What does it mean to talk about the “Hyundaization” of the global arms trade, and what are the key implications? I welcome Richard A. Bitzinger’s contribution in “The Global Arms Trade and the ‘Hyundaization’ Threat.” Bitzinger’s article makes many good points, but some of its contentions address the wrong arguments or worry about the wrong things. In other areas, it addresses claims that weren’t found in my Wall Street Journal article – which is finally open to the public.
We’ll start with what Hyundaization is not. It is not a contention that America’s weaponry will be matched any time soon by powers like South Korea. Nevertheless, one may wonder about a technology-based “Third Offset” strategy that hopes to build and keep leap-ahead battlefield superiority by using globally available technologies. Especially when many of those technologies come with a base of civilian use that will dwarf even the U.S. military’s concept of scale.
Nor is Hyundaization a prediction that America will lose a large share of its defense industry. It’s obvious that the Pentagon budget vastly overshadows foreign export opportunities. The problem is that it doesn’t take major erosion to have significant effects. Individual weapon systems often depend on foreign orders for better prices, and foreign orders have given the U.S. military more flexibility by keeping some production lines open. If those backstops should falter due to pressure on American exports, we might expect even more American budget decisions that are driven primarily by industrial needs, along with manageable but painful spirals of “volume cutback – price increase – order cutback – price increase.” The real price is usually paid by smaller, newer, innovative programs that have less political weight behind them. The consequences compound over time.
In a similar vein, Bitzinger’s extrapolation from the present market leads us astray. Yes, these nascent exporters are currently a small share of the industry. Then again, readers who wandered America’s roads in 2000 could have said the same about Hyundai Motors. What mattered in 2000 wasn’t Hyundai’s American market share. It was their emerging infrastructure and ongoing investments, combined with a strong market opportunity in the value-buyer segment.
Hyundaization is not a forecast of doom, but it is a forecast of change. Trefor Moss’ recent Wall Street Journal article quotes us both, while providing spending figures supporting the notion that Asia is likely to be one of Hyundaization’s prime theaters.
What, then, is the shape of Hyundaization’s market opportunity? I would argue that it is growing. Countries like Indonesia have become leery of the political strings that come with Western weapons, see high Western equipment prices in many segments, and place less and less trust in Western security guarantees. Moss quotes Boeing V.P. Howard Berry as saying that they’re “often perceived as a Cadillac option in the Asia-Pacific,” even though the Super Hornet fighter he represents is a just mid-range buy for the Pentagon.
Bitzinger touts the Russians as the competitor to watch, and they certainly have substantial markets in India and Vietnam. Yet trust in the service and maintainability of Russian equipment is poor. Their consistent second-place status is mostly a function of the fact that they’re the current global alternative to offerings from the NATO powers. This strongly suggests an opportunity for mid-tier powers who can offer “good enough” capabilities, little interference, and solid service.
A glance at the new technologies and platforms on offer around the world suggests that this challenge has been accepted. Programs like South Korea’s cooperation with Indonesia to create the future KF-X fighter suggest that progress will continue. Meanwhile, trends in civilian technologies are reinforcing the required industrial underpinnings. They are lowering the bar, so that the same ingredients that turned Israel into an acknowledged global arms competitor are now available to more countries. China is more likely than Russia to capitalize on that opening, but its conflicts with Asian neighbors will be a major barrier in this market.
China won’t be alone in facing barriers to export success, and Bitzinger’s points here are directionally correct. A wartime record does help at the margins. Alliances do play a role in purchases, though Asian countries are moving toward an interesting set of local relationships. I would argue that buyers need not be concerned about the future longevity of state-champion exporters like Embraer, but the Russians have proven that global service is hard to execute well. State-champion firms from many mid-tier countries will have quite a task ahead of them. Finally, while technological chokepoints do exist in areas like high-performance jet engines, it’s a delicate balance. South Korea’s FA-50 and India Tejas both fly with GE F404s, this technological leverage is naturally perishable. Any policy that uses leverage too bluntly would make relevant R&D like India’s Kaveri project a higher priority for mid-tier countries, and shorten the relevant leverage point’s usefulness.
Hyundaization’s key insight is that Western countries will need to think about these levers more carefully, while reconsidering their product mix. Export decisions and manufacturer strategies that once fostered a very industrial, all-or-nothing approach are moving into environments that will emphasize dynamics like co-opetition and network effects. These competitive dynamics are extremely familiar to Silicon Valley, and to companies like Samsung. How many Western defense firms make them central to their strategy? How many government are thinking this way?
Meanwhile, nominally friendly countries like Brazil, India, and Turkey often disagree with important Western priorities. Western diplomats can expect to be vexed by a world that’s less and less able to shut rogue countries out of the market for advanced weapons. Even as wider purchase options cut back on the traditional training and assistance programs that built local networks of contacts and friends for Western powers.
These outcomes aren’t a death blow to Western influence, or to its defense industries. What they will do is complicate Western diplomatic and military planning. For American automakers, the right time to start thinking about Hyundaization was 10 years before Hyundai’s cars became popular purchases. The West still has that opportunity in the global security sector – but only if its governments and firms begin thinking now
Joe Katzman (@joekatzman) is editor emeritus of Defense Industry Daily, and the principal at KAT Consulting.