[Yang Nak-gyu's Defence Club] K-Defense Challenges the World's Largest US Market

Defense Export Value Reaches $13.5 Billion This Year
Growth Maintained with Increase in Export Countries and Items
Companies Accelerate Efforts Targeting US Market Next Year

This year, South Korea's defense export value has surpassed $13.5 billion. Both the number of export destination countries and export items have increased. It has grown noticeably in line with the global rise in demand for weapons.

According to the Ministry of National Defense on the 20th, South Korea's defense export value was only about $3 billion annually during the 2010s. However, it recorded $7.25 billion in 2021 and reached a record high of $17.3 billion last year. The average defense export value over the two years from 2022 to 2023 also amounts to $15 billion. This year, the number of defense export destination countries increased threefold to 12 compared to last year (4 countries). The number of export items also doubled to 12 weapon systems from 6 last year. Among this year's export destination countries, Poland accounts for the largest share (68%). Considering that Poland's second phase implementation remains, defense export value is expected to increase further next year.

▲Challenging the U.S. Market Next Year= Domestic defense companies plan to expand exports by pioneering new markets starting next year. The target is the world's largest market, the United States. Recently, LIG Nex1 acquired Ghost Robotics (GRC), a robotics company based in Philadelphia, USA. By acquiring Ghost Robotics, which has strengths in military-specialized quadruped robot technology, LIG Nex1 secured a future growth platform and simultaneously challenged the U.S. defense market. LIG Nex1's guided rocket, Bigung, was the first domestic guided weapon to pass the FCT (Foreign Comparative Testing) program conducted by the U.S. Department of Defense in 2020, proving its performance. A LIG Nex1 official said, "With the acquisition of GRC, we expect the entry into the U.S. defense market through guided weapons such as Bigung, Hyungung, Cheongung, and Shingung to accelerate."

Defense Companies Targeting the U.S.... Strong Policy Support Needed

Hanwha Aerospace has also stepped forward. Earlier this month, it signed an export contract for the infantry fighting vehicle 'Redback' worth 3 trillion won with Australia for the first time, marking a step closer to pioneering a new market. This month, it is also conducting a Foreign Comparative Testing (FCT) of the multipurpose unmanned vehicle Arion SMET, developed domestically, on the U.S. mainland. This is the first time a weapon developed by Hanwha Aerospace is undergoing performance testing in the U.S. If the test evaluation is successful, the U.S. Department of Defense will decide whether to proceed with the acquisition project. This is generally considered the first step toward U.S. exports. Korea Aerospace Industries (KAI) has already expressed its intention to enter the U.S. trainer aircraft market. Through the light combat aircraft FA-50, it plans to bid for the U.S. Navy's tactical introduction aircraft and the U.S. Air Force's tactical trainer aircraft procurement projects.

▲Government Financial Policy Support Must Align= There are also challenges to overcome to become a defense powerhouse. The limit on financial support from the Export-Import Bank of Korea experienced during the second contract for defense exports to Poland must be resolved. Last year, Korea hit the 'jackpot' by signing the first contract worth a total of $12.4 billion (about 17 trillion won) for weapon exports to Poland. After signing the first contract, companies planned to conclude the second contract for the remaining volume by the first half of this year to speed up the process. However, the implementation of the second contract has not progressed quickly. This is because the financial support from the state-run Export-Import Bank of Korea (KEXIM) has not been determined. Typically, large projects such as construction, transportation, and defense have a strong government-to-government (G2G) contract nature, and since export volumes are large, it is an international practice for the exporting country to provide policy finance, guarantees, and insurance to the purchasing country. However, the current Export-Import Bank Act and its enforcement decree limit the credit extension to a specific individual or corporation to 40% of the bank's equity capital. Although a bill to increase KEXIM's statutory capital limit from the current 15 trillion won to 30 trillion won has been proposed, it remains pending without even being reviewed by the standing committee subcommittee due to being overshadowed by other bills.

An industry official said, "Government support such as financial policies is essential to challenge large defense markets," adding, "As competition from other defense powerhouses intensifies, strong policies are necessary."