Industry Corner: Private Contractual Security Services: The U.S. Market and Industry
Bailin, Paul S., Cort, Stanton G., Business Economics
The private contractual security services industry encompasses investigating, monitoring, armored transport, consulting, data security, and private correctional facility services. Corporations, institutions and private individuals are increasingly looking to these services to fill the void left by public and proprietary security. Growth is likely to be higher in nontraditional regions and nontraditional services that are outside the major metropolitan areas and in "new" areas such as counter-industrial espionage. The $18 billion industry will see dynamic change as large players diversify and new large players enter. Contractual guard services, private "police" services, and private correctional facility management are key growth sectors.
The "private contractual security services" industry encompasses guard and private investigative services, central-station alarm monitoring, armored car transport and ATM servicing, security consulting and data security, and private correctional facility management services. Niche markets also exist for a wide range of specialized security services, including: bomb sweeping and metal detection; drug testing; preemployment screening; renting of off-site secure vaults; radon and hazardous gas testing; and guard dog services. Corporations, institutions and private individuals are increasingly looking to the protective services to fill the void left by public and private "proprietary" security. Perhaps more than any other single factor, rising crime incidence has torn at the fabric of American life during the past several decades. Yet, in spite of the resulting public outcry, municipal police departments find themselves chronically lacking the funding and manpower needed to deter effectively and solve crimes. At the same time, a wave of corporate downsizing has left firms with fewer resources to maintain their own "proprietary" security personnel.
The potential for and occurrence of crime are the principal determinants of demand for security products and services. Actual crime rates, in turn, reflect a myriad of socioeconomic and demographic factors, including population size and density, urbanization, unemployment, age and gender distribution patterns, and racial and ethnic composition. The public perception of criminal activity, however, is of equal importance. That perception is formed largely by the news media where pervasive coverage of crime, especially violent crime, has led to rising public fears even as actual crime levels have subsided modestly in the United States since 1992.
More complex is the relationship between crime, private security demand and macroeconomic trends. Periods of economic stagnation tend to expand the ranks of the jobless and urban poor; despair can lead to crime. Yet recessions also leave profit-squeezed corporations with fewer resources to invest in private security measures aimed at preventing such crime. However, a healthy economy creates additional wealth, increasing both the need for and the means to purchase security services, while simultaneously reducing the number of disenchanted individuals most likely to commit crimes.
In any event, as companies increasingly opt to outsource their security operations and society in general loses faith in the ability of the police to provide adequate protection, private protection activity increases. Commercial and residential private protection businesses currently employ 2.5 times as many people as public law enforcement agencies. In this context, the prospects for the private contractual security industry will remain quite favorable.
The 1995 combined demand for private contractual security services in the United States is estimated at nearly $18 billion. Table 1 shows that the overall outlook for the industry is attractive. Total security service revenues will expand at 7.9 percent annually to $26 billion by the year 2000. In spite of the industry's general maturity, pockets of above-average growth potential, primarily in relatively new service markets, continue to exist throughout the security services spectrum. …