Sailing Through Rough Water – What are the ‘Secrets’?

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Information about Sailing Through Rough Water – What are the ‘Secrets’?
Technology

Published on March 17, 2014

Author: FrostandSullivan

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A Frost & Sullivan analyst briefing.

Sailing Through Rough Water – What are the ‘Secrets’? A Frost & Sullivan Growth Opportunity Briefing Melvin Leong Research Manager, Energy & Environment February 2014

Fact or Fad: The 5 Common Statements in the Water Industry

It's easy to make a buck. It's a lot tougher to make a difference. Why is it a fact? • Fresh water availability is reported to be decreasing Statement #1: Water is the New Oil Freshwater Resources, Asia-Pacific, 2011, 2015, 2020, and 2025 Two types of scarcity 3 8,000.00 8,500.00 9,000.00 9,500.00 10,000.00 2011 2015 2020 2025 Freshwater Resources 9,862.00 9,556.00 9,195.00 8,750.00 FreshwaterResources (BillionCubicMeters) Physical—a situation in which water use is approaching or exceeding sustainable limits. Economic—occurs when institutional, infrastructural, or financial limitations prevent people from gaining access to water, even though there is enough available.

It's easy to make a buck. It's a lot tougher to make a difference. Why is it a fact? • Water consumption is increasing due to growing industrial activities Statement #1: Water is the New Oil Country Number of Manufacturing Enterprise (Thousands) (2008) Number of Manufacturing Enterprise (Thousands) (2015) CAGR (2008-2015) (%) 4 (2008) (2015) Thailand 354.68 437.76 3.05 Malaysia 32.54 37.77 2.16 China 6,966.12 7,645.56 1.34 Singapore 23.84 25.78 1.12 Indonesia 3,256.64 3,500.07 1.04 Taiwan 151.08 162.12 1.01 India 8,486.42 8,728.68 0.40

It's easy to make a buck. It's a lot tougher to make a difference. Why is it a fad? • Fresh water availability is reported to be decreasing BUT water consumption per capita is decreasing • Water consumption is increasing BUT water-use minimization and smart water grid techniques continue to be innovated • In certain instances, such as the case in the Middle East, the oil economy affects budget of infrastructural projects that includes water projects. In actual fact, the constraints of attaining clean potable water is attributed to: Climate Change Livestock and Agriculture Political and Economic Water Conflict Statement #1: Water is the New Oil 5 includes water projects. • Can water be commoditized and determine market forces the way oil does? • Oil can be substituted, but in principal water cannot be substituted. What the water industry really needs: Water shortage mitigation only by innovative water management and conservation, and by developing nontraditional supply sources.

Eagles soar, but weasels don’t get sucked into jet engines. Statement #2: Water Reclamation Too Costly Why is it a fact? • Energy consumption is high • Treatment and disposal of by-products • State-of-art technology such as MBR faces cost challenges in fouling membrane and plant operations 6 operations Why is it a fad? • Not all country needs it • Costly? So is desalination! • Underlying concern: More of a taboo or a cultural / religious perception • Energy can be recovered

Eagles soar, but weasels don’t get sucked into jet engines. Statement #2: Water Reclamation Too Costly 7

Eagles soar, but weasels don’t get sucked into jet engines. Statement #2: Water Reclamation Too Costly Why is it a fact? • Energy consumption is high • Treatment and disposal of by- products Why is it a fad? • Not all country needs it • Costly? So is desalination! • Underlying concern: 8 products • State-of-art technology such as MBR faces cost challenges in fouling membrane and plant operations • Underlying concern: More of a taboo or a cultural / religious perception • Energy can be recovered

We can make more generals, but horses cost money. Statement #3: Water Price Reforms Reduce Water Scarcity and Wastage Why is it a fact? • ‘Commoditized’ product with a hefty price tag deters unnecessary waste • Reduce consumption is thought to slowdown water shortage / scarcity Why is it a fad? 9 • Pricing reform contains two fundamental flaws: It tends to focus on focuses domestic water use, and it assumes domestic consumers can or will reduce water use when faced with higher prices. • Rates should incorporate the cost of the services provided by water utilities, but should not reflect a monetary value placed on the water itself.

We can make more generals, but horses cost money. Statement #3: Water Price Reforms Reduce Water Scarcity and Wastage Why is it a fact? • ‘Commoditized’ product with a hefty price tag deters unnecessary waste • Reduce consumption is thought to Why is it a fad? • Pricing reform contains two fundamental flaws: It tends to focus on focuses domestic water use, and it assumes domestic consumers 10 is thought to slowdown water shortage / scarcity domestic consumers can or will reduce water use when faced with higher prices. • Rates should incorporate the cost of the services provided by water utilities, but should not reflect a monetary value placed on the water itself.

If you see a bandwagon, it’s too late. Statement #4: Membrane is the Best Water Treatment Solution Why is it a fact? • The world has embraced membrane treatment as the most reliable and proven technology for providing safe and high quality water • New treatment systems are predominately moving to an all-membrane approach, determined as the sustainable approach • Membrane systems bring operating savings, combined with reduced water and energy footprints, with the benefits of water reclamation for wide purposes 11 footprints, with the benefits of water reclamation for wide purposes Why is it a fad? • Again, it is not for every municipalities and industries, not for every country • Relatively costly for urban uses and unlikely to become viable for directly supplying irrigation water for agriculture

If you see a bandwagon, it’s too late. Statement #4: Membrane is the Best Water Treatment Solution Why is it a fact? • The world has embraced membrane treatment as the most reliable and proven technology for providing safe and high quality water • New treatment systems are Why is it a fad? • Again, it is not for every municipalities and industries, not for every country • Relatively costly for urban uses and unlikely to 12 • New treatment systems are predominately moving to an all-membrane approach, determined as the sustainable approach • Membrane systems bring operating savings, combined with reduced water and energy footprints, with the benefits of water reclamation for wide purposes uses and unlikely to become viable for directly supplying irrigation water for agriculture

It's easy to make a buck. It's a lot tougher to make a difference. Statement #5: China / India, Gives the Best Opportunities Why is it a fact? • Currently the two of the largest Asian economies in the world, other than Japan. • World’s top two most populous nations • Urban population growth rate the highest in APAC, and among the highest in the world 13 Why is it a fad? • Mega markets, mega risks • Other territories uncharted

It's easy to make a buck. It's a lot tougher to make a difference. Statement #5: China / India, Gives the Best Opportunities 14

It's easy to make a buck. It's a lot tougher to make a difference. Statement #5: China / India, Gives the Best Opportunities 15

Rags to Riches, and then… ? ‘Secrets’ Revealed

The customer experience is the next competitive battleground. Best Practices in Rapid Customer Acquisition Securing exclusive business propositions in the market value chain (distributorship; concessions; contractual sales, etc) 17 Focus on core competencies or vertical propositions instead of horizontal propositions Improving level of customer interactions and after-sales service activities

Partnership is the way. Dictatorial win-lose is so old- school. Best Practices in Strategic Alliances and Competitive Strategy Multi-dimensional alliances for market expansion • R&D • Academic • CSR • Suppliers • Competitors • Customers 18 Example: Acquisition of a membrane raw material supplier; Collaborations in membrane R&D • Customers • Public agencies

Alliance does not mean love, any more than war means hate. Best Practices in Leadership in Operations, Product / Service Innovation and Customer Reach Innovation in technologies • Energy conservation in treatment equipment as optional feature at minimal cost addition for clients • Reduction in the cost of R&D and production by shifting their bases to 19 Operational Cost Optimization Focus on Services • Reduction in the cost of R&D and production by shifting their bases to other countries, to take advantage of the lower cost of labor and operations • Local procurement in countries where the projects are based, as a measure for cost reduction and time efficiency • Focused on after-sales, operations, and maintenance (AOM) model for customers

Power is winning the battle over who owns the customer. Best Practices in Prioritizing Business and Understand Customers Divestment; unsuccessful ventures and units may need to be eliminated. Realignment in core competency; target good customers and improve sales from existing 20 customers and improve sales from existing customers Reinvent product and service proposition; look for new opportunities outside China and India.

We don't have a monopoly. We have market share. There's a difference. Best Practices in Realignment and Convergence • Focus on your target group clients as main revenue driver • Focus on small to medium capacity solutions • Introduce mobile treatment solutions for remote sites; focus on energy recovery • Reinforce membrane treatment solutions and 21 • Reinforce membrane treatment solutions and applications (small to large capacity); increase third party sales of membranes to other water companies • Strengthen consulting propositions in water management to client • Partnerships with IT and building solutions providers

There’s no secret about success. Did you ever know a successful man who didn’t tell you about it? The ways for water companies moving forward in business sustainability are: • Rapid customer acquisition • Strategic alliances and competitive strategy 22 • Leadership in Operations, Product / Service Innovation and Customer Reach • Prioritizing Business and Understand Customers • Realignment and Convergence

Next Steps Develop Your Visionary and Innovative Skills Growth Partnership Service Share your growth thought leadership and ideas or join our GIL Global Community Join our GIL Community Newsletter Keep abreast of innovative growth opportunities

Your Feedback is Important to Us Growth Forecasts? Competitive Structure? Emerging Trends? What would you like to see from Frost & Sullivan? Emerging Trends? Strategic Recommendations? Other? Please inform us by “Rating” this presentation.

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Today’s Presenter Melvin Leong, Research Manager Energy & Environment, Frost & Sullivan 26 Melvin is a Research Manager with the Frost & Sullivan Asia Pacific Energy & Environment Practice, and his research focus areas include water treatment markets, buildings markets. With over 10 years of industry experience, he focuses on monitoring and analyzing emerging trends, technologies and market behavior in the environmental and building technologies market in Asia Pacific. For any other enquiries, email us: asiapacific@frost.com

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