The industry of defense and security is frenetic and continues to evolve in light of challenges known and new. Working with sovereign governments around the world in bolstering capacities in this environment is a business in and of itself, an enterprise billionaire industrialist Ivor Ichikowitz has overseen for nearly 25 years.
Global Trade spoke to Paramount Group Founder and Executive Chairman Mr. Ivor Ichikowitz about the challenges and opportunities in the industry of defense and security.
Q: What are the latest trends reshaping the modern-day industry of defense and security?
A: The enduring factor that shapes the defense and security industry is the evolution of threats to citizens and their strategic interests. As threats change, so too must the tools to address them. Naturally this makes our line of work incredibly dynamic. We’ve learned as much in our nearly 25 years working to address these challenges with industry partners and clients from around the world, and have our eyes set on what’s coming next. In particular, there are key emerging trends to be watched.
First and foremost is the impact of new, disruptive technologies within the defense sector, which is a top strategic concern. In fact the Boston Consulting Group recently published the results of an industry-wide survey that found, among other things, that some 54% of respondents reported plans to increase investments in digital technologies in 2018. Indeed, the question of how the industry responds to and anticipates these innovations is crucial for future success.
At Paramount, we are always anticipating market demand. Advances in artificial intelligence and automation technologies have produced an increasing preference among clients for remotely operated smart platforms. Frankly, wherever there is an opportunity and an available technology to reduce risks to troops, there is naturally great interest.
Another trend to watch is how the defense industry responds to the financial concerns of the client. Despite the fact that since 2017, global defense spending reached its highest levels since the end of the Cold War, amounting to $1.7 trillion USD, according to the Stockholm International Peace Research Institute, there is still enormous pressure to deliver value. Defense budgets continued to increase by 4.9% in 2018 – its fastest rate since 2008 – yet at the same time, contractors are increasingly asked for greater pricing transparency.
Defense is a strategic industry, and States are waking up to the accompanying economic potential. If you take a look at countries like India, China, South Africa or others, you’ll notice an interesting pattern. Governments in emerging economies are looking at their own defense and security industries as a means of economic and technological diversification – especially in anticipation of the fourth industrial revolution (4IR). This has led to precipitous growth in demand for traditional and new-age products, as well as greenfield investments from international producers.
We recognize that any response to these trends will not only require innovation in product design and development – something that we take pride in at Paramount Group – but also a business model that accommodates the clients who wish to maximize the impact of their investment. Fortunately, Paramount has already formulated a groundbreaking approach that we believe is well suited to address the cost, performance and return on investment interests of our customers. A portable manufacturing model, whereby Paramount works with a customer to establish local manufacturing partnerships, has proven to drive down costs and pays economic, technological and human capital dividends long into the future.
Q: Does the U.S. need to ‘step up’ global collaboration in technology and skills transfer with Africa?
A: Yes. In fact, I think there is broad consensus on the issue. John Bolton, President Trump’s National Security Advisor, has been unequivocal, emphasizing that “lasting stability, prosperity, independence, and security ” in Africa are, “in the national security interest of the United States.” We agree.
Washington’s Africa strategy recognizes the importance of strengthening trade and commercial ties to the region, as well as ramping up security and development assistance. These are the key pathways to shoring up stability on the continent, allowing states to develop capacity to contain threats such as terrorism and radicalism without outside intervention.
We should be looking at how the United States can help develop a more stable marketplace for allies in Africa, laying the foundation for an ecosystem that nurtures the growth of new industries, such as technology and manufacturing, further diversifying the domestic economy.
What I can say is this: by unlocking the door to US technology and skills transfer with the defense and security sectors of African economies, Washington could essentially hit two birds – economic and security independence – with one stone.
Q: What are the ‘unknown unknowns’ (as Hal Gregersen, Executive Director of the MIT Leadership Center, calls them) within 2019’s defense and security industry?
A: Like most other business sectors, the defense industry is navigating through a period of uncertainty and risk. There is the impact of the US-China trade war, which for example has dealt a blow to domestic producers in RSA of steel, who depend in large part on access to the US market. Other geopolitical tensions, especially if they escalate to violent conflict, threaten to disrupt supply chains crucial to the industry, and discourage investors.
Another area of ‘unknown unknowns’ would relate to technological disruption. In both the public and private defense and security sectors there are well kept secrets that could shake up the industry. An enduring example would be the debut of the Global Positioning System (GPS) after the US government made it available for civilian use. Since then, the nature of ‘situational awareness’, of modern warfare, peace and security has never been the same.
Military institutions around the world are also beginning to plan for climate risk. For example, a recent survey from the US Department of Defense has found that around 50 percent of US military facilities had at least one asset damaged by the effects of climate change. As polar ice-caps reduce, the potential for territorial conflicts among nations with Arctic claims will increase. This trend should incentivize greater investment in innovation by firms in the defense and security industry to help customers build resilience.
And it seems that these unknown risks weigh on the minds of many global leaders, which is part of the reason we are seeing expanding investment in defense and security.
Q: Where do you envision Paramount Group in the context of both the U.S. and global defense industry, in 2019 and beyond?
A: In early 2019, the United States Air Force (USAF) has placed an emphasis on using the latest innovative technologies to modernize its legacy aircraft – a business area that is increasingly in high demand and one in which we have unparalleled experience. Our organization is looking forward to bringing our capacity, services, and portable manufacturing model to the U.S. marketplace and beyond.
We foresee dynamic growth from within the United States and we are strongly committed to the market as demonstrated through the establishment of Paramount Group USA.
Over the last few years Paramount group has partnered with a number of leading US defense companies such as Boeing, Draken, and The Armored Group for strategic collaborations across land, sea air.
The primary focus of Paramount Group USA will initially be in the fields of aerospace manufacturing and support services; however, the intent of our enterprise is to expand product and technology lines through strategic partnerships into, for example, armored vehicle manufacturing, unmanned aerial vehicle (UAV) and maritime vessel production, a development strategy which we have proven to deploy with efficiency.
Our firm is well positioned to compete globally. Our portable manufacturing model and innovative financing have a proven track record of success, from Kazakhstan and the UAE, among other markets. Additionally, we’re currently in the process of delivering our portable manufacturing model to customers in many African countries in the near future.
Today’s defense customers demand cost-effective and high-performance solutions, sometimes in challenging market conditions. I believe that Paramount’s key strength lies in addressing the capacity gaps which are unique to a given market, and helping the client build the capability required to meet their goals. This level of service goes far beyond procurement – our clients understand that we are personally invested in their success and their long-term security.