The Italian security industry appears to have moved on from its slump in the last decade, but the recovery seems to have come at the expense of some significant changes to the market structure. According to a report from
a&s Italy, the video surveillance segment recorded a growth of 11 percent in 2013, while the anti-intrusion industry expanded 7.6 percent and fire-safety grew 2 percent. Access control and building automation segments expanded 2.4 percent and 1.5 percent respectively.
The growth in the video surveillance segment was driven by the adoption of IP, mobile and integrated services, and increased security concerns. Some industry observers like Giovanni Novelli, Sales and Marketing Director at Ascani Elettrocomm also pointed out that there is also a stronger appeal to analog HD systems as end users are still reluctant to fully discard their old equipment.
A Revamped Market with Persisting Concerns
A significant market change during the past years has been the expansion and consolidation of the two major Chinese manufacturers, Hikvision Digital Technology and Dahua Technology. The local producers have been unable to keep up with the new technologies and match the global demand, according to Ermanno Minotti, Marketing Manager of Videotrend, Dahua Technology’s distributor in Italy.
“Big producers such as Dahua and Hikvision are now stabilizing their position as market leaders,” Minotti said. “Their R&D investments are growing rapidly, reaching unachievable and unthinkable targets for other global groups.”
Earlier, manufacturers or national distributors sold goods to local distributors, who then sold it to the installers before eventually reaching the end users. But now manufacturers and national distributors sell to several kinds of customers, including the end users themselves, especially online.
According to the report from
a&s Italy, companies in the security industry face problems similar to those that companies in other sectors have had to face. These include high taxation, high cost of manpower, low bank credit, draining and aggressive bureaucracy, and delays in payments even from the government. These aspects often cannot be compensated with more favourable credit conditions.
Most importantly, these issues come even as the market undergoes restructuring, which has given rise to certain sector-specific problems such as the tendency to become a ‘prosumer’ market, i.e., suffering from low margins that are typical of the consumer market, yet without compensating on large volumes because the market is still professional, B2B and substantially niche.
A Struggle for the Distributors
With the revised market structure, distributors have been forced to adapt new technologies while adjusting to lower margins. There has also been a need to educate customers from technical and sales perspectives, and invest in more human resources to provide assistance on new products, according to Minotti.
Those who suffer most in such conditions are distributors who “give credit to customers” with extremely high discounts at the risk of their own survival, and offer repayment plans that are more and more uncertain and long-termed.
Naturally, the lower margins have affected revenues, and hurt significantly smaller distributors. The large distributors, especially the top 25 distributors in the country have managed to maintain solid financial statuses. But the margin erosion and warehouse costs, together with the increasing costs of products and the services have forced distributors to make changes to their business strategies.
One such change was to become large logistic companies or focus on specific vertical sectors, geographical areas or customers. Some companies have chosen to create a production department with dedicated lines, while others have tried to add systems integration to product distribution.
In short, the distribution model in the country has now left behind the “box mover” approach to embrace that of “solution provider” by offering advisory services, technical training for customers, new contract formula, promotion of sales and a synergy between companies to share costs and benefits.
Manufacturers Maintain Market Presence
Demand from traditional segments such as the retail and industrial still provide support for Italian manufacturers. The video surveillance segment is seeing a major surge in the residential sector, which has before been an exclusive field of anti-intrusion systems.
Exports of security products too remain strong, especially to regions such as North Africa, Sub-Saharan Africa and Middle East, although this has been limited by the size of the industry.
Installers Look Towards Solutions
In the restructured Italian market, systems integrators (SI) have been forced to offer solutions that are increasingly complex, and services that bring better revenue in order to maintain growth and improve the bottom line. The choice is between “easy” installation, that does not offer margins, and “complex” integration, that creates revenue.
In short, the Italian security market needs a serious investment plan, along with consistent training to provide answers to the customer’s problems and needs. A deep technological knowledge is required to go beyond the simple demand for materials or the temporary service. Such training should also cover fields such as sales techniques, customer service, regulations, and legal responsibilities.