Archive for June, 2009

Sherman’s March

Tuesday, June 2nd, 2009


Rep. Brad Sherman‘s case against ITAR export controls continues, via the current issue of National Defense:

Restrictions on exports of U.S. space technology have spurred a global demand for products made outside the United States.

The market for so-called “ITAR-free” technologies is growing to the detriment of U.S. space suppliers, said industry experts and government officials.

The International Traffic in Arms Regulations (ITAR) control the export and import of defense-related products and services that are specified on the U.S. Munitions List. Information and materials associated with any items on the list may not be shared with foreign countries without authorization from the State Department.

ITAR for years has been an irritant for suppliers of high-tech products, including satellites.

Companies have complained that the regulations hinder their competitiveness in global markets. After 9/11, however, security trumped all other concerns.

The economic crisis and expectations of downward government spending on space and defense technology, alas, have sparked new fears in the industry, particularly as non-U.S. suppliers threaten the nation’s dominance in the global markets.

“Some foreign firms advertise systems as ITAR-free,” says the Defense Department’s annual industrial capabilities report, which was sent to Congress in March.

Some members of Congress, especially those from states with a high concentration of space-related jobs, are beginning to worry about the future of the industry. “The space industry has made credible arguments that ITAR has hurt business and the space industrial base,” said Rep. Brad Sherman, D-Calif., who chairs the Committee on Foreign Affairs’ terrorism, nonproliferation and trade subcommittee. “This claim is echoed, in private at least, by the intelligence community who sometimes finds it more and more difficult to source satellite and related equipment domestically,” Sherman said during a recent subcommittee hearing.

A big source of frustration for U.S. firms is that if a satellite is on a munitions list, every component down to a simple screw becomes a munition.

“This has hurt second- and third-tier suppliers,” said Sherman. “Europeans and other buyers would rather just avoid U.S. regulations.”

An “ITAR-free movement” is taking hold in European markets, said Sherman. “European satellite maker Thales Alenia is now promoting satellites and satellite components that are, quote, ‘ITAR-free.’”

Apprehensions about declining U.S. dominance in the space market are prompting lawmakers to question whether it’s time to revamp the ITAR regime.

In the 1990s, satellites were not treated as munitions under State Department jurisdiction but rather as dual-use items that are governed by less restrictive Commerce Department export rules.

But a breach of security occurred in 1998, when a Chinese space vehicle supplier was provided with classified information after a failed launch of a Hughes Co.-built satellite. The response was to reclassify commercial satellites as munitions. Maybe that was an overreaction, said Sherman.

“We need new ideas about how to balance our economic interests and also the national security interests,” he said.

“It’s fair to ask if Congress’ toughening of satellite licensing 10 years ago has played a role in reducing American leadership in satellite communications,” said Rep. Edward Royce, R-Calif. “The playing field for this $120 billion a year industry clearly is more crowded and more competitive than it’s ever been before, and our export control system has poorly responded.”

The loss of international sales means the space industry is now heavily dependent on the U.S. government for its survival. About 90 to 95 percent of the industry’s sales are related to the U.S. government.

“We’re arsenalizing the industry,” said Pierre Chao, senior associate of the Center for Strategic and International Studies. He co-chaired a study on the health of the U.S. space industrial base and the impact of export controls.

The industry currently has overcapacity, and not enough work, Chao said at the hearing. A noticeable weakness is seen in the second and third tier of the industries.

Restrictions on U.S. exports — intended to prevent other powers such as Russia and China from acquiring advanced space systems — have not achieved that objective, said Chao. “Many of the countries that have gained capability in space got it from the Russians or from others.”

The Chinese are banned from acquiring U.S. space technology or from launching any satellites that have U.S. components. But China nonetheless has bolstered its clout as a provider of lower cost launch services.

Western launch vehicles cost around $80 million, while the Chinese launch vehicles are half that amount, noted lawmakers at the hearing.

“We found that the export control regime had the perverse unintended consequence of encouraging others to develop indigenous capabilities,” said Chao.

U.S. export rules also make it difficult for the government to work with allies, said Chao. This conflicts with the national space policy that encourages international cooperation.

It is time for the administration and Congress to review these issues and consider making changes, suggested Chao.

U.S. companies increasingly will see disadvantages against suppliers of ITAR-free satellites, said Patricia Cooper, president of the Satellite Industry Association.

In the past few years, European manufacturers have managed to produce the requisite parts and components to make spacecraft without any U.S. content, she told lawmakers.

European countries do not regulate satellites as munitions so ITAR-free satellites are traded as commercial dual-use products under far less stringent export controls. “We know of at least six such ITAR-free satellites sold by Thales to date, initially to Chinese and Hong Kong customers and more recently to Indonesian, Egyptian and European satellite operators,” Cooper said.

Most satellites cost between $200 million and $500 million. Some ITAR-free birds are being sold at a 5 to 10 percent premium, Cooper said.

A decade ago, U.S. companies controlled 65.1 percent of the world’s satellite manufacturing market. By 2007, that was down to 41.4 percent. Cooper said some of the initial decline was attributed to losing Chinese customers that U.S. companies were prohibited from seeking. ITAR constraints also are a factor, she said.

“We’ll be very interested to see statistics in the next year or so when the contrast is between U.S. ITAR-regulated satellites and European non-ITAR-regulated satellites,” Cooper said. “That contrast hasn’t been as clear or apparent in years previous to the development of an ITAR-free satellite.”

On the other end of the debate are those who fret that any relaxation of current rules will boost China’s influence. “I urge you to keep satellite exports control in the Department of State,” said Larry Wortzel, vice chairman of the U.S.-China Economic and Security Review Commission and a former military attaché at the U.S. embassy in China. “Given the way that satellite programs are being used in China, exports of dual-use technologies that would improve China’s remote sensing satellite capabilities still require careful control,” he said at the hearing.

That sentiment was echoed by Rep. Dana Rohrabacher, R-Calif. “As a Republican and a believer in free markets, I do not begrudge satellite operators, who are making millions of dollars of profit,” he said. “But the fact is that we should not be compromising the security — long-term security interests of our country for that short-term profit.”

The Pentagon’s assessment of the space industry — published by the office of the undersecretary of defense for acquisition, technology and logistics industrial policy — said that top tier manufacturers are in good financial health, but there are some “areas of concern.”

Revenues of U.S. satellite manufacturing firms were down 20 percent in 2007 from 2006, after having been up 56 percent in 2006 from 2005.

The space industry employed 144,400 workers in 2008 — 16,184 in satellite manufacturing, 78,162 in launch manufacturing and operations, and another 49,423 in satellite services. Employment had increased from 120,000 to 145,500 from 2003 to 2006.

Three prime contractors account for the majority of major defense space programs: Boeing (Global Positioning System II, Wideband Gapfiller Communications, and Delta Evolved Expendable Launch Vehicles), Lockheed Martin (Global Positioning System II/III, Space Based Infrared System, Advanced Extremely High Frequency Communications, and Mobile User Objective Communications) and Northrop Grumman as the prime contractor on the weather satellite system National Polar-orbiting Operational Environmental Satellite System and on the Missile Defense Agency’s Space Tracking and Surveillance System.

Defense space procurement funding is at all-time high as a result of the modernization of space systems for military missions, including early warning and surveillance, communications, weather and navigation, said the Pentagon study. Defense space procurement funding for 2009 is $11.9 billion, a 5.3 percent increase from 2008. A drop of 12 percent is forecast for 2011. This could “create volatility in the sector and could lead to consolidation,” the report said.

Regarding the ITAR issue, Pentagon officials appear to be somewhat worried that the regulations may be unintentionally creating new security problems for the Defense Department.

“The office of the deputy undersecretary for industrial policy is concerned that U.S. suppliers are replicating or making new technology investments overseas to avoid export control and ITAR competition barriers,” the report said. “Anecdotal data surfaced in some industrial sectors — mostly dual-use areas where we no longer lead the world — where U.S. firms are disadvantaged in foreign competitions due to delays in acquiring export control and ITAR licenses.”

A joint government-industry group is studying whether the Defense Department should consider putting forth a legislative proposal to limit or eliminate the competitive disadvantages to U.S. firms in certain sectors.

Mighty Americom

Monday, June 1st, 2009


So after nearly ten years at Americom, my job was eliminated and I found myself looking for something else — in a weak economy. Started up an LLC in New Jersey and I’ve got some decent work to keep myself busy. Sure, I’ve cut back some things to lower expenses. One expense I find necessary is my subscription to Business Week, which I’ve renewed continuously since 1985. I consider it essential reading, week in and week out.

When Americom was a part of General Electric, there was lots of coverage — not of Americom, but G.E. Once there was a piece on satcom and it caused a ruckus in the office. Things changed when SES bought Americom in 2001. My job got busier. Although I miss the place, I’m not bitter, nor do I regret having spent so much of my working life there. Good job; good memories.

As with any successful business, there will be critics — of managers, strategies, tactics, and various departments (depending on where you stood). You get the picture, don’t you? Sure, I was a critic, but being an optimist, nearly always with a solution to help make things better. Change and optimism is a constant in American business. Get used to it.



Back to my reading. In the 25 May 2009 issue of Business Week, there’s an excerpt from a new book my Jim Collins: How the Mighty Fall. I found the similarities between the typical company in decline and my old employer troubling. It’s not something recent; it’s been going on for years. Can’t find my paper copy (#$%^& pain in the neck!), which had an excellent comparison chart of organizational behavior that gave me pause. Soon as I find it, I’ll add it to this post. The book is worth reading — one of the best ever, in my opinion.

About the five stages…


Great enterprises can become insulated by success; accumulated momentum can carry an enterprise forward for a while, even if its leaders make poor decisions or lose discipline. Stage 1 kicks in when people become arrogant, regarding success virtually as an entitlement, and they lose sight of the true underlying factors that created success in the first place. When the rhetoric of success ("We’re successful because we do these specific things") replaces penetrating understanding and insight ("We’re successful because we understand why we do these specific things and under what conditions they would no longer work"), decline will very likely follow. Luck and chance play a role in many successful outcomes, and those who fail to acknowledge the role luck may have played in their success—and thereby overestimate their own merit and capabilities—have succumbed to hubris.


Hubris from Stage 1 ("We’re so great, we can do anything!") leads right to Stage 2, the Undisciplined Pursuit of More—more scale, more growth, more acclaim, more of whatever those in power see as "success." Companies in Stage 2 stray from the disciplined creativity that led them to greatness in the first place, making undisciplined leaps into areas where they cannot be great or growing faster than they can achieve with excellence—or both. When an organization grows beyond its ability to fill its key seats with the right people, it has set itself up for a fall. Although complacency and resistance to change remain dangers to any successful enterprise, overreaching better captures how the mighty fall.

Discontinuous leaps into areas in which you have no burning passion is undisciplined. Taking action inconsistent with your core values is undisciplined. Investing heavily in new arenas where you cannot attain distinctive capability, better than your competitors, is undisciplined. Launching headlong into activities that do not fit with your economic or resource engine is undisciplined. Addiction to scale is undisciplined. To neglect your core business while you leap after exciting new adventures is undisciplined. To use the organization primarily as a vehicle to increase your own personal success—more wealth, more fame, more power—at the expense of its long-term success is undisciplined. To compromise your values or lose sight of your core purpose in pursuit of growth and expansion is undisciplined.


As companies move into Stage 3, internal warning signs begin to mount, yet external results remain strong enough to "explain away" disturbing data or to suggest that the difficulties are "temporary" or "cyclic" or "not that bad," and "nothing is fundamentally wrong." In Stage 3, leaders discount negative data, amplify positive data, and put a positive spin on ambiguous data. Those in power start to blame external factors for setbacks rather than accept responsibility. The vigorous, fact-based dialogue that characterizes high-performance teams dwindles or disappears altogether. When those in power begin to imperil the enterprise by taking outsize risks and acting in a way that denies the consequences of those risks, they are headed straight for Stage 4.


The cumulative peril and/or risks gone bad of Stage 3 assert themselves, throwing the enterprise into a sharp decline visible to all. The critical question is: How does its leadership respond? By lurching for a quick salvation or by getting back to the disciplines that brought about greatness in the first place? Those who grasp for salvation have fallen into Stage 4. Common "saviors" include a charismatic visionary leader, a bold but untested strategy, a radical transformation, a dramatic cultural revolution, a hoped-for blockbuster product, a "game-changing" acquisition, or any number of other silver-bullet solutions. Initial results from taking dramatic action may appear positive, but they do not last.

When we find ourselves in trouble, when we find ourselves on the cusp of falling, our survival instinct and our fear can prompt lurching—reactive behavior absolutely contrary to survival. The very moment when we need to take calm, deliberate action, we run the risk of doing the exact opposite and bringing about the very outcomes we most fear. By grasping about in fearful, frantic reaction, late Stage 4 companies accelerate their own demise. Of course, their leaders can later claim: "But look at everything we did. We changed everything. We tried everything we could think of. We fired every shot we had, and we still fell. You can’t blame us for not trying." They fail to see that leaders atop companies in the late stages of decline need to get back to a calm, clear-headed, and focused approach. If you want to reverse decline, be rigorous about what not to do.


The longer a company remains in Stage 4, repeatedly grasping for silver bullets, the more likely it will spiral downward. In Stage 5, accumulated setbacks and expensive false starts erode financial strength and individual spirit to such an extent that leaders abandon all hope of building a great future. In some cases the company’s leader just sells out; in other cases the institution atrophies into utter insignificance; and in the most extreme cases the enterprise simply dies outright.

How the Mighty Fall and Why Some Companies Never Give In By Jim Collins, © 2009 By Jim Collins

Here’s a video of Jim Collins, on the the topic of how a company can be saved: