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Strategic re-structuring


Between 1978 and 1987 real demand for production VPK has increased on 50 %. Therefore to the beginning of 1990th VPK significant financial resources have been accumulated, and also had significant stocks of the newest technologies and competent experts.
The subsequent more, than 50процентное demand reduction has resulted many VPK in necessity of strategic re-structuring.
Known researcher Gansler [68, with. 52] has designated five general models of behaviour VPK, decided to conduct strategic re-structuring. In - the first, the companies can make decision to remain in defensive business. This model includes also concentration on other segments of the defensive market. In - the second, the companies could sell production abroad. Thirdly, VPK could sell production in other state markets. The fourth model is a model of conversion. VPK could use potential of the civil markets through internal working out of production of double appointment or acquisition of the civil enterprises. At last, VPK could decide completely to get rid of defensive divisions.
According to Ganslera, for the defensive industry it is not enough to choose the one and only way of re-structuring. There is a direct interrelation between such factors, as the size of the company and degree of dependence on defensive orders, on the one hand, and a choice of any strategy of re-structuring - with other [31, с.427].
For the further analysis it would be useful to unite these variants of a choice of strategy on one axis (see the scheme 1) which would reflect degree of complexity for following VPK on the chosen way or degree of the changes necessary for realisation of chosen strategy. The variants placing at top of an axis, require the greatest changes, and being below - the least.
Unessentially these variants will mutually exclusive, however the necessary resources for their successful realisation can limit number of those variants which the company really could choose. The main question consists in what of these variants is the best for this or that company. VPK at first have undertaken absolutely excellent strategy which keep within in two basic categories: (1) orientation to defensive branch and (2) diversifikatsija.
The scheme 1. A strategic choice for VPK
Conversion
Diversifikatsija
Technologies of double application Joint programs of research and development
Change
The government Universities of the Company from the USA the Companies from foreign countries Service of others state departments of the USA of NASA
Federal air agency the Ministry of transport Export of arms
Concentration on defensive sector of the USA
Absorption Sale of Merge the Status kvo
Status preservation kvo in considerably varying business environment did not represent real strategy for any company. The enterprises which have not undertaken any actions to change of the strategic location, as a rule, have got to the worst competitive position, than those who has begun strategic re-structuring [31, with. 428]. Therefore many corporations have undertaken serious steps for reorganisation of the business. Corporation "Ó«ŅŻ½½", for example, has sold the defensive assets "Boeing" for the only purpose to leave defensive business, to become purely civil company and to concentrate attention to semi-conductor business.
However "Boeing" has acquired defensive assets "rokuell" not to become purely defensive company. Additional defensive capacities to it were necessary to type critical weight, - it declared all companies, wishing to make defensive acquisitions. However "Boeing" strategy consisted, in essence, in achieving balance of production and services for the civil and military markets which as considered in the company, are in an antiphase. "Boeing" hoped to counterbalance recessions in defensive sector liftings in civil sphere; "rokuell" too could take advantage of advantages of such balance, but this company did not put to itself such problem.
What strategy should be applied this or that company? As a whole this question is reduced to, whether it is necessary the enterprise to pay profit to shareholders who can place them by means of the financial markets (in other words, orientation to defensive branch) or to allow the companies to keep profit and to place it in the company (diversifikatsija on the civil markets).
Some VPK - such as "Lokhid Martin", «Nortrop Grumman» and «Dzheneral Dajnemiks», - not trusting in possibility of conversion of the defensive enterprises (paragraph 2.3 in more details see) and having chosen a strategic rate on defensive the market, have concentrated on reduction of the sizes of the company, merge to competitors and sales volume increase in the foreign military markets. The corporations concentrated to defensive branch can be result of one of three strategy. In spite of the fact that, in the general opinion, these companies in the early nineties have got to the heavy financial position, many of them received high enough profits, mainly, thanking [68; 93; 31; 60] to purchase of profitable defensive divisions of other corporations, sale of invaluable divisions and the real estate, transfer to other companies in the form of subcontracts of the least important production phases that has allowed to cut costs for a payment and to avoid collisions with trade unions, and also thanks to reduction in longer prospect of costs for research and development. To the beginning of 1990th VPK became an attractive target for this type of re-structuring, both because of its impressive stocks of financial assets, and because of increase of productivity which it would be possible to expect as a result of application of similar methods in branch which, according to many, "carelessly" concerned costs during the previous period of lifting [95, с.129].
Some VPK tried to "be diversified" through consolidation with other companies. However more careful research shows, that some part of this diversifikatsii actually appears strategy of growth within the defensive industry. An example - company association, whose core business - electronics, with the company attending to production of platforms. Having faced slow growth in traditional defensive sector, large VPK concentrate on possibility of active growth in sector of the services connected with information technologies. The spectrum represented VPK the services connected with information technologies, covers management of databases, designing and management of financial systems, safety in a network the Internet and system integration for civil and defensive computer systems. Defensive electronics - unique sector of the industry growing in 1990th. Now MO spends 45 % of the budget of purchases ViVT for electronics [124], that for VPK became one of the basic engines of growth (see table 4). From all the largest VPK only "Boeing" left information business, having sold in 1999 the division «the Boeing Information Systems» [II].

Table 4. A share of sales of information divisions in total amount of sales of conducting VPK


«Nortrop Grumman»

«Dzheneral Dajnemiks»

"Lokhid Martin"

"TRV"

1997

10,4 %

3,1 %

7,4 %

17,3 %

1998

12,4 %

12,4 %

7,7 %

22,5 %

1999

15,5 %

15,5 %

9,0 %

17,3 %

2000

15,9 %

16,4 %

11,3 %

23,2 %

Source: reports of the companies for the Federal commission on securities.


In the future demand for "platforms" - planes, the ships etc. - most likely will decrease. In these conditions production of an electronic component of platforms and service of the delivered engineering become new and highly profitable sphere for VPK (schedule 2 see). The fighter sold for 50 mln. dollars, will bring in addition not less than 65 mln. dollars of the profit concerning maintenance service and modernisations of the plane during its life cycle. For example, the division «Military planes and rockets» corporations "Boeing" supplies 25 % of the sales at the expense of service before delivered ViVT.
Schedule 2. Profitableness of production of companions and their service for company "Hughes Elektroniks"
Production of companions
.o
§j
60
50
40
30 Service of companions

5 with
ї THE ISLAND 20
10

0
go
Cl
CD
1995
1997
1998
1996

Source: reports "Hughes Elektroniks" for the Federal commission on securities.
In some cases VPK entered into sector of electronics and service of engineering within the limits of conversion programs, however in most cases these steps were undertaken for increase in a share of work with MO. Thus, as a result of consolidation many VPK become even larger and remain rather oboronno-specialised, but it does not mean, that they remain focused on a narrow industrial segment. VPK cannot often use advantage of joint activity in sphere of technologies as production of tanks absolutely not similar on shipbuilding, and creation of bombers differs from working out of fighters. Result of they be defensive conglomerates. Therefore, some researchers assert, that concentration in the defensive market through acquisition of other defensive companies is a misuse of concept of strategic specialisation [94, с.12].
Other variant - diversifikatsija. Companies "ТРВ", "Hughes" and «Teksas Instruments» have enclosed means in moving of people and technologies on new civil programs and in association of resources for defensive and civil production. The companies of this group the large part of the profits reinvestirovali in research and development, acquired the civil companies and aspired to smaller dependence from MO.
Arguments in advantage diversifikatsii by means of acquisition of civil capacities and internal growth are based on several key principles [69, with. 1127]: (1) synergy in sphere of research and development and the technical skills, allowing to develop new systems; (2) asymmetric information which is not allowing shareholders and to other investors adequately to evaluate risk and potential for profit extraction; (3) speed of redistribution of profit. Internal allocation of capital can be more preferable, because it is usually accompanied by the raised control from corporate managers, and it supplies the best information interchange between those who uses the capital, and those who grants it. Moreover, internal allocation of capital can promote more effective redistribution of assets: if one division works badly,
The central office can fast direct the capital to other, more successful segments. Internal allocation of capital also can help to overcome to the companies short-term pressure of the financial markets to support viable projects with more long-term profits [60].
In theoretical discussion about comparison of advantages of concentration of efforts in the certain market and diversifikatsii on the various markets there are arguments in favour of each of approaches. In practice, as a rule, shares it is wide diversifitsirovannyh the companies are evaluated more low in comparison with shares of the corporations adhering in business to accurately outlined borders of branch. For example, in one research it has been shown, that within 1978-1990 market estimations highly diversifitsirovannyh the companies for dollar of assets were below an average [121, with. 36]. Results of the majority, other researches also show, that the joint-stock profit (growth of a stock value plus dividends) the specialised companies was more [54; 56; 88; 37; 78].
On the other hand, a number of researches [105; 48; 42] has shown, that
diversifitsirovannye military-industrial corporations in 90th reached the best financial indexations, than purely defensive corporations. So for example, company research «Buz Allen end Hamilton» has shown, that it is less than rate of return of purely defensive conglomerates, than rate of return of defensive divisions large diversifitsirovannyh corporations (schedule 3 see). The companies focused on military business have smaller rate of return, but, probably, big readiness to undertake defensive orders, achieve bolshej congestion of capacities and, as consequence, reach higher general profitableness. On the other hand, and defensive divisions of large conglomerates are more legible in the activity and achieve high profitableness of the projects, thus becoming more similar to average and small VPK.
Schedule 3. Comparison of rate of return of purely defensive conglomerates and defensive divisions large diversifitsirovannyh corporations

Moreover, the corporations acting in several industries and having large defensive divisions («JUnajted Teknolodzhis», "Haniuell" and "Tekstron") in 1990 showed considerably best results from the point of view of joint-stock profit, than all VPK as a whole.
Thus, results of the majority of researches in which course financial indexations of the specialised companies and conglomerates have been compared, show, that the first type of the companies advances the second. However researches in which course the companies working in the defensive market were compared directly, show, that conglomerates are more effective. Probably, most true explanation of this difference of defensive branch from all industry consists that capital home markets is better work with a small and specialised set of projects, and there, where foreign markets rather nerazvity because of technological and bureaucratic complexity of branch [120, с.114].
Both at a strategy choice spetsializirovannosti, and at a strategy choice diversifikatsii one of the basic questions who rises before management VPK, - in what projects to put available assets which have not been redistributed in favour of shareholders. An extreme case - the infinite growth of corporation accompanied by every possible integration. However, as it will be shown in the following paragraph, practically all leaders VPK have considerably increased the amount of works, transmitted to subcontractors, thereby meaningly limiting the growth. It is dictated first of all by understanding of impossibility of infinite growth and necessity connected, based on key kompetentsijah, diversifikatsii.
Where then to invest available assets? One of answers - to redistribute through equity market. Practically all leaders VPK have created financial divisions which on a venture and extra basis finance deliveries of own production and invest brave projects. For example, «Financial division" Boeing "» (agnl. Boeing Capital Corporation) operates a portfolio of assets for a total sum more than 9 bln. dollars that has allowed "Boeing" to receive in 2001 in the form of interest payments 863 mln. dollars Within several years this division financing of delivery of four heavy transport aeroplanes С-17 for the Air Forces of the Great Britain played a key role in granting of considerable credits for realisation of agreements of corporation "Boeing", for example. The strongest financial division is in corporation «Dzheneral the Electrician». The company «Financial division GE» which operates assets for a total sum more than 110 bln. dollars The Electrician »supplies to 40 % of profit of corporation« Dzheneral and grants significant possibilities for sales of production of corporation. So, for example, in 2000 «Financial division GE» has acquired for 12 bln. dollars and has transmitted to leasing to various airlines of 149 air liners the "Boeing" equipped with engines «Dzheneral the Electrician».
Like the large companies working on certain niches, the enterprises of the small size concentrate on narrow vysokopribylnyh spheres. VPK the smaller size, especially what have special technologies, are even in the best position. Some needs of defence can be too small and too spetsializirovany to receive attention large VPK. Position of these companies can be the most attractive because the company future is not adhered to the one and only program, and the company has possibilities which allow it to overcome division between the civil and defensive markets [41, with. 8].
Professor Dzhonatanom Feldman had been led research of 600 defensive enterprises from which number the largest have been excluded 50 VPK [61]. Research used the information received in 1989-1993 Results of this research indicate, that during this period in community VPK of the small size there was a significant stability. Real sales and employment were changed very little - about 6 %, and dependence on defensive orders by 1993 has on the average decreased all from 31 % to 29 % of the general sales. As costs for purchases have taken plunge during this period, in research the assumption is made, that the cores the largest VPK concluded subcontracts for fulfilment of works more, than worked. In details this tendency will be analysed in paragraph 2.2.
The companies of the small size have appeared more successful, than it is usually considered to be, at a survival in the conditions of budgetary reductions after the termination of cold war. Researches show, that at lower levels of a chain of suppliers there was no large reorganisation [106, with. 103]. Many companies have decreased in sizes, but the majority has lowered dependence on defence and has raised a sales volume of not defensive production. For successful transformation of the small companies a number of factors is key [61; 109]: purposefulness of a management after "shock" of comprehension of a problem; a radical reform of management methods, marketing and production; successful cooperation with other companies and-or the state agencies to which is promoted often by aspiration of the regional authorities to develop economy.
Thus, such state of affairs confirms hypothesis Ganslera [68, with. 52] about preservation during transformation of the diverse and partially integrated (civil/military) structure of the defensive industry of the USA. During a choice of strategy the company acquires other companies or gets rid of some productions, but it does not infringe the general process of production ViVT as practically all programs MO are profitable and always there were the corporations, wishing to purchase this or that enterprise. During branch re-structuring has been saved voennopromyshlennyj potential, however capacities have been redistributed between different VPK according to strategic decisions of their chiefs. Preservation of a layer small and average VPK during re-structuring also confirms this hypothesis.
The Russian defensive enterprises have faced the same problem - necessity of strategic re-structuring. Opinions were often expressed, that the methods used in the USA, with success can be applied and in the Russian defensive enterprises. However a number existing institutsionalnyh distinctions has defined significant distinctions in realisation of strategic re-structuring of the defensive enterprises of both countries.
The situation with reorganisation of the Russian defensive branch to the beginning of 1990th was the opposite situation which have developed by this time in the USA. The enterprises practically had in stock no financial reserves, and the market for purchase and sale of industrial divisions started to develop only after 1998 Even more radical, than in the USA, reduction of the defensive order has not given to chiefs of the enterprises of chance to develop adjacent civil capacities. Thus, the Russian enterprises have been compelled to remain within the limits of existing productions. Process of strategic corporate re-structuring of the defensive industry has begun right at the end 1990th, for 5-6 years having lagged behind from similar process in the USA, and accumulation of the private capital and occurrence of such holdings, as "Kaskol", "NPK" and "OMZ" became its first step.
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A source: BOLSHAKOV Zahar Anatolevich. the Basic tendencies of development of military-industrial corporations of the USA in 1990th years / the Dissertation on competition of a scientific degree of a Cand.Econ.Sci. - Moscow: the Russian Academy of Sciences, Institute of economic and the international relations. - 179 with.. 2002

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