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iii

v

Strategic Studies Institute

and

U.S. Army War College Press

EMERGING POWERS AND FUTURE THREATS: 

IMPLICATIONS FOR THE U.S. AND GLOBAL 

DEFENSE INDUSTRY

Terrence R. Guay

January 2017

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Sections 101 and 105. It is in the public domain and may not be 

copyrighted.
vi

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ISBN 1-58487-747-2
vii

FOREWORD

This Letort Paper evaluates the defense industrial 

capabilities of six emerging market countries: Brazil, 

Russia, India, China, South Africa (BRICS), and Turkey. These six countries represent the primary nonWestern (that is, not the United States or Western and 

Central European) countries that are active in either 

importing or exporting weapons or both, and currently have or hold the conditions to develop a vibrant 

defense industrial base over the next 2 decades. The 

prominence of these and other countries reflects the 

economic changes, investment opportunities, and future potential of some of the world’s largest countries 

(in population). Clearly, a different global environment now exists than that of just 30 years ago, before 

the fall of the Berlin Wall and end of the Cold War. To 

the extent that economic power translates into political and military power, the United States will be faced 

with multidimensional challenges from these countries in the years to come.

Given this multipolar global environment, Dr. 

Terrence R. Guay evaluates the implications for the 

United States and the global defense industry. This 

Letort Paper begins with an overview of global arms 

production and trade. From there, the direction turns 

to BRICS and Turkey, with an overview of each country’s most significant current issues, or “macro-variables.” Dr. Guay describes and evaluates the political, 

economic, and social context that has aided the rising global influence of these countries, and the challenges they will face in the near term. This evaluation 

is followed by an overview of each country’s defense 

industrial base, with an assessment of their capabili-
ties and economic orientation regarding domestic 

versus global sales and, at the international level, the 

likely recipients based on the global interests of these 

countries. 

Dr. Guay makes four recommendations to address 

the developments in these six countries. First, the 

United States must maintain its global dominance in 

the defense sector, which will face challenges in light 

of budgetary constraints in the coming years. Second, 

the United States should seek to build industrial alliances with allies, especially in Europe, Japan, South 

Korea, India, and possibly Turkey. Third, the United 

States needs to minimize technology transfers to likely 

industry rivals, although this may be difficult, given 

commercial pressures in the aerospace sector. Finally, 

the United States needs to continue to use weapons 

exports to achieve political objectives, especially in 

Africa and Latin America, where China is seeking 

similar goals.

The issues raised by Dr. Guay in this Letort Paper are wide-ranging and relevant to a number of 

U.S. national security issues, including: the regions 

and countries of the world that are most important 

for Army engagement; the impact of technological 

inferiority on Army operations; the future impact of 

Chinese and Russian interests in oil, arms shipments, 

and economic matters in the Middle East; whether the 

Department of Defense (DoD) is fueling an arms race 

in an unsettling environment; whether and how the 

Army should restructure, invest in, or preserve secviii
ix

tors of the defense industrial base; and the national 

security objectives and risks for which the Army 

should prepare over the 2030-40 landscape.

 

 DOUGLAS C. LOVELACE, JR.

 Director

 Strategic Studies Institute and

 U.S. Army War College Press

xi

ABOUT THE AUTHOR

TERRENCE R. GUAY is a Clinical Professor of International Business in the Smeal College of Business at 

The Pennsylvania State University, where he teaches 

undergraduate and M.B.A. international business 

courses. He has published three books on global issues, including: At Arm’s Length: The European Union 

and Europe’s Defence Industry (Macmillan and St. Martin’s Presses, 1998); The United States and the European 

Union: The Political Economy of a Relationship (Sheffield 

Academic Press, 1999); and, The Business Environment 

of Europe: Firms, Governments, and Institutions (Cambridge University Press, 2014). Guay co-authored a 

fourth book, entitled European Competition Policy and 

Globalization (Palgrave, 2016). Additionally, he published two monographs with the Strategic Studies 

Institute, U.S. Army War College: The Transatlantic 

Defense Industrial Base: Restructuring Scenarios and their 

Implications (2005); and, Globalization and its Implications 

for the Defense Industrial Base (2007). He has published 

more than a dozen academic journal articles and book 

chapters on transatlantic relations, political economy, 

business-government relations, and security. He 

holds a B.S. from Clarkson University, an M.B.A. from 

The Ohio State University, and an M.A. and a Ph.D. 

from Syracuse University. Previously, he was a faculty member in the Maxwell School of Syracuse University and the School of International Service at The 

American University.

xiii

SUMMARY

One defining phenomenon of the 21st century to 

date is the ascent of new countries in the global economic, political, and security environment. While 

the so-called BRICS (Brazil, Russia, India, China, and 

South Africa) receive most of the attention in business, government, security, and media circles, several 

other countries have become influential regional—if 

not yet global—players, including Indonesia, Mexico, 

Nigeria, and Turkey. The prominence of these and 

other countries reflects the economic changes, investment opportunities, and future potential of some of 

the world’s largest countries (in population). Clearly, 

this is a different global environment than existed just 

30 years ago, before the fall of the Berlin Wall and 

the end of the Cold War. As long as these countries 

continue to experience healthy economic growth, and 

avoid the negative effects of war, it is likely that the 

relative global economic position of the United States 

will decline over the next few decades. To the extent 

that economic power translates into political and military power, the United States will be faced with multidimensional challenges in the years to come.

Given this multipolar global environment, this 

Letort Paper evaluates the implications for the U.S. and 

global defense industries. At one level, the rise of new 

powers is leading to an expansion in the global distribution of armaments production. Enhanced general 

industrial sophistication is spilling over to more specialized defense-related industries, which is enhancing the military capabilities of these countries. While 

this has progressed furthest in China, India and Brazil have developed stronger defense industrial bases 

than those that existed just a decade ago. At another 

level, the addition of new countries and companies in 
xiv

the global arms market presents serious challenges to 

the United States in two significant ways. First, this 

addition enhances the military capabilities of other 

countries (especially in the Middle East) who import 

weapons systems, thereby posing additional challenges to U.S. security interests. It also has the potential 

to strengthen nonstate actors, like terrorist groups, 

who purchase armaments directly from countries or 

acquire them on the battlefield from defeated national 

militaries.

The second challenge relates to the economic importance that armaments exports play in reducing 

the per-unit cost of weapons. The United States relies 

heavily on export markets to produce economies of 

scale, thereby lowering the acquisition costs for the 

Department of Defense (DoD). In the current period 

of uncertainty over funding levels for future defense 

budgets, weapons acquisition costs (and, therefore, 

exports) become critical. However, the same economics of armaments production applies globally: BRICS 

and other countries reduce weapons acquisition costs 

for their militaries by increasing arms exports, too. 

Consequently, it is becoming increasingly likely that 

the global arms trade will become even more competitive in the coming decades, with implications for the 

U.S. defense industrial base, U.S. Army, and other 

military branches.

This Letort Paper starts out with an overview of 

global arms production and trade. From there, the 

direction turns to BRICS and Turkey, with an overview of each country’s most significant current issues, 

termed “macro-variables.” The purpose is to provide 

the political, economic, and social context that has aided the rising global influence of these countries, and 

the challenges they will be facing in the near term. The 
xv

six countries analyzed in this Letort Paper represent 

the primary non-Western (that is, not the United States 

or Western and Central European) countries that are 

active in either importing or exporting weapons or 

both, and either currently have or hold the conditions 

to develop a vibrant defense industrial base over the 

next decade or two. This evaluation is followed by an 

overview of each country’s defense industrial base, 

with an assessment of their capabilities and economic 

orientation regarding domestic versus global sales 

and, at the international level, the likely recipients 

based on the global interests of these countries. 

Four recommendations are made to address the 

developments in these six countries. First, the United States must maintain its global dominance in the 

defense sector, which will face challenges in light of 

budgetary constraints in the coming years. Second, 

the United States should seek to build industrial alliances with allies, especially Europe, Japan, South 

Korea, India, and possibly Turkey. Third, the United 

States needs to minimize technology transfers to likely 

industry rivals, although this may be difficult, given 

commercial pressures in the aerospace sector. Finally, 

the United States needs to continue to use weapons 

exports to achieve political objectives, especially in 

Africa and Latin America, where China is seeking 

similar goals.

1

EMERGING POWERS AND FUTURE THREATS:

IMPLICATIONS FOR THE U.S. AND GLOBAL 

DEFENSE INDUSTRY

INTRODUCTION

One defining phenomenon of the 21st century to 

date is the ascent of new countries in the global economic, political, and security environment. While 

the so-called BRICS (Brazil, Russia, India, China, and 

South Africa) receive most of the attention in business, 

government, security, and media circles, a number of 

other countries have become influential regional (if 

not yet global) players. There are also the MINT countries (Mexico, Indonesia, Nigeria, and Turkey) and 

the Next Eleven ([N-11] consisting of the four MINT 

countries, along with Bangladesh, Egypt, Iran, Pakistan, the Philippines, South Korea, and Vietnam). All 

three acronyms were developed by the investment 

bank Goldman Sachs to raise awareness about the economic changes, investment opportunities, and future 

potential of some of the world’s largest countries (in 

population). 

This is clearly a different global environment than 

existed just 30 years ago, prior to the fall of the Berlin 

Wall and the end of the Cold War. Research by the 

consultancy firm PwC suggests that the ranking of the 

world’s largest economies will change quite dramatically between 2030 and 2050 (see Table 1). Using the 

purchasing power parity (PPP) method to calculate 

gross domestic product (GDP), China already has 

the world’s largest economy, and its lead over other 

countries will only increase in the coming decades.1

By 2050, India is expected to be the world’s secondlargest economy, and Indonesia, Brazil, Mexico, and 

Nigeria will be among the top ten. As long as these 
2

countries continue to experience healthy economic 

growth, and avoid the negative effects of war, it is 

likely that the relative global economic position of the 

United States will decline over the next few decades. 

To the extent that economic power translates to political and military power, the United States will be 

faced with multidimensional challenges in the years 

to come.

Table 1. Current and Projected Rankings of 

Countries by Gross Domestic Product 

(U.S. Dollars [USD] in Billions, Purchasing Power 

Parity Method).2

Rank Country 2014 

GDP Country 2030 GDP Country 2050 GDP

1 China 17,632 China 36,112 China 61,079

2 United States 17,416 United States 25,451 India 42,205

3 India 7,277 India 17,138 United States 41,384

4 Japan 4,788 Japan 6,006 Indonesia 12,210

5 Germany 3,621 Indonesia 5,486 Brazil 9,164

6 Russia 3,559 Brazil 4,996 Mexico 8,014

7 Brazil 3,073 Russia 4,854 Japan 7,914

8 France 2,587 Germany 4,590 Russia 7,575

9 Indonesia 2,554 Mexico 3,985 Nigeria 7,345

10 United Kingdom 2,435 United Kingdom 3,586 Germany 6,338

11 Mexico 2,143 France 3,418 United Kingdom 5,744

12 Italy 2,066 Saudi Arabia 3,212 Saudi Arabia 5,488

13 South Korea 1,790 South Korea 2,818 France 5,207

14 Saudi Arabia 1,652 Turkey 2,714 Turkey 5,102

15 Canada 1,579 Italy 2,591 Pakistan 4,253

16 Spain 1,534 Nigeria 2,566 Egypt 4,239

17 Turkey 1,512 Canada 2,219 South Korea 4,142

18 Iran 1,284 Spain 2,175 Italy 3,617

19 Australia 1,100 Iran 1,914 Canada 3,583

20 Nigeria 1,058 Egypt 1,854 Philippines 3,516

21 Thailand 990 Thailand 1,847 Thailand 3,510

22 Egypt 845 Pakistan 1,832 Vietnam 3,430

23 Poland 841 Australia 1,707 Bangladesh 3,367
3

Table 1. Current and Projected Rankings of 

Countries by Gross Domestic Product 

(U.S. Dollars [USD] in Billions, Purchasing Power 

Parity Method).2 (Cont.)

Given this multipolar global environment, this 

Letort Paper aims to evaluate the implications for 

the U.S. and global defense industries. At one level, 

the rise of new powers is leading to an expansion 

in the global distribution of armaments production. Enhanced general industrial sophistication is 

spilling over to more specialized defense-related 

industries, which is enhancing the military capabilities of these countries. While this phenomenon has 

progressed furthest in China, India and Brazil have 

developed stronger defense industrial bases than 

existed just a decade ago. At another level, the addition of new countries and companies in the global 

arms market presents serious challenges to the United 

States in two significant ways. First, it enhances the 

military capabilities of other countries (especially 

in the Middle East) who import weapons systems, 

thereby posing additional challenges to U.S. security interests. It also has the potential to strengthen 

Rank Country 2014 

GDP Country 2030 GDP Country 2050 GDP

24 Argentina 827 Malaysia 1,554 Malaysia 3,327

25 Pakistan 884 Poland 1,515 Iran 3,224

26 Netherlands 798 Philippines 1,508 Spain 3,099

27 Malaysia 747 Argentina 1,362 South Africa 3,026

28 Philippines 695 Vietnam 1,313 Australia 2,903

29 South Africa 683 Bangladesh 1,291 Colombia 2,785

30 Colombia 642 Colombia 1,255 Argentina 2,455
4

nonstate actors, like terrorist groups, who purchase 

armaments directly from countries or acquire them 

on the battlefield from defeated national militaries. 

The second challenge relates to the economic importance that armaments exports play in reducing 

the per-unit cost of weapons. The United States, for 

example, relies heavily on export markets to produce 

economies of scale, thereby lowering the acquisition 

costs for the Department of Defense (DoD). In the current period of uncertainty over funding levels for future defense budgets, weapons acquisition costs (and, 

therefore, exports) become critical. However, the same 

economics of armaments production applies globally; 

BRICS and other countries lower weapons acquisition 

costs for their militaries by increasing arms exports, 

too. Consequently, it is becoming increasingly likely 

that the global arms trade will become even more 

competitive in the coming decades, with implications 

for the U.S. defense industrial base, U.S. Army, and 

other military branches.

This Letort Paper starts out with an overview of 

global arms production and trade. From there, the direction turns to BRICS and Turkey, with an overview of 

each country’s most significant current issues, termed 

“macro-variables.” The purpose is to provide the political, economic, and social context that has aided 

the rising global influence of these countries, and the 

challenges they will be facing in the near term. This is 

followed by an overview of each country’s defense industrial base, with an assessment of their capabilities 

and economic orientation in terms of domestic versus 

global sales and, at the international level, the likely 

recipients based on the global interests of these countries. This Letort Paper then assesses the implications 

for the U.S. defense industry and U.S. global security 

interests. Finally, the report will provide recommen-
5

dations for U.S. military and government officials to 

respond to this changing global environment in ways 

that will support U.S. security and industrial interests. 

The six countries analyzed in this Letort Paper represent the primary non-Western (that is, not the United 

States or Western and Central European) countries 

that are active in importing or exporting weapons (or 

both), and either currently have or hold the conditions 

to develop a vibrant defense industrial base over the 

next decade or two.

The issues raised in this Letort Paper are wideranging and are relevant to a number of U.S. national 

security issues, including the following topics on the 

Key Strategic Issues List 2014-15:3

ADDITIONAL ARMY PRIORITIES FOR STRATEGIC ANALYSIS. . . . Globally Responsive and 

Regionally Engaged Army. . . . What regions/countries of the world are most important for Army engagement [emphasis in original]?4

Ready and Modern Army. . . . Given defense austerity and the post-conflict drawdown, what should be 

at the top and at the bottom of the Army’s priorities? 

. . . How would technological inferiority in some areas 

affect Army operations [emphasis in original]?5

U.S. CENTRAL COMMAND [CENTCOM]. . . . Operational Issues. . . . What is the future impact of Chinese 

interests in Middle East oil and economic matters in 

the Middle East? . . . What is the future impact of Russian interests in Middle East oil, arms shipments and 

economic matters in the Middle East? . . . Legislative 

Affairs. . . . What are the short-, mid-, and long-term 

threats of the current foreign military financing (FMF) 

and foreign military sales (FMS) programs in light of 

the growing ethnic divides in the CENTCOM [Area 

of Responsibility] AOR? Is DoD fueling an arms race 

in an unsettling environment [emphasis in original]?6
6

U.S. ARMY MATERIEL COMMAND. . . . HQ [Headquarters] U.S. Army Materiel Command [AMC]. . . . 

Should the Army restructure support to the industrial 

base? If so, how? . . . HQ AMC, G-3/4 Strategic Integration. . . . 1) What Commercial Defense Industrial 

Base sectors are critical enough to warrant preferential 

investment or preservation, and which commercial industrial base sectors can diminish without affects to 

Army operation? 2) Within the critical sector, what industrial base capabilities are required to maintain new 

and legacy weapon systems to support the anticipated 

future force structure that includes Defense unique 

requirements and new technologies? 3) What capabilities can we divest which can be rapidly regenerated or 

procured? 4) What is the acceptable level of risk from 

divestiture of unnecessary weapon systems [emphasis 

in original]?7

U.S. ARMY TRAINING AND DOCTRINE COMMAND. . . . Army Capabilities Integration Center. . . .

As the Army transitions from execution to preparation, for what national security objectives and risks 

must the Army prepare? . . . Given national security 

documents, operational environment estimates, and 

international relations and military theory, what is the 

national security strategic landscape in 2030-40? What 

will challenge U.S. vital interests and describe the corresponding military problem? . . . Are the institutions 

that dictate current “world order,” or at least contain 

disorder, enduring? What threatens the legitimacy 

and utility of international institutions that have been 

established and supported by the United States and 

our allies [emphasis in original]?8

This Letort Paper obviously will not fully respond 

to all of the questions posed above. However, it is important to note that the breadth of this Letort Paper 

suggests that the defense industrial implications of a 
7

world comprised of countries experiencing relatively 

new political and economic prominence, with interests often conflicting with those of the United States, 

affects a wide range of U.S. Army concerns.

OVERVIEW OF GLOBAL DEFENSE INDUSTRY

Leading Countries and Companies.

In a world where globalization is the dominant 

economic buzzword, 38 countries each exported more 

than $100 billion in goods in 2014, and U.S. and European firms are facing fierce competition in world markets, with the defense industry remaining remarkably 

concentrated in a handful of countries.9 Table 2 shows 

the world’s top 100 companies ranked by defense revenues. Companies are ranked using two of the mostcited sources: Defense News and the Stockholm International Peace Research Institute (SIPRI). Although 

the methodologies used by the two organizations are 

slightly different, the companies do not vary much 

in their standings. Neither do the countries in which 

they are headquartered. The United States is home to 

the most defense firms by far; about 40 of the top 100 

firms are located there. The United Kingdom, Russia, 

Japan, France, South Korea, Germany, and Israel combined account for about 40 more companies. This contrasts with the general trend of a more diverse group 

of multinational corporations (MNCs) that compete 

internationally across all industries. Table 3 compares 

the change in the rankings of the global Fortune 500 

firms by country of origin in 2005, versus 2014. The 

rankings, based on a firm’s total revenues, shows a 

sharp decline (from 431 total companies to 324) over 

the past 10 years in the number of U.S., European, 
8

and Japanese firms comprising the world’s 500 largest. Chinese firms increased more than six-fold over 

this period (from 16 to 98), while those from Brazil, 

India, Russia, and other emerging markets more than 

doubled (from 17 to 37). As shown in Table 4, about 

21-22 countries (depending on whether Defense News

or SIPRI data are used) are represented among the 

top 100 defense firms. However, most of the countries 

have only one or two firms, leaving about 80 percent 

of the world’s 100 largest defense companies concentrated in just eight countries.

Table 2. Largest Global Defense Companies 

(Ranked by Defense Revenues).10

Rank Defense News Country

2014 

Defense 

Revenues 

(USD 

millions)

SIPRI Country

2014 

Arms 

Sales

(USD 

millions)

1 Lockheed Martin U.S. 40,128 Lockheed Martin U.S. 37,470

2 Boeing U.S. 29,000 Boeing U.S. 28,300

3 BAE Systems UK 25,449 BAE Systems UK 25,730

4 Raytheon U.S. 22,228 Raytheon U.S. 21,370

5 General Dynamics U.S. 18,561 Northrop Grumman U.S. 19,660

6 Northrop Grumman U.S. 18,400 General Dynamics U.S. 18,600

7 Airbus Netherlands 14,610 Airbus Group TransEuropean 14,490

8 United Technologies U.S. 13,020 United Technologies 

Corp U.S. 13,020

9 Finmeccanica Italy 10,561 Finmeccanica Italy 10,540

10 L3 Communications U.S. 9,808 L-3 Communications U.S. 9,810

11 Almaz-Antey Russia 9,210 Almaz-Antey Russia 8,840

12 Thales France 8,462 Thales France 8,600

13 Huntington Ingalls 

Industries U.S. 6,818 Huntington Ingalls Industries U.S. 6,680

14 United Aircraft 

Corporation Russia 6,244 United Aircraft Corporation Russia 6,110
9

Rank Defense News Country

2014 

Defense 

Revenues 

(USD 

millions)

SIPRI Country

2014 

Arms 

Sales

(USD 

millions)

15 Rolls-Royce UK 5,434 United Shipbuilding 

Corp Russia 5,980

16 Honeywell U.S. 4,754 Rolls-Royce UK 5,430

17 Textron U.S. 4,719 SAFRAN France 5,130

18 AECOM U.S. 4,433 Honeywell U.S. 4,750

19 Booz Allen Hamilton U.S. 4,100 Textron U.S. 4,700

20 Safran France 4,081 DCNS France 3,920

21 DCNS France 4,075 Mitsubishi Heavy 

Industries Japan 3,920

22 GE U.S. 4,000 Booz Allen Hamilton U.S. 3,900

23 Russian Helicopters Russia 3,960 Russian Helicopters Russia 3,890

24 Leidos U.S. 3,627 United Instrument 

Manufacturing Corp Russia 3,640

25 Babcock International UK 3,559 Babcock International UK 3,560

26 United EngineBuilding Russia 3,324 Leidos U.S. 3,390

27 Bechtel U.S. 3,000 General Electric U.S. 3,210

28 Rheinmetall Germany 2,977 Science Applications 

International Corp U.S. 3,170

29 Elbit Systems Israel 2,958 Harris U.S. 3,110

30 Saab Sweden 2,829 AECOM Technology 

Corp U.S. 3,080

31 Tactical Missiles Russia 2,813 Rheinmetall Germany 2,970

32 Israel Aerospace 

Industries6 Israel 2,785 Israel Aerospace Industries Israel 2,880

33 Orbital ATK U.S. 2,750 Elbit Systems Israel 2,810

34 SAIC U.S. 2,735 Tactical Missiles Corp Russia 2,810

35 Exelis U.S. 2,644 Bechtel U.S. 2,760

36 Mitsubishi Heavy 

Industries Japan 2,627 CACI International U.S. 2,730

37 CACI International U.S. 2,578 Saab Sweden 2,710

38 Hindustan 

Aeronautics India 2,480 United Engine Corp Russia 2,600

39 Harris U.S. 2,385 High Precision 

Systems Russia 2,350

Table 2. Largest Global Defense Companies 

(Ranked by Defense Revenues).10 (Cont.)
10

Rank Defense News Country

2014 

Defense 

Revenues 

(USD 

millions)

SIPRI Country

2014 

Arms 

Sales

(USD 

millions)

40 Hewlett-Packard U.S. 2,241 Alliant Techsystems U.S. 2,340

41 Rockwell Collins U.S. 2,209 Hindustan 

Aeronautics India 2,330

42 CSC U.S. 2,177 ThyssenKrupp Germany 2,310

43 Serco UK 2,175 Hewlett-Packard U.S. 2,300

44 ST Engineering Singapore 2,013 CEA France 2,290

45 Rafael Advanced 

Defense Systems Israel 1,965 KRET Russia 2,240

46 Kawasaki Heavy 

Industries Japan 1,909 Rockwell Collins U.S. 2,230

47 Cobham UK 1,860 Computer Sciences 

Corp U.S. 2,230

48 Oshkosh U.S. 1,725 Exelis U.S. 2,230

49 General Atomics U.S. 1,655 Serco UK 2,180

50 Aerojet Rocketdyne U.S. 1,591 Kawasaki Heavy 

Industries Japan 2,080

51 DynCorp U.S. 1,579 ST Engineering Singapore 2,010

52 Uralvagonzavod Russia 1,545 Rafael Israel 2,000

53 Hanwha South Korea 1,545 Cobham UK 1,860

54 Engility U.S. 1,530 Oshkosh U.S. 1,730

55 Embraer Brazil 1,460 ManTech 

International U.S. 1,690

56 Fincantieri Italy 1,407 Korea Aerospace 

Industries South Korea 1,660

57 Nexter France 1,393 General Atomics U.S. 1,630

58 Dassault Aviation France 1,332 Indian Ordnance 

Factories India 1,560

59 LIG Nex1 South Korea 1,330 Fluor U.S. 1,500

60 Fluor U.S. 1,319 Embraer Brazil 1,470

61 Korea Aerospace 

Industries South Korea 1,160 Uralvagonzavod Russia 1,450

62 Aselsan Turkey 1,109 Fincantieri Italy 1,410

63 Accenture U.S. 1,060 LIG Nex1 South Korea 1,330

64 ManTech U.S. 1,047 Nexter France 1,320

Table 2. Largest Global Defense Companies 

(Ranked by Defense Revenues).10 (Cont.)
11

Rank Defense News Country

2014 

Defense 

Revenues 

(USD 

millions)

SIPRI Country

2014 

Arms 

Sales

(USD 

millions)

65 QinetiQ UK 1,018 Dassault Aviation 

Groupe France 1,320

66 NEC Japan 1,011 DynCorp International U.S. 1,270

67 GKN Aerospace UK 990 Polish Armaments 

Group Poland 1,270

68 Ultra Electronics UK 952 Austal Australia 1,240

69 RTI Russia 947 GenCorp U.S. 1,180

70 Krauss-Maffei 

Wegmann Germany 935 IHI Japan 1,180

71 Kongsberg Norway 930 Jacobs Engineering 

Group U.S. 1,140

72 Ana Holdings Japan 926 QinetiQ UK 1,140

73 Samsung Techwin South Korea 905 ASELSAN Turkey 1,110

74 PAE U.S. 895 Hyundai WIA Corp South Korea 1,040

75 Meggitt UK 889 Mitsubishi Electric 

Corp Japan 1,040

76 Bharat Electronics India 876 Triumph Group U.S. 1,010

77 Mitsubishi Electric Japan 860 NEC Japan 1,010

78 Turkish Aerospace 

Industries Turkey 854 Precision Castparts U.S. 1,000

79 Moog U.S. 838 GKN UK 990

80 AAR Corp U.S. 827 Pilatus Aircraft Switzerland 960

81 Cubic U.S. 799 Bharat Electronics India 950

82 CAE Canada 756 Hanwha Corp South Korea 950

83 Alion Science and 

Technology U.S. 754 Krauss-Maffei Wegmann Germany 940

84 Curtiss-Wright U.S. 750 ASC Australia 930

85 Chemring UK 724 Kongsberg Gruppen Norway 920

86 Ruag Switzerland 718 Samsung Techwin South Korea 920

87 Ball Aerospace & 

Technologies U.S. 681 Meggitt UK 890

88 Indra Spain 676 Moog U.S. 860

89 Wyle U.S. 651 Turkish Aerospace 

Industries Turkey 850

Table 2. Largest Global Defense Companies 

(Ranked by Defense Revenues).10 (Cont.)
12

Rank Defense News Country

2014 

Defense 

Revenues 

(USD 

millions)

SIPRI Country

2014 

Arms 

Sales

(USD 

millions)

90 Diehl Defence 

Holding Germany 649 UkrOboronProm Ukraine 840

91 IHI Japan 618 RTI Russia 840

92 Ukroboronprom Ukraine 576 RUAG Switzerland 840

93 Battelle U.S. 569 CNH Industrial TransEuropean 820

94 Patria Finland 556 MIT U.S. 800

95 Day & Zimmerman U.S. 555 Cubic Corporation U.S. 800

96 ViaSat U.S. 536 Patria Industries Finland 800

97 Nammo Norway 527 The Aerospace Corp U.S. 790

98 Fujitsu Japan 526 Alion Science & 

Technology U.S. 770

99 Israel Military 

Industries Israel 476 Hyundai Rotem South Korea 770

100 Denel South Africa 455 Mitre U.S. 760

Note: Chinese companies are excluded due to lack of comparable and sufficiently accurate data; and, Airbus is considered a 

Netherlands company by Defense News, and Trans-European by SIPRI.

Table 2. Largest Global Defense Companies 

(Ranked by Defense Revenues).10 (Cont.)
13

Table 3. Global Fortune 500 Firms by Country of 

Origin.11

Table 4. Total Revenues and Employment for 

Countries with the most Defense Companies in the 

Top 100.12

2005 2014

United States 176 128

Europe 174 142

Japan 81 54

Other Organization for Economic Cooperation and Development (OECD) Countries 36 41

China 16 98

Brazil, India, Russia 11 19

Other Emerging Markets 6 18

Total 500 500

Note: Fortune 500 rankings were based on company revenues; and, other OECD countries include Australia, 

Canada, Chile, Mexico, South Korea, and Turkey.

Country

Number of 

Companies 

in Top 100 

(Defense News)

Defense 

Revenues 

(Defense News, 

2014)

Number of 

Companies in 

Top 100 (SIPRI)

Total 

Employment 

(SIPRI, 2014)

U.S. 42 225,676 38 1,933,630

UK 10 43,050 8 348,140

Japan 7 8,477 5 345,380

Russia 7 28,043 11 566,100

France 5 19,343 6 174,630

Israel 4 8,184 3 11,850

South Korea 4 4,940 6 6,590

Germany 3 4,561 3 183,680

India 2 3,356 3 N/A

Italy 2 11,968 2 76,070

Norway 2 1,457 1 7,730

Turkey 2 1,963 2 11,370
14

Table 4. Total Revenues and Employment for 

Countries with the most Defense Companies in the 

Top 100.12 (Cont.)

Country

Number of 

Companies 

in Top 100 

(Defense News)

Defense 

Revenues 

(Defense News, 

2014)

Number of 

Companies in 

Top 100 (SIPRI)

Total 

Employment 

(SIPRI, 2014)

Australia 2 2,600

Brazil 1 1,460 1 19,170

Canada 1 756

Finland 1 556 1 2,450

Netherlands 1 14,610

Poland 1 17,500

Singapore 1 2,013 1 22,670

South Africa 1 455

Spain 1 676

Sweden 1 2,829 1 14,720

Switzerland 1 718 2 9,990

Ukraine 1 576 1 122,000

TransEuropean 2 207,830

Total 100 100

Note: Chinese companies are excluded due to lack of comparable and sufficiently accurate data; 

Airbus is considered a Netherlands company by Defense News, and Trans-European by SIPRI.
15

Exports and Global Armaments Trade.

Globalization and the rise of non-Western economies have produced a range of categories in which 

the United States is no longer number one, including 

tallest buildings, casinos, and shopping malls (not 

even in the top 25!). However, since the end of the 

Cold War, the United States has led the world in armaments exports. In the five most recent years (2011-

2015), the United States exported almost 33 percent of 

all conventional weapons (see Table 5). Only Russia 

came close, with a 25 percent share of arms exports. 

China and France each held about a 6 percent share, 

followed by Germany and the United Kingdom at 5 

percent. Together, these six countries accounted for 

almost 79 percent of all weapons exports in the most 

recent 5-year period, again illustrating the high level 

of concentration in the defense industry. Exports are 

essential for all of these countries, since they allow 

their companies to produce larger quantities of fighter 

planes, tanks, warships, and other weapons systems, 

thereby driving down the per-unit cost, which ultimately benefits the DoD (in the case of the U.S.) and 

national defense ministries in other countries. While 

arms exports also help to achieve national security 

and foreign policy goals, they provide significant economic benefits as well, particularly for the workers 

and communities where the production is located and 

the spillover effect on civilian products (e.g., technologies developed to build fighter planes being later used 

in commercial aircraft) are realized.
16

Table 5. Top 20 Suppliers of Major Conventional 

Weapons (2011-2015).13

One of the most significant global trends is the 

increased defense spending and weapons trade by 

emerging market economies.14 India was the largest 

importer of weapons from 2011-15, accounting for 14 

Rank Country Exports (USD millions)

1 United States 46,908

2 Russia 36,232

3 China 8,447

4 France 8,034

5 Germany 6,722

6 United Kingdom 6,476

7 Spain 5,047

8 Italy 3,843

9 Ukraine 3,686

10 Netherlands 2,791

11 Israel 2,594

12 Sweden 2,095

13 Canada 1,490

14 Switzerland 1,440

15 South Korea 1,051

16 Turkey 856

17 Norway 713

18 Belarus 453

19 South Africa 448

20 Australia 446

Others 3,119

Total 142,890

Note: Figures are SIPRI Trend Indicator Values (TIVs) expressed in USD in 

millions, at constant (1990) prices.
17

percent of all global arms imports, followed by Saudi 

Arabia, China, and the United Arab Emirates (see 

Table 6). Africa, which has experienced some of the 

world’s most impressive economic growth over the 

past decade, saw arms imports increase 19 percent 

over the past 5 years compared to 2005-10 levels. China solidified its third place standing—a position it has 

held for just 2 years—in weapons exports, signifying 

the growing importance the country plays in international affairs. 

Table 6. Top 20 Importers of Major Conventional 

Weapons (2011-2015).15

Rank Country Imports 

(USD millions)

1 India 20,107

2 Saudi Arabia 9,932

3 China 6,680

4 UAE 6,552

5 Australia 5,204

6 Turkey 4,926

7 Pakistan 4,723

8 Vietnam 4,114

9 United States 4,109

10 South Korea 3,761

11 Algeria 3,500

12 Egypt 3,430

13 Singapore 3,325

14 Iraq 3,296

15 Indonesia 3,088

16 Taiwan 2,940

17 Morocco 2,921

18 Venezuela 2,774
18

Table 6. Top 20 Importers of Major Conventional 

Weapons (2011-2015).15 (Cont.)

As countries in Asia and Africa become more economically developed, larger sums are being spent on 

defense, particularly for weapons imported from the 

world’s largest producers. Data in Table 7 show that 

military expenditures have increased in every global 

region between 2005 and 2015, except for North America and Western Europe. Globally, expenditures rose 

22 percent over this 10-year period, but in Africa, they 

almost doubled to $39.1 billion. The Middle East also 

saw large increases in percentage terms (59 percent), 

and in value ($67 billion). Combined spending for all 

Asian regions rose from $236 billion to $420 billion, or 

78 percent. Therefore, there are two opposing trends 

taking place in the global armaments market. On the 

one hand, more countries are spending greater sums 

of money on defense, and there is little reason to expect this to slow over the next 10-20 years. At the same 

time, more countries and companies are entering this 

lucrative market, raising competitive pressures on 

U.S., European, and Russian companies that have 

dominated the global arms trade for decades.

Rank Country Imports 

(USD millions)

19 Azerbaijan 2,176

20 Bangladesh 2,082

Others 43,252

Total 142,890

Note: Figures are SIPRI TIVs expressed in USD in 

millions, at constant (1990) prices.
19

Table 7. Regional Military Expenditures.16

Region 2005 2010 2015 Percent 

Change (2005-

2015)

Africa 21.3 31.3 39.1 +83.6

North Africa 7.4 11.4 18.4 +148.6

Sub-Saharan Africa 13.9 20.0 20.7 +48.9

Americas 679 847 689 +1.5

Central America and the 

Caribbean

5.3 7.8 10.6 +100.0

North America 627 777 613 -2.2

South America 47.3 62.0 65.4 +38.3

Asia and Oceania 258 357 450 +74.4

Central and South Asia 46.4 61.7 67.8 +46.1

East Asia 164 235 310 +89.0

South-east Asia 25.8 33.2 42.2 +63.6

Oceania 22.1 27.7 30.4 +37.6

Europe 370 397 397 +7.3

Central Europe 22.7 22.0 25.2 +11.0

Eastern Europe 47.3 67.4 101 +113.5

Western Europe 300 307 271 -9.7

Middle East 114 142 181 +58.8

TOTAL 1,443 1,774 1,760 +22.0

Note: Figure is for 2014, expressed in USD in billions, at constant (2014) 

prices.
20

COUNTRY ANALYSIS

This section of this Letort Paper is intended to focus on new entrants in the global defense industry 

since the end of the Cold War. There has been much 

written about the U.S. and European defense industries, which along with the Soviet Union (now Russia), 

dominated global production and exports for over 50 

years.17 The countries below are not meant to be an 

exhaustive list. Nevertheless, they do represent the 

non-Western countries that are playing an increasingly influential role, not just in the production and 

trade of armaments, but in global political, economic, 

and security affairs.

China.

Macro-Variables.

The economic, political, and military rise of China 

has been perhaps the most significant change in the 

global political economy over the past 30 years. The 

country has been transformed from one of the world’s 

poorest in the 1970s to the world’s second-largest 

economy today—or first if using the PPP method of 

calculating GDP. It contains the world’s largest middle class, and consumes more luxury goods than any 

other country. There are 98 Chinese companies among 

the world’s 500 largest. The Chinese Government has 

developed a state capitalism economic development 

model that uses state-owned enterprises (SOEs), the 

allocation of financial resources, and a regulatory 

system that favors domestic companies. The government also offers support for Chinese firms to: expand 
21

in global markets to foster the growth of key sectors, 

including: aerospace, energy, finance, mining, and 

transportation; to provide jobs to millions of workers; and, to maintain social stability. Although the 

state capitalism model has its critics, by almost any 

measure, China’s government-led industrial policies, 

gradual opening of economic sectors to suit planners’ 

goals, currency controls, and sometimes harsh domestic measures (such as the one-child policy to manage 

population growth and the hukou system of registration to slow internal migration by restricting access 

to social services) have produced a vastly improved 

standard of living for hundreds of millions of citizens, 

and a country whose global influence is far wider than 

it ever was less than 40 years ago.18

Yet, China’s problems are manifold. The most significant is a relative slowing of the country’s economic 

growth. For more than 30 years prior to 2010, China’s 

annual economic growth rate averaged more than 

10 percent.19 Yearly GDP growth since then has been 

under 8 percent. While even 7 percent GDP growth 

would be a huge achievement for many countries 

around the world, China’s slower growth has global 

implications. The decline in growth is largely due to 

structural shifts in the country’s economy. Manufacturing, especially for export, was the key ingredient 

for the country’s unprecedented growth rates. In 1990, 

Asia accounted for 26.5 percent of global manufacturing output.20 By 2013, this had reached 46.5 percent, 

with China accounting for half of this figure. However, since 2001, hourly manufacturing wages in China 

have increased by an average of 12 percent per year. 

Although Chinese labor costs remain much lower than 

in the United States and Europe, and increased automation in Chinese factories has boosted productiv-
22

ity, manufacturing in China is no longer the cheapest 

option for global companies, even in Asia. The manufacturing growth model moved millions of workers 

from rural poverty to an urban middle class that has 

made China the largest global market for luxury goods 

and services; and MNCs are responding. According to 

AmCham China, a lobbying group for U.S. companies, 

the primary strategy for 71 percent of U.S. companies 

in China is to produce or source goods and services 

in China for the Chinese market.21 Just 12 percent of 

U.S. firms are in China, primarily to produce or source 

goods or services for the U.S. market. Among the 

other factors for a relative decline in industrialization 

is that, in recent years, the government has acknowledged the environmental cost of rapid manufacturing 

growth, and is seeking to promote manufacturing in 

less dirty sectors, as well as services.

Demographic changes will play a key role in the 

country’s evolution. According to the United Nations 

(UN) Population Division, in 1980, just 7.2 percent of 

China’s population was over the age of 60.22 By 2015, 

15.2 percent was. By 2035, it is projected to be 29.1 percent, and 36.5 percent by 2050, before settling at just 

under 40 percent for the remainder of the 21st century. 

While the age imbalance is largely the result of the 

country’s one-child policy, it is unlikely to be reversed, 

even though the policy was substantially revised in 

2015 to allow two children per couple.23 Urbanization 

and the high cost of living for many families in Chinese cities are considered by many demographers to 

be more influential than government policies in determining how many children couples have. The implications are wide-ranging. First, the cost of labor is 

likely to rise, due to a shrinking pool of working-age 

manufacturing workers. Second, services will com-
23

prise a larger portion of China’s economy. Services 

accounted for just 32.4 percent of the country’s GDP in 

1990, while manufacturing made up 40.9 percent and 

agriculture, 26.7 percent.24 By 2015, services were the 

largest component, at 50.5 percent, followed by manufacturing (40.5 percent), and agriculture (9.0 percent). 

If China follows the path of more developed countries, the services sector will continue to grow (for example, services accounted for 78.0 percent of the U.S. 

economy in 2014). This will be particularly important 

in health care (given the aging population) and in 

financial services. 

Defense Sector.

Chinese companies are rapidly expanding their 

exports, reaching the position of the world’s thirdlargest arms exporter for the first time for the 5-year 

period ending in 2014, and solidifying its place in 

2015.25 Exports grew by 88 percent in 2011-15, compared with the previous 5-year period, reflecting the 

country’s production of more highly advanced equipment than was the case a decade ago. China’s biggest 

client was Pakistan, which bought 35 percent of the 

country’s weapons exports, followed by Bangladesh 

(20 percent), and Myanmar (16 percent).26 China has 

long been Pakistan’s main weapons supplier, since 

other exporters fear that New Delhi would retaliate by 

closing India’s market to them. China, like Russia, has 

few political litmus tests when selling arms, meaning 

that issues like human rights grievances within buying countries or concerns within the international 

community that governments are violating global 

norms such as nuclear proliferation are rarely factors 

in deciding whom they sell arms to. 
24

As the Chinese Government increases its military 

spending (it has been above 2 percent of GDP every 

year since 2001), defense firms can produce arms in 

greater quantities, thereby lowering unit costs and 

making exports more competitive. China’s defense 

budget—now second in size only to that of the United 

States—has kept pace with the country’s dizzying 

economic growth, and is scheduled to exceed annual 

GDP growth, at least in the short term. It increased 10 

percent in 2015 to around $145 billion, after increasing 

12.2 percent in 2014 over 2013 levels.27 Although China is rapidly building an indigenous industrial base, 

there remains a need to import key weapons systems. 

Unlike the other countries discussed in this Letort 

Paper, China’s arms imports ($6,680 million) and exports ($8,447 million) were roughly similar over the 

past 5 years.28 Fifty-nine percent of Beijing’s weapons 

imports from 2011-15 came from Russia, followed by 

France (14 percent) and Ukraine (14 percent).29 The 

United States imposed export controls of defense and 

dual-use goods and technologies in 1989, following 

the Tiananmen Square incident. The European Union 

(EU) also maintains an arms embargo on China, but 

there is room for different interpretations by national 

governments of what products should be banned. As 

a result of neither the United States nor the EU having 

airtight restrictions on military-relevant goods and 

technologies, China has become adept at integrating 

what it has been able to procure from abroad into Chinese weapons systems.30

The Chinese defense industry is comprised of SOEs. 

Because of this, and the associated difficulty in obtaining verifiable revenues, breakdown of defense versus 

civilian segments, employment, and other statistics, 

neither Defense News nor SIPRI includes Chinese com-
25

panies in their rankings of the world’s largest defense 

companies. As a result of heavy government spending on research and development, Chinese companies 

are moving up-market with their products. In October 

2015, the state-owned Aviation Industry Corporation 

of China unveiled the capabilities of the J-31 advanced 

stealth fighter jet—an airplane the company plans to 

position directly with Lockheed Martin’s F-35—even 

as it was still being tested.31 Countries that cannot 

buy weaponry from the United States for technology 

transfer, or cost reasons, have increasingly turned 

to China. However, there remain significant gaps in 

China’s defense industry, which hamper international 

sales. Although China has several aerospace companies, the country’s defense industry cannot make reliable engines or avionics, so they must import these 

products from abroad (usually Russia).32 This can be 

an advantage, since not having to develop and produce jet engines can save about half of the research 

and development (R&D) costs for a modern military 

aircraft, as well as considerable time in the development schedule.33 Still, being able to produce all major 

armaments components is what separates the U.S. and 

Russian defense industries from other countries. China is almost certainly going to want to join this select 

group.

Outlook.

China is likely to be a game changer in the global 

defense industry and arms trade for several reasons. 

First, Chinese defense spending grew by 169 percent 

between 2005 and 2015, accounting for $135 billion of 

the $146 billion increase for all of East Asia during that 

time period (Table 7). As China continues to leverage 
26

its economic weight toward global political and military influence, military spending will increase, albeit 

at slower rates than during the past decade. Still, this 

will provide a growing national market for weapons 

systems, which will allow for steady growth of the 

Chinese defense industrial base. Second, as China’s 

economy transitions from low-technology manufacturing to higher-value-added goods and services, 

there will be spillover to the country’s defense industry, enabling firms to produce weaponry that is more 

advanced. Third, China’s appetite for raw materials 

from Africa and Latin America, although declining 

in recent years, gives the country significant leverage 

over the economies and governments in these two 

continents. This should help Chinese defense firms 

wedge their way into the procurement process of these 

countries, at the expense of Western and Russian companies, by offering the carrot of foreign investment, as 

well as greater access to the Chinese market. Finally, 

as China’s growing military budget allocates more 

funds for weaponry, neighboring countries will be 

inclined to spend more, too. This will provide ready 

markets mainly for U.S. and European defense companies, since countries like South Korea, Japan, Singapore, and Australia rarely buy Russian arms.

India.

Macro-Variables.

India, the world’s second most populous country, 

has seen mostly strong economic growth over the past 

quarter century (though not as consistent as China’s). 

This is a result of the implementation of economic 

reforms in the early-1990s, which were inspired by a 
27

financial crisis (and the imposition of the International 

Monetary Fund’s structural reforms), a decline of the 

Soviet Union as an economic model, and concerns 

about the rapid economic growth in neighboring China. The country has achieved between 5-10 percent annual GDP growth for every year but one from 2006-14. 

Despite the country’s recent economic success, only 

seven Indian companies are represented in the Fortune 

Global 500 rankings—the same as Brazil and more 

than Russia’s 5, but still just a fraction of China’s 98 

companies. 

Structurally, India’s economy is overly dependent 

on the service sector. According to the World Bank, 

in 2014 services contributed 52 percent of the country’s GDP, with manufacturing accounting for just 17 

percent (agriculture was 18 percent, and other industries, such as mining, construction, electricity, water, 

and gas, made up 13 percent).34 In China, manufacturing accounted for 36 percent of GDP, a figure that 

has steadily declined for more than a decade as the 

country’s economy has matured, with services growing to 48 percent. Recognizing the relative weakness 

of India’s manufacturing base, and the role that jobs in 

this sector play in economic development and the expansion of a middle class, the Narendra Modi government initiated its “Make-in-India” plan in September 

2014 to promote foreign investment in 25 economic 

sectors.35

Politically, India is the world’s largest democracy, 

albeit a messy one. According to the anti-corruption 

non-governmental organization Transparency International, India ranks as 76th out of 167 countries for 

public corruption.36 While this is a serious problem 

in India, the country fares better than China (ranked 

83) and Russia (119), but worse than South Africa 
28

(61), Turkey (66), or Brazil (76). As a multiparty democracy, coalition governments are the norm, which 

often makes it difficult to formulate coherent policies, 

especially in the economic realm. The political system 

is federal in structure, which leads to very different 

political and economic environments across the country. For example, among the 29 states and 7 union territories, some such as Gujarat are very pro-business in 

orientation, while others like West Bengal often have 

been governed by democratically elected communist 

parties and/or influenced by politically active groups. 

Consequently, companies (both domestic and foreign) 

have been treated to a wide range of receptivity, from 

generous financial incentives and regulatory reforms 

to invest in particular locales, to abandoning multimillion dollar projects as Tata Motors did in 2008.37

In terms of demographics, India has a young population. In 2015, over 47 percent of the population was 

under the age of 25—a figure that will gradually drop 

to about one-third by 2050. By contrast, only 31 percent of China’s population is currently under 25 years 

old, and that age group is expected to drop to under 

23 percent by 2050.38 The upshot is that India is positioned to have a large and growing workforce for the 

next few decades, and that, along with its large population (projected to surpass China’s by mid-century), 

are among the key factors that are likely to propel the 

country to become the world’s second-biggest economy by 2050 (see Table 1). 

Defense Sector.

India’s geography plays an important role in shaping its military strategy and weapons procurement 

decisions. India was the largest importer of weapons 
29

from 2011-15, accounting for a 14 percent share of 

world imports (Saudi Arabia was second, with 7 percent, and China was third, with 5 percent).39 Between 

2006-10 and 2011-15, India’s weapons imports increased by 90 percent, reflecting the country’s security 

concerns vis-à-vis its neighbors, particularly China 

and Pakistan, as well as a need to replace Soviet-era 

equipment with modern weaponry. The country is 

expected to spend $120-130 billion over the next decade to update its obsolete and aging fleets of fighters, 

sea vessels, and various war machinery.40 Imports are 

also essential because India has thus far failed to produce competitive indigenous-designed weapons that 

fully satisfy India’s military needs, or the demands of 

foreign markets. In July 2014, the Indian Government 

increased the foreign investment limit in the domestic defense industry from 26 percent to 49 percent, in 

the hope of drawing greater interest from its primary 

weapons suppliers to help build the country’s defense 

industrial base.41 The defense sector had attracted a 

mere $5 million in foreign investment to that point in 

time.42 For most foreign companies, such low equity 

participation provided little control over managerial 

decision-making, and virtually no incentive to share 

proprietary technology with Indian partners.43 The 

government is expecting to leverage some of its buying power to obtain greater access to foreign technologies and, over time, reduce its reliance on imported 

weapons systems. The new policy seems to be working. India’s Defense Ministry agreed in May 2015 to 

purchase 56 transport aircraft from Airbus in a deal 

valued at $1.87 billion.44 A critical component of the 

transaction is that Airbus will assemble 40 of the 

planes in India after the first 16 have been delivered 

from the existing Spanish production facility. In Sep-
30

tember 2015, the Indian Government agreed to spend 

$2.5 billion to purchase 22 Apache and 15 Chinook helicopters from Boeing, over Russian competitors, with 

defense collaboration projects still to be negotiated.45

A month later, France’s Dassault agreed to sell 36 Rafale fighter aircraft to India for about $10 billion, in 

return for half of that amount, matched by offsets involving purchases from the Indian aerospace sector.46

Although India’s increased funding for defense 

is putting the country on course to soon become the 

fourth-largest spender in the world—behind the United States, China, and Russia—its defense industry is 

dominated by state-run local companies whose products are of low quality and often long delayed.47 Of 

the top 100 companies in Table 2, India is represented 

by only two (Defense News) or three (SIPRI)—a poor 

showing for a country with 1.2 billion people. Even 

private Indian firms were barred from the defense 

sector until 2001. Although India is the largest global 

buyer of weapons, its companies have only once exported more than $50 million of armaments in a year. 

While that figure was expected to double in 2015, it 

still represents a major weakness for the country’s defense industrial base, which has struggled to produce 

weapons systems that anybody other than India’s 

Ministry of Defense wants to buy. 48 After 32 years of 

work and almost $10 billion, the first-ever India-made 

fighter aircraft, the Tejas, developed by state-owned 

Hindustan Aeronautics, made its public debut in early-2015, but it will be at least 3 more years before the 

planes will be ready to be put into service.49 The country also completed its first indigenous aircraft carrier 

and nuclear submarine, which are expected to soon be 

deployed. Despite these successes, India remains unprepared to be a major arms exporter. Domestic pro-
31

duction accounts for about 30 percent of the country’s 

defense equipment procurement, with the rest coming 

from imports. This is particularly disappointing, given 

the talent and skills of Indian engineers and scientists 

employed in the high-technology sector.

Outlook.

India is poised to be a key U.S. partner in Asian 

security policy, as well as in defense industry collaboration. The country was the second-biggest buyer of 

U.S. arms in 2014, after Saudi Arabia, acquiring 11.2 

percent of all U.S. weapons exports.50 Significantly, 

India bought hardly any arms from the United States 

just 5 years previously. Prime Minister Modi has taken several important steps to re-orient his country’s 

security, foreign, and economic policies from Russia 

toward the West, and particularly the United States. 

The strategy serves several purposes. First, it reduces 

India’s long-standing dependence on Russian weapons, which had supplied about 70 percent of India’s 

arms imports since 1950. Second, it upgrades India’s 

military to counter regional threats, especially those 

posed by China. Third, it allows for the transfer of 

technology, not just to India’s defense industrial base 

that is in dire need of modernization, but also to the 

wider manufacturing sector as well. In a joint statement from September 2015, U.S. Secretary of State 

John Kerry and India’s External Affairs Minister Sushma Swaraj declared, “ties between the United States 

and India have never been stronger.”51
32

Russia.

Macro-Variables.

Russia faces some of the most difficult challenges 

of the countries evaluated in this report. Economically, the country is facing difficult times. According 

to the World Trade Organization (WTO), 70 percent of 

Russia’s exports are categorized as fuels and mining 

products, with just 20 percent consisting of manufactured goods. About half of the Federal Government’s 

budget revenues come from taxes and duties on extracted oil, gas, and minerals. When Putin first became 

prime minister in August 1999, the global price for oil 

was about $30. Prices peaked at about $146 per barrel 

in the summer of 2008, dropped to about $44 several 

months later as much of the world entered recession, 

hovered around $100 from 2011-14, and sunk to about 

$35 in early-2016 before rebounding to about $50 in 

October. The point is that for the first 15 years of Putin’s leadership, Russia experienced rising and relatively high global oil prices, as well as high commodity prices. The Russian economy grew at an average 

annual rate of 7 percent from 1999-2008.52 If global oil 

prices continue to stay at such low levels, and most 

analysts believe they will remain below $60 per barrel through 2016, Russia’s economy will continue to 

struggle.53 Global commodity prices also have fallen 

precipitously, driven largely by slowing economic 

growth in China. 

Overdependence on natural resources such as oil, 

gas, and commodities is only one factor affecting Russia’s economy. Economic sanctions imposed in 2014 

by the EU and the United States in response to Rus-
33

sia’s intervention in Crimea is another. Aimed mainly 

at banks and energy companies, the sanctions are intended to restrict Russian access to Western finance 

and oil and gas technology. The Russian economy 

shrank by 3.7 percent in 2015, and is expected to shrink 

by a further 1.2 percent in 2016 as a result of all of these 

pressures.54 The Russian ruble has lost half of its value 

in less than 2 years, going from about 36 rubles per 

USD in early-2014 to 70 rubles per dollar by December 

2015. As a result, the price of imported goods has skyrocketed, making the country’s limited manufacturing sector even less competitive. Russia’s automobile 

industry, for example, relies on imported components. 

Due to the increased cost, companies have been forced 

to raise prices (contributing to inflationary pressures) 

and cut employment.55 The increased cost of imports 

has depleted foreign exchange reserves. Even though 

a weaker ruble in theory should help Russian exporters, a reliance on more expensive foreign components 

(Ford and Volkswagen, for example, import more 

than half of all parts used to assemble cars in Russia) 

has offset the advantages a weaker currency should 

offer. 

Like China, Russia is facing an aging population. 

As seen in Table 8, about 20 percent of Russians are 

over the age of 60, and the percentage will continue 

to increase over the next few decades. A big part of 

the reason is declining fertility rates, with the fertility 

rate of Russian women declining from about 2.0 in the 

1970s to 1.25 during the second half of the 1990s, before stabilizing at about 1.7 during the 2010s. The aging percentage would be even higher if Russians lived 

longer. At about 65 years, Russian men have the lowest life expectancy of any country in this Letort Paper 

except South Africa (61 years).56 Declining life expec-
34

tancy began with the end of the Cold War, as health 

services deteriorated and alcoholism increased. The 

U.S. Census Bureau projects that Russia’s workingage population will fall by nearly 20 percent by 2030, 

putting a strain on the economy’s output, government 

finances (including defense spending), military forces, 

and need for skilled workers, particularly in the defense industry.57

Table 8. Demographic Trends (Percent of 

Population Age 60 and Over).58

Defense Sector.

The Russian defense industry has long been a major player in the global arms trade. During the Cold 

War, the Soviet Union and the United States alternated positions as the top exporter of weapons. With the 

end of the Cold War, and the tumultuous domestic environment within Russia during the 1990s, arms sales 

dropped dramatically to a low of $1.5 billion in 1994, 

compared to $11.5 billion by the United States that 

year, according to SIPRI.59 Since 2001, however, Russian arms sales have rebounded, placing the country 

solidly in second place behind the United States—$92 

1990 2000 2010 2020 2030 2040 2050

Brazil 6.4% 7.7% 9.9% 13.9% 18.8% 23.9% 29.3%

China 8.2 9.9 12.4 17.5 25.3 30.9 36.5

India 6.1 6.9 7.8 10.0 12.5 15.5 19.4

Russia 16.2 18.4 18.0 22.1 24.0 25.6 28.8

South Africa 5.1 6.2 7.4 8.5 10.5 11.9 15.4

Turkey 7.2 8.8 10.1 13.0 17.0 22.0 26.6

United States 16.8 16.2 18.4 23.1 26.1 26.9 27.9
35

billion in Russian weapons exports as compared to 

$114 billion by the United States from 2001-15. The 

biggest buyers of Russian weapons exports are Asian 

countries (including Vietnam, Indonesia, Myanmar, 

India, and China), Venezuela, and increasingly African countries (such as Ghana and Tanzania).60 Russian 

weapons offer considerable “bang for the buck,” since 

they are technologically advanced and much cheaper 

than those offered by their U.S. and European counterparts. 

The resurgence in arms exports coincides with the 

leadership of Vladimir Putin. Having served since 

1999, almost 5 years as prime minister and more than 

12 years as president, Putin has put his stamp on Russian foreign policy, making it more assertive and, to 

many critics, aggressive.61 A centerpiece of this policy 

is building the country’s defense industry and increasing arms sales abroad. Russian defense spending 

grew by 112 percent between 2005 and 2015, accounting for $48.1 billion of the $53.7 billion increase for all 

of Eastern Europe during that time period (Table 7).

Russia has seven companies among the Defense 

News top 100 (SIPRI counts 11). The two largest firms 

are Almaz-Antey, a state-owned company that specializes in air defense systems, and United Aircraft 

Corporation, 80 percent owned by the government 

and maker of the well-known Sukhoi, MiG, and Irkut planes. Virtually all of Russia’s defense firms 

have benefited from Putin’s decade-long $350 billion 

military rearmament drive (begun in 2011), including 

an all-time high of about $33.2 billion spent on new 

equipment in 2014, and growth in exports, which 

reached a record $13.2 billion in 2014. Despite Western 

sanctions, currency devaluation, inflation, and other 

economic challenges described above, Almaz-Antey 
36

and United Aircraft Corporation saw revenues rise 

10 percent and 7 percent, respectively, in 2014 over 

2013 levels. Other firms experienced equally impressive increases, including the Tactical Missile Corporation (48.6 percent), Russian Helicopters (16 percent), 

United Engine-building Company (25 percent), and 

electronics component maker RTI (15 percent).62 Since 

few Russian armaments are exported to Europe or the 

United States, sanctions had little impact on foreign 

sales, much of which are destined for China, India, 

Algeria, and Venezuela. 

The future, however, may not be so rosy for Russian defense companies.63 Economic sanctions are likely to have a bigger impact in the coming years, as advanced components become more difficult to import 

from Western sources. Even if they can be obtained 

elsewhere, the weak ruble will make them expensive, 

reducing firms’ global competitiveness and limiting the quantity procured by the Russian Ministry of 

Defense. The government is undertaking an importsubstitution strategy to manufacture key components 

within the country’s borders, but it will take time before defense firms can obtain the necessary quantity 

and quality from domestic contractors. For example, 

the Russian defense industry has had a long history of 

procuring parts from Ukraine. However, with Russia 

supporting separatists in eastern Ukraine, and Russian 

intervention in Crimea, Kiev imposed sanctions barring military exports to Russia.64 This action, in some 

ways, has hurt Ukraine more than Russia, since about 

70 percent of the country’s defense exports, which total about one billion dollars each year, goes to Russia.65

Thus, Ukraine, ranked by SIPRI as the world’s ninthlargest weapons exporter between 2011-15, will face 

serious challenges finding alternative export markets 

that will sustain its domestic defense industrial base. 
37

Nonetheless, sanctions have had a significant impact on Russian shipbuilding, since gas turbines for 

a number of frigate classes had been manufactured 

in Ukraine, and German-made engines were used in 

corvettes, causing a sharp production slowdown and 

even order cancellations. In a decision that created significant domestic and international controversy, the 

French Government decided in August 2015 to cancel 

a contract to deliver two Mistral warships to Russia, 

agreeing to reimburse Moscow about $1.3 billion.66

Had the deal gone ahead, it would have been the biggest purchase of military equipment by Russia from 

a Western country since the fall of the Soviet Union, 

and given the country an opportunity to better understand Western technologies. The lessons the Russian 

government has learned from the Ukraine conflict 

and associated sanctions are twofold: find other countries from which to source parts and components and, 

in the view of President Putin, make Russia’s arms

industry entirely self-sufficient.67

Sanctions aimed at Russian financial institutions 

may also affect defense companies’ access to loans 

and credit, since banks (prior to the sanctions) had 

borrowed Western monies at cheap rates to lend to 

defense companies. With access to low-cost funds cut 

off, the cost of borrowing is now higher for Russian 

firms. Additionally, eight defense companies are cut 

off from dollar trade, after U.S. financial institutions 

were forbidden by the U.S. Treasury from carrying 

out transactions with them.68 The sanctions complicate and raise the costs of dollar-based exports and 

imports associated with Russian companies, since 

dollar transactions are carried out with a U.S.-based 

correspondent bank.
38

Diversification is necessary, but problematic for 

Russian defense companies. As of 2011, the industry 

received 22 percent of its combined revenue from 

weapons exports, 45 percent from military equipment sales within Russia, and 33 percent from civilian 

goods and services.69 Over the longer term, the Russian Government wants to increase the share of civilian products to about 50 percent of total revenues. It 

is not obvious, however, that Russian defense companies can achieve the same kind of success as such 

Western peers as Boeing (which earns only 32 percent 

of its revenues from defense), Airbus (18 percent), 

United Technologies (20 percent), Finmeccanica (54 

percent), Thales (49 percent), or Textron (34 percent).70

Weapons produced for export have political, security, 

and economic dimensions, while civilian-oriented 

goods and services do not. In other words, Russian 

companies benefit from foreign policy relationships 

between Moscow and recipient countries that play no 

role in the market for civilian products. Until Russian 

manufacturing processes, marketing skills, and global 

supply chains that incorporate the highest levels of 

technology improve, diversification to any significant 

level will be a major challenge.

A more viable strategy is creating strategic partnerships with countries that can provide economic 

and political advantages. With Ukraine, the United 

States, Europe, and other Western-aligned countries 

off-limits as long as sanctions remain in place (and 

there are few signs that this will change in the near future), Russia is looking to China and India to strengthen defense ties. In April 2015, China became the first 

country to be allowed to purchase Russia’s advanced 

S-400 air defense system; a month earlier, United Aircraft Corporation announced that a jointly developed 
39

wide-body passenger plane with Commercial Aircraft 

Corporation of China should be ready by 2021 at a 

cost of $13 billion—most of which would come from 

China.71 As discussed above, China’s defense industry 

receives massive amounts of government funding, so 

it is understandable that Russian firms would want to 

benefit from that. However, it will be harder for Russian firms to make inroads in areas where China can 

obtain equivalent (or better) products, like engines 

and avionics, from Western companies that are eager 

to expand commercial relationships in the Chinese 

market. The situation is similar in India. Until 2013, 

India accounted for almost 40 percent of Russia’s major weapons exports, and imported 75 percent of its 

weapons from Russian defense companies.72 However, since the Modi government is looking to expand 

the country’s economic ties with Western countries 

and their lucrative markets, deals with U.S. and European firms offer more potential for Indian companies. 

New laws permitting up to a 49 percent foreign share 

of investments in the defense sector also make India 

more attractive to non-Russian defense companies. 

Outlook.

The Russian defense industry plays an important 

role in the country’s export and industrial profile. 

Although well behind oil, gas, and certain minerals 

in value, weapons are Russia’s most technologically 

advanced exports and one of very few of the country’s goods or services for which there is global demand. Domestically, the defense industry provides 

a vital source of employment for scientists, technicians, and engineers who might otherwise emigrate 

in search of better job opportunities.73 While Russia 
40

likely will maintain its number two position in global 

arms exports for a number of years, it faces significant 

challenges as a result of Western-imposed sanctions, 

increasing competition from low-cost weapons producers like China, and a strategy of expanding military and civilian economic partnerships with BRICS 

countries that faces stiff challenges from the world’s 

other top weapons exporters.

Turkey.

Macro-Variables.

Although not a country included in the BRICS acronym, Turkey is a country that merits inclusion in 

this Letort Paper for two reasons. One, the country has 

experienced some of the strongest economic growth 

rates in the world over the past two decades. Second, 

Turkey is quickly becoming a major player in the 

global defense industry as both an importer of arms 

and an aspiring exporter in its own right. From 2002-6, 

economic growth increased an average of 7.2 percent 

per year before slowing somewhat since then. Global 

investors have been impressed. Foreign direct investment stocks increased from $15 billion in 1995 (just 6.6 

percent of GDP) to $145 billion in 2015 (19.8 percent 

of GDP).74

Despite its impressive economic record, Turkey is 

experiencing several important political and security 

challenges. The country’s location is a precarious one, 

bordering Iran, Iraq, and Syria, with all of the spillover threats from the Islamic State (IS) and internal 

instability in the latter two countries. Despite having 

the largest army in the North Atlantic Treaty Organization (NATO) after the United States, the country’s 
41

military is ill-equipped to deal with the range of security threats around the country’s borders. In October 

2015, over 100 people were killed when two suicide 

bombers linked to the IS blew themselves up outside 

Ankara’s central train station in the deadliest terrorist attack in the country’s history.75 The migrant crisis 

that exploded in 2015, as refugees mainly fleeing Syria 

sought refuge in Europe, placed Turkey directly in 

the route of nearly one million people traveling north

and west.

Domestically, the Justice and Development Party, 

Adalet ve Kalkınma Partisi (AKP), has governed Turkey since 2002. While the AKP deserves considerable 

credit for stabilizing the macro-economy and fostering an environment that has stimulated both domestic 

and foreign investment, the situation has deteriorated 

over the past few years.76 While not as dramatic as Brazil’s situation described below, Turkey is experiencing slower growth, rising inflation, foreign exchange 

pressure, and decreased global competitiveness, to 

name a few challenges. Observers are becoming increasingly concerned about the growing authoritarian 

features of President Recep Tayyip Erdogan’s (Prime 

Minister from 2003-14) leadership. Crackdowns on 

protesters and restrictions on free speech, the press, 

and social media—all of which intensified after an 

attempted coup in July 2016—have led many Turks 

and outsiders to question the government’s commitment to democratic principles and civil liberties. Relations with the EU have soured since negotiations to 

join the organization were suspended in 2006 due to 

disagreements over Cyprus. The Syrian migrant crisis 

has made matters worse, with the EU blaming Turkey 

for facilitating the movement of refugees to member 

countries’ borders.
42

Defense Sector.

With only two companies (Aselsan and Turkish 

Aerospace Industries) among the 100 largest defense 

firms in Table 2, Turkey is not yet a major player in the 

global defense industry. However, Turkey’s President 

Erdogan has been very outspoken about his goal of establishing a vibrant defense industry by the centenary 

of the republic’s foundation. According to Erdogan, 

“Our goal is to completely rid our defense industry 

of foreign dependency by 2023.”77 By that date, he 

also wants at least $25 billion in arms exports. This 

appears rather ambitious, given that Turkey exported 

only $856 million between 2011 and 2015, and only the 

United States and Russia exported more than $25 billion over this period (see Table 5). Yet, Defense Minister Ismet Yilmaz foresees markets in South America 

and Africa that cannot afford premium-grade offers 

from the world’s top defense contractors as good opportunities for Turkish exports.78 A little over half of 

the country’s military equipment is currently made 

domestically. Turkey raised concerns amongst its 

NATO allies in 2013 when it chose China Precision 

Machinery Import and Export Corporation, a company sanctioned by the United States for selling missile technology to Iran and Pakistan, as the preferred 

bidder for a $4 billion long-range missile system.79 The 

government justified its decision based on prioritizing 

the acquisition of new technology, which China was 

more willing to share than were U.S. and European 

defense companies. From 2011-15, U.S. companies 

supplied 63 percent of Turkey’s armaments imports.80

Muharrem Dortkasli, chief executive of Turkish Aerospace Industries, argues that, “We are talking about a 

country that will have its own national tank, national 

ship, national helicopter, satellite, and war plane. We 
43

are aiming to have everything the five permanent 

members of the UN Security Council have.”81

Outlook.

Turkey is positioned to play a critical role in the 

global defense industry in the coming years. On the 

one hand, the country borders Syria, Iraq, and Iran—

three of the most volatile states in the world. Turkey’s 

primary security interests lie in preventing the Islamic 

State of Iraq and Syria (ISIS) from expanding beyond 

their bases in Syria and Iraq and infiltrating the country’s borders, and minimizing conflict with Kurdish 

groups in the southeastern part of the country. Thus, 

Turkey’s defense spending is likely to increase in the 

short to medium term. On the other hand, Turkey’s 

relationship with Europe is strained due to disagreements on whether and when the country may join the 

EU and the ongoing migrant situation. However, as 

long as Turkey remains a key member of NATO, the 

country and its defense industry are likely to follow 

its Western allies more often than not on security, 

weapons production, and procurement issues.

South Africa.

Macro-Variables.

South Africa is least like the other BRICS. While 

China, India, Russia, and Brazil all rank among the 

world’s seven largest economies (see Table 1), South 

Africa comes in at 29th. Even Turkey’s economy is 

more than twice as large. Within Africa, South Africa 

is the second-largest economy after Nigeria. However, 

until Nigeria moved into first place in 2014, South Africa was the continent’s economic giant for decades. 
44

This was due to its abundance of natural resources, as 

well as the continent’s most advanced industrial base, 

which contributed to the country’s high standard of 

living—at least for the white minority that controlled 

the politics and economics of the country until the 

apartheid system ended in 1994. Nevertheless, South 

Africa’s economic growth has lagged behind most of 

sub-Saharan Africa in recent years. Slumping commodity prices and slower growth in China are the primary external factors, but declining competitiveness, 

increasing (and more violent) worker strikes, and 

increasing inequality both between and within racial 

groups are adversely affecting the country’s political risk. The shadow of apartheid continues to affect 

many aspects of the country’s economy, politics, and 

social structure more than 20 years after Nelson Mandela became South Africa’s first black president.

South Africa was not a part of the BRICS acronym 

when it was coined in 2001. With its total population and economy far behind those of the other four 

countries, South Africa joined the meetings amongst 

the quartet in 2010 due to political expediency.82 At 

the time, South Africa was Africa’s largest economy 

and, more importantly, each of the four traded more 

with South Africa than with each other. In return for 

granting membership in BRICS, the other four countries received political capital, increased trade ties, 

and gained a key African ally in global politics and 

institutions such as the UN. On the trade front, the 

four original BRICS obtained greater access to South 

Africa’s natural resources and—especially for China—a gateway to selling more consumer goods to one 

of the world’s fastest-growing regions in sub-Saharan 

Africa.

Demographics are in South Africa’s favor. The 

country has the youngest population of the six coun-
45

tries discussed in this Letort Paper, and is projected 

to remain so at least to mid-century. The World Bank 

projects that this could help the country achieve 5.4 

percent annual growth rates that would double per 

capita incomes and virtually eliminate poverty by 

2030.83 The country’s working-age population that is 

between 15 and 64 years has grown by 11 million since 

1994, and is expected to increase by another 9 million 

over the next 5 decades. The problem, however, is that 

jobs have not kept pace with population growth. Only 

a little over 40 percent of South Africa’s working-age 

population has jobs. The official unemployment rate 

is stuck at around 25 percent, although the figure is 

much higher for blacks (around 40 percent) than for 

whites (under 10 percent), with about half of citizens 

under 25 years old without jobs.84 This presents two 

problems for the country. First, increasing amounts 

of government funds will need to be allocated toward 

the education and training of South African citizens 

to improve the quality of the workforce. This may 

well come at the expense of military spending, which 

has hovered around 1.1 percent of GDP for the past 

decade. Second, the instability associated with persistently high unemployment rates may deter foreign 

investors in a range of sectors, including defense. 

The stock of foreign direct investment in South Africa peaked at $163.5 billion in 2012, and has declined 

each year since to $124.9 billion in 2015—an unusual 

development, and even more so for a country that is 

supposedly one of the world’s rising economic stars.85

Defense Sector.

The defense industry in Africa is fairly limited. 

This is in large part due to the continent’s absence of a 

tradition in manufacturing. Long associated with the 
46

export of oil, gold, diamonds, minerals, rubber, and 

other commodities, African countries are far more 

frequently purchasers of armaments than producers. 

The lone country on the continent with a significant 

defense industry is South Africa. Isolated during the 

apartheid years and barred by UN sanctions from buying weapons systems from many foreign companies, 

South Africa developed an indigenous defense industry centered around Armscor. Armscor’s subsidiaries 

were split off in the post-apartheid years, with stateowned Denel becoming the country’s largest defense 

firm, focusing on aerospace and missile technology. 

Paramount is the country’s (and continent’s) largest 

privately-owned defense company with a shipbuilding and aerospace operation, and is a global leader 

in developing landmine and improvised explosive 

device (IED)-resistant vehicles.86 These technologies 

were honed decades ago when South Africa was at 

war in Namibia and Angola, and there was a need for 

blast-resistant trucks; these were a precursor to the armored vehicles used by the U.S. military in Afghanistan and Iraq.87

South Africa’s defense industry went into decline 

once Mandela became the country’s president and 

defense spending was slashed in favor of social programs. The country was spending about half as much 

in the late-1990s as it did at the beginning of the decade, and some of the industry’s best engineers emigrated and joined foreign manufacturers. However, 

the industry may be poised for a turnaround as the 

government gradually increases the military budget 

in light of a new security environment. Although 

South Africa is not a big spender on defense, much of 

the equipment it needs (like Brazil below) is designed 

to address non-traditional security concerns, such as 

illegal cross-border activities, combating wildlife traf-
47

ficking, and related security threats. This suggests a 

need for land-, air-, and sea-border surveillance solutions.88 This creates a market for niche products that 

larger defense contractors do not produce. Paramount 

and Aerosud are jointly making a compact plane that 

merges the capabilities of a drone, an attack helicopter, and a surveillance aircraft.89 It is aimed at African 

governments involved in combat, peacekeeping, and 

humanitarian work, but at a cost that is one-third to 

one-half that of a Boeing Apache helicopter.

Outlook.

South Africa is unlikely to become a major player 

in the global arms trade like the United States, Russia, 

China, and the larger European countries. However, 

it is well positioned to produce equipment designed 

specifically for African needs in a market comprised 

of many small countries that have largely been ignored by Western arms contractors. South Africa has 

a history of producing reasonably good and sometimes innovative weapons. The main problems for 

domestic firms include operating in a country that is 

experiencing slow growth, and whose government 

seems incapable, due to corruption and complacency 

(the African National Congress has been the dominant 

political party since the end of the apartheid era), of 

offering long-term solutions to South Africa’s persistent economic and social challenges. For foreign companies, South Africa and much of the region do not 

offer the market opportunities and economies of scale 

that usually justify the hard work of creating joint 

ventures, especially when there are so many other regions, like Asia and the Middle East, where more (and 

more profitable) weapons systems can be sold.
48

Brazil.

Macro-Variables.

Until recently, Brazil’s economy had been a model 

for much of Latin America. With rapid growth in the 

2000s, a reduction in the country’s persistently high 

inequality and poverty rates, and a huge expansion 

of exports (particularly raw materials and agricultural products destined for China and East Asia), the 

country appeared to be transforming itself beyond 

the import substitution-based and highly regulated 

bureaucratic economy of previous decades. Nevertheless, annual growth slowed to 2.7 percent from 

2009-13 and the country entered a recession in 2014. 

Slowing economic growth in China has had a ripple 

effect on Brazil, and the decline in the global price and 

demand for commodities has hit the country particularly hard. Inflation is rising and topped 10 percent in 

2015. In response, the central bank has raised interest 

rates, thereby slowing growth further, and the central 

government is trying to restore fiscal discipline to the 

government’s finances. Former President Dilma Rousseff, engulfed in a wide-ranging corruption scandal 

that also includes some of the country’s top corporate 

names, including state-owned energy giant PetroBras, 

was impeached in August 2016. The World Bank’s 

“Doing Business” rankings place Brazil at 123 out of 

190 countries in terms of how regulations affect the 

ease of doing business.90 This puts Brazil among the 

bottom half of Latin American countries, and behind 

Russia (ranked 40), Turkey (69), South Africa (74), and 

China (78), but ahead of India (130).

Unlike China, India, and Turkey, Brazil’s security 

environment is relatively stable and unthreatening. 

Like South Africa, Brazil’s security needs are non-
49

traditional. While conflict with neighboring countries 

is not imminent, Brazil’s military equipment requirements are aimed primarily at protecting its vast natural resources, including offshore oil and gas reserves 

and facilities, monitoring encroachment in the Amazon basin, and dealing with drug and arms trafficking 

and cross-border crime.

Demographics are, in some ways, more problematic for Brazil than for other countries in this Letort 

Paper. The percentage of the population over age 60 is 

projected to go from 7.7 percent in 2000 to 29.3 percent 

in 2050. This is due to a dramatic change in fertility 

rates, as more women enter the workforce, urbanization (and the costs of raising children) increases, 

and greater access to contraceptive health services 

expands. Whereas the average woman had about 4.5 

children in the 1970s, that figure had dropped to about 

2.5 in the 1990s, then to approximately 1.8 over the past 

decade. That figure is projected to level off at about 

1.66 through mid-century.91 While this has an obvious 

effect on the size and stability of the workforce, it has 

an even bigger impact on government finances. Brazil 

spends more than 10 percent of its GDP on public pensions, similar to what southern European countries 

with much older populations spend, as compared to 

just 1.5 percent on military expenditures.92 Given that 

Brazilian pensions are among the most generous in 

the world, and millions more citizens will be expecting to receive them in the coming years, the political 

challenge to reform the pension system will be daunting. The country’s military and defense industry will 

have a difficult time persuading future governments 

to increase spending on updating weapons systems 

and modernizing forces in such a fiscal environment.
50

Defense Sector.

The fortunes of Brazil’s defense industry have fluctuated in recent decades. During the 1980s, Brazil was 

the world’s fifth largest exporter of defense products 

and services, sending some 80-90 percent of its output 

to Latin America, Africa, Asia, and the Middle East.93

This was part of a wider industrial policy implemented by the military ruling elite that sought to make the 

country more self-sufficient, without having to rely 

on foreign firms (and the foreign currencies necessary 

to pay for imports)—thereby producing indigenous 

technologies. In the 1990s and 2000s, the country’s access to missile technology and supercomputers was 

curtailed by an embargo imposed by Western countries, and global defense spending declined following 

the end of the Cold War. As a result, Brazil’s defense 

firms saw foreign sales opportunities shrink. Since domestic military spending was insufficient to pick up 

the slack, the country’s defense industrial base shrank 

and several important firms went out of business. 

Governments, particularly since the start of Luiz 

Inácio Lula da Silva’s presidency in 2003, have focused 

far more attention on social policy than on defense. 

This has begun to change over the past few years, as 

the government is once again seeking to develop an 

indigenous defense industrial base that is less reliant 

on arms imports. Brazil’s defense sector had about 

$3.7 billion in revenue in 2014, almost half of which 

($1.7 billion) was export sales.94 This is a rather small 

figure, given that more than 20 of the world’s largest defense companies listed in Table 2 have greater 

defense revenues than the entire Brazilian defense industry, and that Brazil had a higher level of military 

spending than all but 9 countries in the world in 2014 

(with almost three-quarters of the budget allocated to 
51

pay and pensions). The Brazilian Government aims to 

increase weapons exports to $40 billion over the next 

20 years. Today, Brazil has only one company, the 

aerospace giant Embraer, among the world’s top 100 

defense firms.

Brazil has been buying increasing amounts of defense equipment from Russia in recent years, including helicopters and air defense systems.95 However, 

French, Italian, and British companies have made 

inroads as well. From 2008-10, French defense companies secured deals that included submarines and 

helicopters valued at €15-20 billion.96 Even Sweden 

was actively courting Brazil, which paid off in 2015 

when both countries’ governments agreed to the sale 

of 36 Gripen fighter planes valued at $4.7 billion. The 

agreement comes with a strong technology commitment from Sweden to transfer “everything” that Brazil 

will need to develop its own next-generation military 

jets.97 About 29 of the planes will be produced in Brazil, with Embraer and Akaer as major partners. Price 

was a key consideration, given Brazil’s precarious 

government finances, as was the technology transfer 

arrangements—terms that Dassault’s Rafale and Boeing’s F/A-18E/F Super Hornet could not meet.98 For 

Sweden, the Gripen contract with Brazil is the biggest 

Swedish export deal to date; there are expectations 

that there will be spillover benefits for some of the 200 

or so Swedish-owned companies currently operating 

in Brazil, employing more than 70,000 workers. Saab 

regards the plane sale to Brazil as a stepping stone for 

additional orders in Latin America and as expanding 

the company’s industrial cooperation arrangements 

with other countries in the region. Like India, Brazil 

views relationships with foreign defense contractors 

as a means to foster wider economic development, 

particularly in manufacturing. 
52

Outlook.

The biggest concern now for foreign companies 

is how Brazil’s economic woes will affect the government’s budget priorities. It will take time for President 

Michel Temer, Rousseff’s successor, to implement the 

economic, regulatory, and social reforms necessary to 

return Brazil to a more promising growth path. Ongoing corruption probes, combined with a general election in 2018, will obfuscate where defense stands in 

spending priorities. In the meantime, Brazil’s defense 

industry is likely to do better than South Africa’s, but 

perhaps not as well as Turkey’s, assuming the Middle 

Eastern country can achieve its president’s goal of 

making the country an armaments production and 

exporting powerhouse. On paper, Brazil has the numbers in terms of population, industrial experience, 

and economic leverage to expand its role in the global 

defense industry. However, the country’s challenges 

may thwart that from happening.

RECOMMENDATIONS

Figure 1 maps the six countries in terms of whether 

they tend to import or export weapons (on the vertical 

axis) and a subjective assessment of the maturity and 

technological sophistication of their defense industrial 

bases based on the previous analysis (on the horizontal axis). For comparative purposes, the United States 

is also included, as well as the world’s third (France), 

fourth (Germany), and fifth (United Kingdom) ranked 

net arms exporters. One would expect that, over time, 

countries would seek to move from the upper-right 

portion of the figure to the lower left, since this would 

provide additional export earnings and the political 

influence that accompanies arms sales, and provide 
53

for the employment, financial/budgetary, and technological spillover advantages that a more developed 

defense industrial base provides. As discussed above, 

China has made large strides in this direction in recent years, but remains in a distant third place behind 

the United States and Russia. The other four countries 

analyzed in this Letort Paper have considerably more 

work to do before they will join the ranks of the leading net exporters of defense equipment.

Note: Figures are SIPRI TIVs expressed in USD in millions, at 

constant (1990) prices, and reflect arms exports minus imports 

for the period of 2011-15.

Figure 1. Defense Industry Profile of Non-Western 

Countries.99
54

The previous sections reviewed the current state 

of six countries in the global political economy. All six 

are regarded in business, policymaking, and academic 

circles as either aspiring economic powers or major 

players in global arms production and trade. Given 

the developments in these countries, here are the following recommendations for the United States:

1. Maintain Defense Industry Technological 

Dominance. 

First and foremost, the U.S. must maintain its global dominance in the defense sector. In the post-9/11 

world, military leaders are prioritizing command, 

control, communications, computers, intelligence, 

surveillance, and reconnaissance (C4ISR), over the 

more traditional weapons systems like aircraft, ships, 

and tanks. As a result, less-well-known companies 

such as L-3 Communications (#10), Leidos (#24), and 

Exelis (#35) are quickly moving up the global rankings (Table 2, Defense News ranking). In response to 

cuts in U.S. defense budgets, in the years following the 

Iraq and Afghanistan drawdowns, most defense firms 

have diversified their sales to more non-defense applications, or to other countries by way of exports. These 

trends have made competition for Pentagon weapons 

contracts even more intense, since fewer and higherpriced items are being acquired. In recent months, 

Congress has called for increases in defense spending 

in light of heightened levels of global insecurity from 

the likes of terrorist groups, provocations by Russia, 

rivalries in Asia, and nuclear ambitions in Iran and 

North Korea. The main winners of global insecurity 

are likely to be defense companies; especially those 

that can produce the most state-of-the-art systems. To 
55

maintain battlefield advantages over potential adversaries, technological dominance is essential, but must 

be prioritized in the current budgetary climate.

2. Develop Strategic Alliances.

Second, the U.S. should seek to build industrial alliances with allies. European firms, although discussed 

relatively little in this report, are among the most technologically advanced in the world and represent the 

most viable strategic partners, given strong political 

and military relations between the United States and 

individual countries, and between the United States 

and organizations such as the EU and NATO. 

Alliances also should be constructed with emerging markets where the U.S. shares similar regional 

security interests. In Asia, these include Japan, South 

Korea, and India, the first two of which already have 

strong industrial bases and, combined, are home to 11 

of the top 100 global defense companies. In the Middle 

East, Turkey represents a key partner. It is essential for 

the U.S. Government, military, and industry to cooperate in seeking foreign markets for defense exports, 

since governments in other countries are aggressively 

courting contracts on behalf of their firms. Steep cuts 

in the UK defense budget, for example, have prompted the British Government to promise that it will help 

the industry sell its equipment and services abroad, 

mainly to developing countries such as India and 

Brazil.100 While it is difficult to imagine circumstances 

whereby the United States would want to forge defense industrial alliances with Russia or China, the 

other four countries would be reasonable options that 

would further U.S. political, foreign policy, and strategic considerations.
56

There are, of course, reasons to be cautious. Some 

countries, like India, are wary of becoming overly dependent on any one country when acquiring weapons 

from abroad. In some cases, opportunities for export 

will be minimized because the technological sophistication of U.S. defense companies makes products prohibitively expensive. Indeed, some critics contend that 

focusing on cutting-edge technology to satisfy DoD 

requirements prices U.S.-made planes, missiles, naval 

ships, helicopters, and tanks out of the global market—creating opportunities for low-cost producers.101

One way to drive down costs is for the Pentagon to 

procure more products from abroad, thereby creating 

more competition with U.S. firms and making a more 

convincing case to foreign firms and governments 

that there is a “two-way street” in the arms trade.102

However, the political obstacles to such a policy are 

formidable, especially from U.S. states, their representatives in Washington, and their workers who benefit 

from the status quo.

3. Minimize Technology Transfer to Likely Industry 

Rivals.

While it seems obvious that the U.S. defense industry should avoid sharing technology with foreign 

firms that are likely to be rivals, this is difficult to do 

where there is significant military-civilian overlap, or 

where dual-use technologies represent a significant 

portion of a product’s value. This is particularly true 

in aerospace. Boeing projects that China will purchase 

6,330 new planes from 2015 to 2034 valued at $950 

billion.103 Airbus projects similar growth, with 32,585 

planes to be sold globally over the next 20 years, with 

the Asia/Pacific region accounting for 39 percent of 
57

sales.104 Both companies need to be wary of chasing 

short-term revenues, which will lead to long-term 

costs. Given the growth in the demand for commercial 

aircraft, especially in China, Beijing will not sit idly 

by while Boeing and Airbus reap the rewards from 

global sales. China will seek to do what Japan, Brazil, 

and others have failed to do—add a third manufacturer of large commercial aircraft to the current global 

duopoly. Airbus built an assembly line for the A320 

in Tianjin in 2008, and Boeing announced in 2015 that 

it would build a plant to assemble 737 jets in China.105 Given the concerns many companies have had 

about the dissemination of proprietary technologies 

to Chinese competitors, Airbus and Boeing may find 

themselves competing with a lower-cost, but equally 

capable, rival in the medium term.

4. Use Weapons Exports to Achieve Political 

Objectives.

It is not a new concept that weapons exports are tied 

to political and foreign policy objectives. This relationship played out during the Cold War, as the United 

States and the Soviet Union armed countries that were 

allies or served foreign policy goals (or both), such as 

supporting rebel groups in efforts to overthrow undesirable regimes. The difference in the 21st century 

is that, instead of being a two-dimensional process, 

arms suppliers operate in a multidimensional arena 

in which several countries are positioned to play influential supplier roles. Russia’s military support to 

Syria, for example, illustrates a continuation of the 

U.S.-Russia rivalry for influence. India and Brazil are 

likely to be smaller players for the short term. Japan’s 

interests in Asia, mainly countering China’s influ-
58

ence, may lead to an expansion of weapons exports 

to neighboring countries with similar concerns, such 

as the Philippines and Vietnam. However, it is China 

that is almost certainly going to be the primary armaments exporting rival to the United States for the near 

future, especially in Latin America and Africa, where 

value and “good enough” qualities are prioritized before the need for technical superiority over neighboring countries’ weapons. Maintaining U.S. influence 

on these continents will require a greater willingness 

on behalf of U.S. defense firms and the DoD to share 

some technologies with countries identified as key political partners.

Given the economic benefits associated with cooperating with U.S. defense companies, there are opportunities to use such collaborations as leverage to 

achieve political goals. For example, if the domestic 

environment of Turkey becomes more unstable, restrictions or even prohibitions on industrial relationships may be warranted. Likewise, developing closer 

collaboration with India’s Modi government by encouraging industrial cooperation between U.S. and 

Indian defense firms may serve to reduce Russian influence in that country, which has been particularly 

strong with respect to the arms trade.

ENDNOTES

1. A country’s economic output, the gross domestic product 

(GDP), can be calculated using market exchange rates or purchasing power parity (PPP). The latter is regarded by most economists 

as a better indicator or average of living standards or volumes of 

output, because it corrects for price differences across countries at 

different levels of development. PPP is the method used in Table 

1 of this Letort Paper.
59

2. Table data sourced from John Hawksworth and Danny 

Chan, “The World in 2050: Will the Shift in Global Economic 

Power Continue?” PwC Economics and Policy Report, February 

2015, available from https://www.pwc.com/gx/en/issues/the-economy/

assets/world-in-2050-february-2015.pdf.

3. John F. Troxell, ed., 2014-15 Key Strategic Issues List, Carlisle, PA: Strategic Studies Institute, U.S. Army War College, 2014, 

available from www.strategicstudiesinstitute.army.mil/pubs/display.

cfm?pubID=1227, accessed on November 3, 2016.

4. Ibid., pp. 9-11.

5. Ibid., pp. 12-13.

6. Ibid., pp. 20-24.

7. Ibid., pp. 51-52.

8. Ibid., p. 55.

9. World Trade Organization (WTO), International Trade Statistics 2015, Geneva, Switzerland: World Trade Organization, 2015, 

available from https://www.wto.org/english/res_e/statis_e/its2015_e/

its15_toc_e.htm. 

10. Table data sourced from figures compiled in “Top 100 for 

2015,” Defense News, 2015, available from people.defensenews.com/

top-100/; and, Aude Fleurant, Sam Perlo-Freeman, Pieter D. Wezeman, Siemon T. Wezeman, and Noel Kelly, “The SIPRI Top 100 

Arms-Producing and Military Services Companies, 2014,” Stockholm International Peace Research Institute (SIPRI) Fact Sheet, Solna, 

SE: Stockholm International Peace Research Institute, December 

2015, available from https://www.sipri.org/publications/2015/siprifact-sheets/sipri-top-100-arms-producing-and-military-services-companies-2014.

11. Table data sourced from figures compiled in “Global 500,” 

Fortune, available from fortune.com/global500/.

12. Table data sourced from figures compiled in “Top 100 for 

2015,” Defense News; and, Fleurant, Perlo-Freeman, P. D. Weze-
60

man, S. T. Wezeman, and Kelly, “The SIPRI Top 100 Arms-Producing and Military Services Companies, 2014.”

13. Table data sourced from figures derived from the SIPRI, 

“Arms Transfer Database,” available from https://www.sipri.org/

databases/armstransfers.

14. Terrence Guay, “US remains top arms exporter, but Russia 

is nipping at its heels,” The Conversation, March 24, 2015, available 

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15. Table data sourced from figures derived from the SIPRI, 

“Arms Transfer Database.”

16. Table data sourced from figures compiled from the SIPRI, 

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research/armaments/milex/milex_database. 

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61

Republic of China, 2013, available from www.amchamchina.org/

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62

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63
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html?_r=0; SIPRI, “Military Expenditure Database.”
69

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U.S. ARMY WAR COLLEGE

Major General William E. Rapp

Commandant

*****

STRATEGIC STUDIES INSTITUTE

and

U.S. ARMY WAR COLLEGE PRESS

Director

Professor Douglas C. Lovelace, Jr.

Director of Research

Dr. Steven K. Metz

Author

Dr. Terrence R. Guay

Editor for Production

Dr. James G. Pierce

Publications Assistant

Ms. Denise J. Kersting

*****

Composition

Mrs. Jennifer E. Nevil