It is no secret that American defense contractors face looming defense budget cuts in their traditional arms markets in North America and the European Union. In response, large defense aerospace contractors, including Boeing and Textron, are looking to grow their international business sales in regions expected to grow in the years ahead, including Asia and Middle East.
Boeing is positioning itself to dominate in these markets through a unique value proposition that centers on the integration of its commercial and defence capabilities. As Joseph Song, vice president at Boeing Defense, Space, and Security, argues: ‘Boeing is in a better position than anyone else to compete around the world. Anywhere our employees go, we show a Boeing badge and customers do not think of us as defence or commercial,’ Song says. ‘Look at India, a market where we had no presence six years ago. Our Boeing commercial ties helped open the door for C-17 and P-8 sales there. Now, India is a very important country for Boeing.’
Textron is taking a different tact. Unlike Boeing, Textron does not prioritize cross-company integration as a key differentiator in the marketplace. Instead, employees suggest that Textron corporate prefers to act as a holding company, which in turn encourages its individual business units to largely pursue their own business interests independent of one another abroad. While this prevents a conflict of interest between its civilian and defense sector businesses, it also sacrifices some of the synergies that could help the company stand out in the marketplace. For this reason, key executives appear ready to push for deeper integration between business units, most notably in the remotely piloted aircraft (RPA) market, as they advocate for increased emphasis on Asia and the Middle East sales.
Regardless of their strategy, it is clear that Boeing, Textron, and others will face serious competition in growth markets in Asia and the Middle East. This was clearly evidenced at the Seoul International Aerospace and Defense Exhibition, which concluded yesterday. In addition to traditional competitors in Europe, the show revealed that American defense exporters face increasing competition from indigenous producers, especially from Asian countries. Remotely piloted aircraft, such as the lightweight tactical UAV on display from South Korea’s KAI, are of particular concern.
According to industry insiders, American companies will need to respond to growing competition with products that are both technically superior and cost effective for international buyers. If they fail to do so, they not only risk declining revenue for their shareholders. They also could seriously harm American global economic power and reduce defense system interoperability between the U.S. military and its regional partners.