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Can the National Defense Be a Global Business?

The defense industry is more closely tied to national interest than any other. But Vivek Lall, the head of global strategy for General Atomics, says that the industry, responding to many of the same pressures as other businesses, is becoming increasingly globalized.


By Conrad de Aenlle

You might not expect globalization—the system of more open and expansive trade that has taken hold over the last 20 years or so—to coexist comfortably with military conflict. One requires trust and cooperation; the other flourishes in their absence.

But that doesn’t mean the defense industry doesn’t look like other globalized industries.

Global commerce, in inflation-adjusted dollars, more than tripled between 1995 and 2014, according to the World Trade Organization, to $18.94 trillion from $5.17 trillion. Military spending worldwide has leveled off in the last few years as American involvement in Iraq and Afghanistan have been curtailed, but the broad trend is up. Total spending, again adjusted for inflation, rose to an estimated $1.78 trillion in 2014 from $1.07 trillion in 1995, according to the Stockholm International Peace Research Institute.

Moreover, the defense industry itself has become more and more globalized. Exports of military equipment are increasing markedly, despite the plateau in spending, hitting $70.12 billion last year, according to the consultancy IHS Aerospace, Defence & Security, compared to $46.98 billion in 2010. And increasingly, defense firms are engaged in cross-border manufacturing as well as cross-border sales, said Vivek Lall, chief executive for global commercial strategic development at the defense firm General Atomics. There is more cooperation between allies, and some efficiencies and savings, as they manage more threats from adversaries.

“The majority of the [work] can be collaborated with other countries, other industries, where the niche is and where, frankly, it’s more cost effective,” Lall said in a conversation with Yale Insights. “What is critical is for countries to create their own innovation capability and research-and-development capability. That is what will sustain the industry in the long term.”

The United States remains the largest exporter in defense and its close cousin, aerospace. The latest report from the U.S. Defense Department puts the amount of foreign military sales agreements at $23.6 billion for 2013, the latest available year. The amount of military exports bounces around from year to year due to large individual orders, but the U.S. is generally followed by Russia, China, France, Britain, Israel and Germany in one order or another. The top 50 defense contractors, compiled by the Stockholm institute in 2013, includes 30 American companies, with Lockheed Martin and Boeing first and second. Rounding out the top five are BAE Systems of Britain and two more American firms, Raytheon and Northrop Grumman. (General Atomics ranked 44th.) In the aerospace industry, which has considerable overlap with military manufacturing but also a huge civilian component, the United States runs the largest trade surplus with the rest of the world by far—about $70 billion in 2012, according to the Organization for Economic Cooperation and Development. France was a distant second, at $26 billion, while China had the largest deficit, roughly $18 billion.

Defense contractors can’t sell anything without willing buyers. Countries perceive myriad threats from outside and increasingly from within, said Lall, whose company is perhaps most famous for its Predator drone.

“Countries are seeing that their internal needs are becoming a larger and larger component of their overall security,” he said. In many cases, “they form the threat matrix more so than traditional invasions from other countries.”

More of the problems may have internal origins, but so do the solutions, in his view, as the industry changes. In fact, Lall said, he no longer thinks in terms of buyers and sellers but something more complex.

“It’s more of a partnership,” he said. Foreign governments “want a piece of the action in terms of manufacturing some of the parts [or receiving] training programs, so increasingly it makes sense for companies to form local entities, effectively using the richness of a particular country, in terms of resources, raw materials, labor, etc., to feed into the over-all global business model.”

Head of Global Strategy, General Atomics