Powering Up Korea's Defense Industry: A Blueprint for Building World-class Innovation Clusters

The prolonged war between Russia and Ukraine that broke out in 2022 and Hamas’ surprise attack on Israel the following year October 2023 are ushering in a New Cold War. As this era begins in earnest, the landscape of the global defense industry is undergoing significant changes. In particular, the Russia- Ukraine war has accelerated the global arms race and is transforming the global defense export market. Over the last five years, the global defense market has been dominated by the US, with an overwhelming share of the market. France sits in second place. Russian exports have collapsed and China’s have stagnated. South Korea and Turkiye are emerging as major new players in the global export market. Developed countries have been focusing on creating defense industry clusters centered on local governments for more than 100 years. Advanced economies have long seen the defense sector as a national strategic industry, both in terms of national security and job creation. South Korea has sought to follow this blueprint, and the central government has worked to establish a defense innovation cluster in conjunction with local governments since 2020. The administration of Korean president Yoon Suk Yeol promulgated a set of national policy tasks in 2022, one of which (No. 106) calls for the creation of a defense innovation ecosystem through the expansion of industrial clusters. Yet these clusters remain inadequate, and the defense innovation project for the most part unrealized. To foster defense industry clusters like those seen in the United States and France in the future, Korea needs a long-term strategy that links the government’s industrial policy with regional growth strategies that consistently promotes related projects. In this paper, we examine historical and current trends in defense clusters and investigate a handful of specific case studies. Based on our analysis we present a set of basic directions and development tasks for building defense industry innovation clusters in Korea, benchmarking the clusters in the US and elsewhere but recognizing the limitations of the Korean project.