While the 2016 Defence White Paper represented a significant amount of investment in defence industry over the next decade, industry pundits have said defence-only SMEs will not survive without diverse business models.
The NSW Legislative Council’s standing committee on state development heard from CEOs of BlueZone Group and Quickstep Holdings, as well as Department of Defence's Acting First Assistant Secretary Defence Industry Policy, who all stressed Australian defence SMEs must have broad customers and products outside of the defence industry if their businesses are to continue.
"There is no question that it is difficult for SMEs," said BlueZone Group CEO Neil Hodges.
"However, they must have a diversified portfolio. We have an office in Western Australia and one in Victoria involved in the oil and gas sector. However, that is complementary to what we do. There is a lot of technology in the oil and gas sector that comes across to defence and vice versa. An SME involved only in defence would struggle to survive. You have to have a spread. We experience peaks and troughs all the time."
Hodges said the dangers of defence programs are their typically lengthy time frames that can last up to two decades, warning that SMEs must have a wide-ranging portfolio if they are to be self-sustainable.
"You can run a program for 15, 16 or 17 years and then it is suddenly pulled away," he said.
"If that happens and the SME does not have a diversified portfolio, they will have to shut the doors. It is very difficult and you must have continued work. You need sustainment and support. Thales is a prime contractor across many different platforms. As an SME on its supply chain, it is important for us to talk to them and to try to be involved in different areas to sustain ourselves."
Quickstep Holding's CEO Mark Burgess echoed these sentiments and urged both state and federal government to aid in creating export opportunities for defence SMEs.
"The support an SME like mine is looking for is on the export advocacy side," explained Burgess.
"While most of our revenue now comes from Defence, it is not a sustainable business model. We have to have diversity in our customer base and our product base, and it must span defence and commercial markets. We are an SME with limited means, but Australia and the New South Wales government have significant means available to them to open doors and to apply influence and leverage to get people to see us or to allow us to see them to get the opportunity to bid for work and to collaborate. We have a successful business model, but we need to develop it further. However, for my company, it will be an export-driven future."
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Matthew Ramage, Department of Defence's Acting First Assistant Secretary Defence Industry Policy, also supported the calls for diversification, highlighting a number SMEs that are already focused on multiple sectors, as a means of building a stronger business.
"We did a survey late last year, early this year to try to build the baseline," said Ramage.
"We got about 1,400 responses, and that gives you a snapshot of industry but generally there are more than 3,000 companies, and that is the core sector. One of the things we found from that survey is that Defence work is only about 20 per cent of the vast majority of companies' work, at least of the companies that responded to our survey.
"There is a lot of diversity; not every company is just focused on Defence, and that diversification is a really important measure as is the ability to get into other sectors, because it builds greater resilience."