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The Australian government’s Defence Export Agenda has made great strides in a relatively short amount of time – in order to take the development of Australia’s defence industry to the next level, focus needs to shift towards supporting industry, including unsuccessful bids establishing a presence onshore to support the sovereign capability plan.
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Australia’s defence industry has gone from strength to strength in a short period of time – however, global competition and world-leading capabilities requires a shift in gear to support continued growth and competitiveness for Australian manufacturers, but what does this look like?
A core component of the Australian government's $200 billion investment, recapitalisation and modernisation of the nation's defence capability is the focus on developing a truly sovereign, sustainable and competitive domestic defence industry capability.
The introduction of the Defence Industrial Capability Plan in 2018 outlines 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" in recognition of the rapidly evolving geo-strategic environment and Australia's changing role in the region.
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 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.
The very nature and scale of Australia's unprecedented period of defence materiel recapitalisation and modernisation means that there will be unsuccessful bids – but this doesn't mean that Australia should miss out on the opportunity for these multi-national, advanced manufacturing industries to establish a local presence capable of supporting the government's strategic industry ambitions.
Defence Export Strategy Mk 1
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.
Leveraging Australia's reputation and position in the Five Eyes
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.
This focus on interoperability, international partnerships and allied commonality positions Australia well to enhance industrial partnerships with North American, European and Asian allies eager to diversify their local industrial capability and supply chain. Looking more broadly, expanding market access and industry penetration for leading-edge companies from South Korea and Japan in particular serves as an avenue for domestic industry development and diversification.
Meanwhile, 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.
A role for government – supporting industry development
The foundation established by the government's Defence Export Strategy and the broader Defence Industrial Capability Plan provides a strong basis for supporting the early stage development of Australia's sovereign industry capability – looking forward, government will play a critical role in attracting additional industry partners through cohesive, long-term policy.
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 chains 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.
Despite Australia's widely recognised position as providing a world-leading research and development capacity – supported by both private and public sector research and development programs driven by organisations like the CSIRO – traditional areas of high wage-costs and low productivity in Australia's manufacturing industry, exemplified in the failure of Australia's domestic car industry and in the series of cost overruns and delivery delays on both the Collins and Hobart Class programs, have characterised Australia's reputation as a manufacturing economy.
This is done through a range of government-driven incentives for industry, including corporate tax incentives, employment incentives and payroll tax incentives. Australia's now firm commitment to developing a robust domestic defence capability requires innovative and adaptive thinking in order to expand the capabilities and competitiveness of the domestic industry.
Your thoughts
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.
Let us know your thoughts and ideas supporting the next stages of development for Australia's sovereign defence capability in the comments section below, or get in touch with
Stephen Kuper
Steve has an extensive career across government, defence industry and advocacy, having previously worked for cabinet ministers at both Federal and State levels.
