Moving To ward Emerging Markets
On a macroeconomic level, financial uncertainty is also driving security players to different regional markets. Debt troubles in developed countries draw sharp contrast to the strong growth levels found in emerging markets. The World Bank's “Global Development Horizons 2011 — Multipolarity” report predicts long-term growth to focus on the emerging markets. “As a group, emerging economies will grow on average by 4.7 percent a year between 2011 and 2025. Advanced economies, meanwhile, are forecast to grow by 2.3 percent over the same period.” 2012 will be a step in that long-term direction. The International Monetary Fund's (IMF) most recent World Economic Outlook states that they forecast world growth to be at 4 percent for the end of 2011, moving into 2012, though inequitably distributed. “For 2011, we see growth of 6.4 percent for emerging economies, which is a good number, but only 1.6 percent for advanced ones.”
This dichotomous world view of developed versus developing markets is to be seen in security as well. Traditionally, the U.S. and Western Europe, and especially the U.K., have been the strongholds. However, given that they are more mature markets, most end-users already have security products deployed. Add that to troubling national debt levels that may affect banking institutions, lending and new construction, and it appears that the developed markets will have less opportunity in 2012.
In security, some players are looking to mitigate risk by increasing focus on the emerging markets, like those in Asia and Latin America. China's enormous potential is enticing investors and businesses, despite some uncertainty. (For a more in-depth look at Asia and China, please refer to the box.) Growth in emerging markets is up and has been the driving force behind global growth in recent years. John Davies, MD of TDSi, talked about TDSi's decision to focus on China and the Middle East, and push into new markets in West Africa and South East Asia. “We look at per capita GDP numbers as an indicator for the readiness of a market to invest in electronic security systems as well as the growth in GDP.”
Since emerging markets have less penetration of security systems, the market potential is much larger than in developed markets. Regarding the global electronic access control systems market, Global Industry Analysts said in prepared statement, “Though developed markets such as Europe and North America have been the traditional revenue contributors in the market, developing markets such as APAC, Latin America and the Middle East are expected to turbo-charge future growth.”
This trend is reflected in the market sizes and growth rates of products in different regions. Since 2010, we see consistently that the Americas have the highest current market size, followed by EMEA and finally APAC, but the reverse is true when we look at the growth rates. The growth rates show APAC growing faster than EMEA and the Americas, especially in the video surveillance market, where APAC is growing at 14.8 percent versus 5.7 percent in EMEA and 9.5 percent in the Americas. This trend is projected to continue in 2012.
While developed countries are not growing as quickly, it does not mean that their markets will disappear. In fact, access control markets are forecasted to exhibit healthy growth in the Americas in 2012. Also, purely based on market size, Asia is still nowhere near as large as EMEA or the Americas. “Geographically, Europe and North America will continue to drive growth in security,”Srimoolanthan said.
By the same token, that does not mean that developing economies are immune from the troubles in the eurozone. Given that our world has become increasingly interconnected, continuing troubles in the eurozone will affect other regions, including emerging markets, according to the IMF's World Economic Outlook. “They're not at the center of the action at this point, but they are clearly affected by it. So far, they have been largely immune to these adverse developments. They have had to deal with volatile capital flows, but in general have continued to sustain high growth.”
An interesting by-product of this move to emerging markets is higher price sensitivity in security. “The margin game is getting tougher in emerging markets like Southeast Asia and Latin America,” said Ken Li, President of Asia Security Technology. Das agreed. “Emerging markets, including India, China, Taiwan and Southeast Asia, are quite price-sensitive compared to what you would experience in America.”
In the search for lower prices, Joe Qiu, Overseas Business Director for TVT Digital Technology, reminds us that quality should not be sacrificed. “We are seeing more Tier-2/3 players whose product quality and reliability are really shady. Our stance on quality is nonnegotiable.”
The need to keep people and their assets secure will help keep security markets buoyant in 2012, but the security markets will differ across regions, given the pressures of global economics. Many big players currently have their eye on the potential of certain emerging markets. What does this mean for different product markets in security? Turn to the next article in our 2012 Preview series for more.