Europe’s Defense Awakening

A new era of industrial defense capabilities

Europe is entering a historic phase of rearmament. Triggered by Russia’s invasion of Ukraine, rising cyber threats, and growing uncertainty about U.S. security guarantees, defense has become a top priority for policymakers. Germany alone plans to double its defense spending within five years, aiming to build the strongest conventional military in Europe.¹ The country pledged to commit a staggering 5 percent of its GDP to defense by 2029, split in 3.5 percent direct military investment and an additional 1.5 percent for defense-related infrastructure.² Such numbers were last seen in the 1960s and have not occurred since.³ Across the continent, defense budgets are projected to exceed €1 trillion by 2030, with Germany leading by a large margin.⁴ The country’s speed and sheer scale of defense investments, unmatched by any European ally, positions its defense industry as the backbone of European military innovation and procurement.⁵

For industrial companies, this is more than a policy shift, it’s a market revolution. Given the growing demand of European armed forces across all military domains – land, air, sea, space and cyber – the continent’s defense sector is currently expanding beyond traditional arms manufacturers and tapping into industrial capabilities hitherto used for civilian purposes only. Especially in Germany, industrial players that face declining demand in their core markets now have an opportunity to pivot into defense and secure long-term growth.

Opportunities for Industrial Players are Diverse and Tangible

The unprecedented defense budget allows investments – way beyond tanks and missiles – in infrastructure modernization, digital resilience, and industrial transformation. Rail networks, roads and bridges must be upgraded to enable rapid troop deployment and endure the strain of tanks convoys. In the digital realm, critical infrastructure such as energy grids must be fortified to withstand potential cyber attacks. The investment is overdue – Germany’s role as a logistical hub is currently hampered by aging transport networks, with 5,000 bridges needing urgent repair and 4,200 km of rail slated for renovation by 2030. The total investment required for transport and energy infrastructure exceeds €600 billion, including €165 billion for interregional transport and €19.9 billion for municipal disaster protection.⁴

Apart from infrastructural challenges, rebuilding a robust, scalable German defense industry is a key enabler for Germany’s military posture. For that matter, industrial competencies such as metal processing, mechatronics, and factory automation are highly transferable to defense applications – from armored vehicle hulls to UAV propulsion systems and secure communication platforms. In fact, automotive suppliers and mechanical engineering companies are key in this quest, given their expertise in mass production, precision engineering, robotics, and their highly skilled workforce.^{6; 7}

Companies like Schaeffler and Trumpf are already partnering with defense tech firms to produce cutting-edge drones. Even unexpected players are entering the market. Heidelberger Druckmaschinen, a printing machine manufacturer, is repurposing its engineering talent to develop autonomous ground vehicles for defense. And goodBytz, originally a maker of robotic kitchens, now supplies autonomous cooking systems to NATO forces.⁸ These examples show that industrial agility translates into competitive advantage.

For industrial leaders, the question is no longer whether to engage, but how to do so effectively. Companies that act now can shape emerging standards, secure partnerships, and gain a foothold in a quickly evolving market. Waiting too long, however, risks losing the most promising opportunities to incumbents and fast-moving start-ups. Early movers have the greatest chance to secure their share of the growing, yet still comparably small market compared to traditional manufacturing industries.

Navigating geopolitical and regulatory complexity

The path to the European defense market entry is promising, but equally challenging. To fulfill the requirements of national security matters, companies must navigate strict certification and safety standards, including NATO interoperability. Moreover, defense procurement cycles are lengthy, often spanning several years, and responsibilities are fragmented across ministries, agencies, and parliaments. Export controls on semiconductors and AI, U.S. ITAR regulations, and China’s rare earth restrictions add complexity to global supply chains. At the same time, Europe’s push for strategic autonomy reinforces the need for local production and resilient supply chains.⁴

For executives, this means building institutional trust early – through dialogue with defense agencies and ministries – and investing in compliance capabilities. ESG (Environmental, Social, Governance) requirements, for example, are not just about sustainability; they also serve as a lever for local value creation. Companies that demonstrate a “European footprint” in defense contracts will gain a competitive edge.

Strategic repositioning by forging partnerships

Breaking into the defense sector is not just about having the right capabilities, it’s about earning a place in a highly regulated, trust-driven ecosystem. Companies that succeed do so by positioning themselves as indispensable partners in Europe’s security transformation. This requires more than technical specifications. It calls for a compelling narrative that demonstrates how capabilities solve mission-critical challenges.

For industrial players, the first step is to move beyond a transactional mindset. Defense contracts are rarely short-term – they are built on long-standing relationships and confidence in a supplier’s ability to deliver under pressure. That means engaging early with decision-makers, understanding procurement priorities, and aligning offerings with strategic objectives such as NATO interoperability and European sovereignty. 

Partnerships are the accelerators in this journey. Collaborating with defense companies opens doors to restricted tenders and co-development opportunities. Consider Schaeffler’s alliance with Helsing: by combining automotive precision engineering with cutting-edge defense technology, they are scaling drone production for European forces. In this case, Schaeffler’s industrial capabilities allow its defense partner to scale up production to 100,000 drones per year in times of crisis. Similarly, Trumpf’s expertise in industrial lasers becomes a game-changer when integrated into advanced drone defense systems.⁸ These cases illustrate a simple truth – industrial know-how gains strategic relevance when embedded in defense ecosystems.

Funding is another critical lever. Programs like the European Defence Fund (EDF) and national initiatives provide financial support for capability development and dual-use technologies.¹⁰ Companies that proactively tap into these resources not only secure capital but also signal commitment to Europe’s defense agenda – a factor that strengthens credibility in competitive bidding processes. Finally, strategic positioning means thinking ahead. Scenario planning – anticipating shifts in defense budgets, geopolitical tensions, and technology standards – enables companies to prepare for rapid ramp-ups and resilient supply chains.

However, it must be recognized that the defense market – despite its remarkable growth rates – remains far smaller than the traditional industrial sector currently in decline. And while the defense industry does have an urgent need to tap into the expertise, industrial capacity, and workforce of established industrial players, not every company facing headwinds will be able to secure a viable niche within the defense ecosystem to compensate for losses elsewhere.¹¹ This makes it even more critical for prospective entrants to understand how to enter the arena, navigate its inherent complexities, earn a seat at the table, and thereby position themselves ahead of the competition.