Small countries and the consolidation of the European defence industry: Portugal as a case study

In this paper, we analyse the dilemma confronted by a small country in relation to the consolidation taking place in the European defence industry. Assuming that Portugal must maintain its armed forces, and must retain a minor defence industry, this industry must be competitive in small niches. Competitiveness must be based on, amongst other elements, technical efficiency and technological change. We investigate this issue, first characterizing the threats faced by the Portuguese defence industry, then investigating its present efficiency and finally, we discuss its role in the consolidation of the European Industry. We conclude that the Portuguese defence industry has no alternative but to opt for innovation and European partnership, which are complementary policies, but which require the active involvement of the stakeholder (i.e. the Government) in effecting these fundamental shifts in direction and emphasis. If this strategy does not succeed, the defence policy should be based on offsets.