Forget Big Ships: U.K. Defense Firms Tout Tech Transfers in Asia

(Bloomberg) -- British defense companies seeking business in Asia are increasingly offering to transfer technology to local contractors, with a senior trade official downplaying the risk of systems falling into the wrong hands.

“Where I think the U.K. is unique is that we will readily facilitate technology transfer, we readily facilitate the establishment of local support and local manufacture,” Alexis Hammer, Regional Director for the Americas and Asia Pacific in the Department for International Trade’s Defence and Security Organisation, said on Wednesday.

“We do that because it actually also sustains jobs in the U.K.,” he said in an interview on the sidelines of the Singapore Air Show. “The high technology jobs, the intellectual activities are what is sourced in the U.K., the delivery and sustainment and through-life support is what is facilitated in the region.”

The U.K. is among countries seeking a greater slice of the procurement business in Asia, including Southeast Asia, as nations such as Indonesia, the Philippines and Vietnam upgrade or replace outdated equipment and modernize militaries that for years prioritized the army over the navy and air force. While Russia and the U.S. remain major sellers of arms into the region, China, India and Japan are also looking to win contracts.

That soup of defense players -- plus the shifting power structure as China expands its economic and military clout in Southeast Asia and North Korea accelerates both its missile development and its cyber activities -- potentially raises questions about the security of technology transfers.

Read more: China Defense Spending to Eclipse Rest of Asia Pacific by 2030

The Pentagon in a recent report cited a new era of great power competition with Russia and China, saying they are narrowing the technological gap with the U.S. military and seeking “to shape a world consistent with their authoritarian model.” China is slowly expanding its military interactions, including training, with some Southeast Asian nations.

Meanwhile countries such as Australia and India -- the world’s largest arms importer -- are now asking that foreign companies guarantee a portion of manufacturing is done locally, in partnership with domestic players. Prime Minister Narendra Modi’s "Make in India" aims to attract foreign firms in order to create local jobs, reduce India’s costly import bill and nurture a domestic arms industry that could one day export weapons across the region.

Governance Regime

Hammer said British exporters, including defense contractors, are subject to a governance regime that is separate from the relevant department, and which can veto arrangements not seen to be appropriate. “That’s why the export control process exists, to protect those capabilities,” he said. “And we make informed decisions about we do transfer.”

“There are 36 priority markets across the globe that we are comfortable in operating with,” he said. “There’s an underlying principle here, which is our forces must never face their own technology.”

He would not comment on which countries in Asia the U.K. doesn’t deal with. It shares technology with the U.S. -- something he expected to remain under a U.S.-UK post-Brexit free trade deal.

Hammer cited the example of BAE Systems Plc licensing the design of its River Class offshore patrol ships to a Thai state shipbuilding company. BAE said in October it would eliminate almost 2,000 jobs over three years as it slims down its naval ships business, among others. BAE has been focused mainly on big-ticket defense programs such as aircraft carriers, which have long lifespans and a limited range of potential buyers.

“You begin to move away from major platform sales to where we believe the real value and the real vibrancy is in this market, is in subsystems technologies,” Hammer said.

Looming Brexit

Asked about domestic political matters -- with the U.K. facing an exit from the European Union in just over a year -- Hammer said the defense sector shouldn’t be overly impacted.

“We’ve always traded on the basis of the United Kingdom,” he said. “Most of the large primes are transnational anyway by their nature.”

“These are bilateral deals anyway,” he said. “They always have been and they always will be.”

To contact the reporter on this story: Rosalind Mathieson in Singapore at rmathieson3@bloomberg.net.

To contact the editors responsible for this story: Daniel Ten Kate at dtenkate@bloomberg.net, Rosalind Mathieson

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