Yes, the security market has performed pretty well during these times of financial austerity. That is until a recent spell of bad news hit the markets.
Alas, hitherto strong companies are now reporting lower revenues and profit. In some cases, companies are going into receivership.
The Securitas AB Interim Report for the period January-June 2012 shows slow organic sales growth in North America coupled with “severe market conditions” in Spain and Portugal. According to president and CEO Alf Goransson: “Market conditions in Spain are deteriorating more rapidly than expected, and we’re leaving some contracts due to the uncertainty around customers’ ability to pay for the security services.”
Norbain, one of Europe’s largest distributors of electronic security products, went into administration earlier this year, albeit very briefly.
Trading security in Europe is becoming more difficult and is likely to further deteriorate over the next two years. So, in the short term, the problem is not going to be solved. The only viable solution for security companies is to stay ahead in the technology race and win more market share.
Delivery of IP network products
European companies that will avoid much of the strain caused by a declining market demand are those that have positioned themselves to deliver IP network products, particularly in the video surveillance and access control markets.
This is not just a matter of having leading edge technology in place but also taking account of the need to change routes to market. This technology is altering the channels of distribution in the physical security industry as it requires new skills for designing and installing systems.
New technology and advances in IT networking products are the most important factors driving the need to change business models in order to take advantage of the opportunities that they can deliver.
A good example here is that high capacity wireless data networks have brought down the cost of infrastructure to the point where the ability to provide comprehensive coverage is both practical and cost-effective.
Also, the use of video surveillance as a public safety and security tool is growing. Partially, that’s because homeland security regulations and initiatives around the world are driving deployment, but it’s also this new technology that’s enabling it to become cost-effective.
Prospects further afield
We recently discussed how manufacturers are extending the range and depth of their alliances and partnerships with those developers of adjacent products. We showed how this process is broadening to include all stakeholders in the supply chain.
Distributors in the wider definition of the term have a very important role to play, but they will have to sharpen their game if they’re going to partner with the manufacturers and deliver what their clients need.
While the strategies discussed above will ensure that European manufacturers maximise their opportunity to win market share in Europe, they will also need to radically improve their prospects in other geographical markets.
The geographic distribution of sales is shifting to Asia, which is delivering the highest rate of growth and increasing its market share. There’s also a strong pick-up in the USA.
Asia will continue to increase its share of the market because penetration levels are much lower. In China, penetration is almost an order of magnitude smaller than in North America. That being the case, there’s much latent potential still to be exploited.
Across the rest of Asia our research shows that there are even lower levels of penetration than in China. There are a number of countries in this group that have large populations such as India, Indonesia, the Philippines and Vietnam. These countries have dragged down the penetration to $1.9 per capita.
However… Japan, Australia, South Korea and Singapore have much higher penetration levels for security, in fact on a parallel to western countries.
Countries that harbour long term prospects to develop their latent potential include India, Thailand, Indonesia and the Philippines. Asia in general and China in particular are markets for which western companies need to take a long term approach because they’re difficult markets to penetrate.
Ownership of security is changing
The third factor demanding close attention is that strong growth does not spread right across all vertical markets (and, indeed, the ownership of security in some verticals is changing).
In homeland security, for example, the responsibility of security has shifted from the police and military to the operator-owners of the various public infrastructures such as energy, water and transport.
For the energy sector, legislation has been brought in to ensure that its well protected from security threats and theft.
The North American Electric Reliability Corporation-Critical Infrastructure Protection Regulations require that utilities tightly control access to their most important infrastructure. Since the security benefits of video surveillance can be significant, companies and organizations either voluntarily looking to deploy this technology, or those compelled to do so by regulations, are considering a variety of strategies to justify the expense and achieve cost savings.
One of these strategies is to look at indirect cost savings that can be viewed as return on investment (ROI) for capital expenditures on security network infrastructure.
Potential for market growth
In light of the demise of the European market it was interesting to read an authoritative paper published by the European Commission and entitled ‘Security Industrial Policy: Action Plan for an Innovative and Competitive Security Industry’. You can access the full report here
The Commision acknowledges the significant potential for market growth, and has announced the launch of a dedicated initiative on a Security Industry Policy. This Action Plan is the first stepping stone of this dedicated initiative.
The overarching aim here is to enhance growth and increase employment in the EU’s security industry.
Not surprisingly, perhaps, this document doesn’t offer any magic bullets and dwells much on suggesting that the Member States support the Commission in its initiative to enhance the competitiveness of the EU security companies and reduce existing barriers to market entry.
It’s promoting a plan. There are eight stated actions, starting with ‘Action 1: Based on initial priorities, the Commission will ask the European Standardisation Organisations to establish concrete and detailed standardisation roadmaps. These standardisation roadmaps should focus on the next generation of tools and technologies. To do so, end user and security industry involvement and policy coherence will be essential’
While common standards across Europe are important in terms of ensuring satisfactory quality they have often been construed in such a way as to keep the competition out.
Europe plays host to some world leaders in security technology who derive the majority of their business in other overseas markets. We trust that they will be fully consulted on the proposed Action Plan.
Allan McHale is director of Memoori
The Memoori Blog focuses on business intelligence, comment and insight in relation to the physical security and smart grid industries (access the dedicated web link below)
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