Todays article is South Africa specific.

Comparing the IT sector to the Analog CCTV sector

I have taken a look into the health of our I.T. sector, and found many parrallells with that in the surveillance sector.

The IT sector started to see increasing business in the first few months of 2011, and then virtually ground to a halt in May&June 2011. That mirrors the surveillance market.

General recessionary view

Just like those in the surveillance sector, there is now wide spread concern of an imminent double dip recession amongst the I.T. Sector.

General economists are virtually unanimous in forecasting a slowdown in the local economy - some have indicated flags, suggesting a return to recession.


Surveillance is suffering the same ethos as IT when it comes to expenditure. large corporations are cutting budgets, and looking for cost savings and this affects the entire
economy. The IT sector is reporting numerous projects that have fallen behind schedule as corporations reign in spending.

One interesting parrallel is that the IT sector is seeing very little innovation - just like the analog surveillance market. In the CCTV world we are seeing some entry level recorders, being ramped up to real time D1 - but that's about it. The IT sector is keeping close tabs on emerging technologies like tablets and cloud computing, and the surveillance world is keeping close tabs on IP and HDcctv - but nothing is creating fireworks!

One divergence is that for the IT sector, the second half of the year is always tougher than the first, whereas in our sector, the second half of the year tends to be better than the first.

What could be behind the decline?

Overstocking

While the IT sector is battling to explain the cause of this sudden stagnation - some have hinted at a phenomena that often occurs in the IT sector - overstocking. We at TESC have always promoted a non stock strategy, although lately we had been pressurised into holding some stock volume. Many distributors have already placed orders , these orders are on the high seas - but they face a problem from overstocking. Over the past year, I can personally recount instances of surveillance distributors, or IT and alarm distributors wanting to enter the surveillance market - being duped into large stock holdings, and having to sell or dump these products into the market below cost.

Still on the overstocking front, the IT sector lists the pressure from vendors as a contributing factor to overstocking - a situation common to the surveillance sector. With South Africa joining the BRICS nations, and promoting itself as an emerging economy - many vendors believe this is a market where growth can be expanded and they have high expectations.

Natural Recessionary effects

Another causal effect suggested is that the economy was always going to suffer. The world cup merely cushioned the natural effects of the recession in some sectors, but did little to cushion the effect on consumers and other sectors. With the world cup out of the way - we are all left to face the natural condition that the consumer and other sectors had already found themselves experiencing. This translates into a poor economic environment , potentially yet to bottom out.

ZAR Exchange rate strength

The strength of the South African Rand has also played it's part. Despite increasing volumes in some cases, revenue has failed to increase proportionately. In the Surveillance sector this has been exacerbated by aggressive price competition amongst asian surveillance manufacturers. Distributors and service providers have had to double, or treble business volume- just to meet the previous years revenue.

New "routes to market"

Exacerbating the problem has been the paradigm shift in "routes to market" that are ocurring in the global market. Direct to user strategies have emerged, manufacturers and distributors have adopted various strategies which have confused the traditional "route to market".

The I.T sector and the surveillance sector have both responded in like fashion - which could lend credence to the overstocking asumption. In an overstocking situation - distributors are forced to sell off stock at cost or below, in order to convert holdings to cash. We have certainly seen a vicious price war in both sectors in the past two months.

Convergence

Strangely enough, the IT sector has been hit by the drive to convergence - almost as hard as the surveillance sector. The large network players with SLA's have had as much impact on the traditional It distributors -as they have had on the analog cctv sector. In this sense network is not purely related to IP - but the GSM network providers have also been making inroads into traditional data, voice, video and other telecoms sectors.

How will it all end?

Generally the forecast is that things will remain as they are for the rest of the year - very slow business volumes and nothing exciting as the economy limps along.

The IT sector is approaching the future with a twofold strategy of increasing effectiveness and squeezing value. Advocating a return to basics - Focus, give good service and protect and develop your relationships with your clients - so that others don't get a foothold in your business. If you've always been nice to your clients - you are going to have to be even nicer.

One spin off has been the demise of many smaller and some larger IT retailers and mergers between the larger distributors. We have also seen the larger surveillance players merging in various forms , in some cases merely merging logistics and procurement strategies.

The mergers in the surveillance sector have also had a serious impact on the smaller integrators and resellers, exacerbated by the agressive, at cost, and below selling off of overstocked suppliers.

Smaller players in the IT sector have approached the challenge of mergers, and agressive cut price retailing , by forming alliances with one another. TESC has been at the forefront of this strategy in the surveillance market through our network partner approach.

There are many parrallels between the current market conditions faced by the IT sector and the analog cctv sector. The future is sure to prove difficult in the coming months.




I hope this article re-inforces the need for us to strengthen our network alliance in the coming months.

Regards Brandon