By August Cole
About Vice Adm. Bill Landay
Few people understand international defense markets better than Vice Adm. William E. “Bill” Landay, U.S. Navy (ret.). While serving as director of the Defense Security Cooperation Agency and helping manage its $400 billion portfolio, he played a leading role in managing America’s defense relationships for equipping allies and partner nations. He began his U.S. Navy career as a surface warfare officer after graduating from the U.S. Naval Academy and later served as Chief of Naval Research and “PEO Ships,” the Navy officer in charge of all non-nuclear naval shipbuilding.
As one of Avascent’s senior advisers, he addressed the impact the Defense Department’s recent Third Offset strategy, which seeks high-technology solutions to increase conventional deterrence for the American military, will have on foreign military sales and the international defense market.
FMS is really about building relationships. In fact, FMS is administered under State Department authorities and executed by the Defense Security Cooperation Agency, which reports to the Undersecretary of Defense for Policy, not AT&L.That’s because the fundamental underlying reason for FMS is to help build relationships between the U.S. and our partner country and U.S. militaries and our partner’s military.We do that not only through the sale of equipment which then gives you interoperability and commonality but it also then brings you together in the same training programs, in the same courses. You operate together and build trust and understanding. The industrial base impact is important but secondary to those relationships.
So when you think of Third Offset, it really doesn’t change the way that we will think about FMS. It will still be about strengthening those relationships. It will just be a different set of technologies and capabilities that we’ll build those relationships on.
I believe that this is going to be one of the really critical new issues that DoD is going to have to work through as the Third Offset evolves. The desire is to take commercially available, non-military technology and use it for defense uses. In some instances, that may be a very straightforward use. But in a lot of cases it means we are going to take that commercial technology and modify it to allow us to utilize it in a way that brings real advantage to the military. The challenge you then have is how do you decide whether that original technology should be available for sale internationally. Today, we have a very rigorous technology release process. Some would contend it’s onerous, but it really is about protecting that critical technology that is important to the U.S. However, almost all of that technology has been developed through the use of DoD funds and resources.
In the Third Offset, the challenge we could potentially run into is whether you restrict the company’s ability to sell its commercial products, upon which your military capability is primarily based, internationally which could then provide the basis for others to modify it in a similar way for their military capability. I fear that commercial companies may be reluctant to participate or allow their products to be used, if as a result, we start placing international restrictions on their commercial applications. Hopefully that won’t happen, but I think it’s something we’re really going to have to think through as we move forward.
The biggest one is to have discussions very early with the Department of Defense and the U.S. government on what restrictions will be placed on the technology from the perspective of an international sale. Under our current process, we will develop the capability and field it within the U.S. military, and then as countries start to ask to get it, either through foreign military sales (FMS) or direct commercial sales (DCS). We will then go back country-by-country and make the determination on the releasability of that technology. I believe that going forward a lot of that determination has to happen early on in the program’s development, especially if it is based on commercially available technology. Then, if the decision is that we are going to release it, we will need to put in place the restrictions, the anti-tamper and exportability features that will be necessary to allow it to be released.
Our tendency today is to talk about exportability, but as budgets get tight in the development process, that tends to get pushed to the back burner. Then we circle back to it once the program is already fielded. I think with the Third Offset concepts of using commercial technologies and speed to fielding, exportability is going to have to be addressed far more aggressively upfront and I think industry is going to have to be the ones to take the lead to push that very hard with the Department.
It ties in very closely to the thinking behind the Third Offset in two ways: One, you can’t take technology that is evolving in the commercial marketplace and take a long time to develop comparable military applications so that when you bring those systems out for the military, either the U.S. or foreign partners, you find that the capability is readily available commercially. Then the advantage you think you would have gained from it is significantly diluted because your adversaries can go out and get commercial versions of it. So it’s back to this whole idea in the Third Offset that we’ve got to be able to move far more rapidly in adopting emerging technology and getting it into the hands of the warfighters faster than we have in the past.
The other issue then becomes the rules and regulations that you have in terms of the ability to sell or transfer that military technology internationally to your partners. UASs [unmanned aerial systems] are a great example of that. The U.S. had a very strong lead in UAS technology. A lot of our allies were interested in taking advantage of that technology but the technology release requirements of the U.S. were quite slow. Other countries stepped into the void because the technology itself was available, although at a lesser level of sophistication, on the commercial side. Now U.S. industry finds that the technology lead has really been diminished. We must not allow that to happen with Third Offset technologies.
The key concept is the ability to network systems across units within U.S. military and between the U.S. military and our coalition partners. As you look at the architectures and the open system concepts that everyone is focusing on today what the network really does is it allows you to tie together multiple systems in a way that provides you a coherent situational picture and an improved ability to control your forces. With these open networks, our allies have the ability to develop their own systems, based on their national needs. Provided they adhere to the network standards, they can become part of the coalition’s network which increases the overall capability of the coalition.
So I see it as being a very strong, positive influence both in terms of our ability to fight together as coalitions and forces and also to continue to provide the flexibility for them to develop their own systems or to buy U.S. systems, depending on their needs.
The earlier the better, certainly in terms of understanding what requirements they may have particularly where those requirements may be unique to them and differ from U.S. requirements. It becomes infinitely more difficult to take a system where that has not been factored into its development and try to make the necessary changes and adjustments after it’s already been fielded.
The message, and everybody already gets it, is that we are going to operate in the future as part of a coalition and that coalition has to provide the ability for all members of NATO to contribute. As a system is developed, whether it is a system developed in Europe or a system developed in the United States, there has to be frank discussions up front that this is going to be something both sides plan to use and that it gets developed in a way that both are able to use it. Systems have to be built to a set of standards and architectures that allow all members to be able to participate. If you don’t do that, you start getting yourself into situations where only part of the coalition is able to participate and that becomes very problematic.
Q:How do you read the future of joint investment programs with international partners such as the sixth generation fighter? The LRS-B program, which in a sense is a family of systems, does not seem to have an international component yet to its development plan. But it would seem to be the type of program of record that would be integrated with allies, particularly in the Pacific?
LSR-B is a capability that the U.S. sees as important but other countries may not think it’s as important to their requirements given their national and military priorities. I do think that any program will need to give some thought into international co-development but quite frankly there are always challenges with multiple owners of a program. The benefit is that another country is going to bring resources, ideas and technology to the program. The downside is that over time one country’s priorities may change, their resources may move to other requirements, yet the program has been built on the assumption that those resources will be available.
That is always the biggest problem. We see that even in United States, joint programs where one service, as time goes on, may change priorities and they start to back away a little bit from a joint program.
I don’t think it necessarily is going to get more expensive if again, we have those discussions on what are the core technologies and what do we need to do to protect those technologies early in the program. If we are not aggressive up front to address those issues and then we end up with systems that are fielded by the U.S. military but have to be adapted to be sold internationally, that is going to be more expensive. That cost is going to be incurred by the international customer and it will be very easy for the international customer to decide to go somewhere else because it may be cheaper. There will always be frustration with the regulations in exportability or anti-tamper, but they are a part of doing business internationally. Those regulations have to be reasonable and industry has to have a significant say in what those safeguards and risks are, but I don’t think they become inordinately more expensive if they’re done properly in the beginning of the program.
Looking forward, the global defense market will provide great opportunities for both FMS and DCS. When you look at the concerns with terrorism, and the growing defense needs around the world, coupled with the high regard in which U.S. capabilities and technologies are held, I think it will continue to prove to be a market in which there are great opportunities for U.S. companies and the U.S. government. In fact, when we look at foreign military sales over the last four to five years, we see sales growing at a record pace.
But, we are faced with a rapidly changing international marketplace. For a variety of reasons, many of our traditional competitors in the international market had reduced their efforts over the past decade. We now find those competitors coming back very strongly. Russia, China, as well as the EU nations, both as individual countries and in partnerships, are all looking very aggressively at the global marketplace and are starting to make some serious forays into it.
Furthermore, while technology and cutting edge capability – which are hallmarks of U.S. systems – will remain a strong factor for some customers, good enough at a good price will win the day with most. China and others are starting to push up from their traditional low cost/low quality positions. UAVs are a great example of where we see this already occurring.
We will continue to see a growth in global competitions. Sole source contracts will no longer be the preferred path, even if the desire is for U.S. technology. Demands for offsets, work share, technology transfer, foreign investment and technology partnerships will be more common as a means to justify the use of country funds on U.S. products. Interest will be strong for the products of DoD’s renewed technology push – the Third Offset. Because of the emphasis on rapid technology integration however, those customers who value cutting edge technology will want it at the same time it is introduced to U.S. forces.
Today we have very robust and successful international military sales programs. But we need to recognize the international marketplace is getting increasingly competitive and complex. It is important that we begin now to make the necessary adjustments to our sales processes that will keep us competitive, provide our partners the capability they require for their security and provide U.S. industry the best opportunity to win in the international market.
August Cole is the writer-in-residence at Avascent. He is also an Atlantic Council nonresident senior fellow, focusing on using fiction to explore the future of war; and a member of the International Institute for Strategic Studies. He is the co-author of Ghost Fleet: A Novel of the Next World War and the editor of the Atlantic Council’s War Stories from the Future anthology. Previously, Cole reported on the defense industry for the Wall Street Journal. From Washington, he covered companies ranging from Boeing to Blackwater, as well as broader defense policy and political matters. For more information, contact firstname.lastname@example.org.
Avascent is the leading strategy and management consulting firm serving clients operating in government-driven markets. Working with corporate leaders and financial investors, Avascent delivers sophisticated, fact-based solutions in the areas of strategic growth, value capture, and mergers and acquisition support. With deep sector expertise, analytically rigorous consulting methodologies, and a uniquely flexible service model, Avascent provides clients with the insights and advice they need to succeed in dynamic customer environments.