Breaking into international arms biz: a good product isn’t enough

I admit it: I love my trolls. They say the darnedest things. Those people (or bots) who leave comments at the bottom of my articles are a constant source of amusement, from their horrible misspellings and not-quite-anger-managed mangled grammar to their calling me names like “neocon,” “senile,” and “dirty ass imperialist” (for the record, I am definitely not the first of these epithets, but as for the last two, well, only time will tell).

Particularly entertaining was the feedback I received concerning my Asia Times article on the Republic of Korea’s efforts to develop the KF-X advanced combat aircraft (“Can South Korea build its own fighter jet?” October 27, 2017). I obviously touched a nerve when I said that Korea, despite its can-do attitude and past successes in such areas as automobiles, shipbuilding and consumer electronics, was unlikely to score analogous success with this project, particularly when it comes to cracking the lucrative global export market.

The international fighter-jet business, I wrote, has very high barriers to entry, and besides, the market is already saturated with lots of competitive products being churned out by aircraft producers in the United States, Europe and Russia.

Optimism and hard work are not enough

South Korea’s strength, I added, has always lain in its optimism, “its ability to believe that if it perseveres and just tries harder, it can overcome any barrier or setback.” But Korea is unlikely just to grow itself out of its problems, and optimism and rosy expectations are poor weapons to bring to the knife-fight that is the international arms market.

Not surprisingly, this argument elicited howls of protests from my critics, most of whom I presume were Korean. Most commentators reiterated Korean “resolve, persistence, determination and talent,” which everybody “naturally” underestimates. South Korea, they said, overcame the barriers to entry in “consumer electronics, cars, ships and steel,” and “Koreans penetrated and excelled in all of them.”

Naturally, therefore, Korean industriousness and perseverance should also exceed in the global arms industry. “If anybody can do it the Koreans can.” This success was due to Korea’s canny ability to find an “underserved niche,” come in at a “competitive price advantage,” and then springboard into neighboring products – in this case, other areas of arms manufacturing – all while improving quality and capabilities.

Would that it was that easy to join the “big boys” club of global arms marketers. In the first place, there are rather few “underserved niches” in the international weapons bazaar. Far from it, in fact; the market is saturated with motivated sellers offering all ranges and types of military equipment. Anything Korea markets is matched by a number of other producers, including other wanna-be arms exporters such as Brazil (light combat aircraft), Turkey (armored vehicles), and South Africa (missile systems).

The global arms business is a buyers’ market and the consumer knows it. Price means little, as nearly all vendors are willing to cut deals and offer incentives such as offsets and technology transfers

It is hard for Korea to find a price advantage, as well. The global arms business is a buyers’ market and the consumer knows it. Price means little, as nearly all vendors are willing to cut deals and offer incentives such as offsets and technology transfers.

Finally, Korea cannot expect to churn out cheap, entry-busting armaments (unlike, say, its first generation of cars, which won it a toehold in the global automobile business), because quality and capability are pretty much a given in the arms business. Even at the low-tech end of the business, such as small arms, quality and capabilities are largely the same in all cases, and so once again Korea doesn’t have much of an advantage.

Not a level playing field

Most important of all, the global arms business is not an equal-opportunity marketplace. There is no level playing field, even if market leaders like the United States, Europe, Russia and a few others (Israel and China, for example) were not fixing the whole affair. Countries buy arms from certain suppliers for many reasons other than cost or capability.

In the first place, buyers often exhibit what can only be termed as “brand loyalty.” My dad was a “General Motors” guy: His entire life he bought only Buicks or Pontiacs; purchasing a Ford would never cross his mind. It is the same with weapons: Countries will acquire US weapons, for example, because they always have, and they are content to go on doing so.

Politics is also critical. Countries buy from the US or Russia in order to build friendly relations or show that they are reliable allies. That is why Poland bought F-16s from the United States, for example. The joke goes that when a country purchases US weaponry, Washington throws in the US Marines for free.

Finally, militaries like equipment with a proven reputation. They want systems that have been “bloodied in battle.” This is particularly why so many countries like to buy stuff from Israel: Its products have a demonstrated reliability and ruggedness, and are, above all, combat-verified.

Korea still a marginal player

As a result, the global arms market has been remarkably stable for the past 20 years. In 1996, for example, the “Big Five” arms exporters (the US, Russia, the United Kingdom, France and Germany) accounted for 83% of all international arms transfers, according to the Stockholm International Peace Research Institute. In 2016, they still held about 75% of the business. Countries like Korea, Brazil and Turkey picked up a little bit in comparison, but collectively they still accounted for less than 3% of the overall market.

Most of the Big Five’s market-share losses went to just two countries, China and Israel, which combined went from 4% of all international arms transfers in 1996 to 11% 20 years later.

It is not impossible for small producers like Korea to find a niche in the global arms market. Besides its T-50 light attack jet (successfully sold to Indonesia, Iraq and the Philippines), Seoul has exported basic trainer aircraft to Peru and artillery systems to Turkey. But Korea has few stable customers it can count on for follow-on orders.

It still has to fight for every sale, and all the trolls in the world are not about to change that.

The opinions expressed here are the author’s own.