Leadership: Selling Security

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November 13, 2009: U.S. arms exports last year (ending in September) were $38 billion. This was a record, and sales are expected to be the same, or up a few percent, next year. That's up from $36 billion last year, and $23 billion in 2007. Top U.S. customers this year were were the UAE (United Arab Emirates) with $7.9 billion, Afghanistan $5.4 billion, Saudi Arabia $3.3 billion, Taiwan $3.2 billion, Egypt $2.1 billion, Iraq $1.6 billion, NATO $.92 billion, Australia $.8 billion, South Korea $.7 billion. Some of this was stuff bought with American aid money (Afghanistan, Iraq and Egypt), but most of it was foreign money.

Historically, the United States and Russia have been the largest exporters of weapons, together accounting for over 70 percent of world sales. But the usual patterns have been shaken up since the end of the Cold War. Traditionally, the U.S. sold nearly three times as much as Russia, but in the last decade, that was sometimes closer to only twice as much. The reason was, 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. The U.S. was much better in that respect, but much more expensive. While the Russians still have the price advantage (often half, or less, the cost of equivalent American weapons), they have blown their chance to repair their reputation for poor after-sale service. India, their largest customer, has been hit by several quality control and after-care disasters. The other big customer, China, also cut its purchases, mainly because China was stealing Russian technology, and building the Russian designs in China. To add insult to injury, these Chinese knock-offs are being offered to foreign customers, competing with the Russian originals.

In the past decade, global defense spending had grown nearly 50 percent, to over $1.3 trillion. That's about 2.5 percent of global GDP. After the Cold War ended in 1991, defense spending declined for a few years, to under a trillion dollars a year. But by the end of the 1990s, it was on the rise again. The region with the greatest growth has been the Middle East, where spending has increased 62 percent in the last decade. The region with the lowest growth (six percent) was Western Europe. The current recession may get global defense spending stalled at, or maybe even a little below, $1.3 billion for a year or two. But the spending growth will probably resume as soon as the recession is over.

The U.S. is likely to maintain its lead in weapons sales, mainly because so much American gear is battle tested (in Iraq and Afghanistan), and that's a big deal. U.S. after-sale support continues to be good, largely because there's a large pool of Americans who have decades of experience taking care of maintenance and tech support for these exported weapons. It's a kind of support infrastructure that no other nation can really match. When you want to buy security, and can afford the best, you buy American.

 

 

 


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