The Defence Industry is Changing. It’s Time Our Investing Strategies Changed as Well.
The relationship between the American defense industry and government has long been one of great importance. As the world’s pre-eminent power, the United States military has always served as a police force of sorts, fueled and powered by the world’s largest defense budget, most of which is allocated toward defense contracting. This industry, in turn, has helped mass produce machines and weapons that puts America at the forefront of military technology and innovation, guiding the U.S military in its campaigns the world over. This has largely been the image most American people see when looking at companies like Lockheed Martin, Northrop Grumman, Boeing, Raytheon, and 3M; large budgets and governmental backing pushing the American military forward into a new, modern form of warfare.
This notion, however, is quite far from the truth. Innovation and deployment of new technologies in the American military takes longer now than it took four decades ago at the height of the Cold War. The American military now takes longer than it took three decades ago to replenish forces, weapons, aircraft, and ships. The United States has gone from over fifty successful defense contractors to just five major ones in thirty years. This is as nations like China and Russia seek to undermine the United States militarily worldwide, with the former especially developing their navy at a breakneck pace in order to establish supremacy over the South China Sea region.
The military-industrial complex will continue to evolve over the course of the next decade, as will the role the government plays in regulating and maintaining defense budgets. It must if the United States is to maintain its position as the leading superpower on the global stage. With certain trends and forecasts in the defense sector in mind, it is possible to predict the direction in which the industry is going, so that informed investing strategies in the field may change.
Firstly, the role of start-ups and newer initiatives in the growth of defense cannot be ignored. With fewer competitors vying for many government contracts, it is impossible to foster the competition necessary for meaningful progress. Additionally, with a limited number of competitors, costs for technological developments will continue to rise in a finite field. Only with an increased number of contractors can both these problems be mitigated, which may be provided by start-ups with novel initiatives that seek to rapidly redefine military action in terms of technology as opposed to the slower current developments by the status-quo. There are over 340 start-ups that focus on this sector in particular, many of which have already started getting high-profile investments. Furthermore, the growth of IoT (Internet of Things) in the defense industry alone is projected to be 12.2% per year when compared to the overall growth, projected at 0.67% per year. Both these metrics speak volumes about the direction in which defense is headed in terms of novel developments and initiatives writ-large.
Secondly, the role of artificial intelligence and robotics systems within cannot be underestimated. Artificial intelligence gives the military the ability to remotely control weapons and determine strategy without the liabilities of human error. Start-ups like Rebellion defense and Dedrone are currently working on this issue, supported by investments from Axon and Innovation Endeavors. Though the field still needs much development and is in its infancy, a key sector for development for militaries in the future will be artificial intelligence systems that are integrated within the fabric of the military as a whole. Robotics systems pose similar benefits, as they allow for easier transportation by lowering the loads on individual troops so they can move further faster and with more flexibility. Robotics powered by artificial intelligence systems has also been a fixture of study within military technology; start-ups such as Andruil are currently working on this field, with investments from Andressen Horowitz and other companies.
Finally, it is worth noting that significant investment is still needed in order for these ventures to succeed. At the current rate of investment, a majority of these start-ups are still a few years and millions of dollars away from successfully bringing their products to market. However, the alternative, a continuation of current circumstances, poses a reality wherein decreased competition coupled with increased spending puts the United States years behind international competition. Thus, with the changing landscape of the defense industry, it is best to keep investment strategies up to par.
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