According to Jane’s Defence Industry and Budgets team, after three years of steady growth since 2014, both total defence budgets, and, critically, investment budgets are expected to return to 2010 highs in 2018-2019. The increase in spending creates opportunities for new and emerging suppliers to occupy increasingly prosperous and important places in the defence value chain. Taking advantage of these opportunities and creating a sustainable defence industry will require innovative thinking and new approaches by both government and industry as the global defence industry copes with several technological, competitive and market shifts.
Innovation in and development, proliferation, and clever use of 4IR technologies has the potential to rapidly transform end-user capability requirements and shatter assumptions about the types of business and research and development models that will enable sustainable commercial success. Companies will need to be agile in creating new capabilities, research and development approaches, and value propositions that help defence and security users deal with a growing set of disparate threats and challenges. They also will need additional models for engaging with government end-users and ensuring that development efforts are closely aligned with existing and future needs, which are likely to change rapidly in a complex and uncertain strategic and operating environment.
A focus on innovation in emerging technologies will also have the effect of bringing the traditional defence industry into closer and more frequent contact with non-traditional defence companies, particularly those with highly-focused and niche expertise in critical technologies of interest, and SMEs. This interaction is already expanding concepts of what constitutes the defence industry and can serve as one means of generating the necessary new value propositions. Government entities have a role to play in encouraging this interaction and creating an environment in which both traditional and adjacent industry actors are incentivized to collaborate and partner in support of defence and security high-tech requirements.
But perhaps the most important means of ensuring a sustainable defence industrial base in emerging defence markets is for local industry to continue to partner with foreign suppliers in meeting domestic requirements.
Offset and co-development and co-production programs are increasingly enabling domestic industry access to new technology and know-how, which will help sustain further industry development. The result to date has been that more firms from outside the cadre of established defence suppliers have gained a valuable foothold in the global defence industry value and supply chains, opening up new opportunities for export revenues and, potentially, sustainable prosperity.
Two key caveats. First, as more companies play a more prominent role in the supply of equipment to shape stability and security, market competition has grown more intense. And this competition is testing the sustainability of fledgling defence industrial bases, placing a premium on longer-term partnerships, effective use of government policy tools (see the discussion on offsets below), and cultivation of robust and resilient competitive discriminators.
Second, the combination of geopolitical transition and resulting competition with the dual-utilization of the global technology development environment has catalyzed greatly enhanced interest in controlling the diffusion of potentially disruptive technologies. States and companies certainly cannot be faulted for taking aggressive measures to protect commercially and strategically sensitive technologies. Still, the cascading effect of the implementation of the most aggressive of these measures could reduce the ability of some suppliers to share key technologies, even if doing so means making these companies less competitive in the hyper-competitive global defence market. Such an outcome may well generate shifting relationships involving less established industry firms in order to ensure a sustainable and prosperous future.
The most prominent mechanism for ensuring these partnerships and the technology transfer that comes with them is offset programs. Over 80 countries throughout the world have some form of industrial cooperation programs that enable export market governments to offset procurement expenditures by securing investments and technology transfer from foreign suppliers as well as participation of local industry in contract delivery.
The offset environment is not static, of course, and there have been notable changes in offset priorities and executions as programs have grown more sophisticated and established over time. While various national programs have varying priorities, generally programs are centering on higher-value procurements with the objective of building, sometimes incrementally, a sustainable defence industrial base over the long-term, rather than short-term gains.
For many states, the long-term focus also means an accompanying focus on creating more benefit for small and medium enterprises through offsets in order to develop depth of technical prowess, leverage niche expertise, and expand economic benefits emanating from offset to a broader section of local economies
As the importance and sophistication of offset programs grow, they have also become a critical discriminator in a highly-competitive marketplace. The ability of foreign suppliers to design and articulate creative offset programs that maximize benefit for local industry and economies can help determine the outcome of procurement competitions in a material way. And here creativity can be key. Some offset programs have begun to harden lines between commercial and military programs, but opportunities persist for companies to use the full suite of their corporate capabilities to create offsets that can benefit elements of an export market’s economy outside of the defence sector through training, partnership, and transfer of dual – use technologies.
Uncertainty and complexity in global security is driven by the rising prominence and intersection of a series of powerful forces, the effects of which are likely to expand the threat spectrum and amplify, rather than diminish, challenges to security, stability, and prosperity over time.
The return and intensification of geopolitical and military-technological competition in the Middle East, Eastern Mediterranean, Eastern Europe and Indo-Pacific is creating an environment vulnerable to rapid disruptive shifts and potentially, escalation and miscalculation rooted in broader competitive dynamics and priorities.
Technological innovation and development is an important component of many of these competitions as actors seek to gain advantage in critical competitions, such as missile versus missile defense. But the current dual-utilization of the defence innovation environment and growing military demand for commercial technologies means that it is becoming more difficult to understand who has what capabilities, how these capabilities might be used, and where military and competitive balances and asymmetries lie.
Most notably, the emergence and diffusion of new technologies to non-state actors and individuals will create extremely difficult to anticipate and track new threats and challenges. Relatively simple and commercially available technologies are being used to create risks for military and security operations. Take for example, U.S. claims in May and June of 2018 that China has used directed energy weapons to blind and injure pilots and crew of U.S. military aircraft flying over Djibouti and the Western Pacific respectively.
Cyber capabilities, in particular, have been effectively implemented not just for espionage, technology theft, and holding at risk key competitor or adversary assets and infrastructure, but also to amplify political, cultural, and societal fissures in ways that are difficult to detect and respond to and can be highly-destabilizing.
Ultimately, the development of 4IR technologies is also likely to create “winners” and “losers” both within states and societies and among nations. Such disparities will amplify competitive tensions and create destabilizing polarities, potentially undermining stability and security at a national, regional and global level. The potential for successful and scaled AI development being the providence of only the U.S. and China (and maybe Russia) has profound implications for the future of global geopolitics and alignments, potentially creating an unstable tiered system in which close allies and partners of these states are granted access to transformative AI products while other states lag behind in reaping the economic, health, and governance benefits of AI.
Demographic trends are also shaping a challenging future security environment, particularly a growing trend toward urbanization that has created complicated, bustling mega-cities in which maintaining security and stability will require new capabilities and operational concepts.
This security environment—marked by competition, the diffusion of the power to disrupt to more actors, uncertainty over the nature of others’ capabilities—is one in which defence and security communities are and will be exceptionally vulnerable too difficult to discern and anticipate disruptions and to strategic and operational surprise.
And here again, innovation first and foremost in technology, but also collaboration techniques, government policies, organizational structures, and operational concepts are critical to helping mitigate the risks of endemic surprise. By facilitating the enhancements discussed above—in intelligence, performance, manufacturing, and C4ISTAR and strike– innovation across these areas will also help defence and security communities better anticipate, respond to, survive, and even deter and dissuade disruptive and destabilizing challenges.
Of all the technologies associated with the Fourth Industrial Revolution, artificial intelligence has garnered the most attention as having the most revolutionary potential for the future of military, security, and intelligence-related capabilities. As Russian President Vladimir Putin noted on a 2 September 2017 speech to students in Russia, “whoever becomes the leader in this sphere will become the ruler of the world.”
Most discussions of future military uses of AI typically focus on applications or mission areas, such as enhancing the capacity to better collect (through facial, voice, and emotional recognition), manage and process information and intelligence; affect the nature of the cyber competition; and, increasingly, to monitor populations and assess individuals’ “social credit”, similar to the system currently being developed and deployed in China.
However, the most commonly discussed areas of impact for AI in the military context revolve around the future of weapons systems, particularly the development of drone swarms and autonomous weapons.
The combination of development of AI and the rapid proliferation of unmanned technologies will enable the use of unmanned swarms consisting of dozens or more (potentially hundreds) of linked unmanned systems, operating across domains: air, ground, sea surface and undersea. Humans will likely provide the broad parameters of the mission these swarms carry out, but the swarm will have the capacity to cognitively adapt to adversary counter-measures and a changing operational environment. The concepts and technology behind drone swarms is maturing and is already being tested by China and the United States. In late May 2018, China’s Yunzhou Intelligence Technology performed a swarming demonstration of 56 unmanned surface vehicles, showing that progress in swarming technologies is not limited to unmanned aerial systems.
AI will also enhance the ability of individual weapon systems to operate with autonomy and agility on the battlefield. AI has the potential to increase the cognitive capability behind weapons systems, allowing them to respond to dynamic and complex environments and increasing the range of situations the weapon system can respond to.
Effective development of AI applications that can support these functions offers promise for emerging and established defence industry providers. AI programs are being considered and pursued in nearly every component of military activity, meaning that demand for a diverse set of applications and for technically competent firms that can provide effective AI is likely to be strong and durable.
However, there are also risks associated with AI development efforts and, especially, governance of the technology as it is applied to address a broader range of military and security challenges. Strong and understandable ethical concerns surrounding autonomous (and, in some quarters, even semi-autonomous) weapons systems and overly intrusive surveillance systems that rely on AI have already emerged and are being discussed. There is also a persistent worry that AI will diffuse to actors that will use the technologies maliciously through cyber-attacks and to support destabilizing influence operations.
Moreover, the parameters of the competitive environment in this emerging market is still uncertain. Referenced above, a small group of states—led by the United States and China—are moving fast and far down the road of militarization of AI technologies, opening up the possibility of the formation of a small number of competing centres of gravity in military and security AI development around which other states will align. Alternatively, the possibility of wider proliferation of AI technologies through commercial and applied research channels as well as defence industry partnerships could create a more diffuse and competitive market environment.
Getting ahead of and balancing these competitive, technological, and even ethical risks will be central to industry and government efforts to harness this disruptive technology in support of ensure future security and prosperity.