Building Australia’s Defence Industrial Base: The Strategic Imperative for Early Investment and Sovereign Capability

In an era of growing strategic uncertainty, Australia faces a fundamental question about its defence posture: how does a geographically isolated continent-nation sustain military operations when global supply chains fail?

Air Vice Marshal (Retired) Robert Denney, now Country Executive for Northrop Grumman Australia, delivered a compelling answer in a recent presentation that cuts to the heart of Australia’s defence industrial strategy.

Speaking from decades of experience in both military leadership and defence industry, Denney’s message was unambiguous: if Australia wants to be ready to “fight tonight,” it must also be prepared to fight “tomorrow night, next week, and next month.”

This capability doesn’t emerge overnight. It requires deliberate, long-term investment in sovereign industrial capacity that begins well before any conflict materializes.

The Geography of Defence Manufacturing

Australia’s strategic geography presents unique challenges that distinguish it from other nations facing security threats. Unlike Ukraine, which despite being under invasion can receive continuous equipment shipments across land borders, Australia sits as an island continent potentially thousands of kilometers from allied support. This geographic reality fundamentally changes the equation for defence preparedness.

“The larger the Australian industrial base, the more capacity to manufacture hardware essential for ongoing warfare, week after week, month after month,” Denney emphasized. But the value extends beyond just manufacturing capacity. It encompasses the skills, knowledge, and experience that underwrite innovation under pressure.

This industrial base functions as more than just a manufacturing capability; it serves as an arm of national deterrence. The potential of what Australia can become when mobilized may prove as deterrent as its current military posture.

Adversaries must calculate not just against Australia’s existing defence capabilities, but against its capacity to rapidly scale production and adapt to changing conflict dynamics.

The Historical Efficiency Trap

For decades, Australia’s defence procurement has followed a predictable pattern: prioritize efficiency and value for money, rely on market forces to shape outcomes, and expect industry to deliver capability improvements at the lowest possible cost. This approach, while financially prudent in peacetime, has led to a systematic atrophy of Australian defence manufacturing capacity.

The logic seemed sound: why maintain expensive domestic production when global markets could deliver the same capability more cheaply?

The answer, as recent global events have demonstrated, lies in the fragility of extended supply chains during crisis and the time required to build industrial capability from scratch.

“If we want disrupted results, we need a different approach,” Denney argued. The traditional efficiency-focused model assumes peacetime conditions will persist indefinitely. It fails to account for the reality that future conflicts may require sustained industrial output over months or years, potentially without access to traditional supply sources.

The Supply Chain Lock-In Effect

Understanding how defence supply chains actually develop reveals why Australia has struggled to build sovereign capability. The process is neither simple nor quick. It’s a deliberate, resource-intensive endeavor that unfolds over years.

Defence contractors invest heavily in identifying, qualifying, and nurturing suppliers. These suppliers become integral to platform success, with teams matching component needs to supplier capabilities, negotiating contracts, managing production timelines, and adhering to stringent quality standards. The process typically begins during initial production phases, where suppliers climb learning curves, reduce costs, and improve efficiency.

By the time a product reaches full production maturity, successful suppliers have developed considerable competitive advantages. They possess the specialized tooling, skilled workforce, and intellectual property necessary to deliver reliably at competitive costs. More importantly, they have established relationships and proven track records that make replacing them both difficult and often unjustifiable.

This creates what Denney calls the “lock-in effect.” Once supply chains mature and become entrenched, expecting companies to drop performing suppliers for Australian alternatives becomes unrealistic. After all, if Australia could arbitrarily replace established suppliers, what prevents the same logic from being applied to Australian companies in future competitions?

Success Stories: Early Engagement Pays Dividends

Despite these challenges, Australian companies have successfully penetrated global defence supply chains, but their success stories share a common thread: early engagement before supply chains crystallize.

Consider AW Bell, a Melbourne-based foundry that became a qualified supplier for multiple prime contractors. Their opportunity arose when established suppliers struggled with delivery timelines and quality control. By stepping in when others failed, AW Bell not only secured contracts with Northrop Grumman but expanded to supply Lockheed Martin and other major defence contractors, earning excellence awards in the process.

However, relying on other suppliers’ failures represents an unsustainable strategy for building sovereign capability. More instructive are examples where Australian companies gained access through strategic early investment.

AME Systems, an Australian cable manufacturer, succeeded because Australia was a co-development partner in the Triton program. This early investment opened doors for AME to enter the supply chain before it became locked in. Today, AME supplies cables to the entire U.S. and Australian Triton fleet, a contract that would be nearly impossible to secure if attempted after the supply base had been established.

Similarly, Cable X secured work on the Wedgetail airborne early warning and control system because Australia invested early in the program, again before the supply base crystallized. Cable X has been supplying the program for over 20 years, demonstrating the longevity of these early-entry advantages.

The GWEO Model: Signaling Intent

The most promising example of how government can facilitate Australian industry inclusion comes from the approach being used for the Guided Weapons and Explosive Ordnance (GWEO) manufacturing center. Here, the government has signaled its intention to invest upfront in manufacturing before production has even begun, allowing industry to lock in suppliers from the outset.

This approach demonstrates the power of early government commitment. As Denney noted, if Northrop Grumman wins the GWEO solid rocket motor contract, their aspirational goal would be 100% Australian supply chain content. While achieving 100% may prove unrealistic, starting with that ambition fundamentally changes the supplier search process.

“We don’t know if we’ll achieve 100%, but that’s how we would try to approach it,” Denney explained. This mindset shift, from trying to retrofit Australian suppliers into established supply chains to building supply chains around Australian capability, represents a fundamental strategic reorientation.

Mobilization as Capability, Not Switch

Perhaps the most crucial insight from Denney’s presentation concerns the nature of industrial mobilization. Too often, policymakers conceive of mobilization as a switch that can be flipped when conflict begins. This fundamental misunderstanding has led to procurement strategies that prioritize peacetime efficiency over wartime resilience.

“Mobilization is not a switch you can flip when conflict begins. It’s a capability you build in advance,” Denney emphasized. When local companies participate in supply chains from day one, they gain the experience, tooling, and workforce necessary to deliver at scale. More importantly, they develop the agility to pivot, adapt production, innovate under pressure, and respond to emerging threats during wartime.

This agility represents the essence of sovereign capability. It enables rapid adaptation when conflict dynamics shift unexpectedly and ensures Australia functions as a producer of defence capability, not merely a consumer. The ability to “respond, recover and reinforce at speed” becomes the difference between sustained operations and strategic dependence.

Redefining Success Metrics

Traditional defence procurement measures success through equipment delivery and cost efficiency. Under mounting strategic pressure, these metrics prove insufficient for building the industrial base necessary for sustained conflict.

Denney advocates for expanded success criteria that capture the broader strategic value of defence investments. Future acquisitions should be measured on:

• Workforce Development: The Australian skills, knowledge, and training generated through industrial participation.

• Infrastructure Investment: Both private and public investment in plant and tooling capabilities.

• Intellectual Property Creation: The knowledge and manufacturing expertise that remains in Australia.

• Supply Base Development: The network of qualified suppliers that can support sustained production.

This broader measurement framework recognizes that defence acquisitions deliver value beyond the immediate platform or capability. They represent investments in national resilience and strategic autonomy.

Strategic Industrial Development

The implications of this analysis point toward a more deliberate industrial development strategy. Rather than hoping Australian companies will organically find opportunities in defence supply chains, government should actively seed industrial capabilities in strategically important areas.

This might mean funding specific industrial capabilities regardless of their connection to existing platform acquisitions. Just as Australia comfortably invests in war stocks with little peacetime utility, it should invest in industrial capacity purely to have it mature to a level where it can be activated during conflict.

“We seem quite comfortable investing in major systems, workforce facilities that do not have substantial peacetime roles,” Denney observed. “We hold significant investments in explosive ordnance war stock that has little utility in peacetime.” If Australia can justify these investments, the logic extends naturally to industrial capability that can transform finite war stocks into potentially unlimited production capacity.

The Iceberg Analogy

Denney’s most powerful metaphor describes this latent industrial capability as the “submerged part of the iceberg” or the hidden portion that provides stability and resilience to the visible military capability above water. This submerged capacity represents the skills, experience, and industrial base that allow Australian industry to adapt, innovate, and respond to the unpredictable nature of future conflict.

By investing early in this submerged capability, Australia builds what might be called “strategic industrial depth.” This represents more than just manufacturing capacity: it encompasses the human capital, technological knowledge, and industrial relationships necessary to sustain complex military operations over extended periods.

This strategic approach carries inherent risks. Defence investments in industrial capability might not translate into actual capability acquisitions. Some investments may prove unsuccessful or redundant. However, as Denney noted, “with risk comes reward.” The alternative which would be attempting to build industrial capability after conflict begins carries far greater risks and lower probability of success.

The strategic calculus becomes clear: invest in potential industrial capacity that may never be needed, or face the certainty of industrial inadequacy when it is most required. For a nation with Australia’s geographic constraints and strategic exposure, this represents a straightforward choice.

Conclusion: Building Today for Tomorrow’s Conflicts

Air Vice Marshal Denney’s presentation provides a roadmap for transforming Australia from a defence consumer into a defence producer. The path requires abandoning comfortable assumptions about efficiency-driven procurement and embracing the uncertainty inherent in building sovereign industrial capability.

The core insight remains compelling: Australia cannot achieve genuine defence self-reliance without the industrial base to sustain military operations over time. Building this capability requires early investment, strategic patience, and acceptance that some investments may not yield immediate returns.

Most importantly, it requires recognition that in an era of strategic competition, industrial capacity itself functions as a form of deterrence. The ability to rapidly scale defence production and adapt to changing conflict requirements may prove as strategically valuable as any individual weapon system.

As global supply chains face increasing fragility and strategic competition intensifies, Australia’s choice becomes stark: invest now in sovereign industrial capability or accept strategic dependence when it matters most. The time for building tomorrow’s defence industrial base is today.