The New Rules of Defence Competitiveness

Preparing for war is difficult, especially for a society that values its citizens more than martial power. It essentially requires governments to divert resources away from everyday facilities and into tanks, ships, planes and ammunition.

Before the second world war, Germany spent one-sixth of its gross national product on rearmament. According to the US War Production Board in 1946, Germany spent the equivalent of $2.4 billion on munitions between 1935 and 1939. The US and UK spent a combined $800 million. Germany was preparing for war; the UK and US hoped to avoid it.

Looking at the present day, the world is arguably more fractured than ever. Recent conflicts between the US, Israel and Iran have disrupted Middle Eastern trade and burdened Gulf state defence forces. Russia’s war in Ukraine has dragged Europe reluctantly into rearmament, while US preparations to defend Taiwan have led to a surge of procurements, including $90 billion in framework agreements with Lockheed Martin for THAAD and PAC-3 MSE interceptors.

This creates a difficult dynamic: war is a real and imminent threat, but public spending is high and lead times for key munitions are dangerously long. The result is a drive for domestic production capabilities, despite potential long-term consequences.

Global defence spending increased by 9.4% in 2024 to $2.7 trillion and rose further to $2.9 trillion in 2025, according to the Stockholm International Peace Research Institute. However, this funding consistently hits bottlenecks: advanced capabilities like air defence, naval vessels and cruise missiles often come from abroad. Few companies have produced these systems over the past 30 years, slowing procurement. Germany’s Rheinmetall, for example, recently reported an €80 billion backlog, up from €24.5 billion in 2021.

Two factors are at play: first, escalating global threats suggest less hesitation around the use of force in the future. Second, procuring materials for defence is expensive and slow, and forces dependence upon external powers. These pressures are driving countries to rethink their domestic defence capacity.

The US military relies on a handful of companies for core capabilities including Tomahawk and Joint Air-to-Surface Standoff Missile (JASSM) systems. Consequently, framework contracts have been placed with Lockheed Martin, Northrop Grumman and Raytheon to increase production, while new companies like Anduril and Castelion add further capabilities to the US arsenal. Export demand for missiles like the PAC-3 helps offset US production investments and lower unit costs. However, many countries cannot afford to wait in line for US systems and are now investing in their own production capacity or turning to other suppliers.

Established primes like MBDA, Kongsberg and Rafael Advanced Defense Systems have stepped in, with Kongsberg’s Joint Strike Missile growing from two users in 2021 to six today. Simultaneously, challengers are offering alternatives to the established primes. The UK’s Cambridge Aerospace closed a £300 million funding round following contracts for its Skyhammer interceptor, while Rotron Aerospace is developing SkyLance, a ‘low-cost effector’ supported by the UK Ministry of Defence’s Project BRAKESTOP.

The industrial landscape has seen even starker diversification in artillery ammunition. Outside Europe, some countries established domestic capabilities long before the Ukraine war: the UAE announced an ammunition plant in 2007, and Saudi Arabia launched a mortar and howitzer factory in 2016.