Small and medium-sized enterprises (SMEs) need a stronger role in Europe’s defence technological and industrial base, while continuing to face significant financial, regulatory and political barriers, according to a study presented to the European Parliament’s Security and Defence Committee (SEDE).
The study was presented on Thursday by Dr Daniel Fiott, head of the Defence, Investment and Innovation Programme at the Centre for Security, Diplomacy and Strategy (CSDS).
Commissioned by SEDE members as part of the committee’s work to strengthen the role of SMEs in the European defence sector, the study examines their position within the European Defence Technological and Industrial Base (EDTIB) and opportunities for greater participation in the European defence market.
SMEs already part of defence supply chains
Fiott said SMEs are already integrated into European defence supply chains, contributing both to the production of individual components and to the integration of technologies into products developed by larger defence companies.
He highlighted the role of smaller firms in developing innovative technologies at a time when artificial intelligence, autonomous systems, cyber defence and space technologies are becoming increasingly important to the defence sector.
He said a key challenge is not only developing new technologies or adapting existing ones for defence purposes, but also ensuring they can be integrated into the market and defence systems quickly.
Fiott pointed to Ukraine’s experience, where procurement procedures have been adapted to reduce the time between initial innovation, development and deployment of technology in the field.
Funding remains a major obstacle
Fiott identified three main categories of barriers facing defence SMEs: funding, regulation and political factors.
Despite increased resources being directed towards defence, he said, ensuring that companies receive funding at the appropriate stages of product development remains a challenge.
A lack of funding can hinder not only technology development but also the testing and certification needed before products can enter the market.
He also highlighted the difficulties SMEs face in attracting private investment because of the risks associated with the defence sector.
Fragmented rules create further challenges
On regulation, Fiott pointed to the fragmentation of Europe’s defence market along national lines.
Different procurement rules and security requirements across member states, as well as the cost of complying with different national markets, create additional difficulties for small companies that lack large legal and administrative teams.
Political and national preferences in the defence industry were identified as a third factor.
According to Fiott, a focus on national supply chains and domestic companies can limit SMEs’ ability to operate across borders and participate in larger European defence programmes.
Two ‘valleys of death’ for innovation
Fiott placed particular emphasis on what he described as two “valleys of death” for defence innovation.
The first is the gap between the initial development of a technology and its inclusion in a development programme, when an SME needs funding, partnerships and support.
The second occurs between development and commercialisation. Even after a company has successfully matured its technology, it may struggle to access testing facilities and certification procedures.
Without these, he said, integrating new technologies into defence programmes becomes particularly difficult.
Fiott also said Europe does not have a sufficient number of testing facilities and called for SMEs to be given easier cross-border access to testing and certification.
Calls for faster procurement
Referring again to Ukraine, Fiott said reducing bureaucratic steps between innovation and the needs of armed forces had enabled technologies to be developed and deployed more rapidly in the field.
For certain technologies, he argued, procurement procedures should allow faster production and operational deployment, rather than lengthy processes that could result in armed forces adopting technologies that have already become outdated.
Among the measures he proposed were greater coherence between existing European funding tools, increased financing for innovation, improved access to testing and certification, and a shorter path between innovation development, procurement procedures and final use by armed forces.
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