The defense sector, once a tightly controlled and exclusive industry with high entry barriers, is opening up amid US-China tensions and rising geopolitical conflicts. This realignment of global supply chains isn't just reshaping the tech sector—it's also creating new opportunities for companies eager to break into the high-margin defense market.
Global supply networks are splitting into two blocs: the democratic nations and the communist states. A former US Department of Defense official recently remarked that while conflicts abound, the US views China as a far more significant threat than Russia. As a result, he expects the US to intensify its crackdown on Chinese-linked supply chains.
For Taiwanese companies seeking a foothold in the defense sector, rigorous supply chain traceability will soon become standard. Companies will need to track materials back to their origins and be ready to verify sources down to individual metal suppliers. This requirement, likely to extend beyond the US to its allies, will be fundamental to securing defense contracts.
Global defense spending is anticipated to experience an annual growth rate exceeding 8% from 2023 to 2030. This growth is attributed to the emergence of advanced combat technologies, which in turn presents Taiwan with a promising opportunity within the defense technology market.
With its strong semiconductor and ICT sectors, as well as growing ties with the US, Taiwan is well-positioned. Taiwanese companies with capabilities in unmanned systems, a key US defense focus, could find lucrative opportunities as the US defense industry expands investments in the sector.
Starting in 2024, attention will shift further toward software-driven technologies, including AI-controlled unmanned systems. The miniaturization of these systems will also drive demand for compact, reliable energy storage solutions, creating additional market openings.
The official advised that Taiwanese companies could enter the US defense supply chain most effectively by initially supplying components rather than attempting full-scale co-production. Establishing partnerships through smaller contracts could help reduce risk and build a foundation for future growth.
For the US, ideal suppliers deliver "better, faster, cheaper" solutions—a principle popularized by former NASA Administrator Daniel Goldin to cut costs without compromising performance. Companies that meet at least two of these three standards stand the best chance of winning contracts in the highly competitive defense market, while those that don't may struggle to stand out.
