Aerospace & Defence organisations set to increase investment in research and development, says KPMG report

Aerospace & Defence organisations set to increase...

Three-quarters of respondents say they will spend between 2 to 3 per cent of revenues on research and development over the next two years.

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Aerospace & Defence organisations are set to increase their investment in research and development, whilst also looking to create partnerships with suppliers and customers to make the most of their capital, according to KPMG’s 2014 Global Aerospace & Defence Outlook.

Three-quarters of respondents say they will spend between 2 to 3 per cent of revenues on research and development over the next two years, while 16 per cent say they will spend between 4 to 5 percent. With the UK aerospace market estimated to be worth £24 billion last year[1], this represents a stark increase in investment given that more than half admitted to spending just 1 percent or less of revenues on R&D over the past two years.

“With budgets for aerospace & defence spending coming under increasing pressure, many organisations are looking for opportunities to enhance their revenues, either by targetting new markets and customers or increasing market share of high growth programs,” noted Glynn Bellamy, KPMG’s UK Head of Aerospace & Defence.

The report also found that organisations expect to achieve much of their future innovation through partnerships and collaboration rather than in-house efforts. Three-quarters of aerospace & defence respondents also said that they would be primarily focused on enhancing their existing product lines rather than investing in breakthrough technologies.

“As this report clearly illustrates, aerospace and defence businesses are more focused than ever on entering into partnerships and creating more collaborative business models to help them achieve these objectives,” added Glynn.

Supply chain visibility once again emerged as a challenge, with almost half of all respondents citing this as one of their biggest supply chain challenges. Fifty-one percent said that they had only ‘some visibility’ into their Tier 1 suppliers and no visibility into their Tier 2 suppliers; more than a third claimed ‘enhanced visibility’ reaching only as far as their Tier 2 suppliers.

Aerospace and defence executives suggest that technology is creating barriers to achieving greater supply chain visibility. Twenty-nine percent said that their IT systems were inadequate for their supply chain visibility, planning and implementation needs; 43 percent said that a lack of mature technology was creating obstacles to communicating data across the supply chain.

Doug Gates, KPMG’s Global Head of Aerospace & Defence concluded, “The 2014 Global Aerospace & Defence Outlook suggests that the next few years will usher in an era of collaboration – around products, research and development and access to markets – that will fundamentally change the way organisations operate. Adapting operating models to meet the resulting ‘disruptive complexity’ will be no easy task for executives and may take upwards of five years to achieve; aerospace & defence organisations would be well advised to start their planning now.”


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Notes to Editors:

[1] Inward Investment Report 2013, UKTI

About the research

This Global Aerospace & Defence Outlook is part of KPMG International’s 2014 Global Manufacturing Survey. Data was collected by Forbes on behalf of KPMG International in early 2014 and accompanying analysis was provided by senior KPMG Aerospace & Defence leaders from A&D practices in KPMG firms around the globe. A total of 460 senior manufacturing executives participated in the survey, of which 11 percent came from the A&D sector. Forty-seven percent of the A&D respondents identified themselves as being based in the Americas, 29 percent in Europe and 24 percent in Asia. Sixty-one percent of all A&D respondents held C-Level positions within their respective organizations with a further 39 percent representing SVP/VP/Director or Head of department roles.

About KPMG International

KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 155 countries and have more than 155,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.

[1] Inward Investment Report 2013, UKTI

This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.

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