Defence partnering for success – Riding the AUKUS wave, part 1 by Sarah Pavillard

@AuManufacturing’s sponsored series reporting BAE Systems Australia’s Partnering for success defence industry supplier event kicks off today with a two-part analysis of the benefits of the AUKUS agreement for SMEs. In this first part, Sarah Pavillard examines the SME industry policy landscape.

Two things need to happen for AUKUS to deliver for Australia: the Australian government needs to set defence SMEs up for success, and defence SMEs need to set themselves up by partnering with their American and British counterparts.

Australia, the United Kingdom, and the United States are enduring allies that share values, commitment to the global rules-based order, and a vision for a more peaceful, secure, and prosperous Indo-Pacific region.

The AUKUS agreement is the dividend of over a century of military cooperation between our nations and represents the most significant technological and military uplift programme in Australian history.

It also offers the greatest opportunity in more than a generation for the AUKUS defence sectors to partner, collaborate, and contribute towards regional security.

However, seizing this opportunity requires preparation, timing, and a certain amount of audacity.

The impending AUKUS wave raises the question: is the Australian defence industry ready to ride the wave and will the government support the sector to succeed?

I recently travelled to the United States as part of the Team Defence Australia official delegation to attend the Sea-Air-Space conference and to launch my latest white paper—Micro-Partnerships in the Age of AUKUS.

I am confident that American industry is ready to step up and partner with Australian companies, but my conversations with decision-makers in the US also highlighted that there is a disparity between the support that the US government gives to its defence industry, and the support that the Commonwealth provides to the Australian defence sector.

Australia needs to back SMEs

The United States’ Department of Defense (DOD) has a variety of programmes in place to help American small-to-medium enterprises (SMEs) enter the DOD supply chain.

These include the Mentor-Protege Program that assists small businesses and new entrants by providing developmental assistance from experienced companies, the Rapid Innovation Fund Program that supports small businesses to transition from prototype to production, and the APEX Accelerators program that helps to provide cybersecurity training to SMEs.

This is a government that is determined to help its SME industrial base successfully enter the domestic supply chain, and successfully develop export capability and products.

Another factor contributing to the US government’s more generous support of SMEs in the defense industry may be the country’s greater emphasis on public-private partnerships.

The US government has a long history of working closely with private industry to develop and produce defence technologies and solutions, and SMEs are often viewed as key partners in these collaborations.

As a result, the government has implemented programmes to facilitate these partnerships and provide support to SMEs, such as the Small Business Innovation Research (SBIR) programme and their Small Business Strategy of January 2023.

In contrast, the Australian government has been criticised for not providing sufficient support to defence sector SMEs, particularly in terms of export assistance.

The government has implemented programmes such as the Defence Export Strategy, and provides support through things like the Office of Defence Industry Support, the Defence Industry Security Program, and the grants offered by the Defence Innovation Hub.

But much more needs to be done to set up the conditions for success for defence sector SMEs, lest the disparity in support between the American and Australian governments disadvantage Australian SMEs in their own backyard.

In other words, AUKUS should be creating the ecosystem that allows Australian businesses to thrive, but the Australian government needs to come to the party to ensure that is what actually happens.

There are two important points that government and industry need to consider when designing industry supports.

First, Australia’s regulatory, policy, and program frameworks need to bring SMEs inside the tent when new policies and programmes are being designed to help government consider how SMEs can fully contribute to AUKUS.

Secondly we must recognise that money will go to the United States first due to their technology, capability, market power, and because the Virginia Class submarine acquisition is the one of the earliest on the AUKUS agenda.

Meanwhile their government mandates minimum contribution amounts for small businesses, ours doesn’t — that gives them an advantage.

Where is Australia’s small business strategy? And and given Defence’s buying power, is the ‘Future Made in Australia’ programme led by the Department of Finance enough?

Australia can do more, but let us not forget about ITAR

The International Traffic in Arms Regulations (ITAR) are United States regulations that control the export and import of defence-related articles, services, and technologies on the United States Munitions List (USML).

ITAR exists for a very good reason, but it is painfully slow and is a significant impediment to moving with haste. There have been discussions among American industry and political representatives about exempting Australia from ITAR entirely — a sensible notion that I support.

But it is not the only way to facilitate the transfer of technology and skills to the Australian defence sector – there is still the Australia-US Defence Trade Cooperation Treaty (DTCT).

The DTCT came into force in 2013 and aims to improve the efficiency of two-way transfers of controlled goods by facilitating their export within an approved community without an export license.

The treaty is limited to approved organisations, with benefits such as reduced delivery time, improved sustainment, more efficient sharing of technical data, and consistent compliance requirements.

The approved community comprises an Australian community and a US community that are managed their respective governments. It is an imperfect solution, but the DTCT is worth considering for AUKUS-related capability—if both governments update their end user lists.

Tomorrow: Part 2, AUKUS – industry needs to come to the party too.

Sarah Pavillard is a combat systems engineer with over 25 years experience in the military and the defence sector. As Founder and CEO of defence sector consulting business, ADRIOTA, she leads the delivery professional services for major defence clients. She also advises SMEs on growing their revenue in the defence sector, and building collaborative opportunities between business and Defence.

Further reading:

Picture: General Dynamics/Electric Boat/Virginia class submarine – headed downunder

@AuManufacturing’s series Defence industry partnering for success is sponsored by defence sector prime contractor BAE Systems Australia.

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