Trends in the DoD Industrial Base

Size: px

Start display at page:

Download "Trends in the DoD Industrial Base"

Agnes Walker
5 years ago
Views:

1 Trends in the DoD Industrial Base Nancy Young Moore, Clifford A. Grammich, and Judith D. Mele May 5,

2 Industry Consolidation Has Been a Trend for Many Years Industries tend to consolidate over time - faster in recent years¹ Globally, Merger and Acquisition (M&A) activity reached a volume of $4.3 trillion, barely beating the record set in 2007² 2015 M&A driven by² Pressure to become more efficient in a slow-growth economy Increased boardroom confidence Cheap debt Desire to keep up with consolidating rivals ¹Deans, Graeme K., Kroeger, Fritz, and Zeisel, Stefan, The Consolidation Curve, Harvard Business Review, December ²Farrell, Maureen, 2015 Becomes the Biggest M&A Year Ever, The Wall Street Journal, Dec. 3, 2015, as of April 4, 2016 at 2

3 Purchases Have Increased while Procurement Funding Has Varied in DoD Budget % of budget $sb (FY 2017) Purchases % Procurement $s Spending Last supper peak Consolidation More Sources: OUSD(Comptroller), National Defense Budget Estimates for FY 2017, March 2016, Table 6-1, 6-2, 3

4 Procurement Is Projected to Increase, then Decrease, and then Increase Slightly in Future Budgets $ B (FY2017) Actual Planned O&M Procurement RDT&E Family Housing Fiscal Year Source: OUSD(Comptroller), National Defense Budget Estimates for FY 2017, March 2016, Table NOTE: Data in Constant FY2017 Dollars. MILCON 4

5 Leading Industries for DoD Procurement Dollars NAICS Procure $sb Total DoD $sb Total Industry $Bs Code Name Aircraft Manufacturing Ship Building and Repairing Missile & Space Veh. Mfg Engineering Services Other Aircraft Pts./Equip. Mfg Search Instrument Mfg Armored Vehicle & Tank Mfg R&D in Sciences Ammo. (not small-arms) Mfg Acft. Engines & Engine Parts Radio/TV Broadcast Equip Boiler and Heat Exch. Mfg Source: Federal Procurement Data System Next Generation FY2012 and FY2015, Economic Census CY2012 5

6 Procurement Share of DoD Dollars and DoD Share of Industry Dollars NAICS Procure Share of DoD $s DoD Share of Industry $s Code Name Aircraft Manufacturing Ship Building and Repairing Missile & Space Veh. Mfg Engineering Services Other Aircraft Pts./Equip. Mfg Search Instrument Mfg Armored Vehicle & Tank Mfg R&D in Sciences Ammo. (not small-arms) Mfg Acft. Engines & Engine Pts Radio/TV Broadcast Equip Boiler and Heat Exch. Mfg Source: Federal Procurement Data System Next Generation FY2012 and FY2015, Economic Census CY2012 6

7 NAICS Codes Are Often Very Broad Aircraft Manufacturing Example Airplane(military, civilian, general aviation) Manufacturing Conversions Overhauling Rebuilding Prototype development Other aircraft mfg. Autogiro Blimp Drone Glider Helicopter Ultralight 7

8 Herfindahl-Hirschman Index of Market Concentration by Industry, Herfindahl-Hirschman Index 3,500 3,000 2,500 2,000 1,500 1, Industry concentration¹ High Moderate None 0 Acft. Mfg. (336411) Ship Build and Repair (336611) Other Acft. Parts Mfg. (336413) Instrument Mfg. (334511) Armored Veh. Mfg. (336992) Ammo. Mfg. (not Small Arms) (332993) Acft. Engine Pts. Mfg. (336412) ¹As defined U.S. Department of Justice and Federal Trade Commission, Horizontal Merger Guidelines, August 19, 2010, p. 19. Radio/TV equip. mfg. (334220) Boiler and Heat Exch. Mfg. (332410) Source: Economic Census. Data not available for years not shown. 8

9 Registered Firms by Industry and Size NAICS code Aircraft Manufacturing Ship Building and Repairing Missile & Space Veh. Mfg. Other Aircraft Pts./Equip. Mfg. Search Instrument Mfg. Armored Vehicle & Tank Mfg. Ammo. (not small-arms) Mfg. Acft. Engines & Engine Pts. Radio/TV Broadcast Equip. Boiler and Heat Exch. Mfg. R&D in Sciences Small Other Engineering Services 0 10,000 20,000 30,000 40,000 Number of firms Source: System for Award Management

10 Concentration Indexes for Aircraft Manufacturing (NAICS Code ) % of total value of shipments 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Four largest firms Eight largest firms 20 largest firms 50 largest firms Source: Economic Census 10

11 Aircraft Manufacturing (NAICS Code ) Firms by Number of Employees Number of Firms # of employees < Year SBA size standard = 1,500 employees Source: Statistics of U.S. Businesses 11

12 Concentration Indexes for Ship Building and Repairing (NAICS Code ) % of total value of shipments 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Four largest firms Eight largest firms 20 largest firms 50 largest firms Source: Economic Census 12

13 Ship Building and Repairing (NAICS Code ) Firms by Number of Employees Number of Firms # of employees < Year SBA size standard = 1,250 employees Source: Statistics of U.S. Businesses 13

14 Concentration Indexes for Guided Missile and Space Vehicle Manufacturing (NAICS Code ) % of total value of shipments 100% 98% 96% 94% 92% 90% 88% 86% 84% 82% Four largest firms Eight largest firms Source: Economic Census. In no year of Economic Census since 1997 has industry had 20 firms. 14

15 Guided Missile and Space Vehicle Manufacturing (NAICS Code ) Firms by Number of Employees Number of Firms # of employees < Year SBA size standard = 1,250 employees Source: Statistics of U.S. Businesses 15

16 Findings DoD is a dominant or major buyer in some, but not all, top procurement industries Because some NAICS codes cover very broad activities; they may need refinement to provide better data One top DoD industries by total Procurement dollars is already highly concentrated and several more are close to being so Since 1997 industry concentration has improved for a number of top defense industries Most industries have many small firms, but these firms may not provide the goods or services DoD needs 16

17 Questions? 17

18 Concentration Indexes for Engineering Services (NAICS Code ) % of total value of shipments 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Four largest firms Eight largest firms 20 largest firms 50 largest firms Source: Economic Census 18

19 Engineering Services (NAICS Code ) Firms by Number of Employees Number of Firms # of employees < Year SBA size standard = $15 million in revenue except Military and Aerospace Equipment and Military Weapons, Contracts and Subcontracts for Engineering Services Awarded Under the National Energy Policy Act of 1992, and Marine Engineering and Naval Architecture = $38.5 million in revenue Source: Statistics of U.S. Businesses 19

20 Engineering Services (NAICS Code ) Firms by Annual Receipts Number of firms 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 <$15,000,000 $15,000, Source: Economic Census 20

21 Concentration Indexes for Other Aircraft Parts and Auxiliary Equipment Manufacturing (NAICS Code ) % of total value of shipments 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Four largest firms Eight largest firms 20 largest firms 50 largest firms Source: Economic Census 21

22 Other Aircraft Parts and Auxiliary Equipment Manufacturing (NAICS Code ) Firms by Number of Employees Number of Firms # of employees < Year SBA size standard = 1,250 employees Source: Statistics of U.S. Businesses 22

23 Concentration Indexes for Search, Detection, Navigation, Guidance, Aeronautical, and Nautical System and Instrument Manufacturing (NAICS Code ) % of total value of shipments 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Four largest firms Eight largest firms 20 largest firms 50 largest firms Source: Economic Census 23

24 Search, Detection, Navigation, Guidance, Aeronautical, and Nautical System and Instrument Manufacturing (NAICS Code ) Firms by Number of Employees Number of Firms # of employees < Year SBA size standard = 1,250 employees Source: Statistics of U.S. Businesses. NAICS code is in concordance with SIC code

25 Concentration Indexes for Military Armored Vehicle, Tank, and Tank Component Manufacturing (NAICS Code ) % of total value of shipments 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Four largest firms Eight largest firms 20 largest firms 50 largest firms Source: Economic Census. 25

26 Military Armored Vehicle, Tank, and Tank Component Manufacturing (NAICS Code ) Firms by Number of Employees Number of Firms # of employees < Year SBA size standard = 1,500 employees Source: Statistics of U.S. Businesses. 26

27 Concentration Indexes for Research and Development in the Physical, Engineering, and Life Sciences (except Biotechnology) (NAICS Code ) % of total value of shipments 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Four largest firms Eight largest firms 20 largest firms 50 largest firms Source: Economic Census. Current definition of industry implemented in

28 Research and Development in the Physical, Engineering, and Life Sciences (except Biotechnology) (NAICS Code ) Firms by Number of Employees Number of Firms # of employees < Year SBA size standard = 1,000 employees except Aircraft Engine and Engine Parts = 1,500 employees and Other Aircraft Parts and Auxiliary Equipment and Guided Missiles and Space Vehicles, Their Propulsion Units and Propulsion Parts = 1,250 employees Source: Statistics of U.S. Businesses. Current definition of industry implemented in

29 Concentration Indexes for Ammunition (except Small Arms) Manufacturing (NAICS Code ) % of total value of shipments 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Four largest firms Eight largest firms 20 largest firms Source: Economic Census. In no year of Economic Census since 1997 has industry had 20 firms. 29

30 Ammunition (except Small Arms) Manufacturing (NAICS Code ) Firms by Number of Employees Number of Firms Year SBA size standard = 1,500 employees Source: Statistics of U.S. Businesses. NAICS code is in concordance with SIC code # of employees <

31 Concentration Indexes for Aircraft Engine and Engine Parts Manufacturing (NAICS Code ) % of total value of shipments 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Four largest firms Eight largest firms 20 largest firms 50 largest firms Source: Economic Census. 31

32 Aircraft Engine and Engine Parts Manufacturing (NAICS Code ) Firms by Number of Employees Number of Firms # of employees < Year SBA size standard = 1,500 employees Source: Statistics of U.S. Businesses. 32

33 Concentration Indexes for Radio and Television Broadcasting and Wireless Communications Equipment Manufacturing (NAICS Code ) % of total value of shipments 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Four largest firms Eight largest firms 20 largest firms 50 largest firms Source: Economic Census. Current definition of industry implemented in

34 Radio and Television Broadcasting and Wireless Communications Equipment Manufacturing (NAICS Code ) Firms by Number of Employees Number of Firms # of employees 400 < Year SBA size standard = 1,250 employees Source: Statistics of U.S. Businesses. Current definition of industry implemented in

35 Concentration Indexes for Power Boiler and Heat Exchanger Manufacturing (NAICS Code ) % of total value of shipments 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Four largest firms Eight largest firms 20 largest firms 50 largest firms Source: Economic Census. 35

36 Power Boiler and Heat Exchanger Manufacturing (NAICS Code ) Firms by Number of Employees Number of Firms Year SBA size standard = 750 employees # of employees < Source: Statistics of U.S. Businesses. 36

37 Herfindahl-Hirshman Index (HHI) Sum of the squared market shares of all the firms in the industry The Federal Trade Commission (FTC) used the following cutoffs for the HHI* in 1997 Less than 1,000: unconcentrated 1,000 to 1,800: moderately concentrated Above 1,800: highly concentrated *FTC Horizontal Merger Guidelines, revised April 8, 1997, pp

Media Concentration in America: Trends, Drivers, and Lessons

Media Concentration in America: Trends, Drivers, and Lessons Eli M. Noam Professor of Finance and Economics Columbia University Graduate School of Business, New York Director, Columbia Institute for Tele