Defense and aerospace contractors are fretting these days about the anticipated decline of U.S. government spending on new hardware.
The good news is that Uncle Sam is ready and willing to help companies seek new markets for their products, overseas. All they need to do is contact the nearest “export assistance center,” of which there are 100 in the United States.
“We work with many defense companies,” says Geoffrey Cleasby, commercial officer at the U.S. Department of Commerce Northern Virginia export assistance center in Arlington, Va.
In fiscal year 2008, DOC’s commercial service helped U.S. companies score 12,659 export deals valued at $67 billion, Cleasby says. He estimates that for every tax dollar invested in the U.S. commercial service, exporters realize an average of $359 in sales.
When defense contractors sell products or services to foreign governments, those deals are managed by the Defense Department’s foreign military sales organization. But those same companies also may have goods to offer to non-government foreign customers, and that’s where export advisors such as Cleasby can help.
“The most important function we do is identify partners for U.S. companies,” he says. The Commerce Department’s International Trade Administration has a staff of more than 1,000 who are spread across 150 offices in 85 countries. Their job is to promote U.S. industries and find suitable corporate partners for American firms, he says.
“We are not a sales organization. We are a matchmaking organization,” Cleasby stresses.
“Our capability to find good, reputable partners has become our most important offering to U.S. exporters,” he says.
Initial counseling is offered free of charge, but companies are charged fees for other services. Matchmaking, for example, ranges from $350 to $2,300 depending on the size of the firm. Trade show assistance costs $2,000.
All dealings are confidential, so Cleasby would not discuss specific contracts or partnerships. “We work with all major defense contractors,” he says.
Small firms in the defense and aerospace sectors typically enter the export markets as subcontractors to large companies.
Many countries covet U.S. technology. Most of the export opportunities are in high-tech products and services. Cleasby spent two years in Saudi Arabia, where he worked in the oil and gas sector. “The United States still reigns supreme in oil and gas exploration technology,” he says. Lucrative contracts have been won by U.S. firms in the Middle East not just for oil and gas drilling but also to provide security systems to protect critical infrastructure and pipelines spread across the desert.
U.S. companies there increasingly are seeing competition from Chinese and South Korean firms.
The Middle East is where the money is right now, says Cleasby. “We have seen a huge uptick in requests for export assistance for the Middle East market, one of the few where cash is still being generated.”
Other promising export markets are Russia, China and India, says Cleasby. The Commerce Department is increasing its presence in all three countries, particularly China, he says. “We’re devoting resources in places where we see growth five to 10 years from now.”
He predicts U.S. defense and aerospace companies will continue to grow their export business. Although many contractors complain about State Department export-licensing restrictions on high-tech systems, the market still give an edge to the firms that have the best products Cleasby says.
“Generally, if a company can survive in the highly competitive U.S. market, there’s no reason why it shouldn’t be able to compete overseas,” he says. But he cautions that the profit margins are not going to be the same. “It takes more work and it costs more to make those overseas sales.”
The main difference between the companies that succeed in foreign markets and those that don’t is the commitment from top management, he says. It also helps to set realistic expectations.
The operating budget in fiscal year 2009 for the U.S. commercial service was $237 million. A portion of the funding comes from user fees and from fee-based services.
Additional information on export assistance is available at www.export.gov