Filling the void – opportunity for SMEs in the current landscape

A window of opportunity exists for small to medium Australian businesses to grow and build sovereign capability.

Everyday SMEs and small businesses demonstrate those attributes that have become the catch-cry over the last two years – responsive, flexible, agile, innovative.  

Our Government has said they “have faith in Australian businesses to provide the technological advances and superior capability Defence needs to protect Australia’s national interests”. 

There is a need for Australian-owned companies to come together, working with the Department of Defence  and the Commonwealth, to do something different to get the best outcomes for our Defence Forces and nation to meet our ongoing security needs.  

It is certainly an unprecedented time geopolitically. We’re all witnesses to the growing threat.  

Australia’s intent to take on greater responsibility for its own security interest was highlighted in the 2020  Defence Strategic Update and that is perhaps even more pressing now.  

These strategic circumstances have meant Defence spending has dramatically increased and has sparked interest from capital markets and overseas defence companies. Consolidation of the Australian defence sector is inevitable with a lot of money in the mix to acquire Australian defence capability.  

So what can we do to ensure Australian-owned businesses have a seat at the table? For a smaller business, opportunities come with navigating the challenges of doing business in the defence sector.  

At Nova Systems, we know these challenges firsthand, having grown from an idea started by two-veterans to a mid-tier Australian entity with around 1000 employees. We still face the same challenges despite our growth around labour shortages, balancing numerous critical capture efforts while delivering current  programs and keeping abreast of digital advancements so our offerings remain relevant.  

While the priority certainly needs to be on military outcomes, we need another clear priority on building and  growing Australian defence capability - or accept the likely further erosion of our sovereign industrial base  off the back of foreign interest in our defence sector. 

The Commonwealth has outlined its priorities for sovereign capability; the policy exists but we now need to  turn this long-held policy into action. 

What we need is Australian entities of scale that can integrate and sustain the critical capabilities we need and can partner with global OEMs and industry and provide us with the best of Australian and international  technology that can be built, integrated and sustained in Australia. 

As we’re seeing in Ukraine, if you can’t provide security in your own country to keep the threat at bay, you  have a problem. 

So what is the Australian solution and what can we do to help Australia’s existing base of defence-oriented  SMEs become larger and more robust organisations working alongside government and the Department? 

I think we need to focus on our own national interests and prioritise those areas of defence capability that can be retained and nurtured within our borders. Other nations are looking inward to shore up their defence capability and establish security of supply, and so should we. 

Capabilities such as surveillance, Cyber, Space, SIGINT, Test and Evaluation and opportunities in the  information domain. These are the areas where Australian businesses with the good ideas, the smarts and  know-how can play.  

Are we up for a different risk appetite to reduce reliance on foreign suppliers? If our current defence industry development policies are not delivering the outcome of rapidly graduating SMEs to the point where  they populate a much larger Australian presence, as envisaged by the Commonwealth, then are we up for  something different? Awarding contracts to local companies that have the capability, knowledge and experience to take on larger projects then support those entities to deliver and grow.  

Can we offer different incentives to grow Australian SMEs into that middle space, rather than having the incentives dry up as smaller enterprisers grow larger and get more employees? 

Can we come together to develop a joint workforce solution given it is a nationwide issue that warrants a collective response from Government, industry and the Department? How can we deliver those critical  elements of the SICPs without the workforce? 

Let’s be open to considering and contracting to different commercial constructs to bulk-up capabilities and  create critical mass. Can we accelerate procurement timelines to reduce impact on local SMEs from the  slow letting of contracts? Can we develop a strategy to leverage off current interest from capital markets  with financing for 100% Australian owned companies to support business growth? 

The robustness of our defence industry will be reflected in the seat we have at the AUKUS table and if the  status quo remains, we may be beholden to our international partners, international capital markets and  multi-national entities.  

Our work on future strategic defence programs is at risk of being capped at a Tier 3 position, with security of  supply to support our ADF not assured. We need the Commonwealth, Department and industry to work as  a collective to enable the growth of Australian defence entities.