R&D and offshore expansion among growth drivers for aerospace & defence industry

TORONTO—While mature aerospace and defence markets continue to stagnate, companies are under pressure to deliver strong returns to investors and shareholders – and Canada may be an attractive option for growth, according to a KPMG International survey.

“Aerospace and defence organizations are not willing to grow at any cost. Competition is strong and prices are under increasing pressure,” Grant McDonald, national sector leader of aerospace and defence at KPMG, said. “As a result, companies around the world are looking for strategic opportunities to reduce costs and Canada presents itself as a strong contender, offering growth potential for international players.”

Over the next two years, keeping their business models competitive will be the biggest challenge for A&D organizations. Historically, the US and the UK have turned to China and India when looking to remain competitive through international expansion. But, from acquisition prospects to supply chain development to significant federal funding programs, Canada may now be looking like a more promising player, according to the report.

“In today’s fast-changing A&D environment, new threats and competitors are emerging every day. Yet, the challenge for individual organizations has less to do with spotting new threats and more to do with how those companies react and respond to them,”McDonald added.

Other key findings from the survey results include:

• Increasing sales and decreasing spend – to build strength, remain relevant and meet important targets, 53 per cent of respondents say sales growth is their top strategic priority over the next two years, followed by the 47 per cent who cited reducing their cost structure.
• Opportunities overseas – overseas expansion and portfolio shaping will create new growth opportunities. More than a quarter of respondents say they will enter into new geographic markets, which could represent a growth opportunity for Canada.
• Investing in research and development – investment in research and development will increase as organizations look to new technologies and services for growth. Forty-one per cent of companies plan to spend in excess of six per cent of revenues on R&D over the next two years, a 13 per cent increase compared to the last two years. Half of all respondents say they expect new manufacturing technologies to drive future innovation.
• The supply chain of tomorrow – A&D organizations are reorganizing their supply chains to support future global growth and reduce working capital. A third of all respondents list restructuring the supply chain as a top priority this year and more than half are focused on lowering costs and working capital levels across the entire supply chain.