Along with peacekeeping missions, Denmark is also involved in significant counter-piracy operations and anti-terrorist measures, both of which stimulated expenditure during the review period which extends to 2015.
According to the iCD Research report, The Danish Defence Industry – Market Opportunities and Entry Strategies, Analyses and Forecasts to 2015, these factors are expected to continue to drive defence expenditure, with spending likely to increase at a CAGR of 0.10% during 2011-2015.
This growth is slightly higher than those of Italy and the US, with the US announcing steep defence budget cuts during the forecast period following a decline over the review period.
The Danish defence budget stood at 1.3% of GDP in 2010, and is expected to decline to 1.2% of GDP by 2015 as the country’s GDP will grow at a faster rate than its defence budget.
Capital expenditure accounted for a quarter of the Danish defence budget in both 2006-2010 (the review period) and the forecast period, with a slight increase during the forecast period as a result of Denmark’s armed forces modernisation plans. Personnel expenditure accounted for the highest revenue budget allocation, accounting for close to 70% of defence expenditure during the review and forecast periods. Personnel expenditure consists primarily of remuneration for military forces.
Key opportunities for the country are expected in areas such as the guided multiple launch rocket system (GMLRS), armoured vehicles, ship-based helicopters and advanced communication systems.
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The Danish Navy plans to acquire twelve MH-60R multimission helicopters and associated parts, equipment and logistical support from the US for an estimated US$2 billion, which is likely to improve the country’s anti-submarine and surface warfare capability, and provide improved search and rescue and anti-ship surveillance capability.
Historically, the US has been the largest supplier of arms to Denmark. During the forecast period Denmark will import a substantial amount of defence equipment from the US due to the defence co-operation treaty signed between the countries.
During 2006-2009, imports from the US constituted 34% of Denmark’s total defence imports, which increased to 64% in 2009 mainly due to increased missile imports.
Imports are expected to register moderate growth during the forecast period due to the Danish Ministry of Defence’s (MoD) decision to increase the country’s defence budget. Imports of armoured vehicles, missiles and aircraft constituted the majority of Danish defence imports during 2006-2009.
Expanding budget will attract new companies to the market
The four main market entry routes to the Danish defence market are: forming subsidiaries, acquisition of domestic companies, forming consortiums and joint weapon-development programmes.
As Denmark’s defence budget is expected to increase over the forecast period, its defence industry is expected to grow at a faster pace.
Since Denmark procures the majority of its equipment from domestic companies and European countries, the budget increase is expected to have a positive impact on the domestic defence industry, and also on its defence imports.
Low barrier to entry
The Danish defence offset policy is governed by its industry co-operation (IC) policy, with a minimum offset range of 100% of the contract value.
The offset element enables the country to acquire advanced technology and stimulate business opportunities by applying multipliers in cases of transfer of technology and unique equipment.
The country’s FDI policy has no restriction on investment by foreign companies in the defence sector, and allows foreign companies to acquire a domestic company or form a subsidiary in the country with approval from the Minister of Justice in cases where foreign ownership accounts for more than 40% of the company’s equity or more than 20% of its voting rights.
Examples of recent defence investment include the UK’s BAE Systems acquisition of Danish cyber security firm ETI A/S in January 2011 for US$212 million.
Homeland security expenditure to grow marginally
The country’s homeland security expenditure will increase by US$0.2 million during the forecast period. Danish homeland security expenditure is primarily driven by terrorism, espionage, drug trafficking and cyber crime, which are likely to be the key factors during the forecast period.
As a consequence of increasing threats to national security in recent years, mainly from Islamist terrorist groups, the government is likely to spend more on countering these threats and allocate more for maintaining public order and safety.
To purchase the full version of ‘The Danish Defense Industry – Market Opportunities and Entry Strategies, Analyses and Forecasts to 2015’, please visit here.
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