Defence and Security: Smaller firms looking outside North America

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Ottawa startup SageTea Group has been promoting its software creation tool for only two years but the international market is already “critical” to the company’s future growth plans, says CEO David Long.

David Long is the CEO of SageTea.

By Jacob Serebrin

“We’re already exporting,” he says. In April, the company announced it had signed up a reseller in Europe, along with another in Brazil.

Canada and the United States are formally ending their military involvement in Afghanistan and looking to trim defence spending to reduce their budget deficits. Security experts say this means local firms will have to look further abroad to find opportunities to sell their military hardware and high-tech gear.

“There’s definitely been an increased focus on (exports) in the past couple of years,” says Mike Greenley, chair of the board of directors for the Canadian Association of Defence and Security Industries and a vice-president with aviation technology firm CAE Canada.

Selling to foreign firms and governments has always been a big part of Canada’s security industry, given Canada’s relatively small defence budget, Mr. Greenley says. At $6.4 billion, exports accounted for almost 51 per cent of all revenue generated by Canada’s defence and security industry in 2011, according to a KPMG study commissioned by CADSI.

“That ratio has been consistent for 10 years,” Mr. Greenley says, adding that there’s an effort to push that number even higher.

Reduced defence spending in Canada and the United States means there are fewer bidding opportunities. Even for those companies still landing deals, the industry’s already lengthy sales cycle is getting even longer.

“We’re in a holding pattern right now,” says Bernadette Terry, senior business development manager for the defence and security industry at economic development agency Invest Ottawa. “A lot of companies are looking at diversification and expanding to emerging markets.”

Both Mr. Greenley and Ms. Terry say that local companies are finding big opportunities in Latin America and the Middle East.

“There’s a huge market outside of North America,” says Meaghan O’Brien, director of marketing and international sales at Secure City Solutions. “To grow, you have to look at all your options.”

The company, which markets communications software that integrates multiple forms of communications, video and sensor data, is selling in the United Arab Emirates, Qatar and Saudi Arabia, all of which are rapidly scaling up their military capabilities.

Exports are at the core of Secure City’s business model. It was spun off from local startup Omniglobe Solutions after that company won a NATO subcontract that put export controls on some of its technology.

The federal government has also taken a larger role in helping Canadian defence and security companies promote their products overseas.

“We’ve been working with trade commissioners,” says Ms. O’Brien. She adds that federal officials have let the company use office space in foreign countries.

Federal agencies have also partnered with CADSI to set up Canada pavilions at international trade shows.

The same factors that are pushing Canada’s defence and security firms to export are also pushing those companies to diversify and sell what the industry calls “dual-use technologies,” those with both civilian and military applications.

While that’s always been something that defence companies want to do, depending on what they’re selling it’s not always an option, Mr. Greenley says.

Here in Ottawa, though, where the defence industry focuses on communications and command and control, “that’s more possible now,” Mr. Greenley says. “Government needs secure networks but so does everyone else.”

Selling to both civilian and government markets, companies can close the gap between government contracts.

“If we only focused on defence, we’d have to work at the speed of defence,” says Mr. Long. He says the flexibility of his company’s product, “allows us to focus on what deal’s going to close first.”

It’s a business model that’s led the company to sign deals with printer giant Ricoh and join General Dynamics’ startup accelerator.

“We’re definitely in the defence business,” Mr. Long says. “But are we a defence company? I don’t think so.”

Organizations: CADSI, Canadian Association, Security Industries CAE Canada KPMG Secure City Solutions NATO Ricoh General Dynamics

Geographic location: Canada, North America, United States Europe Brazil Afghanistan Ottawa Latin America Middle East United Arab Emirates Qatar Saudi Arabia

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