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Defense Companies Looking to Extend Reach During DSEI
By Valerie Insinna



LONDON —
It’s no secret that defense budgets in the United States, United Kingdom and European Union have flattened, so defense contractors at the Defense Systems and Equipment International exhibition have the same goal: increasing their exports and widening their markets.

What has changed in the past couple of years is that companies have rethought the way they do business, focusing on efficiency and developing their international branches.

“Companies have restructured. It has become leaner,” said Sandy McKenzie, a partner in the McLean Partnership, a London-based consulting group. “The way in which business is done … is far more process-involved, and there's far more emphasis on the risk that the companies are taking, particularly in big-bid situations and managing programs."

As large defense contractors try to scoop up more international sales, companies such as BAE Systems and Thales are building up personnel in foreign countries, McKenzie told National Defense on Sept. 10.

U.S. contractors are increasingly pouring more resources into their U.K. offices, and vice versa, to better target specific foreign markets, he said.

For instance, when the United Kingdom has closer political ties with a country such as India, a U.S. company might facilitate sales by having its British branch handle business development for that country.

Though the market is more constrained than it was during the height of the wars in Afghanistan and Iraq, U.S. and U.K. defense technologies still carry a certain degree of prestige that makes those products more attractive to certain foreign markets, McKenzie said. That can make it more difficult for countries with developing defense industries to export their products.

“The Middle East wants British or American technology because it's seen as the best,” he said. “Something that comes from a small African country or small third world country, is that the type of thing that they want? ... Has it been tried and tested?"

That seems to be a problem for Metrodat, a Slovakian company that makes laser warning recievers.

Metrodat currently has contracts with Slovakian military and civilian government as well as the Czech Republic, said Matus Burian, a manager for the company.

Company officials are in touch with potential customers in Taiwan and Greece, where it has demonstrated its maritime system, and it also has contacts in Qatar and Oman. However, none of this has landed Metrodat a contract so far, Burian said.

Though Metrodat still has four ongoing contracts with civil and military organizations in Slovakia, finding new, international buyers is a “matter of survival, because a lot of programs in Slovakia are finished [or] cancelled,” he said.

On Tuesday, existing customers made up most of the foot traffic through the Steyr Motors booth, which is showcasing engines built by the Austrian manufacturer, said Max Chapman, a project manager with the company. “Certainly in terms of potential customers coming through, there have been a few.”

Steyr, which makes both commercial and military engines, is focusing on defense markets such as Turkey that have accelerated spending. Former USSR-bloc countries such as Russia and the Ukraine have also expressed interest in buying Steyr engines to replace those in older, land-based platforms, Chapman said.

Chinese investors bought out the company last year, and the purchase affords Steyr the chance to widen their market in China as well as to reduce costs, he said. The buy-out hasn’t changed the company’s customer base, though. "It has been business as usual for us. However, what we do have now is backers with deeper pockets," he added.

For Israeli-based Water-Gen Ltd., decreasing military budgets are actually helping spur the need for its suite of systems that take and purify water from the atmosphere or freshwater sources, said Avi Peretz, co-chief executive officer.

The four-year-old company has seen interest from the U.S., U.K. and French armies for its products, in part because there is increased incentive to reduce the expense and logistical burden of buying and transporting water during this time of fiscal austerity, he said.

McKenzie believes another shift in the industry will occur around 2015, as companies become more entrenched in selling cyber- and information technology services, which can then lead to an expansion to the commercial market.

“Companies like Detica, which is a BAE systems acquisition that specializes in cybersecurity … they're looking for people that understand the financial services industry or retail or pharmaceuticals or energy companies for instance, because that's who their customers are,” he said.

“It's always easy for the industry to moan,” 
McKenzie added. “But the reality is that there are still huge amounts of money out there."

Photo Credit: Valerie Insinna

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