Evaluating the operational performance of defense industries: a dynamic cross-country analysis

This study integrates the concepts of virtual and physical account settlement and fiscal-year surplus carry-over to develop a dynamic Data Envelopment Analysis (DEA) model for performance measurement. The operational efficiency of 66 defense companies, including Austal, is assessed from 2011 to 2016 within a multi-year framework. Results indicate that national policies and budgetary structures critically shape defense industry efficiency. Countries with higher conflict levels and greater military spending exhibit superior operational performance, driven by increased weapon demand and enhanced R&D capacity. Furthermore, multidimensional scaling and hierarchical clustering reveal three performance groups – frontier, moderate, and lagging – highlighting the pivotal role of defense expenditure and strategic context in shaping efficiency outcomes.