Finland's Small Defense Industry Suited For Competition

By Stew Magnuson

Stew Magnuson photo

This is part of a multi-story series on the future of NATO as it marks its 75th anniversary.

VAALIMAA, Finland — The superstore yards away from Finland’s border with Russia was devoid of shoppers.

The building — the size of a warehouse — was stocked with about any consumer good one could pack in a car — everything from shampoo to garden hoses.

There were several checkout lanes, but only one had a cashier — and she looked bored.

Normally, some two million people pass through Vaalimaa annually, making it one of the busiest land crossings in the European Union, but the border was closed — another consequence of Russian President Vladimir Putin’s decision to invade Ukraine in 2022.

The miscalculation prompted Finland to join NATO on April 4, 2023. That in turn prompted Russia to send thousands of asylum seekers to the border, which overwhelmed authorities and forced Finland to close its borders in two-month intervals until it can update its immigration laws.

“Border crossing point is closed!” a sign hanging on a gate in late April 2024 read.

Vaalimaa is the southernmost crossing on a border with Russia that stretches another 800 miles north to the Arctic Circle. Finnish Prime Minister Petteri Orpo recently called the line of demarcation “NATO’s frontline.”

Tuija Karanko, secretary general of PIA — an acronym in Finnish for the Finnish Defense and Aerospace Industries Association — said sharing the border with a much larger neighbor has shaped how the government and defense industry developed their unique methods and policies on how to acquire and maintain weapon systems.

For example, while Finland has large military manpower reserves, there aren’t enough personnel to do everything, she said.

“We have utilized digital technologies for decades now to bring that force multiplier effect. And that is what we excel in. And I would say that we are sort of years ahead, maybe even a decade ahead of some of our partner nations,” she said in an interview in her Helsinki office.

Finland has a “Concept of Comprehensive Security” policy that grew out of years of being next to Russia and being on its own without NATO treaty guarantees.

It calls for all parts of society — government, the public, non-governmental organizations and businesses — to take part in security. With a population of only 5.5 million, Finland has more than 900,000 citizens in the military or who have had military training as former conscripts.

Part of the policy is to do a lot with a little, and while the nation can now call on NATO for help, for decades it strived for neutrality and faced the prospect of being on its own in a conflict.

Readiness rates for a small nation with limited resources and a larger rival on its border are a serious matter, and there is no room for large percentages of aircraft, ships or vehicles sitting idle unable to perform, she explained.

That is why all maintenance, repair, overhaul and upgrades are done in Finland by industry workers, which frees up warfighters to do other tasks.

Finland acquires most of its big weapons systems from overseas, and when it does so, it demands that the technical data comes with it so it can tender maintenance, repair and overhaul, or MRO, contracts for bids.

“We are always looking for cost effectiveness. So, this is one sort of way of reducing costs. Believe it or not, industry can be more cost efficient in your regular MRO activities than the government,” she said.

Karanko — back when Finland was shopping around for a new jet fighter — liked to show visitors a picture of an F/A-18 that had landed on a highway. Next to it was a mobile system that could meet the aircraft where it landed to refuel and do basic maintenance to keep it flying in austere locations.

“We have 62 F/A-18s. We don’t have any more, and this is a hard concept for U.S. companies to understand — that there is no ramp-up capacity anywhere,” she said. There is no thought of sending equipment overseas for repairs or overhauls.

Meanwhile, there is no favoritism for Finnish contractors. Foreign companies are welcome to bid on these maintenance, repair and overhaul contracts. That is sometimes frustrating for local companies who think they should be favored, Karanko said. On the other hand, the competition has forced them to be the best at what they do, she added.

Esa Rautalinko, Finnish defense contractor Patria’s president and CEO, repeated what many other experts in Scandinavia told National Defense privately about Finland. It never bought into the “peace dividend” — that after the Soviet Union collapsed, it was no longer necessary to invest in the military or its industrial base. Finland always had its eye trained on its more powerful neighbor to the east, he said sitting in a meeting room at the company’s Helsinki branch office.

Other European nations “were pretty limited for 30 years. And whatever was procured was procured for international crisis management and stuff like that,” not useful weapon systems for major conflict, he said.

“But that was something Finland did not do,” he added.

Even when economic times were tough, the ministry of defense did not turn protectionist and still held open competitions for defense MRO contracts, he added.

Meanwhile, a year after joining NATO as a member, the Finnish industrial base has already seen some changes, Karanko said. PIA has about 180 member companies and is growing. One reason is NATO membership, she noted.

“And then, of course, is the security situation. We have more and more component providers or digital services providers who are not traditional defense companies who are joining us,” she said. They see business opportunities, but they also want to contribute to defense and security, she added.

The Finnish defense industrial base’s strengths are armored vehicles, mortars and command, control, communication, computers and sensors, she said.

“We see more and more Finnish companies coming together with mostly European companies at the moment for European defense, research and development programs,” she said.

One conduit for defense tech development in Finland will be the newest office for NATO’s Defense Innovation Accelerator for the North Atlantic, or DIANA, which is being set up this year by VTT Technical Research Centre of Finland.

This DIANA branch will focus on next-generation communication systems, 6G technology, cybersecurity, quantum and space technologies and is looking to a January 2025 opening, Sauli Eloranta, vice president of defense at VTT, told National Defense.

“Dual-use defense technologies have had a very high barrier to entry. So, small [Finnish] companies just haven’t had the bandwidth or capability or capacity to address that part of the business,” he said.

Now that Finland is a NATO member, its businesses are looking to form more partnerships, with local companies branching out overseas or for other nations to come to Finland.

The accelerator’s services will be specifically targeted at startups with limited experience in the defense and security sector and training on how to develop business opportunities in the defense sector, he added.

Karanko said the nation’s defense industrial base cannot survive on Finland’s military alone. “We need to go abroad because even if Finland were to procure everything from Finland — which they’re not doing — the country is too small to keep alive such an industrial base,” she said.

PIA is organizing its SecD-Day defense trade show and exhibition in Helsinki Jan. 29-30, 2025, to highlight its local industry and help facilitate partnerships, she said.

One company that will be exhibiting is Patria, the country’s best known defense contractor. Patria is majority owned by the Finnish government, with Norway’s Kongsberg Defense and Aerospace as the minority shareholder. It had net sales of 734 million euros in 2023 with an operating profit of 69 million euros.

It employs some 3,385 personnel and is best known for its AMV fighting vehicles as well as a deal signed in 2023 with Lockheed Martin to join the F-35 industrial consortium. It will maintain Finland’s Joint Strike Fighters and participate in the global supply chain by manufacturing landing gear doors in Finland.

Rautalinko noted that Finland was a NATO partner for 30 years, but there were still some questions among allies on where the nation stood.

Now, “it’s absolutely clear that we are allied. So, I think the possibility — and even an eagerness — to share certain technologies is now on a different level compared to where it used to be,” he said.

Shortly after Finland joined NATO, Rautalinko engaged in side talks at defense trade shows where fellow executives told him: “We never told you guys that there would be certain possibilities, but you were not NATO members, and we have really never brought this up, but now we can discuss.”

There are already a few examples of intelligence and signal processing systems specifically developed for the Finnish military that had never been exported. But after the NATO membership, the items have been sold abroad, he noted.

Membership “was sort of the final missing piece in a sense,” he said, noting that the Finnish Defense Forces can also discuss technologies more in depth with other allied countries, and that ultimately might generate requirements and business opportunities.

All three interviewees touted the toughness of the defense equipment produced in Finland as all of it must function in the harshest winter conditions.

“We are operating in a country that has special circumstances when it comes to climate, freezing temperatures, things like that,” Eloranta said. “You can say if it can operate in Finland, it can operate anywhere.”

Sweden, Norway and Finland — now that they are all NATO members — not only comprise a formidable military bloc to Russia’s west, but there are alsoopportunities for defense industry cooperation that has been largely absent in the past.

For example, “Finland is the land of Nokia and Sweden is the land of Ericsson,” Eloranta pointed out. The two telecommunications giants can help NATO with its 6G or FutureG requirements, he added.

Rautalinko said the Nammo Group — one of the world’s largest ammo and rocket motor suppliers — is 50 percent owned by the government of Norway and 50 percent by Patria. It has manufacturing facilities across Scandinavia.

As far as further cooperation among the three Nordic nations, traditionally each has had its own strengths, Rautalinko said, with Norway very capable in the maritime domain, Sweden with its ability to build jet fighters and submarines and Finland more oriented toward land forces.

“Looking at their products and solutions and so forth, there isn’t too much overlap,” he said.

Finland has always been a big buyer of Swedish defense products while Sweden has procured military vehicles from Finland for the past 40 years, he noted.

“I think the big thing is that as we are now all allied, this is the first time when the defense forces can really open up their books and start drawing defense plans. … That might bring certain possibilities” for industrial cooperation, Rautalinko said.

Eloranta added: “Throughout history, Finland has always been highlighting the need for strong national defense — and it still is — but now there is the NATO layer on top of that,” he said.

“That’s maybe the main thing to recognize, that we are NATO now. It’s still a bit odd in our mouth, but that’s how it is,” he said. ND

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Topics: Global Defense Market