Appearing in Financial Review Defence feature, 13 September 2017
Defence sector an untapped market for SMEs
Many small and medium-sized businesses not yet engaged in the defence sector are missing opportunities, according to key players in the field.
“There is no doubt that the defence procurement system is complex and difficult,” says Alan Rankins, President of the Australian Industry & Defence Network, an organisation aimed at providing advice about defence work. “But the AIDN has a long history of providing guidance through the maze and a good record of success.”
There is also the Centre for Defence Industry Capability, funded by the Defence Department but operating in partnership with AusIndustry. The Centre has not been operating for long but the early signs of its capacity to help companies enter the defence sector are positive. It also offers support grants, news on relevant industry events, and advice on supply chains.
Rankins notes that there are about 850 known SMEs with specific capability for the defence sector, ranging from sole traders to the large primes. Some are specifically targeted at defence supply but there are more which have a range of clients, the ADF amongst them.
Surprisingly, until the mid-2000s there was a bias against Australian suppliers in defence procurement. Overseas-based companies were seen as more reliable and more likely to provide equipment which was compatible with that of Australia’s allies. The initial turning point was the Collins submarine project, which opened the door to Australian companies. Since then, the preference has slowly switched to Australian suppliers, particularly after the release of the 2016 Defence Industry Policy Statement. In fact, a number of home-grown companies have broken into important overseas markets for defence equipment. The Bushmaster all-terrain vehicle, for example, is in service all over the world.
“Certainly, there are barriers to entry,” said Rankins. “Just finding the right person in the Defence Department can be a problem. Depending on what is being provided, there are security clearances needed, and if you go into exports there is complex legislation involved. The procedures for bidding for a contract are complex, and then the description of the goods or services wanted can be extraordinarily lengthy and complicated.
“There is also the point that defence projects can take a very long time – years, sometimes decades. That is one reason we recommend that defence suppliers have other customers as well, so they are not dependent on a single revenue stream.
“The upside is that the Defence Department pays fairly, and pays on time. And many of its contracts involve very significant amounts of money. Then, of course, there is the point that it is satisfying work. You are contributing to Australia’s security, and you get to be involved with very interesting stuff.”
In the past decade, the profile of defence procurement has changed. Previously, it was mainly ‘hard’ equipment that was purchased. Now, there is a demand for sophisticated technology products, such as cyber-security software and simulators for training, as well as for intellectual expertise.
One company that has done well due to its expertise is Eggler Technology Training, the only company in the world offering professional development courses in the engineering science and technology used in the design of combat and logistic military vehicles.
“We have only about six people here but it adds up to a lot of brainpower,” says Mark Eggler, founder and Managing Director. “We started as a consultant firm specialising in military vehicle technology but in 2011 moved into engineering education and training, starting at the Australian Defence Force Academy. I have a background in the army so when we started I knew the right people to approach but as we moved into other ADF branches it became much harder. That’s where organisations like the AIDN can help. They know the right doors and how to open them.”
A major part of the company’s revenue now comes from exports of professional engineering training services to countries like Singapore, Brunei and the United Arab Emirates. He notes that trade shows and conventions can be a good starting point to break into export markets.
“Australian companies working in the defence sector have a good reputation overseas,” says Eggler. “That extends to companies offering training and education services. Unfortunately, when the Defence Department sets up a stand at an international trade show it tends to focus on the equipment and manufacturing side. That’s all very well, but the future lies as much in services as in products. Intellectual expertise is really where Australian professional services companies have a competitive advantage.”
Alan Rankins agrees. “I have no doubt that there are many SMEs in Australia who have products or services that would be very suitable for the defence sector,” he says. “They haven’t thought of the sector or they have taken a glance and decided it is too hard. But help is available, and even for small companies there are big possibilities.”