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DSS Vol. 1, December 2020, pp.26-33

The goal of this paper to investigate perspectives of Bosnian defense industry in national innovation system as
well as global trends and local Bosnian defense sector opportunities for generating significant added value
through customized innovative solution for targeted global market. National innovation system is defined as
“…set of distinct institutions which jointly and individually contribute to the development and diffusion of
new technologies and which provides the framework within which governments form and implement policies
to influence the innovation process. As such it is a system of interconnected institutions to create, store and
transfer the knowledge, skills and artefacts which define new technologies” [5]. The defense industry is
primarily a business with the main objective to maximize profit with minimal investments. Also, Bosnian
defense industry has all potential to be recognized as one of the strategic industries for the development of the
country.

2. Top global market trends
For the purpose of this research, global trends are reflected in two directions: spending trends and R&D
trends. Global defense spending continues to increase despite financial pressure due to COVID-19. The
global defense spending for period 1988 – 2019 is shown in Figure 1.

Figure 1. Global defense spending for period 1988 – 20191

The demand for military equipment is growing as governments around the world focus on military
modernization busting worldwide defense expenditure. Global defense spending reached US$1.914 trillion in
2019, and continue to grow in 2020 for about 3.9% despite coronavirus pandemic.
To identify general trends in different weapons deliveries and to permit comparison between the data,
Stockholm International Peace Research Institute (SIPRI) developed a unique system to measure the volume
of international transfers of major conventional weapons using a common unit, the trend-indicator value
(TIV). The TIV trends of total arm transfer for period 1950 – 2019 is presented in Figure 2.

Figure 2. Total arms transfers for period 1950 – 2019 2

1 SIPRI Military Expenditure Database, https://www.sipri.org/gallery/military-spending-graphics-2019

500

700

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DSS Vol. 1, December 2020, pp.26-33

It is observed that TIV had been growing over the time until it achieved a peak in 1982. In period between
1982 and 2002 the TIV was significantly decreased. Since 2002 the TIV has been growing until now. It is
expected that COVID-19 will slightly slow the TIV growth in upcoming period.
The trends in R&D are focused on the artificial intelligence systems, additive manufacturing, as well as cost
reduction. Future weapons are not something so Sci-Fi nowadays. Electric rifles, advanced magnetic armor,
robot soldiers, etc. are all being devised today by big, both public and private institutes [6].
Defense is interested in technologies, systems and processes that improve intelligence collection, analysis and
dissemination across all capabilities within Defense and in all domains: land, maritime and aerospace. This
includes the advanced use of biometric data, as well as innovation in cyber technology to support every facet
of capability development.
Supporting the shift from Intelligence, Surveillance and Reconnaissance to Targeting, as well as the
advancement of hypersonic technology as an opportunity for Defense’s space capabilities also warrant
attention in this stream. The relevancy of smart defense in modern international security has been on NATOs
list ever since 2008 financial crisis [7].

2.1. Artificial intelligence

Global market trends are important indicators for the contractors or companies in the global market as the
more updated one is the more market area can be covered. According to case studies done [8], the defense
industry shifts towards robotics, cyber weaponry and automated complex systems [9].
Starting with the main technological trends, artificial intelligence (AI) has certainly become a great tool for
defense industry in the sense of processing large amounts of data with which organizations have struggled
over the past few years. Data processing done by AI allows people to shift their focus on the results and
findings in contrast to primarily producing them. Advanced robots and augmented reality are some similar
paths companies are already taken interests into with heavily investments already being taking places.

2.2. Additive manufacturing

3D printing has become a huge disruptor ever since 2017. The militaries are already looking into the potential
of printing spare parts and military equipment in-theatre to drive down costs and drive-up availability. The
aerospace and defense (A&D) sector is set to become one of the biggest contributors to 3D printing’s global
revenues, predicted to reach a mammoth $1.4 billion by 2019, producing parts in-house, a development that
will completely reshape the relationship between contractors and manufacturers [10], [11].

2.3. Cost reduction

Another trend is cost technology. Clean technology measures within the A&D sector include energy
efficiency, waste management, recycling, use of digital and paperless products, video conferencing, and many
more. According to well defined research the budget for the global defense clean technology market will
increase 7.5% between 2016 and 2021. This also includes paperless documents and clean power. A difficulty
defense companies face as they try to move forward with these environmentally friendly technology initiatives
will be integration with current systems. However, the savings over the long run from eco-friendly and cost-
effective solutions are worth the initial investment.
Cost-effectiveness can be listed as the back bone of all the major trends. Innovation is the key factor in this
industry and those who are willing to adapt are those who survive. Technology investments are elements that
enable manufacturers to innovate on-the-go. These improvements should lower manufacturers’ costs and help
them stay a relevant member of the industry.
Companies in sectors of the healthcare, software and internet show the substantial grow in the R&D spending
over the last fifteen years, while typically spend less on R&D and it has been largely flat over recent years.

2 Source: SIPRI Trend Indicator Values (TIVs), http://www.sipri.org/databases/armstransfers/sources-and-
methods/

DSS Vol. 1, December 2020, pp.26-33

Companies from South Korea, Israel, Europe, Japan, North America and China demonstrate the most
significant growth in R&D spending.

Figure 3. R&D spending by industry3

3. Current state and trend in Bosnian defense industry
As result of increased global defense spending, in recent years turnover of Bosnian defense industry started to
grow. Reports say that the total income has increased for 21% and the total export has increased for 29%
when compared to 2015 [12]. The Defense industry is mainly based on the production of ammunition and
artillery pieces. This is far away from the time when Bosnia as a part of Former Yugoslavia, produced a wide
variety of both complex and non-complex products. Being a war-ravaged transition country, the reduction in
production is not something out of the ordinary.
Ukraine, as one of the world’s super power in weapon production, experienced a huge decrease in every
branch of their defense industry in their transition period of 1991 to 1999 [13]. Through investments in R&D
and through arms export to 3rd world countries, Ukraine’s defense industry rocketed sky high again. Although
a small country, with small influence, Bosnia can allocate the steps which Ukraine undertook in order to get
its industry back in its tracks.

Representative products of Bosnian defense industry [14], [15]:
 All kinds of small-arms ammunition, ranging from cal. 5.56 to 12.7 mm
 Artillery howitzers and mortar systems
 Artillery ammunition, ranging from 75 to 152 mm
 Mortar ammunition, ranging from 60 to 120 mm
 Fuses and cartridges
 Observing and sighting equipment
 Uniform and soldier protection equipment (Military vests, Helmets, Riot control equipment, Boots)

Recently developed:
 Self-propelled howitzer 155 mm with fully automatic loading (prototype made)

3 Source: Capital IQ data, Strategy and analysis

Healthcare

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Software and Internet

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DSS Vol. 1, December 2020, pp.26-33

 Light Armored Vehicle
 Gun 9 mm and rifle 7.62 mm
 RPG 7

Following the world defense industry trends and investing in R&D, Bosnia can take a piece of the world trade
cake. Recently, Bosnia developed its first fully automatic, mobile artillery piece. It complies with NATO
standards, is lighter than its French and Serbian competition and is ought to cost less than its counterparts. The
manufacturer BNT Novi Travnik, devised everything except the sophisticated electronics and the truck [14].
Analyzing the portfolio of local defense industry, it is observed that only recently developed self-propelled
howitzer is on the track with global R&D trends. To be on the track with the global R&D trends in defense, a
significant upgrade of the existing product is required, and development of solution for the global market.

To asses alignment of Bosnian defense sector with the global trends, SWOT analysis is done and the results
are provided in Table 1.

Table 1. SWOT analysis of Bosnian defense industry
Strengths Opportunities

Tradition in making weapons and other metallurgy
products
Reliable, battle tested products
Skilled workforce
Brand

Growth in global defense spending
Growing trends in smart weapon ammunition
Artificial Intelligence
Autonomous complex systems
Bio Design
Drones
Laser-based weapons
To become strategic industry for Bosnian economy

Weaknesses Threats

Insufficient investment in R&D
Lack of knowledge needed for the creation of more
complex weapon systems
Little or no R&D

Lack of political stability
Current world policies
World competitors

As previously explained, the strengths are analyzed as one of the internal elements of this analysis. In this
case, strengths of the Bosnian defense industry are tradition in making weapons and other metallurgy
products, reliability of products and proven brands. On the other hand, weaknesses of the industry could either
be lack of knowledge regarding producing complex weapon systems, as well as insufficient investment in
research and development, which are driving forces of industry growth. Tapping into the area of drones, or
Artificial Intelligence based systems could be considered as opportunity of defense industry of Bosnia, while
the competitors and potential political instability as well as new global policies on defense products and
distribution are perceived as threats of the industry.

Along with the pharmaceutical industry, local defense industry has potential to become one of the key sectors
of the Bosnian innovation system. Innovations are key factors to generate significant added-value, to improve
economic performance and to ensure business future.

Opportunities lie in global defense spending growth, growing trends in smart weapon ammunition,
autonomous complex systems, artificial Intelligence, drones. Spending in defense sector on global level is
continuously and significantly grooving, therefore this sector should become one of the strategic industries for
the Bosnian economy and country development. This is an opportunity to invest in end-user-solutions on the
global market through this industry, which will have significant added value and a significant share of
knowledge.

DSS Vol. 1, December 2020, pp.26-33

Comparing the current production program from the Bosnian defense industry with global trends, it is
observed that significant upgrade is required to keep pace with global trends, which requires significant
investment in research and development. Therefore, potential investors as well as the government should
recognize their interest in this sector, explore and encourage investors to invest. The R&D expenditure for
selected countries as percentage of GDP for period 1996 – 2019 is shown in Figure 4.

Figure 4. R&D Expenditure in Bosnia and for selected countries4

Recent spending on R&D projects in Bosnia are one of the lowest in the world as well as the lowest in the
region. Companies and government from Bosnia spend less than 0.2% of GDP on R&D projects, which is
about 5 times lower than regional average (compared with neighboring countries) and about 15 times less that
the average of top global investor in R&D. To improve economic performance of Bosnian defense industry,
investment in R&D is necessary, since there is significant positive correlation between investment in R&D
and economic performance [16].

Over the last decade South Korea has the highest grow in R&D spending as percentage of GDP. Reforms
which took place in South Korea would be a good model of restructuring the defense industry and the military
in general [4]. Making strategic alliances with countries that are already producing sorts of smart weapons
would be an important step in the development of a domestic smart weapon or ammunition. Obtaining the
knowledge through partnerships with countries which are leaders in the market, Bosnia would be able to
become a regional factor in the production of smart weapons. A good example could be the Israel, Spain and
Portugal, which became regional leaders in arms production through investments in R&D, but also through
their acute strategic need [17].

4 The World Bank, https://data.worldbank.org/indicator/GB.XPD.RSDV.GD.ZS

Bosnia

China

Croatia

Israel

Japan

Serbia

Turkey

USA

World

South Korea

Russia

1995 2000 2005 2010 2015

R&
D

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(%
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Year

Bosnia China EU
Croatia Israel Japan
Serbia Turkey USA
World South Korea Russia

DSS Vol. 1, December 2020, pp.26-33

As already stated, Bosnia’s ammunition products are already used in many nations, all over the world. They
are less expensive but battle proven and reliable. So, there is a solid turf at which Bosnia can aim their sights.
Following trends and further developing the production of arms, increases interest in products which are made
in Bosnia. Cooperation between partners countries can definitely lead them to a profound and well-established
R&D and manufacturing industry for the defense systems. For instance, in the US most of the R&D
investment were made by business, which is shown in Figure 5.

Figure 5. History of R&D Expenditure in the US by business and government [18]

Recently the business share in the US R&D expenditure is about 67% of total GDP for R&D, while the
government is about 33% [18].

4. Conclusion
Opportunities for Bosnian defense industry in global trends are analyzed. The defense industry is primarily a
business, and as in every business the main objective is to maximize profit with minimal investments. Bosnia
is a small country and has negligible influence in the global market of arms. This can be considered as an
advantage for Bosnian defense sector to be specialized on customized solutions for narrow global market
rather than modular ones. Customized solutions for narrow global market might be less interesting to big
players, which could make some room for Bosnian defense industry. Current rate of expenditure in the R&D
sector is not fare below world average, as well as far below regional average. To bridge the gap between the
desire to invest in R&D and the provision of the necessary funds, the public private partnership model could
be one with an emphasis innovative solution. In order to achieve this, it is necessary to recognize the domestic
defense sector as a strategic branch for economic development. Opportunities lie in growing of global
expenditure for the defense products and positive trend in artificial intelligence systems. Tradition in making
weapons and other metallurgy products, reliable battle proven products and skilled workforce are major
strengths. Among the other domestic sectors, the defense industry along with pharmaceutical has the potential
to deliver via R&D end user solutions, which qualifies them to generate increased added-value through the
knowledge and branding. Therefore, the defense industry through the R&D output may play a key role in the
national innovation system and achieve notable positive impact on the national economic performances.

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