Forging Government-Defence Industry Relations: Can Denmark Exploit the Window of Opportunity for Defence Industry Growth Created by the Current Geopolitical Situation?
Droner, kommando & kontrol, kunstig intelligence og radiokommunikation er nogle af dansk forsvarsindustris styrkepositioner.
Foto: UXV Technologies.
By Thomas Elkjer Nissen[1]
Resume
Krigen i Ukraine har grundlæggende ændret på opfattelsen af forsvarsindustrien i regeringen, medierne og dele af befolkningen. Fra at have været et nødvendigt onde er der nu tegn på, at industrien er på vej tilbage til at blive en integreret del af dansk sikkerhed. Den geopolitiske udvikling har medført, at industri- og erhvervspolitik er blevet til sikkerhedspolitik og forsvarsindustriens produktionskapacitet og forsyningssikkerhed er blevet politiske mærkesager, ligesom det er blevet gradvist mere accepteret at investere i forsvarsindustrien. Forsvarsindustrien er ligeledes blevet en integreret del af vestens støtte til Ukraines frihedskamp, også i Danmark.
Det er dog ikke ukontroversielt at have en forsvarsindustri. Man skal ikke se længere end den debat er der omkring danske Termas produktion af komponenter til F-35 kampfly, som via USA, blandt andet ender i Israelske F-35 anvendt i den nuværende konflikt i Gaza, ligesom der har været en række andre sager om eksport af dansk produceret militært udstyr, som blandt andet har været diskuteret i medierne.
Der er derfor også flere forskellige politikområder, som skal balanceres både nationalt og internationalt, herunder niveauet af ”statsstøtte” kontra det frie marked, vægtningen mellem USA og Europa og mellem NATO og EU og tilgangen til eksportkontrol for bare at nævne nogle få udfordrende områder, som skal håndteres, når fremtidens forsvarsindustrielle politik skal fastlægges – både politisk og kommercielt.
På baggrund af den geopolitiske udvikling har regeringen da også i de senere år udgivet en række nye politikker og strategier hvor forsvarsindustris betydning fremhæves, ligesom det er et område, som får en øget opmærksomhed i sikkerhedspolitiske analyser og internationalt i NATO og særligt i EU. Senest det, at dansk forsvarsindustri som noget nyt har fundet vej ind i forsvarsforligsforhandlingerne, ligesom regeringen har besluttet at støtte genoprettelsen af ammunitionsfabrikation i Danmark.
Det store spørgsmål er dog, om den øgede politiske opmærksomhed på, og accept af, forsvarsindustrien reelt kan veksles til industriel vækst og i hvor høj grad den danske forsvarsindustri kan løfte sig til også at kunne mere direkte understørre det danske Forsvar.
Formålet med dette casestudie er at give et overblik over den hastigt ændrede sikkerhedspolitiske situation, som påvirker politikken omkring forsvarsindustrien i Danmark og den politiske debat om den, samt hvilke vilkår nationalt og internationalt, som den danske forsvarsindustri har at agere under.
Keywords: Defence industry, security policy, triple helix, innovation, export control, security of supply.
Introduction
Being a relatively small industry with a yearly turnover of approx. four billion Danish kroner, Denmark’s defence industry is a niche industry focused on component production to systems and platforms produced by large international defence companies, mainly in the US. Although it possesses numerous positions of strength, e.g., within software, radar and advanced components, the industry is dependent on exports – often generated through offset and spin-offs.[1] The Danish defence industry’s ecosystem, however, also contains some system providers, or Original Equipment Manufacturers (OEMs). This growing ecosystem today comprises more than 200 companies and research institutions.
According to the Danish Government’s “National Defence Industrial Strategy”,[2] published in August 2021, the Danish defence industry forms part of the Danish security architecture. As a new development, the industry is beginning to be regarded as a vital national security interest to uphold and further develop in order to ensure critical defence industrial competencies in Denmark. These include the ability to design, manufacture and maintain maritime capabilities, for example. This is also one of the reasons that the Danish Defence has directly allocated the production contract for new patrol ships to a national consortium, consisting of a maritime design agency (Odense Maritime Technologies), a defence company (Terma) and a pension fund (Pension Danmark), instead of putting a public EU contract out to tender.[3]
With this strategy, the Danish Government therefore aims to strengthen the Danish defence industry through further integration into the supply chains of larger international primes through frameworks or enterprise contracts, not just single contracts and offsets. This is not only a question of business development and continuity, but first and foremost a question about security policy and forging closer ties to allies – both in the United States and in Europe.
The strategy was not the first of its kind, but it did, nonetheless, bring the relations between the Government, the defence industry and academia out in the open, and gave the relationship, also known as Triple Helix, political legitimacy. Amongst other things, the strategy emphasises that the “Danish defence industry is one of several layers in the foundation for Danish security” and that “the Government will maintain and develop industrial competencies and capabilities within areas of significant importance for Denmark’s national security interests”.[4]
A changing security environment – particularly following the Russian annexation of Crimea in 2014 – prompted a rewrite of previous versions of defence industry strategies. The security outlook of the new strategy, however, did not foresee the events following the full-scale Russian invasion of Ukraine on 24 February 2022, or the subsequent massive security assistance in the form of munitions, materiel, and training assistance for Ukraine, which followed later on, including large Danish donations of weapons and other forms of military aid.
The war in Ukraine very clearly showed that the “just-in-time” principle from the era of low-intensity conflict and counterinsurgency operations was no longer adequate when it came to the supply of defence materiel and services in a full-scale war. The support for Ukraine and its defence during a full-blown conventional war required that defence production and stocks needed to be ramped up, also for the West’s own defence forces. This realisation worked as both an accelerator for already initiated policy initiatives in connection with the defence industry and showed that the defence industry is vital for national security and security of supply – having both a national defence industry and one that enjoyed strong relationships and cooperation with larger international primes quickly became high priority policy areas.
Both the general security situation, following the Russian attack on Ukraine, and the need for many countries to backfill their stocks after donating to Ukraine have led to general increases in defence budgets and spending in Europe, the US and elsewhere. This has naturally created a larger demand for defence products and services, which the defence industries are trying to meet – including the Danish one. On the other hand, the defence industry, even though wanting to support these efforts, also wants assurances that governments will place concrete orders before investing in raw materials and additional production capacity, so as not to tie up funds. The defence industry is after all first and foremost a commercial enterprise, regardless of the varying degrees of state control and ownership in the different countries.
This has prompted many Western countries and international organisations, like the EU and NATO, to encourage the defence industry to ramp up its production, due to the increased demand. In addition, governments and international organisations have been compelled to forge ever closer relationships with the defence industry, which has lent the industry renewed political legitimacy and public and media awareness. It has simply become more acceptable to talk with and about the defence industry and even to invest in it – considering its renewed critical role in societal security and national resilience.
Strategic policy setting for Danish defence industry
Throughout the last year and a half, many policy areas have been tied to security in the political discourse and academic debate. Not only the defence industry and related areas, such as research and innovation, but also areas such as energy and climate policy are being discussed in a security policy framework.[5] This fact is also reflected in the new Danish government’s white paper from December 2022, stating, “The international order is changing – geo-politically, economically and militarily. This requires closer cooperation and an understanding that matters such as trade, climate, migration, technology, research and development are now closely related to security policy”.[6]
However, when it comes to defence industry and innovation the importance of having, maintaining and strengthening a national defence industry has been framed as a vital national security interest.[7] An integral part of that framing has been to stress the importance of security of supply and the need for Danish companies to be a part of international supply chains.
In addition to the 2021 National Defence Industrial Strategy, the then-Danish Government in March 2022 published a so-called “National Compromise on Danish Security Policy”. This policy paper also reinforced the defence industry’s role in Danish security, stating that “The parties to the agreement are in agreement that the new security situation underscores the vital national security interests. The strengthening of the Danish Defence will take place with this recognition, including a focus on the Danish defence and security industries’ possibilities to contribute.”[8]
Furthermore, in September 2022, a working group under the Ministry of Foreign Affairs, led by Ambassador Michael Zilmer-Johns, published the so-called Zilmer Report. The report is a comprehensive security policy study that details the security situation in which Denmark finds itself presently and the one it will face in the near future, including the effects on technology, innovation and industry, as well as the importance of the defence industry for national security.[9] The comprehensive security policy study (the Zilmer Report) was written as a precursor for the upcoming defence agreement for 2024-2033, and its findings are to some extent informing the political negotiations and the agreement itself, including issues relating to technology, innovation and the defence industry.
When formed in December 2022, the new Danish coalition majority government published a white paper outlining its political priorities, which included its security policy.[10] Here the government clearly stated that Denmark would strengthen its security cooperation with the US and other close allies. The reason is, as the white paper states, that Denmark is “part of a broader global struggle for influence, knowledge and resources and for the very values underpinning the international order. Together with our partners and allies, we must secure access to critical resources and be on the forefront of technological developments, e.g. quantum technology, and protect ourselves against cyberattacks”.[11] A part of this overall strengthening of Danish society's resilience is also a strengthening of the Danish Defence, as the white paper points out the Danish Defence’s “digitalisation will be strengthened with the involvement of the Danish defence industry and research community in order to provide a technological boost…”[12] The government’s white paper does not, however, only look to Denmark and Danish research and industry – it is equally focused on Denmark’s opportunities abroad, for example, when it comes to Denmark’s future role in the EU. In this connection the white paper states that “with the abolishment of the defence opt-out, Denmark has new opportunities for assuming greater responsibility for peace and security in Europe and at the same time strengthening Danish businesses’ opportunities for growth and job creation”.[13] Furthermore, the white paper states that “the foreign service also plays a pivotal role for Denmark as an export nation”[14], and that “the government will work toward a more robust trade and industry policy that creates growth and prosperity while at the same time supporting European security of supply and ensuring the EU’s role in creating the technologies of tomorrow – without Europe closing in on itself”.[15] Particularly the last statement is very important as it speaks to the issue of balancing between the US and EU when it comes to innovation and industry cooperation.
Expectation-reality discrepancy The war in Ukraine has created a strategic shock, prompting the Danish government to adopt a new defence industry policy and strategies, as well as raising defence spending to 2% of GDP. This has created a window of opportunity for forging a stronger defence industry in Denmark. One matter, however, is the new political discourse surrounding the industry as laid out above – another is converting intentions to actions and utilising this window of opportunity.
No doubt the Danish defence industry has welcomed the policy change and wholeheartedly plays into the new narrative. Some, however, still feel that the government has not yet delivered actual change that can be seen in the number of orders or on the industry’s bottom line.[16] [17] Yet there are Danish companies that have seen growth based on donations to Ukraine supported by the Danish government, for example. Amongst them are especially drone manufacturers, like Nordic Wing and Sky-Watch, which have seen a substantial order intake.[18] Many others have yet to see their offerings to Ukraine’s war efforts be implemented.[19]
Though the industry feels not much is happening in terms of new orders, one must take into account the reality of both how long it takes for policy changes to take effect and the very practical question of how many of the Danish defence industry’s products and services are actually required by the Danish Defence.
Mainly due to a prolonged period of time in which the Danish government and Defence have held the defence industry at arm’s length, industry members have based most of their business development on becoming sub-contractors to large international defence industry companies – mostly through offset – and have not been very focused on trying to meet the Danish Defence’s capability needs. The Danish Defence on the other hand has not emphasised procurement from the Danish defence industry but has looked for Military Commercial-Off-the-Shelf (MCOST) products.
Until the Danish defence industry to a higher degree produces systems, platforms and services that are sought after by the Danish Defence, or offset is used to establish production lines of major defence systems in Denmark, then the industry as a whole will continue to be dependent on exports and integration into large international defence companies’ value chains in order to see growth. In other words, if a new defence industry policy is going to translate into more orders the government needs to either buy more domestically or support further internationalisation of the Danish defence industry.
Export is key to strengthening the defence industry
The Zilmer Report pointed to the close bond between Denmark and the US in terms of security policy and defence industry relations and that Denmark first and foremost relies on NATO for military security. The report, however, also points to the EU as a more and more important actor in Danish security policy and for the Danish defence industry. With the elevation of defence industry politics to the level of security policy also comes a more pressing need for balancing it with other policy areas that previously have co-existed in parallel. For instance, the fact that industry policy, securing supply lines and tightening of Foreign Direct Investment (FDI) screening have been firmly framed as security policy is one aspect, but also within the defence industry policy area, there is a greater need for balancing the different policy areas – e.g. between export control policy, export promotion and offset policy.
The export of defence goods and services is a major factor in strengthening the Danish defence industry. Mostly because the Danish Defence cannot absorb enough of the Danish defence industries' products and services for it to be viable. It is therefore necessary for the industry to maintain a high level of exports, primarily through subcontracting to large international primes and system integrators. Here, the Danish defence industry’s approach has traditionally been characterised by offset or industrial cooperation.
Most of the Danish defence industry, except for shipbuilding, was founded on the basis of cooperation with foreign defence industry primes in connection with major Danish defence materiel acquisitions during the 1960s and 1970s – or in other words, on the basis of offset.[20] The use of offset, however, is not only about giving the industry an opportunity to participate in large defence materiel development programs internationally. It is to a high degree also a question of protecting vital national security interests when offset contributes to maintaining and strengthening strategic defence industrial competencies in Denmark. Besides this, offset also provides the Danish defence industry with the opportunity to display its abilities and products, giving it new contract options unrelated to the original offset obligation. These contracts would most likely not have been awarded had it not been for the initial offset contracts. This is where agreement ends, however. Not all companies in the Danish defence industry’s ecosystem favour the industrial cooperation policy enforced by the Danish Business Authority (DBA) and would prefer more flexible rules.
In Denmark, the DBA, in cooperation with the Ministry of Defence (MOD), assesses if an acquisition is covered by a requirement for industrial cooperation or offset. If so, the foreign supplier must sign an Industrial Cooperation Contract (ICC) with the Danish Business Authority. The ICC must be signed before the foreign supplier can sign a contract with the Danish Defence Acquisition and Logistics Organisation (DALO) for the delivery of a capability.[21]
When the Danish defence acquires materiel or services for more than 50 million Danish kroner from a foreign supplier, the Danish MOD and the DBA carry out an individual assessment. A foreign company can then be obligated to buy products or services for 25, 50, 75 or 100 per cent of the contract’s worth, depending on, among other things, the Danish need for technology transfer within different technology areas. It is also the DBA’s responsibility to follow up on the fulfilment of the contracts.
Demanding offset obligations when buying major defence equipment often makes it more expensive as the foreign supplier adds on overhead to cover some of its expenses. The overhead is, however, something that Denmark must accept if the Danish defence industry is to be considered as a sub-contractor to the large primes. Even though there is an offset obligation, the Danish companies must still compete for the sub-contract based on the best-buy principle (e.g. best product, price and security of supply), as well as being able to live up to sufficient levels of cyber-security and due diligence demands, for example. In other words, there might be an offset requirement, but contracts are awarded to Danish companies on commercial terms.
The Danish Government’s use of offset obligations in connection with major defence acquisitions has been subject to criticism from the European Union, however. In 2018, the European Commission (EC) criticised Denmark’s use of offset in three different cases and claimed that it was against The Treaty on the Functioning of the European Union (TFEU). After negotiations, the EC in 2021 decided to drop a pending lawsuit against Denmark at the EU court. Denmark, however, had to change its use of offset and in September 2021 issued a new guideline to ensure that Denmark’s use of §346 in The TFEU and offset was compliant with its obligations under EU law. The guidelines effectively mean that the foreign company from which Denmark buys defence equipment has to buy products or services from Danish companies within the same functional area. This means that if Denmark buys artillery systems, the company must place orders with Danish companies that deal with artillery or can be used in connection therewith.[22] That in itself can be a challenge, as there will be a limited number of Danish companies with which the large international prime will be able to place any meaningful order.
The rule about offset being based on a strict interpretation of functional areas creates challenges for Danish companies due to the relatively small size of the Danish defence industry and the fact that there might not be any Danish companies producing relevant products or services within the functional area. This can effectively make it hard for the international primes to identify possibilities for industry cooperation in Denmark when presented with offset demands. Coupled with some uncertainties regarding security of supply, due to Danish export control rules, this can make it even more challenging for international primes to live up to the industry cooperation contracts. Particularly if the international prime from which the Danish Defence wants to buy a capability is situated outside NATO or EU countries. Exporting defence materiel to such a country can therefore be an issue for Danish defence companies due to Danish export policies.
Being dependent on offset to some extent, the Danish defence industry naturally would like to see new models for industry cooperation that provide more flexibility in terms of the interpretation of functional areas and more stability in regard to export licenses securing the ability also to export to the countries from which Denmark buys defence materiel.
However, both in terms of offset contracts and in terms of non-offset contracts the US is the Danish defence industry’s most important market as of now.
The US is the most important present and future market
When it comes to security policy and defence industry relations including the export of defence equipment, the US is by far the closest and most important partner for Denmark – and has been now for more than twenty-five years. From about four to five companies in the market, and a turnover of about 400 million Danish kroner in 2000, to more than twenty companies in the market, and a turnover of about two billion Danish kroner today, the US defence market now makes up more than 40% of the Danish defence industry’s annual turnover.[23]
Danish defence industry’s access to the American defence market and contracts with the large American primes was initially secured back in 1980 when Denmark and the US entered into a Reciprocal Defence Procurement Arrangement (RDP-A), which effectively secured mutual access to each other’s defence markets without discriminating functions, such as “Buy American” provisions. The Danish defence industry’s market access, however, accelerated from 2005 when Denmark entered into a “Declaration of Principles” (DOP) agreement with the USA, signed by then Minister of Defence Søren Gade and Secretary of Defense Donald Rumsfeld. The agreement had been negotiated since 2003 and gives Denmark status as a prioritised cooperation partner on defence materiel. The agreement gives Denmark a series of advantages when it comes to the sale of defence equipment to the US and excludes Denmark from different US import restrictions. The agreement also enhances the possibilities for sharing technical and other restricted information between the Danish and American defence industries.[24]
That Denmark in the first place was even considered for a DOP agreement – considering its relatively small-sized defence industry – has been debated. Some claim that Denmark’s active engagement in the war in Iraq during the 2000s had had a positive effect in terms of getting defence contracts in the US. Others claim it has not had that much of an effect in real commercial terms. Denmark may have gotten easier access to information about US government materiel and technology requirements for Danish defence industry companies. But although Denmark likely has enjoyed easier access to buying materiel through “Foreign Military Sales” (FMS)-cases as a direct result of its military contribution to the operation in Iraq, the Danish defence industry’s subsequent contract wins have mainly been on a best-buy basis.[25]
In February 2023, Denmark and the US signed a Security of Supply Arrangement (SOSA)[26] as one of only 13 countries.[27] Through this SOSA, the US and Denmark agree to provide reciprocal priority support for goods and services that promote national defence. The arrangement will enable both countries to acquire the industrial resources they need from one another to resolve unanticipated supply chain disruptions to meet national security needs.[28] In reality, however, the arrangement mostly benefits Denmark and Danish companies.
The US defence industrial base today is the most important market and goes beyond the annual turnover for the Danish defence industry. The US is the only market that for now can offer the necessary volume and degree of specialization needed to uphold the critical defence industrial competencies and capabilities in Denmark to ensure that the Danish defence industry can support Danish security needs and the Danish Defence in times of crisis.
With the abolishment of the EU defence opt-out in June 2022 this situation may, however, change slightly in the future, as more business opportunities for the Danish defence industry may arise in Europe. New business opportunities in Europe do come not without complications though.
The European dilemma
As discussed above, the US market is, for now and the foreseeable future, the most important one for the Danish defence industry. There are, however, emerging opportunities in the European market as well. Particularly in connection with the development and production of defence equipment in cooperation with large European primes, both in the framework of the European Defence Fund (EDF)-projects, and because the EU is becoming increasingly involved in defence industry policy due to the war in Ukraine. Furthermore, several European countries desire to create a European alternative to the US defence industrial base, which may present some new business opportunities for the Danish defence industry.[29] The problem is, however, that this can turn out to constitute a dilemma for the Danish defence industry when choosing with whom to enter into strategic cooperation in the future. One issue is that US companies may contractually restrict Danish companies from using defence technologies integrated into US primes’ systems in a European context also – for example, due to US Arms Export Control rules (ITAR). Another factor is the Danish companies’ lack of understanding of and access to the European defence industry.
Regardless, the Danish Government needs a much better understanding of the EU’s defence industry politics – quickly. The Danish Government also needs to recognise that it requires resources to acquire the necessary situational awareness and exercise influence on the policy processes, which can support the Danish defence industrial base by strengthening its foothold on the European defence market besides participation in projects under the European Defence Fund (EDF). Something which, amongst other things, requires a permanent presence in Brussels with both diplomats and military officers, whose sole task is to advance Danish defence industry and research interests in the EU system and in the European defence industry.[30] [31]
The Zilmer Report also pointed to the EU and its evolving role as a security actor – particularly after February 2022. The report pointed to the fact that this also has had an impact on the European defence industry as well when stating, “while NATO ensures the military deterrence of Russia, the EU contributes significantly to European and global security in many other ways. With the prompt and harsh sanctions in response to the Ukraine invasion, the EU emerged as a real geopolitical actor. The active involvement of the EU Commission in the European defence dimension is a game changer with important ramifications for building an efficient European defence industry”.[32] However, not only the European Commission’s increased role in security is changing, the European defence industry policy and defence forces’ relations with the defence industry are also changing along with it. As the report noted, “the increased prioritisation of innovation and technology development is simultaneously leading to a greater focus on cooperation with the defence industries and the research world within the military authorities”.[33] In other words, the EU is developing its own version of the triple helix model, placing greater emphasis on cooperation and innovation and development of the defence industry area through the European Defence Agency (EDA) and the European Defence Fund (EDF). As the Zilmer Report noted, then, “the active involvement of the EU Commission in European defence is an important breakthrough, which gives new weight and momentum to the cooperation. It will be of great importance for building an efficient defence industry with the capacity to compete with China, Russia and the USA on the global market”.[34] The EU is, however, finds itself behind these actors from the start due to a lack of depth in the European advanced technology sector and a fragmented European defence industry.
The Danish authorities and defence industry therefore must learn to navigate not only in European security and defence policy, including its industrial aspects, but also among the large defence industry countries in Europe and their defence industry policies, for example, between France and Germany. Both countries are ones in which the Danish defence industry desires to expand its foothold. France on the one hand prioritises developing the national defence capabilities of European countries, strengthening the European defence industry, and seeks to better coordinate across national borders within Europe in order to obtain “strategic autonomy” (from the US, that is) with France as the leading actor. Germany. on the other hand, has clearly indicated that procurement and materiel development will be concentrated on pan-European projects, thereby also benefitting the German defence industry. Yet at the same time, German security politics dictates a strong trans-Atlantic bond and NATO as the primary security organisation. German defence industry therefore also continues to the balance between European cooperation and maintaining close ties to the US defence industrial base. The Danish defence industry, therefore, needs not only to balance between its most important market – the US – and a potential growth market – the Europe. Not least because third countries like the US, much to its dismay, cannot hold a leading role in EDF projects.[35] Besides the US–Europe balance, Denmark also balances between the major European players and within a changing Nordic context.
The Nordic context
To add to the business development challenge, the Danish defence industry also needs to find its place in the “pivot to the Nordics” that slowly but surely is developing as Finland and Sweden become NATO members. Their admission to the alliance is creating a new Danish security policy focus on Nordic cooperation – e.g. through the “Nordic Defence Cooperation” (NORDEFECO) covering Denmark, Finland, Norway and Sweden.[36]
No doubt the Nordic context will be a factor for Danish defence industry in the future and create potential for more cooperation between the Nordic countries’ respective defence industries, not least as participants in the dynamic development of defence industry cooperation in the EU. There will now be a greater overlap between NATO and EU membership, with the exception of Norway in regard to the EU, e.g. by creating a Nordic cluster in the defence industry arena since there is a budding Nordic dimension in NATO. One possible example, not yet decided, however, is the re-establishment of a Danish munitions factory as a public-private partnership with the possible involvement of other Nordic defence industry companies.[37]
There are, however, some differences between the Danish and the other Nordic defence industries. First and foremost, the Danish defence industry is only about a third of that of the other Nordic countries and, unlike these, entirely privately held. Even though the framework agreement for the 2024-2033 defence agreement in Denmark opens for more public-private partnerships between the Danish Defence and Danish defence industry, there has so far been no discussion of the Danish State directly subsidising the industry or assuming board positions in the defence industry companies. This, amongst other things, also means that the ties between the defence industry and the government are not as close in Denmark as in other Nordic countries, such as Norway.
“Norway’s defence industry is much closer related to Norway’s defence politics than is the case for the Danish one. This also means that the Norwegian defence industry is an integral part of the Norwegian security policy and hence for a long time has had a closer relationship with the US Defence industrial base”.[38] It is possible to find signs of the new discourse, e.g. in the government’s strategy for the defence industry and the entering into of a Security of Supply Agreement with the US, which indicate that Denmark officially wants to have a closer defence industrial relationship with the US. This will, however, due to the different nature and historical relationship between the state and the industry, as opposed to in Norway, likely not become as close. Another probable factor is that the Danish defence industry, unlike the Norwegian one, does not produce large defence systems, platforms or ammunition – at least not yet – which also can serve as a political commodity for the government in its international relations.
Also, the Swedish defence industry organisation points to a need to strengthen political engagement with the defence industry in order to gain the desired security policy effect, including an expansion of the export of defence-related goods.[39] According to the Danish Defence and Security Industry Organisation, Denmark needs to enhance its cooperation with the Nordic defence industry organisations and the Nordic governments – and perhaps look towards the Southern European countries for inspiration on how their defence industries and governments cooperate in relation to the EDF – in order to strengthen the Nordic defence industrial base.[40]
Where does this leave the Danish defence industry?
With the changing security environment and the adjustment of strategic policies in Denmark – not least the defence industry strategy from 2021 – new forms of cooperation between the Danish Defence, private companies and universities have emerged. This potential should according to the Zilmer Report be further explored. As the report states, “the same applies to the opportunities that are opening up after the lifting of the defence opt-out to involve Danish companies, research institutions and the Danish Armed Forces in the dynamic development of the EU defence industry”.[41] The industry itself, however, must also adapt.
Innovation and new business models
Due to the security situation, the growth potential for the Danish defence industry seems to be significant, and parts of the industry have also within the last couple of years seen a growth in exports. This has in part been due to Danish positions of strength in e.g. advanced software, radar technology, components for advanced weapon systems like the F-35 aircraft and maritime technology and design. However, despite growth in exports the industry, as a whole, has not seen a similar growth, mostly due to the limited number of system providers and a still relatively fragmented ecosystem consisting of many small and medium-sized enterprises (SMEs), which primarily deliver components to larger international prime’s weapon systems and platforms. The fragmentation, the inability to live up to high access barriers, e.g. within cyber-security, and the lack of volume are barriers to entering contracts with large international primes for many Danish SMEs within the defence industry ecosystem. Equally, the need for strengthening the political framework conditions for the defence industry seems to play a role.[42]
The security situation, new political sentiments and the sheer necessity for new approaches to civil-military cooperation (public-private partnerships), financing and innovation to meet the growing demand for defence technology, products and services do create some new opportunities for the defence industry. Firstly, in the cooperation between the Danish Defence and the defence industry and research institutions (triple helix +), and secondly within the defence industry ecosystem itself. Stronger cooperation between the Danish defence industry companies, including the larger ones both using Danish small and medium-sized enterprises (SMEs) in their supply chains and supporting start-ups with novel defence technologies in getting to market and reaching scale can create conditions for a stronger position oi the international defence market.
In connection with the political negotiations on a new defence agreement, several business interest organisations have advocated for public-private partnerships (PPP) between government and the defence industry, and not least which tasks that can be outsourced in some sort of partnership framework in the future. One such instance could be to free up human resources in the Defence for actual military tasks while civilian contractors, i.e., the defence industry, perform supportive tasks which previously have been performed by service personnel.[43] Such PPPs can lead to new business opportunities for the defence industry. Not just in connection with the maintenance of army barracks and air bases, where there of course are some obvious possibilities for Danish construction companies.[44]
This, however, “cannot only be a question of maintenance and cleaning army barracks”[45] to help solve the resource challenges that the Danish Defence currently faces. The war in Ukraine for one has shown that also operational capacities – especially digital ones – can be subject to partnerships without enlisting Private Military Companies (PMCs). “Examples of this are Microsoft’s migration of data from physical servers in Ukraine to cloud solutions and Elon Musk’s Starlink. But to a great degree, the tech industry today is detached from what happens in their respective Defence forces”.[46] In Denmark this could translate into Danish defence IT companies providing and running cloud solutions for the Defence instead of the Defence maintaining physical servers or logistical companies on a retainer. Another instance would be to commit to always having spare parts in stock and being able to deliver them to, or at least close to, theatres of operation.
Also, within the area of innovation of defence technology, new models can be created, which in turn can lead to new business opportunities for the defence industry – also internationally. This will require, though, that the Defence to a higher degree, instead of setting up very specific user requirements for the companies to fulfil when ordering new capabilities in their tenders, opens up cooperation related to the innovation of new capabilities with the defence industry. This would comprise SMEs, research institutions and the Defence, which also entails being open to alternative forms of financing research and development – e.g. through funds and venture capital.
The latter, i.e., new ways of financing defence technology development, also brings about new business models, such as the use of consortiums consisting of companies and funds like the consortium behind the design and production of Denmark’s new maritime patrol ships, where a system integrator (Terma A/S), a design bureau (Odense Maritime Technology – OMT) and a pension fund (Pension Danmark) are contracted to deliver a ready and operational capability to the Danish navy.[47]
These new approaches to innovation and business models effectively broaden the triple helix model to a “penta helix” one, now including not only the Defence, industry and research but also two new elements: external finance and entrepreneurs. This model is, however, not without its challenges. For one there is in a high-growth society, such as Denmark’s, a lack of skilled labour. The same skillsets needed in the defence industry are also needed in other industries. Furthermore, the defence industry has some unique framework conditions, access barriers, data and manufacturing equipment which can make it challenging to expand the business and then there are some unsolved issues regarding the profitability for the external financing sources, which need to be resolved. On top of that, there are also dissenting voices. Not all pension funds, for instance, fancy the notion of financing the production of weapons. And then there is the question of public perception – the more visibility, the more media scrutiny – amongst other things on which countries the defence industry is being allowed to export to by the government. All factors that put pressure on the defence industry’s compliance and corporate social responsibility (CSR) work.
Conclusion
There is no doubt that the contemporary policy and strategy formulation within security policy broadly, and the defence industry in particular, is a policy area of increasing importance for the Danish Government. This is particularly so on the backdrop of the war in Ukraine and the subsequent increased need for defence products and services. This also means that the Danish Government in order to achieve the desired strengthening of the defence industrial base, and its supply chains, needs to identify and address dependencies and weaknesses, including within its framework conditions, and forge closer ties between the defence industry, research institutions and the Danish Defence.
This could include an increased use of public-private partnerships, identifying Danish solutions that can cover some of the Danish Defence’s operational capability requirements, as opposed to only looking for MCOTS solutions when buying from international vendors using offset strategically to place production lines in Denmark. This could also extend to strengthening R&D between Defence, academia and industry in dialogue with external sources of finance, and further support the Danish defence industry in the international defence market.
At the end of the day, the interesting thing is how much the changed strategic setting in reality forges new defence industry relations between government and industry, and between the companies themselves, and to what extent renewed political backing can be exchanged for industry growth. How to measure the extent of which the changed strategic setting advances national security interests is also an interesting matter.
In the meanwhile, Denmark and the Danish defence industry need to strike a balance between a continued engagement in the US defence industrial base and the emerging business opportunities in the European market. The two are not necessarily mutually exclusive but do contain a series of challenges that both government and industry need to handle in cooperation.
Although not isolated to the defence area, the Danish Government to a higher degree than previously needs to take the defence industry and defence research into account when negotiating the new defence agreement for 2024-2033. First and foremost, it is necessary to ensure a balance between investment in new capabilities from international primes and at the same time create conditions for the involvement of the Danish defence industry in the innovation and development of defence technology in Denmark and the possibilities for the export of these technologies. This, however, requires both a political will to strengthen the industry's political framework conditions, a greater willingness in the Danish Defence to use resources on co-development of tomorrow's defence technologies, and a willingness in the industry and research establishment to innovate and work closer together, including for the larger defence companies in Denmark to help the SME segment in upgrading its competencies and mitigate access barriers. Lastly, there is a need for a greater political, media, academic and public debate on having a defence industry, the degree of state support for it and the acceptability of investing in it.
[1] Thomas Elkjer Nissen is a senior advisor on defence policy for the Danish Chamber of Commerce (Dansk Erhverv). He has previously worked with defence industry policy in the Danish Ministry of Defence and has for many years been a military analyst at the Royal Danish Defence College, working with strategic communication and public affairs.
[1] Philip Chr. Ulrich, “Dansk Forsvarsindustri: Danmarks lille forsvarsindustri er blandt de bedste”, politisk analyse i kongressen.com, 4. marts 2016.
[2] See: -national-defence-industrial-strategy-of-the-danish-government-.pdf (fmn.dk)
[3] See: About us | Danske Patruljeskibe)
[4] Ibid, page. 4.
[5] See: Maria Mälksoo and Jens Wenzel Kristoffersen, 2022, https://cms.polsci.ku.dk/publikationer/klimatisering-af-sikkerhedspolitik-et-panorama-og-implikationer-for-danmark/download-cms-rapport/CMS_Report_2022__7_-_Climatising_Security_Policy.pdf.
[6]https://www.stm.dk/statsministeriet/publikationer/regeringsgrundlag-2022/, page 35.
[8] Nationalt kompromis om dansk sikkerhedspolitik (regeringen.dk)
[9] Security policy report (fmn.dk)
[10] Regeringsgrundlag 2022 (stm.dk)
[11] Regeringsgrundlag 2022 (stm.dk), page 36.
[12] Ibid
[13] Ibid
[14] Ibid
[15]Regeringsgrundlag 2022 (stm.dk), page 37.
[17] Weibel Scientific: Nyt forsvarsforlig bør kynisk prioritere danske virksomheder - Altinget: Forsvar
[18] Glæde over danske droneoperatører i Ukraine (jyllands-posten.dk), Efterspørgsel på droner til Ukraine giver vokseværk til dansk selskab | Indland | DR
[19] Forsvarsindustrien efterlyser mere dansk indhold i Ukraine-donationspakker - Altinget: Forsvar
[20] Bjerregaard, Ena (1997), Dansk Forsvarsindustri, Dansk Forsvarsindustri :: Krigsvidenskab.dk
[21] See: Industrial Co-operation Contract (ICC) | Danish Business Authority
[23] Fakta om forsvarsindustrien - FOS - DI (danskindustri.dk); Charlotte Aagaard & Lotte Folke Kaarsholm: Dansk industri spinder guld på Irak-krigen; Krigen bliver Danmarks nye eksport-succes (2005), Dansk industri spinder guld på Irak-krigen | Information; Charlotte Aagaard og Lotte Folke Kaarsholm
Søren Gade: Forsvarsindustri er blevet mere populær (2005), Søren Gade: Forsvarsindustri er blevet mere populær | Information
[24] Dansk forsvarsindustri får særstatus i USA | BT Nyheder - www.bt.dk
[25] Henriksen & Ringsmose (2011), Hvad fik vi ud af Irak, page 28 – 30, Hvad fik Danmark ud af det? | DIIS
[26] IF11894 (congress.gov) Security of Supply Arrangement
[27] OUSD A&S - Industrial Base Policy (businessdefense.gov) – SOSA countries
[29] European defence: the quest for ‘strategic autonomy’ - European defence: the quest for ‘strategic autonomy’ (ft.com) + EDA study analyses defence industrial strategies (europa.eu)
[31] Europæisk forsvarssamarbejde og det danske forsvarsforbehold - Udredning om udviklingen i EU og Europa på det sikkerheds- og forsvarspolitiske område og betydningen for Danmark (diis.dk) (page 35-39, 57, 70-75).
[32] Security policy report (fmn.dk), page 5.
[33] Ibid, page 18.
[34] Ibid, page 44.
[35] EUR-Lex - 32021R0697 - EN - EUR-Lex (europa.eu) + Third-country participation in EU defence | Epthinktank | European Parliament
[36] Forsvarsministeren: Vi skal øge produktionen af ammunition og våben i Norden (berlingske.dk)
[37] Nordisk gigant vil lave nordjyske granater | Nordjyske.dk
[38] Quote by Kjell Berga (The Norwegian Institute for Defence Studies) at University of Copenhagen’s Centre for Military Studies’ (CMS) Defence Conference in Copenhagen, 7 December 2022.
[39] Robert Limmegård, “Försvarsmaterielexport starker Sveriges säkerhet”, Debatt i Dagens Industri, 22 November 2022.
[40] Quote by Joachim Finkielman – at University of Copenhagen’s Center for Defence Studies’ Defence Conference in Copenhagen 7 December 2022
[41] Zilmer (2022), page 78.
[42] Morten Andersen, The Danish Defence Industrial Base (Danish Defense Industrial Base, marts 2021.pdf (mortenandersen.dk))
[43]Dansk Erhverv: Dual-use teknologier er afgørende for Forsvarets operative virke - Altinget: Forsvar
Forsvarsmilliarder i spil til private aktører – DI (danskindustri.dk)
Bødskov giver virksomheder plads ved bordet - DI (danskindustri.dk)
[44] Både byggeriets kæmper og små firmaer ser opgaver i forsvarsforliget (building-supply.dk)
[45] Quote Tobias Liebetrau at University of Copemhagen’s Center for Defence Studie’s Defence Conference in Copenhagen 7 December 2022.
[46] Ibid
[47] See: FMI og Danske Patruljeskibe K/S indgår aftale om nye patruljeskibe til Forsvaret –
