Offset/Industrial Participation Definition

In the context of international defense trade, “offset” refers to compensation that a foreign (seller) firm provides to a purchasing (buyer) country in order to secure a military contract. The purpose of offsets is to level the playing field between different firms vying for the same contract and to encourage technology transfer from the seller to the buyer.

Industrial participation (IP) is a form of offset in which the foreign firm agrees to set up or expand production facilities within the purchasing country. This can take the form of wholly owned subsidiary, joint venture, or licensed production agreement. The foreign firm typically provides know-how and technology transfer as part of IP agreements. IP arrangements are often long-term, involving commitment of significant resources by both parties.