After a disastrous economic and financial crash in 2001, it took Argentina a while to recover. For the last few years, however, economic growth has averaged nearly 10 percent. This, coupled with rising crime, or the perception of it, has meant more money for providers of electronic security. The market is particularly suited to the kinds of products and functions that Asian companies provide given their strong price advantages.
Argentina is not that different a market than the one in Brazil," said Alejandra Etchar ran, Automation and Electronics Industry Analyst, Latin America, Frost & Sullivan. "The drivers for purchases of electronic security in both countries are insecurity and insufficient government investment in protection. There is an increasing number of assaults and kidnappings in both, particularly in Brazil. That means that private companies, and residential and medium to high-end apartment buildings are acting on their own to secure their facilities."
Buenos Aireswith all of its major events and conferences as well as the presence of many major companies, both domestic and internationaltends to be at the forefront of security product adoption. "There, you will find the most advanced technologies and products, and the most widespread use as well as best understanding of how and when which products should be applied," she said. Despite this, Etcharran finds a lack of awareness regarding the ins and outs of security products and technologies involved.
According to the Chamber for Argentine Electronic Security (CASEL), the electronic security sector market in Argentina was valued at nearly US$2 billion in 2005, growing by up to 50 percent that year and another 20 percent in 2006. The total import market for electronic security equipment was also estimated at over US$2 billion, but the Argentine Customs classification system also includes products that tend to have applications in other industries, particularly video recording. Most industry professionals put the market for electric security much lower, at $100 million to $200 million.
Roughly, 80 percent of security electronic products, especially those at the high end, are imported, while low-end systems like burglar and fire alarms tend to be manufactured locally. U.S. manufacturers, according to a U.S. Commercial Services report, hold 30 percent share of the import market for electronic security equipment with companies from Brazil, China and Southeast Asia "competing aggressively" at the lower end.
Argentina's market is very similar to that of Mexico, pointed out Mirna Castaneda, General Manager, EverFocus Mexico. EverFocus is a Taiwanese manufacturer of surveillance products. "Both markets are more advanced when it comes to Latin America; customers in both are more conscious of the technical aspects of products." That said, she cited Chile as being even more advanced than Argentina and Brazil. "We are less familiar with customers at the low end since this is not an area that EverFocus targets. We are, however, noticing that, in Mexico, a lot more low-end players are entering the market. We will keep an eye on things to see if similar developments occur in Argentina." For Castaneda, Brazil is another market that is more focused on the low end because of strong price consciousness.
Marcia Cesare, Vice President, GSN Brazil, agreed. "In Argentina, there is very little at the very low end of the market; it is mostly medium to high end. That differs greatly from Brazil where the really low end of the market makes up a much greater proportion of product sales."
Qualified Assessment of Argentina's Growing Market
Despite recognizing the strong growth and potential, Sergio Mendes, owner of Sektronix in Brazil, explained that, for many players in the region, "Argentina is not yet that important of a market. While Brazil makes up about 50 percent of the Latin American market, Argentina is only 10 percent." The Argentine government is too populist, he noted, and "this is not good for the economy."
Mendes' figures make sense when the total size of the Brazilian market is compared with that of Argentina. While official Brazilian statistics also put the total electronic security market quite highat more than $1 billionin actuality, the market there is worth much less as well. It is much more likely, therefore, that the direct market in Argentina for electric security is nearer the $100 million mark. That is buttressed by the fact that, the Argentine electronic security market is still in its infancy with some 45 percent of security companies established between 1990 and 2000.
Further information on the focus of security players was provided by CASEL; 80 percent of the market is concentrated on installation, design, engineering, consulting and production. "Clearly, lack of specialization, low level of foreign capital and favorable conditions make this market very attractive to foreign firms," explained Marina Millet, Commercial Officer, U.S. Commercial Services. "While Argentine security products have the cost advantage," she added, "there is increasing demand for higher quality imported equipment." Even though the market may not be as large as the import statistics might have initially suggested, profit margins at the high end are as high as 30 percent, said a U.S. Commercial Services report.
Sales of access control devices make up the greatest portion of electronic security at 32 percent, said CASEL, with CCTVs constituting 29 percent, intrusion alarms and fire 15 percent each and monitoring 9 percent. (See chart below.)
Because of the perceived lack of security, alarm sales have really taken off; said Etcharran. There has been widespread adoption of sensors and magnets at doors and windows in residential cases. For alarms, she continued, sensors are the biggest components, the hottest products. "These are being used not only in private companies but also residential communities," she said. Typically, the systems involve an alarm being triggered; this is accompanied by a sound and then the alert goes to the local police station so that they can send a squad car or policeman to the premises. Additionally, human surveillance is also being used. "It is not about only one kind of technology."
Use of surveillanceCCTVs and camerasis happening mostly in the private sector as well as at most medium to high-end apartment buildings and residential communities. Residences, on the other hand, are using low-end, less sophisticated CCTV systems that are coordinated with human surveillance. "Biometrics," noted Etcharran, "is not yet a topic in Argentina because the lack of awareness regarding the technology is still too high. In addition, the initial investment is too high for most players. There is a lack of awareness regarding the long-term advantages so most people are hesitant about investing heavily in the initial stages even though they may enjoy a greater payoff later."
"When CCTV is used," said Etcharran, "I want to stress that it is always used with human surveillance. Most CCTV solutions are not high end, and many CCTV products are coming from East Asia." These, she added, can be incorporated into solutions by system integrators quite easily. "They are generally low-cost solutions that are not meant to, nor do they, last a long time. There are generally no warranties and no service. That is of less importance in this market than price, and that is true of all the Latin American markets for the most part. As long as they last a few years, that is fine and then they can be replaced with something else." While generally Asian companies are not operating directly in Argentina, she observed, their products are readily available at electronic retailers and supermarkets. "When it comes to high end in Argentina, only the big international companies that operate according to global standards are opting for the top lines."
Major customers of security products, said Mendes, include banks that want the best technology; this can only be provided by the big global players. CCTV surveillance, he said, is another requirement. Commercial businesses and residences are increasingly important as insurance companies may require that such systems be installed. Finally, corporations are using more access control not only for security but also for employee management, including time and attendance. An end-user breakdown, according to the U.S. Commercial Services, is roughly as follows: industrial and commercial facilities (50 percent), banks (20 percent), residences (20 percent) and government (10 percent), said Millet.
Argentine security service companies are also major end-users of electronic security products, but according to Millet, "Medium-sized firms generally lack high-quality electronic security equipment. Despite far greater price sensitivity, these firms are increasingly end-users due to the rapid rise in property crime in Argentina."
In 2005, according to Argentine customs officials, the nation imported $1.01 billion in CCTVs, $959.41 million in access control systems, $149.92 million in intrusion alarm systems, and $32.31 million in fire detection systems, for a total of $2.15 billion. Again, because imports categories are not always clear, much of this may not have direct relation to electronic security. Cesare pointed out that one major difference from Brazil is that there is a lot less smuggled product and parallel imports in Argentina.
When it comes to imported products by category, Argentine customs noted a slightly different percentage breakdown, with CCTV imports accounting for 46 percent of the total (compared with 29 percent for total sales), access control at 45 percent (compared with 32 percent of total sales), and intrusion alarms and fire at dramatically lower levels. This underscores the fact that much of these lower end products are manufactured locally. See the table below.
Imports of $149.92 million in intrusion detection products, including analog connection boxes and terminals, control panels, PIR detectors, sirens and batteries were purchased primarily through companies like Jose M. Alladio and Sons, Siemens, Famar Fueguina and Schneider Electricmostly from Spain, the U.S., Germany, Brazil and Italy.
In 2005, $806.98 million worth of CCTV products like combined input and output controls, transformers for sound and video recording and reproduction, TV receivers, video games, DVRs, video and sound transmission devices, and devices that reproduce signals other than sound and images were imported mostly through companies like Hewlett Packard, Epson, Aluar Aluminio Argentino, Ceven, Emilio Airoldi and Sons, Free, PR Arts Argentina and Stylus. Brazil was the No. 1 source ($247 million) followed by the U.S. ($126.45 million), China ($115.11 million), Hong Kong ($51.41 million) and France ($35.46 million). Domestic production (notably Electrofueguina SA and Fabrica Austral de Productos) was valued at $51.96 million.
Argentina also imported $204.27 million's worth during the same year in transmission devices and television transmission apparatus, cameras, CCTV cameras and domes, monitors and multiplexers. Major importers were Ford Argentina, Peugeot Citroen, Panasonic of Brazil, Audivic, General Motors and Toyota. The most important sources were the U.S. ($41.51), Brazil ($25.45 million), China ($18.62 million), Korea ($15.13 million), France ($14.85 million) and Germany ($12.27 million).
Finally, Argentina imported $32.31 million in smoke detectors and conventional control panels, addressable control panels and addressable detectors in 2005 through PST Industria Electronica, Sensormatic, Checkpoint Systems, Tellex, Getterson, Fiesa, Prosegur, Fuego Red, Kidde and Dr Imports Security Systems. The major sources were the U.S. ($15.45 million), Brazil ($6.32 million), Belgium ($1.89 million), China ($1.03 million), Spain ($960,031), France ($766,831) and Germany ($765,399).
Cons ider ing the sophi s t icated technology involved in electronic security products, said Millet, most tariff and non-tariff barriers are low, thus allowing the equipment to be quite competitive. "Argentine consumers," she observed, "tend to buy high value-added products and recognized brand names, particularly in electronics." Average customs duties are as follows: smartcards face a duty of 5 percent, proximity cards 0 percent, CCTVs 0 percent, residential security devices 16 percent, alarm monitoring systems 18 percent, sensors 18 percent, fire detection and prevention products 16 percent.
Where There's Smoke
The fire safety equipment sector market in Argentina was valued at approximately US$150 million in 2005. Local trade contacts, said Millet, estimate annual growth of 20 percent in 2006. Growth has been propelled by insecurity and increasing priority of improving safety in the workplace and private residences. According to Millet, U.S. manufacturers have a 40 percent share of the import market with Brazil, Canada, Australia and China entering the market aggressively with lower prices.
In addition, the Argentine fire safety market produces 40 percent of its goods, imports 50 percent and exports roughly 10 percent. Best sales prospects, in Millet's view, are high-tech fire and temperature alarms and parts; detection controls and devices of fire/gas and sprinkler systems and parts; fire electronic systems and alarms over cellular and wire-line telephone networks; indicator panels and signaling devices and parts; and industry specific systems, including equipment and software for automotive, banking, airports, ports, warehouses, mines, highways, utilities, hospitals and construction sites. See chart from Argentine Customs below:
Imports were equally divided between smoke detectors and conventional panels (including parts). PST Industria Electronica, Prosegur, Dr. Imports Security Systems, Getterson Argentina and Tellex imported mainly smoke detectors. Importers that focused on conventional panels and/or parts were Sensormatic Argentina, Checkpoint Systems, Fiesa, Fuego Red and Kidde Argentina.
U.S. companies, pointed out Millet, have a 41 percent market share for smoke detectors followed by Brazil with 12 percent, China 5 percent, and France, Hong Kong and South Africa 3 percent each. U.S. leads the market for conventional and addressable panels with 54 percent followed by Brazil with 8 percent, and China, France and Hong Kong with 2 percent each. Import duties are as follows: fire alarms (18 percent plus a 0.5 percent statistics fee), and ion-type alarm systems (0 percent).
Major end-user s of f i re safety equipment, noted a U.S. Commercial Services report, include industrial and commercial facilities (60 percent), government including prisons (20 percent) and private homes (20 percent). Insofar as technical standards are concerned, there are no specific standards required by the Argentine government for property fire safety equipment.
Argentina also imports an increasing number of CCTV, fire and burglar detectors, and alarms from Malaysia, Thailand, Taiwan and Korea. "Products imported from these countries are the lowest in price, but usually do not meet UL, DIN or ISO standards," said Millet. "In the past five years, there has been a growing trend to import parts directly from Southeast Asia and to assemble CCTV, cameras and alarm systems locally in order to offer significantly lower prices and profit from import laws and made in Argentina tax benefits."
Entering the Market
"We are new in Argentina," said Castaneda. "Before, we were handling business directly from our office in Taiwan. From the shows that we have attended and the people that we have met there, we understand that other companies, other competitors are doing better there than we are." EverFocus was a bit slow at getting into the market, said Castaneda, because of the economic collapse in 2001. "There was no economic or financial stability. Everyone wanted credit and that was difficult for us to provide." In the interim, she added, customers prepaid for their orders.
With offices in New York and Los Angeles, EverFocus management has also hired an independent representative, who has local representatives in Peru and Venezuela, from where the company covers Argentina and Brazil as well. The company's slow approach to these two markets stems from the fact that, "Brazil is difficult because there are a lot of tariffs and so it helps if a certain percentage of the product is manufactured and/or assembled in the country. Our operations there are not sufficiently large at present to warrant such an investment."
In contrast, she noted, it is much easier to import product into Argentina. "That said, we are finding the Colombian market a lot more interesting because of the strong demand and stable economy. There are a lot of kidnappings and drug trafficking there, which while unfortunate, do make for good business when it comes to selling electronic security products and systems."
According to the U.S. Commercial Services, it is essential to appoint a local agent or representative. Joint venture or exclusive distributorship agreements with local firms, said Millet, are typical ways in which firms enter the market and gain market access. Moreover, she explained, gaining market share and competing effectively depends on the following key points: participation in local trade shows, technical sales seminars, conventions, advertisements in the general press and specialized trade magazines. "Security shows have been a significant and effective tool in Argentina," said Millet. "There, potential clients and security consultants can appreciate the equipment's performance and operation."
She also explained that a competent, well-connected distributor or sales agent can significantly improve a firm's medium and long-term chances of success and increase the possibilities of being awarded bids. "An agent is generally aware of a sales opportunity before the bid has been announced and can not only persuade purchasing decision-makers that a given characteristic is required, but also provide important input for tender specifications."
There are no specific standards required by the Argentine government for property electronic security equipment, added Millet. "Electronic security equipment meeting U.S. standards is generally accepted in Argentina," she said, but there is a requirement to notify the police of all home and business alarms installed and connected to a command post. Argentine law, she continued, also mandates that banks have an electromagnetic alarm system connected either to a private central network or to the police stations. "The alarm system must have automatic signaling of codes destined to register robbery and fire calls in the alarm central office."