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 July 2004 

Lt. Gen. Lawrence P. Farrell, Jr., USAF (Ret)

Global Industry Key to Defense Preparedness

July 2004

by Lt. Gen. Lawrence P. Farrell, Jr., USAF (Ret)

At a time of heightened tension around the world and ongoing challenges to our national security, it is important to reinforce the need for increased industrial cooperation between the United States and its allies.

Despite calls for trade barriers and more protectionism in the arms industry, the overwhelming reality is that defense is more globalized than ever.

Not only do U.S. firms depend on foreign exports for their financial health, but the Pentagon also benefits in many cases from non-U.S. developed technology. Furthermore, many foreign firms seeking to do more business with the Pentagon are setting up U.S.-based subsidiaries, creating jobs and fueling economic growth in the United States.

Selling to foreign customers keeps U.S. firms competitive. According the most updated data available from the Commerce Department’s Bureau of Industry and Security, U.S. defense exports increased from $7 billion in 2001 to $7.4 billion in 2002.

Although most of U.S. defense sales are to the Pentagon, our nation’s defense spending--about to reach nearly $500 billion--will inevitably come down. When U.S. sales decline, the defense industry will seek to increase exports to maintain its production lines warm.

Potential foreign customers, however, are finding that it’s not getting any easier to do business with American suppliers. Obstacles currently standing in the way include complex export licensing procedures and restrictions in the ability to share information, even with close allies such as the United Kingdom. During a recent international cooperation conference in London hosted by NDIA, several government and industry leaders expressed frustration with what they see as trade-unfriendly policies in the United States.

To be sure, those who oppose defense industry cooperation and trade partnerships argue that the United States cannot afford to let sensitive technologies proliferate around the world and potentially fall into the wrong hands.

Concerns about proliferation of technology are legitimate and must be taken into account in international industrial arrangements. That has become the motivating force behind recent initiatives to find ways to protect information and guarantee the security of data.

A case in point is the "Transatlantic Secure Collaboration Program," sponsored jointly by the U.S. Defense Department and the U.K. Ministry of Defense.

The TSCP was created in an effort to tackle the technical complexity, cost and risks in delivering defense programs, and the overarching requirements for interoperability. The goal is for governments and industry to adopt a collaborative business model.

The business environment we now see in the defense industry is characterized by multi-company, multi-national contracts and teaming arrangements, international program management offices with global supply chains and outsourcing of information technology support services. Examples of these programs are the Joint Strike Fighter and the Littoral Combat Ship, among others. Sweden’s premier jet fighter, the Gripen, has more than 50 percent American content.

The TSCP intends to provide a secure environment for partners to collaborate. Participants include major U.S. and European firms such as Airbus, EADS, BAE Systems, Boeing, CAE, Lockheed Martin, Northrop Grumman, Raytheon, Rolls Royce, Smiths and Westland.

A major consideration in the debate over the need to strengthen transatlantic trade is the impact that defense sales have on the U.S. economy. The bottom line is that if we elect to not participate in a global defense industry, we’ll lose jobs. If we don’t provide products to allied nation customers, others will. Proliferation has to be managed, but not by refusing to be part of the market.

Globalization pays off for the U.S. military as well. Some of our key allies invest sizeable sums of money in niche technologies from which our military forces can benefit. Even though no other country spends as much on defense as the United States, some nations have comparative advantages and specialized capabilities. A case in point was the decision by the U.S. Army to adopt a Swedish munition design for the Excalibur 155 mm precision-guided artillery projectile. Doing so saves the U.S. Army hundreds of millions of dollars in development costs, which effectively would have made the program unaffordable. Spreading the enormous R&D costs associated with weapons systems is important to keep prices from getting out of control.

In terms of what international trade means for U.S. firms, the numbers tell the story. The United States enjoys a trade balance in defense exports of 6-1 in its favor with respect to Europe, and around 12-1 with respect to the world. Policies that restrict the ability of U.S. companies to continue making such sales will reduce interoperability with our allies, reduce U.S. jobs and undercut the supplier base.

Military and aerospace exports sustain, directly and indirectly, about 12 million American jobs that pay 12-18 percent more than the average U.S. wage.

We must continue to strengthen our industrial ties with allies, both for economic and national security reasons. Failure to do so gradually could isolate our defense business from what is becoming, like many sectors of the economy, a globalized and highly competitive industry.

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