My dissertation addresses the understudied phenomenon of defense offsets - compensation to states for buying foreign weapons. Governments have long demanded compensation when procuring highly complex and expensive weapon systems from foreign suppliers. Through such additional benefits states typically seek to build, retain, or modernize their defense and/or civil technological and industrial base. Foreign suppliers, by contrast, use defense offsets to enrich their bid, and thus increase their chances of succeeding in a very competitive market. Although the IR and international security scholarship has hitherto ignored defense offsets, they often involve technology transfer and may sometimes evolve into strategic alliances or high-end and long-term technological collaborations between foreign and domestic defense companies. When doing so, I argue, defense offsets may significantly augment buyer states’ chances of climbing up the ladder of arms production capabilities, especially if foreign suppliers are willing to accept onerous or sub-optimal arrangements such as the transfer of cutting-edge technology.Tapping into new data sources and through cross-case analysis of 29 international fighter aircraft sales as well as 5 in-depth case studies from 1999 to 2019, I show that export reliant bidders are increasingly willing to enter sub-optimal strategic alliances with buyer states possessing good enough defense industrial bases, ultimately suggesting that arms production capabilities may redistribute from European to emerging powers. In the process, my findings demonstrate a number of points. Firstly, they show how state-led initiatives foster the globalization of production, thus casting doubts on received knowledge that emphasizes private entrepreneurialism. Secondly, that states and defense firms alike weaponize interdependence against weaker competitors. Thirdly, that under certain conditions states have the upper hand in negotiating investments with trans-national corporations. Fourthly that Washington plays a much bigger role in aircraft makers’ decisions than previously acknowledged, and finally, that offsets are yet another driver of arms collaboration.