An illustration of aerospace engineers designing a drone prototype. The US and NATO defense industrial base depends on small- and medium-sized enterprises to thrive. (Shutterstock/Gorodenkoff)

How to Fix the Fatal Flaw in the Transatlantic Defense Industrial Base

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Empowering the next generation of small- and medium-sized defense-sector enterprises is key to outcompeting Western adversaries.

President Donald Trump at the recent Ankara NATO summit pledged to license Patriot missile production in Ukraine. Raytheon, Lockheed Martin, and associated American defense manufacturers are in intense negotiations with NATO and its member states to greatly expand missile production in Europe, including Patriots, Tomahawks, and THAAD. This is a generational opportunity to substantially boost transatlantic military capabilities. 

Over 80 percent of Patriot missile components are subcontracted from small- and medium-sized enterprises specializing in electronics, optics, and propulsion. Lockheed Martin, a secondary contractor for Patriots, utilizes over 400 suppliers. Highly specialized small- and medium-sized firms constitute the critical ballast for the Transatlantic defense industrial base and consequently hold the key to its future. 

Ukraine’s ingenuity in not only defending the homeland but also taking the fight to Moscow and St. Petersburg is driven by its world-leading dynamic military drone technologies powered by its small and medium military startups. 

Transatlantic allies should prioritize turbocharging their respective and collective small and medium enterprises as the foundation for generational investments in defense-industrial ramp-up. 

Why SMEs Are the Foundation of Western Security 

Small and medium enterprises (SMEs) are the engine of Western economies. In the United States, they account for 43 percent of GDP and employ about half of the country’s private sector workers. In Canada, the numbers are even bigger, accounting for 98 percent of businesses registered in the country. Small- and medium-sized companies are also the backbone of the European economy, comprising two-thirds of private-sector jobs. 

SMEs are foundational to the viability of most major enterprises. Intel, for example, relies on 17,000 suppliers. Toyota is supported by 60,000 suppliers. Not surprisingly, SMEs are also often the wellspring of innovation, adaptation, flexibility, and rapid expansion. Apple and Amazon both started as small companies. Today’s digital economy is marked with a steady roll call of “Unicorn” startups with values upwards of $1 billion. In short, when SME flourish, the economic potential of Western economies is more resilient and with greater capacity to grow. 

Crucial to many industrial sectors, SMEs are particularly important for defense. The F-35 stealth fighter production program, for instance, relies on over 2,100 suppliers worldwide, nearly half of which are small businesses. The space industry is equally dependent on SMEs. SpaceX is supported by about 3,000 companies. In turn, these companies deliver a........

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