The past few weeks have drastically shifted the perspective of the UK and the rest of Europe as to the importance of self-reliance and independence from the US-led security architecture. There are many industries and businesses that will be feeling the pressure of a potentially new world order, but the UK defence sector seems likely to benefit. Even the traditionally dovish Liberal Democrats are now advocating for an increase in defence spending to 3% of GDP. Public opinion, however, remains hesitant if this comes at the expense of public services. To hit these targets the economy will have to grow, and the prosperity must spread and be felt by voters across all regions of the country.
Investment from established businesses within the UK has long lagged behind other developed nations, but emerging markets can provide the opportunity to shift this trend. The talent pools within mature firms are specialised to focus on their existing product portfolios and new expertise takes time to develop. There are 3 avenues for these firms to increase their spending on research and development. In-house R&D may guarantee full ownership of the new IP developed, but it is far slower to build new expertise when there are strong incentives to focus on existing core products. Investing in new firms can ensure that the supporting company has partial ownership over the final product while leveraging talent from the source. However, partnering with cutting edge start-ups (via acquisition, merger or joint venture) can deliver the strongest list of benefits across the board. By providing access to both a mature product portfolio and the new technology, skill gaps on both ends can be offset alongside providing additional deployment options and leveraging an existing customer base.
Talent in research and development will not be sufficient to deliver a new product. Expertise around production, product packaging and delivery channels will likely require multiple partners. Projects like the long discussed “Silicon Fen” is marketed on the back of Oxford and Cambridge Universities’ prestige and prowess, but the practical talent commonly needed for rapid prototyping and early-stage production is far more likely to be found in the UK’s tier 2 educational institutions. Despite sharing a city with its more prominent neighbour, Oxford Brookes competes internationally in developing the technical skills required to design and produce advanced automotives, and this talent pool is leveraged by multiple automotive companies within the UK. Partnerships between these institutions and industrial players focused on manufacturing and deployment capability can provide the backbone for more than one regional cluster. Despite challenges facing the UK car industry, understanding the approaches taken by firms like Jaguar to their supply chains will provide lessons on how this can be replicated.
As these clusters develop, players within the defence sector have the opportunity to integrate themselves into new and existing infrastructure. As we discussed previously, products in emerging markets are often held back by regulation designed for markets that developed decades prior and therefore create unnecessary obstructions. A flurry of new investment in the defence sector, however, can support the creation of new testbeds for testing products across a vast range of technologies with dual-use applications. Cyber and biosecurity are becoming increasingly relevant to defence and applying a broader definition of dual-use technologies will provide more avenues for both civilian and military companies to navigate these regulatory requirements.
Many of these new dual-use technologies will have a great impact on emerging markets as they mature and understanding the maturity distribution can provide great insight into where the government needs to focus its support. Understanding this distribution can help identify where the most significant obstacles to commercialisation are occurring and can also provide a more nuanced understanding of specific sub-markets by comparing their distribution to broader trends. Isolating firms built around new technologies within sectors like the lifesciences and cybersecurity (both of which the RDS will be addressing in more detail in the coming months) will provide useful information.
UK Drone Companies by CRL
From a sample of over 40 companies, each with products/services focused on the drone sector, the Research & Development society has evaluated the commercialisation readiness level (CRL) values based on each firm’s core product. It should not be any surprise that most of the sample fall around chasm II. This is the point where companies are at their greatest risk of failure, and rarely do any achieve success with the first iteration of their business model. Most, if not all, firms at CRL 7 will have shifted from their initial vision, and a number have clearly adopted a business model that focuses on providing customised services built on their expertise rather than their core product. This is a common occurrence, but it will struggle to deliver production capacity, export opportunities or the development of indigenously owned IP. Fortunately, this may be where government procurement can unambiguously respond. By identifying specific technologies in which we wish to develop capacity, the government can fill the role of primary customer and provide firms at CRL 5 or 6 with the financing to develop a functional business model that can later be diversified and expanded as they approach and cross chasm III. Doing so will ensure that fewer firm’s fall back on service-oriented models that may incentivise little investment in new production or broader capacity development.
Over the past few weeks, we have now addressed some of the most important aspects of developing a strong industrial strategy both within the defence sector and beyond. Converting these ideas into a reality will require a coordinated approach across government, industry and the support of the British public. The Research & Development Society remains confident that the UK holds the capability to reassert itself as a significant player in the international economy and a vanguard force in support of democracy and human rights across the globe. Please join us again in the Spring as we present our detailed recommendations in consultation with stakeholders from across the industry.