How to win defence exports
Every company claims to be pushing hard to secure exports but what does this mean in practice?
Companies from North America or Europe will firstly have to come to grips with the fact that business in other parts of the world is done very differently than on home shores, where democracy and the rule of law are the driving mechanisms, while there are serious cultural considerations that need to be taken into account.
Speaking at Rheinmetall’s Berlin Defence Talks in August, Michael Kerwin, the company’s programme manager for the Leopard 2 sale to Indonesia, highlighted some key issues about how they secured that export order, the lessons learned and the continuing uncertainty.
He said that from a cultural perspective it was harder to read people and it was difficult because seeing someone with a friendly and positive manner could mean very little.
There would be lots of steps backwards and forwards, and it was not uncommon to make progress in contractual negotiations before the Indonesians would take a step back and start all over again. Furthermore there were in-depth discussions about relatively minor issues that could take days.
Kerwin cited an issue with power packs, which are surplus materials: ‘Two days just before finalising the negotiations, they said they wanted new power packs. We had just started two day marathon negotiations, it was not necessary to have new power packs and finally they accepted it. But they were excellent fighters and negotiators.’
Undoubtedly this is a strong negotiating tactic and Kerwin said that it was something that the German team needed to take account of. The streamlined and process-driven acquisition process that they were used to with formal steps and focused negotiations were a different ball game to the one they were in.
‘For the user’s point of view, they did an excellent job,’ Kerwin said. ‘We had to suffer but we stayed in the negotiations,’ he said.
Recent changes in the country meant that there were some new experiences for the Indonesians as well. There was regular coverage in the local press and the deal faced a lot of criticism that Rheinmetall had to manage neutrally.
In addition, the company found that large contracts needed financing through loan agreements. ‘We learned that this could take up to one year,’ Kerwin said.
One major change was that for the first time the Indonesian MoD was making the procurement investment decisions and not the army so there was the background of internal disputes between those organisations involved in the decision-making process. This created continuing uncertainty.
In October 2014, they will have a new president – likely to be Joko Widodo, who has no military background and a cabinet re-structure is expected. So far all the decision-makers in Indonesia had were two or three star generals. The chief of the army had been the prime decision-maker but this is changing to the MoD.
For countries such as Indonesia with growing economies and where the government wants to move into the big league as a regional power, there are requirements to involve state industries. Some industries have infrastructure and capability but they are not the decision-makers and operate under their own state ministry. Kerwin said this will be critical over the next few years.
There was also the need for big military parades. This was difficult for Western companies to understand but in a country such as Indonesia officials feel the population needs to be able to see and touch the vehicles to appreciate their value.
Kerwin said this was a problem for Rheinmetall because it needs export licenses to take two vehicles to Indonesia to display them at the IndoDefence exhibition in Jakarta later this year. Rheinmetall has to negotiate stringent German export regulations that are also liable to change, particularly where non-NATO countries are concerned.
There is a significant amount of risk involved when dealing with regions of the world that are unfamiliar. Companies with experience in this area will recognise some of the hurdles highlighted above and will be better prepared to manage them.
However, exporting further overseas will be new for some firms and it remains to be seen how they will take to this challenge. It certainly requires an open mind and flexibility as well as the patience and determination to stay the course.
Unfortunately it seems as if there is little substitution for experience and most the lessons will be learned by doing.