M8200 Defence in Australia Industry Report

Lock and load: The industry may look overseas for cheaper, more compatible equipment
IBISWorld Industry Report M8200
Defence in Australia
December 2011
2 About this Industry
2 2 2 2 Industry Denition Main Activities Similar Industries Additional Resources 14 International Trade 16 Business Locations
Paul McMillan
27 Key Statistics
27 Industry Data 27 Annual Change 27 Key Ratios
18 Competitive Landscape
18 Market Share Concentration 18 Key Success Factors
28 Jargon & Glossary
3 Industry at a Glance 4 Industry Performance

4 4 5 6 9 Executive Summary Key External Drivers Current Performance Industry Outlook Industry Life Cycle
18 Cost Structure Benchmarks 20 Basis of Competition 20 Barriers to Entry 20 Industry Globalisation
22 Major Companies 24 Operating Conditions

24 Capital Intensity 25 Technology & Systems 25 Revenue Volatility 26 Regulation & Policy 26 Industry Assistance
11 Products & Markets

11 Supply Chain 11 Products & Services 12 Demand Determinants 13 Major Markets
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Defence in Australia December 2011 2
About this Industry

Industry Denition
The Defence industry is part of Australias public sector. The industry largely consists of the Department of Defence, within which sits various groups involved in defence and national security. This includes the army, navy, air force, intelligence organisations and administrative and support functions thereof. The industry excludes manufacturers of defence materials, providers of services to defence and educational institutions for the defence force.
Main Activities
The primary activities of this industry are Armed forces unit operation (except manufacturing, service contractors and educational) Civil defence operation (military) Government administrations (defence)
The major products and services in this industry are Air force capability Army capability Command of operations Intelligence Navy capability Strategic policy Superannuation and housing
Similar Industries
N8426 Government Schools in Australia This industry is similar in that it is largely funded by governments. Q9630 Emergency Services in Australia This industry is similar in that it provides community protection and is funded by governments.
Additional Resources
For additional information on this industry www.defenceindustry.com.au Defence Industry Australia www.defence.gov.au/dmo Defence Materiel Organisation www.dsto.defence.gov.au Defence Science and Technology Organisation www.defence.gov.au Department of Defence
Industry at a Glance
Defence in 2011-12 Key Statistics Snapshot
Revenue
$23.9bn 1.4%
Establishments
Annual Growth 07-12
Annual Growth 12-17
397
Market Share
Wages
$9.5bn
10000 8000
3.0% 15
Businesses
Revenue vs. employment growth

20 10
Capital expenditure on defence
There are no major players in this industry

% change
Million
0 10 20 30
6000 4000 2000
Year 04 Revenue
p. 22
06
08
10
12
14
16
18
Year 02
04
06
08
10
12
14
16
Employment
SOURCE: WWW.IBISWORLD.COM.AU
Defence personnel
Key External Drivers

Capital expenditure on defence Regional wars Demand from scientic research
6.6% 1.4% TAS 6.7%

NT SA
28%
NSW
7.5%
WA
14.3%
ACT
p. 4
21% 14.5%
VIC QLD
SOURCE: WWW.IBISWORLD.COM.AU SOURCE: WWW.IBISWORLD.COM.AU
Industry Structure
Life Cycle Stage Revenue Volatility Capital Intensity Industry Assistance Concentration Level
Mature Medium High High High
Regulation Level Technology Change Barriers to Entry Industry Globalisation Competition Level
Heavy High High Low Low
For additional statistics and time series see the appendiX on page 27
Industry Performance
Executive Summary
Government contributions towards the Defence industry are expected to rise at a rate of 1.4% per annum over the five years ending June 2012. The rise in Federal Government funding, which makes up 90% to 95% of total revenue, represents the governments commitment toward ensuring the safety and security of Australia and its neighbouring nations. Major operations over the past five years have included the conclusion of Australias combat role in Iraq, an increased focus of fighting terrorism in Afghanistan, peace keeping in TimorLeste and assistance in response to natural disasters. In 2011-12, the industry will generate revenue of $23.9 billion, representing a fall of 3.8% from the previous year. Relatively large revenue fluctuations
Executive Summary | Key External Drivers | Current Performance Industry Outlook | Life Cycle Stage
can occur from year to year, but volatility tends to smooth out over the long term. Industry revenue is expected to average 1.4% growth over the five years through 2011-12. Despite continued defence spending, there is uncertainty over agreements with Australian industries that supply products and services to defence, due to cost controls and the aim to maintain compatible equipment with the United States. This could mean that the Department of Defence and its Defence Material Organisation may bypass some local suppliers in favour of off-the-shelf systems that are cheaper, proven and extensively customised. Industry revenue is forecast to grow by 3.0% per annum over the next five years through 2016-17 to $27.7 billion.
Key External Drivers
Capital expenditure on defence The Defence industry receives the vast majority of its total revenue from the Government and is therefore very sensitive to changes in Federal Government funding levels. The level of defence spending reflects a governments political priorities (more money for defence will take money from other departments), immediate security threats to a country, and Defence industry and external advice on the industrys capability to face future challenges.
Capital expenditure on defence
10000 8000
Regional wars The Defence industry is particularly sensitive to instability in the world. The ADF currently has a number of troops in a range of operations around the world (in both combat and peacekeeping functions). These global operations may be conducted in conjunction with the UN, or as part of coalition forces. Military combat can lead to increased government spending on defence, for example for new weapons, systems and increased personnel.
Regional wars
45 40
Million
6000 4000 2000
Units
04 06 08 10 12 14 16
35 30 25
Year 02
Year 99
01
03
05
07
09
11
13
Key External Drivers continued
Demand from scientic research The success of the Defence industry is dependent on the use of high technology equipment that creates an advantage for Australian troops in military action. The
development of technology by private industry (either domestically or abroad) can increase government expenditure on the acquisition of that equipment, or further research and development.
Current Performance
The Australian Defence industry operates within the public sector, predominantly generating revenue from Central Government funding. On average approximately 90% to 95% of funding is contributed by the Australian Federal Government. IBISWorld estimates that industry revenue will increase by 1.4% per annum to $23.9 billion over the five years through 2011-12. This is despite an expected decline of 3.8% in industry revenue in 2011-12 compared with the previous year. Revenue and expenditure are largely determined on a needs basis, relating to events in the geo-political environment such as wars and disasters. The modest growth in Defence industry revenue and hence in Federal Government spending on defence has been influenced by cost minimisation efforts. For example, several facilities have been closed and consolidated in recent years to improve efficiency. As a
Industry revenue
20 10
% change
0 10 20 30
Year 04
06
08
10
12
14
16
18
result, the number of locations the industry operates in has remained the same over the past five years. Efficiency has contributed to the industrys ability to maintain large operational readiness despite the decline in spending as a share of total government expenditure.
Operations
The major operational defence event over the past five years was Australia ending its combat role in Iraq in 2008. Australian forces had initially been deployed to Iraq in 2003 as part of a US-led multinational effort to mitigate Iraqs potential threat to the region. After the Battle of Iraq was won and the nation was largely secured, Australias role developed into providing security and training to local forces as the country rebuilt, elected a new government and embarked on the road to independence. Gradually the focus of the United States and its allies shifted to
Afghanistan and efforts to control militant groups in the region. A greater focus by the United States and its allies on fighting resistance in Afghanistan has seen Australias role in that country grow through the involvement of Special Forces and an aviation support element. Other major operations involving Australian defence forces over the past five years have included peace-keeping in TimorLeste, the protection of Australias offshore maritime areas and the provision of assistance in response to several natural disasters in other countries.
Economic downturn to help recruiting
A key issue facing the industry is the ability to attract and retain a highly skilled workforce. This is related to the risky and demanding nature of work required and, until recently, the highly competitive labour market. According to the Department of Defence, retention has been found to be more effective and cost efficient than recruitment. Consequently the Australian Defence Force (ADF) is commencing its Skilling Australias Defence industry (SADI) program. The Defence Material Organisation has allocated more than $200 million for the program over ten years. Labour shortages are not only affecting defence personnel but also private sector companies involved with the industry.
Shortages of skilled employees have occurred among a wide array of occupations such as engineering, project management and other technical roles. These difficulties are partly influenced by the economic cycle. Between 2005-06 and 2007-08, Australia experienced strong economic growth, and the supply of skilled labour was largely absorbed by industries that were booming. For example, the mining and the resources industries offered high salaries to attract labour away from other industries. The economic downturn and associated rise in unemployment eased this shortage for the industry, with a lack of private sector opportunities making the defence forces a more attractive option for some workers.
Industry Outlook
Based on revenue projections by the Department of Defence, IBISWorld forecasts that industry revenue will increase by an average of 3.0% per annum over the five years through 2016-17 to reach $27.7 billion. Government contributions to total industry revenue will hold steady at around 95%, with the remainder generated by the Defence Departments own sources, such as sales of goods and services, and revaluation of assets. While forecasts are for a decline in defence spending, unforeseen events may alter expenditure priorities as defence resourcing needs change. The major challenge for the Defence industry over the five years through 2016-17 will be in assessing the appropriate level and capability of defence equipment in a volatile global, political and security environment. Rapid
Rapid
technological advances are a continual challenge for defence

advances in technology present a continual challenge for defence as it is one of the largest users of information and communication technology, and access to reliable intelligence is of crucial importance. The long-term nature of many projects also poses risks such as overspending, and developing equipment that is already challenged or superseded by newer technology. The recommendations of the Defence Procurement Review regarding the improved processes for capital acquisition will also prove a major challenge but should, over the long term, increase industry transparency.
Global trends
Even though future conflicts are difficult to predict, defence planning is based on a series of general assumptions about global trends. It can be assumed that the United States will continue to be the worlds most powerful political and economic player. With a rich and dynamic economy and
well-developed military-industrial relations, the United States will dominate holdings of, and advances in, military technology. Joint exercises between the United States and Australia, good political relations and multilateral forums such as the United Nations, will allow for some
Global trends continued
technology to be adopted by the Australian Defence industry (largely to facilitate force compatibility). It can also be assumed that China will become the largest economy in the world and India will grow to have the biggest population in the world over the next decade, allowing both countries (particularly China) to employ a huge number of people in military positions. Both countries are likely to develop workable, long-range nuclear technology. While this does not form a direct threat to Australia, the proliferation of weapons of mass destruction and regional instability in Asia could threaten national
security indirectly, by changing the regional balance of power. Africa and the Middle East will remain troubled and unstable. International terrorist groups based in these regions are expected to remain a key security concern for Australia and its allies. The outcomes of existing conflicts in these areas are uncertain, and likely to result in further political instability. The potential for further conflict in the future is high. Consequently, Australian Defence Force personnel may be deployed to Africa and the Middle East in either a military capacity or as part of humanitarian operations.
Security
There are expected to be fewer wars between nations and more conflicts within states (or transnational conflicts) over the next five years. There is also the risk that weakened regimes will struggle to address food and resource instability, resulting in humanitarian crises, such as extreme poverty, famine and genocide, requiring the assistance of the international community. Such unstable scenarios may also promote further conflict. An increase in unequal conflicts (such as China versus Taiwan) and transnational militant groups (such as Al Qaeda,) is also likely. Extremist organisations are likely to continue using Western involvement in regional conflicts as a means to convert anti-Western popular sentiment into a recruitment tool. Due to the dispersed and non-hierarchical nature of these
organisations, the war on terrorism is unwinnable by traditional military means. Allied forces have begun using public relations as a tactical response to the dynamic nature of this modern enemy. It aims to generate positive relations or win the hearts and minds of the local population while continuing traditional military operations. This strategy is expected to remain popular. Instability in many regions of the world will keep terrorist groups hidden and able to recruit members as long as their ideology is popular among the general population. Another target will be sources of funding for these groups, which include the illegal trade in people, drugs and arms. This again highlights the complex, fragmented and global nature of the war on terrorism going forward.
Implications for Australian Defence Forces
These issues mean that the ADF will be more likely to participate in coalition forces, which makes equipment compatibility with other forces a Defence industry priority. It will be more likely to participate in stabilisation and reconstruction operations as opposed to offensive combat operations. It will need to be flexible and adaptable in order to
prepare for a range of operations at short notice, including working with civil authorities in relation to border protection, critical infrastructure protection and counter terrorism. It should purchase state-of-the-art equipment in smaller lots because the rate of technological change and the changing strategic environment makes major equipment obsolete quicker.
Suppliers face international competition
Due to the need to control costs and maintain compatible equipment with allies such as the United States, Australian suppliers of defence products and services will find it increasingly difficult to compete. Rather than commissioning the
development and manufacture of products locally, the Department of Defence may overlook local suppliers and instead purchase off-the-shelf systems that have already proven to be effective, from larger nations such as the United States.
Life Cycle Stage
Defence enterprise numbers are expected to remain unchanged Defence is a government monopoly, which is unlikely to change The industry rapidly develops and assimilates technology; success depends on the quality of equipment used
% Growth of prot/GDP
30
25
Company consolidation; level of economic importance stable
Maturity
Quality Growth
High growth in economic importance; weaker companies close down; developed technology and markets
Key Features of a Mature Industry Revenue grows at same pace as economy Company numbers stabilise; M&A stage Established technology & processes Total market acceptance of product & brand Rationalisation of low margin products & brands
20
15
Quantity Growth
10
Many new companies; minor growth in economic importance; substantial technology change
Emergency Services Shipbuilding Government Schools
Defence Shakeout Shakeout

Aircraft Manufacturing
Future Industries 5
Decline
10 10 5
Crash or Grow?
Potential Hidden Gems

10 15 20
Time Wasters
Hobby Industries 25 30
Motor Vehicle Manufacturing

0
% Growth of establishments
Industry Life Cycle This industry is Mature
Given the nature of the Defence industry, the growth stage of Australias Defence industry began at the time of settlement. The industry is currently in the mature stage of the life cycle and will not enter a decline stage as the Government will continue to fund and support defence. Defence is a government monopoly. For reasons of national security and safety, this role will continue to be assumed by the Commonwealth Government as the main function of the Defence industry is the provision of non-market services. The rate of technological change is and always will be fast, as the industry strives to maintain the latest equipment and supplies. As suggested, industry success relies on the quality of the equipment used. There is acceptance for the existence of a national Defence by the majority of Australians. The activities of the Defence industry go beyond the conventional form of combat, but also include foreign aid, intelligence, patrolling Australian waters, training, development, research etc. At times of geopolitical instability and international warfare, attitudes towards defence heighten and higher spending is more acceptable to the
public. However, the level of defence funding and spending will continue to be a contentious issue among Australians, as defence competes with other public sectors for government funding. All governments (with one or two exceptions) provide funding for defencerelated activities in order to ensure the protection and security of a nation. In Australia, the Defence Act was first passed in 1903 (making the industry about as old as Federation). Defence funding will vary over time depending on the level of regional and/or global instability. For example, in the First World War, defence expenditure accounted for 6.6% of GDP; during the Second World War, expenditure increased to 15.2% of GDP. Defence expenditure is estimated to currently be low at less than 2.0% of GDP. While overall the industry is in the mature phase, there are growth areas related to intelligence gathering and counterterrorism capabilities. Over the next five years the Defence industry will remain in the mature phase of its life cycle. It is unlikely that the industry will enter a decline stage, as national interests of safety and protection will ensure continued priority and funding by the Australian Government.
Products & Markets

Supply Chain
KeY BUYiNg iNdUstRies
M8111
Supply Chain | Products & Services | Demand Determinants Major Markets | International Trade | Business Locations
Central Government Administration in Australia The Central Government uses the Defence industry to full national security objectives in Australia and around the world.
KeY selliNg iNdUstRies

C2811 C2821 C2824 C2839 Motor Vehicle Manufacturing in Australia Motor vehicle manufacturers supply vehicles to the industry. Shipbuilding in Australia This industry supplies shipbuilding and ship maintenance facilities to the Defence industry. Aircraft Manufacturing in Australia Aircraft manufacturers supply the industry with aircraft and aircraft maintenance facilities. Measurement and Other Scientic Equipment Manufacturing in Australia This industry supplies scientic equipment used for research and development purposes.
J7121 Wired Telecommunications Carriers in Australia Wired telecommunications carriers supply the industry with high technology equipment that can be used in combat and non-combat intelligence gathering. L7823 L7834 Engineering Consultancy Services in Australia This industry supplies engineering consulting services to the Defence industry. Computer Consultancy Services in Australia This industry supplies computer consultancy services to the strategic division, and some operational parts, of the Defence industry.
Products & Services
Command of operations Activities include the conduct of military campaigns and operations, the provision of emergency and nonemergency support to the Australian community, overseas deployments and the planning of various joint and combined exercises involving the three services and allied or regional military forces. Some activities covered by this segment include East Timor peacekeeping; conduct of maritime surveillance patrols in the South-West Pacific; Operation Catalyst, to assist with rehabilitation of Iraq; Operation Slipper, the US led operation against international terrorism; ADF contributions in Afghanistan; Airfield Defence Guards contributions to United Nations peacekeeping and humanitarian operations. Army capability Activities involve the operation of special forces, light infantry, army aviation, ground-based air defence, combat support, regional surveillance, logistic
support and internal protective operations. The army also provides forces for peacetime national tasks, including counter-terrorism and chemical, biological, radiological and explosive incident response operations. The level of funding allocated towards the armys capabilities has increased since 2002-03, which reflects the increased activities in Afghanistan and Iraq. This will reverse over the next five years as troop numbers in those regions are reduced. Air force capability Activities include offensive combat, rapid mobility, strategic surveillance, maritime patrol aircraft and airlift. The air force also maintains surveillance in northern Australia for unauthorised arrivals. Along with providing offensive and defence capabilities, air force capabilities also assist with search and rescue, disaster relief and humanitarian assistance. Navy capability Activities include the provision of naval operations, maritime patrol and response,
Products & Markets
Products & Services continued
the protection of shipping and offshore territories and resources, collection and evaluation of maritime surveillance, patrol boat and submarine operations, hydrographic and oceanographic operations, border protection and maritime search and rescue. Navy capabilities include major surface combatant operations, naval aviation operations, submarine operations, afloat support, mine warfare, amphibious lift, hydrographic, meteorological and oceanographic operations. The services provided by the navy capability may be attributed to increased support to the ADFs global war against terrorism and national tasks. A major challenge for the navy is the shortage of skilled employment, particularly in technical categories. Intelligence Activities include the collection and analysis of intelligence from a variety of sources, including signals intelligence, imagery and geospatial intelligence,
and electronic warfare databases. Australian intelligence also contributes to defence intelligence shared with other allied countries. Superannuation and housing support services This category includes the provision of superannuation and housing support services to current and retired defence personnel. Strategic policy Strategic policy is a service provided by the entire Defence industry to make sound judgments and respondto changes in Australias strategic environment. Other Other activities include research, science, technology and training services. Forexample, the development and continued training of defence personnel is important to the ongoing maintenance of the Defence industry.
Products and services segmentation (2011-12)

Command of Intelligence operations
6.4%
3%
Superannuation and housing
8.1%
Strategic policy
1.2%
Army capability
24%
14.8%
Other Air force capability Navy capability
22.5%
20%
Total $23.9bn
Demand Determinants
The Federal Government is the only customer of the Australian Defence industry, insofar as defence forces only act on the express instructions of the Australian Federal Government (even if they are under allied command or UN jurisdiction). On average the Government
provides 90%-95% of Defence industry revenue in order to maintain a defence force capable of protecting Australian national security. The Federal Government demands that the Defence industry be capable of defending Australian territory from any credible
Products & Markets
Demand Determinants continued
attack without relying on help from combat forces of another country. It also demands that the industry have defence forces able to make a major contribution to the security of Australias immediate neighbourhood, be able to contribute effectively to international coalitions to meet crises beyond Australias immediate neighbourhood, where Australian interests are engaged; and undertake regular or occasional peacetime national tasks when and where required. The importance of demand determinants may vary over time. For instance, protection against foreign invasion is less important now compared to 1940, while demand for protection against international terrorist organisations is higher than ever. Factors that can increase demand for the Defence industry services include war that affects Australian interests or those of an ally; International peacekeeping responsibilities (generally under UN jurisdiction); international terrorism that
threatens Australian interests, or those of an ally; a national or international disaster that requires rapid or specialist assistance, such as the 2005 Asian tsunami; training foreign militaries with the intention of them supporting Australian interests; major events on Australian soil that could attract terrorism, such as the 2006 Melbourne Commonwealth Games; general geopolitical instability, which increases the flow of intelligence that must be interpreted and increases the possibility of troops being deployed for short- and medium-term strategic advantage. To meet market (i.e. Federal Government) demand, the government supplies the Defence industry with varied and expert defence capabilities including operational command; naval capability; army capability; air force capability; strategic policy divisions; intelligence and information gathering; superannuation and housing support services for current and retired defence personnel.
Major Markets
The provision of defence is a Federal Government monopoly. Defence is something most citizens desire but cannot organise individually or through the free market for a variety of reasons, such as free rider problems, non-excludability and the high cost. As such, the Federal Government assumes responsibility for the provision of defence and uses taxation to fund the service. The provision of defence as a public good is widely held to be effective and efficient and the theory is not challenged in Australia. The Federal Government controls the level of funding to the military, the direction of short- and long-term strategic goals and when and where forces are deployed to meet these goals. As such, even when Australian Defence Forces are under the auspices of the UN or under the command of a coalition partner (such the United States or the United Kingdom, for example), they are still answerable only to the Australian Federal Government (or Courts) and can be withdrawn by the Australian Federal
Government at any time. This section outlines the key markets for this industry, given that the Commonwealth Government is the only customer of the Defence industry. Various departments within the Commonwealth Government oversee specialist tasks and activities undertaken by the Defence industry. These departments in this sense act as the industrys market segments. Defence The Department of Defence is the largest market segment for the industry, accounting for over half of the market. It caters to the Commonwealth government by supplying the most fundamental form of national security including the army, navy and air force. Foreign affairs and trade The Department for Foreign Affairs and Trade is estimated to account for the second largest market group. Over the
Products & Markets
Major Markets continued
last five years, the importance of this market has been heightened with aid and help going towards war-stricken regions and especially those affected by earthquakes and the tsunami. Other activities carried out alongside aid include medical services, the building of infrastructure like schools, homes, hospitals and communities. Department of the Prime Minister and Cabinet The Department of the Prime Minister and Cabinet uses defence resources to assist in the following matters relating to national security and defence: defence policy and operations; defence Major market segmentation (2011-12)
Department of the Other Prime Minister and Cabinet
acquisitions and capability; intelligence; international security; counter terrorism and law enforcement; transport and border security; critical infrastructure and emergency management; national counter-terrorism committee secretaries. The market groups all belong to the Commonwealth Government and together work to provide national security, via border control, foreign aid, intelligence and combat. However, it is important to note that these groups do overlap, assisting one another in achieving a common interest: national security. These measures are industry averages and may fluctuate along with sudden changes in the geopolitical environment.
5%
5%
Department of Defence
65%
Department of Foreign Affairs and Trade
25%
Total $23.9bn
International Trade
The export and import of defence-related products are not classified under this industry code. Instead they are classified under the applicable industry, such as aircraft manufacturing, satellite, and TV and radio-relay operations. The provision of defence-related products and services is dominated by global companies that supply the Australian Defence industry with military equipment and support. Meanwhile, the Department of Defence runs a defence export facilitation program, in conjunction with Austrade, in order to
help private companies export defencerelated products. The major markets for the export of Australian defence-related products are the United States, the United Kingdom, New Zealand, Thailand, Singapore, Philippines, the United Arab Emirates and Kuwait. There are export controls on defence-related products and applications need to be made for export licenses and permits. Other policy considerations that form the criteria for denying permission to export defence and related goods or
Products & Markets
International Trade continued
specified dual-use goods and technologies with military applications include international sanctions, strategic concerns, human rights
issues, foreign policy aspects, consideration of Australian Defence Force interests and opposition to private trafficking in military goods.
Products & Markets

Business Locations 2011-12
NT
6.7
QLD
21.0
WA
7.5
SA
6.6
NSW
28.0
ACT
14.3
VIC
14.5
Defence personnel (%) Cold Zone (<10) <25 <50 Hot Zone (<100) Not applicable
TAS
1.4
Products & Markets
Business Locations
IBISWorld estimates that in 2011-12, defence personnel will be largely concentrated in New South Wales, accounting for about 27.7% of military and civilian employees, followed by Queensland and Victoria. Combined, these three eastern states are projected to account for well over half of defence force personnel. However, on a per capita basis it is expected that there will be disproportionately more establishments in the Australian Capital Territory, the Northern Territory, and Queensland. Further estimates indicate that personnel from Tasmania, South Australia and overseas are expected to account for the smallest share of employment.
Distribution of employment vs. population

40 30
Percentage
20 10 0 VIC ACT QLD NSW TAS WA NT SA
Employment Population
Competitive Landscape
Market Share Concentration
Level Concentration The Defence industry in Australia is exclusively controlled and managed by the federal government, and therefore is considered to have an extremely high industry concentration level. The army, navy and air force together account for around two thirds of defence activity. An alternative way to analyse concentration is to assess the share of the supply chain that is controlled by the industry. A trend exists in which the industry has been contracting work out to private contractors. In the past, the
Market Share Concentration | Key Success Factors | Cost Structure Benchmarks Basis of Competition | Barriers to Entry | Industry Globalisation
in this industry is High
Department of Defence owned industry specific manufacturing plants and trained its own personnel to carry out required tasks. The increasing complexity of technology used in defence has resulted in much of this work now being outsourced to private firms, particularly specialist electronics, communications and engineering companies. This trend is expected to continue over the next five years, meaning that the industrys level of control over the supply goods and services will further decline.
Key Success Factors IBISWorld identies 250 Key Success Factors for a business. The most important for this industry are:
Access to secure revenue Access to secure revenue enables the Defence industry to engage in long-term planning. Government defence spending plans are generally long term and aimed at meeting future strategic needs. Good project management skills Good project management skills, particularly in relation to major capital acquisition projects, are essential to cost-effective decision making. Ability to expand and curtail operations rapidly in line with market demand To be successful, the Defence industry must be able to react quickly and effectively to regional or global crises as they arise. Supply contracts in place for key inputs The long-term supply contracts, of essential defence inputs, including rifle ammunition, grenades, aircraft bombs and large calibre ammunition, helps to maintain consistency in quality and training.
Access to rare inputs The success of the Defence industry is dependent on accessing high technology equipment and materials. This can be achieved through domestic R&D activity and strategic alliances with allies, such as the United States and the United Kingdom. Adoption of a commercial focus The Defence industry needs to adopt a commercial focus, especially in relation to the risk analysis of capital investment and the transparency of budgetary statements. Ability to quickly adopt new technology The Defence industry will be best able to defend Australia and its national interests by adopting new technology to help in both intelligence gathering and actual combat. Access to highly skilled workforce The Defence industry will be successful if it attracts, trains and retains the best personnel.
Cost Structure Benchmarks
The Department of Defence operates to a break-even budget and hence no surplus or deficit is expected for 201112. However, deviations from the budget do occur due to unforeseen events or timing of receipts and payments. For example, in both 2006-
07 and 2007-08 deficits of over $600 million were recorded. Wages IBISWorld estimates that labour costs are the second largest expense for this industry and will account for 39.8% of
Cost Structure Benchmarks continued
total revenue in 2011-12. The split between military and civilian personnel expenses will be around 85% to 15%. Around 85% of labour expenses will go toward salaries, allowances and superannuation. Additional employeerelated costs include housing and health costs for military personnel, and fringe benefits tax. Purchases The largest major expense for this industry is purchases (or payments to suppliers). Industry operators require specialised capital equipment for military and noncombat operations, as well as chemicals and other materials for design and research and development. Purchases will account for 40% of revenue in 2011-12. Sector vs. Industry Costs
Average costs of all industries in sector (2011-12) 100
Depreciation Depreciation costs account for ships, planes, military vehicles, machinery, equipment and materials purchases, communications equipment, office equipment, computer technology and software that lose value over time. Investment in technology ultimately improves research and product development and reduces labour inputs relative to capital (thereby increasing productivity and safety). Other expenses include insurance, advertising (mostly in trade publications and in the form of merchandise: hats, shirts and stationary etc. and for recruitment campaigns) and administrative costs such as cleaning.
Industry costs (2011-12)
80
39.8
39.8
Percentage of revenue
60
Prot Wages Purchases Depreciation Utilities Rent Other
40
40.0
40.0
20
15.2
0
15.2 5.0
5.0
Basis of Competition
Level & Trend ompetition C
in this industry is Low and the trend is Steady
There is no direct competition to the industry; the Federal Government holds a monopoly on military power in order to protect Australian territorial integrity from external and internal forces. Although the industry has no competitors, it must compete with other Federal Government departments (such as Health and Education), in securing funding. Budget priorities are determined by the Federal Government in order to achieve short-term political success (and value for money) and long-term strategic goals. As political administrations change, so do many levels of funding and short- and long-term strategic goals. Furthermore, within the industry, there are 15 different groups that
compete with each other for Federal Government funding. The army, navy, air force and intelligence divisions each demand access to financing that improves their own capabilities (both in terms of personnel and capital equipment). Also, the Defence Science and Technology Organisation (DSTO) competes with other military groups for research and development funding and the Corporate Services and Infrastructure Group (CSIG) competes for funds to expand the defence estate and personnel accommodation facilities. As a result of the often dangerous nature of the employment offered by the industry, the industry also competes ferociously in the national labour market.
Barriers to Entry
Level & Trend arriers to Entry B
in this industry are High and Steady
There are insurmountable legal barriers that prevent the establishment of a defence force in private hands. The Defence industry is a government monopoly, which is unlikely to change in the long term. That said, the Defence industry utilises the services of many external contractors to fulfil research and development functions, capital equipment manufacturing, building management services and logistics, among other things. The outsourcing of Defence industry services is more advanced in the United States and is likely to affect Australian philosophies of private participation in the Defence industry going forward. While the scope of Australian military action is far narrower than that of the United States (undermining the need for private military personnel), the concept of defence (and national security) as a government
Barriers to entry checklist

Competition Concentration Life cycle stage Capital intensity Technology change Regulation and policy Industry assistance
Level Low High Mature High High Heavy High

monopoly may not be perpetual. Over the years, outsourcing activities has become important. This has allowed the Defence industry to allocate funding as efficiently as possible. Businesses often win contracts from the Defence Force, which locks them into a legal agreement which acts as a barrier to entry to potential competitors.
Industry Globalisation
Level & Trend lobalisation G
in this industry is Low and the trend is Steady
The industry is integral to defending Australian national security. National security is defined as the measures taken by a state to ensure its survival and safety, including deterrence of military attack from within and without, as well as the protection of Australian citizens around the world. To ensure the territorial,
political, economic and military integrity of the Australian state, the industry tends to view external (i.e. foreign interests) as potentially threatening to Australian interests. As such, this industry exhibits a low level of globalisation. Indeed, the industry generates the vast majority of its revenue directly from the Australian
Industry Globalisation continued
Federal Government, with the remaining revenue coming from internal revenue sources, net capital receipts and administered appropriations. That said, the industry is sensitive to changes in the global political and economic environment and the Australian Defence Force participates in a range of international operations, either
in peacekeeping missions or as part of coalition forces. The industry has become increasingly linked with political allies such as the United States and the United Kingdom. This has boosted the interoperability of allied defence equipment, encouraged intelligence and information transfer and necessitated joint training exercises.
Major Companies
There are no major players in this industry | Other Other Companies
The major sub-groups of the Australian Defence Force include the Royal Australian Navy (RAN); the Royal Australian Air Force (RAAF); and the Australian Army. Other important groups include the Defence Materials Organisation (DMO) and defence contractors (operating outside of this industry). Timor and the Solomon Islands. Since the end of the Australian Defence Forces involvement in Iraq, the navys operations have included anti-piracy and general security efforts in the Middle East and Africa, disaster assistance in South-East Asia and the Pacific, and local border protection activities.
Royal Australian Navy
Royal Australian Air Force
Between 1788 and 1859, the navy was based in Sydney and its main purpose was to provide naval defence. In 1859, Australia was established as a separate British naval station, which consisted of a squadron of navy ships that patrolled Australian waters. In 1909, the navy expanded consisting of at least a battle cruiser, three second class submarines, six destroyers, three submarines and a number of auxiliaries. When World War I broke out, the RANs task was to protect Australias ports, shipping and trade routes. In addition to this, the RAN also played a role in the Gallipoli campaign. Over the 1920s, the RAN grew both in size, capabilities and personnel, but in the early 1930s, lack of funds led to a fall in personnel levels. During the years between World War I and World War II, funding and activity levels of the RAN reflected the general Australian economy and social trends. At the onset of World War II, units of the RAN were engaged in operations in the North, West and South Atlantic, the Caribbean, the Mediterranean, the Indian Oceans, Persian Gulf and the Red Sea, in which time the total number of people serving increased from 5,010 to 37,000 by July 1945. Since the end of World War II, the navy has served in a variety of locations and operations including the Korean War, Malayan Emergency and Indonesian Confrontation as part of the Far East Strategic Reserve, the Vietnam War, the first Gulf War, ongoing operations in the Middle East and the 2003 Iraq War, and additionally in peace-keeping roles in Somalia, Cambodia, Rwanda, Bougainville, East
The Australian Flying Corps was established in 1912 and during World War I engaged in operations with the Royal Flying Corps/Royal Naval Air Service and Royal Air Force Units in Europe and the Middle East. The Royal Australian Air Force was formed in 1921 and was then made up of 21 officers, 128 airmen and 153 aircraft. By the start of the World War II, it had grown to 310 officers, 3,179 airmen and 246 operating aircraft. In late 1934, the Australian Government announced higher defence funding with money allocated towards the procurement of new and modern aircraft. By the end of World War II, the RAAF had a total of 173,622 men and women working in 570 units around the world. Between 1950 and 1980, units of the Royal Australian Air Force responded to international operations in Malaya, North Korea, South-East Asia and Vietnam. In 1990, units assisted the United Nations Security Council with the war in Kuwait, where 1,800 personnel were deployed in the Gulf War over a 13-month period. From March 2003 the air force contributed to efforts in the Middle East. While Operation Catalyst ended in 2009, smaller operations continue in the Middle East. Other efforts over the past five years have included natural disaster relief in South-East Asia and the Pacific, and assistance following the Victorian Bushfires.
Australian Army
Funding for the Australian Army has fluctuated according to levels of threat and war, with activities fluctuating between World War I and World War II according to the general economy and social trends. The army is organised according to four
Major Companies
Other Companies continued
broad categories: Army Units, Army Corps, Australian Defence Force Reserves and Australian Army Cadets. According to the Department of Defence, about 4,000 Australian Defence Force personnel are serving around the world to protect Australian and international interests. The following is a list of recent operations: Operation Catalyst, Iraq; Operation Astute, Timor Leste; Operation Slipper, Afghanistan; Operation Resolute, Australian border protection; Operation Anode, Solomon Islands; Operation Mazurka, Sinai Peninsula, Egypt; Operation Azure, Sudan; Operation Paladin, Israel/ Lebanon, Middle East; Operation Tower, Timor-Leste; Operation Outreach, Australian Indigenous Affairs; Operation Testament, World Youth Day 08.
organisation has been to improve equipment delivery time and more recently attracting and retaining highly skilled people. Skills shortages and an ageing workforce are issues that the Defence industry will continue to focus on over the next five years.
Defence contractors
Defence Material Organisation
According to the Department of Defence, the Defence Material Organisation (DMO) is a service delivery agency responsible for equipping and sustaining the ADF through the acquisition of capital equipment and sustaining the Australian Defence Force (ADF) though the acquisition of capital equipment assets and the containment of these assets. The DMO was established on 1 July 2005. Despite being part of the ADF, its activities are significant within the entire Defence industry. The DMO spent around $11.9 billion in 2009-10 in acquiring and sustaining military equipment for the Department of Defence. It is an important aspect of the Defence industry and is heavily relied on to provide high quality, safe equipment and supplies on time and budget. The DMO and ADF have a close relationship as all of the ADFs operations depend on the success of the DMO. One of the challenges of the
The definition of the industry excludes manufacturing and service providers to defence; however, it is important to note that manufacturing activities are contracted out by the Defence industry to various companies. Over 1,000 Australian companies supply the Department of Defence with a range of goods and services. One of the top suppliers of military equipment to the Defence industry is Thales Australia, following its acquisition of the remaining 50% of ADI Limited from Transfield Holdings in 2006. ADI Limited was created after the Department of Defence expanded into the Office of Defence Production in 1989. ADI had a long-term contract with the ADF to manufacture rifle ammunition; grenades; aircraft bombs; Phalanx anti-missile shells; large calibre ammunition; demolition charges and training products; and to warehouse, maintain and distribute the ADFs explosive artillery. Australia-owned Tenix Defence is another major supplier to the Defence industry. Major contractors also include, BAE Systems Australia, Raytheon Australia and Boeing Australia (all of which are foreign owned, but incorporated in Australia). The largest contractors for non-defence services are Australia-owned Spotless Group Ltd, which provides cleaning and other janitorial and food preparation services, and foreign-owned Sodexho.
Operating Conditions
Capital Intensity
Level The level The industry has a high level of capital intensity, as indicted by the ratio of capital to labour of 1:2.6, suggesting that in 2011-12, $2.63 will be spent on labour for every dollar invested in capital. Capital intensity increased slightly over the first two years of the current performance period through increased emphasis on developing and enhancing technologies, weapons and systems. This has been offset by over the past three years however, due to increased recruitment and wages. Despite the high capital intensity, investment in defence equipment also creates the need for a large number of defence personnel to operate and maintain the equipment. Additional personnel are required for services such as administration, financial, medical
Capital Intensity | Technology & Systems | Industry Volatility Regulation & Policy | Industry Assistance
Capital units per labour unit 1.0 0.8 0.6 0.4 0.2 0.0 Government Defence Administration and Defence Dotted line shows a high level of capital intensity Economy
Capital intensity
of capital intensity is High
etc. As such wages account for a high share of revenue, but the capital intensity level is affected by the very high depreciation level.
Tools of the Trade: Growth Strategies for Success

New Age Economy Recreation, Personal Services, Health and Education. Firms benet from personal wealth so stable macroeconomic conditions are imperative. Brand awareness and niche labour skills are key to product differentiation. Investment Economy Information, Communications, Mining, Finance and Real Estate. To increase revenue rms need superior debt management, a stable macroeconomic environment and a sound investment plan.
Capital Intensive
Labour Intensive
Emergency Services Government Schools Aircraft Manufacturing
Shipbuilding
Traditional Service Economy Wholesale and Retail. Reliant on labour rather than capital to sell goods. Functions cannot be outsourced therefore rms must use new technology or improve staff training to increase revenue growth.
Defence
Old Economy Agriculture and Manufacturing. Traded goods can be produced using cheap labour abroad. To expand rms must merge or acquire others to exploit economies of scale, or specialise in niche, high-value products.
Motor Vehicle Manufacturing
Change in Share of the Economy
Technology & Systems

Level The level
of Technology Change is High
The industry seeks to make the best use of technology and have the labour skills required to exploit equipment to its best advantage. Over the forecast period the industry will continue its science and technology programs to provide better support and defence capabilities and contribute to national research priorities; and continue research, especially in transformational defence technologies, network-centric warfare, defence experimentation, automation of the battlespace, reduction of the cost of ownership and operations, high altitude tracking and support to current ADF platforms; The industry will also increase its support of defence capability development programs by providing advice on technology feasibility and providing technical risk assessments of proposed major capital projects; and expand its civilian counter-terrorism research program in collaboration with the Commonwealth Scientific and Industrial Research Organisation, the Australian Nuclear Science and Technology Organisation and Geoscience Australia, in areas such as developing intelligence
support tools, explosive detection, biometrics, counter-measures for civilian aircraft from man-portable missiles and defence against chemical, biological, nuclear and radiological attacks; The Capability and Technology Demonstrator program will expanded to investigate the defence capability potential of advanced technology, by increasing the number of projects and assisting small-to-medium enterprise participation in the program; and enhance science and technology links with industry, universities, other government research agencies and international bodies to broaden defences technical base; and The industry will also seek opportunities for technology transfer to Australian industry, via commercialisation and collaborative mechanisms facilitated by the Technology Transfer Advisory Group (a panel of external commercialisation companies that provides advice to assist the industry to commercialise its innovations), to enhance industrys ability to provide support to defence and to increase the national wealth.
Revenue Volatility
Level The level
of Volatility is Medium
Industry volatility is high on a year-toyear basis, but relatively low over the long term. Over the five years to 2011-12, industry revenue is expected to fluctuate
A higher level of revenue volatility implies greater industry risk. Volatility can negatively affect long-term strategic decisions, such as the time frame for capital investment. When a rm makes poor investment decisions it may face underutilised capacity if demand suddenly falls, or capacity constraints if it rises quickly.
by an average of nine percentage points from year to year, which is indicative of a moderately volatile industry. Contributing to revenue volatility is the fact that
Volatility vs Growth
1000
Hazardous
Rollercoaster
Revenue volatility* (%)
100 10 1 0.1
Defence
Stagnant
30 10 10 30 50
Blue Chip
70
Five year annualised revenue growth (%)

* Axis is in logarithmic scale
Revenue Volatility continued
revenue is largely a function of expenses in a given year, because the government generally provides enough funds to roughly balance the Defence Departments budget. Expenses vary from year to year based on the operations and deployment of the various defence functions.
Over the long term, however, strategic goals posited by the doctrine of national security rarely change (despite changes in government and geopolitical conditions). As a result industry revenue is substantially less volatile over the long term.
Regulation & Policy

Level & Trend he level of T
Regulation is Heavy and the trend is Steady
The key legislation regulating the Defence industry is the Defence Act (1903). The act applies to the navy, army and air force and to all members of those services whether appointed or enlisted, or deemed to be enlisted under the act, or under any other act and whether serving within or beyond the territorial limits of Australia. This act has a number of functions. The act serves to stabilise the administrative division of the defence force, including appointment, transfer, resignation, termination, promotion and
retirement of officers; sets out the constitution of the defence force; Setting up tribunals and advocacy authorities; sets out the liability of officers to serve in a time of war; sets out powers in relation to forces of other countries. The Defence industry is also governed by the Defence Service Charter, a document that sets out the quality of service customers can expect to receive from the Defence industry. A range of other legislation also exists including the Defence Force Discipline Act 1982 and the Veterans Entitlement Act 1986.
Industry Assistance
Level & Trend he level of T
Industry Assistance is High and the trend is Steady
The Defence industry is dependent on public sector funding for its continued existence. Defence is a public good, provided by the Government and paid for using taxation receipts and other earnings. Around 90%-95% of Defence industry revenue is supplied by the Government (although the exact figure changes annually depending on the budgetary requirements of competing
Federal Government departments and the strategic needs of the country in relation to defending national security). There is little possibility (now or in the long term) of this administration (or an administration of any political colour) changing budgetary priorities in a way that significantly degrades the capabilities of the Defence industry.
Key Statistics
Industry Data
2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 Sector Rank Economy Rank Revenue ($m) 28,701.9 22,525.6 24,276.9 21,967.0 22,215.9 24,210.4 24,860.1 25,729.1 24,788.8 23,856.5 24,670.1 26,406.4 26,802.5 27,204.5 27,677.3 2/2 51/495 Industry Value Added ($m) Establishments 13,981.4 435 13,454.0 430 12,334.6 421 12,064.8 403 12,696.4 400 12,820.2 395 12,992.6 398 13,810.4 400 13,144.6 403 12,710.2 397 13,214.7 390 13,363.3 386 13,513.0 385 13,678.5 385 13,707.3 385 2/2 2/2 34/495 337/495 Enterprises 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 1/2 459/495 Employment 90,085 92,703 90,757 87,922 90,911 93,000 95,000 96,710 98,257 100,026 102,027 104,169 105,940 107,741 108,541 2/2 43/495 Exports ---------------N/A N/A Imports ---------------N/A N/A Wages ($m) 8,815.1 9,399.4 8,181.1 7,938.4 8,289.9 8,623.5 9,097.7 9,840.0 9,844.1 9,492.1 9,904.4 10,431.6 10,744.5 11,066.9 11,490.3 2/2 26/495 Domestic Demand N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Annual Change
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 Sector Rank Economy Rank Revenue (%) -21.5 7.8 -9.5 1.1 9.0 2.7 3.5 -3.7 -3.8 3.4 7.0 1.5 1.5 1.7 2/2 453/495
Industry Value Added Establishments (%) (%) -3.8 -1.1 -8.3 -2.1 -2.2 -4.3 5.2 -0.7 1.0 -1.3 1.3 0.8 6.3 0.5 -4.8 0.8 -3.3 -1.5 4.0 -1.8 1.1 -1.0 1.1 -0.3 1.2 0.0 0.2 0.0 2/2 2/2 357/495 424/495
Enterprises (%) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2/2 268/495
Employment (%) 2.9 -2.1 -3.1 3.4 2.3 2.2 1.8 1.6 1.8 2.0 2.1 1.7 1.7 0.7 2/2 179/495
Exports (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Imports (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Wages (%) 6.6 -13.0 -3.0 4.4 4.0 5.5 8.2 0.0 -3.6 4.3 5.3 3.0 3.0 3.8 2/2 394/495
Domestic Demand (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Key Ratios
2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 Sector Rank Economy Rank IVA/Revenue (%) 48.71 59.73 50.81 54.92 57.15 52.95 52.26 53.68 53.03 53.28 53.57 50.61 50.42 50.28 49.53 1/2 82/495 Imports/Demand Exports/Revenue (%) (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Revenue per Employee ($000) 318.61 242.99 267.49 249.85 244.37 260.33 261.69 266.04 252.29 238.50 241.80 253.50 253.00 252.50 254.99 1/2 307/495
Wages/Revenue (%) 30.71 41.73 33.70 36.14 37.32 35.62 36.60 38.24 39.71 39.79 40.15 39.50 40.09 40.68 41.52 1/2 44/495
Employees per Est. 207.09 215.59 215.57 218.17 227.28 235.44 238.69 241.78 243.81 251.95 261.61 269.87 275.17 279.85 281.92 2/2 17/495
Average Wage ($) 97,853.14 101,392.62 90,142.91 90,289.12 91,186.99 92,725.81 95,765.26 101,747.49 100,187.26 94,896.33 97,076.26 100,141.12 101,420.62 102,717.63 105,861.38 1/2 54/495
Share of the Economy (%) 1.34 1.24 1.11 1.05 1.07 1.04 1.04 1.08 1.01 0.94 0.94 0.92 0.90 0.88 N/A 2/2 34/495
Figures are ination-adjusted 2012 dollars. Rank refers to 2012 data.
Jargon & Glossary
Industry Jargon
CIVILIAN A person who is not a member of his or her countrys armed forces. COMBAT An engagement fought between two military forces.
PEACE-KEEPING The supervision by international forces of a truce between hostile nations or groups.
IBISWorld Glossary
BARRIERS TO ENTRY Barriers to entry can be High, Medium or Low. High means new companies struggle to enter an industry, while Low means it is easy for a rm to enter an industry. CAPITAL/LABOUR INTENSITY An indicator of how much capital is used in production as opposed to labour. Level is stated as High, Medium or Low. High is a ratio of less than $3 of wage costs for every $1 of depreciation; Medium is $3-$8 of wage costs to $1 of depreciation; Low is greater than $8 of wage costs for every $1 of depreciation. CONSTANT PRICES The dollar gures in the Key Statistics table, including forecasts, are adjusted for ination using 2011-12 as the base year. This removes the impact of changes in the purchasing power of the dollar, leaving only the real growth or decline in industry metrics. The ination adjustments in IBISWorlds reports are made using the Australian Bureau of Statistics implicit GDP price deator. DOMESTIC DEMAND The use of goods and services within Australia; the sum of imports and domestic production minus exports. EARNINGS BEFORE INTEREST AND TAX (EBIT) IBISWorld uses EBIT as an indicator of a companys protability. It is calculated as revenue minus expenses, excluding tax and interest. EMPLOYMENT The number of working proprietors, partners, permanent, part-time, temporary and casual employees, and managerial and executive employees. ENTERPRISE A division that is separately managed and keeps management accounts. The most relevant measure of the number of rms in an industry. ESTABLISHMENT The smallest type of accounting unit within an Enterprise; usually consists of one or more locations in a state or territory of the country in which it operates. EXPORTS The total sales and transfers of goods produced by an industry that are exported. IMPORTS The value of goods and services imported with the amount payable to non-residents.
INDUSTRY CONCENTRATION IBISWorld bases concentration on the top four rms. Concentration is identied as High, Medium or Low. High means the top four players account for over 70% of revenue; Medium is 4070% of revenue; Low is less than 40%. INDUSTRY REVENUE The total sales revenue of the industry, including sales (exclusive of excise and sales tax) of goods and services; plus transfers to other rms of the same business; plus subsidies on production; plus all other operating income from outside the rm (such as commission income, repair and service income, and rent, leasing and hiring income); plus capital work done by rental or lease. Receipts from interest royalties, dividends and the sale of xed tangible assets are excluded. INDUSTRY VALUE ADDED The market value of goods and services produced by an industry minus the cost of goods and services used in the production process, which leaves the gross product of the industry (also called its Value Added). INTERNATIONAL TRADE The level is determined by: Exports/Revenue: Low is 0-5%; Medium is 5-20%; High is over 20%. Imports/Domestic Demand: Low is 0-5%; Medium is 5-35%; and High is over 35%. LIFE CYCLE All industries go through periods of Growth, Maturity and Decline. An average life cycle lasts 70 years. Maturity is the longest stage at 40 years with Growth and Decline at 15 years each. NON-EMPLOYING ESTABLISHMENT Businesses with no paid employment and payroll are known as non-employing establishments. These are mostly set-up by self employed individuals. VOLATILITY The level of volatility is determined by the percentage change in revenue over the past ve years. Volatility levels: Very High is greater than 20%; High Volatility is between 10% and 20%; Moderate Volatility is between 3% and 10%; and Low Volatility is less than 3%. WAGES The gross total wages and salaries of all employees of the establishment.
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M8200 Defence in Australia Industry Report

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IBISWorld Industry Report M8200

28 Jargon & Glossary

3 Industry at a Glance 4 Industry Performance

18 Cost Structure Benchmarks 20 Basis of Competition 20 Barriers to Entry 20 Industry Globalisation

22 Major Companies 24 Operating Conditions

11 Products & Markets

www.ibisworld.com.au | (03) 9655 3881 | info@ibisworld.com

Defence in Australia December 2011 2

About this Industry

Defence in Australia December 2011 3

Annual Growth 07-12

Annual Growth 12-17

Revenue vs. employment growth

Capital expenditure on defence

There are no major players in this industry

6000 4000 2000

Key External Drivers

6.6% 1.4% TAS 6.7%

Mature Medium High High High

Heavy High High Low Low

Defence in Australia December 2011 4

Key External Drivers

6000 4000 2000

Defence in Australia December 2011 5

Key External Drivers continued

Defence in Australia December 2011 6

Economic downturn to help recruiting

technological advances are a continual challenge for defence

Defence in Australia December 2011 7

Global trends continued

Implications for Australian Defence Forces

Defence in Australia December 2011 8

Suppliers face international competition

Defence in Australia December 2011 9

Company consolidation; level of economic importance stable

Emergency Services Shipbuilding Government Schools

Defence Shakeout Shakeout

Potential Hidden Gems

Motor Vehicle Manufacturing

Defence in Australia December 2011 10

Industry Life Cycle This industry is Mature

Defence in Australia December 2011 11

Products & Markets

KeY selliNg iNdUstRies

Products & Services

Defence in Australia December 2011 12

Products & Markets

Products & Services continued

Products and services segmentation (2011-12)

Superannuation and housing

Defence in Australia December 2011 13

Products & Markets

Demand Determinants continued

Defence in Australia December 2011 14

Products & Markets

Major Markets continued

Department of Foreign Affairs and Trade

Defence in Australia December 2011 15

Products & Markets

International Trade continued

Defence in Australia December 2011 16

Products & Markets

Defence in Australia December 2011 17