Austria’s security and defense industry is successful on the global market. Which of its products are of particular interest to international customers? Where are the red-white-red areas of strength? And how is the industry developing? An interview with Reinhard Marak, Managing Director of the Security & Economy Working Group in the Austrian Federal Economic Chamber (WKÖ).
Mr. Marak, let’s start by taking stock of the Austrian security and defence sector. What industries does the sector comprise? How is it positioned? How is it developing?
The Austrian security and defense industry has become a very broad sector. We have manufacturers of wheeled and infantry fighting vehicles as well as military trucks and personal equipment in the country – ranging from NBC protective suits to rifles and pistols. However, there are also many companies that you would probably not immediately think of when talking about security and defense: protective helmet and drone manufacturers or air traffic service providers, for example.
Can areas of strength be identified from this diversity?
This certainly includes land mobility, with manufacturers of complete vehicles through to specialists for conversions and superstructures as well as suppliers. We are also strong in the field of aviation components, where there are not only system manufacturers but also many companies that are active in the civil and military component sector. In the area of personal equipment, we have manufacturers of protective equipment, weapons and protective helmets, as mentioned above. The ICT sector is also becoming increasingly important – in other words, everything to do with cyber security, ICT, communication and data processing. Our companies operating in the space sector are also becoming ever stronger.
In answering the first question, you used the phrase “has become a very broad sector”. This implies that the sector is evolving and used to be worse off than it is today.
It is true that a trend is emerging here. However, this is partly due to the fact that the way in which conflicts are conducted today has changed fundamentally in recent years – and with it the type and number of companies that are active in the sector. While there used to be clear industrial classifications in the armaments and security sector, many manufacturers of dual-use goods, such as software companies, are now also involved in this sector, which would not have been considered part of it a short time ago. Just think of the cyber sector, which is developing rapidly, or of critical infrastructure, the protection of which is becoming increasingly important at all levels and now encompasses many different facets.
You have mentioned many areas in which Austrian manufacturers are successful with their products, but we are not usually talking about very large quantities. So is Austria’s industry mainly active in the niche market?
We play in a few niches, but we are also good across the board. Our companies are certainly specialists in offering customers individually tailored solutions. At the end of the day, that’s what often makes us successful: with the big manufacturers, customers more or less have to buy the products that are produced in series. In comparison, our companies respond much more specifically to customer wishes. We are also at the forefront of technology, our products are considered very robust and reliable and often remain on the market for many decades. https://militaeraktuell.at/grossuebung-walgau-2023-erfolgreich-beendet/
Are there other recipes for success besides “flexible customer solutions” and quality in production?
Another key success factor is certainly the fact that all of our companies are privately organized; we are not state-owned. This means that our companies are constantly “in real competition”, they have to prove themselves on the market in the long term and are therefore not only really good in terms of quality, but also in terms of value for money. A key prerequisite for this is our highly trained staff. The dual training of specialist staff that we have established in Austria for decades is unique in the world and an extremely valuable asset for our industry.
“The dual training of specialist staff that has been established here in Austria for decades is unique worldwide and an extremely valuable asset for our industry.”
Is that still the case? After all, Austria and the whole of Western Europe have been suffering from a blatant shortage of skilled workers for years.
Of course, we cannot completely escape this situation either. There is a great need for personnel and the problem is likely to become even more acute in the coming years. However, we are still doing quite well compared to other sectors and countries.
In recent years, it has often been a problem that products manufactured in Austria were not used by the armed forces, or only to a limited extent. Now there seems to be a trend reversal in this area, and “Made in Austria” is increasingly finding its way into the Austrian armed forces. How important is this in terms of potential export opportunities and markets?
Immensely important – for two reasons: On the one hand, successful companies based in Austria guarantee a national supply of their products and services, even in the event of a crisis or conflict. We need these products to avert danger, and security of supply has been a national security interest not only since the coronavirus pandemic and the resulting disruptions to international supply chains.
And the second reason?
Many other countries understand very well that a purchase decision is one of the most important economic policy tools of a state. Whether or not a purchase is made can, in case of doubt, determine whether a company continues to exist or not, or whether a product remains in the portfolio, is possibly even developed further or is dropped from the range. Many countries have this aspect high up on their agenda and these countries therefore usually also have national security and defense industry strategies in which they define how they want to keep know-how in the country. That’s why it’s completely normal for them to buy from local companies, provided the quality is right. Conversely, this means that potential customers in these countries first ask our companies whether a product they are interested in has already been introduced nationally. And if the answer is no, the customer …
… the impression that it is an inferior product, because otherwise there would be a purchase?
Correct. In addition, the companies concerned lack an important reference customer who could also interest other potential customers in a product. This makes it doubly and triply difficult for many companies to succeed on the market.
Nevertheless, domestic companies seem to be doing quite well, Austrian products are in demand worldwide. How is Austrian industry perceived globally? Does it enjoy a certain reputation?
Yes, but that applies in principle to the entire Austrian industry. We have a reputation for producing high-quality products, being extremely flexible and, as already mentioned, responding well and individually to customer needs. In short, we create products that you can rely on.
“We have a reputation for producing high-quality products, being extremely flexible and responding well and individually to customer needs.”
To come back to the national procurements of the armed forces: In Austria, more money will be invested in the armed forces in the coming years than ever before. To what extent will Austrian companies also benefit from this?
This is difficult to predict at the moment, but we are of course expecting positive impetus. If you look at the expected investments – for example in the area of protected mobility – domestic suppliers could cover almost the entire demand. The situation is similar for military equipment and general mobility, and we could also supply a large proportion of air surveillance components nationally. All in all, our members could provide around 70 percent of the capabilities required by the armed forces in the coming years. Similar coverage could probably also be achieved with regard to the requirements of other countries and
armies.
Against this backdrop, to what extent do red-white-red companies also have access to the supply chains of the major international industry players and system houses?
For various reasons, it is not always easy to play along, but it is increasingly successful. For example, Austrian companies are contributing to internationally successful fighter jet programs and even to the implementation of the European Sky Shield program our companies could make numerous direct contributions: In data processing, with high-quality metals and materials, in avionics and also with carrier vehicles for mobile systems. Sky Shield could therefore be a great opportunity for our industry. https://militaeraktuell.at/die-nimitz-klasse-steht-vor-der-verlaengerung/ Speaking of great opportunities: one problem with the development of the industry at the moment is the very restrictive requirements of the financial institutions ...
… which even make it difficult for many companies to maintain normal business accounts, that’s true. But: This doesn’t just affect us in Austria, but all companies
throughout Europe and includes not only the ability to maintain accounts, but also to obtain guarantees and loans …
… which makes investments difficult or even impossible in many cases?
Exactly that – and that is where the cat bites its tail. The European Union – like many of its member states – is currently striving to further develop its industrial base in the security and defense sector and even build new ones in many areas. This involves ramping up production and setting up new production facilities. But how can this be achieved if the necessary loans cannot be obtained because there are reservations about defense products?
So the situation is difficult?
Yes, but the good news is that a lot is happening at European level to address the problem. Hopefully there will soon be improvements. The entire European industry will benefit from this. Ultimately, this will also benefit Austrian security and defense companies. This will make our companies even more competitive.
