Echoes across the Pond: Understanding EU-US Defense Industrial Relationships

Abstract

This report represents the authors efforts to provide a useful, albeit partial, understanding of the international defense marketplace which we view as changing toward increasing complexity. In pursuit of that objective, we provide a brief overview of international defense markets in the context of both changes in military affairs and the various defense industrial bases. In analyzing the defense market, we essay multiple analytical frameworks (along the lines of Essence of Decision). Our analytical models are (a) a sophisticated view of offsets in a public policy context with market imperfections, (b) transaction cost economics with our unit of analysis being the nation-state instead of the firm, and (c) two standard corporate strategy models. To test the models explanatory powers, we consider three ongoing cases: F-35 Joint Strike Fighter, the UK Defence Industrial Strategy, and the Northrop Grumman-EADS KC-30 proposal. Interestingly we find all three hypotheses have some explanatory power, but none of the three is demonstrably better than the others (in this small sample).