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BGS Managing Director Andrew

Shapiro In Defense News Provides
Insight For Companies Aiming To
Increase International Sales

Commentary: Grappling With Foreign Sales

Defense News
|
March 2, 2015
By Andrew Shapiro

Last week, US defense companies descended upon Abu Dhabi to attend the
International Defense Exhibition (IDEX). They were drawn by the prospect
of expanding their international sales at a time when the US defense
budget is under strain.
With the threat of sequestration still looming, increasing international
sales

is

top

priority

for

US

defense

companies.

And

while

the

international defense market is more competitive than ever, US companies

that develop a comprehensive strategy, matched by an investment in the
resources to grow their international sales, are seeing results. Success
in the international market will require US defense firms to master the
intersection of overseas demand and US foreign policy.
Over the past decade, US defense exports through the Foreign Military
Sales (FMS) system have steadily grown. FMS sales have risen at a
compound annual growth rate (CAGR) of 7.7 percent from fiscal 2006
through 2014. While the growth includes large sales such as the record-

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setting arms package to Saudi Arabia in 2012, the increase is a longterm trend not dependent on any one sale.
Looking ahead, US defense companies are poised to continue their growth
in international sales. The Obama administration is emphasizing building
partner capacity in regions wracked by conflict or terrorist threats. At
the same time, the US government has undertaken steps to improve the
ability of the US defense industry to compete in the international
market place.
Throughout my tenure at the Department of State, I constantly heard from
allies frustrated that FMS was not responsive or agile enough to meet
their immediate requirements.
Early in the Obama administration, the focus was on improving direct
commercial sales, specifically through the president's Export Control
Reform effort, which despite early skepticism is nearing completion and
bearing fruit by building higher fences around fewer items. The Defense
Security

Cooperation

Agency

has

embarked

on

an

ambitious

effort

to

improve the FMS system through its "Vision 2020" initiative, and has
already made changes to how FMS can be used by NATO countries that want
to purchase defense systems as a group.
The

recent

release

of

the

administration's

unmanned

aerial

systems

export policy has helped clarify the rules of the road for exporting
these high-demand platforms as well.
US government efforts aside, growing instability around the world has
made US partners and allies increasingly value the capabilities and
interoperability that US platforms provide. This has become even more
apparent in recent weeks as the UAE, Jordanian and Egyptian militaries
have stepped up to conduct airstrikes against ISIS targets.
The rise of ISIS throughout the Middle East over the past year, and the
ability of groups like Boko Haram to thrive in areas with less able
militaries, have focused many militaries in the Middle East and North

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Africa on the need to invest in the counterterrorism capabilities they
need to confront these networks. And while Middle East customers were
the primary focus at IDEX, global events are creating demand elsewhere.
Russia's proxy war against Ukraine and larger efforts to expand its
influence in Eastern Europe have resulted in a long overdue focus by the
Pentagon on how to use security assistance to reassure countries in the
region that the US will provide for their security. Poland and Ukraine
are particularly eager for US support.
As tensions reach a post-Cold War high with one near-peer nation, Asia
faces security challenges of its own as the nuclear-armed DPRK is less
predictable than ever as Kim Jong Un consolidates power and uses cyber
capabilities to antagonize nations. In addition, long-simmering disputes
in the South China Sea have increased demand for maritime assets as
regional

militaries

balance

shows

of

force

with

preventing

miscalculation.
Some US defense firms have learned to crack the code to increased FMS
sales.

They

have

learned

that

long-term

success

requires

C-suite

decisions to realign their business development teams toward growing incountry presence, and dedicating other resources to building long-term
relationships with not only foreign militaries but with US Defense and
State Department officials.
In addition, they are developing joint ventures that do more than meet a
single requirement, but are more strategic and help build their brand.
They are developing approaches to meeting offset obligations that can
minimize risk and generate further opportunities.
Finally, as firms less experienced in FMS learn about the process, they
are

adjusting

their

projected

timelines

for

sales

and

clearly

communicating them to leadership, shareholders and foreign government

customers.
With continued effort and smart strategy, foreign military sales will
continue to increase in the years to come.