Safety and Security Market Overview

An Expert's View about Security in France

Posted on: 29 Dec 2011

Summary
France is the world’s fifth largest economy. With an annual GDP of USD 2.9 trillion in 2010, France is a top-ten trading partner of the United States and second largest trading nation in Europe behind Germany. In 2010, according to the U.S. Census Bureau, U.S. imports of goods from France were valued at USD 38.55 billion, and U.S. exports to France at $27 billion. According to the World Development Indicators database, France’s population of 62.6 million people has a per capita income of 42,620 USD. In 2009, France’s economy was hit hard by the economic crisis and its GDP growth rate fell -2.2 percent in real terms. France has been slowly recovering from the -11.5% trade slump of 2009 with a weak +2.5% recovery in 2010. While it is expecting similar, moderate increases in the upcoming years, it will continue to remain below 2008’s peak growth rate, registering a trade deficit with net exports lower than imports. The Governor of the Bank of France, Christian Noyer, estimates 5-10 years of rigid budgeting before France can completely recover from the 2009 crisis. Investment in safety and security infrastructure tends to follow economic trends.

The Safety and Security sector represents 22 different security segments in France, which can be loosely grouped into the following eight areas: anti-terrorism, electronic security, monitoring, guarding, physical security, health and safety products, fire security and cash in transit. The total market was valued at approximately 19.7 billion Euros in 2009 (latest available official figures), marking its first-ever recorded decrease in growth of -1.3% over the previous year. This decrease was repeated for 2010, with several difficult years ahead; approximately 30% of the sector’s turnover is generated by government tenders, but with the government looking to reduce budgets drastically, the prognosis for development is not strong.

Market Overview
Within the 22 French safety and security industry segments only 9 showed any growth at all in 2009. Those enjoying the highest growth rate were IT security (+16.8%), anti-terrorist equipment (+8.8%), professional education and training (+7.3%), home monitoring (+6.6%), and consulting and engineering (+6.1%). Segments such as retail theft protection, personal protection equipment, and industrial security equipment are in double digit decline, while the remaining sectors either experienced decline or very low growth. In fact, only 65% of companies operating in the security sector in France in 2009 turned a profit and 17% experienced losses. Additionally, 8.7% of the companies failed. In many segments there are simply too many players, and they are too small to compete in a more globalized economy; fierce competition coupled with low prices continue to drive a high number of firms out of business and the industry as a whole lost jobs.

The evolution of this market is closely linked to France’s general economic growth, which is weak. While over the last few years France has invested heavily in security infrastructure and has caught up with her European neighbors, that spending is now slowing, especially in segments such as monitoring or anti-intrusion equipment. Industry studies have shown that the sector has also suffered from a price war driven by competition from Asia over the last several years which has slowed growth in several areas. Furthermore, the global financial crisis negatively impacted the industry; with price renegotiations and the declining presence of multinational firms it took longer for decisions and investments to be made which further stagnated growth.

The safety and security market in France is thus divided into two distinct parts; a small number of relatively healthy segments and a large number of areas where the situation is morose. Due to the number of companies that are in failure or have already failed, acquisitions and buyouts appeared all over in 2010 but most notably in the video surveillance and residential security sectors. The birth of these security industry giants with their greater financial resources has deeply influenced the market and shut out many of the smaller players. The IT security segment is driving the market due to contracts for port, airport and other highly sensitive sites which require complex, sophisticated systems that integrate technologies from diverse origins.

Fortunately, there are a few bright spots; homeland security equipment demand is expected to be sustained at about 8-10% over the next few years - a far cry from the +20 % annual growth the segment has been enjoying, but nevertheless strong despite the contraction in government spending. IT network security should also remain dynamic as seen in its 16.8% growth just this year. Private investigations, home monitoring, security engineering and consulting, as well as alarm response are also experiencing growth due to their support by private enterprises and foreign firms. Professional training continues to remain a dynamic sector seen with its +7.3% increase in 2009 however its expected profits in the coming years are ambiguous due to possible sector regroupings which could ultimately delete this sector as a whole. The subsectors expected to suffer the most are guard services, executive protection, professional monitoring, locks, armored equipment and health and security products as prices are in a downward spiral.

Competition
In general, the commercial environment in France is favorable for sales of U.S. goods and services. Although competition can be fierce from both French and third country sources, local partners are readily available in most sectors and product lines. The marketing of products and services in France is similar to the approach in the U.S., notwithstanding some significant differences in cultural factors and certain legal and regulatory restrictions. U.S. equipment and security technologies are well known for their innovation and imports should remain strong because the domestic demand will only continue to strengthen.

For the first time, penetration of the security market by foreign companies has decreased. Its decline can be attributed to the number of large firms including but not limited to; ADT, Brink, ISS, and G4S that have relinquished some of their posts, mainly in the guarding sector, if not all and invested their business in other geographic zones, mainly Asia. By the end of 2009 foreign groups controlled less than 35% of the French market in private security, down from the previous year’s 40%. Despite the decline, these large multi-national corporations remain very active in the French security market compared to less than 20% overall seen just ten years ago. In fact, most of the 19.7 billion euro profit that the security market saw came from these larger enterprises. EADS Defense and Communications (Cassidian) led the pack with a profit of 917 million Euros. Morpho, Sperian Protection, Securitas France, and UTC Fire & Security France rounded out the top five.

The influence of these multinational firms in the private sector still remains high because many of the sub-sectors continue to be dominated by them through the acts of mergers and acquisitions. To name a few, Honeywell recently acquired Sperian Protection in the protective work wear sub-sector, Stanley merged with ADT France in March 2010, Vinci bought back Cegelec, and Securitas is now in control of Ferssa. Due to these large acquisitions, many of these companies are present in multiple sectors within the security market. For example, Securitas France is involved in training, guard services, mobile security, airport security, workplace and residential video surveillance and Morpho is involved in anti-terrorism, access control, and fire protection. Being active in multiple sectors is common for players throughout this market though the majority of those players are the largest firms. Due to this disparity of influence, the smaller companies have refocused their approach to specializing in specific products.

End-Users
In the mid to long-term, the residential market represents an opportunity for suppliers. Compared to the other EU countries, French homes are far less equipped; fewer than 10% of foyers have a video surveillance or alarm system. The lack of equipment in French homes is equally applicable to basic protective devices such as anti-intrusion alarms, fire alarms, or fire extinguishers, which until recently were not required by French home insurance policies and with which few French homes are equipped at this time.

Other major institutional end-users include the Parisian Airport Authority, Aéroports de Paris, as well as a variety of Ministries (Interior, Defense) and transportation infrastructure entities, such as the national railroad authority SNCF, and the regional authorities including the RATP, which is responsible for suburban rail and metro lines in the greater Paris area. These end-users purchase almost exclusively through public tenders.
In terms of ports, French ports handle more than 380 million tons of merchandise a year. Five of Europe's 15 busiest ports are in France. Marseilles is the leading French and Mediterranean port and in 2010 received 86 million tons of cargo. Le Havre is the N°1 container port in France and fifth in Europe, with an annual traffic of 70 million tons in 2010. Dunkirk just signed a partnership with Shanghai and is expected to also receive 70 million tons a year. St-Nazaire is registered strong at 31.1 million tons and Bordeaux just over 8.5 million tons. France enjoys an important feeder network from all its major ports to other European ports.

Two French ports, Le Havre and Marseille, have been designated as Container Security Initiative participants by U.S. Customs, and thus have been outfitted with the required cargo inspection equipment, which are owned and operated by the French Customs Agency.
Also in the long-term category are unmanned aerial vehicles (UAVs) for civil security applications. The market for UAVs has yet to materialize due to current rules and regulations regarding shared air space and other issues, but progress is being made on the European level. Once past the current legal barriers, UAVs will prove an essential tool for civilian needs as well as for future security and defense operations.

Read the full market research report


Posted: 29 December 2011

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