Domain Challenges

Many challenges exist around competing effectively in the PACs domain, particularly for new market entrants across the broad range of PACs buyer categories. While many of these challenges also exist in other tech and wider industry domains, several are amplified in the PACS domain. Some also have implications for the competitiveness of the regional EU PACs marketplace. Some of the challenges here also relate heavily to R&D-specific innovation challenges highlighted in the accompanying D2.3 deliverable, but in a more applied market context. Marketplace challenges evident from activities relating to D2.2 and other WP2 activities, as well as wider IPACSO activities thus far include:

  • Extremely high barriers to entry in some key buyer segments, particularly in the Defence segment, key government segments, and largest enterprises where established trust and reputation are a priority. SMEs in particular find gaining direct access to such segments to be highly challenging.
  • Extremely competitive mass-market segments within PACs, where many product areas are already highly commoditised, which large numbers of competitors and difficulties in differentiating solutions.
  • Higher than normal start-up costs for PACs innovators versus other tech domains, for example typically higher upfront infrastructure costs, long consultative sales cycles that impact heavily on operating cashflow, heavy investment in R&D needed to sustain product roadmaps and keep them relevant in line with ever-changing technologies and threats, high testing and product certification costs, and so on.
  • Difficulty in justifying economic benefits of solutions to buyer segments when most PACs solutions are downside preventers rather than direct creators of value, and by extension justifying return on investment (ROI).
  • Challenges for SMEs in having proper resources for market intelligence around their proposed solutions, for example difficulty in determining the quality/effectiveness of competing products in the domain, comparing them against each other in a bake-off manner and truly being able to differentiate products from each other at a marketing level so that target buyers ultimately can understand proposed solutions and their uniqueness.  
  • Challenges in acquiring funding capital in a stagnant EU economy, both from service -oriented PACs providers often seeking support from banks, and from more product-focused organisations seeking early stage seed or venture capital.  A particular difficulty is in receiving appropriate funding supports to support expansion of smaller firms to mid or larger sized company stage via mezzanine instruments or similar mechanisms – particularly after initial early stage funding has been received. This funding is particularly relevant to PACs companies where dual product and service emphasis is often evident - some investors (VCs in particular) can view companies with a heavy service emphasis as not being able to achieve sufficiently compelling growth to justify investment – and tend to favour more product-focused companies. This can prevent many service-oriented PACs companies from transitioning into more scalable and higher-growth product development.
  • EU SME players operating on individual national member state levels often find it more difficult to expand internationally compared to their US counterparts, to gain knowledge of international markets, and evaluate expansion risks, particularly as players within many EU member states must expand at an earlier stage than US companies who have the advantage of a much larger homogenous market. This leads to many European companies selling up and being acquired at an early stage, often to players outside the EU, typically US players, leading to a transfer of intellectual property, skills and know-how outside the region - and ultimately a lesser presence of EU players at the top table of the global PACs marketplace.  This is compounded by the belief that many innovations originating from EU-based players will often increase in value once transferred into US ownership, due to the improved access that is then created to a US marketplace that is more homogenous in comparison to the EU market at present, promoting business scalability. 

 

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