jams, hams, etc.—or the taking of goods, such as oil, rather than money, in payment.
Every country, including the U.S., has some form of domestic performance requirements. Even though the U.S. says it does not have an offset policy, the issue of U.S. requirements is often raised by foreign competitors.
The speaker then gave two examples of subcontracts with no direct foreign offsets. These deals require some inventive actions by the company, but do not involve technology transfer or the off-loading of production.
The speaker closed by stressing that offsets are a reality of the international business—and that the international business is very important to the company and its workers.
The second industry panelist began by stressing the importance of globalization to the industry and to his company. In this context, the term "offsets" has come to have a negative connotation of "give-aways" and ''set-asides," yet, from a businessperson's view, these agreements should be seen as a form of international cooperation. As such, any cooperation agreements must make good business sense before they are accepted. Each deal must involve a strategy, but there is no specific blueprint. There are many one-of-a-kind deals, depending on the needs of the country. Negotiators must be skilled and creative. But all deals must survive the company's rigorous scrutiny.
The bottom line for the company is that if it does not bid, not only does it lose the sale and the profit but also any aftermarket and follow-on work—which are important to sustain the business in the future. If the company wins, then the company can maintain jobs, make a profit, reduce overhead, and sustain sales in the future.
Offset arrangements are not simple deals, but require the negotiators to base their actions on a great amount of information. They may take five to six years to negotiate and may require political actions—for example, a Swiss parliamentary vote on a particular aircraft sale. Such deals are carefully monitored and reviewed by upper management. After the sale, the company must follow through on its offset agreement. Failure to do so would harm the company's long-term interests.
The use of indirect offsets is clearly increasing. Domestic sales are going down for U.S. companies, and foreign governments are increasing their requirements. This has forced U.S. companies to be more creative in their offset agreements. In one case, a foreign government wanted to develop a medical equipment industry. In response, the company could either outsource the project or work on it in-house, if it felt it had the needed expertise and resources. In another case, a European government wanted help in upgrading its police force's command and control system—which would cost the company $1 million to develop. The manager could ascertain the market value of the system off-the-shelf and then negotiate a 10 times multiplier for an offset credit of $20 million. Or the manager could argue for a higher multiplier because the cost to the foreign government to develop the system domestically would be prohibitive. If a company finds it cannot meet an offset obligation itself, it can go to an offset broker. The broker arranges for the project, possibly finding the technology, securing the license agreement, developing the market and finding the investors. In the end, the company pays the broker a service fee.
The speaker closed by stressing that the process has become very complex. As a result, the measurement of the impact is very difficult. He urged that the dialogue between different perspectives on the issue should continue.
After giving some background information on the company, the third industry panelist stated that more often than not they are involved in some form of offset in their international sales—which accounts for 40 percent of their business. Negotiations do not begin with an offset offer; they are offered when it is required to get the sale. When negotiating an offset agreement, every attempt is made to minimize the requirement in order to protect the company's domestic labor force, its established supplier base, and its core technologies. It is also important that the offset commitment be completed satisfactorily, as these companies live by their reputations.
Offset negotiations are very complex, with both sides having different goals. For example, the customers want large programs approaching 100 percent offsets; the company wants to negotiate that number down. The customers want work for their domestic aerospace industry; the company wants to spread the projects around to protect their existing supplier base by splitting the procurement or giving indirect offsets. The customers want state-of-the-art technology; the company wants to transfer older technology. The customers want assistance in export sales of their own aerospace products; the company seeks not to be involved. The customers want help in identifying and attracting investments and joint ventures; the company will enter into these types of arrangements only if it makes good business sense. The customers want general industrial benefits; the company tries to be creative. Finally, the customers want all of these benefits at no additional costs; the company wants to use training programs and other soft offsets, which cost the company little, to negotiate high multipliers for their