Rapidly developing political changes in Europe, which began unexpectedly in 1989, are causing even the NATO (North Atlantic Treaty Organization) alliance to consider non military roles. In the United States (US), President Bush has announced that the missile replacement program scheduled for Europe will not go ahead, and Defense Secretary Cheney has announced sweep ing cuts in the nation's governmental defense establishment.
All of these changes are causing conservative politicians to warn against moving away from the national defense build up which began under President Reagan, and which, together with tax cuts, will likely cripple the American economy in the early years of the next century. Senior military personnel are gird ing for another military recession, such as that endured by the services under President Eisenhower, and the defense industry in the US, together with investors, is wondering how it will remain viable in the absence of the "Cold War."
This research examines the outlook for firms whose primarybusiness is the production of goods and services for the nation's governmental defense establishment, or firms whose national defense activity accounts for a significant proportion of their total output. The major issues involved in this exam ination are the sole source/sole customer relationship which
1 2exists between the Department of Defense and many defense con tractors, and the ability of defense contractors to convert operations from defense to civilian production. This examina tion proceeds on an assumption that the outlook for defense contractors is questionable, as a consequence of changing international political conditions.1
THE SOLE SOURCE/SOLE CUSTOMER RELATIONSHIP
A variety of concerns exist with respect to the sole source/sole customer policy. These concerns include acquisi tion costs, redundancy in both research and development and in production, the creation of unhealthy dependency rela...