Global Defence Review 1999

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Global Uncertainty
By Humphry Crum Ewing

A year ago there seemed good reason to believe that 1998 would mark the start of a period in which the defence and related industries worldwide would be able to operate more confidently than had been the case for some time past.

Consolidation in the US seemed largely settled and the publication of the Quadrennial Defense Review was set to resolve a number of important uncertainties. In Europe consolidation was under way and in the UK the then forthcoming Strategic Defence Review was expected to launch or re-launch a number of important and valuable procurement programmes. NATO was set to expand and calculations on the backs of numerous envelopes were being mushroomed into multi-billion-dollar order books to bring the armed forces of the joining countries up to date and up to western standards. Defence budgets around the world were earmarked, in the minds of industrialists and consultants, to provide new and growing markets in which every supplier, national or corporate, would enjoy an ever- growing share.

Change of strategy
But it did not turn out quite like that. Starting in the Far East, and moving westward with the sun, the world's financial scaffolding fell apart. Economic growth stopped and then reversed. Political crises brought regimes to impotence and in some cases to their end. Wish lists for new military equipment became waste paper. There was little new business to fill order books and the question became whether payment would be made for deliveries. So the outlook for the defence industries at the turn of the year 1998/1999 is very different from that of a year ago, superficially at least. Strategies have to be changed, the objective becomes not how to grab a larger share of a growing market, but rather how to retain an adequate amount of business within deflated markets. Business for defence contractors undoubtedly will become harder and this applies to prime contractors, to sub-contractors and right down the supply chain, in a different way in each area.

Survival of the fittest

Humphry Crum Ewing is a Research Fellow at the Centre for Defence & International Security Studies, Lancaster University, UK, and the author of the Centre's forthcoming Bailrigg Memorandum, "The Business of Defence".

What to do? Who will survive? The answer we would suggest is clear, but not easy. It would be as mistaken to panic now as it was to believe a year ago in prospects of continuous growth with contract succeeding contract in orderly, rational and efficient sequence. Being at the cutting edge of technology, innovation, quality, reliability of performance, timely delivery, financial strength, financial disciplines, the attributes of all well-run businesses in any industry, will count more than ever in the defence industry at this difficult time. But so will marketing effort. When times are hard, there is a tendency to cut back on marketing and promotional effort and investment. These sometimes are seen, quite mistakenly, as optional extras.

Of course, promotional extravagance can develop uncontrolled when times are easy or perceived to be so. In the difficult times that appear to be ahead of the defence and related industries over the next year or so, the cost-efficient continuity of marketing, presentational and promotional effort, reassuring old customers and reaching out to new ones, will determine which businesses survive to prosper again, and which, including some with famous old names, will fade away.