Me think the US are trying to enlarge its Asian market:
U.S. Defense Firms Falter in Asia
Some weapons systems are too costly, complex for emerging markets; competition rises
An F/A-18 Super Hornet prepared to land at a U.S. Naval air base in Atsugi, Japan, last year. Boeing currently is marketing the jets in Malaysia. Photo: KEN ISHII/GETTY IMAGES
By
Trefor Moss
May 31, 2015 4:41 p.m. ET
SINGAPORE—Surging military spending across Asia has made it the world’s second-biggest region for such spending over the past decade, but U.S. companies, the biggest sellers of military equipment, are struggling to take full advantage of that growth, even as revenues back home stagnate.
Demand in Asia for defense equipment—and calls for greater U.S. military involvement—have grown as
China’s display of military might in the South China Sea intensifies regional tensions.
Total global spending on defense in 2014 was $1.719 trillion, of which Asia and Oceania contributed $423 billion, or 25%, behind only North America’s $596 billion, according to the Stockholm International Peace Research Institute. The figures are calculated using a 2011 base dollar value.
The total for Asia was over $30 billion more than Europe, which it leapfrogged for the No. 2 spot compared with the previous 10-year period, and up 62% over the past decade. China—a closed market for U.S. defense companies because of a long-standing arms embargo—accounted for $208 billion of the Asia and Oceania total, spurring its neighbors to boost their spending. Asia and Oceania bought 48% of the weaponry that U.S. companies exported during that period, up from 39% in 2009.
But capitalizing on that boom has proved difficult for U.S. defense companies, which are struggling to dominate Asia’s important emerging markets as they once did. Many of their weapons systems are too expensive and unnecessarily sophisticated for those customers. There is also more competition from upstarts and established European competitors better able to meet Asia’s defense needs.
Some of the Asian manufacturers are big exporters, such as
Daewoo Shipbuilding & Marine Engineering Co.
of South Korea. But many others are small compared with U.S. giants such as
Boeing Co.
Indonesian state-run aerospace company PT Dirgantara said it has sold a maritime-patrol aircraft, which its executives said was the least expensive on the market, to eight countries so far, including South Korea, which bought four of the Indonesian planes for $92 million.
Singapore Technologies Engineering Ltd.
recently sold an amphibious warship to Thailand in an order valued at $135 million.
By comparison, Boeing’s P-8A Poseidon surveillance aircraft costs about $220 million each. The company has sold eight of these planes to India for $2.1 billion.
In the 1970s, practically every air force in East Asia was stocked with U.S. warplanes such as the Northrop F-5, a small-budget jet built with exports in mind.
Today, among the 10 states of the Association of Southeast Asian Nations, only Singapore has new U.S. jets. None have modern U.S. warships. Once-reliable U.S. customers, such as Thailand, Indonesia and the Philippines, are turning to companies elsewhere for arms, in some cases rejecting U.S. alternatives.
This is partly because U.S. defense companies now develop big-ticket, cutting-edge products in response to the needs of their biggest customer, the U.S. military, but which many Asian countries don’t need, say some U.S. contractors active in Asia.
“We’re often perceived as a Cadillac option in the Asia-Pacific,” said Howard Berry, Boeing’s vice president for international sales of the F/A-18 Super Hornet, which the company is currently marketing in Malaysia.
The U.S. aerospace industry’s premium export product is the
Lockheed Martin Corp.
F-35 joint strike fighter, a stealth jet designed to pierce enemy defenses and stay undetected during operations. But the F-35 is too sophisticated for most Asian buyers, which generally just want a working military deterrent, and—at roughly $125 million a plane—the plane is unaffordable to most of them.
Big-spending nations such as Japan and South Korea are the only F-35 buyers in the region, with each paying more than $7 billion for about 40 jets apiece.
“They can’t turn on a dime and suddenly come up with foreign products,” said Richard Bitzinger of the S. Rajaratnam School of International Studies in Singapore.
In sticking to their high-end strategy, the U.S. companies might be missing an opportunity to help secure their futures. Joe Katzman of U.S.-based KAT Consulting, criticized U.S. companies for “gold-plating” weapons systems to satisfy only top-end clients, while neglecting emerging markets seeking more accessible options.
“Abandoning the low end eliminates new value buyers,” said Mr. Katzman. He added that the practice cedes emerging markets to defense-industry rivals, who then capitalize 10 years down the line once those countries have fully ramped up their spending.
The U.S. companies could use a reliable growth source: The U.S. budgeted about $560 billion for defense in 2015, down from a peak of $721 billion four years earlier. During that time, revenues have stagnated at the big U.S. defense companies.
Munitions manufacturer
Raytheon Co.
, for example, reported revenue of $22.8 billion in 2014, down from $25.2 billion in 2010. Lockheed Martin booked net sales of $45.6 billion last year, the same as four years earlier.
The 10 Asean countries, meanwhile, are set to spend a total of about $40 billion this year—about the same as India—up from roughly $33 billion in 2010, and are set to spend $52 billion by 2020, according to IHS Jane’s, a defense-information company.
In some cases, U.S. companies don’t offer products in classes the Asian countries can buy. U.S. companies are missing out entirely on an Asian boom in submarines, for example, because they don’t build the diesel-fueled submarines Asian customers want. Instead they build nuclear submarines that appeal to global navies. European, South Korean and Russian submarine makers have all landed multibillion-dollar contracts for new boats in India, Indonesia, Malaysia, Singapore and Vietnam in recent years.
To be sure, U.S. companies still capture a large share of global military spending: U.S. suppliers had 31% of the world market between 2010 and 2014, according to SIPRI. And they often supply technology that underlies complex systems sold by competitors.
Emerging aircraft manufacturer Korean Aerospace Industries Ltd., for example, recently secured orders from Indonesia and the Philippines for its new T-50 trainer/light fighter aircraft—but the plane was co-developed with Lockheed Martin, and includes U.S. equipment from companies such as
Honeywell International Inc.,
Rockwell Collins Inc.
and Raytheon.
“We see the emergence of Asian [airplane manufacturers] as an opportunity, not a threat,” said Mark Burgess, Honeywell’s senior director for Asia-Pacific defense and space systems, adding that his company considers only its European counterparts as genuine rivals.
Similarly, new warships being built by Australia and South Korea have Lockheed Martin’s Aegis Combat Management System at their core.
“It just doesn’t make sense for them to try to develop a complex, expensive system like that indigenously,” Mr. Bitzinger said.
Write to Trefor Moss at
Trefor.Moss@wsj.com
U.S. Defense Firms Falter in Asia - WSJ
