Against the backdrop of three NATO countries (Poland, Estonia and Denmark) in 2025 declaring article 4, the German Chancellor, Frederick Mertz, saying we are not at war but we are not at peace either1, and US interventions in Venezuela and arguments over Greenland and Prime Minister Carney’s incisive Davos speech this, the second article in our series, draws on the nine strategic shifts we identified in the first2 to expand on the impact of increased defence spending, explore the implicit drive to sovereignty as part of resilience and discuss the impacts on interoperability, a strategic necessity for NATO.
Sovereign Industrial Strength equals Resilience
To prevent war, Britain must prepare for it, General Richard Barrons’s Financial Times OpEd3, over DSEI last year, exhorted. In the US the reality of dependence on Chinese rare earths is driving trade policy and domestic economic choices. In the UK and Canada, the increased defence spending the geopolitical situation demands is inextricably linked to increased resilience and sovereign industrial growth through their respective defence industrial policies. The forthcoming Canadian Defence Industrial Strategy4 says it will regenerate and further develop sovereign capabilities of the Canadian Industrial ecosystem and procurement opportunities for Canadian businesses. The vision for the new UK Defence Industrial Strategy5 is equally exact: people across the UK must feel the maximum benefit from increasing defence spending, and the UK must develop a more competitive, integrated, innovative and resilient defence sector. Defence spending is being seen in a national context as a driver for much needed economic growth and productivity.
The forthcoming Canadian Defence Industrial Strategy Plan and the UK Defence Industrial Strategy also recognise the importance of collaboration and partnership to generate resilience. A point heavily reinforced by PM Carney at Davos. These respective industrial strategies commit to increasing international collaborations and making exportability a key factor in procurement decisions in order to share costs, enhance interoperability, and sustain the industrial base at scale. Equipment should be designed with the export market in mind (e.g., to NATO standards6). However, are the primary drivers of increased national prosperity and more resilient NATO capability mutually exclusive? Will this lead to a subtle protectionism7 with detrimental implications for the Alliance’s cohesiveness and capability.
The impact on Interoperability
The focus on organic industrial capacity undeniably presents complex challenges to NATO’s strategic cornerstone, interoperability. NATO is already afflicted with multiple different capital equipments (tanks, planes and frigates). This diversity undermines the pursuit of interoperability creating multiple frictions, for example, increased logistic vulnerability. We would argue, problems such as economies of scale, duplication of effort, multiplicity of standards (particularly digital) and an uneven technical landscape, as rates of digital adoption vary, will be exacerbated by increased industrial sovereignty. All of which pose a threat to NATO’s stated deterrence aim and the multi domain operations at the heart of NATO’s Strategic Concept.
Overcoming the dilemma
So how do we overcome this dilemma and what are the implications for small and medium enterprises (SMEs)8? To accelerate interoperability, NATO is rightly focusing on training, doctrine and a greater adoption of NATO Standards Agreements (STANAGS). Allied Communications Plan (ACP) 240 is an exemplar here. Recently declassified, it is the output of the Combined Communications Electronics Board (CCEB) who are in the van for driving five eyes digital interoperability. The work of this board, in being since 1941, has never been more relevant. ACP 240 is already being referenced by such farsighted initiatives as the UK Defence Targeting Web and is an important waypoint on the road to a Federated Mission Network (FMN), as part of the effort to balance US centric digital capabilities, to avoid over-reliance on these American providers, and achieve greater communication and information sharing9 across the Alliance.
For individual businesses, partnerships offer a way to bridge between NATO Nations. This is important to provide the best capability, reduce duplication of effort and manage skills gaps in individual countries. These partnerships can either be sovereign such as Sceptre10 or multinational. However, these multinational partnerships traditionally have been organised by Defence Prime (often US led) manufacturers. This needs to change in the future if we are to harness our most innovative businesses. NORTAC Defence’s wheel concept is one such challenge11 to this status quo bringing together ‘best athlete’ capabilities from across nations for increased situational awareness. The setting up of Joint Ventures is a third way, potentially, for SMEs to maximise capability across nations. These can allow for IP transfer to the host country or the specific development of IP to be retained by the host country. This keeps investment local and provides regional prosperity while maintaining the benefits of economies of scale across nations. Companies like Anduril and Tekever are following this model in the UK. Though, rightly, there will be scrutiny to make sure this is not a cover and delivers the growth the host country, such as Britain, wants.
Conclusion
Defence spending and its link to domestic economic growth is not new, there were references to mid twentieth century successes in PM Carney’s announcement on the Canadian Defence Investment Agency12 last year. However, for an alliance such as NATO whose strength is collective deterrence the impact of multiple industrial sovereign policies with the consequential potential for incoherence, especially in new and emerging technologies, must be positively accounted and planned for, as ACP 240 is doing. For SMEs, thinking laterally about partnerships and Joint Ventures offers the chance to expand beyond domestic boundaries and draw benefit from competition and collaboration for the benefits of the Alliance’s collective defence.
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1 Europe ‘no longer at peace’ with Russia, Germany’s Merz says
2 NORTAC Defence® Insights: Nine Strategic Shifts | Nortac Defence
3 Financial Times
4 Canada’s new government is rebuilding, rearming, and reinvesting in the Canadian Armed Forces
5 UK industrial strategy 2025 making defence an engine for growth
6The NATO Standardisation Office encourages NATO Standard Agreements (STANAGS) between countries as part of the Defence Planning Process.
7 Of note in the UK Defence Industrial Strategy ‘UK’ is mentioned 301 times against on 58 mentions of NATO.
8 In Canada these are known as Small and Medium Businesses (SMBs)
9 More information available on the NATO website
10 Sceptre is a UK SME ‘coalition of the willing’ to provide an integrated solution to the UK Defence Targeting Web. More information available here
11 Nortac Defence Wheel
12 Prime Minister Carney launches new Defence Investment Agency to rebuild, rearm, and reinvest in the Canadian Armed Forces faster