TECHNOLOGY AND DEFENCE IN THE AGE OF COMPLEX MARKETS
(précis of David Gould’s talk to the Finmeccanica/Alenia  Conference, Turin in September 2008)

  1. Government and Industry

Governments used to get the Defence Industry they deserve  –  as clients, project sponsors, and/or market regulators.
But market forces and technology are changing the rules:-

The industry is “layering”

  - A small number of major system integrators, with less vertical integration
  - Major system and sub-system suppliers
  - Component makers, suppliers of services
  - The research community

To survive, and more particularly to grow, the top two layers have become multi-domestic (i.e. they must adapt to several markets simultaneously) and behave differently in each.

The other two are more correctly described as globalised.

These layers are not yet well delineated - in different times and places companies have featured in all of them.

Companies can also be schizophrenic about competition – while it opens new markets, they still try to exploit the politics of defence procurement to protect dominant positions.

      2.  A Problem and Opportunity for Defence Acquisition

The problem is how to retain strategic industries as costs of successive generations become prohibitive - protection must be severely circumscribed or the costs become self-defeating.

Critical but less spectacular technologies which are less commercially attractive need to be looked after, such as NBC protection, EW, arming and fusing, explosives and propellants.

The opportunity lies in the free flow of capital which multi-domesticity allows – this helps industrial synergy and avoids monopolisation but only if Governments allow it to!

Commercial freedom needs regulation to allay genuine security concerns, which should be the role of CIFIUS and the security provisions in Enterprise Act 2000.

The danger is that the politics of defence procurement will not allow this to work as freely as it should by hiding behind.......

 

       3.  Operational Sovereignty

This requires both the matching of capability and ambition, and putting the serviceman or woman into danger responsibly – which requires detailed understanding of equipment performance and characteristics – and security of supply.   It absolutely does not mean making it all yourself – a pointless ambition in the modern world.

Where flow of capital is concerned, the legitimate security concern should be quality of management, not nationality of share ownership (which can in any case only be influenced within the bounds of national, European, and international legal and trade rules).

But continuing change, driven by market forces, technology, and the international security climate (including national and international terrorism, and the new post Cold War alignments emerging – the first having definitively ended in Georgia) will require Governments and international organisations to continue to adapt – which they seem to find difficult!

 

       4.  In Defence and Security Acquisition Governments Should Place Themselves Firmly at the Top of the Food Chain

BUT do they have the technical and commercial know how to occupy that place?

Ironically, the more Governments depend on industry, particularly international industry, for defence and security, the smarter they need to be at dealing with it.

This ought to be at the top of all acquisition strategy papers.  Many say it is, how many are doing anything about it?

What could the industry – through enlightened self-interest - do to help?

 
 
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