Defence market for pvt players likely to grow 30% by 2010

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New Delhi, Feb 11 (UNI) The defence market for private sector firms in the country is likely to grow 30 per cent, touching the figure of 700 million dollars by 2010, a study said.

According to the study conducted by Associated Chambers of Commerce and Industry of India (ASSOCHAM) and Ernst&Young, there are more than 5,000 companies supplying about 20-25 per cent of components and sub-assemblies to state owned companies.

At present, about 70 per cent of the procurement in value terms, is from foreign sources as the country's public sector cannot deliver in terms of quality or speed on either research or production.

The remaining 30 per cent of the orders placed in the country, or nine per cent of the total, goes to the private sector.

Barring the Air Force, there is an equal distribution of procurement towards imports and indigenisation. Navy has increased its share of imports over the years while the Air Force has started focussing on indigenisation as well, Assocham president Venugopal N Dhoot said in a statement.

As far as the spending pattern of the Army is concerned, the focus has shifted between imports and indigenisation over the period of 2001-05 and the government has set a 70 per cent target for procuring its defence requirements from indigenous sources by 2010.

The public-private partnership (PPP) enables the Ministry of Defence (MoD) to exploit industry's comparative advantage and expertise where the generation of in house military capability is less cost effective, thereby ensuring value for money through life defence support.

The PPP reduces incentives for ex-post supplier opportunism as contracts are configured to create forms of 'gainshare' or 'incentivisation' that provide 'value-added benefits for both MoD and industry', said the chamber.

Since the mid 1990s, the arms industry has been increasing concentration through mergers and acquisitions (M&As), leading to a clear change in the structure of the industry.

The study found that at the end of the cold war, the international arms industry was not very concentrated, with the top five companies accounting for 22 per cent of the total arms sales of the SIPRI Top 100.

By 2005, there were significant changes in the arms industry, with the top five firms accounting for 43 per cent of total arms sales.

The IT sector in the recent times became a major partner for the defence forces across the world and has seen active transaction activity in its midst.

Cisco Systems' acquisition of BroadWare Technologies highlights the rising demand for companies that make video surveillance gear.

In 2006, venture capitalists and other investors poured 100 million dollars into late-stage video surveillance technology companies.

Till now, most of the buyers have ranged from companies that offer security and building infrastructure services, such as GE and Honeywell, to defence companies such as L-3 Communications Inc.

Defence contractors are expected to seek out opportunities for growth beyond traditional defence businesses, especially in civilian government technology services and homeland security.

A number of companies have strong balance sheets, which give the companies the means to acquire the right deal. However, high multiples for acquired companies, may make it difficult for companies to make acquisitions pay off.

UNI SG PBB HT1732

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