Transatlantic Defence Industry Integration - Discourse and Action PDF

Transatlantic Defence Industry Integration – Discourse and action in the organizational field of the defence market 2 TRANSATLANTIC DEFENCE INDUSTRY INTEGRATION DISCOURSE AND ACTION IN THE ORGANIZATIONAL FIELD OF THE DEFENCE MARKET Martin Lundmark Dissertation for the Degree of Doctor of Philosophy, Ph.D. in Business Administration Stockholm School of Economics 2011 3 Keywords: defence industry defence market organizational field discourse integration institutional logic driving forces inhibitors military-industrial complex transatlantic technology transfer Transatlantic defence industry integration – discourse and action in the organizational field of the de- fence market © SSE and the author, 2011 ISBN 978-91-7258-857-8 Graphic design by: Intellecta Infolog Front cover artwork: “Geometriskt samlag” by Otto G. Carlsund (1930), with kind permission of Eskilstuna konstmuseum. Printed in Sweden by: Intellecta Infolog, Göteborg 2011 Distributed by: The SSE Research Secretariat Stockholm School of Economics Box 6501, SE-113 83 Stockholm, Sweden www.hhs.se 4 5 6 Preface This doctoral thesis was written at the Center for Marketing, Distribution and Industry Dynamics at the Stockholm School of Economics (SSE). The research project has been conducted in combination with the author‟s position as defence industry analyst and dep- uty research director at the Swedish Defence Research Agency, FOI. This volume is submitted as a doctoral thesis at SSE. SSE is grateful for the financial sup- port provided by the Tekn. dr Marcus Wallenbergs Stiftelse för utbildning i internationellt industriellt företagande, which made possible a longer stay at MIT, Boston. The author has been entirely free to conduct and present his research in his own ways as an ex- pression of his own ideas. Filip Wijkström Björn Axelsson Associate Professor Professor SSE Director of Research Director at the Center for Marketing, Distribution and Industry Dynamics of the Stockholm School of Economics 7 8 To Lisa, Erik, Betty and Nora 9 10 Acknowledgements The decision to write a thesis is a tremendous challenge. It has taken me a long time, but now this endeavour is over. A thesis is only thin air until it is finalized, but now you hold the result in your hand. It is clear that the work would not have been possible to finish without the help and support of many individuals and organizations. I would especially like to thank the following. Most of all I want to thank my supervisor Professor Björn Axelsson for coaching me towards fi- nalizing a coherent thesis. He has elegantly steered my tsunamis of empirical data into a balanced and hopefully interesting product. Thank you, Björn! On the same level of gratitude, I want to thank my co-supervisor Anna Nyberg for her relentless support, suggestions and unbreakable optimism. Thank you, Anna! Since I have spent some time with this thesis, I have also had a few other persons as supervisors at the Stockholm School of Economics (SSE) in some form – I also want to thank Dimitrios Io- annidis, Susanne Hertz and Staffan Hultén at SSE for their efforts. Professor Ulrika Mörth from Stockholm University, also in the supervising committee, has enforced rigour in positioning my work vis-à-vis related analysis in political science. I have learnt a lot from you during my time as a graduate student. Thank you all! Staffan Furusten at SSE/Score has been instrumental and very helpful in focusing my writing and in helping me to navigate in the topography of neo-institutional organization theory. Thank you, Kapten Kent! I also want to thank Professor Emeritus Lars-Gunnar Mattsson for believing in my research ideas and admitting me to the graduate program at SSE (Stockholm School of Economics) in the first place. There are also other persons at SSE who have been helpful in supporting my journey towards this thesis. Among them are all the colleagues and fellow doctoral students at the D Section. A special thank you goes to Kristoffer Strandqvist for our shared interest in the MICs of the world and our interesting discussions – when he wasn‟t lost in an archive somewhere. I also want to thank all the interested and demanding fellow doctoral students whom I met, co- operated with and discussed with in the doctoral courses at SSE, Chalmers, Jönköping, Uppsala and Järvenpää. Truly, the courses were all fun! I also want to thank all the teachers at these cours- es, who made their utmost effort to educate, inspire, intrigue and provoke us – but most of all, to force us to think critically and individually. Well done! In parallel with my doctoral studies I have worked as an analyst and project manager at FOI, the Swedish Defence Research Agency. It has been a challenging combination to push the thesis forward and attend doctoral courses at the same time as doing analysis and policy work for pri- marily the Swedish Ministry of Defence. There are many colleagues at FOI with extraordinary understanding, knowledge and experience in defence matters. FOI is also a fascinating workplace with its multi-disciplinary mix of scientists and analysts who always offer a challenging conversa- tion to accompany a cup of coffee. This has been a very rewarding environment. A person who especially stands out with his intellectual capacity and speed-of-mind is Dr. E. Anders Eriksson. Thank you, Anders – it‟s an honour and inspiration to work with you. Thank you all! At FOI I want most of all to thank my long-time colleague, collaborator, friend and accomplice in the FIND Programme: Mattias Axelson. Thank you for your consistently rewarding and de- manding interaction. I think we do a great job together. Jan Foghelin gave me the possibility to 11 enter the graduate program at SSE, and his successor Jan-Erik Rendahl continued to support my research. The next successor, Maria Lignell Jakobsson, now has the privilege of seeing me finalize the thesis. I also want to thank the many colleagues whom I have worked with in the FIND pro- gramme: Stefan Törnqvist, Viveca Bjurtoft, E. Anders Eriksson, Fredrik Lindgren, Erik Bjur- ström, Peter Wickberg, Henrik Carlsen and of course Mattias Axelson. Special thanks are also due to Marie-Louise Burle at the FOI library, who has consistently pro- vided me with papers and books – and with requests to return books. I also want to express my profound gratitude to FOI for making it possible for me to spend three months at MIT in Boston, USA and six months together with my family at FRS in Paris, France. These two expeditions were immensely rewarding, and proved to be instrumental for the under- standing of my research topic. At MIT, I spent three months in the Security Studies Program under the benevolent management of Professor Harvey Sapolsky as a visiting scholar. Harvey is a great guy. He was very helpful in guiding me and challenging my positions. Thank you very much, Harvey, I am honoured to know you. Cindy Williams and Barry Posen were more helpful than could be asked for. They let me stay at their house for a few days and lent me their car, but most of all they offered guidance in understanding the U.S. defence and military system, and also introduced me to excellent re- spondents. Thank you so much! I am also indebted to Owen Coté for his friendliness and guid- ance and for his love of Swedish fighters; Eugene Gholz and Bill Keller for their support and in- spiration; and all the other colleagues at SSP. Doing interviews abroad requires considerable planning and preparatory footwork. For my inter- views in Washington D.C., Richard Bitzinger and Sunjin Choi were of great help. Richard Bitz- inger has all through my time as a graduate student, as well as an analyst at FOI, been a tremen- dous source of inspiration and knowledge, and not least of providing contacts. He‟s also a good friend, and I hope we can write something together in the future. Yoopers, unite! In Paris, I want to thank La Fondation pour la Recherche Stratégique (FRS) for hosting me as chercheur associé for six months. Hélène Masson was of incredible help to me in providing contacts and guiding me through the French defence-related organizations and relations – and especially in helping me to formulate the very formal introductory letters to managers and high-ranking of- ficers. We shared the same nerdy fascination for the defence industry and became good friends. I‟m glad that we still collaborate. François Heisbourg and Yves Boyer for hosting me. Jean-Luc Marret for great friendship over the corridor. All the others at FRS. A tous – merci beaucoup! Some other people were also important for understanding the French MIC and for providing contacts. I would like to thank Jean Tisnés, Laurent Giovachini, Burkard Schmitt and of course the late Jean-Paul Hébert – un vrai gaulois. I want to thank the Swedish Ministry of Defence for being supportive to my research. Defence attachés at the Swedish embassies in Washington D.C., Paris and London have been very helpful in providing contacts. My profound thanks go to the 102 anonymous respondents in the U.S., France, UK and the Netherlands. Without your generous time and sharing of your knowledge and experience, my re- search approach could never have been pursued. You are the backbone of this book. Thank you so much! There is a group of scholars whom I had the privilege to meet, who inspired me and provided important sparks to my reasoning, roughly in the following sequence: Andrew James, Richard Bitzinger, Harvey Sapolsky, Cindy Williams, Barry Posen, Eugene Gholz, Gordon Adams, Alex Ashbourne, Jordi Molas-Gallart, Hélène Masson, Jean-Paul Hébert, Claude Serfati and Keith Hartley. Thank you for allowing me to rest on the shoulders of your excellence. 12 Thank you to Jon van Leuven for the expedient proofreading of this text; for the financial sup- port provided by the Tekn. dr Marcus Wallenbergs Stiftelse för utbildning i internationellt indus- triellt företagande which made possible a longer stay at MIT in Boston; and to Eskilstuna konstmuseum for the kind permission to use the front cover artwork by Otto G. Carlsund. I want to thank my parents Gertrud and Karl-Martin for their love and support through the years. It‟s a pity that my mother Gertrud cannot share this achievement with me, but I hope that my thesis makes my father proud. A thank you also to my father-in-law Stanley who took care of my son Erik when I attended my first doctoral course in Uppsala, before starting at SSE. That re- ally helped to get me started. Outside of work and research, there are other activities that inspire me. I want to thank my fellow runners in Fredrikshof and elsewhere; the lunatics in Måsen; the lunch discussions with Letizia; my hunting and fishing buddies; Benny for heavy metal, beer, horror and laughs; the football ad- dicts in Listan and finally the fish yet to catch – especially the graylings in Laisan. My children Erik, Betty and Nora: you are my best gifts ever. Seeing you develop and me devel- oping with you is my favorite journey. Finally and foremost, this thesis would never have been possible without the loving support, pa- tience and sacrifices through these years from my wife Lisa. Thank you for everything. I share this accomplishment with you. Helenelund, August 2011 13 14 Table of Content PREFACE................................................................................................... 7 ACKNOWLEDGEMENTS......................................................................... 11 PART I INTRODUCTION....................................................................... 19 CHAPTER 1 THE CHALLENGES OF THE TRANSATLANTIC DEFENCE INDUSTRY INTEGRATION 21 1.1 Starting point..............................................................................................................21 1.2 Previous analysis on the transatlantic integration of defence companies......27 1.3 Industrial integration in a politically influenced market – an important feature of this organizational field 29 1.4 Corporate cases studied..........................................................................................31 1.5 Central theoretical concepts..................................................................................33 1.6 Research question and purpose.............................................................................35 1.7 Disposition of the thesis.............................................................................................36 CHAPTER 2 THE DEFENCE MARKET AND THE DEFENCE INDUSTRY. 39 2.1 The nature of the defence market.........................................................................39 2.2 Government interest in a domestic defence industry.........................................44 2.3 Previous research on military production...............................................................47 2.4 The Military-Industrial Complex................................................................................48 2.5 The defence industry as a component of national security policy...................55 2.6 Government policies for regulating and influencing company integration....56 2.7 The focal companies – the primes..........................................................................61 2.8 Summary......................................................................................................................63 PART II. THEORETICAL AND METHODOLOGICAL FRAMEWORK..... 65 CHAPTER 3 THEORETICAL FRAMEWORK.......................................... 67 3.1 A different rationality.................................................................................................68 3.2 Corporate rationality in a specific market.............................................................71 3.3 The political market seen as an organizational field............................................73 3.4 Institutionalization in the organizational field........................................................77 3.5 Discourse and action................................................................................................81 3.6 Integration...................................................................................................................91 3.7 Driving forces and inhibitors.....................................................................................97 3.8 The Military-Industrial Complex – as a part of an organizational field.............100 3.9 Case Study model...................................................................................................101 3.10 How will this theory help to reach the purpose?................................................104 CHAPTER 4 METHODOLOGY........................................................... 107 4.1 Research approach and design...........................................................................107 15 4.2 Empirical data..........................................................................................................108 4.3 Interview design.......................................................................................................114 4.4 How will the methodology help to reach the purpose?...................................115 4.5 Understanding and explanation...........................................................................115 4.6 My professional role.................................................................................................116 4.7 Induction and deduction.......................................................................................117 4.8 Level of analysis........................................................................................................118 4.9 Generalizing from the study...................................................................................119 4.10 The empirical data sets in relation to the Case Study model...........................120 PART III TRANSATLANTIC DEFENCE INDUSTRY INTEGRATION.......... 123 CHAPTER 5 CREATION OF MILITARY-INDUSTRIAL COMPLEXES IN THE U.S., THE UK AND FRANCE 125 5.1 U.S. MIC......................................................................................................................125 5.2. UK MIC.......................................................................................................................132 5.3 French MIC................................................................................................................137 5.4 Conclusions...............................................................................................................147 CHAPTER 6 ACTION: TRANSATLANTIC, INTRA-EUROPEAN AND INTRA-U.S. DEFENCE INDUSTRY INTEGRATION 151 6.1 Overview of the Intra-European, Intra-U.S. and Transatlantic defence industry integration 152 6.2 Development of the defence primes...................................................................163 6.3 Forms of transatlantic defence industry integration..........................................170 6.4 Conclusions...............................................................................................................172 CHAPTER 7 DRIVING FORCES AND INHIBITORS FOR TRANSATLANTIC DEFENCE INDUSTRY INTEGRATION – DISCOURSE AS IDENTIFIED THROUGH TEXTS........... 177 7.1 Choice of sources....................................................................................................178 7.2 Driving forces............................................................................................................180 7.3 Inhibitors.....................................................................................................................188 7.4 Analysis of discourse identified in texts.................................................................197 CHAPTER 8 DRIVING FORCES AND INHIBITORS FOR TRANSATLANTIC DEFENCE INDUSTRY INTEGRATION – DISCOURSE AS IDENTIFIED THROUGH INTERVIEWS 203 8.1 USA.............................................................................................................................204 8.2 France........................................................................................................................209 8.3 United Kingdom.......................................................................................................212 8.4 Aggregate assessment of driving forces and inhibitors identified in interviews215 8.5 Analysis of the discourse for transatlantic defence industry integration........219 CHAPTER 9 CASE STUDIES OF TRANSATLANTIC DEFENCE INDUSTRY INTEGRATION 225 9.1 NATO Frigate Replacement for the 1990s – NFR-90............................................226 9.2 ThalesRaytheonSystems..........................................................................................240 9.3 Joint Strike Fighter....................................................................................................254 9.4 Cross-case analysis..................................................................................................266 PART IV RESULTS.............................................................................. 273 16 CHAPTER 10 UNDERSTANDING AND EXPLAINING TRANSATLANTIC DEFENCE INDUSTRY INTEGRATION 275 10.1 Outline.......................................................................................................................275 10.2 Integration.................................................................................................................276 10.3 Discourse...................................................................................................................284 10.4 Comparison between integration and discourse..............................................289 10.5 Organizational field.................................................................................................291 10.6 Case Study model...................................................................................................294 CHAPTER 11 FINDINGS ON THE TRANSATLANTIC DEFENCE INDUSTRY INTEGRATION 299 11.1 Improved understanding of the phenomenon..................................................299 11.2 Conclusions...............................................................................................................309 11.3 Results compared to previous analyses...............................................................313 11.4 Evaluation of the research design........................................................................314 CHAPTER 12 CONTRIBUTIONS........................................................ 317 12.1 Results in relation to research question and purpose........................................317 12.2 Empirical contributions............................................................................................317 12.3 Contributions to theory...........................................................................................319 12.4 Contributions to methodology..............................................................................320 12.5 Limitations..................................................................................................................320 12.6 Alternative approaches?.......................................................................................321 12.7 Normative implications...........................................................................................322 12.8 Suggestions for future research.............................................................................325 CHAPTER 13 POSTSCRIPT: THE FUTURE OF THE TRANSATLANTIC DEFENCE INDUSTRY INTEGRATION 327 APPENDIX 1 INTERVIEW QUESTIONS.............................................. 335 APPENDIX 2 LIST OF RESPONDENTS................................................ 337 REFERENCES......................................................................................... 343 17 18 PART I Introduction Part I introduces the empirical observation that triggered this thesis, and sets the thesis‟ problem into the context of the defence market and the defence industry. Before more specifically discussing the theoretical framework, it is seen as important to establish a few starting points. Chapter 1 will first broadly discuss the development of the transatlantic defence industry integration during the last 100 years and the empirical observation that triggered this the- sis. After this, there is an account of how the transatlantic defence industry integration has been analyzed previously. The next section discusses how a market that is deeply political- ly influenced likely will influence the nature of the industrial integration, and the view of the defence market as an organizational field will be adopted. This is followed by a presentation of the corporate cases that are studied in the thesis. Thereafter, a definition of the central theoretical concepts of the thesis. After this, the research question and pur- pose of the thesis are defined. Finally, the thesis‟ disposition is presented. Chapter 2 discusses the specific nature of the defence industry, and how and why govern- ments tend to have a strong interest in the domestic defence industry. After this, previous research on military production is presented. This is followed by a discussion on the de- velopment of the concept of the so-called Military-industrial complex (MIC) and a brief discussion on how a defence industry is regarded to be a component of national security policy. This leads us into governments‟ policies for regulating and influencing the de- fence-industrial integration. Before moving to Part II of the thesis, finally the perspective of the thesis as presented in Part I is summarized. 19 20 Chapter 1 The challenges of the transatlantic defence industry integration “If the U.S. becomes dependent on other countries it adds uncertainties. Uncertainties must be avoided at all costs.” U.S. Senate interview, 2001 “International defence industry cooperation requires political will and military programs.” Interview at GI- CAT, French defence industry interest organization, 2003 “The U.S. is very defence-minded; there is a fundamental difference. The U.S. is at war, Europe is not at war.” Interview at UK Foreign and Commonwealth Office, 2002 “The U.S. is very good at not understanding Europe.” Interview at Pentagon, 2004 “The biggest concern of the transatlantic defence industry collaboration is to take care of the soldiers. The industrial view is another thing.” Interview at Raytheon, Washington D.C., 2001 “In order to be present in the US, Thales has to buy SMEs that have not yet received a U.S. defence R&D or- der. So they have to buy three, and maybe one is successful.” Interview at Thales, Paris, 2009 1.1 Starting point The initial empirical observation that triggered this thesis was that, on the one hand, there is a continuous debate of why transatlantic defence industry integration should be in- creased. On the other hand, there was a common understanding that companies integrat- ed to a much lower extent than what the debate expressed. The quotes above illustrate some of the potential tensions and obstacles in operation here. Analysts (e.g. Scherpen- berg, 1997; Ashbourne, 2000; Adams, 2001; James, 2001:a, 2006; Cornu, 2001; Gholz, 2002) observed a clear discrepancy between a discourse, discussing increased transatlantic defence industry integration, and an industrial action which was much more limited. The discourse reveals a multitude of incentives and arguments from governments and compa- nies, arguments for and against transatlantic defence industry integration. The question was what kind of integration did occur, and what factors could explain the suggested dis- crepancy between discourse and action. 21 Initial studies of published material did not explicitly distinguish between political and corporate arguments, and most of the identified analyses focused on aspects derived from other scientific domains: political science, government policy or macroeconomics – but not from corporate strategy. Previous analyses, in my view, were largely related to a more general discourse about the functioning of a yet-to-be-seen transatlantic defence market – a discourse that seemed not to match the nature of the actual integration.1 These observa- tions and analyses have intrigued me and inspired me to address the issue differently. This thesis suggests a way to reach an understanding of and explanation for this process from a different angle. A brief description of my approach follows below. The defence industry in Europe and in the U.S. Until the early 20th century many larger nations saw war as a more or less natural act in order to further the nation‟s powers and territory or as the means to defend itself when other nations wanted to further their powers. After WWI and WWII (World Wars I and II) and the global devastation that followed, military force became more centred on terri- torial defence, power projection2 or intervention – rather than on expansion. States generally regard indigenous production of arms and war materiel as an asset that strengthens a nation‟s military and security posture. Defence production was until WWII largely a national affair where each nation‟s military defined its own needs, and domestic industrial facilities were assigned to produce it. Larger nations overall had a production that satisfied their own defence needs. Defence companies (except the aircraft producers) were for the most part based on centuries of defence production and were seen as expres- sions of the nation‟s proud military heritage. The defence production was often deeply in- stitutionalized into the national traditions of defence production for the national military. Each nation had its own path-dependent organization of defence production in private, semi-private, state or military production facilities, or some other indigenous variant of arsenals and armouries. Aircraft production originated during WWI and has – as will be seen – had a different impact on and role in the defence-industrial development than the traditional army and navy production. During WWII the U.S. and UK started to cooperate in order to counter Germany and the other enemies, and the U.S. at the end supplied large amounts of arms, ships, tanks, planes etc. to many of its European allies. Defence production had during the war be- come an integrated part of the entire society, fully engaging the research community and scientists: the R&D, production, bureaucracy and planning had thereby become highly sophisticated (Giovachini, 2000; Schmitt, 2000, 2001:a; Hébert, 2003). The Cold War that came out of WWII created two opposing, enormously powerful military blocs (NATO and the Warsaw Pact) that set the political agenda for the rest of the world. Since the end of World War II, the defence industries in the U.S. and in Europe have de- veloped both jointly and separately. During the Cold War, the U.S. massively supported 1 In Chapter 2 there will be an account of this previous research where we will pinpoint critical points of departure. 2 „Power projection‟ concerns when a nation sends troops, military aircraft or most typically large naval ships to a troubled region far away from its own territory and through this appearance shows its military capability and thereby tries to influence the situa- tion in a preferred direction, or simply to prevent war. This is also called „gunboat diplomacy‟. 22 the growth of a European defence industry in the main European allies‟ national defence industries in the 1950s and 1960s in order to add greater impetus in counteracting the So- viet Union and the Warsaw Pact, in what was to become NATO. Germany had now in NATO joined its previous enemies. Gradually, the European nations that received the U.S. aid developed national defence industries that started to stand on their own – built on the facilities and the domestic knowledge that were left from the pre-war period and the following war. The U.S. gave financial aid, sold defence materiel at low cost and shared military technology in order to support growth of domestic defence technology capacities in NATO member states. The re-created defence industries in especially the UK, France, Germany and Italy gradually became competitors or at least alternatives to the U.S. companies that had participated in the build-up (Giovachini, 2000; Schmitt, 2000, 2001; Hébert, 2003; Geiger, 2003). In the 1960s, the initial decision to create a European military identity triggered processes that led to the creation of European, non-NATO military capacities within the European Community as well as industrial competitors to the U.S. companies. European armaments cooperation in the 1960s gradually, but slowly, strengthened in the decades to follow and has developed into a number of autonomous companies involved in defence production. These companies include Airbus, EADS and MBDA. The U.S. has consistently had a much higher level of defence expenditure and has mainly developed its defence material under its own auspices, relying on domestic industrial capacity. Alongside this develop- ment there has been a constant line of arguments advocating the expansion and intensifi- cation of industrial integration between the U.S. and Europe (enforced by joint military armaments development), i.e. more transatlantic defence industry integration (Schmitt, 2000, 2001; Hébert, 2003; Bialos et al., 2009). The traditional reflex of each nation-state autonomously securing its own defence needs however became less self-evident. NATO members saw a need to be able to operate to- gether militarily (to be „interoperable‟), which put demands on standardization, communi- cation and coordination. The increasingly sophisticated defence products had also be- come highly expensive to develop, which created incentives for cooperation between na- tions in order to share development costs and thereby lower the unit cost.3 Paired with this, a need for a more autonomous European defence capacity was starting to be formu- lated. In the process, the unfamiliar situation arose that defence companies, militaries, the political and bureaucratic establishments had to negotiate between nations on how they should collaborate in defence production – and all parties had to be included in the nego- tiation. The development of defence products also showed increasingly long time periods, which demanded that nations‟ defence communities had to maintain such difficult coop- eration for five, ten, maybe twenty years. This demand for border-crossing cooperation in defence production saw its light during the 1950s (ibid.). 3„Collaboration‟ is the most common word for such government-initiated border-crossing shared work. For rigor in the thesis we will use „cooperation‟ as the concept that covers both collaboration and cooperation. When necessary we will specify whether the cooperation is more strictly company-company-initiated, or government-government or military-military. 23 The initial attempts at such cooperation could be based on several combinations of ac- tors. The U.S. and the UK seamlessly continued their cooperation after WWII, enhancing what Churchill called the „special relationship‟ between the two. Different combinations of France, the UK, Germany and Italy started cooperation, mostly bilaterally, in especially aircraft and missiles. France was most active, preferably with Germany. The U.S. domi- nant position became permanent and more pronounced in NATO, and the U.S. was by far the most powerful and resourceful defence producer in the Western community. There was also a small extent of other transatlantic defence industry cooperation outside of NATO between the U.S. and Europe or with single European nations. The U.S., NATO Europe and some other European nations (especially Sweden), however, still strongly prioritized and structured their domestic defence production based on each na- tion-state‟s self-defined needs and specifications. The preferred alternative was always domestic production. There was thus a permanent incentive to cooperate, paired with strong national incentives for nationally defined defence needs and solutions. A domestic capacity for defence production was – and has always been – seen as a strong emblematic symbol of national strength and prestige (ibid.). Alongside transatlantic defence industry integration there has also been a process of Eu- ropean defence industry integration, as well as intra-U.S. defence industry integration. Within the EU this process has been fuelled by the political process of creating a closer and more harmonized European defence identity. This is a part of a wider „Europeaniza- tion‟ process primarily driven inside and by the EU. The process was initially intergov- ernmental and not supranational, but the supranational, federal EU element is slowly in- creasing. This creates a convergence of defence-industrial policies in Europe, as the member states adjust their national policies in relation to supranational EU accords (Sandström, 1997; Mörth, 2003, Britz, 2004, 2010; Schmitt, 2005; Fligstein, 2008; Hartley, 2008; Bekkers et al., 2009)4. With this policy integration process follows – as in other in- dustries – a consolidation and restructuring process. The research for this thesis started in 2000. The initial empirical observation that triggered the thesis was that, on the one hand, there was a continuous argumentation for why there should be increased transatlantic defence industry integration. The argumentation in- volved representatives from firms, politicians, government experts, and different military branches as well as think-tanks. A wide spectrum of incentives for transatlantic defence industry integration was identified in the argumentation. On the other hand, it appeared that companies integrated in a less extensive and different way than what the argumenta- tion expressed. Analysts (Scherpenberg, 1997; Ashbourne, 2000; Adams, 2001; James, 2001:a; Cornu, 2001) pointed to what will be referred to here as a discourse discussing in- creased transatlantic defence industry integration, and a corporate integration (an action) which seemed to emerge quite differently. A discourse is a type of conversation, a public conversation which can be seen as the sum of all specific conversations about a certain 4 It should be noted that in the process of strengthening the European defence identity we must make a few distinctions. First of all, 'European' in this sense normally refers to processes within the EU member states. Secondly, 'integration', when used in anal- yses made by political scientists, normally refers to the integration of state policies, i.e. some form of harmonization (see e.g. Britz, 2004). In this thesis, 'integration' refers to the integration of corporate entities, as described and defined in the text. 24 phenomenon (Foucault, 1971/1993; McCloskey, 1986; Furusten, 2007). In this case the phenomenon in question was an intensification of transatlantic defence industry integra- tion. A discourse about a certain phenomenon reflects the specific environment in which the discourse takes place. The view of the defence market as an „organizational field‟ will be used in order to specifically understand the discourse. A company‟s closest and most formative environment can be described as an organizational field. Organizations, as a whole, constitute a recognized area of institutional life: key suppliers, resource and prod- uct consumers, regulatory agencies and organizations that produce similar output (Di- Maggio & Powell, 1991; Fligstein, 1991). The discourse for a certain industrial change in a specific organizational field will be shaped by the conditions that characterize the organi- zational field. The conditions for cross-border corporate integration will follow generic rationales over different markets, but each market is only one part of the organizational field. There will be market-specific conditions for the integration. A political influence which is another aspect of the organizational field can also be expected to occur. The or- ganizational field will be described in the thesis as consisting of a corporate and a gov- ernment field. The interface between the corporate field and the government field is viewed as the central node of interaction between corporate and political incentives and priorities. The interaction between actors in the organizational field can be expected to reveal conflicting „institutional logics‟ (Friedland & Alford, 1991; Thornton & Ocasio, 1999) that compete for dominance. An analysis of this interface in the organizational field is, in my view, central for understanding how the field determines the discourse and shapes the integration. The questions that intrigued me were what kind of integration really did occur and what factors could explain the nature of this integration. Previous analyses of transatlantic de- fence industry integration (described under 1.2) were not performed within the domain of business administration theory. They did not, in my mind, offer the kind of explanation that may follow from an analysis closer to the actors. My overall impression was that pre- dominant business administration theories, most often based on assumptions of decision- making rationality, did not offer appropriate tools for analyzing the phenomenon. There- fore, I chose to create my own model, synthesizing a broader range of theories, from sev- eral domains in business administration theory – especially theories from neo-institutional organizational analysis and on the nature of integration. In parallel with this, I searched for a more thorough description than what was found through secondary sources. I there- fore interviewed more than 100 people in the U.S., France, the UK and the Netherlands with insight into the transatlantic defence industry integration. The thesis concerns transatlantic corporate integration in the defence industry. From a ra- tional business administration point of view, the defence industry structure suggests that there is considerable potential for greater efficiency through increased cross-border inte- gration and the creation of international supply chains that would create economies of scale, shared R&D costs, synergies, widened markets etc. The research examines why on the one hand the discourse related to this market suggests deeper industrial integration, and yet on the other hand the outcome of industrial integration appears to be quite differ- ent. To define and compare costs for the development of defence products is difficult. Several resembling definitions exist. In the U.S. the predominant concept in the government is 25 „RDT&E‟ (Research, development, testing & engineering). Basic defence research may al- so in the U.S. fall under „S&T‟ (Science & technology) programs. Nuclear research falls under the Department of Energy, not the Department of Defense (Bialos, 2009). In the publications from EDA (European Defence Agency, a European Union authority), EDA uses „R&D‟, „R&T‟ (Research & technology), „R&D (including R&T)‟ and „Investment (equipment procurement and R&D)‟ for comparing nations‟ defence expenditures (De- fence Data, 2011). Other publications may use similar but not identical definitions. Na- tions also define costs and phases in the development differently. It is therefore difficult to compare national expenditure for developing defence materiel. This thesis does not fo- cus on clarifying such differences in definition. When defence R&D is discussed, the the- sis will primarily focus on comparing significant national differences in e.g. collaborative share of defence R&D or levels of defence R&D expenditure. For simplicity, the concept „R&D‟ will be used, which is the concept utilised by SIPRI5. This thesis will study the nature of transatlantic defence industry integration and the forms it has taken. Integration refers to the ways organizational entities are fused into a new entity (organizational integration) and how the operations and processes in separate organ- izational are integrated (operational integration). A distinction between these two related con- cepts is, as will be shown, of central importance to the thesis: the cooperative mode ap- pears to become a compromise between corporate rationality and political limitations and control.6 In parallel with this account of the integration, there will be a description of the regulatory tools used by governments in order to steer and monitor the border-crossing industrial integration. Integration can be understood as the ownership integration of corporate entities, whereby a decision is announced that companies merge, a joint venture is created or one company acquires the other. Clearly, this does not guarantee that operational integration follows naturally from ownership integration. It may be very difficult to combine the operations, supply chains and other activities of the entities that are fused together. There are many examples of ownership integration with the expected synergies and potential for rationali- zation not coming to fruition. Experience indicates that previous cooperation and interac- tion between companies increase the probability of successful ownership integration. Firms tend to gradually increase their foreign expansion, and companies may gradually become closer to each other as a relationship develops (Johanson & Vahlne, 1977; Johan- son & Mattsson, 1992). The networking between companies and the successive mutual endeavours will create “relationship sediments‟ that can form a basis for trust in a more formal, institutional integration (Agndal & Axelsson, 2002). The thesis will analyze to what extent the ownership integration really leads to operational integration between the corporate entities, or perhaps the other way around. However, the cross-border integration of defence companies is a classified process that falls under rigorous national legislations and monitoring. Having mentioned ownership 5SIPRI (Stockholm International Peace Research Institute) statistics and its Year Book is the primary reference in academia for data on defence industry, defence production and defence export. (www.sipri.org ) 6 According to empirical observations made in this research. 26 and operational integration, it should be emphasized that I have not focused on the inter- personal interaction in cross-firm integration; it would be very difficult to get access to empirical data. Defence (or other) companies may integrate in the sense that they enter into joint ven- tures or they merge or acquire each other. A continuum of increasing commitment in re- lation to different forms of integration can be observed, reflecting the rational reasons for different choices (Lorange & Roos, 1991 & 1992). In business administration theory there are established theories of what the incentives be- hind company integration within an industry are. Such theory is based on observed gen- eral patterns of corporate behaviour. At the same time, each industry has its specific pat- terns and conditions which in some way create a specific pattern for integration in that particular industry. The defence industry is stated (by e.g. Markusen, 1999; Hayward, 1999, 2000; Masson & Paulin, 2005; Neuman, 2006) to be an industry in which integration and cooperation largely do not fit in with the general theories of how companies integrate and co-operate. Still, defence companies are private enterprises which need to be profitable and generate shareholder wealth. They integrate, merge, co-operate and acquire among existing com- panies. Thus, they are in several core respects similar to any firm, and in some respects unique. It is clear that defence companies act within a market that is very much politically con- trolled and influenced. It can therefore be assumed that the resulting impact on the nature of defence companies‟ integration comes from a combination of driving forces and inhib- itors based on corporate rationality and priorities, as well as political incentives. The driv- ing forces and inhibitors are in this thesis divided into corporate driving forces and inhibi- tors on the one hand and, on the other, government driving forces and inhibitors. In the thesis, some empirical accounts are based on geography: the U.S., UK and France. This geographical presentation is chosen since the influence of the nation-state is seen as fundamental for defining the functioning of the market and the organizational field. 1.2 Previous analysis on the transatlantic integration of defence companies In the defence community (military, political, corporate, policy, academic) there is consid- erable interest in the transatlantic defence industry integration. With a focus on an expla- nation of why the integration turns out as it does, and on an account of the arguments for and against transatlantic defence industry integration; what explanations have been put forward? Broadly, previous analyses have presented one of the following three general conclusions: - There is little integration and the two political contexts are so different that they will always stay apart. Usually, this conclusion is based on one of the following lines of reasoning. The conclusion could be based on a U.S. view, which is sceptical towards cooperation with other nations; it would not contribute to promoting U.S. interests and it would reduce U.S. control of U.S. defence technology. The conclusion could also be based on a perspective in Europe that European political interests and condi- 27 tions are so different from U.S. political interests that integration cannot occur. (Ashbourne, 2000; Sapolsky, 2001; Gholz, 2002) - If the two sides could harmonize in certain ways (normally with higher defence budgets in Europe and/or less scepticism in the U.S. vis-à-vis Europe, or harmonized military requirements), integration will occur. This is the kind of discussion that has repeatedly been put forward for decades at conferences and in contextual debate and discourse. If the two sides could harmo- nize their priorities more clearly, transatlantic defence industry integration will fol- low.7 - There is actually integration between companies – integration that is pulling the two political contexts clos- er. In this case, companies do integrate and co-operate within the narrow confines created by the integration between the U.S. and Europe in a government context. In short, James (2004) claims that governments do not drive corporate integration; companies drive integration by exploiting the possibilities that governments offer and create. Companies do not follow schemes set by governments; they interpret the opportunities differently compared to governments (see also James, 1998, 2001, 2004; Jensen, 2001). James‟ analysis is consistent with business administration theory, but is not reached through any particular explicit theory from business administration, performed with a de- veloped theoretical framework. There are many processes that affect the development of transatlantic defence industry integration. Cevasco (2009) discuss the impact of defence export control systems and how they limit technology transfer. Adams (2001) and Ashbourne (2000) show that there are reciprocal deficiencies of knowledge of the other side‟s agenda and priorities (U.S. vs. Europe), and how this makes integration highly cumbersome. Scherpenberg (1997) stress how the power imbalance between the U.S. and a non-harmonized Europe makes the U.S. exploit the natural competitive advantages that follow, and that this will prevail un- less a drastic geopolitical change occurs. James (2006) stresses that the U.S. spends around 5-6 times more on defence R&D than all of Europe‟s defence R&D, and therefore the U.S. develops in a different and faster direction. Bialos et al. (2009) see no shared views of the threat and joint solutions, technology sharing and economic ties. Bialos (2009) and Grant (1999) underline that there was and is a marked technology lead on the U.S. side, and that Europe should strive to decrease that gap in order to make itself relevant for the U.S. Hayward (1999) states that the general globalization of industries and economies will force defence companies and nations to accept increasing globalization as well as to em- brace the advantages that come from globalized sourcing. Many sources point to an ex- tremely protectionist, nationalistic and sceptical attitude towards transatlantic defence in- dustry integration in the U.S. Congress. Others (e.g. Keller, 1994) suggest that the U.S. should be very restrictive in transferring attractive defence technology to any other nation, since it dilutes U.S. defence advantages and it means unnecessary risks of the technology coming into the hands of potential adversaries. Gholz (2000, 2002) sees little relevance in 7As a reference for this, the thesis discusses in Chapter 7 the discourse in secondary, published sources concerning transatlantic defence industry integration. 28 transatlantic defence industry integration, since he does not believe that it will truly affect the companies‟ operations and rationalization. The above arguments, which do not cover the entire breadth of arguments, add to the complex picture of the transatlantic defence industry integration. The thesis will analyze the contextual factors that may underpin the arguments. My impression is that a sufficient explanation requires a thorough description and analysis, and thus an understanding of the interplay between corporate strategy and focused corporations‟ interaction with actors in a surrounding political environment. It has already been mentioned that a broader range of theories of corporate activities will be utilized than what normally is the case. One measure along these lines is to adopt the view of the defence market as an organiza- tional field, which consists of a corporate field (the companies) and a government field with a multitude of actors that influence the companies‟ actions (DiMaggio & Powell, 1991; Fligstein, 1991; Meyer, 2007). The above description of previous analyses of transatlantic defence industrial integration points to the fact that the phenomenon has almost always been analyzed without an elab- orate theoretical framework and, as far as we have been able to detect, not one academic analysis has been identified that has utilized theory that falls under business administra- tion. Therefore, we expect a more theoretically driven analysis based on business admin- istration theory to offer deepened insight into and explanation of the chosen problem ar- ea. In this thesis, corporate strategies are of greater interest than government priorities. However, corporate strategies are not believed to be sufficiently understood and explained if we do not clearly relate them to government priorities concerning transatlantic defence industry integration. The organizational field view stresses such a relation. An important starting point for the thesis is that in order to fulfil the purpose we must achieve a sufficient understanding of one key part of this organizational field: the defence market. It will be given specific attention in order to be able to explain the problem under examination. We will revert to this starting point later. 1.3 Industrial integration in a politically influenced market – an important fea- ture of this organizational field We will now turn towards a more general discussion of politically influenced markets. Societal institutions have been defined as sets of belief about the world which generate rules about how to act. Modern institutions may exhibit considerable inconsistency be- tween belief and practice. We can observe that standard belief systems about markets and organizations may deviate considerably from a great deal of local market and organiza- tional practice. Alongside the belief systems there is a corresponding pattern of action, which in turn strengthens the belief and the rules. Some modern institutions may be high- ly consistent with institutionalized rules and beliefs, others less so (Berger and Luckmann, 1966, Brunsson, 1996). The belief systems express incentives for change and reform. The incentives are expressed in a discourse related to the empirical phenomenon in focus (Foucault, 1971/1993; McCloskey, 1986; Furusten, 2007). There is a need to discuss the nature of the defence market, since it is generally described as being very different from other markets. If we were to analyze, for example, integration 29 between a defined group of companies in the automotive market, the need would be con- siderably less articulated, as this market is well known. The defence market deals with the acquisition of complex, technology-intensive products – systems that will be operated for decades and where acquisitions are strongly governed by political demands and specifications. The supply chains and the industrial landscape are mainly made up of large, technology-intensive companies, and research and develop- ment require major investments. Companies mainly sell to other companies as subcon- tractors or to the end-users – governments – in the form of military or defence-oriented authorities.8 In order to describe the context of this research – the defence industry – the perspective will include aspects of heavy political influence with national (and patriotic) connotations. Judging from this, the defence market is highly influenced by politics. We can relate this to other theoretical concepts for such contexts, e.g. 'political economy' (e.g. Cox, 1996 and Lehne, 2001) or „political market‟ where government policy for the func- tioning of a certain market and the existence of an associated industry is in focus. States have an interest in the well-being and international competitiveness of certain in- dustries, and will support them by economic and diplomatic means. The domestic condi- tions and institutional infrastructure are clear competitive aspects of the strength of do- mestic defence industry structures (Stopford and Strange 1991; Goldstein 2001). Porter (1998) examined in a seminal study how different states seek to promote their industries in order to advance government interests through corporate international expansion. Fligstein (2001) underlined a sociological view of market activities, which stressed how markets and states are intimately linked. An institutionalized market will create a market structure centred on social relations: a market embedded in its institutionalized environ- ment (Granovetter, 1985; Fligstein, 2001). Examples of other politically influenced markets include energy, agriculture, infrastruc- ture, and railways. A common denominator is that market logic is very much affected, or even governed, by political considerations. In this kind of organizational field the political impact needs to be taken into consideration. A certain pattern of development in a market and a related industry may be supported, questioned, opposed – or left to „the invisible hand‟. Whether a market should be more integrated across borders, and in what ways such integration should occur, will be formu- lated in different ways depending on the interests or beliefs of the parties that put forward such an argument. Some arguments, and the substance they are built from, will in this thesis be labelled driving forces for a specific industrial change; other arguments will be inhibi- tors to such change. The arguments will be identified through an analysis of the published discourse (Chapter 7) and an analysis of respondents‟ accounts of the discourse (Chapter 8). (A more elaborate discussion is presented in Chapter 3, Theory, concerning what con- stitutes a driving force and what constitutes an inhibitor.) 8Admittedly,there exists an illegal arms trade to buyers other than these. For this thesis, however, such illegal trade is excluded from the analysis. The assumption is that such trade is not performed by the companies in focus, or that trade in such a case is conducted through further distribution and reselling from the official buyers. 30 Companies and individual decision-makers will, in a discourse related to a certain phe- nomenon, promise or suggest certain action, or that they will support certain develop- ments. What they actually do, the action, regularly deviates from what they say or state in published, written texts. In this thesis, discourse concerns rhetoric and argumentation for or against transatlantic defence industry integration. Action will be defined as the extent of cooperation, joint ventures, mergers, acquisitions etc. – what is actually being done and in what way these events have developed. An example is whether the action shows a dis- tinct pattern of industrial restructuring through mergers and acquisitions. More precisely it can concern whether the company ownership has changed; that there is a typical setup of cooperation or joint venture; that there are specific and distinct ways of government regulation of the ownership integration and operational integration. If a market is governed strongly by political influence, it is reasonable to assume that an analysis based only on the corporate agenda for industrial integration would offer insuffi- cient understanding and explanation of the dynamics of industrial integration, especially if compared to an analysis that includes the influence of the corresponding institutional and political agenda for the conditions of the companies. It is likely that corporate actions re- garding integration are not only driven by rational incentives; they are clearly affected by accommodation to the possibilities that the political environment allows. The politically influenced market can thus be assumed to display a certain specific logic for indus- trial change. Through the study of transatlantic defence industry integration, the research is ex- pected to add to the understanding of corporate strategy regarding transnational company inte- gration in a politically influenced market. 1.4 Corporate cases studied It is neither meaningful nor possible to attempt to study an entire industry, i.e. all compa- nies. We analyze the transatlantic defence industry integration within the defence market and exemplify with a choice of companies. Our examples will be the largest defence com- panies, the so-called prime integrators. The „prime integrators‟ or „primes‟ refer to a group of 4-6 companies in the U.S. and 4-5 companies in Europe. This choice of companies re- lates to the concept of a „strategic group‟: a group that has certain specific, common char- acteristics which make an analysis of this group of companies interesting (Harrigan, 1985; Porter, 1986; McGee & Thomas, 1986; Söderlund, 1993; Oster, 1999; Lipszynski et al., 2005). We will particularly look into a selection of events, namely cases where one or more of these companies have been involved. Illustrative cases Integrative events (mergers, acquisitions, joint ventures, alliances, collaborative programs, R&D collaboration etc.) within the transatlantic defence industry have been studied. An extensive list of sources has been studied. 9 Chapter 6 describes the nature of this out- 9Sources: SIPRI Yearbook (1991-2010), Kolodziej (1987), Heisbourg and Creasey (1988), Serfati (1992), U.S. Congress (1992), Matthews (1992), Wilén (1992), Hooper (1992), Brzoska and Lock (1992), Sköns (1993), Ministerio de Defensa (1996), Hayward, K (1997), Dussauge/Cornu (1998), Hébert (1999), Markusen and Costigan (1999), Hébert & Hamiot (2004), Hébert (2000, 2001, 31 come. By more deeply studying a selection of three integrative events (Chapter 9) we can analyze in greater depth and – hopefully – also improve our understanding of the nature of transatlantic defence industry integration. These cases have been chosen in order to touch on central aspects of integration and the institutional aspects that are central to the thesis. The first case, NFR-90, was at its time in the 1990s a collaboration of an unfore- seen magnitude and number of nations. It may be even more interesting since it failed. The second case, ThalesRaytheonSystems, was seen as pioneering at its inception in 2001 as being a strategic joint venture. The third case, Joint Strike Fighter, involves the U.S. and several European states; it is also the largest defence program ever, at around $300 billion. By discussing these cases we can expect to cover relevant aspects across the continuum of increasing integration as described by Lorange and Roos (1991, 1992) and Yoshino & Rangan (1995), as well as to what extent ownership integration leads to operational inte- gration. Level of analysis The presentation of the integration that has occurred, the action, concerns a part of the defence industry: the primes. They are the companies on the top of the integration hierar- chy within the defence-industrial supply chains. Serfati (1992, 2000) describes the defence industry in France as a community on the meso10-level, a distinction that we will utilize in this thesis. It will be argued that the defence market‟s organizational field is most pro- nounced on the meso-level; this is where the corporate policy and the political influence are determined. In relation to the companies, we will analyze their relation to their organi- zational field on a meso-level. The implications of this distinction will be discussed fur- ther in the thesis. Geographical presentation of empirical accounts In the thesis, some empirical accounts are presented on the basis of geography: the U.S., UK and France. This concerns Chapter 5, Creation of national defence industries in the U.S., UK, and France, and also Chapter 8, Driving forces and inhibitors for transatlantic defence industry integration. This geographical presentation is chosen since the influence of the nation-state is seen as fundamental for defining the functioning of the market and the organizational field. The choice will be discussed in Chapter 4, Methodology; and in Part IV, Analysis we will criti- cally evaluate this choice of presentation. 2002, 2003), EADS (2003), Pommerin (2003), Masson (2003), www.ixarm.com (2004), Bialos et al. (2009), Bitzinger (2009) as well as numerous web searches. 10 „Meso‟ is Ancient Greek for „intermediate‟. In economics, the general division of analytical levels is micro-meso-macro. Micro is within one organization or company and macro is on a national level. Meso comes in between, and can be applied e.g. to an in- dustry, a market or some other distinguishable sub-unit of the macro level. In this thesis the meso unit is the defence industry and its closest environment, seen as an organizational field. 32 1.5 Central theoretical concepts Under this heading, we will briefly summarize the most central theoretical concepts in the thesis. An elaborate discussion on these concepts will follow in Chapter 3, Theory. Assuming that business administration theory seeks to understand and explain corporate behaviour, we should be able to identify an element of rationality and an explanation of why companies act as they do, and why they make the decisions that they do in their spe- cific organizational field. The politically influenced market can, as mentioned, be assumed to deviate in its market behaviour from generally utilized assumptions about corporate economic rationality in a competitive market. We will need to analyze and take into ac- count the distorted corporate behaviour (distorted vis-à-vis generic economic rationality) in our analysis of transatlantic defence industry integration. An analysis solely based on assumptions of narrowly defined economic, corporate rationality for integration and co- operation (e.g. Harrigan, 1985, 1986; Lorange & Roos, 1991 & 1992) is not believed to be fruitful in offering a sufficient or plausible explanation of the level of transatlantic defence industry integration. Action – Integration Action concerns what actors actually do. The discourse discusses a specific, suggested in- dustrial change. This thesis focuses on a specific aspect of border-crossing integration: transatlantic defence industry integration. How this integration actually turns out is in this thesis the action. Integration is a multifaceted variable which we will have to disentangle into several com- ponents. Mattsson (1969) sees three separate forms of integration. Integration in its insti- tutional form concerns the amount of formal, legal power that one organization has which allows it to influence the behaviour of another. The more one organization can in- fluence the other‟s activities, the stronger the integration. The integration is generally re- ciprocal; the integrated entities influence one another. Decision integration is defined as the degree of centralization of a decision process and who controls what in the relation- ship. The more centralized the decision process is under the mutual, integrated entity, the stronger the integration. Execution integration, finally, refers to the way activities are exe- cuted and the characteristics of the flow of activities. The more the flows of the separate entities have been unified and become interdependent, the stronger the integration (Mattsson, 1969; Hertz, 1992, 2001). Note that „institutional‟ in this context does not refer to the same phenomenon as in neo-institutional theory. Integration may be measured as to what extent companies integrate institutionally, with a structural commitment ranging from a low commitment in the form of a Memorandum of Understanding (MoU) or an alliance, to a continuum over joint ventures, cooperation up to the full structural commitment of mergers and acquisitions (Lorange & Roos, Cateora & Graham, Yoshino & Rangan). There is also a problem with such measures. As mentioned, a merger or an acquisition does not have to signify that the operations of the integrated firms become highly integrated. We cannot settle for the structural integration of companies. We must therefore in a more refined way understand and explain the na- ture of the industrial change – the action. We must find a measure of what type of change has occurred. The thesis‟ focal measure of the integration will be ownership integration and operational integration. Organizational field 33 A company‟s closest and most formative environment can be described as an organiza- tional field. Organizations, as a whole, constitute a recognized area of institutional life: key suppliers, resource and product consumers, regulatory agencies and organizations that produce similar output. Within the organizational field, there will be institutionalized be- haviour and some degree of isomorphism. Isomorphism concerns a similarity of the pro- cesses or structure of one organization to those of another, be it the result of imitation or independent development under similar constraints. There are three main types of iso- morphism: normative, coercive and mimetic (DiMaggio & Powell, 1991, Fligstein, 1991, 1993). Meyer (2007) describes an organizational field as a field of actors that is character- ized by a single predominant institutional order or logic, or by multiple and potentially competing institutional orders or logics. Industries are in varying degrees affected by political forces. Some industries act under conditions that are fundamentally created and steered by an influence of political forces. The interaction between the companies and the political sector creates an organizational field with strong interdependence between on the one hand a government field and on the other a corporate field. The government field consists of politicians as well as authorities and public servants. There are also other actors in the organizational field that influence the industry‟s conditions and development (unions, trade organizations, specialized lobbies). All the actors will express arguments in the discourse concerning a specific change within the industry. The Military-industrial complex, MIC, is a much-used concept that describes the particu- lar and common institutionalized behaviour within a nation‟s military-oriented industry, its associated government actors and the research community (Mills, 1956; Melman, 1974; Rosen, 1973; Goldstein, 2001). We will use the concept of MIC as a point of reference for the nature of the organizational field of the defence market, as it stresses the nation-state‟s influence on the functioning of the defence market. The MIC is not a powerful theoreti- cal concept – it will be used as a metaphor that is seen as adding explanatory power. Discourse A discourse is, as mentioned, a type of conversation – a public conversation which can be seen as the sum of all specific conversations about a certain phenomenon. In the institu- tionalized environment of an organization or of a clearly distinct market, there will be an established form of referring to a certain phenomenon. It may e.g. concern deregulation, harmonization or globalization. The discourse refers not only to spoken conversation, but also to texts of different kinds. A discourse is aimed towards a specific phenomenon that has attracted the interest of many actors involved in it; in our case the specific phenome- non is transatlantic defence industry integration. The discourse must have mutual points of reference in order to become more widespread, e.g. reference to an industrial change process that concerns many companies, industries, nations, NGOs, nations or continents. Within the wider discourse there may be local discourses that have slightly different points of reference or preferences (Foucault, 1971/1993; McCloskey, 1986; Furusten, 2007). Driving forces and inhibitors In the discourse we can identify how actors express arguments for or against the integra- tion. These arguments represent incentives as formulated and interpreted by actors in- volved in the discourse. The actual incentives for transatlantic defence industry integra- 34 tion can be labelled driving forces. A driving force expresses either a wish for the change to occur, or a statement of why the change will occur. Arguments against change can be la- belled inhibitors. An inhibitor expresses either a wish for the change not to occur, or a statement of why the change will not occur. The discourse will be contrasted and compared to the action, and we will aim to under- stand and explain the magnitude and nature of the discrepancy between them. The concepts organizational field and discourse are used as tools for being able to under- stand and explain the transatlantic defence industry integration. This thesis focuses on us- ing them as two of several tools for reaching the purpose. This means that „discourse‟ and „organizational field‟ could have been penetrated deeper, if they would have been the sole focal concept. The Case Study model together with the concepts integration, discourse and organizational field in combination form the analytical tool for reaching the purpose. We will now turn to defining the research question and the purpose of the thesis. 1.6 Research question and purpose This thesis strives to find an explanation for an integration pattern within a market that has quite specific characteristics. The integration concerns a group of companies which has certain specific, common characteristics that make it of interest to concentrate the analysis on this group of companies. Research question How can the proposed discrepancy between the discourse concerning, and the actions of, the transatlantic defence industry integration be explained? The purpose of the thesis is to formulate an explanatory model for comparing the discourse concerning and the ac- tion of a specific industrial change and with the aid of that model to understand and explain the level of transatlantic defence industry integration and its driving forces and inhibitors. The explanatory model is designed for the particular environments of politically influ- enced, institutionalized industries. This leads us to address the following specific tasks in order to examine the purpose: - Present a description of the defence industry contexts which are concerned in three MICs (U.S., UK and France) and which are seen as being necessary in order to understand the broader developments and priorities that act as a driving force be- hind the development of the defence market. - Assess the integration pattern of transatlantic defence industry ownership integra- tion and operational integration. How does it relate to generally established taxon- omies of integration? 35 - Identify what are seen by government and corporate decision-makers as the driv- ing forces and inhibitors for transatlantic defence industry integration – the dis- course. - Show how the model that compares the corporate and government discourse re- garding transatlantic defence industry integration with the transatlantic defence in- dustry action can explain the discrepancy between discourse and action. - Suggest how an understanding of the government context for transatlantic defence industry integration contributes to a better explanation of corporate decision- making with regard to transatlantic defence industry integration. It is expected that applying a new theoretical framework to an empirical research area (the defence market) will point to important aspects that would not have been distinguished in the conclusions of previous analyses based on different theory. There is a process of Europeanization of the European defence equipment market (EDEM) and the European defence technology industrial base (EDTIB) driven by the EU and its member states. An analysis of the transatlantic defence industry integration must relate to this process. However, the discussion of Europeanization is outside of the scope of the thesis, since an inclusion of this process in my research problem would make the thesis unmanageable. The European market integration will however be discussed in Chapter 13. 1.7 Disposition of the thesis The thesis consists of four parts: Part I Introduction, Part II Theoretical and methodolog- ical framework, Part III Transatlantic defence industry integration, and Part IV Results. In Part I, in the continuation of the first chapter we will outline the overall dynamics of the industry in question and the central aspects of the research approach. We will fur- thermore describe the research problem and clarify the research question and the purpose of the thesis. In Chapter 2, the characteristics of the defence market and the defence in- dustry are discussed. Part II presents the theoretical framework for the thesis in Chapter 3 Theory. In Chapter 4 the methodological outline is presented. In Part III the overarching empirical case study of transatlantic defence industry integra- tion is presented (there is also some empirical presentation in Chapter 2). In Chapter 5 is a description of the historical development of a key part of the organizational field: the military-industrial complexes of the U.S., UK and France. Chapter 6 presents a descrip- tion of the action – what nature and extent of transatlantic defence industry integration have occurred. This is compared to the intra-U.S. and intra-Europe defence industry inte- gration processes. There is also a discussion on governments‟ regulatory tools for control- ling the defence market. Next, Chapter 7 gives an account of the discourse in transatlantic defence industry outcome, as identified in published texts (secondary sources). In Chapter 8 follows an account of the driving forces and inhibitors for transatlantic defence industry integration, as described by individual respondents interviewed during the study. Finally in Chapter 9, three specific cases of transatlantic defence industry integration (two coopera- 36 tive programs, one joint venture) are presented. In Chapter 4 Methodology there is an elaborated discussion on the role of each empirical part. Part IV starts with Chapter 10, Understanding and explaining transatlantic defence indus- try integration, where the case study (Part III) is analyzed empirically. This is followed by Chapter 11, Implications of the transatlantic defence industry integration, which discusses the thesis‟ conclusions, the improved understanding of transatlantic defence industry in- tegration, results compared to previous analyses, and an evaluation of the research design. This is followed in Chapter 12 by a discussion on what theoretical, methodological, em- pirical and possibly other contributions the thesis has produced. This chapter will also have a discussion on managerial implications and suggestions for future research. Finally, in Chapter 13 Postscript, there will be a contextual discussion related to the defence mar- ket that reaches wider than the thesis‟ scope. 37 38 Chapter 2 The defence market and the defence industry The thesis is an effort to better understand and explain the degree and nature of transat- lantic defence industry integration. In order to reach this ambition, we must first under- stand the characteristics of the defence market and the organizational field: the arena whereupon the defence companies operate. Based on that, we will better comprehend the discourse for transatlantic defence industry integration. In this second chapter, which will conclude Part I of the thesis, we will first discuss the nature of the defence market, which is often referred to as being very different from most or even all markets. There will also be a discussion on the issue of how the defence indus- try is coupled to states‟ security policy, thereby relating to theories from political science. After this, we will discuss the meaning of the concept „military-industrial complex‟. Sub- sequently, there is an assessment of governments‟ regulatory tools for controlling the de- fence industry. Finally, we will present the focal companies in the study, followed by a summary of the nature and the conditions of the defence market. 2.1 The nature of the defence market Most analyses of transatlantic defence industry integration tend to view defence compa- nies as tools of government policy, treating corporate strategy as being of minor im- portance. This can to some extent be explained by the fact, mentioned in Chapter 1, that most academic analyses of this phenomenon are made by political scientists or econo- mists, or from some vaguely defined theoretical and policy-oriented perspective – and not from theories focusing on the firm, such as much theory from business administration. The expectation is that the thesis will fill a gap in the sense of analyzing corporate behav- iour in the defence industry. The defence market is in many ways a “distorted” or “exaggerated” market that takes the impact of government influence and vested interests to extreme levels. In a case study, it can therefore be assumed that theoretical aspects of interaction between institutions in a specific organizational field will be unusually obvious. A case study on the defence indus- try could therefore offer specific insights that can contribute to certain, more general, theoretical aspects or constructs. Some of the most significant features of the defence market are: - Complex, costly products operated for decades Companies that engage in large industrial projects, often with other partners in consortia, are referred to in the defence industry as being engaged in „(defence) programs‟. A pro- gram is in this context a major development of systems and competences into a larger so- lution for the customer. Generally, this could be in the form of creating an airport, a larg- er ferry, a train system, a hydroelectric dam or a fighter airplane. The primes that are dis- 39 cussed in this thesis achieve their identity as a prime by being able to manage and inte- grate such big programs, or at least being one of the few companies that co-ordinate the whole package. The programs are generally very long-term, 20-40 years or more being the duration from initial order through R&D, production, service and maintenance to the end of the program. Programs are always initiated by an order from one government or sever- al cooperating governments – the companies do not autonomously develop e.g. a new submarine, airplane or tank (Gansler, 1980; Bitzinger, 2009). The customers strive for as- surances that their suppliers will stay in the market for the entire life of the program for maintenance and upgrades. - Dominated by large, technology-intensive companies An industry can be described as a hierarchic structure where companies may have differ- ent roles in the supply chain, with differing degrees of ability for system integration. Hier- archy may also relate to ownership structures making other forms of integration possible. More about that later. The majority of industrial companies today are a part of industrial structures that are characterized by specialized cooperation between a large number of companies which perform different development and production steps in an industrial value chain. A gen- eral division of roles between companies is that they are divided between end-product producers, system suppliers, subsystem suppliers and component suppliers. Between the- se companies, there is often a highly refined division of production, responsibility and risk (Clark et al., 1991; Karlsson, 2003; Sköld, 2008). As we will see, this general picture also largely applies to the defence industry. There is no exact boundary showing which companies should be seen as a part of the de- fence industry and which are not. The market for defence materiel attracts products, ser- vices and competence from all sorts of companies. On the top of the defence industry hi- erarchy, a small number of companies are labelled as primes. A prime is equivalent to the generic concept of an OEM (original equipment manufacturer). In some joint programs, these companies participate as suppliers on lower tiers11 or as subcontractors, but their main identity is in the form of primes (Bitzinger, 2009). The transatlantic defence industry consists of all tiers of companies, but, as already stated, we will focus on the integration of the primes. Another characteristic of the defence industry is that there are practically no new compa- nies which simply develop through organic growth from being small into one of the larg- est actors. All the larger companies12 have been in existence for decades or are the result of mergers between larger companies. 11 The defence industry hierarchy is often described in more defence-specific texts as a hierarchy of „tiers‟. On the top of the pyr- amid are the primes. Below is the 1st tier, comprising the system providers, and below that a 2nd and 3rd tier. These lower tiers tend not to have defined characteristics, but the sophistication of the product or component falls as we descend the pyramid. Howev- er, the tiers below the primes are outside the focus of this thesis. 12 Except L-3 Communications. 40 - Governments are the only customers and set the conditions for the market – markets with a strong na- tional impact The defence industry and the defence market practice are highly regulated by govern- ments. To a large extent, their regulation is still mainly domestic. For example, production of defence goods requires government approval in each nation. Governments also, to dif- fering extent, have a veto right over foreign acquisition of defence companies. Govern- ments in most cases must approve of technology transfer to other nations, and these permits are extremely protective. Within the EU, since the beginning of the 2000s there has been an ambitious supra-national process of strengthening the European Defence Technology and Industry Base (EDTIB) and harmonizing the European Defence Equipment Market (EDEM) (Mörth, 2003; Britz, 2004, 2010; James, 2008; Markowski et al., 2010; Masson et al., 2010). Regarding technology transfer, governments all have a legitimate concern for only allow- ing defence technology to be transferred between nations under very strict restrictions. The most legitimate concern is not to let defence technology come into the hands of di- rect adversaries or nations that by the international community are seen as unstable and hostile. Nations and companies also want to protect companies‟ competitive advantages, and the defence technology is primarily developed with government funding. A further incentive is to safeguard domestic companies and their employment. It is thus reasonable that nations are cautious towards defence technology transfer. As we will see, this cau- tiousness has important effects on the nature of the international defence market. Companies mainly sell to the end-users – governments – in the form of military or de- fence-oriented authorities, or to other companies as subcontractors (Gansler, 1980; Hay- ward, 1999, 2000; Bitzinger, 2009).13 Defence companies are by definition dependent on governments as customers, and on governments as financers of defence R&D. The de- velopment of defence products and solutions is very costly, and private companies are not prepared to take such financial and technological risks as those associated with de- fence R&D. Defence product development primarily requires – almost by definition – government R&D funding.14 Defence companies work in close cooperation with the mili- tary in projects that last for many years, often decades. Defence companies are thus clear- ly dependent on and closely affected by the actions of governments and government bod- ies (Markusen, 1999; Schmitt, 2005; James, 2006, Hartley, 2007, Bitzinger, 2009; Bialos et al., 2009; Markowski et al., 2010). Defence companies are financed upfront or continu- ously for an order during the production. 13Admittedly, there exists illegal arms trade to buyers other than these. For this thesis, however, such illegal trade is excluded from the analysis. The assumption is that such trade is not performed by the companies in focus, or that trade in such a case is con- ducted through further distribution and reselling from the official buyers. 14 There are very few examples of companies pursuing development of defence solutions based purely on internal development money. Such a situation is almost non-existent. There are also new trends towards creating new business models for Public- Private Partnerships (PPP) or Private Finance Initiatives (PFI) in defence development, with companies being expected to engage in business models where they share the financing and the risks with the government as a partner. Such set-ups, however, fall out- side the focus of this thesis. 41 States tend to have a preference for buying domestic defence products in order to e.g. promote the domestic companies competitiveness, set public funding into domestic in- dustry, create jobs and also in order for being able to have a close relationship with com- panies, thereby being able to achieve custom-made products. The U.S. has a Buy Ameri- can Act from 1933, which states that the government should prefer domestic products in its purchases. This act is still valid, and also applies to defence products. In 1941, The Berry Amendment was passed stating the Department of Defense should give preference in procurement to domestically produced, manufactured, or home grown products, most notably food, clothing, fabrics, and specialty metals. In 2007 and 2008, Congress allowed exemptions for certain COTS (Commercial-Off-The-Shelf) products. States have always had a strong interest in the domestic production of defence materiel, and it is in practice very important for defence industries to present an image of having strong future links with the domestic demand. Otherwise, they become less attractive as potential collaborative partners and as investment prospects, since their future would be perceived as more uncertain. There are strict rules for how companies may interact, how they may integrate and co-operate, and how they are able to integrate with companies from other nations. Companies are not able to co-operate in certain areas due to re- strictions on technology transfer or export control. Companies in most nations have re- strictions with which companies they are able to co-operate. There is no globally shared legislation for such inter-firm interaction, but all nations regulate domestically in ways that have produced similar, restrictive conditions (Lundmark et al., 2000; Cevasco, 2009; Bitz- inger, 2009). Thereby, the state has a strong impact on a wider environment that defines, limits and steers the possible and less possible business opportunities that will exist in the future. - Decreasing state control and companies becoming increasingly private The defence industry in most nations used to be a government-owned industry – or with strong government control and power over its actions. The defence industry during the 1990s gradually became predominantly privately owned, and is now subject to the priori- ties of the investors on the stock market (Masson, 2009).15 The states do not represent the corporate dimension – the initiatives of the companies and the links between them are what actually constitute the business activity and production of defence materiel (James, 2001:b). Defence companies for the most part are now private, autonomous actors. They have the corporate goals of being profitable, attractive to financiers, and satisfying to shareholders. Corporate actions and integration decisions can thus not be sufficiently un- derstood and explained by treating them solely as tools of government policy. There is, however, considerable state ownership in the domestic defence industry in e.g. France, It- aly, Spain, Denmark, Norway and Finland. Each nation with a state ownership has its idi- osyncratic setup. 15 A small fraction of the defence production is still being produced by governments or government institutions. 42 In many industries there has in the last few decades been substantial privatisation of state- owned enterprises. This has also been the case in the defence industry. This privatisation has, however, followed quite specific sequences of development in each nation and has occurred during different time periods. For the defence companies this has meant that the corporate focus on rationality, profitability and shareholder value has increased or be- come completely new incentives in corporate strategies. They have also become less at- tached to national defence establishments and more autonomous. In many nations there are still strong bonds between the companies and the government defence establish- ments, and the support for non-profitable companies is in many cases quite clearly based on rigid political goals, which are generally detached from economic rationality. 16 A Swe- dish study from 2006 indicates that foreign ownership has a limited impact on the domes- tic character of the companies‟ corporate strategies and the order book. Either that, or foreign ownership requires a very long time (more than ten years) to have an impact on the corporate strategies and the order book in a defence company (Axelson & Lundmark, 2006). - The defence market as an organizational field Companies and organizations in politically influenced markets must deal with and relate to several, parallel processes with different political agendas, norms and time scales. Such processes may intensify or slow down; they may appear to cease but be activated again (Jacobsson, 1994). Companies are agents in such institutionalized networks; they must re- late to and act upon the conditions of the institutional processes (Oliver, 1991; Lawrence, 2008). Mörth (2003) describes “organizing European cooperation on armaments” as involving two different organizational fields within the EU context: the defence field and the mar- ket field. The defence field is driven by one rationality through the European Security and Defence Policy (ESDP), and the market field by another rationality based on the Europe- an Commission‟s efforts towards the European technological and industrial competitive- ness. The organizational field of the defence industry is characterized by the fact that incentives emanate from a corporate field as well as a government field. We must have an under- standing of the corporate incentives, as well as the political incentives. We must find a way to relate these two rationales in order to offer a credible explanation for the outcome of transatlantic defence industry integration within the strategic group. Within the gov- ernment field, we distinguish the military incentives in a broader government field; the military field is a part of the state, but their incentives can be based on quite different pri- orities. 16Examples of this include the sustained support for Kockums in Sweden, the British and U.S. military shipyards, and the French support for Giat (now Nextre) and DCN. In 1994 Giat had a loss that was higher than its turnover (!) – a loss that was covered by the French government. “After the end of the Cold War, Giat and DCN had no change in strategy for eight years.” (Academic, Université Paris 1, 2003), “10 billion Euro had been pumped into DCN by 2003.” (Armaris representative (company), Paris, 2003) 43 The defence industry is engaged in a global network, consisting of links between compa- nies and groups of companies, as well as links with states or between states within differ- ent coalitions or alliances. Corporate strategy and state policy are dependent upon each other in th

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