The Impact of the Top 3 Strategic Imperatives on the Foreign Military Sales Industry

Transformative Megatrends

• Why:

  • International partnerships among the United States and its allies, such as AUKUS and INDUS-X, will improve technology share and transfer, reducing gestation periods for new product development.
  • Military operation interoperability among allied nations will be critical going forward.
• Frost Perspective:
  • Growing international partnerships should support the induction of small and medium enterprises (SMEs) in the defense value and supply chains.
  • The present geopolitical climate will likely increase new procurement demand for missiles, weapons, and aircraft.

Geopolitical Chaos

• Why:
  • The Russo-Ukrainian and the Israel-Hamas crises will continue to disrupt the global defense trade industry and supply chain.
  • Countries in geopolitically strategic locations may accelerate defense procurement to meet near and intermediate security vulnerabilities.
• Frost Perspective:
  • Modernization of legacy defense systems in allied nations will enable industry growth focused on enhancing communication, intelligence, and lethality.
  • Persistent conflicts in Europe and Asia-Pacific may sustain demand for US-made defense products for the foreseeable future.

Competitive Intensity

• Why:
  • Compared to US-made products, emerging defense countries (e.g., South Korea and India) provide advanced and cost-effective solutions with quicker fielding capabilities. As such, US-based companies may struggle to compete in the global FMS landscape.
• Frost Perspective:
  • Resilient supply chains will be essential for US-based defense companies to satisfy faster production-to-field turnaround.
  • Synergistic collaborations among large defense companies and SMEs may be essential to remaining competitive in the long run.

Scope of Analysis

• It analyzes the FMS awards of calendar year (CY) 2023, including multi-year contracts, to:
  • Determine defense department FMS spending activities
  • Identify the leading arms segment and the top technology for each segment
  • Examine the customer landscape and identify top customer countries
  • Evaluate the competitive landscape and examine the top industry participants
• The study also examines regional geopolitical climates, international defense partnerships, and collaborations between the United States and allied nations to identify industry drivers, restraints, and growth opportunities.
• The contract data estimate presented is derived from publicly announced defense contracts and only includes unclassified information.
• It also utilizes the fiscal year (FY) FMS data published by the Department of Defense (DoD) to highlight historical industry trends. The FY values highlighted include classified information and differ from the contract data estimate.

Industry Segmentation

Major Arms Segmentation

Growth Drivers

Driver: 

Heightened threat perceptions amidst a globally turbulent geopolitical climate are prompting US allies to accelerate defense systems modernization and new procurement. Allied nations will likely purchase **Title:** The Growth Pipeline products to meet intermediate military needs.

There is a growing emphasis on interoperability between the US and its allies in military operations. The demand for advanced solutions to enhance the situational awareness, lethality, and survivability of legacy defense systems and support multi-domain operations should enable steady industry growth.

International defense partnerships and collaborations, such as AUKUS and INDUS-X, will facilitate technology transfer between defense industries and academia of allied nations. This may reduce the gestation period for new product development and improve supply chain resilience.

Growth Restraints

Restraint

Traditional defense companies continue to dominate the FMS industry through modifications to previous contracts and sole-source acquisitions. As a result, new prospective companies may find it challenging to compete in the industry.

The International Traffic in Arms Regulation (ITAR) controls the exports of US-made defense systems. Although these regulations are subject to change, the present limitations impact the trade of critical defense systems and subsystems to allied nations.

Russia and Israel, two of the top global defense exporters, will prioritize replenishing their defense supplies amidst the ongoing Russo-Ukraine and Israel-Hamas crises. However, the availability of advanced and cost-effective defense systems by emerging defense leaders, such as South Korea and India, can challenge US-based companies’ competitiveness in the global FMS industry.

The emphasis on locally manufacturing conventional defense systems by allied nations, particularly in Asia-Pacific (APAC), may taper demand for US-made systems in the latter half of the decade as indigenous technologies mature.