Long-term trends in the arms industry

For a general background on arms industry concentration, see Concentration in the arms industry.

The arms industry has become increasingly concentrated, nationally as well as internationally. The share of the top 5 companies in the total arms sales of the SIPRI Top 100 increased from 22 per cent in 1990 to 43 per cent in 2005.

Technological

There has been a clear and significant qualitative change in the nature of technology because civil technology has become increasingly important for weapon systems. This has led to an increasing importance of IT and electronics companies, often previously civil companies, in the defence sector and an increased number of civil companies in the supply chains of main contractors. The demands of the USA’s ‘global war on terrorism’ have reinforced this trend. Whereas in the past the spin-off of military technology to the civil sector tended to be an important argument for the value of military production, the focus is now more on ‘spinning-in’ civil technology to the military. In addition, the use of standard commercial components is an increasing feature of the arms industry: many components of major weapon systems are commercial off-the-shelf products, produced by manufacturers that would not consider themselves part of the arms industry. The major contractors have become increasingly systems integrators, retaining the characteristics of defence specialized firms.

Compositional

The privatization and outsourcing of defence services and support is drawing new kinds of suppliers into military contracting. This has been made apparent in Iraq, with companies taking on support roles that in the past the armed forces would have undertaken. One growth area is the provision of security—guarding people and buildings, for which both states and non-state bodies may be customers. However, the majority of revenue for this military services industry comes from support roles such as logistics, training, maintenance repairs & overhaul, IT services, facilities management, etc. Such services have been the focus of outsourcing in the US and the UK for some time now, and are increasingly becoming so in other western countries. Providers of such services include both traditional major equipment providers—who have for a long time provided services such as maintenance, but are increasingly expanding into other service areas—and specialist military services companies.

A more detailed discussion of the military services industry is found here. See also Perlo–Freeman, S. and Sköns, E., ‘The Private Military Services Industry’, SIPRI Research Paper 001, 2008.

For more on these trends, see also excerpt from: Sköns, E. and Weidacher, R., ‘Arms Production’, SIPRI Yearbook 2002, (Oxford University Press: Oxford, 2002), pp. 341-346.

Continuity

These developments have resulted in marked changes in the arms industry and further changes can be expected. It is, however, important to recognize that arms contractors continue to have a set of unique characteristics, due to the nature of the arms market, making them different to firms in other industrial segments. The nature of arms procurement and its elaborate rules and regulations mean that they face considerable barriers to exit, while non-specialist companies continue to face considerable barriers to entry for the same reasons. In spite of internationalization in terms of markets and supply chains, the home market and home government support remains vital to arms-producing companies.