Defense industry and dual-use logistics – A new job engine for defense? Is the arms industry now saving the German economy?

What has changed in Germany that has led previously purely civilian medium-sized companies to enter the arms business?

While German defense spending has declined steadily for decades since the end of the Cold War, the Russian war of aggression against Ukraine in 2022 triggered a strategic reversal. As part of the "Zeitenwende" (change of times), the German government approved massive rearmament programs and allocated a special fund of €100 billion for the Bundeswehr (German Armed Forces). Furthermore, the debt brake on defense spending was relaxed and NATO's defense policy targets were tightened, so that in the future up to five percent of gross domestic product will be spent on external security and defense. In this environment, enormous investment volumes are attracting even those medium-sized companies that previously had no contact with weapons production. Traditional companies such as automotive suppliers, mechanical engineering companies, and electronics specialists are suddenly faced with the question of whether and how they can enter the defense sector.

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What opportunities does entering the defense business offer for medium-sized companies, and what challenges does it entail?

The opportunities lie primarily in stable, often long-term contracts, as demand for military equipment and technology is increasing significantly. Typical defense companies are reporting an order backlog that has multiplied since 2022. Suppliers and technology-driven SMEs are also benefiting: Those that can supply specialized parts for tanks, drone defense, or cyberwar technology, for example, can expect attractive growth opportunities. Exports for NATO members and EU countries are beckoning, which could lead to international expansion. The German government is committed to networking the defense industry and SMEs to strengthen national defense and the resilience of supply chains.

However, the barriers to entry are considerable. The arms market is highly regulated and requires the development of specialized legal, technical, and process-related expertise. Companies must navigate complex procurement procedures, public pricing law, and strict export control regulations. Furthermore, ethical and moral issues preoccupy many decision-makers within companies and in public discourse. A transition to military-relevant production can require significant investments, for example, for new machinery, certifications, or infrastructure.

Competition is increasingly seeking top performers in shrinking industries: Defense companies such as Rheinmetall, KNDS, and Hensoldt are deliberately poaching employees from the automotive industry. At the same time, arms exports are subject to strict licensing requirements – failure to comply with compliance requirements can lead to drastic penalties and social ostracism. Market entrants are faced with the dilemma of sensing sales and growth opportunities on the one hand, while also having to navigate historically entrenched and emotionally charged taboos surrounding weapons production.

How do German medium-sized companies address the moral and ethical dilemma surrounding the arms trade?

Many medium-sized companies are wrestling with whether they can reconcile their established values ​​with entering the defense business. The question of the legitimacy of "making money with weapons" is widely discussed – both in corporate circles and among the general public, as controversies surrounding the sponsorship of tank builders in professional sports demonstrate. Proponents argue that contributing to Germany's defense capability and security is a value in itself, while critics warn of the growing danger of societal militarization and ethical abysses.

The fundamental political decision in Germany is designed so that arms exports and military equipment are subject to strict licensing procedures and case-by-case political reviews. The goal is to prevent abuse and human rights violations and to comply with international obligations. Nevertheless, the moral ambivalence remains for many companies. Some medium-sized companies manage to strike a balance through ethics committees, compliance measures, and open communication of their motives. The image of the arms sector has changed noticeably since the Ukraine war – both on the labor market and in terms of public acceptance. For example, investments in arms companies are now considered justifiable by a majority of Germans.

Structural change and job engine: How is rearmament changing the German industrial landscape?

Since the beginning of the "turning point," the German defense industry has experienced an unprecedented boom: The number of employees has risen significantly, and the sector's attractiveness as an employer has increased. Large corporations employ tens of thousands of people and award billions in contracts to medium-sized companies and suppliers. At the same time, many other sectors, such as metalworking, logistics, and high-tech, are benefiting from the boom in the defense industry. Experts estimate that increasing defense spending from two to three percent of gross domestic product alone could create up to 200,000 additional jobs in Germany.

However, the growth effects are limited and will likely not fully offset job losses in other sectors. The German Association of the Automotive Industry (VDA) is also skeptical: The potential new jobs will "under no circumstances be able to replace the jobs threatened by the transformation and the lack of competitiveness of the location." Furthermore, defense equipment is only produced in small batches, which requires a completely different production logic than in traditional industry.

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Regulatory hurdles: What do companies need to consider when entering the defense sector?

German and European legislation stipulates a multitude of regulations for the manufacture, trade, and export of military equipment and dual-use products. The War Weapons Control Act and the Foreign Trade and Payments Act regulate the necessary licenses and prohibit exports if there is a risk of misuse. The EU Dual-Use Regulation defines a detailed list of goods and technologies subject to licensing, as well as their transfer – from lasers to specialized software. When exporting any goods, companies must ensure that they are on the relevant list and that they have a license from the Federal Office for Economic Affairs and Export Control (BAFA).

Production and delivery to the German Armed Forces are subject to public pricing law, as well as specific requirements regarding product safety, documented due diligence, and confidentiality. Violations of export regulations are vigorously prosecuted and subject to severe penalties. The processing of approval applications is complex and often takes a long time, which can lead to planning uncertainty for market entrants.

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Dual-use: What does the term mean and what role does dual-use logistics play in defense strategy?

At both the European and national levels, dual-use refers to technologies, materials, and products that can be used for both civilian and military purposes. While export controls are the focus of traditional dual-use regulations, dual-use logistics in the modern context refers to the deliberate integration of civil-military infrastructure and processes—such as the rail network, bridges, tunnels, or digital logistics platforms.

Well-thought-out dual-use logistics serves two objectives: On the one hand, it ensures the rapid and flexible deployment of military units or materials in the event of a defense emergency, and on the other, it ensures the security of supply for the civilian population in crisis situations, such as major disasters, pandemics, or cyberattacks. The system enables a more resilient infrastructure that not only meets the needs of the Bundeswehr and NATO but also brings economic and ecological benefits to the civilian logistics industry and supply chains.

An effective dual-use system requires forward-looking planning, joint financing, shared use, and clear prioritization mechanisms. Technical standards and governance structures must be created that cater to both user groups. This strategy is gaining importance, especially in times of geopolitical uncertainty and increasing need for crisis preparedness.

Advantages of dual-use logistics for defense logistics and security of supply for the population

A dual-use system improves the economic efficiency and utilization of infrastructure by allowing investments for defense and the civilian sector to be combined. The flexibility of use increases resilience against disruptions, natural disasters, and targeted attacks. The technical upgrading of bridges and terminals to military load classes also brings capacity and efficiency gains for civilian freight transport. Modern dual-use terminals rely on digitalization and automation to serve both user groups.

In the event of a crisis, dual-use logistics allows for rapid reassignment and prioritization in favor of military or civilian needs, for example, in the event of a widespread power or food shortage. During regular operations, civilian users benefit from the availability of robust systems and high technical standards, while in a defense situation, it enables the rapid deployment of heavy units or the restoration of key supply lines.

However, the integration of dual-use must be carefully monitored with governance mechanisms—and in crisis situations, it must be clearly regulated which users receive preferential access. Creating mixed financing models with defense, transport, and private funds is a political and operational challenge.

Ethics and Governance: How do governments and society address the legal and moral challenges in the arms industry?

Ethical issues are at the heart of decision-making and public debate in every arms production and export. According to the Basic Law and subordinate federal laws, arms exports and dual-use goods may only be carried out with express authorization in accordance with national and international obligations. The Federal Government examines each request on a case-by-case basis, taking into account criteria such as the human rights situation in the recipient country and the risk of use in acts that disrupt peace.

In addition, the "end-use control system" is a globally recognized security measure that ensures that weapons and critical technology remain with the designated recipient and are not resold. Companies are encouraged to maintain internal ethics committees that set ethical standards and implement ongoing compliance measures.

However, responsibility for the moral assessment of arms production or export is often shifted back and forth between companies and the state—and thus often remains opaque. Recent developments indicate a shift in thinking, for example, in investment funds that aim to invest sustainably and no longer categorically exclude the defense industry.

Crisis preparedness and security of supply: How can dual-use logistics protect the population in times of disasters and crises?

In the context of societal resilience, dual-use logistics is a key mechanism for ensuring the security of supply for the population in times of crisis. Civil protection and disaster management organizations in Germany are structurally closely linked to logistics networks, the Bundeswehr, and private aid organizations. Dual-use infrastructures enable the rapid provision of food, medicine, or energy, even in remote or hard-to-reach areas, if needed.

The integration of systems such as high-bay container warehouses, digitized port and rail networks, or automated transshipment terminals makes critical infrastructure more resilient to natural disasters, technical failures, and deliberate acts of sabotage. In the event of a disaster, resources and transport capacities can be flexibly diverted from civilian to military or vice versa.

Coordinated civil protection requires that the federal, state, and local governments have plans in place for the use and prioritization of dual-use infrastructure in crisis situations, allowing for rapid reconfiguration of logistics and supply routes. Cooperation among all stakeholders is essential for this—from fire departments and rescue services to the German Armed Forces and private logistics service providers.

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What are the key challenges and prospects for medium-sized enterprises, armaments, and dual-use logistics?

For companies, entering the defense business remains a strategic yet complex decision that impacts not only economic success but also ethical and social responsibility. Opportunities for growth, innovation, and job security are linked to regulatory and moral challenges, significant investment requirements, and the need for a robust compliance architecture.

Dual-use logistics represents a forward-looking alternative approach to strengthening the resilience of the economy and the population in crisis situations. However, it requires a new way of thinking, close civil-military cooperation, and clear governance structures. Investments in infrastructure that leverage synergies between defense and civilian supply contribute to national resilience and security of supply.

Ultimately, the "turning point" is not just a slogan for rearmament, but a symbol of the comprehensive transformation of social, economic, and technological paradigms in Germany and Europe. SMEs are finding themselves at a new crossroads between the market, ethics, and social responsibility.

Markus Becker

I would be happy to serve as your personal advisor.

Head of Business Development

Chairman SME Connect Defense Working Group

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Konrad Wolfenstein

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contact me under Wolfenstein ∂ Xpert.digital

call me under +49 89 674 804 (Munich)

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