During the Cold War, many nations could, to a large extent, have and a support their own defence industry and Sweden was no exception to this. During the start of the 1990s, after the end of the Cold War, the defence industry started becoming more and more internationalised.
- It is no longer cost efficient to produce only for one customer. The underlying technology is so complex today, says Martin Carlsson-Wall, associate professor at the Stockholm School of Economics, who does research regarding operating control and innovation and has worked for both the Swedish National Defence as well as the defence industry.
Only way is the international way
Martin Carlsson-Wall says that the only way to operate on the defence market is to acquire international customers. The consequence of that is the emersion of new business models. Gripen is an example. The aeroplanes that were previously manufactured solely by engineers in Linköping, are today produced partly and Brazil and has suppliers all over the world.
- There’s a lot of technology going in to the plane. Each individual plane becomes more expensive and the Swedish National defence does not have a budget to support that. They also cannot afford to finance the development project themselves. When a supplier such as Saab produces a plane they are therefore dependent on the fact that more countries, apart from Sweden, buys it, he says and continues:
- One challenge at that point is to handle any possible supplier conflicts. When you sell to other countries they could demand countertrade affairs or to be a part of the local production, as is the case with Brazil.
International co-operations contribute to strengthening Sweden’s defence business, while at the same time contributing large challenges. One consequence brought by the new business models is the fact that the defence market today is largely politically connected. Help is required to sell for example combat aircrafts to other countries, making the complexity of the affair much larger. Another challenge regards the navigating within networks and finding a balance between control and cost efficiency.
- I always have to think about how much control I want and how much I am willing to pay. That is the key questions in the international networks.
Martin Carlsson-Wall means that it is important to establish a good report between the National Defence and the industry.
- It is important to have clear rules of the game in order to create a win-win situation. It is about both creating the right organisational structure and incentive, but also about creating a mutual language and mutual routines regarding the calculation of prices.
- At the Stockholm School of Economics we help many industries to create long-term, sustainable collaborations. It is easy to sign a collaboration deal but much harder to make it work within the every-day life. To then work with a neutral third-party is often experienced as a catalyst to develop the business further, says Martin Carlsson-Wall.
First published in SOFF:s Magazine 2018 (in Swedish).
Text: Sara Steinholtz Sparby