BIOG
Offset and Countertrade are umbrella terms for a wide range of commercial mechanisms for reciprocal trade. Offset is, in essence, a form of industrial compensation to the local industry of the country concerned, to counterbalance the placing of the contract with an overseas firm. The key feature is a commitment from the contractor involved to the country purchasing the goods to undertake to purchase goods from that market in return. It was estimated in a report undertaken in 2000 on behalf of Trade Partners UK, that possibly anything up to 40% of total World trade may well be offset/countertrade related. The figure in the defence sphere for work which is affected by offset is undoubtedly much greater than this.
The importance of offset in the global defence trade has been growing over the last two decades. Today most developed and developing nations around the World have some sort of Offset programme, either to protect their own defence industries, or to assist in the further development and enhancement of burgeoning indigenous defence industrial capabilities. In the modern defence business world offset has become an essential part of any proposed defence equipment package, with many nations increasingly paying great attention to the offset proposals contained within proposed suppliers' packages. Frequently, offset packages can be the determining factor in the decision making process of to whom contracts should be awarded. It is known that in some countries it is the details of the offset packages put forward by competing contractors which is looked at and assessed first, even before other parts of the tender are examined or even looked at. This fact has been recognised by the US Department of Commerce, which stated in its Fifth Annual Report to Congress on Offsets in Defense Trade, published in May 2001.
"Some governments readily admit that they are no longer concerned with the price or quality of the defense system purchased, but rather with the scope of the offset package offered. Recently, the Czech Republic announced that in competition for its jet fighter procurement, offsets would be the deciding factor as opposed to technical and performance criteria and price."
Offset does not just affect the prime contractors who win the contracts which result in them entering into the offset obligations. Increasingly, "lower-tier suppliers" are being asked or required by their primes to assist them in meeting their obligations and to accept a proportion of the obligation being filtered or cascaded down to them. Also, the offset thresholds used by nations can vary enormously, and be set at values which will encompass not just major procurement programmes for capital systems, but also projects and items of lesser value-for instance the threshold in the Netherlands equates to c.£300,000. In an era in which prime contractors around the World are seeking to reduce, rationalise and consolidate their supplier bases, sub-contractors who demonstrate a willingness to assist in meeting offset obligations, and innovative approaches to doing so, are likely to be viewed as much more valuble partners by their customers.
Whilst many companies perceive offset in generally negative ways, those firms who do not view it merely as a chore, but as an opportunity, can be quite positive about the benefits that can result. Without putting together adequate offset proposals as part of overall packages, increasingly contracts will be lost to others who will undertake this more effectively. Thus, it is essential for companies to continue to make best use of offset when bidding for contracts, and to satisfy their offset obligations when contracts have been entered into, for them to continue to succeed in the highly competitive defence export market. Offset is now such a vitally important issue for defence exporters, that a new, specifically offset-focused e-business internet website has been created in an international initiative called e-offsets.com to facilitate business which is offset-related and allow obligors to get the maximum benefit from their obligations.
In recent years British Industry has won some 20-25% of the World Defence Export Market per annum, and currently some 40% of the UK's defence industrial production is for export. A huge proportion of these export deals have resulted in the British firms involved having to enter into Offset obligations. This, given the proportionately smaller size of the UK Defence Industry compared to that of the USA, has resulted in a considerable burden on the British Defence Industry. However, in direct antithesis of the situation in the USA, there is little support in the UK for the notion that Offsets can ever be "killed off". Instead, there is recognition that Offsets are a reality, and are not going to go away, no matter how much they may be condemned publicly in supplier nations.
Taking a positive and pragmatic attitude, UK Industry has established, operating under the joint auspices of two of the largest defence-related national Trade Associations, the Defence Manufacturers Association (DMA) and the Society of British Aerospace Companies (SBAC), a special interest group to facilitate the exchange of offset knowledge and expertise within industry.
The British Defence Manufacturers Offset Group (BDMOG) is a networking organization which allows its Members to share in knowledge of Offset policies around the World, and how to deal with them, and its knowledge base now encompasses some 90+ countries. The BDMOG was established in April 1990, to address the vital issue of offset. The BDMOG contains within its Membership, and that of it's Executive Committee, all of the major UK defence contractors who are active in offset.
The networking opportunities that BDMOG creates can be invaluable in assisting companies who are new to offset in general, or to the specific offset regulations in a particular nation, to obtain free advice and guidance from other, more experienced British firms. This can, and does, save companies especially smaller firms with limited resources, considerable time, effort and money in trying to come to terms with offset around the World. Thus, the BDMOG can provide a positive advantage to UK Industry in doing business around the World. The potential vast wealth of knowledge, contacts, experience and expertise on offset matters around the World that is available from the BDMOG can be of enormous assistance to UK companies.
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