Despite the fierce competition, multinationals are finding many ways to grow and get ahead in China’s massive security market. With words like localization being emphasized by every player in China, multinationals have found ways to fit into and meet the requirements of this highly demanding market.
Despite the fierce competition, multinationals are finding many ways to grow and get ahead in China's massive security market. With words like localization being emphasized by every player in China, multinationals have found ways to fit into and meet the requirements of this highly demanding market.
In 2014, China surpassed the U.S. as the world's largest economy. This, however, should not come as a surprise to anyone. With one-seventh of the world's population, an insatiable market, and exceptionally fast development, it was only a matter of time before China pushed out the U.S. to take over the number one spot. In the security and surveillance market, China has played a similar game — unbeatable manpower, ever-improving technology, and a market hungry for the latest and greatest in security products. In fact, as previously reported by a&s, according to IHS, China was estimated to be the largest regional market for video surveillance equipment in 2013, accounting for a third of global revenues.
It is quite clear that China is a force to be reckoned with, not just in security but generally as an overall economic giant. According to Memoori Business Intelligence, within the video surveillance sphere, China is now delivering the highest rate of growth and increasing its market share. What that has meant for the security industry is that everyone wants a piece of this massive market. Multinationals from every corner of the world have flocked to China to try to gain a presence and take some of the country's market share. However, this has not been easy. With local Chinese security manufacturers numbering in the thousands (and constantly on the rise) and power-house players like Hikvision Digital Technology and Dahua Technology quickly ascending in the ranks among the world's biggest security manufacturers, multinationals have their work cut out for them.
Everything Local
From manpower to manufacturing to offices to services, being local in all these categories is more than just an added bonus for multinationals in China: it's a necessity. Setting up local R&D, local manufacturing, and local offices has been the key to success for many multinationals in China. In fact, many of the world's top security brands are emphasizing localization as their key strategy. Companies like Axis Communications, HID Global, Infinova, Panasonic, Sony, etc., have all set up manufacturing factories in the country, which has proved to be very advantageous when it comes to competing with local manufacturers. “As we have local manufacturing and local R&D, we can, to an extent, reduce costs — we can be more aggressive with pricing with China-specific products,” said Jimmy Li, Sales Director for China at Axis Communications. Being able to compete in price is obviously quite an advantage as the price wars caused by Chinese manufacturers within the global security industry have affected every manufacturer.
Aside from local manufacturing, local manpower is also a key asset to multinationals. “The fact that we have local Chinese people in our office helps us a lot because they serve as a bridge of knowledge,” said Dror Irani, President and CEO of BriefCam, an Israeli-based software company specialized in video synopsis. “They take the local requirements of the market and translate it in a way our programmers understand what is required, which is not a simple task: it is both technical as well as cultural. Technical and cultural gaps exist in this communication and understanding all of that can immediately affect your entire product offering.”
Additionally, localization tactics like language are also quite important in the Chinese market. Eric Chiu, Sales Director for Greater China at HID Global pointed out, “Small things make a big difference — for example, language. Many global companies use English as a standard, but for HID, especially here in China, we are not that way. We still have English, but Chinese is our local language for communication. This is just one example. It looks like a very small thing, but it can basically show the customers we are local.”
Tailored for China
Among the most common characteristics pointed out by multinationals about Chinese users is their requests for tailored/ customized products. This customization extends from hardware to software. Some multinationals have seen requests for things like connector requirements for power supply in China, which is not usually seen in Europe or North America.
Oftentimes whether or not a company can meet these requirements can make or break a deal, particularly because of the willingness by local companies to customize products for individual projects. “From what we've seen in China, Chinese local players play a different game. They will take an offering and customize it, optimize it to a specific customer's need, while lagging behind on innovation that comes from within,” said Irani. This need for customization is harder for large overseas companies to meet, especially on a per project basis due to the affect it would have on the standardization of their products, according to William Pan, Sales Manager of the Sales and Marketing Division at EverFocus Shenzhen.
The need for customization is especially true in verticals such as city surveillance. “Most important is to customize the embedded software functions to meet the requirements of local customers,” emphasized Li. “In China, different verticals, different segments the customers have different standards and different requirements. For instance, for city surveillance, the police request that every camera vendor needs to comply with local standards. You have to comply with these standards to be able to participate in some local city surveillance projects.” Similarly, Daniel Zhao, Director of China Market at Infinova pointed out that the government has enacted many regulations and requirements for security, which he believes will help drive security growth.
Standards and regulations, in fact, play a large role in customization requests in the Chinese security market. “There are a lot of regulations like CCC (China Compulsory Certificate) and PSP (Public Security Police) certifications. We will ensure our products comply with government standards and regulations, as well as industry codes. All the products we are selling in China we will apply for local certifications before we launch them in the market. So, it's tough, but not that tough,” said Tony Wong, Strategic Sales Director for Greater China at Tyco Security Products. Other national standards such as GB/T 28181, a security and protection video monitoring network system technical specification of information transport, switch, and control, can be an important factor when trying to participate in government projects, are also quite important for security tenders.
High Levels of Integration
In addition to requests for custom, tailor-made products, multinationals have taken note of the demand for high levels of integration.
While it is true that integration has been a trend in the industry for some time now, the degree of integration required by Chinese users from manufacturers has been noted to be higher than that in other countries. “In markets outside of China video surveillance is focused on surveillance purposes, but in China they like to look at high-level integration systems,” said Kenneth Cheung, GM of Merit LILIN Guangzhou. “For example, they want to combine surveillance systems with building automation or access control. They want to integrate into one big system. This is a very big difference in China versus other world markets.”
However, a lack of education among Chinese systems integrators (SIs) is why full solutions have also become popular. “Why total solutions are very popular in China is because SIs do not have the competence. They need to rely on the vendors to give their package and then they can sell to the customer,” Li said. However, Li believes that this will change as eventually SIs will realize that they need to increase their value, which means they will need to increase their competency and knowledge, particularly for IP systems.
Importance of Software
Nowadays standing out among the competition is the best way to ensure survival. However, products now look increasingly similar to one another and features that once made products special have become standard. Cheung pointed out that with so many manufacturers in China (mostly concentrated in Shenzhen, Guangdong, and Zhejiang provinces), product homogenization has increasingly become a problem. Therefore, to standout, having unique features is more important than ever. One way to do this is through software. “The margin for hardware is ever decreasing. To survive in this situation, you need to reinforce software,” said J.S. Han, President and CEO of Microdigital.
Particularly in China, where integration is important, whether or not a company has software can make or break a deal. “In China, sometimes, the customer will request the camera and the VMS come from the same vendor,” Li said. “If we do not have the software, we will miss some opportunities. This is why we launched software for large systems. In the past we only had software to address medium to small systems, but now this gives a new option for our partners to address those opportunities where the VMS and cameras come from the same vendor. So, that is new to China and is only available in China.”
Government Protection
Compared to the rest of Asia, the Chinese government is more involved in the security market, especially in projects like safe and smart cities, Zhao noted. However, government involvement in China can be a cause for headaches when it comes to government projects, since long as a project if funded by the government, they can request the vendor is from China.
Protection by the government cannot be the only source for blame though when it comes to difficulties with Chinese projects. “The China market is maybe a little closed. The government will protect the local makers, but we cannot clearly say that they are protecting. Why? Because China's local vendors clearly know users' requests. They can give suggestions to users in order to use video/audio very well in vertical markets — what kinds of functions combined with your business logic, and you should have such kind of standards. In this way, I think international brands need to understand local vertical market business requests and also try to enter the standards-making process. So, I think it's protection, but mainly it is international makers cannot clearly communicate very well with the Chinese business logic,” said Xiaobo Zhou, Senior Manager of VS Marketing Department for Professional Solutions China at Sony (China). Regardless of government protection, a general preference for local products has also been noted by many multinationals. “One thing that is different about China is that there are a lot of manufacturers and they want to localize by themselves. China, whenever they can, they buy locally. Only when they cannot buy locally they buy from other countries,” Han said.
Lack of Patent Protection
One major challenge in China is the lack of intellectual property protection. Several multinationals noted that patents and licenses are not quite protected by the government at this stage. Han further pointed out that due to the abundance of manpower and technical power at Chinese makers' disposal they are able to expand on and develop new technologies within two to three years of a technology's original release. For small companies, keeping up with the fast-paced China is difficult due to how quickly the local market can adapt. “If it is a very difficult technology, China, maybe in the beginning they import, but they immediately make their own version,” Han added. This “copycat” issue has affected companies throughout the industry. “We have seen several local players introduce similar solutions. This obviously makes our life a bit more difficult in China compared to other places because in general we are a unique exclusive player due to intellectual property protection. But although we've registered our patents in China, we have not yet enforced them. The fact that we have local competition only makes us work harder to make sure we also have a technology edge,” Irani said.
Competition Pushes Innovation With more manufacturers that one can count, China's security market is fiercely competitive. Not only does China have the numbers, they have also caught up in quality and technology. While for many companies competition quells growth, sometimes leading to collapse, others have learned to thrive. “The competition is encouragement for us. You have to make sure that your company can keep moving on, going faster, that's how you can capture the market,” Chiu said. “Competition is everywhere, the most important thing is how you can make sure to move faster and go the right way.” Irani also noted: “I do see intensified pressure to close each deal with competitive pricing, etc., but there is still a lot of hunger and desire for innovation.”
Recipe for Success
Going into the China market, companies know to expect competition in all forms: price, product, endless options, etc. What it comes down to is a willingness to persevere in a highly competitive market. Those that are willing to stick it out, learn to localize, and figure out how to work with the market can definitely find success. One thing that is for certain is with such a large market, there is plenty to go around in terms of opportunity — all that is needed is a little patience and hard work.
Unique Requests From Chinese Users
It is not uncommon to have users from different countries have unique requests and requirements when it comes to security products. Many multinationals have noted certain quirks specific to Chinese customers.
Aside from general customization, Jimmy Li, Sales Director for China at Axis Communications noted the preference for fixed-box cameras without lenses. “In terms of cameras, in other countries, customers are more likely to want fixed-dome cameras, but in China they prefer fixed-box cameras,” Li said. “China also prefers cameras without lenses, but other countries prefer cameras with lenses. In China, they want to choose their own lens, especially for city surveillance where they sometimes need to have long-focus lens.” Vertical market requirements are one of the reasons fixed-box cameras are preferred. City surveillance, one of the biggest verticals in China, requires that cameras are able to be posted on poles. In this instance, fixed-box cameras best fit the need, according to Li.
Similarly, FLIR Systems has noticed a need for specific lenses by Chinese customers as well. “Some of our markets love smaller lenses, lower price, and high volume of those lenses. Some markets like China like big lenses at a higher price, which they can accept. They just like to look further in China. But it depends on the application and in many cases large area surveillance is the key driver for long lenses, like river monitoring and/or boarder surveillance,” said Paolo Gianni Saranga, Business Development Manager of Security and Surveillance for the Boarder Security Program and Maritime Products of APAC at FLIR Systems.