With defence high on the political agenda, Tim Harcourt looks at related export opportunities for Australian SMEs.
There was a time in Australia when defence and export were given minimal attention. Economics (and economic reform) was the glamour subject of the newspapers with headlines full of terms like j-curves, banana republics, tax reform, enterprise bargaining and the like. But thanks to the success of economic reform in Australia with 15 years of continuous economic growth, low inflation, and the lowest unemployment in 30 years, economics has taken a back seat. Nowadays, the headlines are all about international strategy and defence-related issues.
It’s quite a turn of events, since the late 1980s when defence never got a look-in compared with economic issues. In fact, when asked about defence strategy, treasurer at the time, Paul Keating, apparently replied: “Defence, defence, who cares about defence! After all, what are we going to do? Invade New Zealand?!”
However, September 11 changed all that, and now international strategy is the key subject in the media, and in think tanks and universities. In fact, if a school-leaver asked me what to study today I would definitely recommend they enrol in some international strategy or international relations subjects at university. Even if they had a career in international business, law or engineering, there will always be an international relations or geo-politics context to deal with. Even in our own region, we have important issues to deal with in East Timor and many of the Pacific states.
The rise of international strategy means defence is again a big issue and, as a result, it is playing a wider role in the commercial world as well.
According to Hayden Williams, Austrade’s defence industries specialist: “We assist a number of key clients in defence and defence-related industries. We cover everything from military hardware and infrastructure, to software support and training. In addition, many of our major manufacturing exporters—in areas like automotive components—have strong links to defence-related industries. It’s not small beer either. I estimate that we handle around A$600 million worth of business in terms of export value.”
So, where are Australia’s main markets in terms of defence exports? Our key markets are the US (particularly with increased opportunities in procurement and homeland security), the Middle East, New Zealand, and the Association of South East Asian Nations (ASEAN) economies.
The Middle East has become a very important market for aviation, naval and security equipment. According to Garry Kennedy, Australia’s senior trade commissioner in Riyadh (who has responsibilities for Saudi Arabia, Kuwait, Bahrain, and Yemen), “Austal Ships has had success in selling patrol boats to Yemen, while Australia’s strong automotive presence in the region could potentially help with land transport contracts”. In addition, Greg Hull, Amman-based senior trade commissioner for Iraq and Jordan, says many countries in the Middle East are increasingly prepared to spend recent oil revenues to upgrade military and homeland security, including production capability. And they’re not all big companies, Hull adds. He highlights the success of Seabird Aviation, who have now licensed the manufacture of their aircraft to the King Abdullah Design and Development Bureau in Jordan, as well as a variant of the Australian-designed Seeker surveillance aircraft for Iraq and wider Middle East and North African markets; and more recently the highly innovative Australian company, CGear, who are initiating sales across the Middle East for their rapidly deployable helicopter landing mats.
Hull emphasises the success of our services exports in defence and security. A further example is the small Queensland company, Anodyne, who are exporting professional emergency medical training for the military, civil defence authorities and multilateral donor agencies.
Australia’s comparative advantage in defence is not unlike our strengths in most of our export industries—that is in high value advanced manufactures, knowledge-based services, and education and training. This particularly helps in the Middle East, given its physical environment, and developing countries that need investments in human capital, such as Papua New Guinea and East Timor.
As Kennedy points out: “Australians are used to Middle East conditions. That’s why the local police use Australian cars, and the defence services use our technology and equipment. This provides flow-on effects in terms of training and service delivery.”
“The many relationships that I have built up in this region have come from my days in Port Moresby,” Hull adds. “Developing nations, wherever they are, need help with capacity building, whether it be water systems, roads, or defence equipment. Customers from those nations can relate to operational conditions in Australia, and Australians are well-skilled and experienced in providing that assistance.”
So, defence is not only back on the front pages, it is now playing an even more important role in Australia’s commercial relationships around the world.
* Tim Harcourt is chief economist for Austrade, Sydney, and the author of Beyond Our Shores. He would like to thank to Hayden Williams, Dan Sullivan, James Wyndham, Greg Hull, Garry Kennedy, Adam Blight, Simon Kelly and Gregory Harvey for their assistance with this article.
Defence help
Department of Defence Small Business Access (DSBA)
The DSBA portal has been created as a ‘one stop shop’ where SMEs can access links to more information on opportunities to engage with the Department of Defence and its prime contractors. The DSBA is located in Canberra and is incorporated with the Defence Materiel Organisation Regional Offices (DMORO) in major state capital cities. The DSBA does not deal with companies wanting to directly supply goods and services to defence.
For more information call your closest DMORO on 1800 621 783, visit www.defence.gov.au/dsba or email defence.smallbusiness@defence.gov.au
Team Australia
This is a partnership between the Australian government and Australia’s innovative defence and security technologies industries. This partnership provides access to and support from Australian defence expertise and capability solutions to global customers.
For more information visit www.defence.gov.au/teamaustralia or email teamaustralia@defence.gov.au
Defence Recognised Supplier Scheme (DRSS)
The DRSS offers support for Australian defence businesses that have a supplier relationship with the Department of Defence. Suppliers recognised by this scheme can also display the DRSS logo in advertising and promotional material.
To find out more, contact 1800 102 101 or email drss@defence.gov.au
Australian IT&T Security Forum
Promotes the development of a technologically advanced and viable information technology and telecommunications security industry in Australia. Visit www.ittsecurity.aeema.asn.au for more information
Defence Export Opportunities
In 2004 Australia exported about A$24 million in defence-related goods—mainly weapons and ammunition. Australia also exports dual-use technology including software, computer and communication equipment, and training services worth an estimated A$300 million.
Key sector capa
bilities include:
C4I (Command, Control, Communication, Computers and Intelligence)
• high-frequency radar
• low-risk software development and commercial off-the-shelf solutions
• sophisticated command support communications systems
• encryption related systems
• simulation, design, development and integration.
Military vehicle manufacture and assembly: including upgrades and modifications, vehicle communication services, and fire control systems.
Aerospace activity: including air systems integration, aircraft component servicing, airport equipment and services, air traffic management, avionics, pilot education and aero-maintenance training and general aircraft manufacture, maintenance and support.
Integrated logistics support and ‘through-life’ support techniques: using complex computer hardware and/or software systems to upgrade and extend the life of defence electronic systems at a fraction of the replacement cost.
Defence facilities design, construction, operation and maintenance: Australian construction, project management and design firms have benchmarked cost competitive and environmentally sensitive state-of-the-art facilities suited to extreme climatic conditions.
Specialist training for regional partners: including in navigation and seamanship, systems engineering and integration, officer and pilot training and aero-maintenance.
Maritime: building frigates, submarines, minesweepers with related capabilities in the manufacture of hulls and pumps, supply of mechanical systems and most combat control, navigation, electronic warfare, mine warfare, simulation and sonar systems.
Source Austrade (www.austrade.gov.au )
Defensive Niche Case Study
Chris Newell, CEO of Mediaware, had no idea when his technology focused research and development organisation made it on the radar of the US defence sector that in a few years 95 percent of their business was going to head offshore.
“We developed and sold MPEG video processing software, with the expectation that people in the broadcasting and video production businesses would be the primary market for our software. However, the US defence community was also looking for specialised compressed video processing software and systems and began buying our ‘off-the-shelf’ software. Eventually we started developing specific systems for the defence community.”
Since that initial deal, the Canberra-based team has set up operations in Washington, a decision that’s taken them to great success, with revenue in the past couple of years doubling. They now claim to be the global leader in digital video ISR (intelligence, video surveillance and reconnaissance) systems for defence and intelligence sectors.
And it’s a success the company credits to a lot of “hard work and shoe leather”, rather than the support available from local agencies. “A large percentage of Australian defence suppliers rely on government and defence support to pursue overseas markets,” he says. “We hit the ground and started showing off our wares at trade shows and then followed up on leads by visiting potential customers all across America. I really think this is the only way to develop a solid and substantial export business.”
Because of the large size of the defence market, and its highly specialised focus, Newell says Mediaware’s success is thanks to an ability to stay focused on a niche product, and get it right. “Our niche is the UAV (unmanned aerial vehicles) market. It is one of the fastest growing segments of the global defence sector and we are uniquely positioned to take a major market share for video processing systems in this sector. This is because we have worked extremely hard to understand this market, get to know the major players (both suppliers and customers), and to develop specific applications for this market,” he explains.
This is a method he recommends to other exporters in this market. “If you have got a unique technology or product that serves a particular niche requirement, focus sharply on that niche, and don’t get side-tracked into other areas.”
Given the current climate, it’s easy to understand how some products that fall under the defence banner run the risk of falling into the ‘wrong hands’. This is not something Newell and his team have to worry about because Mediaware’s products are derivatives of systems available to the general commercial or consumer markets. “We’re not making weapons; we’re making video processing systems,” he says. “We have no specific aversion to any particular market, but we would need to have a well-developed commercial rationale to pursue any new markets.”
With most of their business dedicated to defence opportunities (although they still have strong links to the broadcast sector), there’s a mix of prospects from private and government clients. “The vast majority of our defence sector revenue comes from supplying private sector ‘systems integrators’, such as General Dynamics, Lockheed Martin and Raytheon. As these companies often have very large $1 billion-plus contracts we could never hope to obtain, we typically act as subcontractors on their projects. We also supply systems direct to military and intelligence customers, but typically these opportunities come from proactive business development activities, and not through traditional procurement processes. On occasion we do come across specific RFP-type [request for proposal] procurements for our products, and we pursue these as well.”
So far there has been more demand for their products overseas than locally, but the exposure in the US market has made a big impact on growth, here and overseas. “If we relied only on domestic revenue we would either be a very small company, or we would have gone out of business some time ago. Our success in the US defence market has been the foundation of the significant growth our company has experienced over the past three-plus years.”
To accommodate this growth, Mediaware set up an office on the ground in Washington and hired local defence industry staff to get a better handle on the local procurement processes. Because of its success, Newel adds, the company’s growth and decision making is centred around this market, from technology and product development right through to systems and processes.
Although he recognises the benefit of government assistance and funding, Newell says a big key to their success lies in not relying on government and defence export support to drive growth. “By all means take advantage of export-assistance programs and funding, but these can not take the place of hard work and commercial nous, “he says. “If you are going to try to compete on the global stage, be realistic about whether your product or service is really unique and fills a niche that is not currently being served. If you have a commodity-type product, your chances of success in a market which is as efficient as the US defence market are probably quite low, and you would be best served by putting your efforts into other markets.”
—Camille Howard
