Offset challenges and opportunities viewed from the perspectives of large companies and SMEs (small/medium enterprises) alike, have been shared at the past ECCO Symposium No 10 in Paris, France. The European Club for Countertrade and Offset (ECCO) hosts such symposiums twice a year in different venues in Europe.
 
Offset requirements result in considerations that management in large companies views from various perspectives. While top management is trying to protect the company’s technology, finance managers view the penalties related to the non-performance of offset milestones as a risk.
 
Sales managers aim to conclude the sale without further impacts on price, margins and bonuses, while production managers refuse to place work with a foreign company because they have to ensure work to their own employees. Procurement managers are hesitant to purchase from unknown suppliers and offset authorities are prescriptive in what is eligible for offset fulfillment and what not.
 
Sustainable business models
In such a challenging environment, offset management forms a crucial element of the company’s strategic development and an international dimension has to be adopted in developing industrial cooperation. Offset solutions should be based on a sound rationale and agreed to by all parties. Robust and sustainable business models, and stable business plans and commercial projections are also called for.
 
In order to find new ways and means to manage their responsibilities and defense contract portfolios, offset managers must fully grasp the requirements and the implications of current policy and political situations. Thus, offset managers have to be able to grasp the rationale and goals of government actions, and effectively adapt offset management processes.
 
Return on investment depends on efficiency of offset policies, which have to be compatible with the national environment in the purchasing country, but also comply with regional and international laws and practices. Industrial cooperation and offset policies therefore have to align with industrial strategies, taking into account operational defense interests as well as the interests of other sectors that are deemed to be of national importance, such as infrastructure, safety, health, and education.
 
National security
National security was defined by a speaker as the ability of a nation to protect its internal values from external threats, encompassing the manner in which nations plan, make, and evaluate the decisions and policies designed to increase this ability. It also relies on the state of the economy and technological growth. Indirect offset mostly supports the infrastructure that safeguards national security interests.
 
In the European Union (EU), there is uncertainty as to the measures that relate to the production or trade of arms and war materiel necessary for the protection of essential security interests. However, it was argued that Article 346 TFEU still states that the decision is based on what the member state deems necessary.
 
While some member states seem hesitant to make a case and protect their national security interests, it was stated that the three EU member states with the strongest armies still follow protectionist policies in their defense and security procurement. "These reactions confirmed that procurement in the defense market remains distinct from procurement in commercial markets, and is strongly influenced by broader political and industrial considerations that may affect free trade."
 
One speaker shared four models that purchasing governments may use to determine the elements of the purchase that contribute to the protection of national security interests. The models can also be used by offset managers when considering offset solutions.
 
SMEs (Small & medium enterprises)
The speakers from SMEs demonstrated refreshing approaches in showing how innovation from SMEs can be applied to fulfill offset obligations of prime contractors. The director of Axxiflex in the Netherlands stated that to design a good offset project you have to manage many aspects such as government requirements, stakeholder interests, milestones, and resources.
 
He highlighted the difference between the goals of the offset project and the metrics as follows: "When you go home after work and your wife's birthday is coming up, you may encounter a problem! Of course you will ask her what she would like to have for her birthday. She may say: 'Oh dear, I don't need ... anything!' Your problem is now getting worse, especially if you do not give her anything.
 
"What is she says: 'My dear, you know me so well, you decide!' Then you have an even bigger problem, and it will escalate when you give her the drilling machine you always wanted. Then again, she may say: 'Oh dear, I love this new Audi TT sports-car!' Although this answer may not solve your problem, at least it's a very clear answer. But what if she says: 'Well, you know my rules!'
 
"My policy is that you support my values and implement a program to compensate me for my services and for the negative effects of all my domestic work. I assume that you will contribute to building my local capacities, that you will meet my economic objectives, that you will follow my guidelines and that you will invest in joint ventures in my target sectors. To encourage you, I will grant you credits according to my set multipliers. Then of course, I will monitor the consistency of your performance. Please maximize the fulfillment of your obligation to give me a birthday present! So as a SME, I suggest to obligors to be more specific about offset project requirements."
 
The main benefits of offset that were shared by various speakers can be summarized as follows:
 

• Ensured the SME a stable market position in the international defense market; advanced production processes; increased efficiency;
  
• accelerated the professionalization of skills; improved the qualifications of employees;
  
• ensured investment in the local facilities and access to a network of new suppliers;
   
• increased exports and improved reputation and brand recognition;
   
• indirect offset benefits made it possible for the company to export to China; increasing shareholders’ value;
   
• made it possible for SMEs to build new relationships;  
   
• turned a classic customer-supplier relationship driven by offset obligations into an
   
• international partnership, changing the SME's market approach; and
   
• resulted in new competences and areas of innovation.

Future symposium
On 18 and 19 November 2015, Symposium#11 will be hosted in London. The Forum will focus on offset processes in the Middle East, Africa, and South Korea, while the workshop will look at the role of new stakeholders who ensure successful Offset fulfillment.
 
For more information, click here.  

* * ANNOUNCEMENT * * We have packages of back issues still in print, approximately 30 issues in all. To order: Click here