Procurement: The Mighty Merchants Of Death

Archives

June 13, 2009: The top ten defense manufacturers on the planet (Boeing, BAE, Lockheed Martin, Northrop Grumman, General Dynamics, Raytheon, EADS, L-3, Finmeccanica, Thales) had sales of nearly $200 billion last year. Five of those firms were American (accounting for 63 percent of sales), with the others being European. Russian and Chinese firms are growing, but all together account for less sales than the largest U.S. producer (Boeing, at $30.4 billion). Most of the production goes for the nations own forces. But over $60 billion in weapons are exported each year.

The United States and Russia are the largest exporters of weapons, together accounting for about 70 percent of world sales. Traditionally, the U.S. sold nearly three times as much as Russia, and that ratio seems to be holding. There is more effort by the Russians to not just sell on price, but also on service and warranties. Most of the cost of a new weapon comes during the lifetime (often a decade or more) of use. In the past, Russia had a bad reputation for support, and lost a lot of those "after-market" sales of maintenance services and spare parts. The U.S. was much better in that respect, but much more expensive. Now the Russians not only have the price advantage (often half, or less, the cost of equivalent American weapons), but an improving reputation for providing good service. The Russians are also selling more high tech, and expensive, warships. For many years, warplanes comprised about two thirds of Russian sales, but now, about half the sales were for warships.

 Over the last decade, about 40 percent of Russian arms exports went to China. But that is now at risk, as Russian manufacturers feud with the Chinese over stolen technology. The Chinese have been quite brazen of late, as they copy Russian military equipment, and then produce their own versions without paying for the technology. Worse, the Chinese are now offering to export these copies. The Russians are trying to work out licensing deals with the Chinese, but are not finding much interest. The Chinese say their generals are angry over how Russia sells technology to potential Chinese enemies, like India. The Russians don't understand that attitude, as they have been selling weapons to India for decades. Russia fears that the Chinese have just decided that they don't need to buy Russian technology, or equipment, any more, and can just steal what they need.

Then again, all this could just be a lot of posturing, as the Chinese negotiate to get the best deal they can for Russian military technology. It is cheaper to build under license, because that way you get technical assistance from the developer of the technology.

India is unhappy with Russian sloppiness in handling large projects, like refurbishing an unfinished Cold War era aircraft carrier. Worse yet, India is buying more Western (Israeli, European and American) weapons, and notes the differences in performance and service.

The rest of the world is also demanding higher quality weapons, and more value for the money spent. Russia and China sell to the value crowd, which is a shrinking market. The big importers are India, Israel, Egypt, Saudi Arabia, Pakistan, South Korea and Venezuela. China used to be one of the biggest importers, but now produce most of their own weapons. India is trying to keep up with China, but has not got as large a defense industry. Israel is a tiny country surrounded by enemies, and imports largely with the aid of American aid. Egypt and Pakistan also benefit from American subsidies, which are paid to obtain diplomatic and military cooperation. Saudi Arabia has lots of oil money, and want to protect it. South Korea has a booming economy, and a dangerous neighbor (North Korea). Venezuela has oil money, and a leader who likes to buy weapons he doesn't need.

 

X

ad

Help Keep Us From Drying Up

We need your help! Our subscription base has slowly been dwindling.

Each month we count on your contributions. You can support us in the following ways:

  1. Make sure you spread the word about us. Two ways to do that are to like us on Facebook and follow us on Twitter.
  2. Subscribe to our daily newsletter. We’ll send the news to your email box, and you don’t have to come to the site unless you want to read columns or see photos.
  3. You can contribute to the health of StrategyPage.
Subscribe   Contribute   Close