Growing pressure for greater self-reliance, fueled by America-first policies and strains among traditional allies, is driving governments across Europe, Asia and the Middle East to sharply increase defense spending and modernize their arsenals.
The rush has benefited South Korean defense companies Hanwha Aerospace, LIG Nex1, Hyundai Rotem and Korea Aerospace Industries, or KAI, all of which appeared in Defense News’ latest ranking of the world’s 100 largest defense companies.
Hanwha made the biggest leap, rising to 16th from 22nd as defense revenue surged 53 percent to $10.44 billion from $6.82 billion.
LIG Nex1 moved to 52nd from 53rd, with revenue rising to $3.03 billion from $2.36 billion, while Hyundai Rotem climbed to 61st from 67th as defense revenue increased to $2.46 billion from $1.74 billion.
KAI was the exception, falling to 74th from 62nd as defense revenue declined to $1.86 billion from $1.94 billion.
Localization becomes price of entry
The European Union’s defense industrial strategy calls for member states to gradually raise procurement from the European defense industrial base to at least 50 percent by 2030 and 60 percent by 2035.
Under the EU’s €150 billion ($175 billion) Security Action for Europe, or SAFE, financing instrument, components originating outside the EU, European Economic Area and Ukraine generally cannot exceed 35 percent of an eligible product’s component costs.
Similar pressure is building in the Middle East.
Saudi Arabia aims to localize more than 50 percent of military equipment and services spending by 2030, putting domestic production, maintenance and technology transfer at the center of its defense strategy.
The requirements are changing the equation for Korean exporters, which initially gained market share through relatively fast delivery, proven platforms and competitive pricing.
“The markets that can be accessed through direct exports of finished products alone are inevitably limited,” Korea Investment & Securities said in a report, adding that localization can expand both the range of accessible markets and the likelihood of winning contracts while generating follow-on revenue from technology transfer and maintenance.
What began as an additional condition attached to major export contracts is increasingly becoming part of the competitive proposition itself.
Hanwha: Spain and U.S. open harder markets
Hanwha Aerospace is pushing into two markets that have traditionally been difficult for Korean defense companies.
It is partnering with Spain’s Indra on a K9-based artillery program covering 128 self-propelled howitzers and 120 ammunition resupply vehicles, with hull design and production to be localized in Spain.
Defense News put the broader Spanish tracked-artillery budget at €4.55 billion.
In the U.S., the Army selected Hanwha Defense USA in August to provide six Mobile Tactical Cannon prototypes, with options for 12 more, under a contract worth up to $262.9 million.
“The U.S. howitzer prototype program and the Spanish artillery deal are significant as footholds for follow-on orders, additional items and entry into new markets,” Yang Seung-yoon, an analyst at Eugene Investment & Securities, said in a report Monday.
Korea Investment & Securities also said Hanwha’s experience in building production facilities, localizing supply chains and transferring technology could become a differentiator as localization requirements tighten.
LIG Nex1 is moving beyond the Middle East, where Cheongung-II sales created its largest export base, toward establishing a manufacturing foothold in Europe.
LIG and Germany’s Rheinmetall agreed in June to pursue a European joint venture, with Rheinmetall holding a majority stake, to localize and market LIG’s medium- and long-range air-defense systems and jointly develop new short-range missiles. LIG has also opened a representative office in Munich.
The company is simultaneously expanding in Southeast Asia, including the first export of its Haegung naval missile to Malaysia and prospective missile deals in Indonesia.
“Export markets and products are continuing to diversify across Europe, Southeast Asia, the Middle East and South America, particularly in air-defense and ground systems,” Yang said.
Hyundai Rotem’s Polish K2 program is moving from rapid deliveries of Korean-built tanks toward local production and long-term sustainment.
Poland received the first 28 K2GF tanks under its second $6.5 billion contract in August.
Of the 64 K2PL tanks included in the deal, the first three will be built in South Korea for testing, while the remaining 61 will undergo final assembly at Poland’s Bumar-Łabędy plant.
Maintenance capabilities and the parts ecosystem are also being transferred to Poland.
“The revenue structure is becoming longer-term, moving from finished-product exports to local production, maintenance and ammunition,” Yang said.
The next potential market is Peru, where the K2 remains in contention for a major tank procurement program.
KAI is entering a different transition as the KF-21 moves from development into operational service.
The first production fighter is scheduled for delivery to the Korean Air Force on Sept. 17, with eight expected by year-end.
Eugene Investment & Securities said the program is now expanding “from aircraft production to an air-to-air and air-to-ground weapons package” as South Korea develops indigenous weapons for the fighter.
The bigger test is exports.
Indonesia, once the KF-21’s development partner and expected production partner, dropped plans for domestic co-production this year, although purchases of completed aircraft remain possible.
That leaves KAI with the task of turning the KF-21’s entry into service into its first firm overseas order while continuing to expand the FA-50 business in markets including Malaysia and the Philippines.
The Defense News ranking reflects contracts and deliveries recognized in 2025.
Many of the localization moves now underway - Hanwha’s Spanish and U.S. programs, Hyundai Rotem’s Polish production arrangement, LIG’s overseas manufacturing push and KAI’s support networks abroad - will only begin to show their financial impact over the coming years.
South Korea’s first defense export boom was largely about proving that its weapons could compete overseas and be delivered quickly.
The next phase is about becoming part of customers’ own defense industrial bases, extending the business from finished-product exports into local production, maintenance, ammunition and technology transfer.
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