Intelligent Transport Systems and Logistics
1. Cluster Profile
“Intelligent Transport Systems (ITS) are advanced applications which without embodying intelligence as such aim to provide innovative services relating to different modes of transport and traffic management and enable various users to be better informed and make safer, more coordinated and ‘smarter’ use of transport networks.” (European Commission 2010)
Intelligent Transport Systems (ITS) are planning, operations management, and customer service applications that use information and communication technology (ICT) to enhance the effectiveness, efficiency, and safety of transportation and traffic flows. The S3 defines ITS suppliers as companies that “integrate telecommunications, electronics and information technologies with transport engineering in order to plan, design, operate, maintain and manage transport systems” (Government of Croatia 2016). While the term is often used in the context of urban passenger transport, the scope of ITS covers solutions related to the road, highway, and seaborne transport of both goods and people. In line with the parameters of the Croatian S3, this report focuses on ITS solutions for road transport. Table 2 lists examples of ITS applications. ITS are related to the field of telematics, which is an interdisciplinary area at the intersection of transportation, telecommunications, and engineering.
ITS offer solutions for challenges with enormous social and economic implications, namely road congestion, accidents, and environmental pollution. The total cost of road congestion in the European Union (EU) has been estimated at close to 1 percent of gross domestic product (GDP) (European Council 2010), while in 2016, a staggering 25,500 people were killed in traffic accidents in the EU.1 And the transport sector is one of the largest single contributors to global carbon dioxide emissions, accounting for as much as 23 percent of such emissions (IEA 2016). The European Council, European Commission, and European Parliament have specifically identified ITS as an important pillar of the EU’s joint approach to mitigating the economic and human costs of road congestion, road accidents, and environmental pollution. (European Council 2010) The EU-wide emphasis on ITS is embodied in Directive 2010/40/EU, which spells out 24 activities within 6 priority areas. Directive 2010/40/EU is binding on EU member states, which must adopt policies that are in line with the directive. The activities and priority areas set out in the directive are listed in Figure 1.
Source: Mandžuka 2015.
ITS solutions can be understood in terms of two complementary aspects—technologies and applications. Applications refer to the end ITS solutions, while technologies are the specific combination of hardware, software, equipment, and devices that work together to make an application possible. For example, a specific application might be the management of a city’s publicly run bike-sharing fleet. Management of the bike-sharing fleet might be achieved by means of different technological platforms; a city in a developed country might opt for a more advanced and expensive version than a city in the developing world, for example, and the type and level of technology used might change over the life of the application—but the end solution would remain the same. Thus, whereas applications represent an attempt to apply ITS to solve a specific problem, technologies are to a certain extent fungible and interchangeable. (World Bank 2011)
1.1.1. History and Significance of the Industry in Croatia
Croatian firms largely built their ITS expertise during the construction and modernization of the country’s national motorway network that took place in the 2000s. Croatia had a limited highway network before independence, with limited routes stretching relatively short distances from Zagreb—westward to Karlovac and eastward to Slavonski Brod. Thus, while researchers at the Faculty of Electrical Engineering and Computing at the University of Zagreb and at companies such as Nikola Tesla (subsequently acquired by Ericsson) started working in the telematics field as early as the 1990s, it was not until the construction of a nationwide motorway network got under way in the 2000s that Croatian companies were able to get a foot in the door by acting as subcontractors providing hardware (and later software solutions) to construction companies. Some firms, such as Telegra, have been able to leverage this homegrown experience into providing hardware and software solutions for highway and tunnel management systems for overseas customers. In 2005, the Faculty of Transport and Traffic Sciences (Fakultet prometni znanosti, FPZ) at the University of Zagreb launched an accredited study program on ITS at both the undergraduate and graduate levels. That year also saw the establishment of a lobbying association for the sector, ITS Croatia. By the time Croatia entered the EU in 2013, the country was receiving recognition for the quality of its Advanced Traffic Management Systems (ATMS) on highways, particularly for incident management and tunnel safety2 (Rijavec 2013).
More recently, because of sustained growth, Croatia’s ICT sector has maintained the potential to support ITS development. In interviews, cluster agents emphasized the importance of competency in ICT for being able to develop sophisticated ITS solutions. Without registering a necessarily stellar performance, the Croatian ICT sector has maintained a sustained level of growth, accounting for just over 4 percent of GDP, with sales revenues growing by 3.5 percent from 2015 to 2016 (Spasojević 2017). The relationship between the ICT and ITS sectors is discussed in more detail in Chapter 4.
1.1.2. Smart Specialization Strategy and the STPA
Intelligent Transport Systems and Logistics is one of three STPAs related to transport; the other two are Environment-Friendly Transport Solutions (EFTS) and Added Value Manufacturing of Road and Rail Vehicles Parts and Systems. While the three STPAs are closely related, the existence of three separate STPAs underscores the perceived strategic significance of this topic: “Transport and mobility are important areas for Croatia that can make substantial contributions to meet global challenges in relation to smart, green and integrated transport” (Government of Croatia 2016). The S3 divides areas of activity among the three STPAs as follows: the Added Value Manufacturing of Road and Rail Vehicles Parts and Systems STPA covers the manufacture of automotive and rail components upstream of original equipment manufacturers (OEMs); the Intelligent Transport Systems and Logistics STPA covers ITS; and the EFTS STPA overs environment-friendly approaches to the automotive and maritime sectors.
Figure 3: Transport and Mobility Thematic Priority Area in the S3
While the three STPAs span all modes of land and sea transportation, the S3 limits the scope of the ITS and Logistics STPA largely to road transportation. Advances in the field of the application of ICT to other modes of transport should be reflected in developments in the road transport sector, in particular with a view to ensuring higher levels of integration between road transport and other modes of transport. (Government of Croatia, 2016). The S3 also identifies an opportunity “to develop a concept of a public-private partnership through joint, co-operative activities of public and private sectors in development and implementation of different systems, as well as in provision of various services in the field of ITS.”
The S3 also lays out a range of research and development (R&D) topics and key enabling technologies (KETs), listed in Table 3, that can be exploited to support private sector growth.
Table 3: Indicative RDI topics and cross-cutting KETs and ICT
1.1.3. Regulatory framework
The Amendments to the Roads Act, adopted in April 2013, is the most significant piece of ITS legislation in Croatia, as it implements Directive 2010/40/EU. Moreover, the Ministry of Maritime Affairs, Transport, and Infrastructure (Ministarstvo pomorstva, prometa i infrastructure, MPPI) has set up a National Program for the Development and Deployment of Intelligent Transport Systems in Road Transport, covering 2014–2018. The program lays out four strategic objectives:
- Road traffic safety and security. This objective includes a 50 percent reduction in the number of traffic-related deaths and serious injuries, a reduction of the high cost of traffic accidents, improved health and quality of life, and the attainment of a safe and sustainable mobility system.
- Improving the efficiency of the road transport system. This objective seeks to raise the efficiency of Croatia’s road transport system to levels more in line with the rest of the EU, to pare the significant economic losses that result from the lack of efficiency.
- Sustainable mobility in cities. This objective is primarily aimed at addressing transport challenges in Croatian cities, as well as traffic problems related to the country’s status as a major international tourism destination.
- ITS industry development. ITS offers potential opportunities to create new jobs in a number of areas such as road telematics, software, and electronics. However, this objective acknowledges the need for improving R&D capacities of both companies and academic institutions.
Croatia’s Transport Development Strategy, the last iteration of which was published in August 2017, aims to achieve an efficient and sustainable transport system. The most recent revision of this strategy was published in August 2017. The strategy lays out future measures and projects to be undertaken in all areas related to domestic and cross-border traffic.
2. National Supply Profile
The Croatian ITS industry can be broadly understood to consist of almost 50 companies whose activities span several sectors; 19 are engaged mainly in the production of ITS technologies or applications. These 19 firms reported revenues of approximately EUR 39 million in 2016. In comparison, the same year Croatia’s ICT sector recorded earnings of about EUR 4.3 billion (Spasojević 2017). Thus, notwithstanding the role that the sector has been given in dealing with the social, economic, and environmental costs of transportation, ITS companies have a limited profile in Croatia. In addition to the companies that are mainly focused on ITS, other firms such as King ICT, Hrvatski Telekom (HT), and Ericsson Nikola Tesla (henceforth ‘Nikola Tesla’) can also be considered important players in the sector.4 For example, while ITS makes up only a small portion of the company’s portfolio, Nikola Tesla boasts significant technical expertise and has set up ITS pilots in Croatian cities and towns.
Firms that are engaged mainly in the production of ITS technologies or applications are listed in Table 4and are described in more detail in Section 5.1:
Source: Author analysis of Bisnode Portfolio Intelligence database.
Croatian companies produce both ITS applications and their supporting ITS technologies. As discussed earlier, ITS applications offer solutions to transportation challenges, whereas ITS technologies are the devices, equipment, hardware, and software used to achieve those applications. Croatian companies produce both technologies and applications. Telegra, the largest company (by revenue) that focuses on ITS, got its start in the sector by supplying construction companies with tunneling and traffic signaling equipment for highway construction projects. Later, the firm also got into the business of producing software that supports the operations management functions of traffic control centers. Similarly, Mobilisis also produces fleet management software but sells its solutions to buyers rather than act as a systems integrator that actually manages fleets. Nikola Tesla is running a few ITS pilots in Split, Rijeka, and other localities in Croatia. Interestingly, Croatian firms in other ICT-related sectors (such as cybersecurity) have stepped into a systems integrator role (Mandić 2017). Examples of specific ITS products and solutions offered by Croatian firms are listed in Table 5:
Table 5: List of Selected Croatian ITS Products
The small size of the Croatian domestic market means that companies have had to seek opportunities outside the country. Another oft-voiced challenge was a lack of understanding of ITS on the part of potential Croatian buyers. A number of Croatian firms have had notable success at penetrating export markets. In field interviews, these firms reported that Croatian ICT/ITS firms are viewed positively for their flexibility, competitive pricing, and skilled workforces. Croatian ITS companies that have enjoyed success in export include the following:
- Signalinea is a supplier of horizontal signaling equipment for both urban and rural applications. While it was a major subcontractor during the construction of the Croatian national motorway network in the 2000s, after the subsequent drop in large highway infrastructure projects, the company reoriented itself and now successfully exports its products to France, Denmark, and Belgium.
- Telegra also honed its skills during the building of the Croatian highway system and has since expanded its portfolio to provide complex technical solutions for automated management of road traffic and control centers. The company is known for its ATMS and ITMS (Telegra is considered by many in the industry to rank among the global leaders for ITMS and has outfitted more tunnels than any other company), and its traffic control centers are operating in 35 countries worldwide.
- Mireo offers solutions in big data analytics and GPS navigation. The company outcompeted Google to win a tender in Dubai for an integrated traffic GPS application. Mireo has also developed business intelligence tools for big data analytics used for risk calculation in the car insurance industry—a specific market niche with only few global competitors.
- Xylon is an electronics company focused on the design of field-programmable gate arrays (FPGAs), embedded graphics, video, and networking. The company is one of the global leaders in FPGA and system on chip (SoC) design. Recently, Xylon has reoriented its activities to focus on camera-based ADAS, which are key to the operation of automated vehicles and also represent the highest-growth segment in the automotive industry (McKinsey, 2017). Mireo’s largest markets are Germany and Japan, followed by the Republic of Korea, the United States, Italy, and the United Kingdom.
- Mobilisis is a producer of fleet management software that later branched out to develop smart parking solutions that have been implemented in several cities in Germany and Austria. Mobilisis’ success has attracted investment from a major German producer of sensors, SICK.
Figure 5 presents export values for firms whose main business is ITS. In 2014–2016, the amount exported by these firms almost halved, from EUR 24 million to EUR 13 million. This was due almost entirely to Telegra, whose exports account for 75 percent of exports of the aggregate total; Telegra and its sister companies’ exports fell from EUR 18 million to EUR 7 million in the three-year period.
Figure 6 presents export values for firms with a mixed portfolio. These firms saw a large increase in exports, from EUR 129 million to EUR 163 million, or more than 26 percent. In particular, Nikola Tesla, Cloudsense, and Manas saw a significant rise in exports.
Figure 6: Export Values of Companies Focused on ITS Services, 2014–2016
Source: Bisnode Portfolio Intelligence database.
Figure 7: Selected Export Markets for Croatian ITS Solutions
3. Industry Functioning
From its origins in the national motorway construction that took place in the early 2000s, the Croatian ITS sector has diversified into a wider range of activities, although ATMS and ITMS for the highway sector maintain a dominant position. During the early phase of development of the Croatian ITS sector, domestic firms developed competencies in providing products such as telematic equipment, adaptive traffic signs, and communications systems for highway and tunnel construction projects. Companies such as Telegra specialized in the delivery of fully integrated software and hardware solutions for ATMS on motorways and for ITMS, while others such as Signalinea focused on producing hardware such as traffic signaling systems.
After the initial phase of national highway construction was over, some companies entered a second phase of trying to break out of the constraints of cyclical infrastructure demands in a small domestic market. Having obtained domestic experience from their work with ATMS and ITMS for the national motorway network, Telegra and Signalinea started to seek out, with some success, new buyers in advanced markets such as the United States, Germany, and the Netherlands. Moreover, cluster agents reported a period of adjustment after the global economic crisis of 2007–2008 caused a slowdown in large infrastructure projects. As a result, companies began directing more resources toward R&D for new products and services. For some firms, these efforts seem to have paid off in the form of having won tenders on projects in international markets.
The ITS industry now appears to be in a third phase of development, where ICT-based growth is leading to a diversification of ITS capabilities and applications, as well as to the emergence of smaller players that are providing ITS solutions. The growth of the ICT sector in Croatia has given a push to ITS development in the country, particularly in ITS related to the urban segment (as opposed to just the highway-based ATMS and ITMS that have been the core of the Croatian industry) (Mandžuka 2015). This growth has brought Croatian companies into new ITS areas such as adaptive traffic control, public transport management, parking lines management, intermodal transport in cities and ferry ports, and convoy management (Mandžuka 2015). Some of the new players have parlayed ICT and engineering skills into the development of smart traffic solutions and platforms, and some of these firms have found international buyers and new distribution channels. For example, Mobilisis has partnered with HT, Croatia’s largest telecommunications company, to find new customers for its fleet management solutions. Mobilisis has also expanded into smart parking technologies and traffic solutions (such as smart traffic lights that optimize traffic flows and reduce congestion). Some Croatian companies are also expanding their activities in big data analytics. For example, Mireo, a company whose core competencies were telematics and GPS navigation, has developed a sophisticated platform that can monitor millions of vehicles and analyze the resultant data for buyers in the insurance industry. Moreover, the Technology Park Zagreb (Tehnološki park Zagreb, TPZ), a leading ICT incubator, has identified mobility as one of its five main focus areas. Currently, four companies at TPZ are developing ITS solutions: Wepark and SPS Zagreb are working on smart parking solutions, Hubbig is developing a business-to-business (B2B) web platform for intermodal transport, and Flow is developing a system for traffic optimization in urban areas.
The ITS market has also begun to attract interest from larger, more well-established companies such as Nikola Tesla, HT, and King ICT. As mentioned earlier, HT and Mobilisis are cooperating on big data solutions for fleet management. Meanwhile, Nikola Tesla is working on a number of ITS pilot projects, including a smart parking solution in Split, an integrated mobility solution for the town of Velika Gorica (near Zagreb), and a ‘smart’ bus station in Rijeka. King ICT, an industry leader in the Croatian ICT sector, is also venturing into the areas of integrated ticketing, smart parking, and traffic sensors.
3.1. Economic Geography
3.1.1. Number of Firms
A comprehensive CCE sector scan identified 47 companies in the ITS STPA. This number includes firms that produce ITS applications and/or technologies as their main business, those that have a mixed portfolio that includes ITS applications and/or technologies, and those that provide support functions. There is also a category of companies that provide ITS technology for the construction and maintenance of the infrastructure. Figure 8: categorizes these 47 companies by size, as well as by whether they are best described as
- Companies whose main business is ITS (19 firms);
- Companies with a mixed portfolio that includes ITS (20 firms); and
- Providers of supporting products and services (8 firms).
Most companies fall into the small or even micro size category (78 percent), and they either are focused mainly on ITS or have a mixed portfolio. Unless otherwise stated, the analysis that follows focuses on the group of 17 companies for whom ITS is their main business and thus excludes firms like Nikola Tesla, HT, and King ICT that, while substantively involved in ITS, have most of their activities in other areas such that including these firms would provide a misleading picture of the ITS sector. Annex 1 lists all 47 companies in the ITS STPA.
3.2. Profitability Analysis
Overall, the ITS sector has seen a decline in relevant indicators from 2014 to 2016. Profits, revenues, and employment fell by 20 percent, 9 percent, and 8 percent, respectively, while companies piled on additional debt—to the tune of a 24 percent increase.
Notwithstanding their ability to compete in export markets, in the aggregate the recent trendline for firms with ITS as their main business is somewhat negative. Over 2014–2016, the 19 ‘core’ companies in the ITS STPA recorded negative trends in almost all financial categories except for assets and equity. The sector’s turnover contracted by 9 percent, while employment levels fell by 8 percent. Meanwhile, profits decreased by 12 percent, while equity and assets remained stable or declined slightly. The overall poor performance of the ITS STPA seems to be due mainly to the struggles of the largest of the 11 companies, Telegra. Telegra’s revenues dropped by almost 70 percent during 2014–2016. Aside from Telegra, the other 10 companies in the ITS STPA actually grew by 8 percent.
Source: World Bank analysis using Bisnode Portfolio Intelligence data.
In contrast, companies with a mixed portfolio that included ITS reported a healthier financial profile. Employment rose by 8 percent, profits by 22 percent, and revenues improved by 15 percent. The debt load of this group of companies increased by 10 percent, while assets and equity grew by 5 percent and 10 percent, respectively.
Figure 10: Financial Analysis of Mixed Portfolio Companies, 2014–2016
Source: World Bank analysis using Bisnode Portfolio Intelligence data.
3.2.1. Clustering of Firms
Most companies in the ITS STPA are concentrated in or around Zagreb. While such a pattern is not unsurprising given the prominence of the capital and its relatively easy access to buyers, the workforce, and financial institutions, it is notable that the ITS STPA appears to be more concentrated in Zagreb than the general distribution of ICT firms in the country would suggest. For example, 10 of the 11 core firms in the ITS STPA are located in Zagreb, and the significant ICT clusters around Osijek, Split, Rijeka, and Pula are largely unrepresented.
Figure 11: Geographical Clustering of ITS Firms (left) and Support Institutions (right)
Figure 12: Geographic Distribution of ICT Firms in Croatia
3.2.2. Assets, Debt, and Revenue
The main firms in the ITS STPA recorded a poor financial performance in 2014–2016; this poor performance is mainly due to one firm, Telegra. Among the 19 ITS-focused firms, total assets dropped by 1.4 percent, driven by a sharp fall of more than 30 percent in the value of Telegra’s assets. Revenues also decreased significantly over the same period, from EUR 47 million in 2014 to EUR 39 million in 2016; this represents a contraction of more than 17 percent. Again, this decline was driven largely by a collapse in the revenues of Telegra and its sister companies, which fell by 23.4 percent. Telegra’s performance was not, however, necessarily reflective of the sector as a whole. In particular, a number of smaller and newer companies focused on ICT-based solutions reported substantial growth; Duplico and Mobilisis grew by 30–50 percent, Cloudsense doubled its revenue, and Microblink’s revenues increased by a factor of five.
3.2.3. Cost Structure and Margins
Profit margins among the core firms in the STPA fell, but many smaller companies have seen margins rise. While profit margins among 19 ITS-focused firms fell from about 4.1 percent in 2014 to 3.2 percent in 2016—due once again to difficulties at Telegra, where profit margins fell 21 percent. Notably, some companies that provide ICT solutions reported margins that far outstripped those of other companies in the STPA. These companies include Microblink (33 percent), Rao (28 percent), and Sphere (13 percent).
Figure 17: Profit Margin in the ITS Industry, 2014–2016
Source: World Bank analysis using Bisnode Portfolio Intelligence data.
Up to half of the firms reported relatively healthy profit margins. About 11 percent of the industry ended 2016 with a net loss, while 42 percent had a thin profit margin up to 2 percent. However, almost half of the companies reported higher margins, and more than quarter reported margins over 10 percent.
Figure 18: Profit Margin Distribution of the ITS Industry, 2014–2016
Source: World Bank analysis using Bisnode Portfolio Intelligence data.
- Cluster Figures: Market-Based Actors
4.1. Core Firms
The Croatian ITS sector is small and highly concentrated. As mentioned earlier, 19 firms in Croatia are involved primarily in ITS and make up the core of the ITS STPA. These includes firms like Telegra, Kapsch CarrierCom, Mobilisis, Mireo, Xylon, ZG-Projekt, Peek Promet, Promel Sistemi, Bomega Usluge, and Elipsa – S.Z. Nikola Tesla could also be considered a core firm on a number of counts, by virtue of its experience, expertise, aspirations, and technical capacity. With 2,030 employees, revenues exceeding EUR 200 million, Nikola Tesla dwarfs the other companies. However, by far, the major portion of the gap between Nikola Tesla and the other firms is due to the former’s economic activities in areas other than ITS.
4.1.1. Notable Firms
Table 7: List of Top 12 Firms by Subsector in Terms of Size (Revenue and Employment) and Recent Performance (Margin)
Table 8: Core Firms in the ITS STPA
4.2. FDI in the STPA
There does not seem to be publicly available data on FDI in the Croatian ITS sector, and it is therefore difficult to estimate the value of any such FDI. Most ITS firms in Croatia are still locally owned, although a handful (Kapsch CarrierCom, Cloudsense, Atron, and Visage Technologies) are foreign owned. It should be noted that Nikola Tesla is an affiliate of the Swedish conglomerate Ericsson.