Technology Needs Shape Indian Contracts

Business Strategies

Defense Technology International Feb 01 , 2011 , p. 48

Neelam Mathews

New Delhi

India’s rigid rules on technology transfer affect bidders

Printed headline: Keeping Secrets

As the downselect for India’s $10-billion Medium Multi-Role Combat Aircraft (MMRCA) program draws nearer, bidders are beginning to face reality. Technology transfer is the most perplexing issue in the request for proposals (RFP) document. If this issue is not resolved to the satisfaction of foreign companies, many analysts question whether India will be able to achieve rapid development of its defense industry. Russia’s MiG-35 is one of six fighters competing for India’s MMRCA contract.Credit: MIKOYAN The MMRCA contract seeks 126 fighters and is the largest procurement program pending in India. Competitors include Mikoyan’s MiG-35, the Dassault Rafale, Eurofighter Typhoon, Saab Gripen, Boeing’s F/A-18E/F and Lockheed Martin’s F-16. India has made it clear that technology transfer will not be considered an offset and will have to be supplied as part of the contract. However, sensitive technology is difficult to acquire and regulated by country-specific laws. (For another perspective on sensitive technology, see p. 51.) “The biggest hurdle in resolving this issue is that the defense procurement policy of the government has a buy category—whatever technology transfer is refused, the product can be bought outright, quashing any interest by the seller or government to redress onerous intellectual property rights laws,” says Laxman Kumar Behera, research fellow at Indian Defense Studies Analyses, a think tank. A related issue is foreign direct investment, limited to 26% for overseas companies that are reluctant to part with technology without voting rights in a joint-venture company. The government says more equity will only be allowed on a case-by-case basis. Recently, BAE Systems’ request for greater equity in a joint venture with the Mahindra Group was rejected on the grounds that BAE brought no sensitive technology to the table. There is a business case for this position. Blocking rights are given to companies with a 26% stake. “They’re not transferring technology for charity. International companies realize that market size and profit will determine whether technology can be transferred,” says Behera. Most vendors understandably see intellectual property rights as a major issue. And while many say that India’s record, unlike that of China, is credible when it comes to protecting intellectual property, there is nothing in the government’s defense procurement procedures that specifically addresses this area. If the F/A-18E/F Super Hornet wins the MMRCA competition, Boeing may face thorny issues of technology transfer.Credit: BOEING While the MMRCA RFP specifies compliance with all trade-related aspects of intellectual property rights agreements, implementing this is not a simple task. “There is a lack of maturity in the Indian legal system, few management processes for putting intellectual rights in place and a lack of understanding of complex technical issues,” says a defense official. “Take the transfer of fly-by-wire technology. Can any Indian company handle it maturely with the dearth of professionals in technology transfer in India?” he asks. This view is echoed by Patrick Boissier, chairman and CEO of French shipbuilder DCNS. “Transfer of submarine technology is very demanding, and intellectual property rights are a sensitive issue. Our goal is to give all necessary competencies, but we want to keep our rights and we have to be careful.” DCNS is building six diesel-electric Scorpene submarines at Magazon Dock Ltd. in Mumbai. Scorpene “is one of the biggest technology transfer programs because it is the first time that the transfer starts with the first ship, which is generally built at the [original equipment manufacturer’s] premises,” says Boissier. “Our approach is to be committed to the Indian market,” says William Blair, president of Raytheon India. “We are looking at ways to work with the defense ministry and private sector on this issue. It can be a win-win situation—we bring our technology and adapt it to the Indian market while retaining intellectual rights.” Raytheon’s procurement business in India includes a contract from Boeing to develop an international version of the APY-10 surveillance radar for the P-8I maritime patrol aircraft and the active, electronically scanned array radar for the F/A-18E/F. The fact that most offsets go to government-owned companies and not the private sector leads some officials to say that technology transfer and intellectual property rights issues will not be settled soon. “Rome wasn’t built in a day,” says Defense Minister A.K. Antony in commenting on the situation. Rafael Advanced Defense Systems of Israel learned this when it sought a private-sector partner in addition to government-owned Bharat Electronics Ltd. to set up a joint venture for missile-seeker technology. “We do not want the company to be run and owned by the government,” Rafael says of its reason for seeking a private-sector partner. Bharat, however, refused to work with a private company. End of discussion.