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An Analysis of Second-Tier Arms Producing Country Offset Policies: Technology Transfer and Defense Industrial Base Establishment

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An Analysis of Second-Tier Arms Producing Country Offset Policies: Technology Transfer and Defense Industrial Base Establishment Air Force Institute of Technology AFIT Scholar Theses and Dissertations Student Graduate Works 3-27-2008 An Analysis of Second-Tier Arms Producing Country Offset Policies: Technology Transfer and Defense Industrial Base Establishment Brian S. Confer Follow this and additional works at: https://scholar.afit.edu/etd Part of the Defense and Security Studies Commons Recommended Citation Confer, Brian S., "An Analysis of Second-Tier Arms Producing Country Offset Policies: Technology Transfer and Defense Industrial Base Establishment" (2008). Theses and Dissertations. 2873. https://scholar.afit.edu/etd/2873 This Thesis is brought to you for free and open access by the Student Graduate Works at AFIT Scholar. It has been accepted for inclusion in Theses and Dissertations by an authorized administrator of AFIT Scholar. For more information, please contact [email protected]. AN ANALYSIS OF SECOND-TIER ARMS PRODUCING COUNTRIES OFFSET POLICIES: TECHNOLOGY TRANSFER AND DEFENSE INDUSTRIAL BASE ESTABLISHMENT THESIS Brian S. Confer, Captain, USAF AFIT/GRD/ENV/08-M03 DEPARTMENT OF THE AIR FORCE AIR UNIVERSITY AIR FORCE INSTITUTE OF TECHNOLOGY Wright-Patterson Air Force Base, Ohio APPROVED FOR PUBLIC RELEASE; DISTRIBUTION UNLIMITED “The views expressed in this thesis are those of the author and do not reflect the official policy or position of the United States Air Force, Department of Defense, or the United States Government.” AFIT/GRD/ENV/08-M03 An Analysis of Second-Tier Arms Producing Countries Offset Policies: Technology Transfer and Defense Industrial Base Establishment THESIS Presented to the Faculty Department of Systems and Engineering Management Graduate School of Engineering and Management Air Force Institute of Technology Air University Air Education and Training Command In Partial Fulfillment of the Requirements for the Degree of Master of Science in Space Systems Brian S. Confer, BS Captain, USAF March 2008 APPROVED FOR PUBLIC RELEASE; DISTRIBUTION UNLIMITED AFIT/GRD/ENV/08-M03 An Analysis of Second-Tier Arms Producing Countries Offset Policies: Technology Transfer and Defense Industrial Base Establishment Brian S. Confer, BS Captain, USAF Approved: _______--signed--___________________________ 27 Mar 08 Alfred E. Thal, Jr., PhD (Chairman) Date _______--signed--___________________________ 27 Mar 08 Michael T. Rehg, PhD (Member) Date _______--signed--__________________________ 27 Mar 08 Patrick D. Kee, Lt Col, USAF (Member) Date AFIT/GRD/ENV/08-M Abstract The purpose of this thesis is to determine if offsets are an effective means of second-tier countries acquiring technology and if offsets enhance their ability in establishing and maintaining an industrial base capable of producing high-technology weapons for use indigenously and for export. Included in the research was an analysis of factors that lead to the successful or unsuccessful technology transfer through the utilization of offsets. Additionally, the research analyzed the factors that lead to the successful or unsuccessful establishment and maintenance of an indigenous defense industrial base through the utilization of offsets. It was concluded that the utilization of offsets to achieve technology transfer has not substantially improved the technology levels of the buyer’s defense industrial base. Furthermore, countries that utilize offsets to establish an autarkic defense industry capable of independent production rarely succeed while countries that utilize offsets to integrate their industry within the global arms mar ket as a niche supplier have been successful. iv Table of Contents Page Abstract .............................................................................................................................. iv Table of Contents .................................................................................................................v List of Figures .................................................................................................................... ix List of Tables .......................................................................................................................x I. Introduction ......................................................................................................................1 Background...................................................................................................................3 Problem Statement ......................................................................................................11 Research Questions ....................................................................................................11 Methodology...............................................................................................................12 Limitations ..................................................................................................................13 Importance of Topic ...................................................................................................13 Overview ....................................................................................................................13 II. Literature Review ..........................................................................................................15 Defining Offsets .........................................................................................................15 Implementation Methods ..................................................................................... 17 Operational Definition ......................................................................................... 19 Direct and Indirect Offsets .................................................................................. 20 History of Offsets .......................................................................................................21 Cold War Offsets ................................................................................................. 22 Post Cold War Offsets ......................................................................................... 25 v Page Characteristics of Offsets ...........................................................................................27 Increasing Use of Offsets .................................................................................... 28 Increasing Value of Offsets ................................................................................. 28 Offsets Often Determining Factor in Contract Award ........................................ 30 Aerospace Sector Focus of Offset Activity ......................................................... 32 Offsets Paid for by Purchasing Country .............................................................. 32 The Global Arms Market Structure ............................................................................36 Increasing Globalization of Defense Industry ..................................................... 37 Defense Industry Consolidation .......................................................................... 38 Three Tiers of Arms-Producing Countries .......................................................... 39 United States Domination ................................................................................... 40 U.S. Competitors ................................................................................................. 42 Influence of Economic and Political Factors ...................................................... 42 Offsets in the Global Arms Market ............................................................................44 Objectives in Demanding Offsets ........................................................................ 44 Economic Development Strategy ........................................................................ 48 Poland Offset Program ........................................................................................ 50 The Economics of Offsets ................................................................................... 53 National Security Priorities and Free-Trade ........................................................ 55 Foreign Domestic Preference Requirements ....................................................... 59 Search and Switching Costs ................................................................................ 62 Imperfect Information ......................................................................................... 65 vi Page Technology Acquisition and Utilization ....................................................................66 Defense Industrial Base Establishment and Maintenance ..........................................69 Increased Self-Sufficiency .................................................................................. 69 Arms Export ........................................................................................................ 72 Efficacy ............................................................................................................... 74 Case Studies ........................................................................................................ 76 III. Methodology ................................................................................................................83 Overview ....................................................................................................................83 Justification for Methodology ....................................................................................84
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