Global Government Spending Sector: Value Chain Analysis

The global government spending sector’s value chain can be divided into five distinct stages: inputs, component production, assembly, government services, and governments. Governments can integrate backwards via state owned enterprises, such as NORINCO. 

The inputs used during the production process can largely be divided into two distinct categories: metals and petrochemicals 

The metals category can be segmented between precious metals and base metals. The first segment consists mainly of gold and palladium. Many electronic devices use low voltages and currents, and gold is a very efficient conductor of these, making devices that use them more reliable. Palladium is used in multilayer ceramic capacitors, as well as for connector plating and in soldering materials. 

Large players present, but opportunities are available for SMEs to specialize 

Defense, healthcare, transport, and IT products contain many different components, each of which performs a different, but vital function. The different nature of each component means that many of the manufacturers specialize in producing only a few types, often even just one. 

Assembly stage dominated by large multinationals, but governments will demand domestic preferential treatment 

The assembly stage of production is the point at which the device or appliance to be sold is constructed. Assemblers take the components and through a series of assembly processes (cutting, soldering, gluing, software installation, etc.) produce the final product. Alternatively, this is where integral products such as engines are also completed. 

Large players and national champions dominate government service provision 

Tendency to permit companies to operate in outsourcing depends on the government’s strategy. In many developed economies and those on the receiving end of IMF assistance, the imperative has been to open up the public sector to private competition to boost efficiency and lower costs. 

The state is the only buyer for many services, and will backwards integrate 

Defense is dominated by governments, who are the only legal purchasers of products, and effective monopsonies in respective countries. This is due to both regulation of the products and prohibitive costs. 

Depending on priorities, governments have seen mixed fortunes in terms of defense spending. While countries such as the US, Saudi Arabia, China, and Russia have all been increasing spending historically, in NATO countries few met the organization’s obligation of 2% of GDP expenditure. NATO’s own estimates conclude that only seven of the 29 members met the target in 2019. Several countries have begun to reverse this decline due to increasing instability. 

Table of Contents 

1. Complete Value Chain 
2. Inputs 
3. Production 
4. Assembly 
5. Government Services 
6. Governments 

FAQ’s 

       1.How many stages are there in the global government spending sector’s value chain?

The global government spending sector’s value chain can be divided into five distinct stages: inputs, component production, assembly, government services, and governments. The report discusses the topic in detail.

       2.What is Assembly stage?

Assembly stage is assembling a complete product for government service providers- whether its manufacturing in house or contracted, IT, construction, or recruitment agencies. The report discusses the topic in detail.