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Boosting Innovation in the Defence Industry

Last year, the Australian government committed over $1 billion to new defence centres in an attempt to advance innovation and drive the Australian defence sector into the international market. $540 million will go towards next-generation technology and a Defence Innovation Hub will be part of a 10-year investment, which aims to nurture collaborative innovation and deliver Defence outcomes.

Defence Industry Minister Christopher Pyne said, “We want to guarantee our national security and ensure that Australia can play its part protecting peace in our region.” An 18-month contract for the development of an M27 rifle accessory control unit has been awarded to Kord USA, the US division of Australian company Kord Defence. Pyne says this is a “great example of an Australian company taking an innovative idea through commercialization and successfully competing in the global market.”

The Australian Manufacturing Growth Centre recently highlighted the defence industry as a key player in redefining Australian manufacturing. Managing Director Jens Goennemann said that defence projects could help to transform the industry by encouraging innovation in order to make more complex products. “We need to be a globally competitive country and we need to focus on areas we’re good at.” He commented that there is a misunderstanding that manufacturing is “dead” as manufacturing is not the same as production. “Manufacturing is so much more. The manufacturing, value-adding process starts with R&D, design, logistics, then production, sales and services.”

The defence industry generates many entrepreneurs outside of defence. Stephane Ibos left a defence job at Thales to start his own cloud service company, Maestrano. Many defence companies have multiple R&D projects where innovative thinking is encouraged. However, Ibos feels that it takes a long time for R&D efforts to become meaningful, and the technology is already obsolete by the time it is released. He suggests Australian industry and government look at places like Israel, whose companies prototype very quickly and whose government conducts field trials straight away.

Funding is critical to innovation and Ibos finds that the defence industry tends to consider innovation as a cost and seeks to limit it. He says that to encourage innovation, they should consider it as an investment and manage it the way venture capitalists manage a portfolio of start-up companies, understanding that where most will fail, the ones that succeed will bring returns.

He also recommends that instead of large, single projects, the government fund multiple smaller programs with shorter R&D cycles and focus on getting trials happening, “because otherwise when our troops get on the battlefield, they’re 10 years behind other troops.” This would encourage ideas and entrepreneurship and give more companies the opportunity to contribute.

If your company is participating in R&D, you may qualify for the R&D Tax Incentive, which entails a 43.5% refundable tax offset to firms generating less than $20 million in annual revenue and a non-refundable 38.5% tax offset to larger organisations. To discuss the incentive further, please do not hesitate to contact one of Swanson Reed’s offices today.