Beyond offsets: From Low Cost Advantage To Global Market Entry

Indian companies planning to grow using defence offsets can leverage this opportunity for entering the global aerospace & defence business and create a sustainable competitive advantage by strategizing beyond parochial boundaries of domestic business.

Excitement has been prevailing since DPP 2005 was formulated and defence offsets were defined. Since then, every revision in DPP creates ripples of hope in the Indian industry. However, the effect of DPP(including revisions)on company financials in particular and the Indian economy, in general, is yet to be established firmly.

The prime motive of the policy is to establish a domestic defence industry and be self-sufficient by reducing imports thereby giving a boost to the economy and employment. While some companies evidently have taken first movers advantage, others seem to be caught in meeting the “low cost” expectations of their customers resulting in the creation of red oceans and depletion of the bottom line and inability to create sustainable long term business.

It is time for these Indian companies, caught in the low-cost dilemma, to formulate a long term vision, position themselves accurately in the value chain, strategize for developing core competence with the western counterpart (partner) and plan their launch in the global A&D market to reap long term benefits of universal growth and access to a much bigger market as compared to the one created by Defense Offsets only.

With my experience of working in the global A&D sector, we recommend using the following framework for devising the strategy.

Positioning:

Right positioning in the value chain is the first & most important feature of a successful strategy. Companies need to have a good understanding of global A&D markets, structure, geo-political aspects that affect business (or may affect in future), competition and value-added/profit pools associated with each positioning alternative. The main point is to evaluate the breadth and depth of the market and not limit the study to a few prime contractors and Tier 1 customers

Company Insights:

All alternatives for positioning must be evaluated with the company insights i.e. the company history, its experience and capabilities. Identification of “Capability gaps”, plan for bridging these gaps and timelines must be identified and fixed. It’s important to evaluate the learning curve of the company (in the past) and plan to make it more effective for the future keeping into consideration the global competitive scenario.

Collaboration Management:

Finding the right partner is the next critical aspect of the strategy after positioning. It’s important to understand the value the foreign counterpart brings but more important is to evaluate the value proposition that the company offers to the prospective foreign partner beyond domestic business. Once the collaboration is established, shared strategic goals need to the defined, processes for review and performance management needs to be formulated. Managing the interfaces of the collaboration is critical for continuity and effectiveness over time. A strong collaboration management capability can also bring a sustainable competitive advantage to the company.

Offset Strategy:

Once the long term goals and global strategy are finalised, the company’s offset strategy can be aligned to it. Few questions that need to be answered are: How do we use the foreign collaborator to gain an advantage over the competitors for offset business? What could be the business plan to start the direction in the correct path? Which collaboration methodology (strategic alliances/ JV/ M& A) could suit the scenario as per the policy laid by the government?

The above four-pillar framework provides basic guideline and detailed management tools for each aspect of the framework may be developed and customized to each company for devising a successful strategy. At SolutionBuggy we help industries find the right consultants to devise the best strategy for targeting the MSME segment in the A&D sector. To learn more about the framework and see how companies have benefited by implementing the same do register on our platform at www.solutionbuggy.com

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