Atlantic Council

Defense Industrialist

A Better Business Model for Transnational Armaments Cooperation

The business model of transnational cooperation in armaments development and production is not working. Though founded on the promise of achieving economies of scale, especially through long production runs, the political allocation of work share tends to undermine this proposition. In its place, we propose an alternative model organized around the promise of achieving innovation in development among a small core of customers who share a compelling military-technical challenge. Because the resulting business model of transnational cooperation is a more coherent expression of how firms can ally across borders to make money and sustain profitability, it is also more likely to realize material solutions and options that show a fair return on defense ministries’ investments in these ventures.

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Sometimes it’s what you spend, and sometimes it’s where and how you spend it.

 

With a few announcements of new spending around the NATO Summit, the alliance is a little closer, but only a little, to its “2-20” goals: that every member state will devote 2 percent of its GDP to its military, and 20 percent of that spending to investment. But why those figures? That is, why spend less or more, and on troops or equipment? To know whether these 2-20 numbers are important, we should ask whether there are theoretical bases for demanding them—or any thresholds, for that matter.

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Congress should be removing barriers to innovation, not erecting barriers to competition.

 

Today in Wales, the 2014 NATO Summit gets underway, dominated by discussions of wars in Ukraine, Iraq, and Syria. But this afternoon back in Virginia, as Politico Morning Defense reports, several congressmen are meeting with officials at the Pentagon to talk about something more important to them: running shoes. Led by Representative Niki Tsongas of Massachusetts, they’ll be complaining that the Defense Department shouldn’t be allowing troops to choose their own athletic shoes on a government allowance, but should instead be requiring them to wear shoes made in the United States. 

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Scotland will free-ride in the Atlantic without sustained investment, but Catalonian maritime specialization would be welcome in the Mediterranean.

On 18 September, Scotland votes on the question of independence from the United Kingdom, and the polling strongly suggests a vote of no. On 9 November, Catalonia could be voting on the same issue vis-à-vis Spain, but the polling slightly suggests a yes—if the Spanish Constitutional Court allows the vote to take place. NATO members should treat neither case lightly, but the independence of Catalonia would pose fewer military problems for the alliance than that of Scotland.

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It’s much easier to kill an arms exporting franchise than to build one.


The armaments export policies of Germany and Japan seem to be crossing paths this month. His recent approval of the export of a whole tank factory to Algeria notwithstanding, German Economy Minister Sigmar Gabriel is said to have been piling up license requests on his desk, content to do nothing, save to tell German arms makers to find other work. At the same time, Japanese Prime Minister Abe has declared, at least in principal, the entire Japanese arms industry open for business globally. This could produce submarines for Australia, and even a new fighter jet.

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The MRAP experience still shows how military requirements need to hew to the state of the art in attainable technologies.

 

Early this month, the US Army’s Research, Development and Engineering Command held a conference at the Aberdeen Proving Grounds in Maryland to discuss ways to reduce the weight of armored vehicles by 40 percent, but without reducing protection. The story is worth reading, as it highlights the Army's angst, dating to at least 1999, of missing the next fight that the Navy and the  Air Force may charge into. The trouble, of course, is that heavy armor takes too long to deploy, and dispatching paratroopers without backup has historically induced disasters. So, Colonel Chris Cross, director of the science & technology division at the Army’s Capabilities Integration Center, commented for the press release that he’s working on this project because

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Commercial or military, autarkic or globalized, public or private?


What are the industrial base issues that need to be considered in any defense strategy? In this age of austerity in military spending, we are hearing calls for bolder policies that would break with past practice, rewarding companies for taking risks, and punishing those that failed. We hear assertions that defense ministries should think seriously about what capabilities they want to preserve as economic constraints force choices in future force structure, and ultimately strategy. We should applaud these  efforts to highlight industrial considerations in formulating strategy, for the question remains fresh. But in thinking about formulating public policies in this area, I believe that an overarching framework is important. I recommend orienting on three dimensions, each of which encompasses a spectrum of potential defense-industrial policies.

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Better outcomes in military procurement still await a better-educated workforce.


In April 2010, then-Under Secretary of Defense Ashton Carter promulgated the first version of his Better Buying Power concept, which mandated (amongst other things) "should-cost" reviews for major procurements. The strategy aims to determine what a weapon should cost, if the government and the contractors work together to eliminate unnecessary expenses; the alternative is to simply pay whatever the contractor bids, and thus what the weapon will cost in the absence of any intelligent follow-up. The initial memorandum was rather short on details for implementation, so ever since then, the way forward with this seemingly sensible approach has been subject to considerable debate. In a commentary yesterday in Defense News, Christian Hagen of consultancy A.T. Kearney endorsed the Pentagon's ongoing enthusiasm, but emphasized three inputs as critical to success: capable people, reusable processes, and pilot programs. All are important, but finding good people may be the salient issue.

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The appointment of SVP Emil Michael to the Defense Business Board is a good start.

 

Last week, the Defense Department announced that fully eight new members would be joining its Defense Business Board, the panel that advises the Pentagon on, well, business. We might hope that the Defense would pay more attention to its Business Board, but at least the makeup of the newcomers indicates renewed interest in recruiting people from the outside world. Saliently, as the Wall Street Journal noticed, the list includes Emil Michael, an SVP at Uber, that fast-growing car-sharing outfit that is making cab companies very nervous the world over. Last December, Defense Industry Daily wrote that Uber should be interesting to "anyone interested in supply chains and yield management. It’s all about minimizing idle time for capital goods.” 

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The USAF’s strategy sounds better than its plans.

 

In Real Clear Defense, my Atlantic Council colleague Alex Ward recently endorsed the US Air Force’s concept of strategic agility as what’s needed for the service “to employ new technologies, better deal with increasingly powerful state and non-state actors, and adapt operations to new environments over the next thirty years.” In its recently published strategy, A Call to the Future, the Air Force’s leadership wrote ambitiously of how it believes that “rapid change is the new norm," so “embracing strategic agility will enable [the USAF] to ‘jump the rails’ from… 20th-century, industrial-era processes and paradigms” (p. 8). In the future, the service will avoid “all-or-nothing outcomes and double-or-nothing budget decisions” (p. 9). Instead, in its procurements, the Air Force will aim to “lower the cost of failure… by driving timelines, cost structures, and architectures towards smaller, simpler programs” (p. 11).
 
That story sounds great, but in what way does it resemble the F-35 Joint Strike Fighter program?

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