Europe is one of the major markets of security. This year, the region is expected to see healthy growth in spite of various challenges. This note examines why.
Europe is one of the major markets of security. This year, the region is expected to see healthy growth in spite of various challenges. This note examines why.
Europe is seeing a market rebound after a COVID-induced decline. After falling 6.4 percent in 2020, Europe’s GDP had an estimated growth of 5.2 percent last year, according to World Bank. This year, the bank forecasts Europe’s GDP growth will be 4.2 percent.
Despite the upbeat sentiment, there are certain challenges facing the European society, the biggest of which is still the pandemic, prolonged by the new coronavirus variant
Omicron.
“The situation at the start of 2022 remains uncertain, as the Omicron wave works its way through Europe and more lockdowns are imposed. Some EU countries have been slower to offer booster shots, but as vaccination rates catch up it’s reasonable to expect lockdowns to ease. Yet there is still some caution concerning the severity of disease and, importantly, potential impacts on national health services in the winter months,” said James Min, MD of IDIS Europe.
“Whilst Omicron has only recently arrived, Europe is already reacting to it. The signs are that it will have a short-term impact on the economy – it is already doing so on the hospitality industry in the UK for example. With the early spike in the UK, mainland Europe is already looking to limit its spread, but the success of this approach and the full impact of the Omicron variant won’t be clear until at least January 2022,” said John Davies, MD of TDSi.
Growth despite challenges
Yet despite these challenges, growth is still expected this year in the European market, where increased
vaccination rates have caused more businesses to reopen. Projects that were put on hold, meanwhile, have also resumed.
“Once the tough restrictions of early 2021 were lifted, we saw our target markets in Europe rebounding quickly, with projects that had been on-hold being revived,” Min said. “In some cases, projects that had already been specified were re-visited and further developed because, while buildings remained shut or partially shut, security teams had more time away from day-to-day operational duties. Just as we saw organizations speeding up digitization and automation programs across a range of departments, as they looked to increase efficiency and reduce operating expenditure, so security departments looked to gain additional benefits from surveillance upgrades.”
“For TDSi and the VITAPROTECH Group as a whole, we are predicting continued growth in both access control and perimeter intrusion detection systems in 2022, across national markets and Europe as a whole. This growth is primarily being driven by government spending,” Davies said. “For example, in the UK there is a lot of government spending on updating infrastructure, such as hospitals and education. This is also the case across other parts of Europe, such as France, Italy, and Germany and is fueled by the need to renew ageing infrastructure and revitalize projects that were postponed during the pandemic lockdowns in 2020 and early 2021.”
Further, and perhaps more importantly, more and more users have realized the need for security as a health/safety measure in the new normal. “We expect to see healthy growth in 2022, as video and security technology have already proven to be key factors to enable and facilitate the new normal, for example for crowd management, physical distancing, and face mask detection,” said Jos Beernink, Acting VP of EMEA at Milestone Systems. “2022 will be the year of wider adoption and further development of some important mega trends: artificial intelligence, cybersecurity, and cloud services. In combination these trends will be important growth drivers.”
Supply chain issues and inflation
The pandemic has directly and indirectly triggered various issues, for example
inflation and supply chain problems, the latter of which especially present a challenge for European security players. “Unfortunately, the pandemic is still here, and it is predicted that we will continue to see constraints in the supply chain of our hardware partners. The demand is expected to significantly grow, but the supply will not grow at the same pace, so sooner or later most of us will feel the impact,” Beernink said.
“With regard to the supply chain issue, it seems to have hit some competitors cold. We are hearing about delivery difficulties in the industry, which we have been able to avoid through intelligent purchasing and production policies. However, we are sure that work will already begin in 22 on reducing the dependencies on certain suppliers that have now become apparent,” said Thomas Lausten, CEO of MOBOTIX.
Indeed, many security suppliers expressed the need to stay alert, agile and flexible to cope.
“There are longer-term supply-chain issues that will continue to be a factor until at least 2023. This is purely because manufacturing is still trying to catch up with demand following the pauses from the first two waves of COVID and can only produce so much in a short space of time,” said Davies. “From TDSi and the VITAPROTECH Group’s perspective, we have been able to work very well with our subcontracted manufacturing partners and component suppliers throughout the pandemic disruptions. This will continue in 2022 with increased stock holding to ensure we continue to be in a strong position moving forwards.”
“The pandemic resulted in supply chain issues that have caused many organizations, including those in the European security industry, to consider how they create and source key components in their products. For instance, the ‘connected’ nature of everything has meant that the global shortage in semiconductors has been a significant issue in many sectors, from consumer technology to automotive manufacturing. This led to more organizations publicly stating a desire to design their own semiconductors, or system-on-a-chip (SoC),” said Verena Rathjen VP of EMEA at Axis Communications. “While this represents a trend in some sectors, it is something that Axis has actually been doing for years with ARTPEC. However, designing SoCs that are optimized for specific applications is certainly something that we anticipate more organizations doing in the security sector and beyond in the future.”
Inflation, meanwhile, is felt across Europe as well. “With regard to inflation, we are also feeling price pressure due to the increase in the cost of intermediate products, which we also have to pass on in the single-digit percentage range. However, we assume that inflation will also ease again and that this will happen as early as the first, or at the latest the second, quarter of '22,” Lausten said.
Yet inflation also provides opportunities for users to take a look at how they spend on security. “The full impact of inflation is yet to be seen but shipping and energy cost rises in the West will undoubtedly have a knock-on effect. Yet the race to the bottom on price ended some years ago and customers recognize the need for good quality, high performance, surveillance equipment and most no longer look simply at CAPEX cost but OPEX too - and that’s where IDIS’s strength is,” Min said. “Any inflation costs we need to pass on customers due to rising inflation will be far outweighed by lower OPEX. For example, we offer a free full-featured VMS for up to 1,024 devices and our enterprise-class VMS, IDIS Solution Suite, is modular meaning we don’t charge customers for bundled services and functionality they don’t need or use, and importantly they pay one upfront cost without any ongoing maintenance fees or camera connection costs.”