Germany's rearmament boom opens doors for K-defense in Europe

KOTRA report: 'German manufacturing trends and cooperation opportunities for Korean firms'

Germany's defense budget has more than doubled in six years

Automakers, machinery firms push into defense sector

Korean firms eye parts supply, local production opportunities

Hanwha Aerospace expands European production footprint

LIG D&A pursues joint development with Germany's Rheinmetall

A German military training facility. This photo is not directly related to the article. [EPA/Yonhap]

Germany's rearmament drive is generating a surge in defense demand that local production capacity cannot keep up with, creating an excess-demand environment that analysts say Korean defense firms should seize as an entry point into the European market — from supplying parts and materials to establishing local production and pursuing joint development.

According to a report published by the Korea Trade-Investment Promotion Agency (KOTRA) titled "German Manufacturing Trends and Cooperation Opportunities for Korean Firms," Germany's defense budget more than doubled from $53 billion in 2020 to $108 billion in 2026. Over the same period, the order backlog of Rheinmetall — Germany's largest defense company — more than tripled, from $24 billion to $80 billion. The backlog now amounts to roughly six years of the company's annual sales. Analysts say the rapid growth in weapons procurement demand has outpaced capacity expansion, creating bottlenecks across Germany's defense industry.

Within Germany, established manufacturers are rushing into defense to capitalize on the excess demand. The automotive, machinery, chemical and metals sectors are eyeing defense as a new business line to offset weakness in their core industries. Volkswagen, Europe's largest automaker, is exploring plans to convert idle factories into defense production lines. Electrical equipment and electronics and optics companies are also considering entering the defense sector to tap EU demand for advanced weapons systems as a new revenue source.

Hanwha Aerospace's K9 self-propelled howitzer. [Hanwha Aerospace]

Germany short on capacity — K-defense responds with localization

KOTRA said Korean companies can use the defense supply gap created by Germany's rearmament as a springboard into the European market. The agency recommended entering supply chains for urgently needed items such as drones, while expanding the scope of engagement through local production by large firms and technology cooperation.

Korea's defense industry is already accelerating its localization strategy in Europe. Hanwha Aerospace is the leading example. The company is pursuing an investment plan totaling 11 trillion won ($8.09 billion), of which 6.3 trillion won is earmarked for securing production bases in Germany and other parts of Europe. The strategy is to establish local production footholds in regions where defense demand is growing — including Europe and the Middle East — to meet local procurement requirements. Because European countries tend to prefer cooperation models that include local production over straightforward arms purchases, Hanwha Aerospace plans to deepen its localization strategy across its key product lines, including the K9 self-propelled howitzer, the Chunmoo multiple-launch rocket system, the Redback infantry fighting vehicle and ammunition.

LIG Defense & Aerospace (LIG D&A) announced in June that it had formed a strategic partnership with Rheinmetall Air Defence to cooperate on supplying advanced air defense systems to Europe and NATO. The photo, taken June 15 (local time) at the Eurosatory international defense exhibition in Paris, shows LIG D&A head of overseas business Lee Hyun-su (right) and Rheinmetall Air Defence CEO Oliver Dürr signing the MOU and posing for a photo at the Rheinmetall booth. [LIG D&A]

Technology cooperation is emerging as another entry route. Analysts note that Germany's defense industry has strong demand for joint development in areas such as drones, counter-drone systems and AI solutions, creating openings for Korean firms. LIG Defense & Aerospace (LIG D&A) formed a strategic partnership with Rheinmetall Air Defence in June to pursue the European air defense market. The two companies are discussing the establishment of a joint venture in Europe while advancing cooperation on joint development, production and sales. Specifically, they plan to link LIG D&A's medium- and long-range air defense missile systems with Rheinmetall's very-short-range air defense capabilities and to jointly develop a new short-range air defense missile system, pursuing European supply chain development, localization and sales at the same time.

keg@heraldcorp.com