Introduction
Since 2016, the EU has increasingly prioritized defence modernization, offering financial support to facilitate coordinated efforts in capability development for both EU and NATO members (Jopp & Schubert, 2019; Major & Mölling, 2019). EU member states possess the potential to collaborate on defence industrial issues, provided such cooperation does not undermine their relative position within the intra-EU balance of power (Fiott, 2024).
One key initiative is the Act in Support of Ammunition Production (ASAP), an EU regulation adopted in July 2023 designed to enhance the EU’s defence production capabilities in response to the war in Ukraine. The ASAP regulation directly addresses the European Council’s March 2023 call to provide ammunition and, if necessary, missiles to Ukraine, while simultaneously assisting EU member states in replenishing their stockpiles through targeted measures. By offering financial support to boost production capacity and speed, ASAP seeks to alleviate bottlenecks and shortages in defence supply chains, thereby strengthening the EU defence industry’s ability to supply ammunition and missiles efficiently (EU Commission, 2024c; Fabbrini, 2024). This initiative both enables states to invest in grenade and ammunition manufacturers without such investments being classified as state subsidies and allows for direct procurement, bypassing the regulations associated with public procurement.
Escalating defence spending is driving a surge in production across Europe and beyond, placing strain on supply chains (McNeil, 2024a). The urgency is underscored by the acknowledgement of weaknesses in supply chains for ammunition and grenade manufacturing, highlighted by the ASAP investment initiative.
There is limited research on the aggregate efficiency and capacity of the currently ongoing transformation of internationalized supply chains of ammunition and grenade manufacturing. No existing studies have explicitly focused on the ability of states to intervene in and influence ammunition and grenade production rates, although several studies do however explore related ASAP issues. Freyrie (2023) analyses the challenges stemming from current shortages in military stockpiles and capability gaps unrelated to the conflict in Ukraine. Similarly, Sebastian (2023) describes ASAP as a programme urging member states to transfer ammunition from their national stockpiles to Ukraine. In addition, member states have agreed to jointly procure a million rounds of ammunition and to enhance production capacity within the European defence industry (EU Commission, 2024a).
Fabbrini (2024) argues that the ASAP regulation seeks to bolster the EU defence industry’s capacity to confront challenges arising from the war in Ukraine by funding ammunition production and procurement with EU resources. Further, ASAP permits the EU to adopt a supranational approach in response to an increasingly precarious geopolitical environment. In this regard, ASAP represents a significant step towards the formation of a European defence union, integrating military capability with industrial capacity. Caranta (2023), indeed, notes that the European Defence Agency (EDA) has taken a more active role in the procurement of defence materials. While these developments remain in the early stages, the EDA suggests the potential for partial centralization of defence procurement at the EU level.
Other recent studies (e.g., Jones, 2023; Santamaria et al., 2023) address vulnerabilities within ammunition supply chains, though these analyses primarily adopt an American perspective. Despite the significance of these shifts, substantial gaps remain in the supply chain literature, particularly regarding the consequences of rapid, politically driven changes. One of the main challenges arises from the privatization of large portions of the defence industry, including ammunition manufacturing, which limits governments’ ability to direct industrial activities outside of commercial agreements.
This study investigates multi-level transitions shaping the evolving dynamics of interactions among states, firms, and supranational agencies within European ammunition and grenade manufacturing supply chains, with Sweden providing a conspicuously interesting case due to limited state influence over firms. It further evaluates the implications of these changes for the resilience of contemporary defence manufacturing systems.
The research questions guiding this investigation are: “How can incentives from states and firms balance the demand for ammunition?” and “How do these incentives impact the structure of the industry and the relationships among key actors?”.
The remainder of the paper is structured as follows. Section 2 provides a theoretical framework, integrating various theoretical domains relevant to understanding the manufacturing of ammunition and grenades, along with the characteristics of their associated supply chains. Section 3 outlines the research methods employed – here, a case study of ASAP. This is explored in four dimensions: defence industry; institution; the perspectives of private companies; and inter-institutional and corporate relationships. Section 4 presents the research findings of these four categories, serving to form the foundation for the discussion in Section 5. Finally, Section 6 offers conclusions and suggests areas for further research.
Background and Previous Research
The defence procurement landscape is marked by complexities, including evolving threat perceptions, limited information on emerging technologies, and rising defence expenditure (Gates, 1989; Patterson, 2012; Patil & Bhaduri, 2020; Adjei & Hendricks, 2022). These challenges are compounded by strict laws and regulations governing arms trade, ammunition production, and defence materiel procurement (Sigma, 2011). To address these issues, the EU introduced Directive 2009/81 to enhance transparency and openness in defence markets while allowing exemptions under Article 346 of the Lisbon Treaty to safeguard national security interests (Bratanova, 2004; Gombos & Szűcs, 2019). However, variations in the ways in which member states apply procurement rules persist, with some broadly classifying defence equipment as essential to security, and others adopting a more selective approach (Weiss & Blauberger, 2016; Meershoek, 2021; Gov.UK, 2021). Additionally, Directive 2014/24 mandates fairness and transparency in public procurement, aiming to prevent competition distortion (Calcara, 2020; EU Commission, 2014; Holma et al., 2022).
Despite these regulations, cost considerations often overshadow efforts to secure supply resilience and foster long-term supplier relationships (Trybus, 2002; Arrowsmith, 2006; Wilhite et al., 2014; Ekström et al., 2021; SOU 2022:24), which are further hindered by legal constraints (Meershoek, 2021), contrasting with supply chain management practices that emphasize trust and collaboration (Ellram & Edis, 1996; Gules & Burgess, 1996; Dowlatshahi, 2000; Cova & Salle, 2008; Daugherty, 2011; Huang & Wilkinson, 2013; Baah et al., 2022; Hellberg, 2023).
While the EU has historically supported its defence sector through soft regulatory frameworks, recent years have marked a shift toward financial instruments aimed at fostering defence cooperation. The European Defence Fund (EDF) exemplifies this transition, reflecting a “geo-economics approach” to EU defence policy by addressing challenges in technology control, supply security, and geopolitical competition (Fiott, 2024). This evolution from market liberalization to industrial policy underscores the EU’s commitment to strengthening the European Defence Technological and Industrial Base (EDTIB; see Fiott, 2024; Herranz-Surrallés et al., 2024).
The European Commission now advocates for greater cross-border cooperation among member states in defence procurement, emphasizing non-discriminatory practices in awarding contracts (Fiott, 2024). The establishment of the European Defence Agency (EDA) in 2004 and the EDF’s funding of military programmes highlight efforts to prioritize European-made weapons and equipment to bolster the EDTIB.
Key EU objectives include reducing dependence on strategic suppliers and achieving self-sufficiency in critical technologies to better navigate an unpredictable global environment (Zandee et al., 2020; Helwig, 2021; Håkansson, 2021; Kleczka et al., 2023). Currently, 40% of EU defence acquisitions originate from the United States, a reliance the EU seeks to diminish to enhance its resilience and strategic autonomy (Borrell, 2024).
Understanding the dynamics between suppliers, buyers, and customers is critical for effective procurement and supply chain management in defence contexts. These triadic relationships shape the acquisition, production, and delivery of defence products within defence-logistics networks (Fletcher-Chen et al., 2022). In the last decades, public-sector buyer-supplier interactions have relied on short-term, transactional contracts driven by cost-efficiency, often limiting long-term relationship building due to regulatory and competitive tendering challenges (Holma et al., 2022). Relational and network theory highlights trust, interdependence, and collaboration as key to fostering durable business relationships (Axelrod, 1984; Johanson & Mattsson, 1987; Axelsson & Easton, 1992; Carr & Pearson, 1999; Håkansson & Gadde, 2018; Gadde, 2021).
In defence logistics triads composed of armed forces, procurement authorities, and the defence industry, it is important that the incentives of each actor are acknowledged if trust, shared understanding, and respect are to develop effectively (Lundmark et al., 2022). With Europe’s increased demand for defence capabilities, an emphasis on deeper interactions and stronger public-private relationships in defence logistics networks is becoming increasingly important. To secure the supply of defence materiel such as ammunition and grenades, various member states have started establishing longer-term agreements and strategic partnerships, focusing on supply chain resilience and security (Kalaitzi & Tsolakis, 2023; Fiott, 2024).
This paper explores the incentives balancing and impacting the defence structure, anticipating a significant transformation in the European defence market and industrial landscape, driven by the Ukraine conflict and the deteriorating security environment. This ongoing transition is already reshaping defence supply chains, highlighting the need for continuous research to monitor these developments. Such research can provide actionable insights into their impact on defence and security governance, ensuring preparedness for future challenges.
Theoretical Framework
Dynamic capability to manage ammunition and grenade manufacturing disruptions
This study explores theoretical frameworks addressing dynamic capabilities that companies require to assess risks; navigate the implications of privatization and globalization within the defence sector; understand the relationship between the state and the defence industry; and manage disruptions in munitions manufacturing.
Scholars such as Teece et al. (1997), Eisenhardt & Martin (2000), Teece (2010), and Yoho et al. (2013) argue that organizations must possess such “dynamic capabilities” if they are to respond effectively to unforeseen market changes or environmental transformations. To achieve and sustain competitive advantage, firms must be able to adapt to changing market conditions that challenge their corporate strategies and market positions. Following the “resource-based view of the firm” (Wernerfelt, 1984; Barney, 1986, 1991, 2000; Penrose, 2009), this requires the making of strategic decisions concerning which resources and capabilities are to be maintained in-house, how these should be combined and coordinated, and which accessed from external firms or organizations.
Supply chains are vulnerable to disruptions of several kinds – and the broader their global scope, the more diverse these disruptions are likely to be (Craighead et al., 2007). While ammunition and grenades are not composed of many components, their production processes are intricate and sensitive. Each customer specifies unique requirements for ammunition and grenades, resulting in variations even within the same calibre.
At present, grenade-manufacturing supply chains are predominantly global; many nations lack access to the raw materials and manufacturing capabilities necessary for component production (Hochschorner et al., 2006; Markowski et al., 2009; Dimitrov and Hall, 2013; Santamaria et al., 2023). The defence industrial base is not exempt from the challenges posed by supply shortages. While in some countries certain critical, military-specific materials are secured through pre-existing stockpiles designated for military use, many raw materials are still sourced from the open market (Santamaria et al., 2023).
Figure 1 illustrates the flow of materials required for each component of a round. While some fuses require electronics and semiconductors, fuses are only necessary for high-explosive and armour-piercing rounds, which are produced in limited quantities. The raw materials for primers include lead, antimony, and composite materials, while propellants rely on chemical compounds such as nitrocellulose. Additionally, projectiles and cartridge cases are manufactured using steel and aluminium.
Figure 1
Fundamental assembly process for medium calibre ammunition. Reprinted from Santamaria et al. (2023).
Supply chain security revolves around risk assessment and understanding the consequences of potential disruptions (Lieb-Dóczy et al., 2003; Zsidisin & Ellram, 2003). Achieving total supply chain security is challenging due to globalized manufacturing and dependence on critical resources like rare earth metals (Teer & Bertolini, 2022). Besch (2016) asserts that trust is the cornerstone of supply security. Common approaches to the enhancement of supply chain resilience include securing alternative suppliers, maintaining flexibility in component usage, and adjusting capacities (Sheffi, 2007; Dabhilkar et al., 2016). Resilient supply chain frameworks offer a useful perspective for addressing vulnerabilities and disruptions across global supply chains (Park, 2011).
Supply chains are especially vulnerable during conflicts or wars, underscoring the need for then to be sufficiently resilient to withstand such disruptions (Durach et al., 2015; Monostori, 2018). Managing supply chain risks requires adopting diverse strategies to mitigate risks and address uncertainties (Manuj & Mentzer, 2008; Simchi-Levi et al., 2018). Political instability has driven some firms to repatriate previously outsourced production or to relocate operations to politically stable nations (Blackhurst et al., 2011; Lundmark, 2014; Stentoft et al., 2015; Hartman et al., 2017; Loska and Higa, 2020; Gao et al., 2022; Department of Defense Report, 2022).
Privatization and globalization of the defence industry and its supply chain
Public management reforms, particularly New Public Management (NPM), have profoundly influenced the defence industry. These reforms, implemented in many Western democracies during the 1980s and 1990s, shifted the role of governments from producers of defence goods and services to that of customer (Heidenkamp et al., 2013). NPM emphasized supplier competition, cost-efficiency, and the adoption of private-sector management practices in defence procurement (Hood, 1991, 1995; Grimsey & Lewis, 2004; Mundebo, 2008; Ettinger, 2011).
Since the 1980s, European governments have increasingly relied on private manufacturing and service provision for sourcing defence materiel, with Britain leading through asset privatization and outsourcing non-core services. France followed by privatizing Thomson-CSF and partially privatizing Aerospatiale and Matra Haute Technologies in the 1990s, alongside similar efforts in Italy and Spain. However, many European defence firms still maintain substantial government ownership, reflecting continued state involvement in the sector (Guay, 2007; Markowski & Wylie, 2007).
In Sweden, NPM reforms, including corporatization and marketization, had a significant impact on public administration, especially in the defence sector (Statskontoret, 2020; Lundberg & Rova, 2022). While intended to enhance efficiency, these reforms created challenges, including strained relations and diminished trust between government agencies and private firms. The search for new models that prioritize cooperation over detail-oriented management continues (SOU, 2019, p. 43). Lundmark (2022) highlights autonomy because of failed internationalization, noting significant consolidation and foreign acquisitions in the Swedish defence industry between 1997 and 2005. Unlike other European nations, Sweden adopted a uniquely market-liberal approach, allowing firms to operate without state ownership and, potentially, under foreign control.
Since the 1990s, the EU defence industry has undergone significant cross-border integration in ownership and control, both within the EU and with external partners. Today, it is largely privatized, with supply chains and ownership structures extending beyond national borders (Bishop & Wiseman, 1999; Hayward, 2001; Mampaey, 2001; James, 2002; Neuman, 2006; Ikegami, 2013; Lundmark, 2019; Sempere, 2020). Although defence firms remain predominantly national, many suppliers are international, making domestic production reliant on imported components and reducing self-sufficiency to below 50%. This dependence has increased vulnerability to disruptions, as highlighted during the pandemic (Gansler et al., 2014; Antai & Hellberg, 2023).
Privatization and globalization have weakened national loyalties (Hirsch Ballin et al., 2020; Pałka, 2020) while diversifying procurement strategies. Defence agencies now source globally to leverage specialized capabilities and cost efficiencies, driving industry consolidation and prompting firms to merge or focus on niche specializations. This transformation demands careful government oversight to balance benefits with risks (Aulakh & Kotabe, 1997).
Globalized procurement has fragmented supply chains, increasing exposure to geopolitical risks and regional disruptions despite cost advantages (Stevenson & Spring, 2007; Kolk & van Tulder, 2010; Bode & Wagner, 2015; Mackay et al., 2020). To address these vulnerabilities, governments are forming strategic partnerships with suppliers (Ministry of Defence, 2021). Domestic industries, offering military adaptability and supply security, remain critical, justifying continued public investment despite the costs (DeVore, 2021).
Relations between the selected theoretical domains
Figure 2 illustrates the relationships among key theoretical elements in the framework, showing how they interlink to explain state-defence industry interactions, the impact of privatization and globalization, and regulatory aspects such as NPM initiatives and public procurement laws. The figure also highlights the EU’s objectives to strengthen the EDTIB.
Figure 2
Relations between the domains in the theoretical framework.
The left side of Figure 2 depicts the defence firm level, highlighting the global nature of supply chains in ammunition and grenade manufacturing. This global reach increases the risk of supply chain disruptions compared to a national supply model, necessitating rigorous risk assessment and agile, dynamic responses from firms to adapt to market fluctuations (the left, red-dashed box indicates dynamic capability).
The right side of the figure represents the institutional level, encompassing laws and regulations. The regulatory framework governing the trade and manufacture of military materials, alongside public procurement requirements, has led to procurement processes that are budget-driven and characterized by arm’s-length, short-term, and transactional contracts (the right, red-dashed box indicates dynamic capability).
Privatization and globalization in the defence industry have eroded traditional national procurement loyalties, strained relations, and reduced trust between Swedish government agencies and private firms (Ikegami, 2013; Lundberg & Rova, 2022; Hartley, 2023). Consequently, the privatized defence sector typically manufactures only under specific contracts. Given that these contracts are often short-term, there is little incentive to develop supply capabilities beyond contract requirement. The diminished sense of national loyalty in defence procurement, except where essential security interests are involved, means that the Swedish-based defence industry does not prioritize domestic customers or prefer national suppliers. This shift results in more globally oriented procurement practices, with supplier selection based on factors such as cost-efficiency and specialization rather than national affiliation.
Methodology
This study adopts an abductive research approach, particularly suited to its dual focus on theoretical exploration and empirical analysis. Rather than solely testing hypotheses or relying on empirical explanations alone, the study integrates supply chain theories and theories of state-defence industry relations, while simultaneously analysing empirical data to clarify observed phenomena. The abductive approach enables a dynamic interplay between theory and data, facilitating the refinement and expansion of theoretical frameworks based on new empirical insights (Saunders et al., 2012; Bryman & Bell, 2015; Alvesson & Sköldberg, 2008). This approach is widely recognized in applied sciences, such as supply chain interaction research, for its capacity to describe and explain emerging phenomena by leveraging existing theories (Kovács & Spens, 2005; Dubois & Gadde, 2002).
The abductive process in this study involved an ongoing literature review informed by insights into the supply chain conditions of the defence industry. These insights were collected through interviews and focus group discussions with representatives from Swedish defence industry stakeholders conducted between 2023 and mid-2024.
A case study approach was employed to study current events where it was not possible to directly influence behaviours (Yin, 2003; Hollweck, 2015). The embedded case study approach proved particularly appropriate for exploring environments in which the boundaries between the phenomenon under study and its context are blurred.
This study on ASAP effects incorporates four units of analysis:
Defence industry structure (a general evaluation of industry composition and dynamics).
Institutions (with a focus on the EU, the Swedish state, and relevant authorities).
Analyses of defence firms operating in Sweden.
Inter-institutional and corporate relationships (an appraisal of the interactions and interdependencies among institutional and corporate actors).
This multi-faceted approach enables a nuanced examination of the dynamics shaping the defence supply chain.
Figure 3 presents a dynamic process model that elucidates the interconnected relationships among states, firms, supranational entities, and the supply chains supporting ammunition and grenade production within European manufacturers. The model is divided into three phases:
T0: Represents pre-war market conditions for supply and demand.
T1: Reflects market conditions influenced by the Ukraine war.
T2: Projects a hypothetical future market and industry structure post-war.
Figure 3
Conceptual model of the research process.
Phase T2 is briefly explored in the conclusion section of this paper. The sections referenced in Figure 3 (chapters 1–2 and 4–6) correspond to specific headings under which these topics are discussed in detail.
The empirical data for this study were drawn from a diverse array of sources, including official documents, published analyses, public service news reports, interviews, and focus group discussions. Section 2 details a targeted search of literature encompassing academic journal articles and official documents from entities such as the EU, NATO, and individual states. Given the evolving nature of the study subject, empirical evidence was sourced from credible channels, including the European Commission, NATO, government publications, and reputable media outlets. To minimize bias, only information corroborated by multiple independent sources was included.
The combination of public sources, academic articles, personal interviews, and focus group discussions represents a methodological strength, as it incorporates into the analysis the incentives and perspectives of participating actors. Collaboration with research partners1 enabled deeper engagement and close interaction with relevant stakeholders, offering insights that may be challenging to replicate without trust-based relationships. This communication enriched the contextual understanding of a transformation process influenced by sensitive defence and security considerations. Notably, the data on corporate action are derived from public sources, academic literature, interviews, and focus groups. Consequently, our findings here are particularly robust; institutional action, in contrast, is assessed based on secondary data from published literature, media analyses, and official documents.
However, the study has some limitations. The qualitative nature of the empirical analysis introduces the potential for subjective interpretation, meaning alternative conclusions could be reached by different researchers. To address this, steps were taken to enhance rigour through triangulation, including consultations with representatives from involved firms and authorities.
This comprehensive methodological framework aims to provide a robust and contextually grounded analysis of the supply chain dynamics and institutional relationships within the European defence sector.
Interviews and focus groups
A total of thirteen individual interviews were conducted between 2023 and 2024 with representatives from Swedish defence equipment manufacturing firms and the Swedish Defence Materiel Administration (Försvarets materielverk, or FMV). These interviews involved high-ranking representatives across various segments of four defence industries in Sweden and individuals from two public authorities. To ensure a comprehensive evaluation, the firms and authorities themselves selected the interviewees, covering senior management and key functional areas, such as contract management, purchasing, production, and customer relations. Each interview, conducted face-to-face, lasted between 90 and 140 minutes and was recorded to ensure accuracy.
The interviews explored a broad spectrum of factors influencing the upstream structure of the supply chain, manufacturing capabilities, resilience, supply security, contract frameworks, and conditions that either facilitate or hinder enhanced supply capabilities. To maintain confidentiality, the identities of both the firms and individuals remain undisclosed.
In addition to the interviews, two focus group (e.g. Macnaghten & Myers, 2004; Barbour, 2014) sessions were held in August 2023, involving representatives from the armed forces, the defence industry, and FMV. While focus groups bear similarities to less structured interviews, they enable the collection of data from multiple participants simultaneously, and rich interaction among participants, fostering the exchange of diverse perspectives (Morgan, 1996; Morgan et al., 1998; Flynn et al., 2018).
The first focus group session included two representatives from a defence firm, two from the armed forces, one from FMV, and two scholars from the research team. The second focus group session included managing director representatives from each of four defence firms, along with top ranking officer representatives from the armed forces, director representatives from FMV, and three scholars from the research team.
The focus groups concentrated on identifying immediate actions required to enhance the industry’s long-term delivery capacity and the adjustments customers need to make to their requirement specifications and contract structures. Detailed notes were taken during both interviews and focus group sessions.
Findings
The defence industry for ammunition and grenades manufacturing
As Russia’s full-scale invasion of Ukraine unfolded, it became evident that Ukraine required substantial military support to defend itself, prompting the United States and European nations to initiate military donations; this began in earnest in mid-2022. Among these, ammunition and grenades quickly emerged as critical resources due to the protracted nature of the war.
While many European nations had already begun to increase their defence budgets and procurement efforts prior to the invasion, several began a rapid augmentation of their defence spending in response to the growing security concerns in early 2022. This surge in defence budgets led to a dramatic increase in demand for a wide array of military systems, with ammunition and grenades taking centre stage. Nations simultaneously raised the required levels for their war stocks of ammunition and grenades, further amplifying demand.
The global demand for ammunition and grenades surged dramatically for three interconnected reasons, as shown in Figure 4:
Replenishment of donated munitions: nations needed to restock their depleted war inventories after donating significant supplies to Ukraine.
Expansion of national war stocks: many nations established higher levels for their war stockpiles as part of long-term rearmament strategies.
Continuous support to Ukraine: there was an ongoing and urgent commitment to supply Ukraine with the necessary ammunition to sustain its defence efforts.
Figure 4
Factors contributing to the increase in demand. Created by the authors.
The sharp rise in demand for ammunition and grenades reflects the intersection of these short-term and long-term pressures. These factors collectively generated a surge that significantly challenged existing defence manufacturing capacities and supply chains, prompting nations to undertake initiatives aimed at expanding production capabilities and enhancing supply chain resilience.
This rearmament surge represents a paradigm shift for the defence industry, requiring adaptation to unprecedented levels of demand while balancing the immediate needs of conflict support with long-term strategic objectives.
In mid-2022, the “consumption” in Ukraine was three times higher than Western production capacity. In mid-2023, Russia was able to fire three times as many grenades per day as Ukraine; in April 2024, the firing ratio was stated as being nine to one (AP News, 2024).
As of December 2024, the most obvious initiatives and actions that have occurred as a reaction to the Ukraine war relate to the supply and demand for ammunition and grenades. At the beginning of 2022, the EU countries were producing approximately 230,000 155 mm grenades per year, about one-third more than production in the United States. By February 2023, European production had increased to 300,000 rounds annually; by November the same year, Europe had achieved an annual production capacity of some 400,000 rounds (Skove, 2023). Following measures implemented in 2023, the annual production capacity for 155 mm shells in Europe had reached one million by January 2024 (EU Commission, 2024a).
Although many nations sought to place orders for prompt deliveries of ammunition and grenades, aggregate production fell far short of the desired procurement levels. Global producers of ammunition and grenades had, over a prolonged period without major wars, streamlined their production processes to align with a generally stable demand. Additionally, many larger Western producers had extensive international order backlogs with extended delivery lead times. The supply chains of these end producers had evolved to become more cost-efficient, transitioning towards lean, just-in-time operations – but chains of this kind cannot easily respond to a sudden surge in global demand. There had been closures of certain industrial capacities related to specific input materials prior to the Ukraine war, and supplies of crucial chemicals and explosives had been centred on individual firms (Ruitenberg, 2024).
While the defence industry has significantly increased production, it has nevertheless proven insufficient to meet demand as countries seek to replenish their stocks of ammunition and grenades. The ongoing usage of ammunition, grenades and equipment in Ukraine exacerbates the situation. Firms must enhance their capacity and acquire more trained personnel for the complex and sensitive manufacturing processes, often requiring guarantees for future orders, if they are to build new factories (DN, 2024a). A modern grenade, including propellant charges, ignition cartridges, and fuses, costs approximately €7,400.2 For a million grenades, the cost amounts to €7.4 billion. While the immediate need for capacity is recognized, there is a need for long-term commitments: expanding a factory involves a perspective extending twenty, thirty, or forty years into the future (DN, 2024b).
Institutional goals and incentives
Due to Russia’s aggressive actions and confrontational rhetoric, in recent years (phase T0–T1) European states have prioritized the security of arms supply and the enhancement of societal resilience (NATO, 2022). Understanding that military readiness and capabilities can no longer remain in a state optimized for peace, individual nations seek to develop both. This occurs in the context of a prevailing consensus that Ukraine must be supported. Across Europe, there is a high demand for war stocks and rearmament; through supra-national measures, the EU Commission strives to steer policy towards EU defence-industrial cohesion (Fiott, 2024; Ostanina & Tardy, 2024).
In March 2023, Western nations pledged to supply Ukraine with a million grenades by November 2023 (Reuters, 2023). Donating from their war stocks, many nations were not willing to send the quantity required. It became apparent that the pledge to donate ammunition and grenades would not be met without firmer commitment and initiatives.
The Act in Support of Ammunition Production (ASAP)
Under ASAP, the EU has allocated €500 million to strengthen the production of ammunition and grenades, primarily to support Ukraine (ENDR, 2023; EU Defence Industry, 2023). ASAP was introduced in direct response to the European Council’s March 2023 call for the urgent delivery of ammunition, and missiles, if necessary, to Ukraine, while also assisting member states in replenishing their stockpiles through targeted measures across Tracks 1 to 3 (EU Defence Industry, 2024a).
As outlined by Sebastian (2023), Track 1 of ASAP urges member states to immediately transfer ammunition from their national stockpiles to Ukraine. Track 2 involves a joint agreement among member states to procure a million rounds of ammunition collectively. Track 3 focuses on expanding production capacity within the European defence industry to ensure long-term supply chain resilience. Additionally, ASAP seeks to enhance the EU’s collective ammunition production capabilities, enabling member states to replenish their stockpiles more effectively (Försvarsdepartementet, 2022; Jones, 2023; Teknik och Säkerhetsforum, 2023).
The fund covers 35–45% of costs in each project, with EU support ranging from €2 to €65 million. Firms may secure the remaining 55–65% of total investments through alternative financing methods (Försvarsdepartementet, 2022; EU Defence Industry, 2023). Both firms already engaged in producing the required materials and smaller actors in the supply chain were eligible to apply for support. Member states are urged to contribute to these investments through procurement or direct support, with support criteria emphasizing increased manufacturing capacity and reduced lead times (Försvarsdepartementet, 2022; EU Defence Industry, 2023; Teknik och Säkerhetsforum, 2023).
It is crucial to emphasize that it is the owner of defence equipment and ammunition (i.e., a state, through its armed forces and their stocks) that provides donations to Ukraine, not the manufacturer (Försvarsdepartementet, 2024a; Atlantic Council, 2024). In accordance with existing laws governing the production and trade of defence-related products, states alone have the authority to purchase and possess such materiel.
ASAP positions the EU to address, in a supranational manner, a more menacing geostrategic environment. From this perspective, ASAP represents a stride towards the establishment of a European defence union, conceived as a fusion of military effectiveness and industrial capacity (Fabbrini, 2024). Substantively, the adoption of ASAP aligns with the EU’s endeavour to bolster its strategic autonomy – a trajectory initiated before, but hastened by, the conflict in Ukraine (Verellen & Hofer, 2023). As Hoffmeister (2023) has underscored, pursuing strategic autonomy has spurred the creation of several new EU policy instruments in external trade relations, with ASAP further propelling this trajectory.
ASAP has initiated calls for proposals targeting the production of propellant powder, explosives, shells, testing capacities, and missiles. By 15 March 2024, the EU had allocated approximately €500 million to this initiative, with anticipated industry co-funding expected to elevate the total investment to over €1.5 billion, thereby establishing new production capacities across Europe (EU Defence Industry, 2024b). Detailed information regarding the impact of this initiative on production increases is currently limited, likely due to the early stages of its implementation.
With more than €130 million ($140 million) designated for Rheinmetall within ASAP, this investment signifies a strategic alignment between the private and public sectors in bolstering Europe’s defence infrastructure. Rheinmetall’s expansion plans extend beyond its German headquarters, encompassing projects across four European countries: Estonia, Hungary, Romania, and Spain (McNeil, 2024b).
FMV entered into an agreement with ammunition manufacturer Nammo to support the project application within ASAP in 2024. The investment aims to increase the production capacity of artillery ammunition in supply. The planned investment is partially funded by the Swedish state and partially by the EU under ASAP. The final contract is contingent on the EU’s allocation of funds during the first quarter of 2024, competing with other project proposals (FMV, 2024).
On March 15, 2024, the Commission allocated €500 million, as set out under ASAP. This allocation will enable the European defence industry to escalate ammunition and grenade production capacity to 2,000,000 grenades per year by the end of 2025 (EU Commission, 2024b). In March 2024, the Swedish government and Nammo were granted EU support to increase ammunition and grenade production (SvT, 2024; Försvarsdepartementet, 2024b). Even Norwegian firms such as Nammo Raufoss, Kongsberg Defence and Aerospace, and Chemring Nobel had submitted applications for funding from the EU fund to expedite ammunition and grenade production, with all three entities receiving allocations from the EU fund in March. In addition to €1 million in EU support, the Norwegian government is investing NOK 950 million in state support, as reported by the Norwegian Ministry of Defence (VG, 2024).
The production of artillery ammunition necessitates a simultaneous increase in the production of powder and explosives. The Commission has indicated that ASAP will guarantee an additional 10,000 tons of powder, sufficient to produce 1.3 million grenades, along with a 4,300-ton augmentation in explosives, capable of filling 800,000 grenades. Approximately €248 million of the ASAP funding will be allocated to powder manufacturing projects; as stated by the Commission: “Our primary focus was on alleviating the primary bottlenecks. The main areas of concentration were powder and explosives, hence we directed three-fourths of the ASAP funding towards addressing these issues” (Politico, 2024).
Increasing the capacity and production of grenades goes beyond merely adding personnel, machines, and larger premises; clear bottlenecks exist, both in production and the component supply chain: grenade bodies are manufactured in Norway and Finland, for instance, while one of the explosives is produced in Poland. This requires collaborative efforts across multiple countries (DN, 2024b). New production entities also demand measures for protection and security against external threats, adding to the complexity.
While investment in ammunition and grenade production capacity continues to be made across Europe, it remains insufficient to meet the demand for increased ammunition production. In addition to expanding production units, there is a need to enhance competence within these facilities and to procure a greater quantity of raw materials. While the ASAP initiative encompasses an augmented production of explosives, other raw materials and components remain essential. Suppliers for such equipment are currently limited, and most production units rely on the same suppliers for procurement. Furthermore, interviews indicate that it will take between one to two years at least before the investments in industry have materialized into the production capacity sought (Focus group 2, Aug 2023; Participant G, personal communication, April 2024).
To facilitate the donation of certain types of military equipment, in February 2022 the United States approved third party transfers, enabling 14 NATO allies and close partners to provide U.S.-origin equipment from their inventories to support Ukrainian forces (U.S. Department of State, 2024). Since early March 2022, a team of American service members, along with a rotating crew of multinational partners, has been stationed at the U.S. European Command headquarters to aid the efficient delivery of equipment from donor nations to Ukraine. This team, known as the EUCOM Control Center-Ukraine/International Donor Coordination Centre (ECCU/IDCC), supervises these deliveries and ensures that Ukrainian forces receive the necessary training for operating the equipment (Defense News, 2022). In July 2024, NATO agreed to assume a more substantial role in coordinating military assistance and training efforts among its allies. NATO will work in collaboration with the U.S.-led Ukraine Defence Contact Group, whose 57 members include all 32 NATO countries (UK Parliament, 2024; Ukraine Donor Platform, 2024).
EDIS – European Defence Industrial Strategy
In March 2024, the EU Commission proposed a European Defence Industrial Strategy (EDIS). The EDIS seeks to ameliorate deficiencies in EU defence readiness made apparent due to the war in Ukraine. EDIS is also intended to create more unified EU-wide defence procurement and capability, to increase the intra-EU defence procurement, and, over time, to strengthen the European Defence Technology Industry Base (EDTIB). Through several interdependent measures and initiatives under the management and supervision of the EU Commission, the aim is to afford the EU Commission a considerably increased supra-national mandate over EU member states (Ostanina & Tardy, 2024). A supra-national mandate of this kind has thus far met considerable resistance and scepticism, especially from those member states with better-developed and more sophisticated national defence industries. EDIS also challenges the defence procurement preferences of member states that primarily procure from the United States.
Nordic agreement on ammunition and grenades
In March 20183 and August 2022,4 Sweden, Finland, and Norway entered into agreements to coordinate and synchronize long-term planning and self-sufficiency in the production of ammunition, grenades, and essential components such as ignition caps. These agreements represent a significant step toward increasing artillery ammunition production capacity in the Nordic region while simultaneously enhancing the security of supply across all readiness levels (FMV, 2024).
In October 2023, Denmark joined Finland, Norway, and Sweden in announcing a joint agreement for the procurement of ammunition aimed at ensuring continued support to Ukraine. The initial order under this agreement was valued at SEK 604 million (FMV, 2023).
This strategy of joint procurement, supported by standardized ammunition specifications, enables the Nordic countries to act as a single, larger, customer for suppliers. This collective approach enhances their bargaining power, achieving a level of influence far greater than any one nation could achieve independently. To sustain and expand these initiatives, increased domestic investments and collaborative agreements are essential. These efforts aim to strengthen industrial capacity for grenade and ammunition production while fostering growth in the domestic defence industry (Försvarsdepartementet, 2024c).
Goals and incentives of defence firms
The situational analysis of the defence industry, based on insights from interviews and focus groups, highlights how business strategies are shaped by the Swedish Limited Liability Companies Act, risk assessment frameworks, and profitability requirements. (Focus group 1, Aug 2023; Participant J, personal communication, Oct 2023). Firms evaluate each request for proposal (RFP) with respect to their capacity to meet specified requirements, the competitive landscape, and associated risks. Proposals are submitted only when firms assess themselves as competitive, after carefully considering costs, potential delivery timelines, and operational risks (Participant B, personal communication, Oct 2023).
Materials and components are generally procured only after a contract has been confirmed, aligning resource acquisition with formal agreements. This just-in-time approach has been acceptable to customers because production backlogs often exceed supplier lead times, and delivery schedules are rarely time-sensitive (Participant A, personal communication, Jan 2024). Most contracts include force majeure clauses, protecting suppliers from disruptions beyond their control. Historically, provisions for spare parts supply or system upgrades have been deferred to later procurements, and security of supply issues have seldom been prioritized, except for critical security interests (Participant J, personal communication, Oct 2023; Participant E, personal communication, Feb 2024).
Public procurement regulations restrict the flow of information between customers (e.g., the armed forces or procurement authorities) and producers, ensuring that all potential suppliers have equal access to information. This limits firms’ incentives to propose innovative solutions beyond stated requirements, as any suggestions shared with the customer must also be disclosed to competitors (Focus group 1, Aug 2023; Participant E, personal communication, Feb 2024).
For many Swedish defence firms, international buyers represent the primary customer base, leaving limited prioritization for Swedish customers. Production capacity is allocated according to larger, more consistent order volumes from these international customers. As demand for ammunition and grenades has surged due to increased state orders, production lines are fully utilized, and supply chains are stretched to fulfil existing contracts. Most manufacturers depend on shared suppliers for critical consumables, resulting in bottlenecks and extended lead times across the sector (Focus group 2, Aug 2023; Participant E, personal communication, Feb 2024).
Seeking to reduce reliance on external suppliers, some firms are exploring the possibility of producing key components such as ignition caps internally. However, this approach incurs higher costs and necessitates a time-intensive qualification process, typically two to three years, including customer approvals (Participant G, personal communication, April 2024). This delay makes procurement authorities hesitant to pursue such changes.
Firms have historically avoided maintaining large inventories of raw materials or finished goods due to the unpredictability of future RFPs and their specifications. While it is possible to increase production capacity through the simple addition of work hours, such expansion is constrained by a shortage of skilled labour. Investments in new production lines remain limited, as firms are reluctant to commit capital without long-term contracts ensuring a return on investment. The Public Procurement Act further restricts the establishment of secure, long-term agreements. Access to investment capital is also hindered by restrictions from some financial institutions on funding military equipment production (Focus group 2, Aug 2023; Participant J, personal communication, Oct 2023).
With pressure from the EU and initiatives such as ASAP, opportunities are emerging for public procurements, state support outside traditional subsidy frameworks, and the classification of strategic production as an essential security interest. These measures could bolster domestic production capacity. However, challenges persist, including the recruitment of skilled labour, scaling suppliers’ capacities, and qualifying materials and components for production (Focus group 1, Aug 2023; Participant A, personal communication, Jan 2024).
The predominantly global nature of supply chains for ammunition materials, often involving suppliers outside the EU, further complicates efforts to enhance domestic production capabilities (Participant M, personal communication, Oct 2023; Participant A, personal communication, Jan 2024).
State funding introduces questions regarding the ownership and control of new production capacities, including their location and allocation across customers. Existing production facilities owned by foreign states add another layer of complexity. Contractual and partnership templates to address these issues are not yet standardized, and government transparency is constrained by the Swedish Limited Liability Companies Act, curtailing the scope for cooperative solutions (Participant L, personal communication, April 2024).
Despite the challenges, there is a growing shift from arm’s-length, short-term contracts to partnerships and long-term commitments between procurement authorities and producers. This transition aims to foster collaboration and share risks more equitably, although firms remain bound by profitability expectations and restrictions on information sharing.
NATO is actively working to harmonize specifications, enhancing the interchangeability of supplies across different armed forces. This initiative opens the door to more standardized ammunition production, enabling longer production runs and greater economies of scale, which can improve production efficiency (Participant K, personal communication, April 2024).
Despite these efforts, the industry faces severe shortages and bottlenecks for critical goods. The ability to rapidly scale production remains highly constrained. End-producing firms for grenades and ammunition remain hesitant to assume the financial and operational risks associated with significant investments in expanded production capacity (SVT, 2024).
This complex interplay of market dynamics, regulatory constraints, and evolving demand underscores the pressing need for innovative solutions and collaborative efforts to address the defence industry’s structural challenges.
Inter-institutional and corporate relationships
Due to the Ukraine war and the surge in overall demand, the imbalance has led many nations to create stronger coordination with domestic suppliers. Planning has become more long-term. (Participant A, personal communication, Jan 2024; Participant L, personal communication, April 2024). We argue that there is an ongoing shift from a transactions-based relationship between buyers and sellers in a competitive international market with globalized supply chains to a more trust-based and long-term relationship between buyer and seller. The buyers and the sellers must agree on the firms’ strategies and economic realities, and a mutually acceptable set-up must be found. This transformation primarily occurs nationally as each nation strives to create sufficient war readiness.
The initiatives from the EU Commission regarding ASAP and EDIS strive for increased European synchronization and supra-national coordination for the future EDTIB. NATO, meanwhile, leads in the creation of military capabilities appropriate to its members. Without a formal agreement between the EU and NATO, we argue that there has been a gradual division of responsibility: the Commission has increased its ambitions for a coordinated EDTIB while NATO oversees the development of military capabilities. Donations to Ukraine are facilitated through individual national decisions, coordinated efforts by NATO and EU, and parallel initiatives to ensure the logistics of delivering these supplies effectively reach the Ukrainian Armed Forces.
Discussion
Our findings highlight the transformative impact of the Ukraine war on the European defence industry, particularly in ammunition and grenades manufacturing. The conflict triggered a paradigm shift in Western threat perceptions, leading to increased defence spending, expanded war stock requirements, and heightened urgency to support Ukraine. This surge in demand exposed significant bottlenecks in supply chains and manufacturing capacities, prompting nations and institutions to implement targeted initiatives to address these challenges.
The findings at each level of analysis relate to industry structure, institutional responses, the goals and incentives of firms, and inter-institutional and corporate relationships.
In terms of industry structure, firstly, the global demand for ammunition and grenades surged due to the need to replenish donated war stock, expand national stockpiles, and sustain support for Ukraine. However, existing lean, just-in-time supply chains have proven inadequate for managing the sudden spike in demand, exacerbated by shortage of skilled labour and critical shortages in raw materials and components.
Secondly, the findings relating to institutional responses concern EU-led initiatives like the ASAP and the European Defence Industrial Strategy; these aim to bolster production capacity, address supply chain vulnerabilities, and enhance EU strategic autonomy. NATO’s parallel efforts to harmonize specifications seek to improve interoperability and achieve economies of scale in ammunition production. Despite these measures, challenges persist in achieving the necessary scale of production and long-term goals of national, EU, and NATO stakeholders.
Findings relating to the goals and incentives of businesses concern the constraints faced by defence firms face constraints arising from profitability requirements, regulatory frameworks, and limited access to investment capital. These firms often prioritize large international clients, maintain minimal inventories, and hesitate to invest in capacity expansion without guaranteed long-term contracts. Skilled labour shortages, bottlenecks in supply chains and lengthy qualification processes for new suppliers further impede rapid scaling of production.
As for inter-institutional and corporate relationships, finally, the war has shifted dynamics from transactional, short-term buyer-seller relationships toward more trust-based, long-term partnerships. Nations are increasingly coordinating with domestic suppliers, while EU-led initiatives seek supranational synchronization to strengthen the EDTIB. However, unresolved issues remain related to ownership, transparency, and alignment between NATO and the EU.
While initiatives like ASAP and the EDIS have mobilized significant investments, achieving long-term production goals will require addressing systemic bottlenecks, enhancing supply chain resilience, and fostering cross-national and institutional collaboration. The evolving buyer-seller dynamics, coupled with a clear emphasis on strategic autonomy, indicate a profound restructuring of the European defence industry. Sustained efforts will be essential to bridge capacity gaps, harmonize institutional objectives, and ensure effective coordination between national, EU, and NATO-led initiatives.
Incentives from states and firms can help balance the demand for ammunition by leveraging strategic investments, policy-driven initiatives, and long-term commitments. State-led programs like the EU’s ASAP provide financial support and coordination mechanisms to expand production capacity, alleviate supply chain bottlenecks, and ensure adequate stock replenishment. Governments are also fostering partnerships with domestic and international firms to encourage investments in infrastructure and critical raw materials.
Firms respond to these incentives by increasing production efficiency, exploring vertical integration for key components (ignition caps, for example), and adapting production processes to meet both immediate and long-term needs. However, firms remain cautious due to the pressures of profitability and regulatory constraints, and the absence of guaranteed demand continuity, together underscoring the importance of secure, long-term contracts.
Regarding the second research question, incentives can be argued to be driving a transition in the industry from a transactional, short-term model to one characterized by collaborative, long-term relationships. States and firms are increasingly engaging in trust-based partnerships that emphasize strategic alignment rather than competitive bidding. This transformation is restructuring relationships among key actors, fostering deeper collaboration between procurement authorities, manufacturers, and suppliers.
At the institutional level, EU-led efforts such as ASAP and EDIS aim to harmonize standards, synchronize procurement strategies, and strengthen the European Defence Technological and Industrial Base. NATO complements these efforts by focusing on interoperability and military capabilities. However, tensions between national priorities, EU supranational ambitions, and NATO objectives complicate efforts towards cohesion and coordination.
The industry structure is also evolving, with firms diversifying supply chains, integrating production processes, and prioritizing domestic and regional collaborations. Despite these advancements, challenges such as supply chain bottlenecks, skilled labour shortages, and geopolitical dependencies continue to shape the trajectory of the defence industry.
Influence of incentives on industry structure and actor relationships
The current defence landscape may be characterized by several shifts. In phase T0, these include the evolution toward NPM principles and peace-time optimization of defence materiel supply and demand; cross-border sourcing and supply chain management within Europe are similarly significant here. In phase T1, meanwhile, these include simultaneous surges in national defence budgets and the interconnected roles of firms, states, and supranational bodies; similarly, the establishment of an extensive donation supply chain to Ukraine also plays a role. These transformations underscore a collective shortfall in dynamic capabilities, revealing that the EU, NATO, and individual nations were unprepared for a rapid increase in demand in response to a major European conflict.
National initiatives and investments have catalysed efforts to expand ammunition and grenade production capacity, enhancing domestic production resilience. Supported by substantial state funding, projects like ASAP have driven investments across the EU to strengthen production infrastructure. However, supply has not yet met demand, indicating that these efforts are still in the implementation phase.
The EU’s ASAP initiative and the Nordic agreements Annex 2018 and Arrangement 2022 enable states to circumvent traditional public procurement laws, allowing for direct procurements and increased subsidies to bolster production capacity. In Sweden, this flexibility is complemented by expanding the categories of defence products classified as “essential security interests” and raising the public disclosure thresholds for defence procurement.
Sweden faces a unique challenge in implementing this procurement approach for ammunition, as the primary Nordic ammunition manufacturer Nammo, with facilities in Finland, Sweden, and Norway, is owned by the governments of Norway and Finland. This ownership structure introduces complexities in state governance, regional coordination and procurement decisions.
Conclusion
Since 2022, both national and EU agendas have emphasized reforms in production capacity and resilience, signalling a shift away from New Public Management (NPM) principles in defence. Although there is no explicit reference to “dynamic capabilities”, reforms appear to resonate with its principles. Building resilient defence supply chains relies on trust, fostering strategic collaboration among suppliers, buyers, and users.
This study highlights the strong commitment of both the EU and Sweden to enhance ammunition and grenade production. By integrating EU-wide initiatives with empirical data from Sweden, the analysis underscores the challenges Swedish authorities face in influencing private defence firms during peacetime. Unlike most EU countries, which partially or fully own domestic defence firms, Sweden operates within a commercial governance framework, leaving private firms to decide their involvement based on profitability, investment risks, and resource availability. In contrast, state ownership in other EU nations provides governments with stronger mandates to direct defence actions.
Figure 3 illustrates the shift from T1 to T2 governance, reflecting growing priorities for expanding production capacity. Lacking direct control over private firms, Swedish authorities have pursued long-term partnerships as a strategic alternative. Effective governance requires insights from public management and international relations to coordinate policies, resources, and decisions across diverse sectors. This study deepens understanding of cross-national responses to crises such as the Ukraine war.
The findings underscore the urgent need for robustness, resilience, and flexibility in European defence supply chains to meet escalating security challenges. Governments are re-establishing trust-based partnerships with defence firms, partially reviving pre-NPM defence-industry relations to navigate rapidly evolving security demands.
A key contribution of this research is its exploration of interactions among state actors, supranational bodies, and defence firms, offering insights into managing defence challenges. Incorporating and considering NPM literature, supply chain theory, and dynamic capabilities frameworks, the study provides a comprehensive explanation of how defence supply chains adapt to crises and emphasizes the increasing role of state involvement in governance.
The emerging principles of of T2 governance, as set out in this paper, indicate a shift in the defence market following the advent of the Ukraine war. While specifics remain uncertain, the conflict is expected to strengthen governance ties, enhance the resilience of the EDTIB, and prompt a move away from pre-Ukraine NPM practices.
Further research
To deepen the understanding of the Ukraine conflict’s impact and the resulting turbulence in the defence sector, future research should investigate the evolving strategies and adaptations of defence firms and the broader industry. A key area of interest lies in the shift from transactional relationships among buyers, end-users, and suppliers to more trust-based, strategic, and long-term partnerships. This transformation is likely to differ across countries, influenced by national defence strategies and varying degrees of state control over domestic defence firms.
Another critical research avenue is the implementation of the EDIS and its implications for the defence sector. Exploring how EDIS is operationalized will provide valuable insights into its role in shaping the strategic direction and integration of Europe’s defence-industrial base.
Notes
[1] The actors in the research project “Increased defence capabilities will increase the competitiveness of the industry” (FOKUS) are four OEM defence firms in Sweden, FMV and the Swedish Armed Forces. The project is led by the Swedish Defence University in Stockholm.
[3] Annex 2018.
[4] Arrangement 2022.
Funding Information
This study is part of a larger research project titled “Increased defence capabilities will increase the competitiveness of the industry”. The financial support of Knowledge Foundation (KK-stiftelsen) has made this research possible.
Competing Interests
The authors have no competing interests to declare.