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Physical Security Product Sales Growing at 7.2% Annual Clip

The total value of world production of physical security products at factory gate prices in 2018 was approximately $31.6 billion, Memoori reports.

LONDON — The global market for physical security products is forecast to increase at a compound annual growth rate (CAGR) of 7.2% over the next five years, according to a new report by Memoori.

The total value of world production of physical security products at factory gate prices in 2018 was approximately $31.6 billion, and the market is forecast to reach $44.3 billion in 2023, the report forecasts.

Memoori estimates that China accounts for approximately 31% of the world’s physical security business. It is now the biggest single country market for physical security products having increased its share by almost 50% in the last seven years.

Video surveillance equipment has been the largest contributor to China’s production, with the market growing rapidly through a boom in new construction and safe city projects in the public sector.

However, very little of this vast expanding market has been of benefit to western manufacturers as they have failed to establish a solid business base and significant market share in China, according to Memoori. Two Chinese manufacturers, Hikvision and Dahua, now have combined sales of $5 billion and the kind of scale that allows them to reduce prices to levels most western manufacturers can’t compete against.

There are now 14 companies with physical security product revenue over $1 billion (Memoori terms as Group A companies), which account for approximately $18 billion in 2018. Hikvision, Dahua and Axis Communications have given new impetus to this group, and the merger between Thales and Gemalto has produced a new mega identity management/biometrics company.

The net effect is that Group A companies have significantly increased their contribution, with the average sales revenue exceeding $1.2 billion, giving them 57% share of the physical security product market.

Access Control Market

Access Control remains a much smaller business than video surveillance and less competitive, but consolidation is creating a more competitive environment. With it comes the confidence to move forward and take up the challenge of embracing new technologies that will deliver better performing products, according to Memoori.

However if manufactures prefer to continue to be insular and proprietary, it will not be good news for continued growth, for traditional proprietary systems mean limited options for the customer and restricted possibilities for integration and scalability, the report states.

Cybersecurity Awareness

In 2018, stakeholders in the physical security industry finally got the message that the cybersecurity threat was capable of causing significant harm to their businesses.

Now one of the critical buying propositions of physical security is “What have you done to make this equipment less vulnerable to cyber attack”? The owners and operators of buildings, particularly those having large building estates need to know that manufacturers and installers fully understand what needs to be done to reduce vulnerability and make sure it is applied to their equipment and systems.

M&A Wave

The report also shows that in 2018 mergers and acquisition activity in physical security totalled $7.3 billion —  a 16% increase year over year — with indications of the start of a new wave of growth. The structure of the industry is still very fragmented with hundreds of small companies finding it increasingly difficult to compete and it looks inevitable that the general trend line of value and volume of mergers and acquisitions will continue upwards over the next five years, but at a modest growth rate, the reports states.

The average value of a deal increased from $100 million in 2010 to $150 million in 2015. This year (2018), adjusting for the non-physical security business of the Gemalto acquisition the average deal was around $160 million.

The number of deals in the range of $50 million to $150 million has increased and there has been more diversity across the different product types. Cross border acquisition accounted for 24% of the deals carried out this year.

For the most part over the past five years, the main driver has been the need to extend geographic coverage but this year acquisition of technology has been the main objective. Some 62% of the deals involved the acquisition of US companies with the vast majority being domestic affairs.

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