Offsets cause job cuts in defence industry


A news analysis by the Financial Times revealed today that recent job cuts in Western defence companies such as BAE Systems are not primarily due to budget cuts in defence spending, but rather due to be defence hardware being increasingly built in the country of the client government.


BAE is for example building Hawk trainer aircraft for the Indian air force in India. Countries outside the EU are increasingly focusing on spending their defence budgets at home, by either assembling military equipment locally or by adding the buying of non-defence technology to the contract. According to Guy Anderson, chief analyst at Jane’s Defence Industry, offset demands from emerging countries have risen in recent years, pitting sellers avoiding technology transfers against buyers keen to promote domestic labour. “Large defence groups do not want to impart technology because that’s their heritage,” explained Ron Matthews, defence economist at Nanyang Technological University. “For the recipient countries that’s what they want, because they see offsets as an opportunity to technologically leapfrog various stages in the production and development cycle.” Developments in European law, however, limit the possibilities for European companies to use market-distorting measures such as civilian offsets, i.e. investment in the purchaser country’s civilian infrastructure by defence contractors. Offsets remain politically highly attractive, in spite of a European drive to end the practise.


The EU’s drive on defence and security technologies will be discussed at the SDA’s upcoming SecDef conference.