As we wrap up 2012 and look toward 2013, the overwhelming news is of the fiscal cliff. Even if/when that gets resolved, we will almost certainly see cuts in U.S. military spending. How does this impact the scenario for international defense sales? Here are my predictions for the coming year …
Trend #1: Growing Interest in International Sales
A side effect of the uncertainty and budget cuts in the U.S. is strong industry interest in international sales. Defense companies that have never worked abroad are now eyeing the international market as a way to diversify their sales and balance out volatility in the U.S. market.
What does this mean for the industry? It’s not easy to jump into international sales, especially when we’re talking about ITAR-restricted items. Defense companies need to educate themselves about the regulations of international sales before they start discussing their first deal. How to do that? This webpage is a great place to start!
Trend #2: Growing Demand for Support Services
With the looming budget cuts across the USG, transportation services for FMS cases will be first to go. The DOD already terminated US transportation to Latin America, and I expect it will follow with cuts to other regional programs in this and coming years.
What does this mean for the industry? Assuming that FMS sales continue to grow, customers that have relied on the U.S. Defense Transportation System will need to contract for transportation and logistic support by US-based Freight Forwarders. As a result, I expect to see logistics and transport companies becoming more involved in FMS deals. (As always, they should be aware of the regulations – see point 3 here.)
Trend #3: Budget-Conscious Customers
We are all-too-aware of potential cuts to U.S. defense programs, but lots of other countries are also working in tight fiscal conditions. With customers more budget-conscious than ever, it might not be realistic to hope for major systems purchases in 2013. Rather, I would expect to see lots of maintenance and parts contracts, smaller systems, or modified equipment purchases.
What does this mean for the industry? The industry can improve their chances of making sales in a tough budgetary environment by focusing on value-for-money. This may mean modifying or simplifying a product to reduce the price, or adding a maintenance package to extend the life of the product.
Trend #4: Continuing Growth in Unmanned Solutions
Finally, this year’s growth in unmanned systems will continue, and will be mirrored by other countries. While aerial drones (Unmanned Aerial Vehicles or UAVs) are the most well-known example, unmanned systems also include ground-based and maritime robots. The diversity and capacity of these systems are rapidly developing and prices are falling. While the U.S. clearly leads in employing unmanned solutions, other countries are quickly embracing this trend.
What does this mean for the industry? I expect to see strong growth for exports of all kinds of unmanned systems – aerial, ground-based, and maritime. Within the constrained budget environment discussed above, customers will be looking for simpler systems at competitive prices. The U.S. industry may do well to consider product alterations to create a range of price-points for overseas consumers.
What are your predictions for international defense sales in 2013?
And on a personal note … LMDefense will be on a blogging break until early January. Enjoy the holidays!