Technology and Investment, 2012, 3, 158-167 http://dx.doi.org/10.4236/ti.2012.33022 Published Online August 2012 (http://www.SciRP.org/journal/ti) The Size, Structure and Characteristics of Finland’s ITS Industry Zulkarnain, Pekka Leviäkangas VTT Technical Research Centre of Finland, Oulu, Finland Email: [email protected] Received June 6, 2012; revised June 25, 2012; accepted July 2, 2012 ABSTRACT Intelligent transport systems (ITS) are seen as a high-growth segment within the transport sector, as information and communication technologies (ICT) push their way through different industries. ITS products and services has been de- veloped, and its myriad benefits has been introduced which are promising for new business opportunities and investors. Its economic importance has also been recognised as well and many analyst reports show significant growth projections for the ITS market as a whole. This paper attempts to make the first quantitative and empirical analysis of the ITS in- dustry in Finland. The Finnish ITS market had a significant growth in 2007 but has since then been very slowly been turning upwards from the negative growth observed in 2008 and 2009. The fast growing firms have clearly been show- ing good growth, whereas the weakest performers seem to have a continuous declining trend. The Finnish ITS supply market had an aggregate turnover of approximately €300 million and around 1700 employees in 2010. Keywords: Intelligent Transport Systems; Market; Growth; Industry; Industry Structure; Finland 1. Introduction these costs could achieved [2]. There are about 200,000 premature deaths per year in the EU because of poor air Rapid development of information and communication quality, since transport generates about 25% - 30% of technologies (ICT) has introduced many changes to various greenhouse gases. These harmful effects can be reduced sectors. It has transformed most industries as well as by ITS by about 15%. Ferreira [3] showed about poten- public sector from education to health care, and is now in tial of ITS for road transport. ITS could make reduction the early stages of transforming transport systems [1]. of congestion by 5% - 15%; 5% - 15% less fatalities and Intelligent transport systems (ITS) are the systems that 5% - 10% less injuries; and possible savings of 10% - utilize ICT in the transport system, covering all modes of 20% CO emissions. In Leviäkangas and Hietajärvi [4] transport for both passengers and goods. ITS brings sig- 2 the weather-related ITS services were listed with almost nificant improvement in transport system performance, equally impressive impacts. including reduced congestion, increased safety, and trav- The benefits of ITS can be realised only after there are eller convenience through products and services such as services that are delivered to and utilised by transport system navigation devices and services, automatic warning sys- users, regardless of the mode and whether private, cor- tems and communications services between drivers and porate or institutional users of the services are considered. the environment, just to name a few of the typical. The service supply chains from observation to dissemi- ITS is regarded as a tool for transportation system de- nation need to be constructed appropriately and it is not signers to improve the aforementioned characteristics of self-evident that these service supply chains can be built the system. It has also been introduced as a mean to re- easily [5]. Neither is it obvious that service supply chains duce emissions from the transportation system, hence are emerging even when the demand for services is evi- greening the system. The benefits of ITS have been stud- dent. ied widely. Kristensen [2] pointed out the ITS could re- But without question, ITS has already rightfully taken duce as much as 50% of the congestion societal costs 3 its place in the tool box of decision makers and transport billion € per year in the EU, equaling about 1% of the system engineers and there is in fact little doubt that the region’s GDP. Moreover, there are about 800 fatal acci- best of ITS can deliver significant benefits. Its economic dents per year in the Netherlands (total EU about 40,000) importance has been recognised as well and many ana- yielding to ca. €9 billion cost to the Dutch society (about lyst reports show significant growth projections for the 3% of GDP)—with the help of ITS even 25% decrease in ITS market as a whole. Most importantly, the stronger Copyright © 2012 SciRes. TI ZULKARNAIN, P. LEVIÄKANGAS 159 and more competitive the ITS industry from the supply connected to the supply side. The supply side consists of side is, the more there is potential for benefits. companies that deliver these services and products. Sup- The ITS market growth has seen to possess great po- ply side represents the “true” size of the market as it is tential for the years to come. Based on BCC research [6], observed since it can be assumed that the aggregate there will be strong growth for ITS device market. The turnover these companies also meets the minimum de- worldwide market is valued at 24 billion US$ in 2010, mand: if there would not be true demand, there would not and it is expected to increase at a 22.2% compound an- be any turnover, obviously. The observed supply, how- nual growth rate during the forecast period to reach a ever, does not reveal whether there is any unsatisfied value of 65 billion US$ in 2015. Besides, according to demand for ITS products and services. The first logical Kristensen [2], between years of 2000 to 2010, EU mar- assumption is that there is always to some extent this ket for ITS equipment and services increase from 1 to 21 type of unmet demand. The structure of the market will billion € per year. These aforementioned projections are be described by positioning the companies that supply based on market researches, the data of which are not ITS in an industry value chain constructed particularly transparent nor explained thoroughly, however, and hence for this study. The value chain structure follows the tra- they should be viewed critically. Yet, ITS is regarded as ditional principles that of Porter [8]. a fast growing sector with lots of promises—and not only The size of the market is simply the summed turnover concerning the benefits it is expected to deliver but also of the companies since this figure represent the total in terms of pure economic growth. value of ITS goods and services provided after demand. There is a solid justification for the use of ITS and it is The companies’ selection—which companies can be re- been widely adopted globally and furthermore, the ITS garded as “ITS companies”—is then not an equally cluster has been recognised as an industry of its own straight-forward question. We created a set of criteria to right. However, the size and the structure of the market select the companies but some important firms were still vary from region to region, and from country to country, left out from the included group. This definition is iden- as the technological advancement and purchasing powers tical to the definition “the total market size is the total of the countries/regions differ significantly from each value of sales”. The aggregate supply, i.e. the sales, of the other. sector representing the size of the market relies on tradi- This paper attempts to make the first quantitative and tional microeconomics concepts (see any standard mi- empirical analysis of the ITS industry in Finland, known croeconomics text book, e.g. Eaton et al. [9] or Pindyck as one of the high-tech societies in the world, ranked and Rubinfeld [10]). sixth by the World Economic Forum [7]. The home nest Thirdly, the growth trend of the ITS market is ap- of Nokia has been seeking new “Nokias”—as the old one proximated with the help of a smaller sample of compa- moves towards more mature phase of its evolution path— nies which can be considered as 100% ITS focused enti- to boost national economy and to create new seeds of ties. By selecting this kind of sample we try to exclude growth. Our paper aims to deliver critical, yet analytical the noise of other growth trends than that of ITS as those information for several stakeholders. First, the Finnish companies that have several other business segments industry policy makers and ITS business developers will alongside ITS would distort the ITS growth trend. hopefully view the data with a keen eye and build their Fourth, the Finnish ITS market characteristics are perception of the ITS industry in Finland. Secondly, the qualitatively explained from several perspectives, yet analysis tools and approaches presented in this paper basing the explanations on the quantifiable parameters of should be of generic interest to ITS community. ITS has the companies belonging to the ITS cluster. We will as- long been the “wishing well” for both business develop- sess characteristics like completeness of the industry ers and transport policy makers. This paper attempts to value chain, concentration ratios (how scattered or con- quantify the foundation of the expectations and hence centrated the cluster is), and employment effects. Finally, bring in a more realistic view on the industry. we will provide an estimate of the ITS market in relation An early version of this paper is to be presented in ITS to GDP in Finland and point out how significant the in- World Congress 2012 in Vienna, Austria. dustry is now and what is its prospective importance in the future economy. 2. Purpose and Scope Our analysis excludes the “intermediate” roles in the The first purpose of this paper is to describe the ITS service supply chain as explained in Leviäkangas [5].