APAC Defense Procurement Dynamics

Neil Dave, Consulting Analyst

Aerospace & Defense

13th December 2012

APAC DefenseAPAC Defense Procurement DynamicsProcurement Dynamics

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13th December 2012

Focus Points

Overview of defense budgets and spending in APAC.

Forecasts and trends of defense budgets in APAC region and globally.

Country-wise break-up of defense

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Country-wise break-up of defense spending in APAC.

Procurement and defense spending trends by APAC countries.

Conclusion and key takeaways.

APAC Defense Budget – Overview

• In recent years, several countries in the APAC region have been witnessing a rise in

defense spending.

• This is due to the increasing economic development along with rising geo-political

instabilities in the region which have driven countries to modernize their defense forces.

• Countries such as Australia, New Zealand, Indonesia and Malaysia in particular have

been recently engaging in new military procurement and replacement programs.

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• Countries like Japan and South Korea are likely to engage in procurement of better

ground-based and mounted weapon systems in the near future.

• Other major procurement programs in the APAC region include procurement of armored

vehicles, ships and aircraft along with others.

• However, the procurement of UAVs (Unmanned Aerial Vehicles) by many nations is

expected to be a major contributor to the increased defense spending in the region.

APAC Defense Budget – Overview

• Geographic Scope: This briefing will be discussed on 10 countries in the APAC region, namely; Malaysia,Singapore, Indonesia, Thailand, Vietnam, Philippines, Japan, South Korea, Australia and New Zealand.

• However, countries that will be discussed in depth are Japan, South Korea, Australia, Singapore andIndonesia.

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Note: Marked in blue are countries that will be discussed.Source: Frost & Sullivan analysis.

Defense Budgets: Forecasts and Trends

• The APAC defense budget reached

USD 151.45 billion in 2012.

• This is an increase of 4% from 2011 and

close to 8% of global spending in 2012.

• This budget is expected to reach close

to USD 207.84 billion by 2020. 1500

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Defense Spending: 2008 - 2012

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• This increased spending is being driven

by replacement of aging equipment.

• Most of the rise in spending is expected

to be driven by Indonesia, S Korea,

Australia and Japan.

• These four countries are expected to

collectively contribute 80% of total

defense spending by 2020.

2008 2009 2010 2011 2012

World 1,473 1,560 1,630 1,738 1,850

APAC 116.79 119.47 132.27 145.60 151.45

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Source: Frost & Sullivan analysis.

• Japan, South Korea and Australia

collectively contribute to 76% of APAC

defense budgets in 2012.

• Japan alone contributes to 39% of the total

defense budget in APAC. However, a

slowdown is expected.

Defense Budgets: By Countries in APAC

Malaysia, 3%

Singapore, 6%

Indonesia, 5%

Thailand, 4%

Vietnam, 2%

Australia, 17%

New Zealand,

2%

Defense Budgets by Countries in APAC - 2012

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• On second place is South Korea with 20%

of defense budget in APAC. This is being

driven by modernization of military and

newer weapon systems.

• On third place is Australia, with about 17%

of APAC defense budget. Spending will

be driven by procurement of military

aircraft, ground vehicles and ships.

Vietnam, 2%

Philippines, 2%

Japan, 39%

South Korea,

20%


• Japan contributes to the highest market share in

defense spending.

• Spending is driven by investment in technological

improvement in armed forces.

• Lesser procurement budget is due to financial

constraints and reliance on US forces.

Defense Budgets by Country: Japan

26.58, 45%

10.63, 18%

21.85, 37%

Japan: Defense Budget by Expenditure Type

(2012)

Operations &

Maintenance

Procurement

Personnel Costs

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Major Procurement Programs

• Army: Ground Vehicles and missile defense systems

• Navy: Mainly submarines

• Air Force: Several fighter jets

21.85, 37%

13.58, 23%

13.58, 23%

10.04, 17%

Japan: Defense Budget by Organization

(2012)

Army

Navy

Air Force

Others


• South Korea has the 2nd highest defense spending in

APAC having about 20% of market share.

• China’s increasing military power and the decreasing

influence of US forces is set to drive spending.

• Procurement makes up about 31% of the country’s

defense budget.

Defense Budgets by Country: South Korea

8.69, 28%

9.62, 31%

12.72, 41%

South Korea: Defense Budget by

Expenditure Type (2012)

Operations &

Maintenance

Procurement

Personnel Costs

8


• Army: Tactical ground missile & weapon systems.

• Navy: Mainly submarines.

• Air Force: Fighter and stealth fighter jets.

13.65, 44%

6.20, 20%

5.58, 18%

5.58, 18%

South Korea: Defense Budget by

Organization (2012)

Army

Navy

Air Force

Others


• Australia is the 3rd highest defense spending country

in the region with close to 17% in market share.

• Spending will be driven by a need to replace obsolete

military vehicles and equipment.

• Procurement makes up about 26% of Australia’s

defense budget.

Defense Budgets by Country: Australia

9.81, 37%

6.89, 26%

9.01, 34%

0.80, 3%

Australia: Defense Budget by Expenditure

Type (2012)

Operations &

Maintenance

Procurement

Personnel Costs

Others

9


• Army: Unprotected and armoured ground vehicles.

• Navy: Mainly frigate ships

• Air Force: Fighter jets, bombers and transport aircraft.

9.81, 37%

6.89, 26%

9.01, 34%

0.80, 3%

Australia: Defense Budget by Organization

(2012)

Army

Navy

Air Force

Others


• Singapore contributes to about 6% of the total APAC

defense budget in 2012.

• Spending is being driven technological advancement

of existing equipment.

• The country has only 10% of spending on

procurement.

Defense Budgets by Country: Singapore

4.86, 50%

0.97, 10%

3.70, 38%

0.19, 2%

Singapore: Defense Budget by Expenditure

Type (2012)

Operations &

Maintenance

Procurement

Personnel Costs

Others

10


• Army: Light Armoured Vehicles

• Navy: Stealth frigates and landing platform dock ships.

• Air Force: UAVs, stealth aircraft, refuelling tankers,

missiles.

0.97, 10%

4.28, 44%

2.53, 26%

2.43, 25%

0.49, 5%

Singapore: Defense Budget by

Organization (2012)

Army

Navy

Airforce

Others


Defense Budgets by Country: Indonesia

1.61, 23%

2.38, 34%

3.01, 43%

Indonesia: Defense Budget by Expenditure

Type (2012)

Operations &

Maintenance

Procurement

Personnel Costs

• Indonesia contributes to about 5% of the total APAC

defense budget in 2012.

• Geopolitical tensions and replacement of aging

equipment will drive procurement spending.

• The country has a healthy 34% of spending on

procurement.

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2.73, 39%

1.12, 16%

0.84,

12%

2.31, 33%

Indonesia: Defense Budget by

Organization (2012)

Army

Navy

Air Force

Others


• Army: Battle tanks and armoured vehicles.

• Navy: Mainly submarines

• Air Force: Fighter jets and heavy transport aircraft.


Conclusion : Key Takeaways

2Most of the ground vehicles procured will consist of light-weight vehicles as a result

of the region’s combat strategy of agility as opposed to size & strength.

Indonesia is expected to drastically increase its defense spending in the next few

1Focus of procurement in the APAC region will be on land vehicles, MBTs (Main

Battle Tanks), anti-aircraft and anti-tank weapon systems and artillery.

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3Indonesia is expected to drastically increase its defense spending in the next few

years and is expected to be a major driver for the increased spending in APAC.

4Gradual withdrawal of US presence and support will cause countries like Japan and

South Korea to increase spending from 2017 onwards.

5Overall, technological advancements and the need to replace aging equipment will

drive defense spending in the APAC region in the future.

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Today’s Presenter

Neil Dave, Consulting Analyst

Frost & Sullivan

Neil is a consulting analyst with the Aerospace and Defense practice at Frost &

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[email protected]

Neil is a consulting analyst with the Aerospace and Defense practice at Frost &

Sullivan. He works with clients on market strategy, best practices, opportunity

analysis and competitive intelligence analysis across various sectors in the

Aerospace & Defense Industry as well as other industries which include ICT,

Healthcare and Electronics & Security.

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APAC Defense Procurement Dynamics