Foreign companies make up a significant wedge of the Russian market. Since customers tend to award projects to installation firms and system integrators--95 percent are distributors as well--knowing these guys is key to succeeding.
The major security-service firms in Russia work directly not only with equipment manufacturers but also with distributors, especially for imported products. These trading houses are expected to gradually threaten smaller equipment suppliers as they have better logistics and intermediate stores of commodities. According to Gulfstream Engineering, the market leaders control 40 percent of local sales. Among these are A&TV, Akkord SB, Armo Group, Bezopasnost, Gulfstream, ISTA, Louis+, Polyset SB, Rossi and Formula Bezopasnosti.
Tale of Two Heads
"The security market here is divided into two boxesgovernment and commercial markets," said A&TV Executive Director Stanislav Galich. "They both have around the same sales volume. Commercial markets mainly look for Asian companies and the government goes for brands." Government includes the Non-Departmental Security (NDS) of the Ministry of Interior, security departments of federal ministries and authorities, and state unitary security agencies, according to the Russia Association of Security Industry (RASI). Non-state organizations include private security agencies (ChOP), security services of legal entities and staff of organizations such as doormen, ticket collectors, watchmen and administrators.
The RASI noted state interference into the security business along with flaws in national legislation. Non-departmental security is expected to go through major changes, including transition of NDS to government funding and creation of FSUE Okhrana. This will shift the balance of power in favor of private-security agencies.
Security Services under the Microscope
Figures from the licensing authority of the Ministry of Interior in January 2006 showed there were 23,000 security structures in Russia with over 600,000 people. The NDS of the Ministry of Interior involves about 375,000 servicemen. The main competition between these structures takes place in the security-service market. In 2005, the NDS occupied a significant position (400,000 enterprises) while private security protected about 73,000.
Competition can be broadly divided into the following three categories, according to the RASI: First, agencies serving major financial, industrial or administrative structures. By estimates from licensing authorities, such agencies involve about 20 percent of all private-security servicemen. Second, agencies established by enforcement services are not expected to increase in number; rather they will weaken as the state starts paying more attention to enforcement services and stops the outflow of qualified staff.
Third, security agencies will grow in number and develop much in the same way as ordinary enterprises with modern management, client orientation and personal service. Agencies in groups 2 and 3 make up 80 percent of all staff, with about 30 percent of these working in organizations of 50 to 200 people, and half in small firms of 10 to 50 people. The large number of companies, however, has resulted in low concentration. Even major, well-known companies occupy shares of no more than 1 percent. In Moscow a major security agency is defined as one with over 300 staff, but in other regions, the figure may be twice as low.
There have been no important mergers or acquisitions, despite public statements of security business leaders on their advisability in light of Russia''s desire to join the World Trade Organization this year. The RASI believes that this is evidence that the economy is not mature enough. Russia is host to foreign security-service companies, but they cannot be considered major players. Security agencies with foreign capital control about 5 percent to 7 percent of the market, the RASI estimated. There are about 10 of these firms in the Russian market and bigger names include Group 4, Securitas, Armor Group and Nortel Security. Their clients are mainly major transnational companies.
Marketing research by Mikhailov & Partners estimated that the share of different segments of the Russian security-service market is as follows: physical security (70 percent), detective services (10 percent), information and analytical services (5 percent), personal security and other services (15 percent).
Generally, range of services offered by Russian security agencies does not differ much from those offered in other countries. The difference is proportion and degree of development. The most called-for and most-developed are protection of facilities (24 percent) and personal security (21 percent). For consumer-business units, most services are protection of stationary facilities (trade, office and storage), protection of industrial enterprises and transport convoy. The main types of services for individuals are property and real-estate protection, protection of property during transportation and personal protection.
The RASI calculated the security-service market in 2005 as having made some US$4 billion. A breakdown of sales by region and organization is as follows: agencies in Moscow ($1.4 billion), other Russian regions ($1.2 billion), NDS Central Authority of the Ministry of Interior ($1.1 billion), Departmental Security ($0.2 billion) and detective, information and analytical services ($0.1 billion).