Legal resilience in mechanical engineering: the underestimated competitive factor

Mechanical engineering is facing a profound transformation. Geopolitical tensions, fragile supply chains, increasing regulatory requirements, and growing digitalization are sustainably changing the framework conditions of industry. At the same time, international competitive pressure is increasing. Technological innovative strength and high manufacturing quality remain central success factors. But one further aspect is becoming increasingly important: legal resilience.

Oliver Huq is an attorney in Düsseldorf, senior partner at gunnercooke and specializes in international business law. He advises companies in the field of security and defense - from regulatory compliance to contract drafting to questions of management responsibility.

LinkedIn: https://www.linkedin.com/in/oliverhuq/

Web: https://gunnercookede.com/people/oliver-huq/

What does that mean in concrete terms? A company is legally resilient if it not only meets regulatory requirements, but also integrates them strategically into its business processes. Law is understood not as an obstacle, but as an instrument for risk management and competitive safeguarding. Especially in mechanical engineering, which is strongly export-oriented and internationally interconnected, this approach is becoming ever more important. Oliver Huq, lawyer and expert for security and defense at gunnercooke, puts it succinctly: “Companies in mechanical engineering that identify legal risks early and address them systematically secure not only stability, but also sustainable competitive advantages.”

Because regulatory violations no longer lead only to fines. They can result in delivery stoppages, reputational damage, exclusion from tenders, or even the loss of important sales markets.

Mechanical engineering as a key industry with special requirements

Mechanical engineering is one of the most important industrial sectors in Europe. The industry is highly innovative, internationally oriented, and closely intertwined with other industries. Mechanical engineering companies supply production facilities for the automotive industry, robotics systems for logistics, specialized machines for semiconductor manufacturing, or components for energy supply.

Particularly relevant here is the growing number of so-called dual-use technologies. Many machines, control systems, or precision components can be used for both civilian and military purposes. High-precision machine tools, sensor technology, drone technologies, or certain software solutions often fall into this category.

As a result, mechanical engineering is increasingly operating in a regulatory environment that was previously reserved primarily for the security and defense industry. Today, companies must not only master technical standards, but also understand and manage complex legal requirements.

Export control: from a specialized topic to a management task

For export-oriented mechanical engineering companies, export control law has now become one of the central fields of risk. International supply chains, global customer relationships and cross-border development collaborations mean that companies are confronted with different national and international regulations.

Particularly relevant here are the EU Dual-Use Regulation (EU) 2021/821 as well as U.S. regulatory frameworks such as the Export Administration Regulations (EAR) or the International Traffic in Arms Regulations (ITAR). Their scope is often underestimated. The use of individual U.S. components or software elements alone can lead to American export regulations applying.

Oliver Huq illustrates the risks: “Particularly in the case of dual-use technologies or international development projects in mechanical engineering, violations of European or U.S. export regulations can have serious consequences. Production interruptions, shipment stoppages and considerable reputational damage are only some of the possible consequences.”

An example from practice: A medium-sized mechanical engineering company develops high-precision milling machines for the aerospace industry. A customer from a third country wants to acquire the systems. As part of the internal review, it emerges that the machines, due to their precision, are potentially also suitable for military applications. In addition, the control systems contain U.S. software components. Without careful export control review, considerable risks loom: The export could require authorization or even be completely prohibited.

The consequences of violations are considerable. In addition to high fines, criminal consequences for management, the revocation of existing export licenses, as well as the permanent denial of future licenses or long-term reputational damage are possible. There is also an economic aspect: International customers and business partners increasingly expect robust compliance structures. Anyone who organizes export control professionally creates trust and improves their market position.

“Companies that strategically anchor export control not only minimize risks, they manage them in a targeted manner,” says Oliver Huq. “Compliance thus becomes not merely a control mechanism but a door opener for international markets.”

Supply chains under pressure: legal responsibility is growing

The past years have shown how vulnerable global supply chains can be. Geopolitical conflicts, trade restrictions, sanctions, or raw material shortages have a direct impact on production processes. At the same time, the legal requirements for companies to design their supply chains transparently and responsibly are increasing.

With the Supply Chain Due Diligence Act (LkSG), binding requirements were established in Germany for the first time in order to identify and minimize human rights-related and environmental risks along the supply chain. The law currently applies to companies with at least 1,000 employees in Germany; however, indirect effects on smaller suppliers arise through contractual pass-through obligations. In addition, further sets of rules are emerging at the European level, such as the Corporate Sustainability Due Diligence Directive (CSDDD). The CSDDD is in an ongoing political process: In spring 2025, the EU Commission proposed significant adjustments that could considerably affect the timetable and scope of the directive. Companies should actively monitor the development.

Cyber Resilience Act: why companies must invest

The Cyber Resilience Act is fundamentally changing the requirements for products in mechanical and plant engineering. From December 2027, only demonstrably secure solutions may be placed on the market in the EU.

Implementation is complex, especially in mechanical engineering. Companies often source components from numerous countries and work with extensive supplier networks. At the same time, there are high dependencies on specialist suppliers.

A company that, for example, imports electronic components from Asia or rare raw materials for drive systems must assess and document risks systematically. If corresponding processes are lacking, not only sanctions but also considerable operational problems threaten. Because clients and investors are paying increasing attention to whether companies can demonstrate robust ESG and compliance structures.

Huq warns: “Anyone who considers ESG criteria in mechanical engineering in isolation falls short. Sustainability, supply chain security and geopolitical risks must be assessed together. This requires close integration of legal analysis, risk management and strategic planning.”

In this context, legal resilience means integrating regulatory requirements at an early stage into purchasing, risk management and corporate management.

Product liability and cybersecurity: New risks from digitalization

The digitalization of mechanical engineering creates additional legal challenges. Modern production facilities are networked, software-controlled and increasingly cloud-based. Industry 4.0 applications, remote maintenance systems or AI-supported controls increase efficiency and productivity.

At the same time, however, liability and security risks are growing: With the revised EU Product Liability Directive (2024/2853), liability was for the first time explicitly extended to digital products and software. For mechanical engineering companies that develop networked systems or AI-supported controls, this creates a new, independent field of liability that must already be taken into account in product development. Companies that develop AI-supported control systems or automation solutions must also take into account the requirements of the EU AI Act (Regulation (EU) 2024/1689). AI systems in safety-critical applications can be classified as high-risk systems and are then subject to extensive certification and documentation obligations.

A cyberattack on a networked production facility can not only cause economic damage, but also create safety risks for people and infrastructure. Legislators are therefore tightening regulatory requirements for cybersecurity and product safety worldwide.

At the European level, the Cyber Resilience Act (Regulation (EU) 2024/2847) has already entered into force and will become fully applicable from the end of 2027. The NIS 2 Directive is also applicable law and is being implemented gradually in the member states. Companies will in future have to be able to demonstrate that their products and systems meet appropriate security standards.

Oliver Huq makes it clear: “Cybersecurity is no longer a purely IT issue in modern mechanical engineering. Anyone who develops digital products or networked systems must incorporate security requirements legally and organizationally from the outset. Missing security standards can quickly lead to liability and reputational risks.”

For mechanical engineering companies, this means a fundamental shift in perspective: cybersecurity is no longer exclusively the task of the IT department, but part of product responsibility. Legal resilience therefore requires close cooperation between development, compliance, IT security and management.

Procurement law and public contracts: law as a competitive factor

Many mechanical engineering companies work directly or indirectly with public contracting authorities, for example in the areas of infrastructure, energy, mobility or security. Public tenders, however, follow complex procurement law requirements. For contracts in the field of security and defense, the Defense and Security Procurement Regulation (VSVgV) also applies, which places special requirements on classified information protection, proof of suitability and bidding consortia and differs structurally considerably from the classic procurement procedure.

Anyone who does not take the legal requirements into account at an early stage risks exclusion from the procedure - regardless of the technical quality of the offer. Incorrect self-declarations, incomplete evidence, or violations of compliance requirements can have significant economic consequences.

Standards and regulations for suppliers in the defense industry

Contracts worth billions, the highest security requirements, and a set of rules that forgives no mistakes: anyone who wants to supply the defense industry must master standards and regulations.

Oliver Huq explains: “Companies in mechanical engineering gain considerable advantages by integrating legal expertise into their bidding strategy at an early stage. Those who analyze tender documents not only technically, but also legally, identify risks earlier and significantly improve their chances of success in competition.” 

Legal resilience in mechanical engineering therefore goes far beyond classic compliance. It increasingly determines market access, competitiveness, and long-term success. Companies that integrate legal issues early and systematically into their business models respond more quickly to regulatory changes and are better equipped to withstand geopolitical risks.

The decisive difference lies between mere rule compliance and integrated legal strategy. For mechanical engineering, this is increasingly becoming the decisive success factor: being not only technologically resilient, but also legally.