Korea aims for move into world defense market

A massive overhaul of the state-led defense industry was proposed yesterday by a team of presidential advisers in order to reshape the country’s domestic market-oriented industry into a new source of exports.

The Presidential Council for Future and Vision briefed President Lee Myung-bak, government officials and civilian defense-industry experts about its blueprint for the reforms, mainly aimed at curtailing the role of the state-run Agency for Defense Development while boosting the participation of civilian sectors.

At the meeting yesterday morning, the council said the reforms will enable the defense industry to turn into a new growth engine for the future.

The blueprint presented yesterday was aimed at making Korea the world’s seventh largest defense exporter by 2020. If the reform measures were implemented smoothly, Korea’s defense production would be increased to $10 billion annually by 2020, with defense exports reaching $4 billion each year.

Korea’s defense industry production stood at $6.58 billion in 2008, while defense exports was $253 million. The country’s five-largest defense companies were ranked in the world’s top 100 firms, but none of them were in the top half, the council said.

In contrast to the global trend led by the merger and acquisition of defense giants, 91 local companies focused on competing in the 7.2 trillion won ($6.38 billion) domestic market while the $253 million in arms exports during 2008 comprised only 0.5 percent of the global market.

To achieve its goals, Korea should diversify its markets by expanding trade with Africa and Asia, the council said. The council also proposed to diversify its exports by selling not only finished products but also components and services. Various financial and legal measures to back the defense industry will also be taken to improve the competitiveness.

The key recommendation was to overhaul state-led research and development in the defense industry to allow more participation by the civilian sector. While the Agency for Defense Development led research, defense companies’ roles were merely limited to manufacturing, the council said.

Because the agency’s priority has been to improve technologies without considering their cost effectiveness, Korea’s defense products became unattractive in overseas markets for their high price tags, the council said.

“K2 Black Panther tanks are equipped with arms systems superior to the models of the United States, England and Germany, but their price competitiveness is also an issue.”

By Ser Myo-ja [myoja@joongang.co.kr]