Thank you so much, Chair and members of the committee, for the invitation to appear today.
My name is Matthew Lombardi, and I am the co-founder of The Icebreaker, Canada's defence innovation network. We represent thousands of members from coast to coast with a singular goal, which is to make Canada a net exporter of defence technology.
Earlier this year, The Icebreaker conducted a first-of-its-kind national survey, mapping Canada's dual-use tech ecosystem, and I'll note here that we have provided the results to DND and to the committee clerk.
I am here today to talk about what this data tells us and how it will help point the way to a defence industrial strategy that best utilizes Canada's natural, comparative and technology advantages.
Survey questions revolved around topics such as defence capabilities, familiarity with government procurement processes, patent ownership and barriers holding Canadian firms back from achieving success at home. What we learned is that there are hundreds of Canadian SMEs, firms that have the talent, scalability and product maturity to contribute directly to national security in cutting-edge spaces where Canada can be a net contributor to NATO. In fact, many of these hundreds of companies are already selling to our NATO allies.
While almost 90% of companies said that procurement was important to their success, about half of them said that access to customers, which includes government procurement, was their biggest obstacle to scaling. Nearly 30% of these respondents said they have seriously considered leaving Canada in the past year, and roughly the same percentage said they make more than three-quarters of their revenue exporting.
As you can imagine, this negative cycle stifles company growth and capital formation, yet our entrepreneurs persist in spite of this climate.
The reality is that SMEs want to help national defence, but the system does hold them back. Canadian entrepreneurs who are developing cutting-edge technologies must often wait years before landing a trial or even a sandbox contract to support the Canadian Forces. The defence procurement system is simply not designed for SMEs. The framework, which was built during the Cold War, still revolves around acquiring large platforms like aircraft, tanks, ships and armoured vehicles that will, of course, remain in service until their expiry date.
The procurement cycle stretches over seven or eight years, between the moment the Canadian Armed Forces identifies a capability deficiency and the delivery of a solution. While this long and cumbersome process, which is full of administrative hurdles, may work for something like an F-35 fighter jet that will serve for four decades, it does not work for a piece of software that becomes obsolete within months if not constantly updated.
At the same time, the threat environment has, of course, changed. Electronic warfare, drone detection and AI-powered threat responses are all here. Hybrid warfare is no longer theoretical. We see this every day when we see headlines about the EU president's flight being jammed, when we see unidentified drones appearing over Poland, Denmark and German infrastructure, and when we see attacks on critical infrastructure here in Canada, which are in the headlines almost daily in the form of cyberwarfare.
The old approach to procurement does not work at the speed of modern threats. In fact, many traditional defence companies are not structured to answer fast enough. We see this play out in Ukraine every day, where billion-dollar fighter jets are stuck several kilometres behind the front lines, stymied by disposable thousand-dollar drones. The same has occurred on the ground with tanks and in the Black Sea with billion-dollar warships.
The single worst thing that Canada can do today with our defence industrial strategy is to engage in a box-checking activity that hits our NATO spending obligation by procuring a backlogged laundry list of obsolete equipment, mostly foreign, at a cost of hundreds of billions—equipment that would be functionally useless in a modern conflict like Ukraine.
The answer is instead to find a way to connect our smaller domestic producers—the entrepreneurs we have found who are already selling Canadian technology to our NATO allies—to our own procurement system. The way we do this is by focusing on what we call “attritable mass”. This means moving away from the overfocus on exquisite billion-dollar weapons systems and instead looking at smaller systems that are cheap enough to risk, vast enough to replace and smart enough to bring new capabilities such as drone swarming to the Canadian Armed Forces.
Attritable mass systems are how Ukraine has held the line against a better-armed aggressor by using technology that is 90% as capable at 10% of the cost. This trade-off has delivered the Ukrainians operational freedom. It's allowed their military to operate and iterate faster than a larger adversary that was initially trapped in the crossfire of high-end hardware.
An attritable drone may cost as little as $50,000, rather than several million. An attritable submarine might cost $10 million, not $2 billion. If Canada wanted to, let's say, patrol the Arctic, it might be nice to have a network of hundreds of attritable unmanned submersibles, which we can build in Canada and build quickly, as opposed to receiving just a handful of billion-dollar submarines many years from now.
Many people will appear before this committee and they will ask you to set percentage targets, things like a percentage of new procurement spending that must go to Canadian firms. The Icebreaker is asking for nothing less than a rewiring of how our country thinks about a defence industrial strategy.
In order to take advantage of Canada's existing strengths and our domestic entrepreneurs, and at the same time respond to the modern threat environment, we must rewrite defence production and procurement for the era of attritable mass production. Buying large quantities of attritable systems requires a fundamentally different kind of defence industrial strategy, one where bespoke performance goals take a distant back seat to speedy production schedules and lower costs.
Thank you very much.