Scaling Innovation

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Introduction

The Russo-Ukraine war has fundamentally transformed the nature of modern warfare, and Ukraine apparently has a better understanding of this than Russia. Russia’s authoritarian statehood and centralized, government-ruled defense sector leave little room for bottom-up defense-industrial innovation. While the Russian armed forces excel in learning the lessons of the war and channeling these into fighting, the entire innovation sector is state driven. At the same time, four years of full-scale war have made Ukraine a laboratory of defense innovation, where agility, state and non-state projects, improvisation, and speed of adaptation determine survival. While Europe has the resources and capability for scaling up industrial production, Ukraine has developed the experience and ingenuity to rethink how wars are fought in addition to testing and adapting new systems in real time. The optimal path forward is not Europe integrating Ukraine or vice versa, but rather a mutual integration: a strategic fusion of Ukrainian innovation with European capacity. Given the sharp decline in transatlantic cohesion over the past year – and growing European hesitation to rely on certain US systems – strengthening Ukraine–Europe defense-industrial cooperation is now more important than ever.

A strong and resilient Ukrainian defense industry is not only vital for sustaining the country’s war effort now but will remain a cornerstone of long-term deterrence against Russian aggression in any post-war or ceasefire scenario. Should active hostilities subside, Russia will almost certainly seek to rebuild its military potential and probe for weaknesses through hybrid or renewed military aggression. A robust domestic defense industrial base, integrated into the wider European defense ecosystem, will ensure that Ukraine maintains credible deterrent capacity, rapid rearmament potential, and technological superiority.

For European countries and the EU, supporting Ukraine’s defense industry is therefore an investment in collective security. A capable Ukrainian defense sector can act as both a forward shield and a testing ground for next-generation systems. In the long term, the integration of Ukraine’s defense production into European supply chains will reinforce the continent’s strategic autonomy and resilience – guaranteeing that deterrence remains sustainable, credible, and grounded in shared technological and industrial strength.

The potential of defense industrial cooperation

Many observers argue that Ukraine fights with drones because it cannot afford expensive conventional weapons and has to compensate for a comparative lack of manpower. This may be partly true, but it also reflects the future of warfare. The paradigm is shifting from “quality over quantity” to one where cheap, scalable, and adaptable technologies can overwhelm even sophisticated adversaries. Ukrainian drones worth a few hundred dollars are destroying armored vehicles valued at millions, while unmanned surface vessels have forced Russia’s superior navy out of key areas of the Black Sea. Despite a modest air force, Ukraine has denied Russia air dominance since 2022 and eliminated over 30 percent of its fleet, largely through asymmetric tactics centered on rapid technological adaptation. Ukraine’s “Spider Web” operation by the Security Service of Ukraine (SSU) disrupted conventional defense paradigms and serves as a stark reminder that very expensive advanced systems in Europe and the US are equally vulnerable.

Combat lessons from Ukraine for European militaries range from low-key, tactical solutions, such as adapting personal protective equipment to a drone-dominated battlespace to the higher echelons of the defense industry, such as how to set up and operate mass production of cheap first-person view (FPV) drones that are easy to modify for rapidly changing battlefield developments. Military vehicle manufacturers may also draw several lessons, such as equipping every vehicle, armored and unarmored alike, with both drone detectors and jammers or adapting the rigid anti-drone cages (developed originally from makeshift solutions to counter incoming anti-tank rounds) as more flexible, foldable solutions.

Ukraine learned early that innovation must be coupled with rapid scaling within very short cycles. A stark example is the arms race in the Black Sea where Russian forces systematically adapted their defenses with layered solutions – physical barriers, intensified patrols, upgraded ship armaments, and interceptor drones – that temporarily blunted Ukrainian strikes. Ukraine responded by fielding multifunctional next-generation naval drones equipped with Artificial Intelligence (AI) and an expanded arsenal (missiles, FPV launchers, guided munitions, thermobaric charges, remote mine-laying, and electronic warfare). Both sides are now locked in a continuous cycle of action and reaction, forcing constant tactical and technical adaptation.

To sustain this tempo, research and development (R&D) must be brought as close to the battlefield as possible. Ukraine is deploying mobile, forward-deployed R&D workshops near frontline units that allow engineers and technicians to modify, refine, and tailor systems in direct response to soldiers’ needs. These local R&D hubs – small engineering teams, workshops, and field labs – do not merely maintain equipment; they modify and upgrade it, adapting systems to new tactical challenges. In these workshops, software for drones can be updated on the spot, or a new mount can be designed for a different type of munition. At the tactical level, a commander can request a software patch, a hardware tweak, or even localized production of new equipment based on immediate operational feedback – capabilities that a distant laboratory cannot match. Because it is impossible to predict what the battlefield will demand in two to three years, the priority must be to build an infrastructure for decentralized, tactical innovation: Empower brigades and platoons with budgets, personnel, authority, and incentives to develop solutions that bypass slow, bureaucratic procurement chains. Nonetheless, this does not mean that the traditional defense industry and large-scale, serial defense production lines would no longer be necessary, for example, in ammunition or armored vehicle production; instead, the right balance of the two must be found.

This experience shows that traditional defense industries, constrained by slow procurement cycles and rigid production models, are no longer fully sufficient. If Europe integrates Ukrainian battlefield innovation into its defense industrial base, utilizing the mass production capabilities it has, it will fast-forward its adaptation to new technologies and warfare logics. Conversely, Ukraine will gain access to the scale, resources, and production capacity necessary to sustain and expand its defense innovation. This win-win integration – merging Ukraine’s ingenuity with Europe’s strength – is the key to building a shared, future-ready security architecture for Ukraine and the entire European continent.

Jointly Developing Key Capabilities

The Ukrainian Ministry of Defense has clearly outlined that Ukraine’s contribution to the European defense ecosystem extends beyond battlefield experience. It includes a rapidly expanding industrial base capable of delivering high-value, combat-proven systems. The sector is growing on average by 218 percent annually. Moreover, Ukraine currently only utilizes around 55 percent of its defense production capacities, meaning that Ukrainian companies already possess substantial untapped potential to scale up output significantly without requiring additional investment. For the EU, this represents a major opportunity. By integrating Ukraine’s industrial capabilities into European supply chains, the Union could rapidly expand production volumes, diversify suppliers, and reduce strategic dependencies.

In its 2025 proposals for funding through the EU’s SAFE instrument, the ministry emphasized that Ukraine can offer the EU a broad portfolio of technologies and production capabilities, from unmanned and robotic systems to long-range strike and artillery solutions. Ukraine’s drone industry – spanning FPV and maritime drones, as well as ground robotic systems – has become one of the most advanced in the world. Domestically developed systems like the An-196 Liutyi strike drone and the Peklo drone missile illustrate Ukraine’s capacity to design, test, and deploy complex technologies under wartime pressure, providing Europe with a unique opportunity to integrate these innovations into its collective defense architecture.

Beyond drones, Ukraine is rapidly rebuilding its munitions, artillery, and missile production. From the Bohdana 155 mm self-propelled howitzer to the Long Neptune cruise and Sapsan ballistic missiles, Ukraine has demonstrated the ability to deliver scalable, cost-effective, and NATO-compatible systems. It has also developed cutting-edge electronic warfare (EW) tools capable of countering evolving Russian drone and communications threats – an area where few European producers have equivalent battlefield-tested systems.

This Ukrainian offer aligns closely with the EU’s recently adopted policy framework, the Defence Readiness Roadmap 2030. The roadmap identifies priority capability areas such as air and missile defense, artillery systems, missiles and ammunition, drones and counter-drone systems, cyber defense, artificial intelligence, and electronic warfare – all domains where Ukraine already demonstrates battlefield-tested innovations and growing industrial capacity. Ukraine’s advanced UAV (unmanned aerial vehicle) and electronic warfare technologies, new-generation artillery systems such as Bohdana, and expanding ammunition and missile production correspond directly to Europe’s most urgent capability gaps. They also support greater European strategic autonomy by reducing reliance on US-provided key enablers, including air and missile defense. Integrating these Ukrainian technologies and production lines into European procurement and industrial cooperation would therefore not only accelerate Europe’s adaptation to next-generation warfare but also strengthen collective deterrence and resilience. Furthermore, a closer integration of European and Ukrainian defense industries may support Europe’s efforts to reduce dependence on the United States in the long run.

Funding and Implementing Defense-Industrial Integration

Keeping Ukraine afloat militarily is crucial for European security, also because this is needed to realize the potential of defense-industrial cooperation. Therefore, sustainable financing is required – in particular because the US all but stopped funding Ukraine’s war effort since Donald Trump’s return to the US presidency. Data from the Kiel Institute for the World Economy’s Ukraine Support Tracker shows that the US halted all financing after Trump’s inauguration in January 2025. Congress in December 2025 agreed to spend USD 400 million on US training and equipment for Ukraine in 2026, but this is a fraction of the USD 60 billion Joe Biden’s administration had provided. Hence, Europe needs to step up.

To ensure sustainable and predictable financing, Europe needs solutions that are not vulnerable to veto by any EU member states. Hungary, for example, has blocked access to more than EUR 6 billion from the European Peace Facility planned to be used to compensate European countries that have supported Ukraine militarily. To stabilize Ukraine’s finances, the EU adopted a EUR-90-billion loan framework for 2026-27, exempting Hungary, Slovakia, and Czechia. While this was an all-EU decision, de facto it was that of a “coalition of the willing”: Member states could voluntarily contribute to, or abstain from, financing Ukraine’s economic and defense needs. The solution gained strong legitimacy due to the broad support of EU countries and allies, and neutralized the threat of veto. Crucially, the backing of the EU budget for the loan provides much safer and cheaper financing for Ukraine than a market-based loan.

In addition, NATO’s Prioritized Ukraine Requirement List (PURL) is helping European countries procure US-made weapons for Ukraine. Since August 2025, PURL has offered an institutionalized – albeit non-EU – solution for arming Ukraine with much-needed US weapons. PURL is coordinated by NATO, but the Alliance does not fund it. Germany, Norway, Poland, Canada, Sweden, the Netherlands and others are the most important PURL contributors. As of December 2025, NATO allies and partners had contributed more than USD 4 billion via PURL to Ukraine’s defense.

One cause for optimism is that the European public is still largely in favor of supporting Ukraine, including military support. Eurobarometer data from December 2025 shows that Russia’s invasion of Ukraine is still the number one issue for the EU today, indicating strong public awareness. Moreover, an absolute majority of EU citizens is still either fully (18 percent) or rather (39 percent) in favor of financing the purchase and supply of military equipment for Ukraine, despite a slight decrease of 2 percent over spring 2025. Among key contributors, support is highest in Sweden, Denmark, and Finland, at 93 percent, 89 percent, and 88 percent, respectively, while in Poland it is 74 percent, in Germany 63 percent, and in France 54 percent. Even in Italy, where the public is divided over Ukraine, support is 48 percent. The EU public is still strongly in favor of military support for Kyiv – at 53 percent on average. It is safe to assume that a European public that is ready to spend its own money for supporting Ukraine militarily would also support closer defense-industrial cooperation.

Funding Defense-Industrial Cooperation and the EU’s SAFE Instrument

When it comes to joint manufacturing and defense industrial cooperation, both Ukraine and the EU face structural constraints that slow progress. On the Ukrainian side, key bottlenecks include export controls, underdeveloped R&D infrastructure, and weak protection of intellectual property rights. These limit the flexibility of Ukrainian producers to enter full-fledged joint ventures with European partners. On the EU side, the problem lies in the competitive logic of many private defense producers who still view Ukrainian companies as potential rivals rather than partners in a broader geopolitical effort. In addition, current EU financing mechanisms are imperfectly designed to support truly integrated cross-border production.

Both the Security Action for Europe (SAFE) and the ReArm Europe frameworks offer opportunities to facilitate military assistance to Ukraine and also to finance defense industrial cooperation. However, both tools function on a voluntary basis, i.e., participating member states decide how they will use the available funds. Member states remain free to decide whether or not to include Ukrainian entities in their National Defence Investment Plans, and many are likely to prioritize strengthening their domestic industrial bases. As of February 2026, 15 member states have included joint projects with Ukraine in their plans. Where there is political will, these tools can be used in innovative ways to foster defense-industrial cooperation with Ukraine, such as Poland does via the EU’s ReArm Europe Plan by supporting Polish defense companies in Ukraine. Nonetheless, countries are not obliged to use any of their SAFE or other ReArm funds for Ukraine. Practical and legal obstacles on both sides further complicate Ukraine’s inclusion in common SAFE-funded projects. Lack of trust, diverging priorities, and the additional due diligence required for cooperation with a non-EU partner make joint projects cumbersome and politically unappealing. The European Commission itself has limited leverage over member states’ investment decisions, meaning Ukraine’s participation largely depends on political will at the national level. Ukraine may also miss out on real benefits from this financial instrument due to the short timeframe for member states to submit European Defence Industry Investment Plans.

On the Ukrainian side, several legal and institutional barriers persist. Although the SAFE regulation allows co-production on Ukrainian territory, this clashes with Kyiv’s own export ban on defense products, enacted in 2022 under the law “On State Control over International Transfers of Military and Dual-Use Goods.” This means that any equipment produced in Ukraine under SAFE funding must remain in Ukraine for end-use unless the ban is lifted. Ukrainian companies registered or operating in EU member states can participate more freely, but Ukraine’s domestic producers are constrained. In parallel, gaps in Ukraine’s intellectual property (IP) framework and third-country control provisions limit the secure transfer of technology and deter potential investors.

Without robust IP protection, clear export procedures, and targeted coordination mechanisms at the EU level, Ukraine risks being sidelined from SAFE investments. The absence of strong incentives for EU countries to integrate Ukrainian producers into their industrial strategies may result in fragmented, nationally driven projects. To realize the strategic potential of Ukraine’s defense industry – and to truly strengthen Europe’s collective deterrence – both sides will need to move from competition to coordination, aligning regulatory, financial, and industrial instruments toward genuine joint production and technology development.

Practical Questions for the European Integration of Ukraine’s Defense Industry

Diverging priorities also hinder the integration of Ukrainian producers into European defense industrial networks. The operational logic of Ukraine’s defense industry is dominated by frontline needs, while other considerations are either deprioritized (such as workers’ rights, which are normally constrained under martial law) or sidelined completely (such as environmental issues). Meanwhile, European industries are required to consider such standards.

European or NATO militaries simply cannot use some solutions that are widely and efficiently employed in Ukraine out of necessity. For example, manually arming the Ukrainian military’s FPV drones is an extremely dangerous task. Every month, dozens of Ukrainian drone armament specialists suffer serious injuries while affixing various explosives onto these drones. Ukraine uses such manual solutions because there are currently no alternatives. No European military would be willing to work with such risky systems.

Nevertheless, a few highly successful public and private joint ventures already exist. The newer versions of the Ukrainian Bohdana 155 mm self-propelled howitzer are built on Czech-made Tatra 8x8 chassis. Moreover, the Bohdana’s producer, the Kramatorsk Heavy Machine Tool Building Plant, currently operating in Western Ukraine, registered an international patent for the newest Bohdana 6.0, also built on a Tatra chassis, in July 2025, clearly aiming for international markets once export restrictions are lifted.

In addition, several Western drone-manufacturing companies have a field presence in Ukraine. Some have embedded specialists in Ukrainian drone units and UAV engineering centers, enabling the rapid integration of combat experience into the production. Others have hired Ukrainian specialists as advisors for manufacturing, in particular attack drones. Furthermore, there are several Western experts, including a few active militaries, who are testing various experimental arms development projects, often in cooperation with Ukrainian partners. The German drone company Helsing is also battle-testing its HX-2 strike UAV system in Ukraine. In December 2025, a British soldier died in Ukraine while testing a new defensive weapon – the first confirmed death of an active Western military member. His presence indicated ongoing, close industrial cooperation between the British and Ukrainian militaries. Details, however, remain undisclosed, allegedly for operational security reasons.

Systemic Challenges: Transparency and Corruption

The defense sector, including defense procurement, is by definition one of the least transparent policy areas in any country. Information on contracts, deliveries, and production volumes is typically restricted, as excessive disclosure can expose national vulnerabilities. This logic applies even more strongly to a country at war. In Ukraine’s case, revealing procurement details can reveal valuable intelligence to the enemy and thus directly harm national security interests.

At the same time, systemic governance challenges continue to affect Ukraine’s defense sector. Corruption in Ukraine’s defense industry remains a high-risk area despite notable wartime progress in reforming oversight mechanisms and strengthening accountability. Key vulnerabilities include weak supplier vetting processes, contradictions within export-control regulations, and occasional political interference or vested interests within defense value chains. These risks persist partly because the urgency of wartime procurement often necessitates accelerated procedures that leave less room for thorough due diligence.

For Ukraine’s international partners and donors, these governance gaps underscore the importance of embedding strong transparency and compliance frameworks into joint production and procurement initiatives – such as those financed under SAFE. Such safeguards are critical to maintain donor confidence, enable long-term industrial integration with European partners, and ensure that resources serve Ukraine’s defense and deterrence needs effectively.

Nevertheless, external monitoring indicates that the scale of misuse remains limited. According to the US Special Inspector General for Ukraine Reconstruction (SIGUR) report covering April–June 2025, while vulnerabilities in Ukraine’s procurement and supply chains persist, there was no evidence of the misuse of major US defense funding disbursements.

Ukraine’s hybrid defense procurement system, both centralized and decentralized, holds a particular lesson. Following the public exposure of corruption in non-lethal defense procurement in 2023, Ukraine established two specialized procurement agencies, the Defense Procurement Agency (DPA) and the Non-Lethal-Procurement Agency (DOT). Their creation demonstrated that Ukrainian society demands accountability and that even under martial law, civil society retains the ability to pressure the government and push for reforms in the most restricted areas, such as defense. Both agencies were established in line with corporate governance principles, with independent supervisory boards and compliance mechanisms.

Despite some early criticism, both institutions have gradually improved efficiency and transparency. The government merged them into a single defense procurement agency, the Unified Acquisition Agency, in early 2026, aligning with NATO standards and enhancing the integrity of Ukraine’s defense procurement architecture.

Ukraine today has a unique dual system of defense procurement, combining centralized (Unified Acquisition Agency) and decentralized (in cooperation with military units) models. In most armies, procurement is a fully centralized process – complex, slow, and oriented toward long-term planning and large-scale acquisitions. Ukraine’s model is different: Both systems operate in parallel. Centralized procurement covers standardized acquisitions, while decentralized procurement allows for rapid, flexible responses to frontline needs. This structure has made Ukraine’s armed forces more agile, self-developing, and capable of horizontal cooperation and real-time adaptation to battlefield realities.

This hybrid solution could become a model for EU member states and other partners. The war of the 21st century is not only about artillery and aviation. It is primarily about the speed of adaptation, a continuous innovation cycle, and the autonomy of units empowered to make quick decisions. Ukraine has already gone through this transformation and stands ready to share real-life cases and the lessons it has learned.

In modern warfare, technological solutions can lose relevance on the battlefield within weeks, sometimes even days. To stay ahead, many Ukrainian units have created their own innovation infrastructure at the tactical level, as close as possible to the front line. This level of agility and adaptability stems not only from engineering talent but also from the decision-making authority and budget autonomy of unit commanders. Without decentralized procurement, such responsiveness would be impossible.

At the intersection of these two approaches emerged the DOT-Chain Defence system – a “digital arms marketplace” that allows frontline units to directly order drones and robotic systems. The US Department of Defense is now developing a similar mechanism for its own forces, a telling sign that this is precisely the model Europe should integrate into its defense innovation ecosystem.

Conclusions and Recommendations

The era of fragmented, competitive thinking in Europe’s defense industry is coming to an end. Europe’s security environment now demands a logic of convergence: joint capability development, shared industrial scaling, and coordinated efforts to close critical capability gaps – many of which stem from long-standing overreliance on the United States for key strategic enablers. In this context, Ukraine’s unique combat experience and its rapidly evolving defense innovation ecosystem can serve as a force multiplier for European preparedness.

The overarching recommendation is to combine Europe’s industrial capacity and system-level standards with Ukraine’s agility, battlefield-driven innovation, and rapid adaptation cycle, thereby strengthening Europe’s readiness for the geopolitical shocks and long-term security challenges ahead. This approach can be advanced through the following practical measures:

Promote joint ventures and localization of ­European defense production in Ukraine: Industrial partnerships should shift from transactional supply models toward co-production and localized manufacturing. A core principle is the establishment of continuous battlefield feedback loops. Without structured user feedback from frontline conditions, products will lose operational relevance in a matter of months. European R&D efforts should therefore be brought closer to Ukraine’s combat-driven testing environment, enabling faster iteration and real-time adaptation.

Institutionalize brigade-level innovation and ­decentralized capability development: European governments should incorporate Ukraine’s experience in empowering brigades and lower-level units with budgets, authority, personnel, and incentives to generate solutions that bypass slow and overly centralized procurement chains. Partners could pilot “tactical innovation funds” at brigade or platoon level within their own armed forces to test and institutionalize these mechanisms, strengthening responsiveness under crisis and wartime conditions.

Scale mutual learning on procurement models and battlefield feedback loops: European partners should draw lessons from Ukraine’s decentralized procurement mechanisms, which are directly shaped by the operational needs of frontline brigades. While many lessons learned are already being captured by the NATO Joint Analysis, Training And Education Centre (JATEC), further structured exchanges at the bilateral MoD level and through EU defense frameworks would accelerate institutional uptake. At the same time, Ukraine can further benefit from European practices in centralized procurement and industrial planning. Ukraine’s dual procurement model – combining centralized structures with decentralized procurement at unit level – offers a strong basis for rethinking procurement approaches for EU states and other partners as well.

Export capabilities to accelerate interoperability: Ukraine has long been more than just a recipient of assistance. It has emerged as a contributor to Europe’s security and an equal geopolitical actor. This shift requires a rethinking of the current export framework from exporting individual types of weaponry (a more transactional approach) toward exporting integrated security capabilities and services that strengthen Europe’s security. Such an expanded model of exports and defense cooperation would be one of the most effective ways to anchor partnerships, integrate Ukraine into European supply chains, and foster greater interoperability. For this, Ukraine should prioritize clear export procedures and put its intellectual property framework in order.

European Zeitenwende Strategy Group

This paper is part of a series of publications prepared in the framework of DGAP’s “European Zeitenwende” Strategy Group, which seeks to help reconceptualize European security in a rapidly changing geopolitical environment. Against the background of Russia’s ongoing war of aggression against Ukraine, a strained transatlantic relationship, growing rivalry with China, and changing global and regional orders, Europe needs to strategically reposition itself if it wants actively shape security on the continent.

Europe’s strategic reorientation should be inspired by those who – as direct neighbors to Russia and Ukraine – best understand the urgency to act. The Strategy Group therefore draws on in-depth analytical discussions with experts and stakeholders from Central, Eastern, and Southeastern Europe, as well as the Nordic and Baltic states, where debates on security are arguably most advanced, to propel a “Zeitenwende” of security policy and thinking in Europe.

Chaired by the German Council on Foreign Relations, the group met regularly online and in-person over the course of 2025. Convinced of the need for a comprehensive approach, it considered different dimensions of resilience, including security and defense, economic security, institutional reform, and societal cohesion.

The present paper series represents the results of the group’s analysis. It seeks to address questions and challenges that in the currently evolving security discourse remain conceptually and practically underdeveloped. By providing concrete analysis, definitions, and reflections to these open questions, the series aspires to add substance to the European Zeitenwende debate on security and defense. The ultimate question of all the papers is how to strengthen European agency in providing European security and in ensuring peace and stability in a new geopolitical context.

Members: Robin Allers (Norwegian Institute for Defence Studies), Hiski Haukkala (Finnish Institute of International Affairs), Wilfried Jilge (German Council on Foreign Relations), Karl-Heinz Kamp (German Council on Foreign Relations), Pavlo Klimkin (Center for National Resilience and Development), Jana Kobzova (European Council on Foreign Relations), Nicole Koenig (Munich Security Conference), Stefan Meister (German Council on Foreign Relations), Carolina Vendil Pallin (Swedish Defence Research Agency), Katri Pynnöniemi (University of Helsinki & Finnish National Defence University), András Rácz (German Council on Foreign Relations), Kristi Raik (International Centre for Defense and Security), Toms Rostoks (National Defence Academy Latvia), George Scutaru (New Strategy Center), Margarita Šešelgytė (Vilnius University, Institute of International Relations & Political Science), Marcin Terlikowski (Polish Institute of International Affairs)

The European Zeitenwende Strategy Group was established in the format of the project “In Together – Shaping a Common European Future,” which is funded by Stiftung Mercator.

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