The Pros and Cons of Joining the Big League of Arms Exporters

Hyundai Rotem K2
This is a Hyundai Rotem K2 main battle tank of the ROK Army, with Poland emerging as the first export customer of the type following a very large contract signed in 2022. (Gordon Arthur)

South Koreas rapid rise as a defence manufacturer is resulting in increasingly tougher challenges to its export policy.

Although China might be Asia’s top defence exporter, it is actually South Korea, a nation of 51.8 million citizens that lives under constant threat from its northern neighbour, which is dominating sales of Asian military equipment to Western countries.

According to the Stockholm International Peace Research Institute (SIPRI), South Korea was the world’s ninth largest arms exporter from 2018-22. The only other Asian country to appear in the top 25 exporters was China in fourth place. Compared to the preceding five-year period, South Korean arms sales exploded 74 percent in 2018-22 to corner 2.4 percent of the global market.

Such a share might sound insignificant, but as Dr. Kim Jae Yeop, senior researcher at the Sungkyun Institute for Global Strategy (SIGS), told Asian Military Review, “It is definitely the highest growth for arms exports among other major countries, including the USA, Russia, France, China, UK, Israel, Italy and Germany.” He described 2022 as a year of “unprecedented success for arms exports to foreign markets”, reaching $17.3 billion, or more than double the $7.25 billion achieved in 2021.

Interestingly, despite booming exports, South Korea was also the world’s seventh largest importer of weapons in 2018-22, according to SIPRI, up 61 percent compared to 2013-17. SIPRI observed: “Both Japan and South Korea have well-developed arms industries, but they remain reliant on arms imports in some key categories, especially long-range strike capabilities such as advanced combat aircraft and missiles.”

European extravaganza

One factor in Seoul’s spectacular success has been Vladimir Putin’s invasion of Ukraine, which prompted some European nations to spend big. Seoul has struck a rich vein with deals worth $13.7 billion in Poland alone. Last year, Warsaw ordered hundreds of Hanwha Aerospace K239 Chunmoo multiple rocket launchers and K9 self-propelled howitzers (SPH), Hyundai Rotem K2 main battle tanks (MBT) and FA-50 aircraft from Korea Aerospace Industries (KAI).

The quantities are staggering, and equally so is Seoul’s ability to deliver quickly. For example, the first 10 K2 MBTs and 24 K9A1 SPHs arrived in Poland last December, just four months after the order was lodged. Compare this with Germany, which is yet to deliver a single Leopard 2A7 after Hungary ordered 44 tanks in 2018. South Korea can achieve in months what European countries take years to do.

One reason why South Korea can deliver at lightning speed is the symbiotic relationship between government and arms companies, allowing them to rearrange domestic deliveries in order to meet export orders. This has a double benefit, for the country increases export income while simultaneously reducing domestic unit costs due to higher production runs.

For instance, Seoul dispatched 48 “gap-filler” K9A1s in 2022-23, while another 624 K9PLs are to be built to Polish specifications by Hanwha in South Korea from 2024, and by HSW in Poland from 2026. Hanwha had already achieved solid K9 sales to Europe, with Estonia (18), Finland (53) and Norway (24) listed as customers. The conglomerate is also supplying 168 K9 hulls to Warsaw for its indigenous Krab SPH programme. Hanwha Aerospace had previously claimed a 55 percent share of the global SPH market, but this has risen to approximately 68 percent with the Polish sale. Plenty of capacity remains; robots handle about 70 percent of the welding work on K9s, and their current eight-hours-a-day operation could be increased to 24 hours if necessary.

K9
India is another K9 user, with Larsen & Toubro assembling Vajra-T 155mm SPHs under a 2017 contract for 100 systems. These involved quite high levels of domestic content, and another order is expected. (Gordon Arthur)

Poland could acquire up to 1,000 K2 MBTs, depending on the results of Putin’s war in Ukraine. A first batch of 180 K2s will be delivered by 2025, plus 400 tanks in optimised K2PL configuration. Hyundai Rotem will open a service centre and transfer production of K2PLs to Poland, where a further 400 tanks will be manufactured from 2026.

Elsewhere, three Polish Jelcz 8×8 trucks arrived in South Korea on 16 May to undergo conversion into Chunmoo launchers. Integration of the rocket system and field tests occurred over a three-month period, before the vehicles returned to Poland. The 215 remaining Chunmoo conversions will occur in Poland through till 2027.

Contracted on 16 September 2022, Poland’s 48 FA-50 light fighters comprise 12 FA-50 Block 10 aircraft to be handed over this year, and 36 FA-50PL Block 20 aircraft from 2025-28. The first aircraft reached Poland in July, after being diverted from a Republic of Korea Air Force (ROKAF) production lot. The T-50/FA-50 has been a successful product for KAI, with export sales to Indonesia (16), Iraq (24), Malaysia (18), the Philippines (12) and Thailand (14).

These Polish deals go beyond the mere supply of weapons too, for they envisage a military-industrial footprint that will feed Europe’s hunger for weapons for years to come. By creating manufacturing and maintenance hubs in Europe, South Korean companies will have a ready pipeline for future sales.

South Korea is still improving indigenous content on its platforms too. On 25 May, the Defense Acquisition Program Administration announced approval for production of a fourth batch of K2 tanks for the ROK Army. This batch is the first to feature SNT Dynamics’ indigenous EST15K transmission. Earlier plans to use this transmission were cancelled until reliability problems could be ironed out. SNT Dynamics will also supply transmissions to Turkey for use on Altay MBTs from 2023-27, with a $220 million contract signed on 30 January.

Middle East momentum

The Middle East had emerged as a lucrative market even before South Korea’s Polish mega-deals. On 16 January 2022, Seoul signed its hitherto largest ever overseas defence contract, covering KM-SAM Block II medium-range surface-to-air missiles (SAM) for the UAE. The sale was reportedly worth $3.76 billion (KRW4.18 trillion), involving Hanwha (for launchers, resupply vehicles and X-band multifunction radar) and LIG Nex1 (missiles and system integration). This was the KM-SAM’s first export sale, although it remains unclear how many batteries the UAE purchased. The 15 foot (4.6 metre) long KM-SAM Block II can intercept hostile missiles and aircraft at ranges below 25 miles (40 kilometres) and 12.5 miles (20km) in altitude, while the system has a 62 mile (100km) detection range.

KM-SAM medium-range air defence system
The KM-SAM medium-range air defence system is operated by South Korea’s military, and last year it achieved a significant multi-million-dollar sale to the UAE. (Gordon Arthur)

Egypt also signed a government-to-government deal on 1 February 2022, this worth more than $1.6 billion for K9 SPHs as well as support equipment such as K10 ammunition resupply vehicles. Although numbers are unknown, it could be upwards of 150 K9A1EGY artillery pieces. The package includes technology transfer and local assembly via the state-run Factory 200 outside Cairo. The initial batch of SPHs will be manufactured in South Korea.

Saudi Arabia has also purchased the K239 Chunmoo, the kingdom signing various contracts with Hanwha, LIG Nex1 and Poongsan Corporation on 8 March 2022. Saudi Arabia also possesses AT-1K Raybolt antitank missiles, KGGB guided bombs and Poniard guided rockets acquired from South Korean firms.

Asia-Pacific avenues

On 24 February, Kuala Lumpur ordered 18 FA-50M lead-in fighter trainers/light fighters for the Royal Malaysian Air Force, the package valued at $830.3 million. Sangshin Park, KAI’s regional manager & chief, International Business Development, Asia, told AMR that these FA-50 Block 20 aircraft will receive Raytheon’s PhantomStrike active electronically scanned array radar. This is necessary because Malaysian politics prevent it from considering the usual Elta ELM-2032 radar. Poland also opted for the PhantomStrike under a direct commercial sale. Malaysian FA-50Ms are due for delivery from October 2026 till August 2027.

KAI is also jointly developing the KF-21 Boramae 4.5-generation fighter with Indonesia, at least nominally, since Jakarta is years behind in its financial commitment to 20 percent of development costs. The two countries have been hashing out a new payment schedule after Indonesia reneged on most previous payments and is some $598.7 million in arrears. KAI is optimistic of exports for the modern KF-21, which is positioned as a cheaper alternative to the F-35.

One of Hanwha’s most important successes came when the Australian Army selected the AS21 Redback infantry fighting vehicle (IFV) as its Project Land 400 Phase 3 solution. Australia will order 129 Redbacks, a figure far lower than the 450 IFVs originally envisaged due to reductions recommended by this year’s Defence Strategic Review. Remember, too, that these 129 IFVs will replace 431 M113AS4 armoured personnel carriers, causing many to consider the Redback order far too small.

Hanwha Defence Australia
Hanwha Defence Australia won the Australian Army’s competition for a new IFV under Land 400 Phase 3. This is the firm’s AS21 Redback, photographed whilst undertaking extensive evaluations. (ADF)

Hanwha Defense Australia will deliver the Redbacks at an accelerated rate, with the first due in 2027 and the last by the end of 2028. They will be manufactured, involving numerous Australian businesses, at an assembly facility near Geelong, Victoria. This same factory will manufacture 30 AS9 Huntsman SPHs and 15 AS10 ammunition resupply vehicles (Australian analogues of the K9 and K10). The production facility is being built in phases, meaning that it could manufacture equipment for export markets in the future too.

A benefit for South Korea in establishing manufacturing plants outside its own borders is that it provides strategic support and a secondary supply chain. Major industrial sites in places like Changwon are threatened by North Korea, so offshore sites offer resiliency.

These Australian successes are critical for Hanwha, giving it a foot in the Five Eyes door. The ultimate aim for many South Korean firms is to enter the lucrative American market. Another entry point into this market has been Seoul’s sale of 155mm artillery rounds to the US. In April, it was reported the two governments had agreed to supply 500,000 rounds. Seoul refuses to sell lethal aid directly to Ukraine, but deliveries of shells to the USA gives the latter more flexibility in meeting Ukrainian needs as it replenishes its own stocks. Last year, South Korea supplied the USA with some 100,000 155mm rounds.

South Korean weapons are compatible with those of the USA and NATO, so this is a selling point for many markets. Furthermore, some countries might prefer, for political reasons, not to deal directly with the USA, so Seoul can advantageously position itself as a US ally still able to meet their needs.

Naval shipbuilding is another area where South Korea excels. Indonesia has procured landing platform docks and submarines from South Korea, but a star customer for Hyundai Heavy Industries (HHI) is Manila. The Philippine Navy commissioned two 2,600-tonne Jose Rizal-class frigates in 2020 and 2021, and HHI recently started construction of two 3,100-tonne corvettes for the Philippines with a delivery deadline of 2025. Furthermore, HHI will commence building six 1,500-tonne HDP-1500Neo offshore patrol vessels for the Philippine Navy before the end of the year. The Philippines has also been an eager consumer of tactical vehicles from Kia Motors, including hundreds of KM450, KM250 and KM500 trucks.

April’s regulatory approval for Hanwha Ocean to take a controlling 49.3 percent stake in financially troubled Daewoo Shipbuilding & Marine Engineering (DSME) should also intensify South Korean naval sales around the world, alongside the other major players HHI and Samsung Heavy Industries. In the past five years, DSME received 25.4 percent of all Republic of Korea Navy surface ship orders, and 97.8 percent of submarine orders.

HTMS Bhumibol Adulyadej
Hanwha Defence Australia won the Australian Army’s competition for a new IFV under Land 400 Phase 3. This is the firm’s AS21 Redback, photographed whilst undertaking extensive evaluations. (ADF)

Recipe for success

Referring to the above impressive catalogue, AMR asked Kim of SIGS what factors have led to the country’s successes. He highlighted: “The rising reputation of South Korea’s defence industry in the global arms market is based on the following three unique characteristics. First is the country’s severe security environment. Surrounded by hostile and formidable military powers like North Korea, China and Japan, South Korea is required to maintain an indomitable defence posture. This has led to Seoul’s defence industry developing and manufacturing technically reliable weapons, and utilising the country’s own world-class industrial bases like shipbuilding, electronics, automobiles, machinery, etc.

“Second is its price competitiveness as a middle-power state, in comparison with arms contractors of other developed powers like the USA and European countries. As a result, more countries – especially emerging small and medium powers – pay attention to Korea as a supplier for weapons of both quality and affordability.”

Kim continued: “The third is growing instability in the international security order, mainly affected by so-called ‘great power strategic competition’ of the USA, China and Russia, which can be witnessed in conflicts over the Taiwan Strait, South China Sea and the ongoing war between Russia and Ukraine. It is noteworthy that major recipients of South Korean weapon systems mostly include Southeast Asian countries, India, Australia, and North and East European countries facing security threats from aggressive, revisionist great powers like China and Russia. In other words, arms exports by South Korea are providing substantial support for the defensive efforts of these countries.”

AMR asked whether government support is an important ingredient in South Korean sales too. Kim concurred: “Since the late 2000s and early 2010s, the South Korean government began ambitious efforts to strengthen export-led characteristics in the country’s defence industry. These efforts intended to not only boost substantial economic value for Korean defence industry, such as creating more employment or seeking profits, but also to enhance industry’s long-term competitiveness to survive fierce competition among numerous arms suppliers around the world.”

The SIGS scholar added: “Since then, Korea’s defence industry market has constantly expanded from Asia to the Middle East and Europe. Additionally, items for export have become more technologically sophisticated; including MBTs, SPHs, submarines, supersonic fighters and SAMs. Encouraged by recent accomplishments in growing arms exports, Seoul is eager to take more active measures to promote its own defence industry. On 17 August 2022, President Yoon Suk Yeol vowed to seek strategic industrialisation of the country’s defence industry. Yoon also proposed a goal of Seoul becoming among the world’s top four weapons suppliers, next to the USA, Russia and France.”

Surion helicopters
One export segment that South Korea has not yet exploited is helicopters. Despite KAI anticipating exports of up to 300 Surion helicopters, none have ever occurred. (Gordon Arthur)

Future considerations

Politics always play a critical role in arms sales. Seoul will thus increasingly face tough choices over who it will and will not sell to, and the Ukraine war has brought this into sharp relief. Kim pointed out: “Now it is South Korea’s official position not to supply or transfer lethal/combat military materiel like ammunition to any countries involved in war. This has been a major diplomatic controversy during the ongoing war in Ukraine. As a result, Korea will seek: 1) active sales of conventional-weapon systems to so-called ‘like-minded’ countries during peacetime to support their defence modernisation efforts against revisionist powers; and 2) the transfer of military materiel limited to nonlethal/non-combatant uses during conflicts to minimise diplomatic risk with countries involved in armed conflicts.”

There is great potential to make friends too. Kim further noted: “Growing exports by South Korea have already been having political and diplomatic impacts. Because the defence industry is playing an indirect role to uphold peace and security in both Asia-Pacific and Europe, it is bolstering the defence capabilities of countries advocating a free, open and rules-based international order, something hugely undermined by the politico-military revisionism of China and Russia.”

Kim likened it to President Franklin Roosevelt’s “Arsenal of Democracy” concept, where he promised to supply materiel to the UK to help defeat Nazi Germany, whilst staying out of the fighting itself. Using this comparison, Kim said: “As a result, defence industry will offer South Korea effective options in foreign policy in the era of ‘great-power competition’. It will help to expand the country’s global influence beyond the Korean Peninsula, under the vision of a ‘Global Pivotal State’, especially in protecting a free and democratic international order that is under threat from revisionism and autocracy.”

by Gordon Arthur