The $600 billion market for military weapons, sensor systems, and platformsBlog
April 27, 2023
WARFARE EVOLUTION BLOG. As previously promised, we are fearlessly embarking upon a challenging project here, to integrate the demand-side and supply-side data about the world military markets. The best method to attack this problem is from the top-down. Going from the bottom-up would create debilitating confusion, misconceptions, and illusions.
We need a model, that can give us a macro-view of the military markets, and that model is TAM-SAM-SOM. TAM (total available market) is the demand for military equipment and weapons in a geographic area. SAM (serviceable available market) is the subset of the TAM for military platforms that countries might buy rather than build internally. And SOM (serviceable obtainable market) is the subset of the SAM that military contractors in a certain country might attain. These are a mix of demand-side and supply-side numbers. Demand-side numbers are the sum of the military equipment countries have bought internally and imported. Supply-side numbers are what military contractors report they have shipped, and those two numbers never cancel-out to zero because of the way things are counted….and because the weapons built in one country (Iran) and smuggled into another country (Yemen) are not counted for obvious reasons.Before we get started, a couple of caveats are in order. I’m going to throw a lot of numbers around in this article: dollar amounts and percentages. Pay attention to the percentages, which are more reliable. The dollar amounts tend to be untrustworthy, as you will see below. Secondly, I am going to use the three best market reports available in this essay. On the demand-side, I will use the latest SIPRI Report (Stockholm International Peace Research Institute), released in March. This is where the confusion begins. The Defense of Department (DoD) says the U.S. shipped about $52 billion in military platforms to other nations in 2022. The Department of State (DoS) says the U.S. sold $205.6 billion. SIPRI follows the DoD numbers and says the U.S. shipped about $52 billion. The difference is (1) the DoS counts what has been ordered along with what has been shipped, and (2) the DoS counts services sold to other nations (like intelligence information, training, spare parts, access to satellite data, etc), along with other non-weapon items. SIPRI and the DoD just count weapons platforms that shipped in 2022. The logic behind the DoD and SIPRI counting method is that countries cannot fire a weapon that has not been built and shipped to them.
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On the supply-side, we will use the Top 100 Defense Company Report from 2022 (for shipments in 2021). The 2023 Top 100 (reporting shipments in 2022) won’t be published until early summer. We’ll integrate that when it is released. And finally, we will use the 2021 military-spending-to-gdp-ratios of the countries from several websites, to validate some of the demand-side data and detect trends. The 2022 data for all the countries has not been published, so we’ll have to live with the 2021 numbers for now. Let’s start breaking down the end markets for military weapons and sensor system platforms geographically, from the demand-side. There are 195 countries in the world today (depending on which African nation splits in half before you read this). Also, Taiwan is still considered part of China by the United Nations (UN), so it is not included in the 195 number. Neither are the Cook Islands, Niue, Palestine, or the Vatican. According to the CIA World Factbook, only 156 nations have a military arm, and there are 39 nations that have no military forces at all. There are 44 countries in the world that are landlocked (no access to an ocean), but 16 of them have brown-water navies. They use small boats with machine guns mounted on the decks, to patrol their shallow rivers and lakes. There are 5 countries that have no airport. These countries don’t buy big ships or airplanes (respectively). That gives you a general idea of the worldwide TAM area for weapons, sensors, and platforms. The U.S. sold military equipment ($52 billion) to about 100 nations in 2022, and that’s the geographical export SAM for U.S.-made weapons and platforms. We’ll break that down further as we proceed. When you study the Top 100 Defense Contractors list, you are looking at the SOM. According to SIPRI, the 156 countries mentioned above spent $2.1 trillion, about 1.87% of world GDP, on their military in 2022 (the total worldwide military market TAM), growing 0.7% over 2021 expenditures. That includes socks, belts, bullets, blankets, bombs, uniforms, boots, food, fuel, weapons, planes, ships, and everything that it takes to keep a military going. The worldwide TAM for military weapons, sensors, and platforms was about $600 billion in 2021, 29% of total worldwide military spending (600B/2.1T=0.286). The worldwide export market for sensors, weapons, and military platforms in 2022 was about $130 billion (the worldwide export SAM). That’s about 22% (130B/600B=0.217) of the worldwide market for military weapons, sensors, and platforms. The rest were built and consumed internally. The top five exporters of weapons were the U.S. (40%), Russia (16%), France (11%), China (5.2%), and Germany (4.2%). These five shipped 76% of all weapons exported in 2022, so the export market is very concentrated. These numbers fit closely to the Pareto Principle, that 80% of the weapons exported are shipped by 20% of the countries. The U.S. and France increased their weapons exports while Russia, China, and Germany’s exports fell in 2022. The top three customers for U.S. weapons were Saudi Arabia, Japan, and Australia. For Russia, it was Belarus, Kazakhstan, and China. For France, their top customers were India, Qatar, and Egypt. For China, their top customers were Pakistan, Bangladesh, and Myanmar. For Germany, it was Egypt, U.S., and the Netherlands. The top five importers of military weapons in 2022 were India (11%), Saudi Arabia (9.6%), Qatar (6.4%), Australia (4.7%), and China (4.6%). These five countries received just 36.3% of all weapons imported, so the import demand (the import SAM) for weapons is diversified. In late 2022 or early 2023, Ukraine became the third largest importer of weapons replacing Qatar, due to the war with Russia. European nation imports of weapons have risen sharply in the past year (to defend against Russia). Japan, Australia, and South Korea increased their imports of weapons significantly too (to defend against China). So, as you can see, Saudi Arabia and Qatar are deterring Iran, India is arming-up against China, and the European Union (EU) countries are deterring Russia. Japan, Australia, and South Korea are arming-up against China. That’s a cursory geographical macro-level view of the military market from the demand-side. You can dig much deeper into this topic on the SIPRI website. We’ll break this down further when we integrate the military budgets of the major countries in a future article. That will give us a better perspective of the SAM. Now, let’s look at the supply-side through the eyes of the Top 100 Defense Company list (covering military platform shipments in 2021, since the 2022 numbers won’t be published until early this summer). Only 25 countries had a dedicated defense contractor with enough sales to make it on the list. The top four countries (with the number of local defense contractors that made the list) were the U.S. (46), the United Kingdom (U.K.) (8), China (7), and France (5). And there were four countries with three military contractors each that tied for the fifth position (Germany, South Korea, Israel, and Turkey). Five countries had two military contractors each (Japan, India, Norway, Italy, and Spain). The rest (12 countries) had one military contractor each on the list. The smallest (#100) defense company was Embraer in Brazil, and they shipped $594 million worth of unarmed military cargo planes and light attack planes in 2021. Russia had one defense company on the list, #36, their Tactical Missiles Corporation. This is where we get the $600 Billion number, the worldwide TAM for weapons, sensors, and platforms (from the supply-side). If we look at this data by region, North America has 47 major defense contractors, Europe has 27, and the Pacific nations have five (excluding China). It’s clear that European and Pacific nations don’t have the technology or the military-industrial infrastructure to manufacture advanced weapons and sensor systems in volume. So, they must buy those weapons and systems from the defense companies in North America, until they can develop their own technologies and increase their manufacturing capacity. It’s obvious that Russia’s defense industry is focusing on supplying weapons to their troops in Ukraine, so their weapons exports will drop more in the 2022 and 2023 reports. India is moving away from Russia toward building their own weapons internally, or buying them from the U.S., Europe, and South Korea. China is also more focused on manufacturing weapons for internal consumption than for export. That's another reason why weapons exports by the U.S. and France have increased. Another way to view the demand-side data is to look at the military-spending-to-GDP-ratio for all the countries in the world. The Global Economy website has the 2021 numbers for 145 countries. Seven countries, mostly in the Middle East, spent more that 5% of their GDP on defense in 2021. Oman was at the top of the list, spending 7.34%. The 2022 numbers, when calculated and released, should validate the shift in military spending to the European and Pacific regions. According to the DoS, North Korea is spending about 26% of their GDP on weapons and defense. They spend about $4 billion per year, the same amount as the cost of one Zumwalt destroyer for the U.S. Navy. From the preliminary data available, the U.S. spent 3.1% of its GDP on defense in 2022, China spent 1.7%, and Russia spent over 5%, driven by the war in Ukraine. So, there’s the basic picture of the military markets, from the best numbers I could find: the worldwide total military TAM from the demand-side ($2.1 trillion in 2022), the worldwide weapons and platform TAM from the supply-side (about $600 billion in 2021), the import SAM from the demand-side ($130 billion in 2022), the military SOM from the supply-side (where the top 100 military contractors are located and what they shipped in 2021), and the military-spending-to-GDP-ratios for the countries from the demand-side (in 2021). We had to use a mix of 2021 and 2022 numbers, since we are out of phase with the reports, but the percentages should be fairly stable. We’ll need to update things when the 2022 Top 100 list comes out, and the 2022 MS/GDP ratios are calculated later this summer. In the meantime, I suggest that you familiarize yourself with the three reports I have used here. They are all on the web. So, let me leave you with this final thought. This research is not perfect. If the Pareto Principle holds true, then I found all the elephants in this jungle of numbers. But, I probably missed a few mice here and there. Next time, we’ll start diving into the weapons and sensor systems being built and shipped. That means we need to look at the market through the eyes of the platforms: satellites, ground combat vehicles (and tanks), aircraft, missiles, artillery, drones, radar, sonar, communications radios, submarines, and ships. We’ll start with the largest volume segment of military platforms: ground vehicles. The Army, Navy, Marines, and Air Force operate more than 330,000 wheeled and tracked vehicles according to web sources. Comparatively, the U.S. Postal Service has about 235,000 vehicles. In the interest of full disclosure, I did not use ChatGPT or any other artifical intelligence (AI) algorithm to write this article. I did ask ChatGPT-4 to write an article on the 2022 world military budgets, but it’s only trained on data up through 2021 so it respectfully declined my request. ChatGPT-5 is due to be released later this year, and they are furiously training that model on more recent data sets. If that version can integrate the SIPRI Report, the Top 100 Defense Company list, the MS/GDP ratios of countries, and the military budgets of all the countries in the world, then I could be out of a job.