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How Canadian Businesses can Leverage ITB Obligations to Sell to International Defence and Shipbuilding Primes
If you are the owner of a Canadian Small or Medium sized Business (SMB) and have a product or service that you’d like to sell into the Canadian aerospace, defense, and shipbuilding markets, you've probably attended one of the many trade shows or industry events bringing SMB’s and international primes together. You’ve likely heard about “ITB’s” /eye-tea-bee’s/, "IRB's" /eye-are-bee's/, and offset obligations that international prime defence contractors have to Canada and Canadian small business’
In this guide, we'll demystify Industrial and Technological Benefits (ITBs), explain how you can benefit from them, and provide actionable steps to help your Canadian SMB engage with international defence primes.
What Are ITB Obligations, IRB Obligations, and Offsets?
Industrial and Technological Benefits (ITBs) are contractual requirements imposed by the Canadian government on companies awarded defence procurement contracts over $100 million (in some cases over $20 million). These obligations mandate that the companies undertake business activities in Canada equal to the value of the contracts they've won. The goal is to ensure that defence spending contributes to jobs, innovation, and socioeconomic growth across the country.
Previously known as Industrial Regional Benefits (IRBs) - with older contracts still operating under that program, the policy has evolved to focus more on technological advancements, hence the shift to ITBs.
Why Should You Care About ITB Obligations?
From a Canadian SMB's perspective, ITB obligations make you a valuable partner for international primes. These primes are required to fulfill their ITB commitments, and partnering with Canadian businesses helps them achieve this. Your products or services can play a pivotal role in their strategy to meet these obligations. Even if the prime has a partner in their home country doing the same work you do, their obligations could cause them to choose you for their Canadian projects.
However, it's important to approach this opportunity strategically. ITB obligations are not a "pot of gold" waiting for you to claim. They represent a debt that international primes must repay through economic activity in Canada. Understanding this dynamic is key to successfully engaging with these companies.
Demystifying ITBs: A Realistic Approach
Having secured $8.1 million in ITB transactions for my own company, and $13 million for clients I advise—reducing international prime obligations by $150 million—I can tell you that leveraging ITBs requires more than just announcing you're a Canadian SMB. It demands a proactive approach, thorough research, and building genuine relationships.
Understand the Primes' Perspective
For international primes, ITB obligations can seem like a challenging business proposition. They need to deliver equipment or services to Canada and also invest an equivalent amount back into the Canadian economy. Naturally, they aim to minimize additional costs and prefer investments that align with their business interests.
The primes try to do as much of the work with their own Canadian employees and buy as many Canadian components from as many Canadian suppliers as possible: (Direct Work) as well as spend as much as possible from unrelated business activities such as civil programs on Canadian wages and Canadian components: (Indirect Work). These activities both net the prime a 1:1 repayment of their ITB obligation to Canada.
Primes need to hit certain targets at the beginning of a contract (Value Proposition) and fulfill the rest of their obligations over the life of the contract, so at the win and end stage, after all direct and indirect work is calculated, there may be a gap between their spend an their obligations, this is where R&D and multipliers come into play.
Multipliers and How They Benefit You
For obligations not fulfilled by direct and indirect work, the Canadian government offers multipliers for certain types of investments, making them more attractive to primes:
- Investment Framework (IF) Transactions:
- Cash for R&D or IP Licensing: Multiplier of 9x
- Cash or In-Kind Equipment: Multiplier of 7x
- In-Kind Knowledge Transfer or Marketing Support: Multiplier of 4x
- Future Sales Transactions: Primes receive credit equal to every dollar your business earns from eligible sales, potentially offering a high return on their initial investment.
These multipliers incentivize primes to invest in Canadian SMBs, especially those with promising technologies or services that could benefit their operations - these investments are non-dilutive.
Although these investments sound great, the challenges are that the Primes are not really set up to assess random technologies outside of their own offerings, and even if they like what they see they will need to ask their corporate leadership for any money to spend on a Canadian SMB. It will be competing for funds with internal programs and other investments. So the more relevant your technology is to their current challenges, the better.
How Can Your Canadian SME Get Involved?
Step 1: Research
Identify which international primes have unfulfilled ITB obligations. You can find this information on the Canadian government's current obligations by contractor website. Understand their business areas and see how your products or services can add value.
Step 2: Build Relationships
Connect with ITB or offsets managers within these primes. LinkedIn is a valuable resource for finding these professionals. Attend industry trade shows and engagement days to network and make personal connections.
ABCMI, AIAC, CANSEC, DEFSEC, Best Defence, and multiple other events aim to bring Canadian SMBs and Primes together. The primes also hold a number of their own industry days. Like all business development, researching your prospects is crucial.
Step 3: Present a Compelling Business Case
No one cares who you are, or what your vision and mission is! (empathetically they do, but from a buyer perspective, its a nice to have) What they do care about is the current problem they are trying to solve! Align each of your product and services value proposition as a solution to each individual prime and the problem they are trying to solve.
Prepare a concise and compelling one-pager that outlines how your SMB can help each individual prime fulfill its ITB obligations while adding value to their operations. Highlight:
- The unique value proposition of your product or service
- How it aligns with the prime's business interests
- Your Canadian content value (CCV)
- The potential multipliers applicable to the investment
Step 4: Demonstrate Multi-Layered Value
Ensure your proposal offers multiple layers of value:
- Technological or Operational Benefits: Show how your offering enhances the prime's capabilities (makes them more efficient or more profitable).
- High Multipliers: Emphasize the financial advantages through ITB multipliers.
- Strategic Alignment: Align your proposal with the prime's current and future projects.
- Compliance and Reliability: Demonstrate your SMB's stability and ability to meet security requirements.
Step 5: Be Patient and Persistent
The sales cycle in the defence industry is long and complex. Patience and persistence are essential. Continue to nurture relationships and adapt your approach based on feedback.
Common Pitfalls to Avoid
- Don't Expect Handouts: Simply being a Canadian SMB isn't enough. You need to offer real value.
- Don't Skip the Research: Without understanding the prime's needs, your proposal won't resonate.
- Don't Neglect Relationship Building: Personal connections are crucial in this industry.
- Don't Underestimate the Process: Securing ITB transactions takes time and effort.
Checklist: Approaching and Engaging with International Primes
Is Your Canadian SMB Ready to Engage with International Defence Primes?
You've built an innovative company with products, services, or technologies applicable to aerospace, defence, and shipbuilding. You're eager to expand into these sectors, but navigating the complexities of Canada's ITB obligations and connecting with international primes can be challenging. You're not alone—and there's a way forward.
Learn How I Can Help Your SMB Succeed in the Defence Industry!
Real-World Success Stories: Leveraging ITB Obligations
I utilize the strategic planning and scaling methods discussed in this blog with all my clients. By tracking initiatives and maintaining accountability, we achieve outcomes that align with our vision. Progress is often steady and measurable, but sometimes the results are extraordinary. Here are a couple of success stories that showcase how Canadian SMBs can effectively leverage ITB obligations to sell to international primes.
$20 Million Growth in One Year Through ITB Strategies
A Canadian company had been trying to break into the Canadian aerospace and defence market but lacked a clear strategy, and spun its wheels for 2 years talking to traditional ITB consultants that wanted to "open doors" and get paid, but offered no real world business experience or strategic planning skills. By developing a comprehensive strategic ITB strategy we:
- Secured $13 million in non-dilutive ITB investments from multiple international prime contractors, leveraging ITB obligations to fuel growth, effectively reducing international prime obligations by $117M
- Won direct contracts with the Canadian Armed Forces, enhancing their reputation and credibility within the defence sector.
- Established a sustainable growth model that continued to thrive beyond the initial investments, positioning them as a key player in the industry.
Funding R&D Through ITB and IRB Obligations
In my own business journey, I harnessed ITB obligations to accelerate growth:
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- Built strong relationships with international primes by aligning our offerings with their ITB and IRB obligations.
- Secured $8.1 million in non-dilutive ITB investments and direct work, effectively reducing international prime obligations by $36 million.
- Expanded our R&D capabilities using funds obtained through ITB transactions, driving innovation and competitiveness.
Take the Next Step Toward Prosperity
The achievements of these businesses are not mere coincidences—they are the result of deliberate planning and disciplined execution in navigating ITB obligations, IRB obligations, and offsets. As the aerospace and defence industry continues to evolve, consider what a robust strategic plan could do for your business.
- Are you ready to scale your operations and capture more market share?
- Do you want to maximize your business's value by leveraging ITB obligations effectively?
- Are you aiming to build an independent operation that thrives without your constant oversight?
If you answered yes to any of these questions, now it's time to act.
Unlock Your Business's Full Potential with Expert Guidance
I'm Scott Dewis, a seasoned entrepreneur with over 14 years of experience in growing and scaling businesses within the aerospace and defence sectors. I've navigated the complexities of ITB obligations and am passionate about helping Canadian SMEs like yours achieve their long-term objectives by connecting with international primes.
How I Can Help You:
- Create a Comprehensive ITB Strategy: Develop a roadmap tailored to your goals, aligning with ITB obligations, IRB obligations, and offsets.
- Implement Effective OKR and KPI Processes: Build executable plans that drive meaningful results and meet ITB requirements.
- Provide Ongoing Support and Accountability: Weekly check-ins to ensure you're on track with your strategic initiatives.
- Increase Enterprise Value: Enhance your company's worth for potential buyers or create opportunities for passive income by effectively leveraging ITB obligations.
Ready to Leverage ITB Obligations for Business Growth?
Don't let another year pass without a solid plan in place. Let's work together to unlock your business's potential and achieve the success you've envisioned for the future.
Book a Complimentary 45-Minute Strategy Session
During this free session, we'll dive deep into your business challenges related to ITB obligations and explore actionable solutions tailored to your unique situation.
By effectively leveraging ITB obligations, IRB obligations, and offsets, your Canadian SME can build valuable partnerships with international primes and drive significant growth. Let's embark on this journey together
