Global Defense Market Import and Export Routes

[Kim Hoseong, Professor of Business Administration, Korea Army Academy at Yeongcheon] How have exports and imports been conducted in the global defense industry market? To answer this question, the author conducted a comprehensive investigation of the Stockholm International Peace Research Institute (SIPRI) arms transfer data covering 241 countries, international organizations, terrorist and resistance groups (such as Hamas) involved in defense exports and imports over 70 years from 1950 to 2019. This data records the global status of defense exports and imports, unifying all exchange rates and using its own metric called TIV (Trend Indicator Value). As a result, two interesting facts were discovered.

First, to approach from a broader perspective, the world was divided into five regions: Europe, Asia, the Middle East, Africa, South America, North America, and Oceania, and the TIV flow routes of arms exports and imports were analyzed. The results showed that North America and Europe were export destinations for all regions, whereas the other regions had separate export markets excluding North America and Europe. In other words, the major defense countries in the United States and Western Europe served as export markets worldwide, but other countries had 'their own export markets,' and there was a glass ceiling for exports to major countries in the US or Western Europe. Specifically, South America had relatively high intra-regional trade, while Asia's trade was biased toward intra-regional transactions as well as Africa and the Middle East.

Next, an interesting fact is that the more export destination countries a nation had, the higher the export value was. The United States and Russia were considered outliers with this tendency being very pronounced, and well-known defense powers such as the United Kingdom, France, Germany, and Italy also followed this trend. This implies that diversification of export countries is closely related to higher export values. A representative example is Israel. Israel has steadily increased its defense exports in the past and currently exports about 70% of its defense production, with a large export value. Along with this, the number of export destination countries has also increased simultaneously. According to SIPRI data, the number of countries increased from 30 in the 1990s to 56 in the 2010s, nearly doubling.

Such diversity in export countries is also related to the 'stability' of exports. Here, stability means that even if exports to a particular country are blocked, the impact on total export volume is reduced. If export countries are not diverse and depend on a specific country, a nation's defense industry could collapse. A representative historical example is Brazil. Between 1967 and 1974, Brazil experienced a period called the 'Brazilian Miracle,' with annual economic growth around 10%. During this time, Brazil was, surprisingly, one of the world's largest defense exporters.

This was because, in the mid-1970s, the government promoted international joint ventures as a means to increase domestic defense production capacity, leading Brazil to emerge as an international arms producer. Numerous license agreements were signed, and many Brazilian companies entered the defense industry. The government actively provided strong financial support for research and development during this process, and exports grew rapidly.

Nevertheless, Brazil's defense industry collapsed in the 1990s. One important reason was its heavy dependence on Libya for defense exports. In 1969, Muammar al-Qaddafi, who seized power in Libya, became a reliable partner for Brazil, and exports to Libya flourished from the mid-1970s. However, when diplomatic relations between the two countries were severed in 1983, export routes were blocked, severely damaging the domestic defense industry.

Korea has seen an increase and diversification in defense export countries when comparing the 1990s, 2000s, and 2010s. However, there are still clear shortcomings. This is because major export countries tend to be heavily concentrated in developing countries. To overcome these inherent problems, following the global strategies recently adopted by countries like Italy and Switzerland might be one approach.

Swiss defense company RUAG became a new holding company in 2020 with two subsidiaries: RUAG MRO Switzerland and RUAG International. Among these, RUAG International was established as an independent corporation to compete with advanced countries in the global aerospace market. Meanwhile, Italy's leading defense company Leonardo acquired the American company American DRG Technologies (now renamed Leonardo DRS) in 2017, which appears to be an acquisition aimed at breaking through the glass ceiling of the huge US market.

This content was produced with the assistance of AI translation services.