The Water Business
1. The State of Water Resources
Water is one of humanity’s most important resources. Water is necessary not only for life itself, but for human industry as well. And there is no replacement for it.
With 1.4 billion cubic kilometers of water blanketing the earth, it’s natural to think that water is in no short supply. Yet, more than 90% of that supply is comprised of non-potable ocean water, and a mere .01% of the earth’s water is fit for human consumption. While that is enough to meet the needs of earth’s population, the geographical distribution of these water sources leaves some regions with water shortages. Some areas see little rainfall or otherwise possess few sources of river water. This problem can normally be solved by importing water resources, but it is difficult to judge the value-cost balance in doing so and there are conflicts and security issues between countries, making this a weak solution.
There is also a human element in the unequal distribution of water resources. That is, some countries lack the proper facilities to clean and distribute water. In other cases, as in Australia, overgrazing farm animals have sparked desertification and insufficient water resources. This is only compounded by current global warming trends, which are believed to be causing inclement weather conditions that affect vegetation and rainfall patterns. Due to these issues, approximately 900 million humans are not supported by current water infrastructure. While we have enough water, our ability to distribute it remains woefully inadequate.
Further complicating matters, total world demand for water resources is on the rise. Currently, 70% of the world’s claimed water goes to agricultural use, 20% to industrial use, and 10% to domestic use. But, as the lifestyle of those in developing countries changes, the demand for industrial and domestic use water in particular is dramatically increasing. On top of this, some estimates claim the world’s population will swell to 9 billion by 2050, and this continuous growth is sure to put a massive strain on water resources. Even though it is projected that we will be able to provide 30% more portable water in 2025, the question of whether we can meet growing world demand is yet to be answered. The United Nations Development Program (UNDP) estimates that in the year 2050, 1 billion people will be without water.
Increasing water pollution is also shrinking our amount of total available water. Developing nations in particular suffer from inadequate purification ability and circulating wastewater further contaminates the water supply. Nitrogen fertilizers used in modern agriculture and wastewater from industrial processes also contribute to supply contamination. The already worrisome problem of surging water demand, combined with widespread water contamination, has raised the world water situation to emergency proportions.
2. The Rapidly Growing Water Business
Numerous countries are now accelerating efforts to address this emergency. According to Japan’s Ministry of Economy, Trade, and Industry (METI), the water business will grow to an 87 trillion yen industry in 2025, up 2.4 times from 2007 numbers. To take advantage of this massive business opportunity, water businesses and newcomers into the field are scrambling to take up the cause.
When one looks under the surface of the business, one sees a number of unique features. Generally speaking, the business is comprised of water and wastewater treatment mechanisms, seawater desalination plants, industrial water facilities, and water reclamation plants. Among these categories, the largest volume of work is in water and wastewater treatment. In 2007, 90% of the water business market was in this field, worth 32 trillion yen. In 2025, the water and wastewater treatment business will account for 85% of the market, expected to total 74 trillion yen. Even the smaller fields of seawater desalination, industrial water treatment and water reclamation are expected to grow threefold by 2025.
There are a variety of specific services involved, including designing facilities and parts, construction, material supply, management and operation. Specifically expected to grow approaching 2025 are the areas of operation and management, material supply and construction.
The regions of the Middle East, Southern Asia and North Africa are expected to see water business growth of 10% per year in the future, while specifically China, Saudi Arabia, and India are expecting particularly rapid growth. In the next 20 years, East Asia and Oceania are expected to surpass North America and Western Europe as the world’s largest water markets.
It’s no wonder that this extreme growth has encouraged fierce competition among the top water businesses. Aside from these top international players, newcomers and local businesses are also entering the fray.
The players dominating the world water business include France’s Suez Group and Veolia Water (Veolia Environment). They possess great strength in facility planning and construction, as well as operation and management and other services. Europe’s privatization of water services has allowed these private companies to accumulate know-how and experience to become some of the top water service businesses. France’s two major players each make sales of over a trillion yen per year. Yet, as other companies have jumped into the water business, such as America’s GE, Germany’s Siemens, Singapore’s Hyflux and Korea’s K Water (Korea Water Resources Corporation) and Doosan, the share held by these top players has decreased from 70-80% in 2001, to just 30% today. With such a crowded playing field and fierce competition, it will not be easy for Japanese SHOSHA to win a place at the top.
To differentiate themselves from the competition, Japanese companies are aiming to expand business in a uniquely Japanese way. While Japanese businesses have cutting-edge technology for desalination and water reclamation, they lack the total service management and operation experience that is demanded in the global water market. Until now, the top companies have served as prime contractors while SHOSHA financed, or served as sub contractors providing parts and technology. SHOSHA have also engaged in EPC (engineering, procurement and construction) style contracts. Recently, Japanese businesses have been working to become “Major Japanese Water” companies, by relying on Japanese technology and business structures to construct, operate and manage waterworks.
The key to finding success under this strategy is for Japanese businesses to cooperate with local governments. In Japan, where waterworks are not privatized, businesses possess very little management experience. However, local Japanese governments, with a long history of waterworks management, are considered some of the best in the world. With the proper combination of technology, capital and operating know-how, Japanese companies can become competitive with the top water companies. Now, as local governments grapple with financial stress, many are looking to the water business to turn their luck. Government bodies like Kawasaki, Yokohama and Tokyo are already getting involved in international waterworks projects.
Additionally, there is a government-led push for public-private cooperation in industry and academia. In June, 2010, METI, the Ministry of Land, Infrastructure, Transport and Tourism (MLIT), and the Ministry of Health, Labor and Welfare (MHLW) have cooperated to establish the International Waterworks Infrastructure PPP (Public-Private Partnership) Council. This government-led program seeks to aid SHOSHA, water treatment machinery makers, and engineering companies to break into the international water market.
3. SHOSHA International Infrastructure Projects
Japan’s involvement in international waterworks projects follows a typical structure: Water treatment machinery makers provide parts and equipment, an engineering company builds facilities and SHOSHA operate and maintain those structures. In a manner of speaking, SHOSHA are the final step in the process, but in reality, it is often the SHOSHA that get the ball rolling on these projects. Relying on diverse worldwide experience, investment know-how and ability to connect the proper companies, SHOSHA often lead the way in these water projects. Using investment resources, SHOSHA connect the appropriate public and private businesses, or get one of the top water companies involved, to bring effective waterworks to developing nations. For example, a SHOSHA purchased one of Chile’s major waterworks companies recently, and in Singapore, a SHOSHA and major water company established a joint venture business that will be involved in projects in China and third countries.
