Marine electronics: Why buy Canadian?

Sometime this fall, the government is scheduled to pick the shipbuilding winners – two yards that will build the big ships for Canada’s new navy. In all, over the next three decades, Canada will spend as much as $40 billion to build more than 50 government ships: frigates, icebreakers, Arctic patrol ships, Coast Guard vessels and navy supply ships.

The government will not simply be blessing companies with the bounty of the National Shipbuilding Procurement Strategy (NSPS). The cities where the chosen yards are located, their regions and their provinces will enjoy sustained, dependable employment and revenue for decades to come.

In the months leading up to the award, leadership of every kind will besiege official Ottawa to win the business. Politicians, educators, business owners and union officials will all add their voices, so they can lift a shipbuilding trophy in front of their cheering constituents, the beneficiaries of a long-standing policy that states Canadian government ships must be built in Canada.

But the greatest and most lasting economic value for Canada in the new wave of shipbuilding may not be the hulls that come out of the successful yards, but rather the electronics that will give those platforms their ears, eyes and brains. And nobody will be cutting a ribbon for that. As Peter Gartenburg, vice-president of Ottawa Operations for L-3 Communications, puts it, “to my knowledge, Canada has never successfully attracted foreign buyers of warships produced in Canada. Yet the marine electronics sector, the part that is not supported and protected, is the part that has the proven potential for export.”

Over its 30- or 40-year lifetime, the propulsion system and physical outline of a new Canadian warship will probably not change very much, but its electronics will undergo continuous and significant change. And those electronics touch every system on the ship, from crew amenities to combat systems. The physical electronics aboard the vessels could be changed as often as three or four times over their lifetimes, while the software could be refreshed literally dozens of times.

That should represent enormous potential for high-value employment and business creation all across Canada in naval electronics. Much of it has “crossover” potential as well, because the technologies and skill sets they require can be used in other civilian and military applications. The more Canadian electronics content that is designed into the new round of ships, the greater the potential to support Canadian naval electronics businesses and jobs for decades to come.

Eyes on the prize
The prize is one that Canadian industry can reach. As George Galdorisi pointed out in last year’s two-part Vanguard series, “C4ISR At Sea,” tomorrow’s sailors will rely heavily on automated systems to make sense of torrents of sensor data. Rather than just a common operating picture, software will customize information to provide individuals and groups only with the information and knowledge they need to fulfill their mission role. As in today’s commercial telecommunications world, highly specialized “apps” will perform single tasks on standard platforms, using common libraries and data flows.

Many of these products can be designed and built by smaller defence contractors, but the skills and specialized knowledge they require greatly depend on a steady stream of work. As well, the defence market is very tough for smaller start-ups to crack. Investors simply are not interested in products or services with such a limited market. Not only do military products have restrictions on potential customers, there is almost no chance for the runaway success that venture capitalists are looking for. If governments believe in the small to medium size business as the engine of growth and innovation in this country, then defence companies in the sector merit special consideration.

Around the world, navies are moving away from single-purpose ships to a modular approach, and from closed, proprietary computer systems to open architectures. Both trends favour an incremental, planned approach to maintaining electronic capabilities. If the platform is designed to accept a range of modules, and if those modules are designed to be enhanced and upgraded, successful innovation has a broader, global market.

There is much less emphasis on “big bangs” and more on smooth transitions, so lower input costs of product development should mean lower barriers to entry.

Finally, the United States Navy clearly sets the global pace for naval electronics. That country is not only our military and political ally, our defence industries are in many ways inseparable. Canadian policies can enhance the advantages and minimize the disadvantages inherent in those relationships, to the betterment of domestic electronics businesses.

As ADM Materiel at National Defence, Alan Williams had sufficient opportunity to survey the barriers between Canadian industry and military contracts. “There was no incentive for me to say, ‘buy Canadian’,” Williams said recently. “There is very, very little in any piece of legislation that demands it…so there was no incentive for me to buy Canadian to promote Canadian industry and innovation – none of that.”

Williams believes that if the government is really serious about doing what’s best for Canada, it will have to develop a policy framework and legislation that clearly sets out how it intends to support and encourage Canadian industry in the 21st century, and require the public service to work according to that legislation as they do multibillion dollar procurements.

Future to the back
Any discussion of Canadian naval shipbuilding inevitably turns to the Canadian Patrol Frigate Project. The dozen ships of the Halifax class have carried Canada’s flag to the oceans of the world. At the time of their construction, the government called for a maximum of Canadian participation in the project, but more specifically, it required that companies under Canadian control integrate at least two of the Halifax class electronic subsystems. Products developed for the CPF have returned hundreds of millions of dollars to Canada in export sales, and many of them remain in production today.

Peter Gartenburg points out that the MAPPS division of L-3 became a world leader in integrated platform management systems, the systems that control ship machinery, because the Crown’s project staff for the original Canadian frigates made a small, low-risk investment in a Canadian company to develop an automation system for the class.

“They did the same thing for ship communications and data processing systems,” he said. “This springboard led to three viable, globally exporting Canadian companies that we can take great pride in today and which bring foreign dollars to Canada. That is real economic leverage at work. I see none of that same approach in today’s procurements.”

The current procurement system is biased towards proven, off-the-shelf solutions. This preference for non-developmental products reduces opportunities for Canadian marine electronics companies even further. Gartenburg notes that the marine electronics selected for ships built under the NSPS will be based on the prime contractors or systems integrators running competitions for international products based on standard business parameters, with no advantage given to Canadian companies. “The only incentive for selection of a Canadian product will be the awarding of IRB [Industrial and Regional Benefits] credits by Industry Canada. However, IRBs are not the main determinant in selection of a product, only a tiebreaker if all else is equal.” Gartenburg concludes that as a result, most marine electronics for Canadian federal ships will be imported from offshore.

Canadian, eh?
Canadian companies may not be able to develop stand-alone products that find international customers, but under a different procurement regime, domestically developed components could find their way into the global supply chains of larger defence contractors.

CADSI, the Canadian Association of Defence and Security Industries, describes Canada as the only one among allies without a defence industrial strategy that brings industry and government together to “formally align economic objectives to military procurement.” Its 2009 report on defence procurement says, “Canada penalizes itself as few other nations do, delaying essential military materials, adding non-value-added costs to itself and to industry, and inhibiting its industrial champions from winning business at home and abroad.” The report of the association’s Marine Industries Working Group said Canada’s hands-off approach “has led to reduced high technology marine-related research and development and jobs. Canada is essentially at a tipping point ? either move forward and renew and sustain Canada’s government fleets indigenously, or transfer wealth, technology and jobs to other nations.”

As Alan Williams said, “I don’t know why there is such a reluctance to think big picture. Other countries can do it and they are certainly no better or smarter than we are.” Apart from government ships, the only other defence product mandated for Canadian production is ammunition. “Nothing else is deemed to be required to be made or built or bought in Canada. That makes no sense,” Williams said.

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