International Defense Competitions Frank Kenlon Professor of Int’l Acq (Intermittent) DAU/DSMC Int’l Acquisition Center Frank.Kenlon@dau.edu February 18, 2020
Discussion Areas • 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 2
IA&E Mutual Dependency U.S. Government Shared U.S. Industry Objectives Undertakings Objectives • Security Cooperation • Market Analysis • Profitability objectives • TSFD/EC approvals • Revenue • Affordable programs • Advocacy • Foreign investment • Strong industrial base • International program • Foreign technology development & execution U.S. USG/Industry Cooperation Enables Achievement of Common Interests 3
Working with U.S. Industry Security Cooperation Alignment Business Understanding Industry Development Motivations Interaction PMO Understanding TSFD and EC Industry Business Cooperation Strategies Cooperation Across IA&E Continuum 4
What Does Defense Industry Look Like? A global mix of many diverse companies Public, Private, Commercial, Large, Medium, Small, and Foreign Companies 5
Top 15 Defense Companies Rank Company Country Def Rev ($B) % Defense 1 Lockheed Martin U.S. 50.5 94 2 Boeing U.S. 34.0 34 3 Northrop Grumman U.S. 25.3 84 4 Raytheon U.S. 25.2 93 5 Aviation Industry Corp of China China 24.9 38 6 General Dynamics U.S. 24.1 66 7 BAE Systems UK 22.5 91 8 China North Industries Group Corp China 14.8 22 9 Airbus NE/FR 13.1 17 10 China Aerospace Science/Industry China 12.1 32 11 China South Industries Group Corp China 12.0 31 12 China Electronics Tech Group China 10.3 31 13 Leonardo Italy 9.8 68 14 China Shipbuilding Industry Corp China 9.8 20 15 Almaz-Antey Russia 9.7 98 Source: Defense News 2019 Top 100 6
Company Strategy Drives Actions External Focus Corporate CEO, Board of Directors Strategy Strategic Goals and Plans Upper Management (sets company direction) Tactical Goals and Plans Middle Management (links strategy to operations) First or Second Operational Goals and Plans Line Supervision (guides day-to-day operations) Internal Focus 7
Key Industry Motivations Defense industry has four key International business helps levers to create value achieve industry objectives Materiel Inputs Cash Margins Labor Increased Profitability (Return/Profit) “Defense” overhead Cost of capital Growth Defense Budgets Increased Revenue Commercial Aero (Revenues) Exports Facilities Access to foreign Invested Machinery/Tools defense investment Land Capital Goodwill Technology Access to global Competitive Patents/IP Human Capital defense technology Advantage Brand 8
Market Analysis Product Marketing Capture Planning Program Advocacy Understand DoD Identify Potential Assess Against Determine Acquisition Interest USG Security Program Detailed • Replacement Cooperation Budgets and Requirements System Objectives • New Capabilities Schedules Understand what product should be offered Understand Determine Analyze Customer Domestic and Customer Decision Decision Making Foreign Criteria (Including Process Competition Offsets) Understand how to win 9
Market Analysis Product Marketing Capture Planning Program Advocacy Follow USG Generate Interest in Countries or Marketing Lead that USG Could Approve Provide Product Information and Gain Access to Decision Makers Provide Public Stimulate Country to Attempt to Shape Domain Information Submit an RFI Requirements & RFP Develop USG Support for Program Have Country Request USG Seek TSFD Approvals & Classified Capabilities Briefing License Authorizations Develop Capture or Campaign Plan 10
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 11
Program Alternatives Areas where industry and PMOs must work together H FMS Programs DCS Programs y • Production line • Use of USG assets b capacity/delivery • Production line r • LOA pricing (leveraging capacity/delivery planned DoD, FMS, DCS • FMS-only item i buys, etc.) availability/procurement d • Product support approach • USG technical assistance s • Site survey efforts • Product support approach 12
FMS or DCS (Industry Perspective) Industry normally supports either modality of sale FMS pros DCS Pros • DoD has stake in TSFD • Often desired by prospective approvals customer nations • USG endorsement can • Simpler overall process can enhance selection potential lead to more streamlined • Company insulated from contract awards corrupt practices • Potentially more profitable • Lower risk – USG responsible for overall implementation Situation-dependent based on USG policy and Customer needs 13
Int’l Competitions - DSCA Policy 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: “No two competitions are the same” o “Must be a fair and level playing field” o “Directly supports the National Defense Strategy” o • Other Guidance: Roles of the SC Community o Lead Agency Criteria/Tasks - MILDEP (one/multi pgms) vs DSCA (multi MILDEP) o Rules for Advocacy o 14
Foreign Gov’t (FG) Request Types 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) * DSCA defines 3) DCS – ‘RFP’ international solicitations to include Request for Info • Typically an NPOR (Type 2 or 3) (RFIs), RFPs, Invitations to Bid (IFBs), E-mails, and “Other” (watch DSCA Video for details) 15
Non-Program of Record Type 1 Type 2 Type 3.a Type 3.b Type 3.c Type 3.d International or civil Prior Program of Program consisting Program consisting Program Program variant of a Program Record of commercially of commercially consisting of consisting of of Record with non- developed munitions developed dual-use • Sundowned U.S. Program commercially standard items items of Record that is no longer commercially supported configuration(s) developed dual- • Items are subject to TSFD • Items are subject to TSFD developed • Excludes antique military review review • Sometimes marketed as equipment subject to the use item(s) with • NVDs limited to items that • E.g., Night Vision Devices dual-use civil variants of military Export Administration are specially designed for a (NVD), UAS, remote sensing military end- platform(s) / system(s) Regulations military end-user satellites items (e.g., S-70) • E.g., USN F-14 Tomcat use • E.g., strike enabled UAV, • E.g. F-15SA for KSA, F-16 for and Counter-UAS system combined UAE, F/A-18 E/F for •Items do not Australia with POR have TSFD elements elements, are otherwise •Only pertains to export U.S. POR controlled elements that •Any are subject to modifications the TSFD review for military process applications are Non-Program of Record Definition Rolls Up Various Types of Programs Encountered by TSFD Processes •Common solely limited to example is form and fit incorporation of •May use U.S. software defense services and/or in the form of encryption with military training commercially •E.g., military 16 available dual- flight school use hardware
Responding* to FG Requests * OSD, Embassies, and A. FMS PORs = LOR MILDEPs must comply with DSCA Guidance on Lead B. Hybrid Type 1 NPORs (Lead TBD) Agency and Advocacy • 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) ** Typically Established by DoD Components (for • RFP only business reasons) or TSFD Pipes (for tech • RFP w/ ‘FMS-only’ ** LOR transfer reasons) 17
Influencing FG Requests • 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 18
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