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United Kingdom Defense Industry

The UK defense budget represents about 3.5 percent of GDP. The defense industry is largely privatized and is dominated by three large contractors (British Aerospace, GEC-Marconi, and GKN) and a second tier of smaller, more specialized companies. The UK is the third largest purchaser of defence equipment behind the US and China. The UK also spends a larger proportion (around 40-45 per cent) of that budget on equipment than other nations. Between 2003-5 3bn was spent buying UK-based defence-aerospace companies - often by companies entering the market for the first time. The UK has consistently been the number two supplier of defence equipment over the past 20 years. Defence exports are worth on average 5 billion per annum to the UK economy. The share of GDP spent on forces and equipment is around 2.3 per cent, which is low by historical standards and compared to other nations seeking to maintain a presence as a world player. The share of defence expenditure as a percentage of government spending has dropped from 10per cent to 5 per cent in recent years.

The Defence Industrial Strategy (DIS) has set out the key capabilities and programmes that the MoD will be taking forward in the next decade. The focus will be on unmanned aerial systems (UAS), the upgrade and through life capability management of existing platforms and future helicopters. The DIS has highlighted the increasingly critical role of technology in securing military advantage. This requires significant investment in research and technology.

The UK is Europe's leader in the high-technology manufacturing and services sectors represented by Aerospace, Defence, and Security. Together they employ over half a million people in 9,000 companies and contribute over 60 billion (~$90 billion) per year to the British economy. Small and medium sized enterprises (SMEs) are the backbone of the UK's high value manufacturing and services industries in aerospace, defence, security and space. At least 9,000 companies make up these highly diverse skilled engineering and support sectors. Every single large aerospace or defence equipment contract is underpinned by the hard work of hundreds of SMEs. The UK defence industry alone has more SMEs than the French, German, Italian, Spanish and Norwegian industries combined. This enables UK SMEs to respond to the needs of the Armed Forces as a priority, speeding up the deployment of life saving battlefield capabilities.

The United Kingdom has a large and diverse defense industry. In 1986 this represented around 12 billion ($17.6 billion), of which 9 billion was in MoD contracts ($13.2 billion) and 3billion in exports ($4.4 billion), with an additional 400 million ($510 million) imported (95 percent of which was from the United States). While the UK MoD identified about 10,000 firms that benefited from its contracts, a smaller number (about 100) made equipment specifically for the MoD.

Two important trends in the British defense industry in the 1980s were privatization and consolidation. During the 1980s the Thatcher government sold off most of the state-held firms (including British Aerospace (1985), Royal Ordnance (1987), British Shipbuilders (1986), Shorts Brothers (1989) and Rolls-Royce, as well as the management of the Royal Dockyards. Over the same period, two defense industrial giants emerged, British Aerospace (which acquired Hawker Siddeley, much of Royal Ordnance, and Sperry UK) and GEC (which acquired all or parts of Marconi Electronics, Ferranti, and Plessey). GKN purchased the helicopter manufacturer Westland, and GEC purchased the military vehicle and shipbuilder VSEL in 1994. In 1999, British Aerospace merged with GeneralElectric's Marconi division.

In the mid-1990s it employed some 225,000-340,000, accounting for 3 percent of the labor force and 3 percent of the UK's GDP (one-fourth of which was exported). Some estimates put this figure slightly higher, at 225,000 for UK MoD contracts, 120,000 for defense exports (a total of 345,000), and an additional 170,000 indirectly involved in defense activities [Trevor Taylor and Keith Hayward, The UK Defense Industrial Base-- Development and Future Policy Options, 1989). Keith Hartley et al, 'The Economics of UK Defense Policy in the 1990.," RUSI Journal, Summer 1990, gave the figure as 340,000 direct, 280,000 indirect for 1987-1988. The UK Trades Union Congress put the figure at 1 million.

By 2010 the UK defence industry represented ten percent of UK manufacturing, was number one in Europe and second only to the US globally, employing over 300,000 people and generating over 35 billion per year to the UK economy. The industry also worked hand-in-hand with the UK Armed Forces from factory to frontline, for example over 4,000 industry personnel were working with British troops in Afghanistan.

Each year defence exports provide on average 5bn to the UK economy and it is the largest overseas supplier of defence equipment to the United States. The demand from overseas for British-made equipment - from fast jets to helicopters and electronic systems to personal kit for individual troops - is high because of its quality and provenance. Its use by UK forces in recent campaigns also provides confidence to export customers. Defence exports offer the UK a route out of recession and excellent returns on initial investment.

The UK had a 21 percent share of the defence export market in the five years from 2005 to 2010, and defence exports support 65,000 UK jobs. Defence in the UK was responsible for 40 per cent of defence R&D in Europe and contributed 12bn in value added to the UK economy in 2008 - up 15 per cent since 2006. The defence industry in the UK submitted more than twice the number of patents applications compared to the pharmaceutical sector between 2007-10.

The major challenges for the industry are: To work closely with the Government on the Strategic Defence Review; To assist with the reform of the procurement process; To encourage the reversal of a decline in research and technology spending; and To increase the exportability of UK equipment and services.

The UK fosters open competition policies that seek the best defense equipment for the best value. As such, the UK's defense procurement policy seeks best value for money, which usually means taking a commercial approach to procurement by using competition. Competition is the cornerstone of the Ministry of Defense (MOD) policy. In accordance with its open competition policy, the MOD will acquire defense equipment from foreign sources when the advantages of cost, performance, and delivery schedule outweigh the benefits of buying the British alternative. The United States is the major supplier of defense imports to the UK. The main factors contributing to the U.S. success are the uniqueness and technical sophistication of the U.S. defense systems, industrial participation offered to local U.S. companies, and/or no domestically developed product in the competition. However, the UK Government tends to choose a domestically developed product when one exists. In some cases, these products contain significant U.S. content. International competition has intensified and as well as existing aerospace economies there are a growing number of emerging markets seeking their own aerospace capabilities. Therefore, successful companies are faced with a wider range of investment locations. The industry is more internationally mobile. If the UK is to remain and prosper as a location for these activities and the intellectual property associated with them, it is essential that the Government ensures the framework of support it provides is globally competitive. Failure to do so will result in an increasing proportion of jobs and high-value R&D, with all the everyday life benefits that spin-off from it - such as satellite navigation for example - being taken out of the UK.



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