South Korean defense companies are accelerating their localization strategies in Europe as conflicts intensify across Europe and the Middle East. The move also comes ahead of the upcoming North Atlantic Treaty Organization (NATO) summit, where member states are expected to discuss raising their defense budgets by approximately 1,000 trillion won ($725 billion).

The shift toward localization, rather than traditional exports, follows European Union (EU) policies encouraging the purchase of defense equipment from within the bloc. In response, Korean defense firms are expanding their production footprints in Europe and forming joint ventures (JVs) with local companies to strengthen regional integration.

“Localization is now a must, not a choice,” a defense industry official said. “Industry-wide investment in Europe is now exceeding trillions of won.”

Among the firms, Hanwha Aerospace Co. stands out for the scale of its planned investments. The company intends to raise capital via a rights offering to fund overseas expansion, with a focus on Europe and the United States.

In Poland, which has emerged as a key market for Korean defense exports, Hanwha Aerospace plans to invest about 600 billion won to establish a joint venture with local defense contractor WB Group; the duo agreed on JV terms and are discussing implementation. The new entity will produce CGR-080 guided rockets used in the K239 Chunmoo multiple rocket launcher at a local facility in Poland and plans to export them to other European countries.

Romania is also a major target for Hanwha’s localization drive. Under existing contracts for the supply of K9 self-propelled howitzers and K10 ammunition resupply vehicles, Hanwha will begin delivering units produced at a factory in Dâmbovița, southern Romania, starting in 2027. Academic and industrial ties are also being developed, with Pusan National University and the Polytechnic University of Bucharest signing a memorandum of understanding to train personnel, build a research and development center, and launch internship programs.

Hanwha is also exploring cooperation with Germany. Since Germany produces the PzH 2000, which is seen as a direct competitor to the K9, a potential partnership is viewed as a strategic but high-stakes move. The company recently hosted an event in Germany to promote Korean defense systems to government officials and industry leaders.

“We expect our global localization investments to exceed 1 trillion won,” a Hanwha Aerospace official said. “We will continue to build strong local production capacity and improve competitiveness in response to rising defense budgets and growing demand.”

Hyundai Rotem Co., which exports the K2 tank, is also moving forward with local production. The company signed a master contract with Poland to supply around 1,000 K2 tanks in 2022 and plans to complete delivery of the first batch of 180 units by 2026.

Starting with the second batch - also 180 units - local production will begin in earnest. Of these, 63 units will reportedly be built by Polish state-owned defense group Polska Grupa Zbrojeniowa (PGZ) under the K2PL designation. Hyundai Rotem is preparing additional contracts to increase local manufacturing and expand technology transfer agreements.

Romania could also be a potential buyer for the K2 tank, with Hyundai Rotem proposing an assembly model that would support local employment and technology acquisition. Romania hopes this partnership will help develop its domestic defense sector evolve from assembly to component production and process expertise.

Korea Aerospace Industries Ltd. (KAI), which signed a contract to export 48 FA-50 light combat aircraft to Poland, also plans to localize operations, intends to gradually increase the share of parts production and final assembly in Poland. The company will also establish a local maintenance, repair, and overhaul (MRO) center to improve operational readiness as well as reduce costs.

“While Korean defense firms have seen initial success, what is uncertain is if they can sustain that momentum,” an industry official said. “To stay competitive, they must actively pursue mutually beneficial partnerships with European firms.”

According to the European Defence Industrial Strategy (EDIS) and the European Defence Industrial Programme (EDIP) announced in 2024, the EU aims to secure at least 40 percent of new defense equipment via joint procurement by 2030. It also seeks to increase intra-EU defense trade to 35 percent and ensure that 50 percent of defense investments are spent within the EU by 2030, with that percentage rising to 60 percent by 2035.

[ⓒ 매일경제 & mk.co.kr, 무단 전재, 재배포 및 AI학습 이용 금지]