Defence and Industry - Strategic Partners

The Norwegian defence industry is in very good shape with exports increased by 20 percent since 2005, and the Norwegian government has implemented measures to ensure the growth of the defence industry. “We will both continue and enhance the offset regime as a tool to ensure and increase Norwegian industry’s access to foreign markets,” writes Anne-Grete Strøm-Erichsen, the Norwegian Minister of Defence.

The White Paper (St.meld. nr. 38 (2006-2007), entitled “The Armed Forces and industry – strategic partners” which was presented by the Norwegian government late June this year, heralds closer cooperation between the Armed Forces and Norwegian industry. This strategy governing industrial policy aspects of defence acquisitions is an integral part of the Government’s implementation of the Soria Moria declaration. It will contribute to increase domestic value added and the development of a more competitive defence industry, while at the same time ensuring the Armed Forces access to competence, materiel and services. Strategic cooperation between the Armed Forces, the R&D communities and industry to accommodate defence needs will now be strengthened and involve national as well as international projects.
 
Originating in Norway
The Government wants to establish a long term strategy to ensure that defence acquisitions, operations and maintenance can be sourced from Norwegian industry without violating competition requirements in the defence acquisition regulations. This entails that the Ministry of Defence will emphasize acquisitions from Norwegian suppliers – provided that these are competitive with regards to both price and quality. The parties will collaborate to define the concrete content of the strategy. This process will be based on a common understanding of how to best utilize national competence and resources to meet the challenges and needs associated with acquiring defence materiel, competence and services.
 
To enable Norwegian industry to gain realistic understandings of both requirements and possibilities, and thus support their early positioning in relation to new projects, the MoD will work to ensure:
  • the earliest possible information exchange between the Armed Forces and industry concerning industrial opportunities related to planned defence acquisitions
  • that the selection of national and international collaborative partners, both on an industrial and governmental level will take place at an early stage of selected projects whenever this can support the Armed Forces’ needs
  • acquisitions from foreign companies (exceeding 50 MNOK) will be subject to offset (Industrial Cooperation Agreements)
 
Strategic Industry Cooperation
The Armed Forces acquisition of new anti ship missiles, Naval Strike Missile (NSM) from Kongsberg Defence & Aerospace AS, illustrates strategic industrial cooperation. This development and acquisition project ensures that important guided weapons systems technology and competence is maintained in Norway, and will also contribute to increased export potential for missile systems to other countries.
 
The potential acquisition of new combat aircraft is an example of international cooperation. The capabilities, responsiveness, flexibility and precision of combat aircraft make them both unique and essential in terms of solving defence tasks. The most important criteria for selecting future combat aircraft will be flexibility in terms of solving future defence missions. There are currently three excellent candidates for this project, Eurofighter Typhoon, F-35 Lightning II and JAS Gripen, and a final decision will be made by the end of 2008. In addition to the capabilities of the combat aircraft, the government emphasizes that Norwegian society must also benefit from such a large public investment that a combat aircraft acquisition represents.
 
Early Dialogue for New Strategy
How to implement the new strategy is both important and demanding. The key elements of the implementation are:
  • early dialogue between Norwegian Armed Forces and industry
  • early identification of potential collaborative projects
  • the creation of common fora for information exchange
  • employing technology competence areas which have been defined through cooperation between the Armed Forces and industry
  • strengthening offset as a tool
  • lowering the offset limit from 75 to 50 million Norwegian kroner as of 1 January 2008
  • supporting export activities of Norwegian defence industry
  • the MoD ethical guidelines for industry interaction in the defence sector
 
The Government will also increase its emphasis on offset agreements. We will both continue and enhance the offset regime as a tool to ensure and increase Norwegian industry’s access to foreign markets. Offset is currently practised by more than 120 countries, and the number is increasing as more nations have come to view this practice as a necessary and expedient tool.
State-of-the-art design and use of composite materials in the Naval Strike Missile (NSM) from Kongsberg Defence & Aerospace enable sophisticated stealth capabilities.
The NSM is an important part of the Norwegian government’s effort to ensure and increase Norwegian industry’s access to foreign markets.
 
Maintaining Competence
The need to maintain a certain level of national defence technology competence is attributed considerable importance. It is important that the Armed Forces are recognized as an attractive partner in international defence materiel cooperation, and are perceived as competent buyers and users of new equipment. The goal of the offset regime is to support the maintenance and strengthening of domestic defence industry competence, capacity and market potential.
 
In recent years, the total turn-over for Norwegian defence industry has been around NOK 9 billion per annum. The total number of employees who are directly involved in the development and production of defence equipment is estimated to be about 5000. Investments in defence materiel amounts to about NOK 7.5 billion a year, and 55 percent of these contracts were placed abroad. About 80 percent of the foreign investments have resulted in offset contracts for Norwegian industry amounting to nearly NOK 3 billion per year. About 200 Norwegian companies have benefited from offset agreements in the same period. By the end of 2007, foreign industry will have accumulated offset obligations in Norway totalling about NOK 13 billion. These obligations will be realized by 2017, and represent significant opportunities for Norwegian companies.
As a result of the lowered offset threshold, there will be more industrial cooperation agreements with foreign industry. This will provide the Norwegian defence industry with better opportunities to succeed in a protectionist international market, as well as increase the potential for technology access.
 
Strengthening the Offset Regime
The MoD is also planning a qualitative strengthening of the offset regime. Measures will be implemented both to increase the scope and quality of future offset packages. This includes Life-Cycle Agreements and frame work agreements for foreign companies with multiple offset obligations. We will also enhance the potential for small and medium-sized companies to participate in offset by providing incentives to foreign suppliers that focus their offset activities towards small and medium sized businesses.
 
The quality of offset agreements will also be included in the evaluation criteria when selecting suppliers.
 
The new measures to improve and increase the effects of offset will be incorporated in the new offset guidelines. It is important to exploit the strong dynamics between the Armed Forces, research communities and industry. We will work towards securing employment in Norway, increase domestic competence and contribute towards strengthening the competitiveness of Norwegian industry. This is essential in order to boost the international market potential of the Norwegian defence and security industry.
 
Anne-Grete Strøm-Erichsen
The Norwegian Minister of Defence

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