Russian maker of the famed Kalashnikov AK-47 faces bankruptcy

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Izhmash Arms Factory, the sole licensed manufacturers of the famous AK-47 assault rifle, may be facing bankruptcy. Andrei Markin, a businessman in the company's home city of Izhevsk, has filed suit to declare the company bankrupt because of outstanding debts totaling approximately $265,000. While the manufacturer states that its order books are full and that Markin's suit is bogus, there is little doubt that Izhmash -- and the Russian arms industry -- have fallen on hard times.

Between 2007 and 2008, the Russian arms industry experienced a 72 percent drop in sales. Although the country is still a world leader in the firearms industry, it is ceding an ever-increasing market share to China, which has demonstrated an impressive ability to reverse-engineer military technology. Currently, Russia is caught between two tough choices: it can either accept a smaller market share, or can make increasingly complex weapons systems available to China. If it follows the latter path, it will do so in the full knowledge that China will continue its reverse-engineering process, stealing an ever-increasing portion of Russia's sales.
The other half of the problem lies in Russia's shift from communism to capitalism. Under the old system, it was in the country's best interests to encourage foreign manufacture of the weapons, and the aggressiveness with which they did so transformed the AK-47 into the world's most popular assault rifle. While arguably less recognizable as the Israeli Uzi or the American M16, the AK-47 is far more common; in fact, some experts estimate that up to 80 percent of all assault rifles are AK-47s.

During the Cold War, when the Kalashnikov was the weapon of choice for America's enemies, the Soviet Union was eager to put the weapons in the hands of people who might use them to muck up western interests. For this reason, the country helped develop factories in Vietnam, China, India and throughout the Eastern Bloc. They liberally exported the rifles to numerous countries, including Vietnam, where they were the weapon of choice among the Vietcong. A few years later, the United States returned the favor, shipping millions of Chinese AK-47s to Afghanistan, where Mujahiddin warriors used them against Soviet soldiers.

Beyond their reputation for incredible durability and extremely long life, AK-47s are also easy to manufacture; while more AK-type guns have been produced than all other assault rifles combined, it's impossible to determine how many of the weapons are currently floating around. Although some experts estimate that more than 100 million have been produced since the rifle was created in 1947, a large part of the accounting difficulty lies in the widespread production of the rifles: AK-47 knockoffs are manufactured in over 20 countries, including the United States.

During the Cold War, when ideology was a greater consideration than lucre, outsourcing the AK-47 was a wise move for the USSR. By moving manufacturing to other countries, Soviet planners encouraged greater closeness with their revolutionary brethren and paved the way for an increased military presence in these countries. However, with the 1991 fall of Soviet communism and Russia's subsequent move toward capitalism, it no longer made sense to allow other countries to trade on a Russian brand. The Izhmash Arms Factory claims a patent on the design, arguing that all foreign licenses for manufacturing the guns expired with the fall of the Warsaw Pact.

Unsurprisingly, Izhmash's complaints have fallen on deaf ears: given the weapon's reputation as the preferred rifle of terrorists and underfunded countries, there is little doubt that the AK-47 will continue to provide big business and a big temptation to copycatters. Unless the company can find a way to provide something that its imitators cannot, the sole licensed producer of the assault rifle is in danger of becoming yet another defunct relic of the Cold War.

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