Why buying military equipment abroad endangers Europe’s defence industry

Preference for non-European products has a series of interrelated negative effects on Europe’s defence industry.

1. Diminished market position: by procuring non-European products, European governments weaken the market position of European companies while bolstering the position of non-European counterparts in Europe. Given that defence products often have decades-long lifecycles, a procurement decision in favour of a non-European equipment provides the chosen non-European supplier with a steady and secure revenue stream and closes off the specific market segment to European products for a very long time.
2. Loss of revenue and investment capacity: due to reduced domestic demand, European defence firms lose possible revenues. This, in turn, constrains their ability to invest in critical areas such as research and development (R&D) and production capacity enhancement.
3. Missed economies of scale: where an alternative European product already exists, the decision to buy non-European reduces the potential production volumes. This hinders European producers from capitalising on economies of scale and inhibits cost efficiencies.
4. Heightened export dependency: the less European producers sell in Europe, the more they must rely on exports to generate revenues. This exposes them to the geopolitical uncertainties and market fluctuations. At the same time, failure in European markets can weaken the competitiveness of European producers vis-à-vis non-European rivals also in global markets.
5. Knowledge and capacity loss: without a sufficient customer base in Europe, European companies may have to give up the production of certain equipment or not develop it at all. This is critical in particular for systems based on new and emergent technologies (e.g. hypersonic, directed energy weapons) that require massive investments This may lead to a permanent loss of know-how and production capacity in Europe.