With Thursday marking five years since being launched, the Acquisition, Technology and Logistics Agency finally received its first order to export equipment this summer.
However, the agency has made only limited headway toward achieving its original goal of propping up the domestic defense industry by promoting technological development and exports, with many issues still needing to be addressed.
--Lessons learned
On Aug. 28, the Defense Ministry announced that Mitsubishi Electric Corp. had signed a 10.5 billion yen contract with the Philippine government to export air defense radars. It marked the first time for a Japanese manufacturer to export finished defense-related products.
"This will also help make Japan's defense industry more robust," then Defense Minister Taro Kono said confidently at a press conference at the time.
When the agency was established in October 2015, it was expected to back equipment exports covered by the "three principles of defense equipment transfers," which had been established the previous year and allow exports in certain cases, such as when they would contribute to Japan's security.
However, it had not logged any achievements until this summer. Setbacks such as losing out at the last minute on a bid for the joint development of a new submarine with Australia, which went to France, invited criticism that the agency was a "disappointment."
Previous negotiations had failed due to certain Japanese business practices and other factors that hindered a flexible response. There was no way to compete against countries in which the private and public sectors worked in unison.
Learning from such experiences, the government tried to do everything it could to support Mitsubishi Electric's negotiations with the Philippines, first by providing five Maritime Self-Defense Force training planes and about 40,000 helicopter parts at no charge, then promising that the Japanese government would take action should the radar equipment break down.
"We wanted to do what we could to create an example of a successful equipment export," a senior Defense Ministry official said.
As its next success, the agency is aiming to export the Air Self-Defense Force's C-2 transport planes to the United Arab Emirates.
"If the export of Japanese aircraft can be achieved, it would change how the defense industry is viewed," said a senior agency official.
The main competitor is Airbus SAS, the European aircraft giant. "That will be a turning point for the future," a senior government official said.
Going forward, public-private sales efforts will target the four countries of Vietnam, Malaysia, Indonesia and India, all of which are on good terms with Japan.
--Wide base
The agency's support of exports is intended to strengthen the foundation of the domestic defense industry and promote technological development, but the current situation is dire.
In terms of domestic defense contractors, there is wide base. There are said to be about 8,300 companies involved in escort vessels alone. However, defense-related sales account for only about 5 percent of each company's sales on average.
While the defense budget has edged slightly upward, with technology becoming increasingly advanced, there is an increasing reliance on the United States to procure key equipment.
The amount of overseas procurement as part of the equipment contracts concluded by the ministry has swelled from 7.4 percent in fiscal 2011 to 27.8 percent in fiscal 2019, based on initial budgets.
"The defense sector has low profit margins," said a senior executive of one big company. Many in the industry firmly believe the domestic market alone will not be enough to halt the decline of the domestic defense industry.
In February last year, it came to light that Komatsu Ltd. had told the ministry it would no longer develop new Self-Defense Forces vehicles. It is said that executives of more than a few companies were concerned that being seen as an "arms dealer" would have a negative impact on their firms' other businesses.
Over these five years, research and development spending by the ministry that leads to investment in domestic industries has grown from 142 billion yen in fiscal 2015 to 167.6 billion yen in fiscal 2020. Yet this is still only about half of what South Korea spends.
Last year, the ministry created a forum for exchanging views with the Japan Business Federation (Keidanren) for the purpose of nurturing the defense industry. The agency will need to proactively gather information on trends in overseas and domestic industries so it can be more strategic in its efforts.
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