Statistics indicate a reduced military spending due the US defense budget cuts. However, the military spending is expected to remain constant in the next five years. Additional defense-related spending is likely to be affected by the weapons programs cancellations combined with delays in the delivery programs (Bouvet et al., 2011). Generally, the global military spending remained below 2% of the GDP. Nevertheless, the growth in the defense industry is expected to continue. The increased growth will majorly be driven by the increased spending in the military programs in the Middle East with Saudi Arabia, Oman and UAE spending more than expected in the region accelerating the global military expenditure by more than 1.3% (Bouvet et al., 2011). Measured in real terms, the increased percentage amounts to $1.6 trillion albeit the figure being the lowest since 2001. Despite the reduced expenditures, US remained the highest defense spender.
The gradual shift in the global military spending patterns is also observed in the defense contractors. The global defense procurement has shifted from traditional heavy equipments and amours to high-tech intelligence equipment (Bouvet et al., 2011). The shift has shrunken the market triggering the consolidations of firms within the industry as venders make every effort to bridge the gap in their product offerings (Sparaco, 2000). Large firm in the industry are also involved in strengthening their positions by acquiring supply and logistics firm. For instance, Boeing has been active in strengthening its position through acquisitions. Boeing acquired Argon ST, one of the firms involved in developing intelligence equipments as well as Narus, the major supplier of real-time network traffic and analytics software (Bouvet et al., 2011). Boeing also strengthened its position in the logistics command and business areas through the acquisition of CDM technologies, one of the largest firms specialised in real-time transportations and planning systems for the US military.
Similarly, the defense suppliers are entering into partnerships with the competitors in order to strengthen their position and be in a position of winning major contracts (Bouvet et al., 2011). For instance, the Northrop Grumman entered into partnership with Boeing in order to continue winning contracts for the supply of the materials required for the Ground-Based Midcourse Defense (GMD) systems managed by the US Missile Defense Agency (MDA).
Despite the industrial growth of over 8% experienced in the last three years, the international demand for the defense products will continue to experience various challenges ranging from the contract termination to industry backlogs (Phillips et al., 2012). Moreover, the continued US military spending cuts combined with rising instability in the Middle East, piracy and the nuclear arms development would continue to influence the general global spending on defense.