Defense Offsets and the Coming Redistribution of Arms Production Capabilities

• In Event: Arms and Profit

Abstract

International relations and security studies scholars have long recognized that changes in arms production capabilities across states may upset balance of power and, therefore, international security. Indeed, such scholars typically rank states according to their capacity to autonomously build advanced weapon systems, while measuring states’ material power according to their military, economic, and technological capacity; and material power is historically the single most important determinant of success or failure in great power rivalries and wars. Quite surprisingly, however, the relevant scholarship has routinely failed to recognize defense offsets – that is, compensation to states for buying foreign weapons – as one of the main factors affecting states’ arms production capabilities. And yet, defense offsets often involve technology transfer and may sometimes evolve into strategic alliances or high-end and long-term technological collaborations between foreign and domestic defense companies. When doing so, I argue, offsets may significantly augment buyer states’ chances of climbing up the ladder of arms production capabilities, especially if foreign defense companies accept sub-optimal arrangements and transfer cutting-edge technology. More specifically, I argue that financially constrained bidders are increasingly willing to enter sub-optimal strategic alliances with buyer states possessing good enough technological and industrial capabilities. Tapping into new data sources, I test my theory on Brazil’s F-X2 and India’s MMRCA fighter aircraft competitions. Indeed, while India and Brazil had similar requirements, and both sought foreign collaboration for their indigenous programs, they differ quite markedly in their technological and industrial capabilities, especially with regard to military aircraft. Whereas Brazil’s defense industry can be considered innovative and highly competent, India’s develops and produces mainly lower technology equipment. Furthermore, contenders were virtually the same in both competitions. In fact, American and European majors offered the very same platforms to both India and Brazil. I find that contenders engaged Brazil’s defense industry more deeply than they did India’s, entering strategic alliances with Brazilian but not Indian companies. However, whereas smaller European defense companies accepted to enter sub-optimal strategic alliances, larger American defense companies only entered optimal ones. Hence, while largely confirming the theory, the findings suggest that arms production capabilities may redistribute from European to emerging powers.

Author

• Jonata Anicetti, Metropolitan University Prague