Significance of Technology in the Defense Sector

Over the last decade, the global military economy has been transformed by trends in military technology and expenditure that have reinforced the dominance of the United States (USA). The fixed costs of R&D (research and development) for main systems continue to grow, both for platforms and for the infrastructure (such as strategic air assets, satellites) and information systems needed to upkeep network-centered warfare. Except the US, all countries face structural demilitarization as they are unable to afford the fixed costs needed to substitute conservative military capability with modern systems comparable to those of the US.

Visibly, changes are taking place in the location and structure of the workforce in the defense sector, and these are expected to continue. In the present-day conditions of diminishing demand and the resulting industry concentration, companies that specialized more in defense have maintained defense-type employment structures of highly skilled, primarily male employment; while companies that have reduced their defense share are likely to become more similar in their service structure to other industrial sectors. The defense authorities that remain tend to have higher proportions of R&D work than they had before. Against this, the degeneration in value-added service in defense companies, due to outsourcing for instance, has changed the nature of the companies involved, and has made the geographical distribution of the supply chains more disseminated.

Megabite Electronics is a defense technology company doing most of its commerce with the U.S. Navy and Defense Logistic Agencies.

Technological drivers

Technology is exceedingly significant for the defense sector. It provides barricades to both entry and exit and, although these are becoming less distinct with the increasing use of civilian technologies and of COTS, they remain noteworthy. It is challenging to see new competitors in the production of major weapons systems. Nonetheless, market entrants may be found in the new areas that are opening up within the sector, due to the growing significance of network-centered warfare and of communications and control technologies in the field of operations. This alleged Revolution in Military Affairs is likely to continue to affect future developments in the sector. With the growth of costs and technology, servicers are likely to turn increasingly to collaboration, licensing and joint ventures, thereby stimulating further internationalization of the industry.

Economic drivers

Economic factors have largely taken a back seat in the defense sector because of security concerns. However, they still provide operational barriers to entry and exit, primarily because of the nature of the market and the role of the national state in each market. Though competition may be increasing in some areas, the bottom line is that the state controls the nature and size of the market, the number of companies in it, and the role of foreign producers.

The growth in importance and the changing nature of demands of the US market will continue to lead to alterations in the structure of the industry. USA companies will need to reorganize further across borders, and partnerships and joint ventures with companies are likely to increase in significance, particularly at first-tier level. While defense companies like Megabite Electronics rely on domestic procurement and support for exports, they are about to continue to internationalize, mainly in their supply chains.

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