Industrial sovereignty: what the war economy actually demands of defence SMEs

The term "war economy" has become commonplace in French public debate since 2022. On the industrial shop floor, it refers to a much more precise constraint than the slogan suggests: producing more, faster, without degrading quality, with supply chains that are already stretched.

The expression has an official birth date. On 13 June 2022, at the Eurosatory trade show, Emmanuel Macron declared that France had entered "a war economy (…) in which we will have to organise ourselves for the long term". The DGA (French defence procurement agency) gives a more sober definition, taken up by the ministry in its magazine Esprit défense devoted to the war economy: "putting the capacity to produce back at the heart of our concerns".

What it changes in practice for a sub-contractor SME

• Production rates that require secondary suppliers, sometimes less well controlled, to be requalified
• Pressure on stocks of critical components, particularly electronic ones (see strategic stockpiles built up before the crisis)
• Military qualification cycles that remain long, out of step with the stated operational urgency

What the war economy changes legally

The military programming law for 2024 to 2030 (LPM) translated the slogan into legal tools, grouped in a chapter devoted to the defence economy. Three provisions directly concern a sub-contractor.

• Mandatory stockpiles. Article 49 created article L. 1339-1 of the French Defence Code: the administrative authority can require a company holding an authorisation to manufacture or trade in war materiel to build up a minimum stock, up to the armed forces' requirements over twenty-four months, without compensation.
• Priority performance. The same article created article L. 1339-2: by ministerial order, the State can instruct the holder of a defence or security contract to perform its services in priority over its other contractual commitments. The holder and its sub-contractors are entitled to compensation for direct and certain material damage, and a failure to comply can be penalised with a fine capped at 5% of average annual turnover.
• Requisitions. Article 47 overhauled the regime of requisitions for defence purposes, which can cover people, goods and services.

For an SME, the practical effect is twofold: a civilian order can find itself pushed back behind a priority defence order, and a BITD customer subject to a stockpiling obligation will logically try to pass part of it on to its suppliers. Here I describe these provisions as worded in the 2023 law.

The real bottleneck

It is only rarely political will or the order book that limits the ramp-up. It is real industrial capacity: machine tools, qualified skills, specific components whose supply lead times are sometimes counted in years.

Qualification and production rates: why the ramp-up stalls

In the same issue of Esprit défense, General Armament Engineer Alexandre Lahousse sums up the change being asked for: moving from a flow logic to a stock logic. He distinguishes two kinds of industrial stock: raw materials and electronic components, in high demand on the world market because they serve military and civilian equipment alike, and semi-finished products. The DGA launched workstreams with the armed forces and industry to identify bottlenecks: securing supplies, foreign dependencies, recruitment, simplification.

Seen from an SME, each of these workstreams has a very concrete equivalent. Increasing the production rate often means a new supplier, who has to be qualified; a new machine, which has to be financed before the order; new operators, who have to be trained. Each step has its own lead time, and it is the longest one that sets the pace.

A transferable lesson

Civilian organisations that manage critical supply chains would do well to study how the BITD handles this tension between stated urgency and real industrial time. The same asymmetry is found in many sectors under resilience constraints.

An example that makes the bottleneck tangible

The French military drone sector illustrates this tension between political will and real industrial capacity well: Delair, one of the most advanced French players in remotely operated munitions, hopes to produce more than 2,000 drones a year in the medium term, while the Ukrainian Ministry of Defence claims more than 1.5 million FPV drones produced in 2024 by the country's industry. The gap is not down to a lack of technical skill (several French SMEs produce very accomplished systems) but to the absence of high-volume public orders that would justify investing in a real mass-production line rather than in series of demonstrators. I come back to this specific case in the sixth episode on the BITD and drones of my series on the drone war.

This reading ties in directly with the subject of this article: the real bottleneck for a BITD SME is almost never its capacity to design, it is its capacity to obtain enough order visibility to justify investing in production rate, rather than in unit quality alone.

Financing an SME's ramp-up

The report annexed to the LPM 2024-2030 states the intention: steering private savings and investment towards the BITD, particularly towards SMEs, and creating an industrial operational reserve whose reservists will be able to reinforce production rates in the event of a high-intensity conflict. There are also public funds and loans dedicated to defence. I do not detail them here, as their amounts and conditions change often: the right entry point remains the DGA or the regional office of Bpifrance (the French public investment bank).

Financing does not, however, solve the underlying problem. A lender finances a machine on the basis of order visibility. Without a multi-year contract or a volume commitment, the SME alone carries the risk of having invested for a production rate that will never come.

Checklist for a defence sub-contractor

• Map your single-source components and their real resupply lead time, not the contractual one
• Identify those that fall under an export control list, for purchases as well as sales
• Check what your civilian contracts provide if a priority defence order delays their deliveries
• Cost a safety stock for your critical components before a customer imposes one
• Document your processes so you can qualify a second site or new operators faster
• Ask your prime contractors for written volume visibility, even if only indicative

The war economy is not a slogan, it is a series of concrete, often invisible industrial decisions that determine whether the sovereignty announced is really sustainable.

Further reading: low-cost drones and attrition: the industrial lesson civilians have not yet understood · the French defence industrial base and the long game

Frequently asked questions

What does "war economy" mean?

For the DGA, it means "putting the capacity to produce back at the heart of our concerns". In practice: producing more, faster, and rebuilding stocks, with an industry that until then worked in small batches and on a flow basis.

Can an SME be required to build up stocks?

Yes, if it holds an authorisation to manufacture or trade in war materiel. Since the LPM 2024-2030, article L. 1339-1 of the French Defence Code allows a minimum stock to be imposed on it, up to twenty-four months of the armed forces' requirements.

Can the State put a military order ahead of a civilian order?

For the holder of a defence or security contract, yes: article L. 1339-2 allows priority performance to be ordered, with compensation for direct and certain material damage.