Text Fwd: Korean govt. wants nation to become 7th-largest weapons exporter by 2020

F-15K pilots on standby as they prepare for an emergency drill at an airbase. The fighter jet is designed to fit South Korean conditions. The South Korean government intends to invest more in developing technologies for its fighter jets. By Park Jong-keun

K2 Black Panther tank, developed by Hyundai Rotem, is on the move during a military excercise. [JoongAng Ibo]

* Text sent from J. D. on Jan. 5, 2011

Joongang Ilbo
Arms industry: Self-sufficiency or overreach?
[NEWS ANALYSIS] Korea wants to become the world’s seventh-largest defense exporter by 2020 despite problems
December 29, 2010

The recent North Korean artillery attack on Yeonpyeong Island has put the spotlight on South Korea’s defense industry after several of the K9 self-propelled 155-millimeter howitzers stationed on the island failed to function in response.

With many analysts expecting a further rise in tensions with the North, attention is being paid to operating standards of South Korea’s homemade weaponry and whether the country is justified in having created an extensive arms industry.

“South Korea may be a perfect example of ‘technology overreach’ in its indigenous arms industry as earlier success with local arms production has bred greater ambitions, which in turn might spur it to pursue programs that lay beyond its economic or technological capabilities,” said Richard Bitzinger, a senior fellow at the S. Rajaratnam School of International Studies in Singapore in a recent commentary.

For example, among the six K9s that were stationed on Yeonpyeong Island, more than half failed to operate on the day North Korea attacked.


At a National Assembly hearing to examine the attack, the K9 units were found to have problems with its engine being damaged by an antifreeze liquid.

In addition, 1,181 K-11 assault rifles, which went into production this year by S&T Daewoo, are being investigated for technical flaws.

There are reports that the next-generation PKX-A high-speed patrol boat has steering problems, while the K-21 infantry fighting vehicle, built by Doosan DST, has had flooding problems during military exercises.

“The budget for research and development of weapons is only 5 to 6 percent of total defense spending,” said an analyst. “We’re in a situation where even the accumulation of such technologies is not properly managed.”

Minister of National Defense Kim Kwan-jin earlier this month said the domestic production of military equipment, including the K9 howitzers, needs to be re-evaluated. He said there was a need to localize weapons production, but problems arose when the weapons were put into the field prematurely.

The recent North Korean provocations coincide with a recent effort by the Lee Myung-bak administration to further push for the domestic production of military weapons.

On Oct. 19, the Presidential Council for Future and Vision proposed a plan to the Blue House on how to advance the nation’s defense industry. The target is to increase production of weapons from $6.5 billion in 2008 to $10 billion in 2020.

The government is also aiming to increase exports of Korean weapons from $253 million in 2008 to $4 billion by 2020. Korea now only accounts for 0.5 percent of the global arms market.

Reaching the 2020 target of $4 billion in annual arms exports would mean the country’s market share would increase to 5 percent. This would make Korea the world’s seventh-largest weapons exporters and create 50,000 new jobs, according to the council.

There has been a recent surge in Korean arms export, which reached a record high of $1.17 billion in 2009 and an estimated $1.5 billion this year.

The biggest buyer of Korean weapons is the United States. Korea sold $390 million worth of ammunition, engine parts and electronic telecommunications parts. Additionally, Korea sold $85 million of telecommunications equipment to Iraq and earned $224 million in ammunition sales to 18 countries. Korea also sold special military vehicles to the Middle East for $180 million.

Korea began exporting military equipment in 1975, and the amount of arms exports has steadily risen. The number of international customers has increased from 46 countries in 2007 to 59 in 2008 and 74 countries in 2009.

This has led to an increase in the number of local defense-related companies, from 54 in 2007 to 80 in 2008 and 104 in 2009.


K2 Black Panther tank, developed by Hyundai Rotem, is on the move during a military excercise. [JoongAng Ibo]

The variety of weapons has gradually expanded from bullets and shells to more sophisticated and high-tech weapons such as the K9 howitzers and the T-50 Golden Eagle, one of the world’s few supersonic trainer jets.

The Korean military industry started in the early 1970s under President Park Chung Hee, who wanted to create self-sufficiency in national defense capability because of fears at the time that the United States would reduce its military support. The initial stage involved the reverse engineering of U.S. military equipment.

In the early 1980s Korea started to assemble F-5F fighter jets and produce the K55 self-propelled 155-millimeter howitzer. However many of the core parts were imported from the United States, making it difficult for Korea to export the equipment since it needed U.S. government approval.

Korea’s first arms exports consisted of ammunition in 1975 that brought in $470,000 that year. Progress was slow. In the 1980s, Korea’s annual arms exports grew to $100 million mainly due to the war between Iran and Iraq.

However, exports fell in the 1990s after the end of the Cold War but started to recover in the late 1990s and early 2000s along with an expansion of the local defense industry into new weapons systems.

Korea has concentrated on the production of armored vehicles and self-propelled howitzers, incorporating domestic technology from its rapidly developed machinery and electronics industries.

Samsung Techwin, formerly known as Samsung Aerospace Industries until 2000, is the largest weapons manufacturer listed on the Korean stock market. Last year, its sales amounted to 1.3 trillion won ($1.1 billion). The company’s main defense equipment is the K9 Thunder howitzer, the successor to its K55 howitzer, and the K10 ammunition resupply vehicle, which operates in groups with the K9.

In July, the company paid 208 billion won to buy a 50-percent stake in Samsung Thales, a leading Korean electronics defense systems maker with sales of 623 billion won last year.

“The acquisition is promoting synergy between Samsung Techwin’s hardware and Samsung Thales’ software,” said Seo Won-seok, an analyst at NH Investment Securities.

Hanwha and Poongsan are other conglomerates that have had deep roots in the defense industry by supplying various forms of ammunition.

Hanwha, which was formerly known as Korea Explosives, began in 1952 and within several years was producing nitroglycerin and dynamite before it diversified into other business sectors.

But it expanded into producing a 130-millimeter 36-round multiple-launch rocket system (MLRS), with a range of 36 kilometers (22.4 miles), for the Army in the early 1980s. Hanwha is now developing a 230-millimeter MLRS, with a range of 65 kilometers, by 2013 to replace the 130-millimeter MLRS.

Analysts expect Hanwha’s military sales to post annual growth of 16 percent from 2013 when production of the MLRS begins.

Meanwhile, Poongsan focuses on ammunition for small arms and artillery as the exclusive supplier to the South Korean military, while its exports have expanded from 20 percent of total sales in 2000 to 46 percent this year.

The company is now developing next-generation ammunition that includes relying on sensors and guided systems.

Another listed defense contractor is S&T Heavy Industries, which develops and manufactures electric generator transmitters and military vehicle transmission that are used in the K9 howitzer and the K21 next-generation infantry fighting vehicle.

The company will supply a power pack-engine, automatic transmission and cooling system for the next generation K2 Black Panther tank. About 47 percent of the company’s revenue comes from defense sales.

The K2 tank has been developed by Hyundai Rotem, formerly Hyundai Precision and a part of Hyundai Motor Group.

The company earlier produced the third-generation K1 main battle tank before switching over to production of the K2. In 2007, it won an order from Turkey for the K2 after it competed against France’s Leclerc and Germany’s Leopard 2. Turkey has also ordered the K9 howitzer and KT-1 trainer jet from Korea.

The K2 is considered to represent the leading edge of the Korean defense industry since all its parts were locally developed and produced in contrast to the K1 tank, which had to rely on imported components.

State-owned Korea Aerospace Industries is another leading defense producer, with its production of the supersonic T-50 jet trainer. The company’s biggest shareholder is Korea Finance Corp. with a 30-percent stake, with the rest held by Samsung Techwin, Hyundai Motor and Doosan Infracore.

LIG Nex1, which is not listed, specializes in precision guided munitions and ranked second in defense sales last year after Samsung Techwin with 996 billion won.

The local defense industry is highly concentrated among the top 10 companies, which account for 70 to 80 percent of all local sales in the sector. Most of these companies are subsidiaries of major conglomerates including Samsung and Hyundai Motor Group.

Despite the growth in the number of companies and the variety of weapons, the Korean defense industry remains a small global player in the military sector.

At a major international defense weapons exhibition in Washington in October that attracted more than 500 companies, only three Korean companies attended, with Poongsan being the only one that had a sales booth.

Only five Korean companies are among the world’s top 100 defense contractors, with Samsung Techwin ranked 65th followed by LIG Nex1 at 68th, KAI at 73rd, Samsung Thales 99th and shipbuilder Hyundai Heavy Industries at 100th.

Moreover, Korea still heavily relies on imports of military equipment, being one of the five biggest buyers of U.S. weapons systems after Saudi Arabia, Israel, Egypt and Australia. Korea and Iraq each bought $800 million worth of weapons from the U.S. in 2008.

The government wants to accelerate the development of defense technology by transferring R&D responsibility from state agencies such as the Agency for Defense Development to the private sector.

Analysts say the industry needs to be restructured so that small- and medium-sized businesses can actively participate in the sector and reduce the industry’s dependence on the major conglomerates. (THIS WOULD BROADEN SUPPORT FOR MILITARIZATION THROUGHOUT THE POPULATION - THIS IS the course encouraged domestically IN THE US IN THE 1960's through now).

They explain that the involvement of SMEs are necessary to reduce Korea’s dependence on imported components for military equipment, which is still seen as a weakness.