A Survey of the Security Industry in Europe V0.5
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Economics of Security Working Paper Series Carlos Martí Sempere A survey of the European security market February 2011 Econo mics of Security Working Paper 43 . This publication is an output of EUSECON, a research project supported by the European Commission’s Seventh Framework Programme. Economics of Security is an initiative managed by DIW Berlin Economics of Security Working Paper Series Correct citation: Marti, Carlos (2011). “A survey of the European security market”. Economics of Security Working Paper 43, Berlin: Economics of Security. First published in 2011 © Carlos Martí Sempere 2011 ISSN: 1868-0488 For further information, please contact: Economics of Security, c/o Department of International Economics, German Institute for Economic Research (DIW Berlin), Mohrenstr. 58, 10117 Berlin, Germany. Tel: +49 (0)30 89 789-277 Email: [email protected] Website: www.economics-of-security.eu Economics of Security is an initiative managed by DIW Berlin WORKING PAPER 43 A survey of the European security market (version 0.5) Carlos Martí Sempere Ingeniería de Sistemas para la Defensa (Isdefe), Beatriz de Bobadilla, 3 Madrid-28040, Spain WORKING PAPER 43 Foreword This document synthesizes the results of the research made on the European security market. It deals with questions of interest regarding the provision of security goods and services for protecting society from terrorism and organised crime. It explores issues such as market revenues, demand and supply, industrial capabilities, technology, research and development, innovation, business strategies, competition as well as market structure, agents’ conduct and economic performance. The research has been based upon desk analysis of open source information related to the security market. Economic theory and critical analysis has been applied to understand the gathered information, derive knowledge, point out key issues and assess trends and drivers that will likely shape the sector’s future. The study is the outcome of the working package number 5 included in the research project A new Agenda for European Security Economics (EUSECON). This project with code number 218195 has been financed by the European Commission within the 7th European Research Framework Programme. The task has been performed by the company ISDEFE according to the scope and work plan described in the EUSECON proposal. The author wishes to express his appreciation to all the individuals that have provided input and valuable comments to this study, including anonymous referees. Any flaws or omissions contained in this document are solely the responsibility of the author. WORKING PAPER 43 Index I. INTRODUCTION ......................................................................................................... 1 OBJECTIVE OF THE SURVEY ................................................................................. 1 SCOPE OF THE SURVEY .......................................................................................... 2 SURVEY APPROACH ................................................................................................ 9 DOCUMENT DESCRIPTION .................................................................................... 9 II. FACTS OF THE SECURITY INDUSTRY .............................................................. 12 GOVERNMENT EXPENDITURES ......................................................................... 12 INDUSTRY REVENUES .......................................................................................... 16 EMPLOYMENT ........................................................................................................ 19 EXPORTS / IMPORTS .............................................................................................. 19 MARKET SIZE TREND ........................................................................................... 19 THE WORLD SECURITY MARKET ...................................................................... 20 MEMBER STATES INDUSTRY .............................................................................. 21 RESUME AND CONCLUSIONS ............................................................................. 23 III. BASIC MARKET CONDITIONS ........................................................................... 25 DEMAND SIDE ......................................................................................................... 25 SUPPLY SIDE ........................................................................................................... 47 RESUME AND CONCLUSIONS ............................................................................. 57 IV. MAIN MARKET SEGMENTS ............................................................................... 58 PREPAREDNESS ...................................................................................................... 58 INTELLIGENCE AND SURVEILLANCE ............................................................... 59 PROTECTION ........................................................................................................... 91 INTERDICTION / CRISIS MANAGEMENT .......................................................... 99 RESPONSE AND RECOVERY .............................................................................. 100 FORENSICS ............................................................................................................. 105 RESUME AND CONCLUSIONS ........................................................................... 106 V. THE ROLE OF THE GOVERNMENT .................................................................. 108 GOVERNMENT AS ENTREPRENEUR ................................................................ 108 INDUSTRY ASSISTANCE AND R&D FINANCING .......................................... 108 LARGE PURCHASER ............................................................................................ 109 REGULATION ........................................................................................................ 109 RESUME AND CONCLUSIONS ........................................................................... 116 VI. MARKET STRUCTURE ....................................................................................... 118 BUYERS AND SELLERS ....................................................................................... 118 PRODUCT DIFFERENTIATION ........................................................................... 119 ENTRY CONDITIONS ........................................................................................... 120 MARKET CONCENTRATION .............................................................................. 125 IMPORTS ................................................................................................................. 128 RESUME AND CONCLUSIONS ........................................................................... 129 VII. MARKET CONDUCT ......................................................................................... 130 PRICING BEHAVIOUR .......................................................................................... 130 PRODUCT STRATEGY .......................................................................................... 133 CONTRACT EXECUTION ..................................................................................... 140 MERGERS AND ACQUISITIONS ......................................................................... 141 RESUME AND CONCLUSIONS ........................................................................... 144 VIII. INDUSTRY PERFORMANCE .......................................................................... 146 ALLOCATIVE EFFICIENCY ................................................................................. 146 PRODUCTIVE EFFICIENCY ................................................................................. 148 i WORKING PAPER 43 DYNAMIC EFFICIENCY (RATE OF TECHNOLOGICAL PROGRESS) ........... 148 PERFORMANCE INDICATORS ........................................................................... 153 RESUME AND CONCLUSIONS ........................................................................... 154 IX. SUMMARY AND CONCLUSIONS ..................................................................... 156 MARKET FEATURES ............................................................................................ 156 MARKET TRENDS ................................................................................................. 159 CONCLUSIONS ...................................................................................................... 161 THE NEED OF FURTHER RESEARCH ............................................................... 168 ACRONYMS ............................................................................................................... 170 REFERENCES ............................................................................................................. 172 ii WORKING PAPER 43 List of Tables Table 1. Government expenditures in Public order and safety (2001-2007).................. 13 Table 2. Government expenditures in Public order and safety....................................... 14 Table 3. DG JLS expenditures related to security and safeguarding of liberties in million €. ..................................................................................................................................... 15 Table 4. Distribution of the market between sectors ...................................................... 17 Table 5. Market distribution between products and