Surviving in an industry that depends on government funding isn’t easy and, with recent cuts to funding, defence contract small to medium enterprises (SMEs) are feeling hardest hit.
In late May The Australian reported that as many as half of the SMEs that service the defence industry could face collapse because of budget cuts.
David Vicino, CEO of SYPAQ, a company whose revenue heavily relies on military and government contracts, says that from SYPAQ’s perspective, the focus is on diversification. As well as servicing the defence industry, the company offers professional services and continues to expand its offering of products and solutions to its growing customer base, which cushions the company from any reliance on one particular sector. But cushioning can only soften the impact.
“Defence is still our largest sector,” Vicino says. “So any changes in the sector will have an impact in some way.” Vicino, however, doesn’t think the greatest risk lies in government funding.
“One of the greatest risks to defence SMEs is actually one within their control, and that is ‘attitude’. When you see the raw spending cut numbers it’s easy to say ‘it’s all too hard’ but in reality there is significant opportunity for good companies to prosper by focusing on where the needs are and positioning to deliver against those needs.
“Companies also have to successfully deliver current projects, which often leads to follow-on work, all the while ensuring that you have ‘eggs in several baskets’.”
SMEs should have the agility to shift a workforce to alternative clients if there is a downturn in defence business. Warren Williams, Codarra Advanced Systems
Warren Williams, managing director at Codarra Advanced Systems, an SME recognised as the third best defence SME by Australian Defence Magazine in 2008, says larger companies could feel the pain of recent budget decisions more than SMEs because “SMEs should have the agility to shift a workforce to alternative clients if there is a downturn in defence business. But that is often easier said than done”.
Like SYPAQ, Codarra Advanced Systems avoids the impact of funding cuts through diversification, broadening the company’s reach to project management and professional services. Diversification was not without its challenges, Williams says: “We found it difficult to get traction partly because we were labelled by some other organisations as a ‘defence company’.
“The lesson we learnt was to clearly articulate what our business offers to customers and to brand ourselves based on the services and not our primary customer. We needed to be clear about what value we offered to the broader market and not be seen as a single customer company.”
Vicino too believes that diversification is not without its challenges, stating that “much work needs to be done to position a company to prosper in challenging times”.