Market Push: Saab personnel support an instrumented exercise, managing the Exercise Control, Excon. Saab recently consolidated its US holdings, including its training and support and services units, to increase market share. (Saab)
WASHINGTON — That major defense companies are trying to find business opportunities outside of their traditional markets is no surprise. Budget crunches in Europe and the US, the traditional powerhouses of defense spending, are already straining contractors.
But the strategies those companies pursue reflects an interesting perspective on how the US market is viewed: US contractors are looking to grow, especially in the Middle East where acquisition dollars are on the rise; European contractors are looking to stake their claim to the US market, still the richest in the world.
“It doesn’t have to be an up cycle, it only has to be an up cycle for us,” said Michael Andersson, executive vice president for Saab North America.
Saab recently moved to consolidate its US holdings, part of an effort to gain greater market share in the US. That may be a surprising move in a market that isn’t flush with cash, but the sheer magnitude of the US budget paired with upheaval in the acquisition world caused by cuts provides real opportunity.
“It’s clearly the biggest market in the world,” Andersson said. “Change is good for us because it means changes in strategy and behavior on the customer side. Change means opportunity for us.”
Other European companies, such as the French group Safran, are also pushing to increase their profile and business in the US. But they aren’t just focusing on the US, joining the scrum turning toward the Middle East where acquisition dollars are flowing.
US contractor Textron Systems has seen its international sales climb from 7 percent of revenue to 35 percent in the past five years, a staggering rise driven by sales in the Middle East.
Part of that increase reflects regional instability, especially due to saber rattling from Iran. But the company is also making a concerted effort to have more of a footprint locally.
“What we’ve done over the last year is really rethought our business development organization, and instead of having people flying over from the states to our customers overseas, what we’re doing is putting people in country,” said Ellen Lord, CEO of Textron Systems.
“One has to think carefully about the individual that you put in country. You want someone who speaks the language, who hopefully has had experience there. We find when you have individuals with strong military backgrounds it’s helpful. It’s just a process of understanding what the requirements are for the job, and then going and sourcing the correct individuals.”
That type of approach, emphasizing local connections, had been a trademark of European operations in the Middle East for years. European executives have been confident in the past that such a presence would give them a leg up over US competitors increasingly focused on the region.
But the US shift to put more local people on the ground is having an effect and helping to create record years for US foreign military sales, the apparatus that allows companies to sell military goods overseas, said Andrew Shapiro, a former senior State Department official.
“What we have found over the last couple of years is that US defense sales overseas have increased,” said Shapiro, who is a managing director at Beacon Global Strategies. “There will be winners and there will be losers. Those companies that will be successful in developing markets overseas will be those that invest in the capacity to meet the needs of those customers.”
That logic — investing locally to establish a base — can also be applied to the European companies trying to grow in the US. Creating that base will help some companies capitalize on what some experts view as one of the weakest incumbency advantages for Pentagon contractors in years. Budget cuts inherently push the acquisition workforce toward innovation, Shapiro said.
“I wouldn’t say across the board that it’s open season for any company to penetrate the Pentagon market, but what I would say is for companies that have unique capabilities that fill unique niches in a cost-effective way, there may be opportunities worth exploring,” Shapiro said.
Andersson said Saab isn’t trying to supplant prime contractors but to leverage existing technology to partner with US contractors.
“Some of what we have in our portfolio creates good partnerships with the larger primes,” he said. “We’re starting from a fairly small footprint and are trying to grow. To some extent we’re a niche player, we have niche products for certain niche customers.”
What triggered Saab’s decision to grow in the US is the same issue that’s triggering US firms to push overseas, especially in the Middle East: domestic budget cuts. In Saab’s case, the Swedish government drastically cut funding.
“We learned through that transformation that we have to go global,” Andersson said.
And even with some of the changes to US spending in the past five years, the company is confident in its decision.
“The challenges that most people see here today, are something that we saw back then,” he said. “Depending on where you come from and the perspective you have, the glass is either half empty or half full. For us it’s half full or more. It’s a long-term strategy and we’re a very patient company.”