Summary: With the end of the Cold War and the subsequent decline in military spending in the United States and Europe, defense companies on both sides of the Atlantic began looking to each other's market for additional sales. To gain political advantage when competing in the other's market, U.S. and European contractors began forming transatlantic business alliances. GAO found that U.S. defense contractors prefer teams because they can choose new partners for each competitive market without forming permanent alliances, but European governments do not like the subsidiary role to which they are sometimes consigned. A joint venture is a separate legal entity that two or more companies form to pursue a discrete market. They share risk, decision making, and technology. U.S. companies see a drawback because work may be divided according to the country's investment as opposed to a country's skill. Subsidiaries are not favored because no one country in the fragmented European market has an impact to market access in another country, and large U.S. defense companies have not favored merging with or acquiring major defense companies. Although the U.S. companies reviewed do not consider the U.S. legal and regulatory environment to be a major impediment to forming an alliance, they are concerned with the effect that a slow technology transfer can have on the operation of an alliance and the regulation requiring foreign governments to seek U.S. consent before transferring alliance products to third parties.
