Defense contractors should prepare for the challenges of foreign markets.

• Author: Gebicke, Scott
• Position: Industry Perspective

Whereas the Defense Department is expected to cut back on purchases of new weapons, nations such as China, India, Brazil, South Korea and Australia are increasing spending on defense equipment.

Defense contractors that have traditionally focused on U.S. programs must look for opportunities with other nations.

But doing business outside the United States can be challenging. Issues range from the high level of difficulty and risk of building manufacturing infrastructure and developing a local supply chain, to meeting the foreign government's demands for offsets, particularly local employment and technology and skills transfer.

The following three nations present defense opportunities and challenges:

Brazil: This emerging power has the largest armed forces in South America. In 2009, the defense ministry announced a new national defense strategy, which set ambitious goals that are aimed at replacing aging equipment and creating jobs. To support these objectives, the ministry will receive $733 million from the government to procure defense equipment including 4,170 trucks, 40 Guarani armored vehicles and 30 Astros 2020 missile launcher vehicles.

In May 2012, Defense Minister Celso Amorim stated that the defense budget would gradually increase to 2 percent of Brazil's gross domestic product, up from the current 1.6 percent, as part of the effort to secure its borders against potential threats to its natural resources, including offshore oil reserves.

Brazil is focusing its defense spending in three major areas: land forces for internal security and border protection; helicopters, jet fighters and transports, and homeland security for the Olympics and World Cup, including airport security and surveillance.

Brazil already has a respectable aerospace industry that is dominated by Embraer, a primarily commercial aircraft manufacturer which has a defense and security business. There is new domestic competition including Odebrecht, a Brazil-based, multinational construction conglomerate that launched a defense and security company in 20111. Additionally, the number of foreign and domestic defense companies in Brazil jumped to 150 last year from 39 in 2007, with sales of $3.5 billion, according to the Brazilian Defense and Security Industries Association.

The Brazilian government desires to work with contractors that have local engineering, manufacturing and supply chains. But operating in Brazil involves a number of challenges. The terrain is extremely...