As Russia plans to cut back on its own military procurement¹, revenues from international arms sales will become more important as a financing source for maintenance and further development of its defence industrial sector. The ability of the Russian industry to adapt to the continuous adjustment of the international arms trade environment will therefore have a significant impact on its future.

Despite the fact that its defence companies are rather small compared to major Western companies, Russia has managed to become a key supplier to the global arms market². In 2012–2016, according to SIPRI, its share in international arms transfers amounted to 23%, second only to the U.S. share (33%). It was followed by China, France, Germany and the United Kingdom—all lagging behind Russia with as much as 17 to 19 percentage points³. In total, SIPRI identified 57 countries as exporters of major weapons in 2012–2016. However, according to the so-called Herfindahl Index—a number equivalent of supplier concentration—the concentration rate of the international arms market corresponds to a market of 5.5 equally sized selling countries. The international arms market has thus more features in common with an oligopoly market, i.e. a market dominated by a small number of sellers, than of a market with perfect competition where no single seller is large enough to influence the market price.

At first sight, Russia seems to have a strong position in this setting, in particular as the global volume of international arms transfers has grown more or less continuously since 2002. Russian arms and military equipment have usually been considered to be good enough for their purpose and for reasonable prices—an attractive formula for middle-income countries. However, this comparative advantage has faded in later years. What is more, the financial value of Russian international deliveries of conventional arms peaked at 15.7 billion U.S. dollars in 2013, and has since then stagnated at 15 billion U.S. dollars per annum⁴.