The world still doesn't quite know what to call them. -- In the best book on the subject so far -- P.W. Singer's Corporate Warriors: The Rise of the Privatized Military Industry (Cornell University Press, 2003) -- they're known as PMFs (private military firms). -- In an article published in Saturday's Financial Times of London, they're called PMCs (private military companies). -- One term these organizations don't like: mercenaries, and they have a point. -- Historically, mercenaries were in the employ of states, but the modern corporate warriors are in the employ of corporations like those reporter James Boxell discusses in an article published Saturday in London's Financial Times: ArmorGroup, Janusian, Aegis Defense, Rubicon International Services, Control Risks, and Kroll. -- Of these, the only one discussed in Singer's Corporate Warriors is ArmorGroup. -- Singer writes: "Armor Holdings, a United States-based firm that started out in the body armor business, acquired DSL [the British firm Defense Service Limited, which "originally offered security training and consultation to governments and multinational corporations operating in conflict zones" and "did everything from guard embassies and oil and mine installations in Angola (where its employees numbered well over 1000) to training special-forces units in Indonesia, Jordan, Mozambique, the Philippines, and Uganda," slowly expanding "its operations by acquiring other similar companies using ex-SAS personnel, such as Intersec and Falconstar"] in 1996. Intent on bulding up its 'risk management services,' with a growth through acquisitions-strategy, it created the new Armorgroup divison, with DSL at its core. Over the last four years, Armor has acquired 20 new companies, bringing under its control an array of military-related services, ranging from mine clearance to intelligence. -- With the realization that the Internet is vast unregulated environment weakly controlled by governments and thus a ripe market, Armor also has begun to expand its 'virtual security' offerings; it recently purchased both IBNet, which does Internet surveillance and competitive intelligence gathering, and NTI, staffed by former U.S. Air Force personnel, which does computer security and investigations for both state agencies and Fortune-500 corporations (including CNN, Yahoo, and E-Bay). As the threats of Internet crime and cyberterrorism continue to grow at an exponential rate, Armor's new stake in the virtual security field will likely become increasingly valuable. -- Another Armor acquisition was that of the Alpha firm, based in Moscow. Alpha is essentially a privatized unit of 'Alpha,' the most elite Soviet special-forces organization, an equivalent of the U.S. 'Delta Force.' The 'Alpha' unit was known as 'the Spetnaz of Spetnaz,' as its members were recruited from the best of the other Soviet elite forces. For Armorgroup to add the legacy of this unit was a significant gain in both capabilities and reputation, particularly for operations in former Soviet states. -- Such corporate alliances and acquisitions allow Armorgroup to maintain a truly global presence. It has over 5000 personnel located in over 40 subsidiaries based in over 50 countries. A typical example of one of its subunits is Defense Systems Colombia (DSC), previously a subsidiary of DSL and now within Armorgroup Latin America. DSC has over 350 personnel, most of whom are ex-Colombian military, including its general manager, who was the former commander of the Colombian army. It provides protection within Colombia from rebel attacks, primarily to multinational corporation facilities. -- The success of Armor's acquisitions strategy was demonstrated when it was named among Fortune magazine's 100 fastest growing companies in 1999 and 2000. Overall, Armorgroup's contracts have grown by nearly 400 percent in the last 4 years, almost entirely through referrals. Some subunits have been even more successful (such as DSC, which grew 750 percent from 1997 to 2000). As one financial analyst notes of Armor, 'They have also demonstrated a very capable ability [sic] to integrate the companies they've purchased . . . The market they're participating in is incredibly fragmented, with little end in sight to their acquisition opportunities.' -- Armor is just one example of the merger mania in the military services field, but as a market leader, its strategic vision has set the tone" (Corporate Warriors, pp. 84-85). -- As for the nature of these firms, Singer writes: "[F]irms, such as Armorgroup or Southern Cross Security, which offer area defense and installation security within conflict zones, are often conceived as 'passive.' Rather than attacking forces or seizing territory, they simply create a zone of security around a client's assets. However, both their operations and the impact that their hiring has on the outcome can also be conceived as very active. Rather than being simple security guards in the domestic conception, such firms stake out the control of zones and fend off military attacks, sometimes using military-style force. Due to the nature of most international conflicts and wars, the facilities that such firms deploy to guard are often strategic centers of gravity. Their market entrance, even as a 'passive' firm thus has strategic impact. For example, some firms protect corporate sites that serve as primary funding sources for sides in civil wars or lie across critical lines of communication, as with the Belgian firm IDAS in Angola. In such cases as these, their hire and resulting defense of these sites is actually perceived as aggression by the other side" (ibid., p. 89)....
COMPETITION HITS SECURITY GROUPS IN IRAQ
By James Boxell
Financial Times (UK)
November 5, 2005
When ArmorGroup joined the London Stock Exchange at the end of last year, the phenomenon known as the "Baghdad bubble" was at its height.
Dozens of small private military companies (PMCs), many of them British and similar to Armor, had poured into Iraq to offer armed security for contractors, government officials and aid agencies.
Billions of dollars of U.S. money were earmarked for reconstruction and PMCs were needed to fill gaps left by an overstretched army.
But while PMCs have amassed fortunes in Iraq and created a nascent industry worth about $2bn (£1.1bn), David Claridge, managing director of Janusian, another London-based private security group, suggests the "post-war days of a Marshall plan for Iraq are over."
Intense competition has driven down prices for security services. Political uncertainty and the escalation of violence have hampered reconstruction, delayed contracts, and increased costs.
The share-price performance of Armor -- chaired by Sir Malcolm Rifkind, the former foreign secretary and a vocal opponent of war in Iraq -- reflects the new financial reality.
Five months after its December flotation, the shares had more than doubled. But, since April, they have fallen steadily and now hover about the float price.
In its maiden interim results in September, Armor, which makes 60 per cent of its revenues in Iraq, reported that, while sales rose by 28 per cent, profit margins halved at its protective security business.
Christopher Beese, Armor's chief administrative officer, says large contracts are still being won in Iraq and that the more difficult trading environment represents a natural "settling of the market, though there is a danger of that sounding trite given the violence."
He adds: "In the early days, you just had to get the job done so there was the possibility for significant margins but I do not think that will be so easy now. Buyers are more cautious and budgets are tighter, although these are signs of a maturing market."
In a tightening market, suppliers are also looking to consolidate. This week, Aegis Defense, the privately owned London-based company that oversees more than 20,000 armed expatriates in Iraq, acquired Rubicon International Services.
A senior security industry executive who has worked in Iraq argues that many prime reconstruction contractors -- the biggest customers for many PMCs -- are retrenching to Afghanistan.
He argues that there is still plenty of funding for Iraq, especially from the U.S. and Japan, but it is "difficult for contractors to make money out there because of the expense of security."
Meanwhile, the country's interior ministry has installed a new regime for licensing foreign security companies.
The more established PMCs are committed to a long-term presence in Iraq but this will mean they need an Iraqi face to win work.
Mr. Claridge, at Janusian, which employs 500 Iraqis and 40 or 50 expats, says: "If we were simply staffed by South Africans or Fijians driving about in SUVs, we would be despairing."
Elsewhere, ArmorGroup has formed a joint venture with Kubba Holdings, an offshoot of a well-connected Shi'ite family, the Kubbas, which has businesses in many sectors in Iraq.
Tim Spicer, chief executive at Aegis, says the country is going through the process of "Iraqi-ization, wanting Iraqis to have part of the action."
But there are problems. A U.S. government audit had not provided sufficient documentation to show its Iraqi employees had been vetted properly.
The question for the private security industry now is how it uses the lessons -- and cash -- from Iraq. Established companies such as Armor, Control Risks, and Kroll have offered security services for years to clients working in dangerous parts of the world.
But Iraq has established new relationships between suppliers of private military services and governments and large corporations.
Mr. Spicer says many of the smaller PMCs may "bank the money and go and live in Bermuda."
But companies such as his own, which has aspirations to match the longevity and business diversity of larger groups such as Kroll and Control Risks, will want to use the experience as a blueprint to win work elsewhere.