Page 16 - Australian Defence Mag Jul-Aug 2020

16 SME FOCUS OWNERSHIP
JULY/AUGUST 2020 | WWW.AUSTRALIANDEFENCE.COM.AU
WHAT DIFFERENCE DOES AN OWNERSHIP MODEL MAKE?
SUPPORTING THE GROWTH OF A VIABLE
MID-TIER TO FILL OUT AUSTRALIA’S
DEFENCE INDUSTRY ECOSYSTEM.
Growing Australia’s sovereign defence industry capability... Watch this space.
AUSTRALIA’S defence industry is domi- nated by overseas Primes with average an- nual revenues between $500 million and $1.3 billion a year, contracted to deliver and/or build an asset; and mostly subcon- tracted SMEs with average annual rev- enues hovering around $5 million incur- ring a steadily decreasing profit margin.
The scale of the gap to be bridged be- tween the two major supplier types in the industry is immense.
LOUISA MINNEY | CANBERRA
depth within domestic supply chains, would go some way to bridging this gap. Meanwhile, innovative solutions to step up are emerging from within industry.
Varley Group is one example of a mid- tier Defence industry partner working to bridge this gap. Varley, together with the Israeli based RAFAEL Advanced Defense Systems Ltd, have founded an Australian Joint Venture, Varley Rafael Australia Pty Ltd (VRA Systems). This Australian JV benefits through a deep reach into RAFAEL skills transfer and
while, has a strengthened ability to deliver products and services in Australia.
Coincidentally, these innovative mod- els have served these businesses and De- fence well during the COVID19 crisis.
“While the COVID situation present- ed some initial challenges due to the ne- cessity to work remotely, VRA has fully maintained its Defence and industry en- gagement, in-country technical support and supply schedule for existing and fu- ture programs,”Blitman said.
The JV arrangement has meant that the Varley and RAFAEL teams are al- ready familiar with each other’s work cultures, processes and assigned person- nel. For example, in Australia, VRA has become the local capability manager for the SPIKE 5th generation missile system selected for multiple projects and has been able to step up and fill gaps in the integration and supply chain.
However, accessing markets either directly or via a Prime’s global supply chain is only one critical key to SME growth and success. A commercial chal- lenge remains, from the scale of the Defence market in Australia alone, and where the volume of work is not large enough to sustain the depth and breadth of industry as a fundamental input to capability. These challenges require a healthy Australian mid-tier with suf- ficient financial resources and future vision, together with a consistent gov- ernment sovereign industrial capability policy and direction. ■
Louisa Minney is a business analyst, CEO and sits on the Board of a number of Austra- lian SMEs.
This gap represents a key component of the defence industry ecosystem, the component that could
stratify support capa-
bilities and generate a
domestic industry mul-
tiplier effect: as SMEs
grow to 100 FTE or larg-
er, smaller SMEs com-
ing into the marketplace
beneath these compa-
nies would benefit from
the bigger SME’s efforts
to retain their original
sovereign supplier credibility with the customer, by incentivising them direct- ly to keep their on-going supply work domestically sourced. Furthermore, the stronger the middle ground in the Australian industry landscape, the bet- ter the check and balance for our lo- cal capability and their ongoing supply agility, allowing them to gain enough scale over time to more fully counter- act the continually growing dominance of the Primes and their active Austra- lian subsidiaries.
A commitment to support the overall health of the Defence industry ecosys- tem, in support of improved industry
technology, and full utili- sation of Varley Group’s established Australian systems and resources.
“This is a unique ex- ample of an Australian partnership with a global defence technology pow- erhouse, to develop an Australian capability to integrate, manufacture, supply and sustain ad-
vanced weapon systems that will give the ADF the capability edge,” CEO of VRA Systems, Jacob Blitman said.
Naval Ship Management (Austra- lia) is another successful JV, created to bridge a gap between the defence knowl- edge and expertise of Babcock Pty Ltd and the skilled workforce of Australian owned UGL Ltd.
Other ‘step up’ industry models include the 49 per cent purchase of Australian owned CEA Technologies by Northrop Grumman. While CEA has remained an Australian controlled company, it now has access to Northrop Grumman’s global supply chain. Northrop Grumman mean-
“COINCIDENTALLY,
THESE INNOVATIVE MODELS HAVE SERVED THESE BUSINESSES AND DEFENCE WELL DURING THE COVID19 CRISIS.”