The arms industry, also known as the defense industry or the arms trade, is a global industry which manufactures and sells weapons and military technology. It consists of a commercial industry involved in the research and development, engineering, production, and servicing of military material, equipment, and facilities. Arms-producing companies, also referred to as arms dealers, defense contractors, or as the military industry, produce arms for the armed forces of states and for civilians. Departments of government also operate in the arms industry, buying and selling weapons, munitions and other military items. An arsenal is a place where arms and ammunition - whether privately or publicly owned - are made, maintained and repaired, stored, or issued, in any combination. Products of the arms industry include guns, artillery, ammunition, missiles, military aircraft, military vehicles, ships, electronic systems, night-vision devices, holographic weapon sights, laser rangefinders, laser sights, hand grenades, landmines and more. The arms industry also provides other logistical and operational support.

The Stockholm International Peace Research Institute (SIPRI) estimated military expenditures as of 2012 at roughly $1.8 trillion.^[1] This represented a relative decline from 1990, when military expenditures made up 4% of world GDP. Part of the money goes to the procurement of military hardware and services from the military industry. The combined arms-sales of the top 100 largest arms-producing companies amounted to an estimated $395 billion in 2012 according to SIPRI.^[2] In 2004 over $30 billion were spent in the international arms-trade (a figure that excludes domestic sales of arms).^[3] According to SIPRI, the volume of international transfers of major weapons in 2010–14 was 16 percent higher than in 2005–2009. The five biggest exporters in 2010–2014 were the United States, Russia, China, Germany and France, and the five biggest importers were India, Saudi Arabia, China, the United Arab Emirates and Pakistan.^[4]

Many industrialized countries have a domestic arms-industry to supply their own military forces. Some countries also have a substantial legal or illegal domestic trade in weapons for use by their own citizens, primarily for self-defense, hunting or sporting purposes. Illegal trade in small arms occurs in many countries and regions affected by political instability. The Small Arms Survey estimates that 875 million small arms circulate worldwide, produced by more than 1,000 companies from nearly 100 countries.^[5]

Governments award contracts to supply their country's military; such arms contracts can become of substantial political importance. The link between politics and the arms trade can result in the development of what U.S. President Dwight D. Eisenhower described in 1961 as a military-industrial complex, where the armed forces, commerce, and politics become closely linked, similarly to the European multilateral defense procurement. Various corporations, some publicly held, others private, bid for these contracts, which are often worth many billions of dollars. Sometimes, as with the contract for the international Joint Strike Fighter, a competitive tendering process takes place, with the decision made on the merits of the designs submitted by the companies involved. Other times, no bidding or competition takes place.

During the early modern period, France, United Kingdom, Netherlands and some states in Germany became self-sufficient in arms production, with diffusion and migration of skilled workers to more peripheral countries such as Portugal and Russia.

The modern arms industry emerged in the second half of the nineteenth century as a product of the creation and expansion of the first large military-industrial companies. As smaller countries (and even newly industrializing countries like Russia and Japan) could no longer produce cutting-edge military equipment with their indigenous resources and capacity, they increasingly began to contract the manufacture of military equipment, such as battleships, artillery pieces and rifles to foreign firms.

In 1854, the British government awarded a contract to the Elswick Ordnance Company of industrialist William Armstrong for the supply of his latest breech loading rifled artillery pieces. This galvanized the private sector into weapons production, with the surplus being increasingly exported to foreign countries. Armstrong became one of the first international arms dealers, selling his weapon systems to governments across the world from Brazil to Japan.^[6] In 1884, he opened a shipyard at Elswick to specialize in warship production—at the time, it was the only factory in the world that could build a battleship and arm it completely.^[7] The factory produced warships for many navies, including the Imperial Japanese Navy. Several Armstrong cruisers played an important role in defeating the Russian fleet at the Battle of Tsushima in 1905.

In the American Civil War in 1861 the North had a distinct advantage over the south as it relied on using the breech-loading rifle against the muskets of the south. This began the transition to industrially produced mechanized weapons such as the Gatling gun.^[8]

This industrial innovation in the defense industry was adopted by Prussia in 1866 & 1870-71 in its defeat of Austria and France respectively. By this time the machine gun had begun entering into the militaries. The first example of its effectiveness was in 1899 during the Boer War and in 1905 during the Russo-Japanese War. However, Germany were leaders in innovation of weapons and used this innovation nearly defeating the allies in World War I.

In 1885, France decided to capitalize on this increasingly lucrative form of trade and repealed its ban on weapon exports. The regulatory framework for the period up to the First World War was characterized by a laissez-faire policy that placed little obstruction in the way of weapons exports. Due to the carnage of World War I, arms traders began to be regarded with odium as "merchants of death" and were accused of having instigated and perpetuated the war in order to maximize their profits from arms sales. An inquiry into these allegations in Britain failed to find evidence to support them. However, the sea change in attitude about war more generally meant that governments began to control and regulate the trade themselves.

The volume of the arms trade greatly increased during the 20th century, and it began to be used as a political tool, especially during the Cold War where the United States and the USSR supplied weapons to their proxies across the world, particularly third world countries (see Nixon Doctrine).^[9]

This category includes everything from light arms to heavy artillery, and the majority of producers are small. Many are located in third world countries. International trade in handguns, machine guns, tanks, armored personnel carriers, and other relatively inexpensive weapons is substantial. There is relatively little regulation at the international level, and as a result, many weapons fall into the hands of organized crime, rebel forces, terrorists, or regimes under sanctions.^[10]

The Control Arms Campaign, founded by Amnesty International, Oxfam, and the International Action Network on Small Arms, estimated in 2003 that there are over 639 million small arms in circulation, and that over 1,135 companies based in more than 98 different countries manufacture small arms as well as their various components and ammunition.^[11]

Encompassing military aircraft (both land-based and naval aviation), conventional missiles, and military satellites, this is the most technologically advanced sector of the market. It is also the least competitive from an economic standpoint, with a handful of companies dominating the entire market. The top clients and major producers are virtually all located in the western world and Russia, with the United States easily in first place. Prominent aerospace firms include Rolls Royce, BAE, Dassault Aviation, Sukhoi, Mikoyan, EADS, Leonardo, Thales Group, Lockheed Martin, Northrop Grumman and Boeing. There are also several multinational consortia mostly involved in the manufacturing of fighter jets, such as the Eurofighter. The largest military contract in history, signed in October 2001, involved the development of the Joint Strike Fighter.^[10]

Some of the world's great powers maintain substantial naval forces to provide a global presence, with the largest nations possessing aircraft carriers, nuclear submarines and advanced anti-air defense systems. The vast majority of military ships are conventionally powered, but some are nuclear-powered. There is also a large global market in second-hand naval vessels, generally purchased by developing countries from Western governments.^[10]

The cybersecurity industry is becoming the most important defense industry as cyber attacks are being deemed as one of the greatest risk to defense in the next ten years as cited by the NATO review in 2013.^[12] Therefore, high levels of investment has been placed in the cybersecurity industry to produce new software to protect the ever-growing transition to digitally run hardware. For the military industry it is vital that protections are used for systems used for reconnaissance, surveillance and intelligence gathering.

Nevertheless, cyber attacks and cyber attackers have become more advanced in their field using techniques such as Dynamic Trojan Horse Network (DTHN) Internet Worm, Zero-Day Attack, and Stealth Bot. As a result, the cybersecurity industry has had to improve the defense technologies to remove any vulnerability to cyber attacks using systems such as the Security of Information (SIM), Next-Generation Firewalls (NGFWs) and DDoS techniques.

As the threat to computers grows, the demand for cyber protection will rise, resulting in the growth of the cybersecurity industry. It is expected that the industry will be dominated by the defense and homeland security agencies that will make up 40% of the industry.^[13]

According to research institute, SIPRI, the volume of international transfers of major weapons in 2010–14 was 16 percent higher than in 2005–2009. The five biggest exporters in 2010–14 were the United States, the United Kingdom, Russia, China and France, and the five biggest importers were India, Saudi Arabia, China, the United Arab Emirates (UAE) and Pakistan. The flow of arms to Africa, the Americas, Asia and Oceania, and the Middle East increased significantly between 2005–2009 and 2010–14, while there was a notable decrease in the flow to Europe.^[4]

SIPRI has identified 60 countries as exporters of major weapons in 2010–14. The top 5 exporters during the period were responsible for almost 74 percent of all arms exports. The composition of the five largest exporters of arms changed between 2005–2009 and 2010–14: while the United States and Russia remained by far the largest exporters, China narrowly, but notably, replaced Germany as the third-largest exporter as Germany slid down to 6th place. The top 5 exported 14 percent more arms in 2010–14 than the top 5 in 2005–2009.^[4]

In 2010–14, 153 countries (about three-quarters of all countries) imported major weapons. The top 5 recipients accounted for 33 percent of the total arms imports during the period (see table 2). India, China and the UAE were among the top 5 importers in both 2005–2009 and 2010–14. Asia and Oceania accounted for nearly half of imports in 2010–14, followed by the Middle East, Europe, the Americas and Africa (see figure 3). SIPRI also identified seven groups of rebel forces as importers of major weapons in 2010–14, but none of them accounted for more than 0.02 percent of total deliveries.^[4]

In 2014-18, the volume of major arms international transfers was 7.8 per cent higher than in 2009-13 and 23 per cent than that in 2004-08. The largest arms importer was Saudi Arabia, importing arms majorly from the United States, United Kingdom and France. Between 2009–13 and 2014–18, the flow of arms to the Middle East increased by 87 per cent. Also including India, Egypt, Australia and Algeria, the top five importers received 35 per cent of the total arms imports, during 2014-18. Besides, the largest exporters were the United States, Russia, France, Germany and China.^[14]

Units are in Trend Indicator Values expressed as millions of U.S. dollars at 1990s prices. These numbers may not represent real financial flows as prices for the underlying arms can be as low as zero in the case of military aid. The following are estimates from Stockholm International Peace Research Institute.^[15]

Note that rankings for exporters below a billion dollars are less meaningful, as they can be swayed by single contracts. A much more accurate picture of export volume, free from yearly fluctuations, is presented by 5-year moving averages.

Next to SIPRI there are several other sources that provide data on international transfers of arms. These include national reports by national governments about arms exports, the UN register on conventional arms and an annual publication by the U.S. Congressional Research Service that includes data on arms exports to developing countries as compiled by U.S. intelligence agencies. A list of such sources can be found at the SIPRI website.^[16] Due to the different methodologies and definitions used different sources often provide significantly different data.

SIPRI uses the "trend-indicator values" (TIV). These are based on the known unit production costs of weapons and represent the transfer of military resources rather than the financial value of the transfer.^[17]

Units are in Trend Indicator Values expressed as millions of U.S. dollars at 1990s prices. These numbers may not represent real financial flows as prices for the underlying arms can be as low as zero in the case of military aid.^[15]

Please note that arms import rankings fluctuate heavily as countries enter and exit wars. Export data tend to be less volatile as exporters tend to be more technologically advanced and have stable production flows. 5-year moving averages present a much more accurate picture of import volume, free from yearly fluctuations.

This is a list of the world's largest arms manufacturers and other military service companies who profit the most from the War economy, their origin is shown as well. The information is based on a list published by the Stockholm International Peace Research Institute for 2018.^[19] The list provided by the SIPRI excludes companies based in China. The numbers are in billions of US dollars.

Arms control refers to international restrictions upon the development, production, stockpiling, proliferation and usage of small arms, conventional weapons, and weapons of mass destruction.^[20] It is typically exercised through the use of diplomacy, which seeks to persuade governments to accept such limitations through agreements and treaties, although it may also be forced upon non-consenting governments.