The security industry is undergoing a significant shift, moving beyond its traditional municipal and commercial focus to tap into the civilian market. After years of growth driven by government projects, the sector is now looking for new opportunities in the home and personal security space. However, despite the fast-paced growth, the civilian security market still faces major challenges such as market chaos and inconsistent standards—barriers that hinder its full potential.
The rise of “Smart Home†technology has created a new wave of opportunities for the civilian security market, much like how “Safe City†initiatives propelled the industry forward in previous years. According to Deng Wenjie, Executive Vice President of the Shenzhen Security and Prevention Industry Association, the civilian market holds immense potential, and it's only just beginning to take off. Similarly, Jiang Haiqing from Hikvision emphasized that civilian security products are still in the early stages of development, but their future applications are vast and promising.
This year, leading security companies like Hikvision (002415.SZ) and Dahua (002236.SZ) have begun expanding into the civilian market, signaling a growing trend. Even smaller enterprises have been targeting this segment for over two years, recognizing its long-term value. According to data from the Institute of Advanced Industrial Science and Technology (GGII), the smart home market was valued at around $42 billion in 2009, with an annual growth rate of 20-30%. By 2015, it was expected to reach 124 billion yuan.
With advancements in IoT, cloud computing, IPv6, and ZigBee technologies, smart homes are entering a period of rapid development. In 2012, the civilian security market grew by 20%, which significantly accelerated the deployment of security solutions. Experts predict that the growth rate could hit 30% in 2013, and by 2014, the market is expected to experience explosive growth as smart home adoption increases.
Hikvision’s Chairman Chen Zongnian believes that both governments and individuals are becoming more conscious of the importance of safety, creating new opportunities for security companies. In response, Hikvision has launched several consumer-focused security products and shifted its business strategy to emphasize service-oriented models, targeting small businesses and families.
The initial growth of the civilian security market started in first-tier cities, where residential communities became the primary application area. As the market expands, security companies are now pushing into second- and third-tier cities, and even rural areas are starting to adopt monitoring systems. According to Zhang Yanli, Chairman of Shenzhen Songda Technology, the residential market in first-tier cities remains the most active and competitive segment.
However, the security industry is highly fragmented, with large companies dominating over 70% of the market through government contracts. This leaves limited space for SMEs, forcing them to seek alternative markets. Deng Wenjie explained that government projects often require high technical and financial capabilities, which many smaller firms lack. As a result, they are turning to the civilian market, which offers lower entry barriers.
Government projects typically follow a BT (Build-Transfer) model, where a portion of the payment is made upfront, and the rest is delayed until project completion. Some projects can take up to five years to settle, putting significant financial pressure on companies with limited cash flow. This has led to issues with accounts receivable, even among listed companies.
In 2012, Hikvision reported a sharp increase in accounts receivable, reaching 1.597 billion yuan, a 68.46% year-on-year increase. While this is a common issue across the industry, analysts suggest it reflects broader economic challenges. Galaxy Securities analyst Zhang Li noted that while Hikvision’s ratio is high, it's not unique to the company.
Currently, the domestic security industry is divided into three main groups: a few top players with sales over 1 billion yuan, many mid-sized companies, and thousands of small firms concentrated in the lower end of the market. These smaller players are increasingly focusing on the civilian sector, where demand is rising.
Despite the growth, the lack of standardized regulations remains a major obstacle. Only certain sectors like transportation, finance, and fire safety have strict industry standards. In other areas, standards are either absent or not effectively enforced. This inconsistency limits product interoperability and creates confusion for consumers.
Zhang Yanli stressed that for security products to succeed in the mass market, proper standards are essential. Without them, system integrators struggle to use compatible products, and consumers face unnecessary complexity. Jia Ruichun, Director of the National Security Supervision and Inspection System Product Quality Supervision and Inspection Center Shenzhen Office, highlighted that the slow pace of standard development is due to rapid technological changes and a complex regulatory process.
Originally planned to be introduced by the end of 2012, national security standards were postponed multiple times. As of June 2013, no progress had been made, with some sources suggesting the launch might be delayed until August. A Shenzhen-based camera manufacturer revealed that the standard has been discussed for over six years, but implementation remains stalled due to conflicting interests.
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