Hanza’s defence pivot tests its cluster model as Europe rebuilds capacity

When Swedish manufacturing company Hanza was founded in 2008, its ambition was clear: it would not work with the defence industry.

Today, defence is the fastest-growing part of the business. A shifting geopolitical landscape has redrawn the map for Europe and for the contract manufacturer.

- When we started, the idea was that we would not work with defence. But the world has changed, says chief executive Erik Stenfors:

- If you want peace, you must prepare for war.

Cluster strategy

Based in Kista, Sweden, Hanza has long differentiated itself through its cluster strategy, a model that brings together multiple manufacturing technologies within close geographic proximity.

Unlike traditional contract manufacturers, the company does not optimise individual factories or single technologies. Instead, it builds clusters of factories with different technologies. 

- That’s what creates advantages for customers, regardless of what they buy from us, Stenfors says.

A recent investment in Årjäng, where Hanza is expanding its machining capacity, illustrates the model in practice. The investment is partly driven by rising demand from the energy and defence sectors, but it also strengthens the wider cluster.

- When we develop one factory, we also develop the cluster. That creates economies of scale.

The principle, he argues, is to combine complementary technologies.

- If you place an electronics factory next to another electronics factory, it doesn’t create much value. But when you build electronics next to mechanics, that’s when value is created.

The model has also proved resilient in a weaker market. After margins fell from 8 percent at the end of 2023 to 5 percent at the beginning of 2024, amid an economic slowdown and the acquisition of Orbit One, the company launched its cost programme, Onyx.

Margins improved steadily over the year. In the third quarter, the company returned to 8 percent, rising to 9.9 percent in the fourth quarter. 

Something wrong

At the same time, defence has become an increasingly important segment with demand for local European production capacity growing rapidly.

- There was something wrong with Europe’s business model - defence from the US and manufacturing in Asia. Now we need to build capacity locally, Erik Stenfors says.

To meet rising demand without crowding out other customer segments, the company has launched a dedicated programme, Lynx, focused on defence and security.

- Defence is like a cuckoo chick. It requires an enormous amount in a short time and is willing to pay. That’s why we have to build capacity in a structured way, to ensure continued capacity for customer groups outside defence.

Defence still accounts for a minority share of revenue, but it is the fastest-growing segment.

- This will continue. Europe needs to rearm, and that requires manufacturing capacity, says Erik Stenfors.

This article was first published in Defence Nordics’ affiliate publication, Metal Supply.se