Russian Market Booms With Oil Prices
Editor / Provider: The Editorial Team | Updated: 9/13/2011 | Article type: Hot Topics
The Russian market remains subject to fluctuating oil prices, a harsh reality in a global economy. While the economic recession made its mark, Russia is seeing renewed market activity in the public and private sectors, attracting players from all over the world.
Russia is the largest country in the world, covering more than an eighth of Earth's inhabited land mass. The vast nation attracts global players with its strong growth opportunities, natural resources and untapped potential. Russia enjoyed nine straight years of growth, from 2000 to 2008, as part of the BRIC bloc with Brazil, India and China.
The economic crisis dealt a crippling blow to growth. “Revenue dropped in 2009 for the whole market,” said Maria Satunovskaya, Head of CCTV Department for Vidau Systems, a distributor for EverFocus Electronics. “People think the Russian market did not drop much officially, but we are sure the Russian market lost around 30 percent.”
Others reported even steeper drops of 50 percent in 2009, said Kubysheva Ekaterina, Business Development Director of Grandprix, a distributor. However, growth went up in 2010 and should continue into 2011.
Many projects were delayed in 2009, but were back online in 2010. “We have business we didn't get in 2009 because many government projects were frozen for the financial situation,” said Stanislav Guchia, General Director of Axis Communications. “This year, we had a terror attack at the airport, which was terrible. Many different organizations decided to improve security.” Demand continues for security solutions, albeit more affordable ones. “The Russian market now is about the same size as before the recession, or about equal to 2008 levels,” said Andrei Subbotin, Deputy Director of Sales and Marketing for Skyros, a VMS provider. “Demand is increasing not only for cheaper products but for middle- and high-priced products as well.”
However, returning to prerecession sales may be a long way off for the whole Russian economy. “With the general tendency for market recovery, it will be two or four years before the market completely recovers,” Satunovskaya said.
MARKET DRIVEN BY OIL
Oil prices remain a key benchmark of growth for Russia, which translates into an optimistic economic outlook. “The Russian economic situation directly reflects the oil price,” said Hiroaki Yamauchi, Chief Representative of CBC. “The oil price is going up to more than US$100 a barrel.” Threats also drive security uptake. “People invest in security because the crime rate is getting higher,” said Alexey Uretskiy, Commercial Director of Akvilona, a distributor for Samyung and Nuvico.
Moscow is undeniably Russia's locus of power. “Nearly 90 percent of the money is concentrated in Moscow's central government or corporate offices,” said Vadim Makarov, CCTV Products Supervisor, B&I Department for CJSC Sony Electronic. “Even if the project is in Siberia, the money goes to Moscow.”
Even Russia's second-largest city, St. Petersburg, is dwarfed in comparison. “The St. Petersburg market is about 40 to 50 percent the size of Moscow's,” Subbotin said. “Moscow has 10 million people, while St. Petersburg has 4.5 million people. Moscow is the capital and the economic center.”
However, the capital's strategic location makes it vulnerable to threats. January's suicide bombing at the Moscow airport left 35 dead and 100 wounded. In response to the attack, more government spending has been allocated for public transportation. “An urgent matter in Russia is to provide safety and security on public transport after the terrorist acts,” Satunovskaya said. This includes mobile DVRs onboard buses and police vehicles.
Transportation is Russia's top market,according to Guchia. Along with public transportation such as railways, airports are also deploying more video surveillance.
Public monitoring is increasing as part of the response to terrorism. Bloomberg reported a possible Moscow surveillance project, covering 95 percent of apartment buildings and 75 percent of infrastructure by 2016. The project would be worth $11.7 billion, including online services for residents. While the project has yet to be finalized, it represents a significant boost for video surveillance spending. Along with Moscow, neighboring Ukraine is also implementing city surveillance, Guchia said. ITV, best known for its AxxonSoft VMS, has established a firm presence in Russian city surveillance. “Our biggest project to date is 175,000 cameras in one system with 10,000 servers,” said Evgenia Ostrovskaya, Global Business Development Director of ITV. The project started in 2003, growing from 5,000 cameras to many times that amount. As more projects are slated, public monitoring represents a booming market segment for Russian security. [NextPage]
Oil is a lucrative business, requiring effective security to guard precious resources. “Oil-related projects in Siberia grew,” said Yoichiro Akahane, Manager of the Project Department for Panasonic Russia. “We delivered a huge shipment for cameras for oil factories.”
Fire solutions are essential for oil and gas projects, which are deployed by Gazprom, said Natalia Novikova, Marketing and PR Manager for ADT Security Solutions. Remote monitoring is also required for pipelines, Ostrovskaya said.
Retail is deploying more security solutions, such as EAS. Retail represents about 80 to 85 percent of ADT Security Solutions' Russian sales, said Alexey Novikov, Sales Manager.
Russian consumers are making retail a top market, filling malls and outlets. “There are more than 15 big shopping centers in Moscow,” Makarov said.
Financial institutions are deploying video surveillance for bank branches and ATMs, although there are no specific mandates governing the amount or type of equipment. One bank is deploying ITV solutions at more than 2,000 ATMs for remote monitoring, Ostrovskaya said.
Retail and private systems are expected to deploy more cameras and alarm systems, said Lev Kabanov, Project Manager for LUIS+Center Security Systems. “People, rather than the government, have more money to spend on security.”
Russia will host a number of global athletic events in the next 10 years, requiring a significant security presence at multiple venues. The 2013 World University Games will take place in Kazan, while the 2014 Winter Olympic Games will be in Sochi. Russia will also kick off the 2018 World Cup at several strategic cities.
Each event yields strong potential for security providers. A total of 13 stadiums will deploy Bosch solutions for the World Cup, said Christoph Hampe, Country Director for Bosch Security Systems. Cameras are already being installed at the Winter Olympic venues, said Yamauchi of CBC.
Russia has a large existing base of analog installations, making IP inroads tough. While network video vendors have certainly tried to change market perceptions, government mandates for real-time images have spurred uptake. “In this time, network cameras became more popular,” Ekaterina said.
IP market growth estimates range from 10 to 40 percent. Axis Communications is No. 1 for network camera market share in Russia, representing a whopping 50 percent of cameras based on local analysis, Guchia said. “Now the IP penetration is 15 percent. Growth in IP is much higher in Russia than in Europe.”
Russian demand is growing for both IP and analog solutions, but IP is growing more rapidly. “The market in Russia is growing, despite some difficulties due to the economy,” Makarov said. “I think IP growth is about 25 to 30 percent, while analog is 15 to 20 percent.”
Local manufacturers are gearing up for IP demand. “We will have our own network camera this summer with video analysis,” said Evgenij Eroshin, Marketing Director of Byterg CCTV Systems.
IP uptake is poised to grow, with the tipping point expected to be reached in five years. “But today for our customers, analog is more popular,” Novikova said. “Cost is the main factor.”
Network infrastructure is also limited outside of Tier One cities such as Moscow. Internet access is limited in remote areas in the north, Ekaterina said. [NextPage]
Climate conditions in Russia are not always kind to security equipment. Outdoor cameras are required to operate in subzero temperatures, requiring tough cameras. The heaters that keep the cameras from freezing usually make cameras a drain on power.
Local vendors have designed low-power outdoor cameras expressly for the Russian climate. “It operates in temperatures as low as -50 degrees Celsius,” Eroshin said. Vandal-proof models are also in demand, using polycarbonate housings to withstand tough knocks.
High-level integration remains rare in Russia, for instances of deeply integrating multiple systems such as video surveillance, access control, intrusion and fire safety. While large multinationals may have complex integration, most local companies keep security systems separated in their respective niches, Guchia said.
This was particularly glaring during the investigation of the January Moscow attack. When the authorities tried to reconstruct the events, they found three agencies were responsible for airport security. “They were absolutely independent and had no connection,” Guchia said.
Open platforms are being developed to break down barriers to communication. ITV tries to integrate as many manufacturers as it can, including video surveillance, access control and fire, so operators can choose equipment that best suit their needs, Ostrovskaya said.
Russia's large analog base makes HD-SDI or HDcctv solutions a good fit. While the technology is currently too expensive, it holds potential. “I think HD will be a good competitor to IP,” said Vladimir Osipov, VP of Satro-Paladin Security Systems. “But I don't see high demand in Russia.”
Some limitations remain, such as CMOS low-light imaging issues. “If the technology produces something that gives us high-resolution video for low-lux situations, that will be good for Russia,” Ekaterina said. Other issues include limited storage options and transmission constraints for HD-SDI.
SI AND VMS PLAYERS ENTER DISTRIBUTION
Channels in Russian security are still developing. While IP and software distribution is still in its infancy, some system integrators and VMS providers have stepped into this niche. One VMS provider has a distribution arm which sells hardware to its system integrators, who perform the installation. This distribution branch offers computers and cameras along with VMS , making it a one-stop shop. It does not conflict with major distributors, as they have existing relationships with system integrators, while its installers work in a different niche.
More local production is done in Russia. Brands such as Byterg became No. 1 for camera market share in 2010. Other manufacturers include control panel and building automation manufacturer Bolid, as well as software providers EVS and ITV.
Byterg makes 40 different models of cameras, along with distributing Samsung and CNB products, Eroshin said. However, its own-brand products make up most of its sales.
Bolid started out with fire and intrusion alarms 20 years ago, then progressed to access control and video surveillance. “Our position is that everything should work together,” said Igor Babanov, CEO of NVP Bolid. “Fire alarms should work with access control to open doors. We began integrating video surveillance in 2005 when we migrated toward software.” [NextPage]
The recession made buyers more careful about their purchases. In the past, government projects almost always used top brands. After the economic crisis, more of that investment is shifting toward the mid- to low-end. “For government projects, their priority is cost,” said Yamauchi of CBC. “If the project has enough budget, they are concerned about quality and functions.”
While buyers are more cautious, they are still concerned about quality. Branded products are preferred over unknown or Chinese products. “They buy brand names like Bosch or made-in-Japan ones,” Yamauchi said.
Even though branded product sales are picking up, there remains demand for good price performance. In light of this emphasis, top brands are rushing to produce midrange products that hit the price sweet spot. “We introduced this year our new portfolio for the midpriced range,” Hampe said. This includes cameras that start from 120 euros. “Bosch is competitive on midpriced products. It's recreated from high-end solutions.”
Panasonic has also launched a midend line for IP and analog solutions, along with modules and components for local manufacturers. “After the crisis, the government hesitated to spend so much,” Akahane said. “The majority of the market changed to the midend products. Most of our customers were government users, and now their budgets have shrunk. This is true even for private customers, such as banks.”
While brands dominated in the beginning, a growing demand for value leaves room for Korean players priced in the midrange. “People are considering value much more thoroughly,” said Christophe Guillot, EMEA Marcom Manager, Honeywell Security. “They want to get more value for the same money in the past. We have three-in-one or four-in-one solutions as more economic options.”
Success in Russia means mastering the Russian language. Breaking into the market means translating all materials into the Cyrillic alphabet. Sales and support staff must be local, with different regions requiring multiple branches nationwide.
ITV expanded to 10 offices throughout Russia last year. “Every strategy in each office is different,” Ostrovskaya said. “We from headquarters support them but we don't dictate how they do things. “We support, watch and help them for localization and features,” Ostrovskaya said. “Some features are popular in one country but not another. We need industry people who can understand the needs of the customer.”
Bosch provides a Russian 24-hour hotline for technical support. “It doesn't matter if you call from Vladivostok at 8 or from Moscow at 10,” Hampe said. Grandprix's distribution network extends throughout Russia, requiring Web media such as webinars and teleconferencing to span vast distances. “The Internet is necessary for many companies because this country is very big and people need to understand our products,” Ekaterina said.
However, being local is not enough to succeed. Distributors or manufacturers must spend time with clients to build trust and develop a good reputation, Kabanov said.
While low prices are attractive, cultivating customer relationships requires continued support and mutual trust. “If any company tries to steal from another company, it will be known very soon,” Osipov said. “The security market in Russia is stable because we trust each other.”
Local Russian distributors maintain close relationships regardless of their business dealings. “For me, a competitor is a good friend,” Osipov said. “We are very friendly and ready to hear from each other if we have any business problems.”
Since some distributors carry the same brands, business is bound to overlap. However, Russian distributors do not aim to drive their competitors out of business. “It's not fierce competition as it is with Korean brands, who hate each other, like Samsung and LG,” Osipov said. “Russians are different. They are not involved in these products and don't get angry with each other.”
The Russian market is not for fly-by-night companies out to make a quick buck. It requires hands-on communication with partners and customers. Fair and honest dealings will reward providers who are committed to stay for the long term.