U.S. Defense companies have two main avenues for selling on the international market: Direct Commercial Sales (DCS) and Foreign Military Sales (FMS). For companies that have a solid position as US DOD providers but are new to exporting, FMS offers huge benefits in terms of logistic support.
Top Benefits of Foreign Military Sales:
- No need for an export license. No worries about whether you’ve filed the paperwork correctly or gotten all the right permissions. In FMS, the Defense Security Cooperation Agency (DSCA) manages all required licenses and Congressional notification (if needed).
- Dramatically reduces the risk of working internationally. Speaking of things the DOD will do, they also make sure you get paid! Your company signs a contract with the DOD, not with the foreign customer, so you’re guaranteed to get paid under USG rules. The foreign government is on the hook to the DOD, so it’s more likely they’ll keep their end of the deal, too. In contrast, if you sell directly to the foreign customer and they break your contract, you’d probably have to seek recourse in international courts. The risk of non-payment or broken contracts is dramatically higher.
- Creates opportunities to build on your USG sales. The basis of FMS is that the USG is procuring goods on behalf of a foreign government. Thus, if you already sell goods to the USG, those same products are ideally suited for FMS. Most probably, the products are already registered as standard military parts and catalogued with an NSN. FMS allows you to expand your market internationally, while using the same procurement procedures you’re already familiar with from your sales to the USG.
- Easier for the foreign customer. Many foreign customers prefer FMS over Direct Commercial Sales since managing the procurement is a lot easier and they’re guaranteed the U.S. government price. As we mentioned last week, sometimes the ease of FMS may outweigh the desire to buy a specific product.
There you have it – the top benefits of using Foreign Military Sales for expanding into the international market. For defense companies that are new to exporting, FMS is a great way to expand your market without the messy logistics of international sales.
To be balanced, in a future post we’ll also look at the main benefits of Direct Commercial Sales.
Do you have other questions about FMS? What other benefits does it offer?