International defense sales: Opportunities, but not for all

Most defense contractors expect to find growth in international sales and noncore businesses. Only a few are likely to succeed. Five actions can improve their chances.

Almost all Western countries  have significantly cut defense spending in recent years, reflecting both a drawdown of forces in Afghanistan and Iraq and cuts to their overall government budgets. This is a long-term trend and has already affected equipment-acquisition budgets, with more cuts likely to come. Many defense companies say that they expect to replace the lost revenues with international sales—to countries other than the traditional large customers (the United States and some countries in Western Europe). However, our research indicates that the gap is much wider than the “primes”—or the analysts who cover these prime contractors—currently forecast. We estimate the cumulative shortfall in revenues from the US government’s investment-account spending to be $50 billion between 2010 and 2015.

In this article, we explain our research and suggest five actions that defense companies can take to succeed in international markets: understand the opportunity in detail, at the country and program level; develop more affordable products adapted to the needs of individual markets; organize for international growth, evolving from a narrow Western focus to a global structure; get the right talent to pursue domestic opportunities and establish international opportunities; and optimize offsets and other obligations through sound and responsible strategies.

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