MR. BOON SWAN FOO, PRESIDENT AND
CEO SINGAPORE TECHNOLOGIES

ST Chief Expresses Hopes and Fears for the Future

Speaking at the Millennium Air Power Conference, Mr. Boon Swan Foo, president and CEO of Singapore Technologies Engineering Ltd, addressed several key points that lay outside the remit of the other speakers. Mr. Foo dealt with the effect of the industry-wide trend of "mega mergers" on the Asian market, and pointed out that bigger did not always mean better. Against this background he saw a continuing, and even increasing, role for smaller niche companies, better able to adapt to new trends and new technologies than the aerospace giants.

Mr. Foo discussed how the current wave of global contraction and rationalization is being driven by a substantive decline in available budgets and a parallel increase in R&D costs. While consolidation can bring new synergies and efficiencies, it can also lead to troubled corporate cultures and, more importantly, a distortion of free-market forces -- offering customers less choice and allowing fewer opportunities for start-up businesses. Mr. Foo also pointed out how the post-merger financial performance of all three U.S. "mega OEMs" had been poor.

Of particular interest to the Asian market is the decline in choice that has occurred, particularly in the defense acquisitions arena. Great concern was expressed about the emergence of an oligarchic market and concomitant decline in efficiency, due to the absence of credible competition. Modern defense systems carry a high price tag and thus remain in service for far longer than the systems they replace. However, Asian operators are worried about the emergence of an "elite group of OEMs" and the "influence they will have on the users' ability to exercise outsourcing decisions and control over their military assets."

Against this background the emergence of niche players will take on a new significance. As the mega OEMs find their flexibility and efficiency compromised by their size, only niche firms will have the flexibility to work in a fast-changing environment, and a range of specialized areas. While these niche companies might be operating as part of 'value network", run by a larger OEM, they will still be better able to combine commercial technologies in a military environment. Developments in cyber warfare and C4I systems were just two of the applications cited by Mr. Foo. In his view the realm of innovation still belongs to the smaller creative companies, which are faster on their feet and more fixed in their goals.

By Robert Hewson