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Competing For International Business

January 30, 2009

In his blog on Spend Matters,  Jason Busch comments on Boeing’s recent win of a major defense contract in India.

Jason observes that “other defense contractors have lost billions of dollars in Indian defense contracts not because they weren’t selected as a preferred supplier, but because they failed to meet offset requirements to source a certain percentage of the total award from local suppliers.” While I find this claim rather surprising (such off-sets have been typical in the industry for decades), it is indicative of a real and growing issue. As the worldwide economy faces a period of no growth, it is inevitable that political – and social – instincts will turn to protecting domestic industry.

Indeed, we are already seeing the emergence of unrest in Europe, with UK protests over the use of foreign workers and mass strikes in France over economic policy. The pressure on government to ‘buy local’ will inevitably increase.

With credit in short supply, government policy has taken on added importance. As one of the few reliable buyers, having government customers will do wonders for a company’s credit rating. So not only will public procurement save jobs, it will also influence competitiveness. It beccomes very tempting to favor domestic champions or to insist on extensive local content – even if sometimes that may result in degraded quality or higher prices.

In the old days, there was skepticism about local content providers, especially in emerging economies. But is that concern still valid? Of course, at times the answer is yes. Sadly, there are still cases where the ‘local content’ is a favored firm with ties to the government, or where there really are not local companies with the required skills or technologies. Yet this is no longer universally the case, as highlighted recently by IACCM Board Member Dave Connor. Dave ‘s interview (available as a podcast in the IACCM Library) indicated the maturity of today’s local content programs – and in fact, that many local and regional providers are now surpassing the quality standards of their global rivals.

So Jason is right to focus on the importance of this sensitive issue and it is without doubt an area where leading companies – and those aspiring to remain leaders – must raise their capabilities in managing local content programs and use this as a source of competitive advantage in bidding for international government business.

One Comment
  1. Tim, the problem is that the offset requirement is growing in scope, with ever more stringent requirements placed on foreign bidders.

    I would be interested in yours and others thoughts on the Obama stimulus plan (or should I say the Pelosi stimulus) with re to the steel requirement to be “Buy American”.

    India has already indicated concern on this requirement with possible retaliation.

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