Of the leading aerospace and defense (A&D) companies surveyed, all executives agreed that the most important factor driving globalization in the A&D industry is the rapid growth of markets outside North America and Europe, according to the Aerospace and Defense Insights: Accelerating global growth report by PricewaterhouseCoopers LLP (PwC). This report, which highlights feedback from leading CEOs and senior executives in the A&D sector, shows that these growing markets offer new customers, lower costs and access to talent - all of which are in short supply in developed markets. Many A&D companies are investing in new markets to pursue the customers and relationships that will help drive sales growth over the next two decades.

In the next 20 years, A&D companies are predicting that they will manufacture approximately 30,000 new commercial aircraft, which represents nearly 50 percent growth over current production levels. Led by India and China, the Asia-Pacific market is projected to grow more than 70 percent, making it the largest market in the world for new aircraft. Asia-Pacific will account for 37 percent of the value of all new aircraft delivered in 2009-2028, nearly as much as North America & Europe combined (43 percent collectively). For defense companies, military modernization and regional tensions in the Middle East and Asia are driving record levels of defense exports at a time when defense budgets in the U.S. and Europe are flattening.

One strong indication that the A&D industry is international but not yet global is the pattern of industry mergers and acquisitions over the last ten years. The majority of deals by volume and value have occurred in and between the United States and Europe. In 2009, 76 percent of the deals valued above $50 million involved targets in North America, the U.K. or the Eurozone. This compares to 19 percent of the deals with targets in Asia and Oceania. Middle East players were involved in only a handful of deals in 2008 and 2009, none of which had publicly disclosed values above $50 million, after an active 2006 and 2007.

"Despite a global market, the A&D sector remains less global than other technology and knowledge-based industries," said Scott Thompson, U.S. Aerospace & Defense leader at PricewaterhouseCoopers. "While the A&D industry is a leading exporter, when also evaluating the global supply chain and foreign direct investment, the A&D industry is in the middle of the pack compared to other industries. Those companies that are able to more quickly adapt to opportunities and challenges of an accelerating global environment will be best positioned to build and maintain a competitive advantage in the years ahead."

Most A&D companies in the U.S. and abroad agree that they would benefit from increasing the pace of globalization, but a number of challenges are slowing their efforts, including protection of intellectual property, the complexity of export control regulations, maintaining ethics and compliance across cultures, management of an international supply chain and the expansion and increasing complexity of offset requirements.

While the shift towards globalization presents challenges, the report predicts that companies who are able to make the leap from international to global the quickest will accelerate improvements in recruiting, efficiency and R&D. They will also gain leading positions in the growth markets of the future, which lie outside of North America and the EU.

"The A&D industry has an extraordinarily long product life cycle," added Thompson. "Management's decisions and investments today will shape the industry for the next two decades. The winners of this race will be those that can most effectively adapt, expand and execute global business strategies."