Given the robust nature of the debate surrounding Australia's future investment in submarines, it surprises me that the Japanese options is often described as the one offering the least to Australian industry.
Yes, French and German offers will be from proven submarine exporters with experience of offsets and local content rules, but all will be asked to describe three build models: entirely built overseas, entirely Australian and hybrid. So what might the Japanese be able to bring to this important aspect of the competitive assessment?
Over the next 4 years, it is forecast that Japan will invest US$240 billion in the defence sector, about a third more than Australia’s anticipated cumulative spend for that period. This investment will be made in a political climate that is opening the door to military exports. And it’s not just submarines that will be discussed in terms of Japanese international military collaboration – similar discussions with other nations are already underway.
"It's an opportunity for Australian industry... raising our sights above 'build and sustain in Australia' issues to the development of long-term, globally competitive submarine and ship businesses."
Lead Partner, Defence Industry
The companies that build Japan's submarines are already veteran multi-nationals. Mitsubishi and Kawasaki are household names in Australia and around the globe. Yes, there is sovereign risk around Japan's military sales experience, but it's hard not to classify as manageable.
A nation that is building and maintaining 22 submarines for itself, using experienced multi-national industrial firms, engaged as Australia’s design partner on a new generation of submarines (that they may also use) offers some intriguing opportunities to Australian industry. Possibly unique opportunities in comparison to others.
And there are many opportunities for Australian-Japanese industrial collaboration. The Japanese submarine industry has been built upon a mature and established surface ships business, with manufacturers and suppliers able to leverage existing state-of-the-art equipment, unique technology and a highly-skilled workforce. For the two major Japanese submarine manufacturers, Mitsubishi and Kawasaki, the size of indigenous submarine industry, while broad, does not overshadow their surface ships business. As a portion of their combined businesses, submarine orders accounted for approximately 13 percent for Mitsubishi in 2012 and 30 percent for Kawasaki in 2013.
There are over 1,400 companies involved in the Japanese submarine industry and the industry is highly complex when compared to Australia. There are 52 prime contractors providing submarine services directly to the Japanese Ministry of Defense (MoD). Around 80 percent of companies are considered small to medium sized companies. These companies have established partnerships with 52 prime contractors and are, in most part, the sole manufacturers or suppliers of specialist submarine components.
Collaboration between the Japanese MoD and their industry partners is in some ways quite different to the way the Australian Defence Force collaborates with industry in Australia. The Japanese submarine industry is highly regulated, with government support required at every stage – even to begin initial conversations.
But as my colleague Masayuki Ohba, Partner in KPMG's Global Japanese Practice points out, to be successful, Australian industry needs to start building relationships with Japanese manufacturers and suppliers now; understanding their business and procurement practices, both operationally and culturally. Though the sound industrial networks Australia has in place, we know this is well underway.
The impacts of the Japanese option are more wide-ranging than just the collaboration on the replacement Collins program. It’s an opportunity for Australian industry to be involved in global supply chains for large fleets of submarines and ships. It’s about raising our sights above ‘build and sustain in Australia’ issues to the development of long-term, globally competitive submarine and ship businesses. I’m not sure the potential has quite been spelt out just yet but I’m sure it will be over the coming months.
All figures sourced from Strategic Defence Intelligence 2014, "Future of the Australian Defense Industry- Market Attractiveness, Competitive Landscape and Forecasts to 2019," accessed 12/4/15, www.strategicdefenceintelligence.com