The security industry has grown in size and scope over the last few years. Increase in per capita GDP has brought greater wealth which translates to potentially higher rates of crime, theft and other threats, resulting in security companies posting high revenues, profits and steady growth.
The security industry is not immune to the effects of a macroeconomic downturn. Construction projects are witnessing sharp slowdowns, negatively impacting the demand for security electronics. Smaller companies without recurring monthly revenues might fail, as they will not be able to withstand the pinch.
With less available credit, manufacturers have reduced sales targets and users have cut back on spending. The legacy systems replacement market is one of the few where opportunities lie.
On the other hand, as economic pressures filter down to middle- and low-income classes, crime will increase. Large growth can be expected in electronic access control and video surveillance to monitor customer and employee behavior in retail outlets, hotels, parking lots and so on. Companies may also benefit from government investments and projects.
As companies cut back their workforce, physical security is becoming increasingly important. Also, falling prices of security products will likely increase adoption during this slowdown, making installations less costly.
With suicide bombings in Bali and unprecedented attacks on India's parliament and Mumbai hotels, Asian nations are quickly increasing security measures. China, India and Indonesia are forecasted to double their security spending in the next four to five years.
Although significant slowdown is expected in corporate sectors, government sectors should face minimal impact. National ID and e-passport projects, seaports, airports and other infrastructure will continue to drive revenues for security vendors in 2009.
Government projects will generally be awarded to larger vendors. Hence, it is important for smaller players to form new alliances.
Integration at a Slower Pace
Remote monitoring will remain a key trend in 2009, although the financial crisis will result in a slowdown of migration to IP-based solutions. Convergence of technologies will continue slowly, due to budget pressures. Companies may prefer basic technologies over new ones.
With more complete network infrastructure in place, IT integrators are entering into the physical security space, and greater cooperation with security integrators will drive the use of technology beyond security applications.
Industry consolidation is expected to continue with security giants taking over small, local companies in order to expand, and smaller companies looking for more stable partners to survive the credit crunch. Sharp declines in profits are to be expected, so smaller companies are potential targets for acquisitions.
Vendors need to watch their backlog orders and take necessary steps to ensure a strong pipeline. Accounts receivable management is now of paramount importance.
The security industry can be said to be recession-resistant, but not recession-proof. Companies will depend on their strengths, such as broad product portfolios and innovative technologies or close customer relationships, to weather this storm. Increased working relationships among industry professionals and government parties to adhere to standards and legislations are expected.