Ontario manufacturers have spent almost two years living with tariff uncertainty. Some have done the hard, sensible things: cut costs, protected cash, delayed investments and hiring. Others have looked seriously at a customer that is expanding by design and has said it wants to buy from Canadian firms.
That customer is Canada’s Department of National Defence.
Canada's first Defence Industrial Strategy, announced in February 2026, makes "Buy Canadian" the guiding principle for defence acquisitions. It aims to raise the share of defence spending awarded to Canadian firms to 70%, and positions Canadian industry for $180 billion in defence procurement opportunities over the next 10 years. Unlike demand that rises and falls with the business cycle, this is a long-term public commitment.
BDC's chief economist, Pierre Cléroux, notes that rising defence spending is creating opportunities both for firms already in the ecosystem and for those looking to pivot into it. A June 2026 study by BDC and The Icebreaker, found that many defence-heavy SMEs are already at or near capacity, and 30% report significant hiring challenges. That is a supply gap. Plants with skilled people, precision equipment and quality systems built for automotive or industrial customers are exactly what the supply chain needs more of.
Some capabilities that often translate well include precision machining, castings and forgings, composites, tooling, metal fabrication, electronics assembly, and rubber and plastics, but the opportunities of a rapidly evolving Defence industry often extend far beyond that to include other industries and technologies.
Entering the Defence industry comes with a set of new challenges for most SMEs. Among the barriers they face are: defence-specific requirements, financing constraints and unclear entry pathways. On top of that, Defence procurement cycles have historically taken a long time (though initiatives like the new Defence Investment Agency and a drone technology marketplace are seeking to address that and more procurement reform is expected to come). For most companies, the smart approach is to treat defence as a 12- to 36-month diversification strategy alongside your civilian business, rather than a replacement for it.
Diversification is the key word here, but companies must avoid replacing one market dependency with another. BDC finds two-thirds of defence SMEs already export, but 63% of those exports still go to the U.S., a market made increasingly unpredictable by tariffs. Europe, at 21%, is the bigger export opportunity. For certain defence capabilities, Canada’s NATO membership and the Alliance’s focus on interoperability ensures that there’s international market potential for suppliers to the Canadian Armed Forces as well, with Europe’s defence push offering further diversification opportunities.
- Audit your capacity and capabilities. What could you offer in 6 to 12 months without major new investment? Which machines, people and certifications are underused?
- Enter as a subcontractor. Selling to a tier 1 supplier or a large contractor is a lower barrier than bidding directly on a federal contract.
- Mind the compliance gap. Confirm whether the Controlled Goods Program applies to you, and review the quality and cybersecurity standards your target customers require.
- Build a three-year plan. Set realistic milestones: first conversations, first supplier registration, first subcontract.
- Finance the transition. BDC's Pivot to Grow program offers financing and advice for businesses countering the effects of U.S. tariffs, and its Defence Platform supports defence and dual-use firms.
Tariffs have forced Ontario manufacturers to ask hard questions about where growth will come from. Defence is one answer worth taking seriously: a market that is growing, needs what you already make, and is looking for Canadian suppliers.
Next step: On December 1, World Trade Centre Toronto and BDC host The Defence Economy, bringing Ontario SMEs together with large contractors, funders and compliance experts in hands-on clinics. Learn more and apply.
