Japanese military manufacturers still struggling despite relaxed export ban

A year after Japan eased a long-standing ban on military exports, barely a trickle of deals has formed for its powerhouse manufacturers who are reckoning with latecomer status in a crowded global industry.

Following Japan’s defeat in the second world war, its defence manufacturing industry was confined to the domestic market apart from some joint projects under the Japan-US security alliance. Partly in response to China’s rising military assertiveness, Japan last year loosened restrictions on technology transfers and sales of military equipment.

Industrial giants such as Kawasaki Heavy Industries seem poised for a windfall but ambitions are hitting a wall. So far, the only known deals in the pipeline are the possible sale of Soryu-class submarine technology to Australia and ShinMaywa Industries’ US-2 amphibious aircraft for India.

After decades of near isolation from the global defence industry, “Japan is not up to speed with global trends,” said Toru Hotchi, director of the Defence Ministry’s Equipment Policy Division and Japan’s go-to person for procurement.

Hotchi shares with Prime Minister Shinzo Abe the mission of selling Japan’s defence equipment. He travels to industry fairs and visits foreign militaries to study global defence and weapons trends. He also fields contacts from foreign governments and companies seeking opportunities from Tokyo’s.

“Japan can make anything, in principle, except for nuclear weapons,” Hotchi said in an interview. “The potential is high.”

Japan’s home market is only worth about 1.5 trillion yen (US$12.5 billion) annually. Big-ticket sales overseas could enable its defence contractors to scale up, increasing profits and slashing costs for the Ministry of Defence as it stretches its budget to upgrade outdated hardware and beef up defences against China.

The MAST, or Maritime Systems and Technology, exhibition opened Wednesday in Yokohama, showcasing Japanese and foreign military products, including aircraft, weapons and associated naval and aerospace technology — anything that can be used in maritime security and surveillance, as well as disasters and rescue operations. Giant foreign contractors like Lockheed Martin and Babcock and military officials from “friendly” nations are there, too.

Japanese manufacturers exhibited at last year’s MAST expo in Istanbul, Turkey, but will have a much larger presence in Yokohama, said Warren Edge of the Paris-based exhibition organiser.

“From our exhibitors’ perspective, yes, it’s a big market and we are looking forward to doing this for Japan,” Edge said.

Defence exports have gotten a slow start, partly because Japan lacks the marketing and technology transfer expertise of the US and other major exporting countries.

“Those skills will have to be built, and they’re going to have to build them while they are competing with their ally the US in a defence export market,” said Jack Midgely, an executive officer at Deloitte Tohmatsu Consulting Co. in Tokyo and an expert on the defence industry.

In the US, military-related exports are mostly conducted through the Foreign Military Sales programme under the Defence Security Cooperation Agency.

The system provides the products, financing, training and logistical support to foreign militaries, which is backup Japan is ill-equipped to offer. To address that issue, Japan plans to set up an agency to oversee defence equipment research and development, and procurement, to cut costs and improve efficiency.

“The US sets the global defence equipment standard,” Hotchi said. “Equipment that is not used by the U.S. is not going to be a viable business.”

Hotchi acknowledges that his hardest sell is in Japan.

“Japanese companies are not really prepared to compete,” he said. “They don’t know how, because their customer up to now was 100 percent the Defence Ministry, and they’ve never had to make any marketing effort.”

Still, some progress is evident.

Australia’s Defence Minister Kevin Andrews has invited Japan to participate in the selection process for a partner to jointly design and build a submarine, Gen Nakatani, Japan’s defence minister, told reporters last week.

Japan should focus on areas such as its diesel submarine propulsion technology, which is unique and advanced, Hotchi said.

Another star product is ShinMaywa’s US-2 amphibious aircraft, which is on India’s shopping list. The company, based in western Japan’s Hyogo prefecture, refused comment on those negotiations, citing sensitive timing.

Hotchi and others say Japan can also take over production of equipment and parts no longer made in the US. For example, last year Tokyo approved plans to make seeker gyros used in the PAC-2 missile defence system.

Japan’s participation in the US’s F-35 Lightning joint strike fighter jet program, as a customer and as a supplier of regional maintenance and logistics support, may promote sales of its own components for the jet, Midgely said. It’s no guarantee, though: the other 11 countries participating are also competing for contracts.

Mark Burgess, customer business director for Honeywell Aerospace in the Asia-Pacific region, said the participation of Mitsubishi Heavy Industries and other Japanese suppliers in the Boeing’s Dreamliner 787 and 777X projects shows they are an affordable option for outsourcing aerospace manufacturing.

Makers of Formula 1 race cars, used to meeting the same exacting specifications as for aircraft, could find new opportunities in making parts, supplying logistics and other segments of the larger market.

Another promising area is 3-D printing, where parts are very sophisticated and tolerances of error are minuscule.

“This isn’t going to open a multibillion dollar industry overnight, but I think there’s going to be some tangible benefits,” Burgess said.

What’s for sale?

AMPHIBIOUS AIRCRAFT

India is considering buying ShinMaywa Industries’ US-2 amphibious aircraft. If the deal goes through it would be the first fully assembled military export from Japan in decades. Indonesia has also showed interest in the search-and-rescue aircraft, which costs about 12 billion yen ($100 million), can land and take off from rough seas with waves as high as 3 meters (almost 10 feet). Japan’s Maritime Self-Defence Forces has seven US-2s.

SUBMARINE TECHNOLOGY

Australia has invited Japan to participate in developing a next generation submarine using its 2,950-ton Soryu-class diesel-electric propulsion system. Japan has 6 of the advanced non-nuclear submarines, equipped with an air-independent propulsion technology acquired from Sweden, and armed with torpedoes and Harpoon missiles. Germany and France are also vying for the 50 billion Australian dollar ($40 billion) project to replace Australia’s Collins-class submarines in 2025-2030.

MISSILE COMPONENTS

At Washington’s request, Mitsubishi Heavy Industries Ltd. was authorized in 2014 to export seeker gyros, which it makes for the Patriot Defence Capability-2 surface-to-air missile defence system, to U.S. defence contractor Raytheon. Raytheon stopped making the gyro, a sensor used to identify, track and chase targets, opting to license manufacturing to Mitsubishi in an arrangement that could become a model for cooperation.

SEEKER TECHNOLOGY

Japan last year approved joint research with Britain on Japanese seeker technology in a European project developing Meteor missiles. Japanese defence officials say they hope to develop technology that can be used in F-35 stealth fighter jets that Japan plans to buy for its Air Self-Defence Forces.