Defence industry Poland: Defence industry faces historic opportunity
In less than one month, the third largest military fair in Europe will begin in Kielce. The MSPO 2016 International Defence Industry Exhibition, in addition to showcasing the offers of the largest military equipment manufacturers in the world, will also be a chance to get a comprehensive picture of the Polish defence industry. An industry which has lately been undergoing revolutionary changes.
The core of the Polish defence industry is made up of companies which have been consolidated since November of 2013 in Polska Grupa Zbrojeniowa S.A. (PGZ), belonging to the State Treasury. PGZ comprises 36 enterprises specialised in the development and production, as well as modernisation, of armaments and military equipment, and additionally concentrates 30 other enterprises from the shipbuilding, offshore, real estate, and new technologies sectors. In 2014, PGZ generated more than 5 billion PLN in revenues, and 226 million PLN in profits. In the Stockholm International Peace Research Institute (SIPRI) survey, PGZ ranked 34th among the largest armaments concerns in Europe, and 67th worldwide.
The segment of the Polish defence industry which has grown most in importance in the last 10 years, is the sector of private enterprises based on Polish capital, including WB Electronics, TELDAT, and the Lubawa company at the forefront. A separate sector has been created by aircraft manufacturers, such as Rzeszów, Mielec, and Świdnik – all of which have been acquired by foreign, primarily American, capital (UTC and its dependent enterprises – Pratt&Whitney, Sikorsky, Goodrich, Hamilton Sunstrand), with the exception of PZL Świdnik, which is owned by the Anglo-Italian concern, AgustaWestland.
For the time being, it is still not clear to what extent domestic armaments production will be able to meet the needs of the Polish army. It is a fact that the Ministry of Defence makes 70% of its purchases in country, but only a few of the armaments systems produced in Poland – namely the Rosomak [“Wolverine”] armoured personnel carrier, the Krab self-propelled howitzer, the Spike anti-tank missiles, the Grom anti-aircraft missiles, and selected types of so-called smart ammunition – are truly modern products with future prospects.
Hope in consolidation
The Polish defence industry, in particular the part belonging to the State Treasury, has for years struggled with the same structural problems:
• excessive dependency on government contracts
• a weak position in international markets, leading to a small number of export successes as an alternative to domestic orders which are small in comparison to the industry’s production capacity
• the economic and product range weakness of the companies, which interfere with effective improvement of competitiveness
• difficulties with acquiring strategic investors who have the necessary capital, technology, and sales markets
• a product offer which to a large degree fails to meet the needs announced by the Ministry of Defence and foreign clients
• insufficient activity in the R&D field and an insufficiently aggressive search for funding for such aims, including that available as part of international EU and NATO sponsored projects and projects sponsored by the industry itself
An opportunity for the defence industry seems to be first and foremost the consolidation of state enterprises under the auspices of Polska Grupa Zbrojeniowa. The process of concentrating the potential of these enterprises within the framework of the Group is already at an advanced stage, and is expected to be completed in the third quarter of 2016. The Ministry and the armaments branch must come to an agreement on which technologies can be effectively produced in Poland (with its own means, or as part of an alliance with foreign partners) in the 2020 perspective and beyond.
Potential niche markets
Until now, the Polish defence industry has developed few „islands” of innovation, and in fact has not generated much new technology which could drive other sectors of the economy. To change this situation, it will be necessary to develop new technological competencies, whether based on home-grown R&D, or by joining a network of collaborative suppliers for the benefit of international concerns and using this as a basis for building a brand in well-defined market niches.
The industry should continue its current strategy involving the search for ways to link up Polish companies with the global production chain by creating alliances with leading foreign suppliers. Among the most promising areas in this context are photonics, ICT (C4I), materials engineering, automation, robotics, and mechatronics, The MSPO 2016 International Defence Exhibition is an outstanding opportunity for the armaments industry to present its current offer and prospects for development, when the fair takes place in early September 2016 in Kielce.
Plans for the role of the armaments industry in national defence and the national economy are ambitious. First of all, the defence industry is set to become the most important element – alongside the armed forces, and the national crisis management establishment – of the defence potential of Poland. Secondly, the industry would like to become a leader in the knowledge-based reindustrialisation of the economy, also including areas which are not strictly related to military technology. Thirdly, in the area of production, a key role is to be played by cooperation and partnerships with world leaders in the military supply branch, while in the R&D field specialised technologies, so-called dual-use technologies, are to be developed. Last but not least, the offer of the Polish defence industry is to have a global character, ensuring its return to international markets. Such expectations are well-founded; it will only be necessary to break through the current malaise in this respect. And that this can be done is shown by the example of the privately-owned WB Electronics company, which is currently one of the leading exporters of Polish military equipment.