Vietnam Ready for New Spring in Security
Editor / Provider: the Editorial Team | Updated: 2/14/2012 | Article type: Hot Topics
After strong sales growth for the first half of 2011, the Vietnamese security market was affected by national economic issues. However, experts remain optimistic about 2012, as opportunities abound.
Vietnam is struggling with growing pains, as inflation and living costs climb. Both factors impair growth, with the national inflation rate reaching an all-time high of 23 percent in August 2011. “Foreign investment in real estate and construction projects have been placed on hold, as the government has imposed tighter restrictions on bank credit granted to investors,” said Phu Loc Nguyen, Director of Visco. Vietnam's inflation rate has been driven by rising food and fuel costs. Food and drink prices alone increased 34 percent, according to a recent release from the government's General Statistics Office.
Increased living expenses have improved worker compensation, but also driven up the cost of doing business. The appeal of Vietnam's cheap and plentiful labor force to build the nation into manufacturing powerhouse is attracting fewer foreign investors. Planned foreign direct investment into Vietnam fell 48 percent in the first five months of 2011 to US$4.7 billion, according to Bloomberg News. The murky economic outlook halted many government projects, including the Ho Chi Minh City airport. Even the national capital of Hanoi has delayed airport upgrades for two years in the face of slow growth.
It is necessary to inject more money to boost the economy without increasing inflation, said Parul Oswal, Industry Manager of Frost & Sullivan. “The economy has to go through a fundamental restructuring, or it will keep circling around instabilities and the measures to deal with them.”
The 2012 Vietnamese access control market will be worth $25 to $40 million, while video surveillance will be $17 to $22 million dollars and intrusion detection will be $1.5 to $2.5 million, Oswal said. Moreover, access control will grow 43 percent by 2016, with intrusion detection and video surveillance estimated to grow 20 to 25 percent and 21 percent respectively.
Business opportunities in the northern capital of Hanoi traditionally center around government projects. However, there are currently no tenders for government projects and 2011 sales were not as strong as expected, said , MD of iON. “Our sales target for 2011 is roughly 50 percent higher than the previous year at $1.5 million, and we are looking to reach $1.35 to $1.4 million by the fourth quarter.”
Other security players expressed the same concern over delayed government projects.
“Compared with other southeast Asian countries, Vietnam seems to have fewer government projects,” said Sharon Lee, Director of Brand Sales at Vivotek. “This deters a booming market, as there is no leader to drive growth forward.”
Despite these concerns, some economists predict the government's credit restrictions will calm inflation over time. Other foreign and local industry experts are similarly optimistic about the nation's long-term potential. Many companies reported impressive 10 to 30 percent revenue growth in 2011. “The security market has much potential here,” said Bryan He, Director of Secom. “It is small now in comparison with many other developing markets, but it is maturing really fast.”
Indeed, in the southern economic and financial center of Ho Chi Minh City, security vendors have discovered business opportunities in the commercial sector, although competition is fierce. “Vietnam's economy has grown over the last few years. The basic infrastructure is in place, which provides a good foundation to build upon,” said Jonathan Sinar, Risk Management Services in Fire Security and Traffic, Xtralis. “The market is still quite immature in comparison to others in the region, as reflected by the industry's offerings of basic, simpler cameras. However, great potential comes when a city gradually matures.”
Government projects delays are significant, as they form the bulk of the security market. Some experts said the ratio of projects between northern Hanoi and the financial center of Ho Chi Minh City is 7:3, while estimate the ratio to be an even steeper 9:1. This underscores the importance of Hanoi in Vietnamese security.
It is difficult to peg an exact figure for Vietnam's security market. Some industry experts have suggested a rough figure between $30 and $50 million, although this data requires more government information for a definite conclusion. Vietnam's market share in Asia for physical security represents 1.3 percent for electronic access control, roughly 0.5 percent for intrusion detection and 3.2 percent for video surveillance respectively, said Frost & Sullivan. Market size estimates are $17 to $20 million for access control, $1.5 to $1.8 million for intrusion and $15 to $20 million for surveillance. The same study also shows that electronic access control grew 47.6 percent, intrusion detection grew 25 to 30 percent and video surveillance grew 15.1 percent in 2010. [NextPage]
Market Drivers and Needs
Public demand for security products has increased and the market is developing fast. “However, consumers getting confused by the array of brands to choose from,” said Hoai An Nguyen, CEO of An Nhien. “They have yet to understand the quality of each brand.” The average income in Vietnam is higher than before, meaning that the public is able to afford security commodities now, said Deputy Director of Trung Loi Trading. Growing demand for security and a wealthier population are among the strongest drivers in the Vietnamese market.
The market is still in the nascent stages for security technology and depends on manned security. Commercial opportunities look promising for security vendors, particular intrusion and perimeter anufacturers.”
Industry experts unanimously agreed that price concerns drive buyer procurement decisions in the commercial sector. “End users tend to look for products that are easy to use with competitive pricing and excellent aftersales services,” Nguyen of Vantech said.
Budget is a great concern for local buyers, which increases price competition in the low-cost bracket. Manufacturers in this bracket include Chinese low-cost products, which even locally made products have a hard time competing against. Locally made products in the low-cost bracket are below quality standards expected in other markets, but have greater advantage as a result of lower production costs and tariff exemption, Wu said.
To avoid getting caught up price wars, some companies are offering mid-range products to strike a balance between price and performance, said , Sales Manager of Nam Phu. Others focus on offering total and hybrid solutions for more flexibility and added-value. “Vietnamese end users demand flexibility in the products used for solutions, so analog, IP-based and hybrid products must all be available in order to satisfy customer demand,” Wu said.
There is great demand for security from the Vietnamese government, larger corporations and international institutions such as embassies and governmental administration buildings, said Jeff Mei, PM of International Integrate Center, China Security & Surveillance Technology. Compared to the commercial sector, government projects prefer high-end products, such as ones made by Bosch Security Systems, Panasonic System Networks and Axis Communications. Government procurement agencies frequently choose US and Japanese products, Tat said.
The government sector has always been a keen adopter of intrusion systems, especially for military installations in the southeast Asian region, Oswal said. “Looking at the private sector, many of the new commercial buildings are looking at intrusion system for perimeter security purposes. The declining cost of intrusion systems is expected to become more attractive to end users when fulfilling their security requirements,” she added.
“Local government prefers high-end products for projects, as they want to make worthy investments and be able to use a system for a longer duration, achieving greater ROI in the long run,” Nguyen of Visco said.
Two trends will spur video surveillance growth in Vietnam. First, HD network surveillance and video analytics will have great potential when basic infrastructure is in place. “Network cameras are manageable in terms of transmission in large installations; therefore network surveillance is expected to show exponential growth in many vertical markets,” Oswal said. “However, the uptake of the technology on a larger scale may take some time.” Some network speed domes are used in the southern region currently, although not on large scale, Wu said.
There is a desire within enterprises to have their infrastructure on one network, and IP-based systems will grow as IT professionals set up the required infrastructure. “Video analytics will drive network camera adoption, as people start to realize the importance of getting detailed information,” Oswal said.
Technological advancements will result in increased affordability for security electronics. For instance, falling prices for hard disk drives over the past few years has enhanced video recording and increased the quality and capacity of video storage equipment.
Awareness and uptake of IP-based products is slowly growing in Vietnam, although analog products still dominate with 70 percent market share. Government and telecommunication projects are prevalent in Hanoi, while commercial opportunities can be found in Ho Chi Minh City. As Vietnam continues to develop, electronic security equipment is needed in critical infrastructure (airports and seaports), public and residential buildings, commercial facilities (banking) and educational institutions. Other emerging vertical markets include retail, health care, traffic monitoring, telecom data centers, hotels and recreational complexes.
Industrial production is one of the biggest draws of Vietnam, with its young labor force and stable government. “Factories have the most growth, especially in Ho Chi Minh City and nearby provinces like Dong Nai and Binh Duong,” said Vo Nguyen, Technical Director, Vantech. Most factory projects comprise roughly 50 to 150 cameras per project, with speed domes seeing great demand. [NextPage]
Products and Infrastructure
Adoption of IP-based products is not yet widespread in Vietnam, resulting in the majority of cameras being analog. Some providers offer installer training classes on a monthly basis, as interest in total solutions increases.
Traditional devices such as keypads, magnetic-stripe cards and proximity cards are commonly used for electronic access control systems, although biometrics and smart card credentialing are picking up. Intrusion detection systems are in the medium growth range, and are more sought after in response to rising crime rates.
Interoperability remains an issue for security products. This affects countries that already have legacy security systems. Many users forego upgrades until there is an issue with their existing systems.
Limited bandwidth has a direct influence on the adoption of newer technologies that require IP infrastructure. In Vietnam, Internet access is available only in certain areas, but the user count is on the rise. According to Vietnam's General Statistics Office, broadband Internet subscribers have reached 4.1 million by August 2011, up 17.5 percent. In total, the number of Internet users stands at 31.3 million, an increase of 22.9 percent from the previous year. The latest statistical figures reflect both an Internet usage expansion as well as maturing nationwide Internet infrastructure. Common Internet usage will provide IP-based products great opportunities in this market.
Government policies should provide legislation to make the security market better, said Do Duc Hau, President and CEO of Techpro.
Tightened credit to slow inflation is interfering with ongoing security projects. “Since the onset of inflation and bank loan restrictions, many budgets have been reduced and in many cases, video surveillance is cut out from procurement to save TCO on projects,” Nguyen of An Nhien said. “In the coming year, we hope to cooperate with partners and investors who are not dependent on bank loans but have their own capital to move business.”
Vietnamese buyers are not in the habit of stocking up on products, and only do so when projects are lined up, Tat said. This is especially true in Hanoi. “It is our goal in the upcoming year to focus on regular monthly sales activities instead of projects in order to drive fluid transactions,” said Jacky Cheng, VP of Sales of Brickcom.
Cost Concerns and Standards
To drive sales activities in Vietnam, attractive pricing is crucial as end users are cost-conscious and prefer low-cost offerings. “For us, cost concerns from end users are a challenge as our products are manufactured in the U.K.” said Mark Tibbenham, MD of GJD Manufacturing. “We hope to overcome this challenge by working with big installers on large-scale and high-end residential projects.”
In such a fast developing market, more new competitors have entered it, especially companies from China, He said. “For many Vietnamese customers, price always comes first, followed by quality. Therefore, Chinese products have a clear advantage.” Even sizable Chinese makers like Dahua Technology are affected by fierce competition from low-cost suppliers. “Many makers pirate our products and sell them at even lower prices,” Dinh said. “The products are identical in appearance, but quality is obviously compromised. At this point there is nothing we can do but hold more seminars to strengthen brand awareness and educate our customers.” To sidestep competition at this level of offering, many solution providers also prefer trading mid-level products.
To further complicate the price issue, the lack of a unified set of standards makes judging product quality and price/performance harder. “The current codes and standards are loosely based on US standards, although no unified and official codes and standards specific to Vietnam have been mandated by the local government,” Sinar said. As the market matures, national standards would regulate industry offerings and provide clearer procurement choices for end users.
Despite economic complications and project delays, industry experts and market analysts are confident about business opportunities in this vibrant country. All markets experience boom-bust cycles and the nation's plentiful resources and business-friendly policies continue to make it an attractive destination. Vietnam's security market is gearing up to take flight.