The economics of the industry are incredibly strong at the moment. In reaction to Barack Obama’s reelection and especially the pending gun legislation in the wake of the Newtown shooting, many American consumers are demanding weapons and ammunition at prices well above typical market prices. For example, Smith and Wesson recently reported earnings triple that of a year ago. Similar performanes have been seen in a host of gun manufacturers, indicating that the increase in demand has not been to confined to any specific sector of the small arms market. Publicly traded shares of major weapon manufacturers plummeted following Newtown but have since rebounded.
While the gun industry’s economics are strong at the moments, the broader picture of the American economy is bleaker. Unemployement is still stubbornly high and personal debt remains
Natural: At first glance, the natural environment may not seem to be particularly relevant to H&K’s market outlook. However, two developing environmental trends could have major impacts on the company. The first of these is resource depletion. Globally, a host of critical resources have been greatly diminished, including most notably food and water. As the many food riots around the globe over the last few years demonstrate, resource scarcity can easily prompt instability and violence. Instability and violence, of course, are powerful incentives for people to more heavily arm themselves. Thus, if the problem of resource depletion persists, and especially if it is further exacerbated, it will likely mean more sales for H&K. The second environmental trend that could significantly affect H&K is global warming. While there is a great deal of uncertainty about what exactly global warming will look like, there is almost no debate within the scientific community about its existence. If the scientific consensus is correct, large changes to the environment are looming. Like resource depletion, many of these changes will undoubtedly trigger civilian unrest and armed confrontations. For example, if sea levels rise only modestly, as even most conservative model predict, the result will be the largest refugee crisis in human history, a development that could very easily lead to violence. When such effects will take place is subject to controversy and will not affect H&K in the near future. However, global warming could certainly play a large role in the company’s long-term future.
Technologically, the weapons industry is relatively static but offers many sales opportunities. While the fundamentals of small arms change little over time, improvements are constantly developed, bringing back prior customers who wish to have the latest technology. Also, small arms are often modified with gadgetry, which provides many opportunities for innovation and product differentiation. The American gun culture values advanced weapons technology at a premium, making technological sophistication a requirement for H&K products. Major innovation in the field of small arms has taken place in the last decade. One focus of innovation has been an effort to reduce the weight of individuals’ weapons, thereby making them more agile, more lethal, and better protected. Important developments have also take place in small arms ammunition. Two alternatives to metal-cased bullets are in advanced stages of development: polymer-cased ammunition and…