International Defense Competitions

Frank KenlonProfessor of Int’l Acq (Intermittent)DAU/DSMC Int’l Acquisition Center Frank.Kenlon@dau.eduFebruary 18, 2020

Discussion Areas

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• USG/DoD and Industry IA&E cooperation• US Industry motivations• Analyzing & shaping the international competitive

environment• Types of Foreign Government requests• Responding to Foreign Government requests • Influencing Foreign Government requests• Advocacy by the USG/DoD

IA&E Mutual Dependency

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U.S. GovernmentObjectives

U.S. IndustryObjectives

• Security Cooperation objectives

• Affordable programs• Strong industrial base

• Profitability• Revenue• Foreign investment• Foreign technology

• Market Analysis• TSFD/EC approvals• Advocacy• International program

development & execution

USG/Industry Cooperation Enables Achievement of Common Interests

Shared Undertakings

U.S.

Working with U.S. Industry

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PMO

Understanding Industry

Motivations

Understanding Industry Business

Strategies

Business Development

Interaction

TSFD and EC Cooperation

Security Cooperation Alignment

Cooperation Across IA&E Continuum

What Does Defense Industry Look Like?

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A global mix of many diverse companies

Public, Private, Commercial, Large, Medium, Small, and Foreign Companies

Top 15 Defense Companies

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Rank Company Country Def Rev ($B) % Defense1 Lockheed Martin U.S. 50.5 942 Boeing U.S. 34.0 343 Northrop Grumman U.S. 25.3 844 Raytheon U.S. 25.2 935 Aviation Industry Corp of China China 24.9 386 General Dynamics U.S. 24.1 667 BAE Systems UK 22.5 918 China North Industries Group Corp China 14.8 229 Airbus NE/FR 13.1 17

10 China Aerospace Science/Industry China 12.1 3211 China South Industries Group Corp China 12.0 3112 China Electronics Tech Group China 10.3 3113 Leonardo Italy 9.8 6814 China Shipbuilding Industry Corp China 9.8 2015 Almaz-Antey Russia 9.7 98

Source: Defense News 2019 Top 100

Company Strategy Drives Actions

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CorporateStrategy

Strategic Goals and Plans

(sets company direction)

Tactical Goals and Plans(links strategy to operations)

Operational Goals and Plans(guides day-to-day operations)

Upper Management

Middle Management

First or Second Line Supervision

CEO, Board of Directors

ExternalFocus

InternalFocus

Defense industry has four key levers to create value

Key Industry Motivations

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Materiel InputsLabor“Defense” overheadCost of capital

TechnologyPatents/IPHuman CapitalBrand

Defense BudgetsCommercial AeroExports

FacilitiesMachinery/ToolsLandGoodwill

Cash Margins(Return/Profit)

InvestedCapital

Growth(Revenues)

CompetitiveAdvantage

International business helps achieve industry objectives

Increased Profitability

Access to foreign defense investment

Increased Revenue

Access to global defense technology

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Market Analysis Product Marketing Capture Planning Program Advocacy

Identify Potential Interest

• Replacement System

• New Capabilities

Determine Detailed

Requirements

Assess Against USG Security Cooperation Objectives

Understand DoD Acquisition Program

Budgets and Schedules

Analyze Customer Decision Making

Process

Understand Domestic and

Foreign Competition

Determine Customer Decision Criteria (Including

Offsets)

Understand what product should be offered

Understand how to win

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Market Analysis Product Marketing Capture Planning Program Advocacy

Follow USG Marketing Lead

Generate Interest in Countries that USG Could Approveor

Develop USG Support for Program

Seek TSFD Approvals &License Authorizations

Have Country Request USG Classified Capabilities Briefing

Develop Capture or Campaign Plan

Provide Public Domain Information

Stimulate Country to Submit an RFI

Attempt to Shape Requirements & RFP

Provide Product Information and Gain Access to Decision Makers

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Market Analysis Product Marketing Capture Planning Program Advocacy

Form capture team, designate lead, and develop capture/campaign plan

Arrange for consultants and commissioned sales representatives

Define industrial teaming arrangements based on customer’s interests in domestic industry and their capabilities

Joint Venture Associate Prime Subcontractor Supplier

Develop offset strategy based on whether sole source or competitive procurement, importance in evaluation, and customer’s industrial capabilities

Develop export licensing approach to support teaming and offset strategies

• Production line capacity/delivery

• LOA pricing (leveraging planned DoD, FMS, DCS buys, etc.)

• Product support approach• Site survey efforts

FMS Programs DCS Programs • Use of USG assets• Production line

capacity/delivery• FMS-only item

availability/procurement• USG technical assistance• Product support approach

Areas where industry and PMOs must work together

Program Alternatives

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Hybrids

FMS or DCS (Industry Perspective)

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DCS Pros• Often desired by prospective

customer nations• Simpler overall process can

lead to more streamlined contract awards

• Potentially more profitable

FMS pros• DoD has stake in TSFD

approvals• USG endorsement can

enhance selection potential• Company insulated from

corrupt practices• Lower risk – USG

responsible for overall implementation

Situation-dependent based on USG policy and Customer needs

Industry normally supports either modality of sale

Int’l Competitions - DSCA Policy

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1) Security Assistance Management Manual (C.4.3.1) • Foreign Solicitation guidance• Lead Agency for Advocacy guidance• Responsibilities of the DoD Lead Managing Response

2) International FMS Competitions Video (May 2019)• Key Points:

o “No two competitions are the same”o “Must be a fair and level playing field”o “Directly supports the National Defense Strategy”

• Other Guidance:o Roles of the SC Communityo Lead Agency Criteria/Tasks - MILDEP (one/multi pgms) vs DSCA (multi MILDEP)o Rules for Advocacy

Foreign Gov’t (FG) Request Types

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1) FMS – Letter of Request (LOR)• Program of Record (POR)• Non-POR (Type 1 or 2 – see next chart)

2) Hybrid – LOR or ‘Request for Proposal’ (RFP)*• Typically an NPOR (Type 1 or 2)

3) DCS – ‘RFP’• Typically an NPOR (Type 2 or 3)

* DSCA defines international solicitations to include Request for Info (RFIs), RFPs, Invitations to Bid (IFBs), E-mails, and “Other” (watch DSCA Video for details)

International or civil variant of a Program of Record with non-standard configuration(s)• Sometimes marketed as

civil variants of military platform(s) / system(s) (e.g., S-70)

• E.g. F-15SA for KSA, F-16 for UAE, F/A-18 E/F for Australia

Prior Program of Record• Sundowned U.S. Program

of Record that is no longer supported

• Excludes antique military equipment subject to the Export Administration Regulations

• E.g., USN F-14 Tomcat

Program consisting of commercially developed munitions items • Items are subject to TSFD

review• NVDs limited to items that

are specially designed for a military end-user

• E.g., strike enabled UAV, and Counter-UAS system

Program consisting of commercially developed dual-use items• Items are subject to TSFD

review• E.g., Night Vision Devices

(NVD), UAS, remote sensing satellites

Program consisting of commercially developed dual-use items combined with POR elements•Only pertains to

U.S. POR elements that are subject to the TSFD review process

•Common example is incorporation of U.S. software and/or encryption with commercially available dual-use hardware

Program consisting of commercially developed dual-use item(s) with military end-use•Items do not

have TSFD elements, are otherwise export controlled

•Any modifications for military applications are solely limited to form and fit

•May use defense services in the form of military training

•E.g., military flight school

Type 1 Type 2 Type 3.a

Non-Program of Record

Type 3.b Type 3.d

Non-Program of Record Definition Rolls Up Various Types of Programs Encountered by TSFD Processes

Type 3.c

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Responding* to FG Requests

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A. FMS PORs = LORB. Hybrid Type 1 NPORs (Lead TBD)

• FMS LOR for DoD-lead NPORs• RFP w/ ‘FMS-only’** LOR for Industry-lead NPORs

C. Hybrid – Type 2 NPOR (Typically Industry-lead)• RFP only• RFP w/ ‘FMS-only’** LOR

D. Hybrid – Type 3 NPOR (Industry-lead)• RFP only• RFP w/ ‘FMS-only’** LOR

** Typically Established by DoD Components (for business reasons) or TSFD Pipes (for tech transfer reasons)

* OSD, Embassies, and MILDEPs must comply with DSCA Guidance on Lead Agency and Advocacy

Influencing FG Requests

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• Designing for exportability at program level (or not)

• FMS program planning and pricing • DoD Component TSFD decisions• USG/DoD TSFD Pipe Decisions• Approval for industry access to

key DoD facilities & special tooling• Access to key PEO/PMO

Technical Assistance via FMS

What Could Cause Divergence?

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DoD policy generally supports industry in int’l competitions, however:• Top-level USG/DoD support may be withheld for

SC policy, programmatic, or TSFD reasons• DoD Component willingness to support be

withheld if key interests conflictCompanies focus on their interests:• DoD is “big place” with diverse stakeholders• DoD is not the only actor companies try to

influence (interagency, Congress, etc.) Companies shouldn’t expect support for their ‘offers’ if DoD stakeholders aren’t consulted

Potential for divergent actions

Gov’t - Industry Perspectives

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Government

Industry

Interests

Degree of Convergence vs Divergence?

BothAggressive

One or BothPassive

One or Both Against

Views ActionsGovernment- Timely TSFD/EC approvals- Expedited FMS/Hybrid transactions

Industry- Engage foreign industry sources- Pursue transaction-related contracts

Government- Senior leader apathy- TSFD/EC approvals languish- FMS/Hybrid transactions plod along

Industry- Limited scope BD activities- Domestic source orientation- Pursuit of domestic contracts

Government or Industry- TSFD/EC inaction or denials- Industry decides not to act/bid

International Competition Scenarios

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Rosy

• “DSCA, the CAE, and our CEO really want this to happen”

• “We’ll expedite the Gov’t approvals if you work closely with us on the details”

• “I am willing to devote resources to this effort if you are”

DoD Supports

Typical Watch Out

Versus

Industry Supports

Industry Supports

DoD Passive

DoD Supports

Industry Passive

DoDAgainst/For

Industry For/Against

Versus

“Let’s let them [DoD or Industry] take the lead and we’ll help if we can”

• “I know industry wants this but it doesn’t fit with our SC plans”

• “I know Gov’t wants this but it doesn’t match our corporate objectives”

• “I don’t think [fill in key DoD or Industry stakeholder(s)] will support it”

Harmonizing interests Effective DoD-Industry cooperation

U.S. companies can request USG advocacy for defense sales

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Market Analysis Product Marketing Capture Planning Program Advocacy

• Senior leader engagement

• Media activities• Correspondence• Talking points

AdvocacyQuestionnaire

&Anti-BriberyAgreement

U.S.Company

Advocacy Center

Bureau of International Trade Administration

InteragencyCoordination

Bureau of Industry and Security

Department of Commerce

U.S. EmbassyDefenseState

National Interest Determination

• U.S. export content• Foreign competition• Foreign government

decision• Other U.S. policy goals

Multiple Applicants

• Advocate a U.S. solution w/o preference except in special circumstances

AdvocacyInteragencyCoordination

Ethics and Compliance

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• Industry personnel can be held liable (fines and/or imprisonment) for violations

• Ethics and export compliance is primarily a company responsibility, but PMO and functional organizations are responsible for monitoring and reporting potential violations to USG authorities (State, Commerce, DoJ)

Foreign Corrupt Practices Act (FCPA)

Export Control Compliance (ITAR & EAR)

Controls behavior of companies, their agents, and representatives

Company Compliance Officer & Empowered Official responsibilities

Any Questions

What can DAU do help you in this area?

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Summary

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• Responding to International Defense Competitions is a “Team Sport” – USG/DoD and Industry must work together to be effective

• Consult DSCA policy guidance in the SAMM and International FMS Competitions Video for details

• DSCU and DISCS is responsible for Security Cooperation training in this area

• DAU is responsible for DoD acquisition training in this area• Achieving a high level of PEO/PM-level performance

requires knowledge, experience, agility, and critical thinking because “no two competitions are [entirely] the same”

Backup Charts

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Market Analysis

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Harmonizing USG SC and Industry BD market analysis efforts can pay big dividends for both parties

Both parties have unique market analysis capabilities they can contribute

Understand DoD Program Budgets &

Schedules

Assess USG Security Cooperation Objectives

ID Potential Interest• Replacement System• New Capabilities

Analyze Foreign Decision Process(es)

Determine Detailed Requirements

Understand Domestic and Foreign Competition

Conduct Analysis of Alternatives (AoA)

Develop IA&E Assessment

Government Gov’t & Industry Industry

Incorporate IA&E in Acquisition Strategy

Product Marketing

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Industry’s ability to provide product information is a critically important aspect of coordinated USG SC and Industry BD efforts

Industry routinely seeks USG support in making information available

DSP-5s “License for Permanent Export”

Technical Assistance Agreements (TAAs)

DoD & Industry Public domain information

Host Foreign Visits

International Trade Shows

Int’l Traffic in Armaments Regs (ITAR) exemptions

DoD Controlled Unclas Info (CUI)

DoD Classified Military Info (CMI)

Government Gov’t & Industry Industry

Capture Planning

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Primarily an Industry activity but DoD often coordinates with industry in major international system competitions

USG Security Cooperation and Industry business interests often converge

Form Capture Team

Develop Capture Plan & Conduct Campaign

Form gov’t/industry team relationships

Coordinate Country Team & local Industry

activities

Discuss customer engagement plans

Engage Consultants and Local Sales Reps

Prioritize PMO/IPT Resources

Obtain FMS Admin Funding

Government Gov’t & Industry Industry

Program Advocacy

30Harmonized “Talking Points” = Consistent USG and Industry “Messaging”

Request USG Advocacy via DoC

Obtain DoC Advocacy Process Approval

Multiple vs Single Company Advocacy

Coordinated Senior Leader & Media Engagements

International Trade Show Participation

Implement Industry Elements of Advocacy

Plan

Support Industry Request(s) to Dept of

Commerce (DoC)

Coordinate Trade Show & Engagement

Plans with DSCA

Government Gov’t & Industry Industry

DoD and Industry cooperation in program advocacy is essential in international system competitions