The role of private manufacturing companies

Nov 1, 1999 12:00 PM, ACCESS CONTROL & SECURITY SYSTEMS INTEGRATION STAFF

The $18 billion security products industry is forecast to grow to $27 billion by the year 2002. The majority of manufacturers are small, privately-held firms, encompassing mechanical, electronic and information security products. Although there are identifiable leaders, all three market segments are relatively fragmented, due in part to product diversity. Although private companies are not among the very largest manufacturers, a number are among the second tier of suppliers of mechanical and electronic security products.

Private companies, the majority of which have annual sales of under $25 million, typically do not have the resources to compete over a broad range of products. To maintain their competitive positions, these firms often specialize in single product types or focus on a range of products in a specific market. The trend is most pronounced among the smaller security products manufacturers, but it is true to some degree for even the largest firms, both public and private.

On a broad level, population dictates security product demand, and, therefore, the location of production facilities. Unsurprisingly, the top six states in terms of private security products facilities (California, Florida, Illinois, New Jersey, New York and Texas) are also among the 10 largest by population. Additionally, the four other most populous states (Georgia, Michigan, Ohio and Pennsylvania) also have large concentrations of security products facilities, each with more than 50 each.

* Mechanical Security Products Market. Several hundred public and private firms comprise a segment that is fairly mature, especially in products such as locks and metal doors. Largely because it encompasses so many types of products and because barriers to entry are not high overall, the mechanical security products sector is not overly concentrated. Private companies in this market typically specialize in single product types, such as locking devices, metal doors, fire suppression equipment or security storage equipment. The tendency to specialize is evident even among mid-size and larger private firms and follows a pattern evident throughout the security industry: Firms typically maximize their resources by concentrating on a limited product range.

* Electronic Security Products Market. Underlying projected gains will be a generally healthy economy and continuing fear of crime. Tending to limit electronic security product gains will be a weak building construction market. Further-more, increasing maturity in former high-growth products (i.e., smoke detectors and fire alarms) and specific markets (i.e., multi-unit residential housing and financial services) will restrain growth. Alarms are the largest single segment of the electronic security products market. However, this relatively mature segment faces the slowest annual growth among electronic security products. Less developed segments, including CCTV, will see larger gains. In the electronics sector, private firms offer a more diverse line of products than their counterparts in the mechanical security industry. This diversification results from significant overlap in the utilization of electronic security measures even within a single security system. Many private electronic security product companies, similar to their larger public competitors, diversify to meet customer demand for complementary products.

* Information Security Products Market. The shift of computing power from information centers to end-users has been, and will continue to be, an important factor underpinning projected growth of information security products. The shift is significant since distributed computing environments configured into networks make organizations more vulnerable both to internal security breaches and externally based threats. The information security products industry is part both of the broader security and of the computer or information processing sectors of the economy. Participants in this industry range from large multiproduct computer/communications companies to small specialized companies. Compared to the mechanical and electronic security industries, the information security market has a relatively small number of private companies. A number of private information security companies offer both hardware and software products which work together to provide a more complete system.

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