Steven Grundman, M.A. and George Lund Fellow for Emerging Defense Challenges with the Brent Scowcroft Center writes for Defense News on how the defense industry is impacted by the current “age of austerity” in Western military spending:
Three years into an “age of austerity” in Western military spending, expectations are building for a new wave of mergers and acquisitions (M&A) in the defense industry like the one that followed the Cold War. Just as before, change is resetting customers’ expectations, investors’ outlooks and corporate strategies.
However, the imperatives of today’s defense company stakeholders could not be more different from those of a quarter-century ago. By contrast, a defense industry for the age of austerity will reflect different impulses: Customers who require commercial-style innovation more than simple cost reduction; investors who see a more complex formula for value creation than simply M&A; and competitors more adept and aggressive than incumbents still indulging the mantra “higher, faster, farther.”
Western defense industries emerging from the Cold War were indeed transformed. In the US, an industry of mostly mid-sized platform specialists and multi-industrial firms consolidated into a half dozen first-tier contractors, each addressing a wide range of opportunities with integrated system offerings.