Innovation and Exports
The global aerospace and defence industry is growing. Fuelled by uncertainty, geopolitical tensions and an accompanying rise in many state’s defence budgets, the market share for defence has boomed. Between 2013 and 2017 the volume of international major weapons transfers was 10% higher than 2008-2012. This means different things for different states, depending on whether they are in a prime position to exploit this demand and export equipment and technologies to satisfy the new demand. For instance, while the defence budgets for the United Kingdom and France have increased this does not necessarily mean they will be purchasing exclusively foreign-produced products. This can be said to be a result of these countries’ possession of sophisticated domestic industrial capabilities and the ability to domestically manufacture the desired new products. Key hotspot demand areas, as identified by a 2019 report by Deloitte, are in the Middle East and Asia-Pacific.
Key demand areas appear from the combined dual factors of being wealthy (and thus a high defence budget) as well as lacking in the sufficient domestic industrial capacity to manufacture high-end technologies and products. In simple terms, one can differentiate ‘supplier’ states from ‘consumer’ states. The United States continues to dominate the export market for defence products in the postwar period. On top of this market dominance it also leads the world in Research and Development (R&D), allowing itself to innovate and set the benchmark for new military technologies. According to the scholar Keith Krause, this would make the US the only ‘Tier 1’ state in the current international system. Indeed, while the US has substantial control of the defence export markets, it is the ‘Tier 2’ states, such as the United Kingdom, that can also benefit.
States like the UK, while unable to innovate revolutionary new technologies across the board, can still push the boundaries of incremental improvements in specialised areas. It can, more importantly, utilise its sophisticated domestic capabilities to produce and export the same high quality, top tier technologies that the US does. After all, the UK spends the most on Research and Development in Europe at around $2325.3 million (ppp). In 2018, the UK controlled about 19% of the defence export market (2nd in the world only to the US) and beating Russia and France at 14% and 9% respectively. Current defence exports for the UK are, as of 2018, valued at £14 billion.
A government white paper has identified that the Asia-Pacific has become increasingly interested in the import of aerospace and naval technologies. Two UK initiatives seem likely to capitalise on this. Firstly, both of Britain’s new frigate types are being designed with ‘exportability’ as one of their key attributes. Both the Type 26, a mid-budget versatile warship, and the larger Type 31 are likely to be used by British firms to enter the Asia-pacific (and Middle Eastern) defence markets. For smaller states, this may mean that British firms are contracted to build the ships themselves. On the other hand, larger more manufacturing-capable states will be able to purchase the license to construct these new ships themselves domestically. Either way, once these warships prove successful and capable on deployment it should be a ‘win-win’ situation for the UK’s export prospects. Secondly, stealth fighter jets such as the UK’s Tempest will come to occupy key areas in the market just as the previous Typhoon and Tornado once did.
If the UK can continue to lead the international market as a Tier 2 producer of high-end technologies then the rewards can be substantial, thanks primarily to increasing defence budgets around the world. Exports, however, will hinge on the UK’s ability to maintain its position as a leading R&D state. Further, scale economics suggest that domestic production chains will be dictated and ultimately determined by effective exports to consumer states.
At the time of writing, Toby Irwin is a third year student at the University of St Andrews. He is studying International Relations. Areas that interest him the most are UK defence strategy and foreign policy.