South African SIs face stiff competition

June 2014 Integrated Solutions

Local system integrators face a number of challenges in the current economic climate: Smaller, leaner operators erode profit margins, while the entry of IT companies into the fold poses an increasing threat.

According to Kevin Monk, technical director at Bidvest Magnum Technology, market conditions are exceptionally tough for local SIs. He says that not only are they operating in a depressed economy and competing against smaller companies as well as companies that traditionally operated only in the IT space, but end users are taking increasingly longer to make purchasing decisions.

He points out that clients are spending more time conducting due diligence when selecting both integrators and the security products. “The clients are asking for proof of employee skills and experience, combined with the requisite infrastructure.”

Ivan Naidoo, Jasco Security Solutions regional manager for Gauteng and the Free State, adds that the current state of the market is forcing companies to seek clients in markets outside their current core target market.

He says that it is often tempting to cut training spend when times are tough, but with the current influx of new technologies and the shift from analogue to IP systems, this is a foolhardy and short-sighted approach to operating cost effectively. Technology-enabled employees add to the attractiveness of one SI offering over that of a similar, less technically capable offering. However, this same differentiator also makes well trained and skilled staff a target for inter-company poaching.

Leo Slootmans, CEO of Firespec, says that remaining competitive hinges on a number of factors. Skills are the predominant selling point and the ability to remain flexible while providing accountability, also wins favour with clients. He continues that the company focuses on developing the relevant deep skills to find a custom solution to address a client’s unique set of circumstances.

Naidoo says that Jasco secures the services of technical people by offering them job diversity and a clearly identified and supported career path. Monk says that Bidvest Magnum budgets for training and upskilling and sells its employees’ capabilities and knowledge as part of its service level agreement (SLA) with clients. Career growth and skill retention is key to the success of a leading SI, and Bidvest Magnum continues to invest in their assets and footprint.

Naidoo underlines that differentiation comes from being able to offer clients value added benefits which include a technically capable core and the total-package-deal concept from design to maintenance. This is complemented by response time guarantees as well as the ability to identify and transfer trends knowledge to ensure that client operations remain sustainable.

Crossing borders

Bearing the demanding local market conditions in mind, is the future then focused on moving cross border to achieve the necessary margins? All interviewees agree that there is potential in both sub-Saharan as well as northern Africa. However, they caution that any SI wishing to be a successful player in these countries, needs to be completely informed about country-specific legislation. This is especially pertinent when considering the percentage of local versus ex-pat employees used in a project.

Naidoo says that it is also important to bed down and consolidate local operations before venturing cross border. Not only do companies need to be able to exhibit a portfolio of successful projects and satisfied clients, but they should also have the necessary familiarisation with local requirements and be able to compete against European and Asian companies. Pricing parameters and access to local resources are important factors in instituting a successful operation in these countries.

Monk believes that while South African companies are making headway in cross border countries, the thrust is currently from distributors rather than SIs. He acknowledges that there are huge opportunities for savvy SIs who are prepared to train up local people and enter into joint venture projects. He highlights the dire need for project management skills in many of the cross border countries, but admits that the entry of IP technology has made life much easier for infrastructure and IT companies to compete as these skills are currently available in most cross border countries.

He points out that there is generally a 15% holding tax with regard to the use of ex-pat labour in these countries, but that this differs in each country. He also cautions that there is a greater chance of being able to source and receive consumables for projects in SADC countries while the countries situated in central Africa are renowned for being more logistically difficult and thus more expensive to import consumables into.

Naidoo says that ex-pat companies are expected to be cost competitive while at the same time delivering exemplary service. He adds that it makes more economic sense to use local labour and resources as the cost factor is even more pressing than in South Africa.

Slootmans says that project planning and execution is critical, as excess time is prohibitively expensive. By developing local joint ventures, South African SIs are able to reinvest back into the local communities. He adds that Firespec would typically provide the project management aspect while transferring skills and knowledge for local partners to provide ongoing project maintenance.

Retaining local market share

In the face of so many challenges and increasing competition, how do local SIs survive? Slootmans says that staff retention needs specific attention. He believes that being a medium-sized company has its advantages as there are many opportunities to grow and make a meaningful contribution in a creative technical environment, where individual contributions are valued.

He adds that normal business fundamentals remain key – customer service and sustainable margins. “Good skills are more expensive and you need to get the balance right. You need a long-term plan and strategy to attract, retain and develop people. To mitigate the risks posed by the bakkie brigade, it is important to deliver true business value add and understand what real benefits you bring to the verticals you operate in. We have product champions and have instituted first, second and third tier level support.”

Naidoo says that the smaller service providers in the market operate on a lower cost base and compete on any available small to medium sized project. These smaller service providers, however, have neither the capacity nor the capabilities to tackle larger projects.

Monk says that as IP becomes more prevalent in the security industry, the smaller companies will be able to compete on increasingly larger scale projects as they partner with infrastructure and IT companies. This results in an erosion of margins for the medium and larger sized companies and unfortunately, once a client is lost to one of the smaller, leaner competitors, it is difficult to regain the relationship.

The transition of traditional IT companies to the security space is another pressing concern for local SIs. Currently, the feeling is that IT companies are more expensive than SIs, since they retain an IT skills set and they are often forced to subcontract the security component. In addition, they do not have the same knowledge and experience base of security systems exhibited by traditional SIs.

Slootmans is pragmatic about the solution to this perceived threat. He believes that not only should SIs focus on the benefits/advantages that they can bring to the table, coupled with their experience and skills related to the relevant systems, but they can also consider partnering with IT companies to offer a turnkey project service that leverages the inherent skills sets of both parties.

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