UK Defence (40) – Defence Growth Partnership Set To Maximise Growth Opportunity

Formally established in 2012 as a partnership between government and industry, the Defence Growth Partnership (DGP) was set up to define and initiate long term investment priorities and objectives required to ensure that the UK defence industry continues to prosper and thrive. In this paper which also happens to mark the completion of the sixth volume of defence views published since 1998, it is perhaps fitting that I should focus on the priorities and requirements needed to ensure that the UK defence industry remains strong, competitive and able enhance export opportunity and sector growth. The DGP is designed to do just that!

Defence was and always will be a unique business model primarily because the only customers are governments. In the UK we are good at what we do in defence manufacturing and we have a particularly long record of success in defence exports. We are competitive with the best in world but without new product, without new technology and innovation, without a sustainable flow of investment in research, technology and capacity, without improved market intelligence the competitive advantage that we have established will all too quickly fall away. That is another good reason why the DGP was established.

As proactive as it was intended to be, the DGP cannot be the sole proprietor of all that is needed to move the UK defence industrial base forward through a more challenging arena. However, with strong leadership building on a well-defined strategy and done in the knowledge of where industry priorities best lie, I believe that the DGP will play a hugely important role in generating new capabilities, new technologies, greater exportability potential and by definition, creating new skills whilst at the same time playing an important role in existing skills retention. To achieve this requires a combination of self-belief plus ambition. It requires a belief that with strong leadership, more hard work and effort by all the parties concerned linked to a well-defined and better understood relationship between government and industry and time, success can and will be achieved.

Without a decisive agreement that all parties involved in DGP could sign up to there could be neither strategy nor forward plan that could make the process work. Following months of discussions and engagement, I believe the Defence Growth Partnership has now reached this potentially important stage of strategic development. At some point within the upcoming Farnborough Air Show, an event that opens its doors to international military delegations and the many thousands of aerospace and defence industry delegates on July 14th, we should expect leaders of the DGP to set out an agreed set of priorities and framework of how it intends to pursue its aims. By nature this has to be a long term objective and plan designed to strengthen the UK defence industry combined with notional intent of doors that will need to be opened to create the future new opportunities desired.

Under the joint chairmanship of Minister of State for Business, the Rt. Hon Michael Fallon and Steve Wadey, UK Managing Director of MBDA the Defence Growth Partnership was launched in December 2012. When DGP issued its first report in September 2013 it was clear that the HM Government was not only placing a high level of expectation on the DGP to deliver a well thought out and agreed strategy, but also that it was willing and prepared to provide support at the highest level from both Business and Ministry of Defence. To that end Minster of Defence Equipment, Support and Technology, Philipp Dunne not only recognised the importance of DGP but also embraced it.

Not surprisingly there has been much discussion, debate and scepticism displayed on the ability of an industry/government partnership in the form of the DGP to deliver. The same was initially true of the Aerospace Growth Partnership which had a near two year start on the Defence Growth Partnership and which has already proved the potential of its worth. My hope is that in setting out the aims of how it intends to begin the task of seeking to enhance international defence business, exports and partnerships, defence technology and enterprise including intellectual property and of how to better exploit value, skills development and retention, competitiveness, opportunity, strategy and future engagement it will become clear to any remaining sceptics why the success of DGP is now crucially important for the industry that we support.

My understanding is that there are currently over 500 companies, many of whom are classified as SME’s, universities and non-government organisations such as trade associations involved in the DGP. Setting out and agreeing an initial process for how an industry/government organisation would aim to deliver agreed priorities for future defence industry engagement required all parties involved in the discussions to be firmly behind the intentions. Achieving this can have been no easy task but I am in no doubt that DGP will over time provide considerable benefits to industry, government and the wider economy. If by achieving a framework for which the UK defence industry can work more closely together with government, and one that is better able and equipped to deliver more hi quality technology products and services internationally at a competitive price, then DGP will have done a very good job of work.

Worth a conservative £23bn to the UK economy and responsible for the direct employment of 162,000 people plus almost as many indirect, the defence industrial sector was responsible for £8.8bn of UK exports in 2012. Very shortly figures for 2013 will be announced and I suspect these may be even higher.

The issue for DGP has not in this case been the here and now but the future. How does the UK working within a robust export control system and one that is regarded as the most rigorous of any country in the world grow defence exports responsibly? How in an industry that is suffering from customer governments cutting back defence capability and equipment and intent on spending less seek out new markets to deliver its expertise, equipment and services?  What do we need to do to be better able to find and secure new markets and opportunities, what new forms of intelligence do we need; what do we need to be able to maximise UK strategic capability and technology; what and how should we go about investing in future research and technology development and who should we best work with; how should we best invest in skills and skills retention and are there better ways of leveraging the UK’s supply chain by perhaps increasing the amount of international collaboration?

There are plenty of other questions but those listed above are some of the main issues that will need to be addressed by the DGP. So too will be the need to take a long and hard look at how government currently support defence industry exports through UKTI DSO and whether this too needs to be strengthened or maybe radically rethought from the bottom up?

The DGP cannot be a route to market until at the very least it has an agreed and well formulated strategy that all involved within the process can work to. That within a disparate industry grouping of often competing individuals that potentially hold many differing views means agreement takes time to evolve in the hope of achieving a positive result. It can’t have been that easy for those charged with responsibility for putting the DGP together but I am content to believe that at Farnborough International the DGP will in its second report announce the agreed priorities and how it intends to move the whole process forward to its next stage.

The point about DGP to me is that if we wish to progress our defence industry and if we are all speaking with one tongue in recognising the strengths that it brings to the economy through employment, the strength of the equipment capability argument in what we supply to UK armed forces and that we recognise the value of all this together with defence exports to the UK economy then DGP should be a win-win situation. There is nothing to lose but everything to gain. Additionally, if the DGP can assist in helping the transformation of the MOD procurement exercise by laying the framework for increased exportability allowing the government to recognise the importance of how exports can help drive down the cost of domestic procurement, this will be extremely beneficial to both industry and taxpayer alike.

The argument as to whether DGP sits well alongside the ‘National Security Through Technology’ White Paper will of course persist but if DGP goes some way to proving that ‘buy off the shelf’ is far from being best policy for the taxpayer it will have succeeded where other attempts have so far failed. Indeed, if it succeeds in focussing on existing UK strengths and yet at the same time lays the foundations for creating more capabilities it will have earned the effort and trust placed in it.

Clearly with in excess of 80% of defence exports related to the aerospace sector this will remain a key export capability objective. We must of course focus first and foremost on what we do best and on what are our key capability strengths, but in the process of meeting a wider objective we must also recognise the need to broaden our scope. That of course will require collaboration just as it will a recognition that we have perhaps become too adverse to risk. These issues alongside training, emerging technologies and deciding where best for industry and government to concentrate future research and development effort will all come within the gambit of the DGP.

My comments in support of the DGP recognise potential hostages to fortune, that there will be a number of hills to climb and that there will likely be various disagreements along the way. The defence sector is unique amongst the industries in which government has established ‘growth partnerships’. Defence Growth Partnership is often compared with the AGP (Aerospace Growth Partnership) and whilst it is true that there are similarities, particularly in that both are aimed at securing international export led growth, they differ in that defence is primarily built on platforms and systems whilst the AGP is built primarily on components. Nevertheless, both do have the same in terms of identifying and building upon the UK’s primary industrial and service based strengths aiming to not only increase exports but also in terms of future innovation and the need to increase the amount of technology we create and produce.

So far so good. Yes there are potentially some thorny issues to be resolved ahead; such as what should the financial role of government be in DGP, where do the interests of defence primes and SME’s coincide, what relationship should there be to domestic defence procurement requirements by the MoD; where best should current government support for defence exports sit, how does the new found interest in exportability reconcile with the Technology White Paper in respect of its stated desire to buy off the shelf? Indeed, we may need to know where the debate about critical technology sits now and what needs to be done to ensure that NATO buys more equipment from the UK?

Importantly the hope is that DGP will at some future point reconcile the combined needs of both government and industry to invest more in research and technology development and to recognise that the reluctance of government and industry to take on risk may need to be reversed. I hope too that DGP will assist in better recognition of the growing strengths of defence services and our increasing involvement in infrastructure support and well as maintenance and through life product support.

DGP won’t change the world as we know it but it will enhance the UK defence industries ability to adjust to a new world order. Defence as an industry may be fraught with a variety of difficulties in the face of cuts but if we get it right it is also just as full of opportunities. DGP is merely a well-designed and thought out facility to assist in making sure that we get it right.

 

CHW (London – 24th June 2014)

Howard Wheeldon FRAeS

hwheeldon@wheeldonstrategic.com

Tel: 07710 779785

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