The military is moving to an all volunteer Army and is changing its focus more toward international peacekeeping missions; these changes bring many new requirements that offer potential business to U.S. firms accustomed to defense support. Although the Argentine market is open to U.S. imports, the imports, especially in the Defense sector, are accepted only if the foreign firm is willing to invest in Argentina. The two primary hindrances to U.S. firm's entry into this sector are limited funding; and the available Argentinean work force which is controlled by complicated labor regulations. Companies willing to invest capital, offer generous financial support with an eye toward long- term profits, and the fortitude to work within the regulatory constructs of the labor market, will find ample business prospects.
Argentine businesses are adopting international standards in both daily business practices and management and training, having already entered (or are poised to enter) in international competition in the goods and services sectors. At this time however, Argentine business infrastructures do not offer the quality of goods nor the breadth of services to support the requirements of the evolving Argentine military. The Argentine military has become increasingly active in international peacekeeping missions, and is interested in the technological support required for the modernization required to interact in an international environment. Defense contracting is a ripe field for business opportunities.
American suppliers of defense related equipment enjoy an excellent reputation for price, quality and after sales service. Standardization of equipment plays a key role in maintaining the U.S. position in the market.
European suppliers have been aggressive in their marketing promotion in Argentina and have thereby increased their marketing share by over ten percent in the past five years. One reason for their success is the pooling of equipment by specialized Government offices. American suppliers, able to work with other firms in providing turn-key solutions instead of single pieces of equipment, will most likely turn out to be very competitive against European suppliers of comparable equipment. Attractive terms of payment of over 8-10 years will add competitiveness for American vendors seeking to enter the market. Adequate after-sales servicing has played a key role in increasing the U.S. market share over the share now held by France.
Following the U.S. embargo of defense equipment to Argentina, the Humphrey-Kennedy amendment of 1978, the role of American supplies in this market was greatly reduced. French companies rapidly filled the gap with equipment that, although more costly to purchase and maintain, were the only available alternatives. While the Argentine military prefers U.S. made products for reliability and simplicity of operation, many systems are now based on French products: combat aircraft; helicopters; A/A missiles; radars, and others.
The current budget constraints will make it very difficult for the Argentine military and security forces to invest in complete systems. This works against U.S. suppliers because replacement of obsolete or damaged equipment is authorized by legislation and can be purchased automatically through existing suppliers.
The Defense Budget
The Government of Argentina's 1994 budget allocated to the Ministry of Defense totaled US$ 2.2 billion, which is approximately the same amount as the previous year. It is broken
down by Service as follows:
Army US $702.1 million
Air Force 483.9
Ministry for Defense 437.5
Joint Chiefs of Staff 6.4
The 1995 budget, estimated at US$1.76 billion, was cut by 20% over the 1994 budget.
Armed Service Personnel
Air Force 12,000
Prefectura (Coast Guard) 13,000
Gendarmeria (Border Patrol) 17,000
Primary Ministry of Defense Contractors
Area Material Cordoba (aircraft maintenance): operated as a concession by Lockheed Martin as a regional repair facility for C-130 and A-4 aircraft; eventually plans to expand into other aircraft platforms, maintenance, and repair.
Altos Hornos Zapla (steel mills): formerly government-owned, now making the transition to the private sector.
Astillero Domeq Garcia (submarines)
Direccion General de Fabricaciones Militares: provides majority of military materiels. Munitions will remain under military control.
TAMSE (medium tanks)
Tandanor (ship repair)