The Maturing Market for Private Security
By Joanna Spear | 14 Jun 2011
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| Un funcionario de los EE.UU. escoltado por guardias de Blackwater. |
It has been nearly two decades since the international community first focused significant attention on the private military firm as an important actor in conflict. Although quasi-firms and groups of individuals had operated in conflict zones before, a series of high-profile interventions by private military firms in the 1990s served as a watershed moment for the private security industry. In particular, the positive changes to the security environment brought about by private military firms in Angola (1992-1995), Sierra Leone (1995-1999) and Croatia (1994-1996), combined with newfound claims for the firms' legitimacy as security actors, made the world sit up and take notice.
The market for private military firms emerged at that time due to a combination of factors. These included post-Cold War disorder; the fragility of many developing states when they lost their superpower backers; the unwillingness of those backers to intervene in certain parts of the world now that the geostrategic situation had changed; the willingness, by contrast, of some private corporations to pay for operations to secure their valuable natural resources; the international urge to realize a "peace dividend" by reducing the size of military forces and by privatizing services; and the resulting ready supply of demobilized soldiers and plentiful weapons (pdf). At a time when the international appetite for intervention, even in the name of peacekeeping, was low, these private military firms stepped into the vacuum.
Some of these pioneering private military firms (PMFs) of the 1990s met with a firestorm of opposition to their activities. In particular, Executive Outcomes and Sandline International, firms that were actively engaged in the African conflicts mentioned above, were at times praised but more often condemned for their actions. Both of these firms subsequently closed down: Executive Outcomes, which dissolved in 1999, was targeted by legislation that hampered its operations; Sandline International was eventually brought down by scandal in April 2004, a month after its co-founder Simon Mann was arrested in Zimbabwe for attempting to stage a coup d'etat in Equatorial Guinea. Of the early pioneers, only Military Professional Resources Incorporated (MPRI), which trained the Croatian military during the Balkan wars, survives and prospers.
As these examples illustrate, there has been considerable churn in the PMF world since the early days. How then have the players and the market evolved during the past two decades and what might the future hold for the private military firm? To answer these questions, we will look at several different categories of private military firms and then assess the market in which the private military firms are working. Before this, though, it is worth addressing the issue of definitions.
Definitions
In the years since firms such as Executive Outcomes and MPRI first appeared on the international scene, an inordinate amount of academic and policy attention has been paid to the question of how to define private military firms. Two types of definitional debates have been going on, one linked to legitimacy, and a second linked to the problem of how to parse out different types of PMFs. With regard to the first definitional debate, opponents of PMFs have been keen to stress the similarities between private security firms and old-fashioned mercenaries. Proponents, particularly the PMFs themselves, but also some agnostics have been keen to differentiate them from mercenaries. This debate has often been quite polemical, reflecting the high stakes involved.
More germane to our examination is the second definitional debate, over how to differentiate types of private military firms in the international market. This creation of a functional taxonomy is clearly important for understanding the market and particularly for a more fine-grained analysis of the state of the market. Peter Singer's typology of private military firms serves as a useful starting point. Singer differentiates between three types of firms on the basis of the types of services that they provide and whether they use force:
- Military provider firms are those that are directly involved with force projection and implementation. Firms such as Executive Outcomes most clearly fall into this category.
- Military consultant firms play roles such as providing military advice and training. MPRI's training of the Croatian and, later, the Bosnian armed forces are a good example of such firms.
- Military support firms are those firms that provide various forms of nonlethal aid and assistance, from laundry services to electronic surveillance, and from cybercapabilities to providing contract personnel to work within governments.
Clearly there is a wide range of activity covered by the last category. Firms such as Kellogg Brown and Root provide a variety of nonlethal support services to the U.S. military in theaters including Iraq and Afghanistan. L-3 Communications is a good example of a firm providing a range of electronic surveillance services to governments. There are also a variety of firms that service a client that just happens to be a military, and therefore become a military support firm almost by default. For example, Sodexo, in addition to providing catering services to various American universities, has for a long time been contracted by the British Ministry of Defense around the world to provide a wide range of services, including catering and clerical help. Furthermore, it is sometimes the case that firms can move between sectors depending on the contracts they win and the conditions on the ground, so there is some blurring of the boundaries between these ideal types. A number of examples of this will be shown below.
Firms in the Contemporary Market
Military Provider Firms
In contrast to the boom years of the 1990s, there are no longer firms that clearly and solely fall into the military provider firm category, ready and able to engage in offensive combat operations. The day has passed for firms in the mold of Executive Outcomes. This reflects the fact that they failed to convince the world of their legitimacy, though some observers were convinced of their utility. Although there are recent examples of weakened states seeking to purchase combat support, they employed individuals or small groups, rather than military provider firms. For example, Libyan leader Moammar Gaddafi turned to Malian Tuareg tribesmen and former members of the Serbian military to support his embattled regime against the rebellion emanating from Benghazi. In Côte d'Ivoire, President Laurent Gbagbo attempted to prevent his ouster by employing mercenaries from Liberia and elsewhere in Africa. Arguably, had military provider firms been available, they might not have accepted the opportunity to work for either of these leaders, as it might have compromised their legitimacy. But the key here is that such firms are no longer in existence.
Next Page: The effect of the operational environment . . .
That said, a number of activities undertaken by certain types of military support firms put them into active combat situations, either because of the immediate environment or because of the nature of the contract they have and the type of operations they perform.
To consider first the effects of the environment in which some military support firms operate, there are numerous examples from the operations in Afghanistan and Iraq of contractors coming under attack while carrying out responsibilities such as guarding embassy employees and protecting journalists. In this situation, the military support firm finds itself in conflict, but, importantly, it is in a defensive role. Such firms are not expected -- or allowed -- to initiate any form of combat. A 2007 case where Blackwater USA was alleged to have overstepped that line led ultimately to the demise of the firm in 2008, though like the phoenix it quickly returned under the name Xe.
A different sort of combat involvement arises from the changing nature of contemporary warfare. As has been widely commented on, war is becoming increasingly "wired." It is common to talk now about "cyberwar" and "electronic warfare." Active combatants in electronic warfare often sit nowhere near the battlefield but still play a core role in offensive combat operations, and many of them work for specialist high-technology military support firms.
In such situations, the nature of the contract duties it performs ensures that a military support firm will actually be playing a role more akin to that of a military provider firm. This reinforces the argument made by Deborah Avant that it is important to look at the types of contracts a firm performs when attempting to classify their place in the private military firm taxonomy. What prevents these military support firms from being reclassified is, in part, their physical distance from the battlefield, the ambiguity about their roles and, more tellingly, the state's desire to retain these firms by keeping them defined as legitimate actors.
Military Consulting Firms
The market for military advice and training has been buoyant for the last decade, primarily due to the U.S. interventions in Afghanistan and Iraq and the subsequent enormous challenges of building effective and responsive military and police forces in these two countries. However, there has been great concern about the amount of money devoted to training military and police forces in Afghanistan compared to the poor performance and retention rates of the forces that have been trained.
A recent training deal is an example of the blurring of boundaries between the ideal types of PMF. The United Arab Emirates signed a $529 million contract with an Abu Dhabi based company, Reflex Responses, to build and train a battalion of foreign soldiers -- that is, mercenaries. The foreign battalion is expected be used by the UAE to quash unrest among foreign laborers and to defend the country from terrorism, roles traditionally played by state police and military forces. In fulfilling the contract, Reflex Responses is, in essence, helping to create not a military provider firm, but a mercenary force to play the same role.
MPRI, which Singer uses as a case study in his chapter on military consulting firms, is illustrative of how market forces are also contributing to blurring the boundaries between PMFs. Following its heyday in the 1990s, MPRI was acquired in 2000 by L-3 Communications Holdings Inc. for $40 million. L-3 was a relatively young company, created out of 10 unprofitable divisions bought from Lockheed Martin for $525 million in 1997. L-3 went public in 1998, and its stock flourished due to its acquisitions of firms dealing with aspects of electronic warfare, which ensured a growing income stream even as overall U.S. defense spending remained flat prior to Sept.11, 2001. Since acquiring MPRI, L-3 has further expanded through buyouts, its largest being the acquisition of Titan Corp. for $2 billion in 2005. By 2006, Forbes was assessing the value of L-3 at $9.9 billion, with $12.3 billion in expected revenues for the year.
Singer noted in closing his case study that the acquisition of MPRI by L-3 Communications, "would seem to provide MPRI with additional areas of profitability. At the same time, such changes could lead to an interesting turn of events. They might represent the beginning of the PMF's 'civilianization.'" This seems to be happening, but not quite for the reasons that Singer anticipated.
In its search to retain market share, and in the face of a leveling off of U.S. government demand for certain types of contractors, MPRI -- as part of L-3 -- has been branching out. MPRI made the strategic acquisition of the International Resources Group (IRG), well respected for its development and conflict resolution work. IRG enables MPRI to offer a distinctly wider range of services now -- 26 in all, ranging from the Laser Marksmanship Training System to, surprisingly, water services. On water issues, it aims to work with clients to "increase the overall efficiency and equity of water use to satisfy the growing demand of urban and rural households, industries and farmers in an environmentally sound way." This morphing of MPRI is an interesting illustration of the blurring of the boundary between Military Consulting Firms and more-traditional types of consultancies, in this case with a development consultancy that might have been expected to be antithetical to what MPRI traditionally regarded as its core business.
Military Support Firms
An interesting example of a firm that sometimes falls into the category of a military support firm is GardaWorld, a nearly 40-year-old company that has transformed itself, partly through acquisitions, into one of the top 10 consulting and security services firms worldwide. Having been initially primarily engaged in domestic security activities, such as guarding buildings and people and providing electronic surveillance services, with the acquisition of Kroll Security International in 2006, GardaWorld gained new government and corporate clients for services such as "intelligence, executive protection and kidnap negotiations in high-risk countries including Iraq and Afghanistan." Even with government clients, many of their services concern aspects of domestic security, such as vetting employees and planning for disease outbreaks. GardaWorld made the news in 2007 when an employee of IT consultancy BearingPoint, itself a military support firm, and his four-man GardaWorld security detail were kidnapped in broad daylight from the Finance Ministry in Baghdad. Nevertheless, the majority of its business seems to be providing strategic risk assessment and planning advice to a range of clients, most of them corporate, even if its work in combat zones such as Afghanistan or Iraq makes it a military support firm.
Next page: The U.S. and and private military firms . . .
One of the biggest employers of military support firms is the U.S. government, which uses them quite extensively both at home and abroad. As noted above, they perform a wide range of functions for governments, from providing intelligence and psychological activities known as "perception management" to providing dining services for the military in Afghanistan. The major role for military support firms stems from the post-Cold War drawdown in U.S. forces and the subsequent privatization of many support services previously performed by the government. The process has had some unintended consequences, however.
One of these concerns institutional memory. Now that military support firms play an extensive role in many core functions such as intelligence gathering and analysis, the institutional memory, in terms of personnel, now lies outside of the government. Many of the staff who work for military support firms previously worked for the government, but transferred over to the private sector. There are no guarantees that these people will not be transferred to other assignments by their employers. As a result, valuable institutional memory is being lost, a particular problem in the realm of intelligence, where in certain agencies, such as the National Security Agency, the number of contractors employed to conduct core business has increased significantly.
Another unintended consequence concerns seniority within the government. It seems that federal workers with 15-20 years of experience in the security realm become particularly attractive potential employees for military support firms. With these federal workers being lured away, the government is increasingly promoting federal employees faster in order to bridge the resulting generational gap in the workforce. However, those being promoted do not yet have the necessary experience, knowledge or management skills to play these roles. This has led to significant frictions within some parts of the U.S. government.
A final unintended consequence is that there are often tensions within departments between "contractors" and "govies" over pay rates, benefits and working conditions. This has led, in some cases, to decreased information sharing and cooperation between groups, particularly in offices where contractors rotate fairly frequently, even though the two groups work in the same offices for the same bosses.
Of late, however, times have been getting a little harder for these military support firms. During the 2008 presidential election campaign, then-candidate Barack Obama criticized the use of private military firms in Iraq, specifically referring to some of Blackwater USA's activities. Once elected, Obama's concerns resulted in some changes to hiring options for contractors and a memo mandating that executive agencies limit their use of sole-source and other types of noncompetitive contracts. This was followed up by a pledge to cut $40 billion from government contracting in two years. Together, these developments amount to what one employee of a defense firm gloomily called "Obama's global war on contractors."
It is certainly the case that we are seeing the glimmerings of a serious discussion about cuts in U.S. defense spending; the recession and concerns about the ballooning deficit are biting hard enough to put the previously sacred defense budget on the chopping block. The cuts will not be limited to major defense systems such as the axed F-22 fighter jet, but will likely be targeted at services too. These fiscal pressures have combined with the Obama administration's stated intention to cut government spending on contracting services. In fiscal year 2009-2010, $15 billion in contract cuts were achieved, with the aim for fiscal year 2010-2011 to achieve a 10 percent reduction in "professional and technical service contracts," the fastest-growing component of contract spending. Clearly the U.S. market is beginning to shrink, but what of the global market?
A Maturing Market?
Over the past two decades, the market for PMFs grew in leaps and bounds, but there is evidence that this growth spurt is also coming to an end, mainly because the global recession is hitting the demand side of the market. Moreover, with the winding down of U.S. operations in Iraq, the U.S. is cutting back both its domestic and its international employment of PMFs. The market in Afghanistan is dominated on the ground by local firms, even if they are subcontracted by Western firms that hold the topline contracts. But this market is increasingly in doubt due to Afghan President Hamid Karzai's threats to exclude all PMFs from the country. There are some potential areas of growth in the global market, for example, in maritime security services to deal with the problem of piracy. Nevertheless, private military firms are increasingly strategizing to maintain their positions in a tightening market.
As indicated above, some PMFs are seeking to sustain their market share in the face of a shrinking market by buying into new types of services that seem less likely to be the target of cuts -- for example, MPRI's strategy of buying market share in the field of development contracting.
Ironically, at the same time, PMFs are increasingly the targets of the same strategies being employed against them by major defense contactors. Defense firms, eager to shore up their businesses in the face of falling global defense budgets, have increasingly been acquiring firms that provide defense services, from ship repair to dog handling, in an attempt to keep market share. Among the recent deals of note was BAE Systems' $870 million acquisition in 2011 of Detica, a specialist security company based in the U.K. As the Financial Times reported, BAE Systems is using acquisitions in intelligence, cybersecurity and electronic systems "to help offset a sharp slowdown in its land systems business in the short term, and generate growth from 2012 onwards." Thus, what we are seeing overall is that competitors in the contemporary PMF market are basically acquiring market share by cannibalizing other firms, rather than by building new markets.
Conclusion
Two decades have seen a lot of changes in the global market for private military firms. One type of firm, the military provider firm, has become extinct. Two other forms, military consulting firms and military support firms, both flourished in the era of the global war against terrorism and the interventions in Afghanistan and Iraq. However, with the demise of Osama bin Laden, the winding down of military operations in Iraq and the anticipated drawdown in Afghanistan, the PMF faces challenges to its continued prosperity.
Dr. Joanna Spear is director of the Security Policy Studies Program at the George Washington University and an associate fellow at Chatham House in London. She recently co-edited with Paul Williams, "Security and Development in Global Politics: A Critical Comparison" (Georgetown University Press, in press).
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