► In August last year, Peter Lee and I argued that South Korean defence industry had emerged as a viable 'third option' for many European and Indo-Pacific countries seeking to bolster their deterrence capabilities in the near term. 

► In the 15 months since, South Korean defence companies have continued their success, securing several other lucrative deals with key countries in Europe, the Middle East, and the Indo-Pacific. However, they have also encountered setbacks in countries which have reappraised their force requirements or have taken issue with elements of specific defence deals.

► Evidence from these developments suggests that while demand for flagship land systems like tanks and howitzers remains high among developing militaries, South Korea may need to think more creatively, strategically, and with a longer-term view when it comes to building durable defence industry relationships, especially with key Indo-Pacific maritime security partners like Australia.

Introduction

In August 2022, Peter K. Lee and I wrote that South Korea had stepped up to fulfil the defence procurement needs of other allies and partners of the United States on the frontlines of Chinese and Russian coercion in the Indo-Pacific and in Europe. In short, South Korean companies had emerged as a more-than-viable alternative to US defence industrial power for likeminded countries seeking to boost their “parallel challenges of resourcing military strategies in Europe and the Indo-Pacific while shoring up America’s own defense industrial capacity” – what we termed a “K-Arsenal of Democracy”.

Since then, South Korean defence companies have continued to make inroads into major global defence markets. Major contracts in Europe, the Indo-Pacific, and the Middle East have buoyed the overall stock and profile of South Korean defence armaments. Meanwhile, Hanwha’s successes with contracts in Australia and positive performance in American capability testing processes mark significant progress in establishing a Korean presence in ‘Five Eyes’ defence procurement market – a long-standing objective for South Korean government and industry alike.

These successes, however, have been accompanied by some setbacks. Election results and shifting defence procurement priorities in recipient countries have cast doubt over the durability of some of South Korean industry’s more lucrative deals. This raises questions about the viability of defence exports as the primary driver of Seoul’s security partnerships. Accordingly, this article explores these gains and losses over the last year, and draws several lessons for thinking through South Korea’s approach to defence industry partnerships going forward.

What has gone right

Since August last year, South Korea’s defence industrial profile has continued to grow. This is not merely due to the struggles of the US defence industrial base to meet domestic and global demands. As Haena Jo of the International Institute for Strategic Studies noted, this success is also due to the “niche marketing strategy” that Korean companies have pursued with countries seeking to rapidly develop their defence industrial bases and military capabilities.

That strategy has clearly succeeded in a range of global markets. For instance, in July 2023, South Korea became the first Asian nation to win a major defence contract in Australia, securing a AUD $7 billion contract to build 129 infantry fighting vehicles (IFVs) for the Australian Defence Force and marking “one of the largest capability acquisition projects in the history of the [Australian] Army.” South Korea’s defence industrial relationship with Poland, already worth billions, has also grown. In December, Poland’s Defence Minister approved the purchase of 152 self-propelled howitzers for USD $2.6 billion for delivery between 2025 to 2027. Like with other major deals for Korean armaments, this latest contract included provisions to enable the local production of these howitzers in future years.

Korean firms have also made progress in other Five Eyes markets. Having been selected for the US Foreign Comparative Testing (FCT) program in October 2022, Hanwha Aerospace has demonstrated its multi-purpose Arion-SMET unmanned ground vehicle (UGV) for American observers on multiple occasions over the last year, ahead of its mooted selection for entry into service by the US Marine Corps. Given that the FCT aims to assess matured foreign technologies that can fill US capability gaps, Hanwha’s performance could potentially open the door for “greater cooperation between the two nations on future [military] modernization programs.”

What has gone wrong

However, South Korea’s global defence industry push has also encountered its challenges. In Poland, the new incoming government has raised questions over several defence deals based on the challenges it presents to the viability of locally-produced alternatives. These concerns have been coupled with accusations that the former ruling party misused a special fund for emergency expenditure to help finance the purchases without keeping proper accounting for such spending. Both factors have led some Korean companies to worry that unfinalized defence deals could be reduced or entirely scrapped. For instance, the Financial Times has reported that “executive contracts have only been signed for delivery of 212 of the 672 howitzers, 218 of the 288 multi-rocket launchers and 180 of the 1,000 tanks.” These latest setbacks have compounded with reported disagreements between Warsaw and Hanwha and KAI “over financing and technology transfer issues.”

Meanwhile, in Australia, the March 2023 Defence Strategic Review (DSR) prompted a major restructure of the Australian Army’s capability acquisition plans. These changes implicated two major contracts secured by Hanwha Defence Australia in the preceding two years for self-propelled howitzers and IFVs. Though the Australian Defence Department framed the acquisition of the IFVs as crucial for generating “the strategic and operational effect required of the ADF for National Defence and a strategy of denial”, it nevertheless revised its requirements from 450 to 129 vehicles as “the appropriate number for Australia’s future strategic environment.” The DSR also recommended the cancellation of the second regiment of self-propelled howitzers ordered from Hanwha Defence Australia due to the limited “range or lethality” these platforms offered relative to Australia’s operational requirements. Crucially, the DSR framed the cancellation of the howitzer regiment and the reduction in IFVs as essential for accelerating the acquisition of other maritime strike capabilities. This reflected the competing pressures afflicting Australia’s strategic posture and position: the need to quickly acquire and field effective military capabilities to respond to a deteriorating regional security environment and an increasingly difficult economic environment at home.

What are the lessons?

These developments offer three lessons for South Korean approaches to defence industry partnerships going forward.

Firstly, political change in recipient countries can affect the nature and quantum of support for defence contracts, including those offered by South Korean firms. As the Polish case demonstrates, domestic political dynamics – especially issues around financial management and local manufacturing – can complicate the fulfillment of South Korean defence contracts over time, even when there is sufficient consensus within a partner country’s political community regarding its strategic circumstances and the demand for the rapid delivery of military capabilities. Indeed, it is not necessarily that the former and current Polish governments disagree on the necessity of building-up the country’s military capabilities. Rather, the issue pivots on questions of appropriate spending relative to other priorities, and striking an appropriate balance between domestic and international sources for these capabilities. This experience is not uniquely Polish, either: the nature of democratic political systems means that changes in government will likely pose challenges to South Korean defence contracts elsewhere.

Secondly, changes in leadership can bring about reappraisals of recipient countries’ strategic circumstances and the capabilities required to meet them. Land systems have proven to be a competitive edge for South Korean companies in the global defence market. But the appetite for these systems is not consistent across regions or countries. The Australia case is instructive. As Canberra seeks to rebalance its force structure and limited defence resources to procure systems with greater air and maritime deterrence applications. Though there is little that South Korea can do to sway these larger strategic decisions, Korean government and industry alike will need to astutely read the tea leaves of partner nations’ evolving outlooks and operational requirements if they are to maximise their long-term appeal to potential government customers.

Thirdly, these cases raise larger questions over the viability of defence exports as a reliable vanguard for building meaningful strategic relationships with priority partners. As Peter K. Lee has argued, South Korean governments have long leant on defence exports as primary means of developing security relationships with priority partners. Indeed, the Korean Defense Ministry has stated that it is “promoting military diplomacy and defence cooperation so that the relationship with the purchasing country can develop into various partnerships beyond just a seller-buyer relationship.” But repeat experiences with project cancellations in Australia, current question marks over major deals in Poland, and enduring issues in other defence capability development and procurement programs with countries like Indonesia demonstrate that over-reliance on defence exports as the primary connective tissue of South Korea’s defence and security relationships may not be the most durable strategy. For the government at least, striking a better balance between defence industry and other vectors for cooperation – exercises, staff and personnel exchanges, enabling agreements, and others – will be necessary to give these partnerships a more longevity in the long-term.