The impact of the coronavirus outbreak on security and life safety markets

Highlights

• Chinese markets for security and life safety equipment have already been significantly impacted by the COVID-19 outbreak. New construction projects throughout China have stalled, which has limited demand for equipment. In addition, the nation’s factories have struggled to manufacture equipment as workers have stayed in their homes, which threatens global supply chains.

• The market for fire detection and suppression equipment will likely be most impacted by COVID-19, as sales into mainland China were estimated to represent 78% of Asia Pacific revenues and 27% of global revenues in 2019. 

• The global market for intruder alarm equipment will be least impacted by the coronavirus, as Chinese manufacturers account for less than 10% of global alarm equipment revenues. Only 4% of market demand stems from end-users in China as manufacturers of intercom systems and CCTVs have integrated intrusion functionality into their products.

• The long-term ramifications of limited production capabilities in China could have severe repercussions on the market for biometric readers. However, the coronavirus outbreak has led the Chinese government to accelerate its implementation of facial recognition biometric systems in major transportation and institutional facilities.

• The potential spread of the coronavirus beyond China’s borders would have the most drastic impact on future forecasts for security and life safety equipment.

The coronavirus threat

The outbreak of the COVID-19 coronavirus in central China has emerged as a dominant headline in 2020. As of the publication date of this article, over 75,000 cases of infected individuals have been confirmed, with the vast majority of these cases originating in Hubei province. Health organizations have noted that the COVID-19 virus is highly contagious compared to previous coronaviruses such as SARS and MERS, and scientists have estimated that the mortality rate of the virus may be above two percent. For the past month, Hubei province has remained in a state of full lockdown as the Chinese government has imposed travel restrictions on visitors and restricted the movement of over 58 million residents. Local authorities in major cities such as Shanghai and Beijing have imposed their own stringent ordinances on their citizens in an effort to curtail the spread of the virus.

The economic impact of the coronavirus in China has already been extensive. The Chinese government extended a national Lunar Holiday to ensure that workers stayed home through early February, which left businesses closed throughout the nation. The holiday has since ended, but many employees have refused to leave their residences. Most Chinese corporations have responded with lenient policies that have encouraged employees to work from home, but a shortage of manpower has curtailed production throughout the nation’s many factories. Several offices and manufacturing plants have been shut down indefinitely. Construction projects have stalled as resources have been funneled to build emergency healthcare structures in Hubei province.

Early signs suggest that the market for security and life safety equipment will be less impacted than other markets for discretionary goods and services, as stringent regulatory requirements mean that sales opportunities will continue to arise. However, both regional demand and global supply will be disrupted by the ongoing coronavirus. Even if the outbreak is successfully contained by end of the fiscal quarter, the impact will lead to revisions of Omdia’s estimated growth for these markets in 2020. If the epidemic worsens, the coronavirus could act as a trigger in driving global markets to a premature recession.

Market demand is at risk in China

Over the past decade, the Chinese market has been a major engine for growth in most security and life safety equipment markets. The market for electronic physical access control equipment has consistently grown between 4% and 7% annually, reaching a market size of over $900 million in 2019. Today, Omdia estimates that the Chinese market for sales of equipment such as readers, control panels and electronic locks to support access control systems represents over 48% of sales into the Asia Pacific region and over 15% of global sales. Growth has been strongest among end-users in the utilities and transportation vertical markets, but nearly a third of access control equipment sold in China in 2019 supported private commercial office projects. The Chinese proportion of demand for entrance control equipment, such as speed gates and turnstiles, is similar to demand for access control equipment, with Chinese end-users representing over 16% of global demand. 

The market for biometric readers has been robust in China, as the Chinese government has invested substantial resources into comparatively expensive facial and iris recognition readers. The Chinese market alone represented over 33% of sales of biometric access control readers in 2019. Even in the wake of the coronavirus outbreak, demand for facial recognition readers has remained relatively strong as Chinese agencies have accelerated their installation in many buildings. Unlike either traditional physical access control readers or fingerprint biometric readers, facial recognition readers do not require prospective entrants to physically touch or interact with a screen or a device. Facial recognition technology has subsequently been viewed by the government as an ideal investment to reduce the spread of the coronavirus in highly congested areas such as mass transit hubs.

China constitutes an even larger percentage of global demand for fire detection equipment. In 2019, Omdia estimated the $1.1 billion Chinese market to comprise 78% of Asia Pacific and 27% of global market demand. Furthermore, Omdia projected a growth rate above 4% for fire detection equipment in China in 2020, which is well above the global average. If China experiences a protracted coronavirus epidemic throughout the year, the fire detection market would be at greatest risk of a severe downturn.

Meanwhile, global market demand for intruder alarms will experience less risk so long as the impact of the coronavirus is limited to China. In 2019, China and Hong Kong were collectively estimated to account for less than $145 million of professional and MSO intruder alarm revenues. This figure constituted only 27% of Asia Pacific revenues, and less than 5% of global revenues.

Omdia projected that Chinese demand for intruder alarms would have declined in 2020 even before the emergence of the coronavirus. The emergence of comprehensive video surveillance systems in China has led CCTVs manufactured by domestic companies such as Hikvision, Dahua and Xiaomi to usurp the traditional role of intruder alarms in Chinese security systems. Projects in the residential sector have also increasingly relied upon the installation and use of intercom systems as intrusion control panels. Finally, regulatory pressure from the Chinese government has limited sales opportunities for Western suppliers and favored less expensive alternative product offerings from domestic vendors.

Reduced supply could limit global sales opportunities 

Fear of contracting the coronavirus has led many Chinese workers to remain at home, which has sparked labor shortages and production delays throughout the country. None of the major Chinese manufacturers are headquartered in Hubei province, but domestic suppliers such as Hikvision, ZKTeco and Dahua have been impacted by local restrictions that have encouraged employees to work remotely. Generally, multi-national corporations with facilities in China have acted even more cautiously than their domestic counterparts and have been even more accommodating of their employees. As of February 20^th, working conditions have not returned to normal and most manufacturing facilities remain understaffed.

The effect the coronavirus will have on the global supply of security and life safety equipment will largely depend on just how long workers remain in their homes. If the situation in China stabilizes by March and factories resume operations, the impact could be comparatively minimal. Domestic Chinese manufacturers comprise less than 13% of the global market for access control equipment, less than 11% of the market for entrance control equipment and 9% of the market for intruder alarm equipment. Furthermore, fears of a trade war between the United States and China have led many American suppliers to cautiously stockpile products and components manufactured in China. These vendors will have sufficient supply to support sales for the next several months.

The access control market does face a couple unique potential challenges that could impact supply chains. First, a disproportionate percentage of the biometric readers market (nearly 25% of all biometric readers and over 33% of all facial recognition readers) are produced by domestic Chinese manufacturers. Omdia expected biometric readers to be the fastest growing reader type in 2020, with double-digit growth rates in many vertical markets, and supply of biometric readers may run low if Chinese factories underperform for an extended period of time. A large proportion of the Asia Pacific market for access control equipment is also supplied by South Korean, Japanese and Taiwanese vendors such as Hitachi, Mitsubishi, Secom, NEC Electric, Suprema and Union Community. If major coronavirus outbreaks occur in these nations, resulting shortages could impact small and mid-sized projects globally, as smaller end-users tend to install the less expensive products offered by many of these companies.

Success or failure in containment will have far-reaching consequences

Given the rapidly evolving nature of the coronavirus threat, it is premature for Omdia to commit to specific quantitative forecasts of the impact of COVID-19 at this time. In 2003, the SARS virus was successfully contained after less than 8,500 infections over a seven month period. If it takes seven months or more to similarly contain COVID-19, the new coronavirus’ higher transmission rates and longer incubation periods could result in a much greater and more disruptive economic impact. However, there are also reasons to be optimistic as COVID-19 has sparked aggressive responses by governments and medical agencies.

The economic impact of the new coronavirus will likely be dependent on just how far the virus spreads from its origins in Hubei province. If the virus continues to remain geographically constrained to central China, the Chinese market will be affected but a broader global impact may be averted. If the virus spreads and becomes a global epidemic, COVID-19 could spark a global recession. Subsequently, developments in nearby Asia Pacific countries with higher risks of outbreaks, such as South Korea and Japan, will play a critical role in Omdia’s future market projections later this year.

Access Control, Fire and Intruder Alarms research from Omdia

Get a complete view of the market with our essential research on fire and security equipment, services and vertical applications across access control, fire detection and suppression, counterterrorism and more.  Available through a series of annual intelligence services and individual reports, Omdia analyses global markets for access control, fire detection and suppression and intruder alarm equipment with base year totals and five-year forecasts in detail; for example over 40 equipment types across 15 industries and 35 sub-regions just for access control. Research also includes analysis of significant trends, threats and opportunities for growth affecting the markets, plus market briefs during the year on key industry topics, such as sub-regional deep dives into specific country markets.

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