Unlike small low-spending countries whose defence budgets will be severely impacted, the UK will sustain spending levels over the long term. Moreover, "because defence technology and product expertise have strong parallel opportunities in commercial aviation and homeland security, they are well positioned to offset decline in one segment by limiting exposure to a particular market," according to Frost & Sullivan Research Analyst James Cooper.
The possibility of favourable acquisition of Tier 2 / Tier 3 defence companies which offer high margins and gross profit; access to long-term projects providing sustained recurring revenues; as well as limited exposure to programme losses all offer opportunities for growth in current market conditions. In addition, access to long-term sustained income is ensured as defence companies are increasingly sought as financing partners by national governments.
"The UK defence industry should tap into important growth markets like India which is expected to spend $100 billion on defence procurement alone during the next ten years,", states Frost & Sullivan Research Analyst Marko Lukovic. In 2009, India's defence budget will exceed that of the UK for the first time, positioning it among the top three spenders, behind the US and China.
Additional growth opportunities stem from government cost-cutting measures which open up new market sectors, including after market services and incentive based contracts. Industry players can expect recurring revenues, up and down the supply chain, and look forward to long term (sometimes 30, but usually 10 year) PFI outsourcing contracts.
Finally, significant cross-over opportunities exist for firms to transition their defence expertise into other markets. Raytheon and Lockheed Martin already compete on UK IT contracts for the NHS, the Home Office, the Post Office, among others. Other examples of successful transition include: BAE Systems, which made a number of acquisitions in the US to become a major Land Systems integrator (particularly Armor Holdings); the VT Group, once a naval manufacturer and now a major government and military services contractor experiencing rapid growth through clever acquisition and recruitment in the US market; and Ultra Electronics and Cobham - both Tier 2 companies that have forged a strong presence in the US while maintaining high profit margins from their equipment business because they did not attempt to become a lead system integrator.
If you are interested in more information on Frost & Sullivan's analysis of the UK Defence Sector, please email Monika Kwiecinska, Corporate Communications, at monika,kwiecinska[.]frost.com, with your full name, company name, title, telephone number, company email address, company website and country.
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