The report covers key business priorities, supplier price variations, changes in procurement expenditure, and supplier prices with the implementation status of e-procurement of within the defense industry. Additionally, it provides information categorized by region and company type.
Defense industry is expected to grow at a steady rate in near future. The increase in returns in defense industry in 2016 is due to increase in defense budgets in China and the US. There is an increase in defense spending in some parts of the world but still there can be seen fall in defense expenditure globally. There are various challenges in survival of defense industry and the most important is how to survive in the declining global industry market and how to make profits out of it.
Figure: Factors Supporting Global Defense Industry
‘Defense Industry Business Outlook and Procurement Report H1 2016’ underline the business perspectives and procurement activities. Report talks about the decrease in defense expenditure, rising competition and uncertainty in the markets. Organisations are planning for innovations and technological advancement in defense industry and are focussing on reducing the cost of equipment. Mergers and acquisitions are expected to increase within the defense industry. Procurement expenditure for defense organizations is projected to increase by an average of 7% over the next six months. Moreover, 46% of defense industry executives expect supplier prices to increase in the next six months.
China’s defense budget is growing very fast which is making other economies restless. Defense budget of china is a cause of concern for its neighboring countries. China announced its defense budget for year 2014 as USD 132 billion which is 12.2% higher than year 2013. There is very high increase in China’s military spending from the last two decade almost two digit increase every year. In this era of globalization, such trends give rise to disruptive effects. The developed country which spends a lot in Research and development in this crucial sector for the growth and safety of a nation is growing at a lower rate than the growth in developing or emerging countries. The reason is quite simple. Developing nation can replicate the R&D done by developed nations and can grow faster. Developing nations are reaping the benefits of R&D done by developed ones.
Table: Military Expenditure by Region (in constant US dollars)
Source: SIPRI Military expenditure data
Defense industry is a heavy industry which requires bulk investment. Domestic companies cannot compete with the global companies or other economies without the support of government. Government is taking interest to protect their own country’s defense industry. It’s very painful for the domestic companies when there is a cut in national defense budgets then it becomes very difficult to be in the race of competition. Since the government defense budgets are shrinking over the years so it’s necessary to have cuts in expenditures. The customers whom defense companies come across are low on budgets so companies have to make equipment with minimum costs and there is a need for innovations and technological advancement in this sector.