Can Foreign Defense and Security Companies Do Business in the US

For the past nine years I was President of a major foreign defense and security company in the United States. Starting at nearly ground zero (the original US office had been closed for ten years), we were able to build up a successful business, make acquisitions, to the point where revenues were in the billions.

But the process of participating, growing and investing for foreign companies today is growing more difficult because of the sagging investment in defense, cutbacks and cancellations of programs, and the approaching apparent termination of the war in Afghanistan.

Compounding the problem is the attitude of the current administration that, on the one hand says it supports international defense cooperation, but on the other hand is heavily influenced by political pressure to keep jobs at home. With unemployment rising, and a lot of US businesses going offshore (China being a favorite destination), one of the few jobs programs that survives is US defense and homeland security.

And, adding further complexity to an already cloudy picture, the administration has been demanding more defense cuts because of major budget and deficit problems. Strong voices in the Democratic party want to slash more defense programs, throttle back homeland security spending, and -as one prominent Senator proposes, have a "peace dividend" as America pulls further out of Iraq and Afghanistan.

While it would seem all of these profound changes are a powerful disincentive for foreign companies to come into the American marketplace, I am not sure this is the right conclusion.

Participating in the US market is not a short term, or one off, venture -or at least it should not be seen that way. Participating in the US market is a medium to long term commitment that may not immediately be profitable but will grow in future.

Many foreign defense companies have advantages that they often poorly understand. To some degree such advantages are sometimes missed because defense companies in Europe have "expensive" products because of the nature of domestic labor and social costs, work share deals and low rate production that causes products made in Europe to be too costly.

But high local costs do not have to translate into high costs if made in the United States. In fact, comparatively US manufacturing is cheaper and the market is larger, meaning that work flow and productivity is better and unit costs are lower.

But what you find when you peel away the mist is that R&D in Europe, and elsewhere, is often less costly than in the United States, because to remain competitive international companies have to create products with significantly less government money for research and development -meaning better productivity. In fact, today, the US -which is suffering a growing shortage of key aerospace and defense skills, especially engineers, could tap into the engineering talent in Europe, Israel, India and other places if the US had more flexible security rules.

An incentive for foreign companies to come into the US market is, therefore, products either already developed or well along in development that can be produced in the US market for the US market. While there are, certainly, a lot of "me too" products that are not of any interest, there is also a wealth of innovative technologies and applications that support US national and international objectives, such as the much touted idea of "interoperability." (I have put "interoperability" in quotes because very often the US sees interoperability as a mandate to require other countries to use only US products, which is not the right way to define the term. It should mean that products from all sources should operate in harmony with each other.)

Foreign companies can take advantage of the efficiencies they have in R&D and also of "off the shelf" products that can be produced in the US if the volumes justify doing so.

A foreign defense and homeland security company must overcome a variety of security obstacles and localize itself correctly to be successful in the US. That is the reality and there is no getting around it. These firms must be willing to establish a concrete presence in the US, build trust with current and potential customers, and be willing to invest appropriately.

The US defense market will rebound as economies recover from the current mess. Global challenges are such that defense strategies will be adjusted, requirements will either change or mutate, and procurement will continue. There are major opportunities driven by technology and international affairs that will surely emerge. International companies, if they have the bandwidth and resources, should look at participating in the US defense and homeland security market.

--------- Dr. Stephen D. Bryen is CEO and President of SDB-Partners LLC (www.sdb-partners.com). He has over 40 years experience in defense and defense and homeland security technology. He served as Deputy Under Secrtary of Defense for Trade Security Policy and as the founder and first Director of the Defense Technology Security Administration. For 9 years Dr. Bryen headed a major international defense company in the United States, growing the company to over $5 billion in annual sales.