South Korea’s Evolving Defense Industry: Shaping 21st Century Capabilities
2013-09-09 by Richard Weitz
South Korea’s total military expenditure reached almost $31bn in 2011, making it the third largest defense spender in Asia and the 12th largest in the world.
Since the end of the Korean War, the United States has been the largest supplier of defense systems to South Korea. The imperative of maintaining military interoperability with the U.S. armed forces often proved a decisive factor for ROK decision makers.
In recent years, significant U.S. sales and co-production of defense equipment have included: the K-1 (Type 88) Tank, SAM-X surface-to-air missile, P-3 maritime patrol aircraft, F-16 C/D fighters, UH-60 Blackhawk helicopters, the T-50 jet trainer, F-15K fighters and the KDX III Naval Destroyer.
These systems continue to form the backbone of the ROK’s military deterrent force.
However, ROK officials have tried to increase the amount of military equipment, technology, and services that South Korea acquires from non-U.S. sources over the past decade, with a priority given to domestic suppliers.
South Korea began acquiring Russian-made military equipment—including tanks, combat vehicles, and military helicopters—in 1996 as partial payment of Russia’s $2 billion debt to the ROK.
For other advanced systems such as military aircraft, ROK procurement officials have sought to identify European and other foreign defense industries that can match the quality and cost of South Korea’s traditional U.S. suppliers.
The policy of diversifying beyond U.S. defense firms reflects the earlier Roh Moo Hyun government’s drive to enhance South Korea’s ability to pursue policies independent of Washington.
More recently, ROK officials have concluded that U.S. companies do not always provide the best deals in terms of cost, performance, and timeliness.
In addition, the policy now reflects ROK officials’ frustrations with the restrictions and terms typically associated with U.S. defense imports, especially limitations on the transfer and re-sale of U.S. technologies as well as the problems entailed in meeting South Korean demands for substantial and meaningful local content.
Other foreign governments have often proven more forthcoming than the United States in agreeing to transfer sensitive military technology to South Korea or simply technology.
In recent years, South Korean officials have resisted Washington’s pressure to buy some expensive U.S-made weapons systems, such as the PAC-3 air defense system, the SM-3/Aegis ballistic missile defense system, and the Apache attack helicopter.
ROK officials cited the need to develop their own weapons, the high costs of U.S. systems, the limited opportunities for technology transfer, and other considerations.
ROK governments have sought as much as possible to draw on the country’s own burgeoning defense industries.
For example, more than a decade ago, the ROK’s Defense White Paper 1999 affirmed a commitment to acquire “the ability to independently develop primary weapons systems for core force capability.”
South Korean defense firms have been able to meet some of this demand.
For example, the Mid-term Force Improvement Plans have included the purchase of several indigenous products, including 450 K9 155mm SP Howitzers, 48 “Cheonma” SHORAD systems, and the “Biho” 30mm Anti-Aircraft Gun System.
At first, ROK defense companies limited private R&D spending, overcapacity and other structural inefficiencies, small number of exportable products, limited competitiveness in foreign markets, and bans on the sale of items with U.S. technology to third countries constrained their actual and potential contributions. Furthermore, foreign defense firms complained about the difficulties of competing with long-established U.S. rivals in the ROK market.
Nonetheless, this situation is changing as South Korea’s own defense industry grows in sophistication and levels of competence.
With ROK officials aggressively seeking to increase competition and diversify their sources of supply, the most important elements for purchase decisions have become technology transfer and offsets as well as price.
The domestic South Korean defense industry also stands to gain significantly from the ROK’s intense emphasis on technical cooperation and technology transfer.
Under new procurement policies, foreign contractors are required to provide a guarantee in advance that the proposed technologies will be approved by the respective government or regulatory agencies for transfer to South Korea prior to the approval of the contract.
In the EU, offsets are now largely not permitted. European governments are looking for defense deals to involve defense technologies within the structure of any deal. South Korea is moving down a similar path in which defense technology itself is at the center of any arms deals and defense industrial relationships.
So far, most U.S. defense contractors have acquiesced to the ROK demands to maintain their strong foothold within the country, but it is worth assessing whether continued cooperation on technological restrictions may prove difficult as the South Korean firms begin competing more directly with U.S. industries.
South Korean defense contractors have also increased their focus on expanding their defense exports. The export target for 2012 was set at $3bn, up from $2.4bn in 2011.
One technique employed by the ROK is to partner with other countries seeking to develop their own defense industries.
For example, South Korean firms have shared military technology with Indonesia and partly funded their joint development of jet fighters (KFX/IFX) and 1,400-tonsubmarines. Furthermore, India signed a contract in 2012 to acquire at least eight warships from South Korea in a bid to bolster its maritime defenses. Two of the vessels will be procured from South Korean firm Kangnam Corporation, while the other six will be manufactured by Goa Shipyard in western India after transfer of technology.
However, South Korea’s defense industry experienced a significant setback in 2012 when Israel selected the Italian M-346 rather than the T-50 family for a critical $1bn contract to update its aging fleet of training jets. An assessment for the reasons for these mixed results would prove useful for forecasting future trends.
Still, the U.S. treatment of South Korean defense companies could prove critical for the bilateral defense industrial relationship.
The Pentagon purchased more than $1.1bn-worth of South Korean goods and services in fiscal year 2011, which marked a 12.6 percent increase from the $991m for FY2010. South Korea’s share of U.S. military procurement rose from 3.5 percent to 4.7 percent during the same period, making the ROK the Pentagon’s seventh largest foreign national vendor.
However, the defense trade remains heavily balanced in favor of the United States, with South Korea’s Defense Acquisition Program Administration continuing to buy major U.S. systems.
Increased U.S. purchases of South Korean defense articles could lessen pressures on ROK officials to buy non-U.S. military products.
Such purchases should also increase support from controversial U.S. defense industrial initiatives, such as its ballistic missile defense program, and help reduce tensions over the ROK-U.S. negotiations regarding how much host-nation support South Korea should provide the U.S. Forces in Korea.
Of course, the purchase of US equipment is also part of the continuing bargain of US engagement in South Korean defense.
The South Koreans will seek to balance the growth of their own industry, expanded working relationships with non-US industry, exports of South Korean industry worldwide and the ability to defend itself against threats in the region.
Editor’s Note: A good example of how South Korea is transforming its industry and working with non-American suppliers is the Surion helicopter. This helicopter is a new variant of the Puma and the relationship with Eurocopter involves not only the development of the new variant, and its inclusion as a bedrock system within South Korean forces, but a defined future for exports.
In an interview with Norbert Ducrot, Eurocopter Senior Vice President – North Asia, discussed Eurocopter’s evolving role in Asia. He underscored the significant position, which Eurocopter has in South East Asia with their light utility helicopters and their Search and Rescue Helicopters, but he highlighted the importance of the working agreements with South Korea in shaping a new helicopter via production cooperation as a key change.
In 2006, Eurocopter and South Korea signed an agreement to produce the Surion helicopter, which is based on the Puma family of helicopters. The helicopter has produced through an agreement between Korean Aerospace Industries and Eurocopter.
According to Ducrot: “It really is a Korean helicopter. One needs to realize that about 80% of the helicopter has been redesigned by the South Koreans; it is not simply license production for it is a newly designed helicopter. And we have an agreement to export this helicopter with them to selected markets. This is not a problem for us for the helicopter has no equivalent in the Eurocopter line. It is a new build 8.5 ton helicopter.”
He emphasized as well that the South Koreans and Japanese are really at the top of the game globally in terms of production technologies and techniques. Because of this it makes a great deal of sense for Eurocopter to build out its presence in Asia.
Ducrot also highlighted the importance of support to the acquisition of aircraft in Asian defense.
How important is logistical support, training, and maintenance in shaping your market strategy?
Ducrot: It is a really foundational element. We have several subsidiaries already in Asia, and have more than 2000 people working on support in the region. We have seven flight simulators in Asia as well. We are building out our capacity to support our helicopters in the region and obviously this is a crucial element for success in any defense program.
An Asian country is not going to buy a defense product, which they cannot support fully.
It is also the case that South Korea has transferred technology to the United States. In our interview with the head of NASSCO shipyard, he discussed the role of South Korea in building the USNS Montford Point.
Harris provided several insights regarding the relationship with South Korea and the contribution of South Korea and Japan to improved US shipbuilding. Harris highlighted the processes followed by the Asian yards, and their commitment to a tight planning and design process prior to building any ship.
He told a story about a meeting which he had in South Korea with a US Congressman in attendance. The shipbuilder was asked how many ships he had built that year and his answer was something on the order of more than 270. The Congressman asked the shipbuilder: How did you get that good?
The South Korean shipbuilder paused and then answered: “We learned from the US during World War II in building the Liberty Ships as manufactured products. We started there and have been working to improve on that model.”
Harris has significant experience with the Asian yards, which of course, is crucial in having the kind of relationships which Asians value and upon which one might build trust and confidence.
As Harris put it:
There are Koreans who still feel a real debt of gratitude towards the U.S. And if you’re willing to take your hat in your hand and walk into a Korean shipyard and say I don’t know. Can you help me with this? In the beginning, they’ll want to try you out a bit and see if you’re serious. But once they understand you are, they will work effectively with you.”
There is almost a mutual bond of shipbuilders that if you’re really talking about learning, and trying to learn, most shipbuilders want to share with you.
According to Harris, South Korean yards have contributed significantly to the design and production of the ship. One key example he gave was with regard to a technology transfer from South Korea to the US.
The deck is 1 ¾ inches of steel. Relying on US methods, we would need multiple passes to build this steel plate on the deck. We called Hyundai on the phone and said: what do you do? One pass. Will you share that with us? Yes. We’ll share it with you.
They shared it all with us, and it’s a process that we have here where you put powdered metal in the joint, it’s actually broken up pieces of weld material. And you autonomously weld, and you fuse all that together. And you build a crown when you put that material in. And it really is fantastic.
The process lead to very little, if any, weld rejects. The issue with one pass for us was we were seeing some weld reject. And we don’t want weld reject. But the Koreans, used a two-pass system. And their joint design was very different than our joint design. We quickly qualified the joint design to the USN spec requirements.
Harris highlighted throughout the interview the importance of the partnership for improving the design and manufacturing process and making it a more exacting effort to drive out cost and to enhance manufacturing performance.
Finally, the F-35 is likely to be part of South Korea’s future. But the F-35 is not built on a traditional offset policy. South Korean industry would participate as do all other members of the global coalition of suppliers. This is why it is important to understand that South Korea is not going to pursue a traditional offset policy as it shapes its approach to 21st century systems.
As we argue in a forthcoming article on the evolution of US arms export policy:
In shaping a new regime for the control of defense exports, the reality of working with allies in a global supply chain needs to be prioritized, rather than debating which widgets they are “allowed” to get, which probably came from them in the first place.
And new regulations by allies require such a shift. For example, the EU requires direct offsets in defense, not indirect offsets in defense as part of any arms deal going forward. This means that if the old F-16 model were being relied on rather than the new global production F-35 model, the U.S. generated aircraft would not be in play.
The new approach is going to generate changes for which a backward looking arms control process simply is not prepared. Take the example of weapons for the F-35 fleet going forward.
With the F-35 fleet coming to the Pacific, a little noticed aspect of the program is how it augments the market for those weapons manufacturers whose weapons are on the platform. An entire weapons revolution is enabled by the F-35 in which key developments such as off-boarding of weapons are enabled. What this means is that weapons can be fired by other platforms, whether air, sea or land based, while the aircraft is determining target sets.
Even though the U.S. has been the core architect for the aircraft, the implementation of the fleet will not be solely and perhaps primarily American.
The diversity of global weapon suppliers – European, Israeli, and Asian – will seek to integrate their products onto the F-35.
The point is rather simple: South Korea is developing its defense industry in the 21st century with new approaches; it is not simply following a 20th century dominated offset policy governing global arms relationships.