Geopolitical Volatility, Defense Budgets and Choices: What Ways Ahead?

The conflicts of 2023 have impacted and caused major disruptions to military supply chains, leading to the inventories and resources of some military forces being drained and inadequate to combat hostile forces. It comes as no surprise that in 2024 defense budgets across the globe are set to increase—witness the UK defense budget set to increase by £5 billion and the U.S. defense budget which is set to increase by 3.2% from $816 billion in 2023 to $842 billion in 2024.

As a result of this, the global defense market is expected to grow significantly, with a lot of the budget set to be focused on increasing production to help military forces regain control.

The Deliotte report on supply chain risk management identifies the real conundrum underlying the increase in defense budget on the manufacturing sector too: “As most A&D suppliers are highly specialized with unique expertise and complex equipment, they struggle to make quick changes to production in response to varying demands.

The challenge is accentuated as many suppliers serve both commercial aerospace and defense. Any spillover risk from commercial aerospace could leave defense OEMs vulnerable to sourcing critical parts for their programs and platforms.” With rising budgets and increased procurement set to dominate the defense agenda throughout 2024—these are the four key areas I see large portions of these increased budgets being spent on.

Prediction 1: The widening spectrum of conflict calls for military forces to improve Total Asset Readiness®

The last 12 months have given rise to a wider spectrum of conflict. The combat between Ukraine and Russia shows symmetric features, as its between traditional Air, Military, and Naval forces on both sides trying to achieve dominance and territory.

On the other end of the spectrum, a more modern asymmetric style of combat can be seen in the Israel and Hamas conflict which features combatants that are not typically a part of military forces of nation-state.

The difference in features of the warfare has called for defense ministries and departments to better prepare for a broader spectrum of eventualities—from natural disasters to full scale theatre warfare. As well as a broad spectrum of military deployments ranging from high to low tech—tanks, boats, and boots on the group versus parasailing and jet skis, remote locations versus heavily populated areas with schools and hospitals.

As highlighted in a recent Global Security Review essay which paints a picture of the new challenges defense forces face, and advocates for an agile approach to be taken towards The Changing Face of Conflict: “The agile approach to hybrid warfare offers a promising framework for responding to these complex and evolving threats. It emphasizes flexibility, adaptability, and rapid decision-making and incorporates the impact of technological developments on warfare.”

This will even apply to the software infrastructure underpinning the military equipment supply chain, where disparate reporting mechanisms and software systems can be consolidated with an all-encompassing solution to track Total Asset Readiness—giving commanders a clear real-time view of the assets at their disposal, in the context of the mission they need to complete, wherever and whenever they are deployed.

From this we expect to see an 16.3% increase in total defense spending in the U.S. alone, with the IT spend in defense contractors rising from 3% of revenue up to around 5% of revenue as they invest heavily in AI and automation to help pursue optimized asset management and other technology-driven priorities.

Prediction 2: Recent conflicts highlight the lack of assets and inventories ‘at the ready’ – defense industrial bases must change

A radical re-think is required for Total Asset Readiness, as the conflict between Ukraine and Russia has highlighted the lack of assets, ammunition, vehicles, and inventories available to military forces in combat.

This comes despite the mass investments made in ammunition and inventories by supporting countries. Current defense industrial bases (DIB) do not have the facilities to match the increase in recent demand as production rates were set up on non-large scale conflict replenishment. DIB expansion has never been so important!

This has been recognized by defense forces as for the first time ever the DoD is set to release a defense industrial base policy in late 2023. The policy outlines four key focus areas: building a resilient supply chain, improving workforce readiness, increasing flexible acquisitions, and economic deterrence. The U.S. is not alone here. The UK military has also refreshed its defense strategy as it will reallocate £2.5billion to bolster the ammunition stockpiles as it aims to increase military power and agility.

New manufacturing principles are likely to play a key role. The U.S. Army is already looking at logistics and readiness as the service examines more opportunities to boost those operations by using advanced manufacturing technologies such as Additive Manufacturing and 3D printing technology to improve and sustain readiness as highlighted in a recent Janes report.

As we move forward in response to the U.S. DoD policy focusing on building a resilient supply chain, improving workforce readiness, increasing flexible acquisitions, and economic deterrence – I expect significant flow down requirements to begin quickly appearing in over 50% of all new defense contracts, as well as allied nations following suit with their own similar directives, requiring DIB organizations to transparently demonstrate supply chain resilience for not only themselves, but their suppliers as well.

Due to the current munitions shortages with allies supporting ongoing global conflicts, that number will approach 100% for munitions suppliers.

Prediction 3: The rise in low-cost ‘swarm’ drones as the use of autonomous vehicles adapts to 2024 land, sea, and air requirements

As evidenced by recent conflicts, drones will continue step up to the military plate and they are not alone, but in swarms. Drones can be produced quickly, cheaply and have a range of features ranging from carrying out surveillance missions in previously to dangerous areas to even carrying out light attack missions without putting warfighters at risk.

As a result, they are becoming more prominent in military fleets and adoption rates are rising.

Drones are also hugely desirable for defense forces as they can be deployed on air, land, and sea making them very versatile. Enter the drone carriers, such as the Royal Navy’s HMS Prince of Wales, which they aim to house drones on to be able to transfer assets and supplies to and from vessels without requiring any manned vehicles.

As an even cheaper alternative some nations such as Turkey with their TCG Anodolu vessel and Iran with two old merchant container ships are converting previously manned vessels into drone carrying vessels.

The U.S. DoD is also seeing the benefit of swarm drones, as seen when the Deputy Secretary of Defense Kathleen Hicks announced the ‘Replicator’ initiative at the 2023 Defense News Conference. The initiative aims to quickly build and field swarms of low-cost air, land, and sea drones or All-Domain Attributable autonomy (ADA2) that are able to swarm hostile forces.

The DoD aims to have these ready for deployment in the next 18-24 months. These ADA2 assets will help military forces overcome and overwhelm threats that are posed by large assets hosted by enemy forces, the drones will use Artificial Intelligence to autonomously “swarm” enemy forces.

Effective equipment alternatives such as a drones will be the way forward in 2024 as military powers seek to keep costs low and maximize budgets – while reimagining the concept of mass in the sea/air/land battlespace.

Prediction 4: The AI boom forces cybersecurity to up its game

The increase in use of autonomous vehicles and digital technologies comes with heightened vulnerabilities to cyberattacks across the military supply chain. As seen in a Deloitte report “National security concerns elevate the importance of data security for defense manufacturers. They share and exchange covered defense information (CDI) and controlled unclassified information (CUI) on program specifications, technology, and equipment performance as they collaborate across research, design, development, and deployment of defense products.”

The flip side of the AI boom has brought its own cyber threats, with AI-enabled hackers. AI has allowed for hackers to carry out cyberattacks at much larger scales, quicker with increase anonymity. AI accelerates malware and changing codes making it harder for threats to be detected.

We must fight AI with AI. An AI-enabled defense can enable cybersecurity to stay one step ahead of hackers. Machine Learning (ML) technologies can be implemented by defense forces to boost threat detection accuracy and quickly automate responses to cyberattacks.

It is more important than ever for all organizations connected to the military supply chain to have penetration tested underlying cybersecurity software, which can react quickly to prevent data breaches.

Many forces have already been deploying cyber defense tools as seen in a recent European Defence Matters report which reported that some autonomous cyber defense tools using intelligent agents already exist today, monitoring network activities and ready to trigger immediate action when anomalous behaviour is detected. Early malware detection, crucial for cyber risk mitigation, is considered a high-potential activity in which autonomous systems could excel in the future.

This year I expect to see defense forces exponentially increasing their use of autonomous agents and specialized digital artefacts to enhance cyber defense, as seen with the Defense Information Systems Agency looking to immediately expand its use of AI-driven tools to automate penetration testing on defense networks.

Adapting to New Military Dynamics

The defense industry is poised for significant growth in 2024, driven by increased military spending worldwide as nations seek to modernize their equipment and capabilities. This growth is expected to be fueled by a number of factors, including the widening spectrum of conflict, the lack of assets and inventories ‘at the ready’, and the rise in new equipment such as low-cost ‘swarm’ drones.

This increased use of digital technologies will require cybersecurity to up its game. Overall, the outlook for the defense industry is positive as military forces around the world look to adapt to the changing landscape of warfare.

Matt Medley is Global Industry Director, A&D, at IFS.

Featured Image Credit: Photo 279781396 / 2024 © Endewer | Dreamstime.com