Inside South Korea's race to become one of the world's biggest arms dealers

South Korea is using a $13.7 billion arms deal with Poland - Seoul's biggest ever - to lay the groundwork for a military-industrial juggernaut that the two nations' defence companies hope will feed Europe's hunger for weapons far into the future.

South Korea's arms sales jumped to more than $17 billion in 2022 from $7.25 billion the year before, according to its defence ministry, as Western countries scrambled to arm Ukraine and tensions rose in other hot spots such as North Korea and the South China Sea.

The arms deal with Poland, a key NATO member, last year included hundreds of Chunmoo rocket launchers, K2 tanks, K9 self-propelled howitzers, and FA-50 fighter aircraft. The deal's value and the number of weapons involved made it stand out even among the world's biggest defence players.

South Korean and Polish officials say their partnership will help them conquer the European arms market even beyond the Ukraine war, with Seoul providing high-quality weapons faster than other countries and Poland offering manufacturing capacity and a sales pipeline into Europe.

Reuters spoke to 13 company executives and government officials, including those directly involved in the deal, who said the arrangement provides a blueprint for using international public-private partnerships and consortiums to extend Seoul's reach and achieve its ambition to be one of the world's biggest weapons suppliers.

"The Czech Republic, Romania, Slovakia, Finland, Estonia, Latvia, Lithuania, and others were thinking of buying defence products only in Europe, but now it is more well known that you can buy at a low price and have it delivered quickly from Korean companies," said Oh Kyeahwan, a director at Hanwha Aerospace who was involved in the Poland deal.

South Korean companies do not disclose the unit prices for their weapons, which are often sold with support vehicles and spare parts.

Hanwha Aerospace already had a 55% share of the global Howitzer market - a number that will rise to an estimated 68% with the Poland deal, according to research by NH Research & Securities. 

The deal established consortiums of South Korean and Polish companies that will build the weapons, maintain the fighter jets and provide the framework to eventually supply other European states, said Lukasz Komorek, director of the Export Projects Office at the state-owned Polish Armaments Group (PGZ).

That will include building South Korean arms on license in Poland, officials in Seoul and Warsaw said. Plans call for 500 of 820 tanks and 300 of 672 howitzers to be built in Polish factories starting in 2026.

"We don't want to just play the role of subcontractor, technological transfer provider and the purchaser," Komorek said. "We can both create the synergy and use our experiences to conquer the European markets."

Sash Tusa, a defence and aerospace analyst at Britain-based Agency Partners, said that although both countries have well-established defence industries, the long-term plans will face hurdles. Political winds could shift, he said, reducing demand for weapons such as howitzers and tanks.

Even if production and demand hold up, European countries might want deals of their own with South Korea along the lines of what Poland has - co-production agreements that could create jobs and stimulate industry, Tusa said.

"It may work for some countries at very, very low volume," he added of Polish-brokered South Korean weapons sales, discussing challenges the joint operation might face.

SPEEDY DELIVERY

At a Hanwha Aerospace factory on South Korea's southern coast, six huge automated robots and more than 150 production workers are churning out 47-ton K9s destined for Poland.

The self-propelled guns use NATO-standard 155mm ammunition, have computerised fire-control systems, are designed to easily integrate into command and control networks, and offer performance comparable to more expensive Western options. Major powers such as Australia and India operate them.

To meet demand, the company expects to add about 50 more workers and more production lines, production manager Cha Yong-su said during a recent tour. The robots handle about 70% of the welding work on a K9 and are key to expanding capacity, he said. They operate an average of eight hours per day but can work around the clock if needed.

"Basically, we can meet any amount of order you want," Cha said.

South Korea's offer to provide weapons faster than almost anyone was a key consideration, Polish officials say. The first shipment of 10 K2s and 24 K9s arrived in Poland in December, just months after the deals were signed, and at least five more tanks and 12 additional howitzers have been delivered since.

By contrast, Germany, another major arms manufacturer, has yet to deliver any of the 44 new Leopard tanks Hungary ordered in 2018, said Oskar Pietrewicz, senior analyst at the Polish Institute of International Affairs.

"Countries' interest in South Korea's offer may only grow considering the limited production capacity of Germany's defence industry, which is a major arms supplier in the region," he said.

Executives in South Korea's arms industry say that will be a selling point for future clients.

A close relationship between South Korea's military and its arms industry allows them to rearrange domestic orders to make room for export production and expand production in the country's highly industrialised manufacturing base, officials said.

"They put things together in weeks or months that would take us years," a European defence industry executive said, speaking on condition of anonymity because of the sensitivity of the matter.

Constant tensions with North Korea mean the South's military production lines are running and its weapons have been developed, tested, and upgraded in high-pressure situations, said Cho Woorae, global business and strategy vice president at Korea Aerospace Industries.

South Korea had promoted its weapons to Poland before the war, but the invasion of Ukraine - which Russia calls a "special operation" - increased Poland's interest, said Kim Hyoung Cheol, deputy director at the Defense Acquisition Program Administration (DAPA).

After the Polish defence minister's visit in May 2022 to observe South Korean weapons, and Yoon Suk Yeol met with Polish President Andrzej Duda on the sidelines of the NATO summit in June that year, the stage was set for the huge deal that was finalised a month later, Kim said.

South Korea's weapons are designed to be compatible with US and NATO systems - another selling point. The country is the third-largest supplier of weapons to NATO and its member states, accounting for 4.9% of arms purchases, according to the Stockholm International Peace Research Institute (SIPRI).

That is far behind the United States, which accounts for 65%, and France at 8.6%.

JOINT PRODUCTION

Officials in Seoul told Reuters that they pitched Poland on producing South Korean weapons there to make it easier to deliver to European customers.

"The Korean government is promoting military diplomacy and defence cooperation so that the relationship with the purchasing country can develop into various partnerships beyond just a seller-buyer relationship," South Korea's Defense Ministry said in a statement.

Poland's Ministry of National Defence did not respond to a written request for comment.

Oh said Hanwha Aerospace operates successful technology-sharing arrangements in India, Egypt, and Turkey.

"Because of that, I don't think there's much to worry about regarding capacity," he said.

The 2022 arms deal began with South Korean companies signing a framework agreement with the Polish government. Those companies formed consortiums with PGZ and its subsidiaries, which signed the final deal with the Polish government, he said.

"We have the one entity only, one big consortium that is representing the whole project from the perspective of the industry," Komorek said, noting that the deal encompassed many projects.

'AGENDA FOR A DECADE'

In the past year, South Korea has launched its first home-grown space rocket, saw the maiden flight of its domestically designed KFX fighter, and announced billions of dollars in deals.

"For most other countries, that would be an agenda for a decade," one executive at a European defence firm told Reuters, speaking anonymously because of the sensitivity of the matter. "We've underestimated Korea for a long time."

Yoon told Reuters last month that South Korea might extend its support for Kyiv beyond humanitarian and economic aid if Ukraine comes under a large-scale civilian attack.

Seoul has since approved at least some South Korean weapons components for use in Ukraine.

The country's sales in Asia - which accounted for 63% of its defence exports from 2018-2022, according to SIPRI - come amid regional arms build-ups driven by security concerns and the US-China rivalry.

South Korea is developing its KFX fighter jet with Indonesia, and Polish leaders have signalled interest in that project. Malaysia this year bought nearly $1 billion in FA-50s, and Seoul is in the running to win a $12 billion deal to supply Australia's next infantry fighting vehicle.

"Asian countries see us as a very attractive partner for defence deals as we all seek to hedge against the rising tensions," a diplomat in Seoul said. "We're a US ally, but not the US"