Korea's defense industry is losing steam due to the government's excessive regulation. As the government requires the industry to develop world-class technologies within a short period of time and imposes restrictions if it fails to comply, an increasing number of defense contractors are taking a wait-and-see attitude without going for innovative R&D.
For defense companies here in Korea, the failure to develop new weapons is like being stigmatized forever. In such cases, they have to return 100 percent of the money they received, as well as losing the chance to join the government's future biddings for new weapon development.
Against this backdrop, their receipts of overseas orders fell to US$2.54 billion last year, down 27 percent from $3.49 billion a year ago. Due to the government's restrictions, home-grown defense contractors were given low scores in overseas bidding races.
The profitability of local defense companies also plunged to a half of that of global rivals. The operating profit-to-sales ratio of Lockheed Martin, for example, stood at 11.5 percent last year, far higher than those of Hanwha Techwin (4.2%) and LIG Nex1 (4.7%).