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FROM ASI «DISTRETTO VIRTUALE – D.V.» PORTAL: TWENTY COMMENTED CASES OF «SPINOFF» FROM SPACE TO NON SPACE

BUSINESS LINES

Space economy symposiumIAC Jerusalem

14 October 2015

G. P. Sciortino(Italian Space Agency)

E. Bergamini(Roma Tor Vergata University, Dept . Management Engineering)

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Companies wich can do “spin offs” (here as the general attitude of doing non space business depending on space technologies) are also a model of high performance in space

We want to show, moving from the spin off area, that space creates “space economy” and provide some definitions to measure this wider phenomenon

To do that, we have to analyze the performances of the companies that already do “spin offs”

And finally see how this efficient model can apply to other space companies

A SUMMARY OF THE STUDY

3THE «SPACE ECONOMY»DEFINITION

It is currently too wide a concept. Wherever the D.V. is contributing its experience (OECD, IAC, ESA) we suggest to make it more precise, measurable and comparable:

«The complexity of goods and services produced for terrestrial use that would not exist without space technologies and organisation, no matter how low the space intensity is in the process»

This implies some certainties: both commercial and social measures are possible; even «0 space content» production counts (i.e. space spillover); «downstream» is namesake

..and various uncertainties and therefore a «layer by layer» analysis approach: effectiveness of space dependency (i.e. mobile phone market), variety and overlaps in chain values

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IDENTIFYING THE IDEAL INTERACTION PATTERNS BETWEEN SPACE FIRMS AND

THE WIDER SOCIO-ECONOMIC ENVIRONMENT

We started off two years ago searching osmotical models of business as «best performers» in space, by turnover trends, productivity and their R&D propension

We induced that this osmotical model could be made of those companies more prone to interface the rest of the economy because of the physical proximity or cross cutting characther of their productions

We therefore chose the companies whose space production sizeably dealt, respectively, with hybrid space – aeronautics and software sector

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More precisely, we selected from the D.V. main Panel all the companies (no Research Institutions were involved) that fulfilled the requisite of higher than 20% shares of these fields of activity, either in space turnover or space R&D expenditure

About 40 firms met these conditions out of the 80 composing the D.V. main Panel

An investigation of the space performance parameters of this Subpanel was then performed to verify if they could represent a business efficiency model

The reference period was 2010-12. Average variation trends of turnover, productivity and R&D expenses where the main indicators

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FROM THE SUBPANEL TO «PIVOT» CASES THROUGH SME’S PERFORMANCES

The Subpanel analysis did not show any specially positive performance results

Nor did the separated consideration of the sw oriented firms from the hybrid space - aeronautics oriented firm

One last attempt was to extrapolate the SME’s from the Subpanel but no significant changes appeared

Finally, little changed also when correcting the SMEs’ bias in the Subpanel composition and the relative underperformance content (i.e. for the Subpanel productivity trend)

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THE «PIVOT» CASES

After these unsuccessful first attempts, we decided to lastly focus, more selectively, on the Subpanel firms that could prove they could develop their own “spin off” technologies in the chosen domains as “pivots” for the relative “spin off” (direct or indirect) commercial exploitation

14 firms declared to meet these requisites. Finally, the relative performance indicators looked positive both in terms of turnover and in terms of productivity

Although, looking back at the composition of their space turnover, they appeared to depend (widely above average) from the “strategic” public market (ASI/ESA)

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Relation between public strategic market (ESA, ASI) on space and spin off business (enlarged spin off production assimilated to «pivot» cases) – Pivot

cases sub panel focus – Year 2012 only

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These results have encouraged us to continue the research until today

Two are the main objectives which are represented in our current study:

1. have a more complete and robust vision of the described “spin off” phenomenon, and the space performance indicators of these firms, by extending the observation period to 2013 -2014

2. understand patterns of functioning of these firms as space business models, pursuing a growth of their “space economy” (or downstream) less dependent from public “strategic spending”, and connected to space economy at large

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THE PERIMETER OF SPIN OFF (AS APPLIED BY OUR STUDY)

Space Economy

Downstream

Spinoff DS (no

space)

Space Downstrea

m (DS)High space intensity productions: i.e.satellite imagery distribution and processing, satellite communications, infomobility, transportation navigation systems, etc

Low space intensity productions from firms operating in space: car sharing control systems, medical applications, special materials for industry, radar and other components for aeronautics, etc

Comprising also low space intensity productions from firms not operating in space: satellite TV broadcast, car navigators, insurance and finance for space systems, etc.

Widest possible definition of downstream with space even as 0 content enabler: smartphones with GPS applications, satellite blackbox insurance kits, etc.

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CLOSING IN ON THE OPTIMAL SPACE SECTOR MODEL

SO THE PREVIOUS RESEARCH WAS REITERATED ON THE WHOLE MAIN PANEL

AND A LONGER PERIOD

20 firms qualified this time, from wich this study’s title, as spin off holders

The identification of technologies and skills that characterize each firm’s spin off and the relative business target sectors followed

It is crucial what was the question asked for the selection of these firms:

“existence, also at level of subsidiary and the like (consortia i.e.) of sufficiently stable business lines over the 2012-2014 period, regardless of their size, for products and services catering to terrestrial users (downstream) which crucially depend on space technologies, home made as well as acquired. Said technologies must have a limited impact on production (ideally below 20%) in terms of incorporated costs, or, if this is not applicable, in terms of physical intrisic connection with the space environment. Alternatively, the condition of space dependency, can be met when a certified space productive organization is transferred into the said business lines (and therefore a competitive excellency) such as quality cycles, extreme testing and special materials”

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MAIN TARGET SECTORS OF THE SPIN OFFS

Main sector: hw/sw systems and applications for sea and land vehicle/ship positioning and telemetry

It affects 9 of the 20 firms involved

Second best (5,4): aeronautics (radar components, inflatable emergency gear, flight datalog sw i.e.), remote land and industrial monitoring (robot, drones i.e.)

Other sectors: healthcare, airport ATM, clothing, consumer electronics, advanced communications services

13Spin off cases Lines of business Output sectors and notes

1 From hi-resolution satellite image software and processing competency derives patented sw and kit + hosting service for skin cancer scanning

Specific small line of business (mainly domestic) partly within the firm and partly through a specialised trading agent. Turnover ca. 1M€ year . Total employment involved (inhouse and outside) 5.Market forecast to multiply by 5 clients in the short term.

Supply to network of pharmacies to reach comsumers. SME with almost all production for space

Medical equipment (optical), healthcare

2 From infatable space fixtures and equipment know how derives patented memory form actuator for helicopter emergency floaters. From space qualified organisation (quality, extreme testing and materials) derive excellency line of supplies for military use

Specific lines of business for actuator (domestic) and military supplies (domestic, EU). Overall staff employed 60 units. Expansions possible to stratospherical blimps

SME with minor share of turnover in spaceAeronautics (emergency equipment)

Military (inflatable gear)

3 From launcher sensor and guidance systems expertise and technology derives pilot glasses set with inbuilt flight log automatic writer to upload into analysis server

Small growing business line. Civil and defence supplies of special avionic materials and sensors are R&D targets

Small firm owned by large entreprise.

Aeronautics equipment (ultra light planes pilot gear)

4 From materials expertise and licenses (manned spaceflight, propulsion, payload) derives carbonium fiber fixtures for fashion items

Small and growing business with main italian fashion brand (supply of clothing fixtures)

SME almost exclusively operating in space

Clothing (Fashion)

5 From expertise and know how in ground and onboard satellite image transfer and treatment (sw and integrated systems) derives : optronics sw and integration system for surveillance drones, sw for image scanning for dermatologists

Small lines of business with dedicated small staff. Supply of sw

SME with partial turnover in space (advanced sw designer and integrator).Land monitoringMedical equipment (optical), healthcare

6 From expertise in sat control sw sytems for defence and civil markets derives offer of land vehicle monitoring system for industrial and railways uses

Business line with dedicated staff (6). Supply of sw, user hw and service

Large entreprise with part space productionFleet management (land and railway)

7 From payload expertise derives restricted technology for aviation (defence) equipment

Small line of business (supply for helicopters). Small dedicated staff

SME fully oriented to space. First experience outside this sectorMilitary (light and helicopter aircraft)

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8 From own space optics for telescope and payload sensors derives supply of kits for manifacturing innovative semiconductors for consumer electronics

Small line of business with dedicated staff. Supply of machinery component to optical semiconductors manufacturers (in turn supplying to multinational consumer electronics producers)

SME strongly but not only oriented to space (optical ecellency)Electronics (consumer electronics)

9 From space microwave power accumulators know how for SAR radars derives offer of same kits to AESA radars components mounted on defence aircraft

Small line of business : supply of prototypes for industrialisation

SME univ. spinoff (almost only space)Military (aircraft radar component)

10 From expertise in space MCC SCC Ground Segment Space Segment sw systems for communication, derives sw and integrated multisource ground - user services for ATM and naval monitoring (both civil and military) including positioning component

Sizeable line of business , integrating 3d imagery: systems supply and management. Staff involved over 50

Large entreprise now mostly oriented to non space productions for civil and military usesATM and naval monitoring (systems)

11 From expertise in space MCC SCC sat sw and integrated systems + space downstream user applicationss derives sw/server + onbard vehicle terminal for the monitoring of special road cargo, as well as sw/server and mobile application for positioning assistance to leisure sailing in protected marine reserves

Small lines of business for supplies to road transportation fleets and public entities in charge of marine reserves

SME dedicated mostly to ground services and technologies from space Fleet and vehicle / ship management (land and see)

12 From expertise and patents developed in space image treatment and user applications derives the supply of land and sea fleet management services including imagery and positioning

Small line of business : suply of services SME with largely prevailing turnover in spaceFleet management (sea and land) services

13 From expertise and patents in optoelectronics as well as intragroup expertise in satellite guidance systems derives supply of surveillance drones for military uses

Largest business line on international homeland security and other land monitoring demand. Dedicated staff of over 60 units

Large entreprise, multisectoral. Space is partial branch activity Homeland security (drones and related optical sensors)

14 From expertise developed in satellite systems communication and guidance derives offer of fleet management systems and services (sea and land)

Medium line of business: supply of systems and services Large entreprise with dominant space activity.Fleet management systems and services (sea and land)

Spin off cases Lines of business Output sectors and notes

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15 From expertise in satellite onboard and ground communication systems derives offer of advanced monitoring services for mobile networks: perception quality, magnetic pollution, etc.

Small line of business: services to mobile communication networks

Large entreprise with exclusive space activityServices for monitoring the quality of mobile networks services and signals

16 From expertise and patents in satellite ATM sw, systems and user hw, derives space like quality systems and services for car sharing networks

Largest and growing business line supplying serviced system to major domestic car sharing group. Dedicated staff of 5.

SME with minor space activityFleet management systems and services (car sharing)

17 From expertise and patents derived in satellite systems communication and guidance derives systems and services for fleet management (land and sea)

Medium sized line of business : supply of system and services for security and civil markets. Staff 6. Orders from one main client.

SME with seizable space activityFleet management systems and services (land and sea)

18 From expertise and excellency in Earth satellite imagery treatment and distribution (intragroup) derives space quality aerial montoring services for various applications

Medium sized line of business mainly for civil users Large entreprise with dominant space activityAerial monitoring services

19 From expertise in telemetric sw and systems applied to satellite guidance, derives supplies of sw and integrated telemetry consoles for fast luxury cars

Small but steady line of business with 3 dedicated staff SME with prevailing space turnoverAdvanced telemetry and navigation for cars

20 From expertise and patented know how in ground separation (launchpads - Kourou) derives telemetry control systems for industrial and scientific infrastructures + space quality aircraft and airport (defence) service equipment and assistance

Large lines of business. us airport services and aircraft supplies. Dedicated staff of 44

Large entreprise. 15% ca of turnover in space – Industrial plant monitoring / aeronautics (defence) service equipment and ground assistance

Spin off cases Lines of business Output sectors and notes

16STRUCTURE OF TURNOVER AS A POSITIVE PERFORMANCE INDICATOR IN THE «SPIN

OFF» SUBPANEL MODEL

The following table shows:

I. a relatively slow and steady growth of the spin off activities in absolute values in the period

II. a much higher absolute increase of the related ”strategical» public demand (ASI, ESA, UE)

III. An even higher absolute, which is more remarkable, and relative progression of the rest of the space market demand

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The trends of turnover in the spin off Subpanel 2012-14: «strategical» space market, rest of space market, spin off

production (in k€)

Year A) Public «strategic» demand (ASI, ESA, EU)

B) Other space market

B/A C) Spin off production into non space downstream (limited space component)

% ofC/A

Overall strategic impact ratio% (B+C) / A

2012 240.724 270.724 1,12 76.735 0,32 1,44

2013 233.691 317.532 1,35 78.920 0,34 1,69

2014 247.075 395.637 1,6 85.050 0,34 1,94

Comparative standardsItalyEurope

0,7 ca1 ca

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In more detail:

A stable share of spin off activities sited around 30% of the “strategical expenditure” that grows into 2014

The rest of the space market is worth from 120% to 160% of the “strategical demand”, surpassing by far both the Italian main Panel value almost 70% (2012) and the UE standard (100%)

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MORE POSITIVE INDICATORS IN THE SPIN OFF SUBPANEL

Traditional set of performance indicators:

o Production

o Productivity (Production / Workforce)

o R&D expenditure trends

Two different sets of measures have been taken:

1. One more statical using the main absolute values year by year and comparing their trends with the main Panel benchmark (the 80 firms)

2. The other more dynamical based on the variation rate through time of the abovesaid statical measurements

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All Firms Main Panel 2012

2012

Subpanel 2013

2014

Notes

Value of space production (VoP) 1.615.049 511.220 551.223 642.712

Subpanel is not inclusive of Research Instit.(RI) – in K€

Workforce 6.207,02 2001,1 2170 2030 In FTE (Full Time Equivalent) count unit. Subpanel doesn’t include RI

Level of productivity 279,6 (*) 255,46 254,1 316,763

Turnover / workforce. Ratio

R&D expenses as ratio on space VoP

0,14 (*) 0,047 0,06 0,054R&D expend. determined as by OECD Frascati Manual

«Strategical» demand as ratio on space VoP

0,56 0,47 0,42 0,38Orders by ASI, ESA or EU, direct and indirect (awarded as subco)

Downstream / space VoP

0,17 0,39 0,35 0,347 DS is space turnover catering to terrestrial users

Comparative performance indicators of the spin off Subpanel 2012-14 - Statical

(*) Values are heavily influenced by data of TAS-I and Avio which don’t feature in the Subpanel (CSM and Vega programmes)

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SMEs ony Main Panel 2012

2012

Subpanel 2013

2014

Notes

Value of space production (VoP) 73.240 (4.5%

of sector)35.433 35.841 35.912

Subpanel is not inclusive of Research Instit.(RI)

Workforce 620,02 254,1 284 255 In FTE (Full Time Equivalent) count unit. Subpanel doesn’t include RI

Level of productivity 116,6 139,4 126,2 140,8

Turnover / workforce. ratio

R&D expenses as ratio on space VoP 0,24 0,19 0,17 0,18

R&D expend. determined as by OECD Frascati Manual

«Strategical» demand as ratio on space VoP

0,56 0,72 0,55 0,55Orders by ASI, ESA or EU, direct and indirect (awarded as subco)

Downstream / space VoP

0,42 0,44 0,42 0,42 DS is space turnover catering to terrestrial users

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All Firms

Main Panel

Sub panel SM

Eonly

Main Panel

Sub panel

Notes

Yearly variation rate of space VoP 1,04 1,09 0,94 0,96

Subpanel is not inclusive of Research Instit.(RI)

Yearly variat. rate of workforce

1,023 1,02 1.03 0,97 Workforce expressed In FTE (Full Time Equivalent) count unit. Subpanel doesn’t include RI

Level of productivity269 260 129 139

Expressed as average of sum of absolute values over the period (2010-12 for main panel and 2010-14 for the subpanel)

Yearly variat. rate of R&D expenses 0,89 1,14 1,02 1,01

R&D expend. determined as by OECD Frascati Manual

Comparative performance indicators of the spin off Subpanel 2012-14 - Dynamical

Note: average yearly variation rates refer to 2010-12 period for the main panel and 2010-14 period for the subpanel

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The results for the Subpanel can be summarised as follows combining statical and dynamical indexes:

Production grows steadily and more than in the main Panel (SMEs have much lower rates)

Employment is stable and slightly shrinking with SMEs

Productivity is generally increasing especially with SMEs

Propension to R&D is stable and SMEs have reached the highest levels (around 20% of turnover)

The Downstream/Space VoP ratio has reached significant levels, especially with SMEs (>40%)

24CONCLUSIONS: HOW TO USE THE SPIN OFF SUBPANEL AS A MODEL FOR THE SPACE

SYSTEM EFFICIENCY

The model has provided positive results

To become a robust model for all the public stakeholders (new actors have emerged like the local Authorities and the EU) it must be integrated, improved and repeated

4 are the areas of intervention to achieve this Information framework R&D expenditure Downstream: there are strong interests of the “Regioni”

with partnership agreements for the economic benefits that space produces for their territories

International competivity

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As to the information framework supporting the spin off phenomenon, the highest possible degree of coverage among the Panel firms must be ensured. See also how any “new entry” (i.e. in the propulsion case) can alter the overall results of the model (due to high variation coefficients – 2/3 – in the value series feeding the indexes). Details in the paper. It is also necessary to extend “layer by layer” the survey to the whole of the Space Economy involving the other stakeholders

As to R&D expenditure the spin off Subpanel confirms that it is mostly “intramural” and covered by public external contributions. Therefore the public strategies have a strong role in ensuring its outcome into the spin off areas. The paper details the actual degree of matching

As to the Downstream (space) component of the Subpanel turnover it is obvious that the widest possible dimension will offer a perfect boost and test bed integration for the spin off activities, and finally the performance improvement of the model in terms of “space economy” generation. Local authorities (Regioni) are here at the forefront as this deals with their main mission: specialisation, employment growth

Finally, International competitivity (and mostly outside the EU backyard) must be monitored regularly in the future within the Subpanel, as it surely is a telltale of health and capacities to perform both the spinoffs and the space business (i.e. ASI – ICE Protocol)