Memoori’s analysis of the world market for Physical Security products in the first quarter of 2017 shows that demand is buoyant but sadly margins are at an all time low particularly for video surveillance. Growth measured by revenue looks like it will struggle to reach an annual growth of 6% based on results for the first quarter of this year.
Our 2016 report showed that in the video surveillance business there are a number of reasons for this with the main one being “the Chinese threat”. Hikvision and Dahua now the two largest producers of video cameras dominate the market and are going all out to further rapidly increase market share by drastically reducing their prices.
This strategy together with upping the quality of service in western markets has worked well for them and has required the rest of the market to reduce their prices. The consequences of this has caused market growth to significantly slow down and longer term could change the whole structure of the business unless there are strategies and/or technological developments to negate it.
There has been much discussion in the USA that the "game has not been played on a level field" with Chinese products being supported by their government whilst imported products into China are not able to compete on government projects (which take more than 50% of the market).
The present political environment in the USA has caused a rethink on whether it is wise to install Chinese manufactured products in sensitive government buildings. In addition Chinese products are are proving to be susceptible to hacking and cyber attacks.
However our current review of the structure of the Physical Security market shows that whist there has been significant consolidation of the market over the last three years it still has far too many players for a business that is now close to maturity and fast becoming a commodity business.
Possibly the Chinese manufacturers have picked up on this as they have outstripped all their competitors in building up size to meet the challenge of the commodity market, before they turn to establishing a brand.
There is some evidence that strategic alliance and M&A is being used by western manufactures to build up scale whilst at the same time polishing up their brands to communicate quality, reliability and added value. This is the very minimum they need to do to achieve a profitable growing business. Scale has to be a more important element for the major western brands. It is wishful thinking that the Chinese suppliers growth strategy will diminish through poor performance in the open markets of the West.
This article builds on research and data from our recent report - The Physical Security Business 2016 to 2021 - which is available to buy for $1,500 USD for a Single User License.
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