Industry attributes
The defense industry includes the activities of public and private organizations involved in the research, development, production, and service of military materiel, equipment, and facilities. The industry is an important layer in most national economies, often being some of the largest employers depending on the defense spending of a specific nation. For example, in the United States, the commercial defense industry supports nearly 2 million jobs, including in areas such as research and development, engineering, and manufacturing. The defense industry is also an active collaborator in politics, as companies and individuals associated with the defense industry in 2020 contributed more than USD $47 million to political candidates and committees in the United States.
In the defense industry, companies focus on manufacturing products for military use, in the following areas:
- Military ships, such as submarines, destroyers, or aircraft carriers
- Commercial, private, or government aircraft, such as bombers or fighter jets
- Necessary parts and components for these machines, as well as distribution
- Weaponry, including missiles and ammunition
- Other defense-related technologies, such as radar, sonar, and satellites.
Defense-related technologies is one of the fastest-growing sectors in the defense industry, including technologies such as digital and smart factories. There has been increased focus on cybersecurity in the industry as trends in digital and new military capabilities are explored in the space market, fighter aircraft, and shipbuilding. Some of the developments in fighter aircraft include advanced air mobility technologies, such as electric vertical takeoff and landing.
Further strategic trends, such as collaborative combat, multi-army operations, and multi-platform collaboration, with new technologies such as artificial intelligence, autonomy, geopolitical collaboration, and an increase in aftermarket activities such as maintenance and overhaul of defense systems, are becoming increasingly important in the defense industry since the end of the Cold War.
One of the key factors in the transformation of the defense industry since the end of the Cold War has been the industry's ability to develop value propositions based on digital technologies. This has meant integrating technologies such as Big Data, robotics, uncrewed systems, connected objects, broadband networks, cloud computing, augmented reality, augmented vision, immersive displays, and cybersecurity. These have led to hybrid engagement capabilities, increasing the opportunities for defense contractors in the development of new technologies to give national militaries new ways of entering combat or giving them greater non-offensive and offensive capabilities.
The growth of digital services has come as the threat landscape in the defense industry has evolved, including offensive cyber capabilities, artificial intelligence for automated platforms, hypersonics, and anti-satellite weapons. Under many of these technologies, an increased focus on space exploration and related technologies and the increased threat vectors these technologies have developed have changed the defense industry. There has been criticism that the U.S. defense industry has struggled to meet these challenges since the first decade of the twenty-first century, especially in comparison with other defense sectors from other countries, such as China, which has steadily increased their defense sector capabilities, especially in these non-traditional sectors, over the same time period.
There are several market forces that affect the defense industry. Some of these market forces are shared by all industries. One example is the COVID-19 pandemic supply chain constraints or the post-COVID-19 pandemic inflation that affected many industries and engagement in those industries. Where a commercial industry may not be aware of a consumer's budget and how that may affect purchasing decisions over choosing products within that industry, the defense industry tends to be aware of the budgets with their customers, as they are public knowledge and many of the contracts in the industry include meeting specific price points. Inflation, especially, can make the development and awarding of contracts more difficult on the part of the purchasing departments, create pressure for the defense contractors, and decrease the overall purchasing and acquisition activity in the industry.
However, the defense industry is subject to unique market pressures that are largely outside of its control; specifically, the defense industry is subject to the pressures and cycle of global conflict. Meaning when there is no conflict, whether real or perceived, the industry can experience market shrink as national governments are less interested in defense goals. While during a period of conflict, whether real or perceived, the industry can experience market growth as national governments seek to grow their militaries and develop defense advantages.
For example, during the Cold War, the defense industries primarily in the United States and the former Soviet Union were in an arms race, where they worked to develop defense and war platforms that could outperform the other country's analogous platforms. However, the conclusion of the Cold War in 1992, and the coming collapse of the former Soviet Union, created market pressures that shrunk the defense industry as the reduction in conflict saw fewer contracts and interest in spending. This would come to an end with the first Gulf War and later the terrorist attacks in 2001.
A defense contractor is a business organization or individual that provides products or services to a military or intelligence department of a government. These are the organizations that often either design or collaborate in the design, engineering, and manufacture of military or civilian aircraft, ships, vehicles, weaponry, and electronic systems. These organizations also often include services such as logistics, technical support, training, and communications support. Defense contractors can also refer to individuals employed through contracts by a defense agency to accomplish organization roles and functions, such as logistics and transportation to intelligence analysis and private security to relieve uniformed personnel to focus on military-specific activities.
In the United States, the reliance on individual contractors has increased since the conclusion of the Cold War. In the fiscal year 2017, the United States Department of Defense contracted around 464,500 individual defense contractors. While in 2020, the Department of Defense obligated approximately USD $420 billion for federal contracts to company contractors and individual contractors. Of this spending, five companies, often referred to as primes, were awarded 54 percent of all of the Department of Defense's contract obligations. These five companies are Lockheed Martin, Boeing, Raytheon, General Dynamics, and Northrop Grumman.
While it could be argued that the defense industry is almost as old as human warfare, as armies have been assembled and supplied through individual farriers, blacksmiths, fletchers, and armorers. These individuals have also over time developed new advances and innovations in weaponry that have been sold to kingdoms and their armies. However, it is often the mass production of weapons, especially following the Industrial Revolution, in which the defense industry could be said to begin to establish itself. This included key weapon technologies, such as the breech-loading rifle used by the North in the American Civil War, the entrance of the Gatling Gun, followed by machine guns implemented near the end of the 1800s and in the Boer War or in the Russo-Japenese war of 1905 where the success of technology was considered to make differences in each of these conflicts.
World War I is often thought of as the first war on an industrial scale—from the number of men, material, and the use of new technologies on the battlefield that were used to create battlefield advantages for different countries. During the early part of the conflict, the United States acted as a supplier of military equipment and necessary commodities to allied nations. When the United States entered the conflict, it had to purchase foreign-manufactured combat aircraft as the other nations had increased their air warfare capabilities.
Between the conclusion of World War 1 to the beginning of World War II, the industrialization of arms stagnated. Many countries disarmed after the peace of 1919, and the League of Nations was intended to oversee an extended period of peace and prosperity. However, the economic turmoil beginning in late 1929 saw many nations turn to nationalist governments, some of who, such as Mussolini in Italy and Hitler in Germany, turned to the defense industry to turn their national economies around. In Italy, this buildup led to military campaigns on the African continent. While Hitler's Germany produced armaments, and while building up their technologies, they also sold some to other countries. Meanwhile, a country like Japan began mass-producing modern munitions and arms products. Many countries lagged behind, while the United States armed services continued to produce weapon systems in cooperation with the growing commercial partners.
During World War II, what could be considered many of the later strategies adopted throughout the defense industry would be developed. For example, in 1938, the United States Congress chartered the Defense Plant Corporation, which was assigned the task of expanding production capabilities for military equipment, including the building and equipping of new facilities with the help of industrial organizations. While in 1940, the U.S. involvement in the conflict arguably began with the Lend-Lease program, which saw the Roosevelt administration provide forty World War I era destroyers to Great Britain in their defense of the North Atlantic.
With the increased involvement of the United States, another example of growing corporate involvement came with the building of shipyards by Kaiser Industries, who were able to build a ship in a day at the end of the war, and the building of plants by Ford who built B-24 bombers. This advanced the mass production of military goods significantly and saw the introduction of new mass production manufacturing technologies.
The term made famous by United States President Dwight D. Eisenhower to describe the United States military establishment and its involvement with corporations in the production of armaments and military materials has since been used as a description of the interest of private companies in military conflict which grew out of the Second World War. While he considered the military-industrial complex dangerous, Eisenhower also considered it necessary to deter Soviet Union aggression against the United States and its allies while urging his successors in government to balance defense and diplomacy. However, since the speech in 1961, the term has more often been used as a touchstone for concerns with unchecked military expansion and the continuing ties between private military contractors and members of the military establishment and the federal government.
The concern in this has been that the influence the private organizations in the defense industry could promote policies that could be considered against the best interests of the nations. The features of the defense industries grew with the different political structures per country. For example, in the United States, production of weapons largely shifted from publicly owned companies and government agencies to private firms. While in France, the national government owns and manages most military-related enterprises. And while much of the industry as it grew in the 20th century could be determined by country, in some cases, such as the European Union, the larger group of countries were able to produce weapons systems collaboratively and involve military firms of several countries.
Despite regional differences, the defense industry in most economically advanced countries tends to have several characteristic features, including high technology industrial sectors operating according to their own legal, organizational, and financial rules; skilled personnel moving between administration and production; and centrally planned controls on the quantity and quality of output. Due, in large part, to the different complexities of weapon systems and the preference of most nations for domestic suppliers, there is considered to be little competition in most of the defense industry. This has led to a highly politicized industry with inordinately expensive weapon system purchases that are sometimes considered to be of dubious military and security capability.
However, the defense industry, especially in the United States, is still considered to have been a major facet in the containment of the power of the Soviet Union, the repulsion of the North Korean invasion of South Korea, and the technological development of world-class weapons on the behalf of the United States military. The defense industry, as a downstream effect, has participated in the development of the internet, digital computers, the space industry, and other modern technologies.
