Survey: U.S. Defense Industry Fears Losing Competitive Edge
The export of China’s armed drones illustrates how a country can succeed in the international arms market even when its technology is not the world's best.
China's drone exports are an example of availability trumping technology, says a new industry survey. Foreign nations' ability to rush products to market and lax export controls are giving the U.S. defense industry a run for its money, according to a recent survey of 350 aerospace and defense executives conducted by Avascent and FleishmanHillard.
China's unmanned aviation exports are a cautionary tale. The country has developed three armed drones, and their export is unhindered by treaties, such as the Missile Technology Control Regime, analystsJon Barney and Matthew Breen write in a white paper.
China’s Yilong unmanned aircraft made by Aviation Industry Corp., not coincidentally, resembles a U.S. Air Force Predator. "Deploying what has been a signature U.S. battlefield advantage may be too much to resist," the white paper says.
Saudi Arabia, a reliable buyer of U.S. weaponry, is reportedly interested in armed Chinese drones, which could displace or augment costlier systems such as attack helicopters. Barney and Breen estimate that from 2014 to 2017, spending on unmanned aircraft outside of the United States will grow by 16 percent per year, and procurement of combat drones will increase from $359 million in 2014 to $1.18 billion by 2019. Although the drone market is a small slice of the military aviation pie, analysts see it as a vivid example of what is happening in the defense market and of the "daunting long-term challenge" coming from China.
Sweden's recent success with the Saab Gripen fighter also should be a warning sign for U.S. firms, the paper says. Saab updated its Gripen fighter with advanced electronically scanned radar and electronic warfare systems that are typically found on bigger, more expensive jets, and is offering it at bargain prices — including leasing arrangements — that put U.S. fighters at a competitive disadvantage, contends Barney. "The company’s double-barreled approach on price and capability gives it a disruptive presence as its deal with Brazil showed." Brazil picked the Gripen over the Boeing F/A-18 and the Dassault Rafale last year after a lengthy marketing campaign.
With a military budget of $618 billion in 2013, the United States accounted for 37 percent of global military expenditures. But U.S. defense budgets are flattening out while spending in the rest of the world is expected to top $500 billion in 2016, up from just over $300 billion in 2008, says Barney. "The rising tide in global defense spending is creating a much more competitive market than is currently appreciated. Industry leaders forecasting easy wins are setting themselves, and investors, up to be disappointed."
In the survey, 80 percent of executives said they believe they will face a tough competitive environment overseas, but only 6 percent of them are confident that their companies are well prepared to play in this field. Russia is a perennial rival, but other "aggressive new competitors have arrived, with China cited as the top challenger," he says. Surveyed executives also cited Israel, India, Brazil, Canada, South Korea, Turkey and the United Arab Emirates as emerging rivals.
American firms also appear vulnerable in markets where the U.S. has long held leadership positions, the survey says, such as unmanned aerial platforms, intelligence surveillance and reconnaissance, missiles, and satellites. According to one executive, the competition for international defense deals is "heating up to fever pitch due in part to lagging U.S. sales but also due to ITAR [International
Traffic in Arms Regulations] throttling the market to such a narrow family of products, and fewer companies able to effectively navigate the international business culture."