CHAPTER FIVE

MARKETING AND EXPORT FACILITATION

INTRODUCTION

The decline in capital spending by the DoD and the consequent decline in the purchase of defence products, services and R&D spending have made it uneconomic to maintain the strategic technologies and capabilities required by the SANDF within the local industrial base. Internationally, companies export in order to achieve efficient economies of scale and they use exports to generate additional funds for R&D. Exports also assist companies to become internationally competitive. The export base can also be expanded by entering into joint ventures with international partners.

The DoD has accepted that it will have insufficient funding to maintain the required strategic technologies and capabilities within local industries. In order to survive, the local industry will have to become internationally competitive. To sustain or develop the required technologies and capabilities, the local defence related industries will have to increasingly rely on exports and joint for funding.

The White Paper on Defence recognises this principle, and states explicitly that the defence related industries must have access to international markets in order to facilitate cost-effective performance and to reduce the unit costs of producing items for the SANDF (Chapter 8: par. 4). Government will support the export initiatives of the defence related industries by permitting it to contract and honour obligations which have been duly approved. (Chapter 8: par. 11).

REQUIREMENT FOR GOVERNMENT ASSISTANCE AND SUPPORT

Due to the nature of defence business and related control measures, armament user systems, at the level of product subsystem and above (see Table 2.4 in chapter 2), can only be sold to governments. These governments will only buy from those countries which they are confident will support the systems over its full life-cycle. The life-cycle of a system could be as long as 50 years and many purchasing countries also require government guaranties. Departments of State dealing in foreign affairs therefore play a significant role in deciding where to buy and where to sell. In many instances, arms purchases, sales, logistic support and services (or the withholding thereof) becomes an integral part of foreign policy.

Armaments are high value and therefore expensive goods. Sales often require specialised finance arrangements, soft loans or even free or subsidised supply out of existing defence stocks. Financing and contract finalisation may involve complex government to government initiatives and agreements.

Industrial participation or counter trade/offset commitments are the norm and governments purchasing armaments or related equipment require detailed industrial participation plans. International joint ventures, investment in local industry, technology transfer, immaterial property rights and similar business activities require extensive involvement by both the purchasing and selling countries.

Armaments are exclusively designed and manufactured to specific user requirements. The original user requirement is usually defined by the domestic defence force. Other prospective purchasing defence forces need to interact with the domestic defence force to determine the philosophy behind the design, the performance and the doctrines related to the use of the equipment. The buyer also requires confirmation of user satisfaction, quality assurance, safety clearance certification and similar information from the domestic defence force and not only from the supplier or manufacturer. This entails close co-operation between the manufacturer or service supplier, the domestic defence force and the foreign defence force, foreign companies and foreign service suppliers.

Governments therefore actively assist with the international marketing of armaments and actively support specific marketing initiatives by their local defence related industries.

Participation in international armaments and related equipment shows and exhibitions display the services and products of a supplier company and the domestic defence industrial capabilities to the international market. The prospective clients at these events include both military personnel and related industry. Domestic user participation, co-ordination and normal government export support measures require government involvement.

Foreign marketing and sales of armaments and related equipment, especially in the case of sub-sub systems, components and materials (see Table 2.4 in chapter 2) can also take place directly between companies. The South African Department of Trade and Industry (DTI) has generic industrial measures in place to support local industry exports in these types of initiatives and ventures. These technologies and products, if classified as armaments in regulations, are also still subject to various arms control mechanisms and procedures.

STAKEHOLDERS

The following stakeholders should be involved in the successful marketing and export of defence systems, products, technologies and related equipment, especially when marketing is aimed at a specific government:

• The Head of State and other high profile politicians.
• The Department of Defence (DoD), including the acquisition agency (Armscor).
• The Department of Foreign Affairs (DFA).
• The Department of Trade and Industry (DTI).
• Organised industry.
• Local companies.

PRINCIPLES APPLICABLE TO MARKETING FACILITATION AND ASSISTANCE BY GOVERNMENT

Rigorous, focussed, co-ordinated and visible government involvement is necessary for the successful marketing of South African armaments and related equipment and services. Government will assist the defence related industries by facilitating those initiatives that support strategic defence technologies and capabilities. Government will also specifically support those industry initiatives which are supportive of existing or identified political initiatives and broader industrial policy and initiatives.

The support required will vary from tacit support by government officials and politicians to high levels of involvement, depending on the particular marketing initiative. Defence related industries require:

• Efficient and rapid decisions with regard to exports.
• Arms export policy and procedures that are transparent with respect to criteria and decisions, are consistent, predictable and transparent, are sustainable in terms of domestic and foreign policies, and protect government, company, client and commercial confidentiality.

14. Government must will ensure that its involvement in marketing initiatives is focussed, and in support of political, economic and military objectives.

15. Specific principles applicable to DoD marketing assistance and facilitation are:

• Requests for DoD personnel to assist in demonstrations, training, shows and exhibition, must not indicate personnel by name but rather the type of person, experience, qualifications and attributes.
• Companies utilizing DoD personnel as discussed above, will be required to pay direct sustenance and travel costs which will be administered by Armscor.

16. DoD support to defence related industries will be based on a value system determining priorities and the availability of resources. This value system will take, inter alia, the following into account:

• The track record of the requesting company, its accreditation, and other relevant information.
• The quality of products, technologies or services offered.
• The potential success of the initiative.
• The extent to which the initiative supports the DoD’s own requirements.
• The level of value added in South Africa.
• The magnitude of the project.
• The strategic value of the company, technology or product.
• Flagship products.
• The economic value of the initiative.
• The political value of the initiative.

FACILITATION AND ASSISTANCE MEASURES

The following facilitation and export measures will be considered by government:

• Focussing, co-ordinating, integrating and facilitating industry and government defence related market information and research, including strategies and plans to initiate and monitor defence related marketing initiatives.
• Funding financial support measures which may range from normal DTI export support to DoD and Armscor financial support for specific marketing initiatives, such as renting of floor space at a South African pavilion at international defence related shows and exhibitions.
• Providing export credit insurance, as well as insurance against permit status reversal/overturn or non-performance by local suppliers. This is commonly termed sovereign risk.
• Facilitating, supporting and co-ordinating industry participation in international and national defence related shows and exhibitions.
• Providing facilities, equipment and personnel for the demonstration of existing SANDF equipment to prospective buyers, in accordance with approved marketing support plans.
• Facilitating local industry exposure to prospective users during visits by foreign military delegations, as well as visits by foreign military delegations to local defence related shows, exhibitions, demonstrations and exercises.
• Involving the domestic defence related industry in visits by incoming and outgoing political and industrial delegations, specifically where areas of mutual industrial or political benefit are identified and where industry may become involved in military co-operation.
• Identifying and facilitating defence industrial involvement and interests in government to government agreements, especially in respect of MoD Memoranda of Understanding and Memoranda of Agreement.

ROLES OF THE VARIOUS STAKEHOLDERS

Fundamental to sound marketing support is the function of managing marketing support. This support function is executed by various parties within the MoD/DoD with the involvement of government departments and industry, recognising areas of responsibility and expertise. Although responsibilities are delineated, in practice the parties will operate holistically in order to optimise support.

The primary roles of the parties involved are defined as follows :

Industry

• The marketing, sale and after-sales support of products.
• Define marketing support requirements and major marketing programmes.

Departmental Acquisition and Procurement Division (DAPD) including Armscor.

• Inter-governmental and industry marketing support co-ordination.
• Managing marketing facilitation and support to the defence related industry.
• Providing support and facilitation in respect of the marketing master plan and other authorised marketing plans.
• Providing military equipment, facilities and personnel to participate in defence related shows, exhibitions and demonstrations.
• Facilitating local industry exposure to prospective users, inviting foreign military dignitaries for courtesy visits and to local defence related shows, exhibitions, demonstrations and exercises.
• High level personal support by the Minister of Defence and senior staff for marketing initiatives.
• Involving local defence related industry in incoming and outgoing military delegations, specifically where areas of mutual industrial or military co-operation are identified.
• Identifying marketing opportunities for the defence related industries.
• Identifying and facilitating industry involvement in government to government agreements, especially in respect of Ministry of Defence Memoranda of Understanding and Memoranda of Agreement.
• Recruiting support to execute marketing initiatives.

The DoD should delegate the following marketing facilitation functions to the Marketing Support Board (MSB):

• Supplying support and infrastructure to co-ordinate and manage DoD assistance to marketing initiatives.
• Administering industry’s requests for government support.
• Facilitating DoD corporate division’s support in accordance with MSB decisions.
• Co-ordinating the gathering, interpretation and dissemination of defence related marketing information and intelligence.
• Co-ordinating and facilitating promotional initiatives, especially when large numbers of companies are involved.
• Facilitating the handling of inward and outward military delegations that can lead to possible marketing initiatives.
• Administering, in conjunction with organised defence related industries, the handling of inward defence related industrial delegations by authorising visits to industries involved in sensitive work and arranging interviews with key DoD personnel.
• Briefing, in conjunction with the DoD and organised industry, of South African foreign missions as well as inward and outward military and industrial delegations on the capabilities of the local defence related industries.
• Managing processes that compile, implement and monitor marketing strategies and plans.
• Marketing and selling surplus defence equipment in co-operation with industry.

Department of Trade and Industry.

• The provision of specific marketing information.
• Providing routine, generic export assistance and support as available to the broader industrial base.
• Providing assistance to South African trade counsellors stationed in foreign countries.

Department of Foreign Affairs.

• Providing political support and advice on specific countries.
• Assisting the defence related industries via diplomatic channels.
• Providing marketing information.

CO-ORDINATION OF EXPORT MARKETING FACILITATION AND SUPPORT

Where coordinated government support is required in respect of marketing initiatives supporting the DoD’s strategic requirements, DAPD and Armscor should manage and co-ordinate industry and government initiatives. They should concentrate on supporting those industry initiatives that support their requirements to retain and develop strategic technologies and capabilities. Other initiatives that support national industrial policy and the broader industrial base, should be noted by the DoD and co-ordinated with, or passed on, to DTI.

The DoD will facilitate the planning and implementation of government support to defence related industries related marketing initiatives by appointing and managing a Market Support Board (MSB). The aim of this board will be to:

• Initiate export marketing facilitation and support policies, processes and procedures.
• Translate the DoD’s strategic technology and capability requirements into marketing and exports initiatives. Cognisance must be taken of DTI’s plans and initiatives. These requirements must be integrated into defence related industry’s initiatives, capabilities and expectations, as well as arms control policies.
• Identify strengths, weaknesses, opportunities and threats relating to these initiatives.
• Initiate the preparation and approval of a government/industry marketing master plan for those initiatives that require government support or co-ordination. This plan must clearly spell out the roles and actions of the various stakeholders.
• Monitor the implementation of the plans and initiatives.

Composition of the Marketing Support Board (MSB)

The MSB will have representatives of all the major stakeholders. Its composition is indicated in Table 5.2.

LINKAGE TO ARMS CONTROL MECHANISMS

The established South African arms control bodies regulate and control the marketing and sales of armaments in accordance with local and international regulations and norms. These arms control policies and mechanisms are described in more detail in the next chapter.

Table 5.2: Structure and Composition of the MSB

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