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Viewpoint
How Companies Can Capitalize On U.S. ‘Smart Power’ Approach
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By Douglas Berenson and Aleksandar D. Jovovic
The Obama administration’s strategy for combating terrorism is to integrate soft and hard power into “smart power.” It is the collective use of military, diplomatic, economic and development efforts to achieve security objectives.
A critical element of smart power is to assist friendly governments so they can take over more military and law enforcement missions, thus lessening the need for direct U.S. military involvement.
For companies seeking to capture new business in this market, the challenge is to be able to work with multiple customers — not just the Defense Department but also the State Department, U.S. Agency for International Development, intelligence community and law enforcement agencies.
Perhaps the largest source of funding is the “Function 150” foreign affairs budget, mostly administered by the State Department and USAID. These funds pay for activities such as humanitarian assistance, development support, training and education, translation, logistics, maintenance, construction and security. In addition there are a variety of other programs in the State Department — counter-narcotics, non-proliferation, anti-terrorism, foreign military training, peacekeeping operations and embassy security. The Defense Department funds programs in counter-narcotics and humanitarian demining, and supports Iraqi and Afghan security forces’ equipment and training. The Department of Justice also oversees counter-narcotics and international law enforcement.
In fiscal year 2010, the Obama administration is requesting more than $39 billion for these programs.
Contracts generally fall into the following categories:
Logistics. Expeditionary logistics involve efforts to sustain U.S. and allied forces in Iraq and Afghanistan, including transport, housing and food services support and morale/recreation/welfare services. The coming months will see a shift in spending emphasis from Iraq to Afghanistan, as well as delivery of assistance to communities in conflict-prone areas of Afghanistan and possibly Pakistan. To date, these services have been provided mainly via the large LOGCAP contracts held by KBR, and more recently Fluor and DynCorp. Requirements will broaden to areas in Africa and to non-Defense agencies.
Construction and Technical Services. Building and expanding U.S. and allied bases in critical regions is likely to increase. Afghanistan looms as the most immediate area of demand, but East and West Africa are also potential regions of activity. Non-military oriented projects will feature fewer large-scale construction efforts. That is because Afghanistan has less centralized infrastructure and because these projects have been prone to implementation failures. Local construction projects, often focused on water and irrigation for remote villages, will be emphasized. Providers with demonstrated ability to provide technical assistance and manage large numbers of small and disparate programs are likely to have the upper hand.
Training and Education. Building the effectiveness and legitimacy of friendly governments is one of the key tenets of “smart power.” Training and education services, rendered in-country, are one of the central areas of demand for contractors. Several firms, including DynCorp, L-3, and Northrop Grumman, have stables of skilled trainers. On the civilian side, defense-focused firms bump up against non-profit and international organizations that have dominated the legal, governance, and economic development training environments.
Support and Operational Services. As the Obama administration struggles to field the necessary military trainers and government development advisors in the field, substantial functions will remain understaffed. On the support side, program planning, contracting, human resources, finance, and management information systems are likely to be as complex as those sought in Iraq. Firms with qualifications honed in Iraq or in managing projects such as the African Contingency Operations Training and Assistance will be best positioned to capture these roles. Core services in the field will also see a shortage of government personnel. The Defense Department worries about the lack of State Department civilians for work in Provincial Reconstruction Teams. As a result, demand for operational services, in areas like humanitarian demining, aircraft operations, and others will also increase.
Some firms are already well positioned, via either organic growth or by targeted acquisitions. L-3 Communications is perhaps the best example of a firm that has achieved a central position in this market.
But competing in this sector poses a series of strategic and operational challenges.
Contractors must be prepared to work with customers with whom they are not familiar, such as USAID, U.S. and foreign non-governmental institutions, and international organizations such as the United Nations. These new opportunities will require a departure from traditional business development efforts, project capture and governance practices.
There are also risks and governance issues. Many activities, particularly those related to military training and security operations, involve high risks to both personnel and corporate reputation. The legal imbroglio that engulfed Blackwater (now renamed Xe) approaches an existential threat to the company.
For companies new to this space, developing the appropriate capabilities may involve re-packaging existing core skills, such as logistics, training and program management, into new offerings. Most firms are unlikely to fully transition into the smart power market, preferring to straddle this nascent segment and their more traditional lines of business.
Developing the appropriate smart power offering may involve a series of strategic decisions. Organic growth may seem a natural fit, but for many firms closely associated with the U.S. defense industry this may not the most successful approach. Acquisitions may be the most efficient route. A case in point is Lockheed Martin’s recent takeover of PAE, a company that specializes in reconstruction and logistics. Joint ventures and partnerships with for- and non-profit players may provide the agility and full service offerings that customers seek.
Douglas Berenson is a founding partner, and Aleksandar D. Jovovic is an associate, at The Avascent Group, a consulting firm that advises companies competing in defense, security and other public sector markets.
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