UA miltech is China-proofing its supply chains

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BLUF: Ukrainian miltech companies are ditching Chinese components to become more independent. Plus, promising Ukrainian thermal optics firm Oko Camera wins the IT Arena defense startup competition: here’s how.

THE BIG STORY: Why Ukrainian companies are replacing Chinese components

As an act of necessity, Ukrainian inventors began in 2022 by relying on cheap, civilian technology. The first FPV-drones were fully produced in China, with no domestically-made components. But with China now supplying “deadly weapons” to Russia, Ukrainians are concerned that access to these components might be restricted.

Counteroffensive.Pro discussed the issue with several Ukrainian companies, including:

• Odd Systems, producing FPV-drones and optics;

• Oko Camera, specializing in thermal optics;

• Airland, manufacturing land and air drones;

• Kat Ran, building maritime drones; and

• Airlogix, manufacturing UAV drones.

All of them are working on a plan to be independent of Chinese components. They are seeking new supplies from Western countries, Taiwan, or those that are domestically made.

A developer (who asked for anonymity due to security concerns) from Kat Ran told us they’re using Chinese parts in their maritime drones, but not for critical tech — things like connectors, screws and cameras: approximately 5 percent of whole product. And — they’re working to replace Chinese parts with Ukrainian analogues.

One spokesperson for the company told Counteroffensive.Pro that they are planning to cooperate with Ukrainian company Oko Camera for their camera needs. The main suppliers for Kat Ran are Europe, America and Poland.

Nazarii Nykolaichuk, a sales manager for Oko Camera, told us their view on Chinese components. And it’s simple: they just don’t use Chinese components.

Instead, they use Western parts for their optics, with France and Baltic countries their main partners.

Bottlenecks in production: why Ukraine cannot replace every Chinese component

The Ukrainian miltech sphere is now extremely diverse. But there are few bottlenecks: microchips, cost of components, and lack of funds to expand production lines.

Denys from Airland told Counteroffensive.Pro that the Chinese-produced electronics for a demining land drone costs about $3,600; the mining drone $1,700; and the kamikaze-drone $730. And if every component were to be replaced by Ukrainian or Western ones, the costs could double.

Other firms agree that Chinese parts are usually cheaper. The head of R&D & Manufacturing for Odd Systems said, for example, that a ready-made FPV-drone manufactured in China will cost $200-250, but in Ukraine the cost to assemble these Chinese parts will cost $300.

To produce parts themselves, Ukrainian companies must invest a large amount of money in infrastructure for things like engines:

Now Odd Systems uses less than 50% of Chinese components in its drone production (it started at 100%.) Another example is Airlogix. Victor Lokotkov, chief marketing officer, told us that Chinese components are not critical for them, and if China will ban exports, it won’t stop production.

Still, Western partners are urging Ukrainian companies to double down on their efforts:

“To sell abroad, Ukrainian companies should get rid of dependency on Chinese spare parts. It’s crucial for a successful future and development”, said Charlie Dean, VP at the American UAV manufacturer AeroVironment, at an IT Arena panel in Lviv.

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BUSINESS LUNCH TOPICS: What our reporting shows!

1. Oko Camera wins $15k in IT Arena startup competition: The company beat out the rest of the field of some 30 defense startups. Counteroffensive.Pro spoke to Denys Nikolayenko, the CEO.
   

   “Whoever has the best supply chain will win the war. China is an unreliable supplier. We focus on selecting the highest quality, stable and reliable suppliers from Europe, which allows us to avoid risks and guarantee high quality products,” he told us.

   

   Winners of defense startups competition Photo by Counteroffensive.Pro

   The main goals of the startup are to expand its staff of specialists; scale existing products; and create new ones.
   

   One of the problems that slows down development, according to Denys, is the short term of government contracts, which are valid for a maximum of one year, which prevents the expansion of production to the required size.
   

   Their product is mainly used in reusable systems and, among other things, in bombers such as ‘Baba Yaga’, in ground robotic bombs, and in navigation. The cameras are uncooled and have no shutter to maintain the image at all times.

2. Electronic warfare is key to the modern battlefield: Former U.S. Army Colonel Dr. William ‘Dollar’ Young Jr told the audience at IT Arena how EW is developing in Ukraine. EW is usually neglected in the American market and does not compete well in the US internal budget relative to other priorities.

   ‘Dollar’ described three trends in EW:

   

   3 technology trends to watch in the EW Space. Photo by Counteroffensive.Pro

3. Customs reform is on the way: After a successful vote for the draft law №6490-d, Ukrainian MPs also voted for another bill, №10411 that provided changes to align Ukraine’s customs practices with EU standards.

   Effective reforms on customs can potentially add up to $3.6 billion USD per year to the Ukrainian budget. Now, both of the bills are waiting to be signed by President Zelenskyy.

4. Next-gen FPV-drone was announced: Ukrainian company TechnoHawk showed their vision on the future of FPV-drones.

This new generation has several ways of striking targets:

• Manual control;

• Guidance by laser targeting from another drone;

• Automatic targeting systems at terminal stage;

• Work by coordinates.

5. VC funding in European Defense tech increased 5x since 2020, according to a report (PDF) from the Resilience conference. It’s an event that brings together international startups, investors and customers in the security, defense and resilience space.

   

   Infographic by Dealroom.co and Resilience conference

   
   In 2024 funding in European defense tech will reach $1B and it makes up 1.8% of VC funding in Europe. Over the past two years, the share of defense startups has increased from 0.4%.

ON THE MOVE: Professional movement, promotions and industry news.

Know someone in the defense tech space who has made a professional move? Drop us a line at [email protected]! 

• Sergey Georgiev leaves DJI after almost nine years of working there. He told Counteroffensive.Pro he will take some free time to spend with family, before making further professional moves.

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MUST READS:

• Ukrainian Ministry of defense announces reform of ‘Spectechnoexport,’ a state-owned enterprise that specializes in export-import military or double-purpose goods. The institution has been moved from GUR (Ukrainian defense intelligence) to the MoD. Minister of Defense Rustem Umerov said the goal is clean up the procurement system in close cooperation with law enforcement and anti-corruption authorities.

• US Department of Defense is seeking commercial solutions for one-way UAS platforms with range 50-300 km+. Recent conflicts highlighted its asymmetric impact on the battlefield.

• Denmark establishes defense industrial hub in Kyiv and provides nearly €600 mln to buy Ukrainian-made weapons.

• Arms orders for Ukraine saved Scranton, Pa.’s local economy. America has allocated nearly $175 billion to support Ukraine’s defense capabilities, but most of the funds remain in the United States.

• The Russian Black Sea Fleet is training to use FPV-drones from a helicopter to counter Ukrainian naval drones. The helicopter used as an airborne command post.

• U.S. Marines to receive Leonidas expeditionary microwave tech for zapping drone swarms out of the sky.

• Russian Alabuga manufactory produced 6,000 Shahed drones, reports the Institute for Science and International Security. They had until September 2025 to produce them, but finished one year earlier.

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