Security Systems in China
¨C Demand Trends among Different End-User Industries
In the world¡¯s most populous and fourth largest country, security systems are expected to play a major role in both general ¡°urban security¡± as well as corporate and personal security. The current China market for security systems is growing at an impressive rate of 25% according to a recent report published by GCiS China Strategic Research.
At its most basic, security system components include of a camera, a recorder and a monitor. These three component markets account for over 93% of the value of all security systems around China. Components which become necessary if there are long distances to cover or many cameras to process include optical transceivers and matrices, respectively. Likewise, these two system components are not necessary across all security system suppliers, although different end-users, by their nature, have different demands on their products. Other purchasing requirements considered include the number of cameras required, refresh rate, and camera definition, which also influences their preference for analog, digital and IP systems.
Major End-Users in China
The major end-user industries (with actual purchasers in parentheses) around China include urban safety (Beijing Olympic Security Patrol Vehicle Monitoring, Qingdao Olympic Sailing Competition Venues, Shanghai Expo), commercial / residential construction (Gome, KFC, Vanke, SinoOcean Land Holdings), government agencies (Three Gorges Hydropower Stations, Jiuquan Satellite Launce Center, Tianjin People¡¯s City Government, Peking Union Medical College Hospital), transportation (Shanghai-Nanjing Expressway, Qingdao Jiaozhou Bay High-Speed Rail), finance (All major banks of China), road management (Tianjin Transportation and Port Authority), and production safety (Anshan Iron and Steel, Huawei, Zhejiang Public Information Industry). As depicted in the graph below, sales to different end-users across the different products are not uniform, indicating both a difference in prices and functional demands.
Demand from the transportation industry, which includes airports, railways, shipping and wharfs, is expected to grow faster than the average across the other industries. In general, transportation end-users have more advanced product requirements, which have caused close to 50% of suppliers in the market to label transportation as the best opportunity for high quality suppliers, more than any other segment. First, overall investment and expansion of China¡¯s communication infrastructure has risen and expected to rise in the future; second, contracts awarded from this segment are often the largest; and third, they have high technological demands.
This end-user group places a high demand on camera image definition and refresh rate. Products which can meet this include digital cameras, a growing trend in sales across all end-users (although not expected to surpass analog for another five years or so). In airports, which often have cameras fixed to high over-head ceilings, there requirement for high-scope zooming during, or after, an event has taken place. In the railway industry, the distances between camera and monitor are potentially very long, and the areas are large, calling for more matrices and transceivers to transfer and process the data. In fact, the transportation end-user accounts for the most sales by revenue between both the matrix and transceiver component markets.
The transportation end-user industry combined spent over RMB 4 Bn for security system components in China last year, not including accessories.
City and regional government-funded urban safety projects currently comprise the largest end-user industry by value. Since 2004, hundreds of billions of Renminbi have been invested into urban safety initiatives, although less than 10% of that figure is spend directly on procurement of security systems. Other costs include installations, as well as other security initiatives which do not involve cameras.
In 2004, projects began to outfit major cities with CCTV systems. China¡¯s largest 21 cities were originally targeted, but over the years, the security umbrella expanded to cover hundreds. When polled, about 80% of security system component suppliers awarded this end-user with an 8 or above on a 1-10 opportunity rating scale (with 10 being the highest); related, about 40% of these same suppliers are actively marketing their sales to these government projects.
However, there are a limited number of cities in China, and as more get covered, sales to this end-user segment will comprise less of new systems, and more of retrofitting and replacements. Based on the number of cities in China and current pace at which projects started every year, urban safety growth should begin to taper by the end of 2013.
Residential and Commercial
Last year, about one quarter of all revenues was from sales to the residential or commercial construction. These are highly targeted market segments, although not because of high technological demands, but rather from the size and scope of their buyers. Suppliers active in this market are under the impression that these end-user industry segments are growing quickly, easy to enter, and that there is a social trend of more people paying closer attention to personal security.
Residential and commercial end-users do not generally purchase expensive systems. They have the lowest revenue-to-sales ratios across all of the end-users for cameras, video recorders and displays. In other words, residential and commercial construction end-users are paying the least amount for cameras, video recorders and displays, on average. For instance, residential construction end-users are paying slightly over RMB 780 per camera on average, whereas government agencies (prisons, police stations, educational facilities, etc) are paying about 60% more. There were no suppliers which believed that this end-user market would offer the best opportunity for high quality suppliers.
Communication infrastructure is a popular target for government expenditure, and there is an evident demand for high-quality systems, although it is regarded that special connections would be necessary to win a bid. On the other side, residential and commercial construction may be easier to enter, although profit may not be as large. In between these two, there are potential buyers in production safety, finance, roads, and government agency industries, each with their own unique set of product requirements, growth direction and trend, and decision makers, and preferences. Naturally, deciding where to market a surveillance system with unique capabilities, functions and price requires an understanding of the opportunities presented across different customers to be successful.
This was originally published in Security World Magazine, August 2012.
About GCiS China Strategic Research
GCiS (www.GCiS.com.cn) is a China-based market research and advisory firm focused on business to business markets. Since 1997, GCiS has been working with leading multinationals in sectors ranging from technology to industrial markets, medical, chemicals, resources, building and constructions and a few others.