A New Arms Race Exports Booming for German Weapons Manufacturers

A decrease in orders from its own military has led Germany's arms industry to turn the focus of its sales efforts abroad. It has recently enjoyed amazing successes despite seemingly strict export controls.


For Frank Haun, it's all a matter of "red" or "blue," a minor color change on his map of the world.

Haun is the boss of Krauss-Maffei Wegmann (KMW), a Munich-based defense company whose product line includes tanks and other armored vehicles. Not long ago, Haun used a projector to display a map of the world on the wall for some visitors. Countries his company could export arms to -- such as Canada, Brazil and Chile -- were in blue. Those in yellow could only import arms under certain conditions. And, as a general rule, the firm considered those in red to be off-limits for exports. The Gulf region was lit up in red.

At the time, KMW figured that it wouldn't get official permission to export its wares to the crisis-hit region. "Whether a country is red, yellow or blue is something the German government decides," Haun says.

But now, red might suddenly turn blue: Germany's Federal Security Council, a group that decides which weapons exports to allow, has green-lighted the sale of more than 200 model 2A7+ Leopard tanks to Saudi Arabia.

News of the deal has unleashed a controversy in Germany over the country's foreign and arms export policies, the likes of which hasn't been seen for quite some time. But the tank deal with Saudi Arabia has also thrown a spotlight on an industry that prefers to do business in the shadows. In fact, the industry usually only causes a stir once a year: when the Stockholm International Peace Research Institute (SIPRI) publishes its annual ranking of the world's largest arms exporters.

Behind the Big Guns

Germany is in third place among the world's biggest weapons suppliers, behind only the big guns of Russia and the United States and in front of France and Great Britain. Its arms are coveted around the world: tanks from Krauss-Maffei Wegmann and Rheinmetall; submarines from ThyssenKrupp; fighter jets, helicopters and drones from EADS; missiles and munitions from Diehl; rifles from Heckler & Koch; torpedoes from Atlas Elektronik; and telescopic sights from Carl Zeiss.

The United States military is generally only allowed to order armaments from domestic suppliers. But even it makes an exception when it comes to Germany: For their tanks, they order the smooth-bore guns made by Rheinmetall because they are more precise than those developed in the US.

The international arms industry doesn't face crises; crises are its business. In 2010, global arms expenditures rose to $1.63 trillion (€1.14 trillion). This represents a growth of 56 percent over the last decade, according to SIPRI. Indeed, almost one-tenth of all the money generated by global weapons exports ends up in the pockets of the German defense industry.

But what is it about the German arms industry that has made it so successful? And how can it still succeed in exporting so many weapons despite what appear to be strict export controls?

'The Number of Global Trouble Spots is Rising'

In late February, Abu Dhabi is pleasantly warm; the temperatures stay far below the 40 degrees Celsius (104 degrees Fahrenheit) found here in the summer. Indeed, it is the best time to take a trip to the United Arab Emirates. And, every other year, it is also the best place to be if you're in the global arms business as the executives of arms companies meet here with military and government officials for the industry's largest worldwide trade fair.

The hosts of the 10th International Defence Exhibition & Conference, which was held in mid-February, reported record figures. The trade fair saw 1,060 exhibitors from 52 countries showcase their wares for everyday military needs. There were helicopters that can destroy any kind of ground targets and ground defenses that can shoot any helicopter out of the sky. There were tanks that can withstand any attack, and defensive weapons that can penetrate any armor.

The pavilion in Abu Dhabi reserved for German companies included displays from Diehl, Krauss-Maffei, Rheinmetall, Carl Zeiss Optronics and many others, and was bigger than those of the United States and Russia.

Rheinmetall was displaying tanks and defensive weapons systems. Company head Klaus Eberhardt will admit that "the number of global trouble spots is rising," but won't say he is pleased about that fact. Either way, his company is benefiting from the increase. Eberhardt estimates that the global arms trade will increase by between 5 and 6 percent this year.

Changing Times

Like most other German arms companies, Rheinmetall has adapted its business to fit changing times. A decade ago, the companies primarily supplied Germany's military, the Bundeswehr. But these days, roughly 70 percent of their products are sold to foreign clients.

German arms companies enjoy a reputation for delivering high-tech weapons of the highest quality. For example, the ThyssenKrupp submarines outfitted with fuel cells are considered the best in the world because they are practically undetectable.

Several large corporations dominate the market in Great Britain, the United States and France, but that is not the case in Germany. Indeed, the industry is just as broadly diversified as the German export industry as a whole, and in addition products intended for civilian use account for a large part of the sales of many of these companies.

The companies are also profiting from how military conflicts have changed. Gone are the days when huge formations of soldiers faced off against each other. These days, fighting is conducted in many places at the same time and often by small units. This type of fighting calls for high-tech solutions, including drones, satellites, radars and electronic gadgetry. Much of this is based on technology in fields where Germany companies are among the world's leaders.

Precision Firing at Full Speed

What's more, manufacturers are increasingly taking know-how that has been employed in civilian products and putting it to use in military projects. Take the example of Carl Zeiss, the optics company with a long and distinguished history that is primarily know for making lenses for glasses and binoculars. Through its Carl Zeiss Optronics subsidiary, the company now offers telescopic sights for gunners and alignment systems for the "Leopard 2" tank that allow for precision firing even at full speed.

Optronics is the defense division of the Carl Zeiss Group and numbers among the leading companies in the world when it comes to optical systems. Its product portfolio includes infrared cameras for border surveillance, multi-sensor systems for drones, laser communication systems that cannot be intercepted and night-vision devices that can be employed at sea, on land and in the air.

The German arms industry is made up of both lesser-known companies and big names. Global giants Siemens and SAP offer military software solutions. At the same time, Kärchner, a medium-sized company known for high-pressure cleaners, is also a world leader when it comes to NBC (nuclear, biological, and chemical) protection and water treatment. And, whether big or small, they all see their future in exports.

"Growth doesn't come from Europe anymore," says Stefan Zoller, head of Cassidian, a defense company that is an offshoot of EADS. Defense budgets in Europe are stagnating, Zoller explains, and the biggest opportunities are to be found in the Middle East, India and Brazil. Over the next decade, Cassidian hopes to double its sales volume to €12 billion. At the moment, a quarter of the company's sales are generated outside Europe, and it expects this figure to rise to 40 percent in the near future.

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