MADE IN EUROPE #3: Scaling Defense From EU Strategy to Battlefield Innovation

Europe's defense industrial base stands at a critical inflection point. Military experts warn we have just three to five years to strengthen Europe's defense capabilities before facing potentially devastating security challenges.

I talked about these trends and the European response with Kitron Group's President and CEO, Peter Nilsson and Managing Director of Kitron AS, Hans Petter Thomassen, who participated in the “Implementation Dialogue on EU Defence” with Commissioner Andrius Kubilius, held in Brussels recently.

The European Commission recognizes this urgency. They've initiated an "omnibus" bill aimed at helping defense manufacturers ramp up production quickly, bringing together industry leaders from major prime contractors to innovative startups developing cutting-edge battlefield technologies. But the challenges are enormous.

Most electronics components, semiconductors, and specialized materials used in European defense systems come from outside the continent. While stockpiling strategic materials for several years provides a short-term solution, the long-term challenge of rebuilding secure supply chains remains daunting. For specialized materials like munitions chemicals, new production facilities require five years just for permitting and environmental studies.

Regional responses vary dramatically across Europe. Countries feeling immediate threat – the Nordics, Baltics, Poland, and Germany – are leading with bold procurement initiatives and defense budgets approaching 5% of GDP. These long-term commitments provide the certainty manufacturers need for major capacity investments.

Perhaps most exciting is the rise of defense technology startups across Eastern Europe. From drone innovations to laser targeting systems, these companies bring battlefield-ready solutions developed with real-world urgency. As one Ukrainian defense official emphasized: "A system you can provide me two years from now has zero interest – I need something for tomorrow."

The war in Ukraine accelerates these trends, serving as both catalyst for action and testing ground for technologies. Defense donation programs deliver immediate battlefield feedback on new systems, strengthening the innovation cycle.

Want to explore how these defense industry transformations might affect your business? Join us at the upcoming IPC defense event in Brussels on June 10th, where industry leaders will be tackling these critical challenges head-on.

MADE IN EUROPE is an IPC Podcast, produced by SCOOP

EMS@C-Level is hosted by global inspection leaders Koh Young (https://www.kohyoung.com) and Global Electronics Association (https://www.electronics.org)

You can see video versions of all of the EMS@C-Level pods on our YouTube playlist.

Transcript

Introduction to Keytrum Defense Leaders

Philip Stoten 0:03

I am joined by two gentlemen from Keytrum by Peter Nielsen , who we've spoken to many times , who's the President and CEO , and by Hans-Peter Thomasson . Hans , can you start by giving us a brief introduction to you for our viewers , since this is your first time on the show ?

Managing Director of Kitron AS, Hans Petter Thomassen 0:24

Absolutely yes . Good afternoon , and thank you for the invitation . My name is Hans-Peter Thomason , I'm the CEO of Defense and Aerospace in the Ketone Group and I also oversee operations in our Nordics and North America region .

Philip Stoten 0:41

Okay , quite a big task and an interesting task at the moment , with tariffs and the acceleration in the EU defence industry . I was drawn by your post on LinkedIn where you talked about attending the implementation dialogue on EU defence at the European Commission . Implementation dialogue on EU defence at the European Commission . Peter , perhaps you can start by giving me a brief introduction on the event and why you were lucky enough or why you were able to attend .

EU Commission's Defense Industrial Base Initiative

Kitron Group's President and CEO, Peter Nilsson 1:24

The EU Commission is preparing what they call an omnibus , which I gather is a bill to strengthen Europe's defence industrial base , and what they're looking for there is opportunities to make it easier for defence companies and manufacturers to ramp up production quicker , and for that obviously they have experts .

Kitron Group's President and CEO, Peter Nilsson 1:52

Probably they know everything they need to know right , but they're still looking for input from the industrial base . So the first meeting was last Monday . There were 20 CEOs from around Europe , a mixture of Actually we were the only EMS there , but it was a mixture then between the massive primes like Thales and Rheinmetall and others to the very small startups in the Baltics , down in Croatia and Slovakia or Slovenia , with in Croatia and Slovakia or Slovenia , with more of the sort of type of drone or laser pointing instruments for drones , a lot of drone activity . So that went on last Monday . This Monday it was more of again , you know , the top primes and then also we added , or they added , so that you could bring two from each company to really get into it and suggest a little more of the details okay , okay , exciting to be representing the ems industry .

Philip Stoten 2:59

Hans petter , did you sense that the um , the commission and those involved in the decision making had a really solid understanding of the supply chain and the importance of the tiers of supply chain and having them connected within Europe ?

Managing Director of Kitron AS, Hans Petter Thomassen 3:16

I would say absolutely yes to that . I mean , they have a very good understanding of the industry and the hurdles and the challenges we're facing , so I would say absolutely yes . I have participated in a similar effort on a national level in Norway , so this roadmap definition looks very much like the same kind of a process .

Philip Stoten 3:42

Okay , it looks very much like the same kind of a process . Okay , and when you did the Norwegian one , what was the output once you created the roadmap ? Was there legislation around that ? Were there incentives built around that ? Is that what they use as their framework to build out policy ?

Managing Director of Kitron AS, Hans Petter Thomassen 4:01

I would say it ends up more like a guidance document for the politicians and for the parliament , so they have a clearer understanding what it will take from their side . It didn't end up in a firm legislation per se on the regulatory side . However , it did shape the long-term acquisition plans and it did outline what we from industry site need in order to execute on a long-term

Supply Chain Challenges and Stockpiling Strategy

Managing Director of Kitron AS, Hans Petter Thomassen 4:30

acquisition plan .

Philip Stoten 4:34

Yeah , when you look at it . Sorry , go ahead , peter .

Kitron Group's President and CEO, Peter Nilsson 4:39

No , I think the real challenge here is maybe not so much . Yes , electronics and components and semiconductors and PCBs and everything that goes into our products . Most of it comes from outside of Europe and that supply chain is sensitive for any sort of disruption . But there our option is to stockpile , to define a list of strategic materials and stockpile three to five years worth of components , and that's that's not something that that cannot be done . It can actually be done fairly easily . You know , quite a few of our customers within Ketron have actually done that already for the next two to three years . Okay , On a wider scope , you really need the rest of industry with you and you need the EU with you .

Kitron Group's President and CEO, Peter Nilsson 5:30

I think the real challenge here is for we have one concrete example for munitions manufacturers , right , Some fairly volatile and complex chemicals go into the munitions and there the manufacturing capacity is much more limited . The permitting and environmental studies required in order to build a new facility , to expand , are extremely long . So if Ketron can put up an electronics factory in 10 months and be up and running at full speed in 12 months , you're looking at at least five years to even start a chemical manufacturing factory , with about half to four years of that being permitting environmental studies and 20,000 pages of environmental impact . So that's really a huge challenge .

Kitron Group's President and CEO, Peter Nilsson 6:31

We saw one nation here . They reportedly stockpiled artillery to make sure okay , now we have enough artillery for a year or two years or whatever right ? In reality , that's the amount of artillery they fire in three days in Ukraine .

Philip Stoten 6:48

Oh , wow , okay , so what looks like a year's stockpile can suddenly become can become nothing very , very quickly if geopolitics has an impact . So when you look at those supply chains and you look at stuff that's coming from outside of Europe , stuff that's coming from outside of Europe and that's coming out for some substantial time , is there a strategy where you secure those supply chains , you increase stock levels and , at the same time , you build out capacity and you look at developing a strategy to shorten those supply chains and bring them within Europe ?

Kitron Group's President and CEO, Peter Nilsson 7:25

I think that's long-term , but really the outlook now for Europe is we have three best-case five years to get to where we need to be before the proverbial shit hits the fan in regards to security for Europe , and with the outlook Three to five years to get there we're not going to rebuild supply chains in three to five years . It's going to be about stockpiling . In order to stockpile correctly , the politicians need to start ordering the products that each individual nation needs . The EU is not a defense organization .

Managing Director of Kitron AS, Hans Petter Thomassen 8:12

It's basically a trade organization .

Kitron Group's President and CEO, Peter Nilsson 8:16

So the EU cannot do that . They can provide funds for individual nations . Individual nations should then look at doing combination in procurement , so they work more towards standardized systems and not each nation specifying details and adjustments to systems , like they've done in the past . So buy more , buy together , buy in bulk and get the volumes up there . So someone dares also investing in a new chemical manufacturing facility because there the cost is maybe €5 billion and to build a new electronics site .

Managing Director of Kitron AS, Hans Petter Thomassen 8:55

you're talking €15 million , yeah , yeah .

Kitron Group's President and CEO, Peter Nilsson 8:59

So the volumes need to come in , and that's really what everybody's looking for also .

Nordic Countries Leading Defense Modernization

Philip Stoten 9:06

Yeah , and do you see that happening ? Do you see those long-term orders being placed by governments ? We saw the bill go through in Germany , but then we had a bit of a hiccup post-election getting things across the line . Do you see governments placing orders in the next few months that will have that the kind of longevity that allows people like you to invest .

Kitron Group's President and CEO, Peter Nilsson 9:30

My view and I'm going to let Hans-Peter jump in here right after my view is that the Nordics , the Baltics , poland and then Germany , so the nation states around the Baltic Sea , are on the forefront of ordering and deciding what they need and what they want . Already , budgets there the Polish budget is creeping closer to 5% of GDP , sweden's at like 2.8 , with three and a half for next year but already set to go to five , and similar activities are going on in the other Nordic countries . So there , yes , if you're further west and further south , then you're far away from Russia .

Kitron Group's President and CEO, Peter Nilsson 10:16

You're not in the same , you don't have the same sense of urgency . But , hans-peter , go ahead .

Managing Director of Kitron AS, Hans Petter Thomassen 10:21

No , I can only echo what Peter is saying there . What we see is that there are big differences among the countries . Some have really advanced their acquisition plans . Poland was really early into the game , the Nordics are following and now the Germans are coming along . Germany and the UK are coming along strong , so I would say everyone is within one year or so from the Nordic side .

Managing Director of Kitron AS, Hans Petter Thomassen 10:47

We're starting to see on certain commodities that they are ordering far ahead , and in order for us to determine , or even in order for us to give advice on what to secure in terms of stockpiling and security of supply of electronics , they have to determine at least what kind of systems they want and somehow quantify it . Then we can go to work , we can give advice , we can ask for funding and we can get the job done . But until they start coming to that level of you know that they've actually determined what they're looking for , then it's hard to do anything but give advice and give warnings advice , yeah , yeah , and based on that advice , if they do , if they do what you're asking them to do , what position does that leave you in ?

Philip Stoten 11:36

Do you have the capacity and the infrastructure ready to respond in the timescales that you need to respond Because , as Peter says it's , building an electronic manufacturing services facility is much faster than a chemical facility . Are you ready to go on that , or does that require adjustments to your plans and strategies ?

Kitron Group's President and CEO, Peter Nilsson 11:58

I think we're .

Managing Director of Kitron AS, Hans Petter Thomassen 11:59

What's better .

Kitron Group's President and CEO, Peter Nilsson 12:00

What's better ?

Managing Director of Kitron AS, Hans Petter Thomassen 12:01

Go ahead . Well , we have actually already mapped this and basically we're capable of tripling or quadrupling our defence output versus our current level . I'm not saying that's breaking a sweater or anything like that . It will require some work , Of course . We certainly have the infrastructure and the opportunity to do so . So from our side , we are able and willing to respond when called upon . Five sides and from an EU .

Cross-Border Manufacturing Agility Barriers

Kitron Group's President and CEO, Peter Nilsson 12:36

Yeah , an EU , Five sides operating globally now with defense , airspace and security Four in the EU and one in the US .

Philip Stoten 12:47

That makes sense , doesn't it ? When you talk about those countries that are further away from Russia , that don't feel the urgency . Is the onus really on the EU to try and create a more collective , a more together strategy that includes those countries , or is it just a question of some kind of trickle-down effect and waiting for them to come on board when they're good and ready ?

Managing Director of Kitron AS, Hans Petter Thomassen 13:13

effect and waiting for them to come on board when they're good and ready . Yes and no , I would say , because the EU has already put in place , like the European Defence Fund , the SAFE programme . There are multiple programmes that are common where they are borrowing money or making money available to the EU . I would say that if the countries that are currently not responding to the challenge want something bang for the buck , then they need to engage . So , yes , the EU does play a significant role in that part .

Kitron Group's President and CEO, Peter Nilsson 13:45

We see some differences here versus sort of regular non-defense manufacturing , especially when it comes to agility and speed and even what we can do , because you need security clearance . Basically in every country you're in that security clearance is nation-based . So if you're security cleared in Norway for NATO , it doesn't mean that you're cleared in Poland .

Philip Stoten 14:17

Right .

Kitron Group's President and CEO, Peter Nilsson 14:18

So that's one thing , and then also transfer of documentation between EU nations or EEA nations to support .

Kitron Group's President and CEO, Peter Nilsson 14:27

Because what we do is we try to have the best people possible , but not at every site , right ? So you'll have some experts in Norway , some experts in Sweden , some really good people in Poland and Lithuania and Czech , and that team . Whenever we get an opportunity or a challenge to solve the problem , that team has to be able to move around between sites , but not only those experts , right ? So in Sweden in the past month we had one ship from Poland working in SMT , we had another ship from Lithuania working in final assembly and we had , I think , a small ship from Norway working on SMT and then some experts coming in also from Norway to help manufacturing process and you really need to be able to utilize that within the whole European region . And if it takes a year to get security clearance , that's not good .

Philip Stoten 15:24

It's going to slow that down .

Kitron Group's President and CEO, Peter Nilsson 15:26

There are digital solutions , there's trusted digital processes you can use here to make sure that this should be able to go faster and cleared in one nation . If that's your home nation , then you're trusted , even when it comes to different ones , something like that .

Philip Stoten 15:44

Yeah , I think that sounds essential I mean what you're doing there , peter , is you're building a layer of agility , and successfully building a layer of agility on top of a dispersed footprint , which is hugely valuable , and I think it's going to be a key to EMS success in every sector . As we go forward in the uncertain geopolitical world , what you need is administration and government to move at an equally agile , if not at an agile , speed . Create agile infrastructure that you can utilize to get stuff done .

Kitron Group's President and CEO, Peter Nilsson 16:23

I think , another interesting thing here , which is a difference from earlier years when it comes to defense , when usually

Defense Tech Startups Disrupting Traditional Models

Kitron Group's President and CEO, Peter Nilsson 16:32

it's the big primes all the time that are generating opportunities . Now there's a lot of new defense tech . There are disruptors out there , there are well-funded companies , startups that are looking to seek manufacturing and , of course , for us that's a great opportunity because these guys , they focus on technology , on development and then market , and they want us to do the entire thing , from supply chain early days , through manufacturing , through invoicing , to the end customer take care of everything .

Kitron Group's President and CEO, Peter Nilsson 17:10

So that's a new situation , which I think is a tremendous opportunity for the MS industry .

Philip Stoten 17:18

Yeah , and I think it's an important change , isn't it ? When you look at the way startups behave and that we're seeing now more and more startups realizing where their skill set is and saying , hey , we should really just zoom in on the design and development of technology , should really just zoom in on the design and development of technology , and we should spend all our time getting that technology right and getting it embedded in the market . And hey , these guys have been manufacturing forever . They've got a lot of gray hair from it . Let's let them take care of it . That's all three of us , Peter not just you , my friend .

Philip Stoten 17:52

Is that the way you see it , hans Petter ? Is it ? Is it a question of the ? The earlier you can get involved in those startups , the better a service you can provide them and the more value you can provide .

Managing Director of Kitron AS, Hans Petter Thomassen 18:05

Yeah , we definitely have to get in touch with them when they're somewhere in between the startup and the scale-up . That's the sweet spot . We need to engage and it's not like these newcomers are going to take over the entire business , but they're certainly going to supplement the big system providers and it's volume and mass is coming back into fashion again , based on the experience from the Ukraine war . So this whole aspect of drones did not really exist to any large extent going back five years . Now it's becoming massive volume and it's to some extent cost sensitive because it is a replacement of ammunition . It's definitely changing the game . There are some newcomers that have been growing dramatically and they didn't even exist five years ago .

Philip Stoten 19:00

And do they come from a specific region ? I mean earlier , I think , in our conversation , peter , you mentioned some countries in the Baltics that have been particularly innovative and you're seeing some interesting startups . Is there a particular location you're seeing that ?

Kitron Group's President and CEO, Peter Nilsson 19:20

I think really all of the Eastern European nations in some sense of it or at some scale are doing this sense of it or at some scale are doing this . But I've seen interesting examples from Lithuania , Estonia , Latvia , Slovakia , Croatia . I mean , I've met guys over the past couple of weeks . I've met the CEOs of these companies and discussed their products and looked at the technology .

Philip Stoten 19:52

So some of it is super interesting . Yeah , and it's

Battlefield Testing and Innovation Acceleration

Philip Stoten 19:54

interesting if you can get those technologies , if you can whet the appetite of government for those new technologies and there isn't a ridiculously long , slow process to get from innovation to a product that is approved and is purchased in volume . And perhaps having a manufacturing partner like Keytron is key to showing your capability to support those end customers .

Kitron Group's President and CEO, Peter Nilsson 20:22

Especially if they're providing technology . So if you're in the drone market , you don't build drones . You build technology that goes onto drones or that are used by drones . So one particular company which I found really interesting was targeting lasers carried by drones . This is when you looked at how the US deployed forces in Afghanistan and Iraq , where they have forward operating teams that paint targets with the laser right and they're really out there . They're vulnerable . Now there are drones where there's lasers that can go on drones and take care of that whole thing painting that target and I found that to be really interesting when I looked at it yeah .

Managing Director of Kitron AS, Hans Petter Thomassen 21:16

Because that was a Ukrainian company and to add a little color to it . Also , we see that there is a lot of donation programs funded by MEDs in the Nordics and all over Europe and they're using those as sort of testing grounds for new technologies brought into the battlefield in the Ukraine . They get extremely quick feedback whether this works or not and they're actually using both to obviously to support the Ukrainian defense effort , but they're also using this to test new technologies . Is it viable ?

Philip Stoten 21:50

Yeah , Is it useful ? Yeah , it's fascinating , isn't it ? What you're seeing is these regions that are naturally innovative and have a startup culture , but also feel the risk because of their proximity to Russian borders and to what they're seeing happening in Ukraine . So it's a combination of factors that's pushing that innovation , a combination of capability and urgency and desire , I guess .

Managing Director of Kitron AS, Hans Petter Thomassen 22:23

Yeah , urgency is really . I mean , I've been on numerous events where also there is representation , at times from the Ukraine . I say a system you can provide me two years from now , it has zero interest in me . I need something you can bring with me to the field tomorrow and I'm going to be able to wait for two weeks , but two years is out of the question .

Philip Stoten 22:42

Yeah , it's not viable , yeah , yeah . So your ability to scale manufacturing and your ability to get new technology to them quickly becomes absolutely essential . Fascinating topic and I think we're going to see more

Closing Remarks and Future Events

Philip Stoten 22:56

and more on this . I know IPC have got an event in Brussels specifically on defense on the 10th of June , so I'm looking forward to being at that event and actually moderating a couple of the roundtables there . Hopefully I'll see you guys there Will do . We'll both be there Absolutely Well . I look forward to that very much , gentlemen . In the meantime , thanks so much for talking to me today . Thank you .