What Is The Distribution Model For Video Surveillance In China?

How much integration each of the three does varies depending on who you talk to. This is based on conversations with multiple people, but I believe Hikvision does more integration than the others, though Dahua and Uniview still will do some.

Also, even if they aren't the integrator of record on a project, that doesn't mean a factory engineer won't come out on site to do configuration or troubleshooting or training. That happens here but seemingly on a much less regular basis.

There are large national integrators. CSST is one. Huawei does a lot of integration as well.

There is no ADI or Tri-Ed or equivalent in China. Installers buy from the manufacturers or from resellers. But there's no overarching huge distributor channel. The Pacific Security Exchange in Shenzhen is essentially a flea market where you can go and buy surveillance gear, full of resellers. I expect there are smaller examples of that in other cities. Most large integrators are buying direct.

I don't know if the channel is protected, but I'd suspect most products are freely available. Things like LPR, parking assistance, speed cameras, or Hikvision's specialized VMSes are likely protected, as they fall under the "project oriented products" category.

Yes. Alibaba is readily available. Is it authorized? Not sure.

They were on display but I leave real comments on availability to Hikvision here. There's enough confusion on EZVIZ that I leave it to them to clarify. We asked them to comment but obviously it's the weekend.

Good questions.

I lived in China from 2001 to 2015 and worked originally in security integration (2002-2006), with Lenel (2006-2011), and started my own little thing from 2011-2014.

The Short Answer:

As with everything in China Hikvision or Dahua can be purchased pretty much anywhere - online, through various middle men, or direct. As such the price is nearly 100% transparent. It all depends on how fast you need it and how much kickback you want.

The Long Answer:

Hikvision and Dahua are both government funded/founded/partially owned organizations based out of Hangzhou(the "Silicon Valley of China). They both have had very similar strategies and distribution networks - with Hikvision primarily focused on the China market and Dahua primarily focused on International OEM business early - and now both expanding in both the OEM and branded business.

Originally both Hikvision and Dahua primarily provided analog capture cards to PC manufacturers, who innovated around the capture cards to create early DVRs - with some software companies creating their own software to interact with capture cards/DVR hardware. I want to say around 2006-7 they both began to push heavily into the IP market as China began conceptualizing their "Safe Cities" initiative.

China's integration market is quite unique - in that there are very few true integration companies in the market. Most "integrators" are simply middle-men who leverage their "Guanxi" (aka connections) to win business. As such, they are usually 2-5 man outfits that act more as reps than true integrators. Integration is executed typically by GCs (General Contractors) or ELV (Extra-low-voltage) contractors. This is due to project-based regulations that require low voltage work be executed by companies who have ELV licenses (not cheap to buy). My guess it's an effort to keep competition in the market artificially low and to ensure only medium-to-large size integrators have the ability to do large projects.

So in short - you have guys who are unfamiliar with technology implementing large systems. And everything in China is a bidding war. In the end the manufacturer ends up doing most of the support on a project. And with the tiny margins Hikvision can get locally vs internationally they decided to fire their entire distribution channel - I want to say in 2011-2012 - and hire 800 sales people overnight. This gave Hikvision the ability to go direct, keep their margins high, and cut-out the middlemen for the most part.

Dahua retains more of the standard distribution model (distributors, reps, etc). With Alibaba and the market's focus on cheap vs useful both Hikvision and Dahua primarily make their money on direct relationships in China. If you can believe it, they are both seen as premium level products in the China market.

The last numbers I remember from my time at Lenel for the market was that Hikvision had a 65% market share in China. Dahua had a 30% market share. And the rest of the market squabbled over the remaining 5%.

Without having been to China and participated actively in the market it's hard to wrap your head around - but basically there is no well-developed distributor/integrator/consultant network. Large projects are either exceedingly competitive or specified-to-death to ensure non-competitive bids. Even in large, open bids companies will often get together to determine who is going to win in advance and artificially set prices high or low depending on the end-user and the kickback arrangement.

Middlemen (aka "integrators") still do exist - but they operate on commissions paid from manufacturers/contractors, etc.

So to wrap up - if you're planning on getting access to Hikvision or Dahua and expect to be able to keep competition out....not happening. Hikvision will go-direct on any sizable opportunity, win the bid, and then subcontract out the hardware installation. Dahua less so, but the quagmire on any large project leaves virtually any opportunity open to competitors.

Hopefully that helps a bit.

Hi John -

Kickbacks in China are ubiquitous and executed in many, many ways. The most typical method being the end-user asks the vendor to quote a higher price than usual with built-in 5 of 10% markup. When the contract is awarded and the money paid the 5-10% extra is then put back in the pocket of the client.

Happens from vendors to distributors, distributors to integrators and integrators to end-users. Could also happen from Integrators to GC's and GC's to end-users. Understood cost of doing business in China.

What makes it even more interesting is that the Chinese government promotes corruption and kickbacks by turning a blind eye to it while companies are small but tracking these exchanges. When a company gets large enough to make an impact on the tax revenue for the government (be it local, provincial, or federal) they then get pulled in for a "discussion" about their past behavior and basically get told they are now going to be a) reporting to the government and toeing the line when told what to do or b) go to prison. Happened with Rio Tinto in 2010 which many "China insiders" saw as an impetus for Google leaving the market. Interesting related read here.

In regards to the profitability of Hikvision - profitability comes on large-scale projects (Infrastructure, Energy, "Safe-City", etc). On large-scale government projects profits have the potential to be huge as pricing is not the driving issue.

On the typical day-to-day projects (corporate, commercial, retail, etc) profits inside of China are small. Having worked with Hikvision I was told by an employee they had a 3% margin minimum on a sale. It was all about volume. As Hikvision took over its channel and started selling direct profits went up. My comment was more to the profitability of selling through the channel vs selling direct. Channel-driven sales profits are small.

Additionally - and this is a blanket statement that does not necessarily apply - most companies do not accurately report profits in China. Shocker, I know. Profits are heavily taxed in China - so companies prefer to remain lean. As Hikvision is for all intents and purposes a government owned company (Hangzhou Govt.) I wouldn't be surprised if the profitability reported is inaccurate. Governments are judged primarily by their ability to spur the economy. Having Hikvision report 25% profits makes the government look good. Accounting in China is creative...so..yah.

I wouldn't be surprised if most of their legitimate profits come from 2 main sources:

1) International sales channel.
2) Service agreements for large government projects listed above. I've heard that they will actually place software and hardware engineers on site for years at a time while a huge project is being deployed. That can't be cheap.