A recent article in Business Day by Erika Gibson on the status of the SA defence industry provides some interesting food for thought. One takeaway is the comment that SA defence industry role players should consider cooperating to penetrate the international market.
Competition is stiff in the defence sector. At least 22 armoured vehicle suppliers are expected to compete for a specific wheeled armoured vehicle supply solution in Malaysia. Another insight is the resilience of the South African defence industry (SADI). Over the last few years, the mainstay of the industry, Denel, has imploded. Yet, the rest of the local industry has moved forward and filled gaps to stop a decline in market size or export revenue. The SADI market is export driven. The article mentions a local entity that has 100% export revenue. This is not unique for private SADI entities. Worth noting is that SADI has also benefited from increasing international conflict by increasing exports.
It’s a big jump, but the article made me think about the South African armoured vehicle segment and the predominance of Mine-Resistant Ambush Protected (MRAP) designs. The MRAP designs are essentially armoured V-shaped hulls mounted to a truck chassis for mine blast effect deflection coupled with a protected crew compartment. Many solutions load the chassis to the limit and increase stand-off height to counter the threats. This has the downside of making mobility clumsy with the vehicle’s centre of gravity very high from the ground. South Africa was seen a leader in this segment with the Mamba/Casspir infantry mobility vehicle designs. The Mamba/Casspir is the inspiration of many SADI, and international, suppliers. The Armscor armoured personnel carrier (APC) request for information (RFI) issued at the beginning of 2023 was an MRAP in a nutshell. The SADI armoured vehicle community showed that it is ready to supply such a solution. South African National Defence Force (SANDF) feedback indicates that a light armoured vehicle is actually needed, not an MRAP.
The question is whether the MRAP is/was just a technology bubble that is now being left behind. If so, then many SADI companies need to pivot as the market for their products is drying up quickly.
What is an industry “bubble”? Think of the internet/DotCom bubble. A bubble goes through five stages. The five stages are displacement, boom, euphoria, profit-taking and panic. So, does the MRAP solution fit these stages?
First is Displacement. What can be seen as the genesis of the MRAP bubble? This is easy. US casualties from improvised explosive devices (IEDs) during the Iraq war started the MRAP age. The light protection of the High Mobility Multipurpose Wheeled Vehicle (HMMWV) or Humvee did not provide protection against changing battlefield tactics.
The US warfare machine triggered the Boom. Urgent Operational Requirement (UOR) tenders were issued in order to provide solutions to protect ground forces. The MRAP UOR release highlighted that armoured vehicle companies needed to find solutions quickly. The MRAP proverbial cat was out of the bag and fomo (fear of missing out) ruled. Tier 1 suppliers in the US scrambled to get solutions. Some of the least visually impressive vehicles were born.
Then there is Euphoria. Caution is thrown to the wind and all potential solution suppliers gamble on trying to get a piece of the action. The MRAP is even divided into categories. Category 1: Mine-Resistant Utility Vehicle – typically 4×4 variants. Category 2: Joint EOD Rapid Response Vehicle – typically 6×6 variants. In South Africa many Mamba type solutions with increased protection levels entered the market. The design houses travelled the world trying to sell manufacturing licences. There are now over a dozen similar solutions from South Africa competing for a very small MRAP segment.
Enter the Profit-taking phase. Switched on operators see that things are becoming too crowded with a number of wild entrants. They decide to get out of the segment before the bubble bursts. The classic case is BAE Systems Land Systems South Africa (LSSA) exiting the local market just as sales were turning. Denel, still in the euphoria state, took over the reins. The rest will be history.
The last phase is Panic. When the bubble is punctured, there is a rapid downward trajectory. Companies then try to get out. It triggers investors leaving a segment. It is the classic inflection of the S-Curve. Either pivot into a new product niche or enter a death spiral. The SADI armoured vehicle export figures for the last decade show that the MRAP focused segment is in serious decline.
The MRAP bubble has burst. A small MRAP niche market will remain. The majority of SADI armoured vehicle manufacturers will need to pivot away from the MRAP.
What the SADI needs is an armoured vehicle strategy if the country wants to maintain this capability. A full review of the segment is required. The solution needs to align with a market exploitation approach that diversifies product offerings. A list of projects, like those named in a defence review and follow up defence industry strategy, is not a strategy, but can be used as core input to analysis.
Below is a simplified analysis of segments within the land mobility domain based on operational mobility (move in area of operations to battle point) versus tactical mobility (move under fire). The MRAP does fit in the Land Medium segment.
What is being seen in the international market is an alignment of vehicle mobility with survivability, while applying a proportionate level of lethality. The Malaysian opportunity is such a case in point, focusing on the lower mass end of Land Medium. Land Utility (soft skin) and Land Light (armour & soft skin) are offering opportunities for vehicle solutions. Think our border patrol solution gap. Wheeled reconnaissance and infantry fighting vehicle (IFV) class vehicles are currently major sellers. The SADI has various solutions, but are not locally supported.
The strategy needs to cover 1) the structure of this segment of the industry, 2) analyse customer value with input from local end users, 3) analyse the position of the SADI versus competition, and then 4) the SADI needs to make a country-level strategic choice based competitive analysis.
The SADI armoured vehicle segment is not going to be a “be-all” solution, but it needs local SANDF support. There can be a set of vehicle level solutions, but also development of the mission systems to make these solutions work, e.g. fit for purpose firepower and C4I (command, control, communications, computers, and intelligence) solutions.
If the strategy is agreed, then the acquisition agency must be empowered to uplift local capabilities with the aim to align with export market needs. As an example, if a foreign solution is needed, the offset DIP (Defence Industrial Participation) and NIP (National Industrial Participation Programme) must be geared towards the development of the other needs within the segment. So, if a foreign IFV solution is procured, then the offset could be leveraged for Land Light multi-purpose vehicles or unmanned vehicle with comparable mission sub-system development. At present most offset is inwardly focused on the project domain.
The SADI needs to pivot from MRAPs before it is too late.
Written by James Kerr, Orion Consulting CC, which provides Market Entry Strategy and Bid & Proposal services to the Aerospace & Defence related industry and assists international SME mission system product suppliers to gain traction in South Africa.
