Hikvision Chairman Tours With Chinese Government Boss

Author: John Honovich, Published on Sep 28, 2016

Two China Communist senior officials toured Europe this summer, one was Hikvision's Chairman and the other was his boss, SASAC Director.

In this report, we examine what they were doing and how Hikvision is controlled by the Chinese government through the SASAC commission.

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Comments (36)

Undisclosed Integrator #1

09/28/16 02:50pm

I wonder then, are Eastern-Europe, Taiwanese or South Korean better choices in terms of a more preferable price + security balance mix for sourcing electronic products in general and security devices in particular in the worldwide marketplace ??

- Eastern-Europe brands anyone ??: as in MicroTik routers (made in Latvia) or RUPTELA GPS (made in Lithuania), not the cheapest, but not expensive neither I think. Anyone concerned about historial geopolitical ties to mother Russia ?

- Taiwanese brands (i.e. ACTi, Synology, QNAP, AVTECH): does their U.S. friendlier/capitalist governments made them a more secure choice even though priced higher than mainland Chinese counterparts ??

- Korean brands (i.e. Samsung, LG, etc.): US-friendly government, supposedly no interference from South Korean government in their business decisions, but higher prices. But how much higher ? (has anyone done the job of comparing actually ? If yes, please share).

Discarded due to higher prices and less margin for integrators:

- Western Europe brands (i.e. Axis - Sweden; Milestone - Denmark): Not cheap.

- Japanese name brands (i.e. Panasonic, SONY, CANON, etc.): higher priced, less margin for integrator/re-seller, but aren't they made in Phillipines, Vietnam, Thailand anyway (so why the higher prices, japanese quality control) ??

Discarded due to geopolitical concerns:

- Chinese Generic OEM Brands (i.e. Shenzhen-based): cheapest but lacking in software usability, bugs, quality issues with RMA, and high defective rates, etc. Some may argue: if Chinese government could influence a big one like HIKVISION, they could certainly control any smallerOEM as well.

- HIKVISION / DAHUA (Hangzhou-based): cheap, but with potential back-door snooping from Chinese government (presumably; but commercially this is a bad choice and potential big PR disaster). Backdoors may be for legit purposes (cloud automatic firmware updates, etc.)

Just my two cents ; )

Undisclosed #2

In reply to Undisclosed Integrator #1 | 09/28/16 03:41pm

Maybe India in 5 yrs...

Avatar

Jon Dillabaugh

Pro Focus LLC | 09/28/16 03:32pm

I just don't get what part of this is offensive? Shouldn't it be the goal of every single international company to expand your exports? Why would that be shocking in any way?

As for the Chinese gov owning any firm, sure that seems odd to any capitalist nation, but it's the way they do things. It is legit in China to do so. It isn't like they are breaking rules doing so. So where is the offense coming from?

John Honovich

IPVM | In reply to Jon Dillabaugh | 09/28/16 05:14pm

Why would that be shocking in any way?

Hikvision, in the West, has repeatedly declared that they are private, independent of the Chinese government, even in the Times investigation most recently.

This is yet another proof point that they are not.

It is legit in China to do so.

It is also 'legit' in China to kidnap and beat people who say critical things against the government (like the recent well publicized Hong Kong booksellers example).

Just because something is 'legit' in China does not mean it is legit or should be accepted in the West.

To understand Hikvision's strategy and resources, one must appropriately factor in the role of the Chinese government.

Avatar

Jon Dillabaugh

Pro Focus LLC | In reply to John Honovich | 09/28/16 05:17pm

Are you seriously going to compare gov ownership of a company to kidnappings and beatings? That is quite a leap.

I guess I just don't see the Chinese gov as the boogie man that all others do.

John Honovich

IPVM | In reply to Jon Dillabaugh | 09/28/16 05:27pm

It is not just how the Chinese government handles those that criticizes them.

It is how the Chinese government controls the economy. It is 'legit' in China to ban American companies like Facebook and Twitter. It is 'legit' in China to hack American companies like Google. It is 'legit' to harm American companies to favor their own domestic companies.

Your mentality, as stated above is:

It is legit in China to do so. It isn't like they are breaking rules doing so.

This allows China to justify anything, even if their 'rules' are antithetical to rules in our country.

Avatar

Jon Dillabaugh

Pro Focus LLC | In reply to John Honovich | 09/28/16 05:49pm

And how has the US gov handled Snowden and Manning? I'm not too proud of that myself.

We have the Federal Reserve to print our fake money, to control our economy. China isn't the only currency manipulator.

And if you think that the NSA isn't #1 in cyber espionage, I've got a bridge to sell you. If the Chinese had a product worth copying, I'm sure we would have done it by now. However, we instead inject code into Xcode to distribute to billions of end users.

John Honovich

IPVM | In reply to Jon Dillabaugh | 09/28/16 05:59pm

The US does not own nor fund any video surveillance manufacturer. China does, ergo the economic and cybersecurity issues are much more germane to our industry / IPVM discussions.

Undisclosed #3

In reply to Jon Dillabaugh | 09/28/16 05:28pm

"comparison" will be done on daily/weekly basis

as long as it generates posts on IPVM

Agree? :)

Marty Calhoun

IPVMU Certified | 09/28/16 06:18pm

I am not complaining because another nationality in our world of worlds operates 'different' than we in the USA think is proper. Don't be confused and think this means I condone everything they are purported to do as the 'communistic party'. I look at HIKVISION for what it is ' a reputable, reliable, consistent and reasonable priced manufacturer of electronic security hardware' and how those qualities fit what needs we have.

Integrator's are Integrator's to make money, HIKVISION helps, you cannot deny that FACT.

John Honovich

IPVM | In reply to Marty Calhoun | 09/28/16 06:44pm

Integrator's are Integrator's to make money, HIKVISION helps, you cannot deny that FACT.

You know we agree that integrators make money with Hikvision. I am confused why you would imply that we are denying that. For example, our statistics that show this: Axis, Avigilon and Hikvision Markups Revealed

Now, as for this:

Integrator's are Integrator's to make money

I deny this, strongly, and in particular the implication that money is the only or main priority.

Integrators should do what is right for their customers certainly and, some would contend, for their country.

When your US enterprise customers find out that Hikvision cameras are made by the Chinese government and express concerns, I recommend not leading with "Integrator's are Integrator's to make money."

Undisclosed Integrator #4

In reply to Marty Calhoun | 09/28/16 10:18pm

I don't believe the reputation, reliability, and consistency have been called into question. It's the low pricing that has been a point of contention. Low pricing in and of itself is the primary ongoing concern, primarily because it is artificial. The artificially low price is directly prompted by the government essentially pouring ultra low interest capital into Hikvision. This can only continue so long before some bubble bursts in the Chinese economy prompting the government to focus their efforts somewhere else. If/when that occurs the $100 camera will fall more into line with their Western counterparts.

Regarding looming bubble bursts in China: It may be worth a read about the Chinese housing bubble economy via Google. Housing bubble bursts should still be in the memory of many of us.

I do think people are losing sight of the real issue by focusing on backdoors.

Avatar

Jon Dillabaugh

Pro Focus LLC | In reply to Undisclosed Integrator #4 | 09/28/16 10:21pm

And my position about the low pricing is that it benefits me and my customers. If the Chinese gov wants to subsidize the cost of the surveillance systems for my clients, who am I to say no? It's not like there have been accusations of slave labor or unsafe working conditions, a la Foxconn. Maybe that is John's next expose?

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Ethan Ace

IPVM | In reply to Jon Dillabaugh | 09/28/16 10:38pm

Hikvision's strategy is damaging the security market. It is intended to damage the security market by reducing (especially Western) competition.

This strategy is directly a result of Chinese government funding.

Absolutely, low pricing is a benefit right now to you and your customers, but in the long term (and I don't think it's even very long term), it's going to reduce competition, innovation, and advancement, and then prices bounce back up because China's government funding is simply unsustainable.

I'm not saying Hikvision is purely at fault in this situation. A lot of manufacturers had grown quite complacent making $400-500 "low cost" cameras, and that apathy is costing them now. But it's hard to fight a $1.5B+ subsidy, no matter how sharp your pencil is and how efficient you operate.

It's a perfect storm of negative factors which threatens to have bad effects for years.

Avatar

Jon Dillabaugh

Pro Focus LLC | In reply to Ethan Ace | 09/28/16 11:18pm

To be honest, what western brands remain that Hik is destroying? Avigilon? I think they are doing well. Arecont? Aren't they their own worst enemy? Bosch? They really don't play in this space anyways, so I don't see them taking any damage. Are their any other real western manufacturers?

My point is, there haven't been many western brands even before Hikvision started their gov funded spending spree. They are more likely killing the other Asian brands much more.

John Honovich

IPVM | In reply to Jon Dillabaugh | 09/28/16 11:23pm

Avigilon? I think they are doing well.

JD, do you read IPVM? ;)

Avigilon Stock Plunges On Bad Financials Q2 2016

I do think that Taiwan / Korean brands get hit harder than Western ones, but even 'big' Western brands like Axis and Avigilon are definitely feeling the impact.

Undisclosed #2

In reply to John Honovich | 09/30/16 09:04pm

JD, do you read IPVM? ;)

No, just write :)

Avatar

Jon Dillabaugh

Pro Focus LLC | In reply to John Honovich | 09/30/16 09:14pm

I guess my evaluation wasn't less about how their stock was doing and more so about how their sales were doing. In that article, I believe it states they had growth, but not enough to satisfy investors.

John Honovich

IPVM | In reply to Jon Dillabaugh | 09/30/16 09:19pm

Avigilon's stock is down so much because their growth rate has fallen tremendously and they are suffering net losses.

I appreciate you sharing your different point of view but trying to spin your way out of a clearly uninformed claim that Avigilon is 'doing well' is ungrounded.

John Honovich

IPVM | In reply to Jon Dillabaugh | 09/28/16 10:46pm

If the Chinese gov wants to subsidize the cost of the surveillance systems for my clients, who am I to say no?

JD, I think that is a fair point and I can understand where you are coming from.

I do, as Ethan mentions, believe that the ultimate intention / outcome is destructive to the entire industry, especially because it is ultimately going to fail, yet cause lots of issues in the meantime.

It's not like there have been accusations of slave labor or unsafe working conditions

We do not know enough about the working conditions of Hikvision factory workers, so could not comment one way or the other.

Undisclosed Integrator #4

In reply to Jon Dillabaugh | 09/28/16 10:47pm

iPVM Expose: Hikvision camera lenses made from the flayed flesh of minors!

Jon and Marty: "As long as I still can make my $15 profit on a $100 camera who am I to say no?"

Obviously I am being sarcastic, but at what point does the meager margins become no longer worth it?

Avatar

Jon Dillabaugh

Pro Focus LLC | In reply to Undisclosed Integrator #4 | 09/28/16 11:12pm

I laughed...

Undisclosed #2

In reply to Jon Dillabaugh | 09/29/16 03:13pm

I cried...

Marty Calhoun

IPVMU Certified | In reply to Undisclosed Integrator #4 | 09/28/16 11:17pm

Ha Ha.... Like I have said many times 98% of HIKVISION detractors are pissed off competitors, go figure?

John Honovich

IPVM | In reply to Marty Calhoun | 09/28/16 11:34pm

Like I have said many times 98% of HIKVISION detractors are pissed off competitors, go figure?

Marty, do you see the irony of your statement?

First of all, U4 is an integrator with a pulse and a credit card, which is all one needs to sell Hikvision. If this was a manufacturer making the statement, I could understand your reply but U4 is not.

Moreover, as a person who brags about all the money you make selling Hikvision (see above), do you not realize that your defense of Hikvision is even more financially biased than U4?

Undisclosed Integrator #4

In reply to Marty Calhoun | 09/29/16 02:45am

I get where you are coming from, I really do. If it sells, why not keep selling it? I take a different approach beyond just selling the cheapest video feeds possible.

For the record our accounts are too large to be approached by Hikvision and be taken seriously. Some are even subscribers on here. However, I am (unfortunately) called in on too many small projects that, going in, I know I have zero chance of winning. That is because Enterprise grade product does not scale downwards well. My employer, while not Simplex size, is still large enough that our overhead is too great. Even if it was not Hikvision it would be Geovision, Samsung or some other product pushing the margin below a level where I could remain employed.

For the most part Hikvision is not a threat to us, but that's not to say that could not change with the (Chinese subsidized) expansion of sales resources. Even if Hikvision does not approach the Enterprise level, I believe in fair competition based on product features, price, and quality of the integrator. Certainly, to our clients and our bottom line price is always a factor, but there are bars we will not limbo under for a dollar. Hikvision is disrupting that for all no matter which tier of product. This will, and likely has, stifle innovation in the industry as everyone attempts to sell the cheapest product for the lowest margin by sacrificing R&D to combat this threat. Right now I see the low end market sacrificing long term viability and commoditization of the product in favor of short term gains.

We have all had the argument with customers about why we are selling them a half dozen cameras installed at $8k when they point out they could go to Costco, buy a $800 kit, install it themselves and call it a day. Do you not see that you are now giving into that and making it your own business model?

I didn't spend the last decade pushing IP cameras to participate in the Worlds Cheapest Trunk Slammer competition. As your companies grow and your overhead increases you too will see the challenges of advocating low dollar, low margin product while keeping the lights on.

Undisclosed #2

In reply to Undisclosed Integrator #4 | 09/28/16 11:46pm

...made from the flayed flesh of minors!

But over there this is no big deal; and even McD's caters to the local taste with their uber popular "Flay o' Flesh" sandwich.

Avatar

Ricardo Souza

IndigoVision Ltd | IPVMU Certified | 09/29/16 12:25am

I´ll just sit here and wait patiently for that chinese bubble to burst, and let´s see if these guys can keep subsidizing Hik sooooooooooooo much.

Avatar

Tony Lagan

09/29/16 02:42am

I find it interesting that we are so critical of Hikvision. Having worked for Hikvision in a previous life I understand the pros and cons of the company and what they have done to the industry.

On the positive side they have commoditised the CCTV camera and made quality CCTV systems affordable for the masses. I have also worked for Sony and back then I could never understand how a Sony 4 Cif IP camera with a 2.8-12mm lens could cost 3 times more than a 1080P Sony Handycam with a massive lens and a whole lot of moving parts. The amount of places where you now see CCTV because it is affordable can only be a good thing for the industry as a whole.

On the flip side I do also agree that they have fueled the race to the bottom and in the end I guess 15% of $1000 is more than 30% of $200. It will be interesting to see just where it finishes up. Now that I am working for an integrator we have to sell a lot more cameras to make the same sales but cheaper systems see us getting a lot more opportunity to quote.

That said I am not so sure that Hikvision isn't making money internationally. We made very healthy profits in Australia (I guess I cant speak for other regions) and we were still a lot cheaper than our competitors. Having visited the factory in Hangzhou you realise the scale of the operation. They manufacture in excess of 100,000 cameras and 20,000 recorders per day. Far more than their competitors so their component costs are very low. Manufacture is for the most part done in house and it is pretty amazing to see the production lines working, they are clean and very efficient. They were for the most part a good company to work for. Their employees in China are looked after well and paid pretty well for Chinese standards. It will be interesting to see where they go from here and what the rest of the market does to keep up.

I have put a link to an article from a security magazine that visited the factory a year or two ago. It is an interesting insight from an outsiders perspective.

John Honovich

IPVM | In reply to Tony Lagan | 09/29/16 10:45am

We made very healthy profits in Australia

Tony, thanks for sharing. Can you elaborate on this? Do you mean gross margins or net margins? Do you recall what the gross margins were specifically?

Avatar

Tony Lagan

In reply to John Honovich | 09/30/16 12:42am

No Problems John, the Gross Margins for us were in excess of 50-60% for the most part as most manufacturers would look to make. When you compare this to the wages and rents/marketing that were paid we were delivering a nice profit back to HQ.

Obviously when it came to projects we could really get down and dirty but typically we didn't need to as the product was already cheap enough. We really focused in Australia and New Zealand in trying to build the brand up as we didn't have "drop our pants" all the time. I think we did a reasonable job of this. Our distributors were mostly happy as they made good profits also and Hik really helped them grow their businesses. Due to the nature of their jobs it helped their cash flow as it helped fill in the peaks and troughs nature of the projects business.

As I stated I cant speak for other western regions, but as I also stated I would not be sure that other regions are not turning a profit. They may be making reduced profits but their scale of economies are absolutely massive compared to most other manufacturers so they can sell cameras very cheap.

Just my 2 cents worth :)

Undisclosed Manufacturer #5

09/29/16 12:49pm

I have a strong feeling that at some point in the future China is going to be a big, big problem for the rest of the world.

I fear that at some point, perhaps not in my lifetime but I have kids and their future kids to think about, China will start to throw it's not inconsiderable weight around. And if they do and the rumours that won't go away of back-doors and the like are true, and their heavy investment and input into foreign infrastructure (the UK Nuclear Power Plant for one) we will have given a new global super-power enemy a massive advantage.

I have turned down an approach to go and work there in the past, because I could just not bring myself to do it in good consciousness - politically and socially.

Those that work there have sold their soul in my opinion, and those that continue to sell it (ignoring all of the negative buzz/whispers) are 'enablers'. Putting a quick, fast buck ahead of all good sense and reason.

This is just my opinion. I think I'm pretty level-headed and 'normal', just a concerned regular citizen.

...I certainly don't have to buy a copy of 'Catcher In The Rye' every time I see one, stand on doorways wearing a tin-foil hat ☺

Avatar

Jon Dillabaugh

Pro Focus LLC | In reply to Undisclosed Manufacturer #5 | 09/29/16 03:09pm

I get the fact that a competing manufacturer would take issue with the subsidies that Hikvision is getting. It obviously is unfair to your business.

That said, I see it from a different perspective. I see my buying Hikvision as me taking advantage of the Chinese partly paying the cost for my clients. How could that benefit the Chinese, other than market share, of course?

If I really wanted to hurt the Chinese, I would exploit every penny they are willing to throw away. Other manufacturers should tighten their reigns and do their best to cope in the mean time. But there will come a time when Hikvision will run out of subsidies. They can't burn cash forever.

Undisclosed Integrator #4

In reply to Jon Dillabaugh | 09/30/16 07:16am

I do not get why people are voting this unhelpful. This is a honest assessment and Jon is simply expressing his opinion. There is nothing inflammatory in there. Disagree might be appropriate for some, but unhelpful seems like a slap in the face and an attempt to stifle opinions.

John Honovich

IPVM | In reply to Undisclosed Integrator #4 | 09/30/16 08:06am

4, I agree with you that Jon's comment should not be marked unhelpful.

I actually think the opposite. Understanding the mentality of integrators like Jon is important to assessing the state of the market.

Avatar

Rumen Palmov

In reply to Undisclosed Manufacturer #5 | 09/30/16 08:34pm

It is really amusing that there are so many concerned citizens in America that just need to find the "enemy" which in their opinion casts a shadow over their nation's world dominance well being and future generations. This really sounds like an old-school Cold War era propaganda. The fact that so many people see a serious threat, and do believe that buying from Chinese government owned company means subsidizing some "evil entity" is not sound to say the least. And to turn the table, if I may, how can I be sure that by buying (put any western brand) I'm not subsidizing some arrogant, greedy shareholders which do not follow good practices?

As hard as it can be for many people in the West to swallow - there are other political and economy systems (e.g. the Chinese state run economy and "communist" party rule) that have their own historical reasons and context. And they don't necessarily mean pure evil, on the contrary - rather than being "unsustainable" (which is claimed by many), the government-run planned economy has managed to lift millions of people out of poverty in the last 35 years.

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