By Allan McHale
The security industry is one of the most hyped industrial markets and yet growth during the last five years in Europe has just marginally exceeded 3%. Added to this, during the same period, some of the largest ever acquisitions have taken place in this industry but it is clearly still a very fragmented business, particularly in the areas of CCTV video and access control where the largest supplier to the European market has a share of little more than 10% and share distribution has changed little in the last 5 years. At the same time, the business is relatively immature given that penetration of systems differs by a factor of 2.5 across Europe and this has resulted in a wide divergence of growth and business opportunity between countries. These are some of the interesting facts revealed in the latest and most detailed multiclient study written on the electronic security systems market in Europe (Belgium, France, Germany, Italy, Netherlands, Spain and United Kingdom) published by the Proplan Division of i & i limited. The study shows a modest compound growth of 3% over the last five years delivering a total system sales of Euros 5.8 billion in 2006. Access controls and CCTV have grown at 6 and 7% respectively, while the highest levels of growth were recorded in Spain, Italy and the UK. Sales of Intruder alarms, which took the largest share of the market in 2001, fell in all countries with the exception of Spain. Although it is forecast that this decline will continue, it will be less pronounced, while increased growth in access control and CCTV surveillance will more than compensate to deliver total system sales of Euros 7 billion in 2011.
The primary demand drivers of perceived increases in the levels of crime, unsociable behavior and terrorism have not changed, but the emphasis has shifted to secondary drivers such as
reducing the cost and increasing the effectiveness and productivity of security systems and this is determining who wins the business. It is now a given that most sectors of this market can look forward to year on year growth almost irrespective of economic conditions and construction output.
Don’t hold your breath, this industry will not deliver on a standard communications protocol but the demand side, actioned through the CIO’s (Chief Information Officers) is demanding and getting IT Standards introduced to get convergence with the Business Enterprise and at the same time is driving down prices, achieving more robust and interoperable systems through using IT related products. This will undoubtedly bring with it higher levels of growth in the longer term.
ATTRACTIVE BUSINESS AREAS
The report clearly shows much evidence of significant growth in the integration of Security Management Systems and the delivery of holistic business solutions through IT-Convergence. There is much more happening here than the take-up of IT-Convergence in environmental controls and fire detection markets. While the much more heralded integration of all types of technical infrastructures in buildings is taking a back seat as far as security-based installers are concerned.
The study shows that the most attractive business areas defined by vertical market type are retail, education, communication and computer buildings, high tech manufacturing and life sciences. The average margin on sales is around 36% on system business and 38% on product sales and this has remained quite stable over the last 10 years. However, there is variation between the sizes of project, with the small to medium sized projects coming under greater price pressure.
Through the analysis of some 46 different sectors and segmentations in each country market the importance of focusing on a strategy that builds on the needs of vertical markets and is further strengthened by “legacy business/ heritage estates” is the key ingredients to developing a profitable and growing business. The latter is vital both to introducing new technologies and to maximizing margins. Replacement and extension business accounts for approximately 40% of market and has increased its share over the last five years. Without this market sector most companies in the business would not be able to support the high levels of R&D work that are necessary to keep ahead in this business.
Allan McHale, a Chartered Mechanical and Energy Engineer, held a number of techno commercial management posts in energy related industries before joining Sema-Metra Consulting as a senior consultant in the London office, subsequently being seconded as European Sales & Marketing Director to a major American Corporation. In 1980 McHale formed ProPlan (www.proplan.co.uk), now a division of i&i limited (www.iandi.ltd.uk), to provide market intelligence to manufacturers of intelligent infrastructures for buildings.
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