Environmental Technologies Industries
||Environmental Technologies Industries
|Water and Wastewater Treatment Export Market Plan|
|Chapter 2. U.S. Competitive Position in the Market|
Chapter 2 - U.S. Competitive Position in the Market
The annual growth of the U.S. water and wastewater equipment and services industry between 1999 and 2003 is estimated at about 8 percent. While the domestic market for water equipment is growing very slowly (by 1 percent in 1999), the industry’s expansion in this market segment translates directly into the fast growth in exports, which went up from 26 percent of the total production volume in 1998 to 29 percent in 1999 (or about $5.9 billion).
Despite this promising growth in exports, the vast majority of U.S. water companies are still focused on the North American marketplace and lack the capacity to compete for large global projects with European and Japanese firms. This chapter looks at the competitiveness of U.S. firms vis-à-vis their main business rivals from other countries in different water and wastewater industry segments and in different regions of the world.
Major Foreign Competitors
The major players in the global water and wastewater industry come from the United States, France, the United Kingdom, Japan, and Germany. Integrated, global companies generally have a competitive edge over U.S. firms that are smaller, more specialized, and operate in an environment in which information is often protected rather than shared. European water companies that have more experience in operating and serving privatized or partially privatized facilities will have a competitive edge in emerging markets where water and wastewater sectors are undergoing privatization.
U.S. companies are generally competitive in the water equipment and chemicals market segment but face very tough competition from French, British, and Japanese firms. In the area of water and wastewater treatment works, the market is dominated by French and British companies. In particular, companies from France and the United Kingdom are by far the most competitive in providing integrated packages that include designing, building, managing, and even owning water infrastructure.
Table 2.1 contains the list of the top ten water companies in the world. Two French companies, Vivendi and ONDEO, are by far the largest, while other competitors to U.S. firms occupy almost all the other positions on the list.
Table 2.1. Top 10 Water Firms in the World, 2000
Source: Hoover's Online (www.hoovers.com).
Water-Related Revenues, $ billion
|4||Hercules, Inc.||United States|
|5||Severn Trent||United Kingdom|
|6||Thames Water||United Kingdom|
|7||Aguas de Barcelona||Spain|
|8||AWG (Anglian Water)||United Kingdom|
|9||United Utilities||United Kingdom|
|10||American Water Works Co.||United States|
In France, municipalities are responsible for water and sewerage services, either by providing those services themselves or, more commonly, contracting them out. The private sector’s share in drinking water supply has increased from about 30 percent in the mid-1950s to 77 percent in the late 1990s, and about 60 percent of the wastewater market is operated by private companies.
This move to private management in France has led to the emergence of the two largest full-service water companies in the world: Vivendi with over $20 billion in revenues in 2000 and ONDEO with $6.3 billion in revenues in 2000. These firms represent the result of significant horizontal integration in the French water business. In the late 1980s, there were five private water companies; today, there are three. Vivendi, SAUR, and ONDEO contract with the local municipalities to operate water services and build new facilities. Both Vivendi and ONDEO have grown into global conglomerates, having leveraged their capital to expand from infrastructure management services to water equipment manufacturing and even such sectors as hazardous and solid waste management, and telecommunications.
Vivendi is the world leader in revenues received from drinking water distribution. With the acquisition of U.S. Filter in 1999, Vivendi became the world’s largest water company with 1999 net sales of 10.7 billion euros in the water and wastewater sector. In addition, the firm controls approximately 40 percent of the water and 30 percent of the wastewater markets in France. Vivendi currently operates in 100 countries and employs 275,000 people.
ONDEO has a long history of involvement overseas. In 1914, the company was active in North Africa, Central Africa, and the Pacific. From 1980 to 1990, it expanded internationally in the water and wastewater sector, mainly in the United Kingdom, Spain, and the United States. In 1993, the company won contracts in Argentina and Australia, and intensified international development in 1997 with water contracts in the Philippines, Hungary, Morocco, and Indonesia. In 1997, Compagnie de Suez merged with Lyonnaise des Eaux, becoming Suez Lyonnaise des Eaux. The newly named company joined with United Water Resources, Inc., a U.S. company, and each acquired a 50 percent interest in United Water Services. With this merger, the company now manages water works for municipalities and local utilities, mostly in the northeastern United States. In 1999, the company acquired all of United Water Services. In 2001, the water division of Suez Lyonnaise des Eaux changed its name to ONDEO. ONDEO also owns Nalco Chemical, the top water chemical company.
With more than 201,000 employees, ONDEO serves over 100 million people in over 120 countries: 32 million in North America, 42 million in Europe, 18 million in Asia, 5 million in Africa, and 22 million in South America. The company is also Europe’s fifth-largest private electricity supplier and a leader in waste services and cable in France and Belgium. In 1999, the group’s core businesses generated 43 percent of its revenues outside France and Belgium; by 2002 the goal is to increase this figure to 50 percent.
Several key factors have enabled Vivendi and ONDEO to be successful in the international water and wastewater markets. First, the concession mechanism that has been used in France is being modeled throughout the world, which has given these companies a competitive edge in bidding on these types of projects. Second, these companies are integrated, providing potential clients a full package, including experience in operating and maintaining facilities as well as collecting fees. Third, French companies have an advantage in terms of investments in long-term water projects, because French stock owners include banks and large financial institutions that can afford longer-term investment approaches, which are usually necessary for water and wastewater treatment-type projects. In contrast, U.S. companies are driven by profitability and individual investors who cannot afford or do not wish to take such a long-term approach. Finally, the French giants have been able to conduct market intelligence work to edge out competitors in bidding processes, with substantial support from French foreign embassies. Given their experience, access to capital, and market intelligence, these large firms are formidable competitors.
Both Vivendi and ONDEO have substantial holdings in U.S. water and wastewater companies. Vivendi’s U.S. presence includes not only U.S. Filter but Air and Water Technologies Corporation and numerous other companies in water equipment and water-related instrumentation.
In 1989, the Water Act restructured the water industry and privatized the water and wastewater operations of the 10 water authorities in England and Wales. The privatization was motivated in part by the need for an enormous investment of resources to bring the infrastructure up to the European standards. From 1990 through 2000, the private water industry invested over $52 billion in water and wastewater system infrastructure improvements. The market liberalization at home has positioned several of the larger British firms such as Thames Water, Severn Trent, and AWG (formerly Anglian Water) to successfully compete in the international market.
Notably, several British companies have formed alliances with leading U.S. companies in order to access the U.S. market. These include:
- A joint venture between AWG and American Water Works Company to pursue the privatization of municipal wastewater services in the United States.
- Ownership of several U.S. equipment and services firms, including PSC Environmental Services, by Severn Trent.
- A joint venture between the Kelda Group (formerly Yorkshire Water) and Ogden.
Japanese water and wastewater companies tend to be highly integrated and fairly concentrated. Leading Japanese firms are technology- and equipment-oriented and compete as conglomerates or trading companies in which every component required for a project is included - consulting, engineering, construction, equipment, supplies, materials, and financing.
The $4.3 billion Ebara Corporation offers the most diversified portfolio of water and wastewater equipment and services, including equipment for all types of treatment processes, chemicals, sludge handling equipment, as well as plant design and construction, and process engineering and consulting services. Pump manufacturing is Ebara’s major business, and its manufacturing bases worldwide (Japan, Taiwan, Indonesia, Brazil, Italy, and Spain) offer customers competitive prices and short delivery periods.
The smaller Kurita Water Industries specializes entirely in the water market but focuses primarily on ultrapure water production for the electronics industry, membrane filtration and desalination equipment, water recycling technologies, and chemicals. Mitsubishi Heavy Industries has a large machinery and plants manufacturing business that produces, among others, package water, sewage, and industrial effluent treatment systems, pumps, and desalination plants. The Kubota Corporation is a major manufacturer of pipes for water supply and sewerage systems.
The Japanese government actively supports the development of business opportunities for Japanese firms by providing attractive financing along with technical assistance to promote their products.
German companies involved in the water and wastewater sectors are best known for their construction and engineering services, although a few German firms have also been active in bidding on BOT projects. As Germany’s domestic market is limited, companies have had to look overseas to survive.
German companies are also consolidating to provide a more complete range of products and services in the international water and wastewater market. For example, RWE Group AG, a conglomerate of German utilities, offers a range of technical and financial expertise in the design, construction, and operation of waterworks. In September 2000, RWE took over Britain’s Thames Water to become one of the world’s largest water companies.
Competition by Geographic Area
Traditionally, U.S. companies have been most competitive in Latin America (particularly Central America), due to its geographic proximity and the fact that they are usually able to conduct their business in Spanish. However, giant French water companies have recently become very competitive, particularly in South America, due to their ability to take advantage of market opportunities created by the growing water utility privatization there. Japanese water equipment firms have also been active in South America, supported by the Japanese government’s aid programs.
Although U.S. firms have a significant market share in water and wastewater equipment supplies in Europe, this share is unlikely to expand. The pan-European integration process that has extended to Central and Eastern Europe creates advantages for European firms.
In Asia, U.S. competitiveness is largely determined by the political relationships the U.S. government enjoys with individual countries and the corresponding amount of U.S. foreign aid going there. U.S. companies are most competitive in the Association of Southeast Asian Nations (ASEAN) countries: Indonesia, Malaysia, Thailand, the Philippines, and Singapore. In China and India, the United States is becoming more competitive as the bilateral political climate improves. Japanese and, to a smaller extent, French and British firms are the main competition in that part of the world.
A similar situation exists in the Middle East, where the U.S. government has been pouring foreign aid into water projects in Egypt, Jordan, and, since recently, Palestine, thereby creating advantages for U.S. water and wastewater equipment suppliers. The strategic partnerships between the United States and Saudi Arabia, and a number of smaller Gulf states also have a positive impact on the competitiveness of U.S. exporting firms. On the contrary, there is virtually no American business presence in “unfriendly” countries like Syria, Iraq, Libya, etc. In the Maghreb countries of North Africa (Morocco, Algeria, and Tunisia), U.S. firms’ competitiveness is impaired by the need to conduct business in French and compete with well-connected French companies. In general, across the Middle East and North Africa, European firms, particularly French and German, are very tough competition.
Finally, Africa has never been a priority region for U.S. exporters of water and wastewater technologies, partly because of the competition from the French and British firms in their former colonies, and partly because of the risky political and business climate in the region. Several U.S. firms are now trying to explore opportunities in Africa created by the international efforts to provide safe drinking water to the population.
Competitiveness by Market Segment
U.S. companies are major exporters of water and wastewater equipment and chemicals. Overall, U.S. firms seek to compensate for the high risk of working in overseas water and wastewater markets through higher profitability of their exports. This makes industrial wastewater projects generally more attractive for them. While U.S. firms would probably not be competitive on price alone, they rely on the recognized quality of their work and their technological sophistication and reputation. Often, U.S. firms produce specialty equipment that is not available from other suppliers, which gives them a competitive edge in certain niche markets.
At their October 1999 meeting, representatives of the U.S. environmental industry, nonprofit organizations, and the federal government identified the following areas where U.S. water companies have substantial competitive advantage:
- Micro-level water and wastewater treatment systems, especially decentralized packaged systems using membrane filtration, reverse osmosis, molecular sieve, and hollow fiber separation technologies;
- Water and wastewater testing technologies; and
- Industrial process control technologies.
It is difficult to estimate export volumes of specific water technologies, mainly because traditional classification methods are not yet geared specifically to environmental technologies. Therefore, some, if not most harmonized tariff schedule (HTS) codes designated as environmental items in the U.S. Department of Commerce’s September 2000 classification also include products intended for non-environmental applications.
According to rough estimates based on the 1999 HTS code data for U.S. exports, biological wastewater treatment equipment is by far the largest export category for the U.S. water industry. The other principal exports include ozone generators, filters, pumps (including mixer, centrifugal, and vacuum pumps), as well as measuring and testing equipment.
France, the United Kingdom, and Japan remain the major competitors in the global market for water equipment and chemicals. Germany and the United States also have a sizable market share.
Process equipment includes separation, mixing, destruction, and chemical feed equipment for municipal and industrial water and wastewater treatment. Overall, the market for U.S.-manufactured process equipment should continue to grow, especially if destruction technologies replace some existing separation technologies (for example, advanced oxygen technology vs. carbon adsorption). Potential export markets for process equipment are dependent upon the development of environmental regulations in importing countries; as these countries develop increasingly stringent regulations, more advanced treatment technologies and process equipment will be needed.
Canada is the most lucrative foreign market for U.S. water treatment process equipment firms primarily because of its proximity to the United States and the strong ties between U.S. producers and the end-users, Canadian municipalities. Mexico is the next most lucrative market for U.S. process equipment for largely the same reasons, followed by the United Kingdom and Central and Southern Europe.
U.S. companies are not seen as being highly competitive in the market for emerging process technologies (for example, membrane and advanced oxidization technology). Two Canadian companies (Trojan Technologies and Zenon) dominate the North American market. Competing against these major Canadian exporters of water and wastewater treatment process equipment are German, French, Japanese, and Dutch companies.
Two highly successful U.S. ultraviolet industrial water treatment companies have been bought outright or have entered into joint ventures with the German giant WEDECO GmbH based in Dusseldorf. Ideal Horizons (based in Poultney, Vermont) has been bought by WEDECO and is known now as WEDECO-Ideal Horizons. The firm remains prominent in the area of industrial process water UV disinfection systems, as well as residential and commercial units for home and office use in North America.
Aquafine (based in Valencia, California) is competitive overseas in the area of ultraviolet water treatment equipment for pure and ultra pure applications (for example, the semiconductor and pharmaceutical industries). However, even successful companies like Aquafine are entering into multinational relationships to increase market exposure. Aquafine has recently formed a joint venture with WEDECO. The new company, Aquafine Wedeco Environmental Systems, Inc., will manufacture and sell WEDECO’s ozone generators, ultraviolet disinfection and oxidation systems, and fixed-film biological treatment equipment in North America and Mexico.
Export of delivery equipment (pumps, pumping equipment, industrial valves, pipes, storage tanks, etc.) is constrained by the fact that these products are heavy and do not have high profit margins. As a result, the high cost of shipping and delivery leaves little room for profitability.
Although the United States is the world’s single largest producer of water and wastewater delivery equipment, only 10 percent of all U.S. delivery equipment revenues is from exports. The European Union produces twice the amount, in gross sales, of pumps and pumping equipment, compared to the United States. Delivery equipment industry leaders include firms in the United Kingdom, France, Germany, and Japan, with Germany being the largest producer. Most German firms in this business are medium-sized and specialize in one or two branches of the delivery equipment market.
Two U.S. companies have proved to be competitive in the market for pumps: Gorman Rupp and Gould. Gorman Rupp produces pumps for the industrial, municipal, sewage, construction, and petroleum markets. Gould makes pumps for the industrial and water technology sectors. They are known for producing the world’s leading line of residential water well pumps. These two companies have positioned themselves well, and are competitive with the Swiss and German pump companies. Gorman Rupp has even managed to make inroads into the northern European markets.
Many mergers, acquisitions, and consolidations have been occurring in this market segment. In France, the major integrated firms, specifically Vivendi and ONDEO, are involved in the water and wastewater delivery equipment market through subsidiaries. Many British delivery equipment producers are also mechanical engineering firms.
Japan has shrunk its domestic production, so its competitiveness may have increased elsewhere. Japanese firms generally do not export or market delivery equipment exclusively, but instead rely on government technology transfer programs for developing countries. Japan is the largest distributor of water and wastewater delivery equipment in the Asia Pacific region, followed by the United States and the European Union.
Chlorine, the most prominent chemical used in water treatment, is produced virtually worldwide. Activated carbon, another large-volume product, is produced primarily in Japan, Belgium, France, Germany, Italy, the Netherlands, and the United Kingdom (as well as the United States). To a lesser extent, activated carbon is also produced in East Asian countries. Two other common water treatment chemicals, aluminum sulfate (alum) and calcium hydroxide (slaked lime) are produced throughout the world. In 1998, U.S. companies exported over 8,000 tons of alum, and more than 6,800 tons of slaked lime.
The fastest growing part of the water treatment chemical industry is specialty chemicals for advanced water and wastewater treatment systems. Specialty chemicals, such as certain polymeric materials used in filtration devices, are produced mainly in the United States, Japan, and Western Europe.
The total global market for specialty water management chemicals was estimated at $6.2 billion in 1998 and is growing at 3.2 percent per year, with North America comprising more than half of this market, followed by Western Europe and Japan (see Table 2.2). The European market is approaching saturation, while the largest growth opportunities should arise in developing countries.
Table 2.2. Global Specialty Water Chemicals Market, 1998 (millions of U.S. dollars)
Source: Environmental Business International, 1999.
The United States exports more chemicals than most other countries - 20 percent of U.S. companies’ total revenues from water chemicals are generated by exports. Canada is the largest export market for the United States, followed by Japan and Mexico. Nearly 45 percent of total U.S. exports of water and wastewater treatment chemicals consist of activated carbon and ion exchange resins.
The United States is the world’s largest producer of water and wastewater instrumentation. U.S. environmental instrument manufacturers generate more than a third of their revenues from water and wastewater applications. While the U.S. instrument industry is competitive in domestic and foreign markets, particularly due to high levels of investment in research and development, technological sophistication, after-sales service, and competitive pricing, it has been experiencing increased competition from foreign firms in recent years.
Several U.S. instrument manufacturers have production and distribution capabilities in many industrialized countries (for example, Germany, Britain, Japan, and Canada). Most water and wastewater instrumentation is produced by a large number of medium-sized and small companies. Smaller companies involved in the instrument sector typically market their instruments through independent distributors, while the larger companies generally market directly to end users.
To date, the majority of U.S. instrumentation exports have gone to Canada, Japan, Germany, France, and Britain. At the same time, exports to emerging market nations, such as Mexico, South Korea, and Taiwan, have grown twice as fast in recent years as exports to OECD markets.
The quality of instrument production in countries like Britain, France, Italy, Germany, and Japan is comparable to that of the United States. About 55 percent of the world’s process control instruments, analytical instruments, and on-line analyzers are produced by manufacturers in these countries, along with about 80 percent of water meters. Germany is the largest producer in the European Union, accounting for 50 percent of the production volume.
Engineering and Construction Services
U.S. engineering and construction firms are well known around the world for their expertise and quality of their work. Large design firms such as Montgomery Watson, Black and Veatch, and Earth Tech remain leaders in revenue from international water and wastewater projects. They share this distinction with NEDCO (Netherlands) and Dar Al-Handasah (Egypt). Over the past several years, with the downturn in the Asian and Brazilian economies, the international design market wavered and has yet to return to steady growth. The market is becoming more complex with international acquisitions and diversification into integrated service providers, meeting the design-build-turnkey needs of international clients. For example, Earth Tech, a global environmental and engineering technology company owned by Tyco International, has grown in the water market through varied acquisitions. Earth Tech’s acquisition of Brazil’s Multiservice Engineering Ltd. in 1998 opened up privatization opportunities in Latin America, the company’s primary area of focus. Similarly, the 1999 purchase of the British firm Babcock Water Engineering was an essential step in Earth Tech’s business development in Western Europe.
International contracting is continually plagued by risk, as confirmed by the financial troubles of Stone and Webster (purchased by the Shaw Group in 2000), and Germany’s Philipp Holzmann, and South Korea’s largest contractor, Hyundai Engineering and Construction. Nevertheless, the $2.5 billion of international wastewater construction activity in 1999 was led by the U.S.-based Bechtel Group, Inc., followed by Skanska AB (Sweden) and Ed. Zublin AG (Germany). The $3.2 billion international water construction activity was led by Italy’s Impreglio, SPA, followed by the Dragados Group (Spain) and Vinci (France). The future water and wastewater opportunities appear to be favorable in some Asian countries such as South Korea, Japan, and Taiwan, Eastern Europe, and the Middle East.
Foreign firms providing engineering and construction services in the water and wastewater sectors, especially those in France, the United Kingdom, and Germany, tend to be larger and more integrated than those in the United States, and typically concentrate on these sectors. For example, Germany’s RWE Group (which has recently acquired Britain’s Thames Water) offers design and construction services for water and wastewater treatment plants but is also a supplier of water-related products and other environmental services. When project specifications call primarily for engineering and construction services, U.S. companies are very competitive; however, when clients are looking for a turnkey project, integrated firms such as Vivendi, ONDEO, and RWE often have an advantage.
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