U.S. defense giant Raytheon Co., better known for the missile systems it develops, is counting on border security to drive revenue growth overseas.Tom Culligan, president of Raytheon International, said the firm is building on its first entry into the civil surveillance market in 1997, when it sold Brazil a system designed to stop the smuggling of drugs and minerals from the Amazon River basin. The technology, which uses a mix of fixed and mobile ground radar and airborne surveillance, helped Brazil monitor activity in the forest that makes up the bulk of its national territory.
A decade later, Raytheon is building on the expertise it acquired with this project to design and implement "e-borders," a $1.4 billion U.K. government contract to help the country keep tabs on travellers using its ports, airports and stations and combat terrorism.
"We're using people who worked on the Amazon contract to help us think through 'e-borders.' We've built significant expertise in the field with that first project," Culligan said.
Winning the high-visibility "e-borders" contract marked an important step in Raytheon's push in the international civil market, opening the doors for it to woo other countries with similar needs.
Although just 20% of Raytheon's $21.3 billion in sales came from outside the U.S. in 2007, international markets are set to play a bigger role in the company's strategy going forward, and border security is at the forefront of its expansion efforts.
That's because although Raytheon is doing brisk business at home -- it is working with the U.S. Department of Homeland Security on new radiation and nuclear detection monitors and on the visitor management program -- it sees more large opportunities in border control outside of the U.S.
The unpredictability of the growth of the U.S. defense budget in the next few years also makes a stronger international presence alluring to Raytheon.
"We expect at best a leveling off of the U.S. defense budget," said Culligan. "What goes up must come down."
Abdallah Binmadhi, an analyst for civil security markets in the defense and aerospace practice of consultancy Frost & Sullivan, said defense companies like Raytheon are increasingly lured to fast-growing civil security market.
In 2006, the global homeland security market was worth about $55 billion, according to strategic advisory firm Civitas Group. Over the next 10 years, it is expected to top $350 billion, Frost & Sullivan forecast.
Countries planning to join the European Union such as Romania and Bulgaria are a good example of the kind of opportunities emerging in the sector, Binmadhi said. The two countries must upgrade their border control as they prepare for their entry into the Schengen passport-free travel zone.
"The European Union is spending quite a bit to improve the border security of its new members," he said. "And it's not just a fence, a border infrastructure system includes things like vehicles, sensors and complex IT systems. So that makes the sector very interesting to many companies in various fields."
In 2008, the border security market in E.U. accession states alone will be around $780 million, according to his research.
Another opportunity Raytheon is closely monitoring is Saudi Arabia. The kingdom is assembling a new border security force of 30,000 to protect its 6,500 kilometres (4,038 miles) of borders with Jordan, Iraq, the United Arab Emirates, Qatar, Oman and Yemen against infiltration by militants, illegal immigrants and arms traffickers.
In addition to training and equipping the members of the force, the contract is expected to provide for the construction of radar stations to monitor ground movement, the building of infrastructure such as roads, and the installation of a countrywide communications network.
Raytheon's main rival for the contract is France's Thales.
With an estimated homeland security market of $115 billion between 2007 and 2018, Saudi Arabia is the second-largest such market in the world after the U.S., according to the Homeland Security Research Corp.
Friso Buker, a senior civil security advisor at Frost & Sullivan, said that in the region, the United Arab Emirates, Qatar and Oman are also looking at tightening border security.
Lost in translation
To be in a position to win such contracts, Raytheon, which has long specialized in state-of-the-art electronics, mission systems integration and missile systems, has had to translate its military technology to civilian applications.
It is not an easy job, and the risks attached should not be underestimated.
"You have to modify military technology to apply it commercially," Culligan said. He uses the example of swim lanes to make his point. The first swim lane next to yours is a market that uses a lot of the technology you already have but for a different application. The next swim lane after that is more of a departure and so on.
"The trick is that your probability of success goes down with each further swim lane you broach," he said.
Binmahdi agreed that the learning curve for defense companies going into the civil market can be steep, despite some synergies. Procurement systems, for instance, are completely different, he said, That's what Raytheon found when it first broached that market.
"It's very challenging to learn to deal with civil agencies. They aren't structured in the same way. Most military organizations are focused on a very clear goal: to protect the country, and so they have very firm processes. When you go to civil products you don't have nearly the same situation," said Culligan.
The company had to learn to deal with interior ministries, build new relationships and start changing people's view of Raytheon as a big seller of missile defense systems and nothing else.
"We realized we couldn't go after the civil market with a military mindset," he said.
Despite the drive to gain more international business in homeland security, Raytheon remains highly aware of the importance not to stray too far away from its core business.
It is keen not to repeat the mistake it made in the 1990s, when its expansion into all sorts of businesses, including construction and publishing, saw it dangerously dilute its focus.
Article appeared on Marketwatch
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