Chinese Manufactures will continue to dominate the mainstream video camera market unless western manufactures adopt viable strategies to meet the new challenges driven by customer needs.
Just about every set of statistics that has been published in the last twelve months regarding the world market for video surveillance equipment shows that the world’s two major manufactures, Dahua and Hikvision, based in China, continue to increase their market share of video cameras; winning some 44% (Figure based on their published financial data. In the case of Hikvision it will include design and installation cost on systems business in China) of this business in 2016 and now dominate the market.
These two companies were both incorporated in the early years of this millennium. This is a success story based on organic growth that no western manufacturer in the video surveillance industry can compare with; despite the fact that they pioneered the technology. However no western manufacturer has had the benefit of a protected home market, the largest single market in the world and copious funds from government banks.
These assets have allowed them to operate a strategy to go for volume selling at prices not viable for most western manufacturers, whist investing heavily in building up their marketing operations and channels of distribution around the world.
Despite a reputation for products vulnerable to cyber security threats, which must now be a critical factor in satisfying any end users buying proposition, this has not stopped their ability to grow their sales volume and further increase market share.
There are three strategies that can restore a viable business for western and non Chinese Asian video IP camera manufacturers; The first is to rapidly build up scale through merger and acquisition (M&A) making it feasible to reduce manufacturing costs and selling prices. The second is to concentrate on the Enterpise market, particularly specific verticals and invest more on innovation and the third which is aligned to this is to acquire and / or invest in artificial intelligence products.
M&A is a standard business strategy adopted by western companies for many decades but the video surveillance business is still quite fragmented and to make any kind of impact it would require acquisitions between and across the leading suppliers.
Our analysis of the last 12months of M&A across the physical security business shows that whilst some $872 milion has been spent on buying video surveillance companies none has been invested by leading western manufacturers and it’s rather ironic that Uniview, a Chinese company was purchased by Hangzhou Jiaozhi Technologies Co. (another Chinese company) for some $535 million earlier this year.
However in November 2016, Bosch and Sony announced that they will partner on video surveillance. Bosch will take over Sony video surveillance sales and marketing outside of Japan, and together they will jointly develop new surveillance cameras leveraging the two companies combined strengths and focus on the mid to high-end of the market. This looks like the first stage to merge these two companies video surveillance businesses to quickly achieve scale and a stronger competitive status.
Focusing on the enterprise market is a solution to achieving a viable business but would mean over time loosing the mainstream SMB business. So acquisition is unlikely to stem the threat of Chines dominance in this sector.
Western manufacturers still have the edge on quality and sophistication particularly in the enterprise market. Some have built up a strong brand and so far have been able to resist the challenge of aggressive pricing but they will have to keep up their spend in research and development if this strategy is to continue working for them.
Axis Communications have reported two very positive financial quarters for the first half of 2017 with Q1 performance increasing net sales by 29% and profit increasing by 53% with operating margin growing to 11.6%. They have followed this up in Q2 with revenues of $254m the highest quarter ever achieved by them. Axis sales in the last three quarters in the Americas and Asia have shown consistent growth since the first quarter of 2016. This shows that companies with a strong brand can compete and prosper in this sector of the market provide they continue to invest in product developments and advancements.
Brand would appear to be a strong contender to fight off the Chinese competition in the enterprise market that has strong growth potential through integration and the emergence of Building Internet of Things (BIoT).
The third strategy to combat the race to the bottom which is aligned with the second strategy is to innovate. Produce better products that deliver customer value propositions that clearly demonstrate their value add against much cheaper, less sophisticated and robust products.
Video Analytics could play a major role here. Judging by our analysis of the last twelve months data on acquisitions in the realm of video surveillance show that some $296 million has been spent on acquiring artificial intelligence companies.
Over the last decade hardware improvements have delivered most of the improvements in video surveillance equipment and now it’s the turn of intelligent software to lead the way. The need to get the right balance between scale and focus on specific end user requirements is critical; lean to far to satisfy the latter can lead to becoming a system suppler which will antogonise existing routes to market and reduce product demand.
We have recently noted a few companies move from a product to system supplier and there is no doubt that BIoT will require a massive growth in installing integrated systems across all Building Automation services. Ultimately that would lead to fewer western product manufacturers and more business for Chinese products.
To learn more about the global market for Video Surveillance, buy our report - The Physical Security Business 2016 to 2021 - https://memoori.com/portfolio/physical-security-business-2016-2021/
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