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Asian arms importers are leveraging their contracts to soak up technology and build up their own defense industries. (© Nikkei photo illustration)
Asia Insight

India-Russia pact marks turning point in Asian arms race

South and Southeast Asia use buying power to win tech transfers

KIRAN SHARMA, Nikkei staff writer | Southeast Asia

NEW DELHI -- India's Soviet-era military hardware will soon have a new source of replacement parts: India.

In Vladivostok on Sept. 5, India and Russia concluded lengthy negotiations on local Indian production of spare components. Though few details have been released, a source familiar with the talks said fighter jets like the MiG-27 and MiG-29 are likely the focus.

"Today's agreement [will give] our defense cooperation a solid foundation of co-manufacturing outside the limited environment of buyer-seller," Indian Prime Minister Narendra Modi said after meeting Russian President Vladimir Putin on the sidelines of the annual Eastern Economic Forum in the port city.

"The spare parts issue has been a major irritant in ties, which has been laid to rest forever," said Pankaj Jha, former deputy director of India's National Security Council Secretariat and an associate professor at O.P. Jindal Global University. "India made it very open" that it cannot keep buying spare parts from Moscow, but would purchase "more" Russian weapons if the parts can be procured locally, Jha added.

India is not alone in deploying such strategies. Governments across Asia have been spending more on arms imports in recent years, but are now looking to leverage that buying power to build up domestic arms industries, curb capital outflows and ensure operational freedom.

India reached an agreement with Russia to produce spare parts for military gear on its own soil. The deal is believed to include components for MiG fighter jets like these. (Photo by Yuji Kuronuma)

The scale of Asian military spending surpassed that of Europe in 2009 and is closing in on North America, according to the Stockholm International Peace Research Institute. China's rapid expansion is a major factor, but other countries have raised their military budgets, too.

India, for example, became the world's fourth-largest spender on defense in 2018, shelling out $66 billion. Only the U.S., China and Saudi Arabia spent more.

Now, Asian countries are looking to turn those purchases into investment and technology transfers from suppliers. Just as India will soak up jet technology from Russia, Malaysia is looking to absorb know-how from China.

Boustead Naval Shipyard, a Malaysian shipbuilder, "will take up the transfer of technology [from China] through training and maintenance of the Littoral Mission Ships," Defense Minister Mohamad Sabu told the Nikkei Asian Review recently.

Malaysia's navy is in the process of procuring four patrol vessels from China, two of which have already been delivered. The others are to arrive "by May and August 2021," according to the minister. Though he did not disclose a time frame for the technology transfers, he said China is "advancing in the defense industry" and said Malaysia "should take the opportunity to collaborate further to boost our local defense industry."

Tactics for obtaining foreign technology differ among Southeast Asian countries. While Malaysia takes a case-by-case approach, Indonesia employs a more organized -- and forceful -- policy. A regulation dubbed "Law 16" requires foreign suppliers to transfer tech and use local content worth at least 85% of the contracted value. They may start with 35% of the value, but are required to increase the proportion by 10% every five years until it reaches 85%.

Thailand, meanwhile, plans to develop special economic zones specifically for the defense industry, with a mix of domestic and international investment. The authorities have not specified the locations of the zones, nor what kind of technology they have in mind, but the plan indicates the kingdom wants to produce its own arms on its own soil.

Experts say some countries have a better shot at bargaining for the benefit of their indigenous defense industries than others.

"We spend around $10-12 billion on [defense] procurement every year," said Laxman Kumar Behera, a research fellow at the Institute for Defence Studies and Analyses in New Delhi. "Nobody could afford to ignore this market. India has every right to leverage that buying power."

Southeast Asian countries, on the other hand, might have a tougher time.

Although the 10 members of the Association of Southeast Asian Nations have an agreement to cooperate on defense and together imported more than India in recent years, their ability to negotiate as a bloc is questionable.

"The ASEAN countries are still too far apart when it comes to national requirements and industrial priorities to work together," said Richard A. Bitzinger, a visiting senior fellow at the S. Rajaratnam School of International Studies at Nanyang Technological University in Singapore. "They are also too suspicious of each other."

The U.S.-China rivalry could open some doors, however.

"We can take advantage of the dispute between [the U.S. and China]," said Teuku Rezasyah, a permanent lecturer and defense expert at Indonesia's Padjadjaran University, suggesting major arms exporters will approach Asian countries to provide technologies in exchange for closer ties.

Indonesia ties its arms deals to a requirement that suppliers transfer technology and use mostly local parts.   © Reuters

Rezasyah sees a situation that is "similar" to the jockeying between the U.S. and Soviet Union in the 1950s and early 1960s. He said Indonesia's first president, Sukarno, maneuvered to secure aid from the Soviets, and the result was that "Indonesia became the country with the most powerful armament in Asia during that period."

The regional rush -- which is clearly driven by geopolitical uncertainty and simmering disputes -- could also lead to some potentially awkward arrangements.

Some Southeast Asian countries, such as Vietnam and Indonesia, have made a point of acquiring more naval vessels since China constructed a drilling rig near the Paracel Islands, stirring up territorial tensions in the South China Sea. But as seen with Malaysia, which has its own beef with China over the sea, such frictions do not necessarily determine the choice of partners for arms deals and transfers.

"Their [ship's] design met the Royal Malaysian Navy requirements and the cost is cheaper, as compared to those built by Western companies," the Malaysian defense minister explained.

In other cases, technology transfers expose the shortcomings of a country's own weaponry.

Separately from the spare parts deal, New Delhi formed a joint venture with Moscow this March to produce Russian AK-203 Kalashnikov assault rifles in northern India. Bitzinger said the arrangement "is actually an indicator of the failure of [India's] homegrown INSAS rifle."

Russia helped India save face by promoting the AK-203 project as part of Modi's "Make in India" campaign to expand the manufacturing sector and create jobs.

Still, the Russia deals mark steps forward for India's defense development. And Asia's arms race overall appears to have reached a turning point, as emerging countries and their suppliers move beyond simple buyer-seller relationships, as Modi put it.

This spells new opportunities to meet these countries' operational, economic and political needs -- and new potential for friction.

Nikkei staff writers P Prem Kumar in Kuala Lumpur, Erwida Maulia in Jakarta and Masayuki Yuda in Bangkok contributed to this story.

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