While Australia’s defence industry has gone from strength to strength in a short period of time – relying solely on domestic consumption is a fateful trap that has previously hindered the sustainable development of Australia’s broader manufacturing industries. Avoiding this pitfall requires a dramatically different approach to the policies that have been used in the past, paired with a growing focus on leveraging the nation's key economic and strategic partnerships.
The Defence Industrial Capability Plan released in 2018 identifies the government’s long-term vision to build and develop a robust, resilient and internationally competitive Australian defence industry base that is better able to help meet defence capability requirements.
The Defence Industrial Capability Plan sets out a comprehensive plan for Australia’s defence industry. The government is investing in Australia's defence industry and ensuring that it is positioned to support delivery of the Integrated Investment Program over the next decade.
The plan acknowledges that as Australia builds its defence capability, we must also grow our defence industrial capability. By 2028, Australia will require a larger, more capable and prepared Australian defence industry that has the resident skills, expertise, technology, intellectual property and infrastructure to:
- Enable the conduct of ADF operations today;
- Support the acquisition, operation and sustainment of future defence capability; and
- Provide the national support base for Defence to meet current needs and to surge if Australia’s strategic circumstances require it.
Recognising the importance of the export market, the government established the Defence Export Strategy, which identifies that "Australian industry cannot sustain itself on the needs of the Australian Defence Force alone. New markets and opportunities to diversify are required to help unlock the full potential of Australian defence industry to grow, innovate, and support Defence’s future needs".
The Defence Export Strategy stated purpose is to "achieve greater export success to build a stronger, more sustainable and more globally competitive Australian defence industry to support Australia’s Defence capability needs" by 2028, which is supported by five key objectives:
- Strengthen the partnership between the Australian government and industry to pursue defence export opportunities;
- Sustain Australia's defence industrial capabilities across peaks and troughs in domestic demand;
- Enable greater innovation and productivity in Australia's defence industry to deliver world-leading Defence capabilities;
- Maintain the capability edge of the Australian Defence Force and leverage Defence capability development for export opportunities; and
- Grow Australia's defence industry to become a top 10 global defence exporter.
The strategy provides $20 million in additional annual funding from 2018-19 to support Australia’s defence exports. A new Australian Defence Export Office will be created within the Department of Defence to provide a focal point for defence exports and drive implementation of the strategy.
International collaboration – leveraging key economic and strategic partnerships
Since the end of the Second World War, Australia has positioned itself as not only a reliable strategic ally, but a stable, robust and competitive economic partner, albeit one sometimes hindered by internal economic factors and a lack of long-term industry development and economic policy beyond dependence on resources and agriculture.
However, this shift in focus by the government is encouraging, particularly as the $200 billion worth of modernisation and recapitalisation of the ADF with a focus on developing sovereign Australian industry capability and an export focus presents increased opportunities for Australia's burgeoning defence industrial base to collaborate and partner with some of the most advanced defence industry and advanced manufacturing ecosystems in the world.
The growing complexity and increasing commonality of major defence acquisition programs between a number of allied nations – particularly five eye nations like the US, Australia, Canada and the UK – provides avenues for greater diplomatic and economic partnerships to support increased industry capability, strategic dispersal and interoperability.
These strategic relationships, in particular the development of greater bilateral trade and secondary supply chains, are a key focus for South Korea-based LAND 400 Phase 3 and LAND 8112 contender Hanwha, which is seeking to support the development of Australia's defence industrial base as part of its offering for the two major Army modernisation programs.
Richard Cho, managing director and vice president, Hanwha Defense Australia, explained this focus to Defence Connect, saying, "The relationship between South Korea and Australia is based on $42 billion worth of bilateral trade – the defence industrial aspect of the relationship is one that is still growing and Hanwha, on the directive of the South Korean government, is seeking to establish an entirely sovereign capability in Australia to support the continuing alliance and economic partnership."
Australia's participation as a critical component in the global supply chain for key defence programs has long been recognised, with Australia's defence SMEs leading the charge and punching wildly above their comparative weight, including highly successful examples like Quickstep Holdings, Marand Precision Engineering, Varley Group, TAE Aerospace and Bisalloy Steel each showing Australia can be a true global competitor.
While these capabilities are impressive, growth has to be a critical focus – particularly as other global competitors' market shares in projects like the F-35 program continue to evolve and in some cases decline.
"Australia's relationships with the Five Eyes nations in particular is of key importance for Hanwha and it is these relationships Hanwha seeks to support and enhance through the development of a fully integrated Australian defence industrial capability – this is key to supporting Hanwha's bid for both LAND 400 Phase 3 and LAND 8112," Cho added.
Reciprocal allied manufacturing and Australian Export Hubs
Supporting the development of Australia's naval shipbuilding industry also requires the legislative power of government to counter-balance industry development policies of allied, yet still competitor nations like South Korea – which leverages the industrial development policies of export oriented industrialisation (EOI) to develop its economy into a major economic and modern, advanced manufacturing powerhouse.
Korea's industry development is driven by a range of government incentives for industry, including corporate tax incentives, employment incentives and payroll tax incentives. As a result, in order to develop Australia's own naval shipbuilding industry, similar innovative and adaptive policy making is essential to developing a competitive domestic naval shipbuilding industry.
"One of the key benefits for both Australia and Korea is the proximity of Australian manufacturing centres to potential markets, combined with Korea's pursuit of an advanced infantry fighting/armoured fighting vehicle, which the AS-21 Redback – Hanwha's proposal for LAND 400 Phase 3 – will serve as the basis for, while the potential offering of the AS-9 self-propelled howitzer to the British Army provides further opportunities for Australian industry," Cho explained.
Supporting the next stage of industry development requires a unique policy approach as well as combining the existing elements of Australia's existing innovation and science agenda with a suite of grant allocation and targeted, contractual tax incentives (signed between the Commonwealth and the company as a memorandum of understanding) linked to a combination of long-term, local job creation, foreign contract success, local industry content, and research and development programs – in specialised export orientated industry clusters.
Developing centres of excellence supporting export growth in partnership with Australian and international primes can leverage the policy levers used to develop other national facilities and integration within global supply chain and programs to support the development and rehabilitation of local naval shipbuilding capabilities with a focus on capitalising on the growing demand for warships in the Indo-Pacific and Middle East in particular.
Establishing and implementing a cohesive, innovative and long-term vision for Australia's sovereign defence industry capability can also serve as the basis for developing, and in some cases redeveloping, a robust, advanced manufacturing economy taking advantage of Australia's unrivalled resource wealth – supporting the broader national security and interests in the Indo-Pacific.