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Monday, July 18, 2016

Defence Procurement Policy - Local Defence Industry

In my most recent article on defence procurement policy (published 6 May 2016), I have touched lightly on local defence industry. This is not due to dearth of information on local defence industry. Contrary, the industry today is very much alive and would probably be a key economic driver for Malaysia in 3 years time. Sound optimistic? Yes, and I'm still trying to be conservative in my outlook.

Ten years ago, you can basically count with your fingers the number of key players in the defence industry. Today, this number has grown.

Many of these companies came to promote their products during the recent DSA. Though in terms of floor space taken up shows a slight decline in number of exhibitors, the quality of local display has increased significantly.

Previously, local players were only involved as middlemen peddling products from big international players. This time, local players had also brought in homegrown products which received rather good review. Some of these were rather sophisticated. At least 1 product had received offer for international joint-venture and marketing from a very well-established international firm.

Another key difference in the approach of our local defence contractor player. Instead of following the tried and tested methods of being suppliers of defence equipment to Malaysian Armed Forces, they have now moved to offer both products and maintenance servicing.

This departure in approach can be seen in the MOU signing between Nexter and a local company to provide servicing to Nexter's Caesar 155mm SPH platform. And not only the company aspire to be the service provider to Malaysian Armed Forces, but they had also planned to expand the operations to be the maintenance, refurbishing and overhaul centre for Asia Pacific. With Nexter's Caesar is also in operations in Indonesia, Thailand and Vietnam, this mark a very interesting approach for Malaysian companies in the sector.

The advent of China's economic prowess has have spilled over into the sector. In the past, precision manufacturing equipment can only be obtained from the West, South Korea and Japan at the cost of arms and legs. Today, equipment with similar or same capabilities can be obtained from China at the fraction of the cost.

With these equipment, private Malaysian companies finally get to explore weapon manufacturing technology earnestly.  Case in point, the Malinnov pistol. Modelled on the legendary Colt 1911, the company made appearance during this DSA.

Sometimes, it is not the metal works that counts.  One local company had embarked on a project to design a remote weapon system using off-the-shelf equipment.  The result was an indigenous-designed functional remote weapon system that can be fitted on any compatible platform.

Opportunities are now abound for Malaysian companies involved in the industry.

SME Ordnance which were once being maligned for not renewing the license for Steyr AUG bullpup rifle design is now one of the recognised centres for production of licensed Colt M4A1 rifles.  The recent rearmament exercise for Philippines Armed Forces also saw SMEO being recommended as producer for the rifles for Philippines Armed Forces. Though I must say there seems to be no follow up to actual orders.
In terms of armoured vehicles, the Philippines Army also uses Turkish-made ACV15, which is essentially ACV300.  As Deftech also produced ACV300 Adnan for our Army, Deftech should market itself as recommended regional maintenance and refurbishing overhaul centre for FNSS.

Another key player in the industry is Boustead Naval Dockyard.  Recent development suggest that the company is in prime opportunity to market and promote the Gowind ship design to Vietnamese Navy.  Vietnamese Navy recently expressed interest to procure several ships based Gowind design.

Indonesian Navy TNI - AL recently announced their intention to procure Scorpene class submarine to complement their submarine force is a compliment to Malaysia's choice of procuring the Scorpene instead of the Kilo class which came highly recommended in the 90's.  Boustead should go hand in hand with DCNS to promote the submarine to Indonesian Navy and reinvent itself also as the MRO centre for the Scorpene.  Currently, BNS already has the necessary experience to perform MRO with both KD Tunku Abdul Rahman and KD Tun Abdul Razak full maintenance and overhaul were performed locally by BNS.

As for aerospace industry, AIROD Malaysia had been at the forefront as Lockheed Martin's MRO centre for Asia Pacific. They had been servicing the ever dependable Hercules C-130 medium transport aircraft and even performed the MRO for USAF.  With nearly every country in the region uses C-130, this is an opportunity that should not be missed.

Rosobonorexport desire to build an assembly line in Malaysia means we may be able to produce our own SU30MKM in the near future, provided the government purchase the SU30MKM as replacement to the MiG29.  This move will improve the logistics lines and improve cost efficiency.  If an assembly line is built in Malaysia, technically this will also be the MRO line which can serve the regional air forces which had procured other Sukhois, which are Vietnam and Indonesia.

This is an exciting time for the industry.  Done correctly, not only this will be a lifeline for Malaysia during time of war but also generate hard cash for the country during time of peace.

My final article will cover on deployment of defence procurement as a diplomatic tool.  Due to our recipient nature, we are unfortunately receiving the effect of diplomatic tool. 

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