The phenomenal rise of the Chinese video surveillance industry is due to a combination of competitive pricing, innovative solutions and a burgeoning domestic market.
Even as recently as the late 1990s and early 2000s, I recall many in the CCTV industry referring to products from China as cheap and inferior, or at best ‘me-too’ products. There were complaints that Chinese imports were undercutting established manufacturers from Europe, Japan and the United States, many of which were household names.
But there’s plenty of evidence that this situation has changed and there’s less of the ‘cheap and inferior’ name-calling. It’s widely known that Chinese company Hikvision is now the largest supplier of video surveillance equipment in the world, with Dahua Technology in second place.
In fact, those two companies plus a third Chinese player – Uniview Technologies – account for almost 30% of global video surveillance revenues. Other major players from China include Scene Electronics, JEC Electronics, I-Vision, Sunell, Qihan, DLX Engineering, Golbong and Joyware.
Chinese companies entered the market with aggressive pricing to undercut the then established providers, so gaining footholds in international markets.
But as time went on, the quality of their products improved and they started to innovate – challenging some suppliers of more advanced surveillance systems. They were able to do this partly because they reinvested a significant portion of their revenues back into research and development: Dahua and Hikvision, for example, plough back around 10% of their respective turnovers into R&D.
So these manufacturers started moving up the value chain and expanded their distribution channels to include systems integrators. The leading companies have also expanded their offering well beyond just camera hardware to include video analytics at the edge, sophisticated NVRs, deep learning algorithms and video management systems.
‘Innovated in China’
As Dahua – whose mission statement is ‘enabling a safer society and smarter living’ – puts it, such companies are transitioning from ‘made in China’ to ‘innovated in China’.
However, as the global video surveillance equipment market is expected to grow only modestly, Chinese companies have taken other steps to drive growth and increase market share, such as expanding their geographic reach.
In 2016 Hikvision established four new subsidiaries in Kazakhstan, Colombia, Turkey and Dubai, as did Dahua in Canada, Panama, Poland and Hungary. And according to IHS Markit, vendors like Uniview and Kedacom are also busy extending their overseas networks.
The acquisition by Hikvision of intrusion detection company Pyronix in 2016 is part of a drive towards providing end-to-end solutions
Innovation is also becoming more apparent among Chinese manufacturers, with offerings including 4K over coax, smart building integration, parking solutions using ANPR and drone surveillance. In addition, the acquisition by Hikvision of intrusion detection company Pyronix in 2016 is part of a drive towards providing end to end solutions.
China is the largest and fastest growing market for video surveillance – the domestic market is forecast to be worth up to $20bn in 2018. The adoption of video surveillance systems in China is booming, driven by the country’s safe cities initiative (mostly by the public sector) and a burgeoning private sector.
There are huge surveillance installations in towns and cities – some complete with face recognition, behaviour analysis and ANPR. In the southwestern city of Guiyang, for example, images of all its 3.5 million residents are held by the authorities, and can be captured and detected on cameras equipped with face recognition. Cameras can also be used to estimate the age, gender and ethnicity of subjects.
The scale of these surveillance operations means that users need to find ways of interpreting and processing the vast amounts of data produced – hence the drive for deep learning technologies on the part of Chinese manufacturers.
Video analytics based on deep learning use a set of algorithms to enable systems to ‘learn’ from examples unsupervised or semi-supervised, and then apply that learning to future scenarios. The first installations in China of video surveillance equipment based on deep learning took place in 2016.
According to IHS Markit there are five big differences between the Chinese market – which is forecast to account for 46% of global professional video surveillance equipment revenues in 2018 – and the rest of the world:
- Supply of equipment is more concentrated in China, with the two largest suppliers accounting for more than half of the domestic market
- Shipments of deep learning products are much higher than in the rest of the world
- Domestic vendors account for more than 80% of Chinese sales
- Shipments of HD CCTV are proportionately lower in China
- The Chinese video surveillance market has grown 4-5 times faster than the rest of the world
The city surveillance programme has been driven by government policies and initiatives, including the 2005 Skynet Program to strengthen public security by installing cameras in key public areas, the completion of the installation of cameras in all key public places by 2020, upgrading existing cameras to HD resolution and ensuring all video footage from these areas is accessible to the authorities.
The Xue Liang program, launched in 2016, aims to connect all cameras installed in villages, towns and districts to a central surveillance platform from county to national level, and to share video across police forces, emergency services and other government agencies.
How can western CCTV manufacturers compete?
Both Dahua and Hikvision have gone for scale and economics and, according to market researchers Memoori, now dwarf their western competitors. High volumes and lower prices which most western manufacturers cannot compete with have made them a formidable force.
“There is no evidence to show that any western manufacturer has the capability to reverse this trend,” said a 2017 Memoori article. “None of the major video surveillance manufacturers have gone for scale through merger and acquisition that would have a major impact. This is a long-term weakness as commoditisation of cameras evolves.”
“Some [Western companies] have been able to resist the challenge of aggressive pricing, but they will have to keep up their spend in research and development if this strategy is to continue working”
But, says Memoori, western manufacturers still have the edge on quality and sophistication, particularly with enterprise systems. “Some have built up a strong brand and so far have been able to resist the challenge of aggressive pricing, but they will have to keep up their spend in research and development if this strategy is to continue working for them.
“Innovation to produce better products that deliver customer value propositions […] against much cheaper, less sophisticated products is the only solution. Otherwise there has to be some very significant mergers and acquisitions between western manufacturers so that they can build up volume in readiness for the commoditisation of video surveillance products.”
Western brands will also hope to benefit from geopolitical tensions when it comes to winning contracts in critical national infrastructure environments, where security trumps value.
The US in particular has taken a tough stance in restricting Chinese tech companies’ access to its markets – a position strengthened by Donald Trump’s America First policy.
Hikvision told Beijing-based Global Times that its products were deployed in 155 jurisdictions in full compliance with local laws and safety standards. There was no ‘backdoor’ allowing access to any footage, it insisted.
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When American companies are unable to compete with Chinese companies, they always have a good reason to restrict Chinese products to enter the market – national security. Very dirty strategy. F..k Y…