A lack of mandated local content requirements in Australian defence projects is contributing to an uneven playing field for Illawarra businesses, even as global conflicts force European arms manufacturers to look for Australian suppliers.
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Addressing Illawarra's industrial leaders seated underneath the former US military transport Super Constellation 'Connie' at HARS Aviation Museum, CEO of defence consultancy ADROITA Sarah Pavillard said the second pillar of AUKUS opened the gateway for Australian and Illawarra defence businesses to become part of global supply chains.
"The final piece of the puzzle is for Australia to work in co-developing the AUKUS nuclear-powered submarine with the UK, intended to be built in Adelaide, and for Australian industry to be fully integrated into a global supply chain," she said.
The potential to be supplying into global defence prime contractors provides Australian enterprises a way through the notoriously fickle defence procurement environment in Australia, as one panellist at the i3net industry breakfast knew all too well.
James Coy, assistant manager of Australian industry content at Hanwha Defense Australia said the Korean-owned arms manufacturer was "disappointed" with the government's recent decision, announced as part of the Defence Strategic Review, drastically reduce the order for self-propelled howitzers and infantry fighting vehicles.
These were to be built in Geelong, and now the manufacturer is on the hunt for other projects to fill the gap.
"We have the Geelong facility where we can't rely on, on the basis of delivering 169 vehicles. We need to enhance that portfolio, there are spaces for other things and we obviously have the capacity," he said.
Mr Coy said part of the reason for the company's investment in Australia was to broaden the business's capabilities to manufacture outside of its traditional base in Korea, with Hanwha's artillery platform being ordered in large numbers by European nations in response to Russia's invasion of Ukraine.
It was a sentiment echoed by Michelle Richard, director of procurement at the Australian arm of French arms and systems manufacturer Thales.
"There's a supply and demand imbalance in Europe with what's happening [in Ukraine] and also because of energy prices, we are actually using the extra capacity that we have in Australia to support some of our programs in Europe, which would have never been the case before," she said.
While this might seem like the ideal moment for Illawarra small businesses to get into the defence supply chain, it is not without its challenges. Not only do companies have to meet Australian security credentials, they now also have to jump through the hoops set by the countries they may be selling into.
In addition, with other nations such as the US and the UK mandating a specified amount of local content in major projects, Australian companies are competing on an uneven playing field.
"We are one of the few countries in the world that doesn't mandate minimum content for local small to medium business contribution in defence contracts," Ms Pavillard said.
"Australian businesses are selling into an environment where some [defence] businesses have to look at local SMEs first, because they have to meet a regulatory requirement."
While the AUKUS technology sharing partnership will go some way to open up these opportunities for Australian businesses, with the DSR signalling a shift towards faster procurement timelines and less of a focus on sovereign capability, Ms Pavillard said there was scope to ensure that the new procurement framework would support local industry.
"If government is going to source more technology from foreign primes, then my sense is to put Australian businesses on an equal playing field they need to be rigorous in mandating not just Australian content, but contribution from smaller businesses, that are truly Australian owned, controlled and operated."
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