Small and medium-sized enterprises (SMEs) occupy a vital position in the UK’s defence, security, and critical national infrastructure sectors, contributing significantly to innovation, economic growth, and supply chain resilience. Jayne Planitzer, Procurement Director and SME Champion at Thales UK, outlines the indispensable role SMEs play in enhancing the UK’s defence capabilities. SMEs bring agility and unique technological capabilities, often driving innovation in areas such as artificial intelligence, quantum technology, and human-machine teaming. Their involvement is critical to building a robust and responsive defence supply base, aligned with national priorities to strengthen security and operational readiness.
Despite their importance, SMEs face substantial barriers that curtail their growth and ability to compete effectively in this sector. Complex regulatory environments, resource-intensive compliance requirements, and challenging bidding and procurement processes often overwhelm smaller firms. These issues divert critical resources from innovation and core business activities, making it difficult for SMEs to sustain long-term engagement with defence contracts. Furthermore, SMEs struggle with access to funding due to high entry costs and perceived risks associated with defence projects. This financial uncertainty is exacerbated by fluctuating demand cycles, which create instability in contract opportunities.
Another significant hurdle is the difficulty SMEs face in connecting with prime contractors and competing against larger firms, which limits their ability to differentiate themselves and secure contracts. There are also ongoing challenges in attracting and retaining skilled talent, as well as meeting increasingly stringent environmental, social, and governance (ESG) standards. These barriers collectively restrict SMEs’ potential to contribute fully to the UK’s defence supply chain.
Recognising these challenges, Thales UK has committed to fostering an empowered ecosystem for SMEs. The company is implementing a Strategic SME Partnering Programme designed to support SMEs through co-innovation initiatives, tailored training, digital transformation services, and funding support. By focusing on every stage of the SME journey—from initial engagement to the establishment of long-term partnerships—Thales aims to create sustainable growth and resilience in the supply chain. The company’s UK-wide presence enables collaboration with local SMEs, thus promoting regional economic and social benefits, including job creation and skills development.
The UK government has also introduced measures to bolster SME participation in defence. New initiatives include an SME support hub offering guidance on contract acquisition, access to finance, connections with larger defence firms, and assistance in innovation and exports. The Ministry of Defence (MOD) has committed to setting direct SME spending targets by June 2025, a move underpinned by a broader plan to increase defence spending to 2.5% of GDP by April 2027, with ambitions to reach 3% in the following Parliament. This substantial investment aims not only to strengthen national security but also to generate economic prosperity through job creation and business expansion.
The MOD’s ‘Opportunity and Innovation: The Defence Small and Medium-sized Enterprise Action Plan’ highlights the critical role SMEs play in the defence supply chain, accounting for over £4.5 billion in defence contracts and more than 21% of total defence industry spending. The plan emphasises simplifying procurement models to make them more accessible, fostering innovation, and supporting exports, recognising that SMEs are essential to sustaining a competitive and innovative defence industrial base.
However, significant structural challenges remain. Research commissioned by the MOD, including a RAND Europe study, identifies six key barriers for SMEs: difficulties in accessing and engaging with both top-tier suppliers and MOD, attracting non-traditional suppliers, restrictive contracting terms, skill shortages, slow adoption of innovative manufacturing technologies, and cybersecurity compliance challenges. These issues increase vulnerability across the defence supply chain and highlight the need for concerted action to ensure SMEs can more effectively contribute.
Industry experts stress that simplifying procurement processes is vital. Lengthy and complicated bidding procedures, combined with limited SME resources, are major obstacles to participation. Defence leaders are encouraged to create clearer channels for SME engagement, upskill procurement stakeholders, and adopt proportionate, flexible frameworks to accommodate smaller firms. These reforms would enhance agility and innovation throughout the supply chain, enabling defence procurement to better meet emerging challenges.
The broader political and economic context adds further urgency to these reforms. The government’s planned increase in defence spending to nearly £30 billion, coupled with an industrial strategy focused on domestic manufacturing and supply chain growth, presents a significant opportunity to strengthen the UK’s defence sector. Prominent industry leaders advocate leveraging this investment to boost the UK’s global arms manufacturing standing and support a resilient industrial base. However, challenges such as high energy costs and recent tax increases could temper the benefits if not addressed alongside defence investment.
Moreover, a significant and sometimes controversial dimension concerns investment criteria. Over 100 Labour MPs and peers have urged a reevaluation of environmental, social, and governance (ESG) standards that exclude defence sector investments from many portfolios. They argue that these criteria unfairly hinder British companies in the defence industry, constraining economic growth and innovation. Notably, figures including the former NATO Secretary General and senior military leaders back re-aligning ESG metrics with national security imperatives. Supported by the Chancellor, this movement seeks to unlock private investment in defence, including expanding opportunities for SMEs through pension funds and other financial vehicles.
In summary, SMEs are indispensable to the UK’s defence and security landscape, yet they require better support to overcome systemic barriers. Efforts by major industry players like Thales, combined with government initiatives targeting procurement reform, funding access, workforce development, and clearer engagement pathways, offer a promising foundation for change. For the UK to secure its future defence capabilities while fostering economic growth and innovation, nurturing a dynamic, resilient, and inclusive SME ecosystem remains paramount.
Source: Noah Wire Services
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