The UK defence sector is built into the foundations of a wide network of international agreements, but as geopolitical priorities shift, we must be quick to form new partnerships. This is as important to a nation as it is to any commercial venture. Here we will be discussing the second priority of creating partnerships to support UK defence industrial strategy.
Britain retains its position as the largest defence exporter to the US and holds strong positions as a supplier to security forces in nations as varied as Poland, Saudi Arabia and Indonesia. It is worth noting that the vast majority of these imports are bought and paid for by national governments. This creates a customer profile much simpler than what is commonly encountered in the civilian sector. If the UK wishes to focus on dual-use technologies, it must tailor its support appropriately. The MoD may be able to act as a captive market for end-use products, but the infrastructure and other higher elements in the value chain must be built on very different business models that access broader civilian markets and can compete internationally. Furthermore, while military procurement has traditionally focused on steady large-scale manufacturing (artillery shells, warships), tech development cycles today are often measured in weeks rather than months and moving faster than the enemy provides a critical advantage. The technologies that follow these trends are often deployed at smaller scale (company rather than brigade level) and respond to specific challenges faced in the field. This inevitably leads to the government’s focus stretching to lower user-customer ratios of around 100 rather than 10,000. The UK’s devolution agenda may provide opportunities to leverage this.
User-Customer Ratios by Customer Type
Government vs Business Customer Profiles for Drone Products
What elements should we focus on to give us a competitive advantage? Below we've mapped a number of players in the industry with both military and civilian foci. This may not be comprehensive but already some trends can be observed. Large players focused on drone design and production already hold strong positions in the market. However international players like DJI, Parrot and Orqa dominate the civilian sector and the majority of the UK Armed Forces' drone fleet is similarly purchased from outside of the UK. Large corporates like BAE & Qinetiq continue to approach expanding their expertise and product portfolios via purchasing rather than investment. Therefore, if we seek to deliver the cutting edge, we must look to our SMEs.
Civilian & Military Players Mapped by Value Chain Focus
These SMEs will struggle to compete with existing large firms without finding a competitive niche. New developments have created new opportunities to seize market share in the realms of AI, networking and operational support. Edinburgh Drone Company serves as an interesting case study given its positioning alongside the larger players. Despite focusing on platform design and manufacture, it has occupied a niche providing highly specialised solutions that often involves purchasing and modifying products from firms which operate at a scale it itself cannot. These companies need to be given the support and freedom to operate by policymakers if we want them to compete internationally. UK investment must increase, and new regulation must be introduced quickly to achieve this. Despite some progress, SMEs like Altitude Angel continue to face regulatory restrictions, which if not addressed, risk firm collapse whether due to lost opportunities or simply running out of runway.
While government and regulatory bodies are crucial, the UK interventions ecosystem contains a great deal of expertise and infrastructure that can be of use to early and mid-stage firms. Britain's universities are one of our strongest international assets even beyond just Oxbridge and the Russell Group. Cranfield and Southampton Universities both provide some of the strongest facilities and expertise in unmanned platforms. Organisations like DSTL have long looked to universities to quickly develop solutions to technical challenges. Carefully mapping the distribution of technical expertise across the UK will help ensure talent can be accessed as soon as the parameters of the problem have been specified.
Building a prototype and building a business, however, require very different sets of expertise. Fortunately, across the UK can be found a vast network of Catapults, Accelerators and regional clusters. These organisations are crucial to filling gaps in expertise, identifying partnerships and creating the infrastructure for specialisation. As we discussed before, UK interventions regularly suffer from a narrow view focused on the earliest stages of commercial development, but they are also hampered by their disordered distribution and limited collaboration between each other. The governments new regional growth proposed in the English Devolution White Paper may provide the opportunity for some streamlining, but coordination with not just the national government but also each other will be critical. These local governments can provide access to smaller players who may not be able to draw the attention of Rachel Reeves, but still offer unique expertise and capability.
Join us next week to read our analysis on how UK Defence Industrial Strategy can develop certainty and stability, whether through a more nuanced approach to investment, or a more responsive regulatory environment.