smes and offsets: development through industrial … and offsets: development through industrial...

SMEs and Offsets: Development

through Industrial Cooperation

São Jose dos Campos December 11th and 12th

Jacques Purewal

Contents/Agenda

Strictly Private & Confidential 2

1. Offsets Overview 2. Evolution of Offsets 3. Estimation of “Open” Offset Obligations 4. Why an SME? 5. Success Story: Norway 6. Success Story: The Netherlands 7. Success Story: Israel 8. Success Story: Canada 9. Success Story: Spain 10.Success Story: Kingdom of Saudi Arabia (KSA)

Offsets: Overview


Many countries have developed their own socioeconomic and political connotation of offsets, structuring offset regulations that best serve their particular needs.

On the one hand, developed countries with established defense industries use offsets as a way of enhancing product development and market access, by placing subcontracting work or infusing advanced technology, to their domestic defense or high tech companies.

On the other hand, less developed countries use offsets in order to obtain technology and capabilities that do not exist in their current industrial base, as well as in order to establish cooperations and integrate their industry into international supply chain channels.

Evolution of Offsets


• Offset practices date back to the early 70s (before they had the form of countertrade), but the 80’s and 90’s were the two decades that produced the large volume and sophistication that is known as “offsets” today.

• This evolution of Offsets has transformed them from a foreign exchange return mechanism, to a high technology, complicated and expensive requirement.

1970 1980 1990 2000 2010

• Countertrade • Start of local

Subcontracting in advanced industrial countries

• Mostly Subcontracting and Investments

• Some Technology Transfer

• Strat of defense focused projects

• Technology Transfer

• Licensed Production

• Start of New Product Development

• New Countries • ToT and Co-

production • Initiation of Co-

development

• Offset harmonization

• Partners vs Subcontractors

• Technology development

Civil Defense & Civil Defense

Low Tech High Tech

Germany Greece Italy Netherlands Norway Poland Turkey UK South Africa Australia India Indonesia South Korea Singapore Taiwan Brazil Chile Colombia Saudi Arabia UAE

Estimation of “Open” Offset Obligations

Strictly Private & Confidential

• Despite global economic downturn, the military offsets market demonstrates strong dynamics fuelled by significant defence procurement programmes in APAC (Asia Pacific), Middle East and Latin American countries. Demand is expected to grow at a compound annual growth rate (CAGR) of 3.5% cent between 2012 - 2021 and present opportunities up to $424.57 billion available to the leading 20 offset markets (countries). The military offsets obligations are expected to increase from $36.36 billion in 2012 to $49.61 billion in 2021.



Why an SME?


SMEs can make a greater use of an offset/industrial cooperation project mainly because of their innovative force, flexibility, efficiency and reliable performance. The main strengths/opportunities for such entities as far as the exploitation of an offset project have as per in the following table:

Strengths Opportunities

Flexibility and speed of decision making Through the implementation of an offset project, SMEs could develop their international position by exploiting their specialised knowledge and skills.

Inventiveness Through the implementation of an offset project, SMEs might be able to exploit more of the economies of scale available in the defence equipment industry.

Specialised knowledge, e.g. in manufacturing processes such as precision machining or electronics.

The implementation of an offset project may create opportunities for SMEs to collaborate with primes or innovative SMEs from other countries, thus opening up new market opportunities and establishing long-standing partnerships.

Established positions within supply chains, enjoying positions of trust and valued by their customers.

Why an SME?


SMES do not have adequate resources to participate successfully in major national and international programs as they do not have the financial clout to wait for a concept to become a program. Additionally, SME face difficulties in gaining/accessing information on future capability requirements and business opportunities. Finally, they lack visibility vis-a-vis large companies, thus limiting their access to innovative/cutting edge solutions provided by SMEs. Participation in offset programs (especially in those including sub-contracting opportunities) could help SMEs to be integrated to national and international supply chains.

SMEs are often the birthplace of innovation. Thus specific efforts must be developed and sustained to ensure that SMEs have access to offsets and especially to offset agreements related to Transfer of Technology (ToT) enabling them to do what they can do best: provide innovative solutions.

SMEs demonstrate innovative skills and agile approaches due to their specialization in niche technologies, processes, or products. Thus they have the potential to be at the forefront of innovation in High-Technology areas and provide high-skilled job opportunities. Therefore, being part of an offset project that will enhance their position would potentially create new high-skill job opportunities.

National defence industries could develop their sustainability and global competitiveness by fostering the position of SMEs, mainly because SMEs can provide 'non-traditional' solutions which may offer better value for money. Being part of offset projects, SMEs may enhance their position and thus the abilities of national defence industries in providing sustainable benefits to the economy and security of the nation.

Why an SME?


Offsets offer international business exposure possibilities for defence SMEs, which already serve as an engine for cross border and cross sectorial distribution of work, as typically in the EU they generate between 39% and 62% of their total sales in the civilian market. For example, the Eurofighter Typhoon program is estimated to have created 100,000 highly skilled jobs, spread over 400 companies, many of which are SMEs. It also inspired technology spin-offs to civil aircraft and the automobile industry, for a total value of at least €9 billion.

SMEs by nature demonstrate flexibility, speed of operations, innovativeness and adaptability as key strengths. In the defence and aerospace sector, being important tier II and tier III suppliers, they account for major part of the "business done". For example, the supply chain of the German Leopard II tank involves no less than 1,500 companies, many of which are SMEs.

Source: ©BIPE

Defence Industrial Supply Chain

German Leopard II tank: 1,500 companies

involved, many of which are SMEs.

Eurofighter Typhoon: 400 companies

involved, many of which are SMEs.

Success Story: Norway


The Fridtjof Nansen-class frigates (resulting from the F-310 NORWEGIAN FRIGATE PROGRAM) are the main surface combatant units of the Royal Norwegian Navy. Five ships were ordered from Spanish shipbuilder Bazan (now Navantia). The total projected cost for all five ships was NOK 21 billion (about USD 3.61 billion).

# Name Ordered Laid down Launched Commissioned

F310 Fridtjof Nansen 23 June 2000 9 April 2003 3 June 2004 5 April 2006

F311 Roald Amundsen 23 June 2000 3 June 2004 25 May 2005 21 May 2007

F312 Otto Sverdrup 23 June 2000 25 May 2005 28 April 2006 30 April 2008

F313 Helge Ingstad 23 June 2000 28 April 2006 23 November 2007 29 September 2009

F314 Thor Heyerdahl 23 June 2000 23 November 2007 11 February 2009 18 January 2011

Fridtjof Nansen class — significant dates

http://en.wikipedia.org/wiki/HNoMS_Fridtjof_Nansen_(F310)



http://en.wikipedia.org/wiki/HNoMS_Roald_Amundsen_(F311)

http://en.wikipedia.org/wiki/HNoMS_Otto_Sverdrup_(F312)

http://en.wikipedia.org/wiki/HNoMS_Helge_Ingstad_(F313)

http://en.wikipedia.org/wiki/HNoMS_Thor_Heyerdahl_(F314)



DIRECT PARTICIPATION

2 Norwegian Shipyards

Production Sharing with IPS Norwegian Partners Blocks Manufactured in Norway and Spain Shipway assembly in Ferrol/Fene Shipyard Final Outfitting, Tests and Delivery in Ferro Shipyard

The offset projects resulting from the purchased frigates, largely benefitted the Norwegian industry, with more than 250 Norwegian companies receiving orders within the framework of related offset agreements. The Norwegian Defence Ministry indicates that contracts worth approximately NOK1 billion have been awarded by the government to local shipbuilding companies and sub-suppliers.

Source: ©Navantia



This project had a very significant effect on the Norwegian industry, having not only a positive influence related to the long-term support of the frigate program, but also on a wide range of subcontractors both in Spain, as well as in Norway. According to the Norwegian authorities, more than 100 Spanish companies where involved in offset purchase contracts with some 250 Norwegian entities (among them many SMEs). Approximately 30% of the total frigate contract value was awarded to the Norwegian shipbuilding industry. Below some indicative Norwegian companies benefitting from the related Offsets:

1. ABB AS 2. AUTRONICA FIRE AND SECURITY AS 3. AXXESSIT ASA 4. BEHAHEDO INDUSTRIER AS 5. BRUNVOLL AS 6. CORROCEAN SAFETEC NORDIC AS 7. DET NORSKE VERITAS 8. DRAKA NORSK KABEL 9. FRAMO ENGINEERING AS 10. FRANK MOHN AS 11. FUNDIA PROFILER AS 12. GLAMOX ASA 13. HAMWORTHY KSE AS 14. HEIEN-LARSSEN AS 15. HERNIS SCAN SYSTEMS AS 16. ITEK AS 17. JETS VACUUM AS 18. JOTUN AS 19. KLEVEN FLORO AS 20. KONGSBERG DEFENCE AND

AEROSPACE 21. KONGSBERG MARITIME AS 22. KONGSBERG NORCONTROL AS 23. KONGSBERG SIMRAD AS 24. MARITIME PUSNES AS 25. MJELLEM & KARLSEN VERFT AS /

BERGEN 26. MEKANISKE VERKSTED AS / AKER

YARDS 27. MONITROLS AS 28. NAMMO RAUFOSS AS 29. NATECH AS 30. NERA BROADBAND SATELLITE AS 31. NEXANS NORWAY AS 32. NORAL LIGHTING AS 33. NORSAFE AS 34. NORTEK AS 35. OCEANOGRAFIC COMPANY OF

NORWAY ASA 36. OMICRON AS 37. PORSGRUNN STEARING GEAR AS 38. RAP HYDEMA AS 39. RAUTARUUKKI PROFILER AS 40. ROLLS-ROYCE MARINE AS 41. SCANA SKARPENORD AS 42. SPERRE INDUSTRI AS 43. TEAMTEC MARINE PRODUCTS 44. TELENOR 45. TTS HANDLING Systems AS 46. TTS NORLIFT AS 47. UMOE MANDAL AS 48. UMOE SCHAT-HARDING

49. VETCO AIBEL AS 50. VINGHOG 51. WESTAD INDUSTRI AS



CONCLUSIONS

Great business opportunities for SMEs that took part in the construction phase of the F-310 frigates. NOT only for the construction phase, but also for the whole life cycle of the vessels (aprox. 30 years).

NAVANTIA’s intention is to promote a long term relationship with the different suppliers (Norwegian SMEs companies), considering their products/services for other ongoing and future programs. This opens up a wide range of business opportunities for the domestic industry, through integration into the global supply chain of NAVANTIA.

The Frigate’s Industrial Cooperation Program created new or increased high-tech international commercial and technological benefits for the Norwegian SMEs, giving them the opportunity to acquire new technologies and know-how. This would be quite beneficiary for them, as SMEs can not sustain the cost of R&D and/or do not have the financial clout to wait for a concept to become a program/product, thus they need external funding in order to sustain the cost of such development of a new product/service.

Through the offset program, NAVANTIA created new business opportunities for the Norwegian SMEs in the Spanish, US and other international markets. This was vital for SMEs as they usually find difficulties in gaining/accessing information on future capability requirements and business opportunities across the globe.

Success Story: The Netherlands


In 2010, the Netherlands Ministry of Defence (NL MoD) signed a contract with CAE (Canada) for the provision of a comprehensive academic training system for the C-130 and KDC-10 aircraft operated by the Royal Netherlands Air Force (RNLAF). Based on the C-130H and KDC-10 full-mission simulation software used in the full-mission simulators, CAE was to developed for the RNLAF, the academic training system which includes a suite of classroom training equipment, instructor tools and courseware. CAE will deliver to the RNLAF's Air Mobility Training Centre a suite of CAE Simfinity virtual simulators (VSIM), virtual systems trainers (VST), and instructor tools that can be used to monitor, create and modify lesson plans and training scenarios. In addition, CAE was to develop interactive multi-media courseware for both the C-130H and KDC-10, that can be instructor-led, self-paced or combined, to support initial, recurrent and conversion-to-type training for the entire aircrew.

CAE’s Netherlands Programs C-130 and KDC10 ►Provision of flight simulators for the RNLAF KDC10 and C-130 aircraft and related spare parts, training and documentation. JNTP - NH-90 Training ►Procurement and maintenance support for flight simulator for the RNLAF NH-90, including documentation and training. CH-47 Training ►Provision of a simulator upgrade and related additional training services for the RNLAF CH-47 located at the Royal Air Force base in Benson, England.



Offset Agreement for the C130 & KDC10 Program

Provide value through technological transfers and Research & Development projects with the National Aerospace Laboratory (NLR) and E-Semble.

National Aerospace Laboratory (NLR) The National Aerospace Laboratory (NLR) is the independent knowledge enterprise in the Netherlands, on aerospace. The overall mission is making air transport and space exploration safer, more sustainable and more efficient. NLR’s multidisciplinary approach focuses on developing new and cost effective technologies for aviation and space, from design support to production technology and MRO (Maintenance, Repair and Overhaul).

E-Semble E-Semble's has more than 10 years of experience and customers in over 20 countries. E-Semble is located in Delft, the Netherlands, hometown of the Delft University of Technology. As of the beginning of 2012, the Dutch company had a team of 40 professionals in the Netherlands and internationally: the breakdown had as follows: 75% engineering, 25% educational and business.



National Aerospace Laboratory (NLR) E-Semble and CAE: A Win-Win Partnership

Combination of knowledge and assets of Dutch organizations and CAE

Dutch organizations becoming part of CAE’s Global Sales Opportunities,

Projects, Supply Chain

CAE Provides transfer of technology to Dutch Companies

Known and trusted suppliers of engineering & modeling capabilities for CAE

Combination of knowledge and assets of Dutch organisations and CAE Dutch organisations becoming part of CAE’s Global Sales Opportunities, Projects and Global Supply Chain CAE Provides transfer of technologies to Dutch Companies Known and trusted suppliers of engineering & modeling capabilities for CAE

Success Story: Israel


Gemalto, a French software company specializing in digital security software, bid for and won tenders to provide smart ID cards and passports to Israel. As part of its efforts to fulfill its Industrial Cooperation obligations, Gemalto procured related software services from the Israeli company Trivnet, in amounts well above the value of its commitment. In the end, Gemalto acquired the Israeli company for some $40 million. Actually, this offset commitment led to an investment that gave rise to an opportunity for the Israeli company to initially sell their services to a foreign company, while thereafter to become part of a large entity with global reach.

OUTCOME

Winning a Tender for Smart ID cards

Israeli SME Integrated into a well respected and international

company

French Software Company Fulfillment of Industrial Cooperation Obligations

Success Story: Canada


Dumur Industries is a world leader in precision metal machining and fabrication for a vast range of sectors. In the beginning, Dumur Industries specialized in the production of ventilation and cabinet systems for the food prep industry. Dumur actively began seeking out defence opportunities through the IRB Policy and has been successful in securing work with contractors like Daimler AG and General Dynamics Land Systems-Canada (GDLS-C).

Canadian SME becoming a supplier of over 1100 parts

for LAV and STRYKER

Dumur is providing fuel and water pods for Daimler's Armoured Heavy Support Vehicle System, along with associated training. For GDLS-C, Dumur started manufacturing a few parts for the Light Armoured Vehicle (LAV) and, over time, grew this business relationship to become a supplier of over 1100 individual machined, welded and fabricated parts for the LAV and STRYKER family of vehicles.

Success Story: Spain


The value of Industrial Cooperation in terms of technology transfer activities to Spanish industries and public bodies between May 1984 and December 2010 amounted to a total of €3,833 million, based on 418 Industrial Cooperation Agreements. These technologies have played a major part in winning orders placed with Spanish entities with a value in excess of €6.8 Billion. One of the most important industrial cooperation programs in Spain was the industrial return for the Spanish Main Battle Tank procurement, which was largely based on licensed production. Indigenous production amounted to 60% and the vehicles were assembled locally in Seville by Santa Bárbara Sistemas. In the diagram it can be seen how several SMEs played an important role in the implementation of the associated industrial cooperation agreements. Source: ©Krauss-Maffei Wegmann

Success Story: Kingdom of Saudi Arabia (KSA)


Achievements

Investments 21 Billion

SAR

42

Companies

60%

Saudization

Sales

50 Billion SAR

8000

Jobs

Two of the main companies created through the EOP are: Advanced Electronic Company (AEC)

Serves clients within the defense, telecom and manufacturing industries. AEC activities include design, development, manufacturing, upgrades and logistical support of electronic products and systems.

Al Salam Aircraft Company

Provides Civil and Military Aircraft maintenance, Programmed Depot Maintenance, Technical Support Programs, manufacturing & assembly and VIP interior completions in addition to specialized aviation training.

According to KSA offset legislation, all foreign companies are obliged to direct at least 50% of their offset investment commitment in business activities that are directly related to the supply contract. The rest of the commitment can be in other business activities that aim to transfer technology and generate new jobs and investment opportunities for Saudi nationals. Investments are accepted both in the civil and defense sectors, except oil and gas exploration and production. Below there are some of the Major Achievements of the KSA Economic Offset Program (EOP):

Questions & Answers

Jacques Purewal - Director Aerospace Ventures (AG) – Switzerland

offices in Abu Dhabi, Singapore, Athens, Greece and Bogota, Colombia

[email protected] Phone numbers: +306948515052 and

+573134932009

mailto:[email protected]



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