Procurement: Rule Britannia

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June 20,2008: By virtue of a major aircraft sale to Saudi Arabia, Britain was the world's largest arms exporter last year. In 2007, Britain sold $19 billion worth of arms, passing the perennial leader, the United States. But over the past five years, the U.S. still has the lead, with $63 billion in sales. Britain was second, with $53 billion, and Russia third with $33 million. But while Britain is on a roll, Russia is on the skids. This year, Russian sales will be 25 percent less than 2007. The sudden fall in Russian arms sales comes from problems with the two largest customers; China and India. Russian arms exports had been growing rapidly during the last few years, going from $4.3 billion in 2003, to $8 billion in 2007.

Until Britain's recent surge, the United States and Russia were 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 has gotten worse for the Russians. 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. While the Russians had the price advantage (often half, or less, the cost of equivalent American weapons), they tried to build on that by improving their reputation for providing service. But now the horror stories of Russian failure to support weapons systems are returning.

Russia has another advantage in that it is not shy about paying bribes. Britain achieved its large sales last year for the same reason, and attempts by British legal authorities to investigate the bribery were openly suppressed by the government (the Saudis threatened to take their business elsewhere, and cut off counter-terror cooperation otherwise.)

Russia also has another problem with China. Over the last decade, about 40 percent of Russian arms exports went to China. That is now at risk, as Russian manufacturers feud with the Chinese over stolen 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.

 


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