Political Risk in the European and US Defence Sector: Procurement, Political Sensitivities and Profitability

摘要

Although the defence sector is not subject to the resource nationalist tide currently complicating the lives of energy companies, it possesses its own peculiar exposure to political risk. Whereas energy companies can sell their product almost anywhere, and to anyone in the world, defence sector companies operate in a monopsonistic market environment. Defence companies have but one type of consumer - national governments. At a basic level, this implies a mutually dependent relationship between producer and consumer. From a corporate perspective, this relationship can lend a degree of financial security. Both parties are interested in maximizing their own advantage but generally both recognize that there has to be something in it for the other for the sector to function. However, it also means that defence companies are inherently and permanently exposed to political risk. With government as sole consumer, commercial enterprise in the defence sector is heavily, perhaps even uniquely, exposed to the exercise of political power. Simply put, the consumer is also the party invested with the power to set, or change, the rules. The defence procurement market is therefore one in which corporate profitability is potentially most exposed to the political sensitivities and concerns of government.