CONTRIBUTION OF DEFENSE INDUSTRY TO THE NATIONAL ECONOMY Mate PAĐEN, Ph.D. Student Ministry of Defense of the Republic of Croatia E-mail: mpadjen@gmail.com Davor ĆUTIĆ, Ph.D. Ministry of Defense of the Republic of Croatia E-mail: davorcutic@gmail.com Countries are developing a defense industry that enables the development of defense capabilities and creating a secure environment. National defense industrial capacities enable equipping national armed forces with weapons and equipment from national production. At the same time, by achieving top quality, the national defense industry can compete in the international armament and military equipment market, contribute to economic development, develop new technologies, employment, and increase GDP. The most robust and most developed countries in the defense industry work on new technologically advanced products. Other countries with small but highly high-quality products in military and defense technology and dual-use products competing in the international market can gain recognition and establish a particular market position. The Croatian defense industry is an essential part of this area, given that producers from this industrial sector represent a solid industrial base focused on the development of high-tech products with high added value. A key element and precondition for competition in the international market are that the national armed forces are users of the national defense industry’s products to develop national defense capabilities. 321 INTERDISCIPLINARY MANAGEMENT RESEARCH XVII Abstract Mate Pađen ‡Davor Ćutić ‡Mario Banožić: CONTRIBUTION OF DEFENSE INDUSTRY TO THE NATIONAL ECONOMY This paper also analyzes the Croatian defense industry and its export capacities and applying national defense industry products in the Republic of Croatia’s Armed Forces. The paper uses data and information from various foreign and domestic sources, including scientists, the E.U., the Ministry of Defense of the Republic of Croatia, the Croatian Chamber of Commerce, the Defense Industry Competitiveness Cluster, SIPRI, etc., to present the impact of the defense industry on the economy, employment, and exports. Keywords: defense industry, E.U., NATO, Ministry of Defense, Croatian Chamber of Commerce, The Croatian Defense Industry JEL Classification: D29, M29 1. INTRODUCTION In recent years defense industry has become a very significant factor in the development of national economies. The safe and stable development of civil society requires a safe and stable environment. It depends on national defense capabilities, maintenance, sustainability, and the development of new capabilities that are mostly independent. That is the reason why countries are developing a defense industry that enables the development of defense capabilities and the creation of a secure environment while at the same time contributing to economic development, the development of new technologies, employment, and increasing GDP. Participation in international missions and operations requires weapons and equipment compatible with other participants’ weapons and equipment. To be able to do this, it is necessary to systematically plan and organize the replacement, modernization, or procurement of new weapons and equipment that will comply with the requirements accepted by the Republic of Croatia in cooperation with other member states. In analyzing the Croatian defense industry and its challenges and opportunities, the authors define three main theses, as follows: t
Although the Croatian defense industry has quality products, there are partial solutions, and the development is based on individual companies, and science is insufficiently and poorly involved, t
Although there are opportunities to participate in NATO/EU projects, Croatian companies are poorly involved due to ignorance and insuffi- 322 cient knowledge of procedures and how to compete, which requires better connections with bodies at the state level, t
CAFs need significant modernization and equipping with modern military equipment. The Republic of Croatia belongs to countries with a small but growing defense industry, which, gathered under the umbrella of The Croatian Defense Industry Competitiveness Cluster (CDICC), better cooperation needs to be developed to have better visibility in the international market. There is a substantial opportunity for the Croatian defense industry to work together through triple helix model interaction with government administration and the academic community to result in positive examples of entrepreneurship and agility to ensure their sustainability. The Triple Helix should enable better synergy in strengthening the national defense industry. The article firstly provides a general overview of countries as the largest spenders of the defense industry and top defense industry companies globally. The content is then focused on the international organizations E.U. and NATO as international security providers applying defense industry to develop defense capabilities. The chapter on the Ministry of Defense (MoD) gives an insight into theMoD’s assistance in developing the defense industry standards to be competitive at the international market applying the AQAP standard. In the same chapter, the authors give an overview of the Center for Defense and Strategic Studies as part of the academic community that develops national scientific research competencies in defense studies. Finally, there is the chapter on CDICC with the insight of current incentive in better coordination and partial integration of defense industry companies to enable joint appearance on the domestic and foreign markets. Unfortunately, since the Croatian defense industry has been a critical topic in this area, apart from official documents taken over from institutions at the national level, according to available information, at the national level on the 323 INTERDISCIPLINARY MANAGEMENT RESEARCH XVII The next chapter provides data and figures on the growing export of the national defense industry gathered in CDICC, which operates within the national legal framework. national defense industry, the work was published only by Smiljanić in 2018 as review article from the point of view of economic policy (Smiljanić, 2018). Mate Pađen ‡Davor Ćutić ‡Mario Banožić: CONTRIBUTION OF DEFENSE INDUSTRY TO THE NATIONAL ECONOMY Foreign sources and papers are available to a greater extent. They have been used as a basis and introduction to the Croatian national theme of the defense industry, such as the authors Bueno and Briones and the international institutions SIPRI, E.U., and NATO. 2. COMPARISON OF DEFENSE INDUSTRY IN THE WORLD According to (Bueno, 2011) the collaboration between military and civil R&D, technological innovation specific to the defense sector has developed that facilitates the system’s development and social well-being within the economy. As Briones (Briones, 2013) emphasized at the same time, “The modernization of the armed forces arises from the new notion of defense as a state function that benefits society, where its continued evolution is indispensable; both concerning its structures and to the resources needed for it to carry out its activities adequate”. The Stockholm International Peace Research Institute (SIPRI) develops annual reports on world military expenditure trends. According to this source, the total global military expenditure rose to USD 1917 billion in 2019. The total for 2019 represents an increase of 3.6% from 2018 and the most significant annual growth in spending since 2010. According to SIPRI, as presented in Figure 1, the largest spenders in 2019, with 62% total expenditure, were the United States, China, India, Russia, and Saudi Arabia (SIPRI, 2020). 324 Figure 1: The 15 countries with the highest military spending worldwide in 2019 (in billion U.S. dollars) Source: STATISTA, 2020 INTERDISCIPLINARY MANAGEMENT RESEARCH XVII Countries listed as the most significant spenders are the top-ranked companies from the defense industry sector with the most significant defense revenues. According to Defense News, most top 100 defense industry companies are from the USA (38), and eight out of the first twenty on the same list. Among the top 100, 29 are from Europe (without Russia and Turkey) (DN, 2020). Figure 2 from Defense News presents the top 20 out of 100 companies, where eight companies are from the USA while four are from Europe (the UK, the Netherlands, France, and Italy). 325 Mate Pađen ‡Davor Ćutić ‡Mario Banožić: CONTRIBUTION OF DEFENSE INDUSTRY TO THE NATIONAL ECONOMY Figure 2: Top 100 for 2020 (extract of top 20) Source: The Defense News, 2020 DefenseNews’s top 100 list retrieves data from the information Defense News solicits from companies, companies’ annual reports, analysts, and the research undertaken by Defense News and the International Institute for Strategic Studies. The world’s defense industry’s importance can be observed by comparing the two lists; Defense News list “Top 100 for “with Forbes list “Global 2000 TheWorld’s Largest Public Companie”. The comparison shows that Lockheed Martin from the USA is ranked first among companies in the defense industry. In contrast, according to the Forbes list, it is highly ranked 145th, far ahead of the USA’s next company, the Defense News list, Boeing, which is 413th on the Forbes list (Forbes, 2020). There are no countries or defense industry producers on Defense News top 100 lists from South East and the Western Balkan countries which means they are not listed on the Forbes list. Since this article focuses on Croatia, it is clear that Croatia is included neither in the most extensive spenders list nor in the top 100 lists. 326 There is a challenge that, despite the significant need to equip the CAF with military equipment from the domestic market and abroad, cooperation has not developed sufficiently in a way that defense industry companies come together and, through cooperation in foreign markets, raise the rank of international rankings of manufacturers of weapons and military equipment. For that purpose, the Croatian national defense industry will be presented in more detail in the following chapters. 3. DEFENSE INDUSTRY IN EU AND NATO This chapter discusses the role and importance of the defense industry in the two international organizations EU and NATO, which are of great importance in building and maintaining a stable security environment that allows member states stable economic development and prosperity. These organizations have developed a framework for cooperation in developing defense capabilities. The EU through the Permanent Structured Cooperation Program (PESCO) and NATO through The Allied Quality Assurance Publication (AQAP) is a standard and qualitative framework for companies operating in the defense industry. This approach gives impetus to national defense industries and a good framework for further development and progress. .. EU PESCO and defense industry With the EU Global Strategy (EU, 2016) and the council’s conclusions, member states have set a level of ambition in the security and defense field. With the revised Capacity Development Plan, new initiatives by Permanent Structured Cooperation program (PESCO), where PESCO is the part of the European union’s security and defense policy in which 25 of the 27 national armed forces carries out structural integration, Coordinated Annual Review on Defense (CARD) and European Defense Fund (EDF) EU Member States have created a solid framework for operationalizing the declared level of ambition ( Jakop, Pađen, 2020). 327 INTERDISCIPLINARY MANAGEMENT RESEARCH XVII Despite the open possibilities, there is insufficient participation of Croatian defense industry companies in NATO/EU projects and tenders for NATO/ EU projects due to ignorance of application procedures. Mate Pađen ‡Davor Ćutić ‡Mario Banožić: CONTRIBUTION OF DEFENSE INDUSTRY TO THE NATIONAL ECONOMY To achieve the level of ambition, it is necessary to achieve cooperation between member states. More recently, efforts have been made to jointly achieve targeted joint capabilities and member states capabilities by engaging national defense industry capacities through the PESCO. Ćutić (2020) in Strategos-Scientific Journal of the Croatian Defense Academy on PESCO emphasize the importance that defense and national security are issues that are firmly held within the national framework and every step in the field of building common security and defense within the membership in international organizations such as EU, and especially the joint development of defense capabilities, is a significant national challenge (Ćutić, 2020). The main incentive for EU member states to co-operate in military procurement through the EDF is worth 5 billion euros (USD 5.8 billion) a year. For the first time, the EU has provided a significant amount of money for this purpose. With an annual turnover of more than EUR 100 billion and a sector employing 500,000 people and indirectly EUR 1.2 million, the European defense sector is a significant industry (Banks, 2018). It is important to emphasize that Croatia participates in six PESCO projects. The opportunity for active participation of the Croatian defense industry is open, unfortunately so far, this has not materialized. (MORH, 2020). Active participation in PESCO projects would allow the Croatian defense industry to participate in military procurement through the EDF to find its niche and gain financial benefits. This potential participation enables the national defense industry to co-operate with foreign manufacturers in joint research, development, and production, thus developing national defense capabilities. Likewise, defense industry cooperation provides defense industry manufacturers with better access to the international arms and equipment market. .. NATO and defense industry Working together is highly important regarding NATO since member states need to share a common set of standards to carry out multinational operations. Standardization allows for more efficient use of resources and thus enhances the alliance’s operational effectiveness and enables defense industry companies to work together according to established standards. 328 NATO established standards with which the defense industry sector has to comply when applying for tenders to provide goods and services to NATO and its member states. According to NATO standards, the Allied Quality Assurance Publication (AQAP) is a quality certificate for the level of quality. It can be compared to ISO 9000 standards in the civilian programs production (NATO, 2016). Suppliers from the defense and military sector certify quality systems comply with the AQAP 2110 and 2310 standards requirements, developed by NATO, and gain access to new markets worldwide. The AQAP Certification is recognized by the prime contractors in the defense sector and NATO members to guarantee that the quality management system complies with AQAPstandards’ requirement (Afnor, 2020). The AQAP agreement aims to define standards for Quality Assurance of defense products. These standards make an integral part of contracts awarded in the military field involving NATO member countries. AQAP documents are therefore crucial to contractors and companies planning to bid for such contracts. The AQAP Certificate enables the company to guarantee the quality of goods and services and become a member of the NATO suppliers’ family. The application of AQAP standards opens a more fantastic opportunity. It contributes to improving the national defense industry’s quality for the national defense industry to compete in the international market. Therefore, the MoD is making efforts to motivate manufacturers to initiate the procedure and meet the conditions for achieving AQAP certification. Although there are opportunities to participate in NATO/EU projects, unfortunately, Croatian companies do not participate enough in tenders announced by NATO due to ignorance and insufficient knowledge of the procedures and competition methods. Therefore, it is necessary to better liaison with government bodies, implement procedures for reaching standards and obtain AQAO certification, and include multiple companies in the supplier’s list. 329 INTERDISCIPLINARY MANAGEMENT RESEARCH XVII International organizations, which contain a defense component, have a role in developing national industrial capacities and capabilities because they convey appropriate international organizations’ standards, which oblige national defense systems to apply international standards. 4. CROATIAN DEFENSE INDUSTRY Mate Pađen ‡Davor Ćutić ‡Mario Banožić: CONTRIBUTION OF DEFENSE INDUSTRY TO THE NATIONAL ECONOMY The share of individual manufacturers of military equipment in Croatia at the global level is negligible, which depends on the production capacity and type of product. The product itself must be competitive, based on the development of new and original technologies that can be achieved through the synergy of industry, science, and the government. To this end, more outstanding efforts are needed, which requires significant financial, material, and intellectual resources. Although the defense industry does not enjoy international significance, Croatia’s defense industry plays its role in the national industry, and it is constantly growing. Nationally, Croatia is making efforts to establish a better environment for defense industry placement both in-country and abroad, but it is not sufficient. There is a need for better synergy between all participants in defense industry capacity development. For that purpose, Government ministries, The Ministry of Economic and Sustainable Development (MESD) and the MoD, and the academic community and CDICC should improve synergy to strengthen the defense industry. Cooperation between MoD and defense industry companies exists but at the individual level competing in MoD tenders and the MoD is furnishing the CAF with armament and equipment developed and produced in national defense industrial capacities. .. The Ministry of Economy and Sustainable Development MESD covers the activities related to developing and improving the Croatianeconomy’s competitiveness, instruments, and economic policy measures. The scope of the MESD, as described in article 31, include” activities related to the development and improvement of the competitiveness of the Croatian economy, instruments and measures of economic policy; development of micro, small and medium enterprises; industrial policy and policy of application of innovations and new technologies; industry improvement guarantee fund management; activities related to the application and use of intellectual and industrial property rights and the encouragement of creativity in industry and trade in order to develop the competitiveness of the Croatian economy; mining; a strategy to facilitate and encourage investment and export” (NN, 2020) The role of MESD, as stated in article 82, among other tasks and responsibilities,” is in the development of the defense industry through strengthening 330 competitiveness, developing an industrial strategy and liaising with organizations and associations to exchange experiences on industrial development with government agencies and institutions responsible for science, research, and technology” (NN, 2020). For statistical monitoring and analysis, MESD annually develops sports on export and import of military goods and non-military lethal means for commercial purposes (MINGO, 2020). Table 1 presents the number of licenses issued in 2019 for export/transfer, provision of services, and import/transfer by categories. Figure 3 presents the total number of permits issued in 2018 and 2019, with a slight drop in export licenses. Further, in the text, Figure 4 displays trends in the export of defense industry products to the international market with stable and constant growth except for a significant jump in 2016. This situation results from government and science investment in industry, which opens more significant opportunities for competition in the international market and, with additional impetus, can be even better. Export/transfer Import/transfer provision of services TOTAL MILITARY NONMILITARY GOODS LETHAL MEANS 271 145 252 190 2 525 335 TEMPORARY export/transfer/import 79 86 165 GLOBAL- TOTAL EXPORT 28 523 528 2 1053 Source: Ministarstvo gospodarstva, poduzetništva i obrta, 2020 Figure 3. The total number of permits issued in 2018 and 2019 Source: Ministarstvo gospodarstva, poduzetništva i obrta, 2020 331 INTERDISCIPLINARY MANAGEMENT RESEARCH XVII Table 1: Number of licenses issued in 2019 for export/transfer, provision of services, and import/transfer by categories Table 2.: Comparative overview of the total realization of exports/transfers of military goods and non-military munitions for 2018 and 2019 in HRK / EUR EXPORT/TRANSFER Military goods Nonmilitarylethal means TOTAL 2018 2019 HRK EUR HRK EUR 958.069.969,05 128.946.160,03 446.804.057,51 59.893.431,50 44.538.191,32 5.994.507,58 45.886.057,51 6.150.946,05 1.002.609.160,37 134.940.667,61 492.691.056,77 66.044.377,55 Mate Pađen ‡Davor Ćutić ‡Mario Banožić: CONTRIBUTION OF DEFENSE INDUSTRY TO THE NATIONAL ECONOMY Source: Ministarstvo gospodarstva, poduzetništva i obrta, 2020 Figure 4. Defense Industry Export Movements 1998-2018 Source: Hrvatska gospodarska komora, 2020 The MESD develops an annual report on the export and import of military goods and non-military lethal means for commercial purposes to the Croatian Government for approval. Total value of exported goods in 2019 was HRK 492.691.056,77 (EUR 66.044.377,55) and import HRK 91.673.131,43 (EUR 12.288.623,52). Annual reports on exports and imports of military goods and non-military lethal means for commercial purposes are published without confidential data, i.e., company names and individual financial indicators, and other confidential data (MINGO, 2020). Following the regulations, the MESD keeps collective and individual records on the trade-in arms and military equipment. In the last 20 years, the main export product in this sector is the pistol, with a total export value from 1998 to 2018 of about 800 million euros. In the same period, helmet exports have been growing steadily from year to year, with sales of almost 118 million euros. 332 The Croatian defense industry consists of about 100 companies. The number of direct employees is approximately 3,000, which is 1.5% of the total number of employees in the manufacturing industry. The companies have an annual production of products worth approximately EUR 200 million or 1% of the manufacturing industry’s total production value. The annual exports amount to EUR 100 million, or 1.2% of the manufacturing industry’s total exports (HGK, 2020). Trade-in military goods and services are carried out according to the prescribed legislation (NN, 2019). Under the legislation, legal entities or natural persons submit the necessary documentation based on which the Ministry of Economy prepares the “Annual Report on Exports and Imports of Military Goods and Non-Military Lethal Devices for Commercial Purpose”. It can be concluded that the Croatian defense industry is an area of national economy and industry that is constantly growing, and with the support of measures at the national level and through the creation of synergies between the national security sector, government, science, and industrial capacities can significantly increase the share of the total national economy. As stated in National Security Strategy (NSS, 2017), “Particular emphasis will be placed on establishing a mechanism of effective, safe, unobstructed and reliable exchange of information and on giving incentive to possibilities of the economic and academic sector to use all national potentials aimed to develop necessary defense capabilities“ (Sabor, 2017). As a result, NSS, in the same paragraph, say how „this will enable access to the latest achievements in a wide range of research areas, modern technologies and to methods and techniques of the scientific-research work that will help to increase the scientific and technological level of the defense industry and the society as a whole“ (Sabor, 2017). MoD continually co-operates with the national defense industry to provide CAF with various armaments and military equipment to improve capabilities to perform a full spectrum of missions and tasks. In line with its defense planning documents, the MoD develops a budget structure. It contributes a certain number of financial resources for contracting new armaments and equipment needed to maintain and improve CAF defense capabilities. 333 INTERDISCIPLINARY MANAGEMENT RESEARCH XVII .. Ministry of Defense of the Republic of Croatia Mate Pađen ‡Davor Ćutić ‡Mario Banožić: CONTRIBUTION OF DEFENSE INDUSTRY TO THE NATIONAL ECONOMY This cooperation resulted in some cases in developing highly sophisticated armament and equipment developed in domestic industrial capacities. This fact is of great importance to the national defense industry when competing on the international market. One of the critical elements to compete on the international market is that products are used in national armed forces that guarantee that product is of good quality and put to use. If a product is in use in the CAF, then the product has a national quality certificate. The MoD and the CAF constitute the government structure and rely on the state budget, and due to that, as presented by (Ćutić, 2020.) “are active participants in the national economy and use the approved budget for the functioning of the system using products and services available on the market inside and outside the country.” As the Croatian MoD and the CAF are part of the national corpus, it is of national interest to support the national defense industry to compete and win the contracts at the international market. For that purpose, in 2013, the MoD ratified STANAG 4107, which was consequently adopted as the Croatian military standard, and mutual adopted quality assurance and the application of AQAP. To support the activities related to STANAG 4107 and the application AQAP, the MoD assigned the Reception and Quality Control Department as a part of the Armament Directorate. to perform as an authorized body for certification of quality systems of weapons and military equipment in Croatia according to NATO AQAP quality assurance requirements (NN, 2020). This AQAP certificate and authorization enables interested manufacturers in the field of defense who, after the implementation of the AQAP requirements, can initiate the AQAP certification process. Interested suppliers/manufacturers who are awarded AQAP certificates acquire a new ability to participate in public procurement tenders in NATO countries, while the MoD has constant insight into the quality management system of such suppliers/manufacturers and as such is a reliable partner of the MoD in the implementation of potential product procurement contracts in the field of defense. The MoD continuously encourages defense industry companies to initiate AQAP certification, but only Šestan-Busch and HS products have implemented the AQAP so far. 334 Šestan-Busch became the first Croatian defense industry company which in 2018 successfully implemented the AQAP as the quality certificate according to NATO standards. Along with the AQAP certificate (Figure 5), in 2020, Šestan-Busch obtained the Declaration of Eligibility (Slide 1), issued by the Ministry of Economy, Entrepreneurship, and Crafts, verifying the fulfillment of technological, financial, and professional conditions for applying on Public tenders invited by NATO Support and Procurement Agency (NSPA). As a result, in Šestan-Busch, applying AQAP in applying to international tenders helped obtain the contract. Source: Šestan-Busch company, 2020 This is just one example of good cooperation between MoD and the national defense industry. Good cooperation is also established with other defense industry representatives gathered in the CDICC but individually. Successful cooperation resulted in 2020 with annual contracting with 38 companies to procure military equipment, services, and works in amounts over HRK 453 million (EUR 60 million) (MORH, 2020). For the sake of illustration, here are just a few defense industry products and their producers: the HS pistol and VHS bullpup assault rifle designed and manufactured by HS Produkt of Croatia (HS, 2020), 335 INTERDISCIPLINARY MANAGEMENT RESEARCH XVII Figure 5. Šestan-Busch AQAP CertificateDeclaration and Declaration of Eligibility Mate Pađen ‡Davor Ćutić ‡Mario Banožić: CONTRIBUTION OF DEFENSE INDUSTRY TO THE NATIONAL ECONOMY Coastal Patrol Ship (CPS) built for the Croatian Navy by Brodosplit shipbuilding company (Brodosplit, 2020), Šestan Busch produces ballistic security equipment, biologic chemical protective items and plastic parts (Šestan-Busch, 2020), DOK-ING designs, produces and deliver high quality and combat-proven robotic systems for particular purposes around the world (DOK-ING, 2020), while M Adler D Ltd. the company specialized in the production of armament and military equipment, primarily for the development and production of complex missile systems (MAdler, 2020). For mayor MoD projects, financial resources are visible and separately positioned within the defense budget. At present, there are 13 active projects in the Project register of the MoD and the CAF. Among them, there are two projects of acquisition of armaments and equipment from the Croatian defense industry: Coastal Patrol Ship (CPS), with an estimated value of HRK 400 million or EUR 54 million for series of five ships, and VHS bullpup assault rifle with an estimated value of HRK 377 million or EUR 50 million stretching over ten years (Croatian National Bank Exchange middle rate applied as of 8/1/2021) (MORH, 2013-2020). CPS is not merely a project of acquisition of a new capability for the Croatian Navy. However, it is, as presented by Ljulj and Ćutić, “a motivating factor in attracting naval personnel for joining the Navy which is of crucial importance for the maintenance and continuation of Croatian Navy capacity” (Ljulj, Ćutić, 2020). According to the above, the MoD and the CAF, as users of Croatian defense industry products, are also stakeholders in developing new technologies. With the development of new technologies, the CAF achieves targeted defense capabilities defined in strategic defense documents. New technologies provide the ability to improve and maintain defense capabilities and self-sufficiency, which is especially important in times of security challenges when the availability of products from foreign suppliers is limited. There is room for better cooperation in R&D between the defense industry, government, and academic community in developing new technologies. It is in MoD and CAF’s interest to have top defense industry products developed and produced in Croatia. ... Center for Defense and Strategic Studies “Janko Bobetko” Within the Croatian Defense Academy, as one of the critical organizational units of the CAF at the service level, the Centre for Defense and Strategic 336 Studies “Janko Bobetko” (HVU, 2020) was established. The center’s role is to engage in critical reflection on long-term strategic planning, strategic analysis, and development concepts of the CAF and conduct specific applied research in the function of long-term development and technical modernization of combat and non-combat land, air, and naval technologies. At the same time, the Centre is a reference point to create synergy connecting the MoD, the CAF, and the academic community with representatives of the defense industry in developing new technologies and weapons formations and dual-use products to build new defense capabilities. The Centre is organizing conferences with various contents where defense specialists, military officers with representatives of the academic community, and the defense industry exchange views, concepts, and ideas, creating a foundation for creating new products. Here is essential to emphasize that the importance of national scientific and research capacities in developing the national defense industry is paramount because it enables national scientific research competencies. The scientific community’s cooperation with the defense industry enables the development and improvement of each component’s competencies in its field, the scientific community in improving science and technology, and the defense industry in improving industrial capacities. To strengthen the national defense industry’s role, the CDICC was established as the formal association of all stakeholders (primarily industrial) whose activities support the Republic of Croatia and the EU (CDICC, 2020). The purpose of CDICC is to create the networking of the public, private and scientific-research sectors (Triple Helix). As the innovation model, this “Triple Helix” brings to a set of interactions between academia (the university), industry and government, to foster economic and social development. It creates the field for interaction to prepare and implement the Croatian defense and security industry’s research and development and innovation projects. This interaction between academia, industry, and government should indirectly strengthen the competitiveness of the Croatian economy. Trade-in military goods and services are carried out according to the prescribed legislation (NN, 2019). According to legislation, legal entities or natural persons submit the necessary documentation based on which the Ministry of Economy prepares the “Annual Report on 337 INTERDISCIPLINARY MANAGEMENT RESEARCH XVII .. The Croatian Defense Industry Competitiveness Cluster Mate Pađen ‡Davor Ćutić ‡Mario Banožić: CONTRIBUTION OF DEFENSE INDUSTRY TO THE NATIONAL ECONOMY Exports and Imports of Military Goods and Non-Military Lethal Devices for Commercial Purposes”. In the defense industry, as presented on the CDICC web page, apart from the standard defense industry producing weapons and ammunition, there is an industry of dual-use products that play its role in the security area as one of the important segments of cybersecurity mine action program. (CDICC, 2020) As stated by the CDICC President on CDICC official web page, “the Croatian defense industry is an essential part of this area, given that producers from this industrial sector represent a solid industrial base aimed at developing high-tech products with high added value. The export orientation of highly sophisticated products and services is a major interest for companies operating in the defense sector” (CDICC, 2020). From the above, it can be read that CDICC is concentrated on the development of high technologies. Still, there is a lack of better-developed cooperation between industry, the scientific community, and the MoD. Companies gathered in the CDICC approach tenders individually and did not systematically address the interconnection. Aside from that, the Croatian defense industry needs to make more significant efforts to enter the international market. The possibility of linkage of Croatian companies as subcontractors in the procurement of military equipment is open, which did not happen except in individual cases such as cooperation between: t
“HS Produkt” a Croatian firearms manufacturing company, and “Springfield Armory, Inc.”, American commercial firearms manufacturer and importer, in production and sale of pistol, t
“Đuro Đaković Special Vehicles,” the foremost Croatian manufacturer of tanks and armored combat vehicles and “Patria” from Finland, an international provider of defense, security and aviation life cycle support services, in production of the Patria AMV (Armoured Modular Vehicle), a multi-purpose armored vehicle on wheels. In an article published this year in the edition of the Croatian military magazine Hrvatski vojnik, the President of the CDICC in his presentation states that the Croatian defense industry has, as it was presented in Figure 6, continuous annual growth of exports in the period from 2015 to 2018 and the total increase in exports for 703,330,800 HRK (26%) (Hrvatski vojnik, 2021). 338 Figure 6. Defense industry export growth Source: The Croatian Defense Industry Competitiveness cluster, 2020 In the continuation, the President of the CDICC (Figure 7) presented the Analysis of the annual reports of the Ministry of Economy on the export and import of military goods and non-military lethal means for commercial purposes developed by The Ministry of Economy and Sustainable Development, which show continuous growth of export through the years with a sudden jump in the year 2016. Source: The Ministry of Economy and Sustainable Development, 2020 This growth lies in the fact that the MoD bought specific quantities of products for the CAF and demand for defense industry products on the international market in the mentioned period. For the place and role of the CDICC to be purposeful, cooperation has been established with national and international institutions. At the national level, these are the MoD, Ministry of Interior Af- 339 INTERDISCIPLINARY MANAGEMENT RESEARCH XVII Figure 7. Movement of financial values of exports/transfers of goods Mate Pađen ‡Davor Ćutić ‡Mario Banožić: CONTRIBUTION OF DEFENSE INDUSTRY TO THE NATIONAL ECONOMY fairs, The MESD, The Croatian Chamber of Commerce, and Office of the National Security Council. Internationally, the CDICC co-operates with similar national organizations of other countries, the European Defense Agency, and the European Commission. It is clear from the above that the consolidation of the defense industry’s national capacities into a branched cluster enables better visibility of its defense industry and abroad. In this way, better quality and better approach and appearance on the international market is potentially enabled. The fact is that CDICC was established with the aim of joint market presence, but it did not result in a good appearance in a foreign market through the offer of a joint package of defense industry products. This approach should attract interested clients and potential partners to develop and improve new technologies and then a joint appearance with foreign partners in the international market. 5. CONCLUSION Due to insufficient adaptation to new circumstances and a growing international market, many Croatian defense industry companies were shut down and their capabilities abandoned through the years. However, several manufacturers, such as HS Produkt (pistols), Šestan-Busch (helmets), and DOK-ING (demining equipment), have made their way into the leading positions of this branch in Croatia, simultaneously through good business policy and cooperation with the government and the scientific community positioning themselves on the world market. The Croatian defense industry still has plenty of room for further advancement and development. However, it has several good products that may be of interest to potential partners in the world. Progress and development can be achieved through better and closer cooperation between the government, academia, and industry. It is clear that the “Triple Helix” is the foundation for the development of the defense industry in cooperation with the academic community, the MoD, and CAF in the development of the new technologies. Countries such as Croatia, which does not have a firm, internationally recognized in general, and widely developed defense industry of their own, rely to a large extent on the import of defense industry products but also try to export their defense industry products, which are used in CAF, on the international market. Integration in the development of new military equipment through consolidation of defense industry 340 companies and cooperation with the academic community and the MoD/CAF has an important role, which would increase competitiveness for participation in NATO/EU projects and the possibility of participating as subcontractors in the procurement of defense equipment. There is also the space and challenge of connecting the academic community, the defense industry, and the MoD/ CAF and consolidating defense industry companies’ capacity to develop new technologies. In international cooperation, MoD and CAF co-operate in joint defense capability development projects by building their defense capabilities. It is important to emphasize that the MoD and CAF participate in EU PESCO projects to achieve compatibility and strengthen national defense capabilities. This fact can assist the Croatian interested producers in competing in project tenders. The defense industry will be one of the priorities in the field of security and defense as well as maintaining peace and security through early action in conflict prevention, developing operational capabilities and instruments for rapid crisis response, strengthening the European Union’s security and defense policy, the continuation of close and substantive cooperation between the EU and NATO, but also the strengthening of transatlantic relations. Unfortunately, in the end, it must be stated that at the national level in the field of the national defense industry, from a scientific point of view, there are very few and short works available to the scientific and interested public. For this reason, more research, consideration, and solutions are needed in this area to improve national competencies in the field of the defense industry. This is a particular area that requires scientists to know how it works and the connection between the defense system, the military, and the defense industry. Scientists and researchers in the MoD system and the CAF mainly do studies, analyzes, and research of an internal nature. For security reasons is limited availability, so this is one of the few papers available to the public. However, it is necessary to find ways to bring both specific defense and security issues closer to the broader academic community. 341 INTERDISCIPLINARY MANAGEMENT RESEARCH XVII For this reason, foreign companies operating in the field of defense industry need a reliable partner in Croatia to work together on the development of new technologies. Mate Pađen ‡Davor Ćutić ‡Mario Banožić: CONTRIBUTION OF DEFENSE INDUSTRY TO THE NATIONAL ECONOMY REFERENCES Afnor Grupe (2020). 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