The shift to dual-use innovation is universally recognized as Europe’s core strategy for securing a technological edge and achieving industrial resilience. While the theory is sound, it can leverage the speed and scale of commercial R&D for defense needs. In practice, this vision repeatedly collides with a frustrating, complex and time-consuming obstacle: export regulation. Paradoxically, the very mechanisms designed to protect national security, such as the EU’s Dual-Use Regulation, and international frameworks, like the Wassenaar Arrangement, are frequently the main bottleneck preventing agile dual-use start-ups from effectively scaling their technologies. Let’s unpack the barriers that keep dual-use innovation from scaling and what can be done about it.
The compliance burden: A tax on agility
For a start-up that wants to grow quickly, the red tape of export controls is immense. It can turn a simple international sales opportunity into a six-month bureaucratic negotiation. Firstly, regulations struggle to keep pace with the rapidly evolving, intangible nature of technologies such as AI algorithms, advanced sensors and specialized software. This makes it difficult for companies to properly assess which regulations apply. This so-called ‘classification paralysis’ often leads companies to resort to ‘overcompliance’, classifying items as more restricted than necessary to mitigate significant legal risk.
Next, dual-use technology is often developed through international collaboration. The regulatory system is already very fragmented within the EU, as different EU member states interpret the same rules inconsistently. When global collaboration is factored in, the picture becomes even more challenging. For example, the US’s export regulations (ITAR) applies for any company that uses even a single US-sourced component.
This complex patchwork of rules creates a legal minefield and severely limits cross-border trade, manufacturing partnerships and necessary investment. Another complication is the ‘intangible’ trap. It refers to intangible technology transfers (ITTs) that are now subject to export controls, meaning that sharing expertise or design knowledge with a foreign national, even within an EU subsidiary, can trigger a lengthy licensing process. This limits the open, collaborative environment that fast-paced innovation depends on.
The stifling impact on scale and resilience
In addition to slowing sales down, the regulatory challenges also fundamentally undermine the strategic goals of the entire dual-use model. This regulatory risk obstructs financial de-risking, as venture capitalists may become wary of investing in companies whose primary market expansion is impacted by unpredictable regulatory timelines. If a start-up cannot guarantee a timeline for exporting a critical component to a European manufacturing partner, it loses credibility and access to the capital needed to scale.
Moreover, this system discourages the ‘spin-on’ process necessary for defense modernization. When a commercial firm, accustomed to fast contracts, faces years of compliance audits and security reviews, the incentive to engage the defense sector dissolves. And, in turn, will lead to technology stagnation and a widening military capability gap. Critically, because different nations have varying compliance standards, companies are often forced to customize products for specific defense clients, which discourages standardization and undermines the key economic benefit of dual use: mass manufacturing.
Orchestrating the solution
Given these challenges, successfully transitioning to dual-use innovation often requires external expertise that understands both the commercial market and defense constraints. This is where Verhaert Strategic Innovation competencies can offer a competitive advantage. The company helps organizations accelerate their business by acting as an innovation orchestrator that bridges the operational gaps created by regulatory complexity. They specialize in strategic sourcing, identifying core requirements and translating them into technology-agnostic challenge statements.
Crucially, they guide the development of Internal Compliance Programs (ICPs) within start-ups and SMEs, embedding security and classification into the product lifecycle from day one. By setting up and executing structured pilot projects under programs like CASSINI, Verhaert provides public buyers with the necessary de-risked validation data to confidently transition to scalable procurement.
Innovation in regulation
To fully harness the potential of dual use, the focus must shift from controlling everything to managing risk strategically. Institutions must work to simplify and standardize the licensing process, perhaps by creating EU General Export Authorizations (EUGEAs) specifically tailored for the export of established dual-use technology (such as COTS satellite components) to allied nations. Regulators should empower companies by providing clear, standardized guidance for robust Internal Compliance Programs (ICPs).
This will allow firms with certified processes to benefit from accelerated licensing. Rather than physically monitoring every piece of generic hardware, regulations should focus on controlling the deployment of sensitive AI algorithms and software code to keep up with the speed of digital change. The dual-use revolution promises a massive surge in both economic prosperity and security, but until the burden of regulatory red tape is effectively managed, that promise will remain stalled.