Future of the UK Defense Industry - Market Attractiveness, Competitive Landscape and Forecasts to 2017

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Product Synopsis  This report is the result of SDI's extensive market and company research covering the UK defense industry, and provides detailed analysis of both historic and forecast defense industry values including key growth stimulators, analysis of the leading companies in the industry, and key news.
Introduction and Landscape
Why was the report written?

Future of the UK Defense Industry - Market Attractiveness, Competitive Landscape and Forecasts to 2017 offers the reader an insight into the market opportunities and entry strategies adopted by foreign original equipment manufacturers (OEMs) to gain a market share in the UK defense industry. What is the current market landscape and what is changing?

The UK is one of the largest defense markets across the world. Primarily driven by potential threats from terrorism and peace keeping operations, the country's defense expenditure is expected to register a CAGR of -0.88% during the forecast period. Despite budget cuts, the share of capital expenditure of the MoD's total defense budget is expected to increase to 25.60% over the forecast period. The UK's plans to spend about US$251.86 billion on defense equipment and support over the next decade will present opportunities for domestic and overseas defense companies. The defense equipment and support expenditure is expected to be US$112.06 billion, accounting for 41.63% of the UK's total defense budget over the forecast period.

What are the key drivers behind recent market changes?

The UK's military spending will be driven primarily by expenditure on counter terrorism activities and peace keeping operations. The level of terrorist activity of extremist groups in the UK increased considerably following the September 2001 terrorist attacks on the US and the international military operations against the Taliban and Al Qaeda in Afghanistan. The risk of terrorist attacks in the UK is high due to the country's role as a close ally of the US. The current threat to the UK from international terrorism is considered to be severe; indeed an increase in terrorist activity has substantiated the presence of terrorist groups in UK. What makes this report unique and essential to read?

Future of the UK Defense Industry - Market Attractiveness, Competitive Landscape and Forecasts to 2017 provides detailed analysis of the current industry size and growth expectations from 2013 to 2017, including highlights of key growth stimulators. It also benchmarks the industry against key global markets and provides a detailed understanding of emerging opportunities in specific areas. Key Features and Benefits

The report provides detailed analysis of the current industry size and growth expectations from 2013 to 2017, including highlights of key growth stimulators, and also benchmarks the industry against key global markets and provides a detailed understanding of emerging opportunities in specific areas.

The report includes trend analysis of imports and exports, together with their implications and impact on the UK defense industry.

The report covers five forces analysis to identify various power centers in the industry and how these are expected to develop in the future.

The report allows readers to identify possible ways to enter the market, together with detailed descriptions of how existing companies have entered the market, including key contracts, alliances, and strategic initiatives.

The report helps the reader to understand the competitive landscape of the defense industry in the UK. It provides an overview of key defense companies, both domestic and foreign, together with insights such as key alliances, strategic initiatives, and a brief financial analysis. Key Market Issues

The UK government has announced a reduction in defense expenditure over the next five years in order to control the country's increasing fiscal deficit. Such reductions will lead to a decline in procurements and are expected to have a negative impact on domestic defense companies. The announcement of defense budget cuts followed the Strategic Defense and Security Review conducted in October 2010 and follows many other countries that have already cut their defense budgets, resulting in a contracted global defense market. MoD is planning to reduce personnel by 33,000 across all three military services, including 5,500 in Royal Navy, 19,500 in Army, and 8,000 in Royal Air Force by 2020. In addition, civilian workforce is being reduced by 32,000 at the same time. The MoD protects domestic defense companies by allowing only direct offsets to foreign exporters and by encouraging foreign bidders to use UK sub-contractors on a competitive basis. In addition, the UK government gives priority to domestic companies in meeting its Urgent Operational Requirements. Since the UK is a member of the EU, defense procurements for goods and services are conducted in accordance with the EU Procurement Regulations. According to these regulations, EU firms are given priority over non-European firms when similar financial and technical bids are offered. Additionally, the government favors agreements in joint development with other European defense firms making it inaccessible to non-European defense firms. As an example, the UK government has taken the initiative in cooperative procurement, including several major programs, such as: the Airbus A400M and MBDA Meteor, and in the creation of the European Defense Agency (EDA) in July 2004. The EDA supports the more effective harmonization of military requirements and promotes a more open defense equipment market in Europe, acting as a barrier for entry for non-European companies.

Key Highlights

The MoD is one of UK industry's largest customers, with average of GBP14 billion (US$22.04 billion) worth of purchases. MoD procures a wide range of goods and services Industry Participation governs the country's defense offset policy, and includes procurement of equipment and services; personnel and payroll services; educational services; and also non-military purchases such as catering and facility management. The MoD, UK Trade and Investment, and Defense and Security Organization are able to sanction the transactions for accepted offset activities, provided they support the objectives of the policy. It further stipulates that offsets have to be defense related, new, and of

equivalent technical quality, and must be fulfilled within the period of the main contract. A minimum of 100%offset is essential for all contracts over £50 million (US$78.3 million) for French and German companies and £10 million (US$16.1 million) for others. Bidders are free to determine the percentage of offsets they want to quote and decide with whom to do business within the defense industry. The effective period of the offset agreement is equal to the effective contract period. For effective contract management, MoD launched a new website MOD Defense Contracts Online (MOD DCO). MoD encourages participation of SMEs (Small and Medium Enterprises) to participate in contracts either as part of Prime Contracts or through sub-contracts. It has lowered the sub-contract threshold at which Prime Contractors can advertise sub-contract requirements. The UK permits 100% FDI in its defense industry, with security issues being addressed through verification and clearance procedures in addition to export controls. The UK government applies strategic export controls to prevent exports that are inconsistent with its legal commitments, such as international sanctions, respect for human rights and fundamental freedoms, the internal political situation in the country of final destination, concerns that proposed exports might be used for internal repression or international aggression, risks to regional stability, national security, the recipient's attitude to the international community, terrorism, and the risk of diversion. With 11 of the world's top 100 defense companies based in the UK, and a further 20 having significant operations in the UK, international investment activity in the UK defense sector is high. Recent defense investments include Denmark's Royal Ten Cate acquisition of AML UK and EADS Astrium's 85% acquisition of Surrey Satellite Technology.

Security threats from internal and external terrorist groups have compelled the country to focus on strengthening its borders and internal security. UK's role in Afghanistan, Iraq and Northern Africa has resulted in the country moving up the terrorism index. The domestic terrorism threat originates from the partition of Ireland in 1921, and from the dispute between Irish Nationalists and Unionists. As the security situation in Northern Ireland evolved, the domestic intelligence body MI5 took on responsibility for national security intelligence work in Northern Ireland in 2007, bringing the arrangements there in line with the rest of the UK. In addition, the UK is threatened by hostile cyber-attacks from other states, potential shortcomings in the UK's cyber infrastructure, and the actions of cyber terrorists and criminals.