U.S. companies eyeing partnerships to increase global competitiveness.

AuthorVersprille, Allyson

* In order to continue growing their businesses and remain competitive in a difficult budgetary environment, U.S. defense and aerospace companies are looking to cultivate international partnerships, said experts and industry executives.

"Whenever we see decreases in the domestic budget, the most logical place that corporations are looking to are international markets," said Erin Moseley, a senior partner at ISM Strategies, a Washington, D.C.-based consulting firm. "This is not the first time it has happened, and probably won't be the last," said Moseley, who previously held senior positions at BAE Systems, Lockheed Martin and General Dynamics.

KPMG International's Global Aerospace and Defense Outlook 2015 found that more than a quarter of aerospace and defense organizations that responded to a global manufacturing survey said they would enter into new geographic markets to drive growth. Thirteen percent of respondents stated that rebalancing their global footprint was a top priority.

"For the U.S. companies, international is a great place to go because the margins are higher," said Bill Inglee, a senior partner at ISM Strategies. "They're generally more profitable --an international sale compared to a negotiated sale internally with the U.S. government--so for them it's a good deal even though it's an incredibly competitive market space."

The international marketplace is also attractive because there's a lot of opportunity to sell given the current security environment, he said.

Brad Curran, an aerospace and defense industry analyst at Frost & Sullivan, said regional growth in defense spending is expected to increase in places like the Middle East and Asia-Pacific where security threats are surging. Most of that spending will be used to modernize weapons systems.

"Basically if you're on the Russian border, if you're on the Chinese border, or you're on the Iranian border, you're spending on defense and you're improving your capabilities. You're modernizing your equipment," he said.

The Asia-Pacific region is expected to see the most growth, according to Frost & Sullivan's 2015 Defense Outlook. The report estimated that defense spending in that area--including money spent on procurement; research, development, test and evaluation; and a portion of operations and maintenance--will grow at a rate of 5 percent annually through 2019 up from $136 billion expected to be spent in 2015. The Middle East-North Africa region has the second highest projected growth rate at 4 percent annually from an estimated baseline of $65 billion in 2015.

There will be a lot of focus placed "in the Middle East and Asia-Pacific partly because of the nature of the conflict, the nature of the tensions that exist in those regions," Moseley said. "The opportunities for larger programs and the ability to compete in larger programs, it doesn't exist [in Europe] the way it will and does in the Middle East and Asia-Pacific."

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