The F-18 Hornet Offset
Individual Case Assignment: The F-18 Hornet Offset
Executive Summary The export agreement between McDonnell Douglas (MDC) and the Finnish government outlines an example of offsets as they are applied to the military aircraft business. The case illustrates that although the selling price of the F-18 Hornets amounted to $3 billion, the offsets reached a total of $3.345 billion by the end of the 10-year term. This signifies the added investment in offsets in excess to the sale price. Are offsets really worth the high costs in resources and time? To answer this question, four perspectives were analyzed: the domestic government, the buyer government and industries, the seller company’s future growth, and competitiveness of the seller. Under each perspective, benefits and drawbacks were compared. In the end, the result showed that throughout all four spectrums, countertrading did serve a valuable purpose for the seller firm. It meant exporters were able to gain consumers internationally, while also allowing them to differentiate their value offering in comparison to competition. However, there are certain risks that need to be kept in mind, mainly the possibility of losing specialized technology and competitive advantages deriving from the seller firm’s specific production capabilities. To avoid these risks, exporters seeking to enter into countertrade agreements are advised to communicate effectively and clearly with their customers, setting realistic offset commitments, being proactive to take advantage of offsets serving as a marketing platform, and by better planning their technology sharing initiatives to maximize return for both parties. Following these guidelines will ensure that exporters are well-prepared for participation in offset agreements, while maximizing the benefits gained from undertaking this long-term commitment.
Table of Contents
Executive Summary 2 Background Information 4 Key Issues 4 Case
Executive Summary The export agreement between McDonnell Douglas (MDC) and the Finnish government outlines an example of offsets as they are applied to the military aircraft business. The case illustrates that although the selling price of the F-18 Hornets amounted to $3 billion, the offsets reached a total of $3.345 billion by the end of the 10-year term. This signifies the added investment in offsets in excess to the sale price. Are offsets really worth the high costs in resources and time? To answer this question, four perspectives were analyzed: the domestic government, the buyer government and industries, the seller company’s future growth, and competitiveness of the seller. Under each perspective, benefits and drawbacks were compared. In the end, the result showed that throughout all four spectrums, countertrading did serve a valuable purpose for the seller firm. It meant exporters were able to gain consumers internationally, while also allowing them to differentiate their value offering in comparison to competition. However, there are certain risks that need to be kept in mind, mainly the possibility of losing specialized technology and competitive advantages deriving from the seller firm’s specific production capabilities. To avoid these risks, exporters seeking to enter into countertrade agreements are advised to communicate effectively and clearly with their customers, setting realistic offset commitments, being proactive to take advantage of offsets serving as a marketing platform, and by better planning their technology sharing initiatives to maximize return for both parties. Following these guidelines will ensure that exporters are well-prepared for participation in offset agreements, while maximizing the benefits gained from undertaking this long-term commitment.
Table of Contents
Executive Summary 2 Background Information 4 Key Issues 4 Case