SOURCE: Avascent


February 28, 2012 18:15 ET

Avascent Releases New Thought Leadership on Projected Half Trillion Dollars in Worldwide Offsets Over Next Decade

WASHINGTON, DC--(Marketwire - Feb 28, 2012) - As US and European defense budgets decline, "emerging market" economies continue to grow, and exports for Western economies remain a priority, global expansion will become increasingly critical for aerospace & defense (A&D) companies. With international A&D sales likely to continue at a robust pace, offset obligations will play a greater role in revenue growth despite their being scarcely understood. To address emerging market questions around these obligations, Avascent, a leading strategy and management consulting firm, has released its latest thought leadership on the global A&D market titled, "The Half Trillion Dollar Challenge: Building Successful Global Offset Strategies."

Avascent's analysis -- the most comprehensive to date and built from the bottom up -- is aimed at bringing transparency and proven analytical business processes to a critical, but hitherto opaque and little understood, element of the international A&D marketplace. "At the Board, C level, and across business development and corporate development functions, as well as within an organization's legal and compliance organizations, firms are seeking ways to more effectively and strategically tackle the challenges of defense offsets," said Jon Barney, Partner at Avascent and co-author of this first installment on the defense offsets space.

Using Avascent's 050 International Defense Database, the report notes that defense budgets will flatten and decline in traditional US and European domestic markets, while emerging and offset-heavy international markets in the Middle East and Asia are becoming an increasingly important component of future growth forecasts for leading global A&D companies. As these emerging countries become stricter about implementation timelines and more demanding in the make-up of their desired offset output, A&D firms are struggling to develop effective plans to manage their obligations. By relegating offset details to the footnotes of a deal because of short term sales goals, a firm can endanger the agreement at hand as well as its ability to bid future projects.

"Offset policies are increasingly sophisticated and their enforcement is becoming more rigorous," cautions Christopher Meissner, Avascent Associate and co-author. "Obligor firms with strategies conceived after contract signature or lacking in analytical rigor are likely to see reduced profitability and increased exposure to business and brand risk in defense markets abroad."

The report notes that by 2016 a decade's worth of cumulative defense offsets will total a staggering half trillion dollars globally. If current success in fulfilling increasingly complex offsets is a guide, the backlog of future offsets will be the source of both significant angst and opportunity for global defense solution providers.

"These findings are the result of an innovative analytic process," explained Aleksandar Jovovic, Avascent Senior Associate and report co-author. "Avascent used its proprietary 050 decision support tool to build a comprehensive bottom-up financial model to determine the size of global offset obligations. This analysis was then coupled with a deep understanding of country-specific offset requirements."

Fulfilling offset obligations proactively and efficiently has become all the more important as key international defense customers: (1) move away from penalty payment schemes that allowed for indefinite delay; and (2) increase the value of sales subject to offsets, with some exceeding 50 percent of an awarded contract's total non-indigenous value.

Avascent's report provides quantitative data on global offsets across four key regional markets: Asia, Europe, Latin America, and Middle East / North Africa. The latter market leads the pack at an estimated $156 billion in cumulative offsets from 2005-2016 and $12 billion in 2011 obligations alone. The emerging Latin American defense market is at the tail end of the list in terms of absolute size, but displays the highest growth at a 10 percent compound annual growth rate.

In its report, Avascent provides a series of specific recommendations to firms in this marketplace. First and foremost, firms are reminded to develop a strategic and performance-driven approach to offset obligations. Achieving this requires a well-informed and supportive internal stakeholder community across various functions and an appreciation of how offsets impact project implementation and profitability. Finally, injecting business fundamentals, such as metrics and planning, into the process along with strategic approaches to the use of partners and advisors will serve firms well in this complex marketplace.

"We embarked on this effort to encourage firms to be innovative, strategic, transparent, and objective about how to discharge current and future obligations," said Jon Barney. "We appreciate that A&D firms have developed a degree of expertise and some notable success stories. The goal is to provide strategic guidance and codify these across each organization and infuse the business achievements into the DNA of each international business development and capture effort."

Avascent ( is the leading strategy and management consulting firm serving clients operating across the full spectrum of government-driven markets. Working with corporate leaders and financial investors, Avascent delivers sophisticated, fact-based solutions in the areas of strategic growth, value capture, and mergers and acquisition support. With deep sector expertise, analytically rigorous consulting methodologies, and a uniquely flexible and adaptive service model, Avascent provides clients with the insights and advice they need to operate and succeed in highly complex and dynamic customer environments.

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