Copyright Issues Hold Back China’s Security Industry
- 06.05.2015 –
Asia: Greater China
Manufacturing & Industrial
July 28, 2010. Booming urbanization and a growing middle class in China is driving demand for commercial security solutions in the country. Government initiatives, such as community schemes like the Safe Cities Project or the 3111 Pilot Project, higher levels of policing and stimulus packages to develop western China, will further boost growth. How will the industry cope with demand?
China’s commercial security industry is a complex one.
Three geographical clusters
Within the Yangtze River Delta, Shanghai houses many international security companies’ China or Asia Pacific headquarters, while Jiangsu and Zhejiang house the large-scale manufacturing bases. GE, Honeywell, Bosch, Hikvision, Dahua and Dali are amongst the key players here, where products such as DVR, secured cable and high-speed camera ball are dominant.
Within the Bohai Rim area, Beijing offers major projects supported by the central government and houses many universities and national institutes of scientific research. Vorx and Tyco Fire & Security are amongst its key players here, where products such as optical, electronic patrol and access control are quickly gaining a stronghold.
The Pearl River Delta houses a great number of security manufacturers, assemblers and agencies, of which Shenzhen is the mostly concentrated area. SAE Electonic, HTS Technology, Stonesonic and TCL have set up their mainland operations here, where products such as building intercom and broadcast communications systems dominate.
One value chain in flux
Overall, the industry comprises multiple players involved in a mixture of downstream, upstream and outsourcing activities, and is valued anywhere between 85 billion and 150 billion yuan. Price competition is stiff, and rising labor and raw materials costs threaten to shave off already-thin profit margins.
China’s security services providers lag behind in technology and solutions support. From a poll conducted by M-Brain (formerly Global Intelligence Alliance) in June 2010 amongst 157 China-based commercial security suppliers and customers, nearly half (45 percent) said that services vendors lack the latest technology and the ability to provide comprehensive solutions. Vendors were said to also lack skills and expertise (15%) and quality control (14%).
What Chinese security system integrators lack
As competition has intensified, the middleman system is close to collapse due to increasingly transparent pricing systems and falling profit margins. Emerging online sources such as HC360.com also threaten traditional intermediaries such as agents, distributors, wholesalers, retailers and traders. As a result, they are beginning to move downstream to participate directly in end-user projects where there are higher margins.
OEMs and assemblers have begun to outsource some of their manufacturing and product design activities, so as to focus on customizing their product or service offerings and improving their marketing and after sales services, so they can service end customers directly.
Starting in 2010, international commercial security firms have been allowed to acquire Chinese domestic security companies. Whether the increased competition brought on by foreign players will lead domestic companies to restructure, merge with other domestic players or strategically realign their focus, is left to be seen. Their market entry will certainly help the industry evolve and mature in other ways.
The establishment of standards and standardization within China’s commercial security industry has been progressing, albeit slowly. The entry of international players may help speed up the process.
With more intense competition, market players will be forced to compete on technological advancements, value-adds and strategic alliances. Viewed optimistically, the value of manufacturing output in China should improve.
The one thing that may put the brakes on these positive industry developments is the current lack of adequate intellectual property protection.
Weak copyright protection has largely prevented domestic research and development (R&D) from maturing and has discouraged international companies from manufacturing their more technologically developed products in China. The industry is until today, characterized by small to medium sized players who are unable to produce highly customized or the most sophisticated of security solutions.
If foreign companies continue to be hesitant about bringing in their latest products and knowledge into the country, it may be a while before China’s commercial security solutions industry catches up with more developed markets.