With the grand opening of the new submarine development center at China Shipbuilding Corporation in August, Taiwan has visibly embarked on a long and expensive process to manufacture its own submarines. Taiwan has announced that it plans to work with international partners, but when the political aspect becomes complex and slow, Taiwan will be tempted to do more on its own and simply rely on itself. Over time, the idea of developing its own technological base and providing more jobs at home will seem attractive. However, Taiwan will gain more cutting-edge technology at lower costs through international cooperation rather than heavily relying on local suppliers and its own innovation.
In the early 2000s, rather than building its own submarines or importing components, Taiwan unsuccessfully tried to buy complete diesel electric submarines from the United States. Then-President George W. Bush approved the sale of diesel electric submarines to Taiwan in 2001, but the deal did not go through. The political gridlock on Taiwan’s side—the incumbent executive could not gain the support of the opposition-led legislature at the time—meant that Taiwan lost a rare opportunity. Then, starting in 2008 through 2012, the stars slowly aligned within Taiwan’s internal politics as the same party controlled both the executive and legislative branches; however, the Obama administration neglected to approve the submarine sale. Another factor is that the United States’ submarine fleet is all nuclear powered, so there are no commercial diesel-electric submarines available in America for sale, and the question of opening up new diesel-electric submarine production lines in America is a politically sensitive one. After over 15 years without a completed submarine deal despite Taiwan’s persistence, it has grown weary of waiting.
However, Taiwan manufacturing submarines mostly or entirely on its own is not a viable option because of the barriers to entry; per-unit costs would be too high for the early research and development (R&D) phase, even before the manufacturing process begins. By going it alone, Taiwan’s R&D would not benefit from the economies of scale principle, since the per-unit costs of developing components for four or eight submarines are much higher than if the costs were spread across many dozens or hundreds of submarines, or than if Taiwan were to manufacture submarines to sell abroad—which are both unlikely in the foreseeable future. Therefore, it makes more sense to import submarine components from abroad from companies that already manufacture large quantities of submarine components. It will be tempting for Taiwan’s engineers to roll up their sleeves in the face of rejection by foreign companies, but it should nevertheless continue to push for foreign technology.
To take the early design phase as an example, Taiwan has set aside a $95 million budget to design six to eight submarines, so economies of scale will yield varying per-unit costs depending on how many submarines Taiwan decides to manufacture. As a thought exercise, if Taiwan produces four submarines, then $95 million in design costs spread across four platforms would total around $24 million per submarine; but for eight submarines, R&D costs would be $12 million each; R&D costs would drop even further to $5 million per submarine if Taiwan decided to build 20 submarines. Per unit costs are heavy for Taiwan, in contrast to the United States, which has built around 800 submarines throughout its history, progressing incrementally from the SS-1 submarine in 1987 to the recent SSN-801 Utah submarine in 2015. In the worst case scenario, it’s possible that Taiwan would need to bear the full costs if other countries are not willing to work with Taiwan.
Many countries like Russia, Germany and Netherlands lower per unit costs by increasing submarine production quantities to meet military sales demand overseas. These countries build for themselves, then build more for foreign export to lower unit costs even further. For instance, Indonesian officials revealed in September 2015 that Russia was selling 2 Kilo-class submarines to Indonesia; Indonesia previously purchased 12 Whiskey-class submarines from the Soviet Union during the 1960s and 1970s. However, since there is no evidence yet that Taiwan is pursuing the submarine export business, at this time it appears that Taiwan is unable to benefit from lowering its unit costs in this way.
The more that Taiwan tries to develop new and cutting-edge submarine components, the higher the risk that the cost will balloon multiple times the original budget. It does not seem worth the price for Taiwan to overcome technological hurdles that others have already solved many times over. The commercial off-the-shelf submarine prices offered by a foreign defense companies might seem high, but at least they are known quantities.
The precedent that Taiwan could follow for submarines comes from its experience building its own F-Ching Kuo Indigenous Defense Fighter (IDF) aircraft from 1980 to 2000. It was completed indigenously; the aircraft was assembled in Taiwan, but many of the components were imported from American companies such as General Dynamics for the airframe, Hughes Corporation for the engine, and Westinghouse for the avionics. The body, wings and vertical tail surface resemble Lockheed Martin’s F-16 aircraft. In 1999, after the aircraft was built, the United States announced a “sale to the Taipei Economic and Cultural Representative Office in the United States of Cooperative Logistics Supply Support Arrangement for spare parts in support of F-5E… Indigenous Defense Fighter” and other aircraft at an estimated cost of $150 million. Though Taiwan proudly boasts of building the IDF indigenously, which undoubtedly took innovation, the manufacturing and maintenance of the aircraft involved extensive international support.
Specific to Taiwan’s submarine program, there are some components that Taiwan already produces, and it would make sense for Taiwan to integrate these directly into the submarine without having to import them. Taiwan Naval Captain Chu Hsu-ming (朱旭明)highlights that Taiwan’s shipbuilding companies have first class abilities to produce the special steel for the hull, the hydraulic system to control the periscope, the precision propeller, and advanced welding technology. For example, Hung Shen Propeller Company in Pingtung, Taiwan, has manufactured propellers that have been installed in Russian yachts, French naval vessels, and British minesweepers. Therefore, a hybrid approach of combining domestic with foreign components makes sense.
There are aspects of Taiwan’s indigenous defense submarine that Taiwan should manufacture on its own, but other areas where it would benefit from international collaboration. The United States and other foreign countries and companies have already spent large amounts of research and development to create submarine components. Taiwan would be reinventing an expensive wheel if it endeavored to build the whole thing by itself.
The third and last installment of this series will provide insights into which countries and foreign defense companies Taiwan can work with on arms sales policies and processes, and exactly how to successfully obtain submarine components from them.
The main point: While it might appear at face value to be more cost-effective for Taiwan to build submarines on its own, Taipei would save money and acquire more advanced technology in the long run if it imported certain high-tech components from defense companies in the United States and other international sources.