The study by Europe Economics, a UK-based consultancy firm, examines the obstacles facing defence-based SMEs in Europe's fragmented defence market. It concludes that there is a lack of accessible information for small firms.
Apart from a select group of larger defence contractors, companies are not aware of upcoming business opportunities. Although some subcontractors maintain close links with larger players, SMEs are rarely able to track future developments in markets outside their own country.
EU governments must improve the flow of information to smaller firms about future requirement, according to the report, which commends France and the UK for setting good examples in this area.
"The problem is not that SMEs are not capable of responding to demands, but that they have difficulty finding out about and winning business," the study finds.
Brussels should coordinate information sharing
The European Defence Agency (EDA) and Aerospace and Defence Industries Association of Europe (ASD), supported by the European Commission, should play a greater role in the activities of national and industry trade associations. This, says the report, would help disperse information across the EU.
The Defence Package and EDA's Code of Conduct should help improve the competitiveness of defence-related SMEs. "The directive on defence procurements in particular should help to address one of the two most frequently mentioned obstacles facing SMEs: access to national defence authority contracts," the report finds.
The new legislation covering the defence industry promises to radically shake up the sector and is likely to put some players out of business while others prosper from access to new markets.
At present, cross-border trade by small firms in the defence sector is rare, while exports are "negligible", the report says.
Defence market concentrated in six countries
The report confirms that Europe's defence sector is severely lopsided, with Western European nations dominating the market. An estimated 87% of Europe's defence production is located in just six countries: France, Germany, Italy, Spain, Sweden and the UK. However, these member states play host to just 52% of defence-related SMEs.
The report says that SMEs account for between 11% and 17% of the EU's sales of defence equipment – significantly lower than SMEs' 39% share of the sales of the EU 27's manufacturing sector. Many SME-related defence companies are not exclusively involved in defence. Exporting is negligible.
Many of the broader problems facing defence-related SMEs are similar to the challenges small firms are presented with in other sectors. Access to finance is a particular obstacle for defence-related SMEs, especially those involved in defence-specific R&D.
The growing tendency for national procurement authorities to rely on major suppliers, the ongoing battle with red tape and the protection of intellectual property are undermining the competitiveness of European SMEs. IPR and user rights issues are particularly problematic when companies engage in co-financing programmes and R&D contracts, according to the study.
The report, which examines SMEs based in France, UK, Italy, the Netherlands, Poland and Romania, says Eastern European SMEs are in particular need of support given the dominance of traditional Western powers in the defence sector.
Eastern Europe's defence industry could benefit from transnational cooperation initiatives under the Europe Innova programme, which arranges matchmaking events and helps prepare partnership agreements, the consultants conclude.
