The price of this market report covers 4 quarterly reports on this sector. This quarterly report will be downloadable instantly as a PDF document, with the 3 remaining reports delivered at regular intervals throughout the year.

As Vietnam embarks on the costly process of modernising its armed forces, would-be partners from around the world have begun lining up in the hope of securing a share of what could become a lucrative growth market for defence technology. However, the traditional supplier of most of Hanoi's weaponry, Russia, has signalled that it has every intention of preserving its hold over the Vietnamese market.

Having already agreed to supply Vietnam with six Kilo-class submarines and additional Sukhoi fighter aircraft, Moscow announced in March 2012 that it had signed an agreement to jointly develop anti-ship missiles and unmanned aerial vehicles (UAV) with the Vietnamese defence industry. The anti-ship missile programme is expected to enable Vietnam to produce its own version of the Kh-35 Uran missile – a system that Vietnamese missile boats already field. The UAV tie-up will see Russia's Irkut team with the Vietnam Aerospace Association to develop a new mini-UAV, which the Vietnamese military will use for surveillance purposes.

However, such is the international interest in partnering with Vietnam that Russia will almost inevitably lose some market share. In January 2012, Singapore agreed to pursue defence industry collaboration with Hanoi. The following month Israeli defence firm Rafael revealed that it was targeting Vietnam as a potential customer for its UAVs, while Israeli Aerospace Industries (IAI) announced in February that it had secured a US$150mn deal to supply an undisclosed Asian customer – which analysts speculated was likely to be Vietnam – with new radar systems.

Also in February, Australia held its inaugural strategic dialogue with the Vietnamese government. A high-level US delegation, led by senators Joseph Lieberman and John McCain, also visited Vietnam in early 2012 to pursue closer ties.

While the US is understood to have reservations about selling Vietnam defence equipment in the near future because of the country's poor human rights record, upcoming Vietnamese requirements may persuade Washington to overcome its concerns in the interests of commercial and strategic expediency.

Hanoi is understood to be keen to procure new anti-submarine warfare platforms to help it counter what it perceives as Chinese aggression in the South China Sea, and Lockheed Martin's P-3 Orion patrol aircraft is one of two obvious contenders that could fulfil such a requirement, the other being the C295, built by European firm Airbus Military.

Yet more Western defence firms will face frustration in Vietnam. The country's true defence budget may be somewhat higher than the government's stated allocation of around US$3.1bn for 2012, but its resources remain relatively modest, even by South East Asian standards. The Vietnamese economy is also still quite fragile, with large sectors of the state-owned economy in need of urgent reform and the country's reliance on foreign investment still considerable. As a result, the opportunities for overseas defence companies in Vietnam may prove to be elusive, except in certain technology niches that the Vietnamese military is seeking to prioritise. A willingness to transfer technical knowhow to Vietnam's defence industry is likely to be key to securing market access.

Click for Report details:Vietnam Defence and Security Report Q2 2012