Trends in the global TSB market.
In this issue with you:
Mikhail SHAKAROV, Siemens security systems expert
Mikhail BERDICHEVSKY, head of the representative office of Schrack Sekonet AG (Austria)
Stanislav GUCHIYA, CEO of OOO Axis Communications
Dmitry IVANYUSHIN, project manager of OOO ADT Security Solutions
Grigory LYASHCHENKO, development manager of TAS Russia
Evgeny KIN, Head of the Representative Office of Nedap N.V. Security Management in Russia
Question for discussion
What, in your opinion, is the share of foreign developments in your segment of the technical security systems market? To what extent, in your opinion, have sales and/or installations of equipment increased or decreased over the past three years?
Mikhail SHAKAROV:
We are a representative office of a Western company and offer the latest developments of our company in the field of security to the market. With the overall growth of the market, we can talk about the growth of all its segments, from budget systems to high-end systems. The share of high-quality equipment in our field increases year after year along with the emergence of a large number of serious and large facilities, where the owners are ready to invest in high-quality and reliable security systems. In general, the market for foreign systems has grown, but serious competition distributes the percentage of growth among different manufacturers.
Mikhail BERDICHEVSKY:
If we talk about fire alarm systems in general, then domestic developments certainly occupy a leading position and their market share is more than half. But if we talk about the segment of fire alarm systems for large and/or high-rise facilities that involve a large number of people, as well as for high-risk facilities, then there are still no adequate domestic developments, and among foreign companies, only a few firms are able to offer them.
In other words, the share of foreign developments in this segment is approaching 100%, and over the past three years it has been growing rapidly along with the commercial real estate market. However, in the conditions of the crisis that has begun in the coming year, everyone may be thrown far back. Moreover, for foreign systems, the loss of market positions will be more serious than for domestic ones.
Stanislav GUCHIA:
At the moment, according to our feelings, if we talk about serious products in the field of professional video surveillance, the share of foreign products is at least 70% (we also include OEM products here). In our area, we have been seeing a steady increase in sales and installations in the Russian Federation for three years now. Our annual sales are growing by more than 50%.
Dmitry IVANYUSHIN:
In our market segments, and ADT specializes in integrated security systems that include video surveillance, access control, security and fire alarms, monitoring systems and specialized anti-theft systems (product protection systems), foreign developments prevail.
Nevertheless, we must give credit to Russian developers who were able to independently create their own complete and quite interesting products in the field of fire alarms, access control and video surveillance. In recent years, there have been quite a few such developments.
It should be noted that most Russian developments still use imported components. Although the software and individual design solutions were certainly made by Russian specialists.
It is, after all, quite difficult to talk about the share of developments of a particular design bureau, company, or country, since marketing research shows sales volumes rather than the number of developments.
A number of Russian companies order foreign (usually Eastern) manufacturers to manufacture this or that equipment under their registered brand. In this case, it is difficult to determine the origin of the developer, as well as the patent purity of the development. But there are also Russian enterprises (still few in number) that supply well-known Western companies with products of their own design and production (we are talking about some sensors, controllers, software products). That is, international integration is evident.
The past three years have been very successful for our company. Direct sales have increased several times. Dealer sales have also grown. Their growth corresponded to the average market figures (approximately 20%).
Grigory LYASHCHENKO:
I think it is significant. When we talk about all foreign developments, this category includes both equipment from leading manufacturers and equipment coming to us from Asian markets. Plus, we need to add to this the foreign equipment that is brought to the Russian market under Russian trademarks.
As for sales of equipment from leading manufacturers, their sales have been growing steadily by about 20–30% per year over the past three years.
Evgeny KIN:
In my understanding, at least for the last five years, a certain balance has been established in the Russian TSB market in the ratio of offers from foreign and domestic manufacturers. I cannot say in whose favor it is in terms of the amount of equipment sold and installed. As for the monetary equivalent of implemented projects on domestic and imported equipment, here, I think, the advantage is on the side of foreign manufacturers. In general (at least until the fall of 2008), the overall TSB market has grown in recent years, according to estimates by a number of experts, by about 30% per year. I am ready to agree with this figure in my subjective assessments.
Question for discussion
Competitive advantages of equipment from leading manufacturers
Mikhail SHAKAROV:
The advantages of equipment from leading manufacturers are obvious. Serious companies invest heavily in the development of modern and high-quality equipment, providing technical support and training for customers. In this case, you can be sure that the company — the equipment supplier will not disappear and will produce equipment, spare parts for it for a certain time after the sale, and also constantly update the software and eliminate possible detected faults.
Mikhail BERDICHEVSKY:
The main advantage is higher reliability, controllability and scalability of systems. Leading foreign manufacturers began to deal with security issues at large and high-rise facilities 20-30 years ago and during this time have gained extensive experience in solving problems arising at such facilities. For domestic systems, the main market has always been small local facilities, and here the advantage of domestic systems in price makes them the undisputed market leaders.
Stanislav GUCHIA:
Most often, leading brands present products that meet all the necessary standards required by the security market, and, of course, quality supported by specially created service centers. Also, leading brands often present ready-made solutions to the market, rather than individual components of security systems.
Dmitry IVANYUSHIN:
Leading manufacturers are distinguished by their systematic approach to the development of their product lines. They study the trends in the development of technology and demand. The introduction of new technologies is in balance with the development of reliable solutions. They strive to be at least half a step ahead of their closest competitors in key areas and strategic products. To do this, companies invest millions of dollars in development. If it is necessary to obtain a modern development especially quickly, a company can go so far as to acquire a developer.
Grigory LYASHCHENKO:
Reliability, well-developed solutions, using only the latest achievements that have passed the necessary tests. In a word, everything that consumers put into the concept of a brand.
Evgeny KIN:
Availability of in-house high-tech production (certainly, if we are talking about leading foreign manufacturers), experience accumulated over decades of work in the industry, culture of development and production of both hardware and software. As a result, most solutions from leading foreign manufacturers of TSB have the highest performance in terms of processing incoming information and decent speed in responding to incoming signals even when working with databases of hundreds of thousands of events. Not the least important in the list of advantages is the reliability of such systems, usually confirmed by international certificates of failure-free operation of individual system components or the entire system as a whole. The very fact of conducting such tests (which are by no means cheap) indicates a serious approach by the manufacturer to the products it offers on the market.
Question for discussion
Equipment from leading global brands, as a rule, occupies the upper price niche. Will the current demand for it hold up in the context of the global crisis?
Mikhail SHAKAROV:
Of course, as a result of the crisis, the demand for equipment of different price niches will probably decrease, and we will not see such market growth as in recent years. With the suspension of the implementation of new construction projects and delays in the construction of existing ones, the number of equipment orders is falling or they are stretched out over time. On the other hand, customers focused on high-quality security systems are unlikely to massively switch to equipment of a different level, understanding the possible consequences of such decisions for facilities. In this situation, there will be a natural increase in competition among equipment manufacturers, and the customer can ask for additional preferences in tenders and when supplying equipment.
Mikhail BERDICHEVSKY:
The high cost of foreign products is quite relative. At large and complex facilities, the cost of a project on domestic equipment, taking into account installation, commissioning and integration with other building systems, is higher. Often, however, it is simply impossible to implement such a project on domestic equipment, and, therefore, there is no point in talking about the price. I emphasize that I mean only fire alarm systems; the situation may be very different with respect to other systems.
As for the crisis, another question is more important here: will the construction of large and high-rise commercial facilities, where foreign fire alarm systems have obvious advantages, continue at all?
Stanislav GUCHIA:
Of course. Today there is a crisis, and tomorrow it will pass. At the same time, the requirements for security systems in times of crisis usually increase, since a crisis often leads to increased activity of violators and increased vandalism. A crisis complicates financial transactions between partners, which, in turn, can lead to temporary losses in sales (and we are ready for this), but in no way to a decrease in the relevance of our products.
Dmitry IVANYUSHIN:
For ADT, which operates in the high price range, it has always been strategically important to maintain the best price-quality ratio. It is precisely because of this ratio that our customers choose our products. During crises, companies are especially keenly aware that they are «not rich enough to buy cheap things.» After all, the cost of owning a «cheap» system can be several times higher than the cost of owning an «expensive» and high-quality system.
Grigory LYASHCHENKO:
Demand for high-quality, reliable equipment with advanced functionality has always existed, usually in the middle and upper price niches. This equipment has its consumers and, as a rule, is used to build large integrated systems. Large objects take a long time to build, the requirements for them are worked out in detail and even in the conditions of a global crisis, they will not be replaced. Because in this case, someone will have to take responsibility for changing the quality characteristics of the project and coordinate these changes.
The demand for this equipment in the future, like for any other, will depend on the duration of the crisis. The facilities that have been started will be completed. Rather, we can talk about a delay in the start of the implementation of new large projects, but we will see this next year.
Evgeny KIN:
No, it won't. The crisis affects everyone — both domestic and foreign manufacturers. The consumer electronics market is a part of the global market, like many others. Any crisis is certainly a good chance for a domestic manufacturer (of course, with a competent approach to business, and in any country) to push foreign manufacturers from their conquered positions. But here a la guerre comme a la guerre. Of the foreign consumer electronics manufacturers, the companies with the least bloated and confusing internal organizational structure will survive the crisis the easiest. As is known, many market giants have recently been actively absorbing smaller companies — colleagues in the industry in order to obtain some synergy from the merger in the long term. In the «unexpectedly occurring» short term, these actions will rather have a detrimental effect on the general state of business of such companies. Therefore, the chance to emerge from the crisis with dignity is primarily for companies that are able to innovatively approach the existing crisis scenario of market development and promptly restructure their work.
Question for discussion
What category of customers and, in your opinion, why do they prefer TSB equipment from leading manufacturers?
Mikhail SHAKAROV:
Unfortunately, in our country there is still no full understanding of investing money in security systems. For example, some owners and developers, offering top-level commercial real estate (class A) to the market, install security equipment on the property that does not correspond to this level. When there is a rush demand for real estate, buyers do not pay much attention to such things, but when real competition arises, the use of equipment from leading manufacturers becomes a significant advantage for the property, primarily for insurance companies. It should be understood that the end owner not only purchases equipment with a well-known brand, but can also count on quality and reliability, which ultimately leads to a reduction in installation, operation and maintenance costs.
Mikhail BERDICHEVSKY:
These are primarily companies that understand that thousands of people will work and be in the buildings they build, for whose safety they will have to be responsible every day for decades. It is not uncommon for new owners of a building, having bought it from developers, to replace the cheap security systems they installed with ones that actually work. To paraphrase a well-known proverb — because of the stingy, you have to pay twice.
Stanislav GUCHIA:
Most often, these are large organizations that have serious requirements for security issues due to their activities, which are ready to pay higher prices for the necessary functions and quality. As the comparison shows, the world's leading brands present products based on the latest technologies with high-quality components (optics, mechanics, chips). As a rule, these products are easier to integrate into existing systems and have increased functionality.
Dmitry IVANYUSHIN:
The answer can be short: this is the category of far-sighted customers. Customers who know what they want from the system, who intend to operate it for a long time and economically, are ready to develop it and therefore pay great attention to its reliability and level of technical support.
Grigory LYASHCHENKO:
I would not divide customers into categories. Everything depends on the tasks being solved.
Evgeny KIN:
In answering this question, I would very much like to avoid a banal listing of these categories (large banking and industrial structures, business centers, etc.). I will try to generalize the portrait of a consumer of foreign TSB from a slightly different angle. Since TSB equipment has not yet become a luxury item, its customers primarily include those structures and organizations that need highly productive (very highly productive) and reliable (very reliable) solutions, mostly geographically distributed. There is a certain range, I would even say, quantitative and qualitative level of tasks that only TSB of foreign manufacturers can cope with due to the youth of the life cycle of domestic manufacturers. That is, it is not a matter of some pro-Western approach of some market clients or (of course not!) their Russophobia. It is just that the price/quality ratio has not been canceled, and in order to “not pay twice”, the head of a security project with an absolutely cold calculation includes either a domestic or foreign TSB in his estimate.
Question for discussion
A study conducted by TZ magazine marketers showed that Russian brands dominate our TSB market, and in all major segments. Will this situation change in favor of the West? If so, how soon will it happen? If not, what do you think are the reasons?
Mikhail SHAKAROV:
New technologies and advanced solutions are coming to us from the West. Unfortunately, our own developments have lagged behind modern technology development and are losing in terms of product quality stability, although significant progress has been felt recently. At the moment, the market is definitely dominated by equipment from Russian manufacturers for obvious reasons: availability and proximity of products. I think, if we look globally, the future lies in cooperation between Western and Russian manufacturers and offering integrated solutions for the security market with the combination of advantages of various manufacturers. I also believe that joint activities of foreign representatives with Russian partners will actively develop, right up to the organization of joint ventures.
Mikhail BERDICHEVSKY:
As I have already noted above, the share of domestic manufacturers will always only grow, and even faster in times of crisis. Nevertheless, niches for high-quality foreign fire alarm systems will remain, and quite large ones. It is also possible that the leaders of the domestic market will be bought up by large international concerns, and then it will become very difficult to determine who dominates the market…
Stanislav GUCHIA:
We believe that in the segment of professional (I note: specifically professional) network video surveillance on the Russian market today, Western brands already predominate.
Dmitry IVANYUSHIN:
With all due respect to the marketers of TZ magazine, allow me to doubt the absolute predominance of Russian brands. Firstly, as noted above, a Russian brand and a Russian development (or Russian production) are far from the same thing. Secondly, in what units was the comparison made and by what criterion? By the level of recognition or by the volume of brand sales or simply by the number of trademarks registered in Russia?
Perhaps, in the field of security and fire alarm systems, Russian brands do have some advantage, which is related to the certification system of these systems in the relevant supervisory authorities. At the same time, most of our global clients prefer to buy Western-made equipment, because Russian-made systems do not have a number of the functions they need.
On the other hand, the growth of Russia's technical capabilities, especially in light of its desire to integrate into the global economy, cannot but please. Thus, ADT (TYCO), being a transnational company, competes not with national manufacturers, but with international brands. If a national manufacturer independently develops and produces a worthy modern product, it can count on cooperation with our company.
China and Korea are very active in the field of supplying security solutions. This concerns CCTV. The quality is increasing from year to year. As for manufacturers in the OPS, ACS, there is a tendency to switch to Russian equipment.
Grigory LYASHCHENKO:
I am not familiar with the study, so it is difficult to comment on it. The results of the study depend heavily on the questions asked and how the initial data was processed. I can only note that if we consider the lowest price niche, then by default, as the base of the pyramid, it occupies a large area and in most countries of the world is filled either with national manufacturers or equipment from Asian countries.
Evgeny KIN:
It is unlikely to change. In the market of any civilized state that claims to have a market (sorry for the tautology) economy, the number of offers from domestic manufacturers prevails over imported ones. In turn, for imported manufacturers in the market, this is a constant incentive to maintain the bar for quality, technical and investment attractiveness of their product offering. In the realities of an economic crisis, such a balance of power can only manifest itself more clearly — the strongest survives. Another thing is that in this situation, the domestic manufacturer of TSB will probably have problems of a different nature, such as: the lack of a «cash cushion» of its own stabilization fund in case of a crisis — all the money was most likely in circulation, and the general decline in consumer demand also did not pass anyone by. Of course, some customers who previously preferred foreign TSB will now turn their close attention to domestic brands. But that part of consumers (I think, in quantitative terms, the most massive) who initially made their choice in favor of local producers will now, for the time being, prefer any TSB to a banal bolt on the front door.