The State Concern "UkrOboronProm" (UOP) continues implemenrtation of reforming strategy of the military-industrial complex of Ukraine. One of its essential tasks – clustering of UOP enterprises-participants, along with active involvement of all sectors of Ukraine’s economy for enhancing defense capability and competitiveness of the country in world markets.

Artur Kheruvymov – UOP Deputy Director General for Development – spoke on the clustering of the military-industrial complex of Ukraine, during the round table "The first steps of launching clusters in Ukrainian regions" in Kyiv-Mohyla Business School.

What is clustering

Cluster is a group of localized companies and related organizations, working in a particular field and complementing each other. In short, the cluster is defined as "local productive system".

For example, expensive high-tech lathe may work 3 hours a week at a certain enterprise. The cluster system will allow avoiding such situations. Equipment must and will be used as efficiently as possible at all enterprises of the cluster.

Main goal of creating clusters in the defense industry is building an effective network of interaction between science, business organizations and industrial enterprises for the most rapid innovation both military and civilian purposes, and increasing the competitiveness of domestic products in world markets.

The consortium Airbus S.A.S., formed in late 1960 due to consolidation of several European aerospace manufacturers is considered to be the most famous cluster in the global industry. Another famous cluster is Automotive Cluster, which includes such companies as BMW, Daimler-Chrysler, Opel, Porsche, VW, as well as suppliers of components and equipment. "Silicon Valley" in California, USA could be considered another cluster. Formation and development of this technological center is associated with the concentration of leading universities, the proximity of major cities and financial centers in one region.

Concentration of industrial, scientific and financial capacityallowed these structures to take a leading position not only in its segment but also in the global economy system.

Considering the above mentioned, the best defense reformatting scheme is the transition to international corporatization standards, creating separate clusters of defense enterprises, attracting investors and private companies.

How will clusters look like

On the basis of experience of the eading global corporations today, "UkrOboronProm" developed a clear and understandable perspective model – creating 5 clusters, based at UOP enterprises.

Enterprises will be structured by weapon and military equipment types: aviation equipment; Armoured vehicles; shipbuilding and marine equipment; radar, radio, electronic warfare; precision weapons and ammunition. According to this scheme the first aircraft cluster is created: Ukrainian Aircraft Corporation – based on the legendary "Antonov".

The key competence of the clusters – transformation into R & D-oriented system: design and technology in major industries. They will have a clear specialization, will provide cooperation inside the country, establish international cooperation and integration with the top partner companies, building a system of effective management and interaction, attracting investment in the defense industry of Ukraine.

Clusterized enterprises will become more competitive in the market than each of them separately.

To implement this reform it is necessary, first of all, to improve the legal framework, moving away from atavisms of the post-Soviet system. With this in mind,  "UkrOboronProm" has submitted more than 10 legislative initiatives that will break the rudiments of a system that remained from the Soviet Union, establish common rules for international investors, engage high-tech solutions. This ensures quality technological leap of production: development of robotics industry, IT technologies, efficient production and integration into the global defense market as a prospective member.

Why clustering

Today, the defense industry –is a branch of the global world economy that produces weapons, military equipment and technology equipment. For Ukraine it is of strategic importance to ensure its independence and sovereignty. In addition, it plays a significant role in the overall economic system of Ukraine, remaining one of the few high-tech industries with a closed production cycle.

At the same time in the world – according to leading consulting companies (PWC, Deloitte) – production volumes of Top 100 largest companies in the sector of Aerospace & Defense sector in 2013, amounting to about $ 700 billion a year and showing a gradual increase of 3%.

At the same time the volume of world trade in arms in recent years also shows steady growth. And in 2015 against the background of military threat awareness final market volume reached $ 65 billion (IHS Global Defence Trade Report) in just one year increased by 10%. That was the largest annual growth in the global arms market over the last ten years.

Obviously, in order to meet today’s requirements and join the global trends, the domestic defense industry needed radical change. That is why "UkrOboronProm" developed and presented a reform strategy of the military-industrial complex, prepared with consideration and on the basis of recent trends, observed in leading countries in the context of globalization.

The main objective of the reform – the integration of defense industry of Ukraine into the global defense market, in accordance with the latest trends that are currently operating in the global market – technological cooperation. Now the country is not "fixated" on their own competence, and most types of weapons in the form of close cooperation, instead of doing independent projects.

In the current rapid technology development, taking place simultaneously with their increasing complexity, concentration of all forces and means solely on individual and breakthrough directions is the only means of existence. This develops a mechanism for transferring military technology to civilian market – both for expansion and for increasing competitiveness.

Along with this, the implementation of a complex project is not possible for one country and this is when international cooperation appears at the forefront. One of the key trends of such world powerful technological cooperation is production capacity clustering. It allows achieving success even in times of increasing competitiveness and is a basic element for the development strategy of most countries.