European and US organisations are recording stronger growth within local markets
The Chinese proverb, “A journey of a thousand miles begins with a single step” provides the security industry with the guidance for being successful in Asia. A single step is unlikely to yield significant short-term results so organisations need to think about a journey which will require strategy, investment and time.
Given that success in Asia Pacific is not guaranteed and may take time to cultivate, it is surprising when we see organisations placing Asia high on their list of short-term growth prospects. Whilst the market is undoubtedly big - the World Bank estimates that between 2019 to 2024 infrastructure investment will total $16.9 trillion and Asia will invest $9 trillion, or 58% of the total - few security organisations are demonstrating significant success.
WA analysis of the sales growth of leading Western security organisations between 2015 and 2017 revealed that sales grew slower to APAC, from a substantially lower base, then anywhere else. Whilst sales in Europe Middle East and Africa (EMEA) grew at 5.1% p.a. and Americas at 5% p.a., APAC sales ambled along at a mere 2.5% p.a.
There are variations to this pattern. Western cyber organisations, for example, grew sales by 8.9% in APAC and exceeded growth in the Americas (6.5%) and EMEA (4.7%) due mainly to Asia’s low cyber market maturity and a relatively low level of local expertise. This compares to significantly lower growth, and in some instances contracting sales, for physical security organisations.
Challenges and barriers for Western organisations can be significant. The two most significant markets, India and China, both have strong industrialisation programs that favour local suppliers over international vendors. This includes delays to programs to give local organisations the opportunity to develop the technology that is already available elsewhere. Even if international suppliers are selected, they are rarely the systems integrator and provide the local contractor with the skills and expertise to deliver on future projects. It’s not all doom and gloom. Organisations providing processors or high-end technology have been extremely successful. Intel has a strong position supplying to Video Surveillance manufacturers in Asia. Other Western firms providing high-end solutions are growing sales through providing digital services.
A strong industrialisation strategy has also led to increased competition across the region from an increasing number of Asian products. For a long time Japan was the main Asian provider of video surveillance through Sony, Panasonic and latterly Canon who acquired Axis Communications. Taiwan and South Korea companies also delivered a high number of units. This has changed with the growth of Chinese organisations such as HikVision and Dahua Technology, along with a host of other organisations, that are not only selling significant quantities of product to China, bit are exporting product and systems globally. Far from stopping at being security product manufacturers, the next generation of Chinese security organisations are forging ahead with solutions based around the Internet of Things and Artificial Intelligence.
Other barriers exist besides industrial policy and local competition. Geopolitics can get in the way for national projects, whilst organisations using local contractors and supply chains can struggle with bureaucracy, transparency and business ethics which can make it difficult for suppliers to meet their own compliance standards.
Given the strong headwinds some organisations may start to reconsider their Asian market strategy. This would be a mistake. Although Asia can be a challenging market, there are several instances of US and European organisations posting positive results following a long-term focus on the region with a country level strategy. Business ethics, regulations, channels to market and technology requirements differ by country and sometimes within country, requiring a local rather than a regional approach. The first step should be to understand the local market dynamics before deciding on whether the journey is worth the investment.