13. Arms production

Summary

Stagnation continues in the sale and production of military equipment in the
OECD countries and the developing countries. The 100 major arms-producing
companies in 1993 had combined arms sales of about $156 billion during the
year--6% less than the dollar value of their arms sales during 1992. If all
companies were included, the decline would probably be greater.

In the countries of the OECD, industry has by and large been successful in
adapting to the reduction in demand for its products by reducing arms
production capacity, concentrating or diversifying. In the USA capacity
reductions have largely taken the form of mergers and acquisitions. Many US
companies have been able to achieve significantly increased profits through
rising incomes from divestitures, rationalizations, personnel cuts and other
forms of cost reduction. In Europe, with its smaller and more fragmented
market, the potential for consolidation is not so great and costs continue to
be a severe problem. European armaments cooperation is not proceeding as
quickly as anticipated.

Information on the Russian military sector has become available to an extent
previously unthinkable, fragmentary and unsatisfactory though some of it is.
Dramatic changes have taken place in the military industry as a result of the
sharp fall in the defence budgets, a fall in demand for the civilian products
of the defence-related industries and the loss of arms export revenues.

Domestic procurement has declined to around one-fifth of the 1991 level, and
Russia's share in world arms exports has dropped significantly. Hundreds of
defence enterprises are standing still, the defence complex has declined
dramatically in the pay hierarchy of industry in general, and close to 2
million jobs were lost from military industry in 1991-94.

Russian Government policy has been reactive--trying to maintain the structure
of the defence complex and compensate for losses on the domestic market by
promoting exports. However, some signs of an attempt to introduce urgent
restructuring and a coordinated national security and defence industrial policy
did appear in 1994.

The emerging policy appears to be to obtain state control over a core of the
military industry, to restructure sources of finance and to let a large part of
the remaining military production facilities close down.

Appendix 13A. The 100 largest arms-producing companies, 1993

ELISABETH SKÖNS, GERD HAGMEYER-GAVERUS, PIETER D. WEZEMAN AND SIEMON T. WEZEMAN

Appendix 13A contains data on the 100 largest companies in the OECD and
developing countries in 1993.