Russia's war in Ukraine has transformed South Korea into a manufacturing hotspot

The war in Ukraine, fought almost entirely on the ground, proved them wrong. Hanwha's old-style armored vehicles and munitions are in high demand, partly because the Korean company can deliver them more quickly and more cheaply than American or European companies. In the two years following the Russian invasion, Hanwha's annual arms export revenues increased elevenfold to $1.1 billion; it now represents 26% of the company's total gun sales. Shares are up about 350%.

To meet constant global demand, Hanwha hired hundreds of new employees last year. With a larger research and development group, the company now also plans to develop an engine for sixth-generation fighter jets, but more traditional weapons will remain its core products, said Son Jae-il, CEO of Hanwha Aerospace.

“The United States has 40 percent of the world's defense systems, but it can't do everything,” Son said in an interview with Bloomberg News at the company's weapons factory in Changwon. “We focus on medium weights, self-propelled guns, armored vehicles and tanks. In these areas we are already globally competitive.

Hanwha's rebirth reflects a gap in the global defense industry. U.S. and most European manufacturers have shifted their focus to strategic weapons, precision-guided munitions, and other advanced technologies. At the same time, many countries find these systems prohibitively expensive or are discouraged by the extensive retraining they would require.

This opened the door to Hanwha's more conventional products. “Defense companies in the United States or Europe don’t want to make these weapons,” said Yoon Sukjoon, a retired South Korean navy captain and senior researcher at the Korea Institute of Military Affairs. Korean-made weapons “are not the most advanced, but that’s what Lockheed Martin and Boeing don’t do.”

Poland is an enthusiastic buyer, having ordered at least 670 K9 self-propelled howitzers and 290 rocket launchers since 2022. Hanwha has shipped howitzers to Egypt and ammunition to the United Kingdom. If a proposed deal with Romania is reached, it will be the tenth country to purchase the K9s. Last year, the Korean company beat German rival Rheinmetall AG to supply Australia with 129 tanks, a contract worth at least A$5 billion ($3.3 billion) and the one of the largest military projects in Australian history.

“Both options underwent two years of extensive testing and evaluation, and at the end of that process, the strong and clear recommendation from the Department of Defense, including Army testers, was that the Hanwha Redback infantry fighting vehicle best met Australian requirements. requirements,” Defense Industry Minister Pat Conroy said when announcing the deal.

He also stressed that Hanwha would build the vehicles in Australia and make its first deliveries within five years, earlier than expected. The decision, he said, “was made purely based on the vehicle offered and value for money.”

Hanwha stock looks “ridiculously good at the moment,” said Choi Gwang-Shik, an analyst at Daol Investment & Securities Co. Choi and other analysts surveyed by Bloomberg expect the stock to rise 30%. on average over the next 12 months. For now, Choi said, “the company has nothing to fear.”

Although there has been no active conflict on the Korean Peninsula for years, the war has never officially ended. North Korea continues to conduct missile tests. Kim Jong Un declared earlier this year that he had the legal right to annihilate South Korea and this week launched nearly 1,000 trash-filled balloons across the border.

For Hanwha and other domestic arms makers, the lingering threat creates stable domestic demand.

“In Europe, there has been peace for a long time,” Son said. “But South Korea is in a position where its defense industry is poised to thrive. Ideally, it’s not something we would spend money on, but we have to do it because of North Korea.”

Today, as U.S. and European defense contractors work to restart or ramp up manufacturing, Hanwha offers buyers the advantage of smooth production lines, intact supply chains and on-time faster delivery. Hanwha can assemble its flagship K9 howitzer in about 180 days, two to three times faster than its competitors. With lower overhead costs, its products are also cheaper. The K9 costs around $3.5 million, about half to a third of the price of its global competitors.

These are advantages shared by the entire domestic industry, including Hanwha's local competitors LIG Nex1 Co. and Hyundai Rotem Company Ltd., said Lami Kim, professor of security at the Daniel K. Inouye Asia-Pacific Center for Security Studies in Hawaii. “South Korean weaponry stands out for its commendable quality, affordability compared to American and Western alternatives, and efficiency of delivery. »

In short, it is difficult to overstate the benefit of having reliable, less expensive weapons to sell at a time when the world's traditional suppliers are short of weapons and demand from all sides is high. Global defense spending rose 6.8% last year, the biggest increase since 2009, according to the Stockholm International Peace Research Institute, with no signs of slowing.

This includes opportunities in the United States, where Hanwha recently won a project to modernize BAE Systems' US-based munitions factory. It also means emerging markets are eager to expand their military capabilities, such as Saudi Arabia and India, said Ryu Hyung-gon, director of the policy research center at the Korea Defense Technology Institute, although this raises thorny questions of technology transfer that Korea will have to make. navigate.

To meet growing demand, Hanwha has hired about 700 new employees over the past year, bringing its workforce to more than 7,000, Son said. More than a third is focused on research and development, including efforts to develop remotely controlled and autonomous weapons, as well as a fighter jet engine, which Son says the company will deliver over the next decade.

“Eventually, we will manufacture the engine that will power the sixth generation fighter jet,” he said. “At present, we import and hold the license to produce aircraft engines from abroad. I thought: let's not keep doing this. Let's make our own.

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