From his office in Southern California, Joseph Song, vice president at Boeing Defense, Space, and Security, oversees the development and execution of Boeing’s biggest defence campaigns in the Asia-Pacific, straddling the interests of both policymakers in Washington and buyers in a region that makes up about 50 percent of the company’s international revenue derived.
Boeing, like many Western military exporters, is repositioning itself to compensate for future declines in defence budgets in the European Union and the United States. According to Song, this has increased the importance of the overall international sector at Boeing. ‘Seven years ago, international business wasn’t a big concern for Boeing,’ Song says. ‘It was approximately 7 percent of our revenue. Since then, we’ve shifted and it has grown to 17 percent of our revenue.’
‘Our goal is to get that number to 25 percent in the next several years,’ he says. ‘We need to be more global.’
Given the strong economic growth and substantial increases in defence spending across the region over the last few years, Song believes the Asia-Pacific will play a significant role in meeting that immediate target. Looking further ahead, the region is likely to continue to grow in importance, for the next 10 to 15 years at least, as economic and military power starts to ‘shift from West to East.’
Across Boeing’s portfolio of products and services, Song believes that the largest share of defence spending will continue to be devoted to core platform products. In aviation terms, this refers to fighters, transports, and helicopters. However, Song believes that emerging issues, including non-traditional security issues, are creating adjacent markets where Boeing must be positioned to compete and win. These include cyber-security, energy management and maritime security. He believes that the products and services designed to meet these needs will be particularly appealing to Asian customers, who tend to be ‘more savvy’ in their defence purchases.
Using Singapore as an example, Song believes that energy management and cyber-security will be of particular interest. He says these are actually linked, as the importance of a secure energy grid will be of strategic importance to the national security interests of all countries.
In the short-run, though, Boeing is focussed on selling major platforms to key partners across the region, including:
Australia – Boeing recently delivered five more Super Hornets, and sees future possible opportunities.
Japan – The company intends to submit its proposal for Japan’s next-generation fighter in September. Song says he believes that Boeing is in a strong position, and expects the initial proposal review to be completed in December.
Malaysia – Boeing has made a significant investment in pursuing the country’s acquisition of multi-role combat aircraft (MRCA).
South Korea – A contract for 36 attack helicopters.
Boeing’s success in these markets will be critical for the national security interests of both the United States and their Asia-Pacific partners. For example, the next generation fighter competitions in Japan and South Korea are designed to replace 40+ year-old platforms (F4/F5) that are well past their original expected end of service date.
To win many of the contracts, Boeing will need to balance its immediate business interests with its long-term strategy. In Asia-Pacific, the majority of buyers will require joint ventures, strategic partnerships, and/or offshore Boeing entities to facilitate technology transfer. In response, Boeing is deepening relationships with existing partners, including Mitsubishi Heavy, Fuji, Kawasaki, ST Engineering, and Korea Aerospace Industries. It also has established an offshore subsidiary, Boeing Defence Australia, which is developing products being market directly to Australia and in the future to other countries in the region.
Song says he believes that international alliances will help to differentiate Boeing from other players in the market. For example, with respect to the KFX programme, Song even acknowledges that they have reached out and expressed interest in working with their existing Korean partners to deliver the solution. He says that the range of product and services portfolio also matters. From Song’s perspective, in Asia-Pacific, it’s as much about what you can bring to the discussion as much as what you can sell – the One Boeing relationship.
Another major differentiator will be the synergies between Boeing commercial and defence. ‘Boeing is in a better position than anyone else to compete around the world. Anywhere our employees go, we show a Boeing badge and customers do not think of us as defence or commercial,’ Song says. ‘Look at India, a market where we had no presence six years ago. Our Boeing commercial ties helped open the door for C-17 and P-8 sales there. Now, India is a very important country for Boeing.’
While Song is responsible to Boeing’s shareholders and investors, his division’s success or failure almost certainly will ultimately also have a major impact on the US economy. As the largest exporter in the United States, hundreds of thousands of jobs are dependent upon these sales. In the midst of difficult economic times, their importance will be a key consideration for US policymakers as they seek to jumpstart the economy.
While recognizing the challenge Boeing and others will face from emerging Asian military exporters, one Congressional staffer I spoke with assigned to the Senate Armed Services Committee believes that the US defence sector, including Boeing, has less to fear from upstart competition than many other traditional players. The reason: US technological superiority.
The key long-term challenge for Boeing therefore may not be closing deals, but rather maintaining its technological edge while expanding its footprint through joint ventures and strategic investments across Asia-Pacific.
Eddie Walsh is a freelance journalist and academic based in Washington DC. His work has been featured by ISN Insights, The East Asia Forum, The Jakarta Globe, and The Journal of Energy Security. He is currently DC / Pentagon correspondent for The Diplomat and recently completed post-MA coursework at The Johns Hopkins University SAIS. He can be reached at [email protected].