While ‘traditional procurement’ offers a tight market, the associated systems solutions provide a wealth of opportunity for second and third-tier players
By Christopher Dabrowski
Land and joint systems remain at the heart of future defense spending by ministries of defense throughout Europe. Our research shows that this market will remain strong through 2014.
European thinking and implementation of C4ISTAR (command, control, communications, computers, intelligence, surveillance, target acquisition, and reconnaissance) is currently stuck in the fog. Research and development labs and industry profess to be confused by the balance between the depth of information diffusion and the network-centric aspirations of national governments. European ministry of defense (MOD) requirements are continually evolving and are therefore muddled and unclear. At the same time, political considerations have put a premium on “networking” forces as a means of increasing force protection and intelligence coverage.
At the moment neither MOD requirements, military communications infrastructure, nor “network-centric” concept design are sufficiently advanced to achieve the much vaunted goal of a NATO network-enabled capability (N-NEC). While Swedish and French militaries have taken an effects-oriented approach to implementing command and control, battle management system, soldier modernization, and vehicle solutions, other European North Atlantic Treaty Organization (NATO) Allies and European Union (E.U.) nations are racing to redefine their capability requirements in the face of tighter defense budgets and looming target dates.
Unfortunately this means that the European land systems landscape is populated by a hodge-podge of diffuse, cost-ineffective procurement programs bereft of any underlying strategic logic.
The state of play
The main challenge for European nations, going forward into the next decade, will be to find a level of network-enhanced capability-data diffusion-that facilitates interoperability, contributes to battle-space situational awareness, leverages information flow at the tactical level and yet comes with a reasonable price tag. Information diffusion and battlefield tactical command and control is thus the central challenge for MODs.
Although defense expenditure across the EU-area is expected to see an inflation-adjusted net increase of some 2.5 percent over the next 10 years, this belies strong reallocation from platform procurement to high-value communications and logistics projects. MODs are being reduced in size, with savings being reallocated to augmenting warfighter capability.
Practically, though, what does this mean for the defense equipment and systems market?
Land combat vehicles
The restructuring of European land forces has corresponded to expansive modernization initiatives, along with a shift on the industrial side from a large number of national champions to a commoditized market dominated by two major defense contracts-General Dynamics and BAE Systems.
Operational requirements as well have changed and now (generally) require the integration of command, control, computers, and intelligence (C3I) systems into combat vehicle systems. Investment in vehicular C3I solutions, however, is not sustainable unless there is effective, in-real-time data-diffusion network. This in turn makes the success of the battle management system rely heavily on the bandwidth of tactical and combat net radio solutions.
This will see a concomitant explosion in spending on battle management systems and tactical command and control solutions as the requirement for deployment in a “networked” force framework propels the market. Significantly, although cost and offset are the determining factors in combat vehicle systems procurement, the cost of BMS becoming fixed-dictated by a minimum capabilities/cost relationship.
Dismounted soldier systems
Operating in the contemporary battle-space requires the soldier to rely on information superiority to safely locate, identify, track, and engage opposing forces. Since the 1991 Gulf War, this has manifested itself in an effort to integrate sophisticated intelligence, surveillance, target acquisition, and reconnaissance technology into soldier systems within a rapidly deployable, battalion-based force structures.
Since their initiation, soldier-modernization programs across Europe have sought to equip the warfighter with every conceivable piece of electro-optical, squad-level radio, and Global Positioning System (GPS) kit. Nevertheless, this requires a great deal of power to function, and therefore a powerful, heavy battery. If dismount modernization program managers do not effectively formulate their power requirements in the next 24 months, then the benchmark of deploying digitized dismounted soldier by 2008-2010 will be stillborn.
Perhaps more important, the key to understanding the dynamics of the soldier-modernization market is the balance between warfighter efficiency and information flow. How much data will be filtering down to the soldier? At what level of command? And with what man-machine interface? Optimizing this flow may well be the preserve of commercial-off-the-shelf, or COTS, network solutions providers-IBM, Cisco Systems, British Telecom-rather than traditional defense primes.
The entry-in-force of commercial providers into the defense arena may resolve this dilemma with cellular communications or software-defined radio (SDR). After all, with an expected spend of some $5 billion over the 2006-2010 timeframe in the Letter of Intent countries, this offers a tremendously lucrative and high-volume market going forward to 2014.
The Letter of Intent countries-the United Kingdom, France, Germany, Italy, Spain, Sweden, and the Netherlands-joined together to establish a cooperative framework to facilitate the restructuring of the European defense industry and get greater value for procurement monies.
Land-based tactical communications
European communications modernization is clearly moving away from “big bang” modernization projects and transitioning to incremental commercial-off-the-shelf-based procurement as the nature of combat systems change. Nevertheless, this masks a shrinking market for traditional tactical communications applications with additional functionality such as battle management systems, imagery intelligence, and blue-force tracking applications buoying market numbers.
While the release of the Joint Tactical Radio System (JTRS) code is expected to relieve chronic data-transmission demand, the question of combined communications capability remains unanswered. Furthermore, JTRS has more promise than it has product, leading analysts to believe that the expected revolution will be more of a localized putsch. This is only attenuated by the need to deal with allies whose level of technological sophistication maybe significantly lower.
However . . .
Facilitating battlefield situational awareness remains the key driver in the land-component equation. Significantly, the development of joint fires programs will greatly affect the role of surveillance, target acquisition, and reconnaissance in the land battlespace.
Battlefield bandwidth availability is the key driver of the European tactical communications market, with an expected 640 percent increase in spending on software radio from 2004 to 2013, reflecting the need for a comprehensive communications systems overhaul.
Squad-level and formation communications are expected to comprise a major portion of European tactical military communications procurement by 2009. The emergence of new digital, multi-mode, and SDR systems offers the strongest potential for growth by market segment, expected to grow from a current level of $ 8.3 million to an estimated $526 million between 2010 and 2013.
As MOD’s prioritize deployability over fixity, the emphasis of procurement will shift from fixed communications posts to deployable and manpack systems over the next five years. The growth of demand for wide-area network radios is therefore a logical extension of restructuring European forces to smaller, more mobile and rapidly deployable, expeditionary units- in principle-the E.U. Battle Groups.
As the U.S. experience in Iraq has shown, tactical satellite communication will play a substantial role of fulfilling European connectivity and force architecture goals by offering comprehensive battle-space network coverage and a higher volume of bandwidth. Increasing some 59 percent from $121.1 million to just over $200 million over the next decade, the deployment of European space-based communications assets will substantially open the market for tactical systems.
Although the uptake of software-defined radio will increase the ability of tactical units to transmit high-volume and high-density data packets, this will require a robust C3I infrastructure to collect and diffuse data at vastly different levels of command and complexity. COTS providers are leading innovation as only the widespread use of technology from rapidly evolving civilian markets to create cost savings and allow technological evolution at more than the speed of procurement. Thus, civilian software providers like Sujutsu, Siemans, and LSE are looking to leverage their office networking solutions to secure a large part of the C3I and combat support information systems market.
Maintaining profitability in a shrinking market
Demand-side insistence on cooperative competition (setting requirements and holding competitions for key integration and subsystems roles to maximizing risk-reduction and value) is changing the market from a linear/pyramidal structure to a more dynamic, spiral model.
Thus, a prime is selected on the basis of its value-added, project management skills and risk-reduction strategy, and it will subsequently re-bid core systems components to best-in-class suppliers. Such value-enhancing procurement strategies allow subsystems suppliers to own portions of the concept design, research, and solution development.
Going forward, such cooperative/competitive development of systems “nodes” will allow best-in-class suppliers to position themselves for further integration work. While subsystems manufacturers will look to leverage increasingly commoditized “black boxes” into lower-level networks, smart primes will be looking to become solutions providers, offering logistics, training, and simulation services. Notably, partnership with local defense and IT industry will be a priority.
The road ahead
The European land-systems market will remain strong throughout 2014, as land and joint systems will remain at the heart of future defense spending. The main challenge for European nations, however, will be to find a level of network-enhanced capability-data diffusion-that facilitates interoperability, contributes to net battle-group situational awareness, leverages information flow at the tactical level, and yet comes with a reasonable price tag.
Accordingly, the European land-systems markets in the tactical C3I (battle management system), tactical communications, dismounted soldier systems, and vectronics will provide the motor of growth through 2014. Strongest opportunities, of course, are in positioning oneself to rise up the land-systems value chain into systems solutions in this cooperative-competitive market environment. For cost-sensitive European MODs, this is a must. For profit-conscious, value-enhancing contractors, this is imperative.
Christopher Dabrowski, Defense analyst at Frost & Sullivan, a defense research and consultancy company
This article drew on the findings of Frost & Sullivan’s C4ISR Research Services. If you would like more information, or would like to meet Frost & Sullivan at DSEI 2005, please contact Andrew Rees, sales and marketing, Frost & Sullivan, Tel: +44 (0) 207 915 7820, e-mail: [email protected].