[Defense Commentary] To Ensure the Success of the Defense Innovation Cluster Project

Last March, the Defense Acquisition Program Administration (hereinafter referred to as DAPA) announced that it would select a new region to promote the ‘Defense Industry Innovation Cluster’ project, following Changwon in Gyeongnam as the second location. From this year until 2026, one site will be selected annually among local governments operating Defense Venture Centers, with a plan to invest approximately 25 billion KRW in national funds. Accordingly, regions with high interest in the defense industry such as Daejeon, Gumi, Nonsan in Chungnam, and Gwangju are actively preparing to apply for this.

Introduced for the first time in 2020, the ‘Defense Industry Innovation Cluster’ project has far exceeded expectations, drawing enthusiastic interest and response from major local governments. It is said that DAPA was quite surprised by this. Not only in Changwon, Gyeongnam, but also in Daejeon, Nonsan in Chungnam, Gumi, Jinju, and Sacheon, there has been active response to government policies including the enactment of defense industry development ordinances, establishment of industrial complexes, formulation of defense industry development plans, and creation of councils.

Nevertheless, looking at the ‘Defense Industry Innovation Cluster pilot project’ in Changwon, Gyeongnam over the past two years, there is concern that it is proceeding more like a parts localization project rather than fulfilling the purpose and intent of creating an industrial cluster. This is because a single department responsible for parts localization within DAPA is operating with an annual budget of about 5 billion KRW, limited to establishing test equipment for parts localization, supporting development and testing evaluation, running research labs, and supporting startups.

This is markedly different from the defense industry cluster formation methods of major countries worldwide over the past 70 years since World War II, including the United States, France, Israel, Brazil, and Turkey. Major governments systematically, comprehensively, and stepwise promote the establishment of defense industrial complexes, attraction of domestic and foreign companies, relocation of related national and public institutions, and training of specialized personnel through close cooperation with major local governments for national balanced development and industrial promotion. This is because the concept of a defense industry cluster means a geographically concentrated entity where innovative actors such as government departments and agencies related to the industry, military units, companies, universities, research institutes, and associations compete and cooperate with each other.

Accordingly, several suggestions are made for Korea to establish a genuine defense industry cluster at the level of advanced countries in the future. First, the current budget for the Defense Industry Innovation Cluster project is insufficient and the scope of the project is narrow. DAPA’s plan to invest about 25 billion KRW over the next five years is inadequate to build a cluster. An annual budget of about 5 billion KRW can only be limited to a few parts localization projects and test equipment support. The project scope should be expanded beyond the current parts localization focus to include support for industrial complex development in cooperation with local governments, export promotion, training of specialized personnel, activation of one-stop defense acquisition support centers and Defense Venture Centers, and related budgets and project scopes should be increased.

Second, to foster growth and development of the defense industry cluster, it is necessary to focus capabilities on attracting related innovative actors. Innovative actors encompass government agencies, domestic and foreign companies, research institutes, and associations. For example, Toulouse in France boasts the world’s third-largest aerospace defense cluster with about 1,600 companies and institutions, 8,500 R&D personnel, and employment of 120,000 people, achieved through two major relocations of large public institutions such as the National Center for Space Studies (CNES) in the 1960s and 1990s. The state of Texas in the United States also gathers about 1,300 related companies and institutions centered around Dallas, Fort Worth, and Austin, creating approximately 144,000 high-quality jobs. Recently, Texas has focused on attracting domestic and foreign companies, including securing Elon Musk’s SpaceX launch site, ranking 9th in global GDP. Similarly, Korea should strengthen the attraction of innovative actors during the formation of the defense industry cluster to promote growth and development as a genuine industrial cluster. In particular, regarding the attraction of overseas companies and research institutes, the Ministry of Trade, Industry and Energy and DAPA should cooperate with major local governments to actively attract defense AI R&D centers, MRO centers, etc., linked to offset trade (industrial cooperation) and weapons procurement projects, focusing on job creation.

Third, the ‘Defense Industry Innovation Cluster Council’ between the central government and local governments should be expanded. In Toulouse, France, a three-tier cooperation governance system (Policy Committee - Operating Committee - Coordination Committee) is operated between the central government and local governments according to the world-class competitive cluster policy. The four Gulf states of Florida, Mississippi, Alabama, and Louisiana in the United States have formed a cluster council among governors since 2009, creating a cluster with about 4,900 defense aerospace companies, research institutes, and universities through close communication with the central government, driving regional industries. In Korea, in 2020, DAPA and Changwon City in Gyeongnam established the ‘Defense Industry Innovation Cluster Council’ co-hosted by the vice mayor and the director of the Defense Industry Promotion Bureau, providing a communication platform for military, industry, academia, and research experts in the region. This should be expanded to establish a ‘Defense Industry Innovation Metropolitan Cluster Council (tentative name)’ with major local governments to be selected in the future, developing it as a communication channel for cluster growth and development.

Finally, the cluster should be expanded into a ‘Civil-Military Convergence Metropolitan Cluster’ in cooperation with industries such as space, cybersecurity, and AI promoted by the next government. Since it is difficult to achieve economies of scale with the defense industry alone, advanced countries generally form ‘Civil-Military Convergence Metropolitan Clusters’ including related aerospace, space, cybersecurity, and power support systems. Korea should also aim to develop into a ‘Civil-Military Convergence Metropolitan Cluster’ linking the existing defense industry cluster with nearby advanced industrial clusters in connection with the establishment of the Aerospace Administration, expansion of cybersecurity budgets, and building of an AI science and technology strong military. To this end, the current DAPA ‘Defense Industry Innovation Cluster’ project should be actively supported to expand into a ‘Civil-Military Convergence Metropolitan Cluster’ within the framework of the Special Act on Balanced National Development’s ‘Super Metropolitan Cooperation Project.’

Jang Won-jun, Research Fellow, Korea Institute for Industrial Economics & Trade

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