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Research Report


Burkard Schmitt
Copyright Date: Jul. 1, 2000
Pages: 105
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Table of Contents

  1. (pp. 1-4)

    It is trite to remark that the defence industry is not like other industries. Because of the nature of its products, economic and commercial factors are not the only influence on the sector: politics and national security are also critical.

    For the main armaments-producing countries, this industry is strategic in the sense that it plays a major role in their national security and can play a nonnegligible part in international affairs: a State that has a defence industrial capability on its territory can by itself develop weapons systems. It has greater control over sources of supply for its armed forces...

  2. (pp. 5-14)

    The environment in which defence industries operate has changed radically during the last decade. On the one hand, the NATO countries have greatly reduced their national defence budgets, which has resulted in a considerable fall in orders. Export markets have also contracted, due to both the strategic context and the economic difficulties of some major customers. On the other hand, defence industries face spiralling research and development (R&D) costs, and therefore a continuous rise in fixed costs. At the same time, commercial technologies are increasingly making inroads into defence industries. As for governments, these are tending more and more to...

  3. (pp. 15-58)

    Aerospace and electronics have a dominant position among defence industries. They are high-technology industries that produce the key systems for the conduct of modern warfare, and R&D expenditure in them is particularly high. 20 The importance of these high-technology industries is also seen in the size of coompanies: in 1998, prior to the wave of European consolidation, 32 European firms appeared among the 100 biggest defence companies in the world; of these 24 were in aerospace and defence electronics (See Annexe 4).

    Aerospace and defence electronics are also the areas in which internationalisation has made most headway. Over the last...

  4. (pp. 59-78)

    Given the central role of States in the field of armaments, governmental support has been an essential condition for the transnational consolidation of defence companies. Governments have intervened more or less actively in the process in accordance with their influence and political will. In this context, the flexible, pragmatic policy of the left-wing government in France has been essential to the success of Europeanisation. Others, like the German government, supported consolidation without attempting to influence companies’ decisions.

    From a government point of view, however, the industrial restructuring that has been accomplished represents merely the beginning of a Herculean task. While...

  5. (pp. 79-84)

    During the course of the last two years, the takeover of Marconi by BAe, the creation of EADS and several sector-specific rapprochements have created the basis of a competitive European industry. The restructuring has not followed the expected path, but the end result shows that some of the ideas underlying the concept of an EADC were valid and sound:

    From the point of view of technology, European joint ventures are competitive but their organisation and structures are often far from optimal. To make them economically more effective, the network of alliances had to be simplified and the strategic interests of...