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Localized Investments Drive Business Growth Worldwide
Localized Investments Drive Business Growth Worldwide
Honeywell is famous for its relentless innovation and breakthrough defense and space technologies that protect people, military members, and national interests all around the world. We’re also helping our customers create local jobs, build in-country capabilities, and drive economic value through an innovative approach to international offset agreements.
“International offset agreements are standard practice when a U.S. based company like Honeywell pursues an opportunity with another country’s ministry of defense,” said Ricky Freeman, President of Honeywell’s Defense & Space business unit.
Offset is often required as a condition of international defense sales as well as some non-defense international sales. Basically, it is a ‘reciprocal trade arrangement’ in a sale, for example: Buy Honeywell products and we will “offset” the purchase by bringing economic benefits.
Offset can also be identified by many different terms including Industrial Participation (IP), Industrial Cooperation, Industrial Benefits, Industrial Compensation, Industrial Involvement, Industrial Returns, Localization, and even Countertrade, where country assets can be brokered for an aerospace purchase.
Honeywell may incur Offset obligations through direct sales to a foreign government, or through a USG FMS sale to a foreign government, and/or through our OEMs.
“Even though offset agreements are required in most international business negotiations in the defense and space world, we make sure we’re investing in a productive and efficient way,” Freeman added. “Our primary goals are to win new business and create positive, lasting international relationships with international countries and companies. We also want to make a positive difference for the country, its defense posture, its economy, and its citizens.”
The company often makes foreign investments or expands its operations in a country that isn’t attached to current business prospects. The strategy is to “bank” the offset credits and goodwill associated with these kinds of activities in anticipation of future business opportunities. “These goodwill opportunities can help build relationships and even identify innovative, collaborative projects that bring a benefit to all parties,” says Ligia McLean, Director of Offset and Industrial Participation.
Winning new business is a top priority for Freeman and his team. So is using the company’s offset investments to deliver positive outcomes for people in the countries where Honeywell does business and establishes operations.
“Different companies look at offsets in different ways,” Freeman said. “For Honeywell, our focus is on how we can work with the MODs and industrial councils to develop a sustainable self-defense infrastructure, support system and workforce in the country. We believe this strategy helps us attract customers and platforms by creating better optics to showcase our extraordinary capabilities in defense and space solutions.”
Honeywell also believes its offset investments can encourage developing countries to align with nations that promote freedom, resist aggression and champion basic human rights for all, Freeman added.
“We’re very mission-driven,” he said. “We look specifically for investment opportunities where we can partner with customers, local companies and countries on programs to promote stability, build families and improve quality of life.”
Honeywell’s offset and contracts team is actively working about a dozen international offset programs, which have the potential to result in more than $230 million in offset investments in countries like Canada, India, Turkey, South Korea, Saudi Arabia, and the Netherlands. These offset agreements are tied to about $1.25 billion in new international business opportunities. Many other opportunities are in the pipeline.
Growth potential through R&D collaboration in Canada
Offset investments and a strong Honeywell presence north of the U.S. border have helped Honeywell establish excellent relationships with Canada’s national and provincial governments and with leading Canadian aircraft manufacturers.
Though we have many alternate sourcing opportunities in Canada where we can capture offset credits. We are also looking to grow benefits to Honeywell through R&D collaboration.
We are proactively banking the efforts to satisfy our customer OEMs’ obligations and our upcoming programs.
Making the Best of Offsets for Aerospace Growth in India
Background and Opportunity
The objective of the Indian defense offset guidelines is to encourage foreign vendors to engage in the complete transfer of technology arrangements with Indian offset partners. The Government of India is focusing on increasing the effort to manufacture/develop technology in India, to increase self-reliance in arms procurement and military aerospace and save precious foreign exchange -- this is where the Offset Program comes into existence. The Government has opened the Defense industry for private sector participation to provide impetus to indigenous manufacturing and self-reliance in military aerospace industry.
As per the India Infrastructure Research, nearly $13.5 billion worth of defense offset obligations would be discharged in India by foreign OEMs in the next eight to ten years. India ranks among the top 10 countries in the world in terms of its military expenditure and import of defense equipment. It allocates about 1.8% of its GDP to defense spending, of which 36% is assigned to capital acquisitions. Only 35% of defense equipment is manufactured in India and when defense products are manufactured domestically, there is a large import component of raw material at both the system and sub-system levels.
How offsets matter in India
India is one of the key markets for Honeywell which falls under the High Growth Region (HGR). Supporting the customers from India has always been the big focus that includes airlines, defense labs and public-sector units in India. Work done in the field of enabling commercial aircrafts to fly safer, smarter, and greener with technologies includes auxiliary power units (APU), avionics, lighting, wheels and brakes, mechanical components, cabin pressurization, air traffic modernization, engine, navigation, helicopter safety and satellite communications to support Indian military and after-market services are offset eligible.
The offset and industrial participation team in close collaboration with the global offset council, aerospace product, program and Indian project teams worked as an integrated unit and put together an offset banking proposal of over $132 million that enabled $52 million offset credits which is valid till 2026. This is an important breakthrough for Honeywell and will enable participating in Indian Defense contracts and support OEMs.
Saudi Arabia Vision 2030
In the Middle East, Honeywell has been able to pursue multiple growth opportunities in Saudi Arabia and UAE that fit perfectly with national priorities favoring high-tech employment growth. At the same time, defense spending is on the rise in the region, creating multiple opportunities for Honeywell.
Honeywell is fully committed to make the Kingdom of Saudi Arabia Vision 2030 goal a great success. Pledges to work with the local industry supporting capability building in the Priority Sectors and Priority Technologies. Wants to drive broad economic, technological, industrial, and social transformation in Saudi Arabia.
Honeywell has been granted offset credits by General Authority for Military Industries (GAMI) for banking the Dual and Military use in-country programs and establishing MRO for AGT1500 with funding from Boeing. There continues to be an opportunity to further leverage the investment in the commercial industry from Local Content & Government Procurement Authority (LCGPA) for the commercial packages awarded to Wahaj a Small, Medium Enterprise (SME) company. This company has been identified as a potential supplier to Honeywell for machining commodity and an additional company SAEI, for the APU 131-9A MRO Setup.
Malaysian Industrial Cooperation Program Initiatives
Honeywell has been in Malaysia since 1985, and today we have more than 1,500 employees in seven locations, including three manufacturing sites. Malaysia has been our focus for technologies and solutions, such as integrated avionics systems for aircraft, process controls and technologies for refineries, and building automation. We are uniquely positioned to blend physical products with software to support connected systems that improve buildings, factories, utilities, aircraft. These solutions enhance the quality of life of people around the globe and create new markets and even new industries.
Beyond business, Honeywell Hometown Solutions is an award-winning organization that focuses on several social issues such as safe water, humanitarian relief, and safety and accident prevention. Our key area of focus is educating youth, particularly in science, technology, engineering, and math (STEM), and encouraging them to pursue careers in these areas. We have partnered with leading NGOs, public agencies, and universities to educate students and enhance teacher capabilities. Since 2010, STEM initiatives have inspired more than 5,000 students and teachers nationwide.
Offset team’s endeavor is to align across all SBG’s new business plans with in-country ICP policy to enable us to establish an Industrial Cooperation Program provider in Malaysia.
Another example, where products from many Honeywell businesses are manufactured and supported includes the manufacture of its top-of-the-line JetWave satellite communications system. While Honeywell does not have an existing relationship with the country’s MOD, Honeywell’s long-term commitment to Malaysia has earned an invitation to meet with the national air force about an upcoming C-130 transport upgrade opportunity where Honeywell will have large contributions.
Republic of Korea
In South Korea, Honeywell invested to help a privately owned automotive casting company enhance its production processes, quality, and output, with the goal of improving the local economy, the company’s capabilities, and the remote area’s manufacturing infrastructure. As a result, Honeywell has been able to develop an alternative local source for commercial aircraft parts once provided by a single supplier.
Leveraging Depot solutions in The Netherlands
Signing a licensed service center agreement with Aeronamic, an aircraft components and services provider, to create a depot in the Netherlands dedicated to maintaining the F-35’s power and thermal management system also aligns with our offset and industrial participation goals. The long-term agreement will cover the European market and bring significant benefits to both current and future owners and operators of the F-35. This agreement will substantially reduce the logistical footprint of supporting the regional fleet with a Netherlands-based depot, resulting in lower costs for F-35 operators.
Honeywell is also granting Fokker worldwide/regional access to conduct the maintenance and repairs for Honeywell F-35 Joint Strike Fighter Wheels & Brakes. This industrial cooperation empowers our relationship with the Netherlands and enhance business growth in that region.
In summary, it is recognized that offsets and industrial cooperation can add value to Honeywell business through visibility in international markets and with our OEM customers. Early engagements and identification of offset potentials in the pursuits is a key to generate opportunities aligned with Honeywell growth strategy.