Third in a series
One afternoon in October, bureaucrats and industry experts gathered at the Ministry of Economy, Trade and Industry in Tokyo to discuss a national strategy to counter the overseas “water majors.”
Their move reflects the realization that domestic water manufacturers lag far behind their overseas counterparts in terms of overall market share in the water management business, despite their top-level technologies.
Though Japanese technologies play a key role in desalinating seawater, this is only a small part of the overall business, and state-backed foreign firms, particularly French companies, remain the major global players, experts say.
“We aim to create a business environment to help Japanese companies become competitive enough to compete with the world water majors,” said Koichi Sato, deputy director for METI’s water industry and infrastructure systems promotion office.
Sato’s sense of urgency also applies to other environment-friendly technologies Japan boasts.
Many, including solar panels, have gained excellent reputations as top-level products that can drastically slash carbon dioxide emissions, but Japan has yet to become globally competitive in their sectors.
The business potential in the freshwater market is considered huge, as global demand is expected to surge at least for the next two decades.
Despite the growing demand, there is only a limited amount of fresh water on the planet. Natural resources, including rivers, lakes, swamps and groundwater account for a mere 0.01 percent of overall water on the globe, most of which is seawater.
“About 70 percent of desalination technologies are those by Japanese makers,” said Kazunari Yoshimura, who represents the consulting firm Global Water Japan.
As for reverse osmosis membrane filtration, which is widely believed to be the most efficient technology to desalinate water without emitting much carbon dioxide, two Japanese makers — Nitto Denko Corp. and Toray Industries Inc. — together dominate almost half of the global market share.
By filtering seawater with layers of reverse osmosis membrane filters, made of synthetic resin, water molecules are separated from salt and other impurities.
“The desalination ratio of our products is the highest in the world at 99.8 percent,” said Nitto Denko spokesman Kazuhito Kono. The material maker accounts for slightly less than 30 percent of the reverse osmosis membrane market, the second-largest share after U.S. chemical manufacturer Dow Chemical Co., which has more than 30 percent. Toray has the third-largest share, with around 13 percent.
The latest desalination technology is gaining attention now, as it also helps to reduce greenhouse gases.
In the past, industrial plants desalinated seawater by boiling and evaporating it. But that method consumed a lot of oil and emitted carbon dioxide. Reverse osmosis membrane technology, which was initially developed in the U.S., has improved and gradually replaced the old method since 2001, experts said.
By using reverse osmosis membrane filtration, the amount of emissions was halved compared with evaporating seawater, Global Water’s Yoshimura said.
Despite their high-level technologies, however, the Japanese membrane filter makers are failing to benefit from the expanding water market because their filters are just a component of desalination plants. Construction of such plants is a part of the overall water supply services dominated by the majors.
France’s Veolia Water and Suez Environment, backed by the French government, handle almost everything from designing water filtration systems and constructing and operating plants to charging the water they supply, experts said.
Other foreign companies are also emerging. Hyflux of Singapore and Doosan of South Korea have been receiving orders for big water plants around the world, after their governments actively invested in technology in the sector.
The global water market is expected to reach over ¥80 trillion by 2025, more than double the size in 2007, according to METI. In particular, the demand in South Asia, the Middle East and North Africa is expected to grow by more than 10 percent annually, it said.
Currently, Veolia and Suez account for about ¥2.5 trillion worth of sales in the roughly ¥3 trillion privatized, as opposed to state-run, portion of the global water business.
Filter makers, including Japanese firms, are under heavy pressure to slash the prices of their products amid intensifying price competition.
“Japanese makers develop the world’s top-level technologies for parts. But to make them successful, a government vision is necessary,” Global Water Japan’s Yoshimura said. “The government needs to establish a social structure for such (new) business.”
A similar example is the solar panel business, which has drawn attention as one of the major renewable energies capable of reducing carbon dioxide emissions.
Despite Japanese panel makers’ cutting-edge technologies for transforming solar power into electricity, their market share fell to 25 percent in 2007 from 47 percent in 2005, partly due to a lack of government support, experts said.
“The government’s termination of financial aid and the emergence of Chinese and Taiwanese makers are the two main reasons,” said Hiroyuki Okamoto, general manager at Sanyo Electric Co.’s global communications department, explaining why Japanese solar panel makers’ share, which dominated the market in the 1990s, has dropped in the past decade.
In fiscal 2005, the government stopped financial aid to homes setting up solar panels. Under the scheme, a household received ¥900,000 per kw of its solar panel’s output in 1994. The aid was gradually cut to ¥20,000 per kw in 2005.
Germany meanwhile introduced a feed-in-tariff system, in which electric utilities buy renewable energy, including solar power, at fixed prices.
As a result of the rapid growth of the German market, Q-Cells SE of Germany in 2007 overtook Sharp Corp. as the world’s top solar panel maker. Prior to this, Sharp had enjoyed the top market share for seven consecutive years from 2000.
As of 2008, Q-Cells had the leading market share, with 8.4 percent, followed by 7.4 percent for First Solar Inc. of the United States, 7.3 percent for Suntech Power of China, Sharp’s 6.9 percent and Kyocera Corp.’s 4.3 percent. Sanyo had a 3.3 percent share, the 11th largest.
Alarmed by the situation in the global market, the government finally resumed in January financial aid for each household that introduced solar power by paying ¥70,000 per kw of its panel output.
The government also started Nov. 1 buying electricity generated by solar panels at home, after households consume their necessary electricity, at ¥48 per kw, double the previous price.
“Growth in the domestic market would benefit domestic solar panel makers. But it does not necessarily bring about larger global shares for us,” said Sanyo’s Okamoto. “We are also making efforts to increase our shares in Europe and the United States by developing technologies and sales networks.”
As for the global water management business, the METI expert panel has so far met three times and discussed the need for Japanese filter makers, engineering firms and trading companies to cooperate with each other so that domestic manufacturers can better compete with the global water majors.
Japanese firms also lack enough experience in the water supply business to join bids for water plant projects, as such business in Japan is usually handled by local governments and not by companies, according to the panel.
“We hope we can support the Japanese makers so that they can be qualified as bidders of big overseas projects,” said METI’s Sato.
To become major players, domestic makers would need to either set up a joint venture with experienced foreign partners, acquire such companies, or cooperate with local governments that have much experience in the water supply business, Sato said.
“Japan has to make policies to help such businesses gain profits overseas, and to do that it has to help domestic firms become more globally competitive,” Yoshimura said.