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The CEO of the Defence Industry Association: We Need Innovation in The Defence Industry

‘The success of Estonian entrepreneurs is that we do something different that allows our customers to achieve the necessary ability faster, cheaper, and often with less risk,’ says Tarmo Ränisoo, CEO of the Estonian Defence Industry Association, in an interview with the Estonian Employers’ Confederation.

In accordance with the results of the Enterprise Innovation Survey 2016–2018, 73% of Estonian enterprises are innovative. What about the defence industry?

More than 11 years of systematic development of the defence industry has led us from individual companies offering defence industry products and services to a situation where we can talk about a modern industry based on private capital that offers products that are popular in the global market. It brings together 110 Estonian companies that offer products and services that people need in different life cycles.

The defence and security sector has a certain uniqueness for obvious reasons. The Ministry of Defence has developed the Estonian defence industry more systematically than any other ministry has developed any other industry. This is undeniably worthy of recognition.

However, the sector cannot stop at what has been achieved. More and more opportunities are emerging for private capital and market-based efficient Estonian defence industry companies in the internal market of the European Union, as more Member States open their markets for defence and internal security products and services to competition. In order to take advantage of the new opportunities that arise, it is necessary to be innovative. In other words, it is necessary to create innovation in the defence industry. There is no point in entering an oversupplied market that is already divided by conventional products. The success of Estonian entrepreneurs is that we do something different that allows our customers to achieve the necessary ability faster, cheaper, and often with less risk.

Fortunately for us, the defence industry in Europe has fallen from the position of the technological leader to the chaser. This, in turn, provides an opportunity for Estonian companies to apply civil or dual-use technologies successfully in the defence and security sector. Since 2013, the Ministry of Defence has organised a competition for the development of new products for the defence industry. This competition with a very small support fund has provided the initial impetus for many of the most innovative products in the Estonian defence industry portfolio – from the cyber defence training platform to the development of unmanned aerial systems.

Who are the flagships of our defence industry and is cooperation in this sector more difficult than in others?

It is difficult and ultimately unnecessary to favour one company over another. However, it is important to support all members of the association, or at least to offer similar opportunities to all. One such example is that of the five clusters selected by Enterprise Estonia in the spring of 2019 to foster greater cooperation between companies and increase their international competitiveness, including the defence industry cluster, which is supported by the European Regional Development Fund with 600,000 euros. The aim of our cluster is to help companies move to foreign markets, increase exports, and participate in international research and development projects. The cluster also organises trainings and seminars for its members and contributes to the development of competitive products in cooperation with companies and universities. There are currently 12 companies in the cluster.

Another example is joint ventures or consortia. Companies that have focused on operations jointly have a much higher chance of being successful in large and important procurements. We have already seen this in the joint offers to the European Union. 6x6EST and associations of domestic companies offering eastern border surveillance solutions are gaining relevance at home.

Thirdly, our defence companies have found a whole new outlet and are moving quickly and vigorously in the space sector, which is new, innovative, and offers significant added value to businesses. In the wider world, the defence industry and the space sector have always gone hand in hand, which is also expressed in professional terminology – Defence & Aerospace. Similarly, the Estonian defence industry sector sets its targets in accordance with the recent Estonian Space Policy Programme 2020–2027.

Estonia belongs to NATO, we have strong partners. Based on this, one might ask – is it expedient to develop one’s own defence industry?

Both the previous and the current commander of the Defence Forces have referred to systematic national defence in their public speeches, and several previous ministers of defence have emphasised the importance of a comprehensive national defence model. Creating a legitimate legal basis is essential for systemic and sustainable development. This is happening today with the new National Defence Act, the cross-cutting feature of which is Estonia’s comprehensive national defence system.

Today, there is a broad understanding that it is not possible to build convincing national defence in Estonia without defence industry capabilities that directly support the performance of the tasks of military and internal security agencies. The defence industry is part of Estonia’s national defence potential – if we do not have industrial capabilities in peacetime, we also do not have them in a crisis, let alone in wartime. We welcomed the initiative implemented in 2019, as a result of which a defence industry support group was established within the new Riigikogu. This has enabled an open discussion at the highest levels of the government on the prospects for the development of the Estonian defence industry.

In the case of businesses, we must also talk about money. How is the Estonian defence industry doing?

The monitoring of the economic indicators of 72 member companies in 2019 revealed that, based on the financial results of 2018, the sales revenue was almost 63.48 million euros and export turnover 24.97 million euros, which means that compared to 2017, export turnover increased by 37% in 2018. This has been a very good result. Looking more closely at the growth trend of the last three years in economic indicators, it can be said that this is a sector with high growth potential where exports have a significant share alongside domestic economic activity. However, the aims are higher – we have set a goal to double sales revenue and export turnover to 150 million and 50 million euros, respectively, by 2023. 

As employers, the members of the association provide work for almost 3,100 employees. Understandably, companies in the defence industry are a cross-section of Estonian industry and, like other sectors, the challenges in the defence industry are similar – many professions are not liquid because there are no employees with the required quality.

How did COVID-19 affect the companies of the Estonian defence industry? Was there less or more work to do?

Closed borders and the impeded movement of people, goods, and services can be summed up with the term ‘security of supply’. If this is not secured, the company is out of competition with its product or service. Today, we are seeing clear signs that our target markets are favouring companies in the host country, mainly due to security of supply.

The main problems of the defence industry today are related to short-term solvency. Namely, the delivery of products to customers requires either a visit to a company located in Estonia or a visit of an Estonian company to the customer’s country of location. Depending on the size of the contract, postponing the transfer will cause problems with the payment of wages and payments to the supply chain and, of course, with taxes. As a general rule, existing contracts provide for sanctions in the event of delays in delivery, in particular in the form of contractual penalties. Every customer relationship is based on trust, especially in the defence industry. It is probably possible to win the trust of the customer again, but it will take a very long time.

You became the CEO of the association quite recently. What is your previous work experience?

Before starting as the CEO of the Defence Industry Association in January of this year, I was an active serviceman with my last position at the Baltic Defence College. My length of service was almost 29 years and I was in very different fields. I started in 1991 as a volunteer in the re-established Estonian Border Guard. I acquired my military education as an infantry officer at the Finnish National Defence University and as a senior staff officer at the Defence Academy of the United Kingdom. For almost nine years, I have served in the Headquarters of the Estonian Defence Forces under the command of four different commanders. All this can be summed up as a very good and educational experience. Personally, I want to return at least part of the investment that the Estonian taxpayer has made to my education over the years by representing the defence industry.

Estonian Defence Industry Association

Founded in 2009 for the systematic development of the Estonian defence industry.

The aim of the association is to promote Estonia’s defence capability and economy and create new jobs.

It started with individual companies offering defence industrial products and services, which today have developed into a modern industry that is based on private capital and offers products that are demanded on the global market.

As at 2020, the Union includes 110 Estonian companies offering products and services necessary in different life cycles, which have one common denominator – it is an industrial product or service that is unique in terms of national defence capability.

They develop and produce ships, armoured vehicles, drones, IT, cyber, and digital solutions, special and clothing equipment, footwear, food rations that meet special requirements, medical devices and disinfectants, weapons and their accessories, mines and demining equipment, and various container solutions. They also provide maintenance and repair services. The association also includes fuel suppliers and companies in the metal industry.

The Estonian Defence Industry Association is a member of the Estonian Employers’ Confederation.

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