Selling at Home and Abroad

The world used to be simpler for defense contractors. For most of the industry’s history, companies did business primarily with their own country’s military and the governments of close allies. This was especially true of the large aerospace and defense (A&D) companies in the United States and Europe. Until the 2000s, large defense contractors were the norm in this industry, adapting their business directly to their home country’s military and relying on just a few international exports. In effect, they were big fish in a very clearly defined pond. They had a small number of specialized customers with large budgets and highly specialized means of selling to them.

But starting in the 1990s, the context began to shift — and now it is extremely complex. Military buyers want more value for their money. Those in emerging economies want more production in their countries. Though there is much talk of expanding military budgets (for example, in the United States), there is increasing emphasis on smaller, nimbler technologies designed to combat a wider range of threats, many of them asymmetric. Many countries have shifted their priorities away from expensive heavy technology such as fighter planes to more flexible equipment, including autonomous systems, electronics, and cybersecurity. The industry is thus full of new Silicon Valley–style companies that have fewer close ties to their home country’s militaries as well as business models that require them to look for sales in a broader group of countries such as the Middle East, India, Turkey, South Korea, and Japan.

Defense contractors are now reinventing themselves as local businesses with global interests — a very complex endeavor. One sign of this shift is the large number of cross-boundary joint ventures involving A&D contractors. For example, Boeing (in the U.S.) and Tata Advanced Systems (in India) have agreed to coproduce Boeing AH-64 Apache helicopter fuselages and other aero structures; eventually, Tata’s Hyderabad-based production facility will be the sole global producer of the fuselages. Similarly, a Northrop Grumman joint venture in Saudi Arabia is designing systems and technology for high-end security systems to protect critical infrastructure. In this arrangement, U.S.-derived technology and staffers are augmented by Saudi engineers and selected partners from other Saudi defense-related enterprises. Another Saudi arrangement involves Britain’s BAE Systems, which has a wide-ranging deal to provide electrical engineering know-how, IT systems, and training for both military and industrial development in Saudi Arabia. In Japan, Lockheed Martin, Mitsubishi, and Sampa Kogyo K.K. have formed a joint venture that will work with government military experts to design combat systems for the Japan Maritime Self-Defense Force (JMSDF).