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PRIVATE & CONFIDENTIAL July 19, 2013
Prepared for:
Expanding Foreign Sales of U.S. Military Equipment: Industry Perspectives By Jon Barney Partner, Avascent
PRIVATE & CONFIDENTIAL | AVASCENT | 2
A&D companies – expand globally
“We put on a real push to grow internationally. It’s easier for US companies to hunker down and stay home. But the other side of the
coin is that there is a huge market out there that’s available to us.”
“Our strategy focuses on the growing importance of winning international business, where growth markets remain.”
“An important element of our growth strategy is our focus on increasing our international business from about 17% [of
total revenues] today to 20% over the next several years.”
Q: Will foreign markets be of greater importance to your company in the coming years? (March 2013 Avascent and Fleishman Hillard survey of senior A&D leaders on international markets) YES! (93%)
PRIVATE & CONFIDENTIAL | AVASCENT | 3
Rest of World
Flat/Declining Budgets Growing Economic Power
$-
$100
$200
$300
$400
$500
$600
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Countries included: Australia, India, Japan, Malaysia, Pakistan, Singapore, South Korea, Taiwan, Indonesia, Thailand, Saudi Arabia, Egypt, Iraq, UAE, Qatar, Kuwait, Jordan, Turkey, Algeria, Morocco, South Africa, Oman, Mexico, Colombia, Chile, Brazil
+ All figures in Billions of USD
DoD Budget
Growth will be in the Rest of the World
*Source: Avascent Analytics International Database
PRIVATE & CONFIDENTIAL | AVASCENT | 4
-5% 15% Projected Defense Spending Growth 2013 – 2017*
$0B
$60B
Topl
ine
Defe
nse
Budg
et 2
013
Segments 1. Legacy: High GDPs and high
levels of defense spending face declines/flat budgets
2. Major: Sizable markets and growth offer significant opportunities for companies looking to gain traction globally
3. Minor: Numerous smaller markets will continue to show moderate growth in defense spending – niche strategies
Italy
Canada Australia
Spain
2013 GDP
> $1T
$400B - $1T
$0B - $400B
Sweden
Netherlands
Norway
Poland
Israel
Finland
Greece
Egypt
Algeria
Japan
Germany
France
Brazil
UK
*Source: Avascent Analytics International Database
India
ROK
Saudi Arabia
Mexico
Indonesia Turkey
South Africa
Columbia
UAE
Chile Pakistan
Qatar
Kuwait
Iraq
Oman
Jordan
Taiwan
Thailand Morocco Malaysia
Singapore
Major Legacy
Minor
Countries: Uneven growth picture… but with opportunity
PRIVATE & CONFIDENTIAL | AVASCENT | 5
35%
18%
38% 45%
18%
21%
45%
Q: Which of these countries do you consider most important to your company in terms of growth potential?
Readiness Checklist – 6 Steps Survey: BUSI not BRICS
*Source: Avascent and Fleishman Hillard Survey of A&D Leaders on International Markets and Offsets
PRIVATE & CONFIDENTIAL | AVASCENT | 6
Readiness Checklist – 6 Steps Offsets - The Growing Half Trillion Dollar Challenge
*Source: Avascent and Fleishman Hillard Survey report on offsets “Half Trillion Dollar Challenge”
PRIVATE & CONFIDENTIAL | AVASCENT | 7
Latin America Obligations
$-
$5
$10
$15
$20
$25
Mill
ions
9.6%
Europe & Canada Obligations
$-
$5
$10
$15
$20
$25
Mill
ions
4.6%
Asia/Pacific Obligations
$-
$5
$10
$15
$20
$25
Mill
ions
6.5%
MENA Obligations
9.0%
$-
$5
$10
$15
$20
$25
Mill
ions
Offset Growth in All Regions Increasing
*Source: Avascent and Fleishman Hillard Survey report on offsets “Half Trillion Dollar Challenge”
PRIVATE & CONFIDENTIAL | AVASCENT | 8
Effectiveness of Offset Regime
Size
of F
Y13
Defe
nse
Inve
stm
ent (
Proc
urem
ent)
Canada
KSA
UAE South Korea
Turkey
Taiwan
Colombia
2
3 Greece
1 The Reality: Vital Markets with Challenging Offset Environments
2 The Ideal: High Spenders and Offsets Leaders
3 The Second Tier: Smaller Addressable Markets with Complex Offsets
4 Mature Markets: Smaller but Strongly Structured Offset Environments
$15B
$0B
1
4
Low High
India
Finland
Netherlands Brazil
Readiness Checklist – 6 Steps Largest markets = largest challenges
+ All figures in Billions of USD *Source: Avascent Analytics International Database
PRIVATE & CONFIDENTIAL | AVASCENT | 9
Fly-in/fly-out approach to global expansion Product centric approach Offsets rapidly increasing in $$$ and importance Offset authorities economic dev results Building a global organization
“Boots on the ground” and effective JV partnering Solution centric approach Raise visibility and view as opportunity not risk Campaign to educate and train offset authorities Integrate strategy, policy, reps, compliance, brand
Readiness Checklist – 6 Steps
Challenge Recommendation
Global Expansion Challenges and Recommendations