US video surveillance manufacturers face increasing Chinese competition

With the ability to offer low prices without compromising on technical specs, Chinese manufacturers of consumer video surveillance devices will outpace their US peers if market share boils down to a simple price war.

US manufacturers of consumer video surveillance equipment risk losing market share to their Chinese counterparts, which have able to compete on price without compromising on technical features.

Chinese video surveillance equipment makers accounted for some 5 percent of US market revenue last year, but high demand and supply in the China market could prove a "ticking time bomb" for US players, said Jimmy Dearing, IHS Markit's residential security analyst.

He noted that the US had enjoyed exceptional growth in the last five years, clocking an average double-digit annual growth to hit US$830 million in revenue last year.

Increased smartphone adoption had fuelled consumer demand for surveillance, Dearing said, adding that the mobile devices offered video surveillance makers a platform to develop their user interfaces and offer consumers access to their surveillance systems from anywhere. Demand also was driven by better wireless technology, mobile data coverage, and connection speeds, as well as cloud storage and analytics services.

The affordability of such equipment further drove demand, with camera prices dropping by 50 percent in the past three years, the analyst said. This, he noted, could pose challenges to some players in price-sensitive markets, where suppliers offering the lowest prices eventually would gain control.

In the US market, for instance, a consumer-grade standalone network video surveillance camera sold for US$95 in 2015. In comparison, the average selling price in Asia stood at just US$27, according to Dearing, who added that models sold at lower prices would still offer good technical specifications. In China, for example, a 720p PTZ standalone network camera with remote connectivity, night vision, motion detection, two-way audio, a free 8GB micro SD card, and cloud storage options was available at less than US$20.

"Should these Chinese manufacturers intensify their export attempts, this could present the current US market incumbents with a real problem," he said. "US suppliers are unable to compete at these prices because most of them actually OEM their product from a Chinese manufacturer to begin with. If the battle for market share ever came down to simple price war the Chinese OEMs would win, without question."

The analyst said this market scenario had yet to play out because the Chinese OEM players had been able to bypass the middleman in their domestic market, to sell directly to consumers via online marketplaces such as Alibaba's Taobao.

This would not be as effective in the US market where offline retail remained strong, Dearing explained, noting that few Chinese manufacturers had been able to place their cameras on US retail shelves. It also would take considerable time and investment for these players to build relationships as well as brand recognition in the US market.

With only major OEMs able to take on this gameplay, smaller Chinese manufacturers without the budget to establish local sales offices had turned to online platforms such as Amazon and eBay to peddle their wares. However, without local customer service, these players often were plagued with poor reviews, he said.

To ensure their competitiveness, US manufacturers would need to maintain a premium brand name, for instance, by improving the user interface of their mobile app or offering advanced features such as video analytics. This would enable them to justify the higher price-points if consumers perceived Chinese-branded products as lower quality, Dearing said.

They also should integrate their products with other popular home appliances such as home automation, security alarms, and entertainment systems, he said. In addition, they should concede that the average price would continue to dip and be prepared to adjust accordingly.