Sweden - Defense Industry

At 450,000 square kilometers (approximately the size of California), Sweden is the fifth-largest country in Europe. The country has long been at the forefront for adopting new technologies; in 1900, Stockholm had more telephones than Paris, London, or Berlin. The country also boasts a well-developed infrastructure with rail systems and highways connecting the heavily populated south with the more remote regions of the north.

In conjunction with Sweden's infrastructure and technology comes an extensive and well-developed defense industry. Due to the sophistication of Swedish industry, about 90 percent of all military equipment acquisitions is met by Swedish contractors, of which only about 15 percent is handled by foreign subcontractors. An organization known as FMV, the Defense Material Administration, is responsible for procurement, maintenance, and storage of equipment for the Swedish Armed Forces. This organization, consisting of 3,000 employees utilizes more than 2,000 different suppliers within domestic and foreign industry. About 30,000 people are employed by the Swedish defense industry.

The defense industry in Sweden has a long history, dating back to the time when Sweden was a more active military power. Karlskronavarvet, specializing in naval surface vessels and submarines, and Bofors, a producer of artillery systems once owned by Alfred Nobel, have been in business for more than 300 years. During the Second World War, Sweden was cut off from foreign imports, and the defense industry became entirely self-sufficient, and developed its current size and structure. As of 2007 22,000 people were employed by the defense industry, 14,000 of them in a full-time position.

Sweden's policy of military non-alignment has precipitated the need for a strong national defense industry. The industry has undergone substantial growth and development from the time of the Second World War to the present day. In the aftermath of World War II, access to materials for defense projects was severely limited, and Sweden had to further boost its defense industry. During the 1990s there was significant upheaval in the defense industry principally due to lower defense spending as a result of the collapse of the Soviet Union and the end of the cold war. Corporate integration and consolidation also played a part in the transformation.

The first major corporate integration took place in 1997 with the takeover of Hägglunds by the British company Alvis. In 1998 British Aerospace, now known as BAE Systems, became Saab's largest owner, acquiring 35% of the shares (now owning 20%). In 2000, United Defense bought 100% of Bofors Defence, and HDW acquired 100% of Kockums. In 2004, BAE Systems bought Alvis and formed LandSystems Hägglunds. In 2005, Thyssen Werften and HDW merged to form ThyssenKrupp MarineSystems AG, a shipbuilding group that also includes Kockums. In 2006, Saab acquired Ericsson Microwave Systems.

While there is certainly risk in large-scale foreign ownership of defense companies,this diversification provides a larger financial base, and increased development resources. In light of the shifts on the corporate side of the industry, the government has made efforts to aid in the internationalization of the defense industry. Sweden has entered armament cooperation agreements with other nations through the European Defence Agency, a part of the EU. These agreements are designed to strengthen cooperation and coordination between the defense industries of the participating nations.

In May 2003, an agreement known as the Declaration of Principles (DoP) was signed between the United States and Sweden. The DoP established principles for the formation and amendment of current and future agreements involving the industrial, investment, or export sectors of the defense industry. The DoP should help facilitate more cooperation and strengthen partnerships between the U.S. and Swedishdefense industries. Sweden's continuing partnership with the defense industry in the U.S. has alsoresulted in a general exemption from the Buy American Act, which has been a great boost for the industry.

The Swedish defense industry's largely independent nature remains a great strength. The need to independently produce defense systems has given rise to a great level of technical and manufacturing competency from Swedish companies. The ability to develop and manufacture high-quality combat aircraft and vehicles, submarines, radar systems, and command and control systems, among others, is a benefit to the Swedish military; this self-sufficiency also makes Sweden an attractive partner for other defense companies.

"I am immensely proud of Sweden's defence industry. It has been and continues to be an important aspect of Swedish security policy. I am personally fully convinced that, to a great extent, it is our defence industry we must thank for the fact that our little country has become the high-tech industrial nation it is today, with cutting-edge technologies in a number of important commercial sectors." So said Sweden's Defence Minister Mikael Odenberg at the January 2007 "Folk & Försvar (People & Defence) National Conference", held in Sälen, Sweden, when speaking of the defence industry.

He also said: "I do not share the views of those who feel that the manufacture of weapons is something to be embarrassed about. We have a legitimate interest in being able to defend our freedom and independence. Other sovereign states are entitled to precisely the same right. If we sell weapons to them, I see no moral problem."

The Swedish Defence Minister also emphasised that the existence of a technologically advanced Swedish defence industry makes Sweden a more significant player in the international security arena. He also noted that international collaboration is a vital requirement in almost every aspect of weapons development.

Swedish Arms Exports and Imports

From an international perspective, Sweden is a minor arms supplier in the world market, accounting for less than 1 per cent of total global arms exports. The pattern of Swedish arms exports has been stable in the postwar period in terms of countries of destination. Western Europe receives more than 50% ofSweden's total arms exports; 10-12 % goes to North America, 30 % to Asia and a very small percentage to Africa. There have been some changes in export patterns due to the sale of the Gripen to SouthAfrica, as well as some other activities in the Latin American markets. Since the mid-1990s, Sweden had exported to some 35-40 countries annually.

The Swedish Government requires a license for the export of any military equipment. Exports are monitored by the National Inspectorate of Strategic Products (ISP) and may not conflict with the principles of Swedish foreign policy. This became a politically sensitive issue during the war with Iraq. According to regulations, a permit should not be granted for export to a country involved in armed conflict with another country. The Swedish industry keeps itself well educated on current U.S. export control regulations. Swedish exporters have had problems in the past with U.S. export controls, and given the considerable partnership in component parts that many Swedish companies have with U.S. firms, it is important for the industry to keep itself updated on the newest laws concerning arms exports.

The Swedish Defense Material Administration (FMV) is responsible for procuringweapons systems and other equipment for the Swedish Armed Forces. Requests for new materials are drafted within the Swedish Armed Forces and then submitted to the FMV for action. FMV is charged with technical preparation work, inspection of materials and equipment, and modifications or upgrades deemed necessary for a given system or piece of equipment. Most military procurement contracts are awarded to Swedish defense companies. However, companies often partner with foreign suppliers. Swedish companies have limitations in terms of size and resources; due to the complex nature of many defense programs, companies often focus their efforts on further development and modifications of currently existing products and systems.

Opportunities

There are several attractive opportunities in Sweden for American defense companies. The high technical competence of the Swedish industry has given Swedish companies a reputation for reliability and efficiency. In January 2005, Sweden signed its largest ever purchase from the United States military through a Foreign Military Sales-contract to upgrade their eight C-130 transport aircraft. Sweden was the first international customer to participate in the C-130 Avionics Modernization Program(AMP). Given that Sweden is present in a number of international missions, among them Afghanistan, and also inpreparing to launch the Nordic Battle Group, there are sales opportunities in several areas principally inprotection systems against IEDs (Improvised Explosive Devices) as well as in the infrastructure for data-links, IFF (Identification Friend-or-Foe) systems and for secure radio. Sweden is taking part in missile projects such as TAURUS, IRIS-T, and METEOR, among others. Companies such as Bofors are continually developing innovative artillery ammunition, and have placedspecial focus on smart ammunition for artillery equipment. Other major ongoing materiel projects are the development of the smart 155 mm XM-982 Excalibur round, the development of all-terrain combat vehicles, advanced radar technologies as well as the establishment of NATO-interoperable communication systems.

American companies interested in pursuing opportunities in Sweden are recommended to make contacts with various Swedish companies, in order to establish a market presence and access existing networks through partnerships, as entering the market individually can prove challenging. Most Swedish defense companies are members of the Association of Swedish Defense Industries. It is important to point out that a company looking to do business through the FMV procurement process is not required to have a Swedish partner or agent. All defense materials imported for the Swedish Armed Forces are duty-free. Goods imported for themanufacturing or maintenance of products for Swedish military use are also duty-free.