As countries accelerate their defense self-sufficiency, the export formula for K-Defense is facing significant challenges. The environment has become increasingly difficult, where rapid delivery and price competitiveness alone may not guarantee large contracts. Experts suggest that securing new competitive advantages, such as local production and technology transfer, is essential.
Price and Localization Leave K-Defense Vulnerable to 'Buy European' Policies
According to industry sources, Hanwha Aerospace recently failed to secure a contract for Romania's next-generation infantry fighting vehicle (IFV) project. The Romanian Ministry of Defense announced on May 29 that it had selected the German defense company Rheinmetall as the final contractor through the European Security Action (SAFE) program.
This project, aimed at replacing the aging infantry fighting vehicles currently in operation by the Romanian military, has a total budget of €3.337 billion (approximately 5.9 trillion won). Hanwha Aerospace and Rheinmetall were in competition for the final contractor selection.
In terms of competitiveness, Hanwha Aerospace was not at a disadvantage. It offered a proposal to supply 298 AS21 Redback vehicles for €2.8 billion, while Rheinmetall proposed 232 KF41 Lynx vehicles for €2.59 billion. The price per unit for the Redback (approximately €9.35 million) was lower than that of the Lynx (€11.16 million).
Hanwha Aerospace also met the Romanian government's requirement for 'complete localization,' proposing to increase local production from 80% to 90% in the long term. In contrast, Rheinmetall reportedly proposed a localization rate of around 40%. Despite this, the Romanian government chose Rheinmetall.
Industry observers note that the European Union's policy to foster local defense industries may have influenced this decision. The growing 'Buy European' trend, which aims to support European security through domestic industrial bases, has raised the barriers for foreign companies seeking contracts.
In the Middle East, the trend of prioritizing domestic suppliers is also intensifying. For instance, Saudi Arabia has committed to procuring over 50% of its defense budget through local defense companies as part of its Vision 2030 initiative.
As a result, local production and industrial cooperation are becoming key factors in major projects pursued by domestic defense companies, including Hanwha Aerospace's K9 self-propelled howitzer and Redback, Hyundai Rotem's K2 tank, and LIG Nex1's L-SAM.
K-Defense Must Revise Export Strategy
What is driving the increased demand for local production and technology transfer in Europe and the Middle East? Industry analysts attribute this shift to the realization of the importance of defense self-sufficiency following the Russia-Ukraine war.
In the early stages of the conflict, European countries relied on South Korean weapons due to a lack of production capacity. Rapid delivery and reasonable pricing enabled K-Defense to penetrate the European market. However, as the war has prolonged, European nations have recognized the importance of expanding production facilities and establishing joint procurement systems, leading to a rapid reduction in the 'gap-filler' role that South Korean defense had previously played.
Choi Gi-il, a professor at Sangji University, stated, "Just a few years ago, European defense companies lacked sufficient production capacity, making K-Defense a viable alternative to fill shortages. However, with Germany and France quickly recovering their production capabilities, the competitive landscape is changing."
Germany, a leading defense power in Europe, is increasing its total defense spending to €108.2 billion (approximately 170 trillion won) this year to enhance its domestic defense production capacity. France is also expanding its defense investments and production capabilities. This has led to calls for K-Defense to seek innovative breakthroughs to succeed in Europe and the Middle East. Experts advise that enhancing local cooperation and expanding partnerships across different industries are essential.
Nam Myung-ryul, head of the K-Defense Center at Korea University, emphasized, "It is now necessary to go beyond merely selling weapons to proposing local production facilities and industrial cooperation models. There should be a package cooperation strategy that links defense with industries where Korea has strengths, such as energy, artificial intelligence, and information and communication technology."
* This article has been translated by AI.
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