Military spending in the United States and Europe has witnessed a downturn, causing a cascading effect on revenues in this sector. Only a select few players in the defense R&D, contracting, and manufacturing sector have reported consistent revenue growth in the years following the global recession of 2008. Despite this, there is mounting pressure on every major economy to introduce advanced warfare methods and invest in emerging technologies such as unmanned vehicles and systems, nuclear-power-enabled systems, and cyber security systems. Most conventional weaponry and warfare tactics are being phased out in favor of their modern counterparts.
There have been several other factors exerting an influence on the defense market. These include curtailment of defense budgets in view of the uncertain global economic situation, low returns on investment, and cost pressures. Taking these factors into view, companies operating in the defense arena will be compelled to take measures to mitigate the effects of declining revenues. These measures would broadly include strategic mergers, acquisitions and consolidations, venturing into high-growth-potential markets, and streamlining cost structures.
However, while the U.S. and European markets witnessed cuts in their defense budget, growing markets such as China, India, and Brazil show promising growth potential. In this backdrop, players in the defense segment will be required to move out of their conventional areas of business and take new risks in hitherto unexplored arenas.
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