European Defence Industry: the case of Greece
(Source: Frost & Sullivan; issued Sept. 28, 2004)
Since the tragic events of September 2001 the European defence expenditures picture has significantly changed under the influence of rising demand for modernization of defence infrastructure and the need to address asymmetrical threats.

The latest forecasts suggest that after 2001 and for the following decade the average annual rate of development of the European defence industry is set to increase and reach a healthy 7,5%. This boost is mainly attributed to the increasing defence budgets in the largest European countries such as UK and France.

However the positive picture does not suggest increasing spending all around the continent and as a result the opportunities and problems are very different if considered on a country to country basis. For example, the leading European defence contractors Thales Group and EADS had a substantial increase in their income figures from 2002 to 2003, a 37% and a 16% respectively while the British BAE Systems suffered a slight decrease of almost 4% in revenues.

In any case the primary objective for all European defence contractors is to adapt quickly to the new environment by investing in new technologies, forming strategic partnerships and reducing costs in order to remain competitive and survive against the pressure from their counterparts in the other side of the Atlantic.

To begin with, Greek industrial environment has changed rapidly during the last fifteen years from a sector with minimal contribution to the defence procurement to a sector with a small but increasingly important role in the country’s defence needs.

Numbers in this case speaks for themselves as the percentage of contribution of local contractors to the armament programs has been rising constantly from an anaemic 2% during the early nineties to a healthy 16% today. Currently, more than 150 Greek companies have undertaken programs worth almost 3,5bn$ in the last three years and support around 18.000 workforce. However, these numbers distort the true picture behind the real contribution of the Greek defence industry because they don’t really represent the exact production of the local companies. These numbers show the value of contracts undertaken by Greek firms without necessarily exposing their contribution (or added value- EPA) in each of those contracts. As a result the figures stand below the 16% to a moderate 10% of real productive contribution.

Dominant characteristic of the Greek defence industry is its concentration to the coverage of the peripheral side of the domestic armament needs. Supported almost entirely from the state defence budget and due to the absence of extensive main end product capabilities, the industry has shifted progressively away from the procurement of complete weapon systems to the domains of new technologies such as electronics, software-hardware, communications, batteries, tailored vehicle modifications, engineering and support solutions as well as logistics and other basic components for military applications.

Some of the leading domestic contractors include: EADS 3SIGMA, INTRACOM S.A., ISI HELLAS, GERMANOS GROUP-SUNLIGHT, ALTEC, MARAC, DEFINET, SPACE HELLAS, MILTECH-TELETEL HELLAS S.A., MEDICON, SONAK, HAI and others.

Among the urgent problems affecting the development of the local defence basis is the absence of information regarding the industry itself. Long awaited plans for the creation of a comprehensive information database to include all major Greek contractors and subcontractors are still in embryonic stage. Attempts from non-profitable organisations (such as SEKPY) to initiate the development of such a database are currently the only source of reliable information. However, even these attempts to create an information source are basically dedicated in providing only the most essential contact and product information for the existing contractors and not real hard economic data regarding their operations in the Greek market. The absence of widely available hard economic data about the operations of these companies seriously affects their ability to form strategic partnerships with foreign contractors and prevents the growth of the defence sector as a whole.

In symbiosis with a state owned industrial defence sector who remained largely uncompetitive and unattractive to modernizing forces the newly emerged small and medium sized industries managed to survive and some of them to prosper not because of state policy but because of large state orders followed by offsets.

Some might argue that the Greek government’s attempt to present the offset deals as proof of existent state policy to support domestic contractors is largely misguiding. The truth is that offset deals have been traditionally conducted in obscurity even though there is an existent legal framework to regulate the terms and conditions favourable to the local industrial players.

As a consequence not only the companies become unable to negotiate their involvement but they are also unable to contribute to the strategic armaments planning of the Greek MoD. The end result of this situation is the inability of the defence industry to shift its orientation to coincide with the long-term requirements of its basic customer –this is the Greek Army. Respectively, the dynamism of the defence industry is largely depended upon each company’s ability to expand in markets outside the defence sector towards civilian applications.

The question is of course the survivability of the Greek defence industry in the face of decreasing budgetary allocations to military purposes. The recent trends and announcements suggest that significant cuts in spending should be expected and several procurement plans will be postponed if not cancelled. The answer is not easy but the study of the domestic market over the last decade suggests that most of the companies will not face substantial problems. This is mainly because the majority of those have their primary basis in non-military products and secondly because the defence segments they currently operate are set to increase over the following period.

With the procurement of the main weapon systems programs heading to short-term completion, the focus for the Greek MoD is the modernization of C4ISR capabilities. As a consequence the digitisation of the army -- being now at the starting levels -- will only increase in the future. Major contractors have already started to take advantage of the opportunities (including the rising exports) and lead the way for the rest of the industry to follow.

Consequently, the prospects for the Hellenic market is that defence cuts will not necessarily bring less money for modernization and will probably lead to optimum allocation of vital economic resources towards sectors such as command and control systems, sensors, networks, computers and communications.

The Greek defence industry has the opportunity and the capabilities to increase its participation to the domestic armaments market but in general terms still lags in competitiveness and R&D basis to attract foreign markets. Currently, the allocation of economic resources for R&D does not exceed 1% of the total defence budget and most of the R&D is conducted through private initiatives.

In the short term the opportunities for participation in the international arena lay upon the ability of Greek companies to create alliances with foreign companies and share valuable know how. As far as the state-owned defence industries is concerned, the plans for partial privatisation might prove to be useful as long as they provide incentive for modernisation and not just cash for the state budget.

In conclusion, the prospects for state owned and private defence contractors are inherently depended on the state defence policy and not so much on the size of annual defence budget. The amount of money spend on defence remains considerably high in Greece and even with the planned reductions it is more of an issue of directing these resources to facilitate the growth of the local industries.

Finally the long-term prospects appear to be encouraging since the progressive decrease in state defence spending will force the local industry to seek co-production and contribution to European defence procurement projects as means of balancing a probable loss in some specific segments of the domestic market.

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