Japanese Defence

A Growing Market

Countries in East Asia such as China and South Korea have been spending more on defence for many years. Japan has been more restrained but since 2012 has been increasing defence expenditure by around 2% annually. In 2022, the new defence strategy identified the need to increase defence spending to 2% of GDP by 2027.

For many years, Japan banned arms exports and provided a focus on indigenous defence capability. However, in 2014 a new policy on defence equipment transfer overseas has begun to change the landscape. Japanese companies are being encouraged to explore overseas markets and work with international partners, both at home and abroad. This is likely to increase in the next few years.

Japan has established equipment cooperation frameworks with a number of countries, including the US, UK, France, Australia and beyond. These provide government approval mechanisms to permit mutual development.

These changes are changing the landscape in Japan for international defence companies. There is a willingness to work with others.

JAPANESE DEFENCE MARKET

Japan operated an informal limit of 1% of GDP for defence expenditure for most of the post-World War II period, although total expenditure at around $50bn annually still gives Japan one of the larger defence budgets in the world. In 2022, the government targeted 2% of GDP expenditure by 2027.

Japan’s new defence export regime is still developing and Japanese companies are still gaining experience. There are opportunities to work together, but the system needs careful navigation.

Both the UK and Japanese governments signed a Defence Equipment Collaboration Framework in 2013. This provides a structure for promoting collaborative projects.

The Projects can be:

Government sponsored projects. These require both governments to identify and fund joint requirements.

Government agreed technology demonstration or research projects. Both governments again have to agree objectives, timescales and funding.

Business to business collaboration, either with an aim to sell to the UK and Japanese governments, or to take jointly to export markets. These can be acknowledged by both governments but need no formal permission.

The potential for finding new projects is considerable. We already have experience with a number of companies and specialise in identifying and developing new opportunities.

The best opportunities tend to arise when companies identify similar but complementary technical capabilities. We specialise in helping you identify these.

Japanese Culture

DEFENCE BUSINESS CULTURE

Japan’s business culture is distinct. It encourages long-term business success and values enduring relationships. It has allowed Japan to become one of the pre-eminent global economies in the last 75 years.

Because of the long isolation from the global defence market, Japanese defence business culture is also distinct. Long exposure to a protected national market has allowed development of a unique way of doing business within Japan. This can be accessed with the right advice and approach. At the same time, it is likely to evolve as Japan considers external market access.

The key to accessing Japanese defence markets is first to conduct the right market research and then to develop a strategy that provides the right mix of partners, agents in the form of a Japanese trading company, and representation. This mix is likely to evolve over time and needs regular reassessment.