Arms industry The arms industry is a global business which manufactures weapons and military technology and equipment . It consists of commercial industry involved in research , development , production , and the service of military material , equipment , and facilities . Arms producing companies , also referred to as defense contractors or military industry , produce arms mainly for the armed forces of states . Departments of government also operate in the arms industry , buying and selling weapons , munitions and other military items . Products include gun s , ammunition , missile s , military aircraft , military vehicle s , ships , electronic systems , and more . The arms industry also conducts significant research and development . It is estimated that yearly , over 1 . 5 trillion dollars are spent on military expenditures worldwide ( 2 . 7 % of World GDP ) . This represents a decline from 1990 when military expenditures made up 4 % of world GDP . Part of this goes to the procurement of military hardware and services from the military industry . The combined arms sales of the top 100 largest arms producing companies amounted to an estimated $ 315 billion in 2006 . In 2004 over $ 30 billion were spent in the international arms trade ( a figure that excludes domestic sales of arms ) . The arms trade has also been one of the sectors impacted by the credit crunch , with total deal value in the market halving from US $ 32 . 9 billion to US $ 14 . 3 billion in 2008 . Many industrialized countries have a domestic arms industry to supply their own military forces . Some countries also have a substantial legal or illegal domestic trade in weapons for use by its citizens . An illegal trade in small arms is prevalent in many countries and regions affected by political instability . The Small Arms Survey estimates 875 million small arms in circulation worldwide , produced by more than 1 , 000 companies from nearly 100 countries . Contracts to supply a given country ' s military are awarded by the government , making arms contracts of substantial political importance . The link between politics and the arms trade can result in the development of what U . S . President Dwight D . Eisenhower described as a military - industrial - congressional complex , where the armed forces , commerce , and politics become closely linked . The European defence procurement is more or less analogous to the U . S . military - industrial complex . Various corporations , some publicly held , others private , bid for these contracts , which are often worth many billions of dollars . Sometimes , such as the contract for the new Joint Strike Fighter , a competitive tendering process takes place , where the decision is made on the merits of the design submitted by the companies involved . Other times , no bidding or competition takes place . History . Trade in arms and technological diffusion is as old as the history of war itself . During the early modern period , France , England , Netherlands and some states in Germany became self - sufficient in arms production , with diffusion and migration of skilled workers to more peripheral countries such as Portugal and Russia . The modern arms industry emerged in the second half of the nineteenth century as a product of the creation and expansion of the first large military - industrial companies . As smaller countries ( and even newly industrializing countries like Russia and Japan ) could no longer produce cutting - edge military equipment with their indigenous resources and capacity , they increasingly began to contract the manufacture of military equipment , such as battleship s , artillery pieces and rifle s to foreign firms . In 1854 , the British government awarded a contract to the Elswick Ordnance Company of industrialist William Armstrong for the supply of his latest breech loading rifled artillery pieces . This decision galvanised the private sector into weapons production , with the surplus being increasingly exported to foreign countries . Armstrong became one of the first international arms dealers , selling his weapon systems to governments across the world , from Brazil to Japan . In 1884 he opened a shipyard at Elswick to specialise in warship production — at the time , it was the only factory in the world that could build a battleship and arm it completely . The factory produced warships for many navies , including the Imperial Japanese Navy — several Armstrong cruisers played an important role in defeating the Russian fleet at the Battle of Tsushima in 1905 . In 1885 , France decided to capitalize on this increasingly lucrative form of trade and repealed it ' s ban on weapon exports . The regulatory framework for the period up to the First World War was characterized by a laissez - faire policy that placed little obstruction in the way of weapons exports . Due to the carnage of World War I , arms traders began to be regarded with odium as " merchants of death " , and were accused of having instigated and perpetuated the war in order to maximise their profits from arms sales . An inquiry into these allegations in Britain failed to find evidence to support these allegations . However , the sea change in attitude about war more generally , meant that governments began to control and regulate the trade themselves . The volume of the arms trade greatly increased during the 20th century and it began to be used as a political tool , especially during the Cold War where the United States and the USSR supplied weapons to their proxies across the world , particularly third world countries ( see Nixon Doctrine ) . Sectors . Land - based weapons . This category includes everything from light arms to heavy artillery , and the majority of producers are small . Many are located in third world countries . International trade in handgun s , machine gun s , tanks , armored personnel carrier s , and other relatively inexpensive weapons is substantial . There is relatively little regulation at the international level , and as a result , many weapons fall into the hands of organised crime , rebel forces , terrorists , or regimes under sanctions . Small arms . The Control Arms Campaign , founded by Amnesty International , Oxfam , and the International Action Network on Small Arms , estimated in 2003 that there are over 639 million small arms in circulation , and that over 1 , 135 companies based in more than 98 different countries manufacture small arms as well as their various components and ammunition . Aerospace systems . Encompassing military aircraft ( both land - based and naval aviation ) , conventional missiles , and military satellites , this is the most technologically advanced sector of the market . It is also the least competitive from an economic standpoint , with a handful of companies dominating the entire market . The top clients and major producers are virtually all located in the western world and Russia , with the United States easily in first place . Prominent aerospace firms include Dassault Aviation , Sukhoi , Mikoyan , EADS , Finmeccanica , Thales Group , Lockheed Martin , Boeing , and BAE Systems . There are also several multinational consortia mostly involved in the manufacturing of fighter jet s , such as the Eurofighter . The largest military contract in history , signed in October 2001 , involved the development of the Joint Strike Fighter . Naval systems . All of the world ' s major power s maintain substantial maritime forces to provide a global presence , with the largest nations possessing aircraft carrier s , nuclear submarine s and advanced anti - air defense systems . The vast majority of military ships are conventionally powered , but some are nuclear - powered . There is also a large global market in second - hand naval vessels , generally purchased by developing countries from Western governments . World ' s largest defense budgets . This is a list of the ten countries with the highest defence budgets for the year 2011 , which is $ 1 . 29 trillion or 74 % of total world expenditures . The information is from the Stockholm International Peace Research Institute . Total world spending amounted to $ 1 . 74 trillion USD in 2011 . World ' s largest arms exporters . The units in this table are so - called trend indicator values expressed in millions of US $ s at 1990s prices . These values do not represent real financial flows but are a crude instrument to estimate volumes of arms transfers , regardless of the contracted prices , which can be as low as zero in the case of military aid . Ordered by descending 2000 – 2010 values . The information is from the Stockholm International Peace Research Institute . The information is also from the Stockholm International Peace Research Institute or from the national defence commissions where available and is updated at least once a year . Next to SIPRI there are several other sources that provide data on international transfers of arms . These include national reports by national governments about arms exports , the UN register on conventional arms and an annual publication by the U . S . Congressional Research Service that includes data on arms exports to developing countries as compiled by U . S . intelligence agencies . A list of such sources can be found at the SIPRI website . Due to the different methodologies and definitions used different sources often provide significantly different data . For example , according to Statistisk sentralbyrå ( Norway state statistics ) , Norway exports a greater value ( in USD ) of arms than many of the nations listed above . Some of the differences are possibly due to deliberate over - or under - reporting by some of the sources . Governments may claim high arms exports as part of their role in marketing efforts of their national arms industry or they may claim low arms exports in order to be perceived as a responsible international actor . As of 2008 , Britain has become the worlds leading developer of arms with British company BAE Systems . Defence group BAE Systems is the first company outside the United States to reach the top position , thanks to a deal with the Pentagon for mine - resistant vehicles to be used in Iraq and Afghanistan . According to the Stockholm International Peace Research Institute , a defence think tank , the former British Aerospace group ' s arms sales are ahead of American market leaders Lockheed Martin and Boeing . The report reveals BAE ' s U . S . subsidiary was alone responsible for 61 . 5 % of the group ' s arms sales and around 58 . 5 % of total group sales . This demonstrates BAE ' s increasing reliance on orders for conventional weapons as the United States cuts back on its nuclear arsenal . The British figures were also boosted by orders for Eurofighter Typhoon jets from Saudi Arabia . World ' s largest arms importers . The units in this table are so - called trend indicator values expressed in millions of US $ s . These values do not represent real financial flows but are a crude instrument to estimate volumes of arms transfers , regardless of the contracted prices , which can be as low as zero in the case of military aid . List of major weapon manufacturers . Private military contractor s are private companies that provide logistics , manpower , and other expenditures for a military force . Arms control . Oscar Arias Sanchez President of Costa Rica ( awarded the Nobel Peace Prize in 1987 for his efforts to end civil wars across Central America through the Esquipulas II Accords ) has stated : International treaties for arms control . The European Council stated to the United Nations General Assembly :