NEW YORK, March 24, 2016 /PRNewswire/ -- This study is an update of the 2014 report on defence contractors. There are slight changes in the top 15 companies selected to reflect their performance in 2014; the quantitative analysis has been done from 2005-2014. The study focuses on defence businesses and contractors, while also considering the non-defence activities of these companies. Globalisation and the blurring of boundaries between commercial and defence companies coupled with recent budget constraints in Western countries are likely to significantly impact the long-term strategy of defence contractors. As a result, contractors will continue to increasingly face several challenges that they will need to overcome for market success.
Deepening core markets is the foundation for diversification.
- Defence companies must not just implement a strategy to lessen their position in defence, but must also implement a strategy to deepen core markets as a platform for increased diversification. Going after adjacent markets without a solid foundation will be risky and may lead to drawbacks, such as in the case of General Dynamics, which acquired Fidelis in 2012 and then disposed of it in 2015.
- This also provides a platform for broadening market penetration, reaching new geographic and commercial markets, and concurrently optimising performance at all stages.
Future success will rely on innovation.
- In the highly technological defence industry, investment in Research and Development (R&D) is expected to remain crucial—although investments vary greatly across companies. In fact, some companies have been spending less than % of their revenue on R&D, while others spend approximately %; however, the average expenditure is %. With innovation increasingly coming from commercial technology companies and defence customers that want more high-tech solutions (including exploitation of wearable technology, social media, and cloud services), the acquisition of technology companies and partnerships between defence and technology companies are expected to grow.
Operational efficiency and short-term profitability goals should not be the only answer.
- The average operating margin across the companies that have been profiled reached % in 2014. Achieving a % operating margin is the strategic objective of many top companies. Improving margins, without harming innovation or jeopardising the sustainability of future growth or weakening the company's strategic position, remains a major challenge.
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