Hikvision Dedicates $1.5 Billion To Dominate Western Market
During our recent China trip, many companies inside China, including Dahua, lamented how Hikvision is destroying the video surveillance market, with aggressive continuous price drops to drive their expansion.
Last week, we exposed how Hikvision got $3 billion from a Chinese government bank but one question was not answered: How much of that money was going to be used outside of China? The answer: $1.5 billion.
In this note, we examine the impact of $1.5 billion dedicated for Hikvision's global expansion, their $10 billion goal and how they expect only a few companies will remain when they are finished.
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The prospect of an organisation that is effectively owned by the Chinese government having such a hold over the visual surveillance/security market does raise questions around ..... security.
I will say that Hikvision has the clearest and most confident plans out of all of the Chinese companies which is why I think they have been so successful. They are focused on doing what they want to do and being the best at it and they dont care what anyone else thinks. The problem that I see, is that most other Chinese manufacturers are focused on trying to be Hikvision or trying to beat Hikvision. Dont try to beat Hikvision, you wont win at this point, just focus on being your own company and be amazing at it, try to differentiate in either your products or services you offer. If you offer similar products, then be better at the service that you offer to customers. A simple lesson in survive and adapt.
"I will say that Hikvision has the clearest and most confident plans out of all of the Chinese companies"
I agree.
"which is why I think they have been so successful."
That certainly is valuable but I do not think it helps more than the Chinese government ownership. The government ownership and massive funding would make most companies quite confident and clear.
"Dont try to beat Hikvision, you wont win at this point, just focus on being your own company and be amazing at it, try to differentiate in either your products or services you offer.If you offer similar products, then be better at the service that you offer to customers."
I am not sure that this is possible for smaller Chinese companies. For example, Hikvision has hired 200+ NA employees already, they have a team of reps at every random show, event, booth, AV dealer, etc. And they sell at incredibly low prices. How do you beat that and keep the lights on, something that Hikvision need not worry about.
there will eventually be s high water mark for China Inc, then watch the nasty slide as 800 million peasants demand electricity instead of their work subsidizing China Inc market distortive activities
The more boring / non-movie plot is likely:
- Bankrupt the smaller companies (most everyone in Shenzhen, Taiwan, the OEMs in the West), make some of the mega conglomerates exit the market and focus on other electronics / offerings. When that happens, the reduced competition will ease price pressure, allowing stabilized or increased pricing.
- Get to massive international scale that allows for lowering average cost for sales, marketing, support, etc.
1 and 2 = profits.
Bankrupting the smaller companies seems well within reach, most of them had a bad, down 2015 and 2016 will almost certainly be even worse. By 2017, if Hikvision can keep the pressure on, we will see lots either (try to) sell out or close down.
Getting to scale is more questionable to me, mainly because once Hikvision is widely available in Western markets, many integrators will start pushing back against it. I think we will see this in the US in 2016. As dozens of integrators in a region sell Hikvision, markups will collapse on Hikvision and integrators will start becoming upset with them, looking elsewhere. In China, integrators are not really a concern, since the integration market is immature and Hikvision sells and supports direct routinely. In the West, this is going to be a lot messier.
I cannot see Western governments, particularly in these extreme times, allowing Chinese Government financed companies to dominate a particular market....particularly when that market is electronic surveillance that has a heavy bias towards internet/cloud connectivity......
I think HIK will dominate the retail and consumer/home market with it's products but those extremely high security verticals such as military, aviation, transportation, utilities (petrochem/oil/gas/electricity/water) will still attract specialist and niche product manufacturers that deliver a bespoke solution appropriate to the application rather than a 'fit from a range'......
Do not under estimate companies such as FLIR....they are aligning their focus on surveillance more and more and in the West, their brand image is strong - price is always an issue but if they address that then their status will hold strong against the likes of Far Eastern competition.
it is concerning that a company like HIK can dominate purely due to government investment, but I personally think they will dominate a certain sector of the industry and not the whole of it.
"I think HIK will dominate the retail and consumer/home market"
It's certainly heading that way.
I do think Ezviz is a potentially minefield. Hikvision is clearly working hard to obscure to consumers that Ezviz = Hikvision = Chinese government. If and when Western consumers realize that connection, a lot will be very concerned about using their products.
"Do not under estimate companies such as FLIR....they are aligning their focus on surveillance more and more"
That's an interesting point. They've certainly ramped up at the low end, with Lorex, who directly competes with Hikvision typically using Hikvision's Chinese rivals (e.g., Dahua). I am curious to see what they can do to stop Hikvision.
I do think that on the higher end of the market (certainly post DVTel acquisition) that FLIR might be more motivated and better equipped to push back against Hikvision there and make an issue of this with their entrenched government base.
shouldn't our government be protecting our markets?
Anyone buying or installing HikVision in the US is a pawn of the Chinese Govt pure and simple-I don't want to say what that makes a US citizen actually working for HikVision but you can figure that out for yourself.
...I don't want to say what that makes a US citizen actually working for HikVision...
An employee?
I think we could be opening Pandora's box. Is this much different than Pelco in their hay day? Hikvision still has to execute on all of this. There are a bunch of small nimble low cost Mg's in China that will still be around. Low cost mfg is moving to Vietnam and China will eventually have to deal with labor relations just like Taiwan, South Korea and Japan have had to.
Mfg Automation and product specialization will also keep Hikvision on there toes. On the Macro side of things - China has 15% top line Corporate tax rate - we (USA) have the highest corporate tax rate in the developed world and a broken banking system - anybody want to know how that impacts all of it?
There will be upheaval, but most of you will survive and thrive because we are the innovators of the world. The competition isn't going to simply lay down, it's not in our DNA. We will be fine.
Merry Christmas, Happy Holidays, and Happy New Year to all.
"Is this much different than Pelco in their hay day?"
Dennis, how is this like Pelco in their hay day?
Pelco dominated the market and set the standard for great support. I am willing to bet that the 1.5 bil is going to go heavy on VMS and support in addition to the cameras which it might be fair to say Pelco also ruled at one time.
Pelco never tried to lead on low cost or tried to drive down prices. Indeed, support costs a lot of money.
What's unprecedented about Hikvision is the combination of rock bottom prices and high end support, agree/disagree?
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I believe the term you gentlemen are looking for is heyday.
Dec 22 Hangzhou Hikvision Digital Technology Co Ltd
* Says plans to issue offshore bonds worth up to 600 million euros ($654.96 million)
Source text in Chinese: bit.ly/1mxqpEX