Industry leaders say country must move faster to bring defence-adjacent firms into the fold.<\/p>\n
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Canada has plenty of small and medium-sized businesses (SMBs) that want to meet its defence needs, but a new report<\/a> from the Business Development Bank of Canada (BDC<\/a>) and The Icebreaker<\/a> says many are struggling to break into the sector.<\/p>\n After years of underinvestment<\/a> compared to its allies, the Government of Canada plans to pour<\/a> billions over the next decade into remaking<\/a> the country\u2019s military and shoring up its in-house defence capabilities<\/a>. The feds want to reduce the country\u2019s reliance<\/a> on its increasingly volatile southern neighbour, the United States, while spurring domestic economic growth.<\/p>\n \u201cCanada has absolutely no shortage of defence-capable small businesses. What we have is a problem with conversion.\u201d<\/p>\n Matt Lombardi, The BDC-Icebreaker report, released on Thursday, digs into how Canadian SMBs are navigating this shift. The Crown corporation and defence innovation network found that many still face significant barriers entering and growing in the defence sector: challenges securing capital, hiring, navigating complex procurement processes, and meeting defence-specific regulatory requirements.<\/p>\n \u201cWe\u2019re asking some proven suppliers to sprint while they\u2019re already operating near capacity, and then we\u2019ve got a lot of firms that can help, but the path into defence is extremely murky, and in a lot of ways, it\u2019s too expensive for newcomers,\u201d Icebreaker co-founder and CEO Matt Lombardi told BetaKit in an interview.<\/p>\n BDC, The Icebreaker, and market research firm Forum Research surveyed 642 SMBs, ranging from companies already active in defence to ones looking to enter the sector.<\/p>\n The small group of SMBs that generate the majority of their sales from defence is scaling, the report found, but many are already operating at or near capacity. Half of the defence firms seeking funding expect it to be difficult or very difficult to obtain, with many financiers still cautious about defence\u2019s risk profile, limited client base, and unstable cash flow.<\/p>\n The larger share of SMBs with a minority of their revenue from defence also said they see room to grow in the sector, but are expanding more cautiously amid continued economic uncertainty and a lack of a predictable enough demand to justify a shift in capacity.<\/p>\n RELATED: Evaluating Canada\u2019s Defence Industrial Strategy<\/a><\/p>\n The report also identified a large pool of SMBs looking to enter the defence market: 374 firms across areas like construction, information technology<\/a>, and manufacturing. It found this cohort faces the steepest challenges moving into defence, from securing financing to figuring out how to satisfy steep government requirements and determining the right entry point.<\/p>\n Lombardi is most concerned about this group, which he expects will need to play a \u201cvery\u201d important role if Canada hopes to meet its ambitious defence targets.\u00a0<\/p>\n \u201cCanada has absolutely no shortage of defence-capable small businesses,\u201d he said. But while the pipeline is there, in order to bring those \u201cdefence-adjacent\u201d SMBs into the fold and turn them into trusted suppliers, Lombardi said Canada still needs to implement a much clearer path through compliance, financing, and procurement.<\/p>\n \u201cWhat we have is a problem with conversion,\u201d he said. \u201cThe bottleneck is not from the business owners\u2014it\u2019s this obstacle course that we\u2019ve created from capability to contract.\u201d<\/p>\n BDC chief economist Pierre Cl\u00e9roux echoed the need to address these barriers. \u201cThere\u2019s a lot of interest from [SMBs] that are not in the sector, but there\u2019s a long way to go before they are able to [participate],\u201d he told BetaKit in an interview.<\/p>\n RELATED: Eliot Pence: Canada\u2019s defence buying timelines are \u201cirrelevant\u201d for modern warfare<\/a><\/p>\n \u201cWe are at the beginning, so I\u2019m not worried about it, but it means there\u2019s a lot of work to do to make sure that all these investments that are going to be made are going to impact Canadian businesses,\u201d Cl\u00e9roux said.<\/p>\n Lombardi hopes this report gives Canadian investors and lenders a clearer idea of where the gaps exist in Canada\u2019s defence plans. This includes BDC, which the feds have tapped to play a major part<\/a> in delivering them.<\/p>\n The Icebreaker CEO said the feds have said the right things and made a lot of progress towards addressing these constraints, but argued that Canada needs to move much faster.<\/p>\n \u201cIf Ottawa really wants domestic capability this decade, they\u2019ve got to make the on-ramp easier for small businesses,\u201d he added.<\/p>\n
The Icebreaker<\/p>\n