Defense: Beware the Global Tidal Wave
Rarely has a business transaction evoked as much emotion as the bid by the French electronics firm Thomson, CSF to take over the missile assets of LTV, a major American defense contractor. An emotional stew - one part xenophobia, one part Francophobia, one part "declinism" - completely overwhelmed this transaction. Although the outcome of this deal is now clear - LTV will be sold to a strictly American buyer - we need to step back from the furor and examine the dramatic changes taking place in the defense industrial and technology base, here and abroad, which the Thomson offer symbolized.</br></br>The world of defense-related high technology is changing in a fundamental way: Defense-related industries are going global. They have been doing so for more than two decades, but recently the pace has picked up.</br></br>In the 1960s and 1970s, we planted the seeds of globalization by licensing the manufacture of our aircraft (e.g., F-15, F-16) and missiles (e.g., Sidewinder, Stinger) and other defense technologies overseas in Europe, Latin America and Japan and, increasingly, in newer industrial countries such as Korea and Taiwan.</br></br>Along with direct U.S. sales, other nations demanded - and we permitted - offset agreements, which provided technology and production know-how to our allies and partners. Joint production agreements, such as the F-16 in Europe, further stimulated an international defense industrial base. Our European allies did the same, forming international joint ventures to design and produce transport aircraft, fighters, helicopters and armored vehicles. This globalization of defense products and defense-related high technology is a tidal wave reshaping the U.S. defense industry from one that is clearly American to one that has a transnational character.</br></br>The four U.S. helicopter companies can see that the U.S. defense market is too narrow. All seek overseas sales, but they know they need international partners to succeed. The leading U.S. tank manufacturer, General Dynamics, is likely to produce more tanks in Egypt than in Ohio in the coming years. Its fighter business will produce more F-16s jointly in Turkey and South Korea than in Fort Worth. McDonnell Douglas will have trouble selling transport aircraft in Asia without Chinese coproduction as well as direct investment from other Asian partners.