of countries can boost their technologic innovative capacity. The findings of the analysis show that financial development has a positive impact on the rate of technological innovation and therefore on economic growth. The paper provides a support for the finance-led growth theory. The paper finds no differential impact of financial development on the diffusion of technologies in the late stages of diffusion or in late adopters. The findings assert a remark that domestic financial markets play an important role on diffusion of technologies. The result shows that finance boosts technologic innovation up to a threshold level. Beyond the cut-off point, further development process of finance affects technologic innovation negatively. Besides, the findings imply that the nexus between financial development and technologic innovation based on different stages of the quality of institutions. In addition, an inverted U curve relationship between finance and innovation is found for countries with high quality of institutions. The results of the analysis show that the level of (continued)

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Table 1 (continued) Author(s)

Country

Time Span

Method of the analysis

The main findings

Generalized Method of Moments

competition is positively related to technologic progress. However, it is found that the level of competition is negatively related to economies of scale. The results also point out that financial development is negatively related to technologic progress and the level of competition. The author argues that development of financial markets and innovation gives rise to the countries to be sustainable with lower level cost with technological adaptation. The findings of the analysis show that in the presence of a sustainable economic environment the financial development process provides high-quality technologic improvement. The paper asserts the idea that in developing countries, an inverted U-shaped nexus exists between financial development and improvement of green technology. In developed countries, the development of financial sector in the area of banking and insurance services affect inversely green technology, while the improvement of securities has a positive effect on green technology.

Sujith (2020)

ASEAN Countries

1980– 2014

Generalized Method of Moments

Loukil (2020)

54 Emerging and Developing Countries

1980– 2009

Panel Threshold Model

Li and Liao (2020)

40 Countries

1991– 2014

Panel Data Analysis

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3 The Dataset and Econometric Methodology The main purpose of this study is to examine the relationship between financial development, technological innovation, and market share with the help of canonical correlation analysis for 16 emerging market countries1 in the year of 2015. Each basic variable based on finance-technology-market share relations is defined as a variable group and the basic variables are divided into sub-variables. Table 2 presents the summary information about the variables used in the analysis. Canonical Correlation Analysis (CCA), developed by Hotelling (1936), is an analysis technique used to estimate the relationships between variable sets consisting of many variables. In CCA technique, the data set consisting of q independent variables consisting of n observations and the data set consisting of p dependent variables is the canonical variable, and the maximum correlation between these pairs is called canonical correlation. This analysis technique is based on calculating the correlation relations between an observation set consisting of multiple dependent variables and another observation set consisting of multiple independent variables. The basic logic of the analysis is to derive optimum linear combinations of variables by using a set of variables called canonical variables to maximize the correlation relationships between the two linear combinations (Oh et al. 1995). The main advantages of the CCA technique are: (i) to determine the ability of a variable set consisting of two or more variables to explain another variable set, (ii) to understand the explanatory power of a single variable in the variable set, (iii) to explain which variables in the variable set can affect the other variable set and which ones do not have this effect, (iv) to explain which different dynamics in one variable set can affect the other variable set in what ratios, (v) to reveal the relative power of different canonical functions in explaining relationships, (vi) to determine whether canonical results are consistent throughout observation or sub-observation groups and (vii) to reveal whether canonical results meet expectations (Thompson 1984). In addition, since CCA is a multivariate analysis technique, it also reduces the likelihood of the Type I error. In this context, multivariate analysis techniques such as CCA can minimize the risk of Type I errors by taking into account simultaneous comparisons between variables used in econometric models. In addition, multivariate analysis techniques such as CCA are very suitable methods for examining economic events, forecasting social relationships, and conducting research on human behavior. Therefore, it is vital to not only select an econometric analysis which is statistically able to test the dataset but also an econometric analysis which is consistent with the economic theory. Besides, since these analyzes examine multivariate cause-andeffect relationships they enable to obtain much more effective results than analyzes

1

Emerging market economies were selected by considering the Morgan Stanley Capital International Emerging Market Index (MSCI Index). Countries whose data are available were used in the analyses. They are Argentina, Brazil, Chile, China, Colombia, Greece, India, Indonesia, Republic of Korea, Malaysia, Pakistan, Poland, Russia, South Africa, Thailand and Turkey.

The Schumpeterian Revolution Revisited: On the Linkage Between Financial. . .

37

Table 2 Summary information about the variables Data definition Abbreviation Financial Development Domestic Credit1 Credits Credits to the Credit2 Private Sector Asset Structure Capital/Asset of Banks Number of Branch Office Commercial Banks Companies’ Capitalization Market Value Financial Freedom Freedom Technological Development R&D Sector Researcher Researcher R&D Sector R&D Expenditure Expenditure Market Share Product ConHHI centration Level High-Level Technology Technology Export1 Export Share High Level Technology Technology Export2 Export Revenue Share of ForForeign eign Trade Trade

Data description

Unit

Ratio of Domestic Credits Provided by the Financial Sector to GDP Ratio of Credits Provided by the Financial Institutions to the Private Sector to GDP The Ratio of Banks’ Total Capital to Total Assets Number of Commercial Banks per 100,000 Persons

%

Rate of Market Capitalization of Registered Local Companies to GDP Index for Measurement of Restrictions on the Financial Sector

%

%

Ratio Number

Index

Data source World Bank World Bank World Bank World Bank World Bank Heritage Foundation

Number of Researchers Per Million People in R&D Sector Ratio of R&D Expenditures to GDP

Number

Herfindahl-Hirschmann Product Concentration Level

Index

UNCTAD

Product Exports with High R&D Density as a Percentage of Total Manufacturing Industry Exports Product Export Revenue with High R&D Density

%

World Bank

US Dollar

World Bank

Share of Export and Import of the Country in World Trade

%

Our World in Data

%

World Bank World Bank

that consider single variate cause-and-effect relationships (Sherry and Henson 2005). The general structure of the CCA technique, which examines the relationships between two variable groups consisting of many variables, can be expressed in equation numbered (1) (Özçomak and Gündüz 2012): β1 Y 1 þ β2 Y 2 þ . . . þ βp Y p ¼ α1 X 1 þ α2 X 2 þ . . . þ αq X q

ð1Þ

In Eq. (1), there are p(1 – p)/2 correlation nexus between the variables in the first group, q(1 – q)/2 correlation nexus between the variables in the second group, and

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pq correlation nexus between the two variable groups. Therefore, the CCA technique aims to reduce the number of correlation coefficients, as the calculation and interpretation of several correlation coefficients is rather laborious. Hence, it can be said that the main objective of the CCA technique is to obtain the maximum correlated and unit variance linear component of the random variables of each set. In the CCA technique, instead of multiple correlations between two groups of variables, the canonical correlations between several linear components are dealt with. It can be said that canonical correlation coefficients and simple correlation coefficients have similar characteristics. However, simple correlation coefficients take values between –1 and 1, while canonical correlation coefficients take values between 0 and 1 (Oktay and Kaynak 2007). The hypotheses required to test the significance of canonical correlation coefficients can be demonstrated by the equation numbered (2) (Özçomak and Gündüz 2012): H 0 : ρ1 ¼ ρ2 ¼ . . . ¼ ρn ¼ 0 H 1 : ρ1 6¼ ρ2 6¼ . . . 6¼ ρn 6¼ 0

ð2Þ

The basic method used in testing zero and alternative hypotheses is the Wilks Lambda (Λ) test statistics. The Wilks Lambda value describes the proportional expression of the total variability that cannot be explained by the estimated model (Verma 2013). It can be said that if the Wilks Lambda value ranging from 0 to 1 converges to 1, the change in the dependent variable cannot be fully explained by the independent variables, and if it converges to 0, the change in the dependent variable can be strongly explained by the independent variables. In this context, it can be stated that the smaller the lambda value, the higher the explanatory power of the model. Chi-square statistic called as Barlett Test is used to test the significance of lambda value (Munro 2005). Another indicator used for significance tests is the Pillai Trace Statistics. This statistic can be expressed as the sum of the variances that can be explained by discriminant variables. With the help of this statistic, the amount of variability of dependent variables can be estimated in the context of calculating the largest spread of independent variables. The Hotelling-Lawley Trace Statistics is the test statistics in which independent variables are formalized in two groups. This statistic is used in the calculation of the linear combinations with the highest level of significance of the dependent variable. Another test statistic used to estimate the significance of canonical correlation coefficients is the Roy Largest Root Statistics, known as the Roy’s Greatest Eigenvalue Statistics. The most important feature of this test statistics is that it takes into account the largest eigenvalue unit of the relevant statistics, in other words, the largest canonical load on the vectors (Foster et al. 2006). Since Wilks Lambda test statistic is mostly used in canonical correlation analysis, this statistic will be used in this study. In Wilks Lambda Statistics, it can be said that the more the distribution obtained from a function, the more important the distribution relationship of a function is. In

The Schumpeterian Revolution Revisited: On the Linkage Between Financial. . .

39

this context, Wilks Lambda discriminant effectiveness measurement process can be expressed with the help of equation numbered (3): (Maier 2015) Λ¼

Unexplained Distribution Total Distribution

ð3Þ

In the process of discriminant effectiveness, lambda statistic value is calculated with the help of the equation numbered (4): Λ¼

K Y k¼1

1 1 þ γk

ð4Þ

where γ k is the eigenvalue and K is the number of discriminant function. The lambda statistics are also used to predict whether the discriminant function will significantly contribute to the difference between groups. In such a case, the process is usually based on a step-by-step solution of discriminant function. The Wilks Lambda value taken into account for the estimation of this process, which is called as the residual variance (Λq), is calculated using the equation numbered (5): Λq ¼

K Y k¼qþ1

1 , 8q ¼ 0, 1, . . . , K – 1 1 þ γk

ð5Þ

Lambda statistics are converted to Vq statistics, which can be expressed as chi-square distribution value, with the help of the formula numbered (6): h i JþG Vq ¼ – I – – 1 ln Λq 2

ð6Þ

where I means the number of events that can occur in the model to be estimated; J is the number of variables; G is the number of groups and lnΛq is the natural logarithm of lambda. The chi-square value obtained with the help of the equation numbered (6) is used to evaluate the significance of the function.

4 Estimation Findings The canonical function is the expression of the relationship between dependent canonical variables and independent canonical variables. The strength of the canonical function is measured by the canonical correlation coefficient. In the CCA technique, the canonical functions and the canonical correlations are obtained that are equal to the number of variables in the set that has the least number of variables. In this context, the number of canonical functions and canonical correlations to be calculated between financial development and technological development are

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2. Besides, the number of canonical functions and canonical correlations to be calculated between the financial development and market share is 4, and that of 2 between the technological development and market share. Table 3 shows the results of CCA analysis. Analysis results show that the canonical correlation coefficients between the first canonical variable pairs for all three models are significant at the 5% significance level. The correlation coefficients between the canonical variable sets of financial development, technological development and market share are 77.5%, 78.6% and 77.2%, respectively. In the CCA technique, canonical correlation coefficients that are statistically significant can be interpreted. Since only the first canonical variable pairs are statistically significant for all three models, the correlation relationships between the first canonical variable pairs will be considered. In this context, the strength of the independent variable set to represent the dependent variable set is 77.8%, 71.4% and 72.9%, respectively. To what extent the original variables contribute to the canonical variable can be seen from the canonical coefficients. According to this, the original variable that most explains the financial development canonical variable is Credit1. Similarly, the original variable that most explains the technological development canonical variable is the R&D Expenditure and that of the HHI for the market share canonical variable. Therefore, it can be said that the main factors determining the level of financial development, technological innovation and market share are the ratio of domestic credits provided by the financial sector to GDP, ratio of R&D expenditures to GDP and product concentration level, respectively. On the other hand, it is observed from the analysis results that the second important variables that affect the level of financial development and market share are the ratio of credits provided by the financial institutions to the private sector to GDP and the share of export and import of the country in world trade, respectively. It can also be emphasized that the number of researchers working in the R&D sector does not have a significant impact on determining the level of technological innovation. In this context, it can be said that increasing the national income share transferred to the R&D expenditures by the public sector is a primary factor to sustain the technological development level and new technologies. The canonical loading is expressed as the simple linear correlation between the original variable and its own canonical variable. It enables determining how strong the contribution of the original variable to its canonical variable and the canonical correlation coefficient is. The canonical cross loading is defined as the simple linear correlation between the original independent variables and the dependent canonical variables. Therefore, the strength of the original variable’s contribution to the canonical variable in the cross set can be measured. In this context, the original financial development variable that contributes the most to technological development canonical variable is Credit1 (0.978), and the original technological development variable that contributes most to financial development canonical variable is R&D Expenditure (0.875). Similarly, the original financial development variable that contributes the most to the market share canonical variable is Credit1 (0.712) and the original market share variable that contributes the most to the financial development canonical variable is HHI (0.808). Finally, the original technological

0.233 0.134

0.125 0.0006 0.005 0.009

Credit1 Credit2

Capital/Asset Branch Office Capitalization Freedom

Fin. Dev.1

0.047 0.007 0.015 0.052

Fin. Dev.2 0.218 0.124

Canonical Coefficients for Financial Development

Financial Development-Technological Development Can. Cor. Wilks Eigenvalue Lambda Prob Coefficient 1 0.775 1.610 0.222 0.026** 2 0.397 0.187 0.613 0.248 3 4 Canonical Coefficients for Technological Development Tech. Tech. Dev.1 Dev.2 Researcher 0.0004 0.001 RD 1.575 1.176 Expenditure Mark. Shr.2 7.694 0.051

Capital/Asset Branch Office Capitalization Freedom

0.265 0.010 0.002 0.001

0.140 0.014 0.002 0.028

0.078 0.069 Tech.Exp2 For. Trade 1.252 1.233 Canonical Coefficients for Financial Development Fin. Dev.1 Fin. Dev.2 Credit1 0.377 0.282 Credit2 0.275 0.197

HHI Tech.Exp1

Mark. Shr.1 7.777 0.056

Financial Development-Market Share Can. Cor. Wilks Eigenvalue Lambda Coefficient 0.786 1.617 0.286 0.499 0.332 0.511 0.284 0.143 0.705 0.116 0.087 0.886 Canonical Coefficients for Market Share

Table 3 The results of the canonical correlation analysis

Prob 0.019** 0.176 0.269 0.351

Mark. Shr.2 9.804 0.050

(continued)

Tech.Exp2 0.052 0.047 For. Trade 0.988 0.953 Canonical Coefficients for Technological Development Tech. Tech. Dev.1 Dev.2 Researcher 0.0002 0.001 RD 1.403 1.377 Expenditure

HHI Tech.Exp1

Mark. Shr.1 4.855 0.077

Canonical Coefficients for Market Share

Technological Development-Market Share Can. Cor. Wilks Eigenvalue Lambda Prob Coefficient 0.772 1.337 0.271 0.033** 0.377 0.166 0.637 0.268

The Schumpeterian Revolution Revisited: On the Linkage Between Financial. . . 41

0.125 0.0006 0.005 0.009

0.047 0.007 0.015 0.052

0.265 0.010 0.002 0.001

0.140 0.014 0.002 0.028

Tech.Exp2 0.574 0.502 For. Trade 0.686 0.665 Canonical Loadings and Cross Loadings for Technological Development Tech. Mark. Dev.1 Shr.1 Researcher 0.507 0.399 RD 0.803 0.877 Expenditure

Tech.Exp2 0.603 0.762 For. Trade 0.712 0.656 Canonical Loadings and Cross Loadings for Financial Development Fin. Dev.1 Mark. Shr.1 Credit1 0.690 0.712 Credit2 0.620 0.117 Capital/Asset Branch Office Capitalization Freedom

Technological Development-Market Share Can. Cor. Wilks Eigenvalue Lambda Prob Coefficient Canonical Loadings and Cross Loadings for Market Share Mark. Tech. Shr.1 Dev.1 HHI 0.947 0.902 Tech.Exp1 0.841 0.554

Financial Development-Market Share Can. Cor. Wilks Eigenvalue Lambda Prob Coefficient Canonical Loadings and Cross Loadings for Market Share Mark. Fin. Shr.1 Dev.1 HHI 0.716 0.808 0.615 0.797 Tech.Exp1

Note: **Reflects that the variable is significant at the 5% significance level

Capital/Asset Branch Office Capitalization Freedom

Canonical Loadings and Cross Loadings for Financial Development Fin. Dev.1 Tech. Dev.1 0.995 0.978 Credit1 Credit2 0.752 0.129

Financial Development-Technological Development Can. Cor. Wilks Eigenvalue Lambda Prob Coefficient Canonical Loadings and Cross Loadings for Technological Development Tech. Fin. Dev.1 Dev. 1 Researcher 0.558 0.113 RD 0.776 0.875 Expenditure

Table 3 (continued)

42 G. Yüce Akıncı and M. Akıncı

The Schumpeterian Revolution Revisited: On the Linkage Between Financial. . .

43

development variable that contributes the most to the market share canonical variable is R&D Expenditure (0.877) and the original market share variable that contributes the most to the technological development canonical variable is HHI (0.902). In this context, it can be said that the canonical variables of financial development, technological development and market share are mutually reinforcing. As a result, it can be emphasized that the improved financial markets accelerate the technological development level and the advanced technological developments also expand the market share. Therefore, it is possible to point out that there are strong correlations in the nexus of finance-technology-market share and Schumpeterian Revolution is valid.

5 Conclusion The main motivation of the paper is to investigate the linkage between financial development, technological innovation and market share in the context of the Schumpeterian Revolution using canonical correlation analysis for 16 emerging market countries in the year of 2015. Analysis results showing that there are statistically significant correlations only between the first canonical variable pairs point out that there are strong correlation relations between the canonical variable groups of financial development, technological innovation and market share. The strength of the original variables to affect their canonical variables is determined using canonical coefficients. In this context, it is observed that the original variables that contribute the most to canonical variables of financial development, technological innovation and market share are the ratio of domestic credits provided by the financial sector to GDP, the ratio of R&D expenditures to GDP and Herfindahl-Hirschmann product concentration level, respectively. On the other hand, canonical cross loadings are calculated to determine the correlation linkages between original independent variables and canonical dependent variables. In this context, it is observed that the original finance variable that contributes the most to the technology canonical variable is the domestic credits provided by the financial sector. Similarly, the original technology variable that contributes most to the finance canonical variable is the R&D expenditures. Besides, the original market share variable that contributes the most to the technology canonical variable is Herfindahl-Hirschmann product concentration level. In this context, the strong correlation connections between canonical variables considered in the analysis is determined and it is observed that these variable sets mutually reinforce each other. Therefore, the results of the analysis showing that the Schumpeterian Revolution is valid reflect the importance of finance-technologymarket share relations in emerging market economies. Today’s capitalist order, based on the development of the financial system, undertakes the function of directing capital to the investment areas where it will be most productive. Therefore, while the capital gains the highest profit on the one hand, it also brings together the technological development process, which is the

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most basic input of the production process, on the other hand. With the capital contribution, either new technologies are produced directly or new technologies are internalized with industrial goods produced. No matter how the production process of technology works, new technology production emerges with the contribution of financial capital. As a result of integration into the mass production stage and increasing efficiency in production in parallel with the technological development, production costs are reduced and comparative advantage in production process can be achieved. Technological development, which enables the economies of scale to increase and the international market share to expand, also paves the way for the raise of foreign competitive advantages. Therefore, technological progress accelerates depending on financial development and market share can be increased in parallel with technological development. This process, which can be considered as a proof of the validity of the Schumpeterian Revolution, gains a sustainable momentum with a positive cycle in parallel with the creative destruction mechanism. As a result, it is possible to say that today’s economic system operates depending on the finance-technology-market share, and this process continues by replacing old innovations with new ones.

References Aayale J (2016) Financial development and technological innovation as a channel for economic growth in Morocco. Int J Econ Commer Manag 4(12):647–658 Beck T (2002) Financial development and international trade: is there a link? J Int Econ 57 (1):107–131 Comin D, Nanda R (2018) Financial development and technology diffusion. http://www.dartmouth. edu/~dcomin/Publications_files/Financial%20Development%20and%20Technology%20Diffu sion.pdf Foster J, Barkus E, Yavorsky C (2006) Understanding and using advanced statistics. Sage, London Gong B, Zhou H (2014) Financial development, the choice of technology and comparative advantage. J Int Trade Econ Dev Int Comp Rev 23(8):1238–1261 Hotelling H (1936) Relations between two sets of variants. Biometrika 28:321–377 Law SH, Lee WC, Singh N (2018) Revisiting the finance-innovation nexus: evidence from a non-linear approach. J Innov Knowl 3(3):143–153 Lee J, Kim BC (2013) The relationship between innovation and market share: evidence from the global LCD industry. Ind Innov 20(1):1–21 Li T, Liao G (2020) The heterogeneous impact of financial development on green total factor productivity. Front Energy Res 8:1–9 Loukil K (2020) The impact of financial development on innovation activities in emerging and developing countries. Bus Econ Res 10(1):112–119 Maier A (2015) The Central European Magdalenian: regional diversity and internal variability. Springer, London Marquez-Ramos L, Martimez-Zarzoso I (2010) The effect of technological innovation on international trade. Econ Open-Access Open Assess E-J 4:1–37 Meierrieks D (2014) Financial development and innovation: is there evidence of a schumpeterian finance-innovation nexus? Semantic scholar working paper, no. 198918512, https://www. semanticscholar.org/paper/Financial-Development-and-Innovation-%3A-Is-There-ofMeierrieks/ecacd4f45155a56d8864c21e410692906fb8a641?p2df

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Munro BH (2005) Statistical methods for health care research, 5th edn. Lippincott Williams & Wilkins, Philadelphia Oh HC, Uysal M, Weaver PA (1995) Product bundles and market segments based on travel motivations: a canonical correlation approach. Int J Hosp Manag 14(2):123–137 Oktay E, Kaynak S (2007) Türkiye ve Avrupa Birliği Ülkelerinin Bilgi Ekonomisi Girdi ve Çıktı Değişkenleri Arasındaki Kanonik İlişkinin Araştırılması. Atatürk Üniversitesi Sosyal Bilimler Enstitüsü Dergisi 10(2):419–440 Özçomak MS, Gündüz M (2012) Borsa Performans Oranları ve Diğer Finansal Oranlar Arasındaki İlişkinin Kanonik Korelasyon Analizi ile İncelenmesi. Atatürk Üniversitesi Sosyal Bilimler Enstitüsü Dergisi 16(1):453–466 Schumpeter JA (1911) The theory of economic development. Harvard University Press, Cambridge Schumpeter JA (1943) Capitalism, socialism and democracy. George Allen and Unwin, London Sherry A, Henson RK (2005) Conducting and interpreting canonical correlation analysis in personality research: a user-friendly primer. J Pers Assess 84(1):37–48 Subramaniam VPR, Ab-Raim R, Selvarajan SK (2019) Financial development, efficiency, and competition of ASEAN banking market. Asia Pac Soc Sci Rev 19(3):185–202 Sujith J (2020) Nexus of financial development, innovation for green growth in ASEAN countries. MPRA working paper, no. 98212 Tadesse S (2005) Financial development and technology. William Davidson Institute working paper, no. 749 Thompson B (1984) Canonical correlation analysis: uses and interpretation. Sage University paper series on quantitative applications in the social sciences, no: 47, London: Sage Verma JP (2013) Data analysis in management with SPSS software. Springer, New York Weaver P, Jansen L, van Grootveld G, van Spiegel E, Vergragt P (2017) Sustainable development technology. Routledge, New York Yüce Akıncı G (2019) Three horsemen of the markets: on the perspective of schumpeterian revolution in the nexus of finance-innovation-competition. In: Dinçer H, Yüksel S (eds) Handbook of research on managerial thinking in globall business economics. IGI Global, New York, pp 393–406

Competitive Advantage and Competitive Dynamics in Terms of Strategic Innovation Orientation Zafer Adiguzel

Abstract In order for companies to succeed in a competitive environment where change is inevitable, they need to support their strategies with innovative thinking. For this reason, companies that provide sustainability in continuous change and development can be advantageous in a competitive environment. In order to ensure this, competitive dynamics must be analyzed and controlled well. In this way, firms can achieve a significant advantage in the market where they are successful in the face of competitors. In this context, competitive advantage is examined first, and then competitive dynamics are explained. After the announcement of these two concepts, innovation and strategic innovation orientation issues that are important for firms are explained. Once a leading position in the changing world, wellestablished firms are erased and disappeared, and newly arrived firms can become a leader in the market where they are located. It is important to remember that you need to be a pioneer in continuous change and development, and that can happen with innovative ideas.

1 Introduction Organizations need to consider the changes in their environment when designing strategies in a competitive environment. Environmental influences can direct organizations to use their competencies and resources based on competition. When determining strategies, stakeholders are one of the most important elements that organizations must take into account. Without stakeholders, organizations are not able to ensure their sustainability. Decisions against competitors’ strategic moves will affect stakeholders directly and indirectly. Therefore, when making strategic decisions, it is important to be creative, innovative, and sustainable (Dinçer and Yüksel 2018; Dinçer et al. 2019). From a different perspective, economists have

Z. Adiguzel (*) Istanbul Medipol University, Istanbul, Turkey e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 H. Dinçer, S. Yüksel (eds.), Financial Strategies in Competitive Markets, Contributions to Finance and Accounting, https://doi.org/10.1007/978-3-030-68612-3_4

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widely acknowledged that competition increases product characteristics due to pricerelated, but competition promotes innovation cannot say immediately (Swann 2018). They even say that from a completely opposite perspective, the driving force behind the competition comes from innovation (Impullitti and Licandro 2018). Economics literature states that from the earliest times, competition has encouraged the development of new and diverse products or production processes (Shaikh 2016). Market size, product substitution degree, entry costs, and technological opportunities are recognized as the main variables of innovation (Hekkert et al. 2011). As competition intensifies, the barriers to entry and exit are reduced, innovation efforts are increasing, but new product delivery is decreasing. This suggests that competition only increases process innovation. Joseph Schumpeter established the basis for skepticism by describing “creative destruction” both the benefit of innovation and competition led to innovation (Caballero 2010). In addition, although Schumpeter claims that there is an inverse relationship between competition and innovation, it has been proved by other researchers that there is a linear relationship between competition, innovation products, and growth (Dabic et al. 2011). Considering that all of the prominent but contradictory evaluations are valid, a proposition emerges that innovation is fueling competition and innovation is increasing thanks to competition.

2 Competitive Advantage Competitive advantage, one of the most important research areas of strategic management; It is defined as “implementing a value-creating strategy that is not implemented by current or potential competitors” (Barney 1995). Ma (2000) defined its competitive advantage as “asymmetries and differences in the characteristics of the company, which allows a company to serve its customers better than its competitors, thus creating more customer value and achieving high performance”. Bharadwaj et al. (1993) stated the following inferences regarding competitive advantage: • The skills and resources of a company are the basis for its competitive advantage only if they provide the benefit hoped by customers. • Sustainable competitive advantage itself is not a result but a path to long-term outstanding financial performance. • Some sources of competitive advantage are more durable than others. • The durability of a company’s competitive positional advantage is to investments in new skills and resources, as well as supporting and enhancing new investments in existing resources of competitive advantage also depends on. • When faced with successful new game strategies, existing traditional thinking of competitive advantage sources must be reevaluated. • Lack of excellent competitive markets for skills and resources, luck, and unexpected decisions of competitors affect the sustainability of a company’s competitive advantage.

Competitive Advantage and Competitive Dynamics in Terms of Strategic. . .

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When examining the concept of competitive advantage, it is seen that two fundamental approaches are addressed in the literature: • Competitive positioning (Porter 1989) • Weld-based approach (Hamel and Prahalad 1990) According to Porter, the development of strategies in the form of “Cost Leadership”, “Differentiation” and “Focus” in order to sustain the advantage obtained as a result of positioning firms in the market is required. Porter has also developed the “5 Force Model” for the analysis of its competitive advantage. When you look at the resource-based approach that is directed from within firms, resources are based on a sustainable competitive advantage. Collis and Montgomery (1995) attributed its competitive advantage to having valuable resources that make it possible for the firm to make its activities better or cheaper than its competitors. The fundamental criticism of these two models is that they focus too much on the balance between existing resources and opportunities while putting their future opportunities in the background (Priem and Butler 2001).

3 Competitive Dynamics The study of competitive dynamics is important to demonstrate how the organization will change its position over time. Tensions between competitors in business life are likely to trigger competitive behavior. It has been suggested that one of the most powerful tools in increasing organizational performance is correctly managed tension (Agha et al. 2012). Competitor analysis is at the heart of strategy and organizational research. Inter-organizational competition analysis studies are mainly interested in what, why, how, when, and where organizations compete. Organizational internal states and changes in the external environment in which they have affected exhibit threats of asymmetric competition (Giachetti 2013). Despite this asymmetry, researchers suggest that organizations operating in the same sector use comparable capital and similar or substituted products to their partner customers in the relevant product markets and assert that the service offers have a high degree of similarity by showing that they offer (Barney and Hesterly 2010). The study of competitive dynamics, which examines competition in terms of market movements of organizations, tests the foresight and impacts of inter-organizational competition (Chen and Miller 2012). These studies have created an organizational and strategic set of variables, using awareness, motivation, and ability as key elements of interorganizational competition. Nevertheless, researchers have discussed less perceptual aspects of inter-organizational competition with almost entirely market data or structural variables. The concept of competition has gained different definitions over time and has evolved some kind of evolution. In classical economics teaching, no actor can change market conditions, price is taken as data, entry, and exit free, information flow is complete, product homogeneous markets are competitive is characterized as

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however, in real life, it is quite difficult to achieve these conditions. To overcome the limitations of this situation, the concept of competition was later introduced by Clark (1940). According to this approach, there is a level of input-output freedom, a lack of agreement between buyers and sellers competitors, alternative sources of supply, and demand is the conditions in which a quality competition is required through product differentiation. To capture the nature of the competition relationship, researchers evaluated competitor analysis among organizations (Grimm et al. 2006). In the intercompetitive analysis of the research result, it can be predicted that organizations benefit from each other thanks to inter-organizational competition. Competitor analysis is more meaningful, especially when organizations take a position on each other through competitive movements (Lamberg et al. 2009). This perception is to distinguish competitor analyses (stationary valuation related to relations between organizations) from the inter-organizational competition (mutual influence and behavioral elements of competition between organizations) is required. More importantly, it is necessary to establish a conceptual relationship.

4 Relationship Between Competitive Tension and Strategic Innovation Whichever strategy is chosen success depends on a strategic plan that is correctly ranked, targeting shareholders and people who work with or work for the organization. It is suggested that all plans in structural strategies should focus on either low cost or differentiation (Porter and Strategy 1980). Although researchers widely acknowledge that competition increases price-related product features, they cannot immediately say that competition encourages innovation (Hoskisson et al. 1999). In fact, from a completely opposite point of view, it is claimed that the driving force behind competition comes from innovation (Lampe and Moser 2016). Since the early days, it has not been clearly stated in the literature that competition, encourages the development of new and different products or production processes (Qian and Wang 2017). Market, degree of product substitution, entry costs, and technological opportunities are considered the main variables of innovation (Thursby and Berbari 2016). If the increase in the number of organizations in the market does not reduce the demand for product varieties, the cost of lowering product prices increases due to the abundance of substitute goods, despite the effect of reducing the cost of product prices. Increasing the market size can increase the product range. However, if there is no increase in demand, the variety of organizations and products entering the market decreases with the increase of substitute goods. As competition intensifies, barriers to entry and exit decrease, innovation efforts increase but new product offerings decrease. This shows that competition only increases process innovation. Schumpeter (1991), with his characterization of “creative destruction”, formed the basis of both the benefit of innovation and the skepticism that competition leads

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to innovation. Schumpeter defines capitalism as the creator of the strong winds that bring down the old (Dean et al. 1998). In addition, although Schumpeter claims that there is an inverse relationship between competition and innovation, other researchers have proven that there is a linear relationship between competition, innovation products, and growth (Barney 1991). Despite this, the reasons for the assumptions about the fact that competition can lead to growth are not fully elucidated (Penrose and Pitelis 2009). It has been suggested that time may be a situational factor in this regard (Prahalad and Hamel 1994). The influence of time is also viewed with suspicion in process development practices, especially when considering the example of followers who are more successful than the market leaders by learning from the wasted resources. Still, in some cases, market leaders appear to have a competitive advantage. In particular, patented technologies and products that are difficult to imitate by competitors provide a sustainable competitive advantage for a longer period of time (Miller and Shamsie 1996). Evaluating the characteristics of organizations and sectors affects the choice of being the first to enter the market or to be a follower. For example, the organization that first enters a traditional market with a new (radical) technology will likely be successful as established organizations will have difficulty following this innovation with their rich resource stocks. But the organization that first enters a general market segment with a new (radical) technology will likely fail due to the complementary presence of established organizations next to their brand and reputation (Hiller and Hambrick 2005). It can also be argued that large firms and market leaders may be more innovative than competitive market firms. Arrow proposes the rationale for competition that competition rewards innovation. Arrow (1962) states that the market leader would do less research and development than competitors, as it had less to gain. If the firm that dominates the market did not have this power, it would have to make a radical change in order to decrease the price, improve the quality, or create a new product. This limiting incentive for the firm that dominates the market to innovate is called the “Arrow effect” or “replacement effect”. Because new business development arises when the firm, which dominates the market, targets someone else to gain a place for itself. This effect is strongest when the new product or does not fear radical innovation or another organization to implement a similar idea in the near future removing the old one altogether (Mintzberg et al. 2005). Considering that all of the prominent but seemingly contradictory valuations are valid, there is a proposition that innovation fuels competition and that innovation increases thanks to competition. Regardless of the direction, there is a relationship between the two concepts.

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5 Competition and Innovation Principles Competitive strategy can mean creating a completely new business (Jørgensen and Messner 2009). If this business area is profitable for the organization, the organization creates a competitive advantage. The organization is in a leading position in the market until new organizations enter the business field. The organization’s loss of power in the market is common, especially in emerging and innovative industries. Opposing propositions of Schumpeter and Arrow have led to a rapid increase in research on the extent to which innovation in the sector is related to market competition in economic literature (Wheelen et al. 2010). As a result of this researches, four principles related to competition and innovation are revealed. These principles cover all the findings of economic research on innovation determinants and also explain the important elements particularly related to avoiding monopolization (Selznick 2011). – The 1st Principle, competition between organizations trying to develop the same new product or process promotes innovation. Organizations that set their goal to be a leader in innovation are working harder as they will find themselves in a difficult race. This dynamic is seen especially in the research and development in ‘patenting races’ in economic literature. The number of competitors affects competitive tension. Most research considers organizations as research units to investigate competition intensity (Hoskisson et al. 2000). According to the predictions of competition studies using game theory, as the number of competitors increases, competition intensifies and the market becomes less frequent (Belton 2017). The situation in crowded markets where there are more factors that make it difficult to closely monitor the interaction of competitors strengthens competitive behavior. On the other hand, in quieter markets, competition movements are very pronounced and cooperation behavior intensifies as organizations can closely monitor the competition. High competition intensity is associated with rapid product development. Intense competition makes organizations looking for new product development and product niches more aggressive and flexible. If competitive pressures are low, innovation may decline as it will be easier to maintain the previously provided price and different advantages. It is concluded that the relationship between competition and innovation is curvilinear, while market intensity balances the opposite effects on spending, while moderate market intensity and competition facilitate innovation. While external competition reduces resources, competition between the partner or affiliated business units can provide growth by increasing efficient innovation (Rao 2016). – The 2nd Principle, in the competition between competing organizations that produce an existing product, researches are encouraged for lower costs, to improve quality, or to offer better products.

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When organizations attach importance to research and development, innovation allows them to escape competition and generate more income. This is one of the ways Arrow indicates: Leaving competition means avoiding being a target. The organization, which is less exposed to competition before innovation, can thus reduce its innovation efforts by obtaining a demand curve more independent of price. In this case, it provides a greater economic return than it wants to protect. In other words, the organization, which faces less competition, makes less effort to get rid of the competition. Of course, the opposite is also true (Grimm Curtis and Smith Ken 1997). – 3rd Principle, organizations that anticipate that they will face a greater product market competition after innovation are more reluctant to invest in research and development (Ertuğrul 2020). This is the opposite of the previous principle: If innovation will push the organization into a fierce competition rather than free it from the competition, the organization will expect less profit from research and development. As a result, the organization will be less willing to give priority to innovation monitoring (Porter 2011). This motive can encourage organizations to stand out from competitors by creating new products that are often modified by their counterparts marketed by other organizations and exposed to less post-innovation competition. The new ideas created by organizations for the society are quickly imitated by competitors due to weak brand rules, patent protection, and the rapid and widespread of new ideas. Therefore, the innovation drive can be strong even among organizations in sectors that promise only a small profit share (Porter 1996). According to the decision-making calculations of potential innovators, if the existing motivation to escape from market competition (the second principle) is stronger than the fear of post-innovation market competition (third principle), the innovation drive will be strong. – 4th Principle, if an organization can discourage potential competitors from investing in research and development by innovation, they will be willing to innovate. As a result of the research and development investments of the innovating organization, it can earn not only with the ability to offer better or cheaper products but also by deterring potential competitors from innovation. Since the first organization to innovate acquires the market, it can predict that it will face innovative rival competition. With the application of the third principle, the competitor will be less willing to invest in research and development than the first innovator (Porter 2011). If a business that has a monopoly position in the sector can make investments that can quickly and effectively make investments that guarantee the same or better of any innovation that a new entrant will make, this concession will deter potential competitors from making innovations that will compete with it, without reducing the innovation drive of the business that has a monopoly in the sector (Porter 2011). This investment operation can be done through a strong distribution network, perhaps through a well-known brand. Or, when a business that has a monopoly position in

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the sector makes an innovation that will market the old and new product together by segregating the pricing according to customer preference, the new entrant to the market will think that it is competing with the old organization while doing the same innovation. Whereas, an enterprise with a monopoly in the sector will be more willing to invest in research and development to develop the product, as the income expected from innovation may be higher than that of a new market (Hunt 1972). Similarly, when organizations that are monopolistic and innovative are unable to use their patent rights to eliminate their rivals, they will be more motivated than competing organizations in terms of improved production process technologies. The events in the US automobile industry in the 1970s can be shown as an example of the interplay of the second and third principles. The second principle explains why Nissan and Toyota companies aggressively innovate in small cars while leading companies in the industry do not (Newman 1978). Seeing themselves as small competitors in the US market, the only option for Japanese companies to avoid competition was to produce better and cheaper small cars. On the contrary, competition among leading manufacturers was not aggressive, and the competition was low, especially in small cars with low profitability. Therefore, their motivation to avoid competition was low. If, on the contrary, Japanese firms thought that the counter-attacks of the big manufacturers would be strong and that they would direct their strong resources to develop small cars and production processes, the result might be different. Anticipating strong competition after innovation, as the third principle predicts, Nissan and Toyota might not have been so keen to invest in developing their small cars.

6 Innovation Process The way the idea of innovation emerges in the process of innovation and the role of creative thinking is very important to ensure innovation development. In this context, the innovation process starts with the emergence of new opportunities, in other words, the creation of creative thinking (Cingula and Veselica 2010). In addition, identifying prospects, values, and needs of potential customers have an important role in creating innovations (O’Regan and Ghobadian 2005). It is seen in the literature that the stages related to the innovation process are classified differently. According to De la Mothe and Foray (2012), the innovation process consists of three stages. These; research and development, application, and commercialization stages. According to Clegg et al. (2002), the innovation process is ranked as Idea Generation, Capture Opportunities, and Evaluation of Ideas, Development, and Commercialization. According to Berkhout et al. (2006), the innovation process consists of the stages of invention, innovation, propagation, and retreat.

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Strategy Development

The first step in the innovation process is to determine the objectives and skills of the enterprise. How to shape business activities in the future is another topic of strategy development. Therefore, the business should carefully follow what is changing around it, opportunities that should not be overlooked, and possible areas where it might be successful (Johnson et al. 2017). Ideas related to innovation can come up by research institutions such as customers, R&D activities, competitors, employees, fairs and exhibitions, universities, and the idea of innovation is composed (Adner 2012).

6.2

Development of Innovation Idea

At this stage, the idea of innovation begins to cease to be theoretical and become a reality. Therefore, the planned innovation becomes a product or process, R&D activities continue in the enterprise in order to develop the idea of innovation, and all units of the business play an active role and try to fulfill their assigned duties effectively (Godin 2015).

6.3

Evaluation

During the evaluation phase, the first team formed comes together and opinions on the idea of innovation are shared during the meetings. In this way, the weak points of the idea of innovation can be seen before proceeding to the implementation stage, and if any, the necessary arrangements are fulfilled before applying (Tabas et al. 2013). One of the important applications of this evaluation process is marketing. Here we are looking for answers to questions such as how to define the target market, what are the benefits of the product or service, how customers will react to this product or service (Mura et al. 2015).

6.4

Application

At this stage, market and customer trial tests are usually available, which require a period of like one month. Therefore, there is a revealing of new knowledge and experience for performance development. The accumulation of knowledge and experience gained at the implementation stage both in the commercialization phase, which is the next stage, as well as for future innovation and internal entrepreneurship activities (Szirmai et al. 2011).

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Commercialization

In the commercialization phase, products, and services that have been tested and successful in the market at the previous stage of implementation are literally introduced to the market (Mu and Di Benedetto 2011). Wonglimpiyarat (2010) argues that only products or services to market will be sufficient for the commercialization phase to take place from time to time, while from time to time to market the need to make profits from the products and services offered at this stage is advocated.

7 Strategic Innovation Orientation Strategic orientation shows firms efforts to achieve high-level performance, how to do business with a set of beliefs and values (Mu et al. 2017). These values and beliefs explain the resources to be used, individual abilities as a whole. Since such capabilities are difficult to buy and sell, reproduce, imitate, they often create sources of competitive advantage (David and David 2016). Strategic orientation is the main principles that affect the strategy creation and marketing operations of the firm. In the researches, the phenomenon of strategic orientation is explained in different ways. Deshpandé et al. (2012) explained their strategic orientation in the form of behavioral actions that will enable companies to find opportunities and avoid threats by providing internal integrity and external adaptation. Johnson et al. (2012) in their work, considered strategic orientation as a reflection of the mental and belief models of senior management. In addition, strategic orientation is defined as a special approach that firms implement in order to perform consistently and outstanding performance. Strategic orientation reflects the perception of the company’s administrative staff and their response to environmental conditions. For example, how to efficiently implement strategic orientation, consumers’ requirements, competitors’ capabilities, and intermediary organizations to make the company culture to achieve high-level performance in the company by providing and to develop company capabilities (Wheelen et al. 2010). Strategic innovation orientation is a company philosophy about how innovation will be guided in the light of values and beliefs that shape the practices of innovation of firms (Kasemsap 2017). It is a very important concept for firms to ensure a sustainable competitive advantage. Talke et al. (2011)‘s study focused on strategic innovation orientation, “proactive technology orientation” and “proactive market orientation” in two groups.

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Market Orientation

Market orientation is an important auxiliary element in terms of acceptance and success of new products within the innovation processes (Na et al. 2019). To be able to comply with the changing and evolving consumer requirements and expectations in order to continue their lifespan in competition conditions, to be competitive and to act strategically must always monitor existing market trends in order to provide qualified services and products, to respond to changing market requirements (Jaworski and Kohli 1993). Market orientation; a collection of market data related to future and current needs of consumers and the factors affecting them, distributing these data to company departments and by the company described as an appropriate response to the market and the situation. Proactive market orientation is an initiative developed to detect and address the hidden needs of consumers that have not yet been identified (Narver et al. 2004). Market orientation ranks first in terms of profitably presenting and storing high consumer value (Talaja et al. 2017). Market orientation, the company to provide and disseminate market information from targeted consumers, potential and existing competitors, and the need to react accordingly to this situation plans (Kharabsheh et al. 2015). Market orientation offers benefits to firms. At the beginning of these benefits, the companies that may compete the company in the following periods, collecting data in advance about the customers, ensuring the knowledge and continuous learning in the company and this data is used on-site and timely to ensure customer value and competitive advantage (Kumar et al. 2011). In addition, market orientation increases sales force performance, service quality, profitability, employee and customer satisfaction; enabling new product development processes and innovation is likely to express recognition (Murray et al. 2011). However, traditional measurements of market orientation are claimed to reflect a responsive stance as they focus on existing customers’ stated requirements. For this reason, a proactive market orientation is proposed. Proactive market orientation is clearly highlighting the importance of unplanned customer requirements and a special interest in innovation’s content.

7.2

Technology Orientation

Today, technology has become one of the most important factors in human life to indicate social welfare levels and the economic relations of international communities. Technology is of greater importance than ever before in our era. To describe it briefly, “technology is a bridge to solve the problems encountered in everyday life by applying scientific methods”. If we make a more conceptual explanation, technology; When using production practices, the methods and paths used by individuals or “the whole of the techniques that the individual uses and possesses to change the environment” are described (Khalil and Shankar 2000).

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Technology is the form that knowledge is transformed into practice. It is a total of technical information with know-how applied to improve organizational capabilities in order to obtain technology, services, or products in an operational sense. Due to the fact that technical knowledge experiences substantial changes when converting into a physical element, a specific technology; a machine, a mechanical or electronic component or a chemical process, a software code, an assembly, detailed plan, manual, documentation, patent, or even a person (Stock and Tatikonda 2000). A technology-based company has created an advanced technological infrastructure and is capable of producing new products. Technology-oriented companies use the latest technology in the products they produce and transfer a significant part of their existing resources to R&D applications, flexibility, and technical specialty from competitors (Al-Ansari et al. 2013). Therefore, a company that aspires to produce innovation that will create a competitive advantage must have a strong technological infrastructure (Jaferian and Rezvani 2014). On the other hand, willing and relevant personnel should be encouraged to create innovation in firms. In this way, invention and creativity are presented as organizational values and norms that drive firm strategy; producing groundbreaking innovations becomes a cultural and strategic priority (Tseng et al. 2006). In the advancement and development of enterprises, closely monitoring technological developments, making new inventions and technology application according to the structure of the firm is inevitable. Companies who cannot update themselves are wiping away from the market. Innovation is an important occupation for those who want to improve themselves (Schilling and Shankar 2019). Although technology and market trends drive new ideas, market orientation is composed of ideas that provide consumer needs more appropriately, while technology orientation; the latest technologies consist of innovative ideas that are using. Technology orientation explains a firm’s attitude towards technological development and research to analyze the technology potential and predict the technology trend. This stance is manifested in the acquisition of an investment in technological expertise with significant technological leadership. Although this type of strategic orientation has not been investigated as much as market orientation in the literature, it is considered to be a fundamental dimension of a firm’s strategic innovation orientation. Proactive technology orientation clearly states an opportunistic, forward-looking perspective that allows firms to act by changing the expectations of the future demand and by applying the latest technology to new products. Again, such a stance has been shown to be particularly meaningful in the context of innovation (Talke 2007).

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8 Conclusion and Discussion Competition strategy can mean creating a completely new business area (Shaikh 2016). If this business site is profitable for the organization, it creates a competitive advantage for the organization. Until new organizations enter the field of work, the organization occupies a monopolistic position. The organization’s loss of a monopolistic position is especially common in emerging and innovative industries. Competition between organizations seeking to develop new products or processes promotes innovation. The number of competitors affects competitive tension. According to predictions of competitive research using game theory, competition intensifies as the number of competitors increases, and the market becomes less rare (Swann 2018). The situation in crowded markets with more elements that make it difficult to closely monitor competitors’ interaction strengthens competitive behavior. On the other hand, collaboration behavior intensifies when competitive movements are very pronounced in markets and organizations can closely monitor the competition. High competitive intensity is associated with rapid product development. Rising competition from different focuses makes organizations pursuing new product development and product niches more aggressive and flexible. If competitive pressures are low, innovation may decrease as it will be easier to maintain pre-provided price and difference advantages. While market density balances the opposite effects of resource generosity, where the relationship between competition and innovation is curvilinear if the two views are reconciled very much facilitates the result. While external competition reduces resources, competitive between common or connected business units are able to achieve growth by increasing efficient innovation (Impullitti and Licandro 2018). Competition between competitive organizations that produce the same product encourages these organizations to seek ways to improve quality or deliver better products. Organizations that predict a larger product market competition after innovation are more reluctant to invest in research and development. If innovation will push the organization into a fierce competition rather than save it from the competition, the organization will expect less profit from research and development. As a result, the organization will be less willing to give first priority to monitor innovation (Godin 2015). This encourages organizations to be different from competitors by creating new products that are often marketed by other organizations and subjected to the less post-innovation competition is able to. Organizations are quickly imitated by competitors for the new ideas they produce for the society, the weak brand rules, the market pioneers have only a limited chance of extra profit compared to the audience, limited patent protection, and the spread of new ideas quickly and widely (Benchmarking). For this reason, even among organizations in sectors that promise only a small dividend, innovation motivation can be strong (Al-Ansari et al. 2013). According to the decision-making calculations of potential innovators, if the motive to avoid existing market competition (second

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principle) is stronger than fear of post-innovation market competition (third principle) the motivation of innovation will be strong. If an organization can innovate and discourage potential competitors from investing in research and development, an organization will be willing to innovate. This franchise motive is based not only on the ability to offer buyers better or cheaper products as a result of investing in research and development of the innovation organization but also its potential competitors from innovation deter from the ability to gain profits. As the first organization to innovate acquires the market, it is able to predict that it will face innovative competitive competition. Therefore, competing firms will be less willing to invest in research and development than the first innovator (Adner 2012). In the 1970s, it is necessary to question why Nissan and Toyota companies in the US automotive industry did not innovate aggressively in small cars. By predicting strong post-innovation competition, Nissan and Toyota were not be so eager to invest in developing their small cars. However, as the competitive environment started to increase and they reached a certain position in their market, they started to constantly innovate. Obviously, the existence of competition has encouraged these companies to innovate. The first rules of the relationship related to innovation and competition are thus studied. The degree of need for innovation by organizations with the degree of production factor and market competition, which is theoretically felt within the framework of the examination of the competitive tension that constitutes the subject of this study is considered to be a parallelism between.

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Financial Development and Economic Growth: Evidence from Sub-Saharan Africa Seydou Oumarou, Nildag Basak Ceylan, and Ayhan Kapusuzoglu

Abstract This study aims to empirically investigate the short and long term, and the causality impacts of financial development on economic growth in some chosen nations in Sub-Saharan Africa (SSA). To bring out the short and long-run features, the Autoregressive Distributed Lag Model (ARDL) techniques have been estimated. The study shapes an aggregate variable of financial development through the Principal Component Analysis and applies the Cross-sectional dependency-based unit root tests. According to the empirical findings of the study, it is proposed that the execution and quickening of effective financial sector reforms and the implementation of growth-oriented policies that would boost the financial sector by policymakers.

1 Introduction Today, the concept of economic growth seems more challenging to define. Economists are still wondering what they know about growth and how well to describe an economic policy. However, the fact remains that the improvement of economic growth sustainably remains a concern if not the top priority of policymakers in all countries in the world, to reduce poverty and to enhance the standard of living of the populations. While economic policies that lead to economic growth are being developed on an ongoing basis, economic decision-makers still have a difficult task of determining and choosing efficiently the instruments that can promote and

This paper is based on Seydou Oumarou’s Ph.D. Dissertation in Ankara Yildirim Beyazit University, Graduate School of Social Sciences, Ankara, Turkey. S. Oumarou Graduate School of Social Sciences, Ankara Yildirim Beyazit University, Ankara, Turkey N. B. Ceylan · A. Kapusuzoglu (*) Faculty of Business, Department of Finance and Banking, Ankara Yildirim Beyazit University, Ankara, Turkey e-mail: [email protected]; [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 H. Dinçer, S. Yüksel (eds.), Financial Strategies in Competitive Markets, Contributions to Finance and Accounting, https://doi.org/10.1007/978-3-030-68612-3_5

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ensure sustainable economic growth. Human capital, as physical capital, and the capacity to utilize the factors of production more effectively, are the main ways by which reasonable economic growth can be accomplished as clarified by the theories of development (Greenwood and Jovanovic 1990). Besides, the aggregations of physical and human capital have been, for quite some time, the basic factors that enhance economic growth. Nonetheless, capital aggregation could just clarify a little piece of the peculiarities in the degree of development between nations. For King and Levine (1993), stimulating economic growth can only be possible by adopting an effective combination of factors of production and by considering the role of other variables such as investment, and financial development. Focusing on King and Levine (1993)’s argument it can be attested that the financial sector is a basic supporter of GDP in every economy. That is, a keen financial sector is fundamental for economic growth which has been exhibited in the works by (Levine 2005; Demirguc-Kunt and Levine 2008). Developed financial sectors assume a key function in supervising financial movements and directing investment funds. They encourage expansion, risk-sharing, and contribute to the exchange of goods and services. However, limited financial accessibility and an underdeveloped financial system hamper economic growth. In such a situation, it is not possible to measure financial risks; intermediation becomes ineffective and therefore hinders economic activities. Besides, when the financial sector is unable to influence the allocation of resources or manage information properly on time, economic resources cannot be used productively. For an economy to grow, to emancipate and develop, it needs, therefore, profound changes and reforms of its financial sectors. Nevertheless, the economic conjectures on the connection are not consistent and are subdivided into four arguments which incorporate supply-leading (finance-led-growth; see Bagehot 1873; Calderon and Liu 2003; King and Levine 1993; Schumpeter 1934), demand-following (growth-led-finance; see Robinson 1952; Goldsmith 1969), feedback (bi-directional causality; see Luintel and Khan 1999; Al-Yousif 2002), and independent hypotheses (see Lucas 1988). The need to understand the finance-growth connection could be justified by the implications of the various financial crises that humanity has experienced. For instance, the “subprime” crises in the United States that turned into an international financial crisis with implications on investment, job cuts, and hence on economic growth. The case of SSA is imperative to examine because most of the countries in SSA are weak and characterized by a very underdeveloped financial system that is not immune to crises. Besides, SSA countries are aspiring to economic emergence with the implementation of financial initiatives that will enable the creation of wealth to fight against poverty. Likewise, this study differs from previous ones as heterogeneous dynamic panel data over a long period is used. Also, as far as our knowledge is concerned, there isn’t yet an investigation which tests the connection between financial development and the real sector improvement in SSA by utilizing an advanced econometric strategy such as checking for cross-sectional dependency and the panel ARDL approach, whereby the estimations are done via three estimators the mean group (MG), the pooled mean group (PMG) and the dynamic fixed effect (DFE) (Pesaran et al. 1999). Next, there are very few studies on the SSA

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context that tests whether financial development factors affect growth differently within SSA. Therefore, it is compared the result of financial development on economic growth within SSA based on countries using the CFA (Communaute Financiere Africaine, African Financial Community currency used in French colonized countries in Central and West Africa) francs currency to NCFA (Non-CFA) francs countries. What motivates us to compare the countries using the CFA Franc to the NCFA; is because countries colonized by France are the least developed, and their economic performance is far below those of the other countries in Africa. Also, recently a lot of activists and economists criticize the negative impact of CFA currency on the development of the countries using it. It is considered as a way by which France control these countries, hence keeping them in extreme poverty and underdevelopment. Also, it must be noted that most of the countries using CFA currency (French colonies mostly) have the lowest human development index (HDI). Therefore, it is wanted to check whether the influence of financial sector development on economic growth also changes by contrasting the CFA countries to the NCFA countries. Therefore, this study aims at analyzing and investigating the short and long-run nexus and alongside the causation between financial development and economic growth in 23 selected SSA nations over the period 1970 to 2017. The remainder of the document is structured in this manner: Section 2 contains a succinct review of previous studies on the finance-growth nexus. Section 3 illustrates research methodology. The empirical findings are shown in the fourth section. In the final section, the conclusions and discussions of the study are drawn.

2 Literature Review The positive correlation between financial development and economic growth can be retraced in the early works of Schumpeter (1934). For example, in his book titled “The Theory of Economic Development”, it is showed the significance of the financial sector not only in funding productive enterprises but also inciting innovations, which therefore lead to growth. Improving the financial sector permits to induce growth through the saving mobilization function that it plays (Goldsmith 1969). Similarly Gurley and Shaw (1955) has emphasized the role of both bank and non-bank financial intermediation in the savings-investment process to verify how economic growth in a country can largely depend on the adjustments in the financial sector. In his study, Hicks (1969) concluded that a nation’s level of development is tied to the improvement in its financial sector. Financial services are, therefore, essential for growth due to their substantial role in economic development. In another study, Patrick (1966) claimed that financial development is essential to stimulate economic growth when a nation is in the early phases of economic development. A lot of studies suggest that the primary driver of economic growth is due to improvement in the financial sectors. Subsequently, endorsing the “supply leading hypothesis.” Likewise, for similar result backing this view see; Beck and Levine (2004); Christopoulos and Tsionas (2004).

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For some authors, financial sector improvement is the pure consequence of economic growth. That is financial sector development emerges when economic activities create a demand for financial services, which consequently permits the expansion of the financial sector (Robinson 1952; Odhiambo 2008). Besides, other economists have examined the mutual effect of finance and growth and suggest that the two variables are reciprocally crucial to each other (Luintel and Khan 1999; Al-Yousif 2002). Nonetheless, not all studies show a positive link. For example, De Gregorio and Guidotti (1995) by enlarging King and Levine (1993)’s sample and by splitting it into three sub-samples of countries depending on the initial level of GDP. They show that the association between financial development and economic growth increases and becomes significant as the initial gross domestic product per capita decreases. Notwithstanding, by restricting the example to just Latin American countries, the study reveals a deleterious impact of financial development on growth. Besides, Ram (1999) reports a similar result by arguing that financial development negatively and considerably impacts economic development in 90% of the nations under his investigation. Next, and based on Andersen and Tarp’s (2003) findings the positive association between the two factors divulged by Levine et al. (2000) is not substantial when the attention is on countries situated in SSA and Latin America. In their study, Loayza and Ranciere (2005) report that financial development substantially influences economic growth in the long-term. However, in the shortterm, their investigation shows that it unfavorably impacts growth. Therefore, Loayza and Ranciere (2005) think that the changes in the outcome in the short and long term are due to financial vulnerability which the authors proxy by the recurrence of crisis in the financial sector and the volatility of financial development indicators. In a study covering northern and southern Mediterranean countries, Ayadi et al. (2015) explore the growth and finance nexus. The study reveals that financial development proxy by credit to the private and the deposits of the banks influence negatively growth in the countries over the exploration time frame. The authors explain this negative influence by arguing that it is due to a misallocation of credit in the region. Also, Kenza and Eddine (2016) used MENA countries as a case study and under the ARDL framework; evaluate the role of financial development in affecting economic growth. The outcome acquired from the PMG estimator shows that both in the short and long-term financial intermediaries’ development harm economic growth in the MENA region. The lack of consensus also appears in the studies conducted in SSA see Spears (1992). The empirical work of Agbetsiafa (2004) concurred with the belief that financial sector progress instigates growth in SSA. Likewise, Kpodar (2005), show that, financial development has a smaller marginal effect on economic growth in SSA. However, Fowowe (2011) reported that financial development and economic are mutually important to each other in SSA. The above reviews show that most of the works conducted on this topic, especially concerning African countries in a panel, either used Generalized Moments Method (GMM), or simple ordinary least Square methods with fixed and random

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effects. To the extent of my knowledge, no other study used panel ARDL methodology in a panel of African countries. Besides, most of the research concentrates on studying the influence of the financial sector on growth in Africa without distinguishing between CFA and NCFA countries.

3 Research Methodology The focus of this study is to give evidence of the short and long-run finance-growth nexus in some selected countries in SSA. For which, the study suggested a dynamic regression model which considers the short and long-run dynamics. Hence, the model to be estimated is a reparametrized form of panel ARDL (p,q) that take the following specification: ( ) ΔGDP PCGit ¼ μit þ φi GDP PCGit–1 – θ0i,1 FDi,t–1 – θ0i,2 CVi,t–1 Xq–1 Xp–1 λ* ΔGDP PCGi,t–j þ δ* i,k ΔFDi,t–k þ j–1 i,j k¼0 Xq–1 þ ϑ* ΔCVi,t–k þ εi,t k¼0 i,k Where GDP_PCG is gross domestic per capita growth rate constant 2010 US dollars, FD is the financial development index, CV is the set of control variables. θ0i,1, θ0i,2 are the long-run coefficients; λ*i, j, δ*i, k, and ϑ*i, k are the short-term coefficients relating growth to its determinants. The error correction term is ϕi it shows the speed of adjustment of GDP_PCG toward its long-run equilibrium following a change in the independent variables (ϕi < 0). The subscripts i ¼ 1. . .23 show the cross-section and t ¼ 1970. . .. . .2017 the time series respectively; μi, t is the country-specific effect. A panel data observation containing 23 countries over the period from 1970 to 2017 is used. The choice of nations is principally decided by data obtainability. The countries that are chosen in this study are Benin, Burkina Faso, Burundi, Cameroon, Central African Republic, Chad, Congo Republic, Ivory Coast, Gabon, The Gambia, Ghana, Kenya, Madagascar, Mali, Niger, Nigeria, Rwanda, Senegal, Seychelles, Sierra Leone, South Africa, Sudan, and Togo. The sample is split into two sub-samples namely the CFA countries (contains 12 countries) and non-CFA countries (11 countries). Several indicators have been considered in the literature to measure the development of the financial sector in a country. The choice of the variables depends on the structure of the financial system of the countries whether it is bank-based or marketoriented financial systems. In this study, as the focus is on Sub-Saharan Africa, it is only used bank-based variables. Hence, this study considers the mostly used variables such as commercial bank assets divided by commercial banks plus central bank assets, domestic credit to the private sector (% of GDP), private credit by deposit

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money banks (% of GDP), and Liquid liabilities (% of GDP) (hereafter BA, DCPS, PCB, and M3) and the data concerning these variables are retrieved from the Global Financial Development Indicator Database (GFDD). The World Development Indicator (WDI 2018) database of the World Bank (2018) is used to retrieve the economic growth variable which is measured by GDP per capita growth rate (GDP_PCG) and the three control variables (gross capital formation, government expenditure, and trade openness, selected based on a broad audit of the literature denoted respectively by GCF; GS; and TO). The data has some missing points, interpolation is used to fill the missing values. As the financial development variables are correlated putting them in an equation individually would lead to inconsistent results. Therefore, an aggregate indicator is formed through the four indicators mentioned above via the Principal Component Analysis (PCA). The index formed is denoted by (FD).

3.1

Data Analysis Process

The method of data processing includes a total of four phases: Firstly, it is checked the order of integration of the variables. Secondly, the long-run association among the variables is checked via the Pedroni (2004) test (cointegration). Thirdly, an overview of the econometric techniques is given. Finally, a causality test is checked through Dumitrescu and Hurlin (2012)‘s test.

3.1.1

Testing the Order of Integration

Before analyzing panel data in an empirical study, it is critical to make a stationary test, which is commonly done by unit root test. Thus, there is a multitude of unit root tests in panel data econometric literature. Especially, there are first-generation and second-generation panel unit root tests. However, to decide which types of unit root test to employ, one should check for the Cross-Sectional Dependency (CSD) between the countries in the study. Hence, this study used the LM test (Breusch and Pagan 1980), to corroborate the presence of cross-sectional dependency. The test of CSD demonstrates that the variables reject the null hypothesis of no crosssectional dependence. Consequently, the second-generation unit root tests built by Pesaran (2007); explicitly the Cross-sectional ADF (CADF) and the Cross-sectional Im Pesaran and Shin (1998) are used (see Table 1).

3.1.2

Panel Cointegration Test

Understanding the presence of a long-run association between financial development and economic growth while using panel data is vital as it permits to guess that at least the two variables might have one-way causation though the direction is yet to be

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Table 1 Pesaran’s CADF and CIPS tests results Const. Variables T_bar Pesaran’s CADF test result GDP_PCG –4.739*** FD –1.414 GCF –2.284*** GS –2.011 TO –2.262*** ΔFD –4.473*** ΔGCF ΔGS –5.371*** Variables Pesaran CIPS test result GDP_PCG FD GCF GS TO ΔFD ΔGS ΔGCF ΔTO

Pro-value 0.000 0.965 0.004 0.109 0.006 0.000 0.000 Const. T-stat –5.542*** –1.127 –2.287 –2.238 –2.563 –5.024*** –6.094*** –5.606*** –6.187***

Const. & trend T_bar –4.965*** –2.600 –2.610 –2.540 –2.925*** –4.687*** –4.608*** –5.444***

Pro-value 0.000 0.079 0.071 0.137 0.001 0.0000 0.0000 0.0000 Const. & trend T-stat –5.748*** –2.087 –2.462 –2.780 –3.137 –5.152*** –6.279*** –5.795*** –6.367***

Note: The ***, ** and * denote 1%, 5% and 10% level of significance. Concerning the CIPS test; 2.3, –2.16, and 2.08 at 1%, 5%, and 10% respectively with constant 2.66 (10%) –2.76(5%) –2.93 (1%) respectively with constant and trend

determined. Hence, the test is used suggested by Pedroni (2004) to check for the long-run relationship. Pedroni (2004) has suggested seven separate statistics to check panel data cointegration. Among these seven statistics, four are based on pooling which is named “within dimension” while the other three are built on the “between dimension”. Both types of tests consider the null hypothesis of no long-run relationship (no cointegration). To refute the null hypothesis; the computed value (from the panel statistics) must be positive and statistically significant, while other test statistics must be negative and statistically significant in absolute terms greater than the panel v statistic (see Table 2). Then, the variables in consideration share a long-term equilibrium connection. The results exhibited in Table 2 show that the null hypothesis of no cointegration is rejected at even 1% significance level, implying that the variables share a long run relationship.

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Table 2 Pedroni’s cointegration test results

Panel statistics Panel ν Panel σ Panel t Panel ADF Group statistics Group σ Group t Group ADF Number of Panel unit Number of Observation

Test statistics 5.15*** –12.96*** –20.99*** –15.04***

P-value 0.0001 0.0000 0.0000 0.0000

–12.56*** –25.02*** –16.1*** 23 1104

0.0000 0.0000 0.0000

Note: *** denotes significant at 1%

3.1.3

Overview of the Econometric Techniques

The empirical examination starts with a test of cross-sectional dependence and the second-generation panel unit root tests (CADF and CIPS). The findings exhibit that the null hypothesis of no cross-sectional dependence is refused as the probability values of the variables are lesser than 0.01 signifying that there is a CSD in all the variables. The CADF test outcomes show that with a constant in the model GDP_PCG rate, GCF and TO are stationary at the level at a 1% significance level while the financial development variable (FD) and government expenditure (GS) become stationary after taking their first difference. By including constant and trend, only GDP_PCG rate becomes integrated at the level while all the other variables reached stationarity after taking the first differences. The tests of the CIPS exhibit that GDP_PCG per rate is stationary at level with constant, while financial development index (FD), gross capital formation (GCF); government consumption expenditure (GS), and trade openness (TO) attained stationarity after first difference. When it is considered constant and trend in the model, the results are relatively akin. Overall, the variables are mixed stationary I(1) and I(1) in both tests. Having established the order of stationarity, cointegration test has been checked to be sure of the presence or the absence of long-run association among the variables. The result indicates that there is a long-term equilibrium connection between FD, the control variables, and economic growth in SSA. Following the establishing of unit root and cointegration, the subsequent stage is to assess the ARDL model through the three estimators (MG, PMG, and DFE). But before the estimation; an optimal lag is chosen. In this study, ARDL (1,0,0,0,0) is adopted. Hence, ARDL (1,0,0,0,0) will be run throughout this study. After the estimation of the model, the Hausman test exhibit that in the entire sample of Sub-Saharan Africa and the two sub-samples, the PMG estimator is the best model over MG and DFE. Pesaran and Smith (1995) argued that when the number of times series is larger than cross-section (T > N), the traditional panel techniques (fixed effects, instrumental variables, GMM estimators) can generate conflicting and deceptive

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estimations of the mean values of the parameters in the dynamic panel data model. Besides, in this study, the variables are not stationary in the same order. Also, it is assessed instantly the short and long-run dynamics of financial development on growth in the selected nations, it is crucial to utilize panel data analysis techniques that can allow reporting both the short and long-term interactions. Therefore, this study use panel Autoregressive Distributed Lag Model (ARDL Model) whereby the estimations are done through three different estimators: The mean group estimator (MG) developed by Pesaran and Smith (1995), the pooled mean group (PMG) estimator popularized by Pesaran et al. (1999) and the Dynamic Fixed Effect (DFE) estimator. To understand the characteristics of these estimators, it is important to provide brief main theories associated with each of the estimators. Firstly, the mean group (MG) involves doing different regression for each country composing the panel. Also, it averages the data by computing the coefficients as an average and allows the parameters to be freely independent across groups. Secondly, the pooled mean group estimator enables short-term coefficients and the error correction terms to be different through countries, while the long-term slope parameters are limited to be identical for all the countries composing the panel. Thirdly, the dynamic fixed effect estimator (DFE) allows the long-run slope coefficients to be homogeneous across the country and permits the intercept to differ across the group. But, how to choose the best estimator to use for the estimations among the three estimators? To choose among the three estimators Hausman (1978) test is employed whereby the null hypothesis is the MG and PMG or the DFE and PMG are not substantially different, or the PMG estimator is the most efficient. The alternative hypothesis suggests that null is not true. To decide, the Hausman statistic p-value should be greater than 0.05 level of significance and in that case, the PMG estimator is used. If the Hausman p-value is less than 0.05 then MG or DFE estimator is applied. This study analyzes the causality relationship by applying Dumitrescu and Hurlin (2012)’s test of causality. The Dumitrescu and Hurlin (2012) causality test can be used when T > N and when N > T. Moreover, it provides consistent, standardized panel statistics even if the series is cross-sectionally dependent. Also, this test applies to balanced and heterogeneous panels. According to Dumitrescu and Hurlin (2012), the test statistic is based on the individual Wald statistics of Granger non-causality averaged across the cross-section units, and hence assumes all the coefficients to be different across the cross-sections.

4 Empirical Findings The findings from the PMG result (see Table 3) show that financial development has a long-run positive and statistically significant impact on growth at 5% significance in the full sample of SSA. Subsequently, a unit increment in the degree of financial development in SSA brings about a 0.172 unit increase in GDP per capita growth rate improvement. The short-run connection between FD and GDP_PCG rate is

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Table 3 Pooled Mean Group (PMG) estimation results (dependent variable: GDP_PCG) Country Groups Variables Long-run estimates FD GCF GS TO Short-run estimates ECT ΔFD ΔGCF ΔGS ΔTO Intercept Number of Countries Observations

Full SSA Coefficient

Std. Error

CFA Countries Std. Coefficient Error

0.172** 0.00882 –0.0602* 0.0463***

(0.073) (0.0122) (0.0328) (0.0104)

0.180** 0.0104 –0.0208 0.0646***

(0.095) (0.0153) (0.0487) (0.0202)

0.370*** 0.0886*** 0.0738* 0.0426***

(0.114) (0.0205) (0.0435) (0.0128)

–0.863*** –1.181 0.265*** –0.192 –0.0386 –1.057*** 23

0.0444 (1.165) (0.0912) (0.138) (0.0469) (0.265)

–0.862*** –0.724** 0.332*** –0.456** –0.0909* –2.676*** 12

(0.0745) (0.377) (0.125) (0.221) (0.0486) (0.313)

–0.869*** 0.473** 0.190 0.0982 0.0127 –0.369 11

(0.0540) (0.174) (0.134) (0.124) (0.0820) (0.434)

1104

576

NCFA Countries Std. Coefficient Error

528

Note: ***, ** and * denote the significance at 1%, 5% and 10% respectively

negative. Precisely, a unit increment in FD; the short-term GDP growth rate of Sub-Saharan African will shrink by 1.181 units. Yet, it is statistically insignificant. Concerning the CFA countries, the outcome recommends that FD is identified with a higher GDP per capita growth rate in the long term; and it is significant at a 5% level. That is, the GDP_PCG rate will climb by 0.180 points when the financial sector services increase by a unit. In the short-run, financial sector improvement negatively and significantly (at 1% level) affects economic development in CFA-countries. The investigation finds that in the long run financial development in the NCFA nations sway economic growth (see Table 3). Undoubtedly, it shows that one unit ascends in FD will prompt 0.370 units point expansion in economic growth in NCFA nations. Besides, in the short-un the positive and notable impact that the examination found over the long-run endure. In other words, NCFA countries will witness an expansion of their economy in the short-run by 0.473 points increment in GDP_PCG rate, with one unit increase in financial sector development holding everything else constant. The error correction terms (ECTs) are found to have the normal sign (negative) and are remarkably important at a 1% significance level (see Table 3). These error correction terms (ETCs) shows the adjustment measure to the equilibrium level in the case of any shock in the economy. The long-run positive and significant impact of FD on GDP_PCG rate that the analysis identifies in SSA just as in the two sub-samples might be because of the consideration in our sample of certain nations with high-income level and with a better than expected degree of financial development—for instance, South Africa and Seychelles. It is concentrated on South Africa because its financial sector is the

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Table 4 Pooled Mean Group (PMG) estimation results after removing South Africa (dependent variable: GDP_PCG) Country Groups Variables Long-run estimates FD GCF GS TO Short-run estimates ECT ΔFD ΔGCF ΔGS ΔTO Intercept Number of countries Observations

Full SSA Coefficient

Std. Error

CFA Countries Std. Coefficient Error

0.119 0.0120 –0.0602* 0.0460***

(0.205) (0.0124) (0.0331) (0.0105)

0.180 0.0104 –0.0208 0.0646***

0.264 0.0153 0.0487 0.0202

0.498 0.00791 –0.0671 0.0396***

0.340 0.0208 0.0442 0.0131

–0.871*** 21.195* 0.280*** –0.184 –0.0505 –1.093*** 22

(0.0457) (0.749) (0.0938) (0.144) (0.0475) (0.275)

–0.862*** 21.724** 0.332*** –0.456** –0.0909* –2.676*** 12

0.0745 (0.277) (0.125) (0.221) (0.0486) (0.313)

–0.886*** 20.556** 0.213 0.139 –0.00481 –0.209 10

0.0581 (0.176) (0.146) (0.129) (0.0878) (0.450)

1034

564

NCFA Countries Std. Coefficient Error

470

Note: ***, ** and * denote the significance at 1%, 5% and 10% respectively

most advanced in the sample. For instance, the average of BA in South Africa is 96.54% far above the average value of the full sample, DCPS (% of GDP); PCB (% of GDP), and M3 (% of GDP) averaged respectively 102.26%, 54.53%, and 46.90%. Therefore, its financial sector might drive economic development by mixing it with less financially developed countries. Consequently, South Africa is removed from the sample, and estimations are redone to check how far the above-stated results would change. By excluding South Africa, the long-run effect of FD on growth is still positive in the full sample as well as in the two sub-groups of CFA and NCFA countries though insignificant (see Table 4). However, FD is found to negatively and significantly impacts GDP_PCG in the short run, in both CFA and NCFA countries, and the entire sample of SSA countries. Based on the present outcome it can be asserted that the long-run positive and considerable weight of FD on economic growth might imply that South Africa being in the sample has contributed to have the positive and significant effect of financial development on economic growth observed in the sample with South Africa. The causality test results (see Table 5) indicate that the GDP_PCG rate significantly causes FD. Indeed, at a 1% level of significance, it is obvious to reject the null that the GDP_PCG rate does not homogeneously cause FD in SSA and CFA countries. As a result, the “demandfollowing hypothesis” is prevailing in SSA and CFA countries. In the NCFA countries, the study finds that the expansion of the economy causes financial development and vice-versa. Hence, bidirectional causation is observed in NCFA countries, meaning that FD and GDP_PCG are reciprocally important to each other.

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Table 5 Panel causality test results

H0 GDP_PCG does not homogeneously cause FD FD does not homogeneously cause GDP_PCG GDP_PCG does not homogeneously cause GCF GCF does not homogeneously cause GDP_PCG GDP_PCG does not homogeneously cause GS GS does not homogeneously cause GDP_PCG GDP_PCG does not homogeneously cause TO TO does not homogeneously cause GDP_PCG CFA GDP_PCG does not homogeneously cause FD FD does not homogeneously cause GDP_PCG GDP_PCG does not homogeneously cause GCF GCF does not homogeneously cause GDP_PCG GDP_PCG does not homogeneously cause GS GS does not homogeneously cause GDP_PCG GDP_PCG does not homogeneously cause TO TO does not homogeneously cause GDP_PCG NCFA GDP_PCG does not homogeneously cause FD FD does not homogeneously cause GDP_PCG GDP_PCG does not homogeneously cause GCF GCF does not homogeneously cause GDP_PCG GDP_PCG does not homogeneously cause GS

SSA Z-bar statistic 8.6458***

Prob. value 0.0000

Z-bar tilde 7.3591***

Prob. value 0.0000

0.2942

0.7686

–0.0284

0.9773

6.1191***

0.0000

5.1240***

0.0000

1.4581

0.1448

1.0011

0.3168

2.4355**

0.0149

1.8657

0.0621

3.6784***

0.0002

2.9651***

0.0030

1.0670

0.2860

0.6552

0.5123

1.3715

0.1702

0.9245

0.3552

7.5160***

0.0000

6.4398***

0.0000

–1.7266

0.0842

2.8347***

0.0046

2.2989**

0.0215

0.3561

0.7217

0.1065

0.9152

0.9665

0.3338

0.6464

0.5180

1.5647

0.1176

1.1756

0.2398

0.9823

0.3260

0.6604

0.5090

1.2088

0.2267

0.8608

0.3894

4.6516***

0.0000

3.9150***

0.0001

2.2288**

0.0258

1.7719**

0.0464

5.8874***

0.0000

5.0081***

0.0000

1.7364

0.0825

1.3364

0.1814

2.5122**

0.0120

2.0226**

0.0431

–1.7358

0.0826

(continued)

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Table 5 (continued)

H0 GS does not homogeneously cause GDP_PCG GDP_PCG does not homogeneously cause TO TO does not homogeneously cause GDP_PCG

SSA Z-bar statistic 3.6846***

Prob. value 0.0002

0.5170

0.6052

0.2577

0.7967

0.7206

0.4711

0.4378

0.6615

Z-bar tilde 3.0596***

Prob. value 0.0022

Note: The table exhibits the results generated through Dumitrescu and Hurlin’s (2012) tests *** and ** denote the level of significance at 1%, 5% respectively

5 Conclusion This study is carried out to examine and analyze the short and long-run as well as the causality between financial development and economic growth in twenty-three selected Sub-Saharan Africa countries. As the financial variables used are closely related to each other, an aggregate index of financial development is formed through the Principal Component Analysis. This study is different from the previous ones on the African context as it applies cross-sectional dependency, it assesses the impact of finance on growth in two sub-samples, CFA and the NCFA countries inside SSA, and uses the panel ARDL model which is rarely employed in previous studies. The findings revealed through the Pedroni (2004) test of cointegration that GDP_PCG rate, FD, GS, GCF, and TO have long-run cointegrating association over the study period. The study divulged based on the PMG estimator that there is definite and considerable proof that FD impacts long-run growth rates in the selected Sub-Saharan Africa countries as well as in the two sub-groups of CFA and NCFA countries. However, FD has a negative short-term impact on economic growth in SSA and CFA countries. Nevertheless, in NCFA countries financial development influences economic growth positively and significantly. As South Africa has the most evolved financial sector, it is precluded and the outcomes entirely change. In the entire sample just as in the two sub-groups, a positive yet negligible impact of FD on GDP_PCG rate over the long-run is found. The findings, however, show that the FD’s effect on short term GDP_PCG rate is negative and significant in SSA, in CFA and NCFA countries. Also, the study reveals unidirectional causality from economic growth to financial development in the full sample of SSA, as in the CFA countries, bolstering the demand following hypothesis. Nevertheless, bidirectional causality is observed in NCFA nations, supporting the feedback hypothesis. According to the results, the following policy implications are proposed. Concerning the entire sample of SSA and CFA, policymakers should implement and intensify financial sector policies and reforms and focus should be in the long run. In NCFA countries policies that boost both the real sector and financial sector in the short and long-run should be pursued.

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Succession Planning in Family Companies by “Habits Model” Ayhan Dayoğlu and Elif Baykal

Abstract Succession process finds meaning when the founder wishes his company would continue after him. A successful transfer process is compatible with the flow theory. Flow is a subjective situation in which people take control when they are involved in a work, and fully focus on the task without feeling tired. For the person to proceed with the flow, he/she needs to define his goals explicitly, receive immediate feedback and his/her skills and challenges need to be balanced. We have created the HABITS Model to generate a flow in the succession process by using the methods in the literature to plan a successful transfer process. HABITS is the acronym for the English words habitat, autonomy, bravery, improvement, turning to better results and steering. The three-dimensional model also answers the questions of what, who and how for each step. The HABITS Model that has the potential to combine coaching and family business succession processes according to us, can be empirically tested in the next stages and thus, become a new field of study.

1 Introduction While there are many definitions about family owned businesses, family business is commonly defined as a business managed and owned by a coalition from the same family, which shapes business processes and future goals according to the direction by this coalition and survives by being passed down. Family firms are established to sustain the life of the family to which they belong and to avoid loss of their wealth. In the case of family businesses, the founder often notices a product or service that is missing in the market according to him and sets up his firm to close the gap and get both material and moral pleasure. When things go well, the firm grows, and when the

A. Dayoğlu · E. Baykal (*) The School of Business, İstanbul Medipol University, Istanbul, Turkey e-mail: [email protected]; [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 H. Dinçer, S. Yüksel (eds.), Financial Strategies in Competitive Markets, Contributions to Finance and Accounting, https://doi.org/10.1007/978-3-030-68612-3_6

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family members around the founder join the firm, it becomes a family corporation (Baykal 2018). Main features that distinguish family businesses from non-family businesses are considered as the fact that the business is both managed and owned by family members (Ding and Phan 2005), the effect of the family factor (Moores 2009), the fact that the family businesses are generally value-oriented, i.e. based on family values (Olson et al. 2003), the fact that they attach great importance to the family’s dignity (Zellweger and Astrachan 2008; Baykal 2019c), that they engage in close business relationships with their stakeholders, and they are trust- and sacrificefocused (Karra et al. 2006), that they identify family honor with the company’s brand value (Craig et al. 2008) and that they have a long-term perspective (Le Breton-Miller and Miller 2006). The sustainability of such companies is largely related to the harmony of family and business realities. The socio-emotional richness of family businesses, shared histories and family norms harmonize the interests of family members with the values and strategies of the business (Dinçer et al. 2019). In family businesses, high sense of ownership among family members is considered a tool that interconnects the family and the business (Bernhard and Jaskiewicz 2011). The informal and emotional structure of family relationships in these businesses is a factor that increases the loyalty of family members and their continuity in the company (Narcikara 2017). Banalieva and Eddleston (2011) mention the existence of a common identity created by the socio-emotional wealth, that is, the social power created by kinship relationships, blood ties between family members, shared sincerity and a common identity formed by the common family history, and emphasize that this common identity facilitates the transfer of management. In family businesses, family leaders act with the desire to continue this socio-emotional capital and maintain that capital in all their decisions, including the transfer process (Calabrò et al. 2018). Family companies, which are the oldest and most widespread business type, have an important share in the world economy (BCG-Boston Consulting Group 2020). Family businesses, which account for more than 70% of commercial businesses in many different parts of the world, play an important role in promoting employment and economic growth. (IFC 2011). But in today’s business world, where change is felt very quickly and intensely, it becomes more difficult to enhance entrepreneurship and ensure sustainability for businesses. (Erdirençelebi and Ertürk 2019). The available information suggests that there is no family corporation passed down to the 6th or 7th generation in Turkey, and the number of corporations passed down to the 6th or 7th generation is limited even across the world (Alayoğlu 2003). In the light of the studies on corporate life cycle in the literature, it can be said that there are 5 stages of the life cycle of family owned businesses. Entrepreneurship Stage In the stage of entrepreneurship, the family corporation is founded by a person, who is often dominant in the family and whose decisions are respected and who represents the driving force of the family and who is typically of rural origin and who was raised with difficulties. At this stage, the founder has the majority and control of the shares. Even if there are other shareholders in the

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business, their share rates are generally low, and their ownership authorities are weak. In the entrepreneurship stage, members of the nuclear family work for the corporation (Fındıkçı 2014). Negative cash flow is normal in this period. The company may continue its way through short-term borrowings for short-term investments or use family funds. Systems are limited. Mistakes are considered normal (Adizes 1979). The founder continues his leadership in the family. But, when the company starts to grow, the increase in the number of employees causes problems. The entrepreneur mastering creative and technical issues faces management needs. The Stage of Acting Jointly At this stage, the entrepreneur gathers some of his family members to ensure continuity in the workplace (Fındıkçı 2014). Departments with business units are established with the distribution of hierarchy, power, and tasks. Each employee in the corporation feels like a part of the whole. Sibling directors who share ownership seek ways to manage the business together and develop a constructive relationship with children. With the complexification and rapid growth of the company, many practices need to become written procedures, and teamwork is needed. At this stage, if the founders do not want to transfer their responsibilities based on their strong leadership and vision, an autonomy crisis arises. Founder wants to make sure that all parts of the organization are coordinated and held together (Daft 2015). Formalization Stage The formalization stage involves application and use of rules, procedures, and control systems. The success of the enterprise is economically reflected on the family. If the family supports the business, the business supports the family. This interaction enables the business to grow and develop. However, only seventy percent of family corporations can reach this stage (Fındıkçı 2014). In this period, while the company professionalizes on the one hand, it also starts to lose its flexibility due to bureaucratization on the other hand (Daft 2015). Maturity Stage At this stage, directors learn to live in bureaucracy. The business keeps growing. When no effective strategic planning is done during this stage, the company may enter a temporary regression period after reaching maturity. The company loses its adaptability to environment, slows down and it can become extremely bureaucratic. Regression Stage At this stage, the company either starts to grow again with new breakthroughs, or starts to shrink thinking like a small company, or enter the process of regression.

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2 Succession: Importance, Encountered Problems, and Planning One of the most important factors that determine the continuity of a family corporation from one generation to another is the process of pre-planned succession. Succession planning refers to making necessary preparations to ensure the harmony of the family and the continuity of the business for future generations (Lansberg 2006). The transfer of management is the transition of the leadership from the founding manager or from a professional director who act as his representative to any family member or a successor outside the family. However, the process mostly takes place as a transition to another family member (Baykal 2019a). In fact, since most of the family businesses around the world show an average life span of 5–10 years, they can only experience the transfer process, that is, the transition of management from one generation to the next generation, only a few times in their history (Perricone et al. 2001). The transfer process affects many stakeholders closely. When the founder retires, he is afraid of losing power, and he perceives it as a downgrade. Many families are afraid of lowering their shares in the company and sharing it with non-family employees (Bernhard and O’Driscoll 2011), and therefore, they prefer to choose their potential heirs among the new-generation family members. The family’s transfer plan varies according to its place in the company’s life curve (Lansberg 2006). Typically, a transfer process does not start before the founder and his spouse enter the last quarter of their lives (Handler 1994). Shareholders, customers, and suppliers, on the other hand, seek the relationship they maintained with the founder, and may find it difficult to convey their opinions, desires and demands in the new situation. For this reason, in order to start the transfer process smoothly, it is necessary to work individually to manage emotions, decrease resistance and to establish transfer execution and management committees with the founder, family members, non-family directors, shareholders and other relevant stakeholders, who constitute the family company system (Lansberg 2006). When the transfer models that are prominent in the literature are analyzed, the first noticeable model is Handler’s model (1994). In the model, Handler defines the transfer process as mutual adjustment of roles between the founder and new generation family members. This process can be expressed as the mutual adjustment of the roles that the successor involves step by step while the founder withdraws step by step. Another transfer model accepted in the literature is the transfer model developed by Morris et al. (1997). This model reveals that the transfer process takes place smoothly in family companies where successors are well prepared for the transfer process, family relations are based on trust, and the transfer of ownership is planned. Lambrecht also proposed a six-step model for transition in family businesses. The first step of this model is the transfer of professional knowledge, values, entrepreneurial qualities, that is, the essence of the business to the next generations. Training of the successors begins at an early age at the dining table at home, continues during

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school holidays and part-time to the university. Education is the second step of the process. Candidate successors should be given freedom to receive education in the discipline they desire. Having a diploma should be sufficient to work in the family business, so the candidate successors should not be forced to receive education in the disciplines they do not want. The third step is the official in-company training phase. Candidate successors who reach this stage attend meetings related to execution and management. They start engaging in operations beyond learning the business. The fourth step enables the successors to gain experience outside the company. During the fifth step, the successors gain experience by working in different parts of the company before reaching top management positions in the company. The sixth step is related to creation of written plans and agreements. In this phase, plans are prepared for situations such as sudden death and resignation that may occur in the management of family business. Only one of the candidate successors who have reached this stage assumes full responsibility for the company in the next stage. According to Ip and Jacobs (2006), a successful transfer process requires legal and financial issues to be considered. Only issues related to the transfer of leadership, organizational structure and distribution of roles are not enough for a successful transfer. Legal and financial issues affect the quality of the transfer as much as the design of procedures and processes for psychological factors, raising a leader and abdication of the previous leader. Ip and Jacobs (2006) summarize the abovementioned psychological factors as family relationships, gender-based differences among employees and family members, and differences in business plans and goals of individuals. Rather than eliminating these differences, a series of rules that can manage these differences in harmony would create a transfer process that will make all stakeholders happy. Legal factors are the legal basis through which the transfer process will be conducted according to the shareholding structure of the corporation, whether it is a sole proprietorship, partnership, limited or joint stock company. Another important factor is financial factors, mainly including correct measurement of the financial value of the business and the correct funding of the transfer of management. A formal organizational structure is one of the elements that provide clarity and create a sense of trust in the transfer process (Bozer et al. 2017). The institutionalization level of the organization brings clarity to all business processes and transfer process and reduces the confusion. Another factor that positively affects the process is the presence of a predecessor who has a proper leadership style. The management style of the ruling leader affects future generations and contributes to easier experience of current processes if it has a strengthening style (Poza 2009). The transfer of social capital from the predecessor to the successor is an important part of the process, and the earlier this transfer to the potential successor begins, the easier the process will go through in the later stages. Transfer planning should include legal, financial, and managerial issues. In other words, it is not enough to plan in the administrative sense only (Baykal 2019a: 75).

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3 Flow Model Flow is a subjective situation, people report that in which they forget everything except time, fatigue, and activity itself when they are fully involved in something. This is what we feel when we read a well-prepared novel or play a good squash game or take part in a stimulating conversation. The defining feature of the flow is a moment to moment intense experiential participation in activity (Csikszentmihalyi 2004). While in the flow, the person concentrates completely on the task at hand and tries to complete the task by using the full capacity. For a person to enter a flow state, he needs to have clear goals, experience feeling of control, and there must be balance between his skills and perceived demands of the situation (Olčar et al. 2019). In the flow process, the person is so focused on the activity that he does not realize the mental processes to perceive that he is in; and therefore, he does not understand how time passes (Csikszentmihalyi 2004). In fact, Flow is an optimal state of experience where the individual feels cognitively efficient, deeply influenced and highly motivated, experiencing a high level of pleasure leading to happiness (Fan et al. 2019). By means of a series of research conducted by Csikszentmihalyi and colleagues, they discovered that when a person enjoys the situation he/she is in—that is, he/she experiences a flow—the consciousness in that situation is expressed in eight different conditions described below (Csikszentmihalyi 2004). These conditions are: 1. Targets should be clear in the flow. For a person to deeply devote himself to an activity, he must know the tasks he/she has to fulfill moment to moment. 2. In the flow, feedback comes immediately. If they cannot get timely information about how they do their jobs, it becomes difficult for people to stay in the flow. 3. In the flow, there is a balance between the work done and the person’s capacity. Believing that the work to be done is doable makes it easier for a person to fully apply himself to that work. According to Csikszentmihalyi (2004), both the challenges and skills must be high and equal so that the person can be in the flow under the ideal situation. 4. Concentration deepens in the flow. The person who starts to react to an opportunity that is open and has goals and gives instant feedback, gets carried away by the process. When this carry-away situation exceeds a certain threshold of concentration, one finds himself immersed in that occupation or interaction. 5. What is important in the flow is the moment experienced. Since the work at hand requires complete attention in the flow, it does not allow the anxiety and problems faced by the person in daily life to keep the mind busy. 6. In the flow, there is no such problem as control. When people describe their experience with the flow, they talk about a strong sense of control. In daily events, a person faces many issues that are not under his control. Things to do in a flow activity are clearly contemplated. Furthermore, the person develops his/her ability to cope with the situation by improving his/her skills to overcome the work to be done.

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7. The sense of time changes in the flow. Instead of chasing the time and worrying about the time at all, the person in the flow learns that he is the one who controls his subjective experience regarding the passing time. 8. In the flow, ego is forgotten. The flow offers the person the opportunity of transcending individuality. This gives the person a chance to participate in something bigger than him without giving up any mental, physical, or voluntary skills. Therefore, those who frequently experience the flow have higher selfesteem in general. The flow involves community orientation, and the desire to live a meaningful life in the flow and the feeling of fulfilling the personal potential feed each other in a positive relationship (Asakawa 2010).

4 Flow Model Transfer of management finds meaning if the founder wants the company to keep going. For a person to have flow experience, his/her challenges and skills must be in balance. If the challenge encountered is higher the skills, the relevant task creates anxiety in the person. If the level of challenge encountered is lower than the skills, then the relevant task creates dissatisfaction for the person. Flow theory assumes that the flow experience will be felt to the highest degree under high challenge/high skill conditions (Tse et al. 2018). In a successfully managed succession process, stakeholders’ experiences are compatible with the flow. In a well-managed process, both current and next generation members proceed on their way without realizing how time passes and without feeling the pressure and coercion from outside. Therefore, designing a succession process created by setting clear goals, giving immediate feedback, focusing on the process and without losing control is seen as a remarkable work. We prepared a succession model called HABITS, which will create a flow in the family corporations by considering the above-listed factors and using the methods in the literature. The first step of the model is to create the appropriate habitat for continuation of the company. Today, the world is changing rapidly. Change brings along opportunities. To manage the change, the decisions taken by valuing everyone’s views must be implemented resolutely. For this, a team consisting of members who complement each other should be established and the authority and responsibility should be given to the relevant people. Harmonious teamwork is crucial for resolving conflicts and choosing a strategy that fits common interests. This is based on mutual respect and trust. In order to create mutual respect and trust within the organization, employees should be selected according to the job, rather than selecting the job according to the employees, and the processes should be created clearly, and the powers and responsibilities should be simultaneously given to the employees and its results should be questioned, and the vision, mission, and values, namely the philosophy of the business, should be understood and followed by all employees (Adizes 2017).

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How parents interact with their children and whether they give autonomy to their children will affect what kind of person the children will become when they grow up. Families, who act openly, focus on the moment, give freedom of choice, build trust, and offer complex opportunities to their kids, proffer their children the opportunity to experience high-end life. To this end, children are given the opportunity to adjust the degree of difficulty of their activities as they wish. This concept, which we define as dynamic difficulty adjustment, is frequently seen in digital games. The degree of difficulty in the games varies dynamically depending on the person’s competence and performance, and it is aimed that the players stay in the flow and have enjoyable experience. In our model, the successor is given the opportunity to autonomously increase or decrease the challenges he encounters. Dynamic difficulty adjustment method begins in childhood of the successor. Although the first experience is gained at home in this regard, it is important, in terms of the flow, to dynamically adjust the difficulty level of the activities the successor encounters during his education life starting from pre-school education to university. One of the educational methods compatible with the flow before and after school is the Montessori method. Italy’s first female doctor, pedagogue and anthropology professor Maria Montessori (1870–1952) developed a pedagogy that fits the individuality of each child to the maximum extent, taking into account the individual skills, areas of interest and learning, and characteristics of children at the beginning of the twentieth century. During her works with children, Maria Montessori realized that the children do not enjoy rewards, punishments, adult-programmed education, toys, candies, teachers’ desks or collective lessons, but enjoy free will, self-control of their own mistakes, mobility, silence, self-establishment of social relationships, regular and clean environment, discipline based on free activity, reading and writing without books, and repetition of exercises. The Montesorri method, which argues that it is the duty of adults to awaken the talent and hidden power within the child and support them in the development process, in order to ensure that the child grows with a strong character, shapes the practices and the environment and helps the child to enter the flow (Csikszentmihalyi and Nakamura 2014). The third step of our model is to deliberately increase the degree of difficulty in activities. At this stage, especially the successor courage in childhood is increased for accustoming the successor to the business environment. This approach was inspired by the principle of Genchi Genbutsu, one of Toyota’s key management principles. This principle adopts to see and analyze the work related to the subject in its main source for continuous development. The Genchi Genbutsu approach allows people in Japanese factories to gain a deeper understanding of the daily events and root causes of problems. The definition of genba genbutsu is to go directly to the field to observe and gain insight to understand what is actually happening about the job (Liker and Ross 2018). Genba is not only a manufacturing shop, but also a place to go for observing and understanding the people and places where events such as sales, service, etc. take place (Chiarini et al. 2018). During this process and subsequent ones, a well-chosen mentor, or a senior manager with extensive work experience outside the family can teach young adults much of what they need to know to run their business. The fact that the mentor is a complement to the founder and

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supports the successor on basic issues other than the direct supervision of the founder facilitates the process in favor of the successor (Aronoff and Ward 2011). Mentoring is an effective strategy that contributes to the career development of the successor synergistically by synthesizing the dynamism of youth with the experience of old age to increase the success of the succession process. In addition to career development, mentoring also yields positive results in terms of efficiency, skill development, cost savings, recruitment, retention, organizational image, and strategic goals. The mentoring helps not only the candidate successor in many ways, but also the founder in preparation of his retirement plans (Alayoğlu 2006). The fourth step of the model is to develop and advance the successor’s skills to keep him in the flow. The philosophy we adopt here is Kaizen. Kaizen, consisting of the words kai (change) and zen (good) in Japanese, means change for the better. However, Kaizen does not refer to anything that has continuity. Kaizen is the core of continuous improvement. It is a way of thinking that encourages and supports everyone to identify where and how small changes can be made to benefit the business, their team, or their personal performance (Chiarini et al. 2018). The successor improves his skills with the support of mentors in the family and/or the company, gaining the ability to cope with the challenges he encounters. If the successor will challenge itself, increase its skills and eventually remain in the flow while developing himself, the feedback that constitutes the fifth step of our model is very important. When the actions are followed up, it is determined that the successor has either succeeded or failed. The purpose of reviewing the actions and progress of the successor is to ensure that the successor is improved. On-the-job improvement of the successor is the most effective way of learning. In this process, feedback should be taken as an opportunity for learning and development (Whitmore 2018). Appreciative Inquiry (AI) to be used for feedback is a change management approach that focuses on determining what works well, analyzing why it works well, and then doing more. The basic principle of AI is the focus direction of the successor. If the focus is fully on the problems, it is better for the successor to identify problems and deal with them. However, if the focus is fully on the strengths, it is better for the successor to determine the strengths and build on those strengths. The Appreciative Inquiry process requires a special way of asking directed questions that encourage positive thinking and interpersonal interaction. The questions focus on four main areas: Discovering, imagining, designing, and implementing (Cooperrider et al. 2003). Another important feature of this step is to celebrate achievements. It is very important to highlight and celebrate the achievements of the successor to gain energy continuously. Successors generally do not focus enough on their strengths. They think their work is ordinary and easy. However, highlighting the achievements and strong qualifications of the successors (O’Neil 2007) is crucial for improvement of their strengths. In fact, instead of developing the points they are not strong at and having, at best, average skills, it is important for both success and unique flow experience of the successor to gain the ability to use their skills well above the average by focusing on improving the successor’s strengths (Buckingham and Clifton 2001).

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The final stage of the model is to gain steering ability of the company by mastering of the successor at his/her job. The successor, who has received support from family members, teachers, and mentors up to this point, has reached the stage of mastering. This stage refers to a phase where the metamorphosis of the successor will be completed acquiring a new form. The successor, who has noticed the skills he has to acquire up to this point and developed himself, is now in the steering stage, which is the last step of the learning process (Liker and Ross 2018). At this stage, the successor continuously improves and develops himself by receiving coaching support. Coaching is the application of adult learning and is both what the leader successor needs and the direction his leadership style should go. To reach this point, the GROW model, which involves asking strong questions and active listening, is effective (Whitmore 2018). GROW model is a four-step coaching approach consisting of the acronym for Goals, Reality, Options, Will. The method consists of understanding the challenging target and the current situation, determining the next target situation, as well as the implementation phases (Liker and Ross 2018). To recap briefly, HABITS is a succession model that we created for family businesses using concepts in the literature. The purpose of the model is to contribute to the family business by increasing the success of the management transfer process, which is vital for the existence of the corporation and lasts about 25 years. The purpose of the HABITS Model we created to this end is to support family companies in preparing and improving their successors by answering the questions of what, how and who in six different steps.

5 Conclusion Family corporations are organizations where formal and legal ownership is held by a dominant family for many generations (Bernhard and O’Driscoll 2011). One of the most important factors that determine the continuity of a family corporation from one generation to another is the process of pre-planned succession. Succession planning means making the necessary preparations to ensure the harmony of the family and the continuity of the business for future generations (Lansberg 2006). The different interests of both family and non-family members in family businesses, coupled with intergenerational challenges, lead to conflicts between controlling family members and sometimes lead to fatal consequences regarding the transfer process and the sustainability of family businesses (Baykal 2019b). The transfer process, which starts with the birth of the candidate successor(s) and takes its official form when the founder decides to keep the company alive after him, typically takes more than 25 years. One of the most important elements of being successful in this long process is to ensure that the energies of stakeholders are constantly directed towards the process, that is, they can remain in the flow. The three-dimensional and six-step HABITS Model we created considering this supports the successor to remain in the flow, which begins before the birth of the successor, with the other stakeholders until the successor takes over the management. In our

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model, first, the founder creates a habitat of trust and respect for the candidate successor(s). Then the training process begins, in which challenges are autonomously adjusted for candidate successors. In the next step, the heir candidate bravely lands on the field and communicates with the people involved. In this process, the candidate successor is supported by internal and external mentors. The candidate successor must increase his skills against the challenges he encounters to get away from anxiety and proceed on his way in the flow channel. Our model is supported by the Kaizen philosophy, where skills are continuously improved step by step and it is ensured to remain in the flow. The successor needs feedback to remain in the flow and continue the process without losing joy. The feedback method adopted in our model for turning to better results is the Appreciative Inquiry Method, where the aim is to focus on positive probabilities rather than errors. It is expected that a candidate successor, who has passed these five steps, can take over the responsibility to steer the company. In the last step, the new leader improves himself in understanding the challenging goals, understanding the current situation, determining the next goal, and carrying into practice with coaching activities supported by the GROW model. HABITS is a succession model that we created to increase the success of the management transfer process, which is critical for the growth and development of family corporations. Its purpose is to create a transfer process compatible with the flow theory. The HABITS Model, which does not aim to prepare and improve successors throughout the succession transfer period, which lasts for nearly 25 years, consists of six steps and defines the target for each step, the actions to be taken while progressing to the target, and the stakeholders.

6 Future Studies In the next steps, the above-proposed model can be empirically tested. Once the validity of the model has been tested with a statistically acceptable number of samples, its impact on the success of the transfer process and the possible contribution of this impact on other organizational results can be empirically tested. This model can become a new field of work that combines coaching and transfer process in the literature of family-run businesses.

References Adizes I (1979) Organizational passages—diagnosing and treating lifecycle problems of organizations. Organ Dyn 8:3–25 Alayoğlu N (2003) Aile Şirketlerinde Yönetim ve Kurumsallaşma. MÜSİAD Yayınları, İstanbul Alayoğlu N (2006) Aile İşletmelerinde Genç Neslin Ve Lider Adayının Yetiştirilmesinde Mentorluk (Mentoring) Uygulamalarının Rolü ve Önemi. 2. Aile İşletmeleri Kongresi (s. 534–544). İstanbul Kültür Üniversitesi-AGMER, İstanbul

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Aronoff CE, Ward JL (2011) Family business values: How to assure a legacy of continuity and success. Palgrave Macmillan Asakawa K (2010) Flow experience, culture, and well-being: how do autotelic Japanese college student feel, behave, and think in their daily lives? J Happiness Stud 11:205–223. https://doi. org/10.1007/s10902-008-9132-3 Banalieva ED, Eddleston KA (2011) Home-region focus and performance of family firms: the role of family vs non-family leaders. J Int Bus Stud 42(8):1060–1072 Baykal E (2018) Innovativeness in family firms: effects of positive leadership styles. In: Strategic design and innovative thinking in business operations. Springer, Cham, pp 213–232 Baykal E (2019a) Aile İşletmelerinde Devir Sürecinin Yapılandırılması. E. Baykal içinde, Sürdülebilir Aile Şirketleri (s. 51–82). Ankara: Gazi Kitapevi Baykal E (2019b) Succession in family business through authentic leadership. In Handbook of research on entrepreneurial leadership and competitive strategy in family business (pp 436–451). IGI Global Baykal E (2019c) Turkish type leadership: sabri ulker example. J Soc Sci 3(6):425–438 Bernhard F, Jaskiewicz P (2011) Ownership perceptions in family businesses: psychological difficulties of the retiring owner-manager. In: Stamm I, Breitschmid P, Kohli M (eds) Doing succession in Europe: generational transfers in family businesses in comparative perspective. Zurich, Schulthess, pp 189–216 Bernhard F, O'Driscoll MP (2011) Psychological ownership in small family-owned businesses: leadership style and nonfamily-employees’ work attitudes and behaviors. Group Org Manag 36 (3):345–384 Bozer G, Levin L, Santora JC (2017) Succession in family business: multi-source perspectives. J Small Bus Enterp Dev 24(4):753–774 Buckingham M, Clifton DO (2001) Now, discover your strengths. Simon & Schuster, New York Calabrò A, Minichilli A, Amore MD, Brogi M (2018) The courage to choose! Primogeniture and leadership succession in family firms. Strateg Manag J 39:2014–2035 Chiarini A, Baccarani C, Mascherpa V (2018) Lean production, Toyota production system and Kaizen philosophy. TQM J 30:14 Cooperrider DL, Whitney D, Stavros JM (2003) Appreciative inquiry handbook. Lakeshore Communication Inc. & Berrett Koehler Publishers, New York Craig JB, Dibrell C, Davis PS (2008) Leveraging family-based brand identity to enhance firm competitiveness and performance in family businesses. J Small Bus Manag 46:351–371 Csikszentmihalyi M (2004) Good business. Penguin Group, New York Csikszentmihalyi M, Nakamura J (2014) The Concept of Flow. M. Csikszentmihalyhi, Flow and the Foundations of Positive Psychology (s. 239–263). New York: Springer Science+Business Media Dordrecht Daft LR (2015) Örgüt Kuramlarını Anlamak. (Ö. N. Özmen, & S. Bakar, Çev.) Ankara: Nobel Akademik Yayıncılık Dinçer H, Baykal E, Yüksel S (2019) Innovative capacity-based approach to blue ocean strategies of family firms: An IT2 fuzzy hybrid decision-making analysis for potential investors. J Intell Fuzzy Syst, Preprint, pp 1–12 Ding HB, Phan P (2005) Family member employment and the formation of family business networks. J Bus Entrep 17(2):24 Erdirençelebi M, Ertürk E (2019) Aile İşletmelerinde Girişimcilik Eğilimi. E. Baykal içinde, Sürdürülebilir Aile İşletmeleri (s. 247–278). Gazi Kitapevi, Ankara Fan HL, Hou ST, Lin YH (2019) Flow as a mediator between psychological ownership and employees’ subjective happiness. J Manag Psychol 34(7):445–458 Fındıkçı, İ. (2014). Aile Şirketleri (5 b.). İstanbul: Alfa Basım Dağıtım Handler WC (1994) Succession in family business: a review of research. Fam Bus Rev:133–157 Ip B, Jacobs G (2006) Business succession planning: a review of the evidence. J Small Bus Enterp Dev 13–3:326–350

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Karra N, Tracey P, Phillips N (2006) Altruism and agency in the family firm: exploring the role of family, kinship, and ethnicity. Entrepr Theory Pract 30:861–887 Lansberg I (2006) The succession conspiracy. Fam Bus Rev, 25–36. Le Breton-Miller I, Miller D (2006) Why do some family businesses outcompete? Governance, long-term orientations, and sustainable capability. Entrepr Theory Pract 30:731–746 Liker JK, Ross K (2018) Toyota Tarzı Hizmette Mükemmellik-Hizmet Şirketlerinde Yalın Dönüşüm. (A. Soydan, Çev.) İstanbul: Optimist Yayın Grubu Moores K (2009) Paradigms and theory building in the domain of business families. Fam Bus Rev 22:167–180 Morris MH, Williams RO, Allen JA, Avila RA (1997) Correlates of success in family business transitions. J Bus Ventur:385–401 Narcikara EB (2017) Psychological ownership in family business in the light of social identity theory. Int J Res Soc Sci 7(9):520–545 O’Neil MB (2007) Executive coaching with backbone and heart. Wiley, San Francisco Olčar D, Rijavec M, Golub TL (2019) Primary school teachers’ life satisfaction: the role of life goals, basic psychological needs and flow at work. Curr Psychol 38(2):320–329 Olson PD, Zuiker VS, Danes SM, Stafford K, Heck RKZ, Duncan KA (2003) The impact of the family and the business on family business sustainability. J Bus Ventur 18:639–666 Perricone PJ, Earle JR, Taplin IM (2001) Patterns of succession and continuity in family-owned businesses: study of an ethnic community. Fam Bus Rev 14(2):105–121 Poza EJ (2009) Family business, 3rd ed. South-Western Cengage Learning, Ma-son, OH Tse DC, Fung HH, Nakamura J, Csikszentmihalyi M (2018) Teamwork and flow proneness mitigate the negative effect of excess challenge on flow state. J Posit Psychol 13(3):284–289 Whitmore J (2018) Le guide du coaching au service de la performance: principes et pratiques du coaching et du leadership. Maxima Zellweger TM, Astrachan JH (2008) On the emotional value of owning a firm. Fam Bus Rev 21:347–363

Green Growth and Green Jobs in Turkey: An Opportunity for Youth Employment in Competitive Markets Halim Baş

Abstract In this study, the effect of green jobs on youth employment is examined. In this context, firstly, the terms of green growth and green jobs are explained. In this context, the positive and negative effects of green growth in terms of a sustainable economy are mentioned. Additionally, the aspects that may be an opportunity or a threat for developing countries are explained. On the other hand, Turkey is examined in terms of green growth and green jobs-oriented strategies in this study. Moreover, a framework has been drawn regarding the possibility to evaluate the potential of young population in green areas, such as renewable energy. It is concluded that green job opportunities will be more significant for Turkey in the future to minimize youth unemployment.

1 Introduction Recent economic crises and environmental problems in the world have strengthened the trend towards a new understanding of economy. Especially in order to repair the multi-dimensional effects of the 2008 economic crisis and respond to the need, the concept of green economy has come up strongly (Renner et al. 2008). This new understanding of economy is handled within the framework of sustainable economic development after the crisis. Sustainable development approach is a concept that came up about 30 years ago. It expresses the attitude of countries at the most basic level in terms of eliminating deprivation of people in need, supporting cultural sensitivity, and promoting and sustaining deep-rooted participation (Barbier 1987). In this framework, the World Environment and Development Commission has defined sustainable development as “development that meets today’s needs without compromising the ability of future generations to meet their own needs” (Brundtland et al. 1987). In this respect, sustainable economic development is considered as the

H. Baş (*) Vocational School of Social Sciences, Istanbul Medipol University, Istanbul, Turkey e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 H. Dinçer, S. Yüksel (eds.), Financial Strategies in Competitive Markets, Contributions to Finance and Accounting, https://doi.org/10.1007/978-3-030-68612-3_7

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efficient use of natural resources and investment in productive economic assets (Barbier 2007). Inevitably, this approach towards investment and productive areas emerges within the green economy. The concept of green economy is broadly positioned in connection with green growth approach and therefore green jobs. The focus of green jobs is on the context of environmental objectives and policies (Bowen 2012). This chapter focuses on the green job opportunities for youth employment in Turkey. For this purpose, firstly, information is given about green growth and green jobs. The main reason of selecting Turkey is that it has an important position in terms of green job potential.

2 General Information About Green Growth and Green Jobs The green economy is described as a new understanding of economic development, which is explained with its different components. Different components reveal the principles and objectives of green economy understanding (Iavicoli et al. 2014). In this context, four different discourses representing the concept of green economy are mentioned (EEA 2013; OECD 2010). Accordingly, the green revolution became very popular 50 years ago for the economy. Green transformation is mainly aimed at sustainable development of the economy. Green growth refers to the development of the economy by considering green. Finally, green flexibility includes necessary reactions and measures (Death 2014). There are many conceptualization efforts regarding green growth in these discourses. However, the framework of green growth is shaped by major international organizations. OECD (2011) defines green growth as “protecting and sustaining natural resources and environmental services to ensure the continuation of human welfare by promoting economic growth and development”. In addition to this issue, the World Bank (2012) defines it as “economic growth that explains the role of natural capital and environmental management in preventing natural disasters, and uses clean, natural resources that minimizes pollution and environmental impacts”. The United Nations Environment Program (UNEP) more specifically defines green growth on a ground that “significantly reduces environmental risks and ecological scarcity while increasing income and well-being” (UNEP 2011). As it is seen, although the focus is on the relationship between the environment and the economy, it is stated that the social dimension cannot be ignored (Borel‐Saladin and Turok 2013). On the other hand, the instrumental mechanisms of these three institutions regarding green growth are compatible. They have a common view that technological development will increase ecological efficiency as a substitute in the traditional economy, and that governments’ incentives and regulations on this issue are important in managing the process correctly (Hickel and Kallis 2019). However, with respect to the green economic growth, it is stated that besides global poverty and

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inequality, it is built on the fundamental dynamics of sustainable development, such as economic sustainability and justice (Wanner 2015). Furthermore, it is claimed that the green economy can only be a sub-component of the sustainable economy. This situation can contribute to a sustainable economy, and it cannot reflect a sustainable understanding alone (Murga-Menoyo 2014). At the summit of reconciling the third global community and environmental targets held in Rio in 2012, a consensus emerged at the point of the intellectual basis of the green economy. In the final document after the summit, the importance of green economy due to sustainable development has been revealed in a more general framework (Ehresman and Okereke 2015). However, the debate on different world views and priorities between developed and developing countries continued throughout the summit (Bina 2013). In this regard, Stevenson (2019) presented the findings supporting the assumption that there is a disagreement between the sustainability terminology regarding the focus of this summit in three different perspectives. Accordingly, the radical transformational perspective reveals a growth and postcapitalist vision in which economic relations are localized. Collaborative reformism positions economies based on capitalism and growth in potential harmony with a sustainable environment. Finally, statist progressiveness accepts the boundaries of growth-based economies and puts the government’s central role in guiding society. Green growth is not actually a new approach. Rather, in the last decade, it has become famous and expanded due to the frequently reclaimed facts, such as financial and economic crisis, climate change crisis and food crisis. Generally, governments, business and international organizations have brought green growth to the agenda in relation to these crises (Ocampo 2011). The green economy, which emphasizes ecological repairs and is accepted as a response to environmental degeneration globally, is described as a capitalist commodification. Because such a definition is based on the implication that an economy understanding of consuming the human ecosystem will also consume other living ecosystems. In this sense, it is predicted that the permanent consumer profile of capitalism, which protects its vitality and consumption, can continue with the green economy (Goodman and Salleh 2013). In general, green growth discourse is seen as an economic opportunity rather than a threat due to environmental changes (Death 2015). There are some global efforts to establish the institutional framework of green growth. Global Green Growth Institute was established in South Korea in 2009. In addition, the Green Growth Information Platform was established in 2012 in cooperation with World Bank, Global Green Growth Institute, UNEP and OECD. In addition, by the leading environmental and development organizations in 2012, The Green Growth Best Practice Initiative was launched through the global business and the United Nations (UN) (Wanner 2015). There has been an intense diversity of innovation for the past 20 years regarding the settlement and sustainability of the green economy. In this sense, the development of attitudes, such as welfare with an environmentally friendly approach is based on the motivation to make a profit. Therefore, surveillance of the balance between the human and the universe makes the green economy sustainable (Ahmad et al. 2015). Green innovation initiatives are mostly associated with renewable

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Table 1 Green investments and green jobs Green economic ınvestment strategies Building reinforcement

Public transport/Railway transport Smart networks

Wind power

Solar energy

Advanced Biofuel

Jobs represented Electricians, those who install heating/air conditioning, carpenters, construction vehicle operators, roofer, insulation works builders, industrial truck drivers, construction managers Civil engineers, railway workers, electricians, welders, engine assemblers, production aids, bus drivers, dispatchers, locomotive engineers, railway conductors Computer software engineers, electrical engineers and technicians, welders, mechanics, construction workers, industrial engineers, power line installers and repairers Environmental engineers, iron and steel workers, sheet metal workers, machinists, electrical equipment, construction vehicle operators, industrial trucks drivers, industrial production managers, production auditors. Electrical engineers, electricians, industrial machinery mechanics, welders, metalworkers, electrical equipment, construction vehicle operators, plumbers, workers, construction managers Chemical engineers, chemists, chemical technicians, mixing and threshing machine operators, agricultural workers, industrial trucks farmers, farming and forestry inspectors, agriculture inspectors

Source: Görmüş (2019)

energy and include investments and governance related to the post-economic approach based on carbon emissions (Farinelli et al. 2011). Table 1 states that the governance network at the national level is also seen as important in driving cities towards a more environmentally friendly economy goal (de Oliveira et al. 2013). Emphasis is placed on an environmentally focused innovation priority and appropriate public policies. The most important arguments shaping these policies are international sanctions—Kyoto Protocol—sanctions that are included in the protocols (Hamdouch and Depret 2010). Undoubtedly, only policies are not enough to transform an economy into a green economy. Besides, factors such as institutionalization, level of development, amount of resources and environmental pressures are effective. At the same time, the differences depending on the economic and political conditions are important for the developed and developing countries in terms of threats and opportunities in establishing the green economy approach (OECD 2011). Also, in the transition to environmentally sustainable economies, only the level of development between countries is not considered. The externalities arising from the geographical differences between their regions of each country also suggest what will be the most effective and suitable ways for this transition and require regional diversity-based preparation rather than uniformization of policies (Barbieri and Consoli 2019). The green growth concept has implications for threats and opportunities for developing countries (OECD 2012). It is emphasized that green growth is based

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on the necessity of the establishment of institutions that will increase the welfare of the society (Dordmond et al. 2020). According to this; Improving resource management and making productivity dynamic To prepare the ground for the realization of economic activities in the long-term benefit of society Focusing on innovation to achieve these goals From this perspective, adopting a green growth strategy for a developing country means moving away from a traditional understanding. Many developing countries are not able to take on the financial risk of new technologies required by green growth (Altenburg et al. 2017). In this sense, sectors, organization and business structures are important in planning technological risks as shown in Table 2. In a broader sense, this does not only mean a radical transformation of several policy changes for a developing country, but also requires the use of some renewable resources. Although an environmental benefit arises in the long term, it is claimed that such initiatives are only a more logical alternative for developed countries (Resnick et al. 2012). As a result, it is claimed that sufficient policies and institutions have not been developed to cover the costs, and the current policies show an unsuccessful picture as in Table 3 (Barbier 2011). On the other hand, green business is known as general employment opportunities associated with protecting and repairing the environment, reducing energy use and carbon emissions (Bruyère and Filiberto 2013). Potential green jobs include a wide range of content such as the protection of natural resources, including environmental management, environmental compliance, and education and public awareness (Bruyère and Filiberto 2013). The volume of investments to produce green jobs is gradually increasing. Therefore, it is seen that there is a green race for investment. Especially South Korea, China, part of Europe and California are leading in this field. However, the carbon emission amount of China is quite high in comparison with others (Zenghelis 2012). In addition, it is claimed that green jobs constitute a considerable part of the workforce, and in developed countries, this situation has become larger and more widespread compared to developing countries (Bowen and Kuralbayeva 2015). This study will evaluate whether the green job opportunities are significant for young population profile in Turkey.

3 The Significance of the Turkey for Green Job Opportunities Turkey has a developing economy, and in this sense, it has a special place in terms of population potential in directing the economy to green investments. Especially, considering the context of economic and social development, the height of the young people in the total population will be remarkable (Kocakaya and Baş 2020). At the same time, the new green economy and green business concepts is becoming

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Table 2 Green growth strategies Variables Industry

Organization

Job

Explanations Sector: The sector or industry refers to the fields of economic activity firms can be categorized into. The sectors most often referred to as “green sectors” or the EGS sector include renewable energy, building, transportation, recycling, food and agriculture, forestry and tourism. These sectors are usually the focal points of studies on green jobs not only because of the nature of the goods and services they are producing, but also because they tend to be labor intensive Product/service: This refers to the specific output of the businesses in the different industries or sectors. There are specific products and services that can be considered “green” due to the eco innovative processes involved in their production. For instance, products/services aimed at reducing or limiting the negative impact of human activity on the environment (e.g. energy efficient home appliances) or at improving the environment directly (e.g. waste recycling services). These might capture changes in human consumption habits as awareness for green products and services increase Production method: The production method refers to the environmental quality standards used by firms in their production process. Firms can set in place measures to reduce energy consumption and waste production and build environmentally friendly infrastructure for their production processes. This criterion allows for the classification of jobs in a firm that does not belong to a green sector but uses energy efficient techniques considered to be green Green awareness: Organizations have different levels of commitment to green and environmental issues. In some cases, the heads of firms are individuals that are deeply committed to the environmental cause and engage in associations, partnerships, or community movements to protect the environment. Green awareness is also often reflected in the levels of corporate social responsibility of the organization. This is often dependent on the history and structure of the organization Position in the value chain: The implication of a job in the green economy might vary along the value chain of the good or service being produced. A job in a company producing energy efficient automobiles might be green, but what about a job in the company producing the steering wheel for that specific car? Occupational profile: This refers to the nature or purpose of the job, irrespective of the sector it is performed in. Almost any occupation can be considered green if it contributes to reducing harmful impacts of human activity on the environment, either directly or indirectly. As a result, occupations ranging from managers, to sales workers to laborer can all at some point be considered as being green Required skills and abilities: Certain jobs require workers to possess certain specialized green skills and abilities. Determining whether a job can be considered as being green can in some cases be done based on the necessary skills and competences required to perform it Job decency: The UNEP and the ILO have both stressed the fact that “green jobs” need to be decent jobs, i.e. good jobs which offer adequate wages, safe working conditions, job security, reasonable career prospects, and worker rights” The Apollo Alliance has also taken up this dimension in its definition of green jobs stating that “if a job improves the environment; but doesn’t provide a familysupporting wage or a career ladder to move low-income workers into higherskilled occupations, it is not a green-collar job”. Job decency is thus a key dimension of green jobs (continued)

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Table 2 (continued) Variables

Explanations Green workload: Some workers may do some of their work in green areas and some of their work in traditional areas. In this case, it is important to adequately measure the part of the workload that is officially dedicated to green tasks to determine if the job can be considered as green

Source: Martinez-Fernandez et al. (2010) Table 3 Current status and future potential of green jobs Sectors Energy

Industry

Transport

Buildings

Agriculture

Forestry

Activities Renewable energy Carbon capture and storage Steel Aluminum Cement Paper Back transformation Energy efficient vehicles Collective transportation Railway Airline Green buildings Strengthening Lighting Efficient equipment Small scale sustainable agriculture Organic agriculture Environmental services Afforestation Agricultural forestry Sustainable forestry management

Greening potential Excellent Medium

Current green job status Good No

Long term green business potential Excellent Unknown

Good Good Medium Good Excellent MediumGood Excellent

Medium Medium Medium Medium Good Limited

Medium Medium Medium Good Excellent Good

Limited

Excellent

Excellent Limited Excellent Excellent Excellent Excellent Excellent

Negative Limited Limited Limited Good Medium Negative

Excellent Limited Excellent Excellent Excellent Excellent Excellent

Excellent Good

Limited Limited

Excellent Unknown

Good GoodExcellent Excellent

Limited Limited

Good Good-Excellent

Good

Excellent

Source: Özsoy (2016)

more important in Turkey. In addition, the number of unemployed people increases in Turkey over the years. Owing to this situation, Turkey aimed to find the ways to minimize this problem (ILO 2020). In this regard, the employment of the young population in the field of green jobs can be the opportunity to have sustainable development. Within this respect, firstly, the opinions and expectations regarding

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green jobs are put forward. After that, it is also discussed whether this can be an opportunity for the young population. Basic policies that promote green jobs in Turkey are in the 5-year development plan. However, there are also sectoral reports on green jobs. Firstly, in the seventh development plan (1996–2000), the importance of the environmental title was highlighted. For this purpose, it was claimed that more importance should be given to the research and development. On the other side, in the eight-development plan, it was aimed to minimize carbon emission. Within this framework, the significance of the renewable energy sources was underlined. In addition to them, in the ninth development plan, it was identified that green economy has an important contribution to the sustainability in economic development and reduction of the poverty. Moreover, the green growth was also discussed in the tenth economic development plan. Hence, in this plan, it was defined that technological development is necessary to have sustainable production (Arlı Yılmaz 2014). Some other policy documents related to the determined green areas are as follows (Arlı Yılmaz 2014); – – – –

National Climate Change Strategy Climate Change Action Plan Electric Energy Market and Supply Security Strategy Energy Efficiency Strategy

The impact of green growth policies on employment or the potential to create employment becomes more significant (Üner 2017). This impact can be occurred directly or indirectly. The wind power plant installation process can be given as an example for the direct effect. On the other side, the indirect effect is that the inputoutput process between the developing sectors and other sectors creates additional employment. Due to the increasing number of green buildings, the need for highly insulated products and the use of steel and carbon fiber for the wings and towers of wind turbines can be given as an indirect employment effect (Özsoy 2016). With respect to the environmental green jobs, as of the end of 2016, a significant number of people were employed in Turkey (TUIK 2017). It is also predicted that this number will increase depending on the development in this area. Turkey’s renewable energy potential will become more significant to create new employment (Kemik 2009). Renewable energy alternatives has an important influence on both social and economic development of the countries (Dinçer et al. 2019). Within this context, one of the most significant roles of these alternatives is to create new job opportunities (Yüksel et al. 2019). Because they need advanced level of engineering knowledge, mainly qualified people will be employed in these projects (Qiu et al. 2020). Hence, making necessary education to the young people has an important contribution to the reducing youth unemployment (Dinçer and Yüksel 2019). On the other hand, green skills are also required for green jobs. These skills include knowledge, training and experiences gained through technology and related materials. In this sense, there is a need for a process within the framework of education and skills for green jobs (Yeşil and Fidan 2017). Among educational institutions and companies, reviewing education curricula and aligning green skills

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with the needs of the sectors can make a significant contribution to the greening of the economy (Cledumas et al. 2020). In terms of sustainable life and decent employment, a ground should be created that would facilitate the transition to green jobs and make necessary lifelong learning (Satır Reyhan and Duygu 2015). Indeed, some specialist types of expertise may need to be developed to support the green economy. For example, there are areas, such as “wind and solar energy”, “battery technology and power electronics”, “sustainability management and energy efficiency” and “environmental finance and emissions trading” (Gerşil and Kalfaoğlu 2018). Various departments and related fields at the university level in Turkey in were evolved in the context of the growing green economy in recent years (Karakul 2015). The role of educational institutions necessarily makes the existence of educated young population meaningful. Turkey is the country that has the highest youth unemployment rate (25.4%) in Europe (TUIK 2020a, b). This situation does not give a good image for this country. Moreover, young people who are neither in education nor in employment in the young population in Turkey constitutes a 26% portion of the total population of nearly 13 million young people. In this respect, it is important that the population should be channeled to the green jobs by generating effective strategies (Zhang et al. 2020). As a matter of fact, in the eleventh development plan, it was defined that foreign greenfield should be encouraged with appropriate policies. (Ministry of Development 2018). At the same time, the green emphasis of the Ministry of Science, Industry and Technology regarding work and employment is outstanding. However, green jobs and employment policies in Turkey are seen to exhibit a scattered image (Lightning Özcan 2019). Depending on the strengthening of the transportation network in the country, the logistics sector is important in terms of direct and indirect employment effect. On the other hand, this sector also has an important potential for increasing youth employment. In addition, the Covid 19 pandemic has enabled countries to take measures in terms of food safety. In such cases, the restriction of imports and exports creates significant disruptions in the supply chain. All in all, within the framework of good agricultural practices in Turkey, it has been determined that greater efforts should be given to the organic farming (Yolcu 2013). On the other hand, the implementation of policies aimed at ensuring continuity in agriculture is an important factor in creating new jobs. For example, across Europe, the farming population in the agricultural sector is aging rapidly and the number of farmers is gradually decreasing. Approximately only 6% of farmers are under the age of 35. This situation necessitates the existence of new skills in agriculture and how the employment and management of young people will be important in this field (Unay-Gailhard and Bojnec 2019). Although the number of well-educated people is growing steadily, young people living in rural areas were most affected by the crisis that caused radical changes in the world and Europe in 2009. These young people were the first to be excluded as a result of the economic contraction that spread in waves starting from the cities. Another disadvantage of rural youth is that business investments are not shifted to these regions in times of crisis. Thus, it was inevitable for these young people to be excluded from the labor market and to face

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unemployment. For this reason, green business sectors are considered as an opportunity for young people (Sulich and Rutkowska 2020). 65.5% of workers in agriculture, according to recent data constitutes the elderly population in Turkey (TÜİK 2020a, b) Therefore, the evaluation of young people in this area is quite important. In the construction sector, it should be taken into account that green buildings will gradually increase, and additional employment will be created in this transformation of buildings. Considering the potential of the current building sector, it can be said that this opportunity will be important for youth employment (Üner 2017). On the other hand, the potential of young people in terms of the formation of the transformation of the economy and green business opportunities in Turkey is seen as a major opportunity. Developing skills for this is of primary importance. In this context, departments should be opened in high schools providing vocational education in line with the needs of the sector. In addition, some professional qualifications were determined in 2012 in order to document the knowledge and skills for employment in the sector, in order to establish professional standards. In addition, increasing entrepreneurship in the field of renewable energy, strengthening the relationship between vocational high schools and sectors, developing foreign language education, promoting youth and women quota implementation in companies operating in the sector, removing barriers in the relevant legislation, contributing to local employment and opening career portals in this field and opening regional fairs in regional fairs. It is anticipated that the regulation will contribute to youth employment (Baykan 2017). On the other hand, the number of formal education institutions is increasing gradually every year to meet the needs of the energy sector. In this context, it is important to train the manpower needed to reach the green economy goals. However, it is seen that manpower has not reached the desired level in terms of quality and quantity (Aşkın and Aşkın 2019).

4 Conclusion The harmonization of economies to the environment is increasingly on the agenda in the world. The most basic strategies for ensuring this harmony are to differentiate the production forms related to environmental protection and diversify the use of resources. There are many international studies in the world to reduce greenhouse emissions. In these studies, it is aimed to increase environmental awareness around the world. However, developed countries are also generating green growth strategies. In this way, important steps have been taken for both economic growth and the general well-being of society. However, it is not always reasonable for developing countries to radically achieve paradigm change. Because the differences between the resources and economic sizes of developing countries cause their priorities to change. Breakdowns in traditional structures pose a great threat to the cohesion of employment, especially in social life, technology and in general in the economic

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field. Flexible working styles that emerge due to the transformation in the employment structure are among these threats. Because, with the widespread use of these forms of work, it is seen that the employment areas of young people are far from the traditional employment structure. This means staying out of the labor force for young people, who should be the most important source of population in countries. As a result of the great economic contractions in the world economies, it is seen that new understandings have gained momentum. Accordingly, major strategies are developed to properly manage population explosions in urban populations and create new jobs. The narrowing of options between unemployment, which is widespread among young people, and the employment areas, encourages each country to produce green business policies within the framework of its own internal dynamics. On the other hand, various estimates are made regarding the economic losses caused by the Covid 19 pandemic. Regarding this, it is thought that some sectors will transform radically. In this framework, it is assumed that economies will become greener and green jobs will increase, making the world more livable. Therefore, this situation is perceived as an opportunity or threat especially for developing countries. Turkey has a developing economy and especially in the use of fossil fuels in the energy sector, it is mostly dependent on foreign supplies. In this regard, as for the process of transition to a green economy, Turkey has a very high potential for renewable energy. Compared with other EU countries, Turkey has a high ratio of young population. This mentioned issue creates an important employment opportunity. Therefore, effective policies and strategies should be determined, and these specified opportunities should be used correctly. In this process, it is important to make a detailed planning primarily. After that, the necessary incentives should be given to the green energy investors by the state. In this framework, low interest loans and tax breaks will encourage investors. In this way, new employment areas will emerge in the country. This mentioned issue will contribute significantly to reducing the youth unemployment rate in the country.

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The Possible Threat of Speculative Purpose Investments in Stock Price of the Companies Irfan Ersin

Abstract Stock markets are defined as the environments where fund suppliers and demanders meet. Firms obtain the funds they need to produce goods and services from individual or corporate investors with excess funds through stock markets. The existence of the relationship between the real sector and the stock market is among the topics discussed. The aim of our study is to investigate the existence of the relationship between the real sector of the stock market in Turkey. In this study, VAR analysis is used as a method and the 2015–2019 period is evaluated. As a result of this analysis, no relation is found between the real sector (agriculture, industry, and services) and the stock market. Based on these analysis results, it has been observed that firms in the stock market face the problem of speculation. As a matter of fact, the main purpose of the- stock exchange is to fund companies in the short term and contribute to their development. In this context, the Istanbul Stock Exchange and Capital Markets Board of Turkey should generate anti-speculation regulations to minimize this problem.

1 Introduction The real sector plays an important role in ensuring economic growth. In an economy, agriculture, industry, and services are among the main sectors and these sectors are the determinants of economic performance. The performance of the sectors is also related to the effectiveness of the companies. Good corporate governance of companies, production levels, technology level used in production, profitability rates and financial structures are expressed as the indicator of firm strength. Therefore, the strong firm will create the strong sector and the strong sector will create the strong economy. In this case, it is important to reveal the factors that affect the performance

I. Ersin (*) Istanbul Medipol University, Istanbul, Turkey e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 H. Dinçer, S. Yüksel (eds.), Financial Strategies in Competitive Markets, Contributions to Finance and Accounting, https://doi.org/10.1007/978-3-030-68612-3_8

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of firms and to analyze their relationship with financial markets (Yüksel and Kavak 2019; Gün 2018). The financial structures of firms producing in the real sector constitute the scope of the sector in which they are located. Within this scope, revealing the factors affecting the fund flows of these firms will provide information about the firm’s performance. Firms meet their funding needs in two ways. The first of these is money markets and short-term funds are obtained from these markets. The other one is capital markets and long-term funds are provided from these markets. As a matter of fact, stock market factor is also seen as an important funding source for companies in capital markets. Stock markets are important institutions that provide liquidity in capital markets. In addition, the stock market not only provides liquidity, but also enables securities to be traded at a single price. On the other hand, it accelerates the movement of capital and facilitates the structural change in the industry. In addition, they allow ownership to spread across the base, ensure trust and function as the barometer of the economy. For the stock market to function as the barometer of the economy, price movements in this market must be monitored collectively (Dağlı 2000; Polat and Yaşar 2017). The main purpose of companies to be in the stock market is to accelerate the activities of the sectors in which they meet their funding needs and contribute to the growth of the sectors. However, speculative movements, which are among the important problems of the stock market, weaken the relationship between the sectors and the stock market. Realization of stock trading by firms by speculative investors may cause the firm’s market value to be more or less than it should be. This situation may also affect production capacity, sales and profitability rates of the firm and its value in the stock market negatively (Ersin 2020; Usul et al. 2017). This can provide the company with advantages or disadvantages in the short term. Therefore, the deviation of firms from the main purpose in using the stock market may influence the future of the sectors and the economy negatively. That is, if the firm gains funds through the speculative way or the loss of speculative funds in the stock exchange, it will pose the problem that the fund cannot be utilized in the sector. Thus, economic growth will take place as a virtual growth rather than real. This situation can also be expressed as unproductive and unemployed growth. In summary, firms’ evaluation of stock market for speculative purpose or manipulation of stock market is considered as a negative situation in terms of the health of the economy (Çağlı and Mandacı 2017; Erolgaç 2000). In the stock market literature, manipulation is defined as creating artificial price fluctuations by spreading unfounded news in the stock prices. The manipulator is called people acting as described above. Although organizations that manage the capital markets of countries take various measures to eliminate manipulations, they are still carried out today. As a matter of fact, these manipulations can be done by the owners or representatives of the companies. This situation causes the stock market to deviate from its intended use. In other words, it is possible to say that the relationship between the real sector and the stock market has weakened. Therefore, manipulation by firms can also negatively affect the future of the sectors. The continuity of the companies’ assets depends on their ability to form their financial structures strongly.

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Therefore, firms’ wrong capital structure decisions can result in business bankruptcies (Kogen 2005). One of the important actors in the economic development of developing countries is the stock markets. In view of the fact that there is a long-term and guaranteed investment both in terms of financing the real sector and for investors, these markets are considered as an important source of funding. Firms may increase or decrease the value on the stock by offering certain parts to the public. Stock markets in developed countries are expressed as the barometer of the economy (Boamah et al. 2017; Wu 2019). Turkey, both in terms of economic development and the size of the capital markets, is classified as a developing country. Istanbul Stock Exchange has a very important role in Turkey’s capital markets. The main task of this institution is to keep the transactions in the capital markets transparent, efficient and reliable. In this way, it will be possible to create market prices in a healthier manner. This will contribute to increasing the liquidity in the market. Stock Market structure and relationships of the real sector in Turkey is considered important to demonstrate the potential threats facing firms. The impact of the stock market structure and functioning on companies will be reflected in the real sector and this will lead to macroeconomic problems. Borsa İstanbul has a transaction volume of 2.1 Trillion TL in 2019 and the average daily trading volume was 8.5 Billion TL. Share exchange rate is the third in the world with 227%. The trading volume in the borrowing instruments market was 16.1 Trillion TL. There is 1.4 trillion TL trading volume in the futures and options market. The average daily trading volume was realized as 5.9 billion TL. Finally, there is a 74.3 billion TL trading volume in the precious metals and precious stones market. In addition to these data, there are 402 publicly traded companies in the share market. The ratio of foreigners in public market value is seen as 61% (Borsa İstanbul 2020). The production capacities of the sectors are important in the formation of national income in Turkey. Excluding taxes and subsidies, the share of the agricultural sector in national income was 5.8%, the share of the industrial sector was 21.4% and the share of the services sector was 62.5%. Undoubtedly, the performance of the companies is remarkable in the creation of this data. On a sectoral basis, the relationship between the production of firms and the stock exchange is among the topics that are curious (Dizdarlar and ve Derindere 2008). In this study, it is examined whether firms can benefit from the stock market in real terms. In addition, the existence of the contribution of this situation to the real sector is one of the important issues that are curious. To analyze these issues, an evaluation has been performed for Turkey with VAR analysis. In addition, the relevant literature was scanned before the analysis. Based on the results of the analysis, possible threats that await companies are discussed in the conclusion section.

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2 The Importance of Financial Innovative Strategies for the Performance of the Companies Especially in recent years, there has been an increase in competition all over the world. This increase in competition has had an effect on almost all sectors. Increasing competition poses a serious risk for companies. Organizations that cannot manage these risks effectively cannot continue their activities. This situation creates important problems for both companies and the country’s economy (Wang et al. 2020a). The increase in the number of companies that go bankrupt makes the country’s economy fragile. Failure of companies to continue their activities reduces investments in the country. Considering that investments are also an item of gross domestic product, this situation causes the country’s economy to shrink (Wang et al. 2020b). On the other hand, employees working in bankrupt companies will lose their jobs. This situation will lead to an increase in the unemployment rate in the country. This stated situation causes the rise of social turmoil. As can be understood from these statements, it is necessary to prevent companies from going bankrupt. In this context, it is important to determine the most appropriate strategies that can strengthen the financial positions of companies. The strategy shows how the company will achieve its set goal. Therefore, to develop an effective strategy, the company must first be able to clearly define its target. Targets may differ according to the conditions of the companies and the market (Korsakienė et al. 2020). For example, the company can aim to become an industry leader. In this context, it should be able to determine how to achieve this goal. The main reason for this is that to be the leader of the sector, different issues such as increasing revenues and reducing costs can be focused. Different types of strategies can be developed to increase incomes. New product and service development is a type of strategy to be implemented within this framework. Companies can attract the attention of their customers by developing new products and services (Dinçer et al. 2020). In this way, it will be easier to increase sales volumes. Another strategy that can be applied to increase revenues is to increase customer satisfaction. Customers who are more satisfied with their products and services will continue to work with companies (Delen et al. 2020). In this context, it will be possible to achieve this goal with strategies such as providing quick solutions to customers’ complaints. Companies may need to reduce their costs to achieve their goals. In this context, it is important for companies to focus on actions to reduce their spending. Working with a supplier who sells raw materials cheaper is an example. In this way, it will be possible to reduce the cost of the product to be sold. However, this situation also has some disadvantages. The quality of the costs to be offered by the new supplier may be low. Therefore, it would be appropriate to pay attention to this risk while following this strategy. Otherwise, reducing the cost may lead to customer dissatisfaction. To reduce costs, spending within the company can also be focused. In this context, reducing energy consumption is an important strategy (Kramer et al. 2020). In order to achieve this goal, attention should be paid to the low energy consumption

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of the machines used in the production process. The important point in this process is that the new machines to be purchased should not be too expensive. In other words, the amount to be obtained from energy savings should be much higher than the allowance for these machines (Zhong et al. 2020; Li et al. 2020; Qiu et al. 2020). In addition to the issues, firing workers is also the strategy to be implemented to reduce costs. However, this strategy has serious disadvantages. If the number of workers decreases, the production process of the company also decreases. On the other hand, the market image of the firing company will decrease negatively. Where companies can obtain the funds, they need from is also an important financial strategy. One of the ways companies use to find financial resources is bank loans. The most important advantage of this situation is that very high financial amounts can be reached quickly. On the other hand, interest payments are made for loans to be used from banks (Tulloch et al. 2020). This amount should also be considered in the cost calculation. Another point to be considered in this process is the maturity of the loan. In this context, the loan to be used should be as long as possible. In this way, it will be easier for the company to pay the debt. In case of using short-term loans, the company will face liquidity risk. If the company fails to pay its short-term debts on time, the probability of bankruptcy increases. In this context, companies using short-term loans should analyze their liquidity position well. In addition to the issues, companies can also meet their financing needs with their own funds. In this context, companies increase their capital by selling their stocks. Investors who buy the company’s stocks also become partners of the company. These investors get a share from the profit that the company will make at the end of the period in proportion to their share amount (Wen et al. 2020). The most important advantage of this situation for the company is that the money needed is provided without any interest payment. This situation brings a significant cost advantage to the company. However, this method has some disadvantages. Companies that sell their stocks in the market make many of their information publicly available. Another important disadvantage of equity financing is that the company’s shares are the subject of speculative investments. Most of the people who invest in stock exchanges prefer to buy when the prices of the stocks are low and sell these stocks when this price rises. The investors aim to gain speculative profit from these two prices in this process. In this context, when investors sell stocks of a company, the market value of that company decreases. This situation can cause panic in investors. As a result, the market value of the company may decrease further. In summary, the company, which does not have any problems in the production process, is experiencing financial problems due to speculative movements in the stock market. This mentioned situation is accepted as the most important risk of equity financing strategy (Pang et al. 2020).

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3 Literature Review Studies examining the relationship between the stock market and the real sector are very rare in the literature. In addition, the results of the studies in the literature differ. The reason for these differences can be shown as the methods used and the periods examined are different. In the literature, there are studies examining the relationship between the industry index and the stock market. Young (2006) used only the industry production index to represent the real sector and investigated the effect of the real sector on stock returns in the US economy. In the study, in which data from 1954–2000 were used, it was concluded that the industrial production index affected stock returns. Nishat and ve Shaheen (2004) investigated the effect of macroeconomic factors on stock market index for the period of January 1973–April 2004 in Pakistan. As a result, it is concluded that the industrial production index positively affects the stock market index. Maysami et al. (2004) investigated the effect of macroeconomic factors on the stock market for the Singapore economy. As a result, they found that the industrial production index positively affected the stock market index. Patel (2012) investigated the relationship between stock market index and macroeconomic factors in India. In this study, a high relation was found between industrial production index and stock market index. Jareño and ve Negrut (2016) investigated macroeconomic factors affecting the stock market index in the US economy. In this analysis, they determined that the industrial production index positively affected the stock market index. Looking at the studies examining the relationship between the service sector and the stock market, Canöz and Erdoğdu (2019) analyzed the relationships between sectoral confidence indices and BIST sector indices. Monthly data on financial service confidence index, service industry confidence index, construction industry confidence index, retail trade industry confidence index and stock market indexes were analyzed with Hacker and Hatemi-J test. According to the results of these studies, the existence of causality relationship between the Istanbul Stock Exchange sector indices related to the sectoral confidence index in Turkey could not be identified. Similarly, Kumar and Lee (2006) analyzed a data set in the USA that included more than 1.85 million retail investor transactions between 1991 and 1996. As a result of the analysis, it has been determined that these processes are systematically related. Burghardt et al. (2008) used a sample of 18.1 million warrants issued by the bank in the European warrant exchange. In this study, retail investor sentiment index was calculated by this way. Findings showed that retail investor sentiment is an important part of the stock pricing process. Münyas examined the relationship between the service confidence index and the stock market. In this study, along with the stock market indexes, the service confidence index and the retail trade industry confidence index were used. In the study using quantile regression model, 2011–2018 period was taken into consideration. As a result of the study, no relation was found between the service confidence and the retail trade confidence index and the stock market. In the study of Eyüboğlu and Eyüboğlu (2018), the relationship between service confidence index and BIST

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tourism index was examined. In the study, ARDL boundary test was used as a method and 2011–2017 period was taken into consideration. Consequently, two-way cointegration and causality was determined between the two variables. There are very few studies examining the relationship between the agricultural sector and the stock market. Ouyang and Zhang (2020) are investigating the financing of agricultural goods. In the study using the GAS model, China was taken as a scope. As a result of the mentioned study, the relationship between agricultural products and stock market index was determined. Similarly, Aït-Youcef (2019) evaluated the relationship between the US stock exchange and agricultural prices. In the study, in which the 1995–2016 period was taken into consideration, the TQAR regression model was used. It is identified that a very strong relationship was found between agricultural prices and stock market index. Çağlı and Mandacı (2017) aimed to determine the presence of rational speculative balloons in the market by using the dividend yield rates calculated for Borsa İstanbul indices. In the study in which 21 indices are used, the data of 2006–2016 period are handled monthly. In this study, GSADF method was used and it was tested whether real sector indices cause speculative balloons on BIST. As a result of the study, it was determined that the BIST index did not cause the balloon by industry, service, and agriculture sectors in general. However, in some sub-stock indexes, industry, service, and agriculture sectors were found to be balloons. In the study of Yu and Hassan (2010), time dependency test was used and examined the country stock markets in the Middle East and South Africa region. According to the results of the study, there is no evidence for the rational balloon for the Turkish stock market. Yanik and Aytürk (2011) tested whether the method used for the 2002–2010 period and the time dependence is rational bubble in Turkey. As a result, it was determined that a rational speculative balloon did not occur. It is seen that in the literature studies, there is not much focus on the studies between the real sector and the stock market. In addition, the general trend is that the relationship between the real sector and the stock market is weak. In this study, the existence of the relationship between these variables was investigated. In this regard, this study is thought to make an important contribution to the literature.

4 Methodology and Data In the analysis to be made, the industrial production index for the industrial sector, the agricultural product producer price index for the agricultural sector, the retail volume index for the services sector and the BIST100 index for the stock market were taken into consideration. In addition, data from January 2015 to December 2019 are included in the analysis monthly. VAR analysis is used as a method in the study. The complexity of the relationships between economic data required the use of simultaneous systems of equations. However, difficulties in determining dependent and independent variables in systems of simultaneous equations also revealed the problem of restrictions in the

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structure of models. To eliminate these constraints or difficulties, Vector Autoregressive Models have been developed. The VAR model provides information on whether there is a long-term relationship between two or more variables. The VAR model, which does not impose any restrictions on the structural model, is often considered in the time series in terms of revealing dynamic relationships. The bivariate model for VAR analysis is presented below in Eqs. (1) and (2) (Mucuk and Alptekin 2008; Yu et al. 2019). y t ¼ a1 þ

p X

b1i yt–i þ

i¼1

xt ¼ k 1 þ

p X i¼1

p X

b2i xt–i þ ε1t

ð1Þ

d2i yt–i þ ε2t

ð2Þ

i¼1

d1i xt–i þ

p X i¼1

In these equations, xt ve yt represent the variables. In the Eq. (1), yt is dependent variable whereas independent variable is demonstrated as xt. On the other side, this situation is the opposite in the Eq. (2). Moreover, b1, b2, d1, d2 give information about the coefficients of the independent variables and a1 and k1 show the constant terms. Furthermore, ε1 and ε2 are considered as the error terms. Additionally, p value indicates the ideal lag interval. In the process of performing the VAR analysis, the variables were first subjected to unit root test. These variables are made stationary first and then checked for autocorrelation between the variables. In the continuation of these processes, the most suitable delay length for the model is checked. Delay lengths are selected according to the information criteria and the model is established considering this information. At the last stage, the application results of the model are interpreted. In the literature, VAR model has been applied to determine the relationship between financial ratios and macroeconomic variables (Türkekul 2007; Uysal et al. 2012; Gün 2018; Akin 2020; Kılıç et al. 2020; Köse and Akkaya 2016). The analyzes took place on the Eviews 9 program.

5 Findings One of the first conditions of the VAR analysis stabilizes the variables. To achieve this goal, Augmented Dickey Fuller (ADF) unit root test was used in the analysis process of the study (Yılancı 2009). Unit root test results are shown in Table 1. When the unit root test results are analyzed, it is seen that all variables become stationary in the first differences. Based on these results, the VAR analysis will be done with the first difference variables. After ensuring the stability of the variables, the information criteria for the appropriate lag length were examined. Taking into account the monthly data and the short term period, the lag lengths that make the critical values of Likelihood Ratio (LR), Final Prediction Error (FPE), Akaike (AIC),

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Table 1 ADF unit root test results At level With constant

t-Statistic Prob.

With constant & trend

t-Statistic Prob.

SAN –1.7345 0.4089 n0 –1.8648 0.6598 n0

HIZM 1.3531 0.9986 n0 –1.9638 0.6085 n0

TAR 0.1824 0.9692 n0 –2.4916 0.3311 n0

BORSA –1.5434 0.5049 n0 –2.4165 0.3676 n0

d(SAN) –12.1490 0.0000 *** –12.1446 0.0000 ***

d(HIZM) –8.0007 0.0000 *** –8.3512 0.0000 ***

d(TAR) –4.5104 0.0006 *** –4.6658 0.0021 ***

d(BORSA) –9.6984 0.0000 *** –9.6384 0.0000 ***

At first difference With constant

t-Statistic Prob.

With constant & trend

t-Statistic Prob.

Note: ***Represents 1% confidence level

Schwarz (SC) and Hannan Quinn (HQ) are determined (Mucuk and Alptekin 2008). In all these criteria, the lag length is accepted as 1. Whether the VAR model is generally stationary is tested by looking at the positions of the inverted roots of AR characteristic polynomials in the unit circle. In the examination, it was understood that the VAR model was stationary. After looking at the stability of the model, autocorrelation status is analyzed between error terms to test that the model does not contain structural problems. In the autocorrelation test in which the reverse hypothesis works, probability values should be above 0.05. In the examination, it was determined that there is no autocorrelation problem among the error terms. Another test of whether the model contains structural problems is normality test. For normal distribution results of error terms, probability values of Jarque-Bera test statistics are examined. When analyzing test statistics, probability values are expected to be higher than 0.05. According to the results obtained, it was determined that error terms are normally distributed. Another test to observe whether there is a problem in the structural model is the variance test. In this context, the White test is considered. In this framework, the probability value should be higher than 0.05. According to the results obtained, the probability value was realized as 0.4940 and it was observed that there is not this kind of problem in the estimated model. On the other side, analysis results are given on Table 2. The details of the model are given below. Model 1: DBORSA ¼ C(1)*DBORSA(–1) + C(2)*DHIZM(–1) + C(3)*DSAN (–1) + C(4)*DTAR(–1) + C(5). When VAR analysis results are analyzed, it is seen that the stock market, which is the dependent variable, only has a relationship with its own lagged value at 10%

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Table 2 VAR analysis results

Model Model 1

Dependent variable DBORSA

R2 Adjusted R2 Durbin Watson Statistic

Independent variable DBORSA (–1) DHİZM (–1) DSAN (–1) DTAR (–1) Constant Term 0.084751 0.015675

Symbols of independent variables C1

Coefficient –0.265189

t-Statistic –1.961433

Prob. 0.0511

C2

–107.7700

–0.427913

0.6691

C3 C4 C5

163.4914 197.4057 302.2274

0.428314 0.759118 0.331862

0.6689 0.4486 0.7403

F Statistic (Olasılık)

0.00

1.931501

significance level. It has been determined that there is no relationship between industry, services, and agriculture sectors with stock market in 2015–2019 period. In addition, in the model 1 in Table 2, the power of independent variables to explain dependent variables is 8%. This shows that the stock market is explained more by different variables. While comparing the results of the analysis with the literature, it is possible to say that the results are quite similar with Canöz and Erdoğdu (2019), Yu and Hassan (2010).

6 Discussion In this study, the relationship between the stock market and the real sector is examined. Studying this relationship is important in many ways. The most important aim of the stock exchange is to contribute to the development of the sectors and to contribute to economic growth. In addition, the development of companies operating in sectors and their contribution to the sector should increase the value of companies in the stock market. It is a targeted phenomenon that this stated situation is mutual. In other words, the existence of a relationship between real production and the value in the stock market is a desired situation. The change in this situation may be the threat of deviating from the purpose of the stock exchange and becoming a financial bubble instead of real production. As a matter of fact, if the stock market becomes a financial bubble, it can cause financial crisis risks. In the analysis, it was concluded that the real sector did not affect the stock market. In other words, it is seen that the valuation of the stock exchange and the valuation of the sectors are different. Therefore, this situation reveals the problem of using the stock market for speculative purposes.

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Although some measures are already taken, it seems that the stock market is still inclined to the speculation drive. Therefore, it would be appropriate to take more effective measures to prevent speculation in the capital markets.

7 Conclusion The existence of the relationship between the real sector and the stock market is among the topics discussed. In this study, the presence of the relationship between the real sector of the stock market in Turkey was examined by VAR analysis. As a result of the analysis, no relation was found between the real sector and the stock market. Based on these analysis results, it has been observed that firms in the stock market face the problem of speculation. As a matter of fact, the main purpose of the stock exchange is to fund firms in the short term and enable firms to contribute to the development of the sectors. In this context, it would be appropriate for the competent authorities to implement more legal regulations to prevent speculation. Deviation from the real values of firms subject to speculation may accelerate bankruptcies in a possible financial crisis. This research is thought to have made a significant contribution to the literature within the framework of the sector and stock market relationship.

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Analysis of the Relationship Between Market Share and Technological Development Regarding Companies: An Application on Turkey Mustafa Uysal

Abstract Firms have to boost their sales to increase their market shares in the sector in which they operate. This situation forces firms to allocate higher budgets for technological developments, and therefore, Research and Development (R&D). In this study, the relationships between the technological developments of the 11 firms that are constantly traded in Borsa Istanbul (BIST) Chemical, Petroleum, Plastic Index and the market shares of the firms are examined. For this purpose, analyses are carried out using data obtained over the period between 2009: Q3–2019: Q4. The market share variable for the firms is used as the dependent variable and calculated as the ratio of Net sales to Total Sector Sales. As for indicators of technological development, R&D expenditures, R&D intensity (R&D/Net Sales), and R&D ratio (R&D/Total Operating Expenses) are used as independent variables. The stationarity of all variables included in the analyses is determined utilizing Choi (J Int Money Financ. 20: 249–272, 2001) and Im et al. (J Econometr. 115: 53–74, 2003) unit root tests. Later on, the relationships among variables are examined using the unit fixed effects (FE) panel data model. As a result of the analysis, R&D expenditures are seen to significantly affect the market share positively. Besides, the effects of the companies’ R&D intensity and R&D ratios on the market shares of the companies are found to be significant but negative.

1 Introduction Among the many factors that enable countries and companies to achieve their microand macro-scale growth targets, innovations based on information and technology constitute one of the most important factors (Freihat and Kanakriyah 2017). Along with competition becoming more intense and sharper in the global environment, the new economic understanding is based on science and technology. In this context,

M. Uysal (*) The School of Applied Sciences, Artvin Coruh University, Artvin, Turkey e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 H. Dinçer, S. Yüksel (eds.), Financial Strategies in Competitive Markets, Contributions to Finance and Accounting, https://doi.org/10.1007/978-3-030-68612-3_9

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sustainable economic growth in the globalizing world is associated with the extent to which innovation is produced (Ünal and Seçilmiş 2013). Therefore, as of today, information and technology being such important and distinctive factors, companies provide a competitive advantage by investing in information and concentrate on differentiation strategies given the increase of globalization and international competition. Also, the ever-changing and developing technology shortens the lifespan of the goods and services offered by companies, and therefore, the need of being innovative is mostly felt for the companies to maintain their activities. In today’s conditions, where the importance of R&D, which has been widely used recently to make a difference and stand out in the competition, is increasing day by day, companies allocate higher shares out of their budgets to innovation and R&D expenditures. The term R&D can be referred to as producing a new product or conducting a scientific study. In other words, R&D is a systematic study to increase the knowledge of human, social, and cultural knowledge and the use of such knowledge to devise new applications (Frascati 2002). In terms of companies, R&D expenditures are crucial for producing a new product, increasing sales and profitability, and sustaining the companies’ existence especially in the long-run (Işık et al. 2016). Therefore, starting from the definition of R&D activities, it involves the entire systematic and creative activities aimed at developing a new product or production processes and implementing these processes in companies (Albez 2017). Within the scope of all these explanations, R&D, with its broadest definition, covers the studies conducted according to scientific principles concerning the production of a new product or improvement of an existing output, the application of new techniques and the development of cost-minimizing production technologies, assurance of the adaptation of the developed technology to the conditions of the company according to which the company operates, improvement of the existing technologies and adaption of new ones to these technologies as well as the results of these studies (Kaymakçı 2006). R&D expenditures are used to measure the technological capacity that companies utilize throughout all these processes. Therefore, the most important objective of R&D is to continuously increase the profit of the company by using technological advances or to render the company’s profitability sustainable (Kocamış and Güngör 2014). Also, it can be stated that R&D expenditures include great opportunities for companies to increase their market shares as well as their profitability (Mercan et al. 2011). Especially in developed economies, efficient and high-quality production achieved with the R&D expenditures reflects positively on companies’ sales and these expenditures provide both the company and the industry with competitive advantages. Moreover, upon the proper functioning of the process, a higher share is obtained from the global market and higher profitability is achieved. This situation leads companies to allocate more resources for R&D activities (Bayraktaroğlu 2016). As R&D has been gaining importance day by day, companies that can utilize their R&D activities as leverage may increase their production as well as their revenues. Therefore, companies that wish to gain a competitive advantage should be both innovative and productive. To meet these conditions, allocating more resources to the R&D and innovation expenditures would provide the companies with crucial

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advantages (Çıtak and İltaş 2017). For countries, the R&D expenditures are important indicators of the activities carried out by the commercial sector and the public sector to gain a competitive advantage in technology and science. The share of R&D in the GDP is used as an indicator of the extent to which countries attach importance to science and technology. In this sense, the R&D expenditures are comprised of the total expenditures made by domestic and foreign companies, laboratories, public universities, research institutes, etc. (Işık and Kılıç 2011). Development of the economies of the country and the production of high-tech products are aimed along with the budget allocated for R&D. Today, many companies expect only innovation and new products by establishing R&D departments within their organization and employing abundant amounts of resources for these departments. Due to technological innovations and R&D activities, the productivities of labor and capital can be increased and this causes companies to use lower labor and capital units in the production process or to increase the revenue earned per unit of labor and capital. Thus, along with the products, services, and processes developed, the sales margins and market shares of the companies tend to increase or the profit margins would rise with the decrease in costs. The increase in profits would enable companies to allocate more resources to technological innovations. In this study, the association between the technological developments and market shares of 11 companies traded in the BIST 100 index and traded in the BIST Chemistry, Petroleum, Plastic index between 2009: Q3–2019: Q4 is tested using panel data analysis method. The main driving force in the creation of this study involves the fact that the R&D expenditures are determining factors for many companies and the potential effects of such expenditures on sales and therefore on the market share is determined. In the second part, the overall assessment of the R&D activities in Turkey and the world are made considering the characteristics of R&D expenditures, and the shares allocated to R&D in terms of different countries. In the third part, other studies conducted in the literature that examined the relationship of the R&D expenditures with the market shares, sales, and profitabilities of companies are reviewed. In the fourth and fifth parts of the study, the model used in the study, and the variables included in the analysis are introduced. The findings are presented in the sixth part, whereas they are interpreted in the last section.

2 R&D Expenditures in Turkey and the World R&D expenditures are considered as crucial indicators of competitiveness and economic development. Companies aim at increasing quality standards and reduce costs as a result of their R&D activities. Thus, they are provided with a competitive advantage and social benefits along with economic development (Kocamış and Güngör 2014). In today’s world, R&D activities performed to take part in an innovation-based development process and to gain competitive advantage are among the most important factors that enable countries and companies to become differentiated from each other. Hence, developed countries and the OECD-member

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countries continue to increase their R&D shares in the GDP and to invest in new scientific and technological domains (Demir and Güleç 2018). As of 2017, the total amount spent by the countries for the R&D activities has reached approximately 1.7 Trillion US Dollars and the expenditures made by the OECD-member countries have constituted 62% of the total expenditures (http://www.oecd.org/, Access Date: 05.10.2020). Although the importance of the R&D expenditures in Turkey tends to increase with each passing year, it is observed that its share was 0.96% as of 2017. The share of the private sector in R&D expenditures is higher than the share of R&D expenditure by public sector and universities in all countries, which is 88.3% in Israel, 80.3% in South Korea, 79.4% in Japan, 74.2% in Slovenia, It is 68.8% in Germany, 72.6% in the USA, and 70.9% in Sweden. Upon considering the R&D activities in terms of Turkey, a significant increase in the share of R&D expenditures in GDP has been observed especially in recent years. According to the OECD data obtained over the period 2015–2017, the average intensity of R&D of the OECDmember countries was approximately 2.33%, whereas it was approximately 0.92% over the same period in Turkey. However, as of 2017, the difference between those rates became as little as 1% along with the decreasing trend in recent years for Turkey (OECD 2020). The development of the industry in Turkey has been carried out until the past years in the form of technology transfer, know-how, license, patent. In particular, the private sector has met its technology needs through imports. This situation adversely affected the investments to be made in R&D. However, recently, companies have been driven to establish their R&D units or to cooperate with institutions such as universities and institutes since R&D and innovation have loomed large as important factors in competition and problems have occurred in licenses purchased from abroad. Besides, the government has increased incentives such as tax exemptions, financial supports, and reduction of bureaucracy for the R&D investments. Also, various public and private institutions have offered training, consultancy, and financial supports to encourage R&D activities, and enterprises operating in technology development fields have also been entitled to tax exemption (Yıldırım and Kaya 2019). Upon examining more recent data from Turkey published by the Turkish Statistical Institute (TSI), Turkey’s total R&D expenditure has amounted to about 38.53 billion TL as of 2018. Fort-nine percent of these expenditures have been allocated to R&D personnel expenditures, 39% to other current R&D expenditures, and 11% to R&D investment expenditures. It was also observed that human resource power, which was 27,698 as of 2001, has increased to 172,119 in 2018. The share of the private sector in total expenditure is the largest at 60% in Turkey as in other countries, followed by its shares in higher education at 30%, and public expenditures at 9%. Moreover, the share of Turkey’s R&D expenditures in GDP (1.03%) as of 2018 has increased approximately two-fold since 2001, and surpassing the 1% limit. However, even if these increases outlined in innovation have lagged behind the OECD-member and developing countries, it can be considered as a significant improvement for Turkey. Since these rates and values are calculated in Turkish Lira, the OECD data, and TURKSTAT data, which are calculated according to purchasing power parity, may exhibit partial discrepancies (TURKSTAT 2020).

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3 Literature Review In the literature review, many studies conducted on the association of the R&D expenditures with sales and firm-based variables are encountered. In these studies, the effects of the R&D expenditures on sales and profitability of companies were examined. Among many studies that explicated the association between profitability and the R&D expenditures in the past, the vast majority analyzed the extent to which the R&D expenditures affect profitability, whereas a smaller portion analyzed the extent to which profitability affects the R&D expenditures (Simanjuntak and Tjandrawinata 2011). This part of the study includes a summary of the empirical studies conducted on the relationship of the R&D expenditures with net sales and profitability. The studies in this field are based on the seminal work of Scherer (1965) conducted on 448 large American enterprises in the Fortune 500 list. Scherer stated that the growth of companies’ innovation activities increased sales rather than increasing the profit margin, and in turn, the profitability of the companies soared, and the economic recession had an adverse effect on the profitability and sales of overly innovative companies. Morbey and Reithner (1990) concluded that there was a strong association between the R&D expenditures and sales growth rate, and the sales of companies with higher R&D investments among 173 firms also increased dramatically compared to other firms. Geroski and Steve (1992) analyzed 539 large British companies and found that the growth and profit data of the companies with R&D expenditures were higher than of the companies without R&D expenditures. Geroski and Toker (1996) examined the manufacturing industry companies in England over the period 1979–1986. In the study, the variables of sales, export, and import, the number of invented products, total ads, and sales growth of the industry were tested via regression analysis. As a result of the study, a strong and positive association was found between R&D expenditures and sales growth. Roper (1997) examined 2721 small-scale German, British, and Irish firms over the 1991–1993 period. In the study, it was concluded that developing innovative products contributed to increasing sales for German, British and Irish firms. British and Irish companies, acted more balanced in developing innovative products by considering productivity and employment concurrently. Del Monte and Papagni (2003) examined the effects of the R&D expenditures on sales over the period 1989–1997. The data obtained from 500 Italian companies were tested by regression and panel data analysis. According to the research findings, the increase in sales of companies with R&D expenditures was detected relatively higher than companies without R&D expenditures, and a positive association was detected between R&D investments and growth. Yücel and Kurt (2003) examined the effects of marketing and R&D expenditures on firm profitability for 64 firms whose shares are traded on BIST. In the study, the profitability of the examined firms was analyzed according to their net sales levels, marketing, and R&D expenditures, and the intensity of marketing and R&D expenditures were calculated. Anagnostopoulou and Levis (2008) analyzed the association between the R&D intensity of firms operating in the UK and sales and gross profit items over

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the period 1990–2003. It was observed that R&D expenditures were particularly effective on the sustainability of operational profitability. Also, it is another result that innovation had a significant and positive association with gross profit, sales, and profit per share. Coad and Rekha (2008) explicated the effect of R&D expenditures on firm sales over the period 1963–1998 via the quantile regression method. It was seen that innovation activities were very important for the “superstars”, fast-growing firms. Lööf and Almas (2008) examined the causality among the firms’ investment and performance variables over the period 1992–2000 in Sweden. R&D expenditures and physical capital were used as performance variables, whereas sales, value-added, profit, cash flow, capital structure, and the number of employees were used as investment variables in the study. A unilateral causality was detected from sales to R&D expenditures in large firms with 250 or more employees, whereas no causality was found between profitability and R&D expenditures. Cassia et al. (2009) examined the firms registered on the London Stock Exchange from 1995 to 2006. Variables such as firm growth (Natural Logarithm of Sales), size, establishment date of the company, university-industry cooperation, number of students, research fund, GDP ratio of the R&D expenditures, and patents were analyzed using the Generalized Moments Method (GMM). The amount of research funds available for universities positively affects firm growth, whereas the input and output effect (academic information) of the university does not affect firm growth. Coad and Rao (2010) discussed the association between the growth and the R&D expenditures was handled with the variables of total sales, number of employees, and operating profit, in their study for companies operating in the American manufacturing industry between 1973 and 2004. The effect of the increase in sales on R&D expenditures detected to be higher compared to the profitability. García-Manjón and RomeroMerino (2012) analyzed 1000 companies with the highest R&D expenditures from 18 different European countries over the period 2003 and 2007 using Quantile regression and GMM methods. In the study, which used growth (the log-difference of the companies’ net sales), firm innovation (R&D/Net Sales), and sales variables, it was determined that R&D expenditures had an affirmative impact on sales growth of 754 European companies. Çiçek and Onat (2012) analyzed nine companies in the IT and technology sector traded on BIST to reveal the effects of innovative activities carried out in the businesses on products, services, or processes. They asserted that five of these enterprises are effective in terms of R&D expenditures, the percentage change in asset profitability, and the percentage change in sales. Choi and Williams (2013) examined 90 companies operating in the microelectronics, Pharmaceuticals, and Telecommunications sectors in Korea and China. In the study covering the period 2000–2003, variables were examined with the panel data and regression analysis. The variables of sales increase, asset profitability (ROA), R&D/sales, patent intensity (number of patents/sales), innovation intensity and diversity, firm size, establishment date, and leverage ratio were used. R&D intensity and sales increase of Korean and Chinese companies were not statistically significant on ROA, whereas the patent intensity was statistically significant. Innovation intensity has been the determinant of more important financial performance for Korean

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companies compared to Chinese companies. Dave et al. (2013) examined information technology (IT) sector companies listed on the S&P 500 Index. They determined that the most effective variable on profitability was the R&D intensity of companies rather than growth in R&D expenditures, increase in sales, sales/fixed assets, and gross profit margin. In their study, Lee and Kim (2013) examined the impact of technological capacity on the market shares of companies. The obtained quarterly data over the period 1999–2007 were analyzed via the Arellano-Bond dynamic panel estimation model. As a result of the analysis, it was seen that superiority in technological capacity and current market share had a positive correlation. Furthermore, according to the causality test, it was determined that technological capacity helped to predict the future market share, but not the other way around. Ünal and Seçilmiş (2014) analyzed the effectiveness of R&D expenditures on sales revenues, and the impact of net profit on R&D expenditures using the Panel GMM method involving 29 throughout 2005–2010. It was obtained that there was a positive relationship between the R&D expenditures of firms, net sales revenues, and net profit of the period. Öztürk and Zeren (2015) examined 26 manufacturing companies operating in BIST throughout the 2007–2014 period. The variables of the R&D expenditures and sales growth were analyzed using the panel data and co-integration methods. It was observed that the R&D expenditures had an affirmative influence on the increase in sales of the manufacturing industry. In a similar study, Demirgüneş and Üçler (2016) examined the manufacturing industry companies traded on BIST throughout 1992: Q1–2013: Q3 using the panel data and co-integration analyses. It was revealed that R&D expenditures of manufacturing industry companies traded on BIST had an adverse effect on profitability. Işık et al. (2016) analyzed the data of 30 manufacturing industry companies traded on BISTover the period between 2008: Q1–2014: Q4. They analyzed the impact of the R&D expenditures on profitability and net sales using the panel data model. It was determined that R&D expenditures had a positive and significant impact on profitability and net sales. İltaş and Bulut (2017) determined a unilateral causality from R&D expenditures to net sales revenue only in the textile industry sector for 5 different sectors traded on BIST. Abdu and Jibir (2018) investigated the determinants of firm renewal in Nigeria covering the period between April 2014 and February 2015. Firm-based data were analyzed with the Probit and Tobit regression models. R&D investments, formal training, firm size, firm location, firm activity, and the sector positively affected the innovative trends of the company. Rajapathirana and Hui (2018) investigated the relationship of innovation, market, and financial performance with technological capability and innovation activities in their study. In the study based on the insurance sector in Sri Lanka, 379 senior executives were examined. They concluded that effective innovative management capability led to superior company performance by providing more effective innovative products.

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4 Methodology In this study, the items related to the R&D expenditures and net sales of the companies are analyzed to investigate the relationship between the technological development and market shares of the companies included in the BIST Chemistry, Petroleum, and Plastics index. For this purpose, the relationship between the variables related to the companies in the relevant index is analyzed using the panel data analysis. The series is required to be stationary to perform the panel data analysis. Therefore, before performing the panel data analysis, Choi (2001) and Im et al. (2003) unit root tests are conducted to all series. The equations for these unit root tests are as follows: Δyit = β0 +

k X i=1

βimi t mi + δi xi(t–1) + eit

Δyit = φi + /i t + ωi yi,t–1 +

l X

(1)

βij Δyi,t–j + vit

(2)

j=1

In Eqs. (2) and (3), i = 1,2,3,. . . ., N denotes the cross-sectional data, t = 1,2,3,. . ., T denotes time period, θit denotes the exogenous variables including singular trend component or the constant effect, eit and vit denote the components of the error term, and m, l denote the lag lengths. In both unit root tests, the null hypothesis claims that H0 = The series is not stationary, whereas the alternative hypothesis claims that H1 = At least one of the series is stationary. Following the unit root tests, the panel data models (Pooled Ordinary Least Squares (POLS), Fixed Effects Model (FE), Random Effects Model (RE)) used in panel data analysis that differ in terms of the combination of data used to allow working with microdata instead of total data are utilized to determine the relationship between technological development and market shares (Baltagi 2005). A simple panel data equation can be shown as follows: yit = γ + αX it + εit = ωit + σ it

i = 1, 2, . . . , N

t = 1, 2, . . . , N

εit

(3)

In Eq. (1) above, the dependent variable y, i, and t denote the indices representing the cross-section and time dimensions; whereas γ, X, α, and ε denote the constant term, the explanatory variable, the coefficient of the explanatory variable, and the residuals, respectively. The residuals consist of two elements: ω denoting individualspecific effects that cannot be observed, and σ denoting the rest.

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5 Data In this study, the relationship between the technological developments and the market shares of 28 firms1 that are currently trading in the BIST Chemical, Petroleum, Plastic index. For this purpose, analyses are conducted utilizing data obtained over the period between 2009: Q3–2019: Q4. The years during which the examination is made, are determined by the accessibility of reliable data to be obtained from the oldest companies as of the initial public offering date and considered for all companies under examination. In this context, the initial public offering of 17 of the companies included in the relevant index took place in the 1990s, and of the remaining 11 companies took place after 2011. Besides, although these 17 companies operating in the Chemical, Petroleum, and Plastics sectors are making R&D investments, only 11 companies regularly report their R&D expenses in their financial statements. Therefore, only 11 companies2 would constitute the scope of the study. The ratio of Net sales to Total Sector Sales is used as the dependent variable in terms of expressing the market shares of the companies. The R&D expenditures, R&D intensity and R&D ratio are used as independent variables indicating technological development. Upon conducting the analyses, the annual data of technological development and market share variables are calculated from the quarter of the previous year to the same quarter of the consequent year. Data on all variables used in the study are obtained from www.finnet.com.

6 Findings In the study, the panel data analysis is conducted to determine the relationship between the companies’ market shares and the R&D variables. The series should be stationary before conducting the panel data analysis. For this purpose, Choi (2001) and Im et al. (2003) unit root tests are used, and their results are presented in Table 1. It is seen that the market share and R&D ratio variables are stationary I (0) at the level, whereas the R&D expenditure and R&D intensity variables are stationary in I (1) at the first difference. Therefore, these two variables, which are stationary at the first difference, are included in the model by taking their first differences. 1

Aciselsan Acıpayam Selüloz, Aksa Akrilik Kimya, Alkim Alkali Kimya, Aygaz, Bagfaş Bandırma Gübre, Berkosan Yalıtım ve Tecrit Maddeleri, Brisa Bridgestone Sabancı Lastik, Deva Holding, Dyo Boya, Ege Gübre, Ege Profil, Gediz Ambalaj, Goodyear Lastikleri, Gübre Fabrikalari, Hektaş, İzmir Fırça, Marshall Boya, Özerden Plastik, Petkim Petrokimya, Politeknik Metal, RTA Laboratuarları Biyolojik Ürünler, Sanifoam Sünger, Sasa Polyester, Sekuro Plastik, Seyitler Kimya, Soda, Temapol Polimer, Tüpraş. 2 Aksa Akrilik Kimya, Alkim Alkali Kimya, Aygaz, Bandırma Gübre, Brisa Bridgestone Sabancı Lastik, Deva Holding, Dyo Boya, Marshall Boya, Petkim Petrokimya, Sasa Polyester, Soda, Tüpraş.

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Table 1 Unit root test results of the variables Unit root test Variables Market Share R&D Expenditures R&D Rate R&D İntensity

Choi Constant and trend Statistic Probability 0.000 –3.167* –5.878* 0.000 0.075 –1.436*** –7.338* 0.000

Im, Pesaran & Shin Constant and trend Statistic Probability –3.745* 0.000 –6.184* 0.000 –1.650** 0.049 –8.150* 0.000

* ** *** , , indicate significance at the 1%, 5% and 10% levels, respectively. Values in parentheses indicate P-probability values. The appropriate lag length is selected according to the Schwarz information criterion

To figure out the method to be used in the model to be estimated in the panel data analysis, Chow; LM (Lagrange Multiplier); and Hausman tests are performed. Accordingly, the optimal model is tried to be determined by testing fixed effects (FE) and pooled (Pols) models with the Chow test; random effects (RE) and pooled models with the LM tests; and finally the fixed and random effects models with the Hausman test. Upon examining the results obtained from Table 2, the H0 hypothesis is rejected since the probability values of the unit, unit, and time effects are 0.000 according to the Chow test. In other words, it is stated that there are both unit and unit and time effects. This test result reveals that the appropriate model is the unit fixed effects model. H0 hypothesis is rejected since the probability values of all tests in both and cross-section columns according to the LM test are 0.000. In the time column, tests cannot reach the probability result in general. Therefore, it can be stated that there is no time effect. At this phase, the most appropriate model is the unit random-effects model. Thus, the Hausman test results would determine the most appropriate model. Since the probability value of the test statistics obtained from the Hausman test is 0.063, the null hypothesis, claiming that H0: Unit and time effects are random, is rejected. Therefore, the alternative hypothesis, claiming that H1: Unit and time effects are considered constant, is accepted. As a result of the three-stage test, it was determined that the optimal model has a unit fixed effects model. The equation generated for the unit fixed effects model for the variables is as follows: Market Shareit = x0 + α1 RDEXPit + α2 RDINTENSITYit + α3 RDRATEit + kit : (4) Outputs obtained from the unit fixed effects model related to Eq. (3) are presented in Table 2. It is seen that all outputs related to variables are significant. Also, it is determined that the F-statistic of the solved model is significant and the R2 value is also high. According to the outputs in Table 2, it is seen that one unit rise in R&D expenditures increases the market share by 1.630 units, whereas one unit rises in the R&D intensity and the R&D ratio decreases the market share by –1.032 and –0.050 units, respectively.

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Table 2 Optimal model selection and estimation results according to market share model Chow test Effects test Cross-section F Period F Cross-section/Period F LM test Test summary Breusch-Pagan Honda King-Wu Standardized Honda Standardized King-Wu

Statistic 9345.544 0.088 1910.653

d.f (10,387) (39,387) 49

Probability 0.000 1.000 0.000

Cross-section 8041.714 (0.000) 89.675 (0.000) 89.675 (0.000) 98.488 (0.000) 98.488 (0.000)

Time 21.215 (0.000) –4.606 — –4.606 — –4.552 — –4.552 —

Both 8062.930 (0.000) 60.153 (0.000) 77.922 (0.000) 59.602 (0.000) 81.204 (0.000)

Chi-Sq. d.f. 3

Probability 0.063

Std. Error 0.001 5.250 0.027 0.475

t-Statistic 71.787 3.110 –1.834 –2.170

Hausman test Chi-Sq. statistic Test summary Cross-section random 7.280 Optimal model (Unit fixed effects model) Variable Coefficient C 0.085 R&D Expenditures 1.630 R&D Rate –0.050 R&D Intensity –1.032 R2 0.996 8398.272 F-Statistic 0.000 Probability (F-Statistic)

Probability 0.000 0.002 0.067 0.030

7 Conclusion In today’s world, it has become imperative for companies to give importance to R&D and to constantly innovate to tackle increasing competition and rapid changes in consumers’ demands. Accordingly, companies can maintain, or even boost, their market shares by increasing their sales through new products. In this study, the relationship between the technological developments and market shares of the 11 firms trading in the BIST Chemical, Petroleum, Plastic index is examined. Therefore, analyses are conducted using data obtained over the period between 2009: Q3–2019: Q4. According to the findings, it is found that the expenditures made on R&D based on quantity have a positive and significant impact on the market share. Moreover, the effect of the R&D intensity and R&D rates of the companies on their market shares is found to be significant but negative. Hence, the size of these companies as well as quite a high level of their sales volumes, and the

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budgets allocated to other operating expenses (marketing, advertising, and distribution) along with their R&D expenditures account for this situation. These results can provide company managers/owners with the idea to be prepared for competitive conditions that their companies may encounter in the future, to increase their market share, and to better respond to changing consumer behaviors and demands. Furthermore, it can serve as guidance to countries for assuming more importance to R&D expenditures and encouraging them to conduct related activities. This study can be extended by examining different sectors with larger sample groups, and financial performance variables.

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The Effect of Financial Leverage on Investment Decisions: The Evidence from Emerging Markets Tuğba Akca, Mehmet Baha Karan, and Yılmaz Yıldız

Abstract The paper aims to investigate the effect of financial leverage on companies’ investment decisions in the selected emerging countries. To understand the investment/borrowing relationship, in the post-2000 period, when borrowing rates increased throughout the world, we investigated the relationship between investment and borrowing by considering the underinvestment hypothesis of Myers (J Financ Econom. 5: 147–175, 1977). This study covers 15,400 observations in the period 2005–2015 examines firms of developing countries in different economic dynamics. The study results show that leverage has a significant negative effect on investment and that this connection is found reliable and valid with the panel regression and two-stage least squares models. Although the findings differ from country to country, the evidence supports Myers’ underinvestment theory that borrowing has a controlling role for companies with low enlargement opportunities in the emerged countries.

1 Introduction Since the mid-1990s, the world has been at the stage of unprecedented capital flows with globalization winds. While the ratio of global capital flows to GNP was 6.2% in the 1990–1999 period, this rate was 13.3% in the 2000–2007 period. While the 2005–2007 period, the ratio of global capital flows to GNPaverage reached 19%; suddenly, with the efficacy of the global crisis capital flows, they have returned to pre-2000 again (James et al. 2014). In the post-crisis period, the US Federal Reserve

T. Akca · M. B. Karan (*) Department of Business Administration, Hacettepe University, Ankara, Turkey e-mail: [email protected] Y. Yıldız Department of Accounting, Finance and Economics, Huddersfield Business School, Huddersfield, UK e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 H. Dinçer, S. Yüksel (eds.), Financial Strategies in Competitive Markets, Contributions to Finance and Accounting, https://doi.org/10.1007/978-3-030-68612-3_10

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(Fed) policies began to influence capital flows with the quantitative easing (QE) and the tapering programs. The QE has increased the amount of cash in the market immediately after the crisis, while the tapering program has started to reduce cash flows after 2012. While gross inflows and gross outflows influence developed countries’ net flows, it is mainly determined by gross inflows for emerging economies (Pagliari and Swarnali 2017). Thus, companies’ borrowing increased, and foreign direct investment, which has increased exponentially in emerging countries, has fluctuated with the crisis (Dell’Erba et al. 2013; Thi Bich Ngoc et al. 2019; Unctad 2015). Therefore, understanding the investment/borrowing relationship, which is one of the main subjects of corporate finance, has become more attention-grabbing in the 2000s compared to the increased borrowing rates throughout the world. After the 1970s, the overinvestment and underinvestment hypotheses have been claimed to explain firms’ capital structure in the scope of the agency theory (Myers 1977). This approach conflicts with the famous Modigliani and Miller (1958) assumption that investment decisions can be made independent of financing decisions. Jensen and Meckling (1976) reveal that when the private sector’s borrowing is at moderate levels, it contributes to the recovery of consumption rates and economic growth. However, an extreme increase in the private sector’s borrowing rates, which is called overinvestment, does not increase stockholders’ wealth, influences capital accumulation, and might lay the foundation of a crisis. Sometimes this situation can be reversed to an underinvestment situation, as Myers (1977) described. In this case, companies tend to decrease borrowing by worrying that the borrowing company would transfer a significant portion of its revenues to lenders. The potential incomes of shareholders may be reduced. While Jensen (1986) and Stulz (1990) supported the effect of the underinvestment problem, Lang et al. (1996) and Aivazian et al. (2005a) reported that there is a negative relationship between leverage and growth, and it is more significant for low growth firms. Some other studies support these results. Johnson (2003) and McConnell and Servaes (1995) report that the corporate value has a negative correlation with borrowing for companies that have high growth potential. The correlation is positive for companies having low growth potential. The studies of Childs et al. (2005), Dang (2011), Ahn et al. (2006), and Kashefi Pour and Khansalar (2015) also revealed that the firm prefers to decrease the level of leverage when there is an underinvestment problem. However, these studies on the borrowing-investment relationship are published on the companies of prosperous or developed economies; the empirical evidence is limited for emerging economies. The present work contributes to the literature in several aspects. Firstly, we test the underinvestment hypothesis of Myers by investigating the relationship between investment and borrowing. Secondly, this work gives us new evidence to the literature by studying the period of excessive worldwide loans in this volatile period, namely 2005–2015, with a large and up-to-date dataset. Thirdly, the investment-leverage relationship of emerging countries is evaluated as a group and at the single country level. In this way, the country group’s specific macroeconomic and political conditions and individual countries related to borrowing are discussed. We believe that this study also provides evidence to the

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finance literature by finding an answer to whether the companies in the emerging countries make investments using the funds they achieved via borrowing or paying their previous debts and close deficits. 15,399 observation of publicly traded companies from eleven emerging countries between 2005 and 2015 are examined using panel data analysis and two-stage least squares methods. Because of the endogeneity between borrowing and investment, the results have obtained from two-stage least squares methods are used for the robustness of the other results. This study consists of six sections. In Sect. 2, the datasets of publicly traded companies in emerging countries are discussed. In Sect. 3, the econometric methods used to examine the factors influencing the investment decisions are presented. The results and concluding remarks are given in Sect. 4. The study is finalized with the conclusion in Sect. 5.

2 Dataset This study aims to select the different countries in different economic structure among emerging countries. The selected countries are among BRIC and Fragile Five countries1; these are Turkey, Brazil, China, Indonesia, South Africa, and India. This study covers 15,399 company observations during the 2005–2015 period. More precisely, 1177 firms from Turkey, 847 firms from Brazil, 7865 firms from China, 1265 firms from Indonesia, 1023, and 3223 firms from S. Africa and India, respectively. This study’s dataset is taken from publicly traded companies’ year-end financial statement data in emerging countries. The data are provided from the Datastream database. The companies having missing data are excluded from the dataset, and the balanced panel datasets are used for all the countries. To minimize the effect of outliers, the top and bottom 1% of each variable are not included in the sample. The financial table data of companies from different countries are used in this study. Therefore, the data starts from the beginning of 2005, when the International Financial Reporting Standards (IFRS) ensures the worldwide standardization in accounting is chosen. This period includes not only the period of excessive borrowing of the countries but also some essential financial events, like the period of the 2008 global crisis and reactive politics of the Federal Reserve of the US. Fed implemented the quantitative easing program in 2009 and started the tapering plan to normalize the economy in late 2013. These politics had important consequences on the borrowings of countries. Its effects on the emerging countries are still a matter of debate.

A Morgan Stanley financial analyst used the “Fragile Five” term for the emerging countries that are highly dependent on slippery foreign investments to finance their economic goals in 2013. They are Brazil, India, Indonesia, South Africa, and Turkey. 1

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Since this study aims to reveal the long-term relationship between investment, the dependent variable is determined as financial borrowing (Leverage). The independent variables are cash flow, sales, Tobin Q ratio, and year dummies. Financial Leverage is defined as Total Liabilities/Total Assets, following Aivazian et al. (2005a) study. The cash flow variable is taken into consideration as one of the most critical decisions influencing investment decisions. The cash flow variable is measured using EBITDA. EBITDA is a value obtained by removing the effects of amortization on the operating profits. EBITDA is used as one of the best indicators for measuring the cash that the companies might create in the future as potential (Ocal et al. 2015). Another reason for considering the cash flow variable in the investment decision is to control the financial limitations of companies (Fazzari et al. 1987). As another independent variable influencing the investment decisions, the sales are used in this study, and the same ratio is used with the study of Aivazian et al. (2005a). Moreover, another reason for considering the sales is that the cash flow variable measures the financial limitations measured as cash. In contrast, the sales variable measures the financial constraints as an accrual. Tobin Q ratio (Tobin 1969) is used as the indicator of competitive capacity and one of investors’ decision criteria. In his study, Dang (2011) aimed to reveal future profitability expectations via the Tobin Q ratio by utilizing exchange market evaluation forecasts. In cases where there is no significant financial limitation, companies with high growth potential can make higher investments. Moreover, this ratio is obtained by dividing the total value of the company’s debt and equity by the book value of those assets. In their studies, Mills et al. (1995), Lang et al. (1996), Aivazian et al. (2005a, b), Dang (2011), and Tekçe (2011) examined the relationship between Tobin Q ratio and investment. It is reported that this ratio represents the growth potentials of companies and that the companies having high growth potentials aim to maximize their value by making the investment in the projects with positive net present values. Tobin Q is also considered the indicator of a company’s current management (Min and Prather 2001). For this reason, the Tobin Q dummy variable and Leverage interaction is used. Tobin Q ratio > 1 indicates that the limited sources of the company are used effectively. The equity investors generally prefer these companies because of their high growth potential and competitive capacity, and it indicates that the assets are used in good alternatives (Lee and Tompkins 1999). However, the ratios below 1 indicate that the sources are not sufficiently utilized. This shows that the marginal return on investment is under the cost of capital. In literature, it is reported that companies’ low or high growth potential influences the relationship between borrowing and investment (Aivazian et al. 2005a). The companies might show characteristic behaviors following their growth potentials. The loan might be easy for companies with high growth potential, whereas it might be difficult and costly for companies with low growth potential. The borrowing might represent a different case for the companies with low growth potential; it may be thought that the company has a lot of promise, and thus, it can find funds from the creditors. The symbols and definitions regarding the variables used in this study are given:

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• • • • •

Investment (Inv); (Capex – Depreciation)/Net Fixed Assets Financial Leverage (Lev); Total Liabilities/Total Assets Cash Flow (CF); EBITDA/Total Assets Sales (S); Net Sales/Net Fixed Assets Tobin’s Q Ratio (TQ); (Total Liabilities + Market Value of Firm)/Total Assets (Book Value) • Dummy Tobin’s Q Ratio (DTQ); 1 if Tobin’s Q ratio > 1, otherwise 0.

Firstly, the descriptive statistical values of data are calculated, and the results of emerging countries are statistically appropriate for the main analysis. Given the descriptive statistics in Table 1 containing 15,399 number of observations (companies) for 11 years period of six emerging countries, it can be seen the highest number of observations is in China, while the lowest number belongs to Brazil. The number of companies is related to the countries’ size to a certain extent, and the number of observations with relatively high-country GNP is also high. In terms of the mean value of the dependent variable that is an investment (Inv.), the highest value is observed in India (0.31). In contrast, the lowest value is observed in China and Indonesia (0.18). These results indicate that there is not a huge difference in investment rates in emerging countries, although India’s investment rate is somewhat high. In terms of the Cash Flow (CF) parameter, the highest mean value is observed in South Africa, while the lowest mean value is observed in China and Turkey. On the other hand, there is no significant difference between the countries at the mean level. Given the financial borrowing (Lev) as the independent variable indicating all the debts, the highest mean value belongs to Brazil, and the lowest mean value belongs to Turkey. Indonesia and South Africa have the highest Sales (S), while China has the lowest. Tobin’s Q ratio (TQ) for the lowest average values, belongs to Brazil and Turkey, and these results point to the low investment performance in these countries. India and China stand out with their high Tobin Q performances. Although all variables’ standard deviations are generally low, the high standard deviation values of the sales variable are particularly noticeable. This is mainly due to the different sizes and sector structures of companies traded on the stock exchanges. The panel unit root tests are used for the stationarity analysis. Examining the panel unit root test results in general, the H0 hypothesis that there is a general unit root in the whole of unit root tests in both models for all the variables involved in the analysis is mostly rejected at the significance level of 1%. It is determined that the series are stationary at the level, i.e. I (0). According to the analysis results, it is found that the variables are stationary for different unit root tests and that no spurious regression problem would be observed in any model that will be established using these variables. VIF test is performed for all the data at the level of the country. The results of the VIF test indicate that there is no multicollinearity problem between the variables. The data used in this study are suitable for use in the panel data analysis method.

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Table 1 Descriptive statistics of emerging countries’ data Countries Mean Brazil Inv. 0.23 CF 0.15 Lev 0.63 TQ 1.24 S 5.87 China Inv. 0.18 CF 0.10 Lev 0.53 TQ 1.98 S 4.12 Indonesia Inv. 0.18 CF 0.15 Lev 0.58 TQ 1.62 S 9.82 South Africa Inv. 0.30 CF 0.18 Lev 0.51 TQ 1.80 S 10.52 India Inv. 0.31 CF 0.17 Lev 0.58 TQ 2.10 S 5.98 Turkey Inv. 0.23 CF 0.12 Lev 0.46 TQ 1.39 S 5.67

0.25

Median

0.10 0.07 0.43 0.73 1.56

0.18 0.14 0.58 0.99 2.67

0.06 0.05 0.39 1.17 1.15

0.75

Standard deviation

Number of observation

0.30 0.21 0.74 1.39 5.86

0.22 0.15 0.36 0.92 10.42

847 847 847 847 847

0.14 0.09 0.53 1.54 2.07

0.25 0.14 0.66 2.27 3.87

0.17 0.17 0.28 1.48 14.70

7865 7865 7865 7865 7865

0.05 0.07 0.35 0.86 1.46

0.13 0.13 0.53 1.08 3.03

0.24 0.21 0.67 1.67 5.59

0.17 0.16 0.47 1.73 39.08

1265 1265 1265 1265 1265

0.13 0.10 0.36 1.12 1.83

0.21 1.17 0.51 1.53 4.79

0.33 0.24 0.65 2.12 11.64

1.25 0.18 0.21 18.94 1.27

1.023 1.023 1.023 1.023 1.023

0.11 0.09 0.45 0.99 1.39

0.21 0.15 0.60 1.42 2.67

0.37 0.23 0.71 2.42 5.23

0.60 0.15 0.28 2.04 24.85

3.223 3.223 3.223 3.223 3.223

0.06 0.06 0.28 0.89 1.47

0.13 0.11 0.44 1.11 2.50

0.25 0.18 0.61 1.47 4.46

0.73 0.11 0.24 1.15 54.30

1.177 1.177 1.177 1.177 1.177

3 Methodology Panel data analysis and two-stage least squares methods are used as econometric methods to examine the long-term relationship between dependent and independent variables. The Lagrange Multiplier test for random effects, Hausman test, and the

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redundant fixed effects test are implemented to decide the appropriate panel data analysis model among the pooled, fixed, and random models of panel regression. The test results indicate that the fixed effects panel data analysis model is found to be suitable. In their studies, McConnell and Servaes (1995) and Lang et al. (1996) used the pooled panel data analysis, and they ignored the individual effects of companies. Such an approach might be incapable of completely revealing an independent variable’s effects on the dependent variable. There might be an unobservable factor that influences both. Here, Lang et al. (1996) assumptively accepted the unobservable individual effect to be zero. But, since there is a significant difference between the companies and industries, the random effect is added. In this study, the homogeneity at the company level is ensured by using the panel data method, and the robustness of results is improved by using another method. The pooled regression model might underestimate the relationship between borrowing and investment. But, in the fixed effects model, the horizontal axis (country/firm) differences can be reflected, and thus the fixed effects model is appropriate. Because of the endogeneity problem between the investment and financial borrowing, the data are re-examined by using the two-stage least square method after the panel data analysis method. The results of both ways are compared. There might be a correlation between the error terms of different periods for the panel data exhibiting variation in time and horizontal dimension. For this reason, the AR(1) model is added to the fixed-effects model. Thus, the lag 1 values in the fixed effects model are tested, and the results are then compared. The dependent and independent variables examined to reveal this study’s objectives are analyzed in accordance with the following panel data analysis model. Model 1: Invi,t ¼ α þ ωt þ δ Levi,t–1 þ β CF i,t þ γ TQit–1 þ ρ Si,t–1 þ εi,t In this equation, the investment is the dependent variable, is the fixed coefficient, and refers to the dummy variable assigned to control the year-specific macroeconomic variables. Lev[1] is the financial leverage variable, CF is the cash flow, TQ indicates to the Tobin Q ratio, and S is the sales variable, and ε refers to the error term. i and t show the companies involved in analysis and the time (year), respectively. The data are examined in three main phases: panels models, Model 1 and Model 2, and Two Staged Least Squares. In Model 1, the main equation above is examined using a fixed-effects model. In Model 2, the dummy variable is added because companies’ growth potentials might change the effects on investment and borrowing, and the fixed effects model is used again. The variable that equals 1 for the companies, which have Tobin Q ratio >1, and to 0 in all other cases is added. Thus, the borrowing/investment relationships of companies having high growth potentials are separately examined.

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Model 2: Invi,t ¼ α þ ωt þ δ Levi,t–1 þ β CF i,t–1 þ γ TQit–1 þ η Levi,t–1 * TQit–1 þ ρ Si,t–1 þ εi,t In the 3rd phase, Model 2 is examined using a two-stage least squares method (2SLS) rather than the validity tests’ fixed effects method. The results obtained by altering the econometric method are compared. An instrumental variable methodology is used to solve the endogeneity problem about the connection between leverage and investment. The instrumental variable for leverage is the ratio of long-term debt/ total assets. Using long-term debt ratio as an instrumental factor can be vindicated based on the consequent arguments: long-term debt is used for financing investment decisions. Therefore, long-term debt is the main element of investment. The test result indicates that the long-term debt is highly correlated with the firm’s leverage level, but the long-term debt ratio is not highly correlated with the firm’s investment opportunities. The correlation between leverage (Lev) and long-term debt ratio is 0.971. The correlation between investment and long-term debt ratio is only 0.079 and the result suggests that long-term debt is a suitable instrumental factor. Leverage is regressed on the long-term debt ratio, and then the estimated value is used as a substitute for leverage in 2SLS estimation of the equation. Moreover, Aivazian et al. (2005a), underlined that the long-term debt/total asset ratio could be used as an instrumental variable in their research. Although “(total assets–intangible assets)/ total assets” ratio is used as an instrumental variable in their study, but they emphasize that “long term debt/total assets” also gives very similar results.

4 Results The findings obtained from panel data analysis and 2SLS methods are presented in Tables 2 and 3. If any, the evaluations of countries together and separately help to identify differences on a country basis. As robustness test to panel regressions in the tables, the two-stage least squares method is used. As seen in Table 2, all independent variables in the models are significant at 1% level. A strong negative Table 2 Results of the models for the emerging country group

Emerging countries Lev CF S TQ DTQ*Lev Constant

Model 1 –0.230*** 0.545*** 0.008*** 0.048*** – 0.143***

Model 2 –0.330*** 0.535*** 0.008*** 0.046*** 0.103*** 0.156***

2SLS –0.347*** 0.536*** 0.008*** 0.046*** 0.114*** 0.161***

According to p values (not shown here); ***, **, * represent importance at the 1%, 5% and 10% level respectively

Model 1 Turkey –0.090 0.170* 0.010*** 0.031** – 0.140*** Indonesia –0.029*** 0.127*** 0.000 0.012*** – 0.155***

2SLS –0.310*** 0.170 0.010*** 0.020 0.170*** 0.210*** –0.093*** 0.119** 0.000 0.010** 0.063*** 0.174***

Model 2

–0.240*** –0.170* 0.010*** 0.020 0.150*** 0.180***

–0.115*** 0.018*** 0.000 0.009** 0.081*** 0.181***

Model 1 Brazil –0.137*** 0.212*** 0.006*** 0.046*** – 0.192*** South Africa –0.394** 5.076*** –0.003 0.198*** – –0.755*** 0.251 5.158*** –0.002 0.209*** –0.651*** –0.850***

–0.155*** 0.021*** 0.006*** 0.044*** 0.019 0.200***

Model 2

According to p values; ***, **, * represent importance at the 1%, 5% and 10% level respectively

Lev CF S TQ DTQ*Lev Constant

Lev CF S TQ DTQ*Lev Constant

Variables

Table 3 Results of the models based on the emerging countries

0.383 5.107*** –0.002 0.209*** –0.409* –1.012***

–0.346*** 0.247*** 0.007*** 0.052*** 0.060 0.279***

2SLS

Model 1 China –0.102*** 0.098*** 0.001*** 0.018*** – 0.189*** India –0.308*** 0.548*** 0.005*** 0.033*** – 0.300***

–0.445*** 0.005*** 0.495*** 0.030*** 0.142*** 0.334***

–0.163*** 0.095*** 0.002*** 0.018*** 0.063*** 0.193***

Model 2

–0.764*** 0.471*** 0.005*** 0.032*** 0.171*** 0.510***

–0.228*** 0.116*** 0.002*** 0.018*** 0.072*** 0.218***

2SLS

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relationship between borrowing and investment is observed in emerging countries in general. The negative leverage –investment relationship is significant for all models. This result is in accord with the previous research and indicates the controlling role of leverage for firms with weak growth possibilities (Kashefi-Pour and Khansalar 2015; Aivazian et al. 2005a). Cash flow, Sales, Tobin Q variables, and Tobin Q-Leverage interaction are also positively affecting investments. In other words, increasing borrowing of the emerging countries is not the source of investments; instead, the causes are coming from cash flows and sales. Instead of investing, companies are using their debts to cover their current deficits. Tobin’s Q, which exhibits growth possibilities, has been an important positive effect on investment; moreover, the companies fund their investment decisions based on their high growth potentials. As seen in the second model for high-growth potential companies, the investments are increasing via borrowing. For the companies with Tobin Q ratio > 1, a positive relationship is observed between investment and financial borrowing. As the Tobin Q ratio of companies increases, the investments increase, and the companies are making these investments by borrowing. Given the results of the two-stage least squares method, similar findings are obtained and validated in the previous models. Analyzing from the individual countries’ perspective, negative leverage, and positive cash flow variables are common for all countries. However, some distinct and unfamiliar results are aroused, and the findings indicate some country-specific differences (Table 3). Given the results of Turkey, a statistically significant relationship is not seen between financial borrowing and investment. Even though the global financial crisis did not directly influence Turkey in 2008, it is influenced by global capital flows. Because of its high current deficit, this country aims to become attractive for the short-term capital inflow money. Such a result might have been due to the companies’ heterogeneous structure, as well as the fact that borrowing cannot be directly translated into investment in general. In the case of adding the dummy variable to the equation, there generally is a statistically significant negative relationship between companies’ investment and financial borrowing. But, for the companies having Tobin Q ratio > 1, there is a strong positive (0.15) correlation between investment and financial borrowing. At this point, Turkey differs from the other emerging countries with India. Here, the high growth companies in Turkey fund their investments by borrowing. The variable of sales has no effect on investment. In fact, it is found that, unless they are translated into cash flow, the sales do not significantly affect the companies’ investment decisions. Given the results obtained from the two-stage least squares method, similar findings can be seen. In general, it can be concluded that the companies having Tobin Q ratio < 1 do not fund their investments with financial borrowing, and they apply a prudent borrowing policy or meet their deficits through borrowing. In Brazil, the effect of financial borrowing on investments is generally negative, whereas the impact of cash flow, sales, and the Tobin Q ratio have positive effects. The effect of sales on investment is positive. In the case of adding the dummy variable in the second phase of the analysis, the results of analyses and signs of

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coefficients remained in the same direction. For the companies having Tobin Q ratio > 1, no statistically significant relationship is observed between investment and financial borrowing. It is seen that the companies having high growth potential in Brazil do not invest by using a borrowing mechanism. Given the results obtained from the two-stage least squares method, similar findings can be seen. These results point out the disciplinary role of leverage in general for Brazil. Regarding the results obtained for Indonesia, the remaining variables are consistent with the emerging group sample except for the sales variable. The leverage variable has a significant negative relationship with investment. For the companies having Tobin Q ratio > 1, a statistically significant positive correlation between investment and financial borrowing is seen. It is understood that the high growth companies make their investment via borrowing and weak growth firms are cautious about borrowing. These findings are confirming the relatively strong average growth of the Indonesian economy after the 1997 Asian Crisis. Given the results obtained from the two-stage least squares method, the results are robust. South Africa, which is the largest economy of continental Africa and the economic leader of the Sub-Saharan region, has very rich raw material sources, strong textile, tourism, automotive, and agriculture industries, and an established infrastructure. South Africa results reveal that financial borrowing has a negative effect on investment, whereas cash flow and Tobin Q ratio have positive effects. For the companies having Tobin Q ratio > 1, the statistically significant negative relationship is seen between investment and financial borrowing. It can be stated that the companies having high growth potential don’t eagerly invest by borrowing, while the companies having low growth potential do. South Africa is a country having high corporate heterogeneity. The large companies in this country, international mining companies, and small-scale companies have different management policies and behaviors. Even though the country received a high amount of hot money in a fluctuating manner, foreign investments remained low. In this case, the internal factors such as social turmoil and slow economic growth, played a significant role, as well as the economic depression and general situation of continental Africa. All these factors hindered any significant breakthrough in the country and limited the growth rate. Since the domestic savings constitute a small portion of local income, the privatization and direct foreign investments play a determinant role in the economic growth of South Africa. The vulnerable economy of South Africa that is negatively influenced not only from the 2008 crisis but also the low international commodity prices at the post-crisis period may be the reason for these results (IMF 2016a, b). Given the results obtained for India and China, the results are similar and in the same direction as the emerging market group results. It can be seen that the effects of financial borrowing on the investment are negative, whereas the impact of sales, cash flow, and the Tobin Q ratio are positive. Firth et al. (2008) examine the relations between leverage and investment for China’s listed firms. The significant findings are that there is a negative relation between leverage and investment that is similar to our result. Herd and Dougherty (2007) report that behind the rapid growth of Chinese and Indian economies, capital formation has been the key factor rather

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than total factor productivity growth. The most important difference between these two countries’ results is that the coefficients of all variables related to India are high. This situation indicates that the variables are more effective for Indian companies’ investments. For the companies having Tobin Q ratio > 1, the statistically significant positive relationship is seen between investment and financial borrowing. It can be understood that high growth companies make their investments via borrowing. It can be understood that high growth companies make their investments via borrowing. The cash surplus of China is vital for the global economy. The economic policies, which have been changed since 1978, and China’s opening for foreign actors affected economic growth. But, since 2005, the decelerations are observed in the growth, which gained speed in the 1990s and 2000s. After the global crisis in 2008, like the other developed countries, China is observed to be affected negatively.

5 Conclusion According to the hypothesis of Myers (1977), when the investments of companies tend to decrease their debt, the problem of the underinvestment problem may arise. In the literature, many empirical papers documented a negative relationship between debt financing and investment decisions. This study has revealed new findings by examining the companies of developed and emerging countries in groups and separately. The analysis has up-to-date data and includes periods when companies are over-leveraged on a global basis. This period also covers the 2008 crisis and the post-crisis measures of the Fed. Our results reveal that leverage has a significant negative effect on investment. Moreover, this connection is reliable and valid with alternative models. It mainly supports the hypothesis that borrowing has a disciplining role for companies with low growth opportunities in the emerged countries during 2005–2015. Depending on macroeconomic data, we assume that companies are over-leveraged in all countries after the 2000s. Therefore, it is estimated that not all of the funds obtained from such borrowing are channeled to investments. A certain proportion of these funds are used to close their fiscal deficits. Moreover, a positive relationship is found between investment and Tobin Q values of the companies for the emerging economies. The relationship is also prevailing for companies that have growth opportunities. Lastly, sales revenues and cash flows are essential in financing investments. However, in terms of individual countries, the data showed some significant differences. Considering the result of two prominent BRIC group countries, China and India, have similar indicators. The results of the other emerging countries, which have been called fragile economies since 2014, have significant diversities. Except for South Africa, all others may be influenced by a liquidity effect indicated by the investment-leverage variables’ adverse relation. The evidence reveals that the results

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stem from the specific conditions of the emerging countries, which are in different geographical regions and have various problems. As a result, the findings support Myers’ underinvestment theory (Myers 1977) during the exceptionally volatile economic conditions, by confirming the role of leverage as a disciplining role for the companies that have weak growth opportunities. Even though the countries were grouped as emerging countries, they individually have reacted differently to and were touched by the 2008 financial crisis because of their specific macroeconomic, political, and cultural differences. For this reason, in further studies, different solutions for increasing the growth and investments should be examined for each country, and how the borrowing rates and borrowing terms would be used in these solutions should be analyzed.

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Increasing Productivity and Quality in the Production Sector by Digitalization Fatih Öztürk

Abstract A flexible and efficient management model in the production and service industry is a systematic model that is ideal for any business. There are reasonable reasons for this to be so. Increasing efficiency and reducing costs are among these reasons. In an environment where competition is increasing day by day, it is an important fact that businesses seek new methods and adapt quickly to existing innovations. Especially in production processes, integrated and innovative electrification, automation and digitalization solutions can achieve desired compliance and efficiency. Control systems, digitalization and industrial automation aim to increase efficiency in engineering operations. In addition, they are important issues for businesses aiming to reduce operating costs and improve product quality. All these transformations manifest themselves in the service sector as well as in production. Especially with the advent of the concept of the internet, developments in every field also included the production and service sector. The concept of digitalization, also known as Industry 4.0, has been adopted and adapted to many areas from health to industry and social areas.

1 Introduction With the increasing competition of globalization, competition has become more difficult. Production organizations can manage systems at lower costs, optimize process information, and increase energy efficiency by using process control and automation systems (Edgar and Pistikopoulos 2018). Industrial automation and control systems applications of processes that consist of many different systems are called “process automation”. Chemistry, medicine, iron-steel, cement etc. sectors are examples of process industries. Digital services play a more and more important role day by day in making decisions. For example,

F. Öztürk (*) Istanbul Medeniyet University, İstanbul, Turkey e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 H. Dinçer, S. Yüksel (eds.), Financial Strategies in Competitive Markets, Contributions to Finance and Accounting, https://doi.org/10.1007/978-3-030-68612-3_11

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analyzing process and facility data, implementing system components, or simply improving processes (Öztürk and Kayar 2019). Industry 4.0 aims to enable objects to communicate with each other and people, thereby making decentralized decisions, that is, intelligent production, by monitoring physical processes with cyber-physical systems (CPS) in modular structured smart factories. (Öztürk et al. 2019). Fully integrated and industrial networked factories, machines and devices can move intelligently and partially autonomously, requiring minimal manual intervention (Monostori 2014). The fourth industrial revolution, called Industry 4.0, paved the way for the systematic implementation of renewed energy lines to manage the ever-increasing energy demand by integrating renewable energy sources. (Faheem et al. 2018). Communication of industrial devices with each other and ensuring full integration is called “integrated digitalization”. In this way, while the data can be read from all devices connected to the industrial network, at the same time, all devices can communicate with each other. This is one of the most important factors in the emergence of Industry 4.0. An industrial network of smart devices and smart software to manage them (Knapp and Langill 2014). In order to talk about Industry 4.0, firstly, industrial automation and control systems at the field level must be correctly designed. Defining, programming the right devices suitable for the process and creating the right data at the field level is an important step for the beginning of Industry 4.0. It may not be possible to build Industry 4.0 on an industrial system that is not correctly defined, erroneous or incomplete (Horváth and Szabó 2019). Today, the demand for products is increasing day by day and a great effort is made to meet this demand. However, this situation affects the quality of the products and makes it difficult to maintain the standard. Although this problem can be solved by sacrificing quality, a quality product is still closer to being preferred under intense competition conditions. At this point, Artificial Intelligence comes to the aid of the manufacturer to solve this problem. Artificial Intelligence both penetrates the entire Industry 4.0 ecosystem and has an active role in other areas of production. AI-based algorithms are used to optimize this entire process, so problems that may occur during the procurement process can be avoided. Although the aim of these transformations is to increase the efficiency in production activities, it has become inevitable that other departments of the enterprise, from production to finance, from human resources to logistics, adapt to this transformation and use the information systems brought by computerized technologies for this purpose (Can and Kıymaz 2016). In particular, it is predicted that the logistics and supply chains will be most affected by the digitalization of industrial processes. It is even seen that commercial vehicle manufacturers, transportation sector and industrial users are already in an effort to adapt to the process and transform their processes (Schlott 2016). Considering the chronological development of the industrial revolutions, the logistics processes have naturally changed with each revolution in the manufacturing industry (Timm and Lorig 2015; Galindo 2016) Businesses have to integrate their production processes and necessary logistics methods for their products to reach

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customers. The security of logistics ways is of great importance for businesses as well as the safety of production. For this reason, enterprises try to make use of technological opportunities as much as possible in order to anticipate the problems that may occur in logistics ways and to take measures in this direction. In the digitalizing world, it has become easy to find customers in a very short time and to deliver products to customers in a very short time. However, risks such as the recent and unpredictable epidemic have seriously put the logistics paths at risk. Unforeseen risks affect the logistics area and cause various fluctuations in the production sector. This transformation will be mentioned in the rest of the study. Changes in the way of logistics have a quite critical importance for Turkey. If Industry 4.0 and Logistics 4.0 are applied and managed correctly, important opportunities will be achieved for the country. Industry 4.0 will provide the country with great gains in many areas such as increased efficiency, high performance, and achieving strategic advantage, especially competitive advantage. Also, when considering Turkey’s geopolitical position is very advantageous in terms of logistics, Logistics 4.0 or so-called “smart logistics” will admittedly provide great benefits (Şekkeli and Bakan 2018). Businesses that want to maintain a fast, reliable and innovative understanding in the production and service industry have developed various methods over the years to minimize production and service costs (Utku et al. 2018). Among these are, besides the technological revolutions, taking advantage of social and inter-country differences. At the beginning of these, creating cheap labor and a cheap supply chain has gained an important place. Today, besides the benefits provided by this method, it also emerges with various problems. The recent Covid19 outbreak allowed these problems to be seen earlier and more clearly.

2 Impact of Industry 4.0 on the Workforce and Technology Transfer With the Covid19 outbreak, it is estimated that Asian countries such as China, which are preferred because of the low labor costs, will be negatively affected by this transformation. For many years, the enterprises of Western bloc countries produced in Asian countries due to cheap labor. In this way, they retained their competitive edge with low cost. After Covid19 outbreaks, the breaks in the supply chains helped to see alternatives in emergencies. For this reason, enterprises in the Western block had to take quick measures to avoid disruption in their products and services. In the short term, considering the high logistics costs, they added various transportation systems to their structures, even if their costs were high. However, it was understood that these breaks in the supply chains should be diversified with alternative production points in the medium and long term. Industry 4.0 can be perceived not only as an industrialization step but also as a social step in terms of changing the workforce balance. With the fact that the

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Western block has shifted production to Asian countries for years due to cheap workmanship, it has been seen for a long time that technological possibilities have been shifted to Asian countries, even if not willing. The production, which was shifted to the Asian continent for the sake of low cost due to cheap workmanship, also led to technology transfers over time and changed the balance of competition. Realizing this change, Western countries have introduced the digitalization model, in other words, the dark factories model. The main reason for this is to restrict or at least slow down the emergence of new products that may compete with the products of their own businesses by restricting technology transfer. Alternative technological products produced in Asian countries in recent years have started to be accepted in the world markets. They found these products competing with the products of the Western bloc country enterprises in terms of quality from mobile phones to computers. They even managed to outperform their rivals at many points. It was at this point that Western bloc countries, especially Germany, discovered that this transformation would damage their own businesses and their economies and social structures over time. Decreasing the competitive power of their enterprises will narrow the labor market and cause problems in social sense. It was an important goal for Western countries to be able to solve the cheap labor force that required them to shift production to Asian countries and to prevent technology transfers. The idea of digitalization was accepted for the implementation of the system with low labor costs. Thus, not only labor costs will decrease, but it will also be possible to produce products with low productivity errors and high productivity. The transition to Industry 4.0, also known as digitization, will provide advantages to businesses in many respects. The transition to digitization, which has spread over time compared to a while ago, was accelerated with the Covid19 outbreak. Covid19’s damage to supply chains has eliminated all the benefits of cheap labor for businesses. The western bloc will rearrange all its institutions to accelerate the transition to digitalization and will pull the production system it has moved to the Asian region again to the west. This return will partially decrease unemployment in the west and increase unemployment in the Asian continent. With this return, the technology will remain where it was born and will go to all other countries as a product through marketing. An important issue to be considered here is whether the technological transfer achieved by the countries of the Asian region until today will be enough for them in terms of competition. If we look at the issue in terms of the African block, it has not been able to take its place in the production system such as both production and cheap labor. The main reason for this may be the labor force which hasn’t got the minimum level of training required for production and the lack of machinery equipment required for production. Not only factors such as outbreaks affect the security of supply chains negatively in war and unresolved political conflicts between countries. These negative reasons are the factors that cause the African country not to become a production center. Although Asian bloc countries have been an indicator for many years in terms of decreasing costs and high competitiveness, unfortunately, they could not create a good perception in terms of quality concept. The poor quality caused by cheap workmanship was prevented by keeping the concept of quality control in the

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manufactured products of the Western block tight. The same thing, unfortunately, did not happen exactly for the products produced by Asian countries under their own brands. It was understood by the Asian block countries how effective and important the quality awareness and perception was over time. With the realization of this understanding, products that can compete with the products of Western countries’ enterprises and even go further in some points began to be produced. As this production changed the balance of competition, the western bloc countries understood the necessity of digitalization, especially Germany.

3 Digital Transformation Industry 4.0 The concept of Industry 4.0, also known as the Industrial Revolution, includes a production and marketing approach focused on speed, efficiency, cost and innovation. It represents a new level reached thanks to the rapidly developing technological opportunities. With Industry 4.0, it is aimed that all units in production processes can communicate with each other, access big data in real time and thus obtain outputs that will meet expectations at the best level (Soylu 2018). Thanks to smart production, the basic philosophy of Industry 4.0, which is to minimize the human factor in the production process, to create a production process thanks to sensors, automation and perfected processes, will be realized. Thus, in the new period, a large communication network has been created between production elements in order to provide advantages related to production for products that personalize the biggest demand of consumers, and flexible and dynamic selforganized production processes will be realized (Özsoylu 2017). In terms of theory, Industry 4.0 came to the fore for the first time with the article titled “Industrie 4.0—Mit dem Internet der Dinge auf dem Weg zur 4. Industriellen Revolution” published by Kagerman in 2011 (Kagermann et al. 2011). In the article, it is stated that the world has entered a new era and this period should be qualified as Industry 4.0 and information is given about the components that make up this process. Later, with the report titled “Recommendations for the Implementation of the Industry 4.0 Strategic Initiative” published by the German National Academy of Science and Engineering (Acatech) in 2013, the subject gained an official framework in theoretical aspect (Acatech 2013). Industry 4.0 will provide more flexibility and durability along with the highest quality standards in engineering, planning, production, operational and logistics processes. It also refers to the formation of dynamic, real-time optimized, self-organizing value chains that can be optimized based on various criteria such as cost, availability and resource consumption (Acatech 2013). As a result Industry 4.0 is a strategic step first put forward by the German government in 2011. This adventure, starting from Industry 1.0 and reaching Industry 4.0, continues with the conversion of mechanical systems operating with steam power into today’s digital system.

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Industry 1.0

Industry 1.0 started with the introduction of mechanical production facilities operating with steam power towards the end of the eighteenth century (Xu et al. 2016). With this revolution, the transition from a workshop-style production to a factorystyle production system. This transformation started the transition from the tool production period to the machine production period. Switching to machine production has also contributed greatly to the increase in efficiency and thus the improvement of product quality in this direction. With Industry 1.0, transformations have emerged not only in production and engineering but also in social fields. The increase in migration movements, increase in production and income levels and quality of life were also positively affected (Alçın 2016).

3.2

Industry 2.0

By the beginning of the twentieth century, with the introduction of mass production with electrical energy based on the division of labor, industry 2.0 manifested itself. Industry 2.0, which broke new ground with the introduction of electric and internal combustion engines and the use of steel products, has contributed greatly to abundance and efficiency as an economic result. On the other hand, increasing wealth and abundance also affected the distribution of income among people. Human labor has gradually started to lose its value and thus, labor costs have decreased (Celik and Öztürk 2017). This has had social consequences. Industries started to restructure the first studies on flexible production models where customer needs are at the forefront, and the production systems used and workflow patterns.

3.3

Industry 3.0

Industry 3.0 started with the introduction of information technologies and electronics that brought automation of production to advanced levels towards the end of the twentieth century. With the introduction of electronics, digital systems are now replacing analog systems in production systems. While this transformation provided increases in production, computers started the automation and robotization process by forming the infrastructure of this period. With the introduction of the workforce by robots, serious transformations took place in the concept of workforce. In addition, robots and information technologies have significantly increased the quality of production and product, and there have been serious developments in the understanding of quality. All these transformations naturally felt in social and cultural areas. The workforce approach began to differentiate (Adeyeri 2018).

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Industry 4.0

Industry 4.0 process started with the introduction of production and services based on Cyber-Physical Systems. Industry 4.0 consists structurally of the Internet of Things, the Internet of Services and the Cyber-Physical Systems. Industry 4.0, which emerged with the use of the internet and communication systems at the basis of the understanding of smart factories, started to show its effects in all areas. Industry 4.0 has found its place in a great area from health, agriculture, production, social sciences to management systems. The system put forward by Industry 4.0 is important in terms of explaining how important and effective system perception of quality is. With increasing digitalization, product and service efficiency has increased. With the increase in efficiency, faulty products and services decreased and costs were minimized (Öztürk 2014). As it can be seen when we consider the quality 4.0 phenomenon, the increase in customer satisfaction directly affects the quality. Industry 4.0 operates within six principles and we can list these principles as follows (Soylu 2018); Interoperability: Cyber Physical Systems enable objects and people to communicate with each other and with objects, and smart factories to communicate with each other. Virtualization: It is the connection of the data obtained from the sensors used with virtual systems and simulation models. Autonomous Management: It is the ability of cyber-physical systems to decide on their own. Real-Time Capability: Real-time data acquisition and evaluation. Service Orientation: Cyber physical systems services are introduced through the Internet of services systematic. Modularity: It is the system used to provide flexible adaptation to smart factories. In the production system started with 20 industrial companies in Germany, the machines were given the ability to perceive the color difference by sticking RFID (radio frequency identification) labels on the empty soap bottles in the first place. In this way, the system allows the information transmitted by radio signals to be recorded from the first moment of production and to process these data when necessary (Wang et al. 2016). The adventure that started in this way has found applications in many areas today. It aims to manufacture with cheap, high quality, fast, and little waste by sensing and analyzing the environments in which they are located with robotic and sensor systems incorporating digitalization transformation, production, and service (Yıldız 2018).

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4 Components of Industry 4.0 4.1

Cloud Computing

These are the repositories on the internet where all the information is collected, from storing the software to storing the collected data. Thus, this technology, which enables all information and software and data to be accessed quickly and easily from anywhere, is called Cloud technology (Banger 2016). Thanks to cloud computing, businesses secure their data against loss and corruption and keep their business and production memory alive. Cloud computing also offers cost advantages by providing convenient infrastructure support and cheap resources to users (Kritikos and Massonet 2016).

4.2

Internet of Things (IoT)

It creates a network on the internet, from objects to objects, from people to people and from objects to people. It ensures the flow of information by enabling all these elements to communicate with each other (Alcácer and Machado 2019). Information and automation technologies are getting more and more places in our lives rapidly day by day. High-quality wired or wireless network, cloud-based data center, platform and software as a service, high-efficiency computing, infrastructure, highefficiency databases, artificial intelligence and real-time computing are among them (Edgar and Pistikopoulos 2018). Information technologies (IT) and automation technologies (AT) are growing in a dazzling manner and increase their effectiveness in many areas. Quality and efficiency, as an intertwined concept, creates an environment of trust that ensures the harmonious operation of all these systems in both service and industry. It is often called the Industrial Internet of Things (IIoT) because of the more intensive use of the Internet of Things in the industrial field (Conway 2015).

4.3

Cyber Physical System (CPS)

Cyber-Physical Systems (CPS), together with sensors and actuators, connect the physical world to the virtual computing world. These components include embedded technologies, software systems, sensors and communication technologies to establish communication and interaction with the concrete world. Cyber-Physical Systems are also called systems that can integrate using sensor and network technologies (Zeadally and Jabeur 2016).

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Big Data and Data Analytics

The continuous increase in the number of technological fields and products also increases the devices used and the data produced with it. The concept of big data expresses the difficulties of analyzing big and complex data with traditional methods, and it is the analysis of data and rating (Cobb et al. 2018). Large amounts of data ranging from constantly used bank accounts to sensors and data are used by system providers and manufacturers to increase productivity. Big Data aims to analyze the obtained data and make it useful. For this, it is important to bring the data into a simple and analyzable and then processed structure. Various simulations and software are used to perform these operations (Kayar and Öztürk 2019a). With Big Data, which finds use in every field, consumer behavior is analyzed and great transformations are provided in the field of marketing. Data analysis also reveals the parameters required to ensure the quality phenomenon during and after the production and service implementation (George et al. 2014).

4.5

Additive Manufacturing (AM)

Integrating technologies that are used efficiently and effectively as a rapid prototyping and 3D printing method with industry is called layered production. Layered manufacturing (LM) techniques are used in various industries to create end-use parts as well as physical prototypes. With Layered Production, virtuality becomes reality. In addition to providing great flexibility in layered production design, it enables the production of products that are impossible or difficult to produce in a short time and easily. Layered production minimizes the costs and constraints, allowing the manufacturer to produce at low costs. Low-cost production provides consumers with the chance to own products at a low cost. Also, layered production provides important advantages in the production of mixed geometric products. In addition, it has an effect on reducing the number of manufacturing machines, minimizing production processes and accelerating product optimizations (Kayar and Öztürk 2019b).

4.6

Augmented Reality (AR)

Using the object recognition feature overlapping virtual objects with real images is called Augmented reality. By defining augmented reality for products such as smart glasses and smartphones, it is possible to benefit from this technology in the internet environment. For this, applications defined on augmented reality must be present on these devices (Kayar et al. 2019). At least one of the applications defined on Augmented Reality must be installed on the device being worked on. If these

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conditions are met; The visual designed for Augmented Reality is defined by the application installed on the device. Thus, the device detects the image and a new image appears (Öztürk et al. 2019). Augmented reality (AR) is an important technology used to combine real environments in real-time using virtual graphics. Unlike Virtual Reality (VR), which is a completely virtual environment, Augmented Reality (AR) is added to the monitored environment in real-time (Bilgili 2017).

4.7

Simulation

Simulation is to see how a real system works and to correct the deficiencies or to perform the system or production in a virtual environment for educational purposes. In Industry 4.0, simulation and virtualization occur when creating virtual copies of smart factories, by connecting sensor data from systems with virtual facility and simulation models (Xu et al. 2016). Since the development of simulation processes can be tracked, it provides advantages in terms of time, cost and risk management. The simulation aims to ensure that possibilities can be observed in the virtual world in advance and that the necessary preparations can be planned. With the simulation, it is possible to model all the data of the physical system in digital environment. Thanks to the plans prepared for the new situations encountered, it has become a method that can be used in every field from manufacturing to business administration, from health to education (Bungartz et al. 2014; Landriscina 2013).

4.8

Cyber Security

With the start of the digitalization process, operational risks for manufacturers and digital supply networks come together. The structure of Industry 4.0-based operations and the speed of digital transformation make manufacturers and consumers vulnerable to cyber attacks. Producers and consumers should take cybersecurity measures to minimize risks in terms of transactions over the network. The cyber threat caused by the integration of computer and communication systems threatens both the physical infrastructure and economic conditions of businesses. Industry 4.0, in addition to the advantages brought about by the transformation, includes such disadvantages, revealing the necessity of adapting the system by considering it in many ways (Corallo et al. 2020).

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Autonomous Robots

The motive of constant change lies at the heart of new technological expansions, economic developments, and social structures. With the third industrial revolution, autonomous systems and robotic technologies have begun, and in this process, the industry has taken a particular place in the industry. Today, with the fourth Industrial Revolution, it is both adopted and demanded by the enterprises that robots work by communicating with each other and with other objects and even develop behavior with artificial intelligence. The mobility of robotic systems in predetermined jobs and areas in the first stages has become more useful with the effect of artificial intelligence and the internet (Kayar et al. 2018). Automated Guided Vehicles (AGV) systems, which started in the early eighties, fulfilled their duty to carry long-distance and heavy loads. Although auto guided vehicles worked under computer control, they had limited mobility. Rather, they could act on predetermined routes and carry out operations such as carrying loads. Their disadvantage was that they could not adapt quickly to changes. All these disadvantages have been eliminated with the technological advantages offered by industry 4.0. Automatic guided vehicles were replaced by autonomous mobile robots (Autonomous Mobile Robots—AMR) (Bahrin et al. 2016).

4.10

Horizontal and Vertical Integration

In Industry 4.0 applications, the inclusion of all stages of production processes in the system is called Vertical and Horizontal Integration. It is important that all interconnected systems at the basis of Industry 4.0 can communicate with each other continuously and monitor and control each other when necessary. Horizontal integration can be expressed as the merger of different companies with the same customer type. There are three types of backward vertical integration, forward vertical integration and balanced vertical integration. Backward integration: The merger for input sources is called backward integration. Forward integration: It is called the expansion that brings the produced product closer to the users. It aims to control more sales and distribution channels. Balanced integration: Firms merge both for input sources and marketing. Such mergers are less compared to others. Vertical integration: It can be expressed as the combination of a car-producing firm with a firm producing wheels. Some other benefits that horizontal and vertical integration add to industry 4.0; It can be counted as facilitating customer-specific and personalized production, increasing resource efficiency, and the global supply chain optimization. In addition, businesses acquire a more flexible structure (Chukalov 2017).

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5 Industry 4.0 Within the Scope of Quality Management Industrial automation systems and digitalization are the most important elements for businesses that want to increase the efficiency of production and service processes, reduce operating costs and improve product quality. When it comes to digitization and smart production, businesses around the world often have to address key issues related to data availability and consistency (Öztürk and Kayar 2019). Quality is one of the most important facts that do not change even if the form of production and service changes. Quality 4.0 can be expressed as the new understanding of quality achieved by integrating the elements of industry 4.0 into the production or service processes of enterprises. Quality 4.0 aims to increase the efficiency of production and service-producing companies, to guarantee the system that enables the problems that may arise to be detected by resolving them in advance or simultaneously. Quality 4.0 will make sense if the production and service are adopted in a form ensuring the best customer satisfaction in accordance with the purpose of Industry 4.0. Common points covering the purpose of Quality 4.0, such as reducing the error rates in production and service with Industry 4.0, will facilitate integration. Namely; Quality 4.0 will make sense for the product and service standardization, safety criteria, performance features, efficiency in production, minimization of supplier problems, and reduction of maintenance times. In addition, Industry 4.0 directly affects the purpose of quality management in terms of cost, product suitability, and minimization of problems as a system where technological possibilities are used at the maximum level in production and service. Quality 4.0 becomes systematic when the quality management system creates a system compatible with industry 4.0. Quality 4.0 and control systems used in traditional production and service systems allow the human factor to be excluded by leaving the place to digital control systems thanks to the elements of Industry 4.0. Thus, more precise and faster controls can be provided. This transformation enables the production of higher quality products and services in terms of both the product and the service sector. Industry 4.0 applications will also enable the flow of data from multiple sources simultaneously to quality managers in real time. For this reason, quality studies should improve the quality understanding of the institution by integrating internal and external data with technology and innovative ideas. The increase in the number of well-defined business processes, system integrations and potential technical complexity will require very good quality practitioners. Organizations that have adopted such a quality management system will be able to switch to Quality 4.0 by utilizing new data types such as signals from machines, production equipment and connected products combined with new analytics (Gümüşoğlu 2019; Zonnenshain and Kenett 2020). As a result, Quality 4.0 will gain meaning and succeed with the full and correct application of Industry 4.0. Quality management systems will be planned more clearly for the factories of the future. It will always be important to gain the trust of customers by paving the way for new technological developments

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with common standards. Customer satisfaction and cost cycle will always continue to be among the concepts that businesses should consider.

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The Role of Innovative Renewable Energy Investment Strategies on Macroeconomic Stability Esra Serezli, Serhat Yüksel, İdil Tamer, and Hasan Dinçer

Abstract Renewable energy investments have become very popular especially in recent years. The mentioned energy alternatives have a significant contribution to the social and economic development of countries. Therefore, innovative strategies to be developed for increasing the investments mentioned are of vital importance. In this study, the relationship between research and development expenditures in Turkey, renewable energy consumption and economic growth is analyzed. In order to achieve this stated purpose, the annual data between the years of 1990–2019 were evaluated using the Vector Autoregression Model (VAR). According to the obtained results of the analysis, research and development expenditures contributes to renewable energy investments in Turkey. However, it has been observed that the amount of renewable energy consumption does not significantly contribute to the economic growth in the country. Considering this information, use of renewable energy in Turkey has not yet seen the size that will affect economic development. Therefore, there is a need for innovative strategies to be developed to increase renewable energy investments. In this context, it is thought that the incentives such as tax advantage and low interest rates to be provided by the state will attract the attention of investors.

1 Introduction Energy is one of the indispensable requirements today. It is used to meet the primary needs of people, such as eating, drinking, dressing and shelter, that are necessary for their survival. On the other hand, it has an important place in all areas of our life, including the requirements of social and modern life such as production, communication, transportation, and defense. Civilizations have emerged when human beings found fire a million years ago, and many revolutions have been experienced until today with the introduction of energy into our lives in different varieties and ways.

E. Serezli · S. Yüksel (*) · İ. Tamer · H. Dinçer Istanbul Medipol University, Istanbul, Turkey e-mail: [email protected]; [email protected]; [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 H. Dinçer, S. Yüksel (eds.), Financial Strategies in Competitive Markets, Contributions to Finance and Accounting, https://doi.org/10.1007/978-3-030-68612-3_12

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As life standards increase day by day, technological innovations have brought globalization (Yüksel et al. 2020). Today, life has become unsustainable without energy. For this reason, energy, which has vital importance and value, creates value for states to be strong in terms of politics and economics. Energy not only allows individuals to continue their lives like eating-drinking, warming, cleaning, health, education, transportation, socializing, but also the needs of companies and states in terms of macro-understanding, such as industrialization, production, logistics, transportation, defense, communication, intelligence and economically in every aspect of our lives. Energy is in demand regardless of price since it is such a compulsory need (Adefarati and Bansal 2019). Energy is an abstract being for most contemporary people. It usually falls into our collective consciousness when there are price increases in electricity, natural gas or gasoline. Perhaps the reason for the lack of understanding of the common role of energy is that use of energy is indirect. People need goods or services produced by energy, not the energy itself. But this does not change the need for energy and its importance for almost everything in our lives. The major economic crises experienced until today and especially the recent pandemic disaster have also showed that the dependency of countries to other countries causes unbearable problems during such crisis times. Countries that cannot make their own production or prefer to import because import goods are cheaper may be compelled to be self-sufficient in such critical times when major disasters are experienced by the closing of border gates. Foreign dependence, especially in vital values such as health, food and energy, are enormous risks that states should not afford (Alola et al. 2019). It is possible to divide the energy sources into two as “renewable energy sources” and “non-renewable energy sources”. Non-renewable energy sources, as the name implies, are resources that are depleted and can use reserves in nature. They are strategically important resources that are used extensively in the world such as oil, coal, nuclear energy, and natural gas (Du et al. 2020). However, these sources have many disadvantages besides their advantages. The major disadvantages are the damage that air pollution causes on ecological system using these resources and the problems it causes in human health. The health problems experienced by individuals cause a decrease in the labor force in industrial production and the treatment costs of individuals put a great burden on the states. At the same time, damage to the nature causes rapid extinction of other living species, as well as climate change and global warming. As a result of this, when we compare the benefits of the use of non-renewable energy with the losses it causes, we see that it brings much more harm than benefit. In addition to all these, due to the limited resources, the lack of sustainability, and exhaustion within a certain time, there is a need for an alternative resource search. In addition, the scarcity of resources brings along the organization of other countries against the countries that have the resources and many wars that have been experienced with the ambition of ownership. Renewable energy, on the other hand, is a sustainable potential energy that takes its source from nature which is not exhausted, but also do not pollute nature. These

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are natural resources such as wind energy, sea currents energy, solar energy, biomass energy, geothermal energy and hydraulic energy. It is accepted that the use of these resources increases the quality of life, and because it is an infinite resource, it provides significant advantages to the states in increasing energy supply and ending foreign dependence with the advantages of being sustainable (Bekun et al. 2019). So, why is it so difficult economically and politically, to maintain the use the renewable energy resources which has no harm on ecological system? First, the initial investment costs for the use of renewable energy sources are very high and require skilled labor. In addition to the climatic conditions of the countries, world powers, which provide a great advantage from the use of non-renewable energy sources, especially in developing countries, can be an obstacle to renewable energy investments. Turkey with potential renewable energy sources, a rich climate and nature, has a current account surplus budget when energy import items removed. In this sense, it is a developing country, whose economy is fragile due to energy dependence, and in this case, it is difficult to stay strong in terms of politics. It is obvious that ensuring the use of potential renewable energy sources is very important to overcome these economic and political problems (Yüksel et al. 2019). So, first of all, government should encourage companies to develop strategic moves by reducing high investment costs with incentives such as tax reduction, free location, and interest-free credit. Additionally, training investments should meet the need for qualified personnel; R&D studies should be emphasized so that they should work to prevent economic vulnerability and political problems in the long term (Padrón et al. 2019).

2 Theoretical Information on Renewable Energy Investments They are energy sources that are potentially present in nature, do not run out of resources, do not release carbon gas into the nature because they are not obtained by burning and therefore do not pollute the environment. It has enormous advantages compared to fossil energy sources due to its unlimited resources, inexhaustible energy sources, sustainability, and harmless nature for the ecological system (Zhu et al. 2020). Renewable energy takes its source from nature, it is not flammable like coal or natural gas to obtain or use energy, but it is the natural events such as the power of the wind, the temperature of the sun, the intensity of the waves which are the power of the energy (Li et al. 2020). With the prevention of the damage caused by carbon emission to human health, social benefit is contributed to the society in an economic sense with the prevention of this harm to the workforce and the treatment costs that the state does not have to bear for its citizens (Biswas et al. 2019). In addition to these advantages, renewable energy sources also provide the country’s energy supply security. If countries like Turkey which do not produce energy and depend on outside on imports of important energy sources as oil and natural gas, it jeopardizes their production (Zhou et al. 2019). Due to any war, crisis,

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and the risk of epidemic disease we are experiencing today, their access to the resources in the normal flow can be prevented and this may lead them to a very big deadlock. In addition, the fact that energy imports are in foreign currency makes energy supply very expensive and difficult to supply in countries that experience economic difficulties whose currency is depreciated against foreign currencies. This causes an unfavorable cycle with the already fragile economic balances getting worse. It is observed that all these problems can be overcome by using renewable energy sources (Dinçer and Yüksel 2019a, b). Although renewable energy sources have many advantages, their initial cost is quite high to be used. First, a highly equipped and qualified workforce is needed for its design, construction and operation (Zhong et al. 2020). The fact that raw materials and intermediate goods that are required to reach renewable energy sources are not produced in the country creates risks associated with import dependency. In addition, it may be possible to make concessions in economic and political understanding with many commitments to find foreign investors.

3 Renewable Energy Types 3.1

Solar Energy

“Solar energy” emerges due to the unification of the hydrogen in the sun and turning into helium and energy is created during this transformation. Radiation energy occurs because of the fusion process occurring in the core of the sun (Dinçer et al. 2019). The conversion of hydrogen gas in the sun into helium gas takes place through the fusion process.

3.2

Wind Energy

If an air mass warms up more than its current state, it rises above the atmosphere, and with the rise of this air mass, the mass of cold air in the same volume settles in the space discharged, thereby creating wind (Dinçer et al. 2020). Wind energy is the movement energy of the air flow that creates the wind. The current kinetic energy of the air stream is the conversion of mechanical energy and then electrical energy through wind turbines (Gielen et al. 2019).

3.3

Hydroelectric Energy

The energy generated by using the flow power of water obtained from the sea, lakes and rivers is hydraulic energy. Hydraulic energy is obtained by converting the

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potential energy of gravity of water into kinetic energy. Power plants that generate electricity using the potential energy difference between the two points where the water is located are built on water resources. By releasing the water accumulated in the dams from the height, the potential energy is converted into kinetic energy and electricity is produced in the generators connected to the turbines by the rapid flow of water to the turbines (Draycott et al. 2019).

3.4

Geothermal Energy

It is a type of energy that can be used in many fields such as heating, cooling, industry in the form of water, steam or gas, which can accumulate at certain depths of the earth’s crust and contain various salts and gases under existing pressure. It is obtained as a result of hot water and the steam it creates (Hansen et al. 2019).

3.5

Biomass Energy

All natural substances of vegetable or animal origin, the main components of which are carbohydrate compounds, are defined as biomass energy source, and the energy obtained from these sources is defined as biomass energy. Biomass energy is used in three main areas: Electricity, heat and biofuel production, mainly used for transportation. Heat and electricity from biomass are obtained by combustion and indirect combustion methods (Huang 2019).

3.6

Wave Energy

Wave energy is defined as a type of energy derived from the wave movements created by the winds on the surface of the ocean and seas. The movement created by the waves below the water surface is accumulated by converting it into electricity by means of a wave energy converter consisting of special turbines. Electric energy produced by wave energy can be used directly or it can be used for different purposes such as heat generation and water treatment (Hvelplund and Djørup 2019). Each of the renewable energy sources has many advantages as well as some disadvantages. The benefits and disadvantages of renewable energy sources can also be compared among themselves: The sun is always an unlimited resource. Energy production is possible even in the most rural and remote areas. It is silent. Maintenance and operating costs of solar power plants are low. In addition, solar energy can be obtained during the day when the sun is available. Since not only the presence of sunlight, but also the heat it

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radiates is important in the efficiency of the energy obtained, climatic and seasonal conditions should also be considered (Wang et al. 2019a, b). Installation and operating costs of wind turbines used to obtain wind energy are quite high. Therefore, return on investment poses a problem. Although it is known that wind is present everywhere, not every region has the same importance in terms of efficiency. In determining the location, meticulous studies are carried out, the direction and intensity of the wind are taken into account. The construction of the turbines is very difficult and costly. It is important that the location is far from the settlements. Generally, being away from residential areas creates the problem of connection to the network. In addition to its ecological advantages, there are also claims that migratory birds change their way or cause death. Wind is an unlimited, clean and potential resource that exists without time limit like solar energy. In addition, noisy operation of wind turbines and causing visual pollution can be counted among the disadvantages (Kahia et al. 2019). Unlike solar and wind energy, geothermal energy is always available 365 days a year. It is also relatively inexpensive. Savings from direct use can be up to 80% compared to fossil fuels and do not emit emissions. Although geothermal energy is recognized as an environmentally friendly source, the fluid causes rust, rot, calcification, contaminates the surface water to be discarded due to the boron it contains, and contains substances such as CO2, H2S and boron, and some technological precautions must be taken in practice. In order to prevent the geothermal fluid used to cause environmental problems, the application of return to the underground has been developed and made legally mandatory in various countries. Geothermal energy is an energy source that can be used on site and it can be transported up to a maximum distance of 100 km. However, this situation has the advantage that it does not disturb the settlements in terms of temperature and noise. Also, since the plants take up little space, they do not spoil the image. Other advantages are that geothermal energy can generate power continuously and it is not affected by weather changes (Kim and Tang 2020). Considering that approximately 80% of the world is covered with water and 97% of these waters constitute seas and oceans, it is possible to say that wave energy is an important source. The construction cost of wave energy production alone is high. In order to produce energy with wave energy, it is necessary to design a different power plant for each wavelength. There is no standard wave energy system due to the need to prepare designs specifically for the wavelength. This means a higher construction cost. The economic life of hydroelectric power plants is much longer than other types of power plants, it can operate for about 200 years. Operating expense is low and there is no fuel expense. It is cheap compared to other renewable energy sources. Dams made for hydroelectric power plants play an important role in stopping erosion by cutting the speed of water (Vera et al. 2019). However, establishment costs are high and construction times are long. The dams change the ecology of the area around it. Temperature-precipitation-wind regimes are changing, natural vegetation and water and land creatures in the region are changing in the habitat, and species that can adapt to life continue to exist (Li et al. 2020).

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Biomass energy has a great potential among clean and renewable energy sources. The fact that biomass energy can be stored easily provides more advantages than other renewable energy sources. Besides, the need for water is very high. It needs large residential areas and large areas. Energy efficiency is low compared to fossil fuels such as oil and natural gas. It takes a long time to plant, process and use. It also brings with it the food problem. The preference of consuming the planted products as food is a problem. In the production of biomass energy from wastes, there are problems such as not being separated from the wastes due to the low awareness of the society and the low efficiency of the energy obtained. Biomass energy is obtained through indirect combustion, which harms nature, if not as much as fossil fuels. However, obtaining wastes by eliminating them may excuse the release of harmful gases (Luo et al. 2019).

4 Strategy Suggestions for the Development of Renewable Energy Investments As can be understood from the issues mentioned above, renewable energy investments play an important role for the country’s economy. These investments contribute to both the social and economic development of the country. Therefore, it would be appropriate to develop some strategies to increase these investments. The important point here is which strategies will be more effective. In the examinations made, it is seen that the most important issues in increasing the renewable energy investments are the technological infrastructure. The main reason for this is that renewable energy investments are projects that require serious engineering knowledge (Pischke et al. 2019). In this context, it is understood that countries and companies should attach great importance to research and development investments. Companies can make renewable energy projects more effective by giving importance to research and development issues (Ertuğrul 2020). By the results of these researches, it will be possible to carry out the installation and operation activities required for renewable energy effectively. On the other hand, the biggest problem in renewable energy investments is the high cost. At this point the technological developments will make it possible to reduce these costs (Scholz 2019). In addition to R&D investments, the banking sector is also responsible for the development of renewable energy projects. Banks collect these savings from those with excess funds and transfer them to companies that need funding. As can be seen from this definition, banks play a vital role in the development of an economy. The main reason for this is that, thanks to this mission of the banks, companies can easily access the funds they need. Companies investing in renewable energy will also need funds during this investment process. The rationale for this is that the initial costs of renewable energy investments are very high. In this context, funds provided by banks to relevant companies will contribute to the increase of these investments. Therefore, the efficient execution of the banking system in the country also enables

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renewable energy investments to increase. In this framework, measures should be taken to increase the efficiency of the banking system, by the help of the necessary supervision and surveillance mechanisms. If the banks are operating effectively, the flow of funds in the market will continue in a healthy way, and this will also allow for renewable energy projects to increase. Renewable energy investments require serious engineering knowledge as mentioned earlier. This situation is very important in terms of technological development. Therefore, equipped personnel will be needed in this process. If the staff do not have the necessary knowledge, continuity in the performance of the specified project will not be possible. For this reason, personnel carrying out renewable energy projects should receive the necessary training according to the types of renewable energy investments (Qi et al. 2020). In this context, it is important to first determine the details of the trainings required for this project to increase its effectiveness. Following this, based on the job description of the staff, matching the required trainings with the staff is essential for the sustainability of the project. One of the effective strategies that can be applied to increase renewable energy projects is tax reductions. As mentioned earlier, the initial costs of renewable energy investments are quite high. This means a serious cost increase for the related projects. Therefore, one of the applications that attract investors’ attention is to reduce costs. For this reason, tax reduction is an important strategy to achieve this goal. Renewable energy investments may be exempt from certain taxes or a significant tax reduction can be provided. In this way, investors can be channeled into renewable energy investments. One of the strategies required to reduce the high costs of renewable energy is to decrease the interest rates. In an environment with low interest rates, companies will be able to access the funds they need more easily. This situation is important in order to increase the amount of investments. Since a certain amount of funding is required to increase renewable energy investments, lowering interest rates will make it easier for investors to reach this amount. Decreasing the interest rate in a country or providing low interest funding for the related projects will contribute to the increase of investments (Qiu et al. 2020).

5 An Examination for Turkey Prerequisite for VAR analysis is that all variables are stationary. For this reason, firstly, whether all variables are stationary or not has been tested, and the differences of non-stationary variables have been made stationary. In this context, unit root tests of the variables were first performed. If the probability value, which is the test statistic of the variables, is below the value of “0.05” which is the ADF test statistic, it means that the series is “stationary” and above the “0.05” value, it is “nonstationary”. According to the analysis results obtained, the economic growth variable was determined to be stable at the level. On the other hand, it was understood that the variables of R&D expenditures and renewable energy consumption were not stable

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at the level. Therefore, the first order differences of these two variables were taken and included in the analysis. Appropriate delay length was determined after stationary analysis. In order to determine the appropriate delay length of our model, firstly the delay length was taken as “3”. Then, the most appropriate delay length was determined as “1” by considering the numbers specified by the information criteria. Afterwards, the evaluation of four different prerequisites (normality, autocorrelation, homoscedasticity and stationary) was performed in all variables subject to the model. After the model provides all the prerequisites, it is possible to interpret the findings. As a result of the examinations, it was determined that the created VAR model successfully met all prerequisites. Subsequently, the coefficients in the VAR model are examined in more detail. As can be seen from Table 1, the coefficients of only two variables (C6 and C8) are significant. The main reason for this is that the probability values of these variables are below 0.05. Variable C6 takes place in the second equation where R&D spending is a dependent variable. This variable is the coefficient of the variable consisting of the data of the previous years of R&D expenditures. On the other hand, C8 variable expresses the constant term of the same equation. As a result of the regression analysis, no situation has been identified that R&D expenditures increase renewable energy investments. In addition, there is no conclusion that renewable energies affect economic development. Following the regression analysis, variance decomposition tables related to variables were created. Details of these values are given in Table 2. As can be seen from Table 2, the use of renewable energy has a very low impact on economic growth. In addition, research and development expenditures have a significant importance on renewable energy use.

6 Conclusion In this study, the impact of innovative renewable energy investments on macroeconomic stability was examined. In this context, a VAR model was established for Turkey. There are basically two different hypotheses in the study. First, the effect of research and development expenditures on renewable energy use was examined. Additionally, the impact of renewable energy use on economic development has been tested. In order to achieve this stated goal, regression analysis was performed first within the scope of the VAR model. Then, with the help of variance decomposition tables, the relationship between these variables is aimed to be determined clearly. According to the analysis results obtained, renewable energy use has been found to have a very low impact on economic growth. However, it has been concluded that research and development expenditures have a significant importance on renewable energy use. Considering these results, renewable energy investments in Turkey were found to be not sufficient. In this framework, it would be appropriate to apply innovative

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Table 1 Analysis results Variables Coefficient Std. Error t-Statistic Prob. C(1) –0.292495 0.237998 –1.228981 0.2231 C(2) 2.103730 1.417524 1.484088 0.1422 C(3) –0.327076 0.362847 –0.901416 0.3704 C(4) 0.640661 1.239130 0.517025 0.6067 C(5) –0.069688 0.046126 –1.510803 0.1352 C(6) –0.580039 0.274730 –2.111304 0.0382 C(7) 0.099421 0.070323 1.413762 0.1617 C(8) –0.648049 0.240156 –2.698452 0.0087 C(9) –0.083938 0.205159 –0.409135 0.6837 C(10) 0.181088 1.221934 0.148198 0.8826 C(11) –0.213296 0.312782 –0.681932 0.4975 C(12) –0.245051 1.068155 –0.229415 0.8192 Equation: D(EG) ¼ C(1)*D(EG(–1)) + C(2)*D(RD(–1)) + C(3)*D(RE(–1)) + C(4) Observations: 28 R-squared 0.318009 Mean dependent var –0.090628 Adjusted R-squared 0.232761 S.D. dependent var 6.661038 S.E. of regression 5.834550 Sum squared resid 817.0074 Durbin-Watson stat 2.165362 Equation: D(RD) ¼ C(5)*D(EG(–1)) + C(6)*D(RD(–1)) + C(7)*D(RE(–1)) + C(8) Observations: 28 R-squared 0.160577 Mean dependent var –0.414481 Adjusted R-squared 0.055649 S.D. dependent var 1.163635 S.E. of regression 1.130794 Sum squared resid 30.68868 Durbin-Watson stat 2.043872 Equation: D(RE) ¼ C(9)*D(EG(–1)) + C(10)*D(RD(–1)) + C(11)*D(RE(–1)) + C(12) Observations: 28 R-squared 0.077383 Mean dependent var –0.241652 Adjusted R-squared –0.037944 S.D. dependent var 4.936715 S.E. of regression 5.029501 Sum squared resid 607.1013 Durbin-Watson stat 1.982798

strategies to increase renewable energy investments. Within this framework, it is important to give financial support primarily to renewable energy investors. The main reason for this is that the initial cost of these investment projects is very high. On the other hand, the provision of low interest loans will also help to achieve this goal. Another innovative strategy to increase renewable energy investments is that these companies invest in their technical infrastructure. These energy projects are investments that require serious engineering knowledge. Therefore, it is thought that investing in such issues will contribute to the success of these energy projects. Renewable energy investments are not among the most used energy alternatives by countries today. However, especially in recent years, the popularity of renewable energies has been increasing. The main reason for this is that the sensitivity towards

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Table 2 Variance Decomposition Results Variance decomposition of economic growth Period S.E. Economic growth Research and development 1 5.834550 100.0000 0.000000 2 6.748062 94.93470 3.015925 3 6.981358 91.50777 4.066192 4 7.033413 90.26944 4.202448 5 7.044417 90.00753 4.194743 6 7.047194 89.97900 4.194580 7 7.048052 89.97650 4.198193 8 7.048308 89.97427 4.199817 9 7.048373 89.97302 4.200137 10 7.048387 89.97267 4.200152 Variance decomposition of research and development Period S.E. Economic growth Research and development 1 1.130794 6.669565 93.33043 2 1.204255 5.912044 88.14233 3 1.222333 6.761121 85.63159 4 1.228253 7.455610 84.87192 5 1.230209 7.677976 84.66910 6 1.230761 7.711467 84.61536 7 1.230890 7.711749 84.60109 8 1.230917 7.711623 84.59739 9 1.230924 7.712116 84.59647 10 1.230927 7.712370 84.59623 Variance decomposition of renewable energy Period S.E. Economic growth Research and development 1 5.029501 18.63886 46.87605 2 5.195414 21.21504 44.99692 3 5.223231 21.78254 44.52384 4 5.229872 21.83933 44.43391 5 5.231309 21.83251 44.41464 6 5.231601 21.83055 44.40984 7 5.231671 21.83129 44.40875 8 5.231692 21.83176 44.40854 9 5.231699 21.83185 44.40850 10 5.231700 21.83185 44.40848

Renewable energy 0.000000 2.049376 4.426035 5.528112 5.797728 5.826415 5.825311 5.825917 5.826839 5.827180 Renewable energy 0.000000 5.945622 7.607292 7.672474 7.652922 7.673174 7.687166 7.690984 7.691418 7.691398 Renewable energy 34.48509 33.78804 33.69362 33.72676 33.75285 33.75961 33.75996 33.75971 33.75965 33.75967

environmental pollution is on the rise. In other words, the image of countries with high carbon emissions is adversely affected. This situation may cause the country to experience some economic problems in the following years. For example, international credit rating agencies may be reluctant to lend to countries with high carbon emissions. This situation may negatively affect the investments in the country. As a result of decreasing investments, there is an economic contraction in the country.

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Therefore, it would be appropriate to focus on energy resources that do not pollute the environment for the sustainable economic development of the country. Another important issue in renewable energy is the energy supply security of the country. Countries that do not have their own energy resources have to import the energy they need from abroad. This situation poses a political and economic risk to the country. When there is political tension with an energy importing country, this situation endangers the energy supply security. On the other hand, the payment made for energy imported from abroad is made in foreign currency. In this context, when the exchange rate becomes more valuable, imported energy will be more expensive. This situation will affect the current account balance of the country negatively. Turkey is a country that imports its energy needs from abroad greatly. Therefore, these problems mentioned above also applies to Turkey. The biggest contribution of this study to the literature is that renewable energy investments are analyzed for an energy importing country. According to the analysis results obtained, it is that renewable energy investments are not the cause of the economic growth in the country. Therefore, renewable energy investments in the country are currently not sufficient for the economic development of the country. In addition, another result of the study is that technological development increases renewable energy investments. This result gives us very important information. In order to increase the renewable energy investments in the country, the country should seriously invest in technological development. Thanks to this action, it will be possible to increase the renewable energy investments in the country and contribute to economic development. Acknowledgments This study was derived from Esra Serezli’s PhD thesis written in Istanbul Medipol University.

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A Known Innovation for Strategy: A Study on Chaos Mustafa Atilla Arıcıoğlu, Beyza Erer, and Nadiye Gülnar

Abstract Chaos theory and application proposals have received intense interest in many fields of social sciences especially in recent years. In this study, the studies on chaos in the context of creating and managing the strategy were scanned and those related to the purpose were selected. With the literature reading, a short suggestion title is presented, stating the importance of chaos for strategic management and how it guides the managers. In this context, it is emphasized that the learning organization approach and Aikido will contribute to understand and manage chaos, and basic skills will be tested in this process.

1 Introduction Poincare realized a new situation when discussing the relationship between the universe, the earth and the sun over mathematics and physics. Everything was not regular and deterministic, as Newton said. In other words, in complex, nonlinear events, it is never possible to predict future events in the same system due to the fact that the starting point cannot be determined precisely and then different conditions brought by the time difference (Poincare 2019; Prigogine and Stengers 1996; Wichmann 1993). Poincare, who was later forgotten or disappeared, meets Lorenz with the world again after a short while and is remembered. His interest in mathematics and meteorology makes Lorenz realize a new situation in his prediction system:

M. A. Arıcıoğlu (*) Necmettin Erbakan University, Konya, Turkey B. Erer Selçuk University, Konya, Turkey e-mail: [email protected] N. Gülnar Konya Food and Agriculture University, Konya, Turkey e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 H. Dinçer, S. Yüksel (eds.), Financial Strategies in Competitive Markets, Contributions to Finance and Accounting, https://doi.org/10.1007/978-3-030-68612-3_13

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Unpredictability. Nonlinear twists and order, ie chaos. However, Lorenz does not just leave the Butterfly effect he discovered. It reveals that irregular repetitions over the dilemma in mathematics and meteorology have real-life consequences. So small changes can cause major revolutions or problems. Just like the story of Kuhn (Gleick 2000). Lorenz now wants everyone to see that these differences, fractal reality, and future-past interaction can no longer be understood through determinism (Lorenz 1993). Chaos walks in unnoticed small steps using irregularity to create a new order in this brand new ordinary. This march also draws deep attention from the social sciences. Supporting the undeniable contributions of turbulence and entropy-synergy, this new paradigm (Ruelle 1991) takes place on the agenda of researchers aiming to grasp/explain the process-fact-meaning in many areas of social sciences, primarily in terms of understanding the behavioral dimension and unpredictable preferences. Chaos can be a completely new way of looking at emerging systems (Kellert 2008; Waldrop 2003; Smith 1998).

2 Return to Chaos for Strategic Since the second half of the twentieth century, to live with uncertainty and risk, namely turbulence, every manager must first have a strategic awareness. Awareness of the manager about what the strategy is and how to manage it is important for the stakeholders as well as being important for the organization. In this case, strategic decision becomes very important. Because decision making under uncertainty and risk necessitates a consistent prediction regarding the future of the managementenvironment-organization trilogy (Stacey 1991; Taneja et al. 2013). It is important to take strategic decisions with the strategic management mind, how the decision is related, as well as what the decision is related to, and involve the stakeholders in the decision process. The weight of customers, NGOs, governments, shareholders, and others who will play a role in the implementation of another expression strategy increases (Staib 2005). In the meantime, for the decision to be effective, it should try to think about the strategic/competitive one rather than making a decision. To take a closer look at what strategic decision making is so that the chaos approach can be better understood; making decisions is not just choosing, but actually being consistency and integrity (https://plato.stanford.edu/index.html). This composition, consistency and integrity is not just a rational sequence. Sometimes emotions and intuition also play a role in the process. They remind or feel what managers should do with the role they play (https://www.decision-making-solutions. com/intuitive_decision_making.html). On the other hand, it is seen that the change in management is not linear and it is based on the developing relationships/interactions of dynamic components in the system. Looking at this situation from the perspective of chaos, the deterioration of the strategic balance is an opportunity for new inferences, not failure. (Stacey 1991).

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As can be seen, it should be learned to define the management/organization process with chaos and manage it in harmony with the environment (Tetenbaum 1998; Galacgac and Singh 2015). The dynamic system makes it almost impossible to predict the results, while allowing a new approach flexibility that can provide freedom of innovation. In order to understand the chaos theory in the context of management (Dininni 2011; Stacey 1993): (a) The company strategy and operational activities are consistent and appropriate, (b) In the context of turbulence anxiety, self-evaluation on dynamic scenarios, (c) Managers develop wisdom and experience to know the chaos without going over the borders, (d) How critical are the concepts of vision, leadership, corporate culture and open communication, (e) Since uncertainties will make decision-making processes and management actions difficult, it is necessary to address the discussion over uncertainty. It seems possible to summarize what chaos theory means for the organization over six topics (Grint 1997): (i) (ii) (iii) (iv)

Organizational life includes predictable and unpredictability. It is not possible to identify only one cause for any of the actions. Thanks to the variety, there is the possibility to be more productive. The anxiety about chaos-related anarchy should dominate within the organization. (v) Considering the multiplier effect caused by individual actions, it is necessary to pay attention to the individual’s responsibility and the size/area of action. (vi) The immutability of the scale and irreversibility are components of all chaotic organizations.

In this context, businesses of the new era should be aware that their businesses will live in an highly interactive globalization process. It should also calculate the complexity created with the new technology, network relationships where interaction is high and deterministic is effective, and how sustainable development will be determined through regions. It should act with a sustainable management approach. Sustainable management approach and sustainable environment should be defined in terms of sustainable economy and sustainable social structure (Dominici and Roblek 2016).

3 Literature Review The discussion within the context of the prepared literature study will contribute to the perception of chaos in the company/organization-environment relationship. It was found that there were not enough articles as a result of the scans made in Turkish and English through the titles of “Strategic and Chaos” and “Strategic Management and Chaos” and Google Academic, Sage Publicaitons and Elsever. Higher Education

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in Turkey in the database through the screening with the same title only in a business dissertation was determined to use the Chaos Method. While the number of scans performed was high in some databases (For example, in Sage Publication, over 1700 studies related to chaos in the scans performed), it was seen that the mentioned subjects were not mentioned sufficiently. In this context, the summary of the studies that can be accessed within the context of the subject title has been completed: Mann (1992) discussed strategic thinking within the scope of chaos theory. In his study, the author emphasized that thoughts about strategy should change because the strategic thinking of the past few centuries did not create much space for innovation. Stating that traditional theories are insufficient in explaining strategies due to the increasing complexity of the world, the author suggested that chaos theory should be considered. Because, according to the author, chaos theory directs strategies towards realistic policies in an era of constant change and can initiate the liberation of delayed strategic thinking. Stacey (1993) explained the chaos system with the idea that the chaotic system, which is valid in natural sciences, is valid in organizations and that the chaos system provides a fundamentally different way for managers to understand their strategic developments and made some suggestions for strategic management in the scope of this system. Stating that cause-effect connections are not included in the chaos system, the author suggested that it is impossible for managers to plan or predict the long-term future of an innovative organization, but instead to create a future by using their ability to learn effectively in groups and interact in a politically selforganizing way. Thietart and Forgues (1995) presented a new approach to understanding the functioning of organizations by taking advantage of chaos theory and the characteristics of chaotic systems. In the study, organizations are considered as an open, dynamic, nonlinear system subject to internal and external forces that may be a source of chaos, and it is concluded that organizations are likely to exhibit the qualitative characteristics of chaotic systems when in a chaotic area. It was stated that organizations were pushed towards chaotic areas, especially with the combination of forces of stability and change, and at this point, he made suggestions to the organizations either to allow chaos to develop or to seek a second order by not going too far. Murphy (1996) proposed chaos theory as a model in managing problems and crises within the scope of public relations. In the study, it is stated that chaos theory is a logical approach to structuring the permanent image problems of organizations and how the public can control public perceptions about them. Because, according to the author, chaos theory provides important indications about the uncertainty, openendedness, and change that they try to define to public relations experts and their managers. It has also been noted that in many cases chaos theory balances overly rational management approaches and provides useful reminders for change where there is no sensitivity, patience, and careful timing. Bechtold (1997) argued that organizations should use the potential and utility of chaos theory in developing strategies. The author stated that strategic planning made at stable times (each year, usually updating and improving the previous year’s plan)

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is no longer sufficient in the face of changing conditions, and that an organization should use a participatory process for strategy development. In the study, it was suggested that managers should contribute to the process of self-organization and strategy development by giving employees the freedom to use their initiatives and powers, just like the self-organization principle in chaos theory. According to the author, in this way the organization will touch the knowledge and intelligence of all members, connect itself to the developing environment and affirm or adjust the “strange attractors” of its values and culture as it clarifies its goals and future direction. McDaniel and Walls (1997) proposed diversity as a management strategy for organizations. The authors stated that diversity is often seen as a problem by managers and researchers, but when viewed from the lens of chaos and quantum theories, it is actually a very effective and efficient tool. Because these theories suggest that organizations operating in intense competitive conditions should acquire talent for developing and maintaining a complex set of relationships and learning in real time. According to the authors, examining organizations within the scope of chaos and quantum theories gives managers and researchers a new perspective on diversity and offers new insights to maximize the positive contributions of diversity to organizational performance. Eisenhardt and Brown (1998) stated that traditional strategy views were insufficient when the strategic difficulty changed, and they put forward a new strategy that is described as competition on the edge (superior edge). Stating that change is at the root of the strategic difficulty, the authors emphasized that ideas should be based on biology-based theories of complexity and evolution. At this point, although traditional strategies are about establishing long-term defensive positions or sustainable competitive advantages, the competitive strategy on the maritime is temporary, complex and unpredictable, and if it is successful today, it may not work well tomorrow (787). Hayward and Preston (1998) discussed the relationship between chaos theory, economics, and knowledge in the strategic decision-making process. In the study, it is stated that it is imperative to learn to use paradoxes at all levels, to balance contradictions and inconsistencies, and to use them as an invention to find a better way, in order to make such a life livable with the idea that life will not be easy, neither perfect nor predictable. The authors stated that organizations should understand the broad economic and social conditions to make decisions in uncertain environments, and this can only be possible with strategies. In this direction, they emphasized that chaos theory should be taken into consideration and creating the conditions for effective learning by changing the job descriptions for strategic management. Because they argue that the adaptation of chaos theory to organizations and the economy has important effects. Wilding (1998) discussed the effects of chaos theory on supply chain management and made implications for management in a chaotic system. In the study, some basic features in the chaos system were explained and it was tried to show whether the supply chains also have these features with a simulation approach. The analysis was carried out in a warehouse supply chain. As a result of the analysis, the

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warehouse supply chain; It has been found to exhibit the characteristics of the chaos system such as sensitivity to the initial state, islands of balance, strange attractors, invalidating the reductionist view, and weakening computer accuracy. Dolan et al. (2003), in their studies demonstrating that chaotic systems defined in physics and mathematics are also valid in businesses, in the twenty-first century, the use of chaos theory, which shows that businesses will no longer be managed effectively with strict goals or instructions in time or space, and generally conceals simple deterministic rules. In the study, a Management by Values model has been created for businesses and it is suggested that businesses benefit from this model. Because, according to the authors, the basic beliefs and values that make up the organizational culture are parameters that will lead businesses to success in the long term, and these values will direct human behavior and work behaviors, like the attractors in chaos theory, to achieve the desired results. As a result, the authors stated that there is a strong similarity between organizational values and the strange attractors that both lead a system to the state it targets. Kumara et al. (2002) investigated the presence of chaos in logistics systems. In this context, it is stated that a typical logistics system is characterized by its supply chain, and the hypothesis of the research is that these systems are nonlinear, dynamic, and specifically chaotic. In their studies, the researchers tested their hypotheses using the queue model method, and because of the application, they reached the existence of chaos in some initial conditions of a simple but realistic logistics system. According to the researchers, if a system exhibits chaos, the decision-making system must consider system identification parameters from a chaos theory perspective. Burnes (2005) reviewed the main principles of complexity theories and discussed how these theories are applied to organizations and organizational change, and how they offer a different and new approach to understanding and managing organizations. The author concluded that adopting a complexity approach to change can have significant benefits for organizations but stated that these theories should be used as a metaphor for creating new insights rather than being a mathematical approach to understanding and managing organizations. Burgelman and Grove (2007) have tried to offer a solution to this situation in their study, which they conducted with the fact that very few companies survive as independent organizations for a long time. According to the researchers, an important reason for this situation; because companies often operate in a stable industrial structure, they develop strategies to deal with linear strategic dynamics that are easy to understand and predict. However, when faced with non-linear strategic dynamics that exceed their capacity, their current strategies fall short and they cannot survive. At this point, what is the balance of exploration that will maximize a company’s chances of survival against different nonlinear dynamic strategies? The question constitutes the purpose of the study. In the study, the Intel Corporation company was taken as a model and a mixed method was adopted by combining longitudinal field research and managerial experience. The researchers concluded that the long-term survival of the company in different non-linear strategic dynamic situations depends

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on the harmonization of autonomous and stimulated strategy processes with different strategic dynamic forms, and the strategic leadership role balances this process. Hübler et al. (2007) made explanations about how chaos should be managed with chaotic formal maps. The authors defined chaos as the frenetic deviation of strategies and tried to show with maps that chaos is difficult to predict but easy to control. In the study, it is stated that social organizations have a more complex structure, and it is thought that it is possible to control chaos with a similar approach. Levy (2007) discussed the importance of chaos theory for strategy. According to the author, the lack of available theoretical tools to describe and predict the behavior of firms and industries is one of the persistent problems faced by the field of strategic management. The author stated that the current theoretical models tend to establish simple linear relationships without feedback, which is no longer effective in business life, and that chaos theory provides a useful framework for understanding the dynamic development of industries and the complex interactions between industry actors. In this direction, in the study, a simulation model is presented to show the results resulting from the application of chaos theory to strategic management. In the simulation model, which shows the interactions between a California-based computer manufacturer and its suppliers and its market, it is concluded that minor disruptions in the supply chain interact to make the chain highly volatile and impose significant costs on the organization. In addition, practice has shown that although it is very difficult to predict in the supply chain, different models can emerge that can be beneficial for managers. As a result, the simulation model presented in the study has proven that chaos theory is applied in a practical way to issues related to business strategy. Englund (2009) states that taking the chaos theory as a basis in project management practices improves the applications. Because the author thinks that each of the principles in chaos theory is a guide for organizational behavior. Accordingly, in the study, it was stated that managers should learn to work with limited instability and instead of seeing chaos as an undesirable situation, it was suggested to focus on natural forces in organizations and to use and manage them to achieve more. Smith (2011) selected three Pittsburgh-based companies and analyzed from a case study perspective. As a result, it was found that all three companies followed both similar and different strategies to cope with the chaotic environment in times of economic downturn, and that they not only survive but also thrive. Smith and Paquette (2010) examined the connections between the knowledge management process and chaos theory of institutions in two different industries (Pixar and Google) in order to understand the effects of chaos on knowledge management. In the study, it was stated that many of the technological and social changes designed to provide more structure and efficiency to the world brought uncertainty to the constantly changing and developing business environment and this situation was described as chaos. The authors stated that chaos is both a challenge and an opportunity for knowledge management, and at this point, it is important how managers manage information in a chaotic environment. In this context, it is argued that the role of the knowledge manager in the study is to embrace and encourage chaos by making use of chaos theory to facilitate knowledge

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creation. As a result of the research, it has been revealed that Pixar and Google have adopted this approach to information management and organizational culture. Nguyen and Kock (2011) have tried to create a model for managing the survival of SMEs in the transition economy by using the principles of chaos theory. In the study, in which qualitative research technique was used, 25 companies in Vietnam were included in the study and data were collected from company owners, managers or people responsible for finance. In particular; Pre-2008 financial crisis, crisis period (2008–2010) and post-crisis (2010) are considered. As a result of the analysis, it has been determined that Vietnam economy has undergone changes such as legislation, infrastructure, market structure and workforce and these changes created a mixed environment for SMEs before the 2008 financial crisis. In addition, it has been determined that SMEs exhibit common characteristics in terms of continuing their existence during the crisis. It has been suggested that small changes in the environment can have a significant impact on the business of companies, and SMEs should be ready for changes with different focuses before the crisis, be flexible during the crisis and take innovative actions quickly, and after the crisis, they should constantly renew and organize themselves. Houry (2012) developed a prediction model to make short-term predictions during chaotic events that may occur in organizations based on the theory of chaos and complexity. In the study, it was stated that organizations on the brink of chaos were subjected to opposing stability and unstable forces and potentially broke off from their old power, and a new order based on self-organization emerged, and thus, suddenly a qualitative transition from one situation to another. Considering the chaos and complexity theory, the author emphasized that it is possible to affect the change in question, but it is impossible to control it completely, and stated that the model he developed based on the current literature review serves as a guide for directing organizations out of chaos. Phillips and Su (2013) emphasized that the financial collapse in the USA completely changed the situation of companies and put forward a new management cycle model with the idea that the management function fulfills its function in a completely chaos environment and in this case, traditional strategies, planning and practices should be abandoned. The new management cycle created as an alternative to Fayol’s classic management cycle; includes stability, chaos, disaster, and entrepreneurship. Taneja et al. (2013) came up with a model for strategic management in a turbulent and chaotic environment, taking chaos theory, systems theory, organizational culture, internal-external confusion, and strategic leadership perspective. Stating that chaos management is a strategic and tactical leadership imperative that can positively or negatively affect an organization’s competitiveness and long-term success and survival potential, the researchers emphasized that strategic management should be given special attention and it is important to understand the parameters in chaos theory for strategic management. In addition, the model created by the researchers begins with using systems theory to determine the level of chaos and unpredictability in the organization, followed by evaluations of cultural, organizational and strategic problems, and in turn lead to the evaluation of internal and external environments.

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Niedernhuber et al. (2014) examined chaos and decision-making mechanisms. In their first experiment on individuals, they stated that environmental conditions play an important role in decision-making processes; they concluded that a particularly disorganized environment made individuals more open-minded towards inconsistent information. In their second experiment, the researchers concluded that this effect was not only due to the disorganized environment (chaos of conditions), but also to the different thinking mechanisms of the participants. Alshammari et al. (2016) tried to explain how suitable chaos theory is for strategy and especially tried to apply the concepts in theory in the context of strategic alliance. In this process, they found that most companies ignored very small changes that might lead to misunderstanding and incomplete implementation of the necessary actions at first and could not control many variables that seem difficult. At this point, it was stated in the study that chaos theory is an important reference for strategy development and implementation, especially to be successful in the strategic alliance process, the principles of chaos theory should be understood. Fragouli (2016) tried to explain how effective leadership should be in the uncertain environment of the global environment by conducting a comprehensive literature review on the practices of chaos in businesses, how chaos emerges, what the factors that affect and shape chaos, the consequences of chaos, and how the leader manages the business in the environment of chaos. As a result, organizations with the application of chaos theory to management; defined as complex, irregular and unpredictable systems and it was stated that organizations cannot be managed with a single leadership style or philosophy. In addition, it has been concluded that the application of chaos theory to organizations causes business leaders to better understand the behavioral patterns, dynamics, and complexities of organizational functions. Forgues (2016) tried to explain that chaos theory is a resource that should be used to inform strategic management. According to the author, chaos theory arises from mathematical analysis of nonlinear dynamical systems. When the theory is applied to management, it enables problems related to complex interactions and unpredictability to be addressed. When considered as nonlinear dynamic systems in companies, some of its processes may enter a chaotic situation and in such a situation, it is not possible to predict especially on a global scale and in the long term, and even the existence of the company is in danger. In this case, it has been stated that utilizing the chaos theory will have important consequences in terms of strategic management. Galacgac and Singh (2015) explained the possible effects of chaos theory on management science. Stating that we live in a chaotic and unpredictable world, it is stated that organizations have become a complex system or systems that try to balance between rigid order and chaos. The authors stated that for organizations to adapt to the change in question, leaders should take into account chaos theory. It was emphasized that with the use of chaos theory, leaders will provide a new structure that improves the function and capacity of the organizational system and adapts to the basic ability. As a result, the authors argue that it is basically impossible to

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control chaos, but considering chaos theory, an organization’s chances of survival will increase in a chaotic environment. Llora and Cordero (2016) tried to explain the complex nature of contemporary business organizations using Cube’s (1997) visual expression as a metaphor, and they used Chaos theory as a conceptual basis to support the arguments made. The authors try to answer two main questions: (1) What makes contemporary work organizations complicated? (2) What research approach could provide an alternative account of the complexity of contemporary organizations? As the answer to the second question, the article follows a metaphor analysis approach. As a result of the analysis, the complexity of the business organizations is due to the difference in the personalities of the members of the organization, the lack of a stable structure of the organizations and the organization’s influence from the external environment. It has been stated that these factors are undoubtedly the characteristics of a chaotic system. Mbengue et al. (2018) studied the application of chaos, complexity, and selfregulating systems theories to management. Stating that all three theories are new tools for modeling, explaining, and predicting management phenomena, the authors have shown that these theories are not yet mature enough to lead scientific research to management.

4 Conclusion and Discussion As stated in the literature, the foresight of the industry and companies in terms of their preferences and behaviors is more difficult than before, and the power of existing theories to explain is inadequate. Although the control and prediction of chaos is a matter of discussion, there are important advantages and attractive suggestions. Looking at the literature, it is possible to list the clues of the relationship between chaos and strategy as follows: – Chaos management will examine the life of living things and learn something from them (in the context of adaptation approaches). – Managers should be able to focus on natural forces in organizations rather than seeing chaos as an undesirable situation. Thus, the role of information manager learns to live with chaos by making use of chaos theory to facilitate information creation. – It is necessary to take flexible, fast and innovative actions in order for a new order based on self-organization to emerge and to control the transition from one situation to another. Internal learning and communication will come to the fore as an irregular environment makes individuals more open-minded towards inconsistent information. The existence of organizational culture becomes very important at this point. Organizational democracy is guiding with its principles.

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– It is known that the human relations of their organizations are already complicated and the differences in the personalities of the employees seem sufficient for a contradiction and chaos. These seemingly irregular relationships teach how to manage innovation and fractals. This includes a stimulating and guiding experience for self-made organizations. – The existence of strategy and leadership remains the two most important indicators for chaos. The integration of your stance and forward vision with leadership offers a sustainable source of life in new conditions. For this, it is necessary to have a common mind, collaboration, consistency, flexibility, self-organizing skills and ultimately the endurance-motivation duo. In the final analysis, to add some suggestions to contribute to the literature for chaos and strategy; (i) The continuously developing Learning Organizations approach presented by Senge (1992) seems to be a very convenient and usable theory-application for both operational and strategy in the context of chaos. It will not be odd that using it in chaos studies will increase the structural strength. This will also contribute to the development of the reflexes of organizations and the ability to act independently, if necessary, through practice teams. (ii) Just like the proposal to benefit from biology, organizations may have the opportunity to manage their energy by getting their energies from chaos in the context of operation and strategy. Here, a series of guiding relationships such as Aikido teachings can be developed. The series of actions, which are basically creating synergies by using force, is also the words of Morihei Ueshiba (2019), the founder of Aikido, “To hurt the other, to hurt himself. To be able to control aggression without injuring is the Art of Peace.” (iii) It will be beneficial to prepare an action and development plan by working on the management of all resources to understand and benefit from the reality of chaos. Ultimately, in order for the organization to plan a future for itself through a sustainable life curve; it is necessary to capture the synergy that will adapt to the environmental conditions where turbulence and uncertainty prevail, to plan the strategic thinking consistent with the operation, to have the ability to act in harmony with the variables, and ultimately to have the management mind/ability/intuition to integrate all of these with the target, and carry out the decision-making process. In other words, we need to know that the situations and structures that seem like some problems are guiding, and the situation and results that we believe provide solutions are problems.

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References Alshammari M, Pavlovic M, Qaied BA (2016) Chaos theory in strategy research. Am J Bus Manag 5(1):1–13. https://doi.org/10.11634/216796061706728 Bechtold BL (1997) Chaos theory as a model for strategy development. Empower Organ 5 (4):193–201. https://doi.org/10.1108/14634449710195462 Burgelman RA, Grove AS (2007) Let chaos reign, then rein in chaos—repeatedly: managing strategic dynamics for corporate longevity. Strateg Manag J 28:965–979. https://doi.org/10. 1002/smj.625 Burnes B (2005) Complexity theories and organizational change. Int J Manag Rev 7(2):73–90 Cube (1997) Vincenzo Natali (Director), Nicole de Boer, Nicky Guadagni, David Hewlett (Cast) (Movie) Dininni J (2011) Harness the power of business complexity theory to build a winning company strategy. Access address: https://www.business.com/articles/complexity-management-theory/ Dolan SL, Garcia S, Auerbach A (2003) Understanding and managing chaos in organisations. Int J Manag 2003:1–15 Dominici G, Roblek V (2016) Complexity theory for a new managerial paradigm: a research framework. In: Neostrategic management an international perspective on trends and challenges. Springer International Publishing, Switzerland, pp 223–241 Eisenhardt KM, Brown SL (1998) Competing on the edge: strategy as structured chaos. Long Range Plan 31(5):786–789. https://doi.org/10.1016/S0024-6301(98)00092-2 Englund RL (2009) Applying chaos theory in a project based organization. In: PMI Global Congress Proceedings 2009. Amsterdam, Netherlands Forgues B (2016) Chaos theory. Palgrave Encyclop Strateg Manag 2016:1–4. https://doi.org/10. 1057/978-1-349-94848-2_384-1 Fragouli E (2016) Leading business organizations in the global era: decision making in chaos and crisis situations. J Econ Bus 19(2):73–89 Galacgac J, Singh A (2015) Implications of chaos theory in management science. In: 8th CHAOS Conference Proceedings 2015. France, Paris, pp 515–527 Gleick J (2000) Kaos, 8th edn. Tübitak, Ankara Grint K (1997) Fuzzy management: Contemporary ideas and practices at work. Oxford University Press, New York Hayward T, Preston J (1998) Chaos theory, economics and information: the implications for strategic decision-making. J Inf Sci 25(3):173–182. https://doi.org/10.1177/ 016555159902500301 Houry SA (2012) Chaos and organizational emergence: towards short term predictive modeling to navigate a way out of chaos. Syst Eng Proc 3:229–239. https://doi.org/10.1016/j.sepro.2011.11. 025 Hübler AW, Foster GC, Phelps KC (2007) Managing chaos. Wiley Periodicals Inc 12(3):10–13 Intuitive Decision Making (2020). https://www.decision-making-solutions.com/intuitive_decision_ making.html Kellert SH (2008) Borrowed knowledge: chaos theory and the challenge of learning across disciplines. University of Chicago Press, Chicago and London Kumara S, Ranjan P, Surana A, Manikonda V, Peng V, Greaves M (2002) Decision making in logistics: a chaos theory based analysis. CIRP Ann Manuf Technol 52(1):381–384 Levy D (2007) Chaos theory and strategy: theory, application and managerial implication. Strateg Manag J 15:167–178. https://doi.org/10.1002/smj.4250151011 Llora MB, Cordero JF (2016) Using chaos theory as a framework to explain the nature of complexity in contemporary organizations. Rev Econ Polit 23:39–56 Lorenz EN (1993) The essence of chaos. University of Washington Press, Seattle Mann SR (1992) Chaos theory and strategic thought. Parametes (US Army War College Quarterly) 1992:54–68

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Mbengue P, Ondracek J, Saeed M, Bertsch A (2018) Management and chaos theory, complexıty theory, and self-organizing systems theory. Asia Pac J Res Bus Manag 9(3):1–15 Mcdaniel RR, Walls ME (1997) Diversity as a management strategy for organizations. J Manag Inq 6(4):363–375. https://doi.org/10.1177/105649269764015 Murphy P (1996) Chaos theory as a model for managing issues and crises. Public Relat Rev 22(2):95–113. https://doi.org/10.1016/s0363-8111(96)90001-6 Nguyen HL, Kock S (2011) Managing SME’s survival from financial crisis in a transition economy: a chaos theory approach. J Gen Manag 37(1):31–45. https://doi.org/10.1177/ 030630701103700103 Niedernhuber J, Kastenmueller A, Fischer P (2014) Chaos and decision making: Contextual disorder reduces confirmatory information processing. Basic Appl Soc Psychol 36 (3):199–208. https://doi.org/10.1080/01973533.2014.890621 Phillips F, Su YS (2013) Chaos, strategy, and action: How not to fiddle while Rome burns. Int J Innov Technol Manag 10(6):1–19. https://doi.org/10.1142/S0219877013400300 Poincare H (2019) Bilim ve Hipotez (F. Yücel, Çev.) Fol Kitap Yayınları Prigogine I, Stengers I (1996) Kaostan Düzene. İz Yayınevi, Istanbul Ruelle D (1991) Chace and chaos, 1st edn. Princeton University Press, Princeton, USA Senge P (1992) Beşinci disiplin. Kredi Yayınları, Yapı Smith P (1998) Explaining chaos. Cambridge University Press, London Smith AD (2011) Chaos theory and recessional business environments: Case studies of operational health of service and manufacturing organisations. Int J Service Operat Manag 8(2):191–221 Smith S, Paquette S (2010) Creativity, chaos and knowledge management. Bus Inf Rev 27 (2):118–123. https://doi.org/10.1177/0266382110366956 Stacey RD (1991) The chaos frontier creative strategic control for business. ButterworthHeinemann Limited Linacre House, Oxford Stacey RD (1993) Strategy as order emerging from chaos. Long Range Plan 26(1):10–17 Staib R (2005) Corporate environmental strategy. In: Environmental management and decision making for business. Palgrave Macmillan, New York, pp 101–110 Taneja S, Pryor MG, Humphreys JH, Singleton LP (2013) Strategic management in an era of paradigmatic chaos: lessons for managers. Int J Manag 3(1):112–126 Tetenbaum TJ (1998) Shifting paradigms: from Newton to chaos. Organ Dyn 26(4):21–32 Thietart RA, Forgues B (1995) Chaos theory and organization. Organ Sci 6(1):19–31. https://doi. org/10.1287/orsc.6.1.19 Ueshiba M (2019) The art of peace (J.Stevens, Trans.). Shambhala Publications, USA. https://plato. stanford.edu/index.html. Accessed 18 May 2020 Waldrop MM (2003) Karmaşıklık (Z. Dicleli, Çev.). Türk Henkel Dergisi Yayınları, İstanbul Wichmann E (1993) Kuantum fiziği: Berkeley fizik dersleri (T.N. Durlu ve Y. Elerman, Çev.). Bilim Yayınları, Ankara Wilding RC (1998) Chaos theory: implications for supply chain management. Int J Logist Manag 9(1):43–56

Supply Chain Finance: Financial Performance, Competition and Market Value Analyses in Turkey Musa Gün

Abstract This study investigates the impacts of supply chain finance on the companies’ financial performance, competitiveness, and market value indicators in Turkey. In this context, firstly, supply chain finance and its framework are introduced. Afterwards, based on the literature review, the potential benefits of supply chain finance solutions are analysed by the Wilcoxon test. According to the analysis findings, the leading companies in the sample set have substantially extended the days of payables outstanding and increased net sales growth after supply chain finance implementation. On the other hand, it is found that the changes in return on asset, return on equity, market value, cash conversion cycle, and competition indicators are not statistically significant. Consequently, in Turkey, the concept of supply chain finance is a new topic and the Trade Chain Finance System has been just launched to gather various actors and solutions in supply chain finance. In this regard, the results of this study can contribute to the literature and also can provide a foundation for the development of supply chain finance in Turkey.

1 Introduction In today’s competitive environment, businesses operate within a wide network encompassing different countries, resources, information, and entities including producers, vendors, distribution centres, logistics firms, and retailers. This process, which is called as the supply chain, involves various stages including production, marketing, distribution, finance, and customer services (Mentzer et al. 2001). Therefore, the purpose of businesses in a tightly integrated market should increase not only the enterprise’s value but also to increase the value of the company’s stakeholders to enable sustainable profitability and success (Koll 2003).

M. Gün (*) The Faculty of Economics and Administrative Sciences, Recep Tayyip Erdoğan University, Rize, Turkey e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 H. Dinçer, S. Yüksel (eds.), Financial Strategies in Competitive Markets, Contributions to Finance and Accounting, https://doi.org/10.1007/978-3-030-68612-3_14

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The fast-growing technological innovations, together with economic crises and the Covid-19 pandemic, have made it more challenging than ever before for all companies to survive and to protect their market values in a globally integrated competitive market. In a marketplace where liquidity and credit facilities are scarce, companies should apply new financial and competitive practices for the improvement of working capital strategies. One of these popular and commonly used methods is Supply Chain Finance (SCF). The term “Supply Chain Finance” is defined in various ways in the literature. The most common identification is that supply chain finance refers to the management of cash flows and financial operations via a common information system to facilitate and support trade activities in the supply chain (Blackman et al. 2013; Wuttke et al. 2013; Gelsomino et al. 2016). Supply chain finance can also be described as containing the set of financial practices, technologies, and instruments that can optimize the management of working capital, liquidity, and risk factors for all actors in the supply chain process (Bryant and Camerinelli 2014; Caniato et al. 2019). In line with these definitions, the solutions or practices in a supply chain finance process can be classified into various perspectives in terms of timing of trigger event, financed accounts in balance sheets, a central point of credit risk, and availability of collateral. The techniques and instruments in practice are payment discounts, purchase order financing, warehouse receipt finance, inventory pledge finance, trade credits, dynamic discounting, factoring, reverse factoring, forfaiting, and letters of credit (Hofmann and Belin 2011; Chakuu et al. 2019). The supply chain finance arrangements have numerous benefits for all supply chain actors. Mainly, they produce positive effects on suppliers’ and buyers’ working capital and financial performance. Although the benefits vary among the trading actors, they can be classified under main headings such as funding and working capital advantages, administrative and reporting advantages, cost-saving and competitive advantages as well as the enhancement of the relationships among the actors (Palliam 2005; Simatupang and Sridharan 2005; Tang 2006; Bernabucci 2007; Caniato et al. 2016; Wuttke et al. 2016; Chen et al. 2019). According to a survey undertaken by PwC and Supply Chain Finance Community (2019) supply chain finance practices have a brief history in Turkey, although they are widely used in international markets. The implementations of supply chain finance processes in Turkey have occurred in a limited number and mostly in the form of reverse factoring. The arrangements in reverse factoring are usually initiated by the buyer with a higher competitive advantage and credit rating in the market. Through this stronger credit rating, the importer’s bank can offer to the suppliers— which are primarily suppliers in the form of small and medium-sized enterprises (SMEs)—funding with more favourable circumstances. Although supply chain finance is a new concept in the Turkish financial system, the leading companies such as CarrefourSa Hypermarket, Vestel White Goods, Coca Cola Beverage, and Turkcell have started adopting supply chain finance practices in recent years. This increasing trend for supply chain finance practices promises rapid growth potential. Turkey was chosen as the subject of this study because there are not adequate academic studies on this topic, despite the high growth potential of

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supply chain finance in Turkey. It also aims to raise awareness of this topic for future studies. To achieve this goal, this chapter analyses the effects of supply chain finance arrangements on the companies’ competitiveness, financial performance, and market value indicators using the following variables: the cash conversion cycle (CCC) as an indicator of supply chain finance (Farris and Hutchison 2002; Zhang et al. 2019; Bui 2020); the Herfindahl–Hirschman Index (HHI) as a measure of market competitiveness (Hirschman 1945; Herfindahl 1950; Zhang et al. 2019); returns on equity (ROE), returns on assets (ROA), and growth in net sales (GR) as variables for financial performance; and the market-to-book (M/B) ratio as an indicator of a company’s market value. The Wilcoxon signed-rank test was preferred to compare the changes in a company’s competitiveness, profitability, and market value indicators before and after the supply chain finance adoption. The rest of this chapter is organized as follows: Sect. 2 provides a general framework of supply chain finance; Sect. 3 presents the literature about the topic; Sect. 4 outlines the methodology, data structure, and provides findings; and Sect. 5 involves discussion of the findings and the conclusion.

2 General Framework of Supply Chain Finance The concept of supply chain finance refers to a new financial approach implemented to reduce financing burdens in production and stock management processes, to facilitate the cash flow, and to minimize the costs of capital particularly for SMEs who provide goods and services to larger firms (Hofmann 2005; Presutti and Mawhinney 2007; Gupta and Dutta 2011; Zhu et al. 2017). Pfohl and Gomm (2009) similarly define supply chain finance as an intercompany financing strategy for securing funds at an optimal rate. The supply chain finance model is based on the strategic relationship between buyers and sellers. The model ensures that cash flows securely on a platform for all collaborating partners, including suppliers, manufacturers, buyers, and financial institutions. Thus, it facilitates and accelerates both the informational and financial phases of the trade (Camerinelli 2009; Lamoureux and Evans 2011). Furthermore, the supply chain finance approach enables companies to optimize working capital and competitive strategies. In this regard, Pfohl and Gomm (2009), Steeman (2014), and Liebl et al. (2016) suggest three different dimensions—actors, objects, and levers—to conceptualize the idea of supply chain finance. The actors within a supply chain process could be all primary and supportive members involved in the trade activity (Lambert et al. 1998). In a broader sense, the suppliers, customers, the focal companies, the logistic providers, and the financial intermediaries are listed amongst the actors (Pfohl et al. 2003; Ma et al. 2020). The most prominent feature of supply chain finance is the focal companies that could replace classical financial intermediaries such as banks. According to Hofmann (2005), the focal companies in supply chain finance are located at the centre of market players. These companies are mostly multinational firms that have a large

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trade volume in international trade. The main contribution of the focal companies in the supply chain finance solutions is to provide liquidity to the suppliers and the buyers. They also mitigate potential risks by undertaking counterparty risks. The background of this situation is the shift from the companies’ objectives of shareholder wealth maximization to the objectives of stakeholder wealth maximization (Freeman et al. 2004; Jones and Felps 2013). Today’s economic and competitive circumstances have forced the companies to explore the interests of the suppliers, the buyers, and all other trading partners, as they work together and they are dependent on each other. Moreover, the focal companies take on the role of suppliers when they export products and service whilst they act as a buyer in import transactions. They can guide all other partners in organising, programming, and carrying out business operations in the supply chain (Svensson et al. 2018). The object category indicates the assets financed in a supply chain finance process. The objects of the supply chain finance are mainly the fixed assets and the net working capital or more generally each element of assets and working capital such as current assets, current liabilities, inventory, accounts receivable and accounts payable. Fixed assets play a crucial role in the production or supply of goods and services for the companies. Thus, cost-effective financing strategies are required for the continuation of business operations in today’s competitive environment. Another important element under the objects category is the net working capital, which is calculated as the current assets minus the current liabilities. From a competitive power of viewpoint and supply chain finance perspective, the success of working capital management is measured by the cash conversion cycle. This cycle refers to the time interval between cash expenditures and cash collection in days. The cash conversion cycle can be a perfect representative of supply chain finance and at the same time it can play a significant role in the management of the entire supply chain (Farris and Hutchison 2002; Zhang et al. 2019; Bui 2020). The last dimension of the supply chain finance process covers the factors that affect the cost of capital such as financing duration, financing amount, and cost rate. Traditional logistics or supply chain management strategies such as just-in-time production or stock optimization only focus on the financing duration. On the other hand, the supply chain finance approach combines the volume, the duration, and the financing cost rate for all actors in the process (Pfohl and Gomm 2009). The supply chain finance solutions in the world are particularly carried out by banks and financial institutions on their digital platforms according to the standards determined by them within the framework of legal regulations. Besides, global service providers and unions such as Factor Chain International (FCI) and the Demica Platform play a significant role in supply chain finance processes. FCI is an umbrella organization for factoring firms and it associates with more than 400 members from 90 countries. Approximately 90% of the world’s international factoring transactions including reverse factoring, which is the most popular tool in supply chain finance solutions, are executed on FCI’s platforms. The standard definition for techniques of supply chain finance has been developed by the Bankers Association for Finance and Trade (BAFT), the Euro Banking Association (EBA), FCI, International Chamber of Commerce (ICC) and the International Trade and

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Forfaiting Association (IFTA) to provide unity of practice in 2016. According to the World Supply Chain Report 2019 edited by Bickers (2019), the supply chain finance global volume in 2017 was at $574bn, up 28% from the previous year. Based on FCI statistics, the total world factoring volume was $3.168bn in 2018, of which approximately 52.5% was executed over FCI platforms. Moreover, the global factoring volume has grown on average by 10% over the past two decades and approximately 7% of this volume consists of reverse factoring—the prominent instrument of supply chain finance—transactions. The supply chain finance practices in Turkey are also intensively carried out by banks and financial institutions in a similar approach to international practices. The Trade Chain Finance System (TZFS) was launched by the Turkish Association of Financial Institutions in 2018. The system simply works like this; First of all, the corresponding financial institution or the bank of the companies invites the buyer and seller companies to the TZFS platform. After the system registration, companies’ representatives can sign the contracts by e-signature, thus they can minimize the documentation procedures. Companies upload their receivables arising from their commercial activities to the platform and request the financing amount. Meanwhile, the buyer confirms the receivable amount and payment term. After the confirmation process, the seller electronically sings the receivable notification form created by the platform and forwards the documents to its corresponding financial institution or bank. The corresponding institution checks and approves the documents so that the receivables are discounted at an affordable cost and transferred into the company’s account without waiting for the invoice maturity. The TZFS aims to enable companies, particularly SMEs, to access low-cost financing through supply chain finance solutions and plays a leading role in promoting awareness about supply chain finance in Turkey.

3 Literature Review The literature studies in the scope of supply chain finance generally focus on the distinct perspectives of the issue including concepts, practices, actors, instruments, and the benefits of supply chain finance based on the various research methods such as conceptual analysis, case study, survey, numerical example or a combination of these. The emergence of the supply chain finance concept begins with the study of Hofmann (2005). The study examines the actors, the collaborating characteristics, and the functional perspectives of supply chain finance. It also provides insights into the financial effects of supply chain operations. The conceptual studies dealing with the supply chain finance term indicate the management as well as control of financial flows along with the supply chain processes (Hofmann 2005, 2009; Pfohl and Gomm 2009; Hofmann and Belin 2011; Bryant and Camerinelli 2014; Zhao and Huchzermeier 2018). The comprehensive and systematic literature study addressed by Chakuu et al. (2019) explores the association between the instruments and market

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players involved in the mechanisms of supply chain finance. Consistent with previous researchers, they summarize the supply chain finance archetypes and the enablers for the adoption of supply chain finance. On the other hand, information asymmetry, diversity in the accounting standards, organizational policies, cultural differences, governmental acts, laws, and regulations are regarded as the main factors preventing or decelerating the development of supply chain finance applications (García-Teruel and Martinez-Solano 2010; Hofmann and Kotzab 2010; More and Basu 2013; Liebl et al. 2016; Martin and Hofmann 2017). The classification of supply chain finance instruments in the literature discusses the functions and the viability of the instruments in the supply chain processes (de Boer et al. 2015; Caniato et al. 2016). The most employed types of supply chain finance instruments are reverse factoring and dynamic discounts to optimize the costs of transactions and working capital. The supply chain finance instruments both reduce the need for finance and facilitate access to finance within the supply chain processes instead of receiving funds from external creditors. In this regard, supply chain finance is especially more essential for firms like SMEs that have difficulty in accessing credit opportunities due to their higher credit risk (Zhu et al. 2017). The financing instruments also aim to release the cash embarrassment imposed on operational and manufacturing investments, thereby affect the firms’ competitiveness and management of inventory and financing capacity (Babich 2010; Chod and Zhou 2014; Iacono et al. 2015). Besides various financial instruments, new practices and technologies help to optimize the working capital, liquidity, and risk in the supply chain. The firms can gain a competitive advantage through successful risk management practices and digitalization (Caniato et al. 2016; Lekkakos and Serrano 2016). The information and payment flow in global trade via electronic applications and digital technologies such as e-invoicing, digital signature, web-based platforms, smart contracts and other interactive reporting tools have automated many processes in the supply chain and have paved the way for supply chain finance (Hofmann et al. 2018). Apart from traditional actors such as buyers and sellers in trade, new players, which are named as focal companies, the primary actors in the financial supply chain operations, have emerged offering different financial solutions and business models. These companies undertake the risk of the counterparty and provide liquidity to the supply chain finance system. In other words, these large supply chain actors provide significant benefits in mitigating the risk of bankruptcy and uncertainty (Klapper 2006). Using Black-Scholes-Merton equation model, Barrad and Valverde (2015) tested the potential of losses due to supplier bankruptcy in a supply chain finance process. Their evaluations on bankruptcy probabilities of suppliers show that supply chain finance solutions are noticeably useful when dealing with financial risks and key financial performance ratios. Financially, supply chain finance practices help the participants to optimize working capital, to increase financial performance and profitability as well as to strengthen competitiveness (Randall and Farris 2009; Raghavan and Mishra 2011). The degree of benefits that the firms derived from the supply chain finance are directly determined by their level of participation. Empirical analyses indicate that

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market dynamics can significantly shape the value of supply chain solutions. The major advantage of supply chain finance arrangements is to reduce the financing cost for all trading participants. Furthermore, supply chain finance solutions increase the product and service quality for the customers as well as strengthen supply chain relationships and increase negotiating power among the participants. The intensity of competition mainly determines the bargaining power between buyers and sellers. In general terms, the financing cost and the competition play a major role in determining the firms’ financial performances and market values in the supply chain processes (Iacono et al. 2015; Liebl et al. 2016; Lekkakos and Serrano 2016). The literature review indicates that many researchers have discussed the different aspects of supply chain finance in detail. Some of which focus on conceptual issues, while others conduct empirical studies on the possible contributions of supply chain finance. Although supply chain finance solutions have many advantages such as optimizing working capital, reducing financial costs, increasing profitability and strengthening competitiveness for trading partners, it is a new concept in the Turkish financial system.

4 Analyzing the Impacts of Supply Chain Finance This section firstly explains the variables following the literature review. Afterwards, it identifies the sample set and investigates the impacts of supply chain finance practices on the firms’ competitiveness, profitability, and market value aspects by the Wilcoxon signed-rank test approach.

4.1

Selected Variables

The common indicators identified to analyse the benefits from supply chain finance solutions are the cash conversion cycle (CCC), the Herfindahl-Hirschman Index (HHI), return on equity (ROE), return on assets (ROA), growth in net sales (GR), and market-to-book value (M/B) ratio. These variables can be calculated as follows: CCC ¼ Days of inventory outstanding ðDIOÞ þ Days of receivables outstanding ðDSOÞ – Days of payables outstanding ðDPOÞ where DIO ¼ ðtotal inventories=cost of goods sold Þ * 365, ( ) receivables sales * 365, and DSO ¼ trade net

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DPO ¼ ðtrade payables=cost of goods sold Þ * 365 HHI ¼

n X

si 2

i¼1

where si is the percentage market share of the company i in its associated industry and the net sales value is used as a proxy for the market share (Naldi and Flamini 2014; Zhang et al. 2019). ROE ¼ Net Income=Total Shareholders0 Equity ROA ¼ Net Income=Total Assets GR ¼ ðCurrent Period Net Sales – Previous Period Net SalesÞ=Previous Period Net Sales * 100 M=B ¼ Share price=Net Book Value per Share The cash conversion cycle can measure supply chain efficiency. The adoption of supply chain finance practices and the usage of respective financial instruments positively affect the conversion cycle. Thus, companies can reap financial benefits from supply chain finance (Hofmann and Kotzab 2010; Gupta and Dutta 2011; Zhang et al. 2019; Bui 2020). In the Turkish financial market, only the data of the companies that are traded in the stock exchange market (Borsa Istanbul-BIST) is publicly available. Hence, the sample set companies adopting supply chain finance solutions are determined based on the news releases of BIST for the period of 2010–2019. The number of companies practising supply chain finance solutions is unfortunately limited. These are CarrefourSa Hypermarket, Vestel White Goods, Coca Cola Beverage, and Turkcell operating in the sectors respectively given in Table 1 below. Table 1 indicates 5-year average values, which were calculated for each company based on their financial statements, before and after (the numbers in the parentheses) supply chain finance adoption. After the supply chain finance application, it is observed that the assets and equity profitability of the companies except for the metal products and machinery industry decreased. Supply chain finance alone cannot be a strategy to increase profitability unlike the research findings of Bogdan and Adriana (2018) and Bui (2020) in which they stated that the improvement in the cash conversion cycle positively influences profitability. The rapid developments in technology can easily make investments absolute and decrease profitability in the telecommunication industry. Concurrently, the sales revenue of the CarrefourSa Hypermarket increased from 9.30% to 13.30%. However, this positive impact on profitability was offset by the rise in general administrative and financial expenses. The results of the table also show that there is a significant increase in sales growth and the days of payables outstanding. The selected companies are large buyers in the relevant sectors. With their competitive advantage and bargaining

Industry sector Retail & commodities Metal products & machinery Food & beverages Telecommunication

6.55(7.67)

6.17(1.98) 13.09(6.63)

10.99(18.61)

13.60(5.11) 20.00(12.13)

DPO 81.99(90.30)

14.82(15.64) 3.33(2.41) 59.37(51.62) 41.86(39.14) 5.21(12.25) 2.24(1.73) 2.72(4.03) 31.72(85.52)

64.64(67.97)

1178.79(1682.44)

CCC HHI –33.69(–29.31) 1586.38(1586.37)

1861.78(2011.59) 27.08(53.89) 74.15(36.87) 50.80(109.66) –16.36(–20.11) 5044.23(5013.28)

6.56(10.31) 0.91(2.38) 52.47(53.80) 84.53(109.08) 72.35(94.91)

ROE (%) ROA (%) GR (%) M/B DIO DSO 6.75(–15.61) 4.05(–3.40) 9.30(13.30) 2.18(5.14) 32.44(53.87) 15.86(7.11)

Table 1 Average values before and after SCF adoption

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power, they may extend the payment term for their suppliers. Stock management can become a more important issue for all sectors except telecommunication. It is determined that the inventory period of the company operating in the retail and commodities sector has increased significantly while it has partially decreased for the company operating in the food and beverage sector. But, there is no serious change for the company in the metal products and machinery industry. A Herfindahl–Hirschman index, measuring market concentration, value below 1500 is regarded as an intensely competitive market, an index value between 1500 and 2500 as a medium competitive market, and an index value greater than 2500 as a low competitive market. In this context, the companies with intense competition take part in the retail and commodities sector and metal products and machinery sector. Conversely, telecommunication is a highly concentrated industry that has a Herfindahl–Hirschman index value of over 5000. Moreover, aggressive actions in the management of cash conversion cycle, such as extending payable periods can reversely impact the companies’ values (Hofmann and Kotzab 2010) as witnessed in the food and beverages, and telecommunication industries in this research.

4.2

The Methodology of the Study

The data set includes a limited number of observations. Due to the poor data availability, the data set is not able to meet the assumptions of regression analysis. Therefore, the Wilcoxon signed-rank test (Wilcoxon et al. 1970), one of the non-parametric statistical hypothesis tests, is used to investigate the difference in companies’ competitiveness, profitability, and market value indicators before and after implementing supply chain finance practices.

4.3

Results of the Analyses

In the analysis process, firstly average values of the variables were calculated, then the Wilcoxon test was applied to detect the significant difference between the values before and after supply chain finance adoption. The test statistics are presented in Table 2. The Wilcoxon test has the null hypothesis that there is no difference between the two samples. It is theoretically expected that supply chain finance practices Table 2 Results of the test statistics Variables Z Value Probability

ROE ROA GR M/B DIO DSO DPO CCC HHI –1.461 –1.461 –1.826 –0.73 –0.73 –0.73 –1.826 –0.365 –0.365 0.14 0.14 0.06 0.46 0.46 0.46 0.06 0.71 0.71

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positively influence companies’ financial performances, sales revenue, market value, and competitiveness. The probabilities of z-value less than the suggested significance level indicate the rejection of the null hypothesis meaning that there is a statistically significant difference between the variables before and after supply chain finance adoption. According to the test results, only the net sales growth and days payable outstanding indicators significantly vary with the effect of supply chain finance implementation at 10% significance level. The net sales growth and days payable outstanding increased more than 1.6 times on average. These indicators are followed by the return on equity and return on assets in the second rank, although the difference is not statistically significant. The test statistics also show that the marketto-book value, the days of inventory outstanding, and the days of receivables outstanding variables have the same probability. The cash conversion cycle and Herfindahl–Hirschman index indicators showed the least variation. To explain this, for example, although the cash conversion cycle variation in the food and beverages sector is more than twice, the test pools all differences and compare the mean scores. That is why the difference is not statistically significant as confirmed by the probability value.

5 Conclusion This study aims to evaluate the effects of supply chain finance arrangements on competition, financial profitability, and market value indicators for the selected companies operating in Turkey. To this end, the study first introduces the supply chain finance term, then it presents a general framework and literature review which is discussing the benefits of supply chain finance practices. The study compares the sample companies’ competitiveness, profitability, and market value indicators before and after implementing supply chain finance solutions by using the Wilcoxon test. The company operating in the metal products and machinery industry receives the most benefit from supply chain finance in terms of profitability and market value. In terms of cash conversion and sales growth improvements, the companies operating in the food and beverages, and in the telecommunication sectors respectively reap the maximum benefits of supply chain finance. However, insufficient progress has been observed in competition. On the other hand, especially large buyers in the supply chain finance process can improve their working capital through the days of payables outstanding extension. Thereby it reduces the cost of working capital. This reduction can enhance companies’ financial profitability and enterprise value (Randall and Farris 2009; Hofmann and Kotzab 2010; Raghavan and Mishra 2011). An average of the days of payables outstanding after the adoption of supply chain finance practices is 87 days, indicating an extension of approximately 30 days. The empirical analysis demonstrates that this extension is statistically significant that the sample companies have benefited from the supply chain finance solution at an important level in terms of the days of payables outstanding. Besides, the test statistics prove that the variation in net

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sales growth before and after supply chain finance adoption is significant. Conversely, no statistical significance was detected for the changes occurring in other indicators. The main limitation of this research is the poor data availability. The supply chain finance approach, which is a new concept in the Turkish financial system, has high growth potential. With the launch of the Trade Chain Finance System in 2018, it can be expected that the supply chain finance solutions will become widespread in the market. Therefore, more companies from various sectors can be taken into consideration to be able to better analyse the impacts of supply chain finance solutions on competitiveness, profitability, market value, and other financial performance of companies as well as industries for future studies.

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Identifying Innovative Financial Health Management Strategies for Turkey Yaşar Gökalp

Abstract In this study, the use of management strategies in the field of health is explained. It is possible to examine management strategies under 5 main headings. These are basic strategies, corporate strategies, competitive strategies, departmental and international strategies. The main strategies in healthcare businesses include growth strategies such as the opening of a new outpatient clinic branch or contraction strategies such as closure. In addition to major medical branches such as internal medicine, serving in minor branches such as gastroenterology is evaluated within the scope of corporate strategies. Completing the diagnostic procedures via capsules taken orally instead of the old method of endoscopy is an example of competitive strategies for healthcare companies. While implementing all these strategies, the characteristics that distinguish health services from other services must be taken into consideration. These characteristics are supply creates demand, health services require excessive expertise, the size of the service is determined by the manufacturer and information asymmetry.

1 Introduction The groups that people form by coming together to achieve certain goals are called organizations. A good management process is needed to achieve the determined goals. Management is defined as the process of using the resources of the business such as natural resources, capital, human resources, and raw materials effectively and efficiently to achieve the objectives (Bianchi et al. 2019). Enterprises want to achieve high profitability because of the management process. At this point, the concept of strategic management emerges. Strategic management is defined as an effective and efficient use of existing resources to provide sustainable competitive

Y. Gökalp (*) Faculty of Health Science, İstanbul Medipol University, İstanbul, Turkey e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 H. Dinçer, S. Yüksel (eds.), Financial Strategies in Competitive Markets, Contributions to Finance and Accounting, https://doi.org/10.1007/978-3-030-68612-3_15

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advantage to businesses, to achieve above-average profitability and to sustain their long-term lives (Barbosa et al. 2020). With rapidly changing technology, healthcare services are becoming more and more expensive. At the same time, the share of resources spent on treatment services in total health expenditures is increasing. This situation reveals the necessity of efficient use of resources in our country as well as in the global dimension. One way to ensure efficiency is to implement effective strategies (Akbolat and Işik 2012). However, the peculiarities of healthcare markets create these strategies differently than most of other markets. Therefore, when determining their strategies, health institutions must take the characteristics of health services into account (Dinçer and Yüksel 2019). Because being successful in the market environment is the basis of determining the strategy. Determining appropriate strategies for a business requires to examine the sector in which the business operates and the competitive situation. Different needs must be met to be successful in every sector (Morrisey 2001). In this case, it is necessary to answer the questions of how to develop a strategy, how a company will compete, what its goals are and what policies are required to achieve these goals (Porter 2000; Shi et al. 2019). Therefore, before developing a strategy, an enterprise should examine the market and determine its strategy accordingly. The aim of developing a strategy is to find a place in the sector where the company can best defend itself against competitors. In other words, while developing a service strategy, the position should be created based on the competitive environment, internal and external environment, as well as the organization’s capabilities (Duncan 1997; Zhang et al. 2020).

2 Management Strategies After analyzing the internal and external environmental elements of the enterprise, possible threats and opportunities and the advantages and weaknesses of the enterprise are determined (Dinçer et al. 2019; Yüksel et al. 2019). In the next period, businesses should determine strategies against their opportunities and threats, taking their strengths and weaknesses into account (Amoli and Aghashahi 2016). Enterprises with different and multiple objectives must develop various and different strategies to achieve their goals. Strategies applied in businesses are classified according to the level of management applied. While top management strategies include long-term strategies related to the future life of the business, the strategies applied for the middle management level generally refer to competitive strategies. Sub-management level strategies generally refer to functional strategies (Zhong et al. 2020). Effective strategies to be implemented allow the business to achieve competitive advantage (Pröllochs and Feuerriegel 2020).

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Basic Strategies in Healthcare Institutions

The main strategies are the strategies that businesses should and should not do in the future to survive. Basic strategies generally seek answers to the following questions (Ülgen and Mirze 2018). • • • •

What businesses do businesses do? How do businesses do these jobs? Should these works continue as they are done? Should existing jobs be enlarged / reduced?

These questions are related to expanding or narrowing the definition of the business in which the business operates. While defining the work done; the goods or services produced, the market in which it operates, and the production technique used in the production process should be specified. In other words, businesses grow, shrink, or continue their business as they make changes to the market or production processes in which they operate for manufactured goods or services (Hitt et al. 2009). This situation is not much different when it comes to pharmacy, hospital, drug manufacturers and other health institutions. The basic strategies to be applied are similar in the process of defining the market in which it operates and determining the technique of the work. In addition, the strategies to be implemented in health services due to the supply of demand are also important. The basic strategies applied in businesses can be analyzed in four groups as growth, contraction, stationary and mixed strategies.

2.1.1

Growth Strategies in Health Institutions

The main purpose of the enterprises is to achieve high profitability as well as sustainability. In order to ensure sustainability, businesses must adapt to changing conditions and have the ability to change and grow (Banerjee et al. 2020; Yüksel 2017; Qi et al. 2020). Businesses can develop growth strategies by producing new goods and services and operating in new markets to earn more profit (Jain et al. 2019). A health institution can develop growth strategy by diversifying the branches through which health services are carried out. In line with the demand to be created, it can open a cardiology clinic that it has not served before and develop a growth strategy. Or, while providing health services in only one city, it is called growth strategy that it provides services in different cities upon request. Increasing the capacity of the health institution to meet the demand is also a growth strategy. For example, it is the growth strategy for the institution to increase the number of patients convicted to live on dialysis and to increase the capacity of the unit to meet this demand.

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Downsizing Strategies in Health Institutions

As businesses lose their competitive advantage, they may have to narrow or terminate some existing jobs temporarily or permanently. In such cases, businesses apply shrinking or retrenchment strategies. Downsizing strategies generally must be implemented because of inadequate market sales, better investment options or inability to adapt to developing technology (Byars 1991). Businesses may develop shrinkage strategies by temporarily or permanently terminating some or all of their services in the area they operate, by temporarily or permanently withdrawing some or all of the markets in which they operate, by reducing their activities in the markets they serve, or by decreasing their service capacity (Ülgen and Mirze 2018). Health institutions may resort to shrinkage due to loss of competitiveness, high costs, the need to provide high quality services and efficiency. Examples of shrinkage strategies in healthcare institutions are the closure of the eye clinic due to a health institution’s inability to provide quality service, staffing due to the inability to meet high costs, and closure of the cardiology clinic due to the loss of its competitive advantage due to a new institution entering the market.

2.1.3

Stable Strategies in Health Institutions

Businesses will not consider growing in situations where there are no new opportunities in the market, an equilibrium between competitors and a low level of competitiveness. Trying to grow in such an environment will not yield above average. If businesses are also satisfied with their location, they will follow a stable strategy to maintain their status (Zhu et al. 2020). Health institutions will not change the size of the health service or make very small changes when there are no new opportunities and in a balanced competitive environment.

2.1.4

Mixed Strategies in Health Institutions

In some cases, businesses must apply basic strategies simultaneously or in a row. Implementation of several basic strategies together or in succession is called mixed strategies (Ülgen and Mirze 2018). As a result of opening an obstetrics clinic in the immediate surroundings of an active healthcare company, it closes the obstetrics clinic and applies a shrinking strategy. By transferring the materials, equipment, and personnel resources in the maternity clinic to the general surgery clinic, it also follows a growth strategy. Since both strategies are used together, it means that the health institution has followed a mixed strategy.

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Corporate Strategies in Healthcare Institutions

Corporate strategies are the answers for businesses to the questions of “Which business areas should the business have in the future?” and “What work should it do in these areas?” Therefore, corporate strategies will be the choice of whether businesses continue, grow, or shrink, or enter new business areas (Beard and Dess 1981). Corporate strategies should create value for the business. As a result of the strategy applied, the total value of the institution should increase. Institutional strategies are analyzed in two parts: diversification, which means spreading to other lines of business, and retrenchment strategies that mean giving up or discontinuing some or all the businesses in operation (Ansoff 1987).

2.2.1

Diversification Strategies in Healthcare Institutions

Diversification strategies are a growth strategy implemented by businesses that aim to earn above average income by entering new business. Making decisions about new, similar, or different works in addition to the businesses that the company is operating shows that it has implemented a diversification strategy. Enterprises apply diversification strategies to provide competitive advantage and sustainability. Diversification strategies “What services will the business offer?” It concerns the question (Rothaermel 2013). Diversification strategies are often preferred. Because they offer a growth potential outside the main area in which the business operates. Health institutions can evaluate their growth opportunities by applying diversification strategies such as providing outpatient services in less competitive or less regulated markets (Ginter et al. 2018). In order to implement diversification strategies efficiently in health institutions, it is necessary to follow up the patient’s needs and expectations, to adapt to technological developments, to be open to continuous learning of business employees and to consider innovative opinions and suggestions. The addition of special service areas such as Blood Center, IVF Center, Organ Transplantation Center and Burn Unit in health institutions is a diversification strategy. In addition to the major branches of medicine such as Internal Medicine and Pediatrics, providing services in minor branches such as Gastroenterology and Pediatric Nephrology can also be considered as a diversification strategy for healthcare companies. It is a diversification strategy to open a geriatric center in an area where the elderly population has a high population outside the region where healthcare companies provide services.

2.2.2

Retrenchment Strategies in Healthcare Institutions

Retrenchment strategies are the strategies that businesses apply because of abandoning one or more of the services they operate. It can also be a result of diversification activities that the company applies as related or unrelated, leaving one

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or more of the lines of business entered. Retrenchment strategies may have to be implemented due to unsuccessful management, erroneous financial decisions, highly competitive environment, inability to adapt to technology, earning below average income. It is wrong to always describe retrenchment strategies as failure. Because businesses can develop retrenchment strategies by creating resources from other lines of business to operate in a business line that they consider more profitable. An example of retrenchment strategies for healthcare companies is to close the maternity outpatient clinic due to their competitive advantage, to terminate Child Hematology service from the minor branches of medical branches due to inability to provide efficiency, to terminate the Organ Transplantation Center activities.

2.3

Competition Strategies in Healthcare Institutions

The strategic step that follows the environmental analysis in the strategic management process is the choice of strategy. During the strategy selection process, businesses decide on corporate and competitive strategies. Competition strategies are strategies related to how the business is positioned in the market (Allen and Helms 2006). Enterprises producing similar goods or services in the sector compete. Porter proposes two options in order for the transactions producing similar goods or services in the sector to achieve a competitive advantage (Ülgen and Mirze 2018): • The enterprise should produce the goods and services it produces at a lower cost than its competitors and offer it to the customer at the price created in the market. In this way, it will make more profit than its competitors and will yield above average. This method is called cost leadership strategy, which is one of the competitive strategies. • The enterprise should offer a market at a higher price that consumers will accept to pay, by differentiating the goods and services it produces from other goods and services in the market. In this way, it will achieve higher profitability than its competitors and have above average returns. This method is called differentiation strategy from competition strategies. Competition strategies need to be handled in a different structure in this field due to some of the unique features of the health sector. While health services are provided entirely by the public in some countries, in some countries they are managed according to the rules of the semi-public, semi-private sector, and in others, according to the rules of the free market economy. For this reason, the legal framework of the country in which all the strategies, especially the competition strategies, to be implemented in the health sector operate.

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Cost Leadership Strategy in Healthcare Institutions

Cost leadership strategy is a strategy based on producing a good or service at a lower cost than competitors to gain advantage over competitors in the market (Ginter et al. 2018). By applying a cost leadership strategy, the enterprise aims to open the gap between the price and costs in the market in a positive way. Thus, businesses will earn more than average compared to their competitors. However, the issue that managers should pay attention to is cost leadership strategy; It is the requirement to provide quality service to meet customer demands. In other words, companies should not compromise on quality while producing with cost leadership strategy. Otherwise, low cost may cause the production of low-quality goods or services. This may lead to loss of customers (Rothaermel 2013). The cost leadership strategy provides advantages in terms of 5 strengths that determine competition in the market. These advantages (Porter and Linde 1995): • The entry of potential competitors into the market depends on the attractiveness of the market. However, if there is a business that implements a cost leadership strategy in the market, the market is not attractive for new businesses. The new business can only get an average return. • Being the cost leader in the market, the enterprise will be able to easily meet the price decreases demanded by strong buyers. • It will prevent alternative substitution products from being seen as an alternative thanks to low cost production. • Competitors will earn less than the cost-leading business. This can push competitors into different areas or markets. • The business leader, which is the cost leader, will be able to meet the price increases by accepting low profit shares. Cost leadership strategy in healthcare institutions does not mean lowering service prices. The production of the related service produced by the health institutions at a lower cost than the competitors is described as the cost leadership. Recently, the cost leadership strategy has also attracted attention in the health sector. However, the cost leadership strategy in the health sector can create a low-quality perception for consumers. Therefore, the cost leadership strategy for the health sector should be implemented very carefully. One of the successful cost leadership strategies implemented in the health sector is long-term care services. Long-term care services, such as home care services and aged care centers, are low-margin services. However, healthcare enterprises that can keep costs low can earn high income (Ginter et al. 2018).

2.3.2

Differentiation Strategy in Healthcare Institutions

It can be said that standard goods and services cannot fully meet customer needs and expectations. Enterprises apply differentiation strategies to provide competitive

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advantage in these situations. Differentiating from the goods and services produced by other enterprises in the sector, directing the consumer preference to its own goods or services forms the basis of differentiation strategies (Shao 2019). When it comes to differentiation strategy, the first thing that comes to mind is the differentiation in the goods and services of the business. Differentiation in goods and services is mostly related to marketing strategies, which are functional functions. However, the differentiation strategy is a competitive strategy aimed at providing above-average earnings by differentiating all the activities that create value for the business (Ülgen and Mirze 2018). As in the cost leadership strategy, the differentiation strategy also benefits in terms of 5 forces that determine competition. These benefits are (Porter and Linde 1995): • If an enterprise has successfully implemented a differentiation strategy, competition will decrease. Competitors will not be able to attract customers unless they can achieve the same difference. • a result of effective differentiation strategy, loyalty of consumers to goods or services will increase. Thus, their sensitivity to the price will decrease and make it easier for the business to earn above average income. • If the differentiation strategy is successful, it will prevent substitution products from being viewed as an alternative. • Brand loyalty to be created against the products differentiated by the enterprise will have the feature to prevent possible entries to the sector. • If the enterprise implementing a differentiation strategy has succeeded, its suppliers will not be afraid of the price increase it will make. Differentiation strategies in healthcare institutions are offered to the health services market at higher prices and earn incomes above the average. One of the basic elements that will differentiate between healthcare enterprises is high technology. Having the state-of-the-art devices in the health institution will both increase the perception of quality and convince consumers to pay higher fees. Apart from this, instead of endoscopy application, which is seen as a stressful method, diagnostic procedures will be provided by taking capsules taken orally, and the consumers will be paid a higher fee. With the advancing technology, instead of kidney stone surgery, which was previously carried out by normal ways, breaking the kidney stone with laser method will both give the consumer a less painful feeling and a higher fee will be opened to the consumer.

2.4

Functional Strategies in Healthcare Institutions

Functional strategies are prepared and implemented by middle and sub-management in accordance with basic, institutional, and competitive strategies. These strategies are strategies that require technical knowledge and expertise. For this reason, it is important to involve the relevant unit manager who has technical knowledge in the

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process of strategy formation. Functional strategies are examined in five main groups: marketing, procurement and logistics, human resources, R&D and financial strategies (Ülgen and Mirze 2018).

2.4.1

Marketing Strategies in Healthcare Institutions

Marketing activities are among the main activities that provide returns to businesses. Marketing is expressed of the activities carried out to meet customer requests and needs through the exchange of goods and services (Assael 1993). The activities performed for the results that businesses want to achieve with their marketing activities show their marketing strategies (Al-Dawalibi et al. 2020). It may not be effective to apply the marketing strategies of competitors for a similar product. Therefore, there must be a unique marketing strategy for each product and service. The marketing function is the function most associated with the external environment of the business. Therefore, one should not think of marketing strategies independently of culture, tradition, sociocultural structure, economic structure and political situations (Yaşlıoğlu 2018). There are some features that distinguish health services from other services. Marketing and advertising activities are restricted due to the demand created by these features. However, the understanding of marketing in health services has increased due to increased costs, the increase of private health services in terms of quantity and quality, and the needs and awareness level of those who consume health care services. Since the service provided is human health, attention should be paid to marketing strategies. Health services are high-tech and costly services. The use of high technology devices in the enterprise will increase the accuracy of the analysis and analysis results. This situation is a reason for preference for service consumers. In addition, health services are complex services that require high expertise. Having health personnel specialized in their field and promoting it can be considered as a marketing strategy for health companies. It is one of the marketing strategies for healthcare companies to follow up the waiting times of the patients in the enterprise, to serve the patients while waiting or to offer magazines according to their interests.

2.4.2

Logistics and Supply Strategies in Healthcare Institutions

The supply and logistics function in the enterprises refers to the entire process from providing input to output distribution. The inputs required for production are very diverse. The inputs are included in the production activity to a certain extent and delivered to the consumer after the goods or services are produced (Ülgen and Mirze 2018). Supply system in health institutions; It directly affects the speed and quality of the services as it covers the material supply, maintenance processes and stock management used in health institutions. In health institutions, supply chain is defined as the system that ensures the flow of products and services to healthcare providers under desired conditions (Schneller and Smeltzer 2006). Health institutions operate

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both as customers and suppliers in the supply chain network. These institutions act as suppliers for the producers as well as suppliers, through the flow of information in the supply chain network (Dobrzykowski and Vonderembse 2009). The supply chain in the health industry has a structure where a wide range of materials are sourced from different suppliers. The product range used in health institutions can range from bandages and scalpels to high-tech devices.

2.4.3

Human Resource Strategies in Healthcare Institutions

Human resources management covers the processes of procuring labor, placing them in units, training and enabling employees to improve themselves (Cuskelly et al. 2020). Human resources are important for achieving the goals and strategies set by the business. The realization of the determined goals depends on hiring the right people, at the right time, in the right place, in the right number of planning (Macke and Genari 2019). Health services are services that require excessive specialization, high level of complexity, and high level of connection with each other. While this is the case, it is also important to ensure integration between units. An important part of ensuring this integration is efficient human resource management and strategies. In addition, the fact that health services require excessive specialization reveals the necessity to plan human resources strategies in accordance with merit. In-house trainings should be planned in health companies that stand out with their developing technology and dynamic structure, and employees should be enabled to benefit from these trainings.

2.4.4

Financial Strategies in Healthcare Institutions

Financial planning includes the analysis of the investment preferences of the business, the prediction of the future results of strategic investment decisions, the selection of options, and the comparison of the achieved results with the targets set at the beginning and performance measurement processes (Brealey et al. 2007). In addition, an effective financial management reveals the profitability levels of the investments to be made with the net present value method. Therefore, it should be used in growth decisions to be taken in healthcare establishments as in all establishments. With the methods to be used, the answer to the questions can be reached whether it is more reasonable to enlarge the hospital chain or to buy a pharmaceutical company.

2.4.5

R&D Strategies in Healthcare Institutions

Technology development means the development of processes, techniques and methods covering all business activities (Chatmi and Elasri 2017). The main condition for providing competitive advantage by providing product differentiation or cost

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leadership is based on research and development strategies. Enterprises apply two basic strategies, aggressive R&D strategies and defensive R&D strategies. Aggressive R&D strategies are often high-investment strategies implemented by market leaders or businesses that implement differentiation or cost leadership. Defensive R&D strategies are generally followed by the market leader (Ertuğrul 2020; Yaşlıoğlu 2018). R&D activities are also important because healthcare enterprises require high technology. In addition, due to the inability of the health services to be compensated, the devices used must be state-of-the-art and the most accurate. Apart from these, market leadership and differentiation can be achieved with mobile applications that can be developed. For example, Corona virus pandemic process which was developed in the Republic of Turkey Ministry of Health’s “Life Frequently Eve,” a lot of information about the process can be accessed through the mobile application. However, previous examination of the patient information through e-pulse applications in which the Republic of Turkey was developed by the Ministry of Health, resource efficiency by accessing information such as test results can be achieved. Other health practices such as pedometer, heart rate monitor and sleep tracking also draw attention as R&D investments in the health sector.

2.5

Internationalization Strategies in Healthcare Institutions

It means moving economic activities such as globalization, trade, investment and capital movements, the circulation of labor and entrepreneurs and the transfer of all relations to international dimension through technology transfer (Bhagwati 2004). A manufacturer in China with globalization, a designer in Switzerland, an engineer, or any part of the business units of an investor in Turkey in Germany has become the world likely to be competitors. Businesses that want to go global should first choose the country they will invest in. During the country selection, factors of sustainable competitive advantage and above-average earnings should be taken into consideration. Enterprises can use PEST analysis, which is evaluated by scoring political, economic, sociocultural and technological environmental factors in country selection. With PEST analysis, the country to be invested is evaluated in terms of opportunities and risks. According to the calculated points, the country with the highest opportunities and the lowest risks can be preferred to invest. Apart from PEST analysis, CAGE analysis, which evaluates the country to be invested according to cultural, administrative, geographical, and economic distance parameters, is another analysis method that can be used (Ren et al. 2019). There are a few options for healthcare businesses that want to implement globalization strategies. According to the human resources strategies mentioned in the functional strategies, having internationally recognized physicians in their fields will also appeal to international patients. Or, a healthcare business that wants to implement the growth strategy mentioned in the basic strategies can reach the goal of globalization by purchasing a healthcare business in a country it deems appropriate

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as a result of the analyzes we will make. Health companies that have high technological devices in their businesses will also be an attractive opportunity for international patients. The biggest globalization option for healthcare enterprises is health tourism. Today, the volume of health tourism exceeds billion dollars. When we look at the reasons why businesses and countries are preferred in health tourism; It can be said that the patients who come in will receive higher quality health care at a more affordable price than their own countries. Apart from that, enterprises have high technological equipment, employ qualified personnel, and short waiting times, which are a big problem for health services, are preferred by patients for health tourism. Health companies that aim to globalize should consider these situations in their strategies.

3 Strategic Management Practices in Health Institutions in Turkey; Code White According to the definition of the World Health Organization, violence is defined as the use of physical coercion, use of force or threats that may cause death, injury, psychological harm or developmental disorder (WHO 2002). Although violence is mostly perceived as physical, it can be done psychologically, verbally or through abuse. Violence in health institutions, on the other hand, is defined as all kinds of threats, abuse, physical and sexual assault inflicted by the patient, patient relatives or other individuals (Yeşilbaş 2016). According to studies on violence in health, violence occurring in the field of health is much more than in other work environments. However, there are deficiencies or obstacles in reporting violence in the field of health. Therefore, its actual frequency is not known clearly (Annagür 2010). The frequency of violence also affects the service provided negatively. The dimension of violence is increasing especially in emergency services. Certain measures should be taken to avoid any disruption in health service delivery. The reasons for occurrence of violence in health institutions are as follows (Doğanay 2014). • • • • • • • • • •

Long working hours of the employees, Insufficient number of working personnel, Hardware deficiencies experienced in health institutions, Security measures are insufficient, Communication problems with patients and their relatives, High number of patients, Sociocultural structure that sees violence as a right, Inadequacy of triage applications, Patients’ desire to be a priority treatment, Shortening of examination time due to density.

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Republic of Turkey, Ministry of Health and affiliated organizations, the White Code app to violence that might occur has put in place. 113 White Code Call Center and www.beyazkod.saglik.gov.tr web site has been established in order to monitor the steps to be followed in case healthcare workers are exposed to violence. In addition, technical infrastructure related to white code system has been established in hospitals. The code white system not only provides security support to healthcare professionals but also supports legal steps to be followed after violence. Both public and private sector employees are obliged to report the violence occurring during health service delivery to the White Code system. This notification can be made by logging into www.beyazkod.saglik.gov.tr or by calling the 113 White Code call center. In order to protect the rights of healthcare professionals in case of possible violence, there is a White Code team in every healthcare institution. This team consists of the director of the health institution, an employee from the employee rights and safety unit, and security guards. In the event of a possible situation that requires a White Code, the healthcare worker must report an emergency by dialing the code 1111 from the nearest domestic phone. Dialing the 1111 code is sufficient for the security guards to come to the scene. The person who caused the White Code is removed from the scene by the security forces. Outsourcing services and internet cannot benefit from these rights. In addition, personal issues such as violence, harassment, humiliation and mobbing among healthcare professionals are excluded from the white code. When a White Code notification is made, the legal process starts automatically. Therefore, before the notification is made, it should be considered whether there is a real need and unnecessary applications will cause a waste of time (Coşkun and Karahan 2019). It aims to prevent violence against healthcare professionals with the strategic White Code implementation put into effect. In cases where violence cannot be prevented, it wants to eliminate the victimization of the healthcare personnel by providing the necessary legal support to the healthcare worker. With this practice, it is aimed to be a deterrent for people who tend to commit violence to healthcare professionals.

4 Conclusion The main target of the enterprises is to exist in the market, to sustain their existing assets, to increase their earnings over time and to provide competitive advantage against their competitors. Business life, which is extremely dynamic in today’s world, is changing rapidly with economic, political, social, and technological developments. One of the most important tools in dealing with developing and changing conditions is strategic management. Strategic management is the process of formulating, implementing, and evaluating the activities that will achieve the organization to its goal.

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Health is one of the most important indicators of the development levels of countries. Today, the provision of health services is also affected by global developments and changes. It is possible with a good management that health institutions continue their services in a quality way. Strategic management has a very important place in healthcare institutions with a complex structure where many professional groups work together. Strategies should be implemented very carefully in health institutions. Because, unlike other services, health services have some features such as supply creating the demand, high information asymmetry, requiring excessive specialization at all.

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The Positive Influences of Financial Omni-Channel Marketing Approach on Customer Satisfaction Barış Batuhan Geçit and Özgür Kıyak

Abstract Marketing approaches has seen dramatic changes throughout the last decade. With the change of marketing perceptions, consumer satisfaction has become one of the focal points of marketing and satisfaction can be considered as the finish line for marketers, to be obtained on consumers. Satisfaction is indispensable for most sectors and even for competitive sectors. Such sector should attract consumers at every potential channel. Omni-channel methods have started to be perceived as more beneficial as consumers may tend to use both online and brick and mortar stores, additionally they may tend to use these channels corporately. Electronic devices are among the channels of omni-channel and the increase of mobile penetration is one of the key factors to hoist omni-channel usage. As brands aim to gain consumer satisfaction intensively, utilizing both classic channels and online channels and using them corporately would create a great competitive advantage to brands for creating satisfaction. With the rapid increase of electronic devices, internet usage, smart phones and thus with a positive correlation omni-channel usage started to gain popularity and became a topic that must be researched by marketers. This paper studies omni-channel concept and its potential positive effect on consumer satisfaction with the perspective of consumer-oriented marketing mix (4C).

1 Introduction Trade dynamics were widely different before a century ago. Until the end of the Second World War, there was no problem in the sales of manufactured goods due to the inability of switching to mass production due to the existence of the war and the demand was not more than production (Durmaz 2006). With the end of the war and the production capacities of the enterprises increased, a market structure has

B. B. Geçit · Ö. Kıyak (*) The School of Economics and Administrative Sciences, Beykent University, İstanbul, Turkey e-mail: [email protected]; [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 H. Dinçer, S. Yüksel (eds.), Financial Strategies in Competitive Markets, Contributions to Finance and Accounting, https://doi.org/10.1007/978-3-030-68612-3_16

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emerged in which every manufactured good can be sold. Thus, throughout the twentieth century dynamics of the world has changed dramatically. Trade barriers have vanished, and international trade has taken over. Likewise, inventions and technology have speeded up intensively during this decade. As trade dynamics, inventions and technology took the spotlight during twentieth century, approaches towards marketing have also changed. Marketing approaches have faced lots of changes throughout the twentieth century. During the 1950’s, marketing approaches have started from the production-based perception, in which main purpose was to produce as much as products since supply was not fulfilling the demand (Yükselen 2017). Businesses main purpose was to produce as much as possible as they had believed consumers need the products they produce and can sell the products as much as they want as the supply and number of competitors were not at high level to be considered as a sufficient competitive level. Second era of marketing was the product-oriented perception (Yükselen 2017). Main philosophy of that era was to produce the best product possible. So, there has been a switch from ‘quantity’ to ‘quality’ in terms of marketing approaches during these two eras. Businesses were believing as long as they produce the best product they can. Marketing approaches have changed a lot throughout the twentieth century. During this period main goal was to produce products as much as possible as they were in a perspective that consumers need their products. Third era of marketing was the sales-based perception. This period was the period of intensive sales and promotion efforts. Main purpose was to sell the product in any case. But this perception was not sufficient for the increasing competition at the marketplace. In the modern marketing approach, which is the understanding adopted today, the needs and desires of the consumers are determined and then the production is launched (Taşkın 2010). As years pass, number of entrepreneurs who would like to penetrate to market has increased thus the intensity of competition have increased. This resulted in having so many brand and product options for customers and increased the necessity of differentiation for businesses to obtain their desired market share and brand image. As a result of an increasing number of businesses, brands, competitors, competition, and production; above mentioned eras have vanished and modern marketing perception has emerged (Yükselen 2017). Marketing has shifted towards a customeroriented perspective (Webster Jr 2005). Assuming that the most important goal of an organization is to serve the customer and customer satisfaction, the focus of all activities is the customer (Altındağ 2011). It came to a point that; customers should be considered as peers and friends by brands (Kotler et al. 2017). This era transformed the dynamics of consumers and businesses. In previous two eras, business’ and sales were the important factor but with modern marketing perception, consumers have found themselves at the top spot. Marketing applications have started to aim satisfy consumers. This has gained importance with the increasing digitalization of marketing applications. One of them is omni-channel marketing. Omni-channel increased customers’ experience within the market. In this context, studies on omni-channel marketing have gained importance for reaching the

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initial purpose of satisfaction. This study examines the satisfaction of the customer thanks to omni-channel marketing applications in various sectors: which includes both mobile channels, electronic channels, alongside with brick and mortar stores and their cooperation.

2 The Theoretical Background 2.1

Omni-Channel Marketing

Differentiation is one of the key elements of marketing (Perks 2000) and differentiation potentially apply to all sub-fields of marketing. Among these sub-fields, one of them is distribution concept of classic marketing mix of four P. Still classic distribution methods may tend to be used, but new offerings and adopting to the advances of temporary world has become an acute notion. Some brands prefer to serve at classic, brick, and mortar channels while some prefer serving at online places. However, consumer may tend to use and utilize both channels. In contemporary approach, some businesses prefer utilizing both classic methods and technologic methods. This term is called ‘omni-channel’ in marketing literature, which means using both online and offline channels in application and the cooperation of these channels. . The word omni means “all, or in all ways”. From this point of view omni-channel applies to the modern shopper, who needs to be able to buy a product in every manner possible (Van de Zande et al. 2016). Researchers suggest that companies are moving from a multi-channel to an omnichannel management which seems to be the next generation of channel management (Hummel et al. 2017). Multi-channel customer management is the design, deployment, coordination, and evaluation of channels to enhance customer value through effective customer acquisition, retention, and development (Neslin et al. 2006). The main difference between the multi-channel and omni-channel approaches lies in the customer’s involvement and the retailer’s control (Beck and Rygl 2015). Throughout a period of fewer than five years, one marketing technique has grown from an obscure idea to a trendy buzzword, becoming a key component for marketing success. One of the fastest-growing concepts for retailers and customers alike is omni-channel marketing (Louie 2015). One of the most notable retail transformations of recent years, Omni-channel has had an influence on several sectors, such as marketing, retail, connectivity, or information systems. Omni-channel marketing refers to the brand approach that incorporates all available outlets to create a consistent buying experience that improves satisfaction and dedication during the consumer journey (Mosquera et al. 2017). Omni-channel marketing is a customer-centric approach that offers a holistic shopping experience where the customer’s buying journey is smooth and seamless (Gupta et al. 2004; Shah et al. 2006). In this context, the customer experience will increase with the brand that offers the product and service continuously. (Piotrowicz and Cuthbertson 2014). In addition, customers who can use the channels without any

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problems are also more likely to be satisfied. This marketing approach allows to see the data in all channels together and establish cross links between different channels. Thus, companies that know the customer profile better can form a more affordable and effective marketing strategy (Ersin 2020; Eti and Temizel 2020). The evolution of communication tools and the directional changes in consumer behavior led to the emergence of many marketing approaches. Although the omni-channel marketing approach provides an advantage for consumers, companies face some obstacles in implementing the omni-channel marketing strategy. These are addressed in two categories as strategic and operational obstacles. Strategic obstacles: it is about the company’s vision and employees. Operational obstacles: it is about technological tools and structures. These types of tools are synchronized with each other and offer various opportunities for businesses. To take advantage of such potentials, brands should know how to inset consumer information from all channels and be able to analyze them (Dinçer and Mengir 2020; Hajdas et al. 2020).

2.2

Customer Satisfaction

Marketing perceptions have been shifted towards customer oriented in recent years, as mention above. Customers have been placed to the king role at marketing discipline. Thus, marketing discipline aims to attract customers by promising superior value to keep and grow customers by delivering value and satisfaction (Kotler and Armstrong 2017). The main factors of modern marketing understanding are considered as concepts such as consumer satisfaction, satisfaction and loyalty, and it is the main target of activities at the stage where consumer marketing science has reached today (Gül 2001) and customer satisfaction is a key issue for every company wishing to increase customer loyalty and thereby create a better business performance (Dinçer et al. 2019a, b, c; Gronholdt et al. 2000). Customer satisfaction is broadly used in assessing performances of business’ in both internal and external manner. Externally customer satisfaction gives to massive amount of interest groups and these groups can use customer satisfaction to evaluate business’ quality and vulnerability (Anderson 1994). Customer satisfaction is established when the brand fulfills the needs and desires of customers (Hanif et al. 2010). Lenovo’s global success is rooted in its successful understanding of consumers and their ability to build profitable relations with consumers. Thus, their business model is built on satisfaction, innovation, and operational efficiency (Kotler and Armstrong 2017). Satisfaction of customers have started to be perceived as an important factor for business’ with modern marketing approaches. While defining marketing; Kotler and Armstrong (2017) stated just after their marketing definition that; ‘The two- fold goal of marketing is to attract new customers by promising superior value and to keep and grow current customers by delivering value and satisfaction’. This either emphasizes the importance of customer satisfaction and existing customers. Satisfied customers will be able to ensure the continuity of the business in a competitive environment

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where it is difficult to find new customers, as well as spreading the brand to their surroundings with word of mouth marketing, initially the stability and high level of consumer satisfaction (Geçit 2020). As satisfaction is one of the main aims of brands (Jaksic and Jaksic 2013), utilizing every possible channel is vital. One of these main providers of satisfaction is digital and electronic channels, as mentioned throughout this study. As marketing approaches had changed rapidly, dynamics of marketing applications have been changing with at same rate. Technology has grown dramatically during both 20th and twenty-first century. Growth of technology has also evolved marketing applications in the same manner. Kotler et al. (2017); pointed out the facts mentioned above in their ‘Marketing 4.0’ book in which they introduce the new dynamics and trends of contemporary marketing. Some of the main discussion points are human-centric marketing approach, new customer paths and digitalization of current marketing applications. Yükselen (2019) have also underlined the importance of emerging digitalization and technology in marketing applications. In same manner, World Trade Report (2018) claims that future of World trade is all about digitalization and digital World trade will become more powerful in future. With the unexpected pandemic of Covid-19 virus, digitalization and electronic trends have grown even more. Covid-19 has increased the rising electronic commerce and digitalization (Yükselen 2020). E-Commerce has increased by %20 during the 2020 Covid-19 pandemic (Davis and Toney 2020). The same situation exists for banking sector. During the pandemic, banks were all closed due to pandemic restrictions and most banking applications have been implemented via mobile banking. People needed to send or draw some amount of money, took a loan out and as banks were closed people were forced to use mobile banking channels. This section mainly mentioned the term satisfaction and pre-introduction of digitalization and satisfaction relation, next section will mention digitalization and satisfaction terms in more detail.

2.3

Digitalization and Satisfaction

As world and societies become more and more digitalized and electronic dependent, some main important features of marketing applications started to be applied via technological tools or initial results that marketing professionals aim to obtain for their products or brands are obtained via electronic platforms. Additionally customers seek for new ways to search information, make purchase, connect with firms and to achieve this, he/she often tends to use simultaneously multiple channels and touch points (e.g. physical stores, website, mobile, social media, etc.) to complete even a single transaction (Hamouda 2019). While applying all these digital and electronic services, as the literature of marketing discipline mentions, customer satisfaction is considered as the key initial customer behavior that a brand will aim to obtain.

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E-commerce, which is the application of trade activities with using World Wide Web, mobile applications, and browsers (Laudon and Traver 2017), have started to increase its use rate every single year. From Web 1.0. to Web 2.0. and then Web 3.0. have enhanced the growth of electronic use rates and digitalization (Kingsnorth 2016). According to Statista (2018); in 2005 there was 1,24 Billion internet users. This number has grown to 3,15 Billion in 2015 and in just three years, internet user number have been 4,19 Billion in 2018. According to Brand Finance (2020) e-commerce website amazon.com is the most valuable brand of the World with $220,791 of brand value. According to Turkish Republic Ministry of Commerce (2020) data; before the Covid-19 pandemic e-commerce to general commerce ratio was around %8 rate. However, with the outburst of the virus and people had to stay at their homes more, e-commerce to general commerce rate has increased to %17,9; from 8,5 Billion Turkish Liras to 18,7 Billion Turkish Liras. Such a high increase can be reasoned with the virus, but this can also be credited with high percent of digitalization. Such a high rate of increase in digitalization and electronic penetration increases the utilization of digital channels for marketing applications. In same manner utilization of digital channels more intensively, has potential to increase electronic penetration. With such high digitalization, marketing discipline was required to adapt to the technological advances. Today most of the promotion tools are applied utilizing technological tools, instead of using classical tools such as newspapers, billboards. (Geçit and Taşkın 2018). As world digitalizes and marketing becomes more electronic and omni-channel oriented; utilizing these tools for consumer satisfaction can be crucial for brands to gain competitive advantage. As mentioned in previous topic, customer satisfaction is one of the key factors in modern marketing and customers’ behavior analysis (Nasserzadeh et al. 2008). The satisfaction behavior can be obtained by both classical marketing and trade methods or more electronic methods. Obtaining satisfaction via electronic tools are called ‘esatisfaction’ and obtaining satisfaction via mobile tools are called ‘m-satisfaction’. Even though emerge of technology has been so rapid and it effected marketing and trade applications so rapidly, classic methods are still utilized intensively. According to Price Waterhouse Company (2019), customers tend to shop from in-store channels at close to %50 which is almost equal to the sum of percent of personal computer and smartphone shopping. As both in-store or classic trade and purchasing methods co-exist with electronic commerce and customers still tend to prefer both of them, they will both have some rivalries for business’ who only operate at online or in-store channels but for business’ who utilize both channels, their co-existence can be beneficial. Usage of electronic devices and internet have seen an incredible increase during the twenty-first century. Every year number of internet users and mobile phone users increase with a high amount of percent. Number of worldwide internet user were 1 Billion and 24 Million during 2005 and it increased to above 4 Billion during 2018 (Statista 2018) and e-commerce increased at the same rate throughout recent years. Thus, satisfying internet users and online consumers has become one of the major research topics of marketing. With the increase in electronic devices and usage of

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electronic devices, popular marketing term satisfaction should be adopted to the electronic world and this brings literature to the electronic satisfaction term. E-satisfaction is defined as consumers’ judgment of their internet retail experience compared to their experience with other online or traditional retail stores (Anderson and Srinivasan 2003). E-satisfaction is the outcome of consumer perceptions of online convenience, merchandising, site design, and financial security (Szymanski and Hise 2000; Yüksel and Temizel 2020). As the usage of mobile devices has been increasing dramatically throughout the recent years, usage of banking applications on mobile phones has also increased. Satisfaction can be obtained with the great utilizing of electronic devices, which results as e-satisfaction. As mentioned above, usage of mobile devices has also increased, and usage of mobile applications in mobile devices has also increased in the same direction. Consumer satisfaction obtained with mobile devices is called m-satisfaction. Especially throughout the Covid-19 pandemic process, most transactions and consumer purchases have been made via mobile devices since classic, brick and mortar stores were unable to be used due to pandemic restrictions. For the normal process of life and after the pandemic process, brick and mortar stores will start to be used again by consumers. Consumers will tend to check clothes, mobile phones and all the products they demand from classic stores. Thus, this brings consumer behavior discipline to omni-channel utilization once again as cooperation of these two channels will be necessary. Undoubtedly, even technology and digitalization increases, classic stores will always exist, and omni-channel usage will exist as long as these two channels is actively preferred by consumers.

2.4

Customer Oriented Marketing Mix Model

Marketing approaches have undergone lots of change throughout the history of marketing, as mentioned in previous topics. Sales and production perceptions have shifted towards consumer-oriented approach. Consumers are the most complex and difficult element of the marketing system to understand (Yuksekbilgili 2016). To analyze the emotions, thoughts, and behaviors of consumers; despite its complexity and difficulty, it is a necessity for businesses because the ultimate target for businesses is consumers. As consumer have been locked onto the focal point of marketing, adopting some main concepts of marketing literature have been essential. One of these concepts is marketing mix. With the change of marketing concepts, the basic marketing mix has also gained different meanings and dimensions. In this context, the concept of 4P which entered the literature by McCarthy (1960), has been accepted for many years, but this concept has turned into 4C, as 4P was not perceived consumer oriented. The 4Cs marketing approach has been brought up by Robert F. Lauterborn in 1990. This 4C marketing approach addresses the marketing problem from the consumer perspective (Wang et al. 2005). Marketing mix concepts are not scientific theories, but simply a philosophical construct that describes the key decision-making managers

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who make their deals to meet the needs of customers. Both long-term plans and short-term operational initiatives can be developed using the instruments (Palmer 2004). In this model, the vendors should focus on selling the products customers want rather than the products they can manufacture; so they should cut down the cost of satisfactory rather than cutting down the price and they should obtain customer convenience for buying rather than expanding the distribution channel. They should improve their customer loyalty and satisfaction instead of promotion (Lauterborn 1990). This model focuses on the consumer rather than the manufacturer and offers a better opportunity for businesses that cater to the niche audience. In niche marketing, businesses need to conduct market research to find markets where they can earn money without competing (Dalgic and Leeuw 1994). Once such markets are found, 4Cs can be implemented. Components of consumer-oriented marketing mix (4C) is listed below: Customer Value: Customer value refers to the product in the 4p model. Customer value is one of the most basic marketing strategies of today. This model refers to an emotional process that occurs in the mind because of the comparison of the product/ service purchased by the customer with the monetary value. Customers buy the products and services of businesses that offer them the highest value (Cetinturk 2017). In this way, since companies will gain profit with customer value, business the company managers should evaluate the opportunities that will increase the customer value (Delen et al. 2020; Perreault et al. 2013). Customer Cost: Customer cost represents the price in the 4p marketing mix. In this context, this model refers a comprehensive approach of looking the total cost incurred by a customer for buying goods or services. Although price is the main component of cost, it is not total cost. While the price represents the price fixed by the seller, the customer cost includes all other costs in addition to the price (Paul and Bihani 2014). Therefore, enterprises contribute to both the advantage of the consumers and the growth of their own businesses by making all-cost planning. Customer Convenience: Customer convenience similar to place in 4P marketing model mix. Providing and delivering the product or service to the market with enabling the customer to purchase in the easiest way is one of the basic rules of existence in the market. Delivering the right product to the right customer at the right time expresses the customer convenience best (Alabay 2010). With this approach, it can be solved without going to a physical location to meet the needs of customers. To do this, distribution network and communication system tools must be used. Customer Communication: Customer communication refers to promotion, which is the fourth P of the marketing mix. Traditionally, the purpose of promotion was merely sending the message to the consumers and making them buy whereas, customer communication focuses on building stronger relationship with the customer (Paul 2014). Thanks to a strong communication, a more meaningful relationship will be created by focusing on the product needed by the buyer’s lifestyle. Thus, loyalty will increase between the business and the customer. Although 4C is very important for marketing, strategic decisions have to be made with increasing competition and interaction in online marketing. For this reason, the

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4S electronic marketing system is referred to as the Web-Marketing Mix (WMM) was developed by Constantinides. In the model, the marketing planning process is integrated into three different stages. On the strategic stage, basic strategic issues are identified to create a successful e-commerce site with high added value. On the operational stage, the method is determined to create a reliable and consistent online marketing plan. On organizational stage, the organizational, information and infrastructure necessary for a smooth online operation are created. These issues describe the consecutive steps of an internet industrial coming up with methodology and are classified in four groups (Constantinides 2002). Each group is labeled by a word beginning with the letter “S” namely the Scope (strategic issues), Site (operational issues), Synergy (integration into the physical processes) and System (technical issues). The content of scope element is of primarily strategy and objectives; the content of site element is of web experience; the content of synergy element is of integration; the content of system element is of technology, technical requirements and web site administration (Wang et al. 2009). As mentioned above at the beginning of this topic, marketing mix concepts are not scientific theories (Palmer 2004) or findings that have to be accepted as the law of the discipline; they have universal consent for the marketing literature. For such a widely recognized term, adoption from a classic point of view to consumer-oriented point of view has been successfully applied with the perspective of 4C marketing.

3 The Role of Omni-Channel on Customer Satisfaction Omni-channel is an emerging trend in retail which aims to coordinate processes and technologies across supply and sales channels (Saghiri et al. 2017). It is a single channel with multiple touch points, delivering a completely seamless and consistent experience for customers (Carroll and Guzmán 2013) and it is basically based on customer’s point of view (Hübner et al. 2016). In omni-channel; researches are mainly interested in questions about customer touchpoint (Verhoef et al. 2015). Omni-channel can be defined as a synchronized operating model in which all of the company’s channels are aligned and present a single face to the customer, along with one consistent way of doing business (Dinçer and Yüksel 2020; Carroll and Guzmán 2013). According to all above mentioned omni-channel descriptions; omni-channel applications fundamentally aims to touch to the customer perception. As customer satisfaction is a goal which is getting important for developing and implementing broad-based organizational strategies (Wiley 1991), customer satisfaction can be considered a vital purpose for a business to achieve its organizational goals. Growth of experimental marketing, online experiences and electronic commerce; alongside with customers desire to utilize multiple channels empowers omni-channel marketing applications. For consumers being able to use both channels and taking advantages of both channels increases their experience from purchase process, which concludes to satisfaction for consumers. Imagine a consumer demanding to purchase

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a cloth. While purchasing a cloth, a consumer is able to try the size of the cloth and if the size of the cloth is not suitable for the consumer or simply is not what consumer demands after physical touch with the product, consumer may have a chance to buy it, or a different product from the online store of that brand or even may purchase it like a e-commerce purchase from the store. This purchase process involves multichannel experience in which both classic brick and mortar store experience and online buying process exists. As consumer is both able to see and try the product and initially buy the product, consumer would feel satisfaction through this process. This example clearly shows how omni-channel potentially affects customer satisfaction. Brands’ ability to offer multiple channels and cooperation of these channels increases the chance of customer satisfaction and customer satisfaction is important for all marketing professionals as it can turn around both absenteeism and turnover (Lawler III and Porter 1967). Attracting the perception, affect and notions of consumers is crucial and being able to perform at two different channels cooperatively to woo perception, affect and notions of consumers would be extremely beneficial for businesses. Sum of positivity of three perception, affect and notions would equal to the consumer satisfaction.

4 Conclusions and Discussion Technologic developments throughout the twenty-first century and digitalization process, caused changes dramatic changes in consumers purchase behavior. E-commerce and digital channels become much more popular year by year and usage rate of e-commerce has been increasing dramatically throughout the recent years (Davis and Toney 2020). Especially with the sudden burst of Covid-19 pandemic; e-commerce and digital channels became an obligation and some consumers tended to get used digital penetration even more. Even after the normalization process, habits of consumers may not change or might be harder to be changed. During the Covid-19 period at 2020, e-commerce sales has increased by %20 (Davis and Toney 2020). Thus, e-commerce and digital channels will be an actor which became much more powerful throughout this process and as digital channels are among the channels of omni-channels, omni-channel applications also became more important. Today’s consumers can reach the retailer company from anywhere and at any time while shopping, to have uninterrupted experience and to continue shopping at any time. Therefore, businesses are influential in the decision of consumers to buy products / services. Thus, they should give importance to the concepts of experience, convenience, and accessibility. Omni-channel marketing approach is to provide an uninterrupted and cooperative customer experience across all marketing channels throughout the purchase process, regardless of where and how the customer is accessing. With the widespread use of personal computers, smartphones and tablets, the digital channel has become the area where consumers want to live in the shopping experience. Consequently; it was clearly understood that the concept of traditional merchandising alone was not

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effective and instead; omni-channel approach, which can reach customers through multiple channels, has been adopted and as marketing literature wide-reachingly mentions the importance of consumer satisfaction; multithreading concept of omnichannel started to be perceived as one of important variables to satisfy consumers. This approach enables them to establish a competitive advantage among businesses. In this way, it shows that businesses keep pace with the developing and changing world. Businesses through omni-channel not only increase revenue, but also increase profitability, channel efficiency, customer experience and customer satisfaction. With the omni-channels potential effect on consumer satisfaction; businesses would obtain profitability and competitive advantage (Angelova and Zekiri 2011). As profitability and competitive advantage are two of the main goals of a business; omni-channel firstly enables satisfied consumers and as the satisfaction level of consumers increase, they would become loyal to the brand (Cristobal et al. 2007). As loyalty of consumers increase, they tend to purchase more from the brand and even suggest the brand to their friends and family with word-of-mouth marketing. These would turn as a great brand image, higher market share and more profitability. To conclude; as consumer satisfaction is a crucial concept of marketing to gain competitive advantage, market share and brand image; procuring this concept is one the key goals of brands. Omni-channel strategies presents various advantages to the brands which brings them to their initial goal of consumer satisfaction. As omnichannel takes consumers under their wings from various channels, consumer’s probability of being satisfied logically increases. As a result of these, consumers may tend to get loyal to the brands and loyal brands conceivably can spread the brand with word-of-mouth marketing to their peers, with sharing their satisfaction.

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A New Innovation Management Model That Contributes Financially for Better Competitive Companies Ilker Kose and Seyma Guner

Abstract The world has become a unique market due to the increasing competition conditions, and there are many options that consumers can access the product they desire under various conditions. For this reason, how companies produce and how they sell their products has become more important than what they produce to provide a competitive advantage. Therefore, companies focus on producing better ideas than their competitors and offering fast delivery to consumers. Creating innovation management and innovation culture is of great importance for success in this regard. Although there are many models developed for innovation management in the literature such as “Technology Push Model”, “Market Pull”, “Coupling Model”, “Interactive Model”, “Network Model”, “Open Innovation”, it is not easy to innovate. This study aims to offer an integrated innovation model that can take companies one step ahead of the competition, ensure sustainability, and adapt to every sector and company. This framework includes the interactive model as an innovative management approach, brainstorming as a creative thinking method, and the Delphi technique as a group decision-making method. It is suggested that the people who will participate in the study from the institutions to which this framework will be applied are selected from the employees who have a closer relationship with the customers and know their demands and expectations. The effectiveness of the proposed model is experienced with a field study. It was applied to an international insurance company, and successful results were found. According to the results, the ideas that were revealed were brought to life by the company. In conclusion, the proposed framework has the potential to be an end-to-end solution for companies that desire to adopt an innovation culture.

I. Kose · S. Guner (*) Health Systems and Policies Research Center, Istanbul Medipol University, Istanbul, Turkey e-mail: [email protected]; [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 H. Dinçer, S. Yüksel (eds.), Financial Strategies in Competitive Markets, Contributions to Finance and Accounting, https://doi.org/10.1007/978-3-030-68612-3_17

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1 Introduction 1.1

The Role of Innovation in Companies

The world has rapidly become a unified market, and the number of companies and consumers that produce and demand similar products/services has been increasing because of globalization. For this reason, the market is full of similar and commodity products. There are many products and services that customers can access whenever, wherever, on any payment terms, price range, and quality criteria. In these market conditions, where there are many products, services, and product/service providers, customers are selective. Customers consider price, quality, ease of payment and delivery, and choose the product or service that best suits them. On the other hand, product and service providers must renew and develop their product, service, or product/service offerings by understanding customers’ expectations and sometimes even managing their expectations. For all these reasons, one of the most important factors in the firm’s choice is to innovate with its particular applications and attract consumers continually. Innovation is seen as an essential tool for companies that desire to survive and grow in competitive conditions (Barbieri and Santos 2020). However, innovation is not a single-use tool for companies that want to maintain their competitive superiority, but they need to be applied continuously in all processes of the organization. It is crucial to create a suitable environment and adopt an innovative corporate culture to ensure the continuity of innovation in companies. Therefore, sustainable competition and success depend on the innovation management of an organization (Cooper 1979; Rothwell 1992). Companies should not expect innovation to emerge spontaneously, and they should create a platform that has a ground for innovation with studies that support the emergence of innovative works, form competitive conditions, customer expectations and market trends (Du Preez and Louw 2008). Innovation can be made in many different areas, such as product, process, organization, and marketing. A company can innovate in its products and services, processes, product design, marketing methods, and organization (Mahmutaj and Krasniqi 2020). The Oslo Guide categorizes innovation under four headings: product innovation, process innovation, marketing innovation, and organizational innovation. According to the Oslo Guide, innovation is “a new or significantly modified product (goods or services) or process; a new marketing method or a new organizational method in business practice, business organization or foreign affairs” (OECD 2005). Although this definition includes organizational and marketing innovations, one of the key points in innovation still focuses on new or improved ideas that can still be sold and marketed. On the other hand, measuring innovation is a complex issue (Frenkel et al. 2000). Thanks to innovation, companies and countries can earn significantly higher profits from the same product or service. The standard of well-being and living in a country increases if competitiveness increases; for competitiveness, it is necessary to

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increase productivity. The essential tool to increase productivity is innovation. For this reason, innovation is the key to economic growth, through increasing employment, and quality of life for countries as well as its benefits to companies.

1.2

Creating an Innovation Culture

The significance of innovation is emphasized for companies that desire sustainable superiority and profitability in the competition environment. Four main steps are recommended for companies that desire to expand the culture of innovation in the company and encourage their employees for innovation. The first of these steps is to create awareness. Because it is necessary to understand what innovation is and why the employees must adopt the innovation culture. At the first stage, awareness should be raised to explain the advantages of innovation to the company in achieving the goals of the company, as well as to increase their individual life quality and welfare, and their country’s economic and social development. In the second stage, all management and employees should reach a consensus on creating an innovative corporate culture and applying innovation to business processes. The third stage is the strategy stage. At this stage, the company management needs to identify a strategy with the employees on how to achieve innovation. It is possible to find the answer to what kind of innovation activities the company’s limited resources will direct thanks to an effective strategy. Finally, the system required for innovation needs to be established. The innovation management system should provide that all company employees develop and present their ideas. It is also necessary to take the opportunities by following the technologies and developments both in the sector and in the external environment, to choose the most appropriate and strategic one for the company, and define the pathways to follow in implementing selected ideas to innovation. In addition, an innovation must have the financial project to be implemented. A professionally projected financial strategy makes it known that the innovation to be made will have reliable and sound outputs. You can reach the goals to be achieved for the goals you set in the project only if you have a strategy to achieve this.

1.3

Innovation Management Models

There are many innovation management process models from transferring new ideas to product commercialization, and Rothwell is one who firstly classified innovation models in 1992 (Rothwell 1992; Trott 2008). The most used ones will be included in this study are Technology Push Model, Market Pull Model, Coupling Model, Interactive Model, Network Model, and Open Innovation Model, respectively.

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Technology Push Model It is an innovation model in which the innovation process begins with an idea or discovery. This model mostly enables the product to be offered to the market by using newly discovered technologies and without making market research. For example, Walkman, developed by Sony, was introduced to the market not as a result of market research, but by applying new technology to tapes (Milner-Bolotin et al. 2020). This model can also be considered as the introduction of a new product to reveal a hidden need. Touch screen technology on smartphones is also an excellent example of this model. Firstly, touch screen technology was developed in the 1960s, and as a result of the R&D studies carried out in the 1980s, it was introduced to the market by using touch screen phones (Guo et al. 2020). The stages of the Technology Push model are as follows: 1. 2. 3. 4. 5.

Basic science, Design and engineering, Manufacturing, Marketing, Sales.

Market Pull Model It is a model in which the driving force for innovation comes from the needs of society and the market. These market needs can be explored and sometimes expressed explicitly by the market. Success in this model will be achieved thorough research of the market, determination of existing needs, the extent to which these needs are met with existing products and processes, and how they can be met more effectively with innovation (Guo et al. 2020; Maier et al. 2016). For instance, there was a need for a fast camera in the market that could take many pictures and release the pictures immediately in the 1990s. This market need encourages the development of digital cameras, which led to the development of digital cameras has led to the development of photo editing programs. In other words, every need in the market brings with it the next innovation. The stages of the market pull model are as follows: 1. 2. 3. 4. 5.

Market need drives invention, Design and development, Manufacturing, Marketing, Sales.

Coupling Model Most innovations are triggered not only by technological development or market expectations but because of the combination of these two. Similarly, most of the failures in the process of innovation are based on not following technological trends or evaluating the market correctly. The coupling model is a model that offers “Technology push” and “Market pull” models together. This model reveals innovation by using and analyzing the latest trends in technology and science, together with the needs of the market (Žižlavský 2013). Although the relationship between science and technology and the ever-changing market is quite complicated, it is assumed that it is possible to achieve success by establishing the

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right balance between the Coupling Model and technology and the market (Dodgson and Rothwell 1995). This balance should be evaluated separately for each phase of innovation models from the formation of ideas to research design and presentation. Interactive Model This model suggests that innovation development can be accomplished with the help of the information already available within the company, and innovation can come from all departments of the company by emphasizing the importance of interdepartmental communication within the company. For this reason, it argues that internal communication is crucial for innovation. Innovation can come from all units of the company. When technological solutions are sought, if internal resources are not sufficient, it is recommended to seek new information and resources (Fischer 2001). Network Model This model fundamentally emphasizes that not only in-company collaboration is sufficient in the innovation processes of companies, but also other information sources such as other companies, universities, research centers, suppliers, and consumers should be used. This concept, with connections between different systems, is called innovation networks. According to Freeman, this model establishes connections with people on the network to which it is associated to reduce all the major dynamic and static uncertainties that may arise (Freeman 1991). Open Innovation Model Companies aim to make the best use of the ideas of internal and external sources and believe that they can only be successful if they can use internal and external ideas in the best way in the open innovation model (Du Preez and Louw 2008). Besides, this model argues that creating a better business model is more important than entering the market early. Companies create an ecosystem that will involve the customer, the consumer, and other stakeholders and innovate with them in this model. The more beneficial the stakeholders of this ecosystem are, the more effective the system is, and the greater the contribution of the stakeholders to the system. They combine ideas from internal and external stakeholders to develop new technologies to the market.

1.4

The Role of Creative Thinking in Innovation

There are three essential elements to be considered in the innovation development process. These elements are: (1) to recognize and understand the problem, (2) to develop innovative ideas to solve the problem, (3) to choose the best among all developed ideas. In the problem determination step, which can be considered as the most critical step of the innovation process, it is necessary to identify well both the current and future problems by making a good observation. It is essential to define the problem well to solve a problem. Besides, creative thinking techniques have an important role in problem-solving steps. The fact that the solution suggestions to be developed is creative is an essential factor that will make the company different and

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attractive among its competitors. Various methods and methodologies are used to identify existing problems and develop innovative solutions. Some of these methods are; brainstorming (Puccio et al. 2020; Rawlinson 2017), Delphi (Chan et al. 2001), lateral thinking (De Bono and Zimbalist 1970), SCAMPER technique and TRIZ (Al0 tshuller 1999; Guner 2019; LariSemnani et al. 2015). Some authors consider the brainstorming method as one of the best-known methods for both problem detection and group idea generation (Isaksen and Gaulin 2005; Rawlinson 2017). TRIZ method, on the other hand, has a methodology that offers systematic solutions to contradictory situations in existing problems (Guner and Kose 2020a, b). Methods such as lateral thinking (Ali 2019) and morphological analysis (Hubka and Eder 2012) also play an important role in developing innovative ideas during individual thinking. This section aims to propose an innovation model to the companies that desire to gain a sustainable advantage in competition one step further. For this purpose, a detailed literature review was conducted on innovation models, the importance of innovation management in companies, and creative thinking and problem-solving methods that are considered necessary in the innovation process. As a result of these reviews and analyzes, an integrated innovation model proposal, which will enable the adoption of an innovative thinking culture supported by training and interactive innovation model, and which will provide ease of application, is presented. This model can be used by adapting to the relevant field when any problem solving and innovation management needs in companies.

2 Problem Definition Companies aim to generate new ideas, implement them, and develop creative solutions to their problems in today’s increasingly competitive conditions (Didonet and Diaz-Villavicencio 2020). The fact that the whole world became a single market thanks to various factors such as the presence of many products and product providers in the sector, the impact of globalization, and the e-commerce route, has taken power to the consumer. When consumers do not like the product, they can instantly choose a different replacement product. For all these reasons, companies can achieve success if they can manage to meet customer expectations. In this respect, creating an innovative corporate culture provides an advantage in being preferred among competing companies and commodity products. People who know the problems in an institution best are those who encounter problems and troubles during work. To ensure efficiency in an institution, people who do the work in the area companies desire to achieve efficiency should be listened and their ideas should be taken into account. It is believed that employees who do the job always have brilliant ideas on how to get things done better. Under this belief, an innovation model proposal with company employees is presented in this study.

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3 Methods For a successful innovation as presented in the literature, “The latest developments in society and technology must be determined, and the expectations of the society and the market must be fully met. The innovative ideas produced should be in the technological areas that can be determined after a need analysis” (Rothwell et al. 1985). In the model proposed in this study, the current situation and needs analysis studies should be carried out basically by considering the company’s strategic plan, vision, and mission. As a result of the needs analysis, technological areas that will be a source of innovation should be determined, and employees should be informed about these technological areas. Then, employees should be encouraged to come up with ideas on how to apply these technological fields in their business processes and products. Because of training, teamwork, and brainstorming sessions, a pool of ideas should be created. Ideas in the idea pool should be ranked in line with the company’s strategic goals and expectations, and the ideas that would be most appropriate and actualized should be selected. As the last step, a feasibility report should be prepared for the ideas selected through screening and submitted to the top management of the company. It is necessary to take into account the financial strategies of the company in determining the idea to be implemented. The production and commercialization process should be started for the ideas deemed appropriate by the company’s management. The proposed model consists of 7 steps below.

3.1

Realization of Needs Analysis with Management

Every project, work, and business process to be implemented in companies should be planned in a way that will contribute to the main goals and objectives of the company (Abai et al. 2013). Needs Analysis is a process carried out to reveal the difference between the current situation and the desired goal. In this process, it is aimed to develop suitable solutions by identifying the needs as well as the problems encountered and may be encountered to ensure short- and long-term development and to sustain development. Today, many large companies believe that the needs analysis will increase the success of the project, and many studies find that the main reason for the project failure is the lack of needs analysis and the support of the management (Kumar 2006). Requirement analysis, also called requirement engineering in the literature, aims to meet consumer expectations with new or significantly improved products (Aurum and Wohlin 2005). It is thought that deciding by conducting a needs analysis for the company before starting any new project or process will contribute to achieving the goals more efficiently by managing the process and costs (Hegstad and Wentling 2004). In this regard, it is recommended to meet with company executives as the first stage of the innovation management process and to conduct a comprehensive needs analysis in line with the strategic

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plan, vision, and mission. During this need analysis, customer expectations, and what should be done to meet these expectations should be analyzed by considering the interests of the company and what should be decided. In the needs analysis meetings to be held with the management, it is considered essential to have various departmental employees working directly with the customers as suggested to the interactive innovation model. It has been shown that staff working directly with customers in different departments can better understand and define customer expectations. As a result of the needs analysis carried out at this stage, innovation priority areas will be planned by determining the company priorities.

3.2

Increasing the Knowledge Level of Employees

The interactive innovation model emphasizes the importance of intra-company communication in the innovation development process and suggests that the idea of innovation can come from all units. Another feature of the model is that it accepts that innovation will be built considering the company’s current knowledge (Clark and Guy 1998). The integrated innovation model also emphasizes the need for all departments of the company to work together to develop innovation. In this regard, employees will be provided with an opportunity to be more productive by improving their current knowledge a little more and enabling them to work together in interaction. In the second phase of our model, it is advocated that employees should be informed about innovative technologies to generate innovative ideas. It is recommended to prepare bulletins consisting of developing technologies in the relevant sector and of presenting them to the employees at certain periods (For example, AIBOT, Drone, Gamification, Beacon, Telematics, AIBot, Gamification, Drone, Beacon, Augmented/Virtual Reality and Image Processing, etc.). At this step, the Coupling innovation management model (Du Preez and Louw 2008) should also be used to measure the expectations of customers while working on existing technology models. It should be ensured that the personnel working in close contact with customers periodically (via e-mail, bulletins, training, etc.) about new technologies, and different departments work together to produce new innovative ideas in line with customer expectations. In addition to the training, the vision, mission, and strategic goals of the company should be shared with the innovative ideas to emerge to be compatible with the company’s goals. After the training contents are presented to all company employees, the personnel to join the innovation production team should be selected voluntarily. Employees should first be presented with content that includes the goals, processes, and expectations of the innovation teams, and then whether they want to participate in the study. Participants who wish to participate in the study should be given training later, and they should be asked which of the groups introduced in this training. Since the time they will take part in the innovation team will be during working hours, permission must be obtained from the unit managers.

A New Innovation Management Model That Contributes Financially for Better. . .

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245

Providing Creative Thinking Methods Training

The value of creative thinking techniques in thinking for innovation development is undeniable. Since innovative thinking requires creative thinking, training titled “Creative Thinking Techniques” should be given to team members. It is recommended that these training consist of two stages, and the first session should consist of the themes of science, technology, innovation, types of innovation, innovation processes while the second session should be on creative thinking techniques. In this way, employees will learn techniques to think creatively as well as to understand the conceptual framework. It is suggested that creative thinking techniques, especially brainstorming, lateral thinking, and TRIZ training, are explained. For example, an employee who knows TRIZ will be more successful in developing creative solutions (Guner and Kose 2020a, b).

3.4

Innovative Idea Creation Sessions

Idea generation sessions should be held after all training is completed, and participants are prepared for idea generation. Brainstorming sessions, which are considered as the best-known method for group idea production during the idea generation phase (Isaksen and Gaulin 2005), should be done. The reason for choosing the brainstorming method is that it reveals the maximum number of ideas during the group discussion method. In this way, as the number of ideas about a problem increases, the probability of finding the most appropriate solution increases (Litchfield et al. 2011). For the brainstorming sessions to take place successfully, a peaceful environment should be created for the participants, and they should be made to feel comfortable. Also, it must be guaranteed that no idea will be seen as absurd or unreasonable and will not be criticized negatively, and they should be asked to express their opinions. The participants can be divided into groups according to their numbers, and the number of sessions can be increased as the moderator deems it appropriate. As a result of these sessions, many creative ideas can be revealed.

3.5

Choice of Innovative Ideas

During the brainstorming sessions, lots of ideas are proposed, as the aim is to generate many ideas, and the participants are asked to express their opinions. Sometimes some ideas will be able to repeat several times. For this reason, it is necessary to consolidate the ideas and combine similar ones. Then, the selected ideas should be scored by the team managers using group decision-making methods, such as Delphi technique to go through a screening process. In the Delphi technique,

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creative ideas will be sent to the executive team members, and their opinions will be asked about which ones should be taken to the evaluation stage. Delphi work can be continued until a consensus is formed. Once the consensus is formed, the selected ideas are prepared for the scoring phase.

3.6

Scoring and Consolidating Ideas

The participants should be reunited to choose the best and creative ideas from the pool according to the following criteria. The criteria of these evaluation criteria can vary from industry to industry and from company to company. • • • • •

Innovation (High/Medium/Low). Economic added value (High/Medium/Low). Social impact (High/Medium/Low). Time to market (Long: 18 + Month /Medium: 6–18 Month/Short: 1–06 Month). Approximate project budget (High: > 500.000 / Medium: 500.000–100.000 / Low: .05). That is, age status differed according to the opinions on the rules variable. According to the results of the single factor variance analysis, there was a significant difference between the ages of the individuals and their opinions on the enjoyment variable (F(0.873) ¼ 1.327, p > .05). In other words, age status varied according to the opinions on the enjoyment variable. According to the results of the single factor variance analysis, there was a significant difference between the ages of the individuals and their opinions on the frustration variable (F(1.898) ¼ 4.106, p < .05). In other words, age status varied according to the opinions on the frustration variable. According to the results of the single factor variance analysis, there was a significant difference between the ages of the individuals and their opinions on the general puppetry variable (F(1.849) ¼ 3.835, p < .05). In other words, age status varied according to the opinions on the general puppetry variable. According to the results of the single factor variance analysis, there was a significant difference between the ages of the individuals and their opinions on the General Control variable (F(1.287) ¼ 2.704, p < .05). That is, age status varied according to the opinions on the General Control variable. According to the results of the single factor variance analysis, there was a significant difference between the ages of the individuals and their opinions on the Controllers variable (F(1.379) ¼ 3.373, p < .05). In other words, age status varied according to the opinions on the Controllers variable. According to the results of the single factor variance analysis, there was a significant difference between the ages of the individuals and their opinions on the Point of View variable (F(1.901) ¼ 3.667, p < .05). That is, age status varied according to the opinions on the Point of View variable. According to the results of the single factor variance analysis, there was a significant difference between the ages of the individuals and their opinions on the Goal variable (F(1.321) ¼ 5.947, p < .05). In other words, age status varied according to the opinions on the Goal variable. According to the results of the single factor variance analysis, there was no significant difference between the ages of the individuals and their views on the Big Actions variable (F(0.216) ¼ 0.862, p > .05). That is, age status did not vary depending on the opinions on the Big Actions variable. According to the results of the single factor variance analysis, there was a significant difference between the ages of the individuals and their opinions on the Rewards variable (F(2.963) ¼ 8.076, p < .05). In other words, age status varied according to the opinions on the Rewards variable.

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According to the results of the single factor variance analysis, there was a significant difference between the ages of the individuals and their opinions on the General Ownership variable (F(4.020) ¼ 7.778, p < .05). That is, age status varied according to the opinions on the General Ownership variable. According to the results of the single factor variance analysis, there was a significant difference between the ages of the individuals and their opinions on the Personal goals variable (F(2.438) ¼ 5.850, p < .05). In other words, age status varied according to the opinions on the Personal goals variable. In the study, it was investigated whether there was a difference at 0.05 significance level between the opinions of the individuals on the items in the scale in terms of how long the individuals had been playing games. For this purpose, a survey with different items was carried out with 928 people with 7 different game playing durations participating in the study according to different variables on a 5-point Likert type scale. According to the results of the single factor variance analysis, there was a significant difference between how long the individuals had been playing games and their opinions on the graphics variable (F(2.554) ¼ 6.775, p < .05). In other words, how long the game had been played varied according to the opinions on the graphics variable. According to the results of the single factor variance analysis, there was a significant difference between how long individuals had been playing the game and their opinions on the rules variable. (F(1.291) ¼ 4.696, p < .05). In other words, how long the game had been played varied according to the opinions on the rules variable. According to the results of the single factor variance analysis, there was no significant difference between how long individuals had been playing the game and their opinions on the enjoyment variable. (F(0.117) ¼ 0.317, p > .05). In other words, how long the game had been played did not vary according to the opinions on the enjoyment variable. According to the results of the single factor variance analysis, there was a significant difference between how long individuals had been playing the game and their opinions on the frustration variable. (F(1.382) ¼ 4.733, p < .05). In other words, how long the game had been played varied according to the opinions on the frustration variable. According to the results of the single factor variance analysis, there was a significant difference between how long individuals had been playing the game and their opinions on the general puppetry variable. (F(2.605) ¼ 8.167, p < .05). That is, how long the game had been played varied according to the opinions on the general puppetry variable. According to the results of the single factor variance analysis, there was a significant difference between how long individuals had been playing the game and their opinions on the General Control variable. (F(0.313) ¼ 0.672, p > .05). In other words, how long the game had been played varied according to the opinions on the General Control variable.

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According to the results of the single factor variance analysis, there was a significant difference between how long individuals had been playing the game and their opinions on the Controllers variable. (F(1.348) ¼ 5.725, p < .05). In other words, how long the game had been played varied according to the opinions on the Controllers variable. According to the results of the single factor variance analysis, there was a significant difference between how long individuals had been playing the game and their opinions on the Point of View variable (F(2.407) ¼ 6.986, p < .05). In other words, how long the game had been played varied according to the opinions on the Point of View variable. According to the results of the single factor variance analysis, there was a significant difference between how long individuals had been playing the game and their opinions on the Goal variable (F(0.147) ¼ 0.278, p < .05). In other words, how long the game had been played varied according to the opinions on the Goal variable. According to the results of the single factor variance analysis, there was no significant difference between how long individuals had been playing the game and their opinions of the Big Actions variable (F(0.128) ¼ 0.508, p > .05). That is, how long the game had been played did not vary according to the opinions on the Big Actions variable. According to the results of the single factor variance analysis, there was no significant difference between how long individuals had been playing the game and their opinions on the Rewards variable (F(0.141) ¼ 0.371, p > .05). In other words, how long the game had been played did not vary according to the opinions on the Rewards variable. According to the results of the single factor variance analysis, there was a significant difference between how long individuals had been playing the game and their opinions on the General Ownership variable (F(1.590) ¼ 4.109, p < .05). In other words, how long the game had been played varied according to the opinions on the General Ownership variable. According to the results of the single factor variance analysis, there was a significant difference between how long individuals had been playing the game and their opinions on the Personal goals variable (F(2.321) ¼ 5.752, p < .05). In other words, how long the game had been played varied according to the opinions on the Personal Goals variable. In the study, it is investigated whether there was a difference at 0.05 significance level between the individual opinions on the items in terms of gender. For this purpose, information about the individual opinion variable on the items in the scale was collected from 928 people, 176 women and 752 men, using a 5-point Likerttype scale with different items according to the different number of variables. According to the findings, a significant difference was detected between gender and the opinions of the individuals on graphics (t(928) ¼ 18,894; p < 0.05). The average of male individuals’ opinions on graphics (Avg. ¼ 3.84; SD ¼ .79) was higher than the average of female individuals’ opinions on graphics (Avg. ¼ 3.69; SD ¼ 1.01). These results show that males had more opinions on graphics than

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females. In other words, there was a significant difference between male individuals’ and female individuals’ opinions on graphics. According to the findings, a significant difference was found between gender and the opinions of the individuals on rules (t(928) ¼ 22,896; p < 0.05). The average of the opinions of the female individuals on the rules (Avg. ¼ 3.92; SD ¼ .58) was higher than the average of the male individuals’ opinions on the rules (Avg. ¼ 3.77; SD ¼ .83). These results show that female individuals had more opinions on rules than male individuals. In other words, there was a significant difference between female individuals’ and male individuals’ opinions on rules. According to the findings, a significant difference was found between gender and the opinions of the individuals on Enjoyment (t(928) ¼ 21,479; p < 0.05). The average of females’ opinions on Enjoyment (Avg. ¼ 3.91; SD ¼ .55) was higher than that of males (Avg. ¼ 3.76; SD ¼ .77). These results show that females had more opinions on Enjoyment than males. In other words, there was a significant difference between the opinions of female and male individuals on Enjoyment. According to the findings, a significant difference was found between gender and the opinions of the individuals on Frustration (t(928) ¼ 25,126; p < 0.05). The average of female individuals ‘opinions on Frustration (Avg. ¼ 3.94; SD ¼ .66) was higher than the average of male individuals’ opinions on Frustration (Avg. ¼ 3.76; SD ¼ .91). These results show that females had more opinions on Frustration than males. In other words, there was a significant difference between the opinions of female and male individuals on Frustration. According to the findings, a significant difference was found between gender and the opinions of the individuals on General control (t(928) ¼ 15,476; p < 0.05). The average of male individuals’ opinions on General Control (Avg. ¼ 3.94; SD ¼ .66) was higher than the average of female individuals’ opinions on General Control (Avg. ¼ 3.82; SD ¼ .91). These results show that males had more opinions on General Control than females. In other words, there was a significant difference between male individuals’ and female individuals’ opinions on General control. According to the findings, a significant difference was found between gender and the opinions of the individuals on General control (t(928) ¼ 5885; p < 0.05). The average of male individuals’ opinions on General Control (Avg. ¼ 3.71; SD ¼ .66) was higher than the average of female individuals’ opinions on General Control (Avg. ¼ 3.65; SD ¼ .79). These results show that males had more opinions on General Control than females. In other words, there was a significant difference between male individuals’ and female individuals’ opinions on General control. According to the findings, a significant difference was found between gender and the opinions of the individuals on Controllers (t(928) ¼ 11,804; p < 0.05). The average of male individuals’ opinions on Controllers (Avg. ¼ 3.79; SD ¼ .67) was higher than the average of female individuals’ opinions on Controllers (Avg. ¼ 3.69; SD ¼ .88). These results show that males held more opinions on Controllers than females. In other words, there was a significant difference between the opinions of male and female individuals on Controllers. According to the findings, a significant difference was found between gender and the opinions of the individuals on Point of View (t(928) ¼ 18,384; p < 0.05). The

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average of male individuals’ opinions of Point of View (Avg. ¼ 3.77; SD ¼ .60) was higher than the average of female individuals’ opinions of Point of View (Avg. ¼ 3.73; SD ¼ .79). These results show that males had more opinions on Point of View than females. In other words, there was a significant difference between the opinions of male and female individuals on Point of View. According to the findings, a significant difference was found between gender and the opinions of the individuals on Goal (t(928) ¼ 22,895; p < 0.05). The average of male individuals’ opinions on Goal (Avg. ¼ 3.88; SD ¼ .66) was higher than the average of female individuals’ opinions on Goal (Avg. ¼ 3.78; SD ¼ .92). These results show that male individuals had more opinions on Goal than females. In other words, there was a significant difference between the opinions of male and female individuals on Goal. According to the findings, a significant difference was found between gender and the opinions of the individuals on Big Actions (t(928) ¼ 16,125; p < 0.05). The average of male individuals’ opinions on Big Actions (Avg. ¼ 3.87; SD ¼ .47) was higher than the average of female individuals’ opinions on Big Actions (Avg. ¼ 3.81; SD ¼ .59). These results show that males had more opinions on Big Actions than females. In other words, there was a significant difference between male individuals’ and female individuals’ opinions on Big Actions. According to the findings, a significant difference was found between gender and the opinions of the individuals on Rewards (t(928) ¼ 9068; p < 0.05). The average of male individuals’ opinions on Rewards (Avg. ¼ 3.76; SD ¼ .58) was higher than the average of female individuals’ opinions on Rewards (Avg. ¼ 3.66; SD ¼ .71). These results show that males held more opinions on Rewards than females. In other words, there was a significant difference between the opinions of male and female individuals on Rewards. According to the findings, a significant difference was found between gender and the opinions of the individuals on General Ownership (t(928) ¼ 16,195; p < 0.05). The average of male individuals’ opinions on General Ownership (Avg. ¼ 3.76; SD ¼ .69) was higher than the average of female individuals’ opinions on General Ownership (Avg. ¼ 3.65; SD ¼ .85). These results show that males had more opinions on General Ownership than females. In other words, there was a significant difference between the opinions of male and female individuals on General Ownership. According to the findings, a significant difference was found between gender and the opinions of the individuals on Personal Big Actions (t(928) ¼ 11,614; p < 0.05). The average of male individuals’ opinion on Personal Big Actions (Avg. ¼ 3.90; SD ¼ .62) was higher than the average of female individuals’ opinions on Personal Big Actions (Avg. ¼ 3.79; SD ¼ .76). These results show that males had more opinions on Personal Big Actions than females. In other words, there was a significant difference between the opinions of male and female individuals on Personal Big Actions.

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6 Conclusion With the widespread use of technological developments, as a result of these developments, many digital devices have emerged. These digital devices are changing and transforming the lives, habits and daily practices of the individuals. One of the most essential sectors among these digital devices is digital games. Digital games are fun, informative, and instructive activities that interest not only a specific age group but almost every part of society. By eliminating the concept of place, time, and space, digital games enable individuals to play games whenever and wherever they want. When the studies are examined, the amount of time the individuals spend playing in the digital environment and the investments that countries make in the game industry increase in parallel with technology. Today, thanks to mobile communication technology, digital games have become one of the most accessible products to circulate the world. This situation makes the digital game industry even more important. Besides gaining new customers, digital game companies are trying to grow by keeping their existing customers. The most important way to achieve this is to establish a loyalty relationship with existing customers. According to various studies, a loyal customer has many advantages over a new customer. User experience is one of the most important contents that ensures customer loyalty. User experience defines the customer’s direct relationship with the product. This situation determines customers’ happiness or unhappiness. In other words, if the consumer is happy with the product, by remaining loyal to the product, they continue to use it. If the consumer is not happy with the product, he/she can cut off his/her relationship with that product and start looking for new products. Both of these two situations make the user experience even more important. In the study, Minecraft, which was released in 2009 and sold more than 200 million and played by 126 million game players monthly, was selected. Minecraft is one of the most downloaded and played games on many of the service providers. According to the researches, especially during the pandemic period, there has been a significant increase in the number of users playing Minecraft. Minecraft appeals to almost all age groups rather than a specific age group. Unlike similar games, Minecraft can be played on a variety of platforms. It is possible to play the game on different platforms, from desktop computers and game consoles to smartphones. To be able to continuously play the game without reaching an ending is one of its most important features. While the game progresses endlessly in itself, it gives the players a sense of achievement with the gains it provides to the people who play the game. The scale developed by Gámez (2009) was used within the scope of the research on the users’ experience of Minecraft game. Questions under certain headings were obtained from the question pool prepared by Gámez. The universe of study was comprised of 928 people who played Minecraft game and used the discord application. After the demographic information of the individuals participating in the study was obtained, questions about their habits of playing Minecraft game and the questions that Gámez developed about the user experience were asked. Within the

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scope of the research, for the validity and reliability of the study, Cronbach’s alpha and Kaiser-Meyer-Olkin tests were conducted. At the same time, the average variance extracted (AVE) and composite reliability (CR) results of the variables were also determined in the study. According to the result of these, it was observed that the study was reliable and valid. In the study, it was detected that there were differences between the age groups of the individuals who played the game and the variables of Graphics, Frustration, General Puppetry, General Control, Controllers, Point of View, Goal, Rewards, General Ownership, and Personal goals. However, it was observed that there were no differences between the age groups of the individuals who played the game and the variables of Rules, Enjoyment, and Big Actions on the user experience scale. When how long individuals had been playing Minecraft game was investigated, unlike the variables of the age groups, it was detected that there were differences between this duration and the variables of Graphics, Rules, Frustration, General Puppetry, Controllers, Point of View, Goal, General Ownership, and Personal goals. It was observed that there were no differences between how long individuals had been playing Minecraft game and the variables of Enjoyment, General Control Big Actions, and Rewards. In both variables, it was observed that there was no difference between enjoyment and big actions. When the relationship between the gender variable and the user experience scale was investigated in the study, it was observed that there were differences between male and female individuals in all variables. In all variables, the averages of the male individuals were higher than those of the female individuals. Making improvements by conducting various researches on female individuals throughout the game may lead to an increase in the number of users playing the game, especially for women.

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Business Environment Perception of Innovative Firms in Turkey: Problems and Suggestions for Financial Improvement Dilek Yomralıoğlu and Hüseyin Çırpan

Abstract “Ease of doing business” is a process that has priority in countries’ policy agenda because of its key role in generating employment, attracting investment, reaching sources and sustainable growth. Countries implement policies to make business environment friendly for creating competition, advantage and realising their strategic targets. Various indexes that measure the ease of doing business environment are created in terms of directing countries towards areas that have room for improvement. The World Bank measures whether laws and regulations that organize the business environment are facilitative according to firms’ perception by enterprise surveys, and place the obtained survey data into a quantitative device where countries can be compared. In this paper, the doing business environment of Turkey is compared with some key emerging economies such as India (2014), (years indicate publishing of the data), China (2012), the Russian Federation (2012), Poland (2013), Mexico (2010) and Brazil (2009) by using The World Bank enterprise survey data (2013). Besides, in this paper, a semi-structured interview was conducted with ten innovative firms which are open to international trade. The results obtained from the interviews are compared with the data in the most recent version of the World Bank enterprise survey (2019). According to these results, the biggest obstacle to the growth of firms is difficulties in accessing finance, caused by fluctuations in financial markets and increasing uncertainties. As complementary information, we find that the participants interviewed have experienced difficulties regarding intellectual property rights, claim cases and finding qualified staff. There have been improvements regarding logistics and the control of corruption.

D. Yomralıoğlu (*) · H. Çırpan The School of Business, İstanbul Medipol University, Istanbul, Turkey e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 H. Dinçer, S. Yüksel (eds.), Financial Strategies in Competitive Markets, Contributions to Finance and Accounting, https://doi.org/10.1007/978-3-030-68612-3_21

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1 Introduction Rapid change and fast-growing trade volume through globalization increase the importance of entrepreneurship. Private enterprises are an important source of investment, employment, and government revenue. They also promote newer technologies, innovation and competition that dramatically contribute to sustainable growth. However, the extent of contribution is mostly based on the incentives of the business environment including monopolies, high protection against foreign trade, government subsidies (Fields and Pfeffermann 2003). The efficiency of firms in developing countries is obviously central to explaining the performance of these economies. Key determinant of firm performance in developing as well as developed economies is the state of the business environment, defined broadly to include the key features of the legal, regulatory, financial, and institutional systems (Commander and Svejnar 2011). Small and medium size firms with limited sources are more dependent on business climate for growth and development although they constitute a large part of the private sector in many developed and developing countries. From the perspective of big firms, lack of systematic knowledge, inaccessible sources, and inefficient capital markets are barriers for innovation. Commander and Svejnar (2011), based on their survey, concluded that business environment is one of the factors that affect firm performance, unless regional and national differences are considered. Therefore, business partners, governments and civil organizations are supporting the policies and regulations contributing to a better business climate. It also contributes to foreign investment and the entrance of global foreign firms to markets that foster productivity and employment. For these purposes, improving the business climate becomes one of the top priorities of the governments for growth and development. “Business climate” can also appear as “ease of doing business” in some resources. The concept of “ease of doing business” is described as an institutional, political and regulatory environment where firms operate with effective contracts and rules where the cost of conflict is reasonable, the protection of property rights is high and long-term prediction is compatible (The World Bank, Doing Business Report 2011). Such an environment also fosters the entrance of new firms into the market and helps create a competitive private sector. Dynamic markets also encourage “direct foreign investments” that focus on profit and are affected by the current investments and growth rates (Chakraborty 2016). This paper aims to explore the Turkish business climate in comparison to six emerging countries, i.e. China, India, Brazil, Mexico, Russia and Poland, and delineate the perceptions of interviewed company executives. These companies are the ones that are open to innovation, foreign trade and growth that strengthen the competition and dynamism in the private sector. The purpose of this comparison is to highlight the business climate areas that require the attention of policy makers, to gain an advantage over the compared companies, to attract direct investment from abroad, and stimulate the economic growth.

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2 Business Climate Components and Comparisons This section will serve two purposes; namely (1) to define the components of the business climate which have an important effect on the private business sector, and (2) to see Turkey’s position in each component in comparison to six countries in order to highlight the areas that have improved. Various indexes are used for the comparison purposes. They are: “human capital index”, “logistic performance index”, “corruption perception index”, “intellectual property rights index”, “political stability index”, “doing business index”, “enterprise surveys of the World Bank”. The World Bank’s “doing business” reports among the guides that inform and measure the regulatory reforms for benchmark (Hanusch 2012). The components of the business climate are presented below.

2.1

The Quality of Institutions

Institutions shape social interactions by means of formal and informal rules, describing not only forbidden activities, but also defining how they should be done. Acemoglu and Robinson (2013) studied the relationship between the poverty of nations and the quality of institutions, and categorize them as exclusionary and inclusionary, behaving in opposite directions. Inclusionary institutions aim to present the same opportunities and incentives to all, and strengthen the property rights, whereas exclusionary ones prefer to keep the source and power in the hands of certain groups. Artan and Hayaloğlu (2014)’s research that covers the 1972–2009 period, find out that institutional structure is related to long term growth. The main components of institution quality can be grouped under four topics as per below.

2.1.1

The Judicial System

Studies point out the significance of the judiciary system as an intangible factor of sustainable economic growth. An independent judiciary system can force the state to keep promises, reduce the time inconsistency of the government’s preferences, secure property rights, enforce private contracts, and lead faster economic growth by reducing uncertainty. We may distinguish the judicial system as “de jure” and “de facto”. “De jure” means the written laws and “de facto” means what the law does (Voigt et al. 2014). “De facto” is more emphasizing on commerce since resolving cost and period may be disincentive in case of conflict. Ma et al. (2010), concluded that a qualified judicial system has a positive effect on the export of value-added goods. Contract enforcement and simple regulations are other important factors for commerce since the average contract intensity of production and of exports is positively correlated with judicial quality and contract enforcement (Nunn 2007). Chakraborty published a study covering the period between 2000 and 2010 in India

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(Chakraborty 2016) and found out that the judicial system and contract enforcement do not only affect foreign trade but also domestic sales, in a positive way. Turkey has made a big step forward by improving contract enforcement and ranks 19 out of 190 countries according to the “doing business index” (2018) (The World Bank).

2.1.2

Property Rights

Property rights encourage individuals to work harder and to save more. Property rights need to be clearly defined to eliminate the risk of losing owned properties. The rapid increase in international trade volume through globalization raises the risk of imitation of products with high profit margin. The intellectual property rights can simply be defined as “the commercial value of know-how” and became even more crucial for global trade. High technology products prefer secure markets in terms of patent, design and license for long term investments (Ongun 1996). Falvey et al. (2004) conducted a research on middle income countries, and observed that intellectual property rights do not directly affect growth, but indirectly contribute to growth through the increase in commerce and foreign investment volume. Since property rights are crucial for personal and economic welfare, various indexes are constituted as benchmark. According to “Intellectual Property Rights Index”, created by “Property Rights Alliance” Turkey ranks 66 out of 125 countries. If we compare Turkey’s position with China, India, Mexico, Brazil, Russia and Poland, Turkey is third after Russia and Mexico, which can be interpreted as average performance, and does not call for immediate action.

2.1.3

Tax and Regulations

Regulations are important tools for reaching political and economic goals. Regulatory reforms encourage the entrance of new firms onto markets that contribute to investment, employment and increase the competition. In emerging markets, institutions and regulations are a particularly significant factor determining both the entry rate and the prospects of new firm survival and growth (Estrin and Prevezer 2010). According to the research done by Klapper et al. (2006), heavy regulations hamper the firm’s entry into the market. The focus has been on entry, size, and growth of firms but there are other regulations and aspects of the business environment that might affect entry and firm growth, such as financial and labor regulations and protection of property rights. The flexible or protective manner of regulations, and tax incentives express the trade policy of the government and aim to reduce poverty and unemployment. However excess tax load is considered as one of the causes of corruption and informal economy besides insufficient control and heavy bureaucracy (Demir and Küçükilhan 2013). According to the World Bank survey results, the biggest obstacle of firms in Turkey (2013) is tax ratios. In comparison to six emerging countries, Turkey has the biggest ratio 37.4%. Russia follows Turkey with 36.1%. The best ratio belongs to India 13% (The World Bank).

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Informal economy is one of the major problems of developing economies, and this tends to worsen when coupled with heavy tax loads and during economic crises (Demir and Küçükilhan 2013). The informal sector represents 31.3% (2018) of the Turkish economy and can be considered an average performance in comparison to the six emerging markets. China ranks number one with 14.6% whereas Russia ranks last with 38.4% (Medina and Schneider 2018).

2.1.4

Corruption

Corruption continues to be the problem of developing countries due to economic, political and social reasons. In some cases, low education level, traditions, insufficient control of institutions contribute to the increase of the corruption rate (Memişoğlu and Durgun 2008). Méon and Weill (2010) claim that corruption may negatively impact the total productivity in countries that have inefficient institutions. Although corruption is considered be a huge problem for many reasons, “Greasing the Wheels” theory claims that corruption encourages entrepreneurship and contributes to economic growth when the current sources are insufficient. Contrary to this view is “Sanding the Wheel” that claims that corruption increases uncertainty and hampers the trade by confusing the decision-making process of public investment (Méon and Sekkat 2005). Turkey is one of the countries that tries hard to combat corruption with policies against corruption and online processing of governmental issues (Memişoğlu and Durgun 2008). One of the indexes that measure corruption is called “corruption perception index” conducted on a yearly basis by “Transparency International”. The results are based on the perception of academicians, business people and risk experts. As per the index of 2018, Turkey ranks 78 out of 138. Compared to the six emerging economies, Turkey shares its position with India, just after China. Poland tops the list with 36. When we consider The World Bank Corruption Control Index that measures the efficiency of applications against corruption, the average score of Turkey for the 2010–2017 period is –0.05, where the scores are stated between 2.5 and -2.5 (The World Bank). Among the emerging countries, Turkey’s score is the second best just after Poland. This shows that Turkey has achieved a remarkable improvement in combatting corruption, but its reflection to perception takes time.

2.2

Political and Economic Instability

Political and economic stability provides private businesses with a secure and foreseeable environment and encourages them to invest and grow. Political instability can be viewed in two ways. The first approach focuses on the propensity of government changes. The second one is based upon indicators of social unrest and political violence. Income inequality is a factor which increases social unrest and probability of coups, revolutions, mass violence or more generally increases policy

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uncertainty and threatens property rights that has a negative effect on investment and as a consequence reduces growth (Alesina and Perotti 1993). Barro (1991) found that coups, terrorist attacks, violence that is related to political instability, have a negative effect on investment. Alesina et al. (1996) also found a negative relationship between growth through investments and political instability. Frequent government changes lead to a myopic approach where the investment decisions are made to secure the next election. These investments are usually shortterm and aimed only at a certain groups’ requirements and consume the available resources of the government in an inefficient way. When political instability lasts longer, terrorist attacks and inner conflicts may follow, which increase uncertainty and prevent long term decisions in the markets, and in turn cause economic volatility. Risk of terrorism and inner conflict put barrier in capital entry into the markets and have a negative effect on investment. Besides, high safety expenses are one of the parameters that causes budget deficit (Öztürk and Çelik 2009). Turkey has experienced short term coalitions, military coups, and social unrest for many years. After 2003, stability has prevailed, and new laws have been rapidly integrated to increase the volume of investment and foreign capital for development (Karabıçak 2000). According to The World Bank “political stability index” Turkey ranked 181 out of 195 in 2017. This index considers the social unrest, the security of borders, ethnical conflicts, and political rights. If we compare Turkey’s position with the six emerging economies, Turkey comes in last due to problems of border security, the 2016 coup attempt, and following social unrest. Poland tops the same list.

2.3

Access to Finance

The role of the financial system is increased by financial liberalization through globalization. The main aim of the financial system is to channel excessive funds into demanded areas. However, SMEs have barriers which prevent their potential contribution to economic growth although they constitute a large part of private sector. Financial and legal institutions play an important role in relaxing these barriers. Innovative financing instruments can help facilitate SMEs access to finance even in the absence of well-developed institutions. Factoring is an example of a technology that is particularly promising in the absence of developed institutions. A contestable financial system makes it more likely that such technologies will be adopted more rapidly. Furthermore, it is difficult for firms to grow to their optimal size since outside investors cannot prevent appropriation by corporate insiders and limiting firm size since it is optimal for firms to stay small when the business environment has weaknesses (Beck and Demirguc-Kunt 2006). Beck et al. (2010) emphasize that the current financial system supports low- and middle-income countries more than the high-income ones. Although banks dominate the first stages of economic development, the capital market is necessary for growing economies, especially for high technology or innovative investments (Gür 2014). Rajan and

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Zingales (1996), provide evidence that financial market imperfections have an impact on investment and growth. The level of financial development may also be a factor in determining the size composition of an industry as well as its concentration since the costs imposed by a lack of financial development may differentially affect incumbent firms and new entrants. In the absence of finance enterprises cannot develop, innovate, and compete with other firms in other countries which offer more favorable access to finance (Karacaovali 2016). Turkey is one of the countries affected by economic crises for many years. Political instability is another issue that causes volatility in financial markets. After the 2008 global crisis, a straight increase in “domestic loans provided by the financial sector” between 2010 and 2018 (The World Bank Data).

2.4

Labor Market

The main aim of labor regulations is resolving the conflict between employees and the employer fairly. The Legal Origin theory claims that the regulation structure of countries is determined by the inherited traditions (Botero et al. 2004). In developing countries where the sources are insufficient and the unemployment rate is high, regulations mostly focus on costs such as hiring, firing, social security applications, overtime payments (Esping-Andersen and Regini 2000). This kind of highly protective approach tries to improve the employee rights but may cause the expanse of the informal sector discussed above. To overcome this side effect, the World Bank recommends simple and flexible regulations for dynamic and competitive labor markets. Human capital is another dimension of workforce which covers education, experience and skills, besides physical strength and health that reflect on productivity. It is widely agreed that the productivity growth of the industrialized economies is mainly an ongoing intellectual achievement, a sustained flow of ideas. The industrial revolution involved the emergence of a class of educated people who spend entire careers exchanging ideas, solving work related problems, generating new knowledge (Lucas Jr 2009). Barro (1991) and Lucas Jr (2009) also claimed that strong human capital promotes the usage of technology and raises total factor productivity. Therefore, the improvement in factors that contribute to human capital such as education and vocational training will also contribute to economic growth. Michie and Sheehan (2003), indicate that short term and temporary working contracts, a lack of employer commitment to job security, low levels of training are negatively correlated with innovation. According to “human capital index” of 2017 that is published by “The World Economic Forum”, Turkey ranks 75 out of 130. This index measures capacity, efficiency, improvement and know-how. Norway, Finland and Switzerland are the highest scoring countries.

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Trade Openness

Although the benefit of trade varies over time, it has become a more determinant factor of economic growth with the rapid increase in global trade. Trade openness makes countries able to break into global markets for production and services and integrate new technologies that increase productivity and proficiency essential for long run growth. More efficient techniques of production lead to faster growth of total factor productivity and hence real per capita income (Harrison 1996; Miller and Upadhyay 2000; Vamvakidis 2002). Dowrick and Golley (2004) observed that trade openness benefits developing countries more than the developed ones. The World Bank qualifies the benefits of trade openness, noting that the ‘more globalized’ group has been able to break into global markets for manufactured goods and services rather than relying on traditional primary exports. Özel et al. (2013) found that, when other effects are stable, trade openness in Turkey increases export volume and affects the economic growth in a positive way. Trade openness means to eliminate trade barriers by simplifying regulations, decreasing custom costs, shortening the custom clearance period, and adapting to international norms and expectations (Chimobi 2010). After many years of closedeconomy experience, the reform measures announced on 24 January 1980 and The Customs Union Agreement in 1996 as the main steps for trade liberalization (Hepaktan 2009). According to the “trade openness index” of The World Bank, Turkey’s index value of 45.9 in 2010 slightly increases and reaches to 60.4 in 2018. Compared to other emerging countries, Turkey’s index value is third after Poland and Mexico. For emerging markets like Turkey, the content of exported items is as important as the export volume. In terms of value-added products, technology transfer is a key issue for sustainable export growth, and we must also consider that high technology products also require Research and Development investment. Compared to China’s 24% and Mexico’s 16%—the best two ratios among the emerging countries (The World Bank), the manufactured export high technology product share of Turkey is currently of only 3%.

2.6

Infrastructure

Increasing competition in foreign trade requires cost effective and well-organized infrastructure for global trade (Ślusarczyk 2010). Infrastructure investment is not only for the benefit of trade but also increases the life standards of each income group through transport, energy, telecommunication services. With increased competition in major markets forcing business to adapt to just in time production and management systems, flexibility, speed, and reliability in delivery of goods have assumed significant importance. Some of the delays are due to poor infrastructure in both transit countries and in national economies. Improvements in transportation contribute to lower trade costs so that distance matters less for integration. Inefficiencies in

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infrastructure have a negative effect on growth and international competitiveness through high production cost (Mbekeani 2007). Turkey has an attractive improvement in infrastructure. After 2010, the investment in highways has been attractive. The capacity of ports is expanded, and the private sector is encouraged to invest in railways. The Logistic Performance Index is one of the indexes created by The World Bank in order to measure the quality of logistic services based on criteria such as shipment frequency, on-time delivery, cost effectiveness, transportation quality and efficiency of the custom clearance process. When we compare Turkey’s index rank with the six emerging countries, Turkey ranks 47, just after Russia with 75. China ranks highest with 26. Although Turkey shows a big improvement in the infrastructure investment, it ranks lower than expected since the energy cost, especially electricity, is quite high and it reflects on the logistic cost.

3 Comparison of Emerging Countries The World Bank conducts “enterprise surveys” in partnership with other countries to provide an expansive array of economic data useful to policy makers. These surveys are conducted frequently and provide great help for policy makers who need to identify, prioritize, and implement reforms for institutions that support private sector efficiency. The World Bank Enterprise Survey designs questionnaires about corruption, crime, finance, firm structure, legal system, informality, infrastructure, innovation, performance, regulation, tax, trade, and labor. The representative survey sample of Turkey is chosen from private sector firms of different regions. Corruption, access to finance and poorly educated people are Turkey’s main areas that improved most as of 2013 in comparison to the other six emerging countries. Table 1 illustrates The World Bank’s Enterprise Survey results of emerging countries in comparison with Turkey’s 2013 survey results. Table 2 shows the compared results of the 2013 and 2019 survey in Turkey. If we compare the results of 2013 to those of 2019, corruption, logistic and the informal Table 1 The biggest obstacles of emerging markets Indicators Tax rate % Political instability % Access to finance % Corruption % Poorly educated people %

Turkey 2013 37.4 11.5

China 2012 15.1 0

India 2014 13 3.5

Brazil 2009 33.5 3

Russia 2012 36.1 7.8

Mexico 2010 14.3 5.2

8.9

22.4

11.7

3.6 1.6

0 13

19.9 3.4

Poland 2013 28.7 9.4

7.5

14.8

12.4

13

3.3 12.6

8.2 6.4

11.3 4.3

3.4 0

Country Turkey 2013 Turkey 2019

24.1

Tax rate % 37.4

8.3

Informal sector % 20.2

1.1

Corruption % 3.6

Table 2 The biggest obstacles to firm growth

20.8

Political instability % 11.5 28.9

Access to finance % 8.9 6.6

Poorly educated people % 1.6

0

Logistic % 4.8

2.6

Electricity % 4.6

1.5

Business license % 2

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sector show considerable improvement. Logistic is not among the biggest obstacles in 2019 anymore. Tax rates, access to finance and political instability are the biggest constraints. The increasing percentage of “access to finance and political instability” are signs of volatile markets as a result of security unrest of borders after 2013.

4 Turkey’s Survey Results This section is aimed at discussing the supportive and qualitative data focused on suggestions for improvement of business environment, collected from micro, small and medium size firms, in addition to the comparisons made with some other countries quantitatively by various indexes. For this purpose, semi-structured interviews were conducted with open-ended questions with firms located only in Istanbul and that are involved in international trade or services. The firm selection is quite different from the World Bank’s Enterprise Survey. In the Enterprise Survey of the World Bank, the representative sample of an economy’s private sector was chosen. However, for the purpose of this research, firms chosen were open to innovation, growth and willing to produce value added goods or services, meaning that they were more sensitive to the business environment conditions. In Table 3, the details of the interviewed firms are given. During the interviews, firm agents are asked about the challenges and constraints they face in business environment, especially about regulations, labour, legal system, foreign trade, infrastructure and access to finance and the participants are also asked to mention the biggest obstacles for their firm growth. 22 questions are prepared based on the sub-titles used in “doing business index”, “enterprise surveys of The World Bank” besides literature review. The data was recorded between December 2018 and January 2019. Recordings were transcribed and organized under the main topics. The findings of this field research are discussed in the following paragraphs.

Table 3 Interviewed firm details Business type Foreign trade consultancy Electronic security systems supplier Textile manufacturer Manufacturer/supplier Home textile retailer Mining Forex trading agency Garment agency Construction and building Manufacturer of household appliances

Avearage headcount 3 5 1.500+ 230 805 100 350 30 220 1.500+

Interview participant’s title Partner Owner Managing Director Director Vp Internatonal Operations Sales & Marketing Mng. Compliance Mng. Key Account Mng. Sales and Project Mng. Marketing and Logistic Mng.

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• Unexpected regulations or revisions do not allow firms to go through long-term planning. They do not have enough space to adapt to new processes and sometimes the transition period is even more complex when the details cannot be well understood. License, patent and permissions have time consuming processing periods. Fees are high and have to be paid regularly that is considered inefficient. Claim cases are also time consuming, and mostly result in loss of money. Since insuring receivables is an expensive option, firms mostly limit their payment methods to cash or prepayment. Although the informal sector is not a big risk for firms, it causes unfair competition. The 2013–2019 improvement in the World Bank survey results is still under close scrutiny. Social security premiums and taxes which are among the biggest constraints of Turkey’s survey result, are also considered high by the participants. Contract enforcement is one of the criteria of the “doing business index”. Turkey’s best score is in this section and that matches the participants’ positive feedback. Corruption is also an area where big improvement has been achieved, according the survey results of Turkey in 2019. The construction sector is mentioned as still struggling with this issue. • The finance sector was quite volatile between 2013 and 2019, especially in terms of the exchange rate volatility effects. Both exporters and importers have been heavily affected by it since raw materials are mostly imported. Although various financial tools are available, firms cannot access finance due to the high interest rates. • Demand uncertainty of volatile markets is another barrier for growth. Economic instability hampers long term predictions of companies and that in turn reduces the investment amounts and fosters trust problem between the private sector and financial markets. • Inefficient workforce is mentioned as a big problem by the participating firm executives. Insufficient foreign language level, resistance to taking extra responsibilities and lack of technical knowledge are the main reasons of dissatisfaction. If we consider the survey results of Turkey, there is an increase in the constraint of poorly educated people from 2013 to 2019, which can be due to the expanded foreign trade volume of Turkey during this period. • Big improvement has been achieved in custom clearance by online processing. However, import and export funds, warehouse rents are mentioned as costly. A high volume of paperwork is also mentioned as required for imports. • The infrastructure is sufficient but considered expensive. Electricity is a significant cost factor for manufacturers. Logistic services are found satisfactory and accessible by all participants in accordance with 2019 survey results of Turkey. “Partial shipment of goods at -18 degrees” needs improvement, according to these results.

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5 Conclusion and Suggestions for Improvement • If new regulations or revisions are implemented step by step, firms will have a smooth transition period for processing and further planning. The license and patent registration process could be simplified. Extending the validity period will support cost reduction. In some countries special courts are established to reduce the receivable claim period for small amounts. Similar institutions may prove beneficial for small amounts of receivables in Turkey. • Although the structure of financial sector is strong, high collateral and insurance amounts put a barrier between the private and financial sector. More detailed risk analysis will help with cost optimization. Cooperative and the cost-effective insurance sector are key to allow for new investment areas such as organic agriculture. New investment areas will also help reduce the unemployment rate. • The increasing global trade of Turkey raises the necessity of more capable employees. Effective vocational training programs for high schools and the adaptation of University education to private sector requirements will help create a more efficient workforce for the labor market. • Raw material production is essential for cost reduction of finished goods. • Electricity is one of the major costs of the firms. Decreasing the illegal usage of electricity by efficient controls, and consumption incentives for manufacturers can be proposed. Acknowledgement This article is derived from Dilek Yomralioglu’s master’s thesis entitled as “Business Environment Perception of Firms in Turkey: Problems and Solution Proposals” submitted to Social Sciences Institute of Istanbul Medipol University in 2019.

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Placing Quality Assurance Process in Enterprises to Improve Financial Effectiveness Sebahattin Kılınç

Abstract Quality assurance is defined as the assurance of the services and products of the institution, which are offered to stakeholders in terms of compliance with the standards, and is a means of sustainable competitive advantage in enterprises. Especially in Turkey, the increasingly common quality assurance approach has become a prerequisite for the competition. In this context, in order to use the resources effectively and efficiently, comparison and grading of the companies operating in every sector have become essential and these services are performed by the accreditation institutions specialized in these fields. It is estimated that these studies will be used in all decision making processes that will include resource allocation in the upcoming periods. The efforts of businesses that see this process to turn the quality assurance process into a corporate culture are observed. In this study, information will be given about the common processes to be followed based on experience and observations in enterprises that adopt a quality assurance approach to achieve sustainable competitive advantage.

1 Introduction Quality assurance has been widely used in the western business world since 1950s in order to improve products and services. It has become essential especially for global companies to adopt a quality assurance approach in their products and services in order to achieve sustainable competitive advantage. Businesses that do not adopt the quality assurance approach have disappeared by not being able to withstand harsh competitive conditions. In the 1950s, the quality assurance approach was first adopted in Japanese enterprises, especially in the automotive sector. The rapid increase in the market share of the Japanese automotive companies in the world market has enabled the quality assurance approach to shift to other countries and sectors. S. Kılınç (*) Turkish Ministry of Defense, Army DPT, Ankara, Turkey © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 H. Dinçer, S. Yüksel (eds.), Financial Strategies in Competitive Markets, Contributions to Finance and Accounting, https://doi.org/10.1007/978-3-030-68612-3_22

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“Quality” is defined as “Compliance with goals” by Joseph Juran, who is accepted as the main reference in the literature, and “Level of meeting the requirements” by Philip Crosby. However, Edwards Deming, who is accepted as the father of the quality approach, laid the foundations of the approach while working with Walter Shewhart in the research team and Bell laboratories of Elton Mayo, where he worked at the Hawthorne branch of Western Electric in Chicago in the 1920s. The approach that he developed in America started to become widespread and then became a necessity only after consulting companies in Japan on quality assurance in the 1900s. In the manual where ESIB (2002) was published, Quality Assurance; is defined as the assurance that the institution provides to its stakeholders in its services and products, with a cause-effect relationship based on statistical processes for preventive purposes. Quality control, on the other hand, refers to the procedures and processes implemented by the institution in order to comply with standards in service and product outputs. Quality improvement or improvement practices refer to the continuous improvement process in the services and products of the institution. Quality evaluation generally refers to the process of evaluating the services and products of the institution in line with the standards accepted by an organization outside the institution. Quality auditing refers to auditing the process of producing the products and services of the institution effectively and efficiently according to the determined standards. Total quality management, on the other hand, refers to the process that includes both internal and external stakeholders for continuous improvement and based on teamwork with a widespread sense of responsibility (Dale and Plunkett 1980). Standards are defined as the accepted levels of activities for the purposes. Quality culture is defined as the application level of all processes and activities of the institution by making quality a policy. It can be said that as the level of application of the institution’s quality policy in all its processes and activities increases, it becomes a behavior. Accreditation is defined as the institution’s meeting the strictly defined standards in any field. If we examine the chronology of the development of quality as a concept and application tool (Sallis 1996): • Before 1900, ergonomics and suitability for other purposes in the handicraft products of craftsmen, • 1900–1920, industrial revolution and foreman control in mass production method, • 1920–1940, audit-based quality control approach, • 1940–1960, statistical control of the processes, • 1960–1980, establishment of quality departments in enterprises and Quality Assurance Approach, • 1980–1990, use of Total Quality approach, • Since 1990, it has passed through the periods of widespread quality responsibility and continuous improvement approach. Deming, who is accepted as the father of the quality approach, used quality as a preventive tool and tried to explain and spread it with the following 14 criteria (Deming 1986);

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1. Continuous improvement approach in the products and services of the enterprise for continuous employment and sustainable competition 2. Abandoning old processes leading to faults, delays and mistakes and adopting the new production philosophy, 3. Instead of collective control at the end of the process, the manufacturer and service personnel control their own work at each stage of the process 4. Not to use the reward system- based only on physical gain and salary, 5. To reduce the costs by continuously improving the production and service in terms of quality and efficiency, 6. Ensuring efficient and effective use of the workforce by focusing on training the workforce on the job. 7. Spreading leadership behaviors that will set an example for the whole organization instead of just the supervisor by placing leadership, 8. By eliminating fear in all processes, increasing the motivation of the staff and ensuring that they do their job efficiently, 9. Increasing cooperation and coordination by removing barriers and boundaries within the institution, 10. Instead of setting slogans and high targets, increasing the outputs by ensuring efficiency in performing the work without increasing labor and other resources, 11. Failure to use business standards based on figures, 12. To make people proud of their jobs, professions, and positions, 13. Encouraging the education and self-development process, 14. All staff take part in a widespread sense of responsibility for transformation and development. Defining quality as compliance with the goals, Joseph Juran states that the goals should be shaped according to the expectations of the stakeholders. For this, he proposes 3 stages (1989) ; 1. Building annual structural development plans, 2. Training the whole institution, 3. Implementation of quality-oriented leadership Stating that 85% of the problems in the institution are of administrative origin, Juran (1989) proposes a 10-step process for placing the quality approach: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Placing awareness of need and opportunity for improvement Setting clear targets in the direction of improvement, Establishing an organizational structure to carry out the improvement process, Providing appropriate education, Placing project-based approaches to problem solving, Identification and reporting of the healing process, Determining and supporting success, Reporting and discussing the results, Recording changes, Placing continuous improvement circles in all processes of the institution.

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Expressing that quality is not abstract, luxurious and unattainable and requires zero defect approach, Crosby states that there are 4 requirements for quality management (1984); 1. 2. 3. 4.

Quality defines compliance with the expectations of customers. Reaching the quality is possible with preventive measures, not controlling. The standard of performance is zero error. The indicator of quality is the cost of non-compliance with expectations. As compliance increases with expectations, quality level will increase, output will increase, and cost will decrease. Crosby proposes 14 steps for quality management (1984)

1. Adopt the need for quality improvement, which requires full dedication from management, 2. Establishing a quality team to manage the process, 3. Implementation of quality management processes, 4. Defining and spreading the cost of quality, 5. Creating a quality awareness program, 6. Placement of corrective action processes, 7. Planning the placement of the zero-error approach, 8. Training of managers and leaders, 9. Determining the zero-error approach with the participation of all staff to start the process, 10. Setting targets for the continuation of the action, 11. Placement of employee-manager (leader) communication systems, 12. Determination of the personnel actively involved in the process, 13. Assigning quality commissions to sustain the process, 14. Sustainment of all of the accomplishments In the business world, we see that there has been studies in the field of quality assurance, which has been introduced since the 1950s, in the public institutions, especially in the world of education, in the USA since the 1900s and in Europe since the 1980s (Matei and Iwinska 2016). The identification and placement of quality assurance perception in public institutions and organizations, especially in institutions providing education and training, compared to the private sector aiming at making profit, has taken both time and different approaches. As one of the reasons for this, it can be shown that the fields of activity of higher education institutions include many segments of internal and external stakeholders (Beckett and Brookes 2008). The difference of expectations and goals of all these different stakeholders makes quality perception and definitions difficult (Deming 1993). Quality perception and definition in public institutions and organizations have been formed in accordance with the organizational goals. The objectives in public institutions and organizations consist of statements that will meet the expectations of the stakeholders as expressions determined in the strategic management process and written in the strategic plan (Yener and Arslan 2019). While the expectations of the relevant stakeholder group within the framework of the standards accepted in the relevant

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field are defined as the goals of the public institution serving the strategic management process, the level of achieving these goals constitutes the perception of quality. In this regard, the definition of quality assurance is expanding as public institutions serve many stakeholders as defined in their strategic plans. From a different perspective, it is seen that a single quality assurance definition cannot be made. It can also be seen that the changes that the society, including the public institutions, have undergone these definitions. At the same time, the pressures faced by the public institutions in the fields of management, primary duties, research and social responsibility, in terms of infrastructure, finance etc., make their jobs more difficult and force them to work more effectively and efficiently on quality assurance (Puzziferro and Shelton 2008). It is observed that the internal and external stakeholder groups of the companies, which started the quality assurance processes early, are more loyal, they are less sensitive to economic crises and can operate more autonomously (OECD and World Bank 2007). This study, which aims to present the quality assurance studies of the selected enterprise within the framework of the qualitative research diversification mentioned above, is thought to guide many businesses that experience the same process in the field.

2 Quality Approach Nowadays, with the effect of globalization, the compliance of companies that want to achieve sustainable competitive advantage in production, management, infrastructure, materials and services, R&D, accounting and financing, human resources functions has become essential (Yener and Saka 2017). In this process, businesses are directed to external evaluation and audit processes as well as internal evaluation and audit. In terms of internal evaluation and auditing, companies are required to implement an internal audit process that covers financial, compliance and fields of activity, which are accepted in the world. In addition, evaluation and auditing processes involving all stakeholders of institutions are considered necessary in terms of quality. Quality in terms of internal environment; sharing and exchange of information, interactive networking, production processes and methods, research and development, marketing etc. is measured in the processes. Its external environment includes factors such as its location, changing expectations and the level of meeting the needs in terms of equivalent enterprises at regional, national, and international level. Quality approach in enterprises can be approached with two different approaches, internally and externally. While defining the values and policies of the internally produced products and services in accordance with the expectations of the stakeholders, the level of meeting the expectations and needs of the stakeholders within the framework of an externally changing society is defined (Yener and Arslan 2019). Externally, the quality approach has more economic sensitivities. Quality assurance from both an internal and an external approach (Smidt 2015; Barnett 1992) covers topics such as:

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The objectives of the business, Ways and policies to serve stakeholders and the society, Production processes, Creation and development of knowledge, experience, and skill.

In general, while the quality assurance approach examines the characteristics of the production processes, it proposes transparent structures that can be followed by all stakeholders and serve the purposes of the business (Ryan 2015). In this context, it is necessary to touch on the concept of accreditation. Accreditation is defined as an indicator of meeting certain standards because of the evaluation of the structural characteristics of the institution in a specific time period in the related field (CHEA 2014; Harvey and Green 1993). The obligations of businesses to establish quality assurance systems or to ensure their accreditation can be based on several reasons (Wong 2012). First, businesses try to gain sustainable competitive advantage with limited resources. The sources they use are indirectly the sources of the society. Many stakeholders are expected to meet their expectations in the environment in which they operate. The expectations of the society and state administrators are to provide the service provided with a qualified workforce. As the definition of a qualified workforce changes over time, businesses should also develop themselves in this direction. While quality assurance is shaped to meet these requirements at the regional and national level, it is the main objective to be able to compete in the same sector at the international level. On the other hand, there are missions within the framework of social responsibility in all areas of the society where higher education institutions are located. Achieving sustainable competitive advantage at the regional, national, and international levels from the economic, social, and other aspects is only possible with a quality approach. This requirement makes it imperative to place quality assurance processes. There are many criticisms of the approaches and tools for the establishment of a quality assurance process in Turkey and in the world. One of the reasons for the emergence of criticism is the dimensions that accreditation organizations or external evaluation organizations focus on. When looking at examples in the world, some accreditation processes focus on the perfection of outputs, while others focus on public or non-public institutions. Accreditation institutions for non-profit and non-profit organizations may also differ (Ryan 2015). In addition to accreditation organizations focusing on service and product qualifications, some accreditation bodies focus on culturally based assessment processes, considering national or regional differences. It is claimed that the quality assurance processes that yield effective results in the research generally follow the tactics below: • Implementation of External Quality Assurance processes considering external assessments, • Adopting practices that will increase the participation of external and internal stakeholders in decision-making processes, • It is considered as the adoption of strategies to increase structural and other resources.

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One of the biggest problems faced by businesses that follow these processes is that their employees’ perceptions and attitudes towards the process are negative (Altman et al. 2014). With a preliminary study covering all blue-collar or whitecollar employees, it may be necessary to measure the perceptions of the personnel and develop an implementation strategy accordingly. It can be successful if all staff carry out this process by adopting the process and identifying with the institution. On the other hand, the involvement of direct or indirect stakeholders in their key areas of activity is important (Elassy 2013). It is claimed that the quality assurance approach is not sufficient in today’s businesses and that there should be institutions that are constantly improving due to the fact that competition is accepted as learning organizations (Avdjieva and Wilson 2002). Learning organizations are considered as organizations that constantly improve by drawing lessons from their experiences and observations. While the quality assurance approach assures compliance with existing standards, learning organizations raise their standards. Compliance with standards and operating above standards require the active participation of all internal and external stakeholders of the institution (McKay and Kember 1999). In this context, when the institutions that have made quality assurance the main philosophy are examined, the institution must first make personnel internal stakeholder and its surroundings into the culture of the institution (Elton 1992).

3 Quality Assurance in Business Considering the publications of Crosby, Juran and Deming, which are accepted as the main references of the quality approach in the literature, a few criteria stand out for the establishment of the quality approach in the enterprises: 1. The commitment of senior management to the process and leadership play a vital role in the quality approach, 2. Creating an environment that includes staff training and organizational learning to perform tasks and responsibilities in accordance with the standards every time, 3. Developing new approaches and technologies to improve quality, 4. Placement of participative management and teamwork, 5. Placing the communication environment for the follow-up of the result and the process, 6. Rewarding the efforts of the staff without creating a competitive environment, 7. Creating standards-based processes that reflect the expectations of stakeholders, 8. It is defined as the creation of quality circles and culture. If we examine the qualitative dimensions of processes and outputs to define the quality approach in businesses (Garvin 1984): 1. As the performance dimension, the products meet the expectations, 2. Flexibility of the services and products produced as basic performance functions,

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3. Information is accurate and up to date as reliability, 4. Education in compliance with the specified education standards and guarantees given, 5. The depth of service provided as continuity, 6. Updating the skills gained to existing employees in accordance with the service in accordance with the determined professional standards and developments in the labor market, 7. Aesthetically improving activities such as management, production, marketing, R&D, accounting and financing to attract and influence stakeholders, 8. The perceived quality can be shown as the compliance of the stakeholders with the quality standards. On the other hand, it is stated that the qualities of the software used in large-scale enterprises must have some qualifications (Owlia and Aspinwall 1996): 1. 2. 3. 4. 5. 6. 7. 8.

The level of software’s accuracy As reliability, the software provides up-to-date, accurate and proper information, As efficiency, the software supports the activities carried out, As a conformity, the software does not allow unauthorized transportation, As its usefulness, the software facilitates learning and communication, Status of software after sales services and services as maintenance and support, Software as a testability to provide evaluation appropriate for the course, It has been shown that the software can be used flexibly in different activities of the business.

As the dimensions of the quality of the service provided in the enterprises (Owlia and Aspinwall 1996): 1. The training given reliability should be appropriate, correct and up to date, 2. The desire and preparation of the employees to respond to the expectations of the customers in response 3. As the understanding of the needs, the institution defines and perceives the customers’ expectations and needs, 4. Being able to meet the guidance and other needs of its employees as an access, 5. Competence of theoretical and practical knowledge and other skills of employees as competence, 6. Emotional and positive approaches of employees sincerely, 7. Communication environment of employees and other stakeholders as communication, 8. Credibility of the institution as credibility, 9. Reliability of information as security, 10. Adequacy of materials and facilities as physical facilities, 11. Products as performance, 12. The combined use of knowledge, skill, and technology, 13. The use of information in other areas as flexibility,

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14. In response, the institution’s reaction to the complaints and problems of the stakeholders can be seen. According to the publications and observations regarding the quality approach in the literature, Owlia and Aspinwall (1996) propose 6 basic criteria with many sub-criteria in enterprises: 1. Physical Facilities (a) (b) (c) (d) (e)

Adequate equipment and facilities, Modern equipment and facility, Accessibility, Visually impressive environment, Supportive services such as shelter, physical activity areas.

2. Competence (a) (b) (c) (d) (e)

Adequate staff, Theoretical knowledge and qualifications, Application information, Update, Expertise and communication.

3. Attitude (a) (b) (c) (d) (e)

Understanding the needs of stakeholders, Willingness and desire to help, Guidance and advice services, Personal interest, Emotional and sincerity (empathy).

4. Content (a) (b) (c) (d) (e)

Activity, Basic knowledge and skills, Dominance of technology tools, Communication skills and teamwork, Interdisciplinary use of information.

5. Presentation (a) (b) (c) (d) (e)

Effective presentation, Time compliance and order Fair evaluation, Taking into account the feedback of stakeholders, Supporting stakeholders.

6. Reliability (a) Reliable processes and outputs, (b) Rewarding,

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(c) Rewarding the performance in line with the targets, (d) Responding to stakeholders’ complaints and expectations.

4 Quality Assurance Process at X Enterprises It is seen that the enterprise examined in the case study is a young enterprise in the sector and despite its many problems and constraints (all kinds of resources such as human, physical etc.) it carries out its quality assurance studies with an unprecedented synergy, and this is observed during the external evaluation process. In addition, if Deming sees Juran and Crosby as one of the primary requirements, having a dedicated senior management is emphasized in these evaluation processes as one of the strengths of the business. The process is carried out synergistically with the teams formed by the dedication and forefoot of the top management. The activities and strategies followed by the company in this process are classified under the themes set out in the literature review and observations and presented below. • Dedication of Top Management – The top manager of the institution was personally involved in the planning and execution of all activities in the maintenance of the process. – One of its assistants has been officially appointed to sustain the process. – A Quality Management Unit directly connected to the top manager is established within the framework of an order and included in the organization. • Preliminary Studies – Internal and external environmental analyses were carried out within the framework of the case study. In the external environment analysis, the sectoral (other universities with similar status and level), the near (direct interaction environment) and the remote environment (Political, Legal, Economic, Sociological etc.) are analyzed. – A comprehensive instruction regarding the process has been created and started to be implemented. – Within the framework of the instruction, quality upper and lower commissions were formed and meetings were held at regular intervals. – Personnel in the commissions made observations by visiting businesses that have experienced the quality assurance process. – Observations and data collection were carried out to reveal the prior knowledge and perception of the personnel of the enterprise regarding the quality assurance process.

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• Raising Awareness – Quality Assurance Process Awareness Training has been given to all staff members in the Commissions. – TSE “TS EN ISO 9001: 2015 Quality Management System Certificate Program” training has been given to all personnel in the commissions. – Banners, slogans and information signs have been hung to raise awareness about the Quality Assurance process in accordance with the activities, duties and responsibilities carried out in all physical locations of the institution. • Placing the Quality Assurance Process – The top manager of the institution has an initiator and follow-up role in the whole process. – An orientation training program, which will include all personnel participating in the institution, has been implemented and efforts are made to increase the interaction between the individual and the institution and to reduce uncertainty. – The decisions taken at the meetings of the Board of Directors are taken in line with the policies, vision, mission, goals and objectives included in the strategic plan of the Agency. – In order to increase the awareness of the personnel regarding their duties and responsibilities, job description forms, which are shaped within the framework of current legislation, legal and administrative case law, have been prepared and notified to the personnel. – Successful personnel are declared and appreciated. Within this framework, award ceremonies have been organized for the last few years. – Administrative staff are encouraged to develop themselves to prevent institutional alienation and to increase corporate belonging, commitment, and loyalty. In this respect, the personnel of the institution are given priority in decisions to upgrade or appoint in the internal position, are encouraged to increase the level of education, and the process is facilitated by supporting educational efforts. – Expectations and requests of stakeholders are evaluated within the framework of legislation, opportunities and strategic plan. – Meetings have started to be held in order to revise the activities in accordance with the expectations by increasing the interactions with the stakeholder group related to their fields in the environment in which the company is located. – Workflow charts showing the way, expectations and goals of all the activities performed in the enterprise have been created. – Important instructions for stakeholders have been revised within the framework of the legislation in line with expectations with the participation of stakeholders. – For some functions of the institution, activities have been initiated to obtain certificates from the accreditation institutions such as TSE.

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– All forms and documents used within the institution in terms of standardization of services and activities have been revised, named, revised dates have been added and made available to users in a single center. • Defining and Breaking Resistance – In order to increase participation in all decisions taken by the management in order to define resistance and replace constructive criticism, suggestion and complaint functions are tried to be used when possible. – The necessity of quality assurance processes and their role in achieving sustainable competitive advantage are given through Quality Assurance awareness trainings, and prejudices against the process are tried to be prevented. – It is aimed to eliminate the ambiguity and uncertainty that causes resistance by increasing the visits and interactions of the top management towards stakeholders with different programs. – The decisions taken at the meetings of the Board of Directors are shared unless there is a situation that forces them to otherwise. – Because of reasons such as familial and personal reasons, the staff in need of senior management in matters related to tasks as management is trying to help at the expense of falling into staff shortages – The process of the personnel who will take office is personally monitored by the top manager of the institution, visited when he takes office and tries to address the difficulties and needs he encounters during the orientation phase. – The theme that the staff shows the most resistance has been the theme that the quality assurance process will increase the workload and that such a process is unnecessary. To overcome this, it is emphasized that the quality assurance system is not a parallel process applied by fulfilling the duties and responsibilities of the personnel, it is a tool and guide in the fulfillment of the duties and responsibilities of the personnel, that is, the basic evaluation criterion.

5 Methodology This research, which aims to describe the process of placing the quality approach in enterprises within the framework of the approaches in the literature, is a descriptive research, and a variety of qualitative methods are used in which data collection method is used in combination with several qualitative methods. Within the scope of method diversification, the author was also included in the Quality Assurance Studies as a member of the institution, and due to participatory observation, document review in the presentation of the subject’s place in the literature, and case (situation) analysis was used in terms of presenting the institution’s Quality Assurance studies within its own framework. All data collection methods used within the framework of the descriptive research type have been applied in a multidimensional way to best describe the process.

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Observation is a qualitative research method used to describe the behavior occurring in any situation or institution in detail (Yıldırım and Simsek 2016). The method of observation is used to obtain a detailed, comprehensive, and timely picture of the behavior that occurs. It can be said that the unstructured participant observation method was used as the findings obtained in this study were obtained in the natural environment by the personnel in charge of quality assurance studies. Document review involves the analysis of written materials that contain information about the phenomena that are aimed to be investigated (Yıldırım and Simsek 2016). Selection, analysis and interpretation of documents are shaped according to the research problem or case. Document review can be used as a research method alone or as a supportive method that increases the reliability and validity of the research. Case study is defined as a research method for a current phenomenon based on several data sources within its framework (Yin 2003). In terms of method and application, it is seen that it is very difficult to generalize the facts and inferences that are the subject of case study (Yıldırım and Simsek 2016). From this perspective, it is seen as one of the research methods of the Phenomenological Approach adopted as a criticism of the positivist approach (Aytaçlı 2012). Other titles presented as criticism to the case study method are expressed as the method reflects the bias of the researcher and takes a long time. In this respect, it is thought that analysis and interpretations can be generalized in such enterprises to eliminate the negative effects of these criticized aspects of the case study method on this study. In addition, to eliminate the bias of the researcher, another criticism, analysis, and interpretations are based on as much different evidence and sources as possible. The third criticism title, the long duration of the research, was not very effective in this research since the author was involved in the institution’s Quality Assurance process from the beginning. Because one of the professional duties and responsibilities of the researcher has been the quality assurance process. The experiences of adopting the quality assurance approach of the selected company, making it a corporate culture and its implementation were examined within the framework of the case study method. The fact that the author of the research is actively involved in this process and the areas of expertise are compatible are important for the full implementation of the case study.

6 Conclusion and Discussion In order for the quality assurance approach, which is seen as a tool of the strategic management process, to be successful, the intention and purpose of top management, which is the first stage of the strategic management process, must be in this direction. In this respect, it is seen that the senior management of the enterprise subject to the case study tries to turn the quality assurance approach into a management culture and tries to manage all activities of the institution within the framework of this approach.

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In such processes, the biggest obstacle for institutions is resistance despite many constraints and lack of resources. Breaking the resistance and creating synergy requires a high level of interaction management approach (Yener 2018). In addition, maximizing staff participation is one of the supportive strategies. From this point of view, participation of employees of all levels and other stakeholders in the decision-making process in different ways is tried to be increased. The theme of another resistance title, the quality assurance process, which will increase the workload as well as the duties and responsibilities of the personnel, has been a feedback received from almost all personnel. In order to overcome this, documents, forms and standards to be used in all activities in the institution were created. In addition, awareness raising works are carried out to ensure that the quality assurance process is not the workload, but the standard of execution of the duties and responsibilities of the staff. Getting into this study brought up another topic that we are in, but not aware of. Lack of standards for the institutions to be followed by the quality assurance process, lack of comprehensive guidance and similar tools in this regard, or insufficiency of the institutions cause the institutions to determine and follow their own processes. This causes differentiation of the processes of even two institutions that perform the same service by the quality assurance process. As a way of overcoming this, recording such processes can be seen as a proposal. Presenting these registered processes to the service of similar institutions that are needed can be a valuable service to the field, as well as the comparison of the processes of institutions.

References Altman BW, Schwegler AF, Bunkowski LM (2014) Beliefs regarding faculty participation in peer reviews of online courses. Internet Learning 3(1) Avdjieva M, Wilson M (2002) Exploring the Development of Quality in Higher Education. Manag Serv Qual 12(6):372–383. https://doi.org/10.1108/09604520210451858 Aytaçlı, B (2012) Durum Çalışmasına Ayrıntılı Bir Bakış. Adnan Menderes Üniversitesi Eğitim Fakültesi Eğitim Bilimleri Dergisi 3(1):1–9. Retrieved from https://dergipark.org.tr/tr/pub/ aduefebder/issue/33889/375231 Barnett R (1992) Improving higher education: total quality care. SRHE and Open University Press, Bristol, PA Beckett N, Brookes M (2008) Quality Management Practice in Higher Education-What Quality are we Actually Enhancing ? J Hosp Lesiure, Sport Tour Edu 7(1) CHEA (2014) Council for Higher Education Accreditation Report Crosby PB (1984) Quality without tears. McGraw Hill, Singapore Dale BG, Plunkett JJ (1980) Quality costing. Gower Press, Brookfield, VT Deming WE (1986) Out of the Crisis. Cambridge University Press, Cambridge Deming WE (1993) The New Economics for Industry, Government, Education. Massachusetts Institute for Technology, Center for Advanced Engineering Study, Cambridge, MA Elassy N (2013) A model of student involvement in the quality assurance system at institutional level. Qual Assur Educ 21(2):162–198. https://doi.org/10.1108/09684881311310692

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Elton L, (1992) University Teaching: A professional model for quality and excellence’, paper to the ‘Quality by Degrees’ Conference at Aston University, 8th June, 1992 ESIB (2002) European Student Handbook on Quality Assurance in Higher Education Garvin DA (1984) What does product quality really mean? Sloan Management Revalue System 26:25–43 Harvey L, Green D (1993) Defining Quality. Assess Eval High Educ 18:9–34 Juran J (1989) Leadership for Quality: An Executive Handbook. Free Press, New York Matei L, Iwinska J (2016) Quality Assurance in Higher Education; A Practical Handbook. In: Central European University, Yehuda Elkana Center for Higher Education. Hungary, Budapest McKay J, Kember D (1999) Quality Assurance Systems and Educational Development. Part 1: The limitations of quality control. Qual Assur Educ 7(1):25–29. https://doi.org/10.1108/ 09684889910252504 OECD & World Bank (2007) Cross-border tertiary education: A way towards capacity development Owlia MS, Aspinwall EM (1996) A framework for the dimensions of quality in higher education. Qual Assur Educ 4(2):12–20 Puzziferro M, Shelton K (2008) A model for developing high-quality online courses: Integrating a systems approach with learning theory. Journal of Asynchronous Learning Networks, 12(3–4). Online Learning Consortium, Newbury, MA Ryan T (2015) Quality Assurance in Higher Education: A Review of Literature. High Learn. Res. Commun 5(4) Sallis E (1996) Total Quality Management in Education. Kogan Page, London Smidt H (2015) European quality assurance-a European higher education area success story [overview paper]. In: Curaj A, Matei L, Pricopie R, Salmi J, Scott P (eds) The European higher education area: between critical reflections and future policies. Springer Open, London, pp 625– 637 Wong VY-Y (2012) An alternative view of quality assurance and enhancement. Manag Educ 26 (1):38–42. https://doi.org/10.1177/0892020611424608 Yener S (2018) İşten Ayrılma Niyetinin Belirleyeni Olarak Psikolojik Rahatlık. Anadolu Ünviersitesi Sosyal Bilimler Dergisi 18(3):168–192 Yener S, Arslan A (2019) Kuram ve Uygulamada Girişimcilik. Çizgi Yayınevi, Konya Yener, S. & Saka, C. (2017). Psychological Safety within context of Organizational Learning, Sinop Univ Soc Sci J, 1(1), ss.45–66 Yıldırım A, Simsek H (2016) Sosyal Bilimlerde Nitel Araştırma Yöntemleri. Ankara, Seçkin Yayınevi Yin RK (2003) Case study research. Design and methods, 3rd edn. Sage Publications, Thousand Oaks, CA

Marketing and Financial Services in the Age of Artificial Intelligence Ayşen Akyüz and Korhan Mavnacıoğlu

Abstract Marketing is changing rapidly with the advancements in AI systems. AI presents several opportunities as gaining insight, hyper-personalization, enhancing the customer experience, providing customers with better service, reducing operational costs, increase efficiency, etc. Artificial intelligence has become a game changer for marketers as it is for financial services providers. Therefore, it is paramount to build a good understanding of AI in the marketing context and mention the fundamentals of AI usage in financial services as AI is introduced as a significant competitive edge factor in financial marketing in recent years. This study aims to explore AI and marketing in a theoretical base and aims to explain the issue with a holistic approach.

1 Introduction In the digital age we are in, with the increase of the application area of artificial intelligence, the marketing industry is evolving like other sectors. Consumer habits are changing and with the development of technology, quality comes to the fore. AI collects data and quickly identifies the relevant data for the organization by way of machine learning. It provides support to digital marketers in the fields of data analysis, data processing, advanced campaign automations, personalized approach to the customers, user experience development, handling much of the timeconsuming tasks and many more. With increasing customer knowledge and improving machine learning, marketers will have the opportunity to engage users in new ways, deepen their understanding on consumer behavior and buying habits and then create a marketing system that would potentially deliver lots of customized offers in real-time. With personalized campaigns, customer retention rates and number of loyal customers are expected to increase. Thus, overall customer satisfaction will be

A. Akyüz (*) · K. Mavnacıoğlu The School of Communication, İstanbul Medipol University, İstanbul, Turkey e-mail: [email protected]; [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 H. Dinçer, S. Yüksel (eds.), Financial Strategies in Competitive Markets, Contributions to Finance and Accounting, https://doi.org/10.1007/978-3-030-68612-3_23

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high and customer experience will be enhanced. Therefore, artificial intelligence has become a valuable tool for marketing and obviously it would create a competitive advantage for the company. This study investigates artificial intelligence on a conceptual basis in the context of marketing and aims to create a framework for marketing researchers. Along with the significant impact of artificial intelligence on marketing, AI’s impact on financial services and ethical concerns regarding AI usage, are also mentioned in the study.

2 Artificial Intelligence and Marketing Artificial intelligence can be defined as “machines that mimic human intelligence in tasks such as learning, planning, and problem-solving through higher-level, autonomous knowledge creation.” (De Bruyn et al. 2020). Analytics has developed to where it can handle unstructured problems and come up with suggestions in a way that would once have been called “expert” and even known as AI. An important feature of AI that separates it from traditional advanced analytics is automation of feedback loops and development, i.e. learning how to do it better by the algorithm (machine learning) and this in turn means that assumptions are being checked and evaluated against such parameters, as opposed to being reviewed by humans who then make decisions on what to do next. AI is generally very productive where AI ‘manages’ the action precisely and contained, quickly implemented and with measurable and appraisable results. However, it can be more complicated to deploy AI when decisions are more wide-ranging or take longer time to implement and time elapses before the results of the decisions are obvious. It might be hybrid, where AI is undertaking parts of the cycle along with human decision-makers (Stone et al. 2020). The most basic AI systems are entirely reactive, and they are built to become aware of an event and programmed to provide a predetermined response. The mentioned AI systems do not have the capacity to understand what led to the event and do not form memories. They do not have the ability to make use of the past experiences to make decisions based on information. IBM’S chess-playing computer Deep Blue and Google’s AlphaGo, a go playing program would be good examples of these types of systems. AI systems that are eligible for full representations of the world, recall memories, improvise to adjust to changing environmental circumstances, communicate to and learn from other machines and learn how to cope with new unknown scenarios is possible with “theory of mind”. The theory of mind is essential for human evolution, as it has helped us to learn from social experiences. Assuming machines will have the same reasoning and thinking capabilities as humans one day, they will need to be mindful of human motivations and intentions; alternatively, the coexistence of human-machine would at best become complicated, and at worst impossible. The top point of artificial intelligence would be building systems that exhibit consciousness. In a way, this is an extension of the “theory of mind” held by self-aware machines. The most popular AI being used

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today includes virtual personal assistants such as Alexa, smart devices, video games, consumer analytics and forecasting, text analytics, NLP, chatbots and social networking such as Instagram or Facebook (Mohanty and Vyas 2018). Some benefits of applying AI to marketing might include incorporation of learning from experience, identification of missing data, increased rationality, increased decision making speed, common basis creation for decision making process and higher quality marketing management projects (Stone et al. 2020). Jarek and Mazurek (2019) points out the impacts of artificial intelligence for consumers and marketers in their study. From consumers’ side, there comes a new kind of experience via hyper-personalization and additional services created by after sale services. A new dimension of the consumer-brand relationship formed with minimized post-purchase dissonance by virtually testing the product considered, eliminating the category learning process. In addition, consumers with the help of 24/7 customer service or automatic payments shop quicker and more conveniently. From marketers’ side, hard and time-consuming activities are eliminated. Moreover, AI enables companies build competitive advantage among rivals and develops new competences in the marketing team. Finally, Artificial Intelligence redefine how customer value is delivered and increase the role of finding new solutions through design. Mohanty and Vyas (2018) state that, the days of mass marketing campaigns are gone and in today’s increasingly digital world, the best way to reach customers is personalization. Artificial Intelligence helps consumers to have personalized services and interactions. Using not only customer-shared data, but also a wide range of data available on the web, for example, loyalty apps that can reside on our smart device. The loyalty application can deliver hyper-personalized deals to use in real time, based on consumer’ location, time of day and nearness to malls or retail outlets. The idea is to consider what the customer really wants (explicitly mentioned and unsaid), match these wants with the company’s products and services and close the deal to lead customer satisfaction besides business satisfaction. Amazon offers an outstanding example of how AI and humans conduct the business strategy in a continuous learning environment. The company has many AI systems such as recommendation engine, supply chain optimization, inventory forecasting system, etc. To create an operating and integrated AI ecosystem, these systems are interconnected with each other and with the human strategists. For example, if the sales forecasting system discovers that an item’s popularity is rising, it activates a sequence of communications: updating the inventory forecast, which activates an optimization mechanism in the supply chain system to bringing inventories up to date. This allows the recommendation engine putting the item forward, the benefit optimization system changing pricing and the marketing system and launching promotions and discounts in real time. In turn, the resulting impact feeds back to sales forecasting (Mohanty and Vyas 2018). There are many AI functions that can be applied to marketing (Jarek and Mazurek 2019):

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• Voice processing technologies: e.g. virtual assistants such as Siri supporting task execution • Text processing technologies: e.g. a virtual assistant entrenched in a mobile bank application making use of NLP handling customer complaints by answering their inquiries. • Image recognition and processing: e.g. as Estée Lauder does, using customer’s face image to find the right colors during online cosmetic shopping. • Decision-making: e.g. Netflix recommending new shows or a chatbot prepares a cocktail recipe based on the customer’s preferences and the ingredients he has at home. • Autonomous robots and vehicles: e.g. Amazon go application offers check-out free experience to its customers. As Davenport et al. indicates (2019), since AI will help businesses anticipate what consumers are going to buy, use of AI will lead to major improvements in predictive capacity. Businesses will also significantly alter their business models, relying on standards of predictive precision, supplying consumers with products and services on a regular basis, based on predictions and data related to their needs. This gives rise to numerous research opportunities, bear upon different customer buying behaviors and marketing strategies. One particularly significant field of research may relate to how well predictions AI-driven algorithms can extend to forecasting demand for new products. When attempting to incorporate artificial intelligence in their business process and framework, businesses need to concentrate on their goals, values, customer experience, position of the brand. Programs and applications of artificial intelligence build a different system working with high speed and accuracy. Marketers need proper user inputs such as loops, programs, etc. before any action is taken. AI is now evolving CRM systems. To keep up-to-date and reliable, many latest applications like Sales Force need a strong amount of human involvement. However, application of AI to these kinds of platforms, transforms a normal CRM system into a selfupdating, auto-correcting system that stays on top of the company’s relationship management. Artificial intelligence holds enormous potential in the field of digital marketing thanks to social media outreach and tons of data knowingly and unknowingly left behind during internet surfing. Utilizing artificial intelligence to offer improved consumer service, targeted marketing and predictive analytics would provide company with a great return on investment (Murgai 2018). According to the results of the study undertaken by Shahid and Li (2019) the major reason for companies to integrate AI to their business actions is the pressure coming from competition. Other reasons include media attention, digital maturity, and customers. The authors also found out that major benefits experienced by the marketers include ROI increase, efficiency increase, time saving in functions related to marketing, improved conversion rates, development of good understanding of customer information, feasible marketing decisions, improved customer satisfaction and data analysis and efficient management of processes.

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3 AI Applications There are various applications of AI to marketing. Some of the most important ones are indicated hereby. Predictive Analytics It is a set of business intelligence technologies that reveals interactions and patterns within vast quantities of data that can be used to forecast actions and events. Unlike other business intelligence technologies, it uses past events to predict future. Predictive analytics can identify the most likely customers to churn next month, or determine which customers are likely to default on a bank loan. Presently, marketing is the largest user of predictive analytics with crossselling, campaign management, budgeting models, forecasting models, customer acquisition and loyalty apps. It uses statistics, computer learning, neural processing, robotics, computational mathematics, and artificial intelligence technologies to analyze all the data, instead of a small subset of it, to ferret out concrete associations and patterns. Predictive analytics rummages out the results to find something interesting to present (Eckerson 2007). Data used in analysis can be readily available data like age, gender, income, sales or unstructured as textual data from call center notes, social media content (What is predictive analysis? 2018). Using behavioral data, marketer forecast contact points a customer will turn and map “drop-off points” to see when the company can lose its customers. The information gathered can be used to do profile scoring and building customer models. By predicting customer behavior and building models from that data, the analyst can then customize the content to target those specific guidelines. By forecasting consumer behavior and building models off the data, marketer can tailor the content to target certain leads. Company can show more accurate paths to ROI by reaching the right audience at the right time. By using historical data, personalized messages towards customers can be created (Martin 2019). Search Engine Optimization The AI is not necessarily based on a static system, instead it is a continuously changing computer built to identify, categorize, and display the data most appropriate for fulfilling consumer requirements. Artificial Intelligence’s abilities will greatly improve SEO’s potential beyond pure keyword phrases. In the following ways AI developments will effect search engine optimization: SEO’s increasing significance for visual content; more emphasis on relevance and content quality; selective approach to building links and going beyond site optimization by mobile and voice search only (Mohapatra et al. 2018). There are three key areas Artificial Intelligence can improve the performance of SEO: Insights, Automation and Personalization. Some common ways that AI and Machine Learning (ML) can help with gathering insights from SEO efforts include: market trends analysis, website performance analysis, insight about competitors, SERP performance, Search Engine Optimization spend management, intent reports of customers and pay-per-click spend management. Some AI methods used to automate SEO duties include content distribution and optimization, tag

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management, keyword search, etc. Related to personalization, AI create personalized content for intended persona, marketing channel and customer journey stage. It improves user experience and by way of personalization, increases conversions. Across search and social, it nurture leads to the right target market with personalized messages (How to Use AI with Search Engine Optimization? 2019). AI can be used for daily and repetitive tasks as indicated hereby (How to Use AI with Search Engine Optimization? 2019): • During a consumer experience, determining what information user are looking for, and in what ways marketers can help them get closer to the buying process. • Identifying content opportunities-review competition data, search impression queries and related searches along with third-party tools to gather topic and content ideas for the company’ website. • Gathering suggestions for optimization of highly applicable queries, searches and lower competition. • Obtaining deliberate information by analyzing search queries and keyword research and determining the best page to direct users to. • Collecting structured data on competition websites to study best navigation, taxonomy and structure for building or improving crawlability of the marketer’s website. • Using long-tail data from various platforms to provide high search volume and low completion for high search engine visibility. • Ensuring that all search user-agents can quickly crawl and access your content. Recommender Systems The recommendation system is an important tool of marketing. It leads to increased sales and profits by presenting the customer with the right recommendations (up-selling and cross-selling options) and ultimately gathering the customer with the right product or service. It improves customer engagement, loyalty and would create an overall customer satisfaction for the company. Recommender systems (RS) use AI approaches to make suggestions for products for consumers. An online bookshop can use an algorithm for machine learning to classify books by genre, and then recommend other books to a consumer who purchases a book. It is also called “collaborative filtering” (Portugal et al. (2018). RSs can be classified into three categories. In content -recommendations, items similar to those the user purchased in the past are suggested to the consumer. In collaborative recommendations, consumers would be offered products that the users with common tastes and preferences had previously purchased. And in hybrid recommendations collaborative and content-based methods are combined (Balabanović and Shoham 2007). Netflix sort through the thousands of options to get a better sense of what the user would like to watch by leading the user to check out his or her preferences or rate the TV shows and movies. Factors used by the Netflix algorithm to make these suggestions include the type movies and TV shows, user’ s history of streaming and combined ratings of all Netflix users who have common preferences with the user. On the other hand, Amazon’s algorithm crunches data on all the millions of

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consumer baskets, to determine which products are mostly purchased together. This can yield an immense return (Balu 2019). Intelligent Advertising Intelligent advertising is apparently driven by big data, algorithms, and cloud computing. Nevertheless, its further growth might depend on factors, such as investment in AI technologies, end-user acceptance and government regulations. Consumers’ needs and wants, interests, habits and preferences have become the basis for intelligent advertising (Li 2019). Advertisers rely on methods like market research, data mining and web analytics to create consumer profiles for understanding needs and influence them. With Artificial Intelligence, wants and needs can be understood real-time as customers communicate them digitally and richer profiles can be built quicker. AI also allows advertisers manifest the wants and needs of individuals. Pinterest uses image recognition to learn the particular styles preferences of users from the photographs they’ve shared on the website Pinterest then recommends other related photos representing the user’s personal interests, and facilitate need or want recognition (Kietzmann et al. 2018). As Kietzmann et al. (2018) remarks, advertisers will use AI-powered search to classify, rank and present results which will most likely meet the information needs of the consumers. Google Adwords lets marketers make better distinctions for better targeting between unqualified and qualified leads. With Artificial Intelligence, Google analyzes search query data by analyzing not just keywords but also context words and phrases and other big data. From that point, Google is determining potentially useful consumers’ subsets and more accurate targeting. As pointed out in IAB Report (2019), AI and machine learning can take real-time behavioral data and of delivering highly relevant and personalized advertising. Predictive analytics can predict which users are most likely to take a certain action, whether that action take place in online or in the physical world. AI-powered programs can automate the ad production process, depending on the company’s goals. Social media advertising platforms do this in present to recommend ads the user should run. There are also third-party applications that use natural language processing and the natural language generation, all AI-powered innovations, to create ad copies that work as well or better than copies created by humans. Today, brands use artificial intelligence to define and segment the market, create advertising, test variations, improve performance. This has many advantages for marketers who plan and run advertising campaigns. AI-powered ads would give the brand a competitive advantage. In this case, we can say that artificial intelligence has become a strategic tool for advertisers and marketers. Chatbots Chatbot is a computer program that processes a user’s natural-language input and produces smart, relative responses which are then sent back to the user. Chatbots are currently operated by engines that are rule-driven or artificial intelligent systems that interact with individuals by way of a text-based interface. They are separate programming systems that can connected into any of the multiple messaging platforms that have opened to developers by Application Programming Interfaces such as Facebook Messenger, Skype, Microsoft Teams etc. With the

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developments of voice technology in recent years, organizations such as Apple, Google, have used artificial intelligent agents for voice. Apple launched Siri, Google launched Google Home, and Amazon launched Alexa. Chatbot technology is based upon similar technology to voice-based assistants. Voice-based systems have the additional challenge of converting the speech into text to work with for any computer application to work with. Text processing from a chatbot or a voice-based system is done in the same way (Khan and Das 2018). A user visiting an e-commerce site might want to browse the website or look for a specific product. Since the search tools use keyword matching to display various results to the query, some result might be inconclusive to the user. And this will lead to an undesirable user experience. Furthermore, in a situation where the consumer does not have adequate knowledge about the product, conventional systems might remain incapable. The chatbot tries to address the issues mentioned above by presenting a more intuitive way as interacting with the user and recommending product suitable for him/her (Gupta et al. 2005). Along with subsequent experience, a chatbot learns when expanding its contact capabilities and builds knowledge about how to personalize a message and improves its own communication and reaction rules. These are complex interfaces based on the analysis of a natural language and interpersonal rules of communication, which allow better human-machine interactions and a conducted dialogue is defined and deliberate (Spychalska 2019; Przegalińska 2016). Chatbots can answer questions, solve problems while understanding the intentions of the users. Thus, a chatbot is a technological reflection of human. A well-prepared chatbot with charming personality can successfully direct a customer through subsequent purchase stages while saving their cognitive effort and time. And this makes chatbots become a key value for the company and provide company the opportunity to distinguish itself from competitors (Spychalska 2019). Chatbots come in various degrees of intelligence. FAQ Chatbots can understand questions and give users the most relevant answer. It is perhaps the simplest type of a chatbot. Virtual Assistant has more integration with the enterprise system and so can perform some basic actions as looking someone’s personal information. It learns and improves over time. Virtual Agent is the most intelligent type of chatbots with the capability of handling complex processes, dialogs, and security protocols (Deloitte Digital. 2018).

4 Financial Services Marketing and AI Machine learning has become an integral part of financial services today. With AI, banks can collect and analyze data, reduce individual errors, increase the quality of management information systems, The dramatic change of finance sector areas such as risk analysis, investment banking, wealth management by the integration of AI, have led to profit-enhancing

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and socially beneficial results. The capital costs have been lowered and expanded the financial resources types to a broader and more different population of investors (Lin 2019). Artificial Intelligence is used to a greater extent by the financial services industry in insurance, data mining, personal financing, market analysis, wealth and asset management, insurance, credit scoring, and many more fields to improve customer experience with the assistance of the most advanced technology. The banking industry is changing its dogmatic image and is aiming to strengthen relationships with customers by offering customized and seamless banking in today’s digital era (Mehrota 2019). Some important applications of artificial intelligence in financial service include (Mehrota 2019): Wealth and Portfolio Management: AI assist financial services companies by providing correct and customized suggestions to wealthy clients. For example, Swiss Bank UBS introduced two AI systems; one identifying trading patterns after analyzing tons of data and advising strategies related to trade to its customers for higher returns; the other, addressing the post trade allocation preferences. Automated Customer Support and Virtual Financial Assistance through Chatbots and Robo Advisors: Banks are using Artificial Intelligence assistants which provide instant services to the customers or direct the customers’ inquiry to the relevant customer service employee, which leads to redefined customer experience. Enhanced Insurance Experience: Insurance companies can gain insight about the health, lifestyle education, etc. of the customer and the circumstances of the event subjected to insurance claim by using AI algorithms. Robotic Process Automation: Functions such as withdrawal and deposit processing, statement generating, cheque clearing is repetitious and for reduced costs, improved efficiency, time management can be executed by an artificial intelligence as RPA. Fraud Prevention & Detection: Banks and financial services companies are facing huge pressure of regulatory compliance and risk management requirements particularly after the financial crisis of 2009.The process is time-consuming and involves piles of paperwork. The AI can analyze tons of data and identify trends and patterns in seconds. Artificial Intelligence based anti-fraud products spot subtle variances from the predicted human behavior and can indicates suspicion (Mehrota 2019). Königstorfer and Thalmann (2020), points out that some certain trends have put the traditional. business model of commercial banks under pressure. First one is, banks not having a monopoly on their profitable business areas anymore. This signifies that new competitors are offering specialized services that were previously reserved only for banks, such as processing payments such as PayPal or exchanging currency such as Transferwise. Several competitors, as Chinese lender MyBank, are adopting Artificial Intelligence to make their services cheaper and more efficient (Königstorfer and Thalmann 2020; Reuters 2018). Using AI is a way of fighting back in this new, evolved competitive market. Second one is change in customer preferences. Although it rises as a challenge for banks, it is an opportunity as well.

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For example, analyzing the financial behavior of customers by analyzing payments can assist commercial banks in marketing. And with the customer’s eagerness to try new things, commercial banks might also can investigate how the implementation of AI in their core business areas. and can use experimental methods to investigate the acceptance of AI. Third one is the regulations on bank processes. With the last financial crisis banks are confronted with an increase in regularity demands. RegTech is a technical solution that promises support. It helps firms manage regulatory requirements and compliance imperatives, implements compliant business systems and data, helps control and manage regulatory, both financial and nonfinancial risks; and performs regulatory compliance reporting. Therefore, using AI approaches in compliance could free up significant resources and might even fill a gap that banks could not otherwise fill (Königstorfer and Thalmann 2020; Butler and O’Brien 2019). Fourth is the need for banks to reinforce their security measures. Fraudsters’ methods conducting the fraud have changed too in recent years and AI can serve as a valuable tool to stand against the illegal actions. And the last one is the scale of business network. The scale of current IS and the branch network of banks is arising as a challenge for banks. For example, the associated costs for servicing and maintaining an ATM network is a huge expenditure item for commercial banks (Zapranis and Alexandridis 2009) By using AI, optimizing the ATM and branch network of commercial banks can have a significant and positive impact on operation of the systems (Königstorfer and Thalmann 2020). As for financial sector, it interacts with all other industries and must deal with complex legal, reputational, social as well as environmental risks, ranging from money laundering and financing of terrorism to international sanctions. The inspection of customer identities, monitoring international cash flows, counterfeit and not justified claims, or credit card fraud belong therefore to the daily business of financial service providers. Reports have also emphasized AI’s role in detecting and fighting financial crime and money laundering besides sanctions (Max et al. 2020).

5 Major Ethical Issues Regarding AI Marketing covers doing things for customers along with data usage and both imply important ethical considerations. In industries such as financial services, asking computers to decide which customers are to be offered which products or which customers appear to have committed fraud is already normal and has already raised equity and trust problems. Regarding customer data, legislation makes it of great importance that Artificial Intelligence based processing does not infringe stringent data protection legislation or fundamental ethical rules which should be observed by marketers (Stone et al. 2020). The public remains generally ignorant of the data industry’s exponential growth, and the degree to which their personal information has become a commodity shared between private and public parties. Perhaps more importantly, individuals have no knowledge about just how much information is

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being gathered from third parties on them or how private corporations and the government have been using this data. Enormous amount of information is being obtained from smart devices like mobile phones, security and traffic surveillance cameras, global positioning satellites and AI-driven devices like Alexa that can record and send information. After the authorized or unauthorized collection of consumers’ personal information, there comes the increased risk that this information could be accessed by or disclosed to third parties inappropriately (“Artificial Intelligence: Implications for Consumers” 2020). Stronger a technology becomes, the more opportunities for malevolent intent are opened. Autonomous systems require greater responsibility to make them secure, the ethical issue that can arise is how people can ensure that adequate checks and balances are in place before using AI programs in all parts of their lives. Individuals enjoy the fact that machines think and act on their behalf. But on the other side, human behavior is being altered. Some examples of how human are being influenced might include: Recommendation engines providing consumers with additional products by suggesting “people like you, have bought these items.” or smart phone applications such as Google Map suggest which route to take to get to the destination quicker. The right information through the right channel at the right time is fine, however the downside is, individuals stopped thinking about anything. The ethical problem is resulted from allowing AI agents to think and act on individuals’ behalf; so the main concern is if the people are going towards a world where individuals become more uneducated (Mohanty and Vyas 2018). Thanks to the big data and AI technologies, businesses now understand consumer preferences and behavior even better than the consumers themselves. The ability to display personalized commercial practices like advertisements and recommendations such as “you might be interested in this product” might sometimes be beneficial for consumers. However, consumers can be manipulated, deceived, and encouraged to make suboptimal purchases. Consumers themselves are realizing that such targeted advertising is leading them to over-shop or urging addictive online shopping behaviors (“Artificial Intelligence: Implications for Consumers” 2020). Ethical issues remain, as AI provides the opportunity to make independent decisions to organizations and users. AI will take decisions and execute actions that go beyond the programmers’ guidelines. Such problems emphasize the significance of studies exploring the kinds of values and decision criteria needed for AI operations. A question might arise in people’s minds as, does a driverless car first and foremost protects the driver and passenger or does it help the potentially more disadvantaged pedestrian? To deal with ethical problems, AI systems which think like humans, need to be programed. The risky areas related to AI decisions must be controlled and compared to the organization’s ethical standards. For this, unique ethical guidelines that define the AI-related threats are required (Bock et al. 2020). Therefore, in order to eliminate the ethical problems that may be caused by the use of artificial intelligence in marketing, it is of utmost importance that brands / companies, and then industries determine the standards and policies of artificial intelligence usage and share it with their target audiences.

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6 Conclusion Today, the use of artificial intelligence, which stands out as a technology that makes a difference in marketing and marketing communications; is expected to become a standard in marketing activities, especially in customer relations management. The use of artificial intelligence in marketing operations, stands out as one of the most important results of innovative developments in marketing discipline. At the point of technological developments, it is observed that consumers have awareness about artificial intelligence because of the AI-powered activities carried out by brands. With the increase in the use of artificial intelligence in marketing, it is expected that new branches of business, specialized in artificial intelligence-marketing relationship will emerge. Companies receive support of AI in marketing actions; marketing communication, social media/digital agencies and advertising agencies are also focusing on works using artificial intelligence and offer various solutions to brands in this field. Experience is one of the most valuable things that brands offer to consumers. Thanks to the use of artificial intelligence, the rate of consumers experiencing the services offered by the brand can increase and at the same time, the brand-consumer interaction can reach to high levels. Naturally, consumers will have question marks at the point of acceptance and increasing prevalence of artificial intelligence practices. To eliminate their concerns, brands must carry out effective communication efforts. Artificial Intelligence is also examined in the context of financial services in our study, as it increases the efficiency and productivity of finance companies. Better customer service management, risk management, credit decisions, fraud prevention are some of the financial service uses of AI. And it is observed that AI is reshaping the financial sector. Within the scope of our study, we examined the usage of artificial intelligence in marketing in a conceptual framework. In order to contribute to the marketing literature, it will be beneficial to carry out academic studies on the level of adoption of artificial intelligence by customers and by marketers.

References Artificial Intelligence:Implications for Consumers (2020, 10 7) Retrieved from: https://cuts-ccier. org/pdf/dp-artificial-intelligence-implications-for-consumers.pdf Balabanović M, Shoham Y (2007) Fab: content-based, collaborative recommendation. Commun ACM 40(3):66–72 Balu B (2019, 07 07) Recommendation systems: diving into recommendation systems. Retrieved from: https://medium.com/towards-artificial-intelligence/recommendation-systems104bdfe3f93f Bock DE, Wolter JS, Ferrell OC (2020) Artificial intelligence: disrupting what we know about services. J Serv Mark 34(3):317–334

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Butler T, O’Brien L (2019) Understanding regtech for digital regulatory compliance. In: Disrupting Finance. Springer, pp 85–102 Davenport T, Guha A, Greawal D, Bressgott T (2019) How artificial intelligence will change the future of marketing. J Acad Mark Sci 48:24–42 De Bruyn A, Visvanathan V, Beh YS, Brock JK, Wangenheim F (2020) Artificial Intelligence and Marketing: Pitfal ls and Opportunities. J Interact Mark (Article in press). https://doi.org/10. 1016/j.intmar.2020.04.007 Deloitte Digital (2018, 07 10) Chatbots point of view. Retrieved from: https://www2.deloitte.com/ content/dam/Deloitte/nl/Documents/deloitte-analytics/deloitte-nl-chatbots-moving-beyond-thehype.pdf Eckerson W (2007) Predictive analytics: extending the value of your data warehousing investment. TDWI Research Gupta S, Borkar D, De Mello C, Patil S (2005) An E-Commerce Website based Chatbot. Int J Comp Sci Info Tech 6(2):1483–1485 How to Use AI with Search Engine Optimization? (2019, 07 09) Retrieved from: https://www. braveriver.com/blog/how-to-use-ai-with-search-engine-optimization-in-2020/ IAB Report (2019, 07 09) Intelligence in marketing: where brands and consumers meet through data. Retrieved from: https://www.iab.com/wp-content/uploads/2019/12/IAB_AI-for-Market ing-Report_Dec-2019_FINAL.pdf Jarek K, Mazurek G (2019) Marketing and Artificial Intelligence. Cent Eur Bus Rev 8(2):46–55 Khan R, Das (2018) Build better chatbots: a complete guide to getting started with chatbots. A Press Kietzmann J, Paschen J, Treen E (2018) Artificial Intelligence in Advertising: How Marketers Can Leverage Artificial Intelligence Along the Consumer Journey. J Advert Res 58(3):263–267 Königstorfer F, Thalmann S (2020) Applications of Artificial Intelligence in commercial banks–A research agenda for behavioral finance. J Behav Exp Financ 27:1–15 Li H (2019) Special Section Introduction: Artificial Intelligence and Advertising. J Advert 48 (4):333–337 Lin TC (2019) Artificial intelligence, finance, and the law. Fordham Law Rev 88(2):531–552 Martin N (2019, 07 07) How ai and predictive analytics drive marketing success? Retrieved from https://www.forbes.com/sites/nicolemartin1/2019/01/16/how-ai-and-predictive-analytics-drivemarketing-success/#34512ca77b78 Max R, Kriebitz A, Websky C (2020) Ethical considerations about the implications of artificial intelligence in finance. In: Handbook on Ethics in Finance, Springer, 2–15 Mehrota A (2019) Artificial intelligence in financial services–need to blend automation with human touch. 2019 International Conference on Automation, Computational and Technology Management (ICACTM), 342–347 Mohanty S, Vyas S (2018) How to compete in the age of artificial intelligence: implementing a collaborative human-machine strategy for your business. APress Mohapatra MR, Mohapatra S, Mohanty JR (2018) Artificial Intelligence (AI)‘s Role in Search Engine Optimization (SEO). Int J Eng Sci Inven 7(5):76–79 Murgai A (2018) Transforming Digital Marketing with Artificial Intelligence. Int J Latest Tech Eng Manag Appl Sci 7(4):259–262 PAT Research (2018, 7 08) What is predictive analytics? Retrieved from https://www. predictiveanalyticstoday.com/what-is-predictive-analytics Portugal I, Alencar P, Cowan D (2018) The Use of Machine Learning Algorithms in Recommender Systems: A Systematic Review. Expers Sys Appl 97:225–227 Przegalińska A (2016) Istoty wirtualne, Wydawnictwo Universitas. Kraków Reuters (2018, 9 25) Alibaba-backed online lender mybank owes cost-savings to home-made tech. with assistance of Ryan Woo, Shu Zhang. Retrieved from https://www.reuters.com/article/uschina-banking-mybank/alibababacked-online-lender-mybank-owes-cost-savings-to-homemade-techidUSKBN1FL3S6 Shahid MZ, Li G (2019) Impact of Artificial Intelligence in Marketing: A Perspective of Marketing Professionals of Pakistan. Global J Manag Business Res: e-marketing 19(2)

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Discussing Business Innovation and Moral Basis of Redistribution Regarding Economic Equality Hakan Kalkavan

Abstract In this conceptual study, fundamentally the role of redistribution policies for economic equality within the scope of business innovation is discussed. Initially, the notion of business innovation is revised, and its social aspect is discussed as part of social innovation. Then the moral basis of redistribution regarding methods and policies in terms of economic equality is evaluated. As a result of research, it is determined that investments in education through redistribution contribute to the increase in the average education level in the country and thus economic growth. Certainly, earning profits is vital for a business, but going beyond that, by investing in innovation, developing new products according to “Business Model Innovation” will contribute to increasing company profit, to society and to the economic development of the country. Thus, it will be possible to produce innovative products that are environmentally friendly and compatible with socioeconomic structure. Through effective redistribution, policies should be designed to reduce economic injustice and positively affect the country’s economic development, and that provides a more balanced society. In this respect, social innovative business models can function significantly. Moreover, social innovation is the development of innovative business models to solve or alleviate social problems such as underemployment, social conflicts, alienation, and social exclusion caused by technological development.

1 Introduction According to Schumpeter (1976), entrepreneurship is the pioneer of innovation. Societies have achieved technological development together with innovative business models and so they were able to actualize economic growth. Such that innovation has become a leading power to transform the business model and socioeconomic structure.

H. Kalkavan (*) The School of Business, İstanbul Medipol University, İstanbul, Turkey e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 H. Dinçer, S. Yüksel (eds.), Financial Strategies in Competitive Markets, Contributions to Finance and Accounting, https://doi.org/10.1007/978-3-030-68612-3_24

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In times when innovation was perceived as R&D, talented people were being employed, and they were being expected to develop new products. Nowadays, this approach has been changing and evolving into a business innovation model. With the influence of “Business Model Innovation (BMI)”, companies now attach more importance to differentiation from each other and try to offer the market in different ways even if it is the same technology and service. Every organization has its own business model, whether it states it explicitly. The business model basically has two aspects: “Value creation” and “Value Capture”. The former is defined as “a series of activities, from procuring raw materials to satisfying the final consumer, which will yield a new product or service in such a way that there is net value created throughout the various activities”. The latter is that it converts this value into a financial gain in order to ensure the sustainability of the institution (Chesbrough 2007). Looking at the historical process, it is understood that innovation benefits the whole society, and even the world. However, one should not overlook the main difference between “Business Innovation (BI)” and “Social Innovation (SOI)”. In fact, SOI should be handled within the scope of the impact of new ideas that will improve quality and wealth in social life (Pol and Ville 2009). A simple yet comprehensive definition of SOI is “innovations that are social both in their ends and their means” by Mulgan (2019). According to this definition, social innovation is possible only by acting in accordance with the needs of the society in terms of both the method it uses and the purpose it wants to achieve. SOI’s are social as tools because they operate through social organizations such as foundations and associations that represent society. They are social in purpose because they determine the needs of the society by considering the socio-economic environment and adopt environmentally friendly practices. Moreover, what expected from social innovation is the development of innovative business models in order to solve or alleviate social problems such as underemployment, social conflicts, alienation, and social exclusion caused by technological development. Sustainable economic growth is critical to both the universe and humanity. Otherwise, nature is spoiled, and the survival of the human species is endangered. Natural resources form the basis of economic production and growth, such as human resources, capital, and technology. In other words, the damage of natural resources constitutes the most important for economic development, therefore, sustainable innovative business models should be organized on a ground that does not destroy the structure of the environment and does not damage the economic well-being and happiness of people. In this context, resources that have equal opportunities in nature should be distributed fairly in the use of economic activities. As economic inequality causes poverty, unrest, and injustice, there will be no effective economic development and prosperity in such a society. In this sense, it may be possible to resolve existing problems through effective redistribution policies to provide a more balanced society. In this respect, social innovative business models can function significantly. In this study, firstly in the introduction, the notion of innovation is revised, and its social aspect is briefly evaluated. Then, in the second part, the concept of business

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innovation is discussed within the scope of “Sustainable Business Innovation (SBI)” and SOI. In the third part, the moral basis of redistribution, redistribution methods and policies in terms of economic equality are evaluated. In the last section, the study is concluded by discussing the role of redistribution in preventing economic injustice and its importance in economic development regarding SOI.

2 Business Innovation The term innovation is handled in many different concepts, for example, the production process, the change of cultural structure and management understanding. In this context, the concept of innovation includes increasing efficiency, adapting to the socio-cultural environment, adjusting the final production for consumer demands, and organizing the human administration and institutional structure (Li et al. 2020; Dinçer et al. 2020). Moreover, innovation is treated as a subset of the entrepreneurial spirit. Explicitly, entrepreneurship has three dimensions such as innovation, risk-taking, and proactive role-play. As resemblances between entrepreneurship and innovation, attitudes are included such as creativity, handling uncertain situations extraordinarily, doing business with desire and looking for new opportunities (Shingo 1986; Veronica et al. 2019; Jun et al. 2020). Currently, in a changing and globalizing world (along with the industry 4.0 revolution and circular economic approach), firms must replace their absolute efficiency and cost-cutting business with environmentally conscious innovation. To this end, companies must completely change their way of doing business in order to keep up with changing environment, society and economic changes. Concordantly, the newly adapted terms of “Business Model Innovation (BMI)” and “Sustainable Business Model Innovation (SBMI)” have been extended regarding “Industry 4.0” and “Circular Economy” notions. In the changing business world, the BM is an innovative tool to improve performance and increase capacity. Through BMI, companies prepare themselves for the requirements of the changing world by transforming their corporate structures in terms of value, design, and delivery. Thus, the inducements of organizations to add both financial and social value to the society have gained importance (Geissdoerfer et al. 2018; Teece 2010; Korsakienė et al. 2020; Tykkyläinen and Ritala 2020).

2.1

Sustainable Business Innovation

Innovation has always been important for sustainable business. Throughout history, institutions that have adapted to new socio-economic situations and developed sustainable innovation businesses have been able to ensure sustainability. Otherwise, organizations that fail to achieve successful innovation are disabled by the “creative destruction” process, as Schumpeter (1976) conceptualizes (Luqmani et al. 2017).

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Schumpeter stated entrepreneurship as the actor that changed the established stability and economic order and explained this with the concept of “creative destruction” as mentioned below. As new companies support the development of technology by differentiating from traditional business types and traditional customer profiles with an innovative approach, in this way economic opportunities and a competitive environment are formed. Accordingly, with the technological revolution (in its words, “disruptive technologies”), economic actors have changed and therefore the redistribution of wealth has been possible. This can only be achieved thanks to entrepreneurs doing independent business (Schumpeter 1939; Spencer et al. 2008). While “disruptive innovation” enables companies to create new business areas, on the other hand, it offers new products at affordable prices to its expanded customer profile, which will not be able to afford normal financial conditions, by means of both increased efficiency and competition. For example, products such as phones, computers and cars were products that only wealthy people could buy when they first came out. Along with “business innovation”, it has been offered to a wide public audience by falling at much more affordable prices (Ahlstrom 2010). Technological innovation is a vital role in production efficiency and, accordingly, economic growth. Maybe the manufacturing of a product that took hours a century ago can be done in minutes today. Thanks to the technological revolution, the transition from the human labor force to the automation production method has been achieved (Tunay et al. 2019). In the process of this important change, it has a positive effect in terms of production efficiency and a negative effect in terms of decreasing the need for labor. With the innovation, “destructive creation” took place and led to the emergence of new business areas. The main inspiration for this revolution is entrepreneurship and hence the innovative spirit (Ahlstrom 2010; DeLong 2000; Helpman 2010; Solow 1956). Considering the economic growth of nations and the purchasing power of individuals in the last few centuries, it will be observed that serious development has been achieved. It is clear that the most effective pioneer for this is economic growth. In developed countries, this has been done with effective economic policies in the last century. Developing countries, however, are in the process of catching up quickly (Maddison 2006).

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Business Innovation and Social Innovation

The social impact of innovation and change is a complex process, and the development of new products and services must be positively integrated into social practices, considering social benefits. Although there are ambiguous definitions for the concept of “Social innovation (SOI)” (Grimm et al. 2013), it is necessary to state the aspects that differ with “Business innovation (BI)”. The simplest narrative for social innovation is stated as “improvement in the quality of life”. In this sense, the difference between SOI and BI is to transform the approach of providing product satisfaction

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and profit-oriented production to the manner that gives value and a central role regarding the new production model. Therefore, Social innovation concerns the well-being of the individual through production and consumption and seeks solutions for individual and social problems (Dawson and Daniel 2010; Pol and Ville 2009). Moreover, social innovation is a focus on new social relations in the changing macro socio-economic environment regarding business innovation, and the resulting social effects are a common research area for sociologists, economists, managers, and urbanism experts. The variety of conceptualization creates uncertainty in the use of the term. However, from another perspective, it connects different approaches and disciplines related to each conceptualization. The lack of a widely accepted comprehensive definition reflects the fact that social innovation is a complex, multifaceted phenomenon (Moulaert et al. 2013; van der Have and Rubalcaba 2016). Except Kuznets, most economists were not very interested in the social aspect of innovation. “An enormously wide variety of such complementary adjustments in social and legal institutions, in the distribution and equipment of participants, and in the very governing notions of society have been made in continuous response to the stream of technological innovations” as Kuznets (1974) above stated that technological innovation has both economic and social aspects. According to him, innovation has economic growth effect because of increased efficiency and consumption, and institutional and environmental effects in terms of social results (Kuznets 1974; Pol and Ville 2009). The social innovation approach is essentially an effort to produce a solution to socio-economic problems such as “economic uncertainty and ever-intensifying global economic competition; widening inequality and stagnating or falling living standards for many; technological developments which revolutionize entire economic sectors and transform labor markets; resource depletion and conflicts leading to a migration crisis, depriving lower-income countries of talent and creating frictions in higher-income societies” that are happening in the world (Baglioni and Sinclair 2018). In recent years, the need for innovations that contribute to social sustainability and social well-being has been increasingly recognized. In this context, social innovation approach is of great importance in managing complex problems in order to reach an innovative social solution such as changing power relations in social structure and improving human abilities through alteration of the production processes (Dunphy et al. 2014; Nicholls and Ziegler 2015). The commitment of social innovation is that it can solve or as much as possible reduce important social problems such as unemployment, social polarization, solitude, and discrimination. Therefore, social innovation has recently developed as an effective mechanism targeting the most pressing global problems such as climate change and inequality (Murray et al. 2010; Morrar et al. 2017). Though, the continual rise in the quality of material life did not eliminate the wealth and income injustice. From this perspective, fair economic distribution as of great importance is one of the main pillars of equitable economic policy. Although research on entrepreneurship for the past few decades has focused more on innovation and growth,

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the relationship between entrepreneurship and wealth redistribution should not be ignored. (Piketty and Saez 2014; Spencer et al. 2008).

3 Moral Basis of Redistribution and Economic Equality As Schumpeter (1909) stated, GDP does not only determine the economic development of a country, it is equally important how total wealth is distributed among people. The welfare of the country depends on the distribution of the total wealth to the society according to the marginal benefits of the individuals. In this concept, the issue of redistribution of wealth and income is increasing in importance both locally and internationally. In fact, it is essential to be sensitive to redistribution due to many international agreements. In this regard, policy decision makers and states should focus more on global economic distribution issues. Whether the basis of these is moral sensitivity or the need to achieve political goals, action plans to encourage redistribution should be developed and implemented. A fundamental point of this discussion is to decide on which economic policies to realize such redistribution and to be careful about inefficient redistribution practices (Benshalom 2014; Acemoglu and Robinson 2001). In-depth thoughts on fair distribution of wealth and income form the philosophical basis for redistribution. Throughout history, philosophers and policy makers have made a broad view of how wealth and income will be distributed and the legitimacy of redistribution. However, the issue of international redistribution is a special theme that differs from traditional thinking and should be evaluated from today’s perspective. The modern term redistribution definition by Kaplow and Shavell (1994) is as follows: “redistribution should be done as directly as possible through the tax transfer system, not through market regulation.” Accordingly, it is recommended that redistribution be obtained only through tax without interfering with the market (Benshalom 2014). In fact, this approach is not aimed at changing the social system, it only tries to make the social fabric more balanced by repairing the economic injustice that occurs in the process (Mueller 1999). On the one hand, income injustice increases social unrest, causes both economic loss of confidence and political instability. In this climate of insecurity, investments are reduced, and economic growth is interrupted. Failure to distribute income fairly means that the wealth will be deemed to be a capitalist class from the working class of society. On the other hand, if the property rights are not sufficiently protected and legally secured, economic growth cannot be achieved. If redistribution policies help the low-income class to build their own lives effectively and stimulate their lives economically, it will also be a step to economic growth. However, such an economic growth can only be achieved by securing property rights. Otherwise, redistribution causes economic stagnation and uncertainty (Palda 1999).

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Redistribution Through Inflation and Taxation

The prevailing view of the relationship between inflation and redistribution is that inflation has a positive effect on the redistribution of wealth. On the one hand, it is speculated that the owners of the firm earn more with inflation (Alchian and Kessel 1959), while on the other hand it is stated that there is indirect redistribution of wealth from the creditor to the debtor due to the inflation. Regarding the influence of inflation on redistribution, real purchasing power is transferred from the creditor to the debtor, as long as inflation is realized and not added to the contract accordingly. An interesting finding in this condition is the transfer of wealth, indirect redistribution, from the elderly (retirees) to the working young people. Eventually, inflation influences the value of cash as well as every kind of asset values and intermediates the redistribution of wealth (Bach and Stephenson 1974; Doepke and Schneider 2006). Wealth tax regulations for the wealthy class are applied in many developed countries to ensure a more justifiable and equitable economic distribution among society. As, Scandinavian countries have annual wealth taxes. At times, capital taxation regulations were made also in some other countries. Although there are many capital taxes in practice, studies examining the effects of different tax types are limited (Atkinson 1971). While the risk of government redistribution may buffer, the overall economic benefits are more controversial than private insurance. An important difference is that private insurance does this on a voluntary basis, while governments realize redistribution by collecting mandatory taxes from the public. There are a wide variety of different methods of redistribution such as targeted at reducing economic inequality among society groups, helping those who are unavailable to work due to illness or old age, and acting as a buffer against unexpected crisis situations (DeScioli et al. 2018). In another aspect, beyond the redistribution of taxation, there is also the practice of zakat in Islam as an annual wealth tax. In terms of justice, zakat is taken from an individual’s wealth accumulation over an annual period of 2.5%, so that people with more savings contribute more to people in need. Zakat, if applied carefully, will not cause the rich to become poor, but will ensure that the poor get rid of poverty. In this respect, zakat is a compulsory demand on the property of the rich, such as a tax in favor of the poor, a duty that the state can take under the authority of law. In fact, zakat contributes to reducing income inequality and increasing social welfare. Besides, zakat helps to increase the purchasing power of the poor, it also contributes to economic growth in aggregate demand and expenditure (AlMatar 2015; Kantarcı 2015). Furthermore, inheritance taxation does not reduce inequality alone. But lifetime wealth and income taxation make distribution more efficient. According to Davies’ (1986) study, it is stated that redistribution is less related to inheritance taxation and more to income tax. Correspondingly, even if inequality persists after the increase of redistribution, the initial effect usually produces a cumulative inequality decline

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effect for several generations. Moreover, redistribution taxation directly increases the income level of unskilled people and causes the income of skilled workers to decrease. This cycle indirectly causes skilled employees to shift from workmanship to entrepreneurship. As a result, redistribution indirectly increases the income of skilled workers by establishing their own enterprises (García-Peñalosa and Wen 2008).

3.2

Redistribution Policies and Economic Equality

Investigating the role of redistribution policies in the public sector, Lindbeck (1985) states that most of the public expenditures are not infrastructure investments and public goods, but rather private household expenditures such as social transfers, social security and health services, which are considered redistribution. In this context, it is necessary to define the concept and scope of the redistributive state policies. According to Lindbeck, redistribution state policies are based on 4 main concerns respectively: “(1) broad horizontal redistributions, i.e. redistributions among broad socioeconomic groups (or classes), regardless of the place of both the beneficiaries and the benefactors in the vertical (size) distribution of income and wealth; (2) lifecycle and insurance-type redistributions for given individuals; (3) vertical redistributions, explicitly designed to modify the size distribution of income, wealth or economic welfare; and (4) fragmented horizontal redistributions among a great number of minority groups of citizens in a society with a highly differentiated socioeconomic structure.”. Although it seems like the self-interest motive is under the redistribution, it has essentially been an important part of support for social groups that have financial difficulties with welfare economy programs under the influence of altruism and benevolence (Lindbeck 1985). There is an important literature on the redistribution of wealth to address economic inequality between the various social classes such as Stigler (1971), Peltzman (1980) and Becker (1985). Such transfer of wealth can be achieved through direct taxation by state laws or indirectly by redistributing income to different classes of society (Meltzer and Richard 1981; Seiglie 1997). Likewise, an unexpected increase in the price level, that is, inflation causes the redistribution of wealth from creditors to debtors (Buchanan and Bush 1974; Meh et al. 2010). People live at risk of income disorder. Especially those working in the agricultural sector are at risk such as flood, drought, unemployment and demand volatility. In addition, investment and productivity may be negatively affected in this uncertainty environment. There are risk pool practices developed by some societies against such problems. In this context, governments can transfer a certain wealth, such like society insurance, from the wealthy to the suffering citizens (depending on the situation) through the redistribution approach to reduce the risk. E.g., when a government taxes citizen and then provides benefits to the unemployed, this program spreads the risk of unemployment across everyone by transferring wealth from

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people who have jobs to those who do not. Furthermore, the income situation of people may be irregular, and the government uses the redistribution tool to act as a buffer against losses and risks, hence encouraging people to invest. Nevertheless, how society will react to such a method is also decisive for the use of state redistribution (DeScioli et al. 2018; Franko 2016). The approach that income inequality causes worse health services both on a national and regional basis is quite common. While accepting this, it may not be sufficient to reduce economic inequality in terms of health, and furthermore, social health programs should be established at global level. In fact, by redistribution policy equitable sharing and economic prosperity spread throughout the society are targeted based on justice (Starfield and Birn 2007). Studying the relationship between redistribution policies and “perception of justice”, “inequality” and “economic growth” in various countries, Alesina et al. (2012) found that inheritance tax could be used as a policy tool for wealth redistribution to balance inborn inequalities. Redistribution reduces the impact of adversities such as illness, unemployment, and exposure to unfortunate situations that may occur with birth or during life. Even those who strongly advocate private property rights should not be indifferent to redistribution against the imbalances of the economic distribution (Epstein 2011). Furthermore, as a small elite owns the bulk of private property that exists in any society, wealth is unevenly distributed among society. The most important cause of this inequality, which is much more pronounced and effective than income inequality, is inheritance. The inheritance of the rich is distributed to their heirs. Thus, wealth and property are passed down from generation to generation while social inequality is reproduced in the hands of the heirs (Beckert and Dunlap 2008; Piketty and Zucman 2015; Harbury and Hitchins 2012). In this respect, the redistribution of capital, while the physical capital is highly held by a particular group, is important in terms of pointing to an important problem. If fewer resources are left to be redistributed, those in the economic lower strata will erode and a balanced society cannot be spoken of. Redistribution should therefore go beyond only minor utility practices such as low-scale taxation for the poor and middle-class people who would benefit from it (Grüner and Schils 2007). Though, wealthy entrepreneurs who are not productive in the business world are relatively more productive but exclude the poorer ones. In this context, redistributing financial support can increase the surplus of an economy because more talented individuals get loans for various investment projects. Moreover, even if redistribution of initial donations is not beneficial for everyone, it can lead to a Pareto improvement. Specifically, with effective redistribution policies and financial support for those, it is ensured that talented entrepreneurs who will do more skilled and productive works enter the market. Thereby, in the new balance to be formed in this way; better entrepreneurs will be selected, higher but less risky return rates, so that all representatives in the market will be able to do productive work that will benefit more (Grüner 2003; Hunt 2011).

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4 Discussion and Conclusion According to the mainstream classic view, redistribution reduces total savings and investments, however, this judgment about the change of capital structure has no proven empirical reality (Rangazas 1991). Stating that “The social responsibility of business is to increase its profits”, Friedman (2007) and representatives of this view have argued that firms should not carry out social responsibility activities in order to maintain competitiveness in the free market economy, and thus prices should not be reflected on consumers. This approach, which evaluates the business as an economic structure only, has changed today and has evolved into a business model that considers all value-based social stakeholders and the environment. Certainly, earning profits is vital for a business, but going beyond that, by investing in innovation, developing new products according to “Business Model Innovation” will contribute to increasing company profit, to society and to the economic development of the country. Thus, it will be possible to produce innovative products that are environmentally friendly and compatible with socioeconomic structure (Kalkavan 2020). According to research estimates, because of today’s technological innovations, unlike previous innovative changes, it shows that sufficient employment cannot be achieved. The main reasons for this situation are that the robotic production model does not need human resources as much as before and the artificial intelligence efficiency decreases the role of the human. The main concern is that new technology makes many sectors and occupations unnecessary in terms of employment. If this is the case, it should be considered what kind of social rights to be given to the wide mass of unemployed people and how to deal with income injustice (Baglioni and Sinclair 2018). Through redistribution, liability funds can be created in many areas such as climate change, sustainable development models, and support to developing and underdeveloped countries. In this way, a specific initiative can be achieved by providing a wider global level of coordination to reduce inequality and poverty worldwide with the redistribution policy. The current lack of intellectual attention towards this makes the issue of how distribution policies will be applied unimportant. Essentially, the lack of scientific anxiety in this regard creates a climate that will disrupt moral and political redistribution practices (Benshalom 2014). Furthermore, the economic efficiency of redistribution is a matter of debate. On the one hand, the traditional argument that accepts redistribution to reduce capital accumulation, and on the other hand, there is an approach claims that redistribution increases economic efficiency through “opportunity creation” effect through the incentive mechanism in non-perfect existing markets. According to the latter view, investments in education through redistribution contribute to the increase in the average education level in the country and thus economic growth (García-Peñalosa and Wen 2008; Alesina and Rodrik 1994). Lastly, inefficient redistribution policies should be monitored carefully. If redistribution is instrumentalized for populist policy strategies, it will lead to inefficient use of groups receiving support. Because subsidies to this segment are used to

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maintain political support and power, regardless of economic efficiency. Inefficient redistribution policies can take place on agriculture, the labor market, and commercial transactions. Besides, if redistribution is applied to a relatively narrow socioeconomic class, the inefficiency dimension increases even more (Acemoglu and Robinson 2001). Therefore, redistribution policies should be designed to reduce economic injustice and positively affect the country’s economic development. For this, it is necessary to invest in education and health sectors in a way to provide equal opportunity (Wang et al. 2020). In fact, equality of opportunity to be provided in education will be the most important factor in this context and will help lower and middle-income classes to grow up as qualified human resources. The redistribution policy implemented in this way will help reduce economic injustice and spread economic prosperity to society. This will be a critical path for a country to achieve economic development.

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Defining the Main Risk Factors for Solar Energy Companies with Fuzzy Entropy Serkan Eti and Büşra Çelebi

Abstract The main purpose of this study is to evaluate the risks in solar energy investments. In this regard, a detailed literature analysis has been performed and 5 different risk factors are identified. After that, it is aimed to determine which risks play more significant role for solar energy companies. For this purpose, an evaluation is made by using fuzzy Entropy methodology. As a result, it is seen that economic risks have the highest importance for these investment projects. In addition to this condition, political risks are other important issues for these companies. It is also concluded that environment risks have the lowest weight. While considering these issues, it is understood that solar energy investors mainly focus on the volatility in the economy. Within this framework, currency exchange rate risks, inflation and economic growth should be taken into account by making investment decisions to solar energy projects. Moreover, political conditions in the country should also be considered by the investors in this process. Otherwise, it will be very difficult to have sustainable success in the solar energy investment projects.

1 Introduction There are development goals for a country to be successful politically, socially, and economically. All governments have understood that energy resources are the main target for national development. It is important to develop and use energy resources at an optimum level (Kabir et al. 2018). Energy resources should reflect reliable, cost-effective, and environmentally minimizing features in meeting demand (Essandoh-Yeddu 2020). There is strong evidence that countries that lack energy will fail in economic development. Therefore, access to energy resources is increasing its importance because it increases the welfare level of the society (Acharya and Sadath 2019). The welfare level of the society means living a quality life. In terms of

S. Eti (*) · B. Çelebi İstanbul Medipol University, İstanbul, Turkey e-mail: [email protected]; [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 H. Dinçer, S. Yüksel (eds.), Financial Strategies in Competitive Markets, Contributions to Finance and Accounting, https://doi.org/10.1007/978-3-030-68612-3_25

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industry, production promotion and employment opportunities require reliable energy resources. One of the reliable and sustainable energy alternatives is renewable energy. Renewable energy means the resources obtained in nature. Renewable energy types are named as wind, biomass, solar energy, hydroelectricity (da Silva et al. 2018). Another alternative energy that is not environmentally friendly is traditional energy. Traditional energy resources are non-renewable and are called fossil energy resources. Non-renewable energy resources are created by fossilizing some resources (Pardo et al. 2020). Non-renewable energy resources are used once, and they are depleted resources. Traditional energy resources are called nuclear sources such as coal, oil, natural gas, uranium, and terrarium. As traditional energies are limited in resource continuity and increase environmental pollution, countries have sought alternative ways as development goals (Peng et al. 2019). Solar energy is one of the popular renewable energy sources. Solar energy means a type of renewable energy that derives heat and light from the sun. In order to reach this objective, solar energy techniques such as photo catalysis have been used. The correctness of the technical designs of photo catalysis is effective in providing significant solar energy. The main purpose of the photocatalytic industry is to promote solar energy (Zhou et al. 2018). Photo catalysis involves complex processes in which nanostructured applications are made up of cheap and abundant soil elements, but hollow nanostructures have advantages. It provides light dispersion of solar energy, adjusts transfer distance well and increases accessible surface areas. When such technical features are provided, solar energy is easily supplied. Solar energy becomes an alternative energy with practical application techniques. Solar energy can be obtained at a lower cost and solar energy efficiency may increase (Xiao et al. 2019). When micro and macro level evaluations are made, the strategies of countries that are successful in the energy sector can be effective. The interruption of the source obtained in solar energy is an important technical problem (Zhou et al. 2018). Today, even if the technology field develops, the desired efficiency may not be obtained from the sun most of the time and there is a performance imbalance. In other words, there are input and output risks that cause imbalance, such as high upfront costs, lack of financing mechanisms, inadequate infrastructures, unskilled manpower and technical problems. It is obvious that solar energy has important risks in this regard (Dinçer et al. 2019). The aim of this study is to identify the risks of solar energy investments that provide sustainable and clean energy in the energy sector, which is the main subject of economic development. For this purpose, 5 main risks of solar energy have been determined with a large literature review. Additionally, these 5 main risks have been weighted by using fuzzy Entropy methodology. As a result of the analysis, it can be possible to determine strategies in advance and to know which one we should focus on. In this way, solar energy investments can increase for a cleaner environment and sustainable energy development. There are 4 different parts in this chapter. Firstly, the importance of economic development and energy resources, comparison of renewable and non-renewable

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energy resources, developments related to solar energy and problems related to solar energy were explained in this study. Secondly, a literature review was conducted for a wide range of solar energy risks, addressing each region. Then, an analysis has been performed for 5 main risks. Finally, there is a section that summarizes all the points we have mentioned in the study.

2 The Importance of Renewable Energy Investments Renewable energy sources have many advantages for countries. The most important issue in this process is the reduction of environmental pollution. Thanks to the use of renewable energy, carbon gas emission into the atmosphere is reduced to a minimum. This situation contributes to the countries both socially and economically. For example, it is possible to reduce respiratory diseases in countries with less air pollution. This will help reduce healthcare costs. Thus, the budget deficit problem of countries will be minimized. Another important advantage in this process is that people who are not sick can be included in the production process. This will contribute to increasing the industrial production volume (Zhong et al. 2020). On the other hand, sensitivity to environmental pollution is increasing day by day throughout the world. This situation enables countries to take action to reduce environmental pollution. A significant majority of international companies pay attention to many different criteria when making investments (Yüksel et al. 2020). While choosing a country, these investors pay attention to the environmental pollution in that country. In other words, investors may be reluctant to invest in countries with high environmental pollution. This situation causes countries to lose investors. As a result, economic fragility in countries is increasing. Considering the mentioned issues, it is vitally important for countries to focus on renewable energy sources that minimize the environmental pollution problem (Dinçer et al. 2020). Renewable energy sources have many advantages for countries. The most important issue in this process is the reduction of environmental pollution. Thanks to the use of renewable energy, carbon gas emission into the atmosphere is reduced to a minimum (Li et al. 2020). This situation contributes to the countries both socially and economically. For example, it is possible to reduce respiratory diseases in countries with less air pollution. This will help reduce healthcare costs. Thus, the budget deficit problem of countries will be minimized. Another important advantage in this process is that people who are not sick can be included in the production process. This will contribute to increasing the industrial production volume (Wang et al. 2020). One of the most important benefits of renewable energy resources for countries is that it minimizes energy dependency. As mentioned in the previous sections of the study, energy is an indispensable need for a country. In other words, if the needed energy is not supplied, both people cannot meet their daily basic needs and industrial companies cannot continue the production process effectively. Therefore, it is vitally important to supply energy. In this process, this is not a big problem for countries

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that have their own energy resources. On the other hand, countries that do not have their own energy reserves have to meet these energy needs by importing. This situation increases the political and economic risks of the countries. In other words, countries that supply their energy needs to importers cannot have energy supply security. Renewable energy sources are also alternatives that increase the energy supply security of countries. The main reason for this is that countries can produce their own energy in this process. This situation will contribute to the reduction of political and economic risks of countries.

3 Different Risks in Solar Energy Investment Solar energy is one of the most popular renewable energy sources. Solar energy has some advantages compared to other renewable energy sources. For example, solar energy does not have any significant costs other than installation financing. Second, solar energy is generally used where it is produced (Abd Elbar and Hassan 2020). Therefore, there are not too many problems in transmission and distribution routes. In addition, these energies are used to provide electricity in places where there is no electricity network. Considering the stated point, it is possible to say that solar energy can be used more easily and spread faster than other renewable energy sources. Finally, solar energy is a silent source of energy (Sfintes and Sfintes 2020). However, solar energy also has some disadvantages. For example, there is little sunlight during the winter and at night. Because of this, efficiency in energy production decreases. In addition, technologies that can provide solar energy should be installed in a wide and open area (Hsiao et al. 2020). This type of energy should not be installed especially where there are smoke chimneys. As stated before, the electricity obtained from solar energy may be high on some days and low on others. On days with more electricity than expected, this electricity needs to be stored (Huaxu et al. 2020). This situation affects the profitability of the investments negatively as it will increase the storage costs. On the other hand, since there is little light falling on the surface, panels with large surfaces must be installed in order to take advantage of the energy. In addition, solar panels can cause greenhouse gas emissions while being transported to the point of installation and installed (Khosravi and Syri 2020; Zhang et al. 2020). There are many articles about solar energy in the literature. This article mostly mentions the main risks of investors related to solar energy. Environmental problems have increased especially in the recent years so that the energy sector aimed to find alternative ways. Solar energy is one of the alternative solutions. Investors evaluated solar energy projects. In the literature, many researchers have evaluated the risk factors of solar investments for investors. In a study conducted in India, one of the main risks of solar energy investments was found as environmental factors (Mohamed et al. 2019). Weather conditions come first among environmental risks. For example, sand, dust, extinction, pollution, erosion damage increases the energy loss in arid regions. It causes optical scattering and cooling processes in the air

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between different optical components of solar power plants. Erosion effects can significantly lead to the optical performance of solar energy materials (Wiesinger et al. 2018). Also, there are uncertainties such as temperature, sunlight, heat demand (Najafi-Ghalelou et al. 2018). In a study conducted in Columbia, the main risk factors of solar energy are the difference between minimum and maximum temperatures, average temperature, and wind speed. Compared to these issues, less important risk factors are stated as humidity and precipitation level (Cardoza et al. 2018). While providing financial support to the investor, the risk factor of the environment belongs entirely to the investor, because financial supporters do not accept this risk. The investor should establish strategies for environmental risks (Anwar et al. 2018). Another risk factor is government instability in treaties for solar energy. For example, public-private partnership. When we compare the emerging markets with the developed countries, the change of law is more. Therefore, the legal risk change also affects the energy market (Anwar et al. 2018). Developing countries can expand government policies. For example, it can provide guarantees, such as tariffs or increase incentives to private sectors (Pacudan 2015). The importance of sociopolitical strategies for the renewable energy sector has been understood. Cost minimization risk and political instability are also essential factors (Trotter et al. 2018). Long-term licensing permits in developing countries discourage foreign investors. For example, 14 permits and licenses are required for these investment treaties in Indonesia (Keeley and Matsumoto 2018). Operational stability and optimum operation are the main targets for the investor. Tariff guarantee on solar energy projects in the Philippines attracted investors financially. But due to deadlines, low-tech-specific capacity, project size limits created income uncertainty (Barroco and Herrera 2019). Financial support is provided to developing countries in solar energy projects because they have needs. Financial applicability can produce good results in the country (Dobrotkova et al. 2018). For example, with respect to the financial risks in Iran, inflation, exchange rate, interest rate, price and budget risk are considered (Zarezade and Mostafaeipour 2016). There are some risks for renewable energy loans related to solar energy. The investor thinks that they will make more profit in the long run. But if the expected income does not come, there are problems in repaying the loan. Risks such as price, supply and demand changes may occur (Quinlan and Rasmussen 2012). The investor wants to feel safe, so the risks of solar energy investments should be minimized. The latest technology should be used to minimize technical disruptions. It will shed light on uncertainties. It will provide long-term energy forecasts (Tadesse et al. 2017). Technical risk factors include construction delay, technical problems during construction, organizational risk, scope change, geo-technical conditions, accidents, design problems (Akçay 2018). The US energy ministry conducted a technical risk and uncertainty analysis in 2009. R&D and cost targets were the main topics for this situation. Strategies for developing solar technologies were discussed. In this way, increasing the photovoltaic energy systems was the main goal (Backovic 2019). Renewable energy is used in the plant and food industry by using the drying feature of solar energy. Even the most advanced technology in solar energy carries risks. Some of these issues increase maintenance and repair costs (Raina and Sinha

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2019). Operating performances increase the performance of solar energy. Regular maintenance of solar areas positively affects the performance of solar energy (Luo 2014). There are facilities for storage associated with the solar farm. This facility has difficulties such as unpredictability, variability, and self-planning (Jadidbonab et al. 2018). Risk perception of renewable energy sources can be associated with social acceptance. Social acceptance gives information about the beliefs, motives, and cultural worldviews (Sposato and Hampl 2018). Climate changes that occur with the increase of globalization cause sudden temperature changes. Therefore, workers of the solar industry are at risk. These risks are fatigue, heat exhaustion, heat stroke and death. Taking this risk into consideration, work breaks, security measures and training opportunities can be increased. If these measures are not taken, health costs may also increase for the investor. (Samaniego-Rascón et al. 2019). An application challenge such as customers adopting solar photovoltaic system technology can be considered (Williamson 2015). The literature research results show us that solar energy, which is an alternative energy for sustainable and clean energy, is an important source. Hence, it is understood that there is a need for the studies which have more specific contents, such as risk evaluation.

4 Risk Analysis of Solar Energy Investments with Fuzzy Entropy Methodology Entropy method is one of the many criteria-decision making-methods used recently in weighting criteria. The basis of this method is the measurement of the irregularity in a resource. Shannon’s entropy is the most used calculation in measuring this disorder. The calculation proposed by this method measures uncertainty in a randomly distributed data. The information in the data related to subtracting this calculated value from 1 is calculated. Entropy method is based on this calculation of Shannoun. Based on the knowledge gained in the data, the criteria are weighted. The concept of entropy represents the weight of the feature of the criterion. The smaller the weight of an attribute, the less the power of discrimination in that decision-making process will be (Lotfi and Fallahnejad 2010). Today, fuzzy numbers are preferred to make calculations considering the uncertainty. Fuzzy numbers were developed by Zadeh in Zadeh 1965. With these numbers, it is possible to make calculations including all types of uncertainty. These numbers are named according to their types such as triangular, trapezoid, gaussian. The triangular fuzzy numbers are the most used fuzzy numbers in the literature (Armutlulu 2014). In the analysis section of this study, the main risks of solar energy companies are evaluated with the fuzzy numbers that consider the uncertainty. For this purpose, entropy method is used. For the use of the entropy method, the opinions of 3 people who are experts in the subject were collected through a questionnaire. These experts consist of academicians who work at least 5 years in the field of solar energy. On the

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Table 1 Normalized Matrix with Alpha cut = 1 Risk Types Economic risks (C1) Political risks (C2) Social risks (C3) Technical risks (C4) Environmental risks (C5)

Economic Risks (C1) 0,00 0,00 0,22 0,22 0,16 0,16 0,47 0,47 0,16 0,16

Political Risks (C2) 0,33 0,33 0,00 0,00 0,20 0,20 0,36 0,36 0,12 0,12

Social Risks (C3) 0,31 0,31 0,16 0,16 0,00 0,00 0,31 0,31 0,22 0,22

Technical Risks (C4) 0,37 0,37 0,23 0,23 0,17 0,17 0,00 0,00 0,23 0,23

Environmental Risks (C5) 0,29 0,29 0,16 0,16 0,24 0,24 0,31 0,31 0,00 0,00

other side, five different risks are defined for solar energy investments by considering similar studies in the literature. Primarily, economic factors in the country can have an impact on the performance of solar investments (Yüksel et al. 2019). In this context, high infection in a country increases the uncertainty in the market. This will also lead to an increase in the prices of the products. As a result, it will lead to an increase in the cost of the project (Dinçer and Yüksel 2019). Therefore, if the inflation rate is not followed effectively and necessary measures are not taken, it will be difficult to achieve long-term success of the project (Yüksel and Ubay 2020). In addition, political factors are also a type of risk to consider for solar energy investments. In the absence of political stability in a country, investors will not be happy with this (Qiu et al. 2020). The main reason for this is that investors do not prefer the environment of uncertainty Wang et al. 2019). Similarly, social factors are another type of risk that should be considered in solar energy investments (Mikayilov et al. 2020). In a situation where there is social confusion in a country, making new investments would not be right. In addition to the issues mentioned, technical and environmental risks are other important factors in this process. Triangular fuzzy numbers corresponding to expert opinions were built. Then, the decision matrix was created by taking the average of 3 expert opinions. This decision matrix is normalized. The normalized decision matrix for Alpha level 1 is given in Table 1. From this normalized decision matrix created, alpha section equations were obtained. Then, entropy, which is the quality weight of each criterion, was calculated. Information on the criteria was calculated by subtracting these calculated entropy values from 1. Entropy, gain and weights of the criteria are summarized in Table 2. When Table 2 is analyzed, it is determined that the most important risk in solar energy companies is economic risk. Then the most important risk is political risks. The most important of these 5 criteria is environmental risk. Considering these issues, it can be said that companies that want to invest in solar energy projects should first focus on the risks in the market. In this context, foreign exchange risk has a very important role. It may be necessary to import a significant portion of the materials used in solar energy investments from abroad. Therefore, an increase in the exchange rate can make these goods more expensive. This will increase the cost of their investments. Therefore, solar investors need to take some measures to manage the exchange rate risk. In this framework, financial derivative

Risk Types Economic risks (C1) Political risks (C2) Social risks (C3) Technical risks (C4) Environmental risks (C5) Entropy Gain Weight Mid-point Rank

Economic Risks (C1) 0,00 0,00 –0,33 –0,33 –0,29 –0,29 –0,36 –0,36 –0,29 –0,29 0,79 0,79 0,21 0,21 0,24 0,24 0,24 1

Table 2 Entropy, Gain and Weight Political Risks (C2) –0,37 –0,37 0,00 0,00 –0,32 –0,32 –0,37 –0,37 –0,25 –0,25 0,81 0,81 0,19 0,19 0,21 0,21 0,21 2

Social Risks (C3) –0,36 –0,36 –0,29 –0,29 0,00 0,00 –0,36 –0,36 –0,33 –0,33 0,84 0,84 0,16 0,16 0,18 0,18 0,18 4

Technical Risks (C4) –0,37 –0,37 –0,34 –0,34 –0,30 –0,30 0,00 0,00 –0,34 –0,34 0,84 0,84 0,16 0,16 0,19 0,19 0,19 3

Environmental Risks (C5) –0,36 –0,36 –0,30 –0,30 –0,34 –0,34 –0,36 –0,36 0,00 0,00 0,84 0,84 0,16 0,16 0,18 0,18 0,18 5

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products can be preferred to minimize these risks. Thanks to these products, solar investors will not be significantly affected by a sudden increase in exchange rate. With respect to the economic factors, inflation rate should also be followed by the solar energy investors. Inflation rate basically means an increase in prices. When this situation is continuous, it increases the uncertainty in the market. Investors are reluctant to make new investments when the market is uncertain. On the other hand, since high inflation also increases the cost of production, it will negatively affect the profitability of the project. As can be understood from these issues, inflation rates should be followed in order to increase the performance of solar energy investments. In an environment where the inflation rate has an increasing trend, solar investors need to be careful in their investment decisions. In addition, it would be appropriate to determine the price of the energy obtained by taking this inflation rate into consideration. Interest rate is another important factor in this process. Interest rate is one of the most important factors affecting the cost of investments. In cases where interest rates are high, it is not attractive to take loans from banks. As a result, it will be very difficult to find new funding sources. Therefore, solar investors should consider the change in interest rate in their investment decisions. In a situation where the interest rate has a rising train, it would be appropriate not to finance the solar investments to be made by debt. Otherwise, the cost of the project will increase significantly, which will have a negative impact on the profitability of the investment. On the other hand, according to the analysis results obtained, political factors also pose risks for solar energy investments. If there is political stability in a country, the financial markets and economic situation of the country are also adversely affected by this problem. As mentioned before, investors do not like the uneasiness in the market. However, the lack of political stability in a country also increases the uneasiness in the market. In such an environment, it will not be right to make a new investment decision. This will be especially important for exporting solar energy investors. These investors should pay attention to the political stability in that country when choosing the countries, they will invest in.

5 Conclusion Energy is one of the essential needs of a country. The main reason for this is that energy is important both socially and economically. It is of social importance because it plays an important role in meeting the natural needs of people such as energy and heating. In addition, it is regarded as the most important raw material for energy industry production. Therefore, the supplied energy has a very important meaning in the economic development of a country. In summary, there is no chance of a country not supplying this energy it needs. Energy is basically available from non-renewable and renewable energy sources. Non-renewable energy sources are obtained because of burning fossil fuels such as coal and oil. The most important

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disadvantage here is the pollution of the environment due to the carbon gas released into the atmosphere. Renewable energy sources are energy types that take their sources from nature. Wind, solar and geothermal energy are examples of these energy sources. These energy types have very important advantages compared to others. For example, thanks to the use of renewable energies, the country will be able to generate its own energy on its own. This will prevent a price to be paid for energy imports. On the other hand, by using renewable energy sources, carbon gas is not released into the atmosphere. In this way, it is possible to prevent environmental pollution. As can be understood from these issues, renewable energy investments are vital for a country’s sustainable energy production. Within this framework, risk analysis of these investments will contribute significantly to the success of these projects. In this study, the risks encountered in solar energy investments were analyzed. In this framework, a detailed literature analysis was carried out first. According to the analysis results obtained, 5 different risks that have an impact on these investments have been identified. Then, it was tried to determine which risks were more important. To achieve this goal, the fuzzy Entropy model has been considered. In this process, opinions were received from 3 different people who are experts in solar energy investments. Based on the analysis results obtained, it is determined that the most important risk in solar energy investments is the economic risk. In addition to the mentioned issue, it was identified that political risks should also be taken into consideration in this process. Solar energy investments are important for the social and economic development of countries. In this framework, it is of vital importance to take the necessary actions to increase these investments. In this process, the risks encountered in the process of these investments should also be minimized. The biggest contribution of this study to the literature is that it shows which of these risks are more important. Considering the results of the analysis, it is seen that economic and political risks are more important. As stated before, the initial costs of solar energy investments are very high. This situation creates a very serious economic risk. The results of this study give the information that actions should be taken to manage these risks. In this context, the support to be provided by the state is of vital importance. For example, through the lending of interest-free loans, the funds required for the very high initial cost of solar energy investments will be obtained. In order to increase solar energy investments, political risks should also be minimized. International investors are reluctant to invest in countries with high political risk. Therefore, in order to increase solar energy investments, first of all, the political and social turmoil in the country must be corrected. In addition to the mentioned issue, the necessary legal regulations will increase the confidence of the investors. On the other hand, tax rates should not be changed too often. Otherwise, investors’ anxiety will increase. Solar energy investments are very long-term investments. Therefore, it is vital that the country has political stability in order to increase the efficiency of these investments.

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