Central and Eastern Europe stands at a decisive moment of industrial transformation. The sustained increase in European defence spending and the shift from one off procurement toward continuous production, stockpile replenishment, maintenance, and long term industrial capacity have fundamentally altered the investment logic. This shift has moved the centre of gravity of defence investment away from Western Europe toward regions capable of delivering volume, cost efficiency, and direct integration into supply chains at speed— i.e. the countries of Central and Eastern Europe, which concentrate precisely these advantages. These are among the main conclusions of KPMG’s latest study, “The Underdog Advantage: Central and Eastern Europe - a Growing Opportunity for Multinational Defence and Security Investments.”
According to the KPMG analysis, Central and Eastern Europe is undergoing a process of strategic repositioning with long term implications and direct impact on economic performance, regional cooperation, and industrial development. States in the region are increasingly leveraging geography, institutional compatibility, industrial depth, and skilled labour to develop jointly production, logistics, and innovation capabilities with relevance at European level. The war in Ukraine has accelerated a profound transformation in Europe’s security architecture: Central and Eastern Europe is no longer the continent’s periphery. It is becoming an operational core, NATO’s strategic corridor, and a critical pillar of Europe’s defence industrial renewal.
“Central and Eastern Europe is no longer the periphery of European defence, but the space where security, industry, and competitiveness converge,” explains Tudor Grecu, CEE Head of Defence, Partner, Head of Advisory, KPMG in Romania.
A shared platform beyond differences. According to KPMG, the countries of Central and Eastern Europe—Poland, Romania, the Czech Republic, Slovakia, and Hungary—exhibit political and economic differences yet share a common foundation conducive to cooperation: European Union and NATO membership, as well as the experience of accelerated economic transition based on openness, foreign investment, and integration into global value chains. This shared trajectory has produced a high degree of institutional and industrial compatibility, reducing the transaction costs of cross border cooperation and facilitating joint projects in infrastructure, industry, energy, and technology.
“Increasingly visible, regional cooperation is no longer defined by political symbolism, but by functional interests: mobility, connectivity, access to the single market, supply chain security, and coordinated industrial development,” the study argues.
Directions for cooperation. One of the most promising areas of cooperation identified by KPMG is investment in dual use infrastructure, which simultaneously serves economic and security objectives. Roads, railways, ports, airports, maritime routes, and river corridors are becoming essential nodes in a broadened regional mobility network.
The Black Sea is emerging as a central strategic node for European security—a space where military security, freedom of navigation, energy, and Ukraine’s reconstruction intersect. The EU’s new Black Sea strategy and the proposal to establish a maritime security hub in Constanta strengthen Romania’s role as a key regional pillar and demonstrate that the Black Sea is no longer marginal, but indispensable to European stability.
The Danube also plays a critical role in this transformation. Upgrading Danube ports and modernising associated road and rail connections creates not only alternative transport routes, but also regional logistics hubs capable of supporting trade, Ukraine’s reconstruction, and European industry.
By the same logic, investment in rail infrastructure—including solutions addressing the gauge mismatch between Ukraine and EU rail networks—opens opportunities for joint engineering projects, European financing, and technical standardisation; all areas where regional cooperation can deliver accelerated results.
“For investors and policymakers alike, Central and Eastern Europe is no longer an alternative location, but one of the few regions capable of delivering volume, speed, and industrial scale simultaneously in the defence sector,” explains Air Flotilla General (r) Adrian Duta, Senior Advisor, Defence & Security, KPMG in Romania.
A new European industrial ecosystem. Central and Eastern Europe benefits from an adaptable industrial base built over the past three decades around advanced manufacturing, automotive production, industrial equipment, electronics, and software. As the KPMG study shows, this industrial base represents a major competitive advantage for developing strategically relevant production capabilities.
The conversion and scaling of dual use production develops existing competencies—precision machining, metallurgy, electronics, software engineering, and automotive manufacturing—can be integrated into regional production networks, coordinated around common standards and oriented toward European and Euro Atlantic markets.
Each country contributes a complementary profile that fits into a broader strategic puzzle. Poland combines market scale and industrial labour with a rapidly expanding defence modernisation programme, offering strong potential in software, cybersecurity, unmanned systems, and large scale industrial production. Romania benefits from its strategic geography, legacy defence industrial capacity, and expanding Western partnerships, reinforced by access to the Black Sea and the Danube. The Czech Republic brings a deep defence industrial tradition, strong engineering capabilities, and a central position within European manufacturing networks. Slovakia focuses on niche strengths—particularly in ammunition and land systems support—underpinned by industrial tradition and cost competitiveness. Hungary’s model is partnership driven, linking procurement to localised production through strategic joint ventures. While these pathways differ, together they define a complementary industrial arc capable of supporting resilient regional value chains with reduced dependence on extra European suppliers.
Ukraine as an emerging industrial partner. Ukraine occupies a distinct but increasingly integrated position within this regional ecosystem, according to KPMG. The war has rapidly accelerated its innovation capacity, particularly in drones, communications, maintenance, and the rapid adaptation of existing technologies.
Cooperation between Ukraine and neighbouring EU states can take the form of a functional division of labour: Ukraine as a source of demand, testing, and operational innovation; EU countries as secure platforms for scaled production, certification, financing, and integration into the single market.
This dynamic opens space for mixed industrial partnerships, regional maintenance and repair hubs, expansion of production capacity for post conflict reconstruction, and the gradual integration of Ukraine into European industrial networks.
Human capital and innovation. Human capital is another critical development vector highlighted by the KPMG study. While the region benefits from strong technical education systems, it faces demographic pressures and intense competition for talent. The expansion of strategically relevant industries creates opportunities to attract specialists from the diaspora (“brain return”), develop joint university and vocational programmes, and specialise regional centres in fields such as cybersecurity, advanced electronics, autonomy, and applied artificial intelligence. Cooperation between universities, industry, and public authorities can consolidate a regional innovation ecosystem capable of sustaining long term economic growth.
Prospects for cooperation. EU instruments—cohesion funds, military mobility programmes, R&D frameworks, and infrastructure financing—provide a stable, predictable environment for multinational projects. Aligning these tools with national strategies enhances the region’s attractiveness for institutional investors and international partners, KPMG notes.
Regional cooperation can also reduce administrative fragmentation through harmonised procedures, shared procurement platforms, and systematic exchanges of best practices in regulation and permitting for major projects.
The stakes of the coming decade extend beyond security alone. They involve the opportunity to transform strategic necessity into a development project of historical significance. If Central and Eastern European states cooperate intelligently and align their industrial strengths, the region can become not only a pillar of European security, but also a driver of growth, integration, and innovation. “In this scenario, Central and Eastern Europe will no longer be merely a buffer zone or a strategic flank, but an economic and industrial power centre essential to the future of the European Union and the stability of the wider European space,” concludes Tudor Grecu.
About KPMG
KPMG is a global organization of independent professional services firms that provide audit, tax and advisory services. We operate in 138 countries and had nearly 276,000 employees in member firms around the world. Each KPMG firm is legally a separate and distinct entity and is described as such. KPMG International Limited is a private English company limited by guarantee. KPMG International Limited and its entities do not provide customer services.
In Romania and the Republic of Moldova, KPMG operates in six offices in Bucharest, Cluj-Napoca, Constanta, Iasi, Timisoara and Chisinau. We currently have more than 1,300 professionals, both Romanians and expatriates.
