M8200 Defence in Australia Industry Report

2 About this Industry2 Industry Definition

2 Main Activities

2 Similar Industries

2 Additional Resources

3 Industry at a Glance

4 Industry Performance4 Executive Summary

4 Key External Drivers

5 Current Performance

6 Industry Outlook

9 Industry Life Cycle

11 Products & Markets11 Supply Chain

11 Products & Services

12 Demand Determinants

13 Major Markets

14 International Trade

16 Business Locations

18 Competitive Landscape18 Market Share Concentration

18 Key Success Factors

18 Cost Structure Benchmarks

20 Basis of Competition

20 Barriers to Entry

20 Industry Globalisation

22 Major Companies

24 Operating Conditions24 Capital Intensity

25 Technology & Systems

25 Revenue Volatility

26 Regulation & Policy

26 Industry Assistance

27 Key Statistics27 Industry Data

27 Annual Change

27 Key Ratios

28 Jargon & Glossary

IBISWorld Industry Report M8200Defence in AustraliaDecember 2011 Paul McMillan

Lock and load: The industry may look overseas for cheaper, more compatible equipment

www.ibisworld.com.au | (03) 9655 3881 | [email protected]

www.IbISwOrLD.COM.Au Defence in Australia December 2011 2

The Defence industry is part of Australia’s public sector. The industry largely consists of the Department of Defence, within which sits various groups involved in defence and national security. This includes the army, navy, air force,

intelligence organisations and administrative and support functions thereof. The industry excludes manufacturers of defence materials, providers of services to defence and educational institutions for the defence force.

The primary activities of this industry are

Armed forces unit operation (except manufacturing, service contractors and educational)

Civil defence operation (military)

Government administrations (defence)

Industry Definition

Main Activities

Similar Industries

Additional resources

The major products and services in this industry are

Air force capability

Army capability

Command of operations

Intelligence

Navy capability

Strategic policy

Superannuation and housing

About this Industry

N8426 Government Schools in AustraliaThis industry is similar in that it is largely funded by governments.

Q9630 Emergency Services in AustraliaThis industry is similar in that it provides community protection and is funded by governments.

For additional information on this industry

www.defenceindustry.com.au Defence Industry Australia

www.defence.gov.au/dmo Defence Materiel Organisation

www.dsto.defence.gov.au Defence Science and Technology Organisation

www.defence.gov.au Department of Defence


Market ShareThere are no major players in this industry

Key External DriversCapital expenditure on defenceregional warsDemand from scientific research

Key Statistics Snapshot

Industry at a GlanceDefence in 2011-12

revenue

$23.9bnEstablishments

397wages

$9.5bnbusinesses

15

Annual Growth 12-17

3.0%Annual Growth 07-12

1.4%

Industry Structure Life Cycle Stage Mature

Revenue Volatility Medium

Capital Intensity High

Industry Assistance High

Concentration Level High

Regulation Level Heavy

Technology Change High

Barriers to Entry High

Industry Globalisation Low

Competition Level Low

FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIx ON PAGE 27

Mill

ion

10000

2000

4000

6000

8000

1602 04 06 08 10 12 14Year

Capital expenditure on defence

SOURCE: WWW.IBISWORLD.COM.AU

% c

hang

e

20

−30

−20

−10

0

10

1804 06 08 10 12 14 16Year

Revenue Employment

Revenue vs. employment growth

Defence personnel

28%NSW6.7%

NT

21%QLD

6.6%SA

1.4%TAS

14.5%VIC

14.3%ACT

7.5%WA


p. 22

p. 4



Key External Drivers Capital expenditure on defenceThe Defence industry receives the vast majority of its total revenue from the Government and is therefore very sensitive to changes in Federal Government funding levels. The level of defence spending reflects a government’s political priorities (more money for defence will take money from other departments), immediate security threats to a country, and Defence industry and external advice on the industry’s capability to face future challenges.

Regional warsThe Defence industry is particularly sensitive to instability in the world. The ADF currently has a number of troops in a range of operations around the world (in both combat and peacekeeping functions). These global operations may be conducted in conjunction with the UN, or as part of coalition forces. Military combat can lead to increased government spending on defence, for example for new weapons, systems and increased personnel.

Executive Summary

Government contributions towards the Defence industry are expected to rise at a rate of 1.4% per annum over the five years ending June 2012. The rise in Federal Government funding, which makes up 90% to 95% of total revenue, represents the government’s commitment toward ensuring the safety and security of Australia and its neighbouring nations. Major operations over the past five years have included the conclusion of Australia’s combat role in Iraq, an increased focus of fighting terrorism in Afghanistan, peace keeping in Timor-Leste and assistance in response to natural disasters.

In 2011-12, the industry will generate revenue of $23.9 billion, representing a fall of 3.8% from the previous year. Relatively large revenue fluctuations

can occur from year to year, but volatility tends to smooth out over the long term. Industry revenue is expected to average 1.4% growth over the five years through 2011-12.

Despite continued defence spending, there is uncertainty over agreements with Australian industries that supply products and services to defence, due to cost controls and the aim to maintain compatible equipment with the United States. This could mean that the Department of Defence and its Defence Material Organisation may bypass some local suppliers in favour of off-the-shelf systems that are cheaper, proven and extensively customised. Industry revenue is forecast to grow by 3.0% per annum over the next five years through 2016-17 to $27.7 billion.

Industry PerformanceExecutive Summary | Key External Drivers | Current Performance Industry Outlook | Life Cycle Stage

Uni

ts

45

25

30

35

40

1399 01 03 05 07 09 11Year

Regional wars


Mill

ion

10000

2000

4000

6000

8000

1602 04 06 08 10 12 14Year

Capital expenditure on defence


Industry Performance

Operations The major operational defence event over the past five years was Australia ending its combat role in Iraq in 2008. Australian forces had initially been deployed to Iraq in 2003 as part of a US-led multinational effort to mitigate Iraq’s potential threat to the region. After the Battle of Iraq was won and the nation was largely secured, Australia’s role developed into providing security and training to local forces as the country rebuilt, elected a new government and embarked on the road to independence. Gradually the focus of the United States and its allies shifted to

Afghanistan and efforts to control militant groups in the region. A greater focus by the United States and its allies on fighting resistance in Afghanistan has seen Australia’s role in that country grow through the involvement of Special Forces and an aviation support element. Other major operations involving Australian defence forces over the past five years have included peace-keeping in Timor-Leste, the protection of Australia’s offshore maritime areas and the provision of assistance in response to several natural disasters in other countries.

Current Performance

The Australian Defence industry operates within the public sector, predominantly generating revenue from Central Government funding. On average approximately 90% to 95% of funding is contributed by the Australian Federal Government. IBISWorld estimates that industry revenue will increase by 1.4% per annum to $23.9 billion over the five years through 2011-12. This is despite an expected decline of 3.8% in industry revenue in 2011-12 compared with the previous year. Revenue and expenditure are largely determined on a needs basis, relating to events in the geo-political environment such as wars and disasters.

The modest growth in Defence industry revenue and hence in Federal Government spending on defence has been influenced by cost minimisation efforts. For example, several facilities have been closed and consolidated in recent years to improve efficiency. As a

result, the number of locations the industry operates in has remained the same over the past five years. Efficiency has contributed to the industry’s ability to maintain large operational readiness despite the decline in spending as a share of total government expenditure.

Key External Driverscontinued

Demand from scientific researchThe success of the Defence industry is dependent on the use of high technology equipment that creates an advantage for Australian troops in military action. The

development of technology by private industry (either domestically or abroad) can increase government expenditure on the acquisition of that equipment, or further research and development.

% c

hang

e

20

−30

−20

−10

0

10

1804 06 08 10 12 14 16Year

Industry revenue




Global trends Even though future conflicts are difficult to predict, defence planning is based on a series of general assumptions about global trends. It can be assumed that the United States will continue to be the world’s most powerful political and economic player. With a rich and dynamic economy and

well-developed military-industrial relations, the United States will dominate holdings of, and advances in, military technology. Joint exercises between the United States and Australia, good political relations and multilateral forums such as the United Nations, will allow for some

Industry Outlook

Based on revenue projections by the Department of Defence, IBISWorld forecasts that industry revenue will increase by an average of 3.0% per annum over the five years through 2016-17 to reach $27.7 billion. Government contributions to total industry revenue will hold steady at around 95%, with the remainder generated by the Defence Department’s own sources, such as sales of goods and services, and revaluation of assets. While forecasts are for a decline in defence spending, unforeseen events may alter expenditure priorities as defence resourcing needs change.

The major challenge for the Defence industry over the five years through 2016-17 will be in assessing the appropriate level and capability of defence equipment in a volatile global, political and security environment. Rapid

advances in technology present a continual challenge for defence as it is one of the largest users of information and communication technology, and access to reliable intelligence is of crucial importance. The long-term nature of many projects also poses risks such as overspending, and developing equipment that is already challenged or superseded by newer technology. The recommendations of the Defence Procurement Review regarding the improved processes for capital acquisition will also prove a major challenge but should, over the long term, increase industry transparency.

Economic downturn to help recruiting

A key issue facing the industry is the ability to attract and retain a highly skilled workforce. This is related to the risky and demanding nature of work required and, until recently, the highly competitive labour market. According to the Department of Defence, retention has been found to be more effective and cost efficient than recruitment. Consequently the Australian Defence Force (ADF) is commencing its Skilling Australia’s Defence industry (SADI) program. The Defence Material Organisation has allocated more than $200 million for the program over ten years.

Labour shortages are not only affecting defence personnel but also private sector companies involved with the industry.

Shortages of skilled employees have occurred among a wide array of occupations such as engineering, project management and other technical roles.

These difficulties are partly influenced by the economic cycle. Between 2005-06 and 2007-08, Australia experienced strong economic growth, and the supply of skilled labour was largely absorbed by industries that were booming. For example, the mining and the resources industries offered high salaries to attract labour away from other industries. The economic downturn and associated rise in unemployment eased this shortage for the industry, with a lack of private sector opportunities making the defence forces a more attractive option for some workers.

Rapid technological advances are a continual challenge for defence



Global trendscontinued

technology to be adopted by the Australian Defence industry (largely to facilitate force compatibility).

It can also be assumed that China will become the largest economy in the world and India will grow to have the biggest population in the world over the next decade, allowing both countries (particularly China) to employ a huge number of people in military positions. Both countries are likely to develop workable, long-range nuclear technology. While this does not form a direct threat to Australia, the proliferation of weapons of mass destruction and regional instability in Asia could threaten national

security indirectly, by changing the regional balance of power.

Africa and the Middle East will remain troubled and unstable. International terrorist groups based in these regions are expected to remain a key security concern for Australia and its allies. The outcomes of existing conflicts in these areas are uncertain, and likely to result in further political instability. The potential for further conflict in the future is high. Consequently, Australian Defence Force personnel may be deployed to Africa and the Middle East in either a military capacity or as part of humanitarian operations.

Security There are expected to be fewer wars between nations and more conflicts within states (or transnational conflicts) over the next five years. There is also the risk that weakened regimes will struggle to address food and resource instability, resulting in humanitarian crises, such as extreme poverty, famine and genocide, requiring the assistance of the international community. Such unstable scenarios may also promote further conflict. An increase in unequal conflicts (such as China versus Taiwan) and transnational militant groups (such as Al Qaeda,) is also likely.

Extremist organisations are likely to continue using Western involvement in regional conflicts as a means to convert anti-Western popular sentiment into a recruitment tool. Due to the dispersed and non-hierarchical nature of these

organisations, the war on terrorism is unwinnable by traditional military means. Allied forces have begun using public relations as a tactical response to the dynamic nature of this modern enemy. It aims to generate positive relations or ‘win the hearts and minds’ of the local population while continuing traditional military operations.

This strategy is expected to remain popular. Instability in many regions of the world will keep terrorist groups hidden and able to recruit members as long as their ideology is popular among the general population. Another target will be sources of funding for these groups, which include the illegal trade in people, drugs and arms. This again highlights the complex, fragmented and global nature of the war on terrorism going forward.

Implications for Australian Defence Forces

These issues mean that the ADF will be more likely to participate in coalition forces, which makes equipment compatibility with other forces a Defence industry priority. It will be more likely to participate in stabilisation and reconstruction operations as opposed to offensive combat operations. It will need to be flexible and adaptable in order to

prepare for a range of operations at short notice, including working with civil authorities in relation to border protection, critical infrastructure protection and counter terrorism. It should purchase state-of-the-art equipment in smaller lots because the rate of technological change and the changing strategic environment makes major equipment obsolete quicker.



Suppliers face international competition

Due to the need to control costs and maintain compatible equipment with allies such as the United States, Australian suppliers of defence products and services will find it increasingly difficult to compete. Rather than commissioning the

development and manufacture of products locally, the Department of Defence may overlook local suppliers and instead purchase off-the-shelf systems that have already proven to be effective, from larger nations such as the United States.


Industry PerformanceDefence enterprise numbers are expected to remain unchanged

Defence is a government monopoly, which is unlikely to change

The industry rapidly develops and assimilates technology; success depends on the quality of equipment used

Life Cycle Stage


30

25

20

15

10

5

0

–5

–10–10 100 20–5 155 25 30

% G

row

th o

f pro

fi t/G

DP

% Growth of establishments

DeclineCrash or Grow?

Potential Hidden GemsFuture Industries

Quality GrowthHigh growth in economic importance; weaker companies close down; developed technology and markets

Time wastersHobby Industries

MaturityCompany consolidation;level of economic importance stable

Shakeout

Shakeout

Quantity GrowthMany new companies; minor growth in economic importance; substantial technology change

Key Features of a Mature Industry

Revenue grows at same pace as economyCompany numbers stabilise; M&A stageEstablished technology & processesTotal market acceptance of product & brandRationalisation of low margin products & brands

Government Schools

Motor Vehicle Manufacturing

Emergency Services

Shipbuilding

Aircraft Manufacturing

Defence



Industry Life Cycle Given the nature of the Defence industry, the growth stage of Australia’s Defence industry began at the time of settlement. The industry is currently in the mature stage of the life cycle and will not enter a decline stage as the Government will continue to fund and support defence.

Defence is a government monopoly. For reasons of national security and safety, this role will continue to be assumed by the Commonwealth Government as the main function of the Defence industry is the provision of non-market services.

The rate of technological change is and always will be fast, as the industry strives to maintain the latest equipment and supplies. As suggested, industry success relies on the quality of the equipment used.

There is acceptance for the existence of a national Defence by the majority of Australians. The activities of the Defence industry go beyond the conventional form of combat, but also include foreign aid, intelligence, patrolling Australian waters, training, development, research etc. At times of geopolitical instability and international warfare, attitudes towards defence heighten and higher spending is more acceptable to the

public. However, the level of defence funding and spending will continue to be a contentious issue among Australians, as defence competes with other public sectors for government funding.

All governments (with one or two exceptions) provide funding for defence-related activities in order to ensure the protection and security of a nation. In Australia, the Defence Act was first passed in 1903 (making the industry about as old as Federation). Defence funding will vary over time depending on the level of regional and/or global instability. For example, in the First World War, defence expenditure accounted for 6.6% of GDP; during the Second World War, expenditure increased to 15.2% of GDP. Defence expenditure is estimated to currently be low at less than 2.0% of GDP. While overall the industry is in the mature phase, there are growth areas related to intelligence gathering and counter-terrorism capabilities. Over the next five years the Defence industry will remain in the mature phase of its life cycle. It is unlikely that the industry will enter a decline stage, as national interests of safety and protection will ensure continued priority and funding by the Australian Government.

This industry is Mature


Products & Services Command of operationsActivities include the conduct of military campaigns and operations, the provision of emergency and non-emergency support to the Australian community, overseas deployments and the planning of various joint and combined exercises involving the three services and allied or regional military forces. Some activities covered by this segment include East Timor peacekeeping; conduct of maritime surveillance patrols in the South-West Pacific; Operation Catalyst, to assist with rehabilitation of Iraq; Operation Slipper, the US led operation against international terrorism; ADF contributions in Afghanistan; Airfield Defence Guards contributions to United Nations peacekeeping and humanitarian operations.

Army capabilityActivities involve the operation of special forces, light infantry, army aviation, ground-based air defence, combat support, regional surveillance, logistic

support and internal protective operations. The army also provides forces for peacetime national tasks, including counter-terrorism and chemical, biological, radiological and explosive incident response operations. The level of funding allocated towards the army’s capabilities has increased since 2002-03, which reflects the increased activities in Afghanistan and Iraq. This will reverse over the next five years as troop numbers in those regions are reduced.

Air force capabilityActivities include offensive combat, rapid mobility, strategic surveillance, maritime patrol aircraft and airlift. The air force also maintains surveillance in northern Australia for unauthorised arrivals. Along with providing offensive and defence capabilities, air force capabilities also assist with search and rescue, disaster relief and humanitarian assistance.

Navy capabilityActivities include the provision of naval operations, maritime patrol and response,

KEy buyInG InDuSTrIES

M8111 Central Government Administration in Australia The Central Government uses the Defence industry to fulfil national security objectives in Australia and around the world.

KEy SELLInG InDuSTrIES

C2811 Motor Vehicle Manufacturing in Australia Motor vehicle manufacturers supply vehicles to the industry.

C2821 Shipbuilding in Australia This industry supplies shipbuilding and ship maintenance facilities to the Defence industry.

C2824 Aircraft Manufacturing in Australia Aircraft manufacturers supply the industry with aircraft and aircraft maintenance facilities.

C2839 Measurement and Other Scientific Equipment Manufacturing in Australia This industry supplies scientific equipment used for research and development purposes.

J7121 wired Telecommunications Carriers in Australia Wired telecommunications carriers supply the industry with high technology equipment that can be used in combat and non-combat intelligence gathering.

L7823 Engineering Consultancy Services in Australia This industry supplies engineering consulting services to the Defence industry.

L7834 Computer Consultancy Services in Australia This industry supplies computer consultancy services to the strategic division, and some operational parts, of the Defence industry.

Products & MarketsSupply Chain | Products & Services | Demand Determinants Major Markets | International Trade | business Locations

Supply Chain


Products & Markets

DemandDeterminants

The Federal Government is the only customer of the Australian Defence industry, insofar as defence forces only act on the express instructions of the Australian Federal Government (even if they are under allied command or UN jurisdiction). On average the Government

provides 90%-95% of Defence industry revenue in order to maintain a defence force capable of protecting Australian national security. The Federal Government demands that the Defence industry be capable of defending Australian territory from any credible

Products & Servicescontinued

the protection of shipping and offshore territories and resources, collection and evaluation of maritime surveillance, patrol boat and submarine operations, hydrographic and oceanographic operations, border protection and maritime search and rescue. Navy capabilities include major surface combatant operations, naval aviation operations, submarine operations, afloat support, mine warfare, amphibious lift, hydrographic, meteorological and oceanographic operations.

The services provided by the navy capability may be attributed to increased support to the ADF’s global war against terrorism and national tasks. A major challenge for the navy is the shortage of skilled employment, particularly in technical categories.

IntelligenceActivities include the collection and analysis of intelligence from a variety of sources, including signals intelligence, imagery and geospatial intelligence,

and electronic warfare databases. Australian intelligence also contributes to defence intelligence shared with other allied countries.

Superannuation and housing support servicesThis category includes the provision of superannuation and housing support services to current and retired defence personnel.

Strategic policyStrategic policy is a service provided by the entire Defence industry to make sound judgments and respond to changes in Australia’s strategic environment.

OtherOther activities include research, science, technology and training services. For example, the development and continued training of defence personnel is important to the ongoing maintenance of the Defence industry.

Products and services segmentation (2011-12)

Total $23.9bn

24%Army capability

6.4%Command of

operations

22.5%Air force capability

3%Intelligence

1.2%Strategic

policy

20%Navy capability

14.8%Other

8.1%Superannuation

and housing



Products & Markets

Major Markets The provision of defence is a Federal Government monopoly. Defence is something most citizens desire but cannot organise individually or through the free market for a variety of reasons, such as free rider problems, non-excludability and the high cost. As such, the Federal Government assumes responsibility for the provision of defence and uses taxation to fund the service. The provision of defence as a public good is widely held to be effective and efficient and the theory is not challenged in Australia. The Federal Government controls the level of funding to the military, the direction of short- and long-term strategic goals and when and where forces are deployed to meet these goals. As such, even when Australian Defence Forces are under the auspices of the UN or under the command of a coalition partner (such the United States or the United Kingdom, for example), they are still answerable only to the Australian Federal Government (or Courts) and can be withdrawn by the Australian Federal

Government at any time.This section outlines the key markets

for this industry, given that the Commonwealth Government is the only customer of the Defence industry. Various departments within the Commonwealth Government oversee specialist tasks and activities undertaken by the Defence industry. These departments in this sense act as the industry’s market segments.

DefenceThe Department of Defence is the largest market segment for the industry, accounting for over half of the market. It caters to the Commonwealth government by supplying the most fundamental form of national security including the army, navy and air force.

Foreign affairs and tradeThe Department for Foreign Affairs and Trade is estimated to account for the second largest market group. Over the

DemandDeterminantscontinued

attack without relying on help from combat forces of another country. It also demands that the industry have defence forces able to make a major contribution to the security of Australia’s immediate neighbourhood, be able to contribute effectively to international coalitions to meet crises beyond Australia’s immediate neighbourhood, where Australian interests are engaged; and undertake regular or occasional peacetime national tasks when and where required.

The importance of demand determinants may vary over time. For instance, protection against foreign invasion is less important now compared to 1940, while demand for protection against international terrorist organisations is higher than ever.

Factors that can increase demand for the Defence industry services include war that affects Australian interests or those of an ally; International peacekeeping responsibilities (generally under UN jurisdiction); international terrorism that

threatens Australian interests, or those of an ally; a national or international disaster that requires rapid or specialist assistance, such as the 2005 Asian tsunami; training foreign militaries with the intention of them supporting Australian interests; major events on Australian soil that could attract terrorism, such as the 2006 Melbourne Commonwealth Games; general geopolitical instability, which increases the flow of intelligence that must be interpreted and increases the possibility of troops being deployed for short- and medium-term strategic advantage.

To meet market (i.e. Federal Government) demand, the government supplies the Defence industry with varied and expert defence capabilities including operational command; naval capability; army capability; air force capability; strategic policy divisions; intelligence and information gathering; superannuation and housing support services for current and retired defence personnel.


Products & Markets

International Trade The export and import of defence-related products are not classified under this industry code. Instead they are classified under the applicable industry, such as aircraft manufacturing, satellite, and TV and radio-relay operations.

The provision of defence-related products and services is dominated by global companies that supply the Australian Defence industry with military equipment and support. Meanwhile, the Department of Defence runs a defence export facilitation program, in conjunction with Austrade, in order to

help private companies export defence-related products. The major markets for the export of Australian defence-related products are the United States, the United Kingdom, New Zealand, Thailand, Singapore, Philippines, the United Arab Emirates and Kuwait.

There are export controls on defence-related products and applications need to be made for export licenses and permits. Other policy considerations that form the criteria for denying permission to export defence and related goods or

Major Marketscontinued

last five years, the importance of this market has been heightened with aid and help going towards war-stricken regions and especially those affected by earthquakes and the tsunami. Other activities carried out alongside aid include medical services, the building of infrastructure like schools, homes, hospitals and communities.

Department of the Prime Minister and CabinetThe Department of the Prime Minister and Cabinet uses defence resources to assist in the following matters relating to national security and defence: defence policy and operations; defence

acquisitions and capability; intelligence; international security; counter terrorism and law enforcement; transport and border security; critical infrastructure and emergency management; national counter-terrorism committee secretaries.

The market groups all belong to the Commonwealth Government and together work to provide national security, via border control, foreign aid, intelligence and combat. However, it is important to note that these groups do overlap, assisting one another in achieving a common interest: national security. These measures are industry averages and may fluctuate along with sudden changes in the geopolitical environment.

Major market segmentation (2011-12)

Total $23.9bn

65%Department of Defence

25%Department of Foreign

Affairs and Trade

5%Department of the

Prime Minister and Cabinet

5%Other



Products & Markets

International Tradecontinued

specified dual-use goods and technologies with military applications include international sanctions, strategic concerns, human rights

issues, foreign policy aspects, consideration of Australian Defence Force interests and opposition to private trafficking in military goods.


Products & Markets


TAS1.4

wA7.5

QLD21.0

VIC14.5

nSw28.0

nT6.7

SA6.6

ACT14.3

Defence personnel (%)

Cold Zone (<10) <25 <50 Hot Zone (<100) not applicable

business Locations 2011-12


Products & Markets

business Locations IBISWorld estimates that in 2011-12, defence personnel will be largely concentrated in New South Wales, accounting for about 27.7% of military and civilian employees, followed by Queensland and Victoria. Combined, these three eastern states are projected to account for well over half of defence force personnel. However, on a per capita basis it is expected that there will be disproportionately more establishments in the Australian Capital Territory, the Northern Territory, and Queensland. Further estimates indicate that personnel from Tasmania, South Australia and overseas are expected to account for the smallest share of employment.

Perc

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ge

40

0

10

20

30

WA

ACT

NSW N

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QLD SA TA

S

VIC

EmploymentPopulation

Distribution of employment vs. population



Cost Structure benchmarks

The Department of Defence operates to a break-even budget and hence no surplus or deficit is expected for 2011-12. However, deviations from the budget do occur due to unforeseen events or timing of receipts and payments. For example, in both 2006-

07 and 2007-08 deficits of over $600 million were recorded.

Wages IBISWorld estimates that labour costs are the second largest expense for this industry and will account for 39.8% of

Key Success Factors Access to secure revenueAccess to secure revenue enables the Defence industry to engage in long-term planning. Government defence spending plans are generally long term and aimed at meeting future strategic needs.

Good project management skillsGood project management skills, particularly in relation to major capital acquisition projects, are essential to cost-effective decision making.

Ability to expand and curtail operations rapidly in line with market demandTo be successful, the Defence industry must be able to react quickly and effectively to regional or global crises as they arise.

Supply contracts in place for key inputsThe long-term supply contracts, of essential defence inputs, including rifle ammunition, grenades, aircraft bombs and large calibre ammunition, helps to maintain consistency in quality and training.

Access to rare inputsThe success of the Defence industry is dependent on accessing high technology equipment and materials. This can be achieved through domestic R&D activity and strategic alliances with allies, such as the United States and the United Kingdom.

Adoption of a commercial focusThe Defence industry needs to adopt a commercial focus, especially in relation to the risk analysis of capital investment and the transparency of budgetary statements.

Ability to quickly adopt new technologyThe Defence industry will be best able to defend Australia and its national interests by adopting new technology to help in both intelligence gathering and actual combat.

Access to highly skilled workforceThe Defence industry will be successful if it attracts, trains and retains the best personnel.

Market Share Concentration

The Defence industry in Australia is exclusively controlled and managed by the federal government, and therefore is considered to have an extremely high industry concentration level. The army, navy and air force together account for around two thirds of defence activity.

An alternative way to analyse concentration is to assess the share of the supply chain that is controlled by the industry. A trend exists in which the industry has been contracting work out to private contractors. In the past, the

Department of Defence owned industry specific manufacturing plants and trained its own personnel to carry out required tasks. The increasing complexity of technology used in defence has resulted in much of this work now being outsourced to private firms, particularly specialist electronics, communications and engineering companies. This trend is expected to continue over the next five years, meaning that the industry’s level of control over the supply goods and services will further decline.

Competitive LandscapeMarket Share Concentration | Key Success Factors | Cost Structure benchmarks basis of Competition | barriers to Entry | Industry Globalisation

Level Concentration in this industry is High

IBISWorld identifies 250 Key Success Factors for a business. The most important for this industry are:


Competitive Landscape

Cost Structure benchmarkscontinued

total revenue in 2011-12. The split between military and civilian personnel expenses will be around 85% to 15%. Around 85% of labour expenses will go toward salaries, allowances and superannuation. Additional employee-related costs include housing and health costs for military personnel, and fringe benefits tax.

Purchases The largest major expense for this industry is purchases (or payments to suppliers). Industry operators require specialised capital equipment for military and non-combat operations, as well as chemicals and other materials for design and research and development. Purchases will account for 40% of revenue in 2011-12.

Depreciation Depreciation costs account for ships, planes, military vehicles, machinery, equipment and materials purchases, communications equipment, office equipment, computer technology and software that lose value over time. Investment in technology ultimately improves research and product development and reduces labour inputs relative to capital (thereby increasing productivity and safety).

Other expenses include insurance, advertising (mostly in trade publications and in the form of merchandise: hats, shirts and stationary etc. and for recruitment campaigns) and administrative costs such as cleaning.

Sector vs. Industry Costs

■ Profi t■ wages■ Purchases■ Depreciation■ utilities■ rent■ Other

Average costs of all industries in

sector (2011-12)Industry costs

(2011-12)

0

20

40

60

Perc

enta

ge o

f rev

enue

80

100

5.0

15.2

40.0

39.8

5.0

15.2

40.0

39.8




Industry Globalisation

The industry is integral to defending Australian national security. National security is defined as the measures taken by a state to ensure its survival and safety, including deterrence of military attack from within and without, as well as the protection of Australian citizens around the world. To ensure the territorial,

political, economic and military integrity of the Australian state, the industry tends to view external (i.e. foreign interests) as potentially threatening to Australian interests. As such, this industry exhibits a low level of globalisation. Indeed, the industry generates the vast majority of its revenue directly from the Australian

barriers to Entry There are insurmountable legal barriers that prevent the establishment of a defence force in private hands. The Defence industry is a government monopoly, which is unlikely to change in the long term. That said, the Defence industry utilises the services of many external contractors to fulfil research and development functions, capital equipment manufacturing, building management services and logistics, among other things. The outsourcing of Defence industry services is more advanced in the United States and is likely to affect Australian philosophies of private participation in the Defence industry going forward. While the scope of Australian military action is far narrower than that of the United States (undermining the need for private military personnel), the concept of defence (and national security) as a government

monopoly may not be perpetual.Over the years, outsourcing activities

has become important. This has allowed the Defence industry to allocate funding as efficiently as possible. Businesses often win contracts from the Defence Force, which locks them into a legal agreement which acts as a barrier to entry to potential competitors.

basis of Competition There is no direct competition to the industry; the Federal Government holds a monopoly on military power in order to protect Australian territorial integrity from external and internal forces. Although the industry has no competitors, it must compete with other Federal Government departments (such as Health and Education), in securing funding. Budget priorities are determined by the Federal Government in order to achieve short-term political success (and value for money) and long-term strategic goals. As political administrations change, so do many levels of funding and short- and long-term strategic goals.

Furthermore, within the industry, there are 15 different groups that

compete with each other for Federal Government funding. The army, navy, air force and intelligence divisions each demand access to financing that improves their own capabilities (both in terms of personnel and capital equipment). Also, the Defence Science and Technology Organisation (DSTO) competes with other military groups for research and development funding and the Corporate Services and Infrastructure Group (CSIG) competes for funds to expand the defence estate and personnel accommodation facilities. As a result of the often dangerous nature of the employment offered by the industry, the industry also competes ferociously in the national labour market.

Level & Trend Competition in this industry is Low and the trend is Steady

Level & Trend Barriers to Entry in this industry are High and Steady

barriers to entry checklist Level

Competition LowConcentration HighLife cycle stage MatureCapital intensity HighTechnology change HighRegulation and policy HeavyIndustry assistance High


Level & Trend Globalisation in this industry is Low and the trend is Steady



Industry Globalisationcontinued

Federal Government, with the remaining revenue coming from internal revenue sources, net capital receipts and administered appropriations.

That said, the industry is sensitive to changes in the global political and economic environment and the Australian Defence Force participates in a range of international operations, either

in peacekeeping missions or as part of coalition forces. The industry has become increasingly linked with political allies such as the United States and the United Kingdom. This has boosted the interoperability of allied defence equipment, encouraged intelligence and information transfer and necessitated joint training exercises.


Other Companies The major sub-groups of the Australian Defence Force include the Royal Australian Navy (RAN); the Royal Australian Air Force (RAAF); and the Australian Army. Other important groups include the Defence Materials Organisation (DMO) and defence contractors (operating outside of this industry).

Royal Australian NavyBetween 1788 and 1859, the navy was based in Sydney and its main purpose was to provide naval defence. In 1859, Australia was established as a separate British naval station, which consisted of a squadron of navy ships that patrolled Australian waters. In 1909, the navy expanded consisting of at least a battle cruiser, three second class submarines, six destroyers, three submarines and a number of auxiliaries. When World War I broke out, the RAN’s task was to protect Australia’s ports, shipping and trade routes. In addition to this, the RAN also played a role in the Gallipoli campaign. Over the 1920s, the RAN grew both in size, capabilities and personnel, but in the early 1930s, lack of funds led to a fall in personnel levels.

During the years between World War I and World War II, funding and activity levels of the RAN reflected the general Australian economy and social trends. At the onset of World War II, units of the RAN were engaged in operations in the North, West and South Atlantic, the Caribbean, the Mediterranean, the Indian Oceans, Persian Gulf and the Red Sea, in which time the total number of people serving increased from 5,010 to 37,000 by July 1945.

Since the end of World War II, the navy has served in a variety of locations and operations including the Korean War, Malayan Emergency and Indonesian Confrontation as part of the Far East Strategic Reserve, the Vietnam War, the first Gulf War, ongoing operations in the Middle East and the 2003 Iraq War, and additionally in peace-keeping roles in Somalia, Cambodia, Rwanda, Bougainville, East

Timor and the Solomon Islands. Since the end of the Australian Defence Force’s involvement in Iraq, the navy’s operations have included anti-piracy and general security efforts in the Middle East and Africa, disaster assistance in South-East Asia and the Pacific, and local border protection activities.

Royal Australian Air ForceThe Australian Flying Corps was established in 1912 and during World War I engaged in operations with the Royal Flying Corps/Royal Naval Air Service and Royal Air Force Units in Europe and the Middle East. The Royal Australian Air Force was formed in 1921 and was then made up of 21 officers, 128 airmen and 153 aircraft. By the start of the World War II, it had grown to 310 officers, 3,179 airmen and 246 operating aircraft. In late 1934, the Australian Government announced higher defence funding with money allocated towards the procurement of new and modern aircraft. By the end of World War II, the RAAF had a total of 173,622 men and women working in 570 units around the world.

Between 1950 and 1980, units of the Royal Australian Air Force responded to international operations in Malaya, North Korea, South-East Asia and Vietnam. In 1990, units assisted the United Nations Security Council with the war in Kuwait, where 1,800 personnel were deployed in the Gulf War over a 13-month period. From March 2003 the air force contributed to efforts in the Middle East. While Operation Catalyst ended in 2009, smaller operations continue in the Middle East. Other efforts over the past five years have included natural disaster relief in South-East Asia and the Pacific, and assistance following the Victorian Bushfires.

Australian ArmyFunding for the Australian Army has fluctuated according to levels of threat and war, with activities fluctuating between World War I and World War II according to the general economy and social trends. The army is organised according to four

Major CompaniesThere are no major players in this industry | Other


Major Companies

Other Companiescontinued

broad categories: Army Units, Army Corps, Australian Defence Force Reserves and Australian Army Cadets.

According to the Department of Defence, about 4,000 Australian Defence Force personnel are serving around the world to protect Australian and international interests. The following is a list of recent operations: Operation Catalyst, Iraq; Operation Astute, Timor – Leste; Operation Slipper, Afghanistan; Operation Resolute, Australian border protection; Operation Anode, Solomon Islands; Operation Mazurka, Sinai Peninsula, Egypt; Operation Azure, Sudan; Operation Paladin, Israel/Lebanon, Middle East; Operation Tower, Timor-Leste; Operation Outreach, Australian Indigenous Affairs; Operation Testament, World Youth Day 08.

Defence Material OrganisationAccording to the Department of Defence, the Defence Material Organisation (DMO) is a service delivery agency responsible for equipping and sustaining the ADF through the acquisition of capital equipment and sustaining the Australian Defence Force (ADF) though the acquisition of capital equipment assets and the containment of these assets. The DMO was established on 1 July 2005. Despite being part of the ADF, its activities are significant within the entire Defence industry.

The DMO spent around $11.9 billion in 2009-10 in acquiring and sustaining military equipment for the Department of Defence. It is an important aspect of the Defence industry and is heavily relied on to provide high quality, safe equipment and supplies on time and budget. The DMO and ADF have a close relationship as all of the ADF’s operations depend on the success of the DMO.

One of the challenges of the

organisation has been to improve equipment delivery time and more recently attracting and retaining highly skilled people. Skills shortages and an ageing workforce are issues that the Defence industry will continue to focus on over the next five years.

Defence contractorsThe definition of the industry excludes manufacturing and service providers to defence; however, it is important to note that manufacturing activities are contracted out by the Defence industry to various companies. Over 1,000 Australian companies supply the Department of Defence with a range of goods and services.

One of the top suppliers of military equipment to the Defence industry is Thales Australia, following its acquisition of the remaining 50% of ADI Limited from Transfield Holdings in 2006. ADI Limited was created after the Department of Defence expanded into the Office of Defence Production in 1989. ADI had a long-term contract with the ADF to manufacture rifle ammunition; grenades; aircraft bombs; Phalanx anti-missile shells; large calibre ammunition; demolition charges and training products; and to warehouse, maintain and distribute the ADF’s explosive artillery.

Australia-owned Tenix Defence is another major supplier to the Defence industry. Major contractors also include, BAE Systems Australia, Raytheon Australia and Boeing Australia (all of which are foreign owned, but incorporated in Australia). The largest contractors for non-defence services are Australia-owned Spotless Group Ltd, which provides cleaning and other janitorial and food preparation services, and foreign-owned Sodexho.


Capital Intensity The industry has a high level of capital intensity, as indicted by the ratio of capital to labour of 1:2.6, suggesting that in 2011-12, $2.63 will be spent on labour for every dollar invested in capital. Capital intensity increased slightly over the first two years of the current performance period through increased emphasis on developing and enhancing technologies, weapons and systems. This has been offset by over the past three years however, due to increased recruitment and wages.

Despite the high capital intensity, investment in defence equipment also creates the need for a large number of defence personnel to operate and maintain the equipment. Additional personnel are required for services such as administration, financial, medical

etc. As such wages account for a high share of revenue, but the capital intensity level is affected by the very high depreciation level.

Operating ConditionsCapital Intensity | Technology & Systems | Industry Volatilityregulation & Policy | Industry Assistance

Tools of the Trade: Growth Strategies for Success


Labo

ur In

tens

ive Capital Intensive

Change in Share of the Economy

new Age Economy

recreation, Personal Services, Health and Education. Firms benefi t from personal wealth so stable macroeconomic conditions are imperative. Brand awareness and niche labour skills are key to product differentiation.

Traditional Service Economy

wholesale and retail. Reliant on labour rather than capital to sell goods. Functions cannot be outsourced therefore fi rms must use new technology or improve staff training to increase revenue growth.

Old Economy

Agriculture and Manufacturing. Traded goods can be produced using cheap labour abroad. To expand fi rms must merge or acquire others to exploit economies of scale, or specialise in niche, high-value products.

Investment Economy

Information, Communications, Mining, Finance and real Estate. To increase revenue fi rms need superior debt management, a stable macroeconomic environment and a sound investment plan.

Government Schools

Motor Vehicle Manufacturing

Emergency ServicesShipbuilding

Aircraft Manufacturing

Defence

Capital intensity

1.0

0.0

0.2

0.4

0.6

0.8

SOURCE: WWW.IBISWORLD.COM.AUDotted line shows a high level of capital intensity

Capital units per labour unit

DefenceGovernment Administration and Defence

Economy

Level The level of capital intensity is High


Operating Conditions

revenue Volatility Industry volatility is high on a year-to-year basis, but relatively low over the long term. Over the five years to 2011-12, industry revenue is expected to fluctuate

by an average of nine percentage points from year to year, which is indicative of a moderately volatile industry. Contributing to revenue volatility is the fact that

Technology& Systems

The industry seeks to make the best use of technology and have the labour skills required to exploit equipment to its best advantage. Over the forecast period the industry will continue its science and technology programs to provide better support and defence capabilities and contribute to national research priorities; and continue research, especially in transformational defence technologies, network-centric warfare, defence experimentation, automation of the battlespace, reduction of the cost of ownership and operations, high altitude tracking and support to current ADF platforms;

The industry will also increase its support of defence capability development programs by providing advice on technology feasibility and providing technical risk assessments of proposed major capital projects; and expand its civilian counter-terrorism research program in collaboration with the Commonwealth Scientific and Industrial Research Organisation, the Australian Nuclear Science and Technology Organisation and Geoscience Australia, in areas such as developing intelligence

support tools, explosive detection, biometrics, counter-measures for civilian aircraft from man-portable missiles and defence against chemical, biological, nuclear and radiological attacks;

The Capability and Technology Demonstrator program will expanded to investigate the defence capability potential of advanced technology, by increasing the number of projects and assisting small-to-medium enterprise participation in the program; and enhance science and technology links with industry, universities, other government research agencies and international bodies to broaden defence’s technical base; and

The industry will also seek opportunities for technology transfer to Australian industry, via commercialisation and collaborative mechanisms facilitated by the Technology Transfer Advisory Group (a panel of external commercialisation companies that provides advice to assist the industry to commercialise its innovations), to enhance industry’s ability to provide support to defence and to increase the national wealth.

Level The level of Technology Change is High


Volatility vs Growth

reve

nue

vola

tility

* (%

)

1000

100

10

1

0.1

Five year annualised revenue growth (%)–30 –10 10 30 50 70

Hazardous

Stagnant

rollercoaster

blue Chip

* Axis is in logarithmic scale

Defence

A higher level of revenue volatility implies greater industry risk. Volatility can negatively affect long-term strategic decisions, such as the time frame for capital investment.

When a fi rm makes poor investment decisions it may face underutilised capacity if demand suddenly falls, or capacity constraints if it rises quickly.

Level The level of Volatility is Medium


Operating Conditions

Industry Assistance The Defence industry is dependent on public sector funding for its continued existence. Defence is a public good, provided by the Government and paid for using taxation receipts and other earnings. Around 90%-95% of Defence industry revenue is supplied by the Government (although the exact figure changes annually depending on the budgetary requirements of competing

Federal Government departments and the strategic needs of the country in relation to defending national security). There is little possibility (now or in the long term) of this administration (or an administration of any political colour) changing budgetary priorities in a way that significantly degrades the capabilities of the Defence industry.

regulation & Policy The key legislation regulating the Defence industry is the Defence Act (1903). The act applies to the navy, army and air force and to all members of those services whether appointed or enlisted, or deemed to be enlisted under the act, or under any other act and whether serving within or beyond the territorial limits of Australia. This act has a number of functions.

The act serves to stabilise the administrative division of the defence force, including appointment, transfer, resignation, termination, promotion and

retirement of officers; sets out the constitution of the defence force; Setting up tribunals and advocacy authorities; sets out the liability of officers to serve in a time of war; sets out powers in relation to forces of other countries.

The Defence industry is also governed by the Defence Service Charter, a document that sets out the quality of service customers can expect to receive from the Defence industry. A range of other legislation also exists including the Defence Force Discipline Act 1982 and the Veterans Entitlement Act 1986.

revenue Volatilitycontinued

revenue is largely a function of expenses in a given year, because the government generally provides enough funds to roughly balance the Defence Department’s budget. Expenses vary from year to year based on the operations and deployment of the various defence functions.

Over the long term, however, strategic goals posited by the doctrine of national security rarely change (despite changes in government and geopolitical conditions). As a result industry revenue is substantially less volatile over the long term.

Level & Trend The level of Regulation is Heavy and the trend is Steady

Level & Trend The level of Industry Assistance is High and the trend is Steady


Key Statisticsrevenue

($m)

Industry Value Added

($m) Establishments Enterprises Employment Exports Importswages ($m)

Domestic Demand

2002-03 28,701.9 13,981.4 435 15 90,085 -- -- 8,815.1 N/A2003-04 22,525.6 13,454.0 430 15 92,703 -- -- 9,399.4 N/A2004-05 24,276.9 12,334.6 421 15 90,757 -- -- 8,181.1 N/A2005-06 21,967.0 12,064.8 403 15 87,922 -- -- 7,938.4 N/A2006-07 22,215.9 12,696.4 400 15 90,911 -- -- 8,289.9 N/A2007-08 24,210.4 12,820.2 395 15 93,000 -- -- 8,623.5 N/A2008-09 24,860.1 12,992.6 398 15 95,000 -- -- 9,097.7 N/A2009-10 25,729.1 13,810.4 400 15 96,710 -- -- 9,840.0 N/A2010-11 24,788.8 13,144.6 403 15 98,257 -- -- 9,844.1 N/A2011-12 23,856.5 12,710.2 397 15 100,026 -- -- 9,492.1 n/A2012-13 24,670.1 13,214.7 390 15 102,027 -- -- 9,904.4 N/A2013-14 26,406.4 13,363.3 386 15 104,169 -- -- 10,431.6 N/A2014-15 26,802.5 13,513.0 385 15 105,940 -- -- 10,744.5 N/A2015-16 27,204.5 13,678.5 385 15 107,741 -- -- 11,066.9 N/A2016-17 27,677.3 13,707.3 385 15 108,541 -- -- 11,490.3 N/ASector rank 2/2 2/2 2/2 1/2 2/2 n/A n/A 2/2 n/AEconomy rank 51/495 34/495 337/495 459/495 43/495 n/A n/A 26/495 n/A

IVA/revenue (%)

Imports/Demand (%)

Exports/revenue (%)

revenue per Employee

($’000)wages/revenue

(%)Employees

per Est.Average wage

($)

Share of the Economy

(%)2002-03 48.71 N/A N/A 318.61 30.71 207.09 97,853.14 1.342003-04 59.73 N/A N/A 242.99 41.73 215.59 101,392.62 1.242004-05 50.81 N/A N/A 267.49 33.70 215.57 90,142.91 1.112005-06 54.92 N/A N/A 249.85 36.14 218.17 90,289.12 1.052006-07 57.15 N/A N/A 244.37 37.32 227.28 91,186.99 1.072007-08 52.95 N/A N/A 260.33 35.62 235.44 92,725.81 1.042008-09 52.26 N/A N/A 261.69 36.60 238.69 95,765.26 1.042009-10 53.68 N/A N/A 266.04 38.24 241.78 101,747.49 1.082010-11 53.03 N/A N/A 252.29 39.71 243.81 100,187.26 1.012011-12 53.28 n/A n/A 238.50 39.79 251.95 94,896.33 0.942012-13 53.57 N/A N/A 241.80 40.15 261.61 97,076.26 0.942013-14 50.61 N/A N/A 253.50 39.50 269.87 100,141.12 0.922014-15 50.42 N/A N/A 253.00 40.09 275.17 101,420.62 0.902015-16 50.28 N/A N/A 252.50 40.68 279.85 102,717.63 0.882016-17 49.53 N/A N/A 254.99 41.52 281.92 105,861.38 N/ASector rank 1/2 n/A n/A 1/2 1/2 2/2 1/2 2/2Economy rank 82/495 n/A n/A 307/495 44/495 17/495 54/495 34/495

Figures are inflation-adjusted 2012 dollars. Rank refers to 2012 data.

revenue (%)

Industry Value Added

(%)Establishments

(%)Enterprises

(%)Employment

(%)Exports

(%)Imports

(%)wages

(%)

Domestic Demand

(%)2003-04 -21.5 -3.8 -1.1 0.0 2.9 N/A N/A 6.6 N/A2004-05 7.8 -8.3 -2.1 0.0 -2.1 N/A N/A -13.0 N/A2005-06 -9.5 -2.2 -4.3 0.0 -3.1 N/A N/A -3.0 N/A2006-07 1.1 5.2 -0.7 0.0 3.4 N/A N/A 4.4 N/A2007-08 9.0 1.0 -1.3 0.0 2.3 N/A N/A 4.0 N/A2008-09 2.7 1.3 0.8 0.0 2.2 N/A N/A 5.5 N/A2009-10 3.5 6.3 0.5 0.0 1.8 N/A N/A 8.2 N/A2010-11 -3.7 -4.8 0.8 0.0 1.6 N/A N/A 0.0 N/A2011-12 -3.8 -3.3 -1.5 0.0 1.8 n/A n/A -3.6 n/A2012-13 3.4 4.0 -1.8 0.0 2.0 N/A N/A 4.3 N/A2013-14 7.0 1.1 -1.0 0.0 2.1 N/A N/A 5.3 N/A2014-15 1.5 1.1 -0.3 0.0 1.7 N/A N/A 3.0 N/A2015-16 1.5 1.2 0.0 0.0 1.7 N/A N/A 3.0 N/A2016-17 1.7 0.2 0.0 0.0 0.7 N/A N/A 3.8 N/ASector rank 2/2 2/2 2/2 2/2 2/2 n/A n/A 2/2 n/AEconomy rank 453/495 357/495 424/495 268/495 179/495 n/A n/A 394/495 n/A

Annual Change

Key ratios

Industry Data



Jargon & Glossary

bArrIErS TO EnTry Barriers to entry can be High, Medium or Low. High means new companies struggle to enter an industry, while Low means it is easy for a firm to enter an industry.

CAPITAL/LAbOur InTEnSITy An indicator of how much capital is used in production as opposed to labour. Level is stated as High, Medium or Low. High is a ratio of less than $3 of wage costs for every $1 of depreciation; Medium is $3-$8 of wage costs to $1 of depreciation; Low is greater than $8 of wage costs for every $1 of depreciation.

COnSTAnT PrICES The dollar figures in the Key Statistics table, including forecasts, are adjusted for inflation using 2011-12 as the base year. This removes the impact of changes in the purchasing power of the dollar, leaving only the ‘real’ growth or decline in industry metrics. The inflation adjustments in IBISWorld’s reports are made using the Australian Bureau of Statistics’ implicit GDP price deflator.

DOMESTIC DEMAnD The use of goods and services within Australia; the sum of imports and domestic production minus exports.

EArnInGS bEFOrE InTErEST AnD TAX (EbIT) IBISWorld uses EBIT as an indicator of a company’s profitability. It is calculated as revenue minus expenses, excluding tax and interest.

EMPLOyMEnT The number of working proprietors, partners, permanent, part-time, temporary and casual employees, and managerial and executive employees.

EnTErPrISE A division that is separately managed and keeps management accounts. The most relevant measure of the number of firms in an industry.

ESTAbLISHMEnT The smallest type of accounting unit within an Enterprise; usually consists of one or more locations in a state or territory of the country in which it operates.

EXPOrTS The total sales and transfers of goods produced by an industry that are exported.

IMPOrTS The value of goods and services imported with the amount payable to non-residents.

InDuSTry COnCEnTrATIOn IBISWorld bases concentration on the top four firms. Concentration is identified as High, Medium or Low. High means the top four players account for over 70% of revenue; Medium is 40 –70% of revenue; Low is less than 40%.

InDuSTry rEVEnuE The total sales revenue of the industry, including sales (exclusive of excise and sales tax) of goods and services; plus transfers to other firms of the same business; plus subsidies on production; plus all other operating income from outside the firm (such as commission income, repair and service income, and rent, leasing and hiring income); plus capital work done by rental or lease. Receipts from interest royalties, dividends and the sale of fixed tangible assets are excluded.

InDuSTry VALuE ADDED The market value of goods and services produced by an industry minus the cost of goods and services used in the production process, which leaves the gross product of the industry (also called its Value Added).

InTErnATIOnAL TrADE The level is determined by: Exports/Revenue: Low is 0-5%; Medium is 5-20%; High is over 20%. Imports/Domestic Demand: Low is 0-5%; Medium is 5-35%; and High is over 35%.

LIFE CyCLE All industries go through periods of Growth, Maturity and Decline. An average life cycle lasts 70 years. Maturity is the longest stage at 40 years with Growth and Decline at 15 years each.

nOn-EMPLOyInG ESTAbLISHMEnT Businesses with no paid employment and payroll are known as non-employing establishments. These are mostly set-up by self employed individuals.

VOLATILITy The level of volatility is determined by the percentage change in revenue over the past five years. Volatility levels: Very High is greater than ±20%; High Volatility is between ±10% and ±20%; Moderate Volatility is between ±3% and ±10%; and Low Volatility is less than ±3%.

wAGES The gross total wages and salaries of all employees of the establishment.

Industry Jargon

IbISworld Glossary

CIVILIAn A person who is not a member of his or her country’s armed forces.

COMbAT An engagement fought between two military forces.

PEACE-KEEPInG The supervision by international forces of a truce between hostile nations or groups.

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Documents

M8200 Defence in Australia Industry Report