International Co-operation Platform
Four Seasons, Istanbul
Adapting To A New Security Environment: Challenges And Opportunities
For Defence Industry
Olga Maitland, President, Defence and Security Forum
My remarks are based on many years associated with the defence sector
including witnessing the defence sector in Algeria, a growing market
with a massive dedicated budget.
The security environment globally is never settled, and
looking to 2018 we face a continuing turbulence globally.
All this means increasing defence budgets. The US leads with China
ramping up with Russia and Saudi Arabia
Growth markets are the Middle East, Asia (India is a serious buyer with
a budget of US$50b in 2016 and growing. They signed 15 contracts with
foreign vendors) and the in the Far East, South
Korea, Japan, Indonesia have all bumped
up defence spending .
Overall : total global spend in 2015 was US $2billion and growing
The shopping list is changing: today the focus has moved away from
heavy duty hardware such as tanks to new technologies such as
drones,(they are flying off the shelves, the demand has never been so
great ) , cyber security, surveillance systems, high resolution
satellites and so on. Indeed in the UK the Defence Ministry is
increasing its spending on cyber security at the expense of men on the
ground: indeed thinking includes cutting
our prime Royal Marines by 1,000 and slowing down on F35 stealth jets.
Times are changing.
Contractors have to adapt more readily to host countries needs with
ever closer relationships. Add to that
fierce price competitiveness .
They also have to offer more. Hardware itself is
Flexibility can mean effective joint ventures in accessing new markets
and reducing competition, sharing the risks and the costs eg. Boeing
and TATA Advanced Systems for manufacturing fuselages of Apache
helicopters in India . In Japan Lockheed Martin, Mitsubishi
and Sampa Kogyo formed a joint venture. Flexibility and
co-operation with other brands can enhance the chance of a contract.
should a defence contractor approach a new market?
Here are my critical rules:
Think Long term. Investment and partnerships with the
local economy are now a cost of doing business long before a defence
contract is signed. Gone are the days when a
company can just rock up and bid for a lucrative contract.
Some have already seen this as a winning strategy.
Take Rolls Royce who established a training centre in India for 1,500
locals – just one part of a deep involvement in the country that the
company believes will bolster its defence aviation business.
As India places more emphasis on its ‘Make in India ‘ campaign, it will
respond more favourably to a joint venture. Generous CSR budgets,
corporate and social responsibility showing commitment to the community
pays huge dividends, provided it is reliable and sustainable..
Study history. A fine tuned
appreciation of the political, economical and historical terrain is
essential. This includes a broad understanding of
its ‘burden of history’, past conflicts, the country’s current
political and military decisions towards regional issues. But in doing
so, keep right of politics. It is more a case of
understanding local dynamics.
Know whom to know. Developing the right
relationships, understand the procurement process, tendering, which
staff in the Ministry of Defence or Finance to touch base with, who
must be cultivated, who is the decision maker? . Be careful, it is
often middle management who are the key. Time spent with cups of tea
are a huge investment or else your chances might be torpedoed. This is
especially the case in identifying new projects not yet on the official
And into this equation it must be made clear right from the start that
bribery and payments are out of the question. Culturally in many places
this is standard practise. Brand reputation depends on a
clean process. You need to be trusted. Companies
caught up bribery and corruption pay a very heavy price in fines and
Make the case right away at the beginning that
success payments will not be made. The challenge is
with agents and jv partners. Do not let them work in
isolation. Manage the process and make it clear you will sharply end
the relationship if they break the rules. It means a lot of supervision
but aspiring local agents desperate for your engagement can and do rise
to the occasion.
Develop Relevant capabilities. Evolving from a direct
export model to ‘localization’ means some defence companies need to
need to be able to co=operate with and train local companies
This can be extraordinarily hard work, the local workforce would most
likely need upskilling and understanding the disciplines and demands
needed. They are starting from scratch. Out of any group of
20, expect two to be star workers, 10 to be ok, and of the final group,
at least two or three will drop out. Then the good ones get
poached by others or go overseas for better jobs!
Decide on what intellectual property to share and what to develop.
There is a natural tension between a foreign government’s desire for
transfer of technology skills and knowledge and the defence contractor
to control their intellectual property. But some transfer can
be good public policy for a long term relationship.
Finally contractors have to learn to be more flexible
especially in emerging markets. Will they continue
to be exporters engaged in transactional relationships or will they
evolve to become long-term partners and active players in the local
economies? In my view , success depends
on a smart migration into this new , less transactional role. Fresh
operating models are tough, but to compete there is no choice.
For the defence contractor, there is no
short cut to the 3 Ps.
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