Developing Local Defence Industries.

[Ananda]

Hi Guys,

I'm opening new thread on developing local defence industries. I'm a banker in Indonesia, and my banks now facing some challenge from the government on developing the mechanism for commercial banks financing local defense industries here.

Sorry if the simmillar subjects have been discussed before, but I'm interested on realistically commercial wise how long and how big we have to invest on getting self sufficient defense industries.

Right now in Indonesia, there are several defence industries that based on developing countries capabilities, they do posses realistic skills and know how to develop. The questions always how realistically the money should be invest and what kind of commercial return can be expected.

Defence industries questions can not be seperated with the political need for a country to be self sufficient on their defence equipments. Also other arguments on as medium for developing technological based, since it's argued that the majority of advance technology that's been created by any human civilizations comming from defence related requairements.

Right now if comparisons we take to China and India for instances. It can be argued commercial wise the Chinese defense industries more adaptable than Indian ones. In fact several Indian bankers that I've talking to said no Defence Industries in India are commercially survivable. As much as they said that as bankers they will only financed them only based on strict Government guarantees.

Technological base, no one can argue India can develloped advance defence equipments locally, however coomercial wise, outside Indian government, they can not find significant other buyers that can made them self sufficient. While Chinese ones, despites also have heavy government expenditures, but can found more buyers to help them covering their expantions cash flows.

Perhaps what I really want to discussed is what's the need for any defence industries to survive outside rellying on their government expenditures and consumptions. Or any financing for them still needs to rely with government guarantee.
Hope some input can be given. Thanks in advances.

 

[dragonfire]

Right now if comparisons we take to China and India for instances. It can be argued commercial wise the Chinese defense industries more adaptable than Indian ones. In fact several Indian bankers that I've talking to said no Defence Industries in India are commercially survivable. As much as they said that as bankers they will only financed them only based on strict Government guarantees.

Technological base, no one can argue India can develloped advance defence equipments locally, however coomercial wise, outside Indian government, they can not find significant other buyers that can made them self sufficient. While Chinese ones, despites also have heavy government expenditures, but can found more buyers to help them covering their expantions cash flows.

Perhaps what I really want to discussed is what's the need for any defence industries to survive outside rellying on their government expenditures and consumptions. Or any financing for them still needs to rely with government guarantee.
Hope some input can be given. Thanks in advances.

While what you say about Private Defence Contractors/ Firms was true till a few years back, things have started to change now, however it has not changed to an extent where small players can do much on their own. Large players like the Tata's and L&T & Godrej amongst others have been doing some work, the most recent one being the hull of the Ultr Secret Indian Nuclear submarine's hull being built by L&T, IIRC there was a symposium on which the topic was dicussed and the there were very frank inputs which came in that Private players in Indian Defence Industry have to enter into the sector carefuly and not to expect returns in less than 10 years time frame. India's own firms like HAL, research agencies like DRDO, ADA, and others like BEML, BHEL etc are often at logger heads with the Buraucrats at the Ministry of Defence and the technocrats (loose term here) at the Defence Services. Apart from the firms mentioned above logistical products are continuously sourced from Private Automobile firms like Maruti Suzuki, Mahindra & Mahindra, Tata Motors etc.

Well with Defence Industries the thing is that more often than not the only buyer is the Govt. Which is why Banks ask for gurantees which is psuedo gurantee that the firm has got a order for the Firm's products, Given the Indian scenario there are only two kinds of players from the private sector 1. The really big guys with deep pockets who can spend money on R & D, develop a product line and compete with other firms as well as public/ govt agencies in securing orders and 2. The SME segment or the fringe players who work on cost advantage models like component manufacturing, tooling, not developing products but rather having the capability to produce from existing designs at a cheaper rate without compromising on quality, there are several players who are too small to be recognized (less than 10 Mill $ annual revenue) for e.g. The bulbs on the fighters wings were imported till the same was produced localy in India by a small firm - the order was given to the firm as it could manufacture the same in the same quality at a much desirable price as well as had the dual advtg of saving foriegn currency

All said and done it is much better to have private sector participation in defence technology, it's good competition

my 2 Cents worth

 

[GI-Gizmo]

Turkish Defense Industry . . .

Turkey has been very succesful in developing a national defense industry. Their unique
situation forced them to become self sufficient in manufacturing certain armaments.
They build good small arms, armored vehicles, communications equipment, radars, aircraft equipment, powerplants and UAVs. I know your more looking to discuss why it is important for nations to develop defense industries if they dont turn into profitable endeavors.

 

[Ananda]

Thanks guys for the info and insight. Off course the questions not only to build the defence industries that can delivered quality products, but also profitable ones. Like in Indonesia, the defence industries off course still dominated by government owned industries in which three:
1. Pindad whose specialize with land base defense equipments,
2. Pal whose specialize with Naval related products, and
3. DI/Indonesian Aerospaces.

Commercialy DI which at one time togehter with Casa produce a respectable light transport CN 235 is the most difficult ones to developed on commercial bases. Pindad and Pal on the other hand have more future commercially due to Pindad abilities to begin on increasing number exporting it's small/light armed products, while Pal cash flows mostly comming from its commercials products, in which can cross subsidise the maintanance on naval manufacturing facilities.

Off course most chuncks of R&D has to be provided by governments budgets. And we off course know that for at least another decade any financing from the banks for local defense industries wil need strict government guarantee.
And that's the problem in here arrises. The banks will be reluctance on financing products that's not really proven. In sense Banks have relluctancy providing financing for new projects (even with large tot) if the industries has not show proven records on producing them. In sense banks only willing to finance the development/next stages of proven products (already becoming cash cows).
Outside from that, they will askes for 100% guarantees from government budgets, which will put difficulties by government budgets which have to commit on large amount of off balance sheet guarantees.

From banks persepectives, they want the Industries developed from proven based. For examples, for naval shipyards, they have to build their products begining with technologies that have simmiliarities with their commercial products. For instances LPD have many common modules with Bulk freighthers or Ro-ro passanger ships. Fast attack boats can be developed from commercial lines of big yacht.
In the same time the defense indutries and the need from the Armed forces demand they have to ventures to new teritories like submersibles or large frigates/destroyers in which the technological modules already far from commercial ones and finnacially much riskier to developed.

Perhaps some insight and info, do you think building developing defense products from commercial related modules, can give the industries the know how they need to jump start their capabilities on more complex products ?

For banks perspectives we want to partnered with Industries that can show they have sustainable development stages, rather than industries that race to catch up in technology but show difficulties to commercialy sold their products outside the government orders and in the end used up most of their capital and resources for the projects that commercially dead end, in the expenses of the other products which already more proven commercially.

 

[tphuang]

You have to do this slowly, create a good business enivronment for local firms, try to get foreign multi-naitonals to come and invest in your country. Form joint ventures between local companies and foreign companies to get access to modern technology. After that, it's a matter of applying modern design principles and technology to develop defence industry. Also, remember that developing for civilian sectors is not the same as for military sectors. So, it takes time to really reach the world leading level. And, the most important part is that you need a big domestic market. If you don't have that, it's really not feasible to develop one.

 

[Ananda]

You have to do this slowly, create a good business enivronment for local firms, try to get foreign multi-naitonals to come and invest in your country. Form joint ventures between local companies and foreign companies to get access to modern technology. After that, it's a matter of applying modern design principles and technology to develop defence industry. Also, remember that developing for civilian sectors is not the same as for military sectors. So, it takes time to really reach the world leading level. And, the most important part is that you need a big domestic market. If you don't have that, it's really not feasible to develop one.

TP, actually your view is also the view that initially we (the banks) think for. It works on our commercial industries, but can it work to defense ??

In here the defense industries predominantly government owned. Which in our tastes show commercially inefficiencies at such that we deemed under present conditions will be difficult to relinquished from perpetual government subsidies.

From previous comment I already mentioned that we look the model from what happen on Indian defense industries and Chinese industries. As we see commercially Chinese ones more success than Indian, we also noted that it's also supported by the level of local military support.

In sense (at least from our reading), Indian military show quite hesistancy on using local products if can't meet standard from established players in west and russia. While Chinese military seems willing to accept initial products with less standard as long as the industry can show the ability to catch up technologicaly and on quality further on. On other word chinese military willing to support their industries developing on quantity bases in order for them have the neccesary resources to developed quality bases further on.

Do you think this perspectives have merits ??

 

[Ray17]

It is not that Indian defence industry cannot find buyers.

It is just that it is against the Govt policy to export weapons.

 

[dragonfire]

It is not that Indian defence industry cannot find buyers.

It is just that it is against the Govt policy to export weapons.

Really, but we did sell those Dhruv's to ecuador ? Also why would the govt have a prob in selling defence equipment if there are buyers for weapons we can sell ?

 

[soldier tech]

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