Taiwan’s domestic defence industry plays a massive role in national defence, producing innovation after innovation despite international isolation. However, more needs to be done to engage the private sector to bolster the island’s defence under its Overall Defence Concept.
Chinese escalation over Taiwan has renewed concerns about the island’s ability to defend itself. China’s President Xi Jinping has vowed to “never renounce the use of force” to bring Taiwan under Beijing’s control. The world has witnessed China’s resolve and bellicosity, particularly in August 2022 after former US Speaker Nancy Pelosi visited Taiwan, and in April 2023 when Taiwanese President Tsai Ing-wen transited through the United States. After each perceived provocation, Beijing initiated large-scale military drills aimed to intimidate Taiwan and brush up its armed forces’ ability to invade the island.
Taiwan’s military capabilities are, at present, insufficient to counter a full-scale Chinese attack, and the island’s geographic position complicates any allied logistical support. To further bolster its Overall Defence Concept, Taiwan has doubled down on improving its military and increasing self-sufficiency.
ODC and domestic self-reliance
To address increasing cross-strait tensions and domestic budgetary concerns, Taiwan must allocate and manage its limited resources as efficiently and effectively as practicable. In doing so, Taipei has adopted the Overall Defence Concept (ODC) as its main strategic position to deter, and if needed, defeat a Chinese invasion.
The ODC, inter alia, emphasises the use of conventional and asymmetric capabilities, instead of confronting the People’s Liberation Army head-on in a traditional war of attrition. Focussing on asymmetrical warfare, Taipei has already begun to modernise its military, acquiring a large number of small and cost-sustainable capabilities. Washington has sold anti-ship missiles and Stinger portable air defence systems, while HIMARS – the system gaining international attention in Ukraine – is already on its way to Taiwan.
Enter the state-backed firms
In following the ODC, more important than international partners will be Taiwan’s own efforts in managing its domestic defence industrial base. In Taiwan, the relationship between the military and private sector has been historically weak, limiting the island’s ability to tap into innovation and research strengths private industry possesses. The three major state-affiliated companies, the National Chung-Shan Institute of Science and Technology (NCSIST), the Taiwan International Shipbuilding Corporation (CSBC), and the Aerospace Industrial Development Corporation (AIDC), work directly with the Ministry of National Defence.
Taiwan has developed a disproportionate amount of military technologies compared to its size and population, with the state-backed organisations bearing the brunt of development. The indigenous missile programme based in the NCSIST stands out as a significant achievement, with many missiles’ performance specifications comparing favourably to leading Western arm manufacturers.
In early 2023, Taiwan test-fired its new missile, reportedly with a 1,200 kilometre range, far enough to hit Qingdao or Wuhan in China. The NCSIST currently has 16 production lines for various missiles, with the weapons acting as the island’s first line of defence and serving as the backbone to sustainable deterrence. Missile production for 2023 is expected to increase to 1,000, up from 800 in 2022, owing to the completion of new production facilities.
In the water, the Taiwanese navy has taken delivery of its largest locally built warship – the amphibious Yu Shan. Constructed by CSBC, the indigenous vessel is the first of four planned. At the unveiling ceremony, President Tsai noted that the Yu Shan stood as a testament to Taiwan’s efforts to boost domestic warship construction and worked towards the goal of “national defence autonomy”.
Taiwan has also developed a new class of homemade corvettes – the Tuo Chiang – designed to address the common weakness of traditional small warships unfit for long uses in Taiwan’s rough waters. Having already taken delivery of two corvettes, the navy has planned a total of eleven for service by 2026. In addition to surface vessels, the navy is due to receive nine of eleven diesel-electric Indigenous Defence Submarines by 2025, boosting Taiwan’s submarine credentials.
Taiwan is also hitting its stride in local aerospace technologies, having developed a fully-indigenous fighter in the 1980s and recently completing the new AT-5 Brave Eagle trainer. The Brave Eagle is the air force’s newest “fighter-trainer”, with 66 aircraft ordered.
Where is private industry and the SMEs?
In August 2022, the Tsai administration announced a 14.9 percent increase to Taiwan’s defence spending, reaching a record US$19.6 billion, equivalent to 2.4 percent of Taiwan’s projected GDP for 2023. Unsurprisingly, much of this spending is earmarked to the three government-affiliated firms, leaving little for private companies.
Historically, SMEs and private firms involved in defence have only been contracted to produce sub-systems and less sensitive components. This is primarily due to the unique challenges Taiwan faces vis-a-vis China. From the Defence Ministry’s perspective, private companies are untrustworthy as they are not subject to the same standards of control, scrutiny, and confidentiality as the series of state-backed firms, which equate to susceptibility to espionage and subversion from malign actors.
SMEs and private firms engaged are also given little information on the bigger picture their particular contract relates to. A company may only be provided with a list of requirements and rigid specifics their contract must adhere to and satisfy, disallowing these private firms to fully tailor their projects to the military’s needs and provide valuable suggestions.
This present scenario stands in contrast with Taiwan’s desperate need to boost defence. The island’s defence SMEs are just as competitive and technologically advanced as those in industrialised nations, and with the vast majority of development housed in government firms like NCSIST, CSBC, and AIDC, innovation is burdened by the inflexibilities of bureaucracy and inefficient management.
The relationship between the state-backed defence firms, the military and SMEs fails to capitalise on advantages SMEs and private companies can bring. Private enterprises often have access to cutting-edge technologies and expertise that traditional firms lack, while also remaining more flexible and innovative than government organisations. SMEs are able to respond quickly to changing circumstances and adapt their technologies to meet new challenges, reducing costs and simultaneously increasing efficiency.
Taiwan’s military could benefit substantially by diversifying, becoming more agile, and more innovative by finding ways to better tap into SMEs and their know-how. This time-tested and reliable public-private collaboration approach has proved successful in Western nations, where private firms have long played and continue to play a pivotal role in developing advanced military technologies. Countries such as the United States often call for tenders from private companies, small and large, to bid for defence contracts, allowing the nation to capitalise on the innovative capabilities found in the private sphere.
Engaging private industry and SMEs
Shifting away from near-complete reliance on the suite of government-affiliated bodies will require a change in mindset in the Taiwanese government and military. The military must demonstrate its willingness to share information and development specifications and aims to ensure SMEs are afforded the flexibility required to tailor their products to the military’s aims and remain fit for purpose.
One avenue to create more space for SMEs may be through the widespread implementation of robust security clearance processes, providing the requisite confidence the Taiwanese government currently lacks. This security clearance process may also be supported by regular auditing and transparency to authorities to assuage espionage fears.
To encourage SMEs and private industry, the government may introduce tax incentives, research grants, or other financial support. The government of the day can also consider establishing defence innovation hubs, where private firms, state-supported organisations, and military personnel can collaborate on development.
Moving forward
Boosting the presence of private firms and SMEs does not equate to replacing the NCSIST-CSBC-AIDC suite. Taiwan’s new defence collaboration partners can fill the gap previously inhabited by foreign suppliers, as Taiwan continues to rely on overseas critical components, sub-systems, and technology. These include everything from gyroscopes to electro-optical parts to rocket propellants and radar modules. Public-private collaboration may begin with SMEs supplanting foreign suppliers, bolstering Taiwan’s self-sufficiency, development of a domestic industrial base, while deepening adherence to the ODC.
Should Taiwan successfully capitalise on the island’s strong private defence capabilities, it may be able to spur a new wave of defence innovation, boosting the “porcupine strategy” and the ODC. SMEs may prove to be an invaluable cog in national defence and assist the traditional state-backed organisations in developing innovation at all levels.
[Photo by ROC NAVY, via Wikimedia Commons]
The views and opinions expressed in this article are those of the author.
Samuel Ng is a Westpac Asian Scholar currently at the National Chengchi University in Taipei, Taiwan undertaking units in Taiwanese international relations and political history. He is in his final year of a dual Bachelor of Laws (Honors) and International Business at the Queensland University of Technology in Australia.
