This work examines the strategic options for companies in the European defence sector, taking into account the drastic changes the industry will be faced with in the coming years. It explores the players in the market, assesses their market position in their respective national industry and forecasts their potential position in a common European defence market. It explores duplication and absence of armaments and technological skills as well as the reasons for them. The paper suggests strategies to overcome the aforementioned market distortions and provides options for companies to deal with the situation favourably. Moreover, it explores the U.S. defence industry, which was confronted with severe market changes after the fall of the Berlin Wall. The research relied mainly on data issued by European Union institutions, strategic research institutions, company annual reports, international organizations such as NATO, and financial newspapers in order to cover recent events. Data was analyzed using the Herfindahl-Hirschman Index and other mainly comparative ratios in order to collate markets, companies, and structures.
The work provides an empirical analysis of market conditions that shows that European national defence markets are highly concentrated, whereas the U.S. market is unconcentrated. It illustrates reasons for this condition and presents ways to change the concentration in the market.
The research contributes towards the rather low number of studies that have been conducted in the field of European armaments. It provides a foundation for potential supplementary studies that could be concerned with an assessment of the effectiveness of legal and other initiatives used to streamline the European defence industry.
Keywords – Armaments, Market structure, Defence sector, European Union
Table of Contents
1. INTRODUCTION
1.1. Purpose
1.2. Background
1.3. Literature Review
1.4. Design & Methodology
1.5. Analysis
1.6. Limitations
1.7. Expected Outcomes
1.8. Ethical Issues
2. RESEARCH PROBLEMS
2.1. PROBLEM 1 — Identify the key companies in the European defence sector
2.1.1. Introduction
2.1.2. BAE Systems
2.1.3. European Aeronautic Defence and Space Company (EADS)
2.1.4. Finmeccanica
2.1.5. Thales
2.1.6. Rolls-Royce
2.1.7. DCNS - Direction des Constructions Navales Services
2.1.8. SAFRAN Group
2.1.9. Saab Group
2.1.10. Rheinmetall AG
2.1.11. Dassault Aviation
2.1.12. Remarks
2.2. PROBLEM 2 — Assess the defence companies’ current position in their respective national industry and forecast their potential market power in a common European defence equipment market
2.2.1. Introduction
2.2.2. The task
2.2.3. Limited monopsony
2.2.4. The Herfindahl-Hirschman Index (HHI)
2.2.5. Dispersion
2.2.6. Limitations
2.2.7. The British market
2.2.8. The German market
2.2.9. The French market
2.2.10. The Swedish market
2.2.11. The Italian market
2.2.12. Outlook
2.3. PROBLEM 3 — Explore duplications of armaments and technological skills within the EU, suggest strategies to reduce those and companies’ options to deal with this situation
2.3.1. Introduction
2.3.2. Is duplication unfavourable?
2.3.3. What factors led to duplication?
2.3.4. The European situation (Article 296)
2.3.5. Shareholding structure
2.3.6. Intra-community transfers
2.3.7. Juste Retour and offsets
2.3.8. Examples of duplication in Europe
2.3.9. Atlantic’s west coast – Consolidation in the U.S.
2.3.10. Legal and other counter measures to reduce and avoid duplication?
2.3.11. Companies’ strategies
2.4. PROBLEM 4 — Explore absence of armaments and technological skills within the EU, suggest strategies to overcome this non-existence and companies’ options to use this situation in their favour
2.4.1. Introduction
2.4.2. Absence of armaments and technological skills within the EU
2.4.3. Legal and other counter initiatives to reduce and avoid absenteeism
2.4.4. Companies’ options to use this situation in their favour
2.5. PROBLEM 5 — Present European armaments cooperation and identify strategic options for future cooperation, merger, and acquisition
2.5.1. Introduction
2.5.2. The need for cooperation
2.5.3. European armaments cooperation
2.5.4. The future shape
2.5.5. A vague strategy
2.5.6. Recent developments
2.5.7. Future actions
3. CONCLUSION/RECOMMENDATION
3.1. Conclusion
3.2. Recommendation
Objectives and Research Themes
This work evaluates strategic options for companies within the European defence sector, specifically in the context of changing market conditions and increased challenges for armed forces. The research explores how companies can adapt to a more consolidated European defence market, addressing issues of national protectionism, duplication of technological skills, and the imperative for cross-border cooperation to achieve operational efficiency.
- Analysis of key European defence industry players and their current market positioning.
- Assessment of domestic market concentration and the implications for future competitiveness.
- Exploration of systemic inefficiencies caused by national fragmentation and duplicated armament programs.
- Identification of strategic pathways for companies, including mergers, acquisitions, and cross-border cooperation.
Excerpt from the Book
1.1. Purpose
The ever-increasing number of international missions and the diverse tasks European forces carry out does not match the decrease in defence budgets in most European countries. Since both, however, are unlikely to change, the transformation will have to come from new ways that armaments are procured in the European Union.
The conversion, away from national defence markets towards one truly European market, challenges defence companies. In order to understand the implications for companies and the changes in the market, valuable and contemporary information is needed. The author recognizes a deficiency in literature dealing with the European defence market and its players and thus regards it as essential to make a contribution to close this literature gap.
Summary of Chapters
1. INTRODUCTION: This chapter establishes the purpose of the study, provides background on the European defence industry's fragmentation, and reviews relevant literature and methodology.
2. RESEARCH PROBLEMS: This core section investigates five specific problems, ranging from identifying key industry players to assessing market concentration, addressing duplication of technological skills, and proposing future strategies for cooperation.
3. CONCLUSION/RECOMMENDATION: This chapter synthesizes the research findings, highlighting the inevitability of industry consolidation and providing recommendations for future comparative research on the impact of defence procurement directives.
Keywords
European Defence Market, Defence Procurement, Consolidation, Herfindahl-Hirschman Index, Armaments, Article 296, Technological Duplication, European Defence Agency, Defence Industry Strategy, Cross-border Cooperation, Mergers and Acquisitions, Interoperability, Defense Spending, European Security and Defence Policy, Market Concentration.
Frequently Asked Questions
What is the core focus of this work?
The work examines the European defence sector, focusing on how companies can navigate the transition from fragmented, national markets toward a more integrated, efficient European defence equipment market.
What are the central themes discussed in the analysis?
Key themes include the impact of state participation in defence companies, the duplication of military research and development, the barriers to cross-border transfers, and the necessity of industry consolidation.
What is the primary objective or research question?
The primary objective is to evaluate strategic options for European defence companies facing increased operational demands alongside shrinking national defence budgets.
Which scientific methods are employed?
The study uses an inductive research approach, applying the Herfindahl-Hirschman Index (HHI) and coefficients of variation to quantify market concentration and turnover spread across various national defence industries.
What topics are covered in the main section?
The main section details the competitive landscape, analyzes the economic concentration in specific countries (UK, Germany, France, Italy, Sweden), and investigates strategies to overcome technological and industrial duplication.
How is the industry characterized by the author?
The author characterizes the industry as fragmented and heavily influenced by state interests, noting that consolidation is vital for achieving economies of scale and remaining globally competitive.
How does the author view the role of the U.S. market in this study?
The U.S. market serves as the primary benchmark for the author, illustrating the successful consolidation of the defence sector that occurred during the 1990s, which the author suggests could be a blueprint for European integration.
Why is Article 296 considered significant in the study?
Article 296 is identified as a significant obstacle to a truly open European market, as it allows member states to derogate from procurement rules based on "essential security interests," often serving to protect national industries rather than security.
- Quote paper
- Johannes Kuschel (Author), 2008, The european defence market, Munich, GRIN Verlag, https://www.grin.com/document/142183
