Budget Cuts Boost Global-U.S. Partnerships

As the domestic defense budget becomes tighter, U.S. businesses are looking toward international partners for support in the global marketplace, said chief executives of foreign-owned defense companies.

Corporations with headquarters overseas are becoming more attractive to U.S. partners, said Alan Pellegrini, president and chief executive officer of Thales USA, a subsidiary of France-based Thales Group.

“With constrained defense budgets, they need to look on a more global basis much more rigorously, and to some extent they look at us as a channel to market … in some parts of the world,” he said during a panel discussion at the Atlantic Council, a Washington, D.C. think tank.

Thales has survived in countries such as France where defense spending is substantially lower than in the United States, he added. “We’ve … had to seek out and really nurture those markets outside of Europe,” Pellegrini said. As U.S. companies “look abroad to major integration opportunities, they know they really don’t have credentials maybe in some parts of the world like the Middle East … where Thales does.”

Partnerships are beneficial to both parties with U.S. businesses strengthening their relationships abroad while Thales benefits from the expertise and capabilities an American defense contractor can offer, Pellegrini said.

There is a lot of temptation to stay local in a country like the United States where there is a robust defense industry, he noted. “I do think when you have low-hanging fruit and it’s right in your backyard, it’s easiest to go pick that as opposed to try to develop what it takes to really be successful on a global basis,” Pellegrini said. “It’s not easy because it’s an investment everywhere you go. The culture in a country like India is very different than the culture in China, for example, and the investments required to really build an indigenous presence are not trivial.”

Peter Lengyel, president and chief executive officer of Safran USA, the U.S. subsidiary of France’s aerospace giant Safran Group, said international partnerships are essential to the company. Eighty percent of the products Safran Group manufactures in its home country are exported, he said.  

He is optimistic that Safran’s relationship with the U.S. defense industry will strengthen as budgets are slashed. The company has already had success partnering with U.S. manufacturers such as General Electric. Safran is likely to become an even more attractive partner as U.S. defense industries seek more global opportunities with constrained domestic budgets, he noted.

“They need to have that foreign content so what we make in the United States we can switch to a global set of manufacturing bases and alliances,” Lengyel said. And “there are some places where the diplomatic relations are far better from a French-owned company than they are for a U.S.-owned company.”

Another key factor in the dialogue on international partnerships is innovation, said Lengyel, who served in the U.S. Navy for 24 years. The United States needs to acknowledge that the majority, if not the vast majority, of technological innovation is coming from overseas, he said.  Acquisition officials should shift to a procurement strategy that recognizes superior products developed by foreign companies instead of assuming the most advanced technologies will always be developed in the United States, he said.

“The fact of the matter is that the last place we want to find out that we’ve been overcome by the enemy is in the battle space, and we need to recognize that early enough so that we can overcome that now with our acquisition policies,” he said.

Topics: International