South Korea’s defence industry continues its rapid growth

380

In a context of rising military tensions across the globe, defence markets have expanded significantly. However, a newcomer is making waves in the competitive and exclusive landscape of the defence industry. South Korean defence items are becoming a hot commodity over the last few months; and Seoul has been strengthening an aggressive strategy to impose itself even in mature and sometimes restricted defence markets.

The Stockholm International Peace Research Institute (SIPRI) reports that in 2023, global military spending reached an unprecedented $2.44 trillion. This is the largest annual increase in weapon expenditures since 2009, and it has taken place in all five major regions: Africa, Europe, the Middle East, Asia and Oceania, and the Americas.

South Korea arms exports surged consistently from the late 2010s range of $2-3bn to $7.3bn in 2021, $17.3bn in 2022, and $14bn in 2023, poised to reach $20bn in 2024. Recent significant agreements in the Middle East and Eastern Europe include Saudi Arabia’s acquisition of $3.2bn worth of Chungung II Medium Surface-to-Air Missiles, Australia’s $7bn deal for 129 Redback Infantry Fighting Vehicles, and Romania’s anticipated $6-8bn agreement for 300-500 K2 Main Battle Tanks. South Korean defence manufacturers have expanded their export portfolio from six to twelve major weapon systems and increased their reach from four to twelve importing countries in 2023.

The surge in defence exports in 2022 generated approximately 130 000 new jobs and spurred a production inducement effect of about $34bn across related industries. The South Korean government has counted on arms exports to drive economic growth and diversify its high-tech industrial base, which traditionally centres on consumer electronics, semiconductors, batteries, and automobiles, with the semiconductor sector alone contributing up to 20% of the country’s recent exports.

This effort integrates the defence sector with other critical high-tech industries such as electronics, information technology, automotive, aerospace, shipbuilding, and chemicals, bolstered by increased R&D subsidies aimed particularly at supporting small and medium-sized enterprises and high-tech civilian startups. South Korea aims to leverage these dual-use technologies to enhance its ten cutting-edge military technologies, backed by substantial R&D funding reaching $2bn by 2027, as part of a strategic ambition to rank among the top seven technologically advanced nations, alongside the US, Russia, France, Germany, the UK, Italy, and Israel.

The Ukraine War boost effect

Another major advantage seized by South Korea is the re-emergence of demand for conventional weapons driven by the Ukraine War. Hanwha Aerospace, traditionally focused on legacy weapon systems, is meeting the growing demand for 155 mm howitzers by producing its K9 self-propelled variant in approximately six months at a cost of $3.5mn each, significantly outpacing Western competitors according to Bloomberg. The company’s production speed is estimated to be two to three times faster than its counterparts; for instance, French supplier Nexter was initially reported to require about 30 months for its Caesar self-propelled howitzer, though it has recently halved this timeframe. Hanwha’s competitive edge comes from its streamlined production process, which it has maintained while major Western defence contractors were shifting focus to more advanced weaponry, in fewer numbers, years ago.

While South Korean law restricts defence contractors from exporting weapons to active combat zones like Ukraine, Hanwha has successfully expanded its business into other international markets. Notably, Poland finalized an order for 679 K9 howitzers in July 2022, and Romania is reportedly exploring its first defence contract with South Korea worth $725mn as of April. Hanwha’s annual revenue from arms exports has surged by 11 times to $1.1bn since the onset of the conflict in Ukraine, and the company’s production facilities in Changwon have tripled output following Russia’s invasion.

South Korea’s strategy

South Korea is not only seeking to improve quantitatively but also qualitatively. The country’s largest defence company, Hanwha Aerospace, is actively working on developing a fighter jet engine to enhance its position as an arms exporter. The company aims for completion by 2036 in collaboration with the government. Kwangmin Lee, chief of aero systems at Hanwha Aerospace, is quite clear about it: “We should develop our own aircraft engines before it is too late for our long-term national security, as well as for economic benefits. It will take at least 10 years and more than Won5tn [$3.7bn]. We face high entry barriers, but we have experience producing engines, albeit under licensed deals, and have developed small engines of our own and have a strong supply chain,” he said.

Hanwha Aerospace currently manufactures engines for ships, missiles, and helicopters but has not yet developed an advanced fighter jet engine, focusing instead on supplying major components to global leaders like General Electric, Pratt & Whitney, and Rolls-Royce in the aircraft engine market. The company aims to achieve total sales of its proprietary engines amounting to 25 trillion South Korean won by 2050. The engines are slated for integration into enhanced variants of South Korea’s inaugural domestically developed fighter jet, the KF-21, set for mass production by Korea Aerospace Industries in the latter half of 2026. Currently, Hanwha Aerospace is in the process of assembling the F414 turbofan engines utilized in the KF-21 under license from GE.

In a world where having an indigenous engine to power fighter jet is the mark of a privileged few (the US, the UK, France, Russia, Ukraine and China), can the country catch up? Kwangmin Lee comments: “There is a lot of skepticism over whether Ford can catch up with Ferrari, but you can’t achieve anything without trying.”

Others remain cautious, with Kim Ho-sung, professor of advanced defence engineering at Changwon National University stating that “Developing a jet engine is the most complex technological feat, as the materials need to withstand combustion heat beyond 2,000 degrees Celsius. Even China had trouble overcoming the technological challenges until recently.” The costs involved also challenge the current Korean strategy of producing good quality items for less money. The professor analyses: “Countries can easily buy the [US-made] F-15 with proven safety and superior performance. Why would they bother to buy the KF-21 with Korean-made engines at similar prices? It will be difficult to secure cost competitiveness without economies of scale. Global collaboration could be a better option for Korea.”

Indeed, the country multiplies partnerships, one of the most recent initiatives being Hanwha Defence Australia’s work with Northrop Grumman to to provide Mk44 Stretch Bushmaster Chain Guns (Mk44S) for integration into the Hanwha Redback Infantry Fighting Vehicle. It also involves the production of 129 chain guns scheduled for initial delivery starting in 2026.

Moreover, a $30mn aircraft engine facility is being built up in South Korea that will expand Hanwha’s its local engineering team to 600 members. Additionally, the company intends to establish research centres overseas in the US and Europe, exploring potential collaborations for its engine development initiative. Hanwha anticipates that the South Korean Air Force will procure upgraded KF-21s featuring its own engines, with plans to market these aircraft to nations across the Middle East, Southeast Asia, and Eastern Europe in the future.

The expansion is part of a global offensive to master foreign defence markets. Kwangmin Lee, chief of aero systems at Hanwha Aerospace, stated that “We will target those who can’t buy fighter jets from the US for geopolitical reasons or those who can’t afford to buy expensive US jets.” This marketing strategy is strongly supported by the government. On May 28th, the South Korean Ministry of Foreign Affairs reorganized its services and created a new Strategy and Intelligence Department, directed by Cho Koorae, a diplomat who previously worked in Tunisia and then at the strategic planning directorate. The new organization suggests a strong support from the diplomatic corps to back up South Korean defence exports.

Next target: the USA

South Korea decided to expand its target from emerging economies to the first defence exporters in the world. Indeed, South Korean defence companies are actively pursuing entry into the largest global market, the United States, as part of their ongoing export strategy.

Hanwha Aerospace recently achieved a milestone by conducting successful field tests of its multipurpose unmanned ground vehicle, Arion-SMET, with the US Army and Marine Corps in Hawaii in December. It is the first participation of a Korean UGV developer in the US Defence Department’s foreign comparative testing program.

Korea Aerospace Industries is positioning itself to win contracts worth over $35bn by offering upgraded variants FA-50 light combat aircraft for the US Air Force’s (in spite of losing the first round to Boeing T-7) and the US Navy’s advanced tactical trainer projects starting in 2024, in partnership with Lockheed Martin.

In December 2023, LIG Nex1 announced a $240mn investment to acquire a majority stake (60%) in Ghost Robotics. The company is a renowned US developer known for its Q-UGV model, a versatile quadruped robot designed to navigate challenging terrains and currently utilized by the US military. This acquisition is anticipated to act as a strategic entry point for LIG Nex1 into the US market.

However, these industrial developments do not come without added risks and hurdles. In February, the South Korean police launched an investigation in response to suspicious behaviour from two Indonesian engineers working on the KF-21 fighter jet. Years earlier, in 2015, the USA refused to provide a key item for that same jet, an Active Electronically Scanned Array (AESA) radar technology. While this refusal could have stopped altogether the project, in August 2020, the Agency for Defence Development and Hanwha Systems achieved the development of an AESA radar. This proved South Korea’s entry into the exclusive group of countries—including the US, the UK, and China—that have independently developed airborne AESA radar technology. Later, in August 2023, Hanwha Systems achieved a major milestone by exporting AESA radar antennas to Leonardo, marking a significant milestone South Korea’s growing profile as a major global defence exporter. The company also has plans to further expand its export potential to Europe, the Middle East, and beyond, aiming to export complete AESA radar systems by 2026.

What’s next?

In a push towards sustainability, domestic defence firms like Kia, Hyundai Rotem, and Hanwha Ocean are increasingly recognized for integrating hybrid engines or hydrogen-powered systems into tanks and submarines. On June 4, Kia introduced its “Hydrogen ATV Concept Car” at the “WDS 2024” defence exhibition in Saudi Arabia.

The vehicle is powered by hydrogen fuel cells that offers reduced noise and heat emissions compared to conventional internal combustion engines. Its secure manoeuvrability showed the potential for military applications. Hyundai Rotem is advancing in the field with its development of the “Defence Drone,” a hydrogen fuel cell-powered unmanned platform capable of autonomous and remote operation, while Hanwha Ocean has been chosen as the preferred bidder for the Defence Science Research Institute’s “Energy Source System for Unmanned Submersibles” project, tasked with developing a hydrogen fuel cell system for versatile modular unmanned submersibles.

How favourably the US market will respond to Seoul active marketing campaigns remains to be seen, but the South Korean aim is very clear.

Written by ADIT – The Bulletin and republished with permission.