Govt to Encourage Startups to Enter Defense Industry

Yomiuri Shimbun file photo
The Ground Self-Defense Force’s Type 10 tank

To encourage new startups to enter the defense industry, the Defense Ministry and the Economy, Trade and Industry Ministry will hold a joint briefing session for private companies from this summer, according to sources.

The move is aimed at utilizing the space, cyber and other advanced technologies possessed by companies to strengthen defense capabilities as well as to broaden and revitalize the base of the defense industry. Efforts will also be made to ensure that transactions between major companies and subcontractors are appropriate to prevent withdrawal of subcontractors from the business.

In June, the two ministries established a joint promotion committee for the utilization of startups in the defense industry and are coordinating to hold the briefing in August to which startup companies will be invited.

The areas in which startups are expected to enter include space and other new fields as well as advanced technologies such as drones, robots, artificial intelligence and sensors.

Overseas investment in “dual-use” technologies that can be used for both defense and civilian purposes is growing. However, Japan lags behind. Given this, the government has decided that it is necessary to support new entrants to the market.

The industry ministry has compiled a list of about 100 companies, and it plans to invites a few companies every two months or so to be briefed about their technologies. The sessions will be attended by officials from the Ground, Maritime and Air Self-Defense Forces and the Acquisition, Technology & Logistics Agency. They will determine whether to introduce the equipment in the short term and whether to invest in the research and development budget in the medium to long term.

The government’s National Security Strategy, which was revised in December, stipulates its policy of actively utilizing advanced private-sector technologies in the research and development of defense equipment. The Defense Technology Guideline, which were released by the Defense Ministry in June, set forth a policy of establishing a system that allows diverse companies to participate in projects in cooperation with startups with which the ministry had previously had little relationship.

The defense industry is said to have about 1,100 companies related to fighter aircraft, about 1,300 companies related to tanks and about 8,300 companies related to destroyer vessels, but a number of companies have been withdrawing from the industry due to low profit margins. The Defense Ministry has typically set the profit margin for major companies to which it orders equipment at an average of about 8%, but in order to support the defense industry, it has introduced a system that will allow contractors to secure a maximum of 15% from fiscal 2023.

The two ministries also hope to improve the profit margin of the entire supply chain, including subcontractors and sub-subcontractors.

On June 28, the two ministries held an expert panel meeting to formulate guidelines for appropriate transactions. The guidelines will be compiled by the end of the year. Officials from both ministries will examine if contracts are being properly executed within the industry.