Spotlight on New Submarine Contract... The Secret Behind 88 Years of Swedish Defense Excellence [Company Research Institute]

(18) Swedish Defense Company Saab, Founded in 1937
Invests About 17% of Sales in R&D
Transforms Selected Innovative Ideas into Real Businesses

Editor's NoteSouth Korea ranks second in the world for corporate research and development (R&D) expenditure (2022) and fourth for the number of patent applications filed in the United States (2020). However, the annual average growth rate of corporate productivity dropped significantly from 6.1% between 2001 and 2010 to just 0.5% between 2011 and 2020. This decline is attributed to the slowdown in productivity growth among "innovative companies," which are actively engaged in innovation activities. Without change, companies risk being neglected by the market. To help the industry revive its innovation DNA, we examine cases of innovation pioneered by leading global companies. Innovative companies will be the driving force to revitalize Korea's sluggish economic growth rate.

"Innovation is an idea that offers a solution or new possibilities. It can be developed further through research and development (R&D)."

Henrik Lonn, CEO of Saab Korea, described Saab's approach to innovation in a recent interview with The Asia Business Daily at the company's headquarters in Jongno-gu, Seoul. Saab, a leading Swedish defense company, defines innovation as "something that can be learned, managed, and measured." Lonn emphasized that innovation is not the exclusive domain of a few geniuses; rather, it begins when someone identifies a problem that needs a solution.

Lonn stated, "To quote Amazon founder Jeff Bezos, there is a mix of good and bad ideas, but what makes a difference is selecting and developing those ideas that have business potential." He explained, "At Saab, when innovative talents propose ideas, the management and various technical support departments work together to validate them, and we also provide legal support such as patents and licensing. This creates a system that connects innovation to tangible products and businesses."

To ensure that innovation leads to real change, Saab has invested heavily in R&D. As of 2024, Saab's sales reached approximately 63.8 billion kronor (about 9.4171 trillion won), with about 17% (approximately 1.5631 trillion won) invested in R&D. This is more than ten times the R&D investment ratio of domestic competitors. Companies such as Hanwha Ocean, HD Hyundai Heavy Industries, and LIG Nex1 invest only about 1-2% of their sales in R&D. Saab also operates five innovation labs.

Recently, the Polish government selected Saab for its new submarine program, delivering a shock to Korean companies. Saab is strengthening its position in four key areas: aviation technology, dynamics, surveillance and reconnaissance, and submarine technology. We asked Lonn, who has served as CEO in Korea for four years, about innovation. The following is a Q&A.

Henrik Ron, CEO of Saab Korea, is holding and explaining a model of the lightweight single-engine supersonic multirole fighter jet Gripen developed by Saab. The Gripen is characterized by its lightweight design, advanced electronic equipment, and network-centric tactics. Photo by Yoon Dongju

-The reason Saab was chosen in the competition for Poland's new submarine project.

▲The contract negotiations have not been finalized yet. Sweden won the competition, but that is all for now. The final contract negotiations are scheduled for the first quarter of next year. The competition was fierce, and Hanwha Ocean was the strongest competitor. However, this victory was due to submarine technology and operational capabilities. From a technical perspective, the A26 Blekinge-class submarine incorporates the latest technologies and innovations and is specifically designed for the shallow waters of the Baltic Sea. According to submarine experts, the Baltic Sea presents very challenging conditions, such as temperature fluctuations, but the A26 is well-adapted to these conditions. From an operational standpoint, there was strong cooperation among European countries, and the Polish government highly valued Sweden's collaboration with its government, military, and the NATO community.

-Why does Saab invest so much in research and development?

▲The defense industry must always stay at the cutting edge of technology. It is like a "chicken game" between attackers and defenders. Without the latest technology, you cannot respond to threats from adversaries, and because technology evolves rapidly, continuous investment is essential. Saab provides a variety of solutions in the air, land, sea, and submarine domains. Maintaining a leading technological position is the company's greatest driving force. Recently, we have further increased investments in areas such as drone usage, the introduction of artificial intelligence (AI) into defense systems, new technologies, and novel military operational methods.

-The reason for strengthening the portfolio and diversifying the business.

▲Looking at the Korean defense industry, LIG Nex1 is strong in missiles and sensors, Hanwha Ocean specializes in shipbuilding, and Korea Aerospace Industries (KAI) focuses on fighter jets. Korean companies tend to concentrate on their respective areas of expertise. In contrast, Saab covers a very broad range. As a "solution provider," Saab develops and integrates various subsystems such as fighter jets, radars, electronic warfare sensors, missiles, and communication systems. For example, in the radar business, Saab has developed radars for naval vessels, ground and air defense systems, and fighter jets, applying the latest technologies and customizing them for each field. We pursue a kind of "economics of technology," similar to economies of scale, where the average cost of producing a product decreases as production volume increases. This broadens our revenue base and enables continued investment in research and development.

Saab is showcasing the Gotland-class submarine 'HMS Halland,' which was relaunched at the Karlskrona shipyard last February. Through modernization work, the operational life of HMS Halland has been extended by 15 to 20 years. It is the third and final Gotland-class submarine of the Swedish Navy. Saab website

-Saab's innovation labs operate under the motto "fail fast."

▲Innovation is extremely important. Marcus Wandt was recently appointed as a new member of the Saab Group's executive management; he was previously Saab's Chief Innovation Officer (CIO). Failure should not be postponed; ideas must be reviewed quickly, and good ones should be advanced to research and development. Unnecessary ideas should be eliminated early. To do this, we need groups of experts who can technically evaluate ideas, as well as management support systems. Innovation is not limited to specific research labs but can be realized in all parts of the organization, including marketing, sales, and customer requirements.

-What achievements have resulted from cooperation with Korea?

▲The defense industry is highly competitive, but there is also cooperation within the sector. The Korean branch was established in 2002. In September this year, Saab signed a memorandum of understanding to explore integrating the ground-launched small diameter bomb (GLSDB) with the Cheonmu multiple launch rocket system (MLRS) launcher developed by Hanwha Aerospace. GLSDB is a product jointly developed by Saab and Boeing. This cooperation is a good example of the "win-win" approach that Saab pursues. Collaboration creates new business opportunities.