07 Jul 2010
How are the UK's National Strategic Interests Managed within the Evolving International Security Context?
Introduction
In the next few minutes I will take the opportunity to address the strategic importance of the industrial dimension of the UK's maritime capability, and its role in the wider international economic and security context.
As well as my day job as Managing Director of BAE Systems Surface Ships, I am also leading the internal BAE Systems team that is considering how best to bring the Company's Maritime assets together under a single leadership team. That is our Surface Ships, Submarines and Integrated Systems Technologies Group businesses, as we seek to drive transformational change across the entire industrial enterprise to best address the challenges of today's environment and the needs of our customers.
And, with the Minister for Business, Mark Prisk, I co-chair the Maritime Industries Leadership Council, whose main aim is to chart a course for growth for this world-class sector over the next decade. This sector includes everything from pleasure craft through to aircraft carriers, pumps to ship repair.
It was also my privilege last week to take on the Presidency of the Society of Maritime Industries, the national trade association that in particular looks after the interests of our small & medium size enterprises, whose innovations are a key to our sector's prosperity.
So my remarks this morning are not just a BAE Systems viewpoint, but I hope cover the sector as a whole, and I'd like to pay tribute to my industry colleagues whose skill and dedication are so valued, and essential to the Royal Navy's day-to-day delivery of operational capability.
The landscape
There can be no doubt now that we all face great fiscal challenges in the years ahead, with a pressing need in defence as with many other sectors to deliver more for less.
Here in the UK, we are not alone in facing restraint; the same holds in many other nations, including the United States.
But current, emerging and potential threats to international security demand new and more relevant capability and, as importantly, adaptability from our armed forces. I believe that the sovereign industrial capacity is crucial to delivering and supporting this.
Indeed, I suggest that not only is the defence industry a strategic national asset from a socio-economic perspective, but the industrial skill base should be seen as one of the vital assets in UK plc's toolbox not only for delivering military effect in the country's broadest interests but in securing long-lasting, strategic relationships aligned with the Government's defined foreign policy.
A general consequence of economic pressures is that the international market is becoming more and more crowded and competitive.
I am sure that we are all familiar with the changing nature of that market. Increasingly, defence exports are less about pure platform delivery and more about technology transfer; they are about strategic, intra-governmental, diplomatic relationships and enhancement of strategic capabilities, both military and industrial.
Through-life requirements further strengthen the potential longevity of those relationships and not solely at an industrial level.
The Royal Navy remains one of the most respected maritime forces anywhere in the world, admired and envied in equal measure. It retains a fundamental role in diplomacy around the globe, bringing influence to bear not only in terms of projecting force but in building and strengthening relationships with developing nations and major powers alike through presence, training and multi-lateral agreements.
A further benefit of such pragmatic, strategic international activity is the opportunity to work with international allies early in the development stages of programmes. This would enable us to address wider international capability requirements and increase platform numbers across classes of ships, thus sharing the burden of non-recurring costs with international partners, delivering a more affordable fleet to the Royal Navy and enhancing the potential for interoperability amongst allies.
The prizes are harder to win, but they are available and the long-term rewards for all parties remain significant.
So, if we are to drive transformational change to deliver affordability and secure long-term national and international benefit, tinkering in the margins will not be enough; from our viewpoint, there are two key factors for future success.
The first is a structural reform, a re-engineering of the whole enterprise to drive out unnecessary cost and to improve global competitiveness. The second is a renewed and joined-up focus, by Government, Foreign, Defence and International Development Ministries, the Royal Navy and industry on responsible exports.
The Strategic Defence & Security Review is well under way across Government - indeed the government's demand for pace dictates that it will reach its conclusions in the coming months. It provides opportunities for strategic change and is welcomed by the defence industry.
The Minister for the Armed Forces recently assured Parliament that the Government would not be sea-blind during the Review. This is refreshing against a backdrop of apparent public disinterest in Maritime affairs, despite the immense contribution it makes to people's daily lives.
It is timely to recall here that the Secretary of State for Defence reminded the House on 21 June that across the wider defence industry there are more than 300,000 employees. This constitutes more than 10% of the UK manufacturing sector, generating revenues of more than £30 billion annually. Around 24,000 work across the Naval business, so this is a strategically important sector which needs critical mass, is vital to the maintenance of UK operational sovereignty, and cannot be switched on and off.
Industry is looking for some specific long term outputs from the SDSR.
- Firstly, renewed attention to the Defence Industrial Strategy, with clarity on which capabilities the Government wishes to retain on-shore and what is essential to operational sovereignty.
- Secondly, a revived focus on research and technology, especially in the UK.
- Thirdly, and this is key, that we are enabled to consider new ways of doing business, for example through wider use of partnering and through adapting the boundaries between the MoD and industry.
- And my previous remarks will no doubt have made clear that we are also seeking greater Government commitment from the top to help drive export campaigns as part of wider international policy.
In her maiden speech during the recent defence debate, the new MP for Portsmouth North, Penny Mordaunt, rightly said that the last international sale, new, of an RN design of warship was in the 1970s.
This situation must change, and I welcome the strong, broad-based interest in developing exportable designs for the RN's future combat ships.
That said, exportable designs alone are not enough to assure success in the world market; they must also be competitively priced, certainly not over-specified, and designed to be adaptable, for other customers and for through-life change.
And we all need to work together, across Government, across Departments, the RN and industry, to get better at the process of making compelling, and strategically important, deals with other governments.
The SDSR therefore presents an opportunity to shape the joint landscape for a generation. We look forward to contributing to its debate and we fully appreciate the need for the new Secretary of State to have a strong hand when going into the Comprehensive Spending Review.
We look forward to better understanding the implications of the MoD moving to a 10-year capital budget settlement with HM Treasury, and of what the Secretary of State recently referred to here at RUSI as a 'return of empiricism in policy'. This should allow the Government to provide clarity on future strategic requirements for both equipment and support.
Industry is changing
The SDSR is but one step on the road to change that began years ago, and which was given impetus by the 2005 Defence Industrial Strategy.
Since the last conference, both BAE Systems and Babcock have signed Terms of Business Agreements with the MoD and entered into the Surface Ship Support Alliance. The Submarine Enterprise Performance Programme will soon follow. The ToBAs commit and incentivise us to change, and to reduce the cost of the services we provide. We are measuring our change through independent benchmarking, to improve our competitiveness.
We welcome the commitment to a minimum, essential, level of Key Industrial Capability for the design, build, integration and support of future complex warships and are exploring how best to deliver value for this welcome commitment.
A joint transformation plan maps out how we will deliver these changes, but if we are to achieve the stretch targets for savings then we need structural change from the MoD too. Our new Government is well placed to enable this, and we are actively working on proposals and evidence to assist here. I believe that the integration of BAE Systems' maritime assets is a step in the right direction.
It is not my intention to be critical and it is extremely pleasing to hear strong commitment to much of what I outline in presentations from our new Government. In recent months and years, industry has been working in a far closer partnership with both MoD and Royal Navy than has ever been the case, as demonstrated on the Type 45 programme and by the Aircraft Carrier Alliance on the construction of the Queen Elizabeth Class aircraft carriers.
That sense of 'team' and partnership extends further in the exceptionally close and transparent early work on the assessment phase of the Type 26 combat ship.
More broadly, the industrial scene is also evolving, with the bringing together of Babcock and VT Group which should receive final approval in the near future.
To sum up
We - industry and customer - are making positive strides towards establishing more effective means and methods of delivering affordable, through-life naval capability. We are clearer in our purpose than I believe we have ever been, with a focus on ensuring that we have the engineering capability to more effectively and affordably integrate new systems onto new and existing ships and preparing them for operations.
The scale of the sector, and the high-end skills in it, provide the UK with a unique asset both in terms of economic contribution and as a tool in developing close international relationships; it is a UK strategic asset which, if switched off, will not be easily restored.
We are absolutely focused on continuous downward pressures on costs and are on track to achieve the savings and structural reform that this demands. The SDSR is an opportunity for all to move the joint enterprise to a new level, to further the change agenda and to redraw the boundaries between customers and suppliers. We look forward to putting in place mechanisms to achieve this with the MoD.
We welcome the Government's assurance that it will not be sea-blind in the SDSR, and look forward to working together across Government to deliver vital export success.
Thank you.
