Deconstructing the Defence Industrial Strategy

Ambition punctured by prudence

Canada’s Defence Industrial Strategy (DIS) is out. It outlines plans to boost the Canadian defence industrial base, spur innovation, and build new capability partnerships. The DIS is a solid, but measured, document —at least as compared with the Prime Minister’s rhetoric of late. Mr Carney has told us that we’re living through a rupture not a transition; this Strategy is more about transitioning to deal with the rupture.

Word around Ottawa is that there was disagreement between DND/CAF and ISED over the DIS. DND/CAF was apparently worried that the Strategy would hamper the military’s access to cutting edge capabilities from allies, while ISED was squarely focused on jobs and economic growth. Neither side won the argument decisively, leading to a document that often hedges to accommodate both concerns.

Take the DIS’s vision statement:

A robust Canadian defence industry that provides technological and operational advantage to the Canadian Armed Forces and its security partners in their mission to defend Canada, and maximizes growth, job creation and economic benefits for all Canadians.

There are two sets of priorities here, one military, the other economic, and their differences have been smoothed over. It’s important to keep this balancing act in mind when reading the DIS.

We should also pay attention to what’s left unsaid in this vision statement. When we see the term ‘operational advantage’, we know that DND/CAF is protecting its ability to acquire high-end combat capabilities. Yet it’s notable that this homegrown operational advantage is tied to the CAF’s “mission to defend Canada.” This rather strange domestic caveat tells me that the CAF’s defence of North America and operations overseas will continue to prioritize American equipment. When I asked about this language at the DIS technical briefing, the answers reinforced this interpretation.

Having parsed the vision statement, let’s turn to some specific goals. I can’t do the whole Strategy justice, so consider the following an assessment of what I found interesting, rather than a proper summary.

Within the next 10 years, the DIS aims to:

· Increase the share of defence acquisitions awarded to Canadian firms to 70 per cent;

· Boost government investment in defence-related research and development by 85 per cent;

· Increase total Canadian defence industry revenues by more than 240 per cent;

· Increase Canada’s defence exports by 50%.

· Create 125,000 quality new jobs across the Canadian economy.

In terms of outcomes, moreover, “by 2035 [the Strategy] will result in an estimated $180 billion in total direct investment in defence procurement, $290 billion total investment in defence-related infrastructure, and $125 billion in downstream economic activity -more than half a trillion dollars of overall investment in Canada.”

These are laudable goals, though some seem a tad implausible. If the government manages to achieve them, however, the DIS will have succeeded in significantly growing the Canadian defence industrial base, encouraging innovation, and ensuring greater strategic autonomy in military matters.

How does the DIS propose to go about achieving these aims? The Strategy pledges to build “a more strategic relationship with Canadian industry.” When acquiring capabilities, “the Government will prioritize domestic production where feasible and partner with trusted allies where necessary” (emphasis added to highlight some of the hedging found throughout.)

Next, the DIS promises to address longstanding weaknesses in Canada’s approach to industrial policy: “Going forward, we will support R&D, protect intellectual property, nurture small and mid-size firms, invest in skills and training, and promote exports to create a defence sector that is agile and globally competitive.” Again, these are important and worthwhile, yet it feels purposefully restrained. Where did all the catalysing go, Prime Minister?

In my last post about the Carney government’s defence industrial ambitions, I noted that Canadian industry needs a buyer. Absent a clear demand signal, industry won’t invest. The DIS acknowledges this, stating that: “the Government needs to provide a clear, long-term demand signal to Canadian industry…”

Alas, I worry that this demand signal will sound a lot like the existing one. The Strategy promises to provide industry with “Early understanding of [the CAF’s] capability needs,” opportunities “for joint innovation and co-development of solutions” for defence, more regular engagements between government and industry, and ways to better align with capability roadmaps. This is fine as far as it goes, but it largely builds on what’s already done.

There’s also a mood killing line that we could have lived without: “Even with more efficient defence procurement, Canadian companies will still need to engage with multiple agencies.” Them procurement waters are still full of process sharks, folks.

We’re going to need a bigger bid

Luckily, the DIS also proposes a few newer efforts to bolster government-industry relations. There will be a Defence Advisory Forum “co-chaired by the Ministers of National Defence, and Industry, and Secretary of State (Defence Procurement), to provide a regular, scheduled venue to engage with Canadian defence industry.”

Provided that a fistfight doesn’t breakout between these three ministers in the hallway, this Advisory Forum could be a way to bounce ideas and initiatives around. Notably, the DIS says that the Defence Advisory Forum will provide “new opportunities for direct engagement including on procurement, participation where feasible in wargames and operational exercises, and industry-government-military staff exchanges.”

To assure defence companies that they’ll get special treatment, the DIS also pledges that ISED will put in place a dedicated ‘concierge’ service for firms working on defence and dual-use technologies. I get the thinking here, but ‘concierge’ service sounds like what you get with a fancy Aeroplan status.

The crux of the DIS is found in its Build-Partner-Buy framework. Build refers to building the Canadian defence industrial base and sovereign capabilities. This is where you see a desire to do big things: “We will develop Canadian capabilities to build a resilient and innovative defence industrial base capable of designing, producing, and sustaining advanced equipment.” Good stuff.

The DIS then goes on to explain that the government will do so by “building on Canada’s existing strengths, such as shipbuilding, aerospace, space, land systems, and communications.” There’s also a good deal of effort anticipated around advancing emerging technologies in Canada: “We will procure from Canadian firms to build and seize new opportunities in frontier areas, such as AI, quantum, cyber, and advanced materials…”

A consistent theme throughout the Strategy, furthermore, is the need to reduce Canada’s dependence on foreign suppliers, secure sovereign supply chains and intellectual property, and buy as much from Canadian firms as possible. Pillar IV of the Strategy goes into quite a bit of detail for those who are interested in the nitty-gritty.

The Strategy, however, vacillates when it comes to building-up small and medium businesses (SMBs) versus strengthening established primes. There’s language at the front end suggesting an intent to foster a new set of Canadian primes: “Growing and scaling Canadian SMBs to serve as anchor firms will play a critical role in strengthening Canada’s defence industrial base.” Later, though, existing primes get top billing. Take a statement like this: “While the Government remains committed to supporting growth and innovation across Canada’s broader defence industrial base, it will place a priority on areas of existing strength and on key sovereign capabilities.”

The Strategy’s list of key sovereign capabilities reinforces the privileged position granted to the existing primes. Of the ten sovereign capabilities identified, established primes dominate at least eight.

The DIS further states that the government will “enter into formal strategic partnerships with identified Canadian industry partners with a view to building world-leading champions…” These national champions will get all sorts of perks, including directed procurements, R&D money, help with exports, and related goodies. Returning to my Aeroplan snark, these national champions will be Super Elite.

Zone 1 procurement

There’s a catch, though. These national champions “will be expected to deliver capability on time and on budget and support national sovereignty through their supply chains, while also ensuring continued value for money.”

I get nervous when I read stuff like that. It tells me that expectations between government and industry may be misaligned at a time when mutual respect and understanding are sorely needed. Worse, it hints at an unwillingness to be honest with Canadians about the kinds of trade-offs involved in promoting national champions.

One assumes that these national champions will have to be Canadian through and through. As the Strategy declares: “ “Buy Canadian” is not a slogan; it will be the guiding North Star of a new way of doing business in defence acquisitions.”

Possibly. The document is noticeably silent when it comes to defining what counts as a Canadian company. This is noteworthy given recent ministerial remarks that foreign subsidiaries with a large Canadian presence could be considered Canadian under the Buy Canadian policy. The way I read it, the DIS is emphasizing national outcomes, like sovereign IP and supply chains, rather than focusing on ultimate national ownership or head office location, an interpretation reinforced when this question came up at yesterday’s tech brief.

Canadian enough, eh?

Next, we have the Partner part of the framework. When Canada can’t build capabilities on its own, partnerships will be sought. The DIS gets slippery here. It speaks about ‘trusted allies’. The beauty of this wording is that it can mean different things to different people. Those who want Canada to reduce its dependence on the United States can take that to mean non-American allies, since the Trump administration can’t be trusted. DND/CAF, on the other hand, can read it as continuing to work closely with the United States, given that the relationship remains much the same at the official and military-to-military levels.

You get a sense of these duelling perspectives in this telling set of sentences: “Canada has a long history of working closely with the United States and looks forward to a continued strong Canada-U.S. defence relationship. To ensure greater resiliency in uncertain times, Canada is also undertaking efforts to diversify and build new defence-industrial partnerships.” In fairness to the drafters, this captures the Carney government’s weather-vane approach to Canada-U.S. relations pretty well.

When building Canadian capabilities or producing them with partners isn’t possible, the DIS states that Canada will buy foreign. When Canada does so, efforts will be made to reduce the risks associated with foreign governments and companies controlling the IP, schematics, and software updates associated with these capabilities and their maintenance.

For all the panic about ‘kill switches’ on American platforms, this is where the actual vulnerabilities lie. Foreign governments don’t need secret kill switches when they can leverage IP, upgrades, and sustainment to bring us to heel.

When I wrote about the DIS last year, I argued that the government would need to strongly support increased defence exports. Canada simply can’t buy enough to sustain a truly vibrant Canadian defence industrial base. Unfortunately, the Strategy is uninspiring on exports. The DIS promises to set up Deal Teams for big international defence contracts, add more trade commissioners, and make better use of Defence Attachés to promote Canadian products. I’m straying out of my lane here, but it’s hard to see how these initiatives will boost defence exports by 50%.

The challenges involved with defence exports, moreover, are largely sidestepped. Selling more military goods abroad often involves dealing with unsavoury regimes. Controversy can surround sales to allies as well; just look at the Canadian firms who work with ICE in the United States. One would therefore hope that the DIS would provide some sense of how the government will address these concerns.

Speaking as an academic, I’ll further note that universities don’t get much love in the DIS. The Strategy notes that the Tri-Council funds important research, and it mentions the $1.6 billion being spent to attract international researchers to Canada. A Science and Research Defence Advisory Council will be set up to better connect higher education with defence, which will hopefully lead to greater cooperation and collaboration: “The Council will work to strengthen collaboration with the research community, explore areas of alignment with defence priorities, and integrate incubators and test centre into national defence innovation pipelines.” One would have wanted the DIS to be much bolder on this front, since universities are tough to mobilize without concrete initiatives. The DIS does, however, lay out a comprehensive defence workforce development plan, the Canada Defence Skills Agenda. Those attending colleges and learning skilled trades stand to benefit from this initiative.

The DIS emphasizes the importance of the Defence Investment Agency (DIA) throughout. The DIA “is at the centre of this strategy.” We read that the DIA will take the lead on “multilateral capability development” notably those with European partners. As importantly, the DIA will “be responsible for re-equipping our military and driving economic benefit for Canada through the Government’s generational investment in the Canadian Armed Forces.”

The Strategy also informs us that the DIA will become a “stand-alone entity through the introduction of legislation in Spring 2026.” That’s significant, since DIA will need its own authorities to accomplish the considerable tasks it’s been assigned.

As the DIS makes clear, however, existing departments will remain core to the defence procurement process. DIA will have to cooperate and contend with DND/CAF, ISED, and GAC. Officials at the tech brief seemed to suggest that the DIA may eventually become a single point of decision-making and accountability for defence procurement and industrial policy in the future, but I sense underlying tensions and bureaucratic battles surrounding this notion.

The relationship between DIA and DND/CAF has the potential to cause the most problems if left unaddressed. The Strategy is silent on the thorniest issue of all: whether DIA will get involved in the setting of capability requirements by DND/CAF. Treasury Board will also loom over everything that the DIS hopes to achieve, and I see little to suggest that the Treasury Board Secretariat’s risk aversion will be challenged. The DIA legislation may sort some of this out, but a statute can only do so much.

Finally, the Strategy does not mention plans for a new defence policy to align the government’s direction to DND/CAF with the DIS’s industrial ambitions. I know I’m a broken record on this point, but it’s hard to send a clear demand signal and direct the CAF to buy Canadian when they’re still operating with defence policies from what amounts to a different era.

As you’re skimming this newsletter, hucksters on LinkedIn are writing posts arguing that “the DIS is not just an industrial policy; it’s a strategic pivot” or some other vapid pablum that passes for analysis. A careful reading, on the other hand, reveals an ambitious plan punctuated by prudence and compromise. If Ottawa hopes to achieve even half of what’s set out in the DIS, the government will need to marshal far more vigour to match its vision.