The Other Reason for Global Sourcing: Offset Requirements in Action

When I talk about global sourcing to an audience for the first time, I often like to ask the question: why? Inevitably, the first response is always about the cost savings involved. But there are many reasons to get involved in global sourcing, and cost is just one of them. In fact, within A&D, as a great survey article that I recently reviewed pointed out noted, offset requirements can entirely drive the need to identify and work with new sources of global a supply. A more recent article in an Indian publication shows why, in fact. According to this piece, India's upcoming purchase of 126 combat aircraft from a major defense OEM stipulates that "the sourcing of half of the contract from India in order to enlarge the aircraft manufacturing base in the country." Now for an advanced defense contractor supplying this large order, I'd be more concerned about identifying and developing an entirely new set of regional suppliers than I would about saving a few margin points.

But the big questions right now is what region and provider will ultimately win the contract and will their local procurement know guide them to victory? For Russia, "a win would pave the way for a bigger share in non-traditional markets, where it has started scoring successes, as well as further consolidate its defence ties with India ... [And] for the two American competitors -- Lockheed Martin and Boeing -- the tender would pave the way for the U.S.' biggest ever entry into the Indian defence market." Personally, I'd bet a bottle of vodka on the Ruskies winning the contract if they can meet the local offset requirements, given North America's closer historic ties to Pakistan's military.

Jason Busch

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