Promoting the development of domestic defense industry has been central to President Tsai Ing-wen’s policy agenda, and the current billion-dollar question is how to successfully implement it. As valuable lessons for Taiwan’s future direction, this brief assesses the strategies of several small states, such as Norway and Singapore, which have been relatively successful in carving out their own niches in the defense export market, analyzes their advantages and risks, and concludes with recommendations.
This analysis builds on Global Taiwan Brief articles by Global Taiwan Institute Senior Research Fellow David An’s series of articles on Taiwan’s indigenous defense industry, and on the response from former United Kingdom Representative to Taiwan, His Excellency Sir Michael Reilly’s, which provided insight on Taiwan’s indigenous submarine program.
Small states intrinsically lack the kind of capital and industrial capability necessary to sustain complex weapon programs. Therefore, developing a domestic defense industry based on high levels of indigenous technology may be a challenge, and the prospect for arms exports—as mentioned in the Tsai administration’s current “indigenization” discourse—could be even dimmer. Nevertheless, several policy recommendations follow.
In its Defense Policy Blue Paper No. 9 (國防政策藍皮書第九號報告), the ruling Democratic Progressive Party (DPP) pledged to “utilize an approach combining international cooperation and indigenous production” to build up a next-generation military and invest 70 percent of added spending toward “indigenous defense research and development.” Investing in Taiwan’s indigenous weapons systems would lead to arms exports, which generate profit, and create jobs back home in Taiwan. Indeed, the DPP has mentioned that it expects its defense industry to generate US $7-12 billion dollars along with 8,000 new jobs.
However, how much foreign content can Taiwan’s equipment contain to still count as an indigenous platform? Is Taiwan’s weapon system considered indigenously produced if it contains 100 percent Taiwan-developed content and intellectual property (IP), or 80 percent, or even 51 percent Taiwan IP with the rest constituting foreign technology content? This study suggests that Taiwan will face more challenges if it defines indigenous development as closer to the 100 percent level of unique Taiwan IP and technology content.
David Versus Goliath
Today, the global defense industry represents the culmination of the latest applied technology, industrial prowess, and the depth of capital market—ambitions that are widely shared by many developing countries. However, there are small states that are not endowed with these conditions but remain successful at positioning their defense industries in the global defense market. This is because, rather than creating their own weapon procurement programs, they adopted a variety of collaboration strategies to compensate for their disadvantage in economies of scale while amplifying their strength in innovation.
Singapore and Norway, whose economies are comparable in size to that of Taiwan, are good examples of agile latecomers that emerged successfully in the entrenched oligopolistic defense export market. Their respective national champions, Singapore Technologies Kinetics (ST Kinetics) and Kongsberg Defence & Aerospace (KDA), employ a mix of collaboration strategies in order to enhance their competitiveness with regard to domestic and international weapon procurement programs. These companies reported US $4.4 billion and $17 billion in revenue respectively, of which more than 80 percent came from international sales; both have become rising US Department of Defense contractors and collaborate widely with US defense conglomerates. Taiwan could choose to do the same.
Case Studies: Singapore and Norway
Singapore manufactures a complete line of wheeled and tracked vehicles and self-propelled howitzers (SPH), and many of them utilize proven foreign platform designs and are made to US and NATO specifications. With the Terrex wheeled armored vehicle, Singapore sourced the original chassis design from Timoney Technology Ltd. of Ireland. Singapore initially bonded its partnership with Timoney by acquiring 27 percent of its shares and collaborating to submit their latest Terrex 3 design for the Australian Land 400 phase 2 competition. In a series of strategic steps, Singapore gained full control over the Terrex chassis design, then deftly switched partners by collaborating with US-based Science Applications International Corporation (SAIC) to bid for the US Marine Corps’ Amphibious Combat Vehicle (ACV) program. Singapore also licensed a Turkish company to produce licensed-built Yavuz armored vehicles for the Turkish armed forces. Through a few strategic business moves, a smaller state like Singapore made significant market share gains and profited in the international defense industry.
Some of Norway’s defense industries had humble beginnings as small gunsmith workshops but have now come be known as large, innovative, and profitable companies, specializing in compact missiles and sensor technologies. Norway’s Penguin anti-ship missile achieved early international success for its compact design and the ability to be launched from helicopters at a time when large ship-borne anti-ship missiles were the norm. Norway continued its lead in this niche market with the development of Naval Strike Missile (NSM)—which Norway later teamed with Raytheon (a US defense conglomerate) to develop into the Joint Strike Missile (JSM) that will be carried by the F-35 multirole fighter. In addition, KDA sourced the combat-proven AIM-120 air-to-air missile from its American partner, Raytheon, and integrated them with indigenously developed command and control systems, then later teamed with Raytheon to market and distribute this weapons system to other foreign customers. In the field of maritime systems, the KDA led, without being the prime contractor for the combat system and platform, the development of the MSIFC Multi-Sensor Integration and Fire Control (MSIFC) for the nation’s Spanish-built Fridtjof Nansen-class frigates. There are countless other examples of how Norway cooperated with foreign companies to develop its own defense industry, and profited together through technological and design innovation, and opening up new markets for jointly-produced equipment.
The country cases discussed above suggest that the seemingly entrenched global defense market remains plausibly open to small and medium-sized latecomers. The Singaporean case shows that sourcing and subcontracting, combined with flexible regional technology alliance strategies, allow small states to overcome a lack of experience with armored vehicles R&D and quickly emerge as an armored vehicles exporter. The Norwegian case tells the story of a small firm taking advantage of its technological edge to gain a foothold in compact missiles and system integration. In addition, both the ST Kinetics and KDA set up American subsidiaries to expand their business operations in the world’s largest defense market.
Policy Recommendations for Taiwan
These are certainly useful policy implications for the Tsai administration to consider. For example, the Ordnance Readiness and Development Center of Taiwan (兵整中心) should consider teaming with their more experienced foreign counterparts, such as the ST Kinetics and General Dynamics Land System (the US contractor that produces Stryker vehicles), to source more reliable, combat-proven hull designs (such as transmission and hydraulic drive systems) to continue to improve the indigenously developed CM-32 “Clouded Leopard” family of 8×8 wheeled armored vehicles. By the principle of complementarity, the Ordnance Readiness and Development Center can also team with foreign defense conglomerates specialized in advanced weapon modules and armor packages, market the CM-32 vehicle as a modular weapons “platform” under their partners’ brand names via licensing, and utilize their marketing and distribution channels to promote sales abroad.
Similarly, the National Chung-Shan Institute of Science and Technology (NCSIST) could exploit its comparative advantages in the fields of seeker modules, missiles, C4ISR (Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance), multi-beam and phased array radar technology, actively building technological alliances or teaming with foreign partners to explore further applications of these technologies (such as the Nulka case has suggested) or integrate these technologies as subsystems into foreign partners’ weapon systems. Conversely, the NCSIST should also consider sourcing foreign platforms, modifying them with indigenously developed C4ISR systems to develop new weapon systems that suit Taiwan’s unique tactical needs, then exporting them through foreign partners’ marketing and distribution channels. As global defense spending has gradually shifted away from traditional platforms to areas as C4ISR, targeting, and precision guidance, this represents a promising point of market entry for Taiwanese defense industries.
Finally, breaking into the US market is the key for promoting international sales. Recent collaboration between Taiwan’s 205 Armory and Wolf Performance Ammunition in marketing the Taiwanese-made T91 assault rifle in the US civilian market is an encouraging small step in this regard. But as sales operations expand, it may be necessary for Taiwanese defense industries to set up fully-owned US subsidiaries to manage local operations.
The main point: This article presents strategies for promoting indigenous defense industries and export from a comparative perspective, analyzes their benefits and risks, and offers policy recommendations.
 Defense Policy Advisory Committee, New Frontier Foundation, “Defense Policy Blue Paper No. 9: Taiwan’s Military Capacity in 2025” (Taipei, May, 2015), 7, 23.
 In 2015, sales in the North American market accounted for 23.7% and 27% of revenue for ST Kinetics and KDA, respectively (author’s calculation).