RESEARCH REPORT
Securing strategic advantage for defense companies
5-MINUTE READ
August 26, 2024
In brief
- Fueled by geopolitical instability, 2023 saw record international defense spending of $2.4 trillion in 2023 and is set to rise further.
- AI, automation and robotization are transforming how defense businesses operate and opening new pathways for improved performance.
- Supply chains are under pressure to meet rising demand, and established companies also face growing competition from new market entrants.
Heightened geopolitical tensions and conflicts are propelling international defense spending to new heights. 2023 saw record levels — $2.4 trillion – of defense spending around the world. 2024 and beyond look set to surpass this, with forecasts suggesting significant increases in many key markets over the next three years.
However, defense suppliers face a number of challenges to fulfilling such burgeoning demand. Some of these are familiar, such as navigating political considerations and keeping pace with the growing demand for innovative defense capabilities. Yet others are relatively new, including the urgent need for rapid delivery and inventory replenishment and the emergence of new competition from manufacturers in countries such as Turkey, Brazil and South Korea.
Defense equipment manufacturers are also having to keep pace with the growing demand for innovative defense capabilities.
Navigating regional challenges
As defense companies ramp up and redirect investments to meet new demand, they also have to address regional challenges including new competitors, evolving customer expectations and a complex regulatory landscape.
In many markets, there are also calls for greater localization of production — with countries seeking more national autonomy and higher economic benefits, as well as supply chain resilience. Defense companies are responding by engaging local partners, but finding and developing a local workforce with the necessary skills and expertise remains challenging.
New competition is emerging in some markets, with local manufacturers offering competitive pricing. Established manufacturers are responding by improving their costs, diversifying products and services and expanding into new markets.
Supply chain challenges persist
Executives cite a number of threats to their supply chains, with natural disasters, political instability, pandemics and trade restrictions as the most significant current dangers. Looking further ahead, leaders also highlight rising costs for raw materials, components and talent, along with communication and collaboration challenges as major threats.
Supply chain challenges
(today and beyond)
Technology will be key to addressing present and future threats to effective supply chains. Digital tools, AI, automation and manufacturing optimization all have a critical role to play, as do material substitution and shaping products for local market needs.
Helping suppliers to weather difficult conditions is also essential, and major manufacturers are extending both financial and technology support to their supply chain partners. This is not only bolstering suppliers’ financial resilience but also helping to create an overall more secure, innovative and efficient supply chain.
Manufacturing under pressure
Direct threats to manufacturing operations are also keenly felt by executives. They point to cybersecurity and rising labor costs as the major challenges today, but they are also concerned about their ability to keep pace with rapid advances in technology.
Here too, innovative technology is offering the solution to these challenges and more. Leaders are investing in AI, robotization and automation, as well as placing a strong emphasis on cybersecurity, with a particular stress on multilayered measures and employee training.
Shaping the industry’s future
Rising global defense spending creates major opportunities for defense companies. But to take advantage, they must take a proactive approach to addressing the challenges they face.
They need to tailor their offerings to the specific needs of local markets. They must embed disruptive technologies such as AI and autonomous systems into their operations. And they will need continuous reinvention to address fast-evolving supply chain and manufacturing vulnerabilities. Those companies that address all these imperatives will not only achieve competitive advantage today, they will also chart the course for the industry’s future.
About the Accenture international defense market insight report
The Accenture International Defense Insight Report combines analysis of primary and secondary research on both demand and supply sides of international defense market with the focus on three regions of growth: Asia Pacific, Europe, as well as Middle East and North Africa. Primary research covers interviews with experts, including current and former military and defense industry officials, while a survey was conducted with executives at major defense industry companies from North America, Europe, and Growth Markets. The research provides a unique perspective on existing and future trends and drivers in international defense market, covering a wide range of areas, from capability and technology needs to entry barriers and supply chain and manufacturing headwinds.
We conducted interviews and the executive survey in 2Q 2024; views are subject to considerable change as geopolitical conditions can rapidly evolve.
