Security enjoys robust demand in Japan, but the industry is notorious for being closed to newcomers. A&S examines successful strategies for breaking into this market, where trust forms the bedrock of all business dealings.
The Japanese security market i s mature, wi th a number of established players dominating the market. This US$12.3 billion industry includes manufacturers, installers and security service providers. The market is opening up to foreign players, making it an exciting market to watch.
Security Market Overview
Three main sectors comprise Japan's security market, which has grown 10 percent annually. The first is security services, which represented 54 percent of the domestic market in 2005 to 2006. Next are manufacturers, who make up 40 percent, with installers forming 6 percent of the market, according to the Japanese Security Association.
The market breakdown by product category is dominated by hardware and surveillance, with 33 percent and 32 percent respectively. Access control and home automation products each have 11 percent market share, while alarms make up 4 percent . Finally, central management sof tware forms 9 percent of all products in Japan. Major Market Drivers
The Japanese market has a balance of supply and demand, which pushes it forward. On the demand side, users are extremely security-savvy, with businesses required to comply with Japan's Financial Instruments and Exchange Law, widely refer red to as ¨J-SOX〃 or the Japanese version of the U.S. Sarbanes-Oxley Act. More large buildings are under construction, necessitating integrated security systems to unite disparate systems.
To respond to these needs, vendors on the supply side offer more advanced technology and better application know-how. A number of new providers, both domestically and internationally, are also entering the market to serve user needs. To be more competitive, all vendors offer value-added services, making the Japanese market a dynamic one.
The Japanese market as a whole is solution-oriented. Products are rarely sold individually, making integration and open architecture paramount. Thus, local vendors compete on networked functions and intelligent performance, instead of tr ying to best each other for hardware specifications. Despite the strong trend toward networking, most system integrators believe that IP security forms about 10 percent of all Japanese solutions. The main factor hindering the adoption of IP solutions is price, which is expected to drop, allowing for wider adoption in the next two years. Top Verticals
Japan's vibrantly unique society requires security in places that exist nowhere else on the globe. Key market segments include pachinko or paola establishments, which use cameras to monitor patrons playing automated games. The prevalence of convenience stores makes them an easy target for vandalism or theft, making them a top security priority as well. As a center of commerce, banks are another major market segment, largely served by Secom and Panasonic.
Other market segments in Japan include public surveillance of crowded urban areas. Traffic and transportation monitoring are sometimes included with public surveillance cameras as well. Parking lots are a key vertical market for security players to watch for, along with healthcare.
Smart cards are deployed in a number of Japan's key verticals, including the public transportation sector which depends on railways, said Navin Rajendra, Frost & Sullivan Research Analyst. "More than 2 million commuter pass through the train stations every day. With this high volume of traffic, the contactless smart card has proved to be indispensable."
Other verticals which use smart cards are retail, with the "Edy" payment card accepted by more than 52,000 merchants, as of June 2007, Rajendra said. Mobile phones capable of contactless payment transactions, or ¨wallet phones,〃 form another ver tical market for Japanese smart cards.
Lastly, residential security for the wealthy makes mansions, or luxury homes, a target vertical for security providers.
Main Product Sectors in Japan
Japanese surveillance products are among the best in the world, with users demanding high-end products. IP or megapixel cameras are popular, along with mobile cameras and DVRs. As legacy equipment requires integration an estimated 80 percent of Japanese hardware is analog hybrid DVRs are also hot products. Such advanced hardware also comes with advanced solutions, including video analytics and video management software.
Major providers of high-end security products include Panasonic, Mitsubishi, Sony and Canon. Other players catering to the mid-range market are CBC and local system integrators. They have developed top-flight surveillance systems, including better video analytics, improved resolution for broad area monitoring and increased networking for IP solution.Access Control
Dominant products for access control are card systems. The first are contactless cards, where Sony's FeliCa cards rule the market.
"Some of the key top players in the Japanese smart cards market include Sony Corporation, bitWallet and TUV SUD," Rajendra said. "Sony Corporation has the largest share of the smart cards market through their numerous contactless projects in the transit domain."
Cards are also used to store biometric templates, reducing privacy concerns about templates being stored in a database. To manage time and attendance, along with other applications, management solutions are required for access control.
The major equipment suppliers include Mitsubishi, Azbil (Yamtake), National, NEC, Amano and Art . They are strongly related to the elevator and air conditioner industry, as they boast an extensive user database and partnerships with construction companies.
Japan's main security service providers are SECOM, ALSOK, CSP and SENON. Similar to system integrators, they combine access control and surveillance systems for end users. However, they do not limit themselves to domestic products, purchasing from overseas brands as well. The majority of access control solutions are deployed in office buildings, which use cards for time attendance.Biometrics and Intrusion Alarms
Biometrics is not new to the Japanese market, with the hottest technology being vein identification. Vein recognition uses near infrared light to detect red blood cells, forming a unique pattern for individuals. Korea is the main supplier of vascular recognition technology. While fingerprint is currently mainstream, there is a growing trend toward contactless solutions. Major biometric vendors include NEC, Fujitsu, Hitachi and SHIMON.
Intrusion alarms also enjoy strong growth as detectors for residences and offices. Alarm-related devices have became an essential part of total solutions offered by Takenaka (TAKEX), Optex, Atsumi, Selco and ALEF.
Distribution channels in Japan can be dividing into three categories. The first category is made up of big brands, such as widely-recognized Panasonic, Mitsubishi, Hitachi and so on. As the most traditional and strongest players, they dominate 30 percent of the surveillance market and a whopping 80 percent of access control. In this distribution channel, the only opportunities for overseas manufacturers are OEM and ODM partnerships.
The second category is channel companies, which include importers, distributors and system integrators. These are local companies who look for quality at reasonable prices, importing products from Korea, Taiwan and China. Several notable Japanese distributors include ITS for AV Tech, TBEYE for Samsung Techwin and G-Net for LG. While the non-Japanese companies enjoy strong brand recognition in most of Asia, Japan's market requires a local partner for these manufacturers to conduct business.
The third channel consists of newcomers to security, such as IT companies or solution providers from other industries. They usually have experience in system integration, along with their own sales channels and existing customer lists. One such company is Shell, which went from being an oil company to providing detection and alarm systems for residential applications. Another crossover vendor is Glory, a currency counter manufacturer that now provides biometrics as well. Some vendors expanded their offerings, like Itoki, a maker of office furniture which now supplies office security, and vault manufacturer Kumahira, which also provides locks and access control systems to banks. Companies for thi s channel category have established niches, so their security operations are not necessarily part of their core businesses.
Doing Business in Japan
The Japanese mindset for business is heavily based on trust, or the "Three R's." They are:
1. Recognition: Familiarity with a brand increases trust for users.
2. Referral: A recommendation on a company and its products means a great deal.
3. Reinforcement of faith: Having case studies to back up claims are enormously helpful.
Creating a positive brand image is important for a company's survival in Japan, as it reflects on quality, how durable products are and the creditability of suppliers. Therefore, it is imperative for foreign vendors to find good partners. Cases studies cannot be underestimated, as the real-life deployment of a solution makes a company that much more believable. A trustwor thy brand means cultivating an image of dependability, which is powerful for continued business relationships.