Canada's Missing Defence Industrial Strategy: What It Means for Your Business

In October 2025, Industry Minister Mélanie Joly made a striking admission: Canada is the only country among the Five Eyes intelligence alliance—which includes the United States, United Kingdom, Australia, and New Zealand—that lacks a comprehensive defence industrial strategy. While Prime Minister Mark Carney has promised to deliver one soon, the absence of such a strategy has profound implications for Canadian businesses in the defence sector.

What Is a Defence Industrial Strategy?

A defence industrial strategy is a comprehensive government plan that outlines how a nation will develop, sustain, and leverage its domestic defence manufacturing and technology capabilities. It typically includes:

• Clear objectives for defence industrial capacity and capability
• Identification of critical technologies and supply chains
• Investment priorities and funding mechanisms
• Workforce development and skills training programs
• Export promotion and international partnership frameworks
• Integration with broader economic and security policies

Without such a strategy, Canada's approach to defence procurement and industrial development has been described by experts as lacking "clear objectives" and "falling short on ambition."

How Canada Compares to Five Eyes Partners

Canada's Five Eyes partners have all developed comprehensive defence industrial strategies that guide their procurement decisions and industrial development:

United States: National Defense Industrial Strategy

The U.S. maintains a robust defence industrial base strategy focused on maintaining technological superiority, securing critical supply chains, and promoting innovation through programs like the Defense Innovation Unit and Strategic Capabilities Office.

United Kingdom: Defence Industrial Strategy

The UK's strategy emphasizes "prosperity through security," leveraging defence spending to create high-value jobs, drive innovation, and maintain sovereign capabilities in critical areas.

Australia: Defence Industrial Capability Plan

Australia's plan focuses on building sovereign industrial capability in priority areas, with clear investment commitments and partnership frameworks with both domestic industry and international allies.

New Zealand: Defence Industry Pathway

Even New Zealand, with its smaller defence budget, has articulated a clear strategy for developing niche capabilities and integrating with allied supply chains.

The Cost of Not Having a Strategy

The absence of a comprehensive defence industrial strategy has created several challenges for Canada:

1. Unclear Procurement Priorities

Without strategic direction, defence procurement decisions can appear ad hoc, making it difficult for Canadian businesses to plan long-term investments in capabilities and capacity.

2. Missed Economic Opportunities

Defence spending represents a significant economic lever—Canada's defence budget exceeds $30 billion annually. Without a strategy to maximize domestic economic benefits, much of this spending flows to foreign suppliers.

3. Weakened Industrial Base

Canada has lost significant defence industrial capacity over the past decades, particularly in areas like shipbuilding, aerospace, and advanced manufacturing. A clear strategy could help rebuild these capabilities.

4. Limited Export Success

Canadian defence companies struggle to compete internationally without the coordinated government support that their foreign competitors receive through their national strategies.

5. ITB Policy Challenges

The Industrial and Technological Benefits policy, while well-intentioned, has been criticized for poor implementation and unclear objectives—problems that a comprehensive strategy could address.

What's Coming: The Promised Strategy

Prime Minister Carney has committed to delivering a defence industrial strategy "soon," with key elements expected to include:

Opportunities for Canadian SMBs

While the absence of a strategy has created challenges, the development of a new defence industrial strategy presents significant opportunities for forward-thinking Canadian businesses:

1. Early Positioning

Companies that understand the likely direction of the strategy can position themselves ahead of competitors. Areas likely to receive priority include:

• Cybersecurity and information technology
• Autonomous systems and artificial intelligence
• Advanced materials and manufacturing
• Space and satellite technologies
• Arctic capabilities and infrastructure

2. Investment in Capabilities

With clearer strategic direction coming, businesses can make more confident investments in developing capabilities that align with national priorities. The strategy should provide the long-term visibility needed to justify significant capital investments.

3. Partnership Opportunities

A comprehensive strategy will likely emphasize collaboration between large primes and SMBs, creating structured opportunities for smaller companies to participate in major programs.

4. Export Support

Canadian companies that develop capabilities aligned with the national strategy may receive enhanced government support for international sales, similar to what competitors in other Five Eyes nations enjoy.

What Businesses Should Do Now

While waiting for the formal strategy to be released, Canadian businesses can take several proactive steps:

The Three-Pillar Industrial Strategy

Minister Joly's October 2025 announcement of a three-pillar industrial strategy provides some clues about the direction of defence industrial policy:

Pillar 1: Protecting Canadian Industries

This includes measures to prevent the loss of critical capabilities and technologies, potentially through investment screening, export controls, and support for strategic sectors.

Pillar 2: Creating Jobs

The strategy emphasizes using procurement to create high-quality Canadian jobs, particularly in advanced manufacturing and technology sectors.

Pillar 3: Attracting Global Investment

Canada aims to position itself as an attractive destination for international defence companies looking to establish North American operations, particularly those seeking to serve both Canadian and U.S. markets.

Looking Ahead

The development of Canada's first comprehensive defence industrial strategy represents a pivotal moment for the sector. While experts note that the current proposals "fall short on ambition," the very existence of a strategy will provide much-needed clarity and direction.

For Canadian SMBs, the key is to stay informed, position strategically, and be ready to capitalize on the opportunities that a clear national strategy will create. The combination of the new strategy, ITB policy reforms, and $15 billion in unallocated obligations creates a unique window of opportunity for businesses that are prepared.