The world is witnessing a global militarization. This surge, fueled by escalating geopolitical tensions, conflicts and technological advancements, led nations to reevaluate their national priorities and place emphasis on bolstering their defense capabilities.

Moreover, the rising military expenditures are evident around the world, particularly in the three current geopolitical hotspots being Eastern Europe, Middle East, and the Indo-Pacific. Despite the current wars in Ukraine and Gaza Strip, current military build-up around Yemen, and a potential conflict with Iran are indicating that these events could transform into a regional war and make the world more belligerent. Despite such unwelcome news, economic challenges and natural disasters, the global defense market continues to evolve, driven by this chain of events.

• Strong government support

Strong government support and investment in defense initiatives through allocating larger defense budgets, government contracts, and an emphasis on interstate collaboration provide stability and long-term prospects for growth.

Allocating larger defense budgets by governments to address national security concerns is a consequence stemming from the current war in Ukraine and the escalating conflicts in the Middle East, coupled up with the tensions in the South China Sea. Stockholm International Peace Research Institute-SIPRI highlighted the rise of military expenditures globally, with Europe experiencing a notable uptick due to the Russian-Ukrainian conflict and the next round of the hostilities in Gaza, while Asia and Oceania are propelled by China’s military and economic modernization trends amid escalating regional tensions.^[11] Noteworthy mentions with a defense budget increase for 2024 are the Republic of Korea, Taiwan, Japan, and India, to name a few. Interestingly, Türkiye pledged to boost its 2024 defense budget by allocating 150 percent more funds than the previous year. The US on the other hand planned an increase of less than one percent for 2024; however, in comparison to other countries, US is at the forefront, allocating more funds than the next ten countries combined.^[12] Therefore, governments around the globe are allocating more funds for defense triggered by the raging conflicts and rising escalating tensions.

Government contracts play a pivotal role in the global defense industry, serving as a major avenue for businesses to contribute to national security efforts and support defense-related initiatives worldwide. These contracts awarded by government entities encompass a diverse range of activities, including research and development, weapons production, infrastructure projects, and cybersecurity initiatives. They also offer a stable revenue stream and provide assurance of long-term business viability and it’s not uncommon for government contracts to comprise anywhere from 50 percent to over 90 percent of a contractor’s total revenue.^[13]

However, securing government contracts is a highly competitive and complex process, often requiring adherence to stringent regulatory frameworks and compliance with various standards, exemplified through the regulations of the US DoD.^[14] Therefore, strategic engagement with government entities and effective contract management are essential for success in this sector.

Interstate collaboration initiatives underscore a concerted global effort to bolster defense capabilities, foster collaboration, and enhance security on regional and international fronts. The European Union’s adoption of the European Defense Industry Reinforcement through common Procurement Act exemplifies a strategic move to incentivize cooperation among member states, with a focus on common procurement and solidarity.^[15] Similarly, Bulgaria’s expressed interest in defense collaboration with Republic of Korea, signals a growing trend of international partnerships aimed at technological exchange and mutual defense enhancement.^[16]

In a different occasion, during the Seoul Defense Dialogue 2023, Korean officials stressed the urgent need for international cooperation to address DPR Korea’s advancing nuclear weapon development, emphasizing that failure to act promptly could lead to catastrophic consequences globally.^[17] In addition, US DoD is actively pursuing international cooperation in the responsible and ethical development of artificial intelligence and autonomy in the military domain. With initiatives such as the Political Declaration on Responsible Military Use of Artificial Intelligence and Autonomy, launched in February 2023 and endorsed by 51 countries, excluding Russia and China, the Pentagon aims to foster international consensus and guide states in the development, deployment, and utilization of military AI. Meanwhile, Ukraine’s initiatives, including the establishment of the Defense Industries Alliance and plans for a specialized economic regime and defense fund, underscore a proactive approach to international cooperation and export support, with a focus on enhancing defense capabilities and fostering innovation. The same trend can be seen in Germany as well, where the German Chancellor appealed for cooperation among European nations to provide decade-long purchase guarantees for the defense industry. Collectively, these developments reflect a global commitment to leveraging international cooperation as a critical pillar in strengthening defense industries and advancing security agendas.

• Strategic partnerships

Strategic partnerships among major powers present prospects for defense companies to enhance competitiveness and market reach through joint ventures and collaborations, bolstering their position in the global defense market.

Strategic partnerships are essential for defense companies seeking to enhance their global reach, as they provide access to new markets, facilitate technology transfer, and enable collaborative efforts in research, development, and mutual defense agreements. Recent diplomatic moves reflect this trend, as leaders across the globe are actively seeking to enhance partnerships and alliances to strengthen bilateral relations and address regional and global challenges. Turkish President’s visit to Hungary^[18] underscores the determination to deepen their strategic partnership, reflecting mutual interests in various fields such as trade, defense, and energy. Similarly, the agreement between Korean and Indonesian presidents^[19] signals a commitment to bolster their strategic partnership, aiming to foster cooperation in economic development, technology exchange, and regional security.

Meanwhile, the Saudi-UK partnership^[20] is poised for growth across all sectors, reflecting shared goals in areas like trade diversification, defense collaboration, and cultural exchange. In a significant development, the US and India have also solidified their partnership through a series of new defense deals, highlighting their commitment to regional stability and counterterrorism efforts. Additionally, the longstanding strategic partnership between Pakistan and China continues to deepen, particularly in defense interoperability, as evidenced by ongoing cooperation in military exercises and defense equipment procurement. Moreover, Republic of Korea and Qatar have agreed to elevate their relations to a comprehensive strategic partnership, indicating their shared vision for enhanced cooperation in diverse fields including energy, infrastructure, and investment. These partnerships and alliances play a crucial role of international cooperation in addressing complex geopolitical challenges and grant prospects to the defense industry.

• Dependence on government contracts

Dependency on government contracts exposes defense companies to weaknesses associated with budget cuts and changes in political priorities. Dependency on government contracts is particularly evident during rising demands of defense products.^[21] On the other hand, since the customer is the government, the price cost is not an issue. However, changes in the political landscape in markets of interest are exposing the weaknesses of the defense industry. Such fluctuations are evident in Korea’s efforts to increase import-export lending to support significant defense sales, amid facing obstacles due to political deadlock preceding the April 2024 parliamentary election, highlighting the importance of overcoming political impediments to sustain defense export ambitions. This reliance can result in financial instability and hinder long-term strategic planning and investment. Additionally, it limits diversification opportunities, leaving companies vulnerable to downturns in defense spending and reducing their ability to adapt to changing market conditions.

• Regulatory changes

Regulatory changes pose weakness for defense companies seeking to navigate complex compliance landscapes, including new compliance requirements, changes in cybersecurity regulations, as well as changes in export control restrictions.

New compliance requirements introduce regulatory changes, risking legal and financial repercussions for defense firms in case of non-compliance. These changes, arising from government agencies, international bodies, or industry standards organizations, demand continuous monitoring and adaptation. Furthermore, non-compliance can compromise national security efforts, posing additional operational risks and creating weakness to defense industry. The erosion of conventional arms control in Europe, as highlighted by SIPRI,^[22] underscores the importance of regulatory compliance in safeguarding regional stability and security.

Changes in cybersecurity regulations present significant threats to the defense industry. These changes may expose vulnerabilities if not promptly implemented, leading to increased cyber threats and breaches. Cybersecurity regulations, such as the NIST Cybersecurity Framework^[23] and CMMC,^[24] aim to enhance the cybersecurity posture of organizations within the defense sector. However, their effectiveness depends on timely implementation. Delays in implementing cybersecurity regulations can result in outdated or inadequate security measures, making defense companies vulnerable to exploitation by attackers seeking unauthorized access to sensitive information or critical systems.

The heightened geopolitical tensions resulting from the invasion of Ukraine had a notable impact on the operations of the four multilateral export control regimes, including the Australia Group, the Missile Technology Control Regime, the Nuclear Suppliers Group, and the Wassenaar Arrangement. However, the degree and manner of disruption differed among these regimes. While these regimes resumed their activities, the nature and extent of disruption varied, further complicating international trade for defense companies. These disruptions hamper supply chain management efforts, as defense companies should cross evolving regulations and compliance requirements across multiple jurisdictions.^[25] In conclusion, changes to export control regulations have the potential to hinder defense companies’ international trade activities and disrupt supply chain management.

• Cyber vulnerabilities

Cyber vulnerabilities expose defense systems and networks to heightened risk of ransomware attacks, while foreign intelligence entities target commercial defense startups, potentially compromising sensitive information, critical infrastructure, national security, and economic interests.

Heightened risk to ransomware and other cyber threats among small and medium-sized defense contractors stems from digital weaknesses, outdated software, and inadequate cybersecurity measures.^[26] This is evidenced by the recent spike in malicious cyber activity targeting US government agencies and defense companies, where reports reveal a monthly 18 percent increase in cyberattacks against these entities, with a particular focus on exploiting known vulnerabilities and using malware programs designed to steal information and credentials. This heightened vulnerability is exacerbated by the potential for government shutdowns, as evidenced by concerns raised by analysts regarding the impact on cybersecurity capabilities during such periods.^[27] The interconnected nature of the defense sector’s supply chain exacerbates the risk, as breaches in smaller companies provide adversaries with easier access to larger, better-protected contractors.

Foreign intelligence entities also pose a considerable weakness, leveraging sophisticated tactics to infiltrate and exploit critical technologies and intellectual property. These entities target defense contractors and suppliers, aiming to gain access to sensitive information through various means, including cyber espionage, insider recruitment, and strategic partnerships, targeting technology assets and intellectual property of commercial defense startups, thereby jeopardizing national security and economic interests.^[28] The theft of proprietary data not only compromises national security but also undermines the competitive advantage of defense companies in the global market. Moreover, such incursions can erode trust in supply chains and disrupt the integrity of defense systems, necessitating robust countermeasures to safeguard against foreign intelligence threats.

In conclusion, cyber vulnerabilities pose a significant weakness to defense systems and networks, increasing the susceptibility to ransomware attacks. Moreover, foreign intelligence entities target emerging commercial defense startups, potentially jeopardizing sensitive information, critical infrastructure, and the broader interests of national security and economic stability.

• Budget constraints

Budget constraints are a weakness of the defense industry that is limiting resource allocation for research, development, further leading to reduced defense spending, impeded modernization efforts, and diminished technological superiority.

Reduced defense spending as a result of changes in governing administrations jeopardizes national security and hampers the ability to adapt to evolving threats, maintain operational effectiveness and sustain technological advancements necessary for maintaining strategic superiority, even though governments around the globe are allocating more funds for defense triggered by the current conflicts in the geopolitical hotspots.^[29] This further compromises military readiness, and diminishes technological superiority. For instance, the recent Bank of Brazil’s decision to stop using its own resources to finance defense companies, affected the availability of funds for defense exports in Brazil, and will likely lead to reduced investment in defense projects and capabilities, constraining the industry’s ability to innovate and modernize.

Impeded modernization efforts are also a factor of weakness worth considering. The Ukrainian experience revealed the challenges in allocating funds for defense procurement and modernization, particularly in terms of the timeline for spending and procurement processes.^[30] Budget constraints compromise readiness by limiting funding for essential defense areas such as research, development, procurement, and maintenance. This results in challenges in maintaining operational preparedness, as reduced defense spending hampers efforts to invest in crucial equipment and logistical support. Delays in procurement processes further exacerbate the situation, hindering the acquisition of modern technologies necessary for maintaining readiness.

Diminished technological superiority poses a considerable hazard to the defense industry and national security. The US DoD has long relied on its technological edge to maintain military dominance and deter potential adversaries. However, as emerging technologies rapidly evolve and near-peer rivals such as China modernize their military capabilities, the risk of technological parity or even inferiority becomes increasingly palpable.^[31] Despite the establishment of defense innovation organizations and partnerships with the private sector, there are obstacles in efficiently identifying, developing, and adopting cutting-edge technologies. The lack of alignment among stakeholders, including government agencies, defense contractors, and research institutions, hampers the smooth transition of technology from concept to deployment. This disjointed approach hinders the military’s ability to capitalize on emerging technologies effectively.

In conclusion, budget constraints are hindering the allocation of resources for research and development, resulting in reduced defense spending, hampered modernization efforts, compromised readiness, and diminished technological superiority.

• Emerging markets

Emerging markets influenced by factors such as growing geopolitical tensions, and establishment of new defense-industrial strategies offer growth opportunities for defense companies to expand market presence and tap into new revenue streams, leveraging increasing demand for military capabilities in regions undergoing rapid geopolitical shifts.

The implementation of new defense-industrial strategies is exemplified through the rise of Republic of Korea’s defense sector, which certainly presents another emerging market for the defense industry. With arms sales soaring to USD 17.3 billion in 2022, the country’s defense sector has capitalized on critical opportunities, particularly in securing major contracts with Central and Eastern European countries like Poland and Bulgaria. The country’s competitive technologies, robust production capacity, and cost-effectiveness position it as an attractive partner for defense procurement,^[35] potentially enabling it to consolidate as one of the top five defense industrial centers. Moreover, the EU, recognizing the imperative of aligning defense -industrial initiatives, embarked on formulating the new European Defense Industrial Strategy, aiming to bolster defense capabilities of member states as well as strengthen EU’s role as a geopolitical actor in alignment with the Strategic Compass.

Briefly, emerging markets offer substantial opportunities for the defense industry, fueled by growing geopolitical tensions, and the implementation of new defense-industrial strategies.

• Private-public partnerships

Private-public partnerships (PPPs) present a significant opportunity for the defense industry. Boosting overall defense capabilities through PPPs demonstrates the potential for shared investments and risk mitigation opportunity, influencing the geopolitical dynamics, as seen from the experience from the Ukrainian war. For instance, SpaceX’s provision of cutting-edge satellite communication services to Ukraine during the current conflict in Ukraine^[36] demonstrates how these partnerships can leverage corporate innovation with efforts to strengthen national security. Moreover, companies such as Microsoft, Amazon, and Meta have offered cyber defense assistance and combat disinformation campaigns, showcasing the value of PPPs in bolstering cybersecurity defenses.^[37] Thus, private-public partnerships offer the defense industry a valuable opportunity to harness corporate expertise, innovation, and economic leverage in support of national security objectives. By collaborating with private corporations, governments can access cutting-edge technologies, bolster cybersecurity defenses, and influence geopolitical dynamics to enhance overall defense capabilities.

• Market diversification

Market diversification reduces reliance on specific regions or product lines, enhancing resilience and long-term growth prospects. Market diversification is a strategic imperative for defense industries seeking to mitigate risks and capitalize on emerging opportunities in an evolving global landscape. With geopolitical shifts and increasing volatility, diversifying markets becomes paramount, as evidenced by Turkey’s efforts to expand its defense industry presence in Egypt and other African countries,^[38] as well as Qatar’s exploration of advanced military equipment from Germany and Hungary.^[39]

Furthermore, partnerships between international defense giants and local companies, such as Lockheed Martin’s collaboration in Saudi Arabia and Korea’s initiatives with Poland, underscore the significance of diversifying market engagements. These efforts not only enhance economic resilience, but also foster technological exchange, bolstering defense capabilities and contributing to regional security dynamics. In an era marked by geopolitical uncertainties and changing market dynamics, market diversification emerges as a critical strategy for defense industries to navigate complexities and sustain growth amidst evolving geopolitical landscapes.

• Cybersecurity

Cybersecurity presents a strategic opportunity for the defense industry to fortify national security by leveraging technological advancements and fostering collaboration between stakeholders. In an era characterized by pervasive cyber threats, cybersecurity emerges as a strategic imperative for the defense industry, offering an opportunity to enhance national security through proactive measures and innovative solutions.

By harnessing technological advancements in cybersecurity, defense contractors can bolster the resilience of critical infrastructure, safeguard sensitive data, and mitigate evolving cyber threats.^[40] Moreover, the collaborative efforts between industry, government, and military entities^[41] facilitate information sharing, policy advocacy and technological innovation, positioning the defense industry as a key player in safeguarding a nation’s cyber domain. Through strategic investments in cybersecurity capabilities and fostering public-private partnerships, the defense industry not only strengthens its own resilience but also contributes significantly to national security objectives in an increasingly digitalized landscape. In summary, cybersecurity offers the defense industry a strategic opportunity to enhance national security by leveraging technology and fostering collaboration among industry, government, and military stakeholders.

• Geopolitical Instability

Geopolitical instability poses threats to defense companies hampering international cooperation, impacting market stability, supply chains, and security.

Hampered international cooperation among defense stakeholders occurs particularly in relation to the existence of divergent national interests, imbalance of power and mutual distrust.^[44] The ongoing Russia-Ukraine conflict, for example, became a stumbling block for allied countries,^[45] due to the divergent stances of individual countries on how Ukraine ought to be helped. This situation underscores how regional conflicts hinder collaboration and joint development projects crucial for the defense industry.

• Economic Uncertainty

Economic uncertainty triggered by geopolitical instability has the potential to increase inflationary pressures, trade disputes and sanctions ultimately disrupting global supply chains, limit market access, affecting revenue streams and profitability for defense companies.

Inflationary pressures because of geopolitical instability increase the cost of raw materials, labor, and production inputs, leading to higher operating expenses for defense manufacturers. Additionally, inflation erodes purchasing power, reducing the affordability of defense products and services for governments and defense contractors. This subsequently results in delayed procurement decisions and reduced demand for defense goods, affecting the revenue streams and profitability of defense companies.^[49] Moreover, inflation can also disrupt financial planning and forecasting, making it challenging for defense companies to accurately predict future costs and revenues, further exacerbating economic uncertainty.

Trade disputes among nations are posing significant threats for defense companies reliant on international trade. Trade disputes can result in tariffs, quotas, and other trade barriers, increasing the cost of importing and exporting defense-related goods and technologies. These disruptions in global trade can lead to supply chain inefficiencies, delays in procurement, and higher operating costs for defense manufacturers, evident from the trade disputes between the United States and China.^[50] Furthermore, trade disputes further strain diplomatic relations between countries, potentially impacting defense cooperation agreements and technology transfer arrangements.

Sanctions also pose threats for defense companies operating in conflict-affected regions, exacerbating the already complex landscape of economic uncertainty. Economic sanctions restrict access to key markets, limit technology transfer, and disrupt supply chains, impacting the operations and profitability of defense companies. Additionally, sanctions can lead to increased compliance costs as companies navigate complex regulatory frameworks to ensure compliance with international sanctions regimes. Similarly to trade disputes, sanctions also strain diplomatic relations between countries, creating a volatile global market.