Technology valuation model in defense offset trade: Income approach

Defense offset has been implemented by a counter-trade obligation in defense acquisition contracts between purchasing countries and foreign selling companies in the global arms market. It gives the buyer a valuable opportunity to acquire not only defense R&D technologies, but also parts production and other advantages. Even though the importance of defense offset trade is greatly increasing today, purchasing countries still need more objective and credible valuation methods by mutual agreement in defense offset contracts. Whereas the income approach is widely used for commercial fields, it is rarely applied to defense acquisition projects. This paper presents the income approach-based technology valuation model in the defense offset program of the Republic of Korea. The contribution of this paper is in the application of the Defense Offset Valuation with INcome approach (DOVIN) model and its empirical implementations to defense offset contracts. It also shows several policy implications that could be applied to the defense offset program.