09 May Improving the growth environment for SMEs & large corporates
Challenge
SMEs face three fundamental and enduring problems:
- Access to markets to warrant expansion;
- Access to capital to fund expansion;
- Time, typically of founders and CEOs, to develop new markets, to make connections with companies with which collaboration would be to mutual benefit, and to develop compelling responses to tender invitations and grant opportunities.
An additional issue is the difficulty in winning contracts, especially from governments, which tend to favour larger companies that have a much stronger chance of being in business in five and ten years’ time than do many SMEs.
SMEs are critically dependent on cash flow for their month-on-month survival. They need certainty around repeat business in order to be able to plan, invest and grow. SMEs value highly purchase orders from government. A purchase order indicates a degree of confidence by government in the product or service on offer as well as in the company itself.
Almost all of the larger companies (Primes) that operate in Australia in the space and spatial sectors are subsidiaries of global corporations with their headquarters offshore. The focus of the Australian subsidiaries is sales and sales support. Local boards and CEOs have limited discretion and major decisions are routinely referred to the offshore parent for decision. The principal task of these companies is to win major Government contracts (including in the Defence domain) to both supply new platforms and systems and then to sustain them. These companies employ many Australians directly and others through sub-contract arrangements.
Some Primes report difficulties in recruiting suitable staff locally. Some, perhaps many, Australian SMEs struggle to meet the exacting standards for induction into the supply chain programs of the Primes.
Many SMEs do not have a good understanding of the quality and other standards that they must meet and sustain to sell directly to governments or to become integral to the supply chains of the Primes. Others understand but are deterred by the time and dollar costs associated with overcoming these barriers.
The principal difficulty faced by any large company operating in Australia is the small size of the Australian market which engenders intense competition in the local market
OPPORTUNITY FOR GROWTH
As noted in a previous section, opportunities for growth in the Australian market are limited by its small size overall and its distributed nature. Larger companies, such as the Primes in the Defence market, have the resources and the patience to shape the market through routine engagement with Ministers and their staff and senior officials. Conversely there is little evidence of similar high-level contact and collaboration amongst executives of companies across the space and geospatial sectors.
With the announcement in 2020 by Defence of its forward budgets for space and spatial totalling $10 billion and with the renewed imperative of the nation to significantly enhance its sovereignty and resilience throughout its important supply chains, and to do so at an accelerated pace, there is a real opportunity for significant restructuring of the space and spatial industry sectors.
Formation of clusters of companies that bring critical mass along the supply chain in the short to medium term around large defence procurements would see an acceleration of the growth the domestic private sector. It will increase the opportunity for innovation as start-ups and SME’s bring a welcome degree of innovation whilst helping insulate the risk of lack of critical mass by partnering with larger SMEs and primes. In the medium to long term this form of restructuring will increase the likelihood of mergers to form larger companies consolidating the private sector and allowing it to take its place as a mature contributor to both domestic and international markets, civilian and defence.
ACTIONS
The following actions are proposed to improve the prospects of companies large and small, that are operating in Australia’s space and spatial markets.
1. Develop a coordinated national approach for the defence and the civilian sectors in contributing to the design and development of a national space and spatial ecosystem, focusing on policies and practices that facilitate cluster formation in the short to medium term and mergers in the longer term.
2. Foster a culture of collaboration where practicable and commercially sensible to do so within and across the space and spatial sectors, especially where this improves supply chains. This might be achieved by the Space Industry Association of Australia (SIAA) and the Spatial Industries Business Association and Geospatial Information and Technology Association (SIBA – GITA) developing specific programs to facilitate collaborative activities.
3. Introduce companies that work in the space and spatial sectors to each other in a more deliberate and constructive way than may have occurred in the past. These activities might be facilitated by the SIAA and SIBA – GITA.
4. Encourage SMEs in both sectors to understand what it takes to become an accredited member of the supply chains of the Primes and to encourage them to apply for supply chain improvement grants, such as those that are administered by the Centre for Defence Industry Capability (CDIC). In this regard, Australia’s experience with the Joint Strike Fighter (JSF) program is instructive. For some Australian companies that are now embedded in the supply chain of this aircraft, the journey has taken at least five and, in some cases, 10 years. Patience and commitment are required. Not all companies will want to make such a commitment and some that do, may not be able to afford to do so. However, those that do, in the high stakes, high precision worlds of aerospace and space engineering and spatial data manipulation, the rewards are likely to be consistent, growth focussed and long lasting.
5. Encourage space and spatial companies to apply for grants from sources about which they may not be familiar, including the Centre for Defence Industry Capability (CDIC). Such encouragement, backed by relevant information, might be provided by SIAA and SIBA – GITA.
6. Develop an export strategy for the products and services offered by Australian space and spatial companies. SIAA and SIBA – GITA might work with AUSTRADE to develop this strategy.
7. Prepare a carefully argued and well-documented submission for presentation to the review of the Australian Space Agency that is anticipated to occur in the latter part of 2021, extending in to 2022.
8. Develop a taxonomy of the space and spatial industries to support clear an accurate capture of changes across these sectors. The current 2006 ANZSIC (ANZ Standard Industry Classification) codes used by the ABS for capturing economic growth and business growth sees space and spatial referenced as subsidiaries in a number of other headings. This makes it difficult for the nation to adequately track progress and activity in these two vital sectors.It also increases the opportunity for confusion, the risk of misclassification or even being left out. It would be helpful to have this issue rectified.