Examining Pelco's Expansion into Asia / Latin America

Author: John Honovich, Published on Aug 31, 2009

Pelco is expanding its operations in Latin America and Asia with the acquisition of its manufacturer representatives for these regions, Crockett International.

This is a different approach than common in the US. While Pelco sees this as an improvement for the international market, Pelco is continuing the traditional model inside the US. In an interview, Pelco stressed their commitment to manufacturer representatives and the traditional security channel for the United States. 

With the recession and forecasts of Asia/BRIC countries driving economic growth over the next few years, expansion in these regions may be key to Pelco's own growth.

Background

Pelco currently generates about 2/3rds of its revenue from inside the United States and 1/3rd from the rest of the world.  Even though only 1/3rd is from outside of the United States, given Pelco's overall size (estimated $600 Million USD revenue), Pelco's international business alone is nearly as large as Axis overall.

Inside the United States, Pelco, like most security manufacturers, uses manufacturer representatives. Each manufacturer representative is assigned a geographical region. Pelco has 16 total manufacturer representatives listed inside the United States. Each manufacturer representative supports integrators and dealers within their territory on specifying products and designing systems. The integrators and dealers buy from distributors and the manufacturer representative is credited for those purchases.

Outside the United States, Pelco used a mixture of direct sales and manufacturer representatives. See a listing of Pelco's international manufacturer representatives. Pelco reports that Crockett started originally in the China and Signapore markets. Crockett than expanded into many other Asian and Latin American territories over the years. With the acquisition of Crockett, the approximate 90 employees of Crockett who acted as independent representatives are now direct Pelco employees.

One specific difference between Crockett and typical US manufacturer reps is that Crockett had a very limited line card - doing 90-95% of their business on Pelco products. By contrast, in the US manufacturer reps often have 5 - 10 lines and some of them can be moderately competitive (though the manufacturers attempt to minimize this).

Rationale for the Acquisition

Pelco offered 2 main reasons for the acquisition:

  • International buyers prefer having sales and support conducted by direct employees of the manufacturer. Having an independent but related 3rd party was often found to be confusing and less attractive.
  • Direct resources more aggressively into the Asian and Latin American markets. With Crockett as an  independent company, Pelco was limited in how much they could grow sales operations in these markets. As a unit of Pelco, Pelco can now directly invest and increase the rate of expansion of employees and sales efforts.
Both make sense. The announcement mentioned that this was a merger. According to Pelco, this refers to the merging of Crockett's employees with Pelco's. It is not a merger in the common American usage of similar size companies joining. This aspect can be confusing.

Secondly, Pelco reports that Crockett is not an integrator (the wording on Crockett's website can leave that impression) and that Pelco would continue to work as it has previously with local dealers and integrators in those countries.

Competitive Impact of this Move

Pelco's focus for growth into these regions is the high end of the market. In our interview, Pelco was quite clear about this. Pelco estimates that they already have 20-25% of the high end market in Asia and Latin America (this would work out to be about 7% of the total market - assuming that the high end was the top 30% of the market). Given their approximate sales volume internationally, this seems realistic. 

The fastest growing markets in Asia and Latin America tend to have significantly lower GDP per capita than the United States and lower price thresholds for video surveillance equipment. For instance, while a $250 USD camera would be mid-range for the US, in many Asian and Latin American markets, the required price point would be significantly lower.

While Pelco has some entry level or budgets products, it has never been focused in these segments and would have difficulty competing with low cost focused producers for the lower end of these markets (it is challenging enough for Pelco for the low end of the US market).

As such, this expansion is likely to focus on increasing their market share in the high end of these markets. Given that these countries have a lower adoption rate of IP cameras than Europe or the US, Pelco's focus on building hybrid systems that integrate cleanly with analog cameras may be an especially good fit.

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