SME Ministry to Promote Open Innovation to Support South Korea's Rise as a Top Four Defense Power

Aiming to Lower Barriers for Startups and SMEs Entering Defense Sector
Transforming the Ecosystem by Restructuring Conglomerate-Centered Procurement
Global Defense Market Nears 1,400 Trillion Won... Korea's Presence Rises Sharply

With President Lee Jaemyung pledging to ease barriers for small and medium-sized enterprises (SMEs) and startups in the defense sector, the Ministry of SMEs and Startups has begun preparing relevant support measures. In line with the president’s vision to make South Korea one of the world’s top four defense powers, the core strategy is to shift from a closed, conglomerate-centered procurement structure to an open ecosystem.

According to government sources on October 22, the Ministry of SMEs and Startups is discussing ways to foster defense startups with related agencies, including the Defense Acquisition Program Administration. Internally, the ministry is prioritizing open innovation (OI) projects targeting SMEs and startups in the defense sector. A ministry official stated, “In addition to regulatory reforms, we are reviewing projects that can be implemented within the ministry itself.”

Until now, the Defense Acquisition Program Administration has focused on supporting SMEs primarily in terms of exports and market access. This is the first time the Ministry of SMEs and Startups is directly designing policies for the defense industry ecosystem. This reflects the government’s intent to incorporate the defense sector as a key pillar of its SME and startup policy.

The domestic defense industry is largely centered around military procurement. Because procurement is conducted at the system level rather than for individual components, large defense contractors such as Hanwha and Korea Aerospace Industries (KAI) participate as primary contractors, while smaller partner companies are relegated to subcontractor roles. As a result, it is extremely rare for SMEs or startups to participate directly as end users.

At the opening ceremony of the Seoul International Aerospace & Defense Exhibition (ADEX) held at KINTEX in Goyang, Gyeonggi Province on October 20, President Lee stated, “It is problematic if the defense industry becomes monopolized,” adding, “Whether it is a startup or an SME, as long as they have the technology, capability, and determination, they should be able to compete equally.” During a subsequent panel discussion, he also agreed with a company representative’s suggestion that the military should boldly adopt SME and startup products to help them break into overseas markets.

The global defense market is expanding rapidly. According to market research firm Fortune Business Insights, the global aerospace and defense market is projected to grow 20%, from 1,174 trillion won in 2023 to 1,417 trillion won in 2031. The European Defence Agency (EDA) also forecasted that defense spending by the 27 European Union member states will hit an all-time high, rising from 343 billion euros (about 568 trillion won) last year to 381 billion euros (about 631 trillion won) this year.

South Korea’s presence in the global defense market is also increasing. According to the Stockholm International Peace Research Institute (SIPRI), South Korea ranked 10th in the global arms export market from 2020 to 2024, with a 2.2% share. This is more than a fourfold increase from its 0.5% share in 2008.

Globally, defense startups that have significantly scaled up are also emerging. Founded in 2017, U.S.-based Anduril reached a corporate value of 40 trillion won based on its drone and surveillance systems, while Europe’s Helsing, which develops artificial intelligence (AI) tactical support software, grew into a 17 trillion won company just four years after its establishment.

The Ministry of SMEs and Startups plans to benchmark global examples to build a domestic defense startup ecosystem. Han Sung-sook, Minister of SMEs and Startups, recently met with defense startup leaders and stated, “In the United States and Europe, innovative startups have already attracted investments exceeding the market capitalization of major domestic defense companies. We will foster innovative startups that bridge both civilian and military sectors in advanced fields closely linked to defense, such as AI, drones, and robotics.”

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