Monday, 16 January 2012

Defence Market: Going Global – an Opportunity and a Necessity?

A globally competitive European defence industry is vital to ensure that Europe is able to respond with autonomy to today’s and tomorrow’s security and defence challenges. At a time of increasingly constrained defence budgets in Europe and the US, European (and US) defence companies have a choice of shrinking in line with their domestic defence budgets or seeking greater access to global markets to survive and perhaps thrive in a time of austerity.

Consequently, if Europe is to retain a robust Defence Technological Industrial Base we have to work towards maximising the global competitiveness of its industry. This and associated issue of reciprocal market access are key topics in the debate on defence at a time of financial challenge. The EDA Annual Conference 2012 will bring together some of Europe’s leading defence experts to examine these very issues.

Among its many advantages defence export success can help provide resources for continued investment in the critical defence research and development that determines future competitiveness and industry’s ability to produce the leading edge defence equipment necessary to capture military sales.

An unfortunate consequence of defence budget cuts in Member States has been reductions in government defence R&D. The R&D situation looks bleak and this is at a time when Europe’s significant R&D gap with the US is expanding and R&D investment among competitors is growing. While exports often can only be achieved at the cost of technology transfer and licensed production – with the associated risk of losing industrial capabilities, skills and technologies, to the detriment of the long term heath of Europe’s Defence Industrial Base (EDTIB) - they can also foster important partnerships and facilitate cooperation that can stimulate technological advancement and innovation. They also help spread some the high overhead costs often associated with defence procurement and provide economies of scale reducing the procurement cost for the domestic European customer.

Last year marked the fifth anniversary of the launch of the Intergovernmental Regime on Defence Procurement, a landmark agreement by EU governments towards opening up to competition some of the most sensitive areas of Europe’s defence market. The regime has pioneered a gradual transition from closed and fragmented national markets to a more open, transparent and competitive marketplace where value for money is the key procurement priority. Together with the European Commission’s new defence directives on procurement and intra-Community Transfers real progress has been made towards the creation of an internationally competitive European defence equipment market. These are laudable developments but not enough – by themselves – to ensure the future of Europe’s defence industry.

If the foreseeable growth in defence markets is, as it seems, to be found outside Europe then industry has to tap into these markets to stay competitive, innovative, and healthy. Better access to the global marketplace therefore has become crucial. At present, it is often hampered by various restrictions and obstacles embedded in national laws, rules, policies and practices as well as export control systems. Some of the challenges are just too great for industry to handle on their own.

No serious attention has yet been paid to this issue. Important questions must be addressed on how governments and institutions can play a constructive role in enhancing European defence industries competitiveness and innovative advantage in the global defence market and facilitating market access through concrete measures to limit barriers and inherent obstacles to defence trade. Collectively governments, institutions and industry must develop adequate policies and strategies that would address such issues as technology transfer requirements, local content and work share rules, offsets and juste retour and foreign investment policies.

One thing is certain fortress Europe policies and protectionism will not save Europe’s defence industrial base, this is simply a dead end. Europe’s defence industries future depends on looking outward and embracing the challenge of globalisation.

The EDA Annual conference will be a first step towards providing solutions on the way forward.