Russian developers and manufacturers of TSB.

In this issue with you:

Egor SHOKUROV, Deputy General Director for Software Production at ITV

Andrey PRUDNIKOV, General Director of ByteErg

Alexey KADEYSHVILI, Technical Director of Vokord

Vyacheslav TESAKOV, General Director of RAVELIN

Artem OSOKIN, Technical Specialist at WIZEBOX

Leonid STASENKO, RELVEST Group of Companies

Question for discussion
What is your estimate of the share of Russian developments in your segment of the TSB market? Try to continue the phrases:
«It could be more if…»
«It could be less if…»

Egor SHOKUROV:
Our company operates in the segment of software for security systems and video surveillance. There are practically no foreign developments on this market in Russia. The global market is estimated at 0 million per year, the share of Russian developments, according to our estimates, is about 15%. The annual growth rate of this market is approximately 38%. Russian software for security systems and video surveillance is sold mainly in Russia and the CIS countries. With entry into the international market, Russian manufacturers can exceed the growth rate of the Russian market in their development and, thus, increase the share of our software in the world. In particular, for our company at the moment one of the priority tasks is expansion into certain regions outside the CIS — this is part of the program aimed at significantly increasing our company's share in the world market.

Andrey PRUDNIKOV:
Since its inception and to this day, the ByteErg company has been working in the video surveillance systems segment, being a developer and manufacturer of video cameras. The video surveillance systems segment, from the point of view of the presence of Russian manufacturers, can be divided into two large sub-segments (in fact, there are more): video camera manufacturers and manufacturers of digital audio and video recording systems. Video camera manufacturers have a fairly large market share in the mid-price range, losing in the segment of more expensive products, and try not to compete with foreign (Chinese) manufacturers in the lower price range. In the segment of digital audio and video recording systems based on computers, Russian developers are leaders. Their advantages are obvious: they instantly respond to the needs of both the entire market and individual customers, integrate with other products, including Russian-made ones from other market segments. They have effective technical support services and constantly hold training seminars for both installers and end users.

Alexey KADEISHVILI:
The segment of the TSB market in which we operate is video. In essence, video can be divided into three components: cameras, autonomous recorders, and PC-based solutions (software + boards). It is quite difficult for me to estimate the number of domestically produced cameras. In terms of autonomous recorders, three Russian companies can be singled out: VOCORD, SMP, and Decima. I think their share is no more than 10% of the market. Things are better with PC-based systems, there are more manufacturers here, and their total share is about 60% of the market. It could be more if the TSB market did not have so many Chinese products, which occupy a strong position in the lower price segment, displacing domestic manufacturers from there. It could be less if the same Chinese manufacturers could offer comprehensive solutions and provide good technical support for their products.

Vyacheslav TESAKOV:
It can be said that the overall share of Russian developers in the TSB market is about 40%. It could be larger if Russia had its own good production and technical base, and the industry worked normally. It could be smaller if Russia did not produce anything at all, but focused only on imports.

Artem OSOKIN:
WIZEBOX is one of the leading manufacturers of thermal housings for outdoor video surveillance cameras in Russia. I would like to note that this segment is quite narrow in the Russian security systems market. At the same time, we cannot say that there is no competition. Our segment includes equipment from both domestic and foreign manufacturers. The question is how adapted foreign-made equipment is to Russian operating conditions and whether it has the necessary certificates. The share of Russian developers could be larger if there was a continuous expansion of the range of additional services. It could be smaller if Russian manufacturers failed to prove the high quality of the equipment they produce and the professionalism of their engineering developments, which fully comply with the standards of foreign manufacturers.

Leonid STASENKO:
In our segment (and this is ACS), the share of Russian products is at least half. At the same time, everything made here is 100% domestic development, since it is not customary in our country to buy licenses for foreign electronics. If we include intercoms of all designs in the ACS segment (as one respected company did in an analytical report), then this share will be much more than 50%. Now, only proximity cards dominate among imported ones in access systems — it is impossible to compete with China or monsters like HID here. Digital video surveillance systems also dominate the Russian market, but only in terms of software and partially in video input boards. As for television cameras, there is practically nothing Russian in the Hi End class, and in cheaper segments, as a rule, a Russian camera is a Taiwanese single-board in a Russian case or casing. Could the share of Russian manufacturers be larger or smaller? Perhaps it is better to ask: how can we increase the share of Russian products in our TSB market? Who would want to reduce it? Thank God, no matter how hard they tried to eradicate our intellectual potential in the wild 90s, it didn’t work. And not every country can develop TSB for our conditions (for example, the city of Mirny) taking into account our mentality. And the answer to the question is simple: we need to develop the market itself. Its capacity is still too small compared to developed countries. However, the dynamics in recent years have been positive, and, therefore, the Russian manufacturer still has room to grow. There is another thought, but it relates more to the last question.

Question for discussion
Who is the consumer of Russian developments in the TSB market?

Egor SHOKUROV:
As I have already said, foreign manufacturers are not yet active in the Russian security software market. As for dividing users into categories, everything here depends not on the nationality of the products, but on the tasks they solve.

Andrey PRUDNIKOV:
In recent years, domestic manufacturers have come to be loved and respected more by both state corporations and commercial companies. They have been able to move into a new phase and are following not a survival strategy, but a strategy of confident growth. At the same time, companies that maximized their profits and did not invest in the development of engineering and production units remained at the level of small family cooperatives. Others have moved to the level of serial production, began to pay more attention to the quality of manufactured products, technical and service support. Some Russian manufacturers themselves have become players in foreign markets. For those manufacturers who have their own production in Russia and buy foreign element base, an important factor is the cost of semiconductor components, which is directly affected by customs duties. It is difficult to expect more competitive prices from Russian manufacturers if the duty on semiconductor elements is 15%, and on finished products of foreign manufacturers — 5-10%.

Alexey KADEYSHVILI:
The consumer of Russian developments is very diverse: from industrial enterprises and shopping centers to private buyers. As a rule, the consumer gives preference to the Russian developer in large complex projects, when competent consultation at the design stage and qualified technical support at the stage of equipment deployment and operation are required. In this case, the proximity of the manufacturer and the ability to influence it are very useful.

Vyacheslav TESAKOV:
Consumers of Russian developments are completely different categories of people. These are all buyers existing in our market. Among them are individuals and enterprises of different sizes. Therefore, it is impossible to single out any characteristics common to all consumers. However, we can note the main trend that currently exists in the market — cost optimization while maintaining quality.

Artem OSOKIN:
The consumer's choice of equipment from Russian manufacturers is largely determined by confidence in the professionalism of the developments, knowledge of climatic features and prompt service support. In the process of choosing between domestic and foreign equipment, the delivery time of the equipment and the manufacturer's readiness to provide technical and information support are also of primary importance.

Leonid STASENKO:
It is difficult to characterize it as a specific consumer layer. Russian TSBs are consumed in all areas — banks, offices, closed cities and even the private sector. Where we are still lagging is in the production of exclusive products for very wealthy clients. We don't have many of those, and it seems unprofitable to me to develop this niche. It is no secret that our manufacturers still have few internal resources, and it is more rational to invest them where the return is greater, i.e. in mass-market products.

Question for discussion
How much of Russian development is actually Russian?

Egor SHOKUROV:
Domestic software products for ensuring security, I think, are almost always entirely (or almost entirely) Russian development. However, we use some foreign technologies in our products in those components where they significantly surpass Russian developments. And yet the lion's share of the code is the work of our programmers. At the same time, you should not think that we are creating only a shell for Western technologies — the majority of technological innovations in our products are also the result of the work of Russian specialists.

Andrey PRUDNIKOV:
Answering the question of how much of Russian developments is actually Russian, I want to note that it is 100%. If we talk about mass-produced products, then using our company as an example I can say quite accurately: imported components account for 25-27% of the cost price, we regularly make such calculations for the Federal Customs Service when exporting our products abroad.

Alexey KADEISHVILI:
Any product consists of two parts: hardware and software. The software part, as a rule, is completely domestic development, with the hardware the situation is somewhat different. There are 3 categories of companies. Those who produce the hardware themselves, those who buy OEM equipment (usually Chinese) and pass it off as their own developments, and those who buy OEM equipment and are not embarrassed to indicate the true manufacturer of the equipment.

Vyacheslav TESAKOV:
If the development is called Russian, then it is 100%. However, as for the parts that make up any device, the share of Russian production there is about 5%. As has already been said, our own material and technical base is practically absent, production is based on imports. Moreover, if we officially consider supplies from Ukraine, Belarus and other CIS countries as imports, then the share of Russian in production will be reduced to 2%.

Artem OSOKIN:
Quite a lot. On the one hand, the Russian security industry is rapidly going through stages of development and is taking existing foreign-made equipment as models. However, many borrowed technologies require serious revision to ensure maximum compliance with Russian operating conditions. On the other hand, we should not forget about the enormous experience accumulated by a number of specialists in closed institutes and institutions. In Soviet times, developments were carried out to create technologies and products that were not only not inferior in quality and functionality to foreign analogues, but also superior to them. The difficulty may lie in adapting developments to existing conditions and translating theory into a commercial basis. Many Russian developments have no analogues abroad and are protected by Russian legislation.

Leonid STASENKO:
A difficult question – how to calculate? By cost price? Or by some other criterion? After all, electronics (and TSB is basically what it is) have long been international all over the world. At the same time, the same microcircuits of an American developer company are made somewhere in Malaysia, printed circuit boards can be assembled even in Turkey, plastic will be molded in China, etc. But the final product is not a handful of microcircuits. These are, first of all, algorithms, circuitry and software. It is this superstructure over the complete set that determines the product, its consumer qualities. With this approach, our developments are almost 100% domestic. And if you count the costs of this and that, you will not find almost anything 100% native in any country.

Question for discussion
Competition with imported equipment: status, by what indicators. Is it true, in your opinion, that imported equipment is a priori of higher quality?

Egor SHOKUROV:
Competition in the Russian security software market is mainly between Russian developers, while foreign manufacturers are not yet active in this segment. At the same time, the expansion of our products to the global market is quite small, dominated by foreign companies. Everything points to the fact that this situation will change radically in the near future, because the Russian market is developing very dynamically, and Western vendors are paying more and more attention to it. In order to maintain their positions in Russia, domestic developers will have to make significant efforts. There is another trend: having occupied a significant market share in Russia, some leading domestic manufacturers are now limited by the growth rate of the Russian market, although they have the potential for more effective development. Such manufacturers are striving to enter the international market, competing with foreign companies there. It should be noted that historically, software development in Russia and abroad took place under different external conditions and followed different paths. Russia has cheaper qualified personnel, while labor resources are much more expensive abroad. Accordingly, Russian manufacturers placed greater emphasis on software functionality, while abroad, efforts were concentrated on ease of use. Therefore, for successful competition abroad, from my point of view, the key factor will be the adaptation of domestic products for their faster assimilation by non-specialists. As for the statement «imported products are a priori of higher quality», I must say: if this were true, there would be no point in even hoping for successful competitive struggle abroad. Of course, this is not so. In the field of technology, for example, we can already successfully compete with foreign companies, while favorably distinguishing ourselves from them by lower prices.

Alexey KADEISHVILI:
In our opinion, such a statement is incorrect. Imported manufacturers of CCTV can be divided into two directions: Eastern and Western. Eastern products, namely Chinese and Korean, are cheaper than domestic and Western ones, and this is their main advantage. Moreover, quality, as a rule, becomes the first victim of a low price. The situation with Western manufacturers is different: here solutions and products are in a much higher price category, but at the same time it is not always possible to say that they are of higher quality. For video surveillance systems, the concept of quality is too vague. For example, even for such a key parameter as image quality, there are no good metric characteristics that allow us to say with certainty which image is better. We can talk about reliability, but, as a rule, the reverse side of reliability is a conservative approach that does not allow us to obtain good technical characteristics.

Vyacheslav TESAKOV:
Undoubtedly, there is competition between domestic and imported equipment. Although it is difficult to note the main indicators, since there are too many of them. Import is generally a very broad concept. In terms of price and quality, products from different countries occupy different places in a series of consumer preferences. Consumers choose based on tasks or certain resources. Moreover, now more and more people are guided not by the budget, but by the tasks that need to be solved, and already based on them, they select equipment.

Artem OSOKIN:
Competition was, is, will be and should be. Competition largely determines technical progress, and it is as a result of competition that new technologies and higher-level products appear. Many Western companies have a positive business reputation, many years of experience in development and production, a wide range of models, and their products are of stable quality. When a domestic manufacturer competes with foreign companies, an important role is played by the compliance of Russian-made products with Russian conditions of use, as well as the ability of the manufacturer to convey this point to the consumer with subsequent confirmation of its truth in practice.

Leonid STASENKO:
In terms of competition with imported systems, it can be said that their share is still relatively large at large-scale facilities. Such facilities require a certain set of system characteristics, which our developments cannot always provide. And the reason for this is again the relative weakness of our manufacturers in terms of experience and resources. We do not have 20 years of experience in the production and operation of such systems, the threshold of the transition from quantity to quality has not yet been overcome due to the youth of Russian companies. And it is time to stop arguing about quality. The saying «Soviet means champagne», which once characterized many domestic products, has long ceased to work. The products of our developers (of course, not all) are partially manufactured and assembled using the same technologies and often in the same factories as the products of Sony, Hewlett Packard, etc. And just as there is a lot of excellent and reliable equipment among domestic products, there is a lot of defective equipment among imports (especially cheap ones). For the sake of fairness, we will immediately stipulate that the opposite is also true. One thing is encouraging: our developers and manufacturers are constantly making efforts to improve the competitiveness of the manufactured TSB – otherwise, they simply cannot survive. The market is the market. And our products (especially technically complex ones) have one big trump card: normal technical support, which foreign companies often either cannot provide on our territory, or it costs so much that it seems like it does not exist at all.

A question for discussion
Prospects for Russian developers and manufacturers. Are protectionist measures needed from the state? What will Russia's accession to the WTO bring?

Egor SHOKUROV:
Any protectionist measures are good for supporting a dying domestic manufacturer, giving it a chance to grow stronger in hothouse conditions. But this cannot continue for long — the lack of serious competition from foreign manufacturers will negatively affect the quality of the product. It cannot be said about modern Russian manufacturers of software for security systems that they are dying, on the contrary, they are developing very actively. I think that protectionist measures are not needed here and, moreover, are contraindicated. The presence of foreign manufacturers on the domestic market will spur competition and will contribute to the creation of world-class products in Russia. Russia's accession to the WTO and the strengthening of international relations, on the one hand, will attract foreign manufacturers to our market, and on the other hand, will lead to increased openness of Russian companies and, accordingly, will attract a flow of foreign investment to them on more favorable terms for Russians. In addition, a greater degree of trust in Russian manufacturers will allow our leading companies to develop more effectively on the global market. We are moving towards tougher competition, high Western standards are coming to our market, and it will not be easy for many to adapt to them. As a result, the strongest will survive, but subsequently they will receive completely new opportunities for business development. In general, we positively assess the Russian market's desire for greater openness.

Alexey KADEISHVILI:
As for the equipment that comes to us, it is unlikely that there will be any cardinal changes. Will it be easier for us to make deliveries abroad? There is hope for this, since this process is currently very difficult. The prospects for Russian developers and manufacturers are in creating new high-tech products and solutions.

Vyacheslav TESAKOV:
The prospects for Russian developers are quite good. The main problem that needs to be solved in the near future is the almost complete dependence on the import base. At the same time, state support is of colossal importance for developers and manufacturers of various levels. The fact is that huge financial resources are required to form a normal electronics industry. But it is difficult to find them, since the profitability of long-term projects in this area is low. In addition, state control over the quality of electronic products, which is almost non-existent now, is necessary. Russia's accession to the WTO will not change anything for our industry. This is important for some other industries, in particular steelmaking. But most consumers will most likely not feel any difference, since most goods are already widely represented on our market, and import duties will still remain after joining the WTO.

Artem OSOKIN:
Russia's expected entry into the WTO will undoubtedly affect the further development of not only the security systems market, but also other diverse business areas. Future changes will not be unambiguously positive for everyone: companies successfully operating through traditional administrative resources will inevitably yield to the onslaught of emerging foreign competitors. However, I hope that for a few Russian companies, Russia's entry into the WTO will be the beginning of an effective and efficient expansion into foreign markets. I am not sure of the need for protectionist measures on the part of the state; rather, new regulations developed with the changes in mind will be necessary, on the basis of which high-quality regulation of new processes will be implemented.

Leonid STASENKO:
For domestic manufacturers, these are the most pressing issues, perhaps we should have started with them. The state policy in this area still leaves much to be desired, to put it carefully. We have already said that the weakness of the TSB market hinders the growth of our companies. And when will it grow to civilized sizes? But there is a global market, the capacity of which is orders of magnitude greater! And many of our developments are worthy of being presented there. But here it begins: taxes on imported components make our products less attractive even without exports than they would be under normal conditions. And this is despite the fact that the Russian electronics industry has long since fallen and is unlikely to get back on its feet in the foreseeable future (may my colleagues from the former Ministry of Economic Development forgive me). But the state cannot make money on this in the same way as on the export of energy resources. There are also many problems with exports: anyone who has tried to export something knows this very well. It is profitable for us to export only oil, gas, timber and metal.

: rossiiskie razrabotchiki i proizvoditeli tsb 2