WASHINGTON — Facing budget pressures that could limit agency spending and industry reticence at investing company funds, the US Defense Department is looking at how it can join with overseas partners, both countries and companies, to support research and development (R&D).
Working across borders to develop technology isn’t simple, given legal restrictions on technology transfer and certain political problems stemming from partnering on advanced systems. But it may be one of the few solutions available if DoD can’t convince US companies to invest their own money and has to cut R&D as part of the sequester.
“When you have a defense budget squeezing you, it’s exactly the time that you have to do more international cooperation,” said Alan Shaffer, acting defense undersecretary for research and engineering, speaking at the ComDef 2013 conference Sept. 4. “It’s incumbent upon all of us in the R&D world to take technology wherever it lies.”
To that end, DoD is developing an international strategy for research in science and technology, Shaffer said. By working with overseas partners, not only does it make future exports easier and provides a market for the US industrial base, but it also gives access to talent, he said.
“Sometimes we’ll go out and identify outstanding researchers in other countries,” Shaffer said. “We want to be able to share some of that intellectual capital.”
The need to look overseas has become more acute as US companies have curtailed R&D spending, an area that has begun to set off alarm bells at DoD.
Speaking at the same conference in one of her first public speeches since becoming the acting industrial base chief at the Pentagon, Elana Broitman listed company spending as one of the top two concerns for the agency when it comes to industry.
“Two things concern us among others, that some companies can’t weather the storm, and that companies won’t invest in research and development,” she said. “Unfortunately, for companies their [return on investment] to capital holders, it is hard to justify long term R&D.”
That shareholders won’t support R&D investment has been a common refrain from US executives, and companies have largely followed a trend to keep R&D investment close to 1 percent of sales. The problem, they say, is that they don’t know where the US government wants them to develop technology, and they won’t invest without greater guidance.
But overseas, some companies are bucking that trend.
Saab, No. 30 on this year’s Defense News Top 100 list, has radically increased its company funding for R&D, including a 3 percent spike last year alone, to combat reductions in Swedish government R&D spending.
Jonas Hjelm, CEO of Saab North America, said it was a difficult process to switch to a heavy company R&D spend, but that he thinks the global defense industry might be headed that way.
“The game changed, Saab changed with it,” he said. “This transformation did not happen overnight. There was a lot of resistance, a lot of culture in the company, a lot of tied links between the company and customer fostered a culture of let’s say no.”
Saab leadership decided that it needed to increase R&D spending nonetheless, and made its case to shareholders.
“We went to our shareholders and said, ‘We want to spend your money, we want to gamble with your money that we can actually see into the future and put your money on products that will be a good investment in the future,’ ” Hjelm said. “And they were bold enough to say OK, we’ll let you do that. They continue to do that.”
By 2012, after several years of rapid increase, company R&D spending represented 25 percent of sales for Saab.
Shaffer said DoD is trying to find ways to encourage company research spending in the US, but that it can be a hard sell.
“It’s been my experience that pretty much industry works for profit, and if we cut the amount of dollars going in to them, they’re probably not going to spend as much R&D,” he said. “But we do have a very large effort in the department trying to increase the relevance of independent research and development [IRAD] within our industrial partners.”
One of the tools that might help: transparency on what companies actually spend.
“For a long time in the ’80s and ’90s, all industry was required to report their IRAD spending,” Shaffer said. “That requirement went away in ’94, ’95, and it fell off the table. That requirement has been reinstated and we have gone through a process of collecting IRAD efforts. Frankly, the quality of some of those has been very good, the quality on others have been poor, the descriptions of the projects.”
Convincing US companies to invest in research may be a way to help buttress technology development, but it would require improvements in communication about what DoD really wants, Hjelm said.
“I think industry is ready to take a big responsibility when it comes to investing in R&D, but today, to do so, governments need to sit down and be more open in terms of long term strategy,” he said. “Otherwise, the shareholders of these companies can never be OK with throwing in the money for this.”
Overseas company R&D investment likely makes partnership attractive for DoD, but making R&D work across borders, especially high-end technology, is incredibly difficult, said Gordon Adams, a professor at American University and former White House budget official.
“It’s dicey in part because we like to protect the technological jewels here,” he said. “The Europeans would love it. The Japanese would love it. But our technology protection regime is very political. The right in the Republican Party doesn’t like technological jewels leaving the country, and the left doesn’t want to arm foreigners. Between the two of them it’s a hard slog every time.”
But despite the alarm about R&D spending, Adams said that in the past, research has been protected in budgetary down cycles.
“One of the things that we see in historical build downs are that budget reductions are typically the least in R&D,” he said. “We got to one point in the ’90s where DoD spending on R&D was almost as much as procurement. That pattern was true after Korea and after Vietnam as well. I anticipate a fairly healthy level of R&D investment in defense. I anticipate by contrast a fairly steep drawdown in acquisition.”