ABU DHABI – Russian defense and technology giant Rostec was out in force at the International Defence Exhibition and Conference, which took place in February.

The state-controlled firm has been rapidly expanding over recent years and is on the cusp of some major internal changes. Defense News sat down with Victor Kladov, Rostec’s director for international cooperation and regional policy, to discuss cooperation with China, U.S. sanctions and how the company must change in the years ahead.

Russia and China recently held a major bilateral exercise. What were the takeaways as they relate to your business at Rostec?

We are dealing with equipment, technologies, transfer of technologies, and production and export. We are not doing military exercises. That’s between the two militaries. As a private person, I see it as a strengthening of defense ties between two nations.

To me, it’s only natural because we are neighbors. Sometimes I hear concerns or fears in the West: “Oh, Russia and China are getting closer. Maybe it’s a danger.” No, it’s not a danger. Both [Chinese President] Xi Jinping and [Russian] President [Vladimir] Putin have said that right now Russia and China are experiencing their best ties in history.

We are neighbors. We have 4,500 kilometers of border. We are destined to be good neighbors because we can’t get away. There is a Chinese proverb: A close neighbor is better than a distant relative.

Are there things inside the Rostec family of companies that interest China? Are there ways you can support China’s military?

You know, in fact, the Chinese have made immense progress in the past few decades. Especially since 2000 — they’ve developed a lot of new technologies. A few years ago, you’ll remember, people were saying that China was all about being a copycat: copying foreign technologies and doing reverse engineering. Now, what I see in the last five to 10 years, they’ve overcome this stage. They’re now developing their own genuine technologies. And many are even better than in the West.

Microelectronics technologies, for example. Huawei: If you look at the market in Europe, they are [gaining on] iPhone. In Moscow, Huawei has surpassed Apple and Samsung. So based on that, naturally we see a lot of opportunities. It’s easier to cooperate. Before we just supplied equipment. Now we are about building a partnership — joint development, joint R&D.

We are currently involved in two big programs: an advanced heavy-lift helicopter. The first half of this year we are going to sign a contract. And a second big project is a jointly developed wide-bodied passenger aircraft.

One of the stories we’ve been following closely in the United States has been the pending sale between Russia and Turkey of the S-400 air defense system. The U.S. obviously has staked out a strong position on this. How often do you run into this in your day-to-day, the U.S. coming between you and potential customers?

We are cooperating with partners and potential partners, regardless of who likes it and who doesn’t like it. It’s business. It’s just business ties. This is a system that the Turkish government wants, and we want to give it. And so far its going very smoothly.

A Russian journalist asked me: “If the Americans don’t give the F-35 to Turkey, does it mean you will provide the Su-35?" And I said: “No, it doesn’t work that way.” In the first place, it will be decided by the Turkish.

What is your biggest challenge when it comes to international sales?

The biggest challenge is a rapidly changing world. Most nations don’t want to just buy, they want to acquire technologies. So in India, they have Made in India. In Indonesia, they want to produce locally. In the United Arab Emirates here, [the country] wants to jointly design an aircraft, a helicopter.

So we are having to change our ways from simply delivering equipment to establishing a technological partnership.

Another challenge is that nations want lifetime support plans. We have so much equipment scattered all over the world — both Soviet-made and Russian-made — and in many places it doesn’t work because we don’t have a technical service center. So we are creating a network of services and follow-up support.

We also have technological challenges. We are moving into the digital area. We are going into IT technologies, and within a few years we anticipate our IT exports will outpace our defense sales.

And last, but certainly not least, internally we have the wrong ratio between civilian products and defense. Historically Rostec was set up as a defense cooperation, but it’s difficult to stand on one leg. Around the world if you look at major defense corporations — Boeing, Lockheed Martin, General Dynamics — they are 60-40, or half-and-half civilian to defense.

Our companies are very heavily tilted toward defense. Lets take Russian Helicopters, for example. We occupy 25 percent of the world market for attack helicopters but only 2 percent of the market for civilian helicopters. We are trying to change those ways. Our goal for the company, Rostec 2025, is to achieve a 50-50 ratio between civilian defense products.

What kind of products are you looking at for the civilian market?

Pharmaceutical, IT, automotive, civilian aircraft and civilian helicopters.

David B. Larter was the naval warfare reporter for Defense News.

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