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SMEs hold the key to developing Australia’s defence sector

Australia’s SME ecosystem has gone from strength to strength as a result of the record $200 billion worth of investment in Australias defence and defence industrial capabilities – in order to take the growth transforming Australia’s defence industrial base to the next level, greater focus needs to be placed on SMEs, explains Adrian Smith of the University of South Australia.

From base cleaning services to the creation of high-tech components for aircraft, military vehicles and naval vessels – there’s a huge opportunity for companies to grow their businesses through their participation in the Australian defence industry. The federal government’s defence procurement policies and focus on assisting SMEs into the industry have opened the opportunity but the growth of Australia’s defence sector is being held back by a lack of long-term supplier relationships.

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It is estimated that the Australian defence industry comprises around 3,300 companies across Australia. Of these, some 300 are strategic partners with mature businesses, a clear plan for their defence engagement and the appropriately skilled management teams in place.

These companies tend to be larger in size, with a few select smaller businesses included. Of the remaining 3,000 companies – most of which are Australian SMEs half are working on a transactional basis with no ambition to become a strategic, long-term supplier, while the other half have the desire and potential to become strategic suppliers, but don’t have management teams in place with the knowledge, skills or experience to develop their businesses into robust industry players.

Securing major contracts either directly with Defence or as part of the supply chain to prime contractors is a challenge for SMEs. Technical capability and capacity are necessary, but not sufficient, conditions for success. Defence equipment often remains in service for over 30 years and the industry wants a reliable supply chain that will be there for the entire journey.

This means Defence’s strategic partners must have the vision, plans and resources to enable their companies to grow into major suppliers. So, how can SMEs successfully secure such contracts and contribute to the future of Australia’s defence sector?

Know your customer

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Knowledge is power, and if you’re an SME vying for work directly with Defence or to one of its primes on a major project, you’ll need to do your research into this ever-changing industry. Do you have the systems in place that match the size, scope and complexity of working with Defence or their primes? Have you done your research into how your future business plans can contribute to current and future defence capabilities? It’s important to establish the clearest way to communicate your vision to your potential customers, and ensure you have the systems and procedures in place that will lead to long-term success.

At present, many prime-led projects are using up to four suppliers to work across one small component of work. They do this to hedge their bets because they often don’t have confidence that any single supplier has the organisational maturity to become a sustainable strategic partner.

SMEs have a unique opportunity to pitch an all-in-one solution to the defence industry by developing a keen understanding of the big picture and creating long-term plans that are referenceable in tenders. By adopting a long-term view, Australian SMEs can increase their company’s engagement with both Defence and the primes.

Create growth roadmaps

A major impediment for SMEs not being able to achieve the level of engagement that they want is not being able to show that their business is set up for long-term growth. You can have all of the technical capabilities in the world, but it’s all for nothing if your leaders and middle managers don’t know how to grow the company sustainably.

It’s important for SMEs to develop long- and short-term plans that show clearly how the company will grow, how it will diversify its customers to manage the inevitable Defence project cycles, how it will develop the changing management skills required as a company grows and how they will attract the necessary capital to fund their growth.

The defence industry wants to work with companies planning for a long and bright future. Contracts are secured by companies who are able to create and sell products with the durability and reliability to last over 30 years.

This means it’s vital for SMEs to communicate how their business intends on supporting these products for such a long period of time, and what safeguards will be instilled to ensure support and maintenance can be provided on an ongoing basis.

Have the right team behind you

It goes without saying that a plan is powerless if you don’t have the team to implement it. Building a professional management team that is robust and able to execute plans is vital to securing defence contracts – as is knowing when to expand and bring new team members on board. CEOs and business leaders must commit to growing a team that shares their vision of becoming a strategic supplier to Australia’s defence industry.

Having a long-term plan for growth is crucial for any business, but even more so for SMEs wanting to secure defence contracts. Successful Defence contractors have the knowledge and skills to lead successful growth companies, but most of the SMEs that could grow into strategic partners do not.

The good news is that these skills can be learned, and SMEs that set their plans in motion, have a clear understanding of their customer, and a strong team behind them are more likely to secure work contributing to the capabilities of the Australian Defence Force. SMEs hold the key to Australia’s expanding defence sector, and have the potential to open up a lucrative revenue stream for their business.

Adrian Smith is deputy director of the Australian Centre for Business Growth at the University of South Australia, a former managing director of Rheinmetall Defence Australia, and the founder of SME Sydac, which was acquired by Knorr-Bremse in 2009.

SMEs hold the key to developing Australia’s defence sector
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