Tate Nurkin, Senior Director, Strategic Assessments and Futures Studies
The global defense industry is in the midst of a series of fundamental and durable shifts requiring reevaluation and refinement of long-held assumptions about the industry, its competitive landscape and where competitive advantage may lie in a crowded and complex export market.
Among the most notable prevailing dynamics in the industry over the last decade has been the shifting of leverage from predominantly Western (and Russian) companies that have dominated the export market to the governments of the export markets themselves.
As investment spending and leverage moved east and south, governments in Eastern Europe, the Gulf States, Asia and parts of Latin America have extracted benefits—frequently through offset programs designed to bolster indigenous defense industry technology and ‘know how’—in exchange for procurement of foreign-supplied defense equipment. As industry in these markets has matured, so, too, has their ambition to join the export market. This dynamic has led to the feeling among Western suppliers in particular that they are, as one executive in a large U.S. prime relayed, “paying the tuition of their future competitors.”
The competitive landscape has also been affected by the growth of ‘good enough’ markets in which the abundance of suppliers has reduced the need for emerging markets to always buy high-end Western technology in every capability area, eroding one of the most significant competitive discriminators for defense firms in the United States and Europe. Competitions in these markets increasingly turn on considerations such as price—not unique to ‘good enough’ markets—technology transfer, workshare/co-production and development agreements and lenient financing terms. This is a welcome environment for many state-owned or heavily-subsidized defense enterprises that may lack deep innovative capacity, but do possess the flexibility to meet procurement demands.
The intersection of these dynamics has created an environment in which providers of all shapes and sizes, but particularly those in the West, are scrambling to find novel ways to distinguish themselves and their solutions in a savagely competitive market.
Defense manufacturing promises to be one of the most important, active, and intense areas of competition within the industry over the next decade
Increasingly, though, companies are rightly recognizing how innovation in a wide-range of novel emerging technologies and the revolution in manufacturing processes this innovation is driving will be a potent means of separating themselves from their competition.
As a result, more companies are actively investigating how the suite of technologies frequently associated with the Fourth Industrial Revolution—robotics, digitization technologies, 3-D printing, machine learning, big data analytics, among others—can support step-changes in their manufacturing processes. Indeed, many companies have already incorporated some of these technologies in material ways.
3-D printed parts are being included in some of the most advanced platforms and systems in the world, including the F-35 fifth-generation fighter. In 2013, China’s AVIC Laser showed off what it claimed to be the world’s largest 3-D printed titanium aircraft part used in the J-15 fighter jet as well as China’s domestically developed C-919 commercial airliner.
In addition, the intersection of 3-D printing and smart and biomaterials will drive shifts not only in manufacturing models, but also in the conceptualization of what types of products and capabilities–platforms with dynamic properties, for example—are possible, offering additional opportunities for companies to be early adopters of manufacturing processes over the long-term that will better position them to meet new requirements.
Virtual and augmented reality labs are becoming a more common feature of defense manufacturing process and are especially useful in the design and prototype phases of complex defense production programs. According to reporting by Jane’s Defense Technology Reporter Annika Torruella, “Virtual creation of prototypes is more cost-effective than physical creation and avoids proof of design failures while speeding up design and production.” Savings can also be reached by using the virtual reality space to isolate mechanical defects and design errors earlier in the program development when it is cheaper and less complicated to make modifications.
Digital transformation technologies—big data analytics, internet-of-things, cloud computing—are also a key focus area for the global defense industry. A 2016 report from PricewaterhouseCoopers (PwC) found that 76 percent of aerospace, defense, and security companies “expect to have achieved an advanced level of digitization and integration in five years’ time”, the highest level of integration of any of the nine industry sectors engaged in the survey.
And while the fact that so many defense companies are examining changes in defense manufacturing processes may indicate that investments in this area could be canceled out, opportunities for differentiation are abundant. Not all companies will be able to successfully incorporate these technologies to the same degree or at the same pace nor will all companies seek to incorporate them in the same way to achieve the same type and level of efficiencies.
Defense manufacturing promises to be one of the most important, active and intense areas of competition within the industry over the next decade. Agile and imaginative companies able to lead and navigate this competition and its iterative disruptions can separate themselves from their competition by reducing cost, speeding up design and production and, over time, producing entirely new types of properties and capabilities to meet ever-evolving end-user demands.