Action plan of the European Commission on synergies between civil, defence and space industries

 

In cooperation with the Federation of European Defence Technology Associations (EDTA) we have developed remarks on the "Action plan of the European Commission on synergies between civil, defence and space industries" as published on 22 February 2021 (EU reference COM(2021) 70). Among others, these comments have been sent to the Presidents of the European Commission, Council and Parliament.  

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EDTA and Eurodefense welcome this important Communication of the European Commission on their Action plan to increase the synergies between civil, defence and space industries. It is well understood that this action plan is only applicable for programmes of the European Commission, but even within that scope, it is important to recognise the major differences between civil industry and defence-and-space industries.
Defence and space industries are strongly dependent on (national) government funding and operate in an environment that reflects this strong dependence. Civil industries however are driven by international market conditions, where entrepreneurship, opportunities and risks are the primary factors for success.
In all realism, the Action plan does not seem to take these completely different environments as starting point to create synergy, but argues mainly from a government type funding perspective.

To engage civil industry and foster technological synergies it will be necessary to also foster market synergies. To be profitable, technology development in the civil sector usually needs to be monetized within 2-5 years, where defence and space R&D and products take 5-15 years. Unfortunately, an SME cannot work 10 years to become profitable.

Based on our recent research and experience of our members, government (and EC) contracting will need to be simplified and become more predictable and reliable to gain synergy. This is the most important change required to engage SMEs and other civil industries and entice them to invest time, assets and money in defence products. Risk for industry should be reduced as much as possible rather than increased as governments often require.

In our view, it is odd to require civil industry to change their attitude towards the defence and space market principles as this Action plan does in various paragraphs and action items. In the 21st century it is more reasonable to adapt to more market-oriented principles. This would also enhance a level playing field for industries in Europe.

More specific comments to the Action plan and the Action items are given in the next paragraphs.

The Capability driven approach for the security sector
In the paragraph on Capability Driven Approach (CDA) is mentioned that users need to ‘express their intention to procure products’. We would like to stress that an ‘intention’ is not enough to attract funds for the development of products. A stronger and more binding agreement will be necessary for this purpose. If not, the ‘valley-of-death’ between the European Defence Fund (EDF) Research and Development (R&D) window and useable products will remain unbridgeable.

Action 1. Capability driven approach in the security sector
A Capability Driven Approach (CDA) is the regular approach in the defence sector and could help to satisfy the needs of government users in the security sector. However, a CDA does not create any synergy with the civil sector where companies assess market opportunities themselves without a prescription from the government. When a CDA style of operation is adopted by companies in the security sector they will become more dependent on government funding. Also, dissimilar (CDA) requirements from a multitude of government users will occur. This creates similar versioning issues as in the defence sector.
Except maybe when the European commission leads the CDA over national and local requirements. However, this would probably be too big a step away from the principle of subsidiarity.

Action 2. Access to finance (debt and equity funds).
Support of the Commission to adapt the limitation of the lending criteria of the European Investment Bank (EIB) was mentioned in the Defence Action Plan 2016. Unfortunately however, in 2021 the  limitations of 2013 are not lifted: military and police equipment are still excluded from funding by the EIB and related institutions as it does not satisfy ‘responsible lending priorities’.

Support for start-ups and SMEs
Start-ups and SMEs are often quite successful in the civil market. In economical science, innovation and new product development is attributed to this type of companies. Successful companies rely on private funding and market principles. It seems peculiar in the Action plan to require start-ups and SMEs to adapt their products/business models to defence market principles. The sole reason why they are absent from the defence market is that SMEs and start-ups cannot bear the risks, uncertainties and very long and unpredictable procurement processes in the defence sector.
Based on our research SMEs are well aware of and interested in business opportunities in the defence market, but just cannot afford to participate.
In our view, the defence market should adapt to a structure similar to the civil market.

Action 3. Raise awareness of opportunities by better communication.
Based on our research improved communication of opportunities would help. Systems to obtain and select relevant information are complicated and require a lot of time and effort. Application procedures for EC programmes are however even more cumbersome and the success rate is less than 20%, in particular for a start-up and SME acting as prime contractor.
The action should be: Simplify EU programmes and funding instruments for SMEs, shorten procedures and increase success rates.

Action 4. Technology roadmaps
Development of technology roadmaps and set-up observatories for (emerging) critical technologies is in itself a sensible plan. However, if these actions only lead to (large) flagship projects (for specific industries), as indicated, it could be a waste of money.
EDTA and Eurodefense believe that contrarily to the intention to use roadmaps for flagship projects the result of roadmaps should be shared within the defence and security sector and lead rapidly to adaptation of EDF and other programme funding. Only then both the civil and defence sectors could benefit from the results.

Action 5. Standardisation
A very important standardisation source in the defence sector is NATO.
EDTA and Eurodefense believe that to avoid duplication and ambiguity in standards the very first stakeholder to work with in defence-related standards is NATO and their 
Standardization Office.

Action 6. Innovation networks
Defence innovation networks could and should fulfil a key role in cross-fertilisation between member states, RTOs and companies. The 13 EDA captechs are examples of this type of network. Unfortunately, these have not been highly successful in structuring cross border and cross-sectoral innovation by SMEs. Reluctance to participate exists in industry due to Intellectual Property Rights (IPR) issues and the relatively high cost (in time and expenses) and low returns for SMEs.
EDTA and Eurodefense strongly support the creation of Europe wide innovation networks. However, effective solutions will have to be found for sharing commercially sensitive information and cost of participation for SMEs.

Action 7.  Cybersecurity competence centre (CCC)
A cybersecurity centre would be extremely useful to counter cyber threats. However, in the defence sector, a NATO cooperative cyber defence centre of excellence (CCDCOE) already exists in Tallinn, Estonia. Duplication of efforts should be avoided. Unfortunately, the NATO facility is not even mentioned in the Action plan.
EDTA and Eurodefense believe that an EU CCC would only be relevant when the European Union uses the centre for supranational cyber defence. However, this would probably be too big a step away from the principle of subsidiarity.

Action 8. Innovative funding for disruptive defence technology
Based on our research it is unlikely that open calls or prizes for innovative defence applications will attract non-defence related industries. More economic funding mechanisms, like guarantee-funds, and innovation contracts, would be more effective.

Action 9. Flagship project result availability.
Flagship projects at a low TRL level funded by the EDF could be useful to enhance and accelerate European technological sovereignty. Access to the project results should however be available somehow for the European industry for further development. Not for just one industry that happens to win the first tender.

EDTA/Eurodefense, 6 July 2021

 

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