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By Nick Wakeman

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New markets require balancing acts

As U.S. companies, particularly defense contractors, make their push into the international market their choices of who to do business with might have ripple effects across their businesses.

The Motley Fool published an interesting piece on Sunday about China, Taiwan and F-16 fighters.

Taiwan wants them and has been trying to buy them since 2006. At the time, the George W. Bush administration refused to accept the request and there it sat.

But now Taiwan and Lockheed Martin, the maker of the F-16, are going to upgrade its current fleet, at a price tag of $3.7 billion.

The Motley Fool writer Katie Spence points out that China takes a dim view of these kinds of activities and sees U.S. arms sales to Taiwan as interference in China-Taiwan relations.

She recounts a story from 1992 when the U.S. sold 150 F-16s to Taiwan. China quickly pulled out of arms control talks in the Middle East and then sold short-range ballistic missiles to Pakistan.

It got me to thinking about the tightrope that Lockheed and other contractors have to walk when selling to other countries, particular countries that aren’t considered U.S. allies.

Earlier this year, Lockheed announced a partnership with Reignwood Group to develop an ocean thermal energy conversion power plant off the coast of southern China. They described it as a multi-billion dollar clean energy project.

The Reignwood Group is a Beijing-based company that is building two resort communities in its home country. The power plant will supply green energy to those developments.

So here is one part of Lockheed involved in a multi-billion dollar project that supports China’s interests and another part of Lockheed involved in a project that conflicts with China’s interests.

Interestingly, the project with Taiwan represents Lockheed’s traditional line of business – aerospace and defense contracting – while the energy project is on the cutting edge of Lockheed’s strategic growth plans.

It’s not hard to imagine an internal conflict for Lockheed when looking at risks and rewards of the projects it pursues. Do they risk traditional arms sales to move into a new market? And in this case, billions are at stake.

But taking the long-term view, in 25 years Lockheed might be known as much for building power plants as it is for building airplanes. But it won’t get there without taking on projects such as the one with Reignwood.

Right now, it looks like Lockheed has a handle on China and Taiwan, but that doesn’t mean the company doesn’t have to keep striking a balance. And that’s a good reminder for any company looking to expand into adjacent markets.

Posted by Nick Wakeman on Aug 19, 2013 at 8:20 PM


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