Competition: Foreign Policy

Ask a military officer what Columbus, Miss., is known for, and he will tell you it produces a lot of good Air Force pilots and a good lot of fiancés. The tiny town near the Alabama border feels authentically Southern: it's host to a regional bass-fishing tournament, and Tennessee Williams once called it home. So it is curious to discover that an ambitious global-defense contractor has established a beachhead here.

On a grassy, 40-acre pasture at the end of the local airport's lone runway, the European Aeronautic Defense and Space Co. (EADS)--the world's second largest aerospace firm, with headquarters in France and Germany--has built an 85,000-sq.-ft. helicopter assembly-and-repair facility under the inelegant name American Eurocopter. It is from this spanking-new building that EADS (2004 sales: $42 billion) is staging part of an aggressive push into the U.S. defense market.

EADS is not alone. In recent years foreign companies have streamed into American burgs to tint themselves red, white and blue enough to tempt the world's biggest shopper: the U.S. Department of Defense. The 25 countries of the European Union spend only about half what the U.S. does on defense, even though the Continent has a larger GDP than the U.S. has. Since Sept. 11, the Pentagon's budget has increased 41%--to $419 billion a year. Ralph Crosby, the West Point graduate and defense-industry veteran who runs EADS's North American operations, says the company, which sells everything from ballistic missiles to mobile medical units, has a clear target: "The U.S. military market is simply the biggest and most important market in the world."

"Made in the USA" used to be mandatory for military procurement, but the Pentagon, under pressure to buy more efficiently, has opened bidding beyond U.S. borders--and foreigners are piling in. The Colt handgun, first used by the U.S. military in the Mexican-American War of 1846, has been replaced as standard-issue infantry gear by an Italian-designed Beretta. A Brazilian-made Embraer surveillance plane will soon patrol battlefields for the Army rather than a Gulfstream jet produced in Savannah, Ga. Britain's BAE Systems contributes avionics to the F-16, F-18 and F-117 bombers. Rolls-Royce, the British aircraft-engine maker, does more business with the Pentagon than it does with the British Ministry of Defense.

Then there is the recent contest to build Marine One, the President's helicopter. For the first time, the Pentagon has decided not to buy from Connecticut's Sikorsky Aircraft Co., instead choosing an Anglo-Italian chopper that initially will be made in Europe by a consortium of firms in partnership with Maryland's Lockheed Martin. "The Marine One decision was highly symbolic," admits John Douglass, president of the Aerospace Industries Association, a U.S. trade group. "It showed that foreign companies can compete and win on the most sensitive programs."