July 26, 2016 Market Securities

Volume 11 | Issue 1

Emerging as an attractive place to do business, Brazil presents many opportunities for electronic security companies.

After several years of fiscal struggle and infrastructure development, Brazil has emerged as one of the most rapidly growing and attractive business environments in the world. The economy is growing at a steady pace, interest rates are declining, and infrastructure is being upgraded to meet the demand of industrial growth. Since 1994, Brazil’s economy has gradually stabilized under the “Plan Real” with guidance from the World Bank and International Monetary Fund. In addition, energy and telecommunications industries have been deregulated leading to explosive growth in those and other industries. The Security Industry Association sees abundant opportunity in the Brazilian market for electronic security companies.
In its recent publication The SIA Brazil Security Market Report, the Security Industry Association provides an instruction manual for security companies who want to enter this market. The report opens with a thorough examination of the Brazilian economy, infrastructure and telecommunications systems that support industry in Brazil. In straightforward language, the report paints a realistic picture of the business environment, even issuing a caveat concerning energy supplies. Although there is an oversupply of power now, the report predicts that demand will outstrip supply by 2010 if the government does not invest in the diversification of the power matrix.

SIA’s report offers a road map through the sometimes difficult process of starting a business. Legal regulations and labor legislation are outlined, including employee- employer relations. The processes required for foreign direct investment are examined in-depth, including how to register
property, obtain credit, and enforce contracts. Tax rates are given on a state-by-state basis and contact information for government entities are also presented. Concentrating on the growing electronic security industry, the report attempts to give the underlying information needed to succeed in the Brazilian market.

Foreign investment increase
Since 1995, in an effort to encourage foreign investment, foreign investors and foreign capital have been considered equal to Brazil’s. Industries such as telecommunications, mining, transportation, and petroleum have been opened to foreign investors. Foreign nationals are permitted to purchase land in Brazil. (Land purchases near the borders require special registration.) However, foreign investors are required to register with the Brazilian Central Bank within 30 days of their initial investment and investments involving royalties and technology transfer must be registered with the National Institute of Industry Property. Because of these measures, foreign direct investment (FDI) in Brazil has increased to US$15.5 billion in 2005 and US$20.0 billion in 2006. FDI is expected to continue to increase by 10 percent in 2007, and by 9.5 percent per year through 2009.

The electronic security industry has also benefited from the influx of FDI as foreign companies such as Honeywell, Siemens, Johnson Controls and HID Global claim notable shares of the market for electronic security in Brazil. In fact, multinational companies have a greater presence than local ones, as electronic security equipment requires technologically advanced components typically not manufactured
in Brazil.

With a current cumulative average growth rate estimated at 16.2 percent through 2012, the demand for electronic physical security products is growing at more than twice the rate of GDP. The rapid growth of the electronic security market in Brazil has led to a highly complex and fragmented value chain, with a large number of participants. There are currently over 100 equipment manufacturers and a wide range of distributors and integrators.

Financial security
Since 2001, Brazil has experienced a rapid increase in the establishment and growth of financial institutions and in the consumer banking system. This has proven to be one of the major drivers for electronic security market growth. SIA’s report notes vast opportunities for security businesses in the banking sector which spent $3 billion (USD) on automation and new technologies in 2005, an increase of 10 percent over 2004. This sector accounted for 25.0 percent of the IT investments in the country in 2005. Brazilian banks are increasingly investing in business solutions which include; the digitization of documents, business intelligence solutions, digital certificates used for e-commerce, VoIP, enhanced security, electronic fraud prevention, and applications developed on open source technology platforms such as Linux.

The use of debit cards accounted for 28 percent of the total transaction volume in 2006. In Brazil, these cards are rapidly migrating from magnetic strip cards to chip-enabled cards under the Europay, Mastercard, Visa (EMV) protocol. Almost 90 percent of the terminals are EMV-compatible, which has caused fraud rates to decrease by more than 80 percent since the start of the migration process in 1999. The same cards are used at ATMs, which are monitored by video surveillance systems providing an increased market for that technology as well. The retail segment is also investing in automation, management, and logistics adopting smart cards for both in-store and Internet shopping.

SIA expects local and international electronic security companies to continue to target the commercial and industrial market segments in the short and medium terms, changing focus to the residential and service sectors such as banks, telecommunications, and database companies in the medium and longer term. SIA recommends the development of affordable integrated security solutions that include a high level of customer service, including specialized technical support in the local language. This service-oriented strategy will not only secure customers’ satisfaction and loyalty but also provide ongoing revenue opportunities.

Complete security solutions with combined applications such as EAS, alarms, video surveillance, and access control is also a recommended success strategy that can be established through strategic partnerships with local companies. In fact, as the market develops, SIA’s report predicts that foreign entrants will partner and form joint-ventures with local companies along the entire value chain. Partnerships with local companies will not only facilitate the ability to provide reliable and integrated solutions customized to clients’ requirements, but also gives foreign companies tax advantages.

Linda Yelton is manager of research at the Security Industry Association, a nonprofit international trade association representing electronic and physical security product manufacturers, specifiers, and service providers. The SIA Brazil Security Market Report details all of these market insights and trends by technology and market sector. It also profiles major players offering a SWOT analysis of the top 10 for each technology. For more information on this report, go to www.siaonline.org/research/index.cfm.

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