May 04, 2005

The Defence Industry in the 21st Century - Thinking Global ... or thinking American?

The Defence Industry in the 21st Century - Thinking Global ... or thinking American?




The defence industry has reached a crossroads over its future according to a new report from PricewaterhouseCoopers. 'The Defence Industry in the 21st Century' looks at how the industry has evolved since the end of the Cold War and discusses what has shaped the industry that exists today. DOWNLOAD THE REPORT

The paper examines the recent history of the global defence industry, from the decline of the Defence Industrial Base (DIB) and post Cold War consolidation to the world post 9/11. Then - most importantly - we outline the five major implications of these changes for contractors. It is these key five components that can, and should be, used as a basis for discussions with our defence clients, helping us to identify opportunities. They are:

*) Maximising the value of the domestic national market
*) Investing in the right capabilities and partners
*) Developing international markets
*) Securing scale and scope economies in an industry that discourages integration
*) Leveraging industrial participation and COTS within the supply chain




DEFENCE INDUSTRY FUTURE AT CROSSROADS
The defence industry has reached a crossroads over its future according to a new report from PricewaterhouseCoopers. 'The Defence Industry in the 21st Century' looks at how the industry has evolved since the end of the Cold War and discusses what has shaped the industry that exists today.

In particular, the report focuses on two major issues: the continuing decline of what has been called the Defence Industrial Base and a process of consolidation that saw a quarter of the world's largest defence companies leave the sector during the 1990s. Those that remained grew larger through a series of consolidating mergers and a more collaborative international security community appeared to be emerging to respond to what were largely regional outbreaks of war.

Now, as the defence industry faces further challenges in the changing nature of conflict, the threat of international terrorism and the unrelenting pressure on public funds, the report assesses the implications of these changes for contractors. It identifies five main elements which should be incorporated in defence contractors' business strategy. Together these elements constitute a complex, sophisticated and radical change for the industry:

· Maximising the value of the domestic national market
· Investing in the right capabilities and partners
· Developing international markets
· Securing scale and scope economies in an industry that discourages integration, and
· Leveraging Industrial Participation and COTS technology within the supply chain

The report also addresses the future and speculates on how the industry might look if some current industry trends prevail. In calling for debate on the future, it addresses two scenarios. At one extreme, the US would dominate the supply of the world's arms, effectively deciding when and where they could be used. At the other, defence technology would flow freely between allies and no one nation would have the complete industrial capability to wage war without the support of its allies.

Richard Hooke, Global Aerospace and Defence Leader, PricewaterhouseCoopers, commented:


"Both scenarios may appear unlikely but close examination of what is happening now and assessment of the implications is needed. A number of overseas companies have successfully invested in the US defence industry and secured important business on major programmes with the US Department of Defense. This implies a more open US policy and the emergence of a more interdependent, global defence industry.

"On the other hand, the US continues to spend as much on defence as the rest of the world put together, it is resisting Europe's call for it to relax its grip on technology and allow its transfer to American allies and US private equity houses are playing an active role in acquiring defence industrial assets overseas and reshaping Europe's defence industry. These factors point to an American domination of the world's supply of arms in future."

The central question is whether the future is shaped by business logic, by market forces, by political will, by social forces, by a combination of these or by chance.

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