Procurement: Buy American If You Want To Live

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September 10, 2009: Last year, international arms sales (from one country to another) declined nearly 8 percent, to $55.2 billion. But the U.S. increased its arms exports 49 percent (from $25.4 billion in 2007, to $37.8 billion last year). Most of the additional sales have gone to the Middle East, where oil rich Persian Gulf Arab states prepare to resist more aggressive behavior by their traditional enemy, Iran.

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. 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 were for warships.

This Russian edge didn't last, as several large customers became unhappy with continued shoddy after-sales treatment. While Russian after-market suppliers had some well publicized successes, old habits died hard, and often didn't die at all. China also cut its purchases, mainly because China was stealing Russian technology, and building the stuff itself. 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.

 


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