SINGAPORE Singapore's foray into the $300 billion-a-year space industry may seem like a lucrative venture, but the path is lined with risks, especially in satellite manufacturing where Western firms have long dominated and entry barriers are high.
The push into space technology, announced earlier this year, will initially focus on satellites to meet growing demand for top-speed Internet connections as well as high-resolution images commonly used in surveillance, forestry and energy exploration.
The venture may also help rekindle Singapore's electronics sector by creating high-paying jobs in the satellites and components segment to replace jobs lost with the decline of disc media and computer parts manufacturing.
Industry observers say success is hardly assured, as the tiny city-state will be fighting tooth and nail for satellite orders with big names such as Thales SA (TCFP.PA) and Lockheed Martin Corp (LMT.N).
Asian contenders include companies in China and India that are already involved in domestic space programs, as well as emerging firms like South Korea's Satrec Initiative Co Ltd (099320.KQ) that build satellites at competitive prices.
"In the satellite manufacturing industries where existing firms have a big headstart, new entrants might face high hurdles to succeeding," said Thiam Hee Ng, a senior economist at the Manila-based Asian Development Bank.
"The high cost and limited launch windows may discourage firms from experimenting with new suppliers."
As it did with biomedicals, Singapore's bid to carve out a niche in the space industry involves supporting local champions and enticing industry leaders to set up or expand operations in the country through a mix of favorable laws, tax incentives and skilled workers.
Officials declined to say how much the effort is expected to cost, but it could be in the hundreds of millions of dollars if projects by government-linked firms are included.
"In the immediate term, our efforts are focused on developing our satellite industry, particularly in areas of small satellite design and manufacturing and satellite-based services," said Gian Yi-Hsen, director of Singapore's Office for Space Technology and Industry (OSTIn).
In its satellites venture, Singapore will take advantage of the city-state's capabilities in areas like precision engineering, electronics and infocommunications, he said.
Singapore is already a base for communication satellite operators such as Eutelsat Communications SA (ETL.PA), Inmarsat PLC (ISA.L) and Singapore Telecommunications Ltd (STEL.SI), and can build on these capabilities to help broadcasters transmit programs and ships communicate with other vessels.
Adrian Ballintine, founder and chief executive of Australian satellite firm NewSat Ltd NWT.AX, which has an office in Singapore, said growth areas include providing high-speed Internet services to airline passengers.
Singapore Airlines Ltd (SIAL.SI) said last year it will provide wi-fi and mobile phone connectivity on its long-haul flights using services provided by Inmarsat.
Satellite-based surveillance systems are also in high demand to monitor everything from forest fires to illegal migrants trying to get to Australia by boat, Ballintine said.
High-quality images of so-called hot spots in Sumatra are currently in demand after bush fires on the Indonesian island produced a thick haze that smothered neighboring Singapore and Malaysia earlier this year.
OPPORTUNITIES AND RISKS
Singapore Technologies Electronics, a unit of defense conglomerate Singapore Technologies Engineering Ltd (STEG.SI), has already set up a unit to build and operate observation satellites with help from two local state-funded universities.
The government has also agreed to bear part of the cost to hire more researchers at smaller firms such as Addvalue Technologies Ltd (AVAU.SI).
Products by the satellite communication systems maker include terminals used to transmit results from far-flung polling stations in this year's elections in the Philippines.
NewSat's Ballintine and other industry players said satellite operators will more than make up for the huge upfront investments as they stand to pocket up to 80 percent of their revenues as gross profits.
Large communications satellites are worth hundreds of millions of dollars. Smaller ones, such as those used for weather forecasts and mapping forests and the sea, typically cost $60 million to $100 million.
Singapore, with its cutting-edge data analytics, is likely do best in satellite-related services, said Ashwin Malshe, an assistant professor of marketing at Essec Business School.
"If you speak to professionals from the space industry, they'll tell you that one of their biggest challenges is analyzing the enormous amount of satellite data they are generating," he said.
"You do not have to go for capital-intensive operations and at the same time have very high margins."
According to the Space Foundation, a U.S.-based industry body, the global space economy grew 6.7 percent to $304.3 billion last year. Commercial activity drove much of the expansion.
THE RIGHT NICHES
Asked about its relatively late entry, ST Electronics said it was confident of getting a niche in small earth observation satellites that could be built in two to three years, in contrast to larger models that would require up to five years.
"Our business model is to own and operate the satellites, sell the imagery data and provide value-added services," said a spokeswoman for the firm, which already makes satellite receivers and components for terrestrial stations.
Essec's Malshe, who has worked with companies in the space industry, said Singapore could also focus on the small but fast-growing market for space travel by tapping into its huge private banking base. A ticket may cost as much as $300,000.
Astrium, the aerospace unit of the European Aeronautic Defence and Space Co (EADS) EAD.PA, hopes to launch its first commercial space flight in 2017 using a craft that can take off from ordinary airport runways and carry four passengers to a height of around 100 kilometers (62 miles) above the Earth's surface.
EADS officials have said they hoped to base some of their space planes at Singapore's Changi Airport.
"One of the biggest problems when it comes to selling to ultra-rich people is getting in touch with them," Malshe said. "Tying up with a private bank that has an established client list will help."
(Editing by John O'Callaghan and Ryan Woo)