The European military command, control, communications, computers, intelligence, surveillance and reconnaissance (C4ISR) market, valued at US$6.976 billion in 2001, will thrive on the back of technological inroads and a change in doctrine, which is set to transform C4ISR into one of the most flexible and open markets in the European defence industry.
A new study by Frost & Sullivan, the international marketing consulting company, points to a pronounced trend of embracing the revolution in military affairs, which is more than just rhetoric. This market shift is predicted to continue as procurement plans, aided by changes in military stance, begin to move from concept and demonstrator phase to Main Gate procurement.
"The European defence industry has seen a wave of consolidation, but its effectiveness and full implications for the competitive make-up of the C4ISR market remain misty. This bustling sector still boasts too many contenders across Europe. The pace of reduction in the number of market players, however, will continue with bursts of strategic alliances and partnerships," reports Ben Moores, Research Analyst at Frost & Sullivan.
Commercial off-the-shelf (COTS) equipment is another crucial factor underpinning growth in the C4ISR market, poised to play an even bigger role on the European defence stage as companies enhance their expertise in developing commercial technologies for military applications.
European militaries are waking up to the realisation that they can source numerous elements of C4ISR equipment from non-traditional suppliers. Consequently, the traditional military prime contractors will have to find ways to compete effectively, given the state of flux in which the C4ISR market finds itself.
Economic problems and deficits force governments to stabilise or reduce their budgets, and this status quo will continue to loom large. "Government funds for defence remains under high pressure due to economic and social problems in many parts of Europe. The lack of funding provided by governments creates problems for those involved in the European C4ISR market due to high development and systems costs. For a number of reasons, including modernisation, government budgets will likely remain stable or grow moderately in the area of C4ISR," Mr Moores explains.
The recent conflicts in Kosovo and Afghanistan have helped focus attention on the systems of the coalition force, specifically NATO forces. As Europe is finally waking up from its post-Cold War slumber, the shocking differential in capability and strategic reach between Europe and the US is becoming ever more prevalent.
"These varying levels for equipment, which presented a challenge to interoperability, will likely spawn new standardisation agreements in the form of STANAGS," Mr Moores continues. "In addition, the relative worth of many systems crucial to C4I has come under scrutiny in a number of NATO countries. France, Germany and the UK are already examining the use of their systems and how they performed to determine changes in acquisition. In particular, a lack of ISR assets and digital transfer capability have moved into the spotlight," he continues.
Large market leaders, US companies with a European presence and small niche players characterise the European C4ISR market irrespective of segment. Acquisitions and partnerships remain the main strategy for growth as major procurement projects are often dominated from the start by a regional player, although this is starting to see some change now. However, the study cautions that concerns about national security have created a fractured market with many barriers to entry.
Thales and BAE Systems, jointly controlling approximately 45 per cent of the total C4ISR market, emerge as the undisputed titans due to sheer market share and dominance in the European C4ISR market. EADS, meanwhile, occupies third place, albeit showing a considerable gap between the market leaders and EADS.
A number of other companies with interesting, even unexpected, market shares have emerged during Frost & Sullivan's research. Raytheon, Alenia Marconi Systems, Marconi Mobile and Rockwell Collins all fall into this category. Other contenders' market share, particluarly Sagem, look less rosy.
The fact that Frost & Sullivan's findings unveil Northrop Grumman as the clear loser in the European C4ISR market will come to a surprise to many industry pundits, especially in light of the company's acquisition spree reflected in purchases of Logicon, INRI, Litton and now TRW, and its recent widely- applauded success in both strategy and product development in the USA. The study stresses that Northrop Grumman has not, as yet, been successful in converting its high profile as a supplier of various elements of C4ISR enjoyed in North America into an equal level of brand awareness across European territories.
Companies with interesting product lines and capability include SAIC, equipped with a particularly innovative approach to the market. SAIC is only just starting to gain a foothold in the European market, but should the company be able to leverage its capability in the US, it will gain in recognition. SAIC will be able to capitalise on its very high technology market niche in areas that are poised for the most rapid growth over the next decade.
The immaturity of network-centric warfare (NCW) concepts and doctrines and its associated driving technologies have made it hard for procurement bodies to freeze the design of C4ISR systems. "The impact of this is that project schedules continually shift to the right. The very nature of the C4ISR system is that it is interoperable with other systems, both legacy systems and systems under procurement and as such procurement slips in C4ISR have significant impact on other related projects further slowing down the overall procurement process," Mr Moores notes.
Companies that grow in the future will be those that take advantage of the synergies between the various market segments and rapidly adopt advancements in technology that are developed in the commercial world. Economic risks and the need for financing by many countries will continue to play a major part in procurement and will depress potential growth. Companies will also have to continually explore new ways to improve their problem-solving capability as opposed to their compliance capability, as the market moves steadily away from large big-bang style procurement towards incremental procurement.
Despite the maturity of the market, the low rates of concentration exhibit the effects of concern about national security and sub-segment markets creating new opportunities. With a concentration of 47.08 per cent, the military intelligence, surveillance, and reconnaissance (ISR) segment is leading the field, followed by the command and control market segment (37.06 per cent) and the communications market segment (42.64 per cent).
-ends- European C4ISR Market To Undergo Profound Changes, Heralding Buoyant Growth
