Cybersecurity Compliance as an Industrial Filter in the Defence Supply Chain
How CMMC and Related Regimes Reshape Market Entry, Capital Allocation, and Industrial Resilience
The institutionalization of cybersecurity requirements in defence procurement has evolved from a technical safeguard into a structural mechanism that determines who can participate in the defence industrial base. By conditioning contract eligibility on validated compliance with standards such as NIST SP 800-171 and the Cybersecurity Maturity Model Certification (CMMC), U.S. policy has transformed cyber posture into a gatekeeping variable. This shift responds to documented vulnerabilities in contractor networks and to persistent threats targeting defence-related information. However, the effect extends beyond risk mitigation. Certification costs, audit requirements, and flow-down obligations raise fixed entry barriers, particularly for small and medium-sized enterprises. As compliance becomes a prerequisite for bidding, the supplier base contracts, consolidation accelerates, and production risk shifts from cyber exposure toward industrial concentration. Cyber mandates thus function not merely as security controls, but as an industrial selection mechanism that reconfigures participation, competitive dynamics, and systemic resilience within the defence sector.
The report is structured to examine compliance as a strategic variable rather than a regulatory technicality. It first situates CMMC within the evolution from self-attestation to third-party certification and links cyber hygiene directly to supplier qualification. It then analyzes the economics of compliance for SMEs, distinguishing fixed and variable cost burdens and assessing their impact on entry and exit decisions. Subsequent sections evaluate second-order effects, including supplier attrition, consolidation dynamics, single points of failure, and cross-border regulatory friction between U.S., EU, and UK regimes. The analysis then turns to capital allocation consequences, examining how compliance reshapes investment patterns and M&A behavior. The final sections assess policy trade-offs, design options for mitigating industrial thinning, and the broader implications for deterrence and readiness. The overarching thesis is that cybersecurity compliance has become a structural force shaping the architecture of the defence industrial base and, by extension, the credibility of modern deterrence.