Absorptive Capacity and Institutional Environment as Determinants of Defence Industry Transformation

The contemporary geopolitical landscape is characterised by a growing nexus between national security and technological sovereignty, underscoring the imperative for nations to transform their defence industries. Despite the considerable financial resources that are frequently allocated to this sector, the outcomes of such investments exhibit significant variation across countries. The present study addresses the critical research problem of why some nations successfully transition from being technology importers to those which are globally competitive in terms of exports, whilst others remain in a state of prolonged technological dependence despite making substantial expenditures. The central thesis of this article is that a country's successful transformation from an importer to an exporter of defence products is determined not by the volume of financial resources available to it, but rather by the effectiveness of its institutional environment and the implementation of a coherent, long-term state policy. In order to test this hypothesis, a conceptual framework is developed and subsequently applied through a comparative analysis of two cases: the Republic of Korea and the Kingdom of Saudi Arabia. The results of the analysis indicate that the key differentiating factor is the institutional environment. The South Korean success is attributed to the establishment of robust, centralised state agencies and the consistent implementation of a strategic import policy with a focus on technology absorption, which systematically nurtured a dynamic innovation ecosystem. Conversely, Saudi Arabia's trajectory exemplifies the inefficacy of institutional fragmentation and a policy of direct, "off-the-shelf" procurement in fostering domestic innovation capabilities, resulting in diminished absorptive capacity and a dependent industrial base. The core finding is that a robust innovation ecosystem is not a prerequisite for development; rather, it is a deliberately constructed result of effective institutions. The research outlines how the massive influx of Western technology can be converted into a sustainable, export-oriented defence industry through targeted institutional reforms, a focus on enhancing national absorptive capacity and the strategic development of technological competencies.