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Frost & Sullivan Market Insight on Military Training & Simulation Market_2013

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Frost & Sullivan predicts that despite implementation of defence budget reductions in many countries, the global demand for training and simulation (T&S) is expected to steadily grow at a CAGR of 2.51 …

Frost & Sullivan predicts that despite implementation of defence budget reductions in many countries, the global demand for training and simulation (T&S) is expected to steadily grow at a CAGR of 2.51 per cent between 2012-2021, and present revenue opportunities of up to $411.06 billion available to the industry.

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  • 1. Military Training & Simulation Market Spreads its Wings Alix Leboulanger, Research Analyst-Aerospace, Defence & Security Dominik Kimla, Industry Analyst-Aerospace, Defence & Security “We Accelerate Growth”
  • 2. Military Training & Simulation Market Spreads its Wings Market InsightIntroductionEver since Virtual Battle Space-1 (VBS1) came to light, it has been as popular in the military community as Callof Duty across the gaming community. Designed initially for the U.S. Marines, VBS1 was introduced in 2002 (andits successor VBS2 in 2007) and there has been no looking back for the simulated training industry. There arecompelling reasons for the industry’s increasing popularity. As the equipment becomes more advanced andsophisticated, so does its complexity, which demands more training for the operators and technicians.Simulation devices are considered very effective at unravelling complexities, giving the industry credibility in arelatively short span of time. It is essential to note that here we are talking about an industry that is at timesgeneralised as “Serious Gaming,” with only about 10 years of evolution and maturity.The age of austerity and defence cuts also bear well with simulated training; experts and decision-makers evencontinue to explore it as a potential approach to cutting cost on Operations & Maintenance (O&M) budget.Operationally, it enables practising mission scenarios without having to put lives at risk. This additionally comeswith the benefit of cutting significant costs and strains on equipment, incurred from live training. While notconsidered as a replacement for live training/exercise, it can substantially reduce the amount of training needs,yet keep the troops’ readiness level intact. For instance, research indicates a return on investment (ROI)period of three to five years for an advanced helicopter simulator; although this might vary depending on thetechnology (complexity) and training hours (saved) in a specific end-user environment. However, the challengeis in obsolescence management, wherein the dynamic and ever-evolving nature of electronics and computingtechnologies demands an expensive and constant upgrade and/or replacement of infrastructure. This challengefor the end user and even for the Original Equipment Manufacturer (OEM) is an opportunity for the industry toengage in new procurement/distribution models from capability contracts to leasing, etc., with different levels ofavailable customization, depending on the end-user segment, from Naval to Joint Forces.The provision of near real-time situational awareness in conducting training and measuring performance acrossthe decision-making levels during the training exercise results in increased effectiveness of training. Such benefits,amongst others highlighted in our research, indicate that the simulated training market is set to stay and grow, andso are its providers. This Market Insight aims to provide both end users and industry participants an overview ofhow the market is growing across regions and services, and what dynamics are being played out in the marketplace.Market Potential - by RegionsFrost & Sullivan predicts that despite implementation of defence budget reductions in many countries, the globaldemand for training and simulation (T&S) is expected to steadily grow at a CAGR of 2.51 per cent between 2012-2021, and present revenue opportunities of up to $411.06 billion available to the industry.Figure 1: Military Training and Simulation: Market Attractiveness Map, Global, 2012-2021 Region CAGR HIGH Asia- Africa 0.03% 3-5% Pacific Middle East High Asia-Pacific 4.36% Attractiveness Latin America Central Asia 3.58% MARKET GROWTH Europe Europe 1.86% North Low America Attractiveness Latin America 3.07% Africa LOW Middle East 3.92% 0-3% LOW HIGH <10 Billion >150 Billion North America 1.05% The table represents regional consolidated revenues and compound annual growth rate across the period 2012-2021 Source: Frost & Sullivan analysis© 2013 Frost & Sullivan Page 2
  • 3. Military Training & Simulation Market Spreads its Wings Market InsightFrost & Sullivan research also shows a major shift, in terms of CAGR growth, from Western countries to emergingeconomies in Asia Pacific, Middle East and Central Asia of 4.36 per cent, 3.92 per cent, and 3.58 per cent,respectively. These regional defence markets will experience the highest CAGR during the analysed period andemerge as strong T&S markets in the next 10 years. The fastest growing markets, in terms of CAGR, will be China,India, Saudi Arabia, Russia, Brazil and Colombia.Market Dynamics - by End Users and by CapabilitiesFrost & Sullivan research indicates that each of the end-user segments—air, land and naval—are experiencingsteady growth in simulated training, although with varying dynamics across the armed forces.Figure 2: Training and Simulation Forecast Market Size by End-Users, Global, 2012-2021 26.03% 49.86% 24.11% Air Land Naval Source: Frost & Sullivan analysis • Air T&S is expected to have the highest uptake, either at the platform or the systems level, due to ongoing demand for pilot and crew training for new combat air platforms and significant increase in remotely piloted aircraft (UAVs).Figure 3: Military Training & Simulation: Air Segment Cumulative Market Share Forecast byCapabilites, Global, 2012-2021 8.45% 25.12% 66.43% Platforms Systems Maintenance Source: Frost & Sullivan analysisIn this segment, market opportunity is largely being shaped by acquisitions of new, more complex platforms suchas F-35 (multirole combat fighter) and A400M (heavy transport aircraft). These next-generation platforms areexpected to generate a significant demand for pilot and crew training, as well as training for new and complexequipment/systems onboard. Given that the cost of live air training in relation to simulator-based training is© 2013 Frost & Sullivan Page 3
  • 4. Military Training & Simulation Market Spreads its Wings Market Insightsignificantly higher—one estimate puts the ratio at 10-1—MoDs will continue to purchase simulators and virtualtraining programs for improving readiness of their forces, yet keeping the cost down.Furthermore, a rapid influx of unmanned systems has been a game-changer in the air capability equation, resultingin increased demand for training operators and image analysts, for whom the training is almost entirely conductedin virtual mode at the ground station level. It is worth noticing that although the fast-growing UAV segment hascreated a new market for the T&S industry, the revenue per UAV operator to manned aircraft pilot has greatlyreduced. This is not least because UAV training is relatively short-spanned and comparatively easy, since a largepart of flight is automated, but it is much easier to control than piloting a combat jet. • On the land side of business, the market is relatively small from a platform-based training viewpoint because the land platforms are generally cheaper and less sophisticated than air and naval ones. Moreover, land forces are experiencing significant personnel reduction due to budget cuts in Western countries and end of military involvement in Iraq. Also, drawdown from Afghanistan will negatively impact demand for land T&S products and services.Figure 4: Military Training & Simulation: Land Segment Cumulative Market Share Forecast byCapabilities, Global, 2012-2021 4.66% 34.12% 61.22% Platforms Systems Maintenance Source: Frost & Sullivan analysisNevertheless, the land systems training areas have started to show more signs of solid growth. The soldier andsquad-level weapon and tactical procedure training in urban and asymmetric settings is one such area. Anotherarea is embedded training, where crews can practise simulation equipment onboard real armoured vehicles andother equipment in a real-time exercise. The increasing shift toward advanced C4ISR systems demands skilledpersonnel (tactical to strategic). As a result, constructive simulation that is used to practice decision channelson C4ISR assets is also an area of growing interest. This further resonates with the trend toward becoming aneffective joint force at national as well as coalition levels. • On the naval side of business, we predict the revenue opportunities will remain stable over the long term. In pursuit of energy and trade security, nations are focusing on maritime surveillance and border control. Equipment/capability, along with the strong simulated training packages, can be a compelling solution for the end users from solution providers, and can potentially make a real difference in winning business.© 2013 Frost & Sullivan Page 4
  • 5. Military Training & Simulation Market Spreads its Wings Market InsightFigure 5: Military Training & SImulation: Naval Segment Cumulative Market Share Forecast byCapabilities, Global, 2012-2021 3.90% 30.23% 65.87% Platforms Systems Maintenance Source: Frost & Sullivan analysisLike air (albeit still nascent), unmanned underwater systems have started playing an increasing role in the sea, andtraining on these sophisticated platforms can be made more efficient and cost-effective through simulation. Thesetrends indicate there is potentially significant opportunity in construction, operation and maintenance of seaborneplatforms—manned and unmanned—due to increasing complexity and sophistication of these platforms. Besidesthis, research indicates that the U.S. Navy will pass with relatively modest reduction (although some still significant)of combat vessels throughout the period of the U.S. defence budget cuts, meaning revenue from the U.S. naval T&Smarket will remain fairly stable.As all three markets continue to grow, Frost & Sullivan expects many new entrants piggybacking on newtechnologies, such as 3D-NGRAIN, Di Guy, Presagis, BIS, and Domeprojection to name a few, and increasing theirniche in the marketplace.© 2013 Frost & Sullivan Page 5
  • 6. Military Training & Simulation Market Spreads its Wings Market Insight Conclusions As armed forces are restructured, and headcount reduced, the military T&S market is changing accordingly. MoDs are increasingly looking for complex, integrated T&S solutions. However, the full extent of integration remains to be seen, since the technology is still evolving and the industry busy strategising. The defence companies are expected to be more active in educating their customers on practical and functional aspects of simulators and training blends, since the acceptance of their value is still inconsistent across the global military community. Figure 6: A broad range of increasingly sophisticated training types and blends at the disposal of Armed Forces Bl en d #1 Live Training: tic :L he iv Enriching traditional training e nt + means for a better knowledge Sy C on = of systems features ve st Li ru ct + iv al e tu = ir Em :V LVC Training: #3 be The quest for the upmost d dd en ed integrated architecture Bl Tr Constructive Training: a Virtual Training: in Offering a 3D world and in Decreasing operating costs g seamless interactions to and increasing training soldiers for increasing Joint effectiveness ratios Exercises and decision processes Blend #2:Virtual + Constructive = Integrated Training Source: Frost & Sullivan analysis It can be an issue in some emerging defence markets in Latin America and APAC. The market participants are also expected to keep investing in new technologies, such as 3D, analytics and artificial intelligence, as well as adopting cost-effective commercial off-the-shelf solutions to reduce costs and provide a high level of fidelity into the system. Frost & Sullivan expects industry participants and competitors to leverage inorganic growth, generating considerable excitement in the mergers and acquisitions area in the coming decade, especially from European IT specialised firms and renowned American training service providers. Frost & Sullivan’s new report on Military Training & Simulation Market Assessment is available now. To learn more about this report, please contact andrew.thorndyke@frost.com or aman.pannu@frost.com. About Frost & Sullivan Frost & Sullivan, the Growth Partnership Company, works in collaboration with clients to leverage visionary innovation that addresses the global challenges and related growth opportunities that will make or break today’s market participants. For more than 50 years, we have been developing growth strategies for the global 1000, emerging businesses, the public sector and the investment community. Is your organization prepared for the next profound wave of industry convergence, disruptive technologies, increasing competitive intensity, Mega Trends, breakthrough best practices, changing customer dynamics and emerging economies? Contact Us: Start the Discussion www.aerospace.frost.comCONTACT US 877.GoFrost (877.463.7678) • myfrost@frost.com • www.frost.com

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