SMEs still face barriers to breaking into the defence industry

Militaries rely on innovation but the challenges for start-ups and non-traditional businesses are slowing development

jessica-bayley
Posted: 09/20/2017

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From conducting business to conducting warfare, the world’s armed forces have dramatically changed the ways they operate to accommodate innovate technology. Recognising the benefits of becoming more digitalised, automated and agile, the defence sector is increasingly turning to non-traditional defence partners and small-medium enterprises (SMEs) to bridge the technology gap in defence supply.  

“There is a great desire on the part of customers to source technology from a much wider range of industries in order to constantly drive innovation and advancement in technology,” said Stuart Young, Head of Cranfield University’s Centre for Defence Acquisition, UK. 

A key step in encouraging SMEs and non-traditional partners to engage with the defence sector is the establishment of the UK Defence Solutions Centre (UKDSC) which aims to respond to the international need for innovative and bespoke world-class defence solutions.  

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However, promoting partnerships between defence primes or end-users and small organisations remains a challenge. Both defence and commercial sectors have yet to adapt fully when it comes to forming successful and lasting business relations. 

Getting into ‘the club’ 

In the UK, the MoD has rigorous pre-qualification questionnaires which have to be completed by companies bidding on work. One of the key attributes of a partner company for the defence sector is the ability to provide evidence that they have carried out previous, similar work within the industry. 

“It is very difficult to get past that first hurdle and be invited to tender for work,” said Young, suggesting that most organisations outside of the defence circle are often considered untested and untrusted. 

As some defence projects can take decades to move from inception to implementation, small businesses can face collapse without the right provisions

One avenue to combat this is for small innovative companies to engage with large-scale defence contractors rather than attempting to work directly with the MoD. This way, they can be “supported, mentored and funded” using accelerator models, allowing them to avoid much of the bureaucracy. 

For example, organisations such as techUK are helping to create a level playing field for SMEs involved in defence and security. Tim Gibson, Chairman of techUK’s Defence and Security board says “one of the biggest challenges for SMEs is to get their products exported internationally, due to the amount of red tape involved in getting into the defence supply chain. Working with a larger multinational can help them get into the markets – typically NATO, North America, Japan and Australia”. 

Cultural differences 

The defence and commercial industries operate in a very different way. The former has been described as having a ‘risk-averse culture’ when it comes to purchasing equipment and capability systems. As a result, the environment can seem unappealing for many smaller and non-traditional businesses.

A tendency to maintain traditional suppliers is engrained into the sector. It can therefore take a long time to build trust with companies who have used the same partners for the past 20 or 30 years. 

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Regulatory barriers 

An obvious advantage of working with non-traditional defence partners is that it allows primes and customers to source cutting-edge innovations These companies also tend to be cost-competitive in comparison with traditional partners.  

Young noted that this is likely due to the “absence of overhead costs and the need to meet all the standards and requirements recognised in the defence sector”.  

If the MoD were to enforce the same stringent regulations and standards on non-traditional partners, the administrative burdens might become uneconomical for them and act as a deterrent from partnering with the sector. 

Limited range of skillsets 

An obvious disadvantage of working with SMEs is their small size and operating capital, which usually requires them to achieve a quick return on their investment. Their small scale also tends to mean they have a limited range of skillsets in comparison with larger companies.  

When choosing to build partners with other sectors, the service that an end-user or OEM is going to receive in comparison with a large defence contractor will be stark in contrast. They often excel at seeding new technology but lack the ability to provide through-life support.  

Familiarity and flexibility 

Young pointed out that commercially-focused companies lack loyalty to the defence market and are more focused on tapping into an industry where they can develop their business. They are also unfamiliar with the terminology and speed of project implementations which characterise the industry.  

“The defence sector practically has its own language,” he said, referring to the multitude of abbreviations and acronyms prevalent in the industry.  

This issue will likely become less pronounced over time as new partners develop a familiarity with the jargon used in the defence sector. 

Engagement with SMEs and non-traditional partners is crucial in maintaining a strong defence export base, driving modernisation, developing concepts and delivering game-changing solutions

Meanwhile, project implementation in the defence industry is characterised by long turnaround times and rigorous regulations. This can prove to be an issue when working with SMEs and non-traditional defence partners because they generally have much less flexibility when it comes to driving revenue for their business. Turnaround has to be as immediate as possible.  

As some defence projects can take decades to move from inception to implementation – or meet with unexpected delays en route – small businesses can face collapse without the right provisions.  

To draw a broad comparison, an aircraft carrier programme can take up to 20 years to reach the market, while the smartphone market would expect a new model to be released every 12 months.  

“Smaller companies aren’t looking decades ahead,” said Young. “They’re focusing on two weeks or two months ahead.”  

Embracing change 

It is clear that engagement with SMEs and non-traditional partners is crucial in maintaining a strong defence export base, driving modernisation, developing concepts and delivering game-changing solutions. Providing them with the opportunity to participate in the equipment selection process should therefore be an important goal for the entire industry. 

Creating an environment in which this approach is common practice will require internal change from both the established defence brands and the emerging SMEs, with both sides becoming more adaptable in their processes. Meanwhile, the MoD – should it wish to reap the benefits of businesses leading the technological revolution – must learn to compromise on aspects of regulations and accessibility.

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jessica-bayley
Posted: 09/20/2017