GLOBAL DEFENSE MARKET

U.S. Defense Companies Eye Partnerships in India

6/1/2016
By Yasmin Tadjdeh
Secretary of Defense Ashton Carter visits New Delhi, India.

As India pours billions of dollars into upgrading its military, U.S. defense contractors are looking to establish partnerships in the region to grab a piece of the pie.

India — a country of more than 1.2 billion people — is currently in the midst of a major public relations campaign to encourage foreign companies to partner with Indian companies or build offices in the region. Known as “Make in India,” the campaign has been a tenet of Indian Prime Minister Narendra Modi’s administration.

“The intention is to boost production of defense hardware that is made in India. A 20 to 25 percent reduction in imports can result in up to 120,000 skilled jobs in India,” said Janesh Janardhanan, Frost & Sullivan’s associate director of consulting for the Middle East, North Africa and South Asia public sector and defense division.

Make in India has led to major contracts, he said.

“The Indian Ministry of Defense has already issued licenses and cleared deals worth several billions of dollars,” he told National Defense in an email.

That includes a $700 million contract for BAE Systems’ M777 howitzers; $2 billion for an Airbus-Tata transport plane manufacturing deal that would provide the Indian Air Force with 56 planes; and a $700 million contract with Russia’s Kamov to establish a partnership with Reliance Defence to build 200 light helicopters for the Indian Army, Janardhanan said.

It is expected that the Indian government will spend $620 billion by 2022 on defense, he said. The country needs to upgrade nearly 50 percent of its equipment.

As India bolsters its military, it is also strengthening its relationship with the U.S. government.
During an April trip to India, Secretary of Defense Ashton Carter said: “The U.S.-India relationship is destined to be one of the defining partnerships of the 21st century.”

The two countries plan to strengthen their ties. One example is through the expansion of the Defense Technology and Trade Initiative, Carter said. The initiative was established in 2012 “to leverage the convergence between our industrial and technological inabilities in an unprecedented way,” he said. Programs that came out of that included work on a new Indian aircraft carrier, he noted.

Carter announced during the trip that the two countries had agreed to initiate two new DTTI Pathfinder co-development projects, including a digital helmet mounted display and a joint biological tactical detection system.

Additionally, India and the United States would be collaborating on more science and technology programs, he said. The governments are finalizing four projects that are worth nearly $44 million, with both countries sharing the investment equally, he said.

These include a project on atmospheric sciences for high-energy lasers; another on cognitive tools for target detection; a third on small, intelligent, unmanned aerial systems; and a project on blast and blunt trauma brain injury, Carter said.

Both countries also plan to work together in the maritime area, he said. There are plans for more complex exercises. Further, India and the United States agreed to launch a bilateral maritime security dialogue, Carter said.

Analysts interviewed by National Defense agreed that India would be a source of business opportunities for U.S. defense contractors.

“India’s mid-term positioning would be to be a valuable part of the global supply chain for defense majors,” Janardhanan said. “India is a very large defense market, and several U.S.-based companies are looking to gain [a] share of this market. Similarly, Indian companies wish to form partnerships not only to address the Indian opportunity, but also be part of the international value chain.”

Jon Grevatt, IHS Jane’s Asia Pacific defense industry analyst, agreed that there were opportunities to be had.

“In terms of funding, we only see that India’s defense market will expand over the next few years,” he said. While the economy has struggled in the past, India’s defense spending has been strong and is projected to remain so through the 2020s.

The time is ripe for robust defense spending not only because the economy is now strong, but also because there are significant strategic drivers in place. “India sees significant threats from Pakistan and increasingly from China,” he said.

IHS estimates that India will spend $10.4 billion on defense procurement in 2016. That will increase to about $15 billion by the end of the decade. “That’s a billion a year increase in defense procurement spending over the next few years,” Grevatt said. “The market will continue to expand for the foreseeable future and that will remain the case … for certainly the next decade.”

India has massive military requirements, he said. Its current inventory is aging and many pieces of equipment are obsolete. It currently has in place a naval modernization program until 2027.
“They’re aiming for a 200-ship fleet by 2027 and … they need certainly many, many more ships in order to achieve that ambition,” he said. “In order to have those ships in place by 2027 they need to start building them very soon.”

There is a requirement for surface and subsurface ships and that will lead to many opportunities for contracts, he said. U.S. companies may not provide surface ship or submarine hulls to the Indian navy, “but where they can supply certainly is through the tier two contracts for … combat systems, mission systems, electronic systems, all these areas where U.S. industry has capability.”

While there has been some success with the Make in India campaign, Grevatt said he had some reservations.

“The Modi government has been very successful in promoting Make in India,” he said. “But I am slightly skeptical about the whole thing because … when you analyze it, there is no policy. It’s just, ‘Come and build in India.’ Which to be honest with you, is something … India has been doing for decades” in the defense market.

Foreign companies that want to do business with the country will have to grapple with its notoriously slow and cumbersome military acquisition system, Grevatt noted.

“The defense procurement system … takes so long sometimes in India,” he said. “Patience is certainly required.”

Companies also need to do their due diligence when researching with which companies to partner, he said.

“You need to be sure that the Indian company can deliver what it says it can deliver,” Grevatt said. “In the past, foreign companies have found that … hasn’t [always] been the case and has sometimes led to foreign companies moving out of the partnership.”

While the Indian defense market is large, money allocated to the military isn’t always spent efficiently, said Daniel Darling, senior military markets analyst for Europe, Asia and the Pacific Rim at Forecast International.

“Last year, they failed to spend between $1.5 billion and $2 billion of their capitalization earmark which is money for procurement, which is just incredible when you think about the amount of requirements they have,” he said. “I do think the government is now trying to hold the military’s feet to the fire by saying, ‘Why when we’ve allocated this money are you not spending it year after year?’”

Part of the reason India invests so much in its military is because of regional drivers, he said. For example, India has a large requirement for combat aircraft because it bases its requirements on the possibility of fighting on two fronts at one time. That could happen if China and Pakistan combined their forces.

“Now that may be farfetched in more realistic terms, but nonetheless they do prepare for any and all possible scenarios,” he said.

India also wants to safeguard the Indian Ocean, which it looks at as its territory, he said.
“If you think of the way Rome viewed the Mediterranean Sea as Mare Nostrum [a Latin term meaning “our sea”], that’s roughly analogous to the Indian view of the Indian Ocean, although they are aware of international trade and international norms so it’s not something where they would … be like China in the South China Sea and try and exclude foreign shipping,” he said. “It’s just more of, ‘This is our strategic interest. This is our backyard and we need to be a dominant navy within those waters.’”

U.S. industry has already begun reaching out to Indian companies for new business opportunities.

In March, AM General announced that it was entering into a partnership with Bharat Forge Ltd., an Indian company, to bid on the country’s light specialist vehicle program using AM General’s Humvee as the base platform.

“AM General is pleased to be teamed with The Kalyani Group’s Bharat Forge to bring our proven light tactical vehicle solutions to India for military and paramilitary requirements,” said AM General President and CEO Andy Hove in a statement. “Bharat Forge has proven to be a world-class manufacturer, and we look forward to working together with them to deliver combat-proven mobility solutions to customers in India.”

While the Humvee will be the base vehicle, the final build and production will take place in India. The vehicle will be used for reconnaissance and patrol missions and is required to operate in a variety of terrains and altitudes, an AM General press release said.

Swedish defense manufacturer Saab is one foreign company that is making investments in the Indian defense market, said Jan Widerström, chairman and managing director at Saab India Technologies.

“India is extremely important to Saab — both as a market for our products and solutions, but also as a country with some excellent capabilities in the defense and aerospace industry,” he told National Defense in an email.

“We have a large footprint in India, including a joint venture with Aequs, an R&D center at Tech Mahindra’s Hyderabad campus, a naval combat management system development center in Greater Noida with Reliance Defence and many collaborations and sourcing agreements — and we are constantly looking at expanding our presence here,” he said.

The company is keen on working jointly with Indian companies to take advantage of their strengths in manufacturing and its pool of skilled manpower, Widerström said. “It’s a win-win scenario.”

The country has expertise in machining, defense electronics and optics, he said. “In the last few years, we’ve visited many large and small Indian companies, and we’ve seen some excellent capabilities and commitment to quality in many areas.”

Partnerships with Indian defense companies can be a gateway to other markets, he said. “Not just Asia — even beyond that.”

Photo: Defense Dept.

Topics: Business Trends, Partnering, Defense Department, DOD Leadership

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