Korean defense sector to offset semiconductor downturn: FT

South Korea’s defense sector is enjoying booming demand from countries across the world that are cutting their reliance on Russian weapons, offsetting a downturn in Asia’s fourth-largest economy hit by the slumping semiconductor industry, according to a top British business daily.

The Financial Times on Sunday said a package of defense deals secured by South Korean companies from Poland last year worth almost $14 billion heralded a new era for the Asian country’s defense industry.

Decades of preparation for war with North Korea have helped the East Asian country emerge as one of the world’s top 10 defense exporters, with artillery producer Hanwha Aerospace Co., tank producer Hyundai Rotem Co. and fighter jet producer Korea Aerospace Industries Ltd. leading the charge, the British newspaper said.

South Korea was the world’s ninth-largest seller of arms in 2022 up from 31st place in 2000, the FT quoted the Stockholm International Peace Research Institute as saying.

Russia’s invasion of Ukraine had driven demand for Korean arms not only from Western countries, but also from countries in Asia looking to reduce their dependence on Russian armaments, according to the media.

VALUE FOR MONEY

South Korea produces armaments on a larger scale than many of its Western competitors, allowing the country to offer better value for money on assets such as tanks, howitzers and lower-end fighter jets, the FT said.

The country’s exporters are also assisted by the government, including its willingness to step in and place orders so as to keep production lines “hot” in the absence of orders from abroad, it added.

The push comes as exports have been hit by the downturn in the chip sector, the FT said. South Korea suffered an export drop in September for the 12th straight month as overseas sales of semiconductors, the country’s top export item, kept sliding. The nation is home to the world’s two largest memory chipmakers – Samsung Electronics Co. and SK Hynix Inc.

“South Korea is used to having a trade surplus, but with the recent downturn in the chip sector it has spent the last year in deficit,” Chae Woo-seok, who heads the Korea Association of Defense Industry Studies, was quoted as saying in the FT article. “From the government’s perspective, weapons exports can play a big role in filling the gap.”

To support defense exports further, Seoul has devised a “niche marketing strategy for countries newly seeking to invest and develop their own defense industrial bases”, setting up production in the buying country while offering generous terms on tech transfer, said Haena Jo, research analyst at the International Institute for Strategic Studies (IISS) in London, according to the FT.

Of the 1,000 K2 tanks Warsaw ordered from Hyundai Rotem last year, 180 are to be produced in South Korea and the rest are due to be produced under license in Poland, the FT said.

Unsurprisingly, Seoul’s rapid rise as a player in the global defense industry -- and particularly its entry into the European defense market -- has provoked mixed feelings among some Western defense officials and executives, according to the FT.

“They’ve challenged the competition on price and delivery schedule, and they’ve taken business from us as well,” an Asia-based executive from a leading US defense firm was quoted as saying.

Write to Ri-Ahn Kim at knra@hankyung.com
 
Jongwoo Cheon edited this article.