The Defence Technology Industry in a Time of Force Transformation and Internationalization
(Source: Rheinmetall DeTec; web-posted July 12, 2005)
Principles for fundamentally re-orientating the country's armed forces were set forth in Germany's Defence Policy Guidelines in May 2003. Primarily, they deal with integrating the Bundeswehr into multinational force structures when deployed abroad, the new mission spectrum, and strategies for coping with a limited defence budget.

The guidelines gave rise to five important official documents on the Bundeswehr's future: "Directive on the Development of the Bundeswehr" (October 1, 2003), "Directive on the Development of the Armed Forces" (March 1, 2004), "Concept for the Bundeswehr" (August 9, 2004), "Directive on the Development of the Army" (July 5, 2004), and "The Army in Transformation" (December 1, 2004).

In the Berlin Edict of January 21, 2005, the Federal Minister of Defence ordered the reorganization of the Bundeswehr's command structure. The new structure places the Inspector-General of the Bundeswehr in charge of combat readiness of the armed forces, the analysis of their joint capabilities, and the centralized identification of requirements. In general, this considerably expands the Inspector-General's responsibilities. Current changes in the Bundeswehr and its adaptation to new circumstances are summed up by the term "Force Transformation".

Transforming the Bundeswehr also means transforming the defence industry. At the same time, Europeanization of security and defence technology policy is growing as a common European security and defence policy emerges, and the EU Commission presses for greater competition in defence procurement.

At the initiative of the Council of Ministers, the European Defence Agency (EDA) was created in July 2004. The EDA's brief includes developing military capabilities, research and technology, military equipment, and fostering a European defence market. Defence ministers of the member nations make up the EDA's steering committee, enabling procurement policy to be coordinated at high levels as well as at lower echelons.


Force Transformation

Transformed armed forces fight according to the principles of effects-based joint operations. Here, the enemy is viewed in his material and non-material environment as a system. In preparing for a military operation, the aim is to supply one's own forces with as much data as possible on the enemy's political, military, economic and social structures. War takes the form of joint operations combining complex networks of systems, often utilizing the armed forces of several nations.

Networking the IT resources of all players is a vital prerequisite. At NATO and the national level, this is termed "network-centric warfare", "network-generated capabilities", "network-based defence" or "networked operations". In a complete break with Cold War doctrine, these concepts call for new types of equipment – translating in turn into new challenges for the defence industry.

Modern armed forces can transform previously independent weapons systems, such as aircraft and tanks, into "network nodes". While the combat effectiveness of platforms and weapons still contributes decisively to overall military strength, networking enhances the effectiveness of the individual elements. Ideally, every player in a networked system has a complete picture of the current situation. Command and reconnaissance systems and networking technologies are thus destined to play an increasingly central role in military operations.

The system integrator, i.e. the defence contractor, defines the entire network. This function, performed at an echelon above that of the system manufacturer responsible for the platform, requires not only knowledge of the technology, but also skill in managing complex system architectures. The system integrator is thus cast in a role which either did not exist before, or which was carried out by the military. The system integrator is tasked with assuring functionality within the system, which presupposes willingness to take technological and commercial risks.

Transformed forces must be able to react without delay to surprising military challenges. Given the complex nature of modern military conflicts, it is impossible to know in advance just what materiel will be required. In the United States, the Office of Transformation expects defence contractors and the military to develop concepts, processes, organizational structures and technologies in tandem. The reconnaissance drone that was quickly converted into a weapons platform for operations in the Middle East is a good example of this new form of cooperation.

Owing to the extraordinarily large number of variables and possible combinations, the mix of systems so characteristic of modern armed forces can only be defined and scrutinized with the aid of numerical models and simulation technology. The term Concept, Development and Experimentation (CD&E) has been coined to describe this new approach to defence technology R&D.

In the CD&E process, military and industrial expertise come together right from the concept phase. The process may encompass studies, seminars, simulations and exercises using networked and simulated systems. From the legal standpoint, such close cooperation between the defence industry and the armed forces is highly problematic in Germany. Other nations do not have this problem. In the contest to equip the world's transformed armed forces, the competitiveness of the German defence industry will depend very much on the extent to which such legal obstacles can be overcome.

Transformed armed forces require highly advanced technical and system solutions, which in many cases are one-of-a-kind products or are produced only in limited quantities. This reverses the situation that prevailed in the platform-oriented days of the Cold War, when development activity focused on the serial production of relatively large numbers of units. Increasingly, concepts and development work will come under the purview of defence contractors.

As we see it, Force Transformation will affect the defence industry in many ways: the emergence of its new role as systems integrator; the shift in emphasis to communications and information technologies; developing defence technology concepts by the CD&E method; low-volume orders for cutting-edge equipment, and developing defence technology solutions in direct cooperation with the customer – all in comparatively short order.


Economization

Improved efficiency is intended to bring the mission requirements of the Bundeswehr into harmony with the realities of budgetary constraint. In 1999, the Federal Ministry of Defence entered into a strategic partnership with industry in the form of a framework agreement, which more than 600 companies have since joined. The objective is a more economical Bundeswehr, with non-core military competencies in the hands of civilian contractors.

To implement the framework agreement, Gesellschaft für Entwicklung, Beschaffung und Betrieb (g.e.b.b.) was set up. Wholly owned by the German government, g.e.b.b. in turn is part-owner of companies which supply the Bundeswehr with logistical and training services. Among them are a company providing motor pool services, a military clothing company, the firm Helicopter Flight Training Services GmbH (HFTS) in Halbergmoos, and, founded on February 16, 2005, Heeresinstandsetzungslogistik GmbH (HIL), which supplies the German Army with maintenance and repair services. In France and the UK, public-private partnerships have likewise been set up for maintenance and training functions.

This represents a new type of business relationship between the Bundeswehr and the private sector. Clearly, certain military tasks can be conducted according to the rules and laws of the free market.


Internationalization

The process of internationalization is taking place in the context both of NATO and the EU. Germany has earmarked troops for the NATO Response Force (NRF), which is a test bed for force transformation. Headquartered in Norfolk, Virginia, NATO's Transformation Command (ACT – Allied Command Transformation) is developing the NRF's military capabilities. Future military capabilities, developed under NATO's Concept Development and Experimentation (CD&E) system, are decided on by NATO committees. This effectively constrains procurement policy options at national level.

The defence industry would be well advised to enlist in NATO's CD&E system. This applies particularly to companies who supply the armed forces with system solutions.

At the same time, the EU is pushing for the Europeanization of defence procurement policy, with the creation of the European Defence Agency in July 2004 marking a major milestone. Even though it is an institution of the Council of Ministers, close links exist between the agency and the Commission. The process of Europeanization has been discussed elsewhere in considerable depth. In establishing the EDA, the members of the EU have created an institution capable of bringing about a new paradigm in European defence cooperation.

The EDA focuses exclusively on topics relevant to its four directorates: Development of Military Capabilities, Research and Technology, Military Equipment, and the Development of a European Defence Market. Each of the four directorates is engaged in a flagship project. The Capabilities Directorate is analyzing the defence industry's capabilities in the C3I domain, while the Research and Technology Directorate is investigating Europe's industrial and technological capabilities in the unmanned air vehicle (UAV) field.

The Military Equipment Directorate has selected armoured combat vehicles as its topic, while the Market and Industry Directorate is working on the Green Book/Article 296 question. On February 18, 2005, Finland's director of military procurement was appointed head of the EDA's Defence Equipment Directors Conference, which is the steering committee at the military equipment and research directors' level.

In parallel to the activities of the EDA, which (as already noted) is an institution of the Council of Ministers rather than the European Union, the EU Commission wants to limit the applicability of Article 296 of the EC Treaty. Article 296 of the EC Treaty exempts the procurement of military hardware from European competition regulations. This process began with the publication of a Green Book in autumn 2004.

Europeanization could well result in the creation of fundamentally new parameters. Our French and British partners have defined their stance on the defence industry in recent position papers (Ministry of Defence Policy Paper, Paper No. 5 - Defence Industrial Policy, MoD 2002). If the German defence industry wants to maintain an identity at European level, a national position will have to be formulated to serve as a guideline for the process of Europeanization.


Summary

Faced with force transformation, technological development and the political progress of the European Union, the defence industry will need to display genuine flexibility. It will have to adapt its products and services to meet the future needs of the armed forces. And it must continue to develop its capabilities in the fields of systems technology, modelling and simulation. Moreover, it must pursue cooperation with the armed forces in the areas of concept development and services. Increasingly, defence technology policy impulses will come from NATO and the EU.


By Dr. Burkhard Theile
Head of the Strategic Business Development and Technology department
Rheinmetall DeTec AG.

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