Asian companies are rapidly populating the higher end of the world’s top 100 defence manufacturers.
American, European and Russian manufacturers have long dominated the global defence market. However, Asia’s footprint has been growing, and this has been increasingly evident over the past few years.
In late 2022, the Stockholm International Peace Research Institute (SIPRI) released annual figures measuring the world’s top 100 arms manufacturers, which cumulatively sold $592 billion worth of equipment. In that list, SIPRI named a record number of 21 Asia-Pacific firms.
South Korea’s worldwide sales
Based on 2021 data, Hanwha Aerospace reached 50th position, Korea Aerospace Industries (KAI) 65th, LIG Nex1 71st and Hanwha Corporation 82nd within SIPRI’s top 100 rankings. They enjoyed combined sales of $7.2 billion in 2021, representing a 3.6 percent increase. However, last year was a standout one for South Korea, such that these conglomerates are certain to race up the ranks in the coming year.
These companies enjoyed enormous success in 2022, as South Korea challenged sales with the world’s best. In January 2022, there was an agreement to sell KM-SAM air defence systems to the United Arab Emirates. This missile deal, reportedly worth $3.76 billion, benefits Hanwha Defense (launchers and resupply vehicles), Hanwha Systems (X-band radars) and LIG Nex1 (missiles and system integration).
This was soon followed by Hanwha Defense’s February contract for hundreds of K9A1 155mm self-propelled howitzers (SPH) to Egypt. However, that was just an entrée, for Russia’s invasion of Ukraine spurred wary neighbours like Poland to spend heavily. What ensued in late August were contracts for 180 K2 main battle tanks (MBT) from Hyundai Rotem, 212 K9A1 SPHs and 288 K239 Chunmoo multiple rocket launchers from Hanwha Defense, and 48 FA-50 trainers/fighters from KAI.
Seoul has been industrious in fulfilling these contracts – in a little over three months after contract signature, the first 24 K9s and ten K2s were unloaded in Gdynia on 5 December 2022. Quick deliveries to Poland were possible since vehicles were diverted from the originally intended South Korean army customer. Furthermore, KAI will deliver the first dozen FA-50s this year too.
Hanwha Defense will also establish K9 production and maintenance, repair and overhaul facilities in Poland from 2026, and this hub will expand the firm’s European presence. Such swift deliveries – in contrast to stunningly tardy programmes like the British Army’s Ajax infantry fighting vehicle (IFV) – add to the current lustre of South Korea’s defence industry.
Indeed, the K9 SPH community now spans Australia, Egypt, Estonia, Finland, India, Norway, Poland, South Korea and Turkey. In December 2021, Canberra ordered 30 AS9 Huntsman SPHs and 15 AS10 ammunition resupply vehicles from Hanwha Defense Australia. In addition, the company’s AS21 Redback is one of two shortlisted contenders for the Australian Army’s Land 400 Phase 3 project. This programme is slated to procure 450 new IFVs, although this number is likely to diminish and a decision has been deferred till at least Q2 of 2023.
Regarding Land 400 Phase 3, Tim Pickford, director Business Development and Strategy at Hanwha Defense Australia, was only able to inform Asian Military Review“, that “we’re being as supportive of, and as understanding as we can be, of the position of the Commonwealth government…”
Hanwha Defense Australia is constructing an assembly facility near Geelong, Victoria, where AS9/AS10 and potentially AS21 Redbacks will be built. Pickford confirmed the facility is “not just for the Australian market … It’s going to be built in stages. Obviously stage one supports our current projects and opportunities which we’re pursuing.” If other contracts emerge, this will catalyse an even larger facility.
“People now value some of the fundamental characteristics of Korean manufacturers and defence industry, which include reliability, robustness and easy-to-use systems that are at the higher end of technology…” –
Tim Pickford, director Hanwha Defense Australia
Pickford addressed the growing stature of South Korean companies such as Hanwha. “People now value some of the fundamental characteristics of Korean manufacturers and defence industry, which include reliability, robustness and easy-to-use systems that are at the higher end of technology … I think it’s overall global confidence in the quality, reliability and price that you can get from a Korean product.”
Pickford added that South Korea’s large-scale manufacturing excellence and Australia’s smaller manufacturers that produce cost-effectively are “a good starting point to bring those two synergistic and complementary approaches and ways together, to create an industrial base in Australia that creates self-reliance in Australia but also, very importantly, provides strategic support and a secondary supply chain for the Korean Peninsula as well.”
The latter point is an interesting one. It benefits South Korea to diversify its manufacturing base, since major industrial sites in places like Changwon are threatened by North Korea. Furthermore, Hanwha Defense Australia has a “very important role to play in fostering closer defence alliances between Korea and Australia”.
Hanwha would like to gain a larger foot in the Five Eyes door, especially in the USA. In 2021, South Korea exported just $95 million worth of equipment to the US, but this is small considering that the market is worth billions.
Pickford elaborated: “For many, many years, Korea has worked very closely with us and other coalition forces regionally, and we just felt that it was a natural progression to start to develop services, products and technologies that can be offered into the Five Eyes community.”
Hanwha is aware of barriers to entry into such a tight community, but munitions are a good example of potential cooperation. “We’re working hard in terms of 155mm systems and charge modular charge systems to ensure we can create interoperability with the US and other forces.”
What are the ingredients to success for Hanwha? Pickford highlighted rule number one, that equipment has to work right the first time. Weapons also have to be simple to operate and train on, as well as affordable. Furthermore, the South Korean government offers good support to exporters, and permits technology transfer.
As for KAI, it has done very well with the T-50 aircraft, and it has hopes for the KF-21 Boramae fighter too. Nonetheless, exporting remains hard work; despite KAI and Airbus Helicopters earlier talking up the Surion helicopter’s export potential, for example, not one export has occurred to date.
China booming
China possesses Asia’s largest military industrial complex. Returning to SIPRI’s top 100 arms companies, its 2022 list placed seven Chinese companies in the top 20 alone. Most demand comes from the People’s Liberation Army (PLA), but China is very successful at selling on the open market too.
According to SIPRI, Norinco came in at number seven, AVIC at eight, China Aerospace Science and Technology Corporation (CASC) at nine, CETC at ten, and China Aerospace Science & Industry Corporation (CASIC) ranked eleventh. These were followed by China State Shipbuilding Corporation (CSSC) in 14th spot, China South Industries Group Corporation at 20, and China National Nuclear Corporation at 64. These state-owned entities achieved sales of $109 billion, up 6.3 percent compared to 2020. Incidentally, Norinco’s sales rocketed 11 percent to $21.6 billion.
China is almost exclusively self-reliant, and one of its most recent achievements is mastering fighter jet engines. This is sure to encourage more future fighter exports.
SIPRI added: “Signs of consolidation have been observed in China’s arms industry since the mid-2010s, which marked a reversal of previous structural reforms aimed at improving productivity and competitiveness by breaking up sector monopolies. In 2021 the two largest shipbuilders in China, CSIC and CSSC, finalised a merger to form a new entity operating under the name CSSC…” Indeed, CSSC was the world’s largest military shipbuilder in 2021.
For China, there is deliberate synergy between naval and commercial shipbuilding, with each sector benefitting the other in a symbiotic relationship. For instance, in 2021, China produced 26.863 million gross tons of new commercial vessels, South Korea 19.687 million tons and Japan 10.726 million tons. The rest of the world produced just 3.43 million tons of commercial shipping. The rate of Chinese naval shipbuilding is astonishing, with annual output typically surpassing the entire tonnage of Southeast Asian naval fleets.
Chinese products prove popular in Asia, Africa and the Middle East in particular. Its three largest clients in the past five years have been Pakistan, Bangladesh and Thailand. The former purchased four Type 054A/P Tughril-class frigates (the first two were commissioned last year), eight Type 039 Hangor-class submarines, JF-17 fighters, hundreds of VT4 MBTs and SH15 truck-mounted howitzers from China.
Meanwhile, deliveries of VT5 tanks are ongoing to Bangladesh. Chinese UAVs are also popular, including the Wing Loong and CH-4/CH-5 families. Thailand has turned increasingly to China thanks to pricing and Beijing’s acceptance of military rule there. Thailand’s army procured numerous VT4 tanks and VN1 IFVs. It is also awaiting an S26T submarine, though that is being stymied by Germany’s refusal to export a suitable engine and Bangkok’s reluctance to accept a Chinese alternative. Also due for delivery this year is a Thai Type 071E landing platform dock (LPD).
Japan looks to collaborate
In SIPRI’s top 100 listing, Mitsubishi achieved 35th place, Kawasaki 54th, Fujitsu 77th and IHI 89th. Serving almost exclusively the domestic market, these four companies saw their aggregate arms sales drop 1.4 percent to $9 billion in 2021.
On the international market, Tokyo has been held back by its pacifist Constitution and a reluctance to export combat equipment, though it is gradually diverging from those strictures. One recent success was the 2020 sale of Mitsubishi Electric J/FPS-3ME air surveillance radars to the Philippines. Companies such as Kawasaki have been attempting to sell the C-2 transport aircraft, but major breakthroughs are hard to come by.
Japan’s tie-up with Italy and the UK for the Global Combat Air Programme fighter is a notable one, with Tokyo dumping the USA in favour of European collaboration.
India’s home focus
India’s two state-run companies – Hindustan Aeronautics (HAL) at 42 on the SIPRI list, and Bharat Electronics at 63 – achieved their positions due to domestic sales. Incidentally, Indian Ordnance Factories dropped from the list because it restructured into seven smaller companies in October 2021.
India often relies more on parochial hype than it does on state-of-the-art technology. HAL, for example, has not achieved much success with its helicopters and aircraft on the export market. It has high hopes for the Tejas fighter, but it is undeniable that Indian companies underperform on the international arena. One notable exception was the 2022 sale of three BrahMos missile batteries to the Philippines.
Involving the private sector instead of inefficient state-run entities is positive, and this is seen in such programmes as Larsen & Toubro’s assembly of K9 155mm SPHs. Such companies are perhaps the most likely to pick up export contracts.
Niche areas
ST Engineering from Singapore achieved 57th place in SIPRI’s list, while Australian-headquartered Austal squeezed in at 97. Indonesia is attempting to boost its indigenous defence base through technology transfer, though its potential remains at the nascent stage. PT PAL built two LPDs for the Philippine Navy, and last year won a contract for two more.
There are plentiful opportunities for niche manufacturers around the Asia-Pacific region, and Asian Military Review spoke to one such, Australian based Electro Optic Systems (EOS), about its range of remote weapon stations (RWS). Exports make up 80 percent of its business, explained Matt Jones, executive vice-president of EOS Defence Systems.
EOS is meeting ongoing requirements for lightweight RWS for vehicles such as special forces all-terrain vehicles, or RWS for logistics vehicles to keep occupants safe. Another area of growth is heavier RWS with weapons like Northrop Grumman’s Mk44 30mm cannon. Jones explained: “Militaries don’t want to necessarily replace a vehicle platform with a new vehicle, but they do want to bring 21st-century firepower, accuracy and authority onto a platform they’ve been operating for 10, 20, 30 years.”
This is occurring in second-hand vehicles handed over to Ukraine, for example. “It’s a way of seeing significant capability enhancement without the billion-dollar investment you require to replace an entire vehicle fleet. You can leverage existing infrastructure, training facilities and experience on vehicle platforms, and add a new high-firepower modern system, which is what we’re doing with a range of customers at the moment,” Jones elaborated.
Trends in modern warfare are creating other growth area for EOS too. These include counter-unmanned aerial system (C-UAS) engagements, with huge benefits to be gained by using an existing RWS to hit both ground targets and UAVs. Directed energy for C-UAS tasks is another area of investment. Right now, EOS is also delivering its first naval R400 30mm cannon RWS weapons to a Middle East customer, and it has worked with Elbit Systems to develop the T2000 unmanned turret.
Jones continued: “The other thing we’re doing is a lot of work in the UGV [unmanned ground vehicle] space. UGVs are obviously a fast-evolving capability area. Increasingly, we see the battlespace thinning out, and more UGVs or unmanned or uninhabited systems being employed in the air, ground and at sea. And as that occurs, those systems when they’re armed need to be equipped with something like a remote weapon station. So we’re working with at least five different countries at the moment in support of their individual development programmes for the development of tactics, techniques and procedures for the employment of UGVs.”
Jones said EOS is a globally focused company. “Our major delivery contracts have been into the Middle East, and we’re growing opportunities in Europe and North America. But I’ll also say that our success in those places has been built off the back of our success in the local market. We can’t go completely global and ignore the local market. We’re an Australian company; we bring Australian values and expertise and technology to the market.”
What drives EOS’ success as an exporter? Jones shared: “I think, to be completely brutally honest, the Australian government doesn’t provide a lot of support … Really, from my point of view, it’s about our people and our engineering capability. EOS is a research house with an engineering pedigree and a passion for excellence.”
Australia’s defence procurement agencies are particularly demanding, but Jones said the silver lining is that “they really hone your project management, engineering, preparation, documentation and expertise, and then that really gives you a very strong standing when we do go into the global market”.
Conclusion
With Russia embroiled in war, its defence exports are likely to take a hit as supplying the Russian military takes precedence. Ethically, some countries will decide to no longer do business with Russia (one obvious example is the Philippine cancellation of an Mi-171 helicopter contract), while Western countries have imposed sanctions against Russian defence contractors. This may well enhance Asia’s ability to intrude even more into Russian territory in terms of defence market share.
A combination of innovation, price and reliability is seeing Asia’s share of the international defence market steadily rising. This is exemplified by South Korea’s almost meteoric rise, although it must be remembered that this only follows deliberate investment and support from the South Korean government over many years.
by Gordon Arthur
