{{item.videoDuration}}
{{item.title}}
{{item.text}}
{{item.videoDuration}}
{{item.title}}
{{item.text}}
Executive summary
Emerging economies are adopting a new approach to defence procurement and the development of their defence industrial base. These countries are among the world’s largest military importers. They represent growth markets for defence original equipment manufacturers (OEMs) in developed economies. To secure lucrative procurement contracts, global defence players traditionally have used offset agreements to transfer technology, boost domestic industrial capabilities, and generate socioeconomic benefits for the buyer. Yet offsets have a poor track record in most emerging economies.
Instead, many countries are moving beyond offsets to forge joint ventures (JVs) with OEMs. JVs are a more promising way to develop the industrial base in emerging economies. The defence OEM contributes technical expertise, training, and intellectual property rights on products and processes. Many successful JVs include a local defence champion that can provide fast access to manpower, shared services, infrastructure, and support in navigating regulations.
There are four leading practices that can make JVs between defence OEMs and buyers in emerging economies more successful:
- Define an industrial strategy and build capabilities incrementally
- Agree on the terms for local content and technology transfer
- Take advantage of capabilities developed during the JV after it has ended
- Determine equity ownership and participation in advance
From offsets to joint ventures
Emerging economies are among the fastest-growing defence markets in the world. Many of these economies, however, have failed to build local defence capacity and capabilities, prolonging their dependence on defence OEMs from developed economies. The traditional approach to develop the local defence industrial base has been offset agreements. These stipulate that defence OEMs generate socioeconomic benefits in the buyer’s country. Until recently, nearly every large defence procurement contract in such emerging economies as the Gulf Cooperation Council (GCC)1 countries, India, and South Korea has required an offset package. However, many offset obligations fail to deliver the agreed-upon benefits, often because the emerging economy lacks the industrial and technical base to integrate the technologies.
Connecting the elements for a successful defence JV
The success of defence JVs depends on how all these elements come together. The JV serves as a central link among all involved parties, orchestrating the necessary requirements to ensure that individual contracts are successfully fulfilled and, as important, that the emerging economy is building its manufacturing and industrial capabilities.
The contract flow is an important consideration. In most cases, military contracts are signed directly by the local JV and a governmental institution such as the ministry of defence or a subordinate procurement agency. Once a contract is signed, the JV sub-contracts defined work packages to the most suitable suppliers, from integrated service providers to component manufacturers and engineering and production firms. If these suppliers are missing key capabilities, the JV can fill that gap by sourcing specific, product-related IP from the OEM to sub-license it to the suppliers. In return, the OEM receives a royalty fee from the JV. By transferring technology via IP rights, the JV fosters the generation of local content in the emerging economy.
Conclusion
Defence JVs require commitment and collaboration. They will take time to succeed. However, by transferring knowledge and building local capabilities, they can ensure that emerging economies develop competitive defence industries of their own.
{{filterContent.facetedTitle}}
{{contentList.loadingText}}
{{contentList.loadingText}}
Contact us
Menu