The case for Australian sovereign capability.

Luminact Insights by Pok Man Ng – 27 May 2022


The outbreak of COVID-19 posed great challenges to our nation and caused global disruptions that highlighted vulnerabilities in our nation’s manufacturing sector, and our supply chains. 

In the lead up to the pandemic, it was found that the manufacturing contribution to Australian gross domestic product (GDP) had dropped from about 30% in 2004, down to approximately 6% by 2018 (Tortorella et al, 2021). It was with this in mind that in 2020, the Australia Government launched the Sovereign Manufacturing Capability Plan (SMCP) to strengthen domestic supply of critical products including biopharmaceuticals, personal protective equipment (PPE), semiconductors and telecommunications equipment. 

Ultimately we adapted and overcame short term supply chain issues for key items such as face masks and hand sanitisers, but this experience reinvigorated the debate around a need for strategic sovereign capabilities. The next pandemic or world crisis might be different, and being geographically isolated, Australia relies heavily on international trade, and open shipping through our northern approaches to survive. 

Any possible interruption to these supply lines, be it a health crisis or a military one, necessitates prudent and strategic planning to mitigate this risk. 

What is sovereign capability? 

There are on-going debates on the definition of sovereign capability, but a strong manufacturing and reliable, robust supply chains are key in realising overall improvements and enhancing resilience. 

A recent exploration of supply chain management (Liu and Chan, 2021) yields ten main characteristics that inform sovereign capability. They include design management, risk management, inventory management and logistics management. Capability therefore is more than just manufacturing, and encompasses all the enabling functions to making, maintaining and disposing of those products that we depend on for our everyday way of life. 

The Department of Defence defines our sovereign military capability as our nation’s ability to “independently to employ Defence capability or force when and where required to produce the desired military effect” [3]. 

This definition doesn’t mean that every item in Defence inventory must be of Australian origin, but rather that Defence must be able to deploy fully functional capabilities when required. Key elements identified to support this include access to technology, testing and assurance, training, workforce and maintenance. 

The Defence Industrial Capability Plan (DICP) recognises the key role that Australian industrial plays, as a fundamental input to capability and as subject matter experts required to achieving that capability. 

From a defence perspective, and for the reasons mentioned above, this means Australia must have a credible, sustained, and advanced indigenous defence industry, capable of delivering and sustaining the platforms and equipment required to protect our strategic interests. 

Navy task group led by HMAS Canberra in 2020 – Image Department of Defence 

Capability through SME innovation 

Manufacturing is perhaps the most visible part of sovereign capability, but it also relies on functions that are less visible, such as project management, research and development, engineering design and testing. 

The DICP recognises the importance of industry partners and subject matter experts in developing and sustaining current and future defence capabilities. In addition to technological advancements, the DICP advocates innovative approaches to business processes, contract frameworks, intellectual property management and governance. 

The agility and innovative approach of Australian small and medium-sized enterprises (SMEs) can provide significant value, and capability development, to the defence industry. There are around 3,000 companies across the nation within the Australian defence industry (Smith, 2019) and most are SMEs. The importance of networking to SMEs was highlighted (Beckett & Chapman, 2018) as their survival depends on relationships with partners, suppliers, users and customers. 

SMEs know how to manage multiple stakeholders and are a good fit for achieving the DICP objectives, with key focus on partnerships, collaboration, and contract management. It has been suggested that an organisation’s business model is more important in generating value than technology (Chesbrough, 2010).  Technology can be viewed as a tool, and it’s an organisation’s knowledge, business practices, and processes that create capability from that technology. 

Furthermore, just having innovative ideas is not enough, champions are required to take ownership of ideas and to drive them through to create innovation (Unsworth et al, 2009). Smaller, agile teams of SMEs are well suited in progressing concepts into capability, as champions are given more freedom within a less rigid organisational structure. 

Innovations developed within the defence industry are sensitive by nature and require security measures to protect capabilities from being compromised (Goldsmith, 2020). For development of sensitive capabilities, innovation happens within a closed environment where information is necessarily controlled. This can be more difficult for larger organisations, while local SMEs are sometimes better positioned to be the custodians for sovereign capability data, being Australian owned and operated entities, without potential foreign interference 

Under such conditions, participation of Australian SMEs becomes a key factor to not just project success, but also to address supply chain issues that form part of sovereign capability problem. 

An Australian success story: Nulka 

The Nulka active missile decoy was delivered under program SEA 1397 to produce a hovering rocket launcher and decoy for protecting ships from missile threats. The engineering development was collaborative with the US, with the electronic payload developed by US company Sippican and the hovering motor developed by Defence Science and Technology Organisation (DSTO). 

The Nulka development showcased our nation’s ability to handle a joint program with the US while utilising domestic industry partners to conduct risk reduction activities, including prototyping and testing. The rocket motor was manufactured in Mulwala, NSW, wind tunnel testing was done in Melbourne, VIC, full system trials were conducted at Woomera, SA and the first Nulka firings from ship was from the HMAS Brisbane off Jervis Bay, NSW. 

With more than 1,400 units produced and fitted to over 150 Australian, US and Canadian vessels, the Nulka project demonstrates how sovereign capability benefits Defence and our allies, and opens up the export opportunities that help to make local industry, and indeed manufacturing, economically viable. 

Nulka launch – Image: Royal Australian Navy 


Defence recognises the importance of the role that industry plays in sovereign capability. More and more there are examples of Defence capabilities being developed locally, using sovereign industry, and building the local capability and creating value in Australia.   

Local SMEs have great potential and are well positioned to support the objectives of the DCIP, and offer advantages in terms of flexibility and agility to create innovation. They are a vital part of the Australian defence industry, and a significant contributor to the development of sovereign capability. Collaborations and partnerships with SMEs enable knowledge and experience to be shared and strengthens our nations’ ability be resilient in the face of growing global instability. 


  1. Australian Government. (2021). Sovereign Manufacturing Capability Plan: Tranche One. Department of Industry, Science, Energy and Resources. 
  2. Australian Government. (2021). Sovereign Manufacturing Capability Plan: Tranche Two. Department of Industry, Science, Energy and Resources. 
  3. Australian Government. (2018). DEFENCE INDUSTRIAL CAPABILITY PLAN. Department of Defence 
  4. Australian Government. (2008). NULKA ACTIVE MISSLE DECOY. Department of Defence, Defence Science and Technology Group. Retrieved 18 May 2022 
  5. Australian Government. (2008). SEA 1397- Project NULKA. Department of Defence, Defence Materiel Organisation 
  6. BAE Systems. (2014). BAE Systems awarded $50M Nulka contract. Retrieved 18 May 2022 
  7. Beckett, R., Chapman, R. (2018). Business model and innovation orientations in manufacturing SMEs: An Australian multi-case study, Journal of Innovation Management,, 6(1), 111-134. 
  8. Blenkin, M., Withington, T. (2021). Updating the Nulka Anti-Ship Defense System. Australian Defence Business Review 
  9. Chesbrough, H (2010). Business Model Innovation: Opportunities and Barriers. Long Range Planning 43(2-3), 354-363. 
  10. Gambling, D., Crozier, M., Northam, D. (2013). NULKA A Compelling Story. Department of Defence 
  11. Goldsmith, S. (2020). Simultaneously Managing Open and Closed Innovation in High Security Contexts Lessons from the Australian Defence Industry 
  12. Liu, J., Chan, T-K. (2021). Adaptation of supply chain management theories to Australia-China construction supply chain. Australasian Universities Building Education Association Conference 
  13. Smith, A. (2019). SMEs hold the key to developing Australia’s defence sector. Retrieved 19 May 2022 
  14. Tortorella, G., Li, W., Staines, J. & Vassolo, R. (2021). Australian manufacturing industry: a 20-year scoping study on barriers, opportunities and trends for its strategic development. Production, 31, e20200120. Retrieved 18 May 2022 
  15. Unsworth, K., Mazzarol, T. and Reboud, S. (2009). Turning an Innovation Intention into a Reality:  The Role of Champions and External Agencies. Proceedings of the 23rd ANZAM Conference, Melbourne, 2 – 4 December 2009. 
  16. Worrall, L., Gamble, H., Spoehr, J. & Hordacre A-L. (2021). Australian Sovereign Capability and Supply Chain Resilience – Perspectives and Options. Adelaide: Australian Industrial Transformation Institute, Flinders University of South Australia. 

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