Page 16 - Australian Defence Mag March 2020

16 NEWS REVIEW INDUSTRY UPDATE
MARCH 2020 | WWW.AUSTRALIANDEFENCE.COM.AU
HOW TO GROW AN AUSSIE SME IN THE LAND OF GIANTS
NICOLE SEILS | MELBOURNE
ACHIEVING mid-scale status depends on commercial nous, force posture relevance, con- stant innovation and a 5 – 10- year effort.
There are a number of eco- nomic benefits from develop- ing a strategy to invest in tiered SME growth:
• SMEs employ more Australians than any other group – SMEs account for 60 to 70 per cent of jobs in most Organisation for Economic Cooperation and Development (OECD) countries, as well as a dis- proportionately large share of new jobs, especially in coun- tries with a strong employ- ment record. This includes Australia, where SMEs em- ploy 7 million people.
• SMEs make the biggest contri-
bution to Australia’s economy
– In Australia (2017 figures), SMEs represent more than 99 per cent of all Australian businesses and contribute 57 per cent to the nation’s GDP.
• SMEs are major contributors to in- novation due to agility and dynamism larger scale organisations struggle to retain – According to the OECD, the contribution of small businesses to innovation has increased consid- erably in recent decades, with new technologies lowering barriers to en- try. The Australian Bureau of Statis- tics reports that small businesses ac- count for around a third of research and development in Australia.
PRIMES – CRITICAL TO SME SUCCESS
Being a Defence SME is like being a humble man in a land of giants. Go- ing to market in the Australian Defence
Industry is costly, time consuming and sometimes confusing. To succeed early, ecosystem factors need to be recog- nised, such as Prime dominance.
Australia domestically is not at the same scale or maturity as our close al- lies, such as the US and UK; we are ranked at 19th on the Global Firepower Index (2019).
A challenge for SMEs is the scale of the domestic Defence market in Aus- tralia. Domestic based work is not large enough in value, volume and tempo to sustain widespread SME growth.
This market dynamic drives two reali- ties; first accessing export markets direct- ly or via a Prime’s Global Supply Chain is often a critical element of an Australian SMEs growth success. Secondly, the quality, strength and trust of that SME/ Prime relationship, including its com- mercial terms, is a major determinant in
future work, both for other Primes and/or for direct supply to Defence.
While many of the ADM Top 20 SMEs interviewed credited their work for Primes to early wins, others, espe- cially the smaller SMEs, noted Prime behaviours which can affect their com- petitiveness. They noted this power imbalance needed to be addressed so that second tier Australian SMEs could better participate in our sovereign sup- ply chains.
A TRANSITION –
SUPPORTING THE “MIDDLE”
From research in this space, it is clear support is limited for an Australian SME to grow into what is termed the “middle ground” of the Defence In- dustry ecosystem – i.e. an Australian “Mini-Prime”.
On the evidence, it is considered im- portant for the health of the Defence industry ecosystem that policy support the creation of more layers of healthy SMEs to generate improved industry depth within domestic supply chains. This would generate a local industry multiplier effect from the support fund- ing already available.
Essentially, as SMEs grow to beyond a 100-plus full time equivalent (FTE) workforce, smaller SMEs would benefit from the larger SME’s efforts to retain original sovereign supplier credibility through policy incentives to keep on- going supply work domestically sourced. A stronger middle ground would better balance the growing marketplace domi- nance of the Primes and their Austra- lian subsidiaries.
Nicole Seils is a Senior Business Consul- tant, Non-Executive Director and former Head of Government Relations for Lock- heed Martin Australia and NZ.
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