Russia Country Market
Insights and Opportunities
Security Equipment Sector
Overview: The Russian market for safety and security has great potential for rapid and steady development because of the country’s vast infrastructure, large area, number of potential threats and relatively high level of criminal. Before the financial crisis hit in 2008, the Russian market for safety and security systems had been developing rapidly, offering strong potential for U.S. companies. The economic downturn reduced the total volume of the safety and security market from $6.8 billion in 2007 to $5.6 billion in 2008, an 18% drop. Services totaled $4 billion, or 70% of the market, and safety and security equipment amounted to $1.7 billion. While annual growth in 2009 was flat because of the financial crisis, this result is considered positive since many other markets fell by 40-45%. However, the Moscow Safety and Security Show, held annually in February, one of the main safety and security events in Russia, lost almost half its exhibitors.
Regarding regional segments, 70% of the market is concentrated in Moscow and St. Petersburg, 17% in the Urals Federal District, 7% in the Siberian Federal District, and 6% in the Northwest Federal District. The rest of the market is divided among the Volga, Far East and Southern Regions. This order may change over the next two years as the 2014 Olympic Games will require substantial investment in safety and security infrastructure in the Sochi region. Thus the southern regions may take market share from Moscow and St. Petersburg.
The safety and security equipment market is divided into 4 main product segments: CTV and Video Surveillance; Access Systems; Fire Safety Systems and Perimeter Security and Control Systems.
In 2009, the Russian CCTV and access systems segments totaled just over $1.0 billion, or 60% of the equipment market. It is considered the most developed and competitive segment. The size of the security and fire alarm segment was approximately $314 million (18.6% of the equipment market), historically increasing 12% to 15% annually. This segment is expected to grow substantially in 2010 because of new government technical standards related to fire safety in public places. The recent fire at a night club in Perm, with 150 fatalities due to poor fire safety, drew the government’s close scrutiny to fire security issues in Russia and has created great potential for further growth of this segment.
Depending on the segment, the share of imported products ranges from 50% to 80%. Experts estimate that up to 80% of access control, about 50% of intruder and fire alarms, and more than 80% of CCTV systems are imported. Even locally manufactured equipment contains 60% to 80% imported components. Low cost solutions come from China, Taiwan, and Korea and are popular in Russian regions (outside Moscow and St. Petersburg). Premium systems are imported from the United States, Europe (Great Britain, Germany, France, Italy, and Poland), Japan, and Israel.
Government is the main consumer of products and services in this industry, with $355 million in 2009. Its share is predicted to increase as the government remains concerned about the terrorist activities and possible calamities related to the disintegration of the nation’s infrastructure.
While Russian government procurement is substantial, private entities, mainly in real estate, banking, retail, and oil and gas, are also important buyers and end users of a wide variety of security equipment. Currently, there are over 300 distribution companies working in the Russian security market. 65% of these companies are located in the Moscow and St. Petersburg regions.
Finding a local partner knowledgeable in the industry and experienced in procurement tenders would be the shortest path to successfully entering the Russian market. All Government purchases are effected through the electronic system called http://www.zakupki.gov.ru, a large web-based resource consolidating all procurement enquiries from state organizations and agencies. It operates only in Russian. It is essential to cooperate with a Russian company or to open a representative office inside the country to handle operations related to government tenders. Moreover, companies working in this business need steady and long-term relations with law enforcement and emergency agencies, which are the main consumers of the safety and security products.
Opportunities: The strength of the safety and security systems market is in its constant innovation and price competitiveness. New concepts and products may create market entry opportunities.
Participation in industry events is very important in this Russian market and it also facilitates successful market entry. There are several key events in the Russian safety and security industry. Before the crisis began, SST was the most popular trade show. In 2009 it lost many exhibitors, while major companies are looking closely at MIPS, a show that has received government support.
Interpolitex is a specialized trade show dedicated only to emergency and law enforcement; it is supported by the Ministry of Interior. Companies exhibiting at this trade fair are dealing closely with this Ministry and its law enforcement agencies; firms use it to show their loyalty to key accounts.
Industry specialists note that one recent trend is the convergence of information and safety and security technologies, which creates more opportunities for high quality U.S. technology exports. The IP-based CCTV segment is expected to maintain its growth in the future as it is an essential part of any security system. Color CCTV cameras have almost replaced monochrome units.
A new trend is comprehensive fire security alarms. The recent series of fires in Russia that have injured hundreds of people forced the government to implement major changes in the Fire Service, which is a part of the Emergency Ministry. Much attention is being paid at the moment to fire security in public places.
Russia still occasionally encounters terrorist attacks. The last victim of those attacks was Russian Railways. After a November bombing, the company announced a new project that involves installing a surveillance system all along the railways. The first place where the system will be installed is the line between Moscow and St. Petersburg.
One of the most important opportunities is the 2014 Olympic Games in Sochi. The total budget for the Games is about $13 billion. The cost of safety and security equipment is estimated at 5-6% of the construction cost, thus creating a $700-800 million market for safety and security products.
The best prospects for sales of U.S. manufactured hardware in 2010-11 are: IP-based solutions in various equipment segments, especially high end systems; Access control systems; Fire/intruder alarm systems, especially for public places; Integrated control systems; Biometric equipment, identifiers and readers; Antiterrorist equipment, especially bomb-detection equipment; and Anti-theft systems, radar detection, recording equipment (wireless). Experts consider that growth for these groups of products could reach 10-15% in 2011.