This is marketing research on the defense industry and can include information on the background, market structure, definitions, competitors, trends and developments of defense and is related to other topics such as defense, security, military and intelligence.

Table of Contents

Table of Contents

1 Background 
2 Market Metrics 
3 Recent Trends and Developments 
4 Sources

Background

The weapons industry is a massive global industry and business which manufacturers and sells weapons and military technology and equipment. Defense companies produce arms mainly for the armed forces of United States. Products include guns, ammunition, missiles, military aircraft, military vehicles, ships, electronic Systems, and more. The defense industry also conducts significant research and development.

Land-based weapons

This category includes weapons from light arms to heavy artillery, and the majority of producers are small. Many are located in Third World countries. International trade in handguns, machine guns, tanks, armored personal carriers and other relatively inexpensive weapons is substantial. There is relatively little regulation at the international level.

Aerospace systems

Encompassing military aircraft (both land-based and naval aviation), conventional missiles, and military satellites, this is the most technologically advanced sector of the market. It is also the least competitive from an economic standpoint, with a handful of companies dominating the entire market. The top clients and major producers are virtually all located in the West, with the United States easily in first place. Prominent aerospace firms include Lockheed Martin, Boeing, and BAE Systems. There are also several multinational consortia mostly involved in the manufacturing of fighter jets, such as the Eurofighter.

Naval systems

The largest nations in world possess aircraft carriers, nuclear submarines and advanced anti-air defense systems. The vast majority of military ships are conventionally powered, but some are nuclear-powered. The U.S. Navy is by far the largest in the world, and most of the large contracts in this sector are awarded to American firms, such as Newport News Shipbuilding (a subsidiary of Northrop Grumman) and Bath Iron Works and Electric Boat (subsidiaries of General Dynamics). There is also a large global market in second-hand naval vessels, generally purchased by developing countries from Western governments.

Contracts to supply a given country's military are awarded by the government thus linking the armed forces, commerce, and politics. Various corporations (publicly held, or private) bid for these contracts worth many billions of dollars. Sometimes a competitive tendering process takes place, where the decision is made on the merits of the design submitted by the companies involved. Other times, no bidding or competition takes place.

Only about a third of the $1 trillion or so in prime contracts that the Pentagon has issued since 1997 have been awarded after full and open competition among two or more bidders, according to a study last fall by the Center for Public Integrity (CPI).

A large portion of the Pentagon's purchasing activity has involved "sole source contracts" that shield contractors from competition. In other contracts the Pentagon has relied on "blanket purchase agreements," so its contractors do not have to repeatedly undergo the rigors of a bidding process. Defense Contract Management Agency (DCMA) represents the Military Services, other Federal agencies and allied government buying agencies at defense contractors worldwide.

The export of conventional weapons is dependent on supply and demand rather than on arms-control agreements. The United States is the world's largest arms producer and exporter. While global figures vary, it is estimated that the U.S. accounts for 70 percent of the world market, with Russia and Germany ranking second and third, respectively.

There a rising demand for the quantity of weapons sold, but the quality of these weapons exports is also increasing steadily. For example, cruise missiles of several types are especially in demand due to their accuracy and ability to be undetectable.

Market Metrics

It is estimated that over $1 trillion dollars yearly are spent on military expenditures and arms worldwide. In 2004 over $30 billion were spent in the international arms trade (excluding domestic sales of arms). Many industrialized countries have a domestic arms industry to supply their own military forces.

In the cold war era, arms exports were used by both the Soviet Union and the United States to influence their standings in other countries, particularly Third World Countries. Since the fall of the Soviet Union, global arms exports initially fell slightly, but have since grown again to cold war levels. Russia is the world's top supplier of weapons since 2001, accounting for around 30% of worldwide weapons sales, followed by the United States, France, Germany and Britain.

Due to the increased focus on national security, the defense industry has been a significant hub for many information-technology outsourcing companies, especially CACI International and SRA International. IT services for U.S. government agencies at the federal, state, and local levels as well as other key areas around the world is projected to be among the fastest growing markets over the next few years. At the federal level, defense and homeland security are taking a large share of contracts for IT services. In 2003, the Washington awarded more than $115 billion in IT-related contracts, a 91% increase from 2002. The Defense Dept. and the National Aeronautics & Space Administration (NASA) accounted for approximately $90 billion of total government awards in 2003, with the balance from civilian agencies.

According to the information from the Stockholm International Peace Research Institute, world military expenditure in 2006 is estimated at $1,204 billion in current prices. This represents an increase of 3.5 per cent in real terms since 2005 and of 37 per cent over the 10-year period since 1997. Average spending per capita has increased from $173 in 2005 to $177 in 2006 at constant (2005) prices and exchange rates and to $184 at current prices. World military expenditure is extremely unevenly distributed. In 2006 the 15 countries with the highest spending accounted for 83 per cent of the total. The US is responsible for 46 per cent of the world total, distantly followed by the UK, France, Japan and China with 4-5 per cent each. The rapid increase in the United States' military spending is to a large extent due to continued costly military operations in Afghanistan and Iraq. Most of the increase resulted from supplementary allocations in addition to the regular budget. In 2006 China continued its steep increase in military expenditure, for the first time surpassing that of Japan and hence replacing Japan as the country in Asia with the highest level of military expenditure and as the fourth biggest spender in the world.

The 15 countries with the highest military expenditure in 2006 in market exchange rate terms (spending figures are in US$, at constant (2005) prices and exchange rates) are:

1Data for China and Russia are estimates; 2Data for Saudi Arabia include expenditure for public order and safety and might be slight overestimates. The GDP list (2006) of the International Monetary Fund was taken for %GDP.

The export of conventional weapons is dependent on supply and demand rather than on arms-control agreements. There a rising demand for the quantity of weapons sold, but the quality of these weapons exports is also increasing steadily. For example, cruise missiles of several types are especially in demand due to their accuracy and ability to be undetectable.

Major arms industry corporations by nation
Country	        Weapon manufacturers
Australia	Tenix
	        Australian Defense Industries
	        Australian Submarine Corporation
Canada	        Colt Canada
China	        Norinco
France	        EADS
	        Dassault Aviation
	        DCN
	        Thales Group
	        GIAT Industries
Germany	        Carl Walther GmbH Sportwaffen
	        EADS
	        Heckler & Koch
	        Krauss-Maffei
	        Rheinmetall
	        Mauser
India	        DRDO
	        Hindustan Aeronautics Limited
Italy	        Beretta
	        Finmeccanica
Russia	        Sukhoi
	        Mikoyan
	        Mil Moscow Helicopter Plant
Sweden	        BAE Systems Bofors
	        Kockums
	        Saab
United Kingdom
                BAE Systems
	        Cobham plc
	        MBDA
United States
                AAI Corporation
	        BAE Systems Inc.
	        Boeing
	        Carlyle Group
	        Colt's Manufacturing Company
	        General Atomics
	        General Electric (primarily through GEAE)
	        General Dynamics
	        Honeywell
	        Lockheed-Martin
	        Northrop Grumman Corporation
	        Raytheon Corporation

Regional Market Penetration, Year 2000

                   % of Company Sales

Company	      Domestic	    International

Boeing           65               35
Lockheed         70               30
Raytheon         70               30
EADS             36               64
BAE SYSTEMS      30               70
Thales           64               36 

There are many challenges to sell products internationally that are already in production for U.S. Department of Defense. Components must qualify to buying country’s standards even if components/ systems are a better design than contract requires and are already qualified to high standards through U.S. testing.

Recent Trends and Developments

Because of the superiority of U.S. technology and weapon systems, U.S. defense companies usually have an advantage over foreign companies in terms of the types of direct and indirect offsets they can provide. The decrease in defense budgets, large national debts, and significant unemployment in Europe appear to be driving increased offset demands in that region. In addition, major declines in U.S. defense procurement of aircraft in recent years have placed U.S. aerospace companies in a position of greater reliance on international sales for their revenues. Consequently, the importance of offsets as a marketing tool has apparently increased in the current environment. With decreasing U.S. defense procurement budgets since the end of the Cold War, U.S. defense companies have been looking for sales in foreign markets, and the Department of Defense (DOD) has been attempting to increase cooperative programs with its major European allies. At the same time, many European countries have taken steps to develop a common armament policy and consolidate their defense industrial base to become more efficient and competitive in world markets.

Defense market is changing due to International acquisitions, mergers and partnerships. U.S. defense skilled workforce attrition is expected to reach crisis level in 2007. U.S. defense budget is flat and there is intense competition in international armament market. As a result industry consolidation continues in U.S. and Europe.

Sources

• U.S.Bureau of Industry and Security
• Stockholm International Peace Research Institute