European Defence Industrial Cooperation Model - An Aspiration for ASEAN?

The Recently Proposed ASEAN Defence Industrial Cooperation

“The Malaysian Defence Minister said that ASEAN countries now spend US$25 billion a year to buy defence assets. With the (defence industrial) collaboration, they hope that the amount could be reduced gradually to US$12.5 billion a year through the development of their own defence industry.”    Jakarta, May 2011.

Recent ASEAN Meeting in Jakarta (Credit: Cyberpioneer/Angelina Chung) 

The Malaysia’s proposal on greater defence industrial collaboration at the last three ASEAN defence ministers meetings has motivated me to spend another fine Sunday morning pondering about this wild idea. Without access to the official proposal paper from the ASEAN meetings, I would just simply gather my thoughts and give a high-level perspective on where this came from and this could lead to.

Lessons and Isomorphic Pressures from the European Model of Defence Collaboration

Public reports on greater ASEAN defence collaboration have not clearly spell out the driving motives of such proposal. Contemporary motives of such regional endeavour have always been the following factors:

• Cost reduction in defence equipment acquisition (economies of scales, lifecycle costs)
• Standardization of defence equipment (interoperability, logistics and spares)
• Technological access (technology transfer and sharing)
• Political alliance (greater political integration through strategic cooperation)

Personally, I hope that this ASEAN strategy is not just another copycat strategy due to organizational isomorphism that was conceptualised by defence scholars who were impressed by the grande European defence industrial cooperation experience. Before arguing for or against such motive, let’s briefly revisit the post World War Two development of European defence industrial cooperation.

The European defence industrial landscape has come a long way since the immediate post World War Two era. The following Cold War era spawned numerous European domestic defence companies and their ecosystems of lower tier suppliers. Almost without exception, all major European countries created their own domestic champions such like in the military aircraft sector such as Aérospatiale (France), Dornier/MBB (Germany), Aermacchi (Italy), Saab (Sweden), Fokker (the Netherlands), CASA (Spain) and the British Aerospace (UK). The end of the Cold War in 1989 rapidly thawed the frozen barrier of the defence industries as defence budgets were significantly cut back due to the fall of the Soviet Union and its once mighty military apparatus. Lacking in new orders for defence equipment, many of these national champions in the original NATO pact (excluding new NATO members / ex-Warsaw Pact members such as Poland and Czech Republic) were forced to consolidate, rationalise and look towards export markets to survive. With strong political support, this ultimately resulted in the creation of a few giant defence conglomerates such as EADS, Finmeccanica, BAE Systems, Thales and Safran.

At the same time, program specific consortia (formal legal business entities formed by different companies) were formed bilaterally and multi-laterally among nations. Prime examples are the Panavia Tornado and Eurofighter jets, the FREMM frigates and Tiger attack helicopters. These programs were massive in terms of technological complexity and financial costs that have to be bureaucratically managed by quasi-governmental organizations such as OCCAR (Organisation Conjointe de Coopération en matière d'ARmement) and the EDA (European Defence Agency).

FREMM Frigate (Credit: Naval Technologies / DCN)

Despite massive industrial consolidation at both commercial and governmental fronts, the whole European defence industry today is considered still very fragmented relative to the US in terms of Defence budget per number of Prime Contractors (or commonly known as Tier 1 systems suppliers), especially the land and marine systems. European defence industry has experienced many ups and downs during its evolution. Many defence program failures (in terms of costs and product performance) were sad memories not unlike that of the current EURO currency crisis. If defence collaboration is so meaningful, why is the European defence industry still so fragmented and currently rethinking about alternative future cooperation models? In the views of many experts and me, the key reasons can be summarized as follows:

• National interest (defence industrial self-sufficiency, jobs, technologies and exports)
• Differences in national defence requirement
• Hidden and real costs of program management complexity in multiple stakeholders’ ecosystem

In fact, there is an emerging trend of divergence in defence industrial strategies especially in highly complex next generation defence systems such as unmanned combat and surveillance airborne systems (UCAV and UAS). Leading European nations have been weighing the costs (complexity of management, supply chain and political influences) and benefits (economies of scale, technological access, joint funding and specialization) of cooperation. The outcome from this cost and benefit analysis are often factors such as the participating countries (how many and which countries), the scope of cooperation (e.g. financial, R&D and production) and equity of work-share. Currently, French and the British have been talking about a bilateral cooperation in unmanned air combat systems (possibly the 5^th or 6^th Generation Fighters – depending on decision to skip the 5^th Generation) without involving the German and Italian.

  On the whole, the European defence industry is anything but coherently aligned and integrated. In my view, all European nations still practice cherry-picking of the best mix of cooperation arrangements for and amongst themselves and other non-European countries especially the US (e.g. MEADS theatre missile defence system and the Joint Strike Fighter). The naval and land systems (e.g. NEXTER, Krauss Maffei Wegmann, Thales, Safran, BAE Systems) companies are not showing any sign of giving up their current lucrative market shares for a greater European defence industrial integration, even though they are pretty much reliant and owned by their respective nations. In fact, these European defence companies are some of the most aggressive competitors in emerging markets like India, Brazil and the Middle East. Considering the GDP, tax and employment contribution of defence industry to European countries' coffers, it is easy to understand why further European defence industry integration has been a daunting task to achieve. However, the current adverse financial situation in Europe and the ramification on its defence budget outlays will certain be a strong catalyst to force greater cooperation and rationalisation. Nevertheless, there will be some counteracting forces towards against greater European integration. If European export campaigns in emerging markets in Asia, South America and the Middle East would to bear fruits against the even more desperate American and Asian competitors, it will decelerate further consolidation and cooperation.

Rethinking about the Proposed ASEAN Industrial Collaboration

I would like to come back to the ambitious potential annual saving of US$12.5 billion by 2030 (i.e. 50% of ASEAN current annual military expenditure) quoted by the Malaysia Defence Minister. In my view, this figure is nothing more than a very rough estimate based on current geo-political-technological assumptions. Perhaps it is more likely that this figure has been overstated for political purpose of kick starting some grand strategies. Here again, it sounds so much like what the Europeans have been trying to do over the last few decades. It would be politically correct for ASEAN integration at the very best and could be potentially very costly at the very worst.  

Without more detailed information about the ASEAN proposal, I would propose some key questions that could help ASEAN policy makers in their execution of their strategies before ending up in disastrous endeavour that could strain bilateral and multilateral relationships.  

• Have the ASEAN proposal considered potential hidden costs and barriers of regional industrial cooperation?

• Are there any stakeholder analysis and alignment with respects to long-term strategic and political aspects?

• Is there any hope of harmonizing of system requirements amongst ASEAN militaries? If miraculously yes, how are ASEAN nations going to manage the different levels and complexity of national customization?

• What kind of defence systems (technological level) should be involved in this industrial collaboration? (Simple systems like rifles or advanced systems like unmanned aircrafts)

• Do ASEAN nations have enough technologies capabilities and industrial base to cooperate (not only prime contractors, what about lower tiers of suppliers)?

• Which kind of industrial cooperation model (e.g. work-share and offset agreement)?

• Would the collaboration be robust enough to hold itself against macro-economical forces (currency, inflation, etc.) over time? (i.e. how can ASEAN nations guarantee the survival /sustainability of defence companies in the entire supply chain?)

The recent proposal of ASEAN industrial cooperation is a good start for further analysis. However, it is unlikely that there could be any major defence system collaboration programs  in the short to mid-term given current technological and political landscape of ASEAN. The potential saving in defence industrial collaboration requires further rethinking and greater scrutiny. 

Source: Maritime Security 
ASEAN ADMM 2011