With the increase in global defense spending, South Korean arms manufacturers emerge as a promising contender.

• In 2024, global defense spending increased, leading to a surge in the performance of South Korean defense stocks.
• The demand for South Korean weapons is due to their affordability, quick delivery, and near-parity with high-end weapons from other nations.

Across the world, K-pop, K-dramas, and Korean food have gained popularity, making South Korea widely recognized.

Defense stocks from South Korea are set to make a significant impact on investors' portfolios.

This year, there has been a rise in the shares of military manufacturing companies due to large arms orders from other countries.

This year, leaders in the aerospace industry, including Hanwha Aerospace, Korea Aerospace Industries, Hyundai Rotem, and LIG Nex1, have experienced significant growth.

In 2023, world military expenditures increased for the ninth consecutive year, up 6.8% year-over-year and reaching a total of $2.44 trillion. This was the steepest year-on-year rise since 2009, and pushed global spending to a record, according to statistics from the Stockholm International Peace Research Institute.

According to Indo-Pacific visiting fellow Sang Hun Seok, who spoke to CNBC, the combination of increasing global spending and growing geopolitical uncertainties has opened up larger global markets for South Korean arms manufacturers.

The Italian Institute for International Political Studies' April report stated that South Korea's position as a defense industrial powerhouse is supported by real numbers, as the country's arms exports increased from $2 billion to $3 billion in the late 2010s, to $7.3 billion in 2021.

According to an August report from Chosun Ilbo, South Korean arms exports are expected to surpass $20 billion in 2024, despite a slight decline to $14 billion in 2023.

In 2023, the number of countries importing South Korean arms increased from four in 2022 to twelve.

Analysts explained to CNBC that the demand for South Korean arms is due to their being cheaper, faster to produce, and almost as effective as top-tier weapons from other nations.

Cheaper

The primary reason, as stated by RUSI's Seok, is the cost-effectiveness of South Korean exports. For instance, a PAC-3 intercept missile, utilized by the U.S. Patriot surface-to-air missile system, is reportedly priced at approximately $4 million each.

The PAC-3 missile, made by Raytheon, is known to offer similar performance to the South Korean Cheon-gong intercept missile, which is made by LIG Nex1 and costs a third of that, he noted.

The high cost of these weapons has been highlighted during the Russia-Ukraine conflict, as Moscow used numerous drones and missiles in attacks against Ukraine, some involving over 100 unmanned aerial vehicles.

The Center for Strategic and International Studies' 2022 report pointed out the disparity between the cost of missiles and their potential impact on sensitive targets. For instance, shooting a $4 million missile at a $250,000 Russian cruise missile might be justified if it hits a sensitive target. However, shooting a $4 million missile at a $50,000 Iranian Shahed-136 drone would likely not be justified.

U.S. weapon systems are highly respected for their exceptional performance, but their high cost makes it difficult for most countries to afford them. As a result, many countries are attracted to the Korean approach of offering less expensive weapons that are almost as effective.

Faster

A weapon's effectiveness in defending a country depends on its arrival and operational status, not just its cost-effectiveness.

South Korea has consistently invested heavily in its defense industry due to its ongoing conflict with North Korea, and was well-prepared to meet the surge in demand when orders increased after the Russian invasion of Ukraine, according to Hoshik Nam, an assistant professor in the department of sociology and political science at Jacksonville State University.

The industry has maintained robust production capabilities due to sustained investment, unlike Western countries that reduced their military production after the Cold War.

In 2022, Poland purchased 48 FA-50s from KAI to replace its depleted fighter fleet after donating some of its ex-Soviet aircraft to Ukraine.

Poland's Deputy Prime Minister and Minister of Defense Mariusz Blaszczak reportedly said in an interview with Polish media that the FA-50 was chosen because KAI could deliver the aircraft quickly.

By the end of 2023, 12 FA-50s were reportedly delivered from South Korean stocks, and the rest will be built to Polish specifications and delivered starting from 2025.

Nam stated that the FA-50 is highly compatible with the U.S.-made F-16 fighter, which Poland also operates, making it an attractive option for countries seeking cost effective alternatives with faster procurement timelines.

(Almost) better

Despite not being the best, South Korean arms are appealing to buyers due to their cost-effectiveness, compatibility with various systems, and high reliability.

South Korean weapon platforms are highly compatible with U.S. and NATO systems due to regular joint military exercises with the U.S., simplifying logistics for countries looking to acquire South Korean weapons.

South Korean weapon systems have significant reliability advantages compared to Russian or ex-Soviet systems, as they have a wider base of clients and a broader support network for servicing systems.

Seok from RUSI stated that South Korean defense companies are offering generous terms in areas such as technological cooperation, local production, and financing. Additionally, these companies are highly proactive in adapting to buyers' changing requirements and providing extensive after-sales support.

In 2015, India signed an agreement with South Korea to produce the K9 Thunder (known as K9 Vajra-T locally) domestically.

Russia was unable to provide support for the systems sold to India, such as maintenance and spare parts, despite India traditionally buying Russian weapons.

Bennett emphasized the importance of having a viable supply chain from the start. He suggested providing maintenance and sending out people worldwide to help establish maintenance capabilities, supply chain, and spare parts.