Foreign military sales are big business. And in the US, it's been the lifeblood for the industrial base during a time when domestic defense budgets are down. The Defense Security Cooperation Agency reporting about $29 billion in FMS cases in the first six months of fiscal 2016 alone – on track with last year's total, according to an analysis by the Guggenheim Securities group.
But other countries are noticing. Avascent reported recently that a global push to grow domestic defense industries will have a dramatic impact on the Western defense export market over the next decade. Intriguing too is how that global push is emerging – with more and more countries around the globe opting to filter their own funds into government-backed or government-owned defense companies. As Defense News reported, Turkey plans to launch three new companies, adding to the 15 existing ones controlled by the government, and the Bulgarian parliament approved a ban on the privatization of three state-owned defense companies.
Does government buy-in to defense companies matter? Certainly to competitors it might. In Turkey, the new companies are said to offer a "complementary role rather than competitive" to private, local companies, but time will tell whether that remains so. For US companies, government backing could only compound the obvious competitive disadvantage that comes with bidding for overseas opportunities against domestic manufacturers. Neither superior technology nor more competitive pricing will necessarily win out over a government's ability to filter funds not only to its own industrial base, but its own coffers – bolstering government R&D, and all but eliminating questions about intellectual property rights, ownership to all aspects of the secret sauce.
Of course, if it's true as capitalist theory dictates that the ultimate goal of a business is to make money, and that profit motivate investment in those functions of the business that will make a company more competitive, R&D included, then the true impact of government backing becomes far murkier. Is such profit motivation lost? Not entirely. But in lieu of the same dynamic of competition, one could argue that the incentive to filter money to advancements in capabilities might be less compelling.
