We support knowledge development to help SMEs navigate the Defence sector. This includes industry trends, insights, developments and guides to doing business in Defence. Find more about the Defence Engage member-only site.
The tilt to the Indo-Pacific: policies, budgets, strategy and opportunity
Given the major shifts in the context of global defence and security in recent years, Defence Engage examines industrial, policy, budgetary and collaborative endeavours which are characterising the tilt to the Indo-Pacific. Here we highlight how relationships and strategies are evolving, creating new opportunities for industry in an increasingly tense region.
The stratospheric rise of China’s technological and military capabilities, in combination with its territorial claims in its region, poses an ‘epoch-defining challenge’ to democracies, according the UK’s 2023 Integrated Review (IR23). Scholars in international relations have long debated whether China would pose a threat to the liberal international order, which has been in place since the Cold War. It seems the strategic, economic and political consensus now: yes, yes and yes. Whether it be on patents, in commodity markets, at the UN Security Council, in the military realm, or on our mobile phones, China is perceived as a multi-domain threat to democracies.
Growing awareness of the threat posed by China and other authoritarian states such as North Korea, Russia and Iran has sparked several major collaborative initiatives with Asian and Australasian governments. These initiatives include significant budget increases, multi-lateral deals such as AUKUS and GCAP, along with other industry opportunities spanning decades. Such alliances can be seen across: Australia, India, Japan, South Korea, Singapore, Indonesia, Malaysia, the Philippines, Thailand, and Vietnam.
Key Indo-Pacific defence markets: opportunities and alliances
South Korea – Military Expenditure (2022 est.): 2.6% GDP
South Korea has been responding to threats from North Korea with an increased focus on domestic defence industries and technological development. Alongside the long-standing US-South Korea relationship, there is new emphasis on alliances with other regional democracies such as Japan, with whom South Korean relations are increasingly favourable. The country also has good relations with many European countries, as shown by the defence agreement signed with Poland in 2022. Indeed, by exceeding $17 billion in 2022 export sales, South Korea’s defence exports more than doubled year-on-year.
The 2023-2027 Mid-Term Defence Plan includes around $268.8 billion over five years, covering a multitude of projects such as the Korean Triad System, which includes ‘Kill Chain’, a new system which will enable pre-emptive strikes. South Korea also seeks to emulate the US and UK with a new Strategic Command.
India – Military Expenditure (2022 est.): 2.1% GDP
India is a major player in the region. A democracy whose allegiance is not so black and white when it comes to west vs east debates. India is seen as a middle power of ever-increasing importance, with a lot of territories to defend. China and India often experience periods of intense competition and disputes around territory, including tensions last year around the Two-Ocean Strategy, which arguably puts India in a strategically weakened position.
India and China are both developing powers with large populations seeking greater living standards for their citizens and greater influence on the world stage. As the UK’s Integrated Review 2023 states that it will bid for more members to join the UN Security Council, India could be a beneficiary of this with a nuclear arsenal and very capable armed forces. Some even consider ‘India’s aircraft carriers key to Indo-Pacific strategy’.
According to KPMG, the Aerospace and Defence sector in India is at an inflection point, given the modernisation and indigenisation programmes being undertaken by all three services of one of the largest military forces in the world. The Ministry of Defence in India has laid out an expansive plan for the modernisation of obsolete equipment through long-term perspective plans, capability plans, capability roadmaps and capital acquisition plans.
Taiwan – Military Expenditure (2022 est.): 2.2% GDP
The threat to Taiwan from China is the most prominent threat to the region and any Indo-Pacific ally. US wargaming scenarios found that the US would be able to help repel a Chinese invasion of Taiwan, although it would run out of missiles extremely quickly and would likely face the loss of several ships. Ukrainian resistance to Russia has certainly given the opportunity to learn how to prepare for possible territorial invasion.
Foreign procurement, indigenous jet trainer production, and international cooperation have driven the growth of the market according to the US International Trade Administration. The ongoing threat to Taiwan will ensure domestic and international industry will continue to benefit from increasing investments in national security, as China continues to position increasingly sophisticated hardware in proximity to Taiwan, along with regular aerial interceptions.
Japan – Military Expenditure (2022 est.): 1% GDP, 2% predicted by 2027.
Japan is perceived as the leader amongst Indo-Pacific regional allies, a status cemented as it assumes the 2023 Presidency of the G7, hosting multi-lateral meetings in Japan along with the primary G7 Summit. Under Japan’s leadership ‘the G7 will continue to work in solidarity based on the determination that unilateral attempts to change the status quo by force should never be allowed’. Rising tensions with North Korea and China have shifted Japan away from its long standing limitations of military spending since WW2, in part motivated by the frequent North Korean missile tests near its territory as well as clashes with China over maritime disputes.
In March 2023, Japan’s only fully integrated defence industry event DSEI Japan took place. The Global Combat Air Programme (GCAP) was the centre of attention at the event, with partners UK and Italy underlining the pivot to the Indo-Pacific. At the event a multitude of cutting-edge technology was unveiled including Kawasaki’s high-energy laser C-UAS system and IHI’s newest unmanned underwater vehicle (UUV) which is designed to detect mines at sea. Meanwhile, Japan’s Acquisition Technology and Logistics Agency (ATLA) is said to be ‘aggressively looking to accelerate the government’s efforts to expand defence-related exports’.
One of the priority acquisitions being prioritised by the Japanese Defence Ministry is the procurement of Tomahawk Cruise Missiles from the United States. In February 2023, it was announced that Japan would bulk-purchase 400 of the assets, in order to boost its counterstrike capabilities.
Australia – Military Expenditure (2022 est.): 2% GDP
AUKUS sees ‘Australia come of age as an Indo-Pacific power’. The partnership will see Australia become a major player in global defence and security, giving the UK and US another ally with nuclear submarine technology in the region, boosting inter-operability and cooperation between the triad. The project is estimated to cost Australia up to $368 billion, with it set to take delivery of the first SSN-AUKUS subs in 2040. From 2027 a rotational deployment of British and American nuclear subs will begin visiting Australia routinely. Meanwhile, Australia will invest in building domestic capabilities, including shipbuilding infrastructure, with the industry further supported by the government’s Modern Manufacturing Strategy.
Australia is further developing a network of multilateral defence partnerships, with AI Cooperation being coordinated with the US and Japan, according to the Australian Institute for International Affairs. Increasingly spurred by preparation for any potential conflicts with China, Australia is a member of Five Eyes, the CPTPP trade pact and the G20, and set to remain a global defence partner for decades to come.
Global allies pivoting to the Indo-Pacific
United States – Military Expenditure (2022 est.): 3.5% GDP, 2.7% predicted in 2024.
Since the Second World War, the US has had military presence across Asia, with major bases in South Korea and more recently security ties with states like the Philippines, providing security guarantees to Taiwan. The US is leading the tilt to the Indo-Pacific in an effort to conduct ‘strategic rebalancing’ away from a concentration on Russia and towards China. The motivation for this is to a drive to maintain the liberal international order, which America has led for decades. President Obama unveiled the concept to shift the primary focus of American hard-power to the location where it might face the greatest competition since the Cold War. The connection between the US with Japan, South Korea, the Philippines, Australia and Thailand is based in treaties which have been long-established. ‘The US works with the Association of Southeast Asian Nations – which includes 10 nations’ alongside its commitment to the Quad, which is a partnership between ‘India, Japan, Australia and the United States’.
As part of AUKUS, the US will provide highly classified technologies to the UK and Australia, in an effort to boost key allies and the inter-operability of partners in the event of a global conflict.
The US defence industry is the biggest in the world, home to the top 5 defence primes in 2022: Northrop, Boeing, Lockheed, Raytheon and General Dynamics, an industry leading assemblage of companies which help foster US world-class capabilities. 39% of all arms exports come from the US, with 19% coming from Russia and 11% from France. In the wake of the war in Ukraine, the US has consolidated its export dominance in defence.
United Kingdom – Military Expenditure (2022 est.): 2.1% GDP, 2023 prediction: 2.25% GDP.
In the release of the UK Government’s latest Integrated Review (IR23), the tilt to the Indo-Pacific has been characterised as complete. Yet, in many senses it is just getting started. ‘Beyond our traditional allies and partners, the UK will continue to deepen relationships with a wide range of influential actors across the Indo-Pacific, Gulf, Africa, and beyond’. Between 2012 and 2021, 7% of UK arms exports were to the Asia-Pacific region.
The UK’s commitments to allies in the region has been through investment and multinational agreements. Through AUKUS and GCAP, the UK has two very potent mediums through which it might leverage its influence and expertise, alongside industry, to sustain global security. Continued participation in the Five Eyes partnership is the cornerstone of the UK’s intelligence sharing partnerships, with the UK also investing time and effort into bilateral initiatives.
Free Trade Agreements (FTAs) have been high on the UK’s priorities since Brexit, with Indo-Pacific allies being perceived as candidates to help expand the UK’s global trade presence. FTAs with Australia, The Republic of Korea, Singapore and others, will ensure greater economic engagement, alongside planet-wide initiatives to engage more on climate, maritime and human security. The UK is allegedly on-track to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which will be a big boost for the UK’s growing trade-engagement with allies in the Pacific.
Rolls Royce topped the FTSE 100 as the trilateral meeting in San Diego announced that the SSN-AUKUS submarines set to be used by the UK and Australia, would be of a British design and host Rolls Royce nuclear reactors. They will partner with subcontractors and BAE Systems in the UK alongside Australian and American firms. On GCAP, Britain’s two titans will again be collaborating alongside Leonardo and Mitsubishi Heavy Industries (MHI) to bring about the sixth-generation fighter. At DSEI Japan, GCAP (AKA Tempest) took centre-stage as the programme promises to bring jobs, investment and a paradigm shift in aircraft abilities.
According to IR23, the UK will make it a priority to build closer alignment of purpose and action amongst its most like-minded partners in the Euro-Atlantic and Indo-Pacific, recognising the high degree of shared interests that transcend regional concerns.
European Union and its members
Many EU members have thriving defence industries, especially in the wake of the war in Ukraine. Many have committed to major budget increases as a result of the conflict, which has seen huge demand for NATO-standard equipment on the Ukrainian front-lines and the Russian threat is triggering a need to innovate, import, export and collaborate on a scale not seen before.
EU Indo-Pacific strategy boasts the benefits of regional cooperation, noting that ‘the region’s growing economic, demographic, and political weight makes it a key player in shaping the rules-based international order and in addressing global challenges. The EU aims to contribute to the region’s stability, security, prosperity and sustainable development, in line with the principles of democracy, rule of law, human rights and international law’.
Back in 2022, the EU declared an intention ‘to step up Indo-Pacific defence presence over China fears’, in coordination with NATO and regional allies. In March 2023, it was reported that the EU was considering greater naval prescence in the South China Sea’s disputed regions, suggesting it is ‘ready to provide satellite surveillance to help countries like the Philippines respond to natural disasters and protect their interests, as tensions pitting China against its smaller neighbours escalate in the disputed waterway’.
European and North American allies are repositioning their forces and increasing their collaborative projects as they pivot to the Indo-Pacific. Increased collaboration is spurring new industry partnerships and opportunities, especially for those developing emerging technologies. Geopolitical priorities may shift, but long-term investments in defence are set to offer a mass of opportunities for decades to come.
DISCOVER DEFENCE ENGAGE APPLY FOR A PROFILE DEFENCE CONTRACT DIGEST FOLLOW US ON LINKEDIN