The recent Russian decision to buy four Mistral amphibious assault ships from France is just the beginning. According to the Russian Defense Minister, Russia will seek more Western weapons and military equipment. Russia is planning to spend over $600 billion in the next decade to replace aging Cold War gear. The Defense Ministry insists that the Mistral deal is but the first of many. Russia already has a deal with Israel, to build a factory in Russia to build Israeli UAVs under license. This arrangement may be aborted because the Israelis apparently expect Russia to stop selling advanced weapons to Syria and Iran in return for Russo-Israeli cooperation in building weapons for Russian forces.
Russia is going to the West for military gear because Russian defense industries do not produce high quality stuff. This is a difficult admission to make, but it's what the Russian Defense Minister said (and a lot of Russian military personnel believe.) While Russia is still a major supplier of arms, they produce the same old Cold War era stuff. It's cheap and reliable. But for reequipping the Russian armed forces, the Russian brass want the best. That means going to the West. This was unthinkable during the Cold War, and for two decades thereafter. But now, times have changed.
Meanwhile, Russian defense firms are fully booked, and are unable to deliver some items for long periods because of backorders. The defense industry employs nearly three million people and accounts for about 20 percent of industrial jobs in Russia. At the end of the Cold War in 1991, defense related production was more than three times what it is now. It was the large size of the defense industry that played a major role in bankrupting the Soviet Union. The Russians were never quite sure (cost accounting not being a communist favorite) what proportion of their GDP was devoted to military spending, but it is estimated that it was over 20 percent. That was more than four times the figure for Western nations.
So in the last two decades, the Russian weapons industries depended heavily on exports. Russian arms export sales are stuck at about $8 billion a year, mainly because of problems with the two largest customers; China and India. Russian arms exports had been growing rapidly during the last decade. In 2005 Russian arms exporters had already booked orders for six billion dollars worth of sales per year through 2008. In 2004, Russian arms sales were $5.6 billion, and that went to $6 billion in 2005 and $7 billion in 2006. Russian arms sales were only $4.3 billion in 2003, and ballooned as the economies of their two biggest customers (India and China) grew larger. That, and the escalating price of oil (driven largely by increased demand from China and India), sent international arms sales from $29 billion in 2003, to over $60 billion six years later. Oil rich countries, particularly those in the Persian Gulf, as eager to buy more weapons, with which to defend their assets.
The United States and Russia are the largest exporters of weapons, together accounting for about 70 percent of world sales. Traditionally, the U.S. sold nearly three times as much as Russia, and that ratio seems to be more than holding. The U.S. sells higher priced weapons with a reputation for being the best available. Because of all the fighting in Iraq and Afghanistan, American weapons also have the valuable "combat proven" label.
There has been 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 of maintenance services and spare parts. The U.S. was much better in that respect, but much more expensive. Now the Russians not only have the price advantage (often half, or less, the cost of equivalent American weapons), but an improving reputation for providing good service. The Russians are also selling more high tech, and expensive, warships. For many years, warplanes comprised about two thirds of Russian sales, but now, about half the sales are for warships. But Russian defense firms have not been able to catch up with the West, and especially the United States, in the highest tech department.
Over the last decade, about 40 percent of Russian arms exports went to China. But that is now gone because Russian manufacturers got fed up with how the Chinese stole Russian technology. The Chinese have been quite brazen of late, as they copy Russian military equipment, and then produce their own versions without paying for the technology. Worse, the Chinese are now offering to export these copies. The Russians are trying to work out licensing deals with the Chinese, but are not finding much interest. The Chinese say their generals are angry over how Russia sells technology to potential Chinese enemies, like India. The Russians don't understand that, as they have been selling weapons to India for decades. Russia fears that the Chinese have just decided that they don't need to buy Russian technology, or equipment, any more, and can just steal what they need. Then again, all this could just be a lot of posturing, as the Chinese negotiate to get the best deal they can for Russian military technology. It is cheaper to build under license, because that way you get technical assistance from the developer of the technology.
India is unhappy with Russian sloppiness in handling large projects, like refurbishing an unfinished Cold War era carrier. This project has been a financial disaster for India. Worse yet, India is buying more Western (Israeli, European and American) weapons, and notes the differences in performance and service.
If Russia cannot change a lot of old habits real quick, their flourishing arms export business is going to slide back into the cellar. But meanwhile, Western manufacturers are eager to sell to Russia, a country that for nearly a century was considered the enemy. Russia considers about ten percent of their weapons to be world class, and it may be their belief that working with Western arms makers may increase that percentage.