International sales unlikely to offset U.S. budget cuts.

AuthorInsinna, Valerie

* With little hope of growth in the Pentagon's budget, U.S. defense contractors are seeking to broaden their international customer base and increase worldwide sales.

But increased military spending in the Middle East and Asia-Pacific is unlikely to make up for flattened spending by the United States, and contractors will face increasingly crowded competitions as companies around the globe try to ramp up exports.

"Global economic growth in a lot of these countries may be slow in the coming years, and although foreign sales are going to continue to increase, it's going to be less of an increase than we've seen in the past," said Nayantara Hensel, an economist at the National Defense University.

Part of the problem is that the United States spends so much on its military that there are no nations with comparable defense budgets that contractors can target, said Dan Darling, an international military market analyst at Forecast International.

The United States spent $682 billion on its military in 2012, according to data from the Stockholm International Peace Research Institute. That's more than four times the estimated defense expenditures of China, the number-two spender.

It's not all bad news. While most markets will flatten or contract, there will be continued growth in unmanned aerial vehicles and cybersecurity, two fields where U.S. defense companies are leading innovation, experts agreed.

Even weathly countries with technologically advanced militaries lack UAVs and the industrial base to build them, Darling said. "In Europe, the French are purchasing the Reaper. They're still playing catch up." The only country able to compete with U.S. technological standards in the UAV realm is Israel, with companies such as Israel Aerospace Industries, he added.

The demand for remotely controlled technologies will branch out from aircraft to include ground robots and unmanned underwater vehicles, he said.

Large defense primes also are likely to invest money in developing cybersecurity products and services that can be sold to civilian markets, said Sandy McKenzie, a partner in the McLean Partnership, a London-based consulting group. For instance, Detica, a BAE Systems subsidiary specializing in cybersecurity, is looking for potential employees with experience in the financial services, retail, pharmaceutical and energy industries in order to better target those customers.

"To some extent, these companies need to be thought of not as aerospace and...

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