WORLD

DEFENCE
SYSTEMS
THE INTERNATIONAL REVIEW OF
DEFENCE ACQl)ISITION ISSUES
jULY 2001
RUSI
VoL.3 No.2
A ROYAL UNITED SERVICES I NSTI TUTE
FOR DEFENCE STUDIES PUBLICATION
The Key to Communications
AVA
Consolidation trends in the European
land systems sector
Dr Jeffrey Bradford, former Arthur D Uttle consultant and now Director world-wide consulting at Think Tools AG
& Mike Price, former Head of Arthur D Uttle's UK Strategy Practice and senior European defence industry specialist
Post cok:lwar consalodallon
l!ends ogruted amongst lhe
hlghvaJue aerospace and
etectronocs segments on the
Unoted States are oncreasongly
dnvong change amongst land systems play-
ers Thos anlcle 1s concerned wlll1 recent
onduslnal developments amongst land sys-
tems on Europe end repre-
sents the autho<s personal on
pronwy research conducted dunng repeaed
consultong engagements to the sector
bet .. _. 1998 and 2000'
The key areas which tt.s anocte 'Mil exam-
one are the emergong structure ot the
European ondustry what players themselves
regard as the key success factors for them-
selves, and a look at the possoble routes
along whiCh the rndustry could develop
Wholst the forst round ot NATO expansion
"' the ITOd 1990s brought new players Into
the European tand systems sector the pace
of consOIKlatoon has contonued to acceler-
ate amongst estab oshed player
Successrve efforts by the UK company
Alvos, secured Hagglunds of Sweden and
GKN s land systems onterests
The rVI!N dynamiC emerging for European
playerS IS the oncrea&ng acQUISIIIVOOOSS of
Nonh Amoncan ptaye<s. The stake taken on
Sleyr ot Austna by General Dynamocs and their
enempt to acQuore SBB of Spaon
ClWIItC have heightened <WlXIe\oes pettoC:Ib1y
11 GerrnMt General Molor.; Oleset OMslon
Carod<l s acqursJtoon of MOWAG of
SYMzer1and lOOk on-house ts desql capobili-
toes whiCh probably helped to bOlster 111ell sue
cess on the lntenm Bngade Combat VehiCle
competotoon woth the Porama Ill platform. Fogure
1 identofo<>S a selection ot European players.
and the natoonally of the owner
Hostorocnlty, the naloonat organozatoon ot the
defence ondustry has led to a plethora of 11001-
de types AI present ruleast SIX manutactur
ers deSign and constn.d trad<ed IFV typo
vehodes wt111st at leas< seven munufac.1ur1
cltStonct 616 W>eeled light armoured 119hictes
Contras11ng thos t"ostorocal pocture IS the
ohangong nature ot defence procurement by
NAfO na11ons tn Europe
Footnote
' Research conducted by the author
betwoen 1998 and 2000.

MRAV, 6x6 Variant, the new European armoured utility vehicle with rapidly-demount-
able mission modules, mado by the ARTEC consortium (comprising KMW GmbH,
Rhelnmetall Landsysteme GmbH, Alvts Vehicles Ltd and Stork PWV). Photo. AMs Pte
Programmes such the Multo Role
Armoured Vehocle (MRAV), despote ots chal-
lenges. demonstrate the overwhelmong
desore to acquore cheapeo defence eqwp-
ment of a standard who<:h w II ma>"moze
protechon of soldoers whilst conduct ng
-
--
---
operatoons Opcratoons such os the Gulf
War ot 1991, Balkan peace keep1ng and
peace enforcement operatoons. down to
low lntensty operatons such as S1erra
Leone for the UK ndocate a desore to monl
mole friend y casua toes
......
[LJIO
Agure I: Key European Land Systems Players and Country Controlling

U.JI L.and systems
Marl\ellng strength Ill koy export markets (l'ldudlng
poiiQIIIJilPM)
A suoog domesuc cuseomer c:oup1ec:1 Wllh a svong
Need lor realism abOut COSt
sttvctures in the ommed.ate
future
Eoonomoes of scale to aJd
export success
Focus on eos1 redo octoon to
become a low cost
manufadtnr
Investment ., new
technologtes
Financial
Competence
Markel Access
WhMied capabthty (18-26 ton range)
Investment in hrghor skrlls and
technologies (e.g. dlgrtlzaliOn)
Elecltonics and fire control
Development of systems ontegration
capaWy
Key Technologies
Need lor locus (lor Wllomal and
- pen:epiiOns)

I
FQI :nimbly (b Value Charn
_
----'
CompositiOn of
Portfotlo
Olher buSiness rnus1 calalyse R&D
knowledge lor alto be VIable
Figure 2 : Land Systemt player Key Suceeu Factors
Funhe<. the more diverse nature ol opera
toons reqoe equrpman1 W>lh HexO;..->y
lor transport world-wide Yot>lst awa.l<'lg tile
Aottus A400M transport ElJ'opean govern-
ments commt!lng to mltary operatiOns
around the globe w111 need access to lght.
ellect1ve vehicles wh1ch can poslion their
forces n lime to act. wholst 11 necauary. awa1t
1119 S<Oa ol more trad toonal heavy equ.p-
ment such as M8Jil Battle lanka iMBTs) and
lnloYJtry F;g>.ng Vetlocles (!FVs)
The US
1
ntenm Br.gade Corr-bat Team
expenments dfld European expenonee there-
lore create a for cheap. etfacuve, ftexr-
ble combat vehicles- a dHcult recope tor the
ndustry where nat1onal organization has
resu ted rn higher pL<ehase costs per vehocle
Whallheretore IS changing lo enable the n.
lrl!lt.,... or emetgr19 operaiJonal needs? n coUd
be suogesled lhal the Jlii'I'IIWY a-IS lhe reia
tNety low value of combat vehicles
arrcraft and naval vessels PolllClans are keen
to deland hrgh value employment rn oreas such
as aer0$pilce and electronics w1th hogh R&D
components and perceiVed effecls
I!Yough the economy
The l<wld sys:ems sector IS perceived traclt
llonal1y as a heavy engllleOlMQ arena where
R&D rs a secondary concem Electrorocs are
rncreasngly bacom ng a higher value
nent ol the land system 111 the same way that
tile autOI!lOINe lfldvslry IS 4M>'""''' The<etore,
the llbiLty to create hullS lor lhe hogh <We
COI'I1POI*'ts COUld be seen as becorno1g
stead ty more of a eonvnod'Y
The pace of
consolidation has
continued to
accelerate amongst
established players
As part of OU' e!lor1s we
ken to a runber of JeadonQ land syslems com-
tn Europe and Nonn Amenca 10 ideno-
ly playe<s saw as key success fac
tors. The research led to a reassuflngly som1lar
J)Oint ol vew wth live man laetors denltfied
surroundng market access. koy teehnologoes,
portloio composo:.on, ChOO posroon and
financial DetaAs o1 these factors
1n proolded In !Qxe 2
Marl<et access IS crrt.cal tor tn06I ' not aJI
European players due lo the dlhcu t>es on
acl_.tng nallonal economteS ol scale Some
COlJ"'troes benefit from long hostorcal ttes that
ma1<0 the e.poo ol equopment 88Sle< and
polot.cal support enhanCeS thS SllllllJ'ther
The dscussoon regarClng koy technologes
whch compames should onvest '" centered
around the h1gh value electroncs component
ol the platform. Electroncs and lire control
systems were seen as an nvewnent pnorl\y
of several p&aye<s. However. this I)OOntiZatoon
<eQUifed tor many rtl\-estmenl n buildong and
8CQ""'' the retevant capablrtoes
The ssue ol portlolio composrtoo reRected
lhe d1verse nature of compen1us supplyong
lend systems. In many ndustfleS the trend is
to dlV&St busnesses which ate not compii
mentary wth the company's core m sson. In
the land systems arena there are compatli8S
w th QUote Olverse rnteresiS A rGCI8tll example
pr101 to IS acqooillOn by Rolls Royce was
Vockers 'htl!Ch had a "\Ubslantl81 marone
engnes bul.o<lo.lss along. d rts manufacture
ot the Challenger 2 MBT
The value chan poston was raised as a
key ssue lor success amongst land systems
manufacturers Those eompani8S we spoke
to saw R&D as very ornponant due to the rus-
tomer contact (amongst riiQUifements staff) t
tuk Ill the ea<1y stageS ol a protect. F.-.at
as.<embly was seen as tlllportant. espeoally
li Requirements 2025
I
Key:
[I
.
= Scenario
Ukely Prolee!lon WO!Qht Driver
oper81ing (compared 10 (compared to
OII'IVVonment 2000) 2000)
0 Elements
= Comprismg
European style Same (armour Same (armour
Scenarios
theatre offsets weight offsets weoght
Elements
loss) loss)

; of a part1cu1ar
scenario
Europe + 1.5 times compared
Middle East bener than to average
G environment today 2000AFV
Europe, M1ddle Twice of today's 10%
East plus Asia tevel of
compared to
enwonment
protecbon ..I. average 2000
Global 2.5hmes 15%
eJ
bener than
compared to
today
average 2000
Figure 3: Simplified scenario for operating requirements to 2025
amongst coontnes whose 1ndustry is foreign
owned. Lastly, 1n-seMCe support was seen as
imponant as 11 offers steady revenue streams
for the hfe of the product
The more diverse
nature of
operations require
equipment with
greater flexibility
The final cnt1cal success factO< 1denlified
was that of finanoal competence. Many land
systems compan1es 1n Ewope have been, to
an extent, sheltered from lull commerc1al pes-
sures due to sens1tivily surrounding lhetr own-
ership. North American players have been
forced to be more open abOut how cost struc-
tures comply WTth commercial requlfements.
Now that Amencan players are making acqu1-
S111ons 1n Europe. 1t will probably up the stakes
for European players, and make cost reduc-
tions 1n the manufactunng pocess a key goal.
systemS/ordnance spectalists. multi sector
defence companies, eng,neermg and auto-
motive parent compames
Armoured vehicle specialists
Typtcally this cluster cons1sts of companies
for whom over 50% of their bus1ness 1S
denved from armoured vehicles The rahonale
for reman1ng 1n the 1ndustry often seems to
be driven by a strong brand and the pnde of
the management tealfn.
Land Systems I Ordnance specialists
Th1S cluster cons1sts of players whom
have expertise 1n land systems but at their
core are ordnance manufacturers Typcally
compan1es which have acqwed veh1cle
compan1es to prov1de mobility for the"
weapon systems This cluster tends to sell
complimentary products to the same
cuslomer.
The land systems
sector is perceived
traditionally as a
heavy engineering
arena where R&D
is a secondary
concern
Multi sector defence company
Th1s cluster consists of a few large playe<s
who prontete the<r capablht1es as system lnte-
graiO<s to bring together lhe necessalfY com-
ponents to deliver a land systems platform to
the end user. The systems rntegration capa-
bthty acts as an Integral part of the busoness
to capture defence spend1ng.
Engineering parent company
The engineenng parent cluster 1S com-
pnsed of trad,honal heavy eng,neenng com-
panres which added defence capabilities to
thetr spectrum of capab1lit1es to support a
nat10nal need R&D cost sharing and techno!
Of!f transfer can make players in th1s cluster
finanCJatly a11ractive. especially if the preced-
Ing synergies can be obtained.
Given the nature of the industry. customer
1equtrements. and the emergent ktey success
factO<S, how are compan,es reac11ng at pes-
ant to the bustness enwonment? Our
resealfch suggests fl\/9 main clusters of com-
panieS ex1st W1th1n the Land Systems domain
at pesant. armoured veh,cle speoahsts, land
I : :... I .. _.J
Figure 4: Simplified strategic options for a generic land systems manufacturer
164
World Defence Systems Volume 3 Issue 2