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How Global Manufacturing Service Providers Can Help Defense Contractors Enter Foreign Markets: India

Part 3 of a 5-part series

By Scott Gebicke, President, Jabil Defense and Aerospace Service

The first blog in this series introduced the defense market opportunities and challenges within foreign markets, which could compensate for the shrinking U.S. defense market. The second in the series detailed the defense market in Brazil. Today, we’ll look at defense market opportunities and challenges in India, another market with huge potential for U.S. defense companies.

 

India: Engaged in a Major Defense Modernization Push

 

India is embarking on a huge modernization of its Air Force, Navy and Land Forces, due to perceived threats from Pakistan and China, as well as internal threats of terrorism. According to the Stockholm International Peace Research Institute (SIPRI), India is already the world’s largest weapons importer, and is planning to spend another $50 to $100 billion to upgrade its military and security forces.

Traditionally, India has looked to Russia for fighter and attack aircraft, but has recently expanded its scope to the United States and Israel. For example, India purchased an Airborne Warning and Control System (AWACS) from Israel in 2009-2010 and ordered patrol aircraft from Boeing in 2009.

One of the major roadblocks to doing business with India has been meeting the country’s strict offset requirements. To help bolster its defense industry, 30 to 50 percent of all deals valued at more than $65 million must be in the form of offsets returned to India. The country recently eased offset rules to allow foreign contractors more flexibility, such as extending the time frame two years beyond completion of the contract. However, there is still a strict limit on foreign ownership (26 percent), which makes joint ventures challenging, and led to dissolution of several western/Indian joint ventures in recent months.

U.S. contractors can benefit from the fact that India’s state-owned Defense Public Sector Undertakings (DPSUs) cannot keep pace with projected growth. They also have some gaps in technology capabilities required for next-generation defense systems. However, contractors often must work with these DPSUs, and that requires specialized knowledge and experience.

Another top issue is India’s restriction in supply chain partners, due to their strong desire to restrict proliferation of Chinese components (to preclude counterfeits and support for China’s economy).

Resource limitations, both in terms of capital (driven by Rupee borrowing rate and inflationary pressures) and qualified manufacturing labor pool drive a significant amount of risk into companies looking to build local footprint, a risk that is unpalatable with such low equity share.

And finally, as in Brazil, the huge size and varied topography of India, combined with infrastructure underinvestment makes transport a major concern.

Manufacturing services partners, with local contacts, supply chain and facilities, have already solved these challenges through proven joint ventures and other strategic alliances. Ultimately they can help a defense or aerospace company establish business quickly and cost effectively. A globally positioned manufacturing services company can even help to transition business into India for lower-cost footprint that may serve defense offset eligibility as well.

In the next articles in this series, we’ll explore the United Arab Emirates (UAE), who is engaged in building defense capabilities in a volatile region.

Learn more about the benefits of partnering with Jabil Defense & Aerospace as a manufacturing services provider.

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