In the era of globalisation, United States defence companies can no longer rely exclusively on their national market, and so need to secure an increasing share of international markets to maintain their revenues, profits and share prices.

It has long been an established requirement for foreign customers to demand local production, offset or workshare as a pre-requisite for purchasing American defence equipment.

During the past decade, as the Pentagon has cut back its defence equipment purchasing and research funding, international co-operation increasingly has been seen as a way for US defence companies to gain access to technology and products that they have neither the time nor the resources to develop themselves.

Partnerships also are a means for foreign defence companies to gain access to the US market. It often takes the application of a made-in-America tag to secure approval from US congressmen who dispense pork-barrel contracts to their constituents.

The US Department of Defense is usually keen to support international partnerships by US defence companies, especially where they coincide with US security policy goals. However, elements within the US Congress and Department of State have raised a number of concerns about technology transfers to potentially hostile countries and have tried to limit international partnerships.

Such concerns prompted the Clinton administration to propose new regulations for defence sales and technology transfers.

Wholly owned subsidiaries

In countries where foreign ownership of defence companies is permitted, the establishment of wholly owned subsidiaries is a popular route for US defence companies seeking a local presence. This allows them to claim local identity in competitions with national champions without having to enter into complex joint-venture arrangements. For example, both Raytheon and Lockheed Martin have set up UK-based subsidiaries to run a number of contracts for the British Ministry of Defence, where they act as prime contractors. In a similar move, Boeing has recently purchased controlling interests in the Australian defence industry in the hope of smoothing the way to winning business from the government in Canberra .

US companies also have purchased foreign companies for strategic reasons, to gain profitable business units, access to markets or new technology. Recent purchases of MOWAG, the Swiss armoured vehicle group, by General Motors, Spain's Santa Barbara by General Dynamics and Sweden's Bofors armaments company by United Defence fit into the latter category. Bell Helicopter Textron Canada facility at Mirabel, Quebec is owned by Bell Textron and Pratt & Whitney and has a long held a controlling interest in its Canadian subsidiary.

In many defence markets, outright foreign ownership of defence interests is prohibited, so some American defence companies have had to enter into joint ventures with local companies, generally government-owned enterprises, as a pre-requisite for establishing a local production line or support operation.

Cold-war origins

This is the case in Turkey where United Defence has taken a stake in local armoured-vehicle group FNSS and Lockheed Martin is a partner in TAI

co-producing F-16 fighters. Most of these programmes have their origins in the cold-war era and many US companies have had mixed results from them in recent years.

As defence spending has declined over the past decade so US government aid and local funding for co-production projects has dried up. As an example, the Koreans were, until recently, proposing to privatise their defence enterprises in a bid to attract foreign investment with both Boeing and Lockheed Martin to compete for ownership of Korean Aerospace Industries. In Saudi Arabia and other middle-eastern countries, foreign ownership of any local company is prohibited, so US defence companies have formed a number of joint ventures with Saudi companies to provide local logistic support for US supplies and defence equipment.

Commercial joint ventures

In the past decade US defence companies have moved to set up commercial joint ventures with a number of European and Israeli companies to co-produce or jointly market a wide range of products. Lockheed Martin has teamed with Italy's Alenia to produce the upgraded C-27J light transport and has included a consortium of British companies in the C-130J airlifter programme. Boeing has set up a joint venture with Britain's GKN Westland Helicopters to provide Apache aircrew and ground-crew training to the British army and other international customers. General Motors and its MOWAG subsidiaries have taken the concept further and licence production versions of popular Piranha- family light-armoured vehicles to a number of international partners on a commercial basis.

www.defense.mil