Page 83 - Five Forces of Americanisation Richard Hooke 04072025 final post SDR1

The UK Defence Industry in the 21 Century
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The Five Forces of Americanisation

Implications for UK contractors

UK contractors recognise the importance of exports and, in particular, the value of developing
business in America. They will watch the development of US defence and trade policy carefully as well
as its impact on the world’s capital markets, particularly in London and New York. It will be important
not only to consider where best to raise finance in the short and long term but also how best to
manage exposure to fluctuations in currency values, notably between sterling and the US dollar.
Increased military spending is clearly on the global agenda, so developing access to multiple export
markets remains a priority. This implies a close relationship between the company and its host,
exporting, government, ensuring the alignment of policy and compliance with domestic and relevant
government regulations. It cannot be assumed that all of the company’s “home” markets are in
alignment: for example, unlike the UK and western Europe, the USA was not a signatory to UN
regulations regarding the production, supply and use of cluster munitions. (The reason was the
breadth of the selected UN definition of such weapons, which the US military thought would rule out
its use of what it considered to be “defensive aids”, putting its soldiers at risk in combat in Iraq and
Afghanistan. Similar issues have arisen regarding compliance with the UN Protocol on Explosive
Remnants of War.)
Similarly, national technology or intellectual property (“IP”) transfer rules will vary across a company’s
domestic and overseas locations. This will affect the capability to move or integrate work on both
original equipment as well as in the maintenance, repair or upgrade of existing equipment across the
company’s sites in different countries.

The complexities of running a transnational defence business have been further heightened by the
volatility in the terms of international trade caused by the US government’s imposition of increased
tariffs on a wide range of materials, products and services. Even so, the US remains the world’s largest
market and will continue to be a major influence in the arms trade for the foreseeable future, even as
the EU and other international alliances invest in developing defence and security capabilities without
the need for US involvement.
Three issues for UK contractors are therefore especially noteworthy:

1. Financing and locating the business
Maximising both financial and non-financial benefits of the home market … or markets.

British companies may find themselves in an unusually strong position, operating between the USA
and the United Kingdom. Both countries are among the world’s top spenders and both will
continue to increase their expenditure on defence and security.

UK procurement policy seems likely to present a more favourable financing environment through
contractual arrangements offering greater long-term visibility, greater clarity in terms of risk and
reward and partnering arrangements suggesting improved R&T planning and investment over the
medium to long term. However, the appetite for defence among lenders and equity investors in
London reportedly remains ambiguous.

Having commented on the relatively small percentage of UK pension fund investment committed
to UK public companies, in its Outlook for 2025 Goldman Sachs forecast that

“as economies adjust, private markets and other alternative assets continue to
evolve and attract a broader base of investors seeking to complement their
traditional market exposures. We see a diverse opportunity set across private
equity, private credit, real estate, infrastructure and hedge funds.” (“Asset
Management 2025 Outlook: Reasons to Recalibrate – Exploring Alternative Paths”
Goldman Sachs, November, 2024)

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07/07/2025 Richard Hooke 2025