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Until now Japan’s Defense sector has been a frustrating market for non-U.S. contractors.
 
The primary reasons were:
1) Protection of local manufacturers
2) Considering the US-Japan Security Treaty (1951), when Japan needed external products it invariably relied on the U.S.
 
A typical pattern has been for a Japan defense contractor to license a platform from a U.S. counterpart, localize it, and sell to the SDF (Self Defense Forces) at 4 times what the U.S. armed forces pay the U.S. contractor.
 
Several factors now converging may change this market dynamic:
  -Concurrent to the recent Reinterepetation of Japan’s pacifist Constitution, it is also enabling arms exports banned since 1967. The desire to export will lead Japan to accept some imports.
  -The increasing tension with China is creating more urgency, and will gradually shift the SDF from a “pork barrel” for local contractors towards a  “best of breed” mentality.
  -Budgetary dynamics are driving cost-cutting in the SDF.
  -Strong need for cyber defense of critical infrastructure will create purchasing precedents in this “quasi-defense” area.
 
Don’t expect sudden change, but those who plant seeds may later harvest. Australia’s defense establishment has been courting Japan for long years, and is seeing some results now such as the June 2014  Defence Science, Technology and Materiel Agreement. The joint communique of Prime Minister Abe and PM Netanyahu of Israel this past May included “Both sides affirmed the importance of bilateral defense cooperation and concurred on increasing the exchanges between the defense authorities of the two countries including exchanges at ministerial level. They concurred with the visit of officers of the Japan Self-Defense Forces to Israel.”      
 
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