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Subject:
An interesting read for those interested in the future of Israeli defense
GBU28
3/10/2005 1:07:23 AM
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| Strategic Assessment Vol. 7, No. 3
December 2004
Israel's Defense Industry in the 21st Century: Challenges and Opportunities
Sharon Sadeh
link
Sharon Sadeh (sharon.sadeh@gmail.com) is the EU correspondent for the Haaretz newspaper. The following essay is based on documents and interviews conducted for his PhD thesis at University College, London.
The current financial troubles of Israel Military Industries (IMI) and the record arms sales to India turned the spotlight once again on Israel?s biggest industrial sector, the defense industry. The past decade brought many changes to the domestic defense companies, including mergers and sweeping adjustments to work and management practices. Their improved output and state-of-the-art capabilities helped place Israel among the top five arms exporters. The Israeli government, preoccupied with other burning issues, has displayed a hands-off approach and steered away from attempts to intervene in the direction and structure of the industry, which includes the three state-owned companies of Israel Aircraft Industries (IAI), IMI, and Rafael. A seemingly benign posture, it fails to take note of far-reaching changes in industrial defense policies, both in Western Europe and the US. Furthermore, deep cuts in the defense budget for 2005 suggest that the industries will have to find alternative revenue streams, as new orders from the Israel Defense Forces (IDF) are likely to fall sharply in coming years.
This essay charts how the Israeli state-owned firms have managed in the past to bounce back after painful restructuring processes, but questions their ability to retain a commanding position in today's highly competitive export markets without clear governmental guidance regarding their intended structure and aims.
The Quest for Self-Sufficiency in Arms Production
The growth of the Israeli defense industry was a combination of policy and circumstance. Acute threats by Arab states led to the psychological as well as material institutionalization of the "centrality of security" concept, an approach that was strengthened by arms embargoes and broken agreements among foreign suppliers. Hence, Israel?s policymakers encouraged a rapid expansion of the state-owned arms industries and their involvement in production of state-of-the-art weapon systems.
Over the years Israel realized that financial and technological constraints made self-sufficiency in arms supply impossible. This recognition led to a dual-policy approach towards defense procurement. While the government continued to pursue every opportunity to buy weapons abroad, it also invested heavily in establishing a sophisticated defense industry.1 It was thought that the defense industry would have the ability to tailor weapons and develop new ones not available elsewhere by creating advanced, defense-oriented research and development facilities. Such an industry would also be a source of employment, urban development, and export revenue. Most important, by reducing the risk of future arms embargoes, Israel would be able to maintain better diplomatic and political latitude.2
Table 1 presents a select list of main military technologies developed in Israel. The criteria for developing and manufacturing weapons locally were driven by the following considerations:3
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Political: the refusal of foreign powers to sell critical weapon systems (or the breach of contractual commitments to supply battle systems).4
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Economic: the lower cost of domestic production compared to imports, and the ability to prolong the service life of combat systems through upgrades.
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Military: the achievements of Israeli developers that helped the IDF acquire a decisive advantage on the battlefield, for example, in electronic warfare.
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Strategic: the production of special weapon systems unavailable from other sources, needed to facilitate a regional deterrence posture.
Independent research, development, and manufacturing helped Israel reduce its reliance on foreign supply sources.5 A comprehensive knowledge base was set up in universities and government laboratories through global networking and applying practices such as reverse engineering, industrial espionage, and smuggling specialists and equipment in covert operations.6
The need for additional income and the rising costs of new developments enhanced arms export endeavors. Israel was quick to offer operational solutions to foreign customers, based in part on IDF combat experience. Over the past thirty-five years, defense export sales increased eighty times, from $40-70 million in the 1970s to $3-4 billion in the 2000s, amounting to approximately one fifth of Israel?s total exports.7
A rapid rise of export revenues in the 1980s partially subsidized the R&D costs of new weapons and compensated for sharp cuts in the domestic R&D budget.8 Revenues generated by arms |
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