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 Göransson,”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 receivership in May this year.
There is no doubt that trading security in Europe is becoming more difficult and is likely to further deteriorate over the next 2 years. So short term, that problem is not going to be solved and the only solution for security companies is to stay ahead in the technology race and win more market share.
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 but also to take account of the need to change the routes to market. This technology is changing 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 that are driving the need to change business models in order to take advantage of the business 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 practical and cost-effective. 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 is this new technology that is enabling it to become cost effective.
Last month, we discussed how the manufacturers were extending the range and depth of their alliances and partnerships with manufacturers of adjacent products. We showed how this is broadening out to all stakeholders in the supply chain. Distributors in the wider definition have a very important role to play, but they will have to sharpen their game if they are going to partner with the manufacturers and deliver what their clients need.
Whilst 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 is 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 North America so there is much latent potential still to be exploited.
In the rest of Asia our research shows that there are even lower levels of penetration than 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 of security on a parallel to western countries. Countries that have a long term prospects to develop their latent potential include India, Thailand, Indonesia and the Philippines. Asia in general and China particularly, are markets that western companies need to take a long term approach to, because they are difficult markets to penetrate.
The 3rd factor that needs 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 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. In the energy sector legislation has been brought in to ensure that they are 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 is to look at indirect cost savings that can be viewed as return on investment (ROI) for capital expenditures on security network infrastructure.
In light of the demise of the European market it was interesting to read this month an authoritative paper by the European Commission - “Security Industrial Policy – Action Plan for an innovative and competitive Security Industry”;
The Commission 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 is to enhance growth and increase employment in the EU’s security industry. This document not surprisingly does not 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 the existing barriers to market entry.
It is promoting a plan having 8 actions starting with - “Action 1: Based on initial priorities, the Commission will ask the European Standardisation Organisations to establish concrete and detailed standardisation road maps. These standardisation road maps 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”.
Whilst common standards across Europe are important, ensuring satisfactory quality they have often been construed in such a way as to keep the competition out. Europe has some world leaders in security technology which get the majority of their business in other overseas markets. We trust that they will be consulted on the Action Plan.