A MINI PROJECT REPORT

On

Defence Manufacturing

Submitted to

Dr. A.P.J. Abdul Kalam Technical University, LUCKNOW

For the partial fulfilment of

MASTERS OF BUSINESS ADMINISTRATION

BATCH 2021-2023

Submitted to Submitted by

Dr. Sarjue Pandita Name: Rishabh Pandey

Associate Professor Roll No. 2108200700061

MBA II SEM

AJAY KUMAR GARG INSTITUTE OF MANAGEMENT

27th K.M Stone, NH—24, Delhi Hapur Bypass Road, Adhyatmik Nagar, Ghaziabad-

201009

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CERTIFICATE

This is to certify that the report titled “DEFENCE MANUFACTURING has been carried

out by ‘RISHABH PANDEY under my guidance as a part of Mini Project 2 work for MBA

at AJAY KUMAR GARG INSTITUTE OF MANAGEMENT, GHAZIABAD, UTTAR

PRADESH.

Date: Signature:

Place: Ghaziabad

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 ACKNOWLEDGEMENT

I owe my thanks to all the people who helped and supported us during writing this report. I

thank Dr Sarjue Pandita for guiding me and correcting my drafts with care. I am highly

obliged for her painstaking efforts and attention to detail. I would also thank my Institution

AKGIM, Ghaziabad for supporting me with the infrastructure without which this report

would have been a distant reality.

Signature

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 CONTENTS PAGE NO.

1. INDUSTRY OVERVIEW

1.1 Industry Introduction

1.2 Market Growth Rate

1.3 Market Structure

1.4 Competitive landscape

1.5 Products

1.6 Operations

1.7 Regulations

1.8 Human resource requirement

1.9 Industry forecast

1.10 Industry Indicators

2. TOOLS USED TO ANALYZE

2.1 SWOT

2.2 PESTLE

2.3 Porter’s Five Force Model

3. Critical issues

4. Business trends

5. Emerging technologies

6. International outlook

7. Impact of pandemic

8. reference

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INDUSTRY INTRODUCTION

India has the third-largest Army, the fourth-largest Air force, and the seventh-largest Navy in

the world. India is among the top 10 countries in the world in terms of military expenditure and

is the world's largest arms importer. India allocates about 1.8% of its GDP towards defence

spending, of which 40% is allocated to capital acquisitions and only about 30% of India's

equipment is manufactured in India, mainly by public sector undertakings. Even when defence

products are manufactured domestically, there is a large import component. All these factors

make the Indian defence market one of the most attractive globally defence sector.

The Indian defence manufacturing industry is a significant sector of the economy. The industry

is likely to accelerate with rising concerns about national security. Demand for defence

equipment in India has been growing due to the ongoing territorial disputes with Pakistan and

China over the ownership of the Northern State of Kashmir and the North Eastern State of

Arunachal Pradesh, respectively.

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Over the last five years, India has been ranked among the top importers of defence equipment

to gain technological advantages over rival countries such as China and Pakistan. To modernize

its armed forces and reduce dependency on external dependence for defence procurement,

several initiatives have been taken by the government to encourage ‘Make in India’ activities

via policy support initiatives.

MARKET GROWTH RATE

India's defence manufacturing sector has been witnessing a CAGR of 3.9% between 2016 and

2020. The Indian government has set the defence production target at US$ 25.00 billion by

2025 (including US$ 5 billion from exports by 2025).

MARKET STRUCTURE

The Indian defence manufacturing sector is largely dominated by the Defence Public Sector

Units (DPSUs) and Ordnance Factory Board (OFB), whereas the Research and Development

(R&D) sector is solely controlled by the Defence Research and Development Organisation

(DRDO). India’s defence industry is primarily controlled by the government and its agencies.

Though the defence industry was opened up for private domestic players in 2001, so far there

has been limited participation of the private sector in the overall defence procurement. India

boasts of one of the largest defence industrial bases among the developing nations in the world.

Approximately two lakh people are employed in the various defence manufacturing

units/laboratories of the government. The key components of India’s existing Defence

Industrial Base (DIB) are the DPSUs, Ordnance Factories (Ord Fys), DRDO—all functioning

under the overall control of the government’s Ministry of Defence (MoD)—and a few private

sector companies comprising both large and Micro, Small and Medium Enterprises (MSMEs)

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COMPETITIVE LANDSCAPE

Hindustan Aeronautics Limited (HAL), Bharat Electronics Limited (BEL), Defence Research

and Development Organisation (DRDO), Rostec, and Airbus SE are some of the major players

in the Indian defence market. The Make in India initiative, launched by the Indian government,

has propelled several partnerships between foreign and local manufacturers. Partnerships

between companies, like Hinduja Group, Ashok Leyland, and Elbit Systems, for military

vehicles, the Tata Motors tie-up with Bharat Forge and General Dynamics, the partnership

between India and Russia for Frigates and AK-203 Assault Rifles, and Boeing's partnership

with HAL and Mahindra for the production of F/A-18 Super Hornet fighters are some of the

major partnerships in the recent past. India is also trying to develop its indigenous

manufacturing capabilities and focusing on increasing the product range of the defence

equipment that it can produce locally, thereby reducing its dependency on the import of defence

equipment. Also, several public firms are developing new indigenous technologies, which are

expected to enhance the market share of the local players during the forecast period.

PRODUCTS AND OPERATION

All revolvers, pistols, rifles, carbines, assault rifles, submachine guns and light machine guns,

smooth-bore weapons and other arms, automatic or semi-automatic or pump action type

weapons, weapons using case less ammunition as well as their parts, components and

accessories, silencers, special gun-mountings, weapons sights, signature reduction devices and

flash suppressors to include rifles, carbines, revolvers, pistols, machine pistols. Pressure

bearing parts or components of above firearm viz. barrel, slide, cylinder, bolt, breech block,

firing pin etc-

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 REGULATION

The Industrial Licence applications so received in the Ministry of Defence are examined by a

Standing Committee on Private Sector Participation in Defence Production and comments are

then accordingly sent to licensing authorities.

The licensees are required to follow the Security Manual notified by the Department based on

the product of manufacturing and the categorization for which an industrial license is granted

to a company.

The list of defence items that now falls under the I(D&R) Act, 1951 may be seen under the said

press note.

INDUSTRY GROWTH RATING

India's defence manufacturing sector has been witnessing a CAGR of 3.9% between 2016 and

2020. The Indian government has set the defence production target at US$ 25.00 billion by

2025 (including US$ 5 billion from exports by 2025). Defence exports in India were estimated

to be at US$ 1.29 billion in 2019-2020

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INDUSTRY FORECAST

source : drdo.com

INDUSTRY DRIVERS
 Government of India changed the automatic route limit for FDI in the defence sector to

74%; this will boost national security, self-sufficiency in product design, increase

investments, income and employment.

 The Government of India opened the defence industry for private sector participation

to provide impetus to indigenous manufacturing.

 Demand growth is likely to accelerate with rising concerns of national security.

 India’s proactive approach towards foreign mutual trade and rising joint agreements

with foreign countries such as USE, Kazakhstan and the US for joint defence

manufacturing and strengthening defence ties—offer huge potential growth

opportunities to boost defence manufacturing in India.

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TOOLS USE TO ANALYZE

SWOT ANALYIS

Strengths: The region has strong support from the Government of Maharashtra, industrial

growth, and the setting up of new facilities to promote the industrialization of the state. It has

a good amount of land available and advanced infrastructure. With proximity to ordnance

factories within the range of 300 Km, the ecosystem is quite conducive to manufacturing.

Weakness: Project execution and regular commercial production startup of Defence products

take much more time. There exists a missing link between Defence research institutes and

SMEs. It is the need of the hour to have an accredited world-class testing facility for

ammunition & aviation and an R&D facility. The lack of dedicated courses in mechatronics

high energy materials, armament sensors & electronics, metallurgy, and skill development

initiatives hampers the technical skills of the region.

Opportunities: Defence, in the Vidarbha region, has limited vendors in production and many

of the tendering actions result in a single offer against the government tenders. In such cases,

the actual users have limited purchase powers, and the approval for acceptance lies with the

Apex Authority at the corporate level. SMEs have a budding opportunity to set up ancillary

units. With a high concentration of Defence and its related industries present in Vidarbha, there

is a need for a dedicated cluster for Defence production to promote industries in Aviation,

Aerospace, Ammunition, and automobiles. Given the case of the new Defence production

policy along with the presence of high energy material production units, MRO, and due to

modernization of Ordnance Factories, tremendous scope exists for the armament industry also

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through capital acquisitions & offsets and revenue acquisitions as per Defence procurement

policy

Threats: Ordnance Factories (OFs) and Defence PSUs (DPSUs) import High Explosives and

accept the same based on foreign suppliers’ test certificates without actual testing at receipt. ln

the process, these DPSU organizations do not create the desired testing facilities which have

become a major bottleneck in testing for indigenously produced materials. Rapid advancement

is done by Hyderabad-based industries in precision engineering equipment, electronics, data

analytics

PESTLE ANALYSIS

In PESTLE analysis “political and legal factors” such as “stability, taxes, state policy of foreign

trade activity regulation, political stability, legislative system, level of judicial system” are

analyzed. As for “economic factors” we may focus on “GDP, GNP, investment climate,

inflation rate, currency stability, market capacity”. Social and cultural are also considered like

“religion, education, communication means, language, customs, norms of behaviour”.

Ofcourse “scientific and technological factors” are also very important in this process:

“technological support of production, availability and application of new technologies in

business, expenses on R&D”19. Therefore the combination or synthesis of all these factors is

creating PESTLE model.

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PORTER’S 5 FORCE MODEL

1. The threat of Entry:

New entrants to an industry bring new capacity and desire to gain market share that puts

pressure on prices, costs, and the rate of investment necessary to compete (Porter, 2008). When

new entrants are diversifying from other markets they can leverage existing capabilities and

cash flows to shake up competition (Porter, 2008). In the defence industry, the barriers to entry

are incredibly high. The threat of entry is limited due to the big businesses having proprietary

technology, established brand identities, and cumulative experience in the industry (Porter,

2008), making it difficult for small businesses to attain government contracts and compete with

the defence firms.

2. The Power of Suppliers

Powerful suppliers capture more value for themselves by charging higher prices, limiting the

quality of services, or shifting costs to industry participants (Porter, 2008). The defence

industry is made up of several large corporations. The main competitors are Lockheed Martin,

Raytheon, Northrop Grumman, and General Dynamics. Many of these large suppliers are

simply giant distributors who are experts in finding and winning defence contracts (Gerbe,

2011). Some of the suppliers have their products patented which prevents the government from

switching suppliers and expecting the same product from another company.

3. The Power of Buyers:

Powerful customers can capture more value by forcing down prices and demanding better

quality. The defence industry is highly regulated with only one major buyer which is also the

regulator; the Department of Defence (Gribbin et al., 2012). Defence spending accounts for the

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major source of revenue for aerospace and defence contractors with primary buyers being the

military and intelligence branches of US and foreign governments. In 2010, $3.6 billion of

goods were exported to foreign military sales (Deloitte, 2012). The DOD is a powerful buyer

and captures more value by forcing prices down and demanding better quality. If a firm is

serving this market and DOD budgets are cut as expected, several companies may leave the

defence market and focus on existing or emerging industries.

4. The Threat of Substitutes:

As previously stated, due to high entry barriers and powerful suppliers, there are few

competitors in the industry leaving few quality substitutes. Because contracts take long periods

to complete, it is difficult for the government to switch suppliers over a short period and

substitute the product. In addition, many of the defence agencies are looking to insource if the

defence contractors and suppliers are unable to meet the requirements inhibiting the entry of

emerging companies. As previously stated, the acquisition of goods and services from foreign

governments and vendors is an option but impacts the DOD’s military advantage since it poses

a threat to the confidentiality and proprietary aspects of domestic technologies

5. Rivalry amongst Competitors:

The defence industry is characterized by intense rivalry, especially in the services sector.

According to Deloitte (2012), Aerospace and defence companies routinely compete in a low-

price and technically acceptable contract environment. As previously established, there are

only a few competitors in the defence industry, all of which are of similar size. The rivalry

comes about when bidding on or competing for a new project. According to the article,

“Competition in Defence Contracting” by Tom Gerbe (2011), the Defence Department issued

an interim rule in February 2010 to increase competition in major defence acquisition programs

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to trim defence spending. As a result, prime contractors are required to provide technical data

packages that were once considered proprietary information, making it easier for smaller

companies to produce the same goods. This will increase competition for sole source items and

allow small businesses to compete. However, Gerbe states that some of these big suppliers try

to further confuse competitors by providing part numbers for the military that are different than

their similar off-the-shelf parts. A competitor attempting to acquire a sample from one of these

companies may be told that the particular part only sells to the military. If a company cannot

acquire the part, then there is nothing to reverse engineer.

CRITICAL ISSUES

1. Developing a Sustainable Supply Chain

An inadequate internal supply chain management strategy within the shop floor can also lead

to delays and downtime. Today, the ongoing digital transformation provides the tools needed

to capture supply chain data while IoT platforms have the computing resources needed to

receive insight from supply chain data.

2. Government Regulations and Environmentally-friendly Policies

It’s imperative that aerospace and defense OEMs design innovative equipment that supports

the drive to reduce emission rates from the factory floor and the engines used within the

industry.

To develop sustainable operational strategies and to improve the efficiency of manufacturing

equipment on the shop floor, there needs to be an understanding of how operators use this

machinery.

3. Growing Revenue in A Competitive Environment

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The aerospace and defence industry is dominated by the trifecta of Boeing, Airbus, and

Lockheed Martin. The big 3 are responsible for the majority of the business or contracts

aerospace and defence OEMs get which leads to fierce competition and industry rivalry.

4. Implementing Digital Transformation Strategies

Challenges with data extraction include the age of communication components on legacy

machines and difficulties with developing interconnected environments.

IIoT solutions such as smart hardware ease the data collection process while IIoT platforms

provide an environment for extensive data analysis to receive insight into factory floor

processes.

BUSINESS CHALLENGES

1. Stronger Focus in the Asia-Pacific Region

One of the major game-changers this year in the defence industry is that there will be more

of a focus on the Asia-Pacific region. Many nations in the area are reassessing their defence

capabilities and governments are expanding industrial solutions to keep up with growing

economic and safety concerns. For this reason, there’s been an increase in design, research,

commercial production, and other defence manufacturer support networks.

2. Military spending is up globally

Governments around the world are spending more on defence, both purchasing new

hardware, as well as upgrading their infrastructure. Current estimates show an overall

predicted CAGR of roughly 3% between 2020-2023, and overall global spending will be

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approximately $2.1 trillion by the end of that timeframe. The US, China, Russia, India, and

many others will all be contributing to this.

3. Mergers & Acquisitions will continue apace

M&A has been a major driver in the defence space for several years, and there is little reason

to expect a change. Consolidation will help simplify the increasingly complex supply chain

and scaling issues, while also potentially offering avenues to bypass bureaucratic hurdles or

obtain access to new technologies.

4. Steady Implementation of More-Electric Aircraft (MEA)

There is an increasing demand for more fuel-efficient aircraft in the aerospace and defence

sectors. This is due, in large part, to the drive to minimize acquisition and ownership costs.

Although there remain obstacles preventing a full move toward All-Electric Aircraft (AEA)

technology, such as safety and efficiency concerns, those in the defence industry will

certainly see a notable push to implement MEA solutions.

BUSINESS TRENDS

 Innovative deployment of digital thread and smart factory to drive

efficiencies

In 2022, A&D companies are expected to embrace digital thread and smart factories more

broadly to gain critical material and component supply visibility to ensure efficient production

and faster design to delivery.

Enabling the digital thread can be crucial for an A&D business to stay agile in today’s shifting

business environment. The digital thread connects across an A&D product’s end-to-end life

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cycle, from the initial design to the final product—collecting live feedback along the way.

Insights and actions enabled by the digital thread should help A&D companies speed up

product time to market, reduce overall service costs, and stay flexible in meeting customers’

ever-changing demands. Industry players will likely leverage the digital thread to streamline,

design, adapt, and maintain products at every stage of the journey.

 Recovery in air travel to drive focus on digital innovation for growing

aftermarket revenues

The pandemic resulted in a substantial drop in aftermarket revenues and profits, so companies

are looking for ways to capture more value from aftermarket as commercial aerospace recovery

accelerates. Reducing costs and time to resolution, as well as managing risks, are generally the

key priorities for aerospace customers.

To improve the customer experience, aerospace companies could invest in digital platforms in

2022 to enhance customers’ visibility to production and material systems, integrate

applications across platforms, and improve linkage to engineering data. Moreover, many

companies will likely leverage digital technologies to offer proactive and predictive

maintenance capabilities as these digital service offerings could help them gain a competitive

edge and provide an enhanced customer experience.

 Innovation to continue accelerating growth in the space market

Ongoing innovation has laid the foundation for broad-based next-gen satellite

telecommunications. In 2022, the explosion of small-sat constellations could shake up how

broadband internet is distributed across the world and bring connectivity to communities and

locations that were previously not possible. Furthermore, in the field of Earth observation,

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satellites can increasingly capture terabytes of granular images from all corners of the Earth

daily. This data can gradually be used by sophisticated software to generate insights that inform

organizational decision-making.

 Innovative technologies and solutions to drive decarbonization

While the industry has been at the forefront of adopting new and advanced manufacturing

technologies to increase fuel efficiencies, now is the time for A&D companies to leverage

advanced technologies more than ever to drive innovation to help address the sustainability

challenge. The industry should focus on technological and operational improvements and

develop new systems and alternatives to jet fuel to significantly reduce emissions.

INTERNATIONAL OUTLOOK:-

In 2021-22, the government allocated Rs. 4,78,196 crore (US$ 62.8 billion) to defence, 1.5%
higher than the previous year. This accounts for 2.15% of GDP and 13.73% of total central
government expenditure. In 2020-21, India was the third-largest military spender and had the
second-largest army globally.30-Dec-2021

EMERGING TECHNOLOGIES

1. Artificial Intelligence

The adoption of AI in defence enhances computational military reasoning for intelligence,

surveillance, and reconnaissance (ISR) missions. Computer vision enables equipment safety
management and empowers autonomous weapon systems, thereby reducing soldier casualties.
By leveraging digital twins and machine learning, defence manufacturers test new military
product iterations and enable predictive maintenance for military assets. Additionally, startups

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are developing self-organizing intelligent systems that work collaboratively toward a strategic
objective using swarm computing.

Militaries are developing more sophisticated and advanced defence equipment to counter
emerging threats. Innovations ranging from hypersonic flights and directed energy weapons to
space militarization are underway. Also, the defence industry is aligning its objective with
achieving net-zero emissions. Investments in battlefield electrification techniques through
electric propulsion and hydrogen fuels for military aircraft facilitate this transition. Besides,
defence organizations are advancing research in biotechnology and nanotechnology for
creating self-healing armors and other innovative equipment.

3. Robotics & Autonomous Systems (RAS)

Protecting forces, increasing situational awareness, reducing soldiers’ physical and cognitive
workload as well as facilitating movement in challenging terrains are a few crucial objectives
for militaries. The integration of RAS technologies allows militaries to achieve these objectives
and control terrain, secure populations, and consolidate gains. RAS is increasingly important
to ensure freedom of maneuver and mission accomplishment with the least possible risk to
soldiers. The use of drones also enhances battlefield situational awareness. Moreover, multi-
mission robots facilitate landmine clearance, search rescue operations, explosive ordnance
disposal, and logistics support.

4.Cyber Warfare

Military systems are often vulnerable to cyber-attacks which could potentially lead to the loss
of classified military information and damage to military systems. Over the past several years,
the frequency and severity of cyberattacks have steadily increased. Prescriptive security
technology uses cybersecurity, AI, and automation to detect potential threats and stop them
before they impact defensive cyber warfare capabilities. Connected military equipment
security, cyber protection for major institutions as well as in nuclear security are major areas
of focus. Militaries are also developing offensive cyber warfare capabilities ranging from
malware and ransomware to phishing attacks.

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6. Immersive Technologies

Immersive technologies make it easy to build replicable and flexible experiences, such as for
flight or combat training. Startups use virtual reality (VR) to construct synthetic training
environments (STE). These experiences augment conventional training and mission rehearsal,
improving the readiness of soldiers and units. Beyond training opportunities, augmented reality
(AR) makes on-field soldiers more effective in their missions. Wearable glasses or AR headsets
provide soldiers with mapping information, movement markers, and other data. This enhances
real-time situational decision-making for ground forces.

IMPACT OF COVID-19:-

The world underestimated COVID-19, the disease caused by a novel strain of coronavirus that
emerged in late 2019, in terms of both its propensity to spread and cause harm and its ability
to bring businesses and whole economies to a halt. Many countries are in the midst of executing
either mitigation or all-out suppression strategies that are taking a toll on both populace and
industry.

The whiplash has been beneficial to some industries, such as retail FMCG (fast-moving
consumer goods) and medical commerce, mainly because of unanticipated demand growth due
to panic buying, while for some other sectors, such as hospitality and civil aviation, the
pandemic has resulted in a grave downturn. It’s very important to note that while for some
types of businesses the effect of the pandemic will be very pronounced in the short term, for
others the effects may take more time to manifest. The latter is especially true for industries
that are exposed to a large number of externalities – political, economic, and social. The
defence industry falls into this category.

While it is too early to accurately predict whether the industry will be flat, take a major or
minor dip, or grow unaffected by the global pandemic, it is of utmost importance that defence
companies identify what the major impact points are and assess their potential to affect business
development plans, supply chains, and bottom lines. This will help shape Preemptive measures,
which could help companies weather the storm.

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Broadly speaking, the effects on the defence industry because of the spread of COVID-19 and
related actions to curtail the contagion can the condensed into five major impact points:

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REFERENCES

https://www.drdo.gov.in/

https://www.ibef.org/industry/defence-manufacturing

https://en.wikipedia.org/wiki/Defence_industry_of_India

https://www.ddpmod.gov.in/

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