Hikvision And The Chinese GovernmentAuthor: John Honovich, Published on Dec 07, 2015
Recently, a series of gushing, congratulatory articles about Hikvision, from numerous trade magazines, have appeared.
There is a simple answer - Hikvision paid for it, as the smiling 'editors' shown in their group photo attest:
One of the editors / attendees attempted to answer 'what sets Hikvision apart?', declaring:
"What enabled a small, compression card maker to become the world’s leading supplier of video surveillance equipment in the span of a decade? The answer can be found in Hikvision’s intense focus around product development and being able to turn those ideas into a reality in short order."
No, there is a much simpler, more serious and significant reason - Chinese government ownership and Chinese government massive projects for Hikvision.
As Hikvision itself acknowledged to us in this letter, Hikvision is more than 40% owned by Chinese government entities, euphemistically known as 'state owned enterprises', with Hikvision noting:
"42% of the company is jointly owned by CETHIK Group and CETG No. 52 Research Institute, both are state-owned enterprises."
Indeed, CETHIK is the largest shareholder of Hikvision by far, with a reported 39.9% ownership itself.
In any country, in an industry where government is a major buyer of your products, having your largest shareholder being a government owned entity is a massive advantage. And in Communist China, it is a particular powerful one that Hikvision has greatly benefited.
Update: Hikvision's 2015 financial report (p. 56) confirms that the Chinese government is the 'controlling shareholder' of Hikvision:
Update: Hikvision has been promoted to a Communist Party Committee, providing enhanced controlled and monitoring from the party / government.
Hikvision is by, all accounts, the largest supplier of video surveillance products to the Chinese government and its various state owned or controlled entities. In particular, 'safe city' projects have proved to be an enormously lucrative business for Hikvision. The most famous is the $800 million dollar deal Hikvision announced in 2010.
Smartly, Hikvision has become more quiet about its ongoing safe city projects despite the fact that it is a major driver in their unprecedented growth including growing from ~$2 billion USD domestic sales in 2014 to ~$3 billion USD in 2015. The most recent public declaration we found from Hikvision was back in 2012, when they listed a who's who of Chinese large cities:
Hikvision has made, and will continue to make, billions of US dollars from Chinese government projects.
Not surprisingly, Hikvision likes to tell the story from the opposite angle. In their typical explanation, Hikvision is a scrappy, hard-working R&D outfit that, through sheer technical superiority, became a goliath. Hikvision routinely throws out how many thousands of engineers they have - 2,000, 3,000, 4,000, now 5,000+.
Undoubtedly, Hikvision has thousands of people in some form of 'technical' capacity. Indeed, when you are selling direct and supporting / integrating safe city systems with millions of cameras combined, you will need a small army of 'engineers' to do so.
That noted, Hikvision, compared to most of their domestic Chinese rivals, is a massive R&D operation. Most Chinese 'manufacturers' are primarily assemblers and not developing anything at all.
However, compared to Western surveillance manufacturers, despite the 5,000+ engineers, Hikvision is basically average. On the other hand, their cybersecurity track record is, bar none, the worst amongst surveillance manufacturers. Plus, their 4200 CMS / VMS software still contains various errors / flaws uncommon in Western VMS developers that have 1/100th the amount of reported 'software engineers'.
Very Focused and Ambitious
On the positive side, Hikvision continues to show how focused and ambitious they are. This is not a company that is content to leverage their government ownership on just government jobs. They have done an excellent job using their government base as a foundation for global expansion.
Equally importantly, they have shown that they are capable of transitioning from a mega-enterprise provider inside China to a lowest cost disruptive entrant in the rest of the world. That, in itself, is extremely difficult to manage and the fact that they have done that so well is extremely impressive.
Price as a Weapon
Hikvision has leveraged their massive domestic government profits and their huge manufacturing base (from Chinese projects) to sell 'overseas' at prices and with support that no one has yet been capable of matching. Radically low pricing is a a weapon that Hikvision can and routinely does to break into any market they desire.
Pretending to be American
And, as they expand, they have increasingly obscured their Chinese origins from their marketing message.
Hikvision's new tactic is to pretend to be American. They are determined to trick American customers into thinking they are an American company, routinely declaring:
"EZVIZ is a North American company headquartered in City of Industry, California"
"EZVIZ, a California-based Wi-Fi cloud camera and video surveillance solutions manufacturer... The company manufacturers Wi-Fi cloud cameras and video surveillance kits"
When in reality, it is a brand of Hikvision. Ezviz is as much a separate company as Hikvision USA or Hikvision Europe is separate from the parent Hangzhou Hikvision Digital Technology Co. Ltd.
Dominate the Market
Hikvision may very well soon dominate the global video surveillance market but it is important not to be fooled into ignoring the foundation of their expansion - the Chinese government.
UPDATE - $6 Billion Financing
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