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Singapore, the tiny state with military clout

Singapore, one of Asia's smallest countries thinks big when it comes to defense.

Between 2008 and 2012 the city-state, with a population of just 5.3 million, was the world's fifth-largest arms importer, according to the Stockholm International Peace Research Institute. The wealthy Southeast Asian country consistently allocates about 20 percent of national spending to defense, analysts say.

Ever since an acrimonious split with larger neighbor Malaysia in 1965, Singapore has placed a strong emphasis on the military. That's likely to remain the case for some time given regional tensions, increased military spending by neighbors and the threats posed by piracy and terrorism, experts add.

(Read more: Why investors should watch out for Japan-China relations)

"The greatest fears for a small country like Singapore lie in two things – coercion by bigger powers and strategic uncertainty that arises from any conflict between great powers," said William Choong, Shangri-La Dialogue senior fellow for Asia-Pacific Security at the International Institute for Strategic Studies. "Singapore's defense spending should be seen in such a context."

Paul Crock | AFP | Getty Images

Last year the government allocated about $12 billion of its budget to national defense. Malaysia's annual defense budget was almost $5 billion in 2013, while Indonesia, Southeast Asia's biggest economy, unveiled annual defense spending of about $7.9 billion last August.

According to Flightglobal, Singapore has the biggest air force in Southeast Asia with a reputation for also being the best trained, led and equipped.

Recent defense-related deals meanwhile include a contract signed late last year to buy two new Type 218SG attack submarines from Germany's ThyseenKrupp Marine Systems.

In addition to military spending, Singaporean men are required to serve two years of full-time military service when they turn 18 to provide additional man power to the regular armed forces, estimated at 20,000.

Regional tension

Take a look around the region and it might come as little wonder why the peaceful state continues to place a high emphasis on security.

(Read more: Philippine leader sounds alarm on China sea claims)

Geopolitical tensions in Asia have been in the spotlight recently. Islands in the East China Sea are at the center of a territorial dispute between China and Japan, Asia's two biggest economies. China is also asserting its claims in the South China Sea, alarming its neighbors who hope Chinese power in Asia can be balanced by the U.S., the world's only superpower.

"There's a saying that the stronger you are, the less enemies you have, and I think that's true," Singapore Defence Minister Ng Eng He was quoted saying at a National University of Singapore forum last month. "Compared to five-to-eight years ago, I have a less tough job of convincing people that we are vulnerable. Particularly because over the last five years, our region has changed."

Tech edge

Driven by a need to maintain its technological edge, Singapore is planning a number of high-profile defense procurement programs, IHS Jane said in a note published last month.

According to IHS Jane, Singapore is the only country in Southeast Asia not to have purchased military equipment from Russia or China.

"Supported by its wealth, Singapore's firm favored supplier is the U.S., which has supplied around half of the SAF's [Singapore Armed Forces] military imports over the past decade," the IHS Jane report said.

"The relationship enables the SAF to meet its requirement for leading-edge technologies, uphold the strong strategic relationship between the two countries, and maintain a high level of interoperability with the U.S. military," it added.

(Read more: Is Singapore set for an Icelandic-style crash?)

Indeed, that relationship could be highlighted at this week's Singapore Airshow. According to the organizers, more than 150 U.S. companies will have a presence at the event.

"Singapore's high-spec, high-value procurement strategy is shaped by a need to maintain its economic stature, which is dependent on exports, unimpeded trade and communications routes, and reliable external sources for essential supplies such as water, oil, and foodstuffs," said Paul Burton, director, Asia-Pacific, IHS Aerospace, Defence and Security.

"The protection of sea lanes and offshore territory is consequently a concern, as is internal security, given the continuing perception that it remains a target for transnational terrorist groups due to its many strategic targets and its close ties with the United States," he added.

Perhaps defense contracts awarded by Singapore to U.S. companies are something investors should pay more attention to, some analysts say.

Investing firm The Motley Fool said last month that contractors such as Lockeed Martin and Raytheon are expected to be hired by the Singapore Air Force to supply new radar systems and other electronics gear in addition to training and testing.

"Assuming Congress permits the contract to move forward, this arms deal should be worth about $2.4 billion to the contractors involved," The Motley Fool said.

By CNBC's Dhara Ranasinghe. Follow her on Twitter at @DharaCNBC

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