The ever increasing competition in the security industry is putting immense pressure on manufacturers, especially on Shenzhen security manufacturers where they are faced with the major problem of distinguishing themselves from other competitors and “me-too” products. a&s talks to some of Shenzhen's manufacturers to learn about their experiences, the pros and cons of the market and how to establish a enterprise with advantages of winning market shares.
The talk or the thought of owning a security manufacturing company 30 years ago was perhaps not possible in Shenzhen. At that point in time, domestic buyer and users purchased foreign security products and the majority of these products passed through Hong Kong then Shenzhen and onto other cities in China. Shenzhen was then established as the first security equipment distributors and traders. Through this process, these distributors and traders learnt from their experiences and began to develop security technology and market experience and to this day have become the market leaders turning Shenzhen into the major city for security manufacturers in China.
At the end of the 90's, there was the appearance of security companies with manufacturing capabilities, these companies learnt the manufacturing workmanship of foreign products by purchasing the core components from abroad then manufacturing and assembling the products, which would be China's first security products. The rapid development of technology in the 21st century resulted in the research and development of these manufacturers, which ultimately led to the strengthening of these companies.
Advantages of Shenzhen
Currently, Shenzhen has set firm foundations as a manufacturing base for security products, regardless whether it is the domestic market or international market. Approximately 60 percent of security products are from Shenzhen, this without a doubt highlights Shenzhen's advantageous position as security manufacturers.
Within the Shenzhen security industry, the majority of enterprises are still labor intensive and resource intensive. Companies who are primarily focused on technology and innovation are still few in numbers. In the long run, the future of Shenzhen's security industry will require technology and R&D in order to flourish. There is still room for further development, with years of experience in assembling, this has allowed for companies to learn about the technology. The first stage involved imitating products through this process the companies can digest and take in the information and technology, which will then aid them in the manufacturing and innovation process.
The supporting facilities and services are complete along with the manufacturing advantages in conjunction with national level technology and development which has greatly expanded Shenzhen. “Shenzhen has gathered numerous security manufacturers, at present, a lot of these companies are using technology, R&D and innovation as a way to establish themselves,” Hyde Wu, Chief Marketing Officer at Wision Technology. “According to research in 2010, Shenzhen's security industry generated US$117.35 million, which accounts for seven percent of the city's GDP and 35 percent of the country's security output value.”
Shenzhen has already become the China's largest security manufacturing base and commercial center. “The geographical location of Shenzhen's security enterprises have already given them an advantage,” said Lau Yuanming, Domestic Market Director of TVT Digital Technology. “Meanwhile, the knowledge and grasp of new products and technology have allowed the industry to react quickly to changing market demands. The appearance of new products, mature industry links and many components can be found in the city.”
For example, Futian district is Shenzhen's largest security market, Huaqiang Bei commercial centre where there are over 1,000 security companies. This has created an international purchasing platform for users. Moreover, the majority of these companies have based themselves in Futian's science parks, which has encouraged further research and development. According to statistics, Shenzhen accounts for 2/3 of China's video surveillance market. Other representative products are: intercom systems, alarm systems and CCTV surveillance equipment, they account for the following respectively 60 percent, 40 percent and 50 percent.
From the learning process to independent research and development innovation has been increasing. It is estimated that Shenzhen's companies have created and invented over 2,000 utility model patents. According to Janice Deng, Marketing Manager at Launch Digital Technology, “the forms of technology which China are very developed with are: audio hardware, compression software, alarm systems, smart card technology and intelligent image processing.” “Shenzhen's video surveillance industry has the advantage of resources, cost control and manufacturing efficiency,” said Ju Peiquan, Marketing Manager at NPE Intelligent.
Complete Industrial Chain
The increasing capacity of the security companies in Shenzhen means that the industry chain is becoming complete, this includes the following: software, hardware, system integration, engineering installation and operation services.
Since China's reform and opening-up policies, Shenzhen has been established as a major economy zone, resulting in numerous private owned enterprises laying their roots in the city and flourishing. Manufacturers in Shenzhen know how to cater to foreign clients, with large manufacturing capabilities to meet demands, shortened waiting time in purchasing spare accessories, successful application of localized management and reduced manufacturing costs. “Shenzhen's electronic manufacturing is recognized globally, whether it is computers, electrical appliances, accessories or hardware plastic moulds, all can be found in Shenzhen,” said Ge Jian, General Manager of Aironex. “It is claimed that 95 percent of accessories which are required in manufacturing for security products are either from Shenzhen or Dongguan.”
“With over 30 years of development, Shenzhen has set mould manufacturing, security accessories manufacturing and security software development, this creates a complete security industry chain which other cities in China cannot compare with,” added Deng.
Video surveillance remains the major product for most companies as video surveillance products are the largest volume of exports. However, due to a lack of standards some security players who have just entered into the market have no long-term plans and rely on low prices to win customers for short-term benefits. For those companies who have no core technology or brand name regardless of domestic or international market should there be any sudden market changes these companies will find themselves in difficulty.
“A fundamental problem prevalent in the Shenzhen security industry is the lack of management and system governance, predictable profit pattern, inability to adapt to risks, limitations in investment for R&D, lack of knowledge in branding and corporate culture,” said Yang Dangdang, Regional Manager at Shenzhen Safer Science and Technology. “Also, there is not much added value to products and lastly labor costs are higher than manufacturing costs.”
As previously mentioned cameras are the main product for many companies, but the market share for DVRs only amount to less than three percent. Through these statistics one characteristic of Shenzhen can be highlighted, which are products that require a lot of technicality and software companies do not have this knowledge or competitive advantage. The DVR is an example, before well-known manufacturers Hikvision and Dahua began developing DVRs, there were few manufacturers who were willing to invest in encoding and decoding technology. Instead, these manufacturers turned to analog cameras where technology was more mature as they believed less investment was needed and this would reap quicker profits.
Now that DVR technology has become mature, several Shenzhen companies are attempting to enter the DVR market, but they are limited to the low-end market as companies such as Hikvision and Dahua have successfully branded themselves in the DVR market. Competition in the low-end market is fierce and relies on pricing wars to survive. “Although Shenzhen has a high market status, its faults are in the lack of technological experience in particularly in strategy and standard settings,” said Able Zhang , CEO of Relong. “This has resulted in continuous competition and the lowering of profits. But more importantly, this has hindered the growth of the company brand.”
Another distinctive characteristic of Shenzhen is due to the city being an “immigrant city”. It is often described as being impetuous. There are a number of companies which grow to a considerable scale and then are sold off by the company owner or there are those who begin as one company and then are split into several companies, these circumstances are common and can be observed throughout Shenzhen. As an economic zone Shenzhen has opportunities at every corner waiting to be discovered, in addition to this many individuals believe that the knowledge required for the security industry is low. Therefore, in some cases employees learn all the knowledge from their companies and then leave to begin their own security business.
According to Deng, there are increasing numbers of small enterprises entering the security market, but these companies are not developed in terms of production automation and information, they also have very little technological concepts and have no core technology to offer. Therefore, innovation is limited.
“Me Too” products is a term often heard when talking about the current security situation. A minority of manufacturers are blindly following trends which have stifled profit margins and intensified competition. Through this process, the corporate image is lost and there is no individuality to products or technology, but more importantly, there is no understanding as to what clients require. For those medium-sized companies whom have no thoughts of expanding globally usually deploy the short-term low price tactics to retain customers, again this cannot guarantee stability or reap the best profits possible. Unfamiliar with modern management concepts, these companies often lack internal management and motives are often not clear.
Confronting Problems — Entering New Markets
The ever changing demands for security products have created a new era in security, the market is no longer dominated by one product which was previously the analog camera. Systems which were once small scale have now expanded to systems which can cover a city. The growing awareness of safety in cities has led to the mass installation of security systems, which in turn, has further promoted Shenzhen's manufacturing. It is currently estimated that at least 60 percent of manufacturers are involved in the security industry, products include: cameras, recording hardware and transmission devices.
For manufacturers to improve their creative ability then more investment in R&D is required in particularly technology for the “Internet of Things” to enhance industry application by incorporating the latest products into the complete security solution.
As the global manufacturing base for security equipment, technology needs to advance and develop. In order to gain market shares, companies can use their advantage by opening branch offices or employ agents in different cities within China, with the increase in market the companies can expand their technology and develop their creativity to improve competitiveness. Brand awareness and culture foundations can also be firmly established. According to Liu, the key to strengthening of technology is to understand market demands, dividing different demands to provide a tailored solution with both software and hardware as a complete solution.
Shenzhen's security industry has evolved from “Made in Shenzhen” to “Made by Shenzhen.” In order to surpass such an achievement, there are four areas that need to be tackled. Firstly, the level of R&D has room for improvement, the integration of company resources to establish a technological alliance platform. Secondly, the quality and workmanship of products need more attention. Thirdly, a security talent recruitment platform and lastly is the upgrading of security products. As China's leading security manufacturing base, Shenzhen is advanced in manufacturing security products.