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Arms sales by the 100 largest arms-producing companies (the 'SIPRI Top 100') showed a marked rise of 15 per cent during 2004. This continues a rising trend since the late 1990s. The value of the combined arms sales of the SIPRI Top 100 was $268 billion. Companies in the USA and Western Europe accounted for most of this amount: 63.3% was accounted for by 40 US companies; and 29.4% by 36 West European companies. Acquisition activity is continuing in the international arms industry, albeit at a less rapid pace than during the 1990s. Five very large acquisitions were concluded in 2005, each with a deal value close to or greater than $2 billion. Intra-US acquisitions are driven by a rush into new expanding sectors, such as information technology and military services, and are facilitated by large cash surpluses. Transatlantic acquisitions are dominated by British companies seeking to access the lucrative US market. Considering the development of the arms industry in the post-cold war period, three main types of changes are apparent: structural, technological and compositional. The arms industry has become increasingly concentrated, nationally as well as internationally. The share of the top 5 companies in the total arms sales of the SIPRI Top 100 increased from 22% in 1990 to 44% in 2003. There has been a clear and significant qualitative change in the nature of technology because civil technology has become increasingly important for weapon systems. This has led to an increasing importance of IT and electronics companies, often previously civil companies, in the defence sector and an increased number of civil companies in the supply chains of the main contractors. The demands of the USA's 'global war on terrorism' have reinforced this trend. The privatization of defence services and support is drawing new kinds of suppliers into military contracting. This has been made apparent in Iraq, with companies taking on support roles that in the past the armed forces would have undertaken. A big growth area is the provision of security -- guarding people and buildings. While some of these activities can be seen as an expansion of the arms industry, other support activities are not military services but general security services and construction, creating a periphery of private companies around the core arms industry. These developments have resulted in marked changes in the arms industry and further changes can be expected. It is, however, important to recognize that arms contractors continue to have a set of unique characteristics, due to the nature of the arms market, making them different to firms in other industrial segments. The nature of arms procurement and its elaborate rules and regulations mean that they face considerable barriers to exit, while non-specialists continue to face considerable barriers to entry for the same reasons. In spite of internationalization in terms of markets and supply chains, the home market and home government support remain vital to arms-producing companies. Adapted from the source document.

The arms industry has changed profoundly in size & structure since the early 1990s. Until the mid-1990s these changes were driven by the need to adjust arms-producing capabilities to the significant reduction in the demand for military equipment associated with the end of the Cold War. Since the late 1990s arms procurement has stabilized & in a number of countries there had even been slight growth. The current restructuring of the arms industry is to a significant extent driven by large companies trying to secure their already strong positions on the world market through continued acquisitions & international cooperation arrangements. Increased concentration & internationalization in the production of armaments may require international measures to ensure transparency & accountability in arms production in the future. 9 Tables, 2 Appendixes. Adapted from the source document.

New data from SIPRI shows that the value of the combined arms sales of the top 100 companies in the world (excluding China) in 2003 was $236 billion. The top 100 companies increased their combined arms sales in 2003 by 25% in current dollars. Of these 100 companies, 38 are based in the USA and one in Canada. Together, these accounted for 63.2% of arms sales by the top 100, while 42 European companies (including 6 based in Russia) accounted for another 30.5% of sales. The process of adaptation to the new security environment continues. In the USA the industry is adjusting to the new demands created by the ongoing transformation of the armed forces, the privatization of military services and the increasing importance of the homeland security sector. In Europe the emphasis is on intra-European consolidation and access to the expanding US 'market', that is, the US Government's arms procurement budget. The process of concentration in the arms industry has been slowing down since the late 1990s. While still significant, mega-mergers no longer dominate the pattern of acquisition. In 2003 six acquisitions took place with deal values exceeding $1 billion. In 2004 there was only one deal of this size: the buyout by Italian firm Finmeccanica of the British firm GKN's 50% stake in their joint venture -- the helicopter company Agusta Westland -- and related assets for 1.59 billion ($1.98 billion). In the past decade the top arms-producing companies have grown enormously in size, primarily through acquisitions. They are now comparable in economic importance to many other multinational corporations and, like them, the largest arms-producing companies have sales of a magnitude that make them major economic entities, not only in their domestic environment but also globally. The value of their arms sales exceeds the GDP of most low-income countries and their total sales compare to the GDPs of medium-sized developed or industrializing countries. A comparison for the entire group of top 100 companies shows that the value of their total sales in 2003 is roughly equal to the combined national output of all 61 low-income countries in 2003. With the increasing outsourcing of services from defense ministries and armed forces to the private sector, a growing number of the top 100 companies specialize in services. This trend is most pronounced in the USA, but exists also in West European industry. Consolidation of the European military shipbuilding industry continued in 2004. These efforts were focused on two initiatives: to create a naval counterpart to what EADS represents in aerospace, and to consolidate and develop an industrial strategy for the British shipbuilding industry. However, little progress was made and the future structure of the European shipbuilding industry remains uncertain. The war in Iraq has increased the share of the arms industry held by companies providing services and has reinforced the focus on new military technologies. There is only limited transparency in the contracting process for work in Iraq. What transparency there is depends on NGOs compiling information about the size and content of contracts and about the companies that are awarded them. Company reporting on the military share of their sales is rare and incomplete, and reporting on the military share of their exports and research and development is almost nonexistent. Of the 150 companies included in a table on arms industry data transparency, only 41 can be described as having fully and completely disclosed the extent of their arms sales in a company document. Only limited information is available on commercial arms sales worldwide. This lack of data makes it difficult to establish a firm foundation for political and public discussion of issues relating to arms production and arms sales. Pressures on companies to report their arms sales are weak and current reporting relies entirely on voluntary disclosure of information by the companies themselves. Comprehensive, regular and standardized reporting can be achieved only through internationally harmonized legal requirements for companies to report. Adapted from the source document.

The restructuring of the US & West European arms industries that was initiated following the end of the Cold War continued during 2002. It was previously driven by the rapid reduction in domestic & external demand for military equipment but the output of the arms industry has ceased to decline since the mid-1990s. In the US, continued concentration has fostered concerns over lack of competition. In Europe, the European Union is assuming a higher profile in defense industrial policy, but governments still differ in their policies on procurement, competition, foreign ownership, & privatization. In Russia the dramatic cuts in government spending on arms procurement after the disintegration of the Soviet Union have been replaced by a modestly increasing trend since 1998. However, the Russian arms industry continues to rely heavily on exports. Lack of funding & opposition by companies & regional politicians hinders the restructuring of the industry. 5 Tables, 1 Appendix. Adapted from the source document.