Denmark has billions in defence offsets. It doesn’t know where to spend it

Offset was meant to channel billions back into Denmark’s defence and manufacturing industries. Instead, it has created a bottleneck.

According to Peter Sperling, chief innovation officer at the National Defence Technology Center Denmark, the issue is not a lack of capital, but the system’s ability to absorb it:

- There are so many offset funds in play that we simply cannot industrialise them fast enough.

In principle, the system is straightforward: when Denmark purchases defence equipment abroad, the supplier commits to generating a corresponding level of activity in Danish industry. In practice, however, the funds have proven far harder to deploy. 

Around DKK 23 billion currently sits idle, awaiting allocation back into the sector, as previously reported by Defence Nordic.

In Sperling's view, the offset system is designed for a different kind of economy. Its logic rests on a one-to-one model, where the purchase of a weapons system is matched by the domestic production of related components. 

But that kind of industrial capacity is highly limited in Denmark.

Innovation killer

The result is a system with substantial funds but no clear way of putting them to productive use within the industry. The CIO suggests a different approach:

- We, at NFC, would like to be able to convert offset funds into two things: investments in research or development, and investments in startups, he says.

- That’s where we can create actual value. Not in opposition to existing industry, but to expand and develop the industry of tomorrow

Rather than focusing on physical production, the funds should be used to build technological capacity. The goal is not simply to deploy the money, but to use it to develop new areas of strength.

The challenge, however, is not only that the funds are difficult to deploy. It is also that the system, in its current form, encourages the wrong kind of behaviour, according to Sperling. 

Companies are effectively pushed away from their core business, he argues:

- You might end up building some obscure factory, even if it’s not your core business. Instead, you should be selling the products and solutions you actually specialise in.

He continues bluntly:

- I’m not a fan of companies chasing the money in that way. It kills innovation.

The result is a distorted incentive structure, where the focus shifts from developing competitive capabilities to fulfilling formal requirements. It generates activity, but not necessarily new value.

Hard to access

At the same time, the system is difficult for new entrants to access. The requirement for direct links to existing defence systems makes it hard for companies outside the established value chain to break in.

The proposal therefore points to a more fundamental shift, not just in how the funds are administered, but in the type of industry they are intended to support.

In its current form, the system favours activities resembling traditional industrial production. In a Danish context, where value creation increasingly lies in knowledge and technological development, this creates a mismatch, Sperling says.

The question, then, is not simply how the DKK 23 billion will be put to work, but what they will be made to work for.

If the funds remain tied to forms of production that are not a natural fit for Danish companies, the system risks reinforcing a structure without strategic direction. 

If, instead, they are directed towards research, technology, and new ventures, they, Sperling says, could become a tool for building a different kind of defence industry.