Download - A EUROPEAN GLOBAL NAVIGATION SATELLITE SYSTEM — THE GERMAN MARKET AND VALUE ADDING CHAIN EFFECTS

Acta Astronautica Vol. 50, No. 5, pp. 325–333, 2002? 2002 Elsevier Science Ltd. All rights reserved

Printed in Great Britainwww.elsevier.com/locate/actaastro PII: S0094-5765(01)00173-4 0094-5765/02/$ - see front matter

A EUROPEAN GLOBAL NAVIGATION SATELLITE SYSTEM— THE GERMANMARKET AND VALUE ADDING CHAIN EFFECTS†

A. VOLLERTHUN‡ and M. WIESERInstitute of Astronautics, Technical University of Munich, Boltzmannstr. 15, 85748 Garching, Germany

(Received 8 August 2000)

Abstract—Since Europe is considering to establish a “market-driven” European Global NavigationSatellite System, the German Center of Aerospace initiated a market research to justify a Germaninvestment in such a European project.The market research performed included the following market segments: aviation, railway, road

traCc, shipping, surveying, farming, military, space applications, leisure, and sport. In these marketsegments, the forementioned inputs were determined for satellite navigation hardware (receivers)as well as satellite navigation services.The forecast period was from year 2007 to 2017. For the considered period, the market amounts

to a total of DM 83.0 billion (approx. US $50 billion), whereas the satellite navigation equipmentmarket makes up DM 39.8 billion, and charges for value-added-services amount to DM 43.2billion. On closer examination road traCc can be identiHed as the dominant market share, both inthe receiver-market and service-market. With a share of 96% for receivers and 73% for servicesthe signiHcance of the road traCc segment becomes obvious.The second part of this paper investigates the eJects the market potential has on the

Value-Adding-Chain. Therefore, all participants in the Value-Adding-Chain are identiHed, usingindustrial cost structure models the employment eJect is analyzed, and possible tax revenues forthe state are examined. ? 2002 Elsevier Science Ltd. All rights reserved

1. INTRODUCTION

There are far more applications for satellite nav-igation systems than only for aeronautical or mar-itime users. A better traCc management, avoidanceof traCc jams, guidance of taxi Keets, precisionfarming, more eCcient sowing, tracking of herds,exploration activities, hiking activities, oJ-shoreapplications, timing information for communica-tion systems and power plants, etc. This is by farnot the end of the list, and it grows longer andlonger every day. Not only some parts of indus-try, but also the European Community has realizedthe future importance and economic potential ofthe satellite navigation market, and therefore has

†Paper IAA-99-IAA.3.2.08 presented at the 50th InternationalAstronautical Congress, 4–8 October 1999, Amsterdam,The Netherlands.

‡Corresponding author. Tel.: +49 (0)89-289-16018; fax: +49(0)89-289-16004 www:http:==www.lrt.mw.tum.de=personen=vollerthun=.

E-mail address: [email protected] (A. Vollerthun).

initiated a deHnition phase (funded with 40 millionEURO) for a European satellite navigation system“Galileo”.The objective of the work presented here was to

establish a sound basis for a decision of the Ger-man government for whether or not it was econom-ically reasonable to participate in such a Europeanproject. Therefore, existing market studies were in-vestigated and completed by a new market forecastin order to determine the market potential in Ger-many. DiJerent market segments and applicationshad to be identiHed and the special requirements offuture users had to be documented.Within an internal additional research project at

the authors institute the economic eJects on theGerman Value-Adding-Chain were investigated.The approach for the market forecast is visual-

ized in Fig. 1. Simultaneous to the evaluation ofprevious market forecasts and new data gathering(where required), a software tool (see screenshotin Figure 8) was developed, in order to be able tochange the input parameters of the market modelvery fast and thus identify market sensitivities. For

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326 A. Vollerthun and M. Wieser

Tool Development:Value-Adding-Chain

model l ing and simulat ion

Employment-Effects

Tax Revenue

Value-AddedTax rates

Cost-structure models

Evaluat ion ofEffcets on Value-

Adding-Chain

Market ResearchSatel l i tenavigation

Determinat ion ofcurrent data

Data Evaluat ion

Analysis of potentialInvestment cycles

Pr ices/chargesRequi rements

Market penetrat ion

Market potential

Tool development:market model l ing and

simulat ion

Evaluat ion ofexist ing studies

Sensitivities

Monte-Car lo-Simulat ion

Fig. 1. Study logic.

satellite navigation equipment, a very precise fore-cast was possible, whereas not for the market of re-lated services. Therefore, Monte-Carlo simulationswere performed to quantify the service-related sen-sitivities. Based on the results for the market po-tential, the tool also involved the investigation ofthe Value-Adding-Chain.To determine the market potential and the

eJects on the Value-Adding-Chain, the follow-ing set of parameters was implemented in thecomputer-based model for the market:

• Number of equipment (e.g. number of newcars) and services including a linear=quadratictrend model,

• Equipment penetration factor (percentage ofe.g. new cars equipped with a satellite nav-igation system) including a linear=quadratictrend model,

• Prices=charges including a linear=quadratictrend model,

• Investment cycles,• Sales taxes, value of production, industrialcost breakdown structures and

• Sensitivity analysis based on best-=worst-casescenarios (Monte-Carlo simulations).

To identify the special requirements of the diJer-ent market segments, questionnaires, personal=tele-phone interviews and workshops were used.To classify and understand this market forecast,

some boundary conditions have to be taken intoaccount:

• Only the German market is considered. Con-clusions for the European market can only bedrawn with care.

• The considered period of time are the years2007–2017.

• All market values are given in German Marks(DM) in 1998 values.

• Market values related to satellite navigationequipment can be considered very robust,since data are based on company statementsused for their business development. Formarket segments, where no data were avail-able the assumption was made that there isno market.

Navigation satellite system 327

• The market potential for services is very sen-sitive since the acceptance of a satellite navi-gation system is very much dependent on theprice=charges structure. Therefore, the num-ber of users is extremely variable.

• The market potential that is considered isnot equal to the potential that the European“Galileo” will cover. The latter will verymuch depend on implementation strategiesand realization times.

2. MARKET SEGMENTS & APPLICATIONS

The following market segments for a future Euro-pean satellite navigation system were investigatedwithin this market forecast:

• Road traCc,• Other terrestrial,• Recreational,• Civil aviation,• Rail road,• Maritime applications,• Military and• Space.

The market research was performed separately inevery segment. Within the segments diJerent usergroups were identiHed and analyzed. Table 1 givesan overview over segments and user groups. Withineach user group 6–7 applications were identiHed.Due to the limited space, applications are not visu-alized in Table 1.For each application, the number of sold

equipment=sold services, the equipment penetra-tion factor, prices=charges, and investment cycleswere determined. These data were the basis forthe forecasted market potential. The companiesthat supported the data gathering were companiesfrom various Helds, e.g. car=truck manufacturers,car rental services, Keet management companies,emergency services, government authorities, air-lines.

3. GERMAN MARKET POTENTIAL

To ensure a robust market forecast, the potentialfor satellite navigation equipment and services wasdetermined separately. The relevant period of timefor the market forecast was 2007–2017. This periodwas chosen, since 2007 is the estimated operationalstart (with full capability) of the planned “Galileo”system. The identiHed potential is not necessarilythat, available for “Galileo”, but available for alloperational systems at that time.

Table 1. Market segments and user groups

Road traCcMotorbikesCarsBusesTrucksTruckloadsTrailersMobile homesAmbulancesPolice carsFire departmentTaxisCar rentals

Other terrestrialGeodesyAgriculture

RecreationalBicyclesGolHng

Civil aviationCommercial aircraftSingle-engine aircraft“More”-engine aircraftSailplanesBalloonZeppelinsGlidersHelicopters

Rail roadICE 1-, ICE 2-LocomotivesOther LocomotivesCargo wagons

Maritime applicationsOil-, gas-tankersCargo shipsContainer shipsFishery shipsYachts, sailing boats

Before presenting the results for navigationequipment and services in detail, within the nextsection the overall market will be pointed out.For the mentioned period of time, a market po-

tential of DM 83 billion was determined, whichis equivalent to a yearly potential of DM 7.5 bil-lion. Figure 2 shows the accumulated potential overtime. This almost constant yearly potential turnedout, even though the assumption was made that forexample the prices for in-car satellite navigationsystems would drop more than 65%. This decreasein prices is more than compensated by the increas-ing number of cars that will be equipped with asatellite navigation system.Figure 3 shows the distribution among naviga-

tion equipment and services. The potential of DM83 billion is divided into two almost equal parts.The potential for satellite navigation equipment isestimated to DM 39.8 billion, whereas it is DM43.2 billion for related services. The following sec-tion will discuss in more detail the diJerent marketsegments within equipment and services, in orderto verify where a commercial market will be avail-able.


2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 20170

10

20

30

40

50

60

70

80

90

Acc

umul

ated

Mar

ket P

oten

tial

(Equ

ipm

ent &

Ser

vice

s)

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Fig. 2. Accumulated market potential (equipment & services).

Equipment39,8 billion DM

Services43,2 billion DM

Fig. 3. Market share satellite navigation equipmentversus services.

Other terrestrial2.73%

Railway0.05%

MaritimeApplications

0.04%

Civil Aviation0.63%Recreational

0.77%

Road traffic 95.8%

Fig. 4. Market potential for navigation equipment.

3.1. Market potential — user equipment

A robust analysis for the potential for satellitenavigation equipment was possible, since a fore-cast can be made, based on statistical data. As men-tioned before the potential amounts to DM 39.8billion.As will be shown when discussing the results for

navigation services, the major potential with almost96% is contributed by the “Road traCc” segment(see Fig. 4). It was often argued that a Europeansatellite navigation system is needed especially forthe big market of civil aviation applications. Figure4 reveals that the “Civil Aviation” segment onlymakes up about 0.63% (i.e. DM 249.1 million). Ifthe intention of Europe is to build a commercialsatellite navigation system, the aviation segment isnot decisive. Concerning political arguments andespecially the increasing load of air traCc over Eu-

rope, the special requirements of the aviation seg-ment will have to be considered adequately.In the “Railway” segment, problems might occur

on the legislative side, since never before autho-rization procedures for satellite navigation systemshave been implemented, and therefore, no stan-dards have been established yet.In the segment “Other terrestrial” applications

the highest requirements are expressed for survey-ing. Using GPS-signals and reference stations, aprecision within millimeter-range can be achievedalready today. Obviously, a European systemwould require these reference stations, too, but therequirement that is driving the competition here isavailability. “Galileo” will therefore have to pro-vide a higher availability, especially within cities.Requirements from the “Road traCc” segment arevery heterogeneous. For telematic applications,automobile industry requires a precision betterthan Hve meters. Fleet-management applicationsfor emergency services also require a precision of5 m, whereas e.g. for cargo transports, 100 m issuCcient. For emergency services today, the timefor an initial determination of position is too long.

3.2. Market potential — services

Determining the potential for satellite navigationservices proved to be delicate, since, with the ex-ception of the aeronautical segment, not very manyservices exist today and it is especially diCcult topredict what charges can be raised. Nevertheless,it seems certain that the potential for services ishigher than that for navigation equipment. Alreadythe (conservative) assessment of the services po-tential performed here predicts a volume of DM43.2 billion. It has to be mentioned that only a com-paratively small number of services was analyzed.The list of services could have been extended byfar, but to ensure a robust market forecast only alimited number (those services that are being de-signed today) was investigated (Fig. 5).


Fire departments0.9%

Geodetic sevices0.9%

Car rentals1.1%

Taxi0.7%

Police0.2%

Cargo-tracking (rail)0.1%

Ambulances0.1%

Agriculture7.4%

Cargo-tracking (on roads)10.1%

Trucks: Fleet management

12.6%Air navigation charges

18.9%

Traffic and regionalinformation, TeleAid

47.0%

Fig. 5. Market for navigation services (2007–2017).

As with the navigation equipment potential thelargest part in services is again the “Road traCc”segment with DM 31.4 billion. Within that emer-gency systems represent the largest amount (DM18.2 billion). The readiness of an individual to in-vest into a security-related service is much higher,than the interest in information-providing services.This mainly has two reasons: First an increasinginterest in security, and secondly insurances mayoJer discounts, when the individuals use satellitenavigation services for special applications.Already today, the most signiHcant part in

services is “Fleet management”. The determinedmarket potential amounts to DM 11.1 billion. Thisincludes cargo business, police, Hre department,ambulances, car rentals, and taxis.While the potential for civil aviation equipment

is very limited, within services it is the secondlargest segment with DM 8.2 billion. The assump-tion was made that charges in this segment wouldbe similar to those existing today with a decreasingtendency.In order to cope with the already mentioned un-

certainty in the prediction of the services potentialMonte-Carlo simulations were performed withinthis market research. The result of these simulationsis a probability distribution for the expected marketpotential. According to the determined standard de-viation of DM 4.62 billion, the expected potentialfor satellite navigation services will lie in a rangefrom DM 34.0 billion to DM 52.5 billion.

3.3. Overall market potential

Figure 6 summarizes the previously determinednumbers for the market potential of satellite nav-igation and services. For services, the determinedprobability distribution is included. Curves for thepessimistic and optimistic market potential revealthe sensitivities related to the market forecast.

4. EFFECTS ON THE VALUE ADDING CHAIN

The previous sections focussed on the numberof equipment and services that can be sold at acertain price=charge. The market potential was de-termined as the sum of revenues from equipmentand services. We have investigated the satellitenavigation market from the “demand”-side. Thefollowing section is now examining the eJectsthe determined market potential may have on theValue-Adding-Chain. The results presented arethe outcomes of an internal research project at theInstitute of Astronautics.

4.1. Participants in the Value-Adding-Chain

To model the Value-Adding-Chain, all partici-pants in it have to be identiHed. For the satellitenavigation market, the following participants canbe distinguished:

• Research & Development,• Space segment,• Ground segment,• System operation,• Equipment manufacturers and• Service providers.

All participants (see also Fig. 7) are responsiblethat customers at the end of the chain receive aproduct that they recognize as a personal bene-Ht, and are willing to pay a certain price for. TheValue-Adding-Chain starts with the raw materialsand ends at the customer. To point out the diver-sity the Value-Adding-Chain a short example ispresented:A forwarding agency with a big truck Keet wants

to know at any time where all cars are, and whatthe state of the freight is. An assigned telematicscompany equips all trucks with a satellite navi-gation and communication unit. Both systems arepurchased from diJerent manufacturers. Each


Expected Potential

Market Potential ofServices

Market Potential ofEquipment

Results of Monte-Carlo Simulations

.

.

.

.

Fig. 6. Overall market potential for satellite navigation equipment & services.

Anbieter

Satellitensystem

Schienen-verkehr

NachfragerLuftfahrt

Schiffahrt

Landan- wendung

Freizeit

Raumfahrt

Militär

Straßen- verkehr

Raumsegment Satelliten

System- betrieb

Infra- struktur

Endgeräte

Zulieferer

Dienstleister

Bodensegment

Hersteller Handel

Steuern

Steuern

Geldströme

EU

BRD Steuern

Gebühren

Satellite System

Germany

UsersProviders

Fig. 7. Survey of participants involved in the Value-Adding-Chain.

manufacturer integrates a number of subsystems(such as receiver, antenna, computer chips, soft-ware, memory, energy supply, CD-ROM drive,

digital maps, etc.) into its own product. The manu-facturer of the CD-ROMs e.g. requires inputs, too:laser unit, special metal parts, screws, etc. This


chain could now be expanded further and further.The beginning of the chain are the raw materials.On the other hand, the telematics company has

to pay charges to the operating company of thesatellite system in order to be able to oJer a Keetmanagement service. To provide a signal in space,obviously a remarkable amount of eJort has to bespent on research, development and production ofthe satellites, establishment of ground infrastruc-ture, launch and positioning of the satellites. Allthese steps=elements have to be considered for theValue-Adding-Chain.

4.2. Employment e)ects

Having determined the market potential for satel-lite navigation, and having identiHed the partici-pants in the Value-Adding-Chain, the eJects on thelabor market shall be investigated in this section.The following procedure was developed to do so:

1. The previously determined market potentialis sorted by diJerent production areas. Threeareas are usually distinguished: Hrst, produc-tion of products from agriculture, Hshery, andforestry; second, all manufacturing industry;and third, all service providing industry.

2. Direct and indirect employment eJects aredistinguished.

3. Sales tax is subtracted from the market poten-tial determined from the sales of equipmentand services. The value that follows is thegross production value.

4. The gross production value is associated todiJerent branches of industry.

5. By developing cost structure models (coststructures within manufacturers), predictionscan be made, how the determined potential isused for resources, manpower, etc.

6. Applying average salaries the number of cre-ated jobs can be estimated.

The simulation of employment eJects (based onthe determined values for the market potential)amounts to 27,728 jobs from 2007 through 2017.In the mentioned period of time nearly 600 newjobs are created every year.Considering the equipment market, the largest

number of jobs is created within the “Road traCc”segment. With an average of 15,917 employees,road traCc makes up about 96% of the employmenteJects in the equipment market. Considering thatthe market potential for services is expected to behigher than that of equipment one could assumethat even the employment eJects could be higher.The simulations pointed out an average number of

employees of 11,112 for the services market. Thislower number results from the lower numbers ofrequired personnel for providing services.

4.3. Tax revenues

A basic question that is of great importance forall nations participating in the development of aEuropean satellite navigation system is how theinitial expenditures can be reHnanced. A possibleanswer was already given in the previous sectionwhen determining the eJects on the employmentmarket. Another answer can be the state’s incomefrom taxes. Therefore, possible tax revenues werealso investigated.Private users of satellite navigation equipment

and services have to pay value added tax. Manu-facturers and service providers have to pay taxesas well as those people working there, who have topay their income tax. Examining in detail all thesesources of tax income for Germany, an yearly taxpotential of almost 1 billion DM can be estimated.For the investigated period of time (2007–2017),this amounts to a total of DM 11.8 billion. Almosttwo-thirds of that amount accounts for sales taxes.

5. SUMMARY AND CONCLUSIONS

In general, it is very hard to predict a market po-tential for a satellite navigation system not existingyet. Especially, the long period of time that wasinvestigated and the late full operational capabilityof the system is a handicap, since most companiesdo not have a planning-horizon that is aiming thatfar. On the other hand, the market will create prod-ucts and services that are not imaginable today, andtherefore these eJects can hardly be accounted for(Fig. 8).Nevertheless, this market research makes clear

that the satellite navigation market will be oneof the most prosperous at the beginning of thenext century. Of course, the market penetration by“Galileo” depends on the design of the satellite nav-igation system, since its performance determineshow many users a European system will have. Ifthe European Community wants to beneHt (Hnan-cially) from such a European Satellite NavigationSystem, its design has to be “market-driven”, andtherefore, it has to be designed such that it fulHlls atleast the requirements of road traCc applications.The availability of a communication channel

along with the navigation signal is essential. It hasto be investigated, if it makes sense to combine acommunication and navigation system on one plat-form, or if as a result of the ongoing competition


Fig. 8. Tool to model and simulate the market potential and Value-Adding-Chain.

on the communication market a divided system ispreferable.In order to really develop a market-driven Euro-

pean satellite navigation system it is absolutely es-sential to integrate those users, manufacturers, andproviders that will use “Galileo” later now. A pos-sible approach would be to establish a forum for therelevant community (satellite navigation, satellitecommunication, satellite–Earth observation) now,in order to identify future user requirements. Latersuch a forum will be transformed into an “Appli-cation & VeriHcation Center”, where this commu-nity is collocated at one place, in order to developnew products and services. This center would thenbe the nucleus for the “generation of future” forEurope.

FOR FURTHER READING

1. Bundesverband GRuterkraftverkehr und Logistike.V., Verkehrswirtschaftliche Zahlen 1997, 1997.

2. Bundeszentralverband Personenverkehr — Taxi-und Mietwagen e.V., Gesch2aftsbericht 1997, 1997.

3. Zentrale BinnenschiJs-Bestandskartei, Wasser- undSchiJfahrtsverwaltung des Bundes, Mainz, June1998.

4. Kraftfahrt-Bundesamt, Statistische Mitteilungendes Kraftfahrt-Bundesamtes, Flensburg, July 1998.

5. Zeitreihenservice, Statistisches Bundesamt,Wiesbaden, 1998.

6. Intex Management Services, The WorldwideMarket for Navigation and Tracking Systems,Wellingborough (England), May 1998.

7. Frost & Sullivan, European Electronic NavigationEquipment Markets, Mountain View, CA (USA),June 1998.

8. Deutsche Bahn, A.G., Daten und Fakten, Frankfurtam Main, 1997.

9. Bundesamt fRur SeeschiJfahrt und Hydrographie,Funk- und Navigationsausr2ustung der Seeschi)eunter der Flagge der Bundesrepublik Deutschland,Hamburg, 1997.

10. Bayerisches Rotes Kreuz — Bergwacht, Einsatz-statistik 1997, MRunchen, 1997.

11. Luftfahrt-Bundesamt, Zulassungszahlen, Braun-schweig, 1997.

12. Airbus Industrie, Global Market Forecast 1997–2016, Blagnac Cedex (Frankreich), March 1997.

13. Deutsche Flugsicherung, Report of the BusinessYear 1997, Frankfurt am Main, 1997.

14. Institut fRur Seeverkehrswirtschaft und Logistik,New Shipbuilding Forecasts 1997–2006, Bremen,June 1997.

15. Ocean Shipping Consultants, World Shipbuildingto 2010, Chertsey=Surrey, 1998.


16. NASA, NASA Systems Engineering Handbook,Washington, DC, June 1995.

17. EuropRaische Kommission, Die Antwort f2allt vomHimmel, 18 June 1999, http:==europa.eu.int=comm=represent=be=deutsch=eurinfo14=de=deinf o03.htm.

Andreas Vollerthun is a research assistant at the In-stitute of Astronautics at the Technical University ofMunich. He received his master’s degree in aerospaceengineering in 1997 after completing his master thesisat NASA’s Jet Propulsion Laboratory (Pasadena, CA,

USA). His research focuses on the model-driven designprocess in an interdisciplinary environment. His specialfocus is on the signiHcance of economical aspects inearly design phases.

Michael Wieser is a research assistant at the Instituteof Astronautics at the Technical University of Munich.He received his master’s degree in aerospace engineer-ing in 1998. He is currently performing an internationalresearch project on the availability of international com-munication and navigation resources.

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