2015 Market Outlook: SOSi CEO Julian Setian Predicts Growth in Foreign Military Sales

WashingtonExec 2015 Market Outlook Series

We look forward to a new year and new opportunities for innovation and growth in the government contracting community. This past year, we experienced an increased emphasis on cybersecurity, the government’s procurement process and a perpetual focus on doing more with less.

WashingtonExec reached out to those most knowledgeable and experienced in the federal contracting space. We asked executives in and around the beltway for insight regarding where they see the government contracting community headed in 2015. Topics discussed include M&A activity, cloud computing, privacy issues, data collection, healthcare IT, defense and more.

SOSi CEO Julian Setian predicts growth in cyber, Big Data analytics, unmanned systems and foreign military sales.

Julian Setian: Overall, my prediction is what many others are predicting, which is large-scale consolidation and tightening of the GovCon industry. No big surprises or secrets there. That said, I believe that large-scale conflict and the threat of terrorism still loom heavy over the horizon, so there are still going to be big opportunities in the national security and mission support services sectors — particularly where Dept. of Defense and Dept. of State missions intersect. The investment community is largely discounting the businesses that have long dominated the overseas contingency operations businesses, but my prediction is that they will be among the industry’s biggest climbers in the years to come.

My view of future collaboration between government and industry to tackle the tough issues is pretty pessimistic. Unfortunately, I think the government is set in its ways in its dealings with private industry. I see no big breakthroughs. The government will continue to hold industry days supposedly aimed at soliciting feedback from private industry, but most of it will be lip service, amounting to very little.

Also, in addition to cyber, Big Data analytics and unmanned systems, the area that we see growing is foreign military sales (products, services and training). As U.S. dependence on foreign oil continues to decrease, U.S. commitments to our partners in the Middle East, Central Asia, Africa and Southeast Asia will decrease, or at least become less overt. This will spur others to build up militarily. As a result, the companies with good overseas experience will fare well, and services and training will follow the sale of U.S. military products. That’s where we’re heavily focused at the moment.

On the M&A front, I see more of the big deals being struck between the big manufacturers and integrators, but not a lot of activity at the lower end of the spectrum. I also definitely see more IT budget cuts, but those with actual technology solutions contributing to greater customer efficiency will do well.

My view of future collaboration between government and industry to tackle the tough issues is pretty pessimistic. Unfortunately, I think the government is set in its ways in its dealings with private industry. I see no big breakthroughs. The government will continue to hold industry days supposedly aimed at soliciting feedback from private industry, but most of it will be lip service, amounting to very little.

The biggest problem in the GovCon business is the lack of real innovation, but the only way real innovation can be achieved in the GovCon market is for the government to make it easier for companies to generate healthy profits. That goes against the grain of what government contracting officers are trained to do. The one thing you may see is greater attempts on the part of commercial technology innovators to enter the market, but apart from perhaps one or two fleeting successes, it won’t take long for them to be molded into typical GovCon businesses.

The only exceptions will be those areas in which the government has no choice but to procure goods and services commercially — that is, in large, rapidly-maturing commercial markets, such as cloud computing.

I see big conflicts emerging between advocates for stronger national security and advocates for privacy protection. However, largely due to the widespread commercial benefits of the very same “smart” technology against which the privacy advocates continuously rebel, I think society will strike a healthy balance between the two objectives. That said, I see major legislative overhauls coming that will impact the NSA, specifically — for obvious reasons. My sense is that what many people do not yet understand (but will soon) is that the government’s advances in geospatial technology will far surpass any previous ability to collect and analyze information on its citizens. That will be a new hotbed for conflict in the coming years.

The government’s entire procurement system needs to be reformed, and new standards need to be imposed on government acquisition officials in order for real improvements to be made. There just isn’t enough good, seasoned business expertise in the government making the big multi-million and multi-billion decisions. Period.

What concerns me most about the GovCon industry are the obstacles for mid-tier companies to build sustainable businesses that can grow organically. The government and industry, as a whole, favors the large manufacturers and integrators, and the small disadvantaged business community. Very little, if anything is done to encourage and promote the interests of the mid-tier companies. What’s bad about that is the fact that those are the guys who offer both depth and experience to manage large ambitious programs AND the flexibility, speed and agility to be innovative and react quickly to changing customer needs.

What excites me most is the opportunity to defy the odds and be one of the very few mid-tier companies to emerge from this period of austerity as a large defense and government services integrator. We have had more than 50 percent compounded annual growth rates for the past 13 years, and we’ve seen the largest growth in our corporate history this past year, when things became more difficult for the industry writ large.

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