Finland’s Ministry of Defence and the Estonian Defence forces signed an agreement at the end of June with Finnish start-up NestAI to test the company’s AI models on the battlefield. This is just the latest in SMEs in the Baltic states bordering Russia putting their skills in AI, cyber, and space towards regional and European security by contributing to projects including electronic warfare, hypersonic defence, and cybersecurity.
Often overlooked because of their small GDPs and populations, Estonia, Lithuania, Latvia and Finland have been proving that ‘small’ also means being agile. Following Russia’s invasion of Ukraine, the countries’ SMEs and start-ups quickly adapted to the new security reality of sharing a border with a hostile neighbour to pursue cutting-edge military innovations and dual-use space technologies.
Salvis Skladovs from Latvia’s LMT Defence explained that, “Latvia is unlikely to launch a national main battle tank or fighter jet programme in the foreseeable future. However, by leveraging our engineering traditions, creativity, rapid development cycles and a highly compact ecosystem, we can become global leaders in technologies shaping the future battlefield – autonomous systems, communications, C4ISR solutions, AI and related fields.” Indeed, Ieva Sīpola and Julia Gifford from Labs of Latvia clarify that each country in the region has their own specialties with Lithuania taking lead in lasers and optics; Estonia known for cybersecurity and robotics; Latvia excelling in telecommunications and quantum technologies; and, Finland having a long history in telecoms, software and cybersecurity.
The region has also been bearing the brunt of Russia’s ongoing hybrid attacks in the region. Lithuania’s, Estonia’s and Latvia’s defence spending have all increased considerably and lead Europe in percentages of GDP. Finland’s military has shifted dramatically since Russia’s invasion as, “The air and missile threat drives particular concern. Russian cruise missiles (Kh-101, Kh-555, Kalibr, Iskander-K), ballistic missiles, expanding drone capabilities, and hypersonic weapons all factor into Finnish planning.”
As such, governments have been supporting their SMEs and start-ups by encouraging innovation domestically and promoting them at the EU-level for larger pan-European projects involving European primes. This gives a boost to Baltic industry and domestic economies and brings their cutting-edge technologies and innovations to help develop systems and equipment that contribute to Europe’s security as a whole.
Public Officials Promoting Their Protégés
In April, Lithuania’s Minister of National Defence, Robertas Kaunas, and Minister of the Economy and Innovation, Edvinas Grikšas, approved a €40 million venture capital instrument called ‘MILInvest-2’ for innovations in the defence and security sector. Minister Kaunas explained, “The country’s defence is a matter for all of us, so through concrete actions, we are providing businesses with opportunities to strengthen Lithuania’s security and economic resilience jointly.”
Finland is establishing a new defence innovation unit within the Finnish Defence Forces to engage with companies and research institutions to bring innovations to the military. Minister of Defence, Antti Häkkänen, said, “I also want to underline the active steps taken by the Ministry of Defence to promote Finland’s industrial capabilities and strengthen international RD&I cooperation. We have worked systematically to support export promotion, to showcase Finnish technological excellence, and to develop partnerships with companies both bilaterally and within the frameworks of the European Union and NATO.”
Estonia created the NATO Cooperative Cyber Defence Centre of Excellence (CCDCOE) in Tallinn following a Russian-sponsored cyberattack in 2007 and in 2024, then-Prime Minister Kaja Kallas started a €50 million defence industry fund. Twenty Estonian companies participated in this year’s Eurosatory defence show and during his keynote speech, Minister of Defence Hanno Pevkur promoted the country’s protégés saying, “Our defense industry is growing rapidly and increasingly contributes to next-generation military capabilities building on our digital foundations… These companies are transforming battlefield lessons into operational capabilities at remarkable speed.”
Baltic Defence SMEs with a Pan-European Influence
Governments’ promotion is paying off as Baltic SMEs are increasingly included in large pan-European projects funded under the auspices of the European Defence Fund (EDF). This trend is win-win: projects led by larger defence industrials benefit from the ‘speed’, agility, innovation and expertise of Baltic SMEs and they in return gain visibility and access to larger markets and projects.
One of the earlier EDF-funded projects that included a range of Baltic SMEs is the FACT project to create a toolbox for European militaries to test and verify cyber vulnerabilities of equipment. The project received €26.9 million in 2022 and is led by Norway’s Kongsberg Defence & Aerospace, but the consortium includes Estonia’s CR14 (expertise in cyber range solutions and testing), Finland’s Crosshill (with experience in advanced microelectronics and creating fully secured embedded solutions), and Latvia’s LTM (a 5G expert).
Under the EDF’s 2024 funding round, the Finnish/Norwegian Patria-led AI-WASP programme received €45 million to “provide multifunctional solutions for electromagnetic spectrum operations in future electronic warfare (EW)”. The consortium includes fellow Finnish Bittium Wireless providing expertise in advanced radio frequency capabilities and Estonia’s Cybernetica who says it “contributes its expertise in secure AI systems, supporting the integration of trustworthy and cybersecure AI into complex defence platforms, cybersecurity and cyber situational awareness in swarming.”
Then there is one of Europe’s most strategic efforts: the OCCAR-managed Endo-Atmospheric Interceptor (EATMI) effort initiated by the EDF to develop Europe’s first air defence system capable of stopping hypersonic manoeuvring missiles. The threat is increasing as Russia and China already field hypersonic systems and Kiev is regularly hit by them and yet, neither Europe nor the U.S. currently field effective countermeasures.
It was recently announced that Baltic companies have been included in one of the competing consortia, Hydis2, coordinated by MBDA France, just before OCCAR revealed the project had reached a crucial milestone of completing its Final Concept Review. Participants in the next phase, now called HYDIS2dp, come from 18 countries, with 28 partners each contributing a specific area of expertise to the system. Baltic specialists joining this pan-European effort include: Finland’s Crosshill to evaluate quantum-safe electronics and encryption algorithms, Estonia’s Cybernetica working on cyber security requirements and architecture studies & validation, Estonia’s Falconers contributing expertise in building intelligent hardware-software solutions, Estonia’s Skudo with know-how in deep-tech cybersecurity and hardware-based solutions, and Lithuania’s Novian (previously ELSIS Pro) that has participated in a number of EDF projects with its development of IT infrastructure and software platforms.
These are just a few examples of large pan-European projects that are leveraging the expertise and agility of Baltic SMEs and start-ups to develop pioneering technologies needed for Europe’s militaries. At an April conference in Vilnius, former Lithuanian prime minister and now EU Defence and Space Commissioner Andrius Kubilius, asserted and asked: “The Baltics and the region is a powerhouse of defence innovation… SMEs and start-ups are at the heart of defence innovation, and there are many successful SMEs here. How can we make sure defence SMEs get the contracts they need to produce at scale? How can we turn eastern border SMEs into European primes?”
Government leaders in the region encourage innovation and promote their most promising performers, but when the projects these companies participate on are successful, that is when their expertise is truly noticed. And being small is actually part of their advantage because as Leet Rauno Lember from Estonia’s Marduk Technologies argues, “In software development, being small is being agile.” So, whilst most will not become ‘European primes’, they still represent a powerful force in Europe’s ecosystem of defence industrials responsible for developing technologies to secure the continent.
