Investing in defense can boost economic growth through technology transfer
Because defense programs are multi-billion dollar investments for states, and large amounts of funds are allocated for the long term, governments tend to require foreign suppliers to involve at least some of the local economy in the project. Nevertheless, the procurement of armaments is essential for securing national defense and sovereignty. When successfully implemented, these investments can stimulate economic growth with social and technological implications.
For global companies that want to maximize their competitiveness, long-term positions and partnerships in local markets often contribute to cost reductions and improved lead times, thereby promoting growth opportunities.
As a global aerospace and defense company, Israel Aerospace Industries (IAI) has consistently supported its growth through important, strategic collaborations with regional industrial and government partners. This collaboration is based on an understanding of partners' needs, solid core competencies of a highly qualified workforce, technological expertise and an extensive product portfolio based on the company's Intellectual Property (IP).
An infrastructure for success
For many defense procurements, the initial acquisition cost is equal to, sometimes double, the logistical support provided over the decades of the program's lifetime. Therefore, the procurement of regional logistical support and services is an important part of this. By subcontracting the manufacturing of parts and components or setting up training services for logistical maintenance and support throughout the life of the project, the user controls an important part of the schedule and value chain.
Defense partnerships always begin with an exploration of the local industrial base, which often opens up interesting and attractive opportunities for collaboration with local manufacturers and service providers. However, building a full business relationship can take time and require significant investment in skills and technology development. By forging strategic partnerships with government organizations and large corporations, and sourcing products and services from small and medium-sized enterprises, contractors help secure jobs in the country and develop the industrial infrastructure for future growth. A gradual transition allows the local partner companies to prepare the staff to deal with new technologies.
Technology transfer in stages
Many countries seek to use defense spending as an investment in developing their own technology and engineering capabilities. The pace of development depends on the initial level of technical skills. Access to new technology is sufficient for highly developed countries, while other countries may need more extensive training in relevant skills, which may take years. In some cases, establishing a regional supply chain and in-country logistical support offers a significant advantage for a global company looking to reduce turn-around time (TAT) for repairs and parts. In addition, this ensures both operational flexibility and the national independence of the user. A short TAT, based on local suppliers as well as local staff, also reduces delivery costs and creates a regional pool of technical educators and trainers to continue to support the industry in the future.
The development of the local industrial base and the transfer of manufacturing technologies enables local partners to take on a greater share of defense programs and gain independence and self-sufficiency through the regional production of strategic materiel, technical support and system maintenance services.
An evolutionary process
Such processes require commitment and patience on both sides, as the benefits of the partnership can only materialize after years of hard work. By choosing the right business partner, a foreign company can approach the customer efficiently and minimize the risk of cultural differences. Access to know-how and mastery of technology are essential factors that reduce technological risk and increase confidence in the overall program. By preserving intellectual property rights and establishing joint ventures, companies can share both technology and know-how with their local partners and protect their own interests.
Deepening industrial collaborations allows regional partners to increase their share of joint programs, from assembling parts and system modules to manufacturing entire subsystems, to system integration and testing, allowing companies to assume responsibilities as prime contractors. Collaboration often goes beyond industrial partnerships, academic collaborations and the creation of joint venture companies, resulting in tremendous growth in jobs, academic research and industrial capabilities.