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Getting ITAR Compliance Right with Onshoring

January 15, 2018 Views : 826Comments : No Comments

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It’s no longer all about offshore outsourcing. With labor costs in China increasing and reshoring initiatives gaining momentum, manufacturers are leaving their offshoring posts and sailing back to their home grounds to set up shop. Companies setting up new factories in the US are embracing smart manufacturing practices to herald the new era of Industry 4.0. Statistics suggest that in the first three quarters of 2017, about 180,000 jobs have moved back to North America from locations outside the region. While the new operational model promises more job opportunities to citizens, companies are impacted by increasing CAPEX and skilled labor costs.

Aggressive export controls on articles, technologies, and services classified in the US Munitions List (USML) are further constricting profit margins. US aerospace and defense manufacturing companies are grappling to hold global leadership positions, as innovations such as 3D robotics and high throughput satellite systems with multiple spectrum bands and orbits continue to disrupt the industry.

Manufacturers have increased their expenditure on purchasing technology. One study suggests that in the third quarter of 2017, the industry witnessed a record $44 billion worth of mergers and acquisitions (M&As), which exceed 2016’s statistics by 182 percent. While this approach has increased companies’ value, overall revenues have taken a hit. Consequently, the industry’s pace of growth has declined from 4 percent in 2015 to 1.7 percent in 2016.

Companies dealing with export-controlled items are chief among those compelled to steer through these turbulent waters. Achieving US’ International Traffic in Arms Regulations (ITAR) compliance, while reducing business expenses is now of paramount importance to them.

The Nuts and Bolts of ITAR

Through ITAR, the US administration has defined who is entitled to access their defense-related data so that defense secrets do not fall into the wrong hands. In the process, it has restricted all 21 categories of USML items, including technical data specific to the article or technology, to be exclusively accessed by US citizens. If the information needs to be shared to a non-US entity, regulations mandate that companies go through proper channels and obtain export licenses.

Needless to say, a data breach could amount to hefty penalties. For instance, a major telecommunications leader in China was charged with 380 violations of Export Administration Regulations (EAR) for importing US-origin telecommunication items and re-exporting the shipments to North Korea, without observing licensing norms. The company had to pay $1.9 billion in fines.

In another case, a New Jersey-based defense manufacturer was prosecuted for sending sketches of export-controlled military parts to solicit quotations from third parties online without registering for requisite EAR-licenses. Violating ITAR compliance cost the company $400,000 in civil penalty. These cases have woken companies up to the need to be aware of whom and how they are sharing ITAR-compliant items.

Exploring Onshoring Opportunities

Even though ITAR compliance restricts freely sharing defense-sensitive technical data and items, companies cannot do without third party agencies for activities like supplying electronic parts for arms, designing and prototyping aircrafts, providing engineering services, and preparing technical documentation. Global companies specializing in such functions provide cost-effective opportunities to streamline manufacturing operations.

With foreign suppliers and service providers expanding operations in the US, aerospace and defense companies have ample room to outsource processes to onshore centers. These centers employ local talent and are ITAR-certified. They provide the advantage of proximity to end markets, which ultimately translates into lower transfer costs.

In effect, companies can accelerate their products’ time-to-market, allowing them to stay ahead of the competition. Add to that the expertise of infrastructure and tech professionals at onshore centers and they are well on their way to new-found cost benefits and profit margins that do not disappoint.

Disclaimer: Any views or opinions represented on this page belong solely to the blog owner and do not represent those of people, institutions or organizations that the owner may or may not be associated with in professional capacity, unless explicitly stated.

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