japanese strategy for global water business

Japan’s Strategy for Global Water Business to Boost Its Growth

— Building a Japanese-style export model combining

economic cooperation and business —

No. 158 October 1, 2010

Fumihiko KAMIO

Copyright 2010 by Nomura Research Institute, Ltd. 1

NRI Papers No. 158October 1, 2010

Japan’s Strategy for Global Water Business to Boost Its Growth— Building a Japanese-style export model combining

economic cooperation and business —

Fumihiko KAMIO

The growing shortage of usable water is a major concern for many countries. In view ofincreasing demand for water, the Japanese government and industries are jointly working to

develop water businesses in emerging countries in Asia and other regions where water infrastruc-ture is underdeveloped. These efforts aim to expand the opportunities for participating in overseasprojects by drawing on technology, experience and expertise that Japan has accumulated over along time, thereby helping to revitalize Japan’s economy.

The global water market is projected to be worth about ¥90 trillion by 2025. In any attempt topursue a greater market share, it is essential to participate in the fields of operation and mainte-nance (O&M) in overseas markets so that the water business can be continued for a long time andin a stable manner.

The water business is nothing more or less than public services for the participating country.While the culture, society and customs of the participating country must be fully comprehended inmoving into its markets, Japan unfortunately has only limited experience and achievements.Because each municipal government bureau that is offering water services to the Japanese marketindividually has such experience and achievements, a system that enables water service operationsin overseas markets in response to the needs of a particular participating country is yet to be estab-lished.

In order for Japan, which is a latecomer in the international water market, to win a competitionwith major, well-experienced water service companies in Europe and other countries, it is essentialto build a Japanese-style business model. This model should be established while providing solu-tions to various water-related issues (e.g., infrastructure, management and attitude) that face theparticipating countries in Asia and other regions.

At the first step, upon strategically identifying a country, city or area where Japanese companiesshould operate a mid- and long-term water business, an organization must be urgently establishedthat can consolidate the business expertise that is dispersed among the public and private sectorsand that can take the lead in moving into overseas markets. In addition, tie-ups with a financialscheme that supports stable business operations in the participating country should be promoted.At the same time, policy dialogs should be continued with municipal governments and other con-cerned entities in the participating country so that Japan’s technology and expertise can be fullyutilized.

The Japanese government should take the initiative in promoting these actions by combining allthe efforts of Japan’s ministries and agencies regardless of which one has jurisdiction over a spe-cific matter.

I Approaches to International Water Business, Which Is Attracting Increased Attention

II Global Water Business Market and Its CharacteristicsIII Challenges Facing Japan in Promoting International Development of the Water

BusinessIV Global Strategy of World’s Leading Water Service CompaniesV Specific Measures to Promote Japan’s Global Water BusinessVI Efforts towards International Development


I Approaches to International Water Business, Which Is Attracting Increased Attention

Water, or what is sometimes called “blue oil,” is anincreasingly scarce resource globally. Usable water islimited to only about 0.15 percent of the total volume ofwater available on the earth. Research indicates thatsome 1.1 billion people in the world lack access todrinking water and about 2.4 billion people are exposedto an environment where no sanitary facilities are avail-able. In an effort to eliminate widespread water short-ages and provide improved access to safe drinking water,accelerated moves to invest in the water business areexpected, leading to the emergence of many new mar-kets.

In addition, in many cases, the water business, whichuses long-life infrastructure such as purification andtreatment plants and distribution pipes, is expected tocontinue over mid- and long-term periods. Accordingly,companies in a wide variety of fields including civilengineering, construction, housing, equipment construc-tion, equipment manufacturers, parts and componentsmanufacturers, finance and trading firms are likely tobenefit from orders being issued at the initial capitalinvestment stage such as those for materials, equipmentand machines including pumps and membrane filters aswell as demands arising during the business operationstage such as for materials and chemicals.

Given these circumstances, in Japan, active moves arebeing taken to revitalize the stagnant Japanese marketsby developing the water business in Asian and otheremerging economies. In December 2009, the Hatoyamaadministration launched its “New Growth Strategy(Basic Policies)—Towards a Radiant Japan.” In thisstrategy, it was stated that “we will work to lessen theenvironmental burden accompanying the economicgrowth of Asian countries and make use of Japanesetechnology and experience as a sustainable growthengine for Asia; specifically, government and the privatesector will work together to provide assistance in build-ing infrastructure such as water supply.” Based on thisstrategy, in April 2010, the Study Group for Interna-tional Development of the Water Business, which wasorganized by the Ministry of Economy, Trade and Indus-try (METI), set the goal of winning market share worth¥1.8 trillion by 2025.

To date, Japan provided assistance focused on techni-cal cooperation in many water projects overseas, primar-ily through its ODA (official development assistance)programs and grant aid programs. In the future, morefocus should be given to the development of the water“business,” and actions should be taken that enable bothJapan and the recipient country to thrive economically

and socially by utilizing Japan’s technology, manage-ment skills and financial capabilities in the global watermarket.

Unlike other infrastructure-related businesses, thewater business greatly influences people’s daily lives inthe region or community where such service is providedbecause its operation includes the supply of householdwater and potable water and the treatment of wastewater.Accordingly, any approach to start this business mustensure the improvement of the socioeconomic level ofthe city or community where this service is provided,while at the same time considering how best to generatea profit as a business.

From the viewpoint of achieving Japan’s growth strat-egy, this paper discusses the priority directions that thewater business should pursue and the strategy to bringsuch priorities to fruition.

II Global Water Business Market and Its Characteristics

1 The idea of water recycling and reusegives rise to a wide variety of markets

The water business extends over a wide range of fieldsfrom municipal services for residents such as water sup-ply and sewage treatment and those for companies andindustries such as industrial water and agricultural waterthrough to beverages such as bottled water and mineralwater.

Classification of the many participants in the waterbusiness market can be based on the idea of the so-called“water recycling and reuse system” where water isobtained from water sources and used for various pur-poses, and wastewater is treated, which can be shown inthe cycle “water intake/reuse → purification → distribu-tion and supply → wastewater/sewage treatment” (Fig-ure 1).

For example, businesses in the field of waterintake/reuse, which corresponds to Process (1) in Figure1, include the development of dams, reservoirs and chan-nels, as well as exporting and transporting raw water toareas suffering from water shortages. The field of purifi-cation, as indicated in Process (2), refers to the processby which impurities and sludge are removed through fil-tration and water is chlorinated to provide water of aquality that meets the prescribed standards of drinkingwater. Businesses in this field include the development,operation and management of purification plants and theaddition of chemicals such as chlorine.

The field of water distribution and supply, which isProcess (3), can be referred to as the so-called “watertransport business” to supply purified water to house-holds and enterprises in a consistent manner. Represen-tative businesses are water management in whicharrangements among multiple purification plants are

NRI Papers No. 158 October 1, 2010



made in response to the status of water sources as wellas water demand, the operation and maintenance ofwater distribution pipes and water supply stations andthe transport of water from one area to another.

Businesses in the field of wastewater/sewage treat-ment, which is Process (4), relate to the operation andmanagement of pipelines, treatment plants and relatedfacilities to properly treat and recycle wastewater andsewage.

Other business areas involved in each of these fieldsinclude the sales of devices and technology, the designand construction of plants and the control, operation andmanagement of infrastructure facilities, as well as cus-tomer services such as reading meters and collectingfees. In addition, the areas of financing and professionalservices are also involved. As such, enterprises in a vastarray of industries are developing business by drawingon their own strengths.

2 Projected market size of about ¥90trillion; priority needs are stable supplyand stable business operation in manycountries/regions

What is the projected market size of the world’s waterbusiness? According to METI’s estimate, it was about¥36,200 billion as of 2007, and is predicted to expand toaround ¥86,500 billion by 2025 (as shown on the leftside of Figure 2). While the drinking water business willcontinue to account for the largest share (about 45 per-cent) amounting to around ¥38,800 billion, recycledwater (at an average annual growth rate of 12.5 percent)and industrial water (at 6.3 percent) businesses are pre-dicted to grow substantially.

If the trends are viewed in terms of business area, themarket size is expected to expand in all business areas ofdevices, technology and services, with businesses relatedto the sales of devices and plant construction amountingto about ¥48,500 billion (about a 3-fold increase as com-pared to 2007), and businesses related to operation andmaintenance totaling about ¥38 trillion (about a 2-foldincrease over 2007).

In the future, we will see a growing demand for waterin the countries where water resources are scarce and arapid increase in population and rapid economic growthare expected. According to the latest forecast1, demandarising in the areas of Southeast Asia and the MiddleEast & North Africa between 2007 and 2016 willaccount for 50 percent of the increase (about ¥8 trillion)in the drinking water market and about 40 percent of theincrease (about ¥6,500 billion) in the wastewater market(as shown on the right side of Figure 2). In particular, thedrinking water and wastewater markets (construction,operation and maintenance) in Jordan, Yemen, Algeriaand Saudi Arabia are all showing high growth. WhileChina and India continue to maintain large markets, theyshow potential for even further growth.

On the other hand, in these countries, sanitary condi-tions are poor, and people lack access to a stable watersupply in many cities and areas. For example, in China,the rivers and soil are severely contaminated withsewage, and the government has been acting to eradicatesuch contamination. Accordingly, the demand for waste-water treatment is expected to expand in China.

While the demand for wastewater treatment is grow-ing in the Middle East due to insufficient infrastructure,water supply hours in many cities in India are less than20 hours per day. In urban areas, the demand for water is



Source: Compiled based on various materials.

Figure 1. Overview of the water business

Water recycling and reuse system

Seawater desalinationRecycled water

Bottled water

Drinking water

(1) Water intake/reuse

(3) Distribution and supply

(2) Purification

(4) Wastewater/sewage treatment

Business areas

Development of purification plants; sales of pumps and purification equipment

Addition of chemicals; membrane filtration, etc.

Water management; water transport, etc.

Development of water supply stations; development of water distribution pipes

Sludge treatment; wastewater

Development of pipelines; development of treatment facilities

Operation and maintenance

(O&M)

Key devices (supplying parts and

components and providing technology)

• Financing• Information systems• Related services

Plant engineering, procurement and construction

(EPC)

Customer services(Reading meters,

collecting fees, etc.)

Industrial water

Agricultural water

Major markets

Relatedmarkets

Relatedmarkets

Powergeneration, agriculture,

etc.

Recycling,etc.

Wastewater

Industrial wastewater

Development of dams, reservoirs and channels; water export; water transport


greater than the capacities of the distribution pipes andthe ratio of old pipes is high, causing frequent occur-rences of water leakage, stolen water and unpaid fees.As a result, the percentage of non-revenue earning wateris high at 20 to 50 percent, putting pressure on manage-ment performance. In Thailand and countries in the Mid-dle East and Central America, needs for bottled waterare rising (Figure 3). As such, in some cases, manyemerging countries do not necessarily expect tap waterto be potable.

As explained above, many countries in SoutheastAsia, Oceania, the Middle East, Central and SouthAmerica and Africa where water demand is predicted toexpand do not have abundant water resources and arenot equipped with facilities for the supply of high qualitywater and the treatment of wastewater as Japan does.Because of these situations, needs will increase for busi-nesses that can ensure a stable water supply, establishthe basis for sustainable management and build a low-cost water supply and treatment system.



10.6 0.7

0.2

0.4

7.8

6.6

7.5

19.8

3.4

14.4

19.0

5.3

21.2

2.1

20.7

28.7

35

30

(¥ Trillion)

(¥ Trillion)

25

20

15

10

5

02007 0908 10 11 12 13 14 15 16 (Year)0.1

2.2

15.2

21.9

30

20

25

15

10

5

02007 0908 10 11 12 13 14 15 16 (Year)

Note: The market size is calculated at an exchange rate of ¥100/dollar.Source: Compiled based on Global Water Market 2008 and materials published by the Ministry of Economy, Trade and Industry.

Note: The market size is calculated at an exchange rate of ¥100/dollar.Source: Compiled based on Global Water Market 2009.

Figure 2. Water business outlook

2007

¥36.2 trillion ¥86.5 trillion

2025 Drinking water (construction and O&M)

Wastewater (construction and O&M)

Supply of materials and devices, consulting, construction, engineering, etc.

Operation and maintenance

¥16.9 trillion

¥48.5 trillion

¥38.0 trillion

¥19.3 trillion

Wastewater

Wastewater

Drinking water

Drinking water

Recycled waterIndustrial water and wastewater

Industrial water and wastewater

Seawater desalination Western Europe

OceaniaOther regionsSub-Saharan AfricaSouth America and CaribbeanNorth AmericaSouth AsiaEast AsiaMiddle East and North AfricaEastern Europe and Central Asia

Western Europe

OceaniaOther regionsSub-Saharan AfricaSouth America and CaribbeanNorth AmericaSouth AsiaEast AsiaMiddle East and North AfricaEastern Europe and Central Asia

(%)18

16

14

12

10

8

6

4

2

0

–2

–40 10 20 30 40 50 60 70

Source: Compiled based on the U.S. and International Bottled Water Developments and Statistics for 2008.

Figure 3. Consumption of bottled water

Global average

: Countries in Asia, Middle East or Central America

France

Per capita consumption (gallon)

Bulgaria

Hungary

United Arab Emirates

Mexico

Croatia

ThailandU.S.

Slovenia

LebanonCzech RepublicAustria

CyprusSwitzerland

GermanyBelgium and Luxembourg

Italy

Spain

Qatar

Saudi Arabia

Compound annualgrowth rates:2003 – 2008


III Challenges Facing Japan in Promoting International Development of the Water Business

In the future, Japan is expected to develop a stable waterbusiness from the mid-term perspective while meetingdiversified demands for water in emerging countries, asexplained in Chapter II.

The water business can be divided into four areas(Figure 4):

(1) Key devices (supplying parts and components andproviding technology)

(2) Plant engineering, procurement and construction(3) Operation and maintenance (O&M)(4) Business management, customer management,

fee collection

Among these areas constituting the water business, thearea of key devices in Item (1) presents extremely lowrisk and high profitability. While the profitability ofoperation and maintenance in Item (3) is low, once acompany acquires the concession, it is likely that thecompany can operate the business stably for 10 to 20years or even longer. In addition, the company can par-ticipate in procuring materials, equipment and technol-ogy on the side of issuing orders and will have some sayin determining specifications and standards. Dependingon the situation, it might be possible to invite bids basedon conditions that are advantageous to the company’sown country. This is possible, not only in the fields ofdrinking water and wastewater, but also in a variety of

other businesses constituting a water circulation cyclesuch as seawater desalination, industrial water supplyand water recycling.

As people in various fields have pointed out, Japanesecompanies are strong overseas in fields such as pumps,ozone treatment, power generation plants and sewagetreatment, which precisely falls under Item (1), i.e., pro-viding key device technology. To date, it was believedthat businesses selling products and technology enjoythe most benefit in terms of risk vs. return. In the future,however, companies should be ready to take on morerisk and actively become involved in operation andmaintenance, enabling them to take the initiative in thewater business as a whole.

In the two years of 2008 and 2009, almost all compa-nies that invested in world business entities operatinglarge-scale water and wastewater facilities as the largestshareholders were those of France, Spain and the UK.When we see the form of participation in overseas waterand wastewater operations, we find that in many cases acombination of a water operator conducting a globalwater business such as Veolia Environnement and GDFSuez and a general trading firm is involved. As such, theinternational presence of Japanese companies in the fieldof water business operations is weak. The two problemsdescribed in the following sections can be identified asthe major reasons for such weak presence.

1 Japan is unprepared to meet businessrequirements expected by emergingcountries

From the perspective of a country where the water busi-ness is operated, water service is part of the public ser-vices that protects people’s lives and forms an element



Notes: 1) Relative scale is calculated for water and wastewater businesses based on the values predicted in Global Water Market 2010 until 2016. 2) The number of years of operation and profitability are provided only for reference purposes based on interviews, etc.

Figure 4. Revenue structure of the water business

Focus is on business scale and long-term operation

Focus is on profitability

(1) Key devices (supplying parts and components, and providing technology)

Period during which revenue can be obtained from single business

Profitability (operating profit in developed countries)

(2) Plant engineering, procurement and construction

(3) Operation and maintenance

(4) Business management, customer management and fee collection

10 years or more(which nearly equals the

period of facility operation)

Once(excluding maintenance

and operation)





12% About 3 – 5% About 5% About 5%

Relative scale 43%— 57% —

Giving influenceGiving influence


of national infrastructure supporting the country’sstrength. Accordingly, market participants are closelyscrutinized to see whether they have the abilities andexpertise necessary to properly resolve issues facing thecountry such as those related to water resources, sanita-tion facilities and business management, and to provideservices in a stable manner over a long period.

Such strict requirements are reflected in bidding con-ditions. For example, one Asian country requires a com-pany to have the following abilities and experience2 tobe eligible for participating in the bidding process forwater and wastewater services: the company must main-tain a good financial standing and have experience in atleast two projects of managing and operating large-scalefacilities in developing countries. The Asian Develop-ment Bank has also prepared a template of tender speci-fications that requires market participants to haveexperience in managing and operating facilities of a pre-scribed scale or larger, management ability as seen froma financial position, overseas achievements and otherrelated capabilities.

Japan’s water service industry has the world’s highestlevel of technology and experience as represented by anextremely low water leakage rate of around 5 percent,24-hour water supply and water quality standards thatare higher than those prescribed in the Guidelines forDrinking Water Quality published by the World HealthOrganization (WHO). However, it is difficult for Japa-nese companies that have little experience in operatingwater business overseas to meet all the bid requirementsdescribed above.

Furthermore, emerging countries have diverse needsfor the entire cycle of water intake, treatment and recy-cling, which do not necessarily follow in the same direc-tion as that pursued by Japan’s water services.According to a questionnaire survey conducted by NRIin February 2010, respondents in Asian countries havethe impression of “good quality, but high fees” withregard to Japan’s water infrastructure. These survey find-ings indicate that it is difficult to simply sell Japan’stechnology and systems. Japanese companies are able toknow of the needs of emerging countries through gen-eral trading firms that are actually developing projects inthese countries or through engineers dispatched for tech-nical cooperation, experts in municipal waterworksbureaus and consultants. However, it seems that theircapabilities are poor in terms of presenting business pro-posals to emerging countries, municipal agencies and/oroperating entities in these countries based on the needsthey learned.

2 Japan’s water business players that areneeded to promote internationaldevelopment are dispersed

When we look at the current water business players, wefind that the achievements, experience and enthusiasm

that are necessary to operate water businesses in over-seas markets are scattered in multiple organizations (Fig-ure 5).

Most expertise and achievements related to waterbusiness operations (budget, plan formulation, regula-tion, operation, management and supervision, emer-gency response, etc.) are vested in municipalgovernments and their officials. Currently, the waterand wastewater services provided by municipalities arehandled by some 9,000 operating entities. This numberfar exceeds the number of municipalities. These operat-ing entities provide services as public services in eachof the business categories classified according to theusage purpose such as drinking water, wastewater,industrial water and small water-supply systems. Vari-ous laws and regulations governing municipal waterand wastewater services such as the Local PublicEnterprise Law and the Waterworks Law are designedto promote the smooth implementation of serviceswithin Japan, and do not assume international develop-ment.

In addition, municipal officials feel strongly that theyare working for the citizens and are not so highly moti-vated to provide water services for more than ten yearsin foreign countries that are far from Japan. When welook at the private enterprises that recognize the needsfor achievement in international projects, we are unableto find companies that can take the lead in developingoverseas projects although many companies in eachindustry can offer high quality services in water treat-ment, plant engineering and construction, as well ascustomer services.

As such, currently, we are not yet in a situation whereall water business players are unified in moving towardinternational expansion with the same attitude and withthe aim of achieving the same goals.

Nevertheless, more attempts are being made for theinternational development of water businesses. In2009, Team Water Japan was launched to addressdomestic and global water problems through the col-laboration of industry, academia and government.Organizations such as the Global Water Recycling andReuse System Association and Team Water IndustryJapan are conducting activities to promote interna-tional expansion. These activities are noticeable in thatchances to participate in global water businesses aregiven to all organizations that are willing to enter suchmarkets regardless of whether they are in the public orprivate sector or are under the jurisdiction of any par-ticular ministry or agency. However, the national andmunicipal governments and the water industry are stilltaking separate approaches to promote internationaldevelopment for their own purposes and from theirown positions. As such, it appears that moves have yetto reach the stage where all efforts of the private andpublic sectors are integrated to strongly boost overseasexpansion.




IV Global Strategy of World’s Leading Water Service Companies

In comparison with the current status in Japan, this chap-ter examines the strategy and organizational formatadopted by water service companies in other countriessuch as those in Europe that have many achievements tofacilitate global water business. In fact, most of theworld’s leading water companies have become involvedin water business operations in countries other than theirhome countries (Table 1). The following sections presentthe approaches adopted by these companies.

1 Moves into global markets based onexperience in home countries

Veolia, Suez, and Thames Water (UK), which are lead-ing water service companies and are dubbed “water

majors,” have built their strengths by accumulating theexperience of offering services such as water treatmentand the management and operations of facilities for thepublic authorities of their home countries.

Among them, the world’s leader, Veolia, was estab-lished in 1853 and has a history of more than 150 years.Of its annual consolidated sales of ¥4,300 billion in2008, the water division accounted for nearly 40 percent,or ¥1,700 billion. This scale corresponds to slightly lessthan 60 percent of Japan’s entire water service market.In France, Veolia has engaged in outsourced water andwastewater service operation and maintenance, and hasbeen awarded concession contracts under which worksuch as fee collection, operation and maintenance hasbeen conducted over a long period. The company alsohas experience in peripheral businesses such as watertransport. By drawing on its expertise and experience insuch a wide range of fields, the company has met diversebusiness needs arising in international markets.

In 1880, Veolia moved into markets outside Franceand, since 1980, has operated water services in Africa,



Notes: 1) Companies listed in this table are based on materials published by the Ministry of Economy, Trade and Industry; the table does not necessarily cover all companies involved in the water business. 2) Companies listed as domestic operation and maintenance companies are those that have operated projects contracted by municipal governments.Source: Compiled based on materials published by the Ministry of Economy, Trade and Industry.

Figure 5. Industrial structure of the water business

Key devices(supplying parts and

components, and providing technology)

Plant engineering, procurement and

constructionOperation and maintenance

Municipal governments and public-private joint ventures

Business management, customer management

and fee collection

Japanesecapital

Foreigncapital

Water service companies Engineering companies

Domestic operation and maintenance companies

General contractorsand others

• Membrane systemsAsahi Kasei Corporation; Kuraray Co., Ltd.; Sasakura Engineering Co., Ltd.; Toyobo Co., Ltd.; Toray Industries, Inc.; Sekisui Chemical Co., Ltd.; Teijin Limited; and others

• Mechanical systemsAsahi Organic Chemicals Industry Co., Ltd.; Ebara Corporation; Kubota Corporation; Kobelco Eco-Solutions Co., Ltd.; Toshiba Corporation; Torishima Pump Mfg. Co., Ltd.; Nitto Denko Corporation; and others

• Electrical systemsHitachi Plant Technologies, Ltd.; Mitsubishi Electric Corporation; Mitsubishi Rayon Co., Ltd.; Meidensha Corporation; Yokogawa Electric Corporation; and others

IHI Corporation; Organo Corporation; Kyowakiden Industry Co., Ltd.; Kurita Water Industries Ltd.; JFE Engineering Corporation; Suido Kiko Kaisha, Ltd.; Chiyoda Corporation; JGC Corporation; Hitachi Zosen Corporation; Hitachi Plant Technologies, Ltd.; Mitsubishi Kakoki Kaisha, Ltd.; Mitsubishi Heavy Industries, Ltd.; and others

Nihon Hels Industry Corporation; Meidensha Corporation; Tsukishima Kikai Co., Ltd.; and others

Customer service companies

Home delivery service companies Jenets Co., Ltd.; DK Corporation; and others

Other companies involved

Utilities (power and gas) and others

Areas in which only a limited number of Japanese companies have participated

Veolia Environnement (France); GDF Suez (France); Saur (France)

Hyflux Ltd. (Singapore)

IBM (U.S.) IBM IBM

General Electric Company (U.S.); Siemens AG (Germany); and others

Siemens Water Technologies (Germany); GE Water & Process Technologies (U.S.)

Domesticoperation

Globaloperation

Globaloperation

Water-related companies Trading companies

ITOCHU Corporation; Sumitomo Corporation; Sojitz Corporation; Mitsui & Co., Ltd.; Mitsubishi Corporation; Marubeni Corporation; and others

Japan Water Corporation; J-TEAM; Sumiju Environmental Engineering Co., Ltd.; Metawater Co., Ltd.; and others


Asia, North America and South America for 30 years.While about 70 percent of all sales come from EuropeanUnion (EU) markets, Veolia has a presence in all fivecontinents. The company has also invested in Aguas deBarcelona, which is a major water service provider inSpain, and has indirectly become involved in its interna-tional business operations.

SAUR, which is France’s third largest water serviceprovider in terms of annual sales (about ¥120 billion),has adopted the strategy of specializing in water businessoperations under contracts with small- and mid-sizedmunicipalities in France. SAUR is also active interna-tionally. It has received orders for water business opera-tions in areas where the presence of Europeancompanies is limited such as the US, Poland, Spain,Mali and Senegal.

In Germany, companies that have grown by offeringoutsourcing services to municipalities are now interna-tionally active service providers. Gelsenwasser, whichwas established in 1887 as a regional water provider inLand Nordrhein-Westfalen in the northwest part of Ger-many, is now Germany’s largest public utilities com-pany covering the fields of drinking water supply,wastewater treatment and natural gas supply. The com-

pany has contracts with 39 municipalities to providethese services.

In 2000, about 120 years after its establishment, thecompany moved into international markets by purchas-ing shares of companies that had contracts for offeringwater and wastewater services in some areas of Franceand Poland.

In Asia, Singapore’s Hyflux, which was established in1989 as a water service company operating in Singaporeas well as in neighboring countries such as Thailand andMalaysia, has accumulated technology and managementcapability through its experience in reclaiming usedwater (new water) and winning contracts for seawaterdesalination facilities. After only 5 years, in 1994, thecompany moved into China, and into the Middle East in2004 and India in 2006. In 2007, the company won acontract to construct and operate Algeria’s largest sea-water desalination plant.

2 International operations by multinationalmanufacturers

Heavy electric equipment and electric appliance manu-facturers that are supplying water-related equipment are



Source: Compiled based on Global Water Market 2008.

Table 1. Moves into global markets by the world’s major water service companies

GDF Suez

Veolia Environnement

SABESP

American Water

ACEA

Aguas de Barcelona

SAUR

FCC

COPASA

United Utilities

Bouygues

Agbar

Andrae Gutierrez

Severn Trent

AWG

Gelsenwasser

France

France

Brazil

U.S.

Italy

Spain

France

Spain

Brazil

U.K.

France

Spain

Brazil

U.K.

U.K.

Germany

FranceChinaArgentina

ChinaMexicoGermany

Brazil

U.S.Canada

ItalyColombia

Only Spain

FranceChina

SpainCzech Republic

Only Brazil

U.K.IndiaBulgaria

Cote d’IvoireSenegal

ChileCuba

Only Brazil

U.K.Trinidad and TobagoItaly

U.K.China

GermanyHungary

99.57

53.27

22.60

14.69

13.20

12.80

12.17

11.55

11.30

10.42

9.57

9.26

8.10

7.93

6.63

5.21

Company Home country Population served by water supply(million persons)

Population served(million persons; approximate)

17.0015.009.50

21.006.005.20

14.000.70

7.003.90

5.503.50

9.501.00

6.801.601.20

5.003.80

6.001.35

7.280.400.25

4.002.50

4.650.19

Major operating markets


also engaged in water business operations all over theworld.

With 6,000 employees around the world, SiemensWater Technologies headquartered in Germany, a com-pany in the Siemens group, operates more than 200,000technology and service installations in 179 countries.This company is characterized by its strategy of estab-lishing close relationships with customers rather thanpursuing rapid growth. GE Water & Process Technolo-gies, a company in the General Electric group, has a his-tory of more than 100 years. In both cases, their parentcompanies, Siemens and GE, established companiesspecializing in water and wastewater businesses throughrepeated mergers and acquisitions of companies that hada customer base and core technologies. Currently, thesecompanies are offering services and solutions on a one-stop basis to address the issues related to all processes ofa water recycling system.

In Asia, Doosan Heavy Industries & Construction,which is one of Korea’s largest heavy industrial manu-facturers, is active in the international development ofbusinesses focusing on the construction of seawaterdesalination plants. Primarily in countries of the MiddleEast, Doosan is moving to expand their areas of businessbeyond plant construction to include peripheral busi-nesses.

3 International development by public-private partnerships

In some cases, municipal governments operating waterand wastewater services form alliances with private-sector enterprises to move into the international watermarket. In Berlin, Berlinwasser Holding AG is engagedin water and wastewater management for 3.5 million

people. The shareholders of this company are the state ofBerlin with a share of 50.1 percent and two companies,Veolia and RWE (German utility company), each own-ing 24.95 percent. In the past ten years, its subsidiary,Berlinwasser International AG (BWI), expanded itsbusiness from Europe as its base into China, African andother countries. Currently, with about 2,300 employeesin 12 countries, the company’s equity capital is 37 mil-lion euros (Figure 6).

The method by which BWI has moved into interna-tional markets is unique. Starting with the operation andmaintenance of wastewater disposal systems in Budapest,Hungary, which is a neighboring country and has similarculture and climate, BWI subsequently expanded its ser-vice areas to include Asia, South America and Africa. Ineach of these regions, the company won a contract for aflagship project, which the company then used as a basefor developing business in surrounding areas.

By way of example, in China, BWI started with build-ing and operating the drinking water supply plant inXi’an, and then moved into Nanchang and Hefei. InAfrica, it is interesting to note that the company had con-tracts with cities in Namibia, which has close political andcultural ties with Germany. Unlike the water majorsdescribed in Section 1, rather than aiming to receive along-term contract (BOT (Build Operate Transfer) pro-jects, concession agreements, etc.) from the beginning,BWI first obtained fee-based contracts for consulting andfeasibility studies to reduce the percentage of non-revenueearning water. After making ample studies, the companyembarked on full-scale operations. Because the State ofBerlin is its major shareholder, it is reasonable to assumethat the company adopted the strategy of moves in stagesfrom the perspective of both making an international con-tribution and pursuing profitability as a business.



Note: IT = information technology.Source: Compiled based on websites of the Berlinwasser Group.

Figure 6. Overview of Berlinwasser International (BWI)

State of BerlinVeolia (24.95%)RWE (24.95%) Berlinwasser Group

(2009)Sales: 1.2 billion eurosEmployees: about 5,300

50.1% 49.9%

50.1%

49.9%

100%Holding company(Berlinwasser Holding AG)

Berliner Wasserbetriebe (public law corporation)

Offering water and wastewater services in Berlin and the surrounding region (water supply to 3.5 million people; wastewater treatment for 3.9 million people)

Berlinwasser International AG(Employees: about 2,300, equity capital: 37 million euros)

Berlinwasser Regional GmbH (consulting on a national level)

Berlinwasser Services GmbH (IT services)

bluepartner GmbH (customer services)

p2m berlin GmbH (engineering services)

perdie.net GmbH (personnel education, training and placement, etc.)

pigadi GmbH (evaluation and diagnosis of the operation and maintenance of drinking water; comprehensive well service)


A financial scheme for projects requiring investment ofapproximately one million euros or more is that BWI paysabout half of the needed investment amount, with theremaining amount financed by a loan from Kreditanstaltfür Wiederaufbau (KfW), a promotional bank under theownership of the Federal Republic and federal states.

4 Domestic business structure and theextent of deregulation affect internationalexpansion

When we look at moves made by water companiesaround the world into global markets, their strategiesvary widely.

Behind the growth of the world’s leading water ser-vice companies, Veolia and Suez, is a long history ofseveral hundred years of experience and achievementswithin the French domestic market. On the other hand,Siemens and GE have worked to grow their businessesas multinational companies. As part of these efforts, theyhave autonomously developed water business operationsin global markets. As represented by the case of BWI,when municipal governments already have a greateramount of resources such as personnel, technology andorganizational strength, skillful collaboration with

enthusiastic private-sector companies (water servicecompanies) that have achievements in global marketswill open the way towards international development. Assuch, the optimal format to adopt to move into globalmarkets varies according to the maturity of domesticcompanies, the extent to which public services are opento the private sector and the scale of an operating entitythat aims to develop international operations.

V Specific Measures to Promote Japan’s Global Water Business

It was in 1980 that Veolia began expanding businessbeyond its home country of France into EU memberstates, and it was in the mid-1990s that the companyentered the markets of countries other than EU nations.Compared to these moves, Japanese companies areapproximately 30 years behind European companies intheir approaches to international markets. Nevertheless,because Japan is a latecomer, it can learn from the fail-ures encountered by first comers such as a riot started byresidents due to a large increase in water prices and the



Notes: 1) The sizes of the circles represent the relative scale of covered population and project. 2) BOT (Build, Operate, Transfer) is a scheme in which a contractor builds, operates and transfers a facility. TOT (Transfer, Operate, Transfer) is a scheme in which a facility is transferred to a contractor; the contractor operates it during a concession period and transfers said facility to its original owner. 3) The number of years in brackets (< >) refers to a contract term.Source: Compiled based on the website of Berlinwasser International AG (http://www.berlinwasser.com/content/language1/html/index.php), GWI reports and other materials.

Figure 7. Berlinwasser International’s strategy for moves into global markets

Concession, BOT, TOT, etc. Operation and maintenance Consulting and feasibility studyTime Time

Businessdevelopment

Businessdevelopment

Europe

Asia and the Middle East

Africa and South America

China

Budapest, Hungary (wastewater), 1997Concession <25 years>

Elbasan, Albania(drinking water and

wastewater),2002 <4 years>

Services continued and expanded

Services continued and expanded

2006Concession<30 years>

Four cities in Albania (drinking water and wastewater), 2003

Imishli, Azerbaijan (drinking water),2002 <10 years>

Rajasthan, India(drinking water),2007

Istanbul, Turkey(wastewater), 2003

Tarsus, Turkey(wastewater), 2002

Four cities in Ukraine(drinking water), 2005

Adana, Turkey(drinking water), 2007

Kiev, Ukraine(wastewater), 2008

Bangkok, Thailand,2001

Hanoi, Vietnam(wastewater), 2004

Baku, Azerbaijan (drinking water), 2005

Karak, Jordan(drinking water), 2007

Four cities in Serbia(drinking water and

astewater), 2006

BOT <1.5 years for construction and 20 years for operation>

Panjin (wastewater),2010, TOT<30 years>

Swakopmund, Namibia(drinking water),1998 <5 years>

Windhoek, Namibia(reclaimed water),2002 <20 years>

Belo Horizonte, Brazil(reclaimed water), 2006

Hefei (wastewater)2004, TOT<23 years>

Wuhu and Wujiang,(water companies), 2004

Yuanping (wastewater),2010, TOT<30 years>

Xi’an (drinking water),1997

2003BOT

<20 years>

Nanchang (wastewater),2004

Pristina, Albania (drinking water and wastewater), 2006

Services continuedExpanding

facilities


cancellation of a contract by a country where serviceswere offered prior to the expiration of a contract period.While studying these failures, consideration can be givento how to draw on Japan’s strengths to move into globalmarkets.

Currently, Japan faces the challenge of how best tocontribute to world development, in particular, to thegrowth of Asian countries in order to increase its inter-national presence. To meet this challenge, future activi-ties should be based on a “Japanese-style internationaldevelopment model linking economic cooperation andbusiness” in which, while providing solutions to water-related issues facing Asian countries, the possibilities ofdeveloping business are sought.

Japan has only limited achievements and experiencein water business operations in international markets.Accordingly, rather than pursuing comprehensive globaldevelopment, the targets should be countries, cities andregions that can prove to be beneficial to Japan from themid- and long-term perspectives. In setting such targets,a system must be established that enables theautonomous development of a series of activities fromplanning a project to receiving an order.

To date, studies have been made on the direction ofJapan’s approaches to international development primar-ily by the Ministry of Economy, Trade and Industry, theMinistry of Health, Labour and Welfare, the Ministry ofLand, Infrastructure, Transport and Tourism and waterindustries. These organizations have presented proposalsand suggestions from a multilateral perspective. The fol-lowing sections discuss the direction of four priorityareas, i.e., an important strategy from the perspective ofadvancing Japan’s growth, a promotional structure forthis purpose, a financing program and economic cooper-ation.

1 Adopting a strategy for internationaldevelopments by limiting targetedcountries and cities

When we see moves by European countries includingBWI into international markets, we find that water andwastewater services were expanded in either of two for-mats: “area-based development” in which services areconcentrated on multiple cities in a single country and“time-based development” in which a company isinvolved in a single project for long time from the plan-ning to implementation stages. If a company can receivean order for all multiple projects located adjacent toeach other, management efficiency improves. If a com-pany can be involved in all the processes of a singleproject from formulating a plan to operating water ser-vices, the company can gain an understanding of theactual status of water usage in the country where itoperates, which can lead to opportunities to participatein related water markets such as agriculture, recyclingand transport.

As these cases suggest, Japan should determine targetcountries, cities and areas by examining the situationsthere such as the stage of economic development, waterresources and acceptability of doing business with Japa-nese companies. It is effective to identify the targetcountries, cities and regions with which long-term rela-tionships could be established through service opera-tions, while making the best use of the technology andmanagement skills accumulated in Japan (Figure 8).Specifically, countries such as Taiwan, Australia, Viet-nam and countries in the Middle East merit attention forseveral reasons: (1) these countries have close relation-ships with Japan in terms of historical background andresource trade; (2) Japan’s economic cooperation ishighly valued as compared to other countries and (3)certain environments exist that facilitate the acceptanceof Japan’s technology, services and management capa-bilities because of weather conditions, susceptibility todisaster, etc. Among these countries, it would be reason-able to select cities and areas facing the following prob-lems:

• A rapid increase in population has created a demandfor additional water supply and treatment beyondplanned volume.

• A need exists to replace the entire water supply andtreatment infrastructure and system in order to pre-vent any accident caused by obsolete infrastructure(pipes, etc.).

• Management performance must be improved byminimizing the rate of water leakage and the rate ofnon-revenue earning water and by preventing stolenwater and unpaid fees.

• Water infrastructure that was damaged by an earth-quake or flood requires reconstruction.

• Accelerating environmental pollution has created aneed for establishing a system to supply a minimumlevel of safe drinking water.

• Because a utility company operating services otherthan water services purchased (invested in) a com-pany operating water and wastewater services in thetarget country, the company needs to acquire exper-tise and strengthen its capabilities to operate suchservices, and increase the number of skilled person-nel.

When we look at the markets in Asia, we see many largecities with expected high water demand that are notserved by major overseas water service companies, suchas large cities around provincial capitals mostly in inlandChina, cities in India, and second- and third-tier cities inASEAN (the Association of Southeast Asian Nations)countries (Figure 9). Various reasons have been pointedout for preventing the establishment of business in thesecities such as the issue of a social system, regulationsimposed on foreign capital companies, unstable publicorder and disasters. However, because such problems




exist, there is room for Japan to become involved inwater and wastewater projects starting from theupstream fields such as formulating a master plan andproviding support in developing local personnel. Theseactivities could lead to the development of business.

2 Building and reinforcing anorganizational structure to promote theinternational water business

Emerging countries face diverse water-related challengessuch as the need for solutions to providing water whereresources are scarce, the improvement of a sanitary envi-ronment, the extension of water supply hours, the recon-

struction of infrastructure damaged by an earthquake orother disasters and the improvement of fee collection. Tomeet these needs, a highly feasible proposal for estab-lishing a system must be made to working-level officialsof the target country at the stage before a project is setup. An organization that is strong enough to realize sucha proposal as a business is required. This organizationshould be formed by the government (responsible fordiplomacy), municipal governments (operating entities)and the private sector (responsible for setting up pro-jects, engineering, technology, supply of materials andequipment, and providing financial support) throughcross-sector (public and private sectors) and cross-field(water and wastewater fields) collaboration.



Note: Country classification based on per capita GNI (gross national income).Upper-middle-income countries: $3,706 – $11,455, lower-middle-income countries: $936 - $3,705, low income countries: $935 or less.

Figure 8. Conceptual direction of Japan’s strategy for global water business

Upper-middle-income countries and countries with higher per capita GNILower-middle-income countries

Low income, poor and least developed countries

• Need for the development and/or replacement of infrastructure primarily for seawater desalination and water recycling

• Foreign capital companies have begun operating in large cities

• High demand for the development of key infrastructure that delivers water from seawater desalination plants to inland areas

• Need for the reconstruction of water and wastewater infrastructure that was damaged by war or disaster

• Lack of basic water infrastructure (adequate water facilities are urgently needed from a sanitary standpoint)




• Water and wastewater infrastructure has generally been developed (90% in China)• With facilities becoming more and more obsolete, there is demand for the replacement of

purification facilities• The rate of water leakage is high.• There are problems in drawing water from rivers (Latin America)• In some cases after foreign capital companies entered the markets, the operation of water

services was shifted back to a municipal water company (Manila, etc.)• Suburban area development created a demand for the development of new water and

wastewater infrastructure

Reg

ion

s with

relatively amp

le water reso

urces

(Asia, L

atin A

merica, etc.)

Example of target areas

Example of target areas

Reg

ion

s with

limited

water reso

urces

(Ocean

ia, the M

idd

le East, A

frica, etc.)

Inadequate water and wastewater facilities (rate of water leakage is high)

Iraq, Iran,Jordan, Egypt

Australia, South Africa, Oman, Saudi Arabia, Others

African countries

Cambodia, Vietnam India, Indonesia, the Philippines, China

Malaysia, Brazil, Chile, etc.

Low HighPayment capability and sanitary environment

Per capita GNI

Country

Small- and mid-sized

cities

Capitalsand

major cities

Country

Small- and mid-sized

cities

Capitalsand

major cities

Relativelyample

Relativelylimited

Waterresources

and possibilityof water use

• With a rapid increase in the future population in urban areas, demand for the development of water and wastewater infrastructure will expand in each city (India)

• Need for extended water supply hours (India)


However, when we look at Japan’s water businessindustries, because of a great number of participatingplayers, it is highly likely that a long time and a greatdeal of labor would be required before a full-fledgedorganization could be established. Accordingly, a realis-tic solution is to set up an organization that can beinvolved up through service operations in stages,depending on the target country and the type of targetedwater business. The methods required to establish suchan organization include the following three (Table 2).

(1) Forming a joint venture with a municipal govern-ment that has operated water service in thedomestic market and a private-sector company(general trading firm, engineering manufacturer,construction company, etc.) that has experience inmoving into international markets; or using anexisting water-related public-private joint venture.

(2) Purchasing or investing in a company (either pub-lic or private) that has experience in operating abusiness in international markets to acquire thenecessary experience, expertise and technologyrelative to overseas projects.

(3) Transferring the technology, experience and per-sonnel that Japan’s municipal governments haveto a private-sector company in order to foster awater service company.

The appropriate method should be flexibly selecteddepending on the characteristics of the target project andaccumulated expertise. For example, Case (1) should be

adopted for a large-scale project operating water andwastewater services by using multiple facilities; Case (2)for the operation of facilities and plants. In any case, thenational government’s leadership, which is demonstratedregardless of which ministry or agency has jurisdiction,is essential in establishing partnerships.

3 Tie-ups among public and privatefinancing programs to support long-term,stable business operations

To pursue stable water business operations in emergingcountries, a large outlay of funds is required in a varietyof fields such as the replacement of pipelines, purifica-tion and water supply facilities that have become obso-lete, the development of water resources and theestablishment of a fee collection system. In addition,there are many cases in which at least a minimum invest-ment is required in a water service operating entity ofthe target country in order to take part in a concession. Itis very difficult to raise these funds in emerging coun-tries that have little investment capacity and provide alimited means of raising funds. Accordingly, moneyfrom Japan that is invested in high-risk high-return pro-jects should be used. Additionally, funds should besought from financial institutions and investors in thetarget country.

In fiscal 2008, Japan disbursed some ¥220 billion asODA (official development assistance) funds and sentnearly 500 experts in the water and hygienic fields torecipient countries. These numbers are greater than



Note: The locations of capitals and major cities are shown in the above map.Source: Compiled based on the Global Water Market 2008 and other materials.

Figure 9. International moves by French water service companies (Veolia and Suez) in Asia and other regions

Morocco

RabatFès

Algeria

AlgiersTunisia

Tunis

Marrakech

Libya

TripoliBanghazi

Egypt

Alexandria

Cairo

Turkey

IstanbulAnkara

Syria

Damascus

LebanonJerusalem

JordanAmman Iraq

Kirkuk

BaghdadIran

Tehran Mashhad

KuwaitQatarDoha

Saudi Arabia

Riyadh

Jiddah

YemenSanaa

UAEDubai

Abu Dhabi

Oman

Muscat

AfghanistanKabul

Pakistan

Islamabad

Karachi

India

New Delhi

Mumbai

Chennai

Kolkata

Sri LankaColombo

NepalKathmandu

Bhutan

Bangladesh

Dhaka

Myanmar

RangoonLaos

VientianeThailand

Bangkok Vietnam

Hanoi

Ho Chi Minh City

CambodiaPhnom Penh

MalaysiaKuala Lumpur

Kota Kinabalu

Singapore

Indonesia

Medan

JakartaSurabaya

East Timor

Brunei

Philippines

Manila

Davao City

TaiwanTaipei

Kaohsiung

China

UrumqiSiping

ShenyangBeijing

Baoding TianjinQingdao

BaojiZhengzhou Nanjing

ShanghaiChengdu

Chongqing

Kunming Zunyi Nanchang

Guangzhou

Baoji

North Korea

Pyongyang

South Korea

SeoulIncheon

Veolia

Suez

Busan

Mongolia

Ulaanbaatar

Hong Kong


those in other fields such as communication, transportand energy. In addition, by means of ODA and OOF(other official flows), a large number of public financ-ing programs are available that provide funds to thegovernments of emerging countries and to Japanesecompanies that plan to move into such countries. How-ever, because these programs are managed basedstrictly on their respective intended purposes, they lackthe flexibility needed to meet the demand for fundsrequired in emerging countries. The basic purpose ofyen loans provided by the Japan International Coopera-tion Agency (JICA) is to provide “assistance” to devel-oping countries. Accordingly, it is likely to beconsidered that supporting the business operations ofJapanese companies is outside the purpose of this pro-gram. While export loans and overseas investmentloans provided by the Japan Bank for InternationalCooperation (JBIC) are the financing tools for compa-

nies (organizations) operating in overseas markets,these loans are provided for the purpose of earningprofit. Accordingly, financing cost might be a problemfor companies that are unable to earn more than a cer-tain level of revenue.

Japan’s public financing systems, which mostly con-sist of direct financing, are comparable to those of otherdeveloped countries. Currently, however, each programis individually and separately managed according to thedevelopment stage of the target country and dependingon the characteristics of a particular project. These pro-grams must be changed to a system that enables mutuallinkage among these financing programs includingthose available in the private sector and makes it possi-ble to supply the requisite funds quickly and seamlessly.Specifically, the public and private sectors shouldjointly study the establishment of the following systems(Figure 10).



Becoming a water servicecompany (operator)

Municipalgovernment

Private-sectorcompany

OrganizationJoint capitalinvestment

Public-privatejoint venture


Joint undertaking,alliance

Capital investment,joint undertaking

Becoming a water service company (operator)

AcquisitionCompany with experience as an operator

Company with experience as an operator

Overseas companies

Municipalgovernment

Opening water services to the private sector, promoting PPP



Company with experience as an operator

Notes: 1) PPP = public-private partnership. 2) An entry that combines these patterns is also conceivable.

Table 2. Patterns of Japan’s entry into international water markets

(1) Forming public-private partnerships

(2) Strengthening the functions of a private-sector company that has experience in moving into international markets

(3) Fostering a water service company (operator)

• Setting up a new organization jointly by a municipal government (or its auxiliary organization) that is an operating entity and a private-sector company

• Assumed patterns include establishing a joint venture through joint capital investment, capital participation (increase in capital) in an existing joint venture, and forming a partnership between a private-sector company and a municipal government

• Key issues are the selection of a partner from the viewpoint of impartiality and the governance of a public-private organization

• A company that has experience in moving into international markets such as a trading firm purchases, invests in and/or establishes a joint venture with a company that has experience in operating a water business overseas. While doing so, the company builds up its strength for international development

• While it is possible to strongly promote international development based on market principles, it is less easy to directly reflect the government’s intention

• The key issue is the identification of a company that is to be purchased

• Through promoting deregulation (opening water services to the private sector) or privatization in domestic markets, fostering companies that can operate water businesses

• With the strong support of the government, companies might be developed in three to four years in some cases. However, when we look at the cases in Europe, a longer period is necessary for a company to autonomously move into overseas markets

• BWI (Germany)

• Siemens (Germany) - Siemens Water Technologies

• GE (US) - GE Water & Process Technologies

• IBM (US)• Doosan Heavy Industries &

Construction (Korea)

• Veolia (France), Suez (France), Saur (France), Agbar (Spain)

• Thames Water (UK)• Gelsenwasser (Germany)• Hyflux (Singapore)

Entry pattern OutlineExamples of major overseas

water companies


(1) A financial system that supports the maintenanceof business stability in a company operating in theparticipating country

(2) A financial system that enables a seamless supplyof funds according to the level of progress in theeconomic development of the participating coun-try

(3) A package scheme that combines funds providedthrough local financing, international financingand private-sector financing programs

Germany’s KfW, which was mentioned in Chapter IV,enables companies participating in infrastructure pro-jects in overseas markets to use ODA funds and loanguarantee programs in addition to offering its owninvestment and loan products. These activities can beused for reference in studying new schemes.

4 Promoting economic cooperation thatcan lead to a reform of public servicesoffered by municipal governments

In emerging countries, water services are often operatedby municipal governments such as provinces, prefec-tures and cities. Therefore, providing solutions to theissues facing municipal governments and proposing aninstitutional framework that makes it easier to acceptJapan’s technology and services would lead to increased

opportunities for Japanese companies to be involved inthe essential parts of water businesses.

To deal properly with rapid economic growth andincreases in population, emerging countries mustquickly develop an infrastructure, embark on financialreconstruction and re-build a social system. Theseneeds are similar to those experienced by Japan duringits period of high economic growth. Accordingly, thereis a good chance of being able to transfer the fiscal,financial and local autonomy systems that Japan accu-mulated during that period. In the case of water andwastewater services, it is important to continue eco-nomic cooperation not only for the national govern-ment but also in a way in which such cooperation canlead to improved systems and services offered bymunicipal governments that have jurisdiction overthese businesses.

In the field of ODA, in addition to financial assis-tance such as general budget support (GBS) arrange-ments, assistance schemes in which a donor country isinvolved in the formulation of a poverty reduction planof a recipient country have already been implementedin Asian countries such as Vietnam and Cambodia.While making use of these schemes, comprehensiveassistance for water and wastewater services coveringnot only technology but also institutional, management,economic and accounting systems must be strength-ened.



Notes: 1) Country classification is based on the OECD’s DAC (Development Assistance Committee) List of Aid Recipients for 2008. 2) JBIC = Japan Bank for International Cooperation, JICA = Japan International Cooperation Agency.Source: Compiled based on materials published by Japan’s Ministry of Finance and other materials.

Figure 10. Overview of financial scheme tie-ups to support Japan’s international water business

Per capita GNI

Upper-middle income countries and countries with higher per capita

GNI

Lower-middle income

countries

Low income,poor and least

developed countries

Trade insurance (loan insurance,

investment insurance)

Loans to developing countries

JICA (loan

assistance)

JICA (grant aid)

Operation andmaintenance

Cooperation,support,

developmentinvestment

Area where cooperation is necessary to support water business

JICA (investments and loans) [assumed]

JBIC (export loans, overseas investment loans, united loans and equity participation)[Financing projects primarily in developing countries] Also financing projects in developed countries with respect to the import of natural resources

Private flows, funds

High

Low

Low High

Basic infrastructure(Developing large-scale water sources, drilling wells,

developing water supply facilities, etc.)

Large-scale infrastructure(Water distribution pipe networks,

purification plants, etc.)

Interestrate

Assumed profitability


VI Efforts towards International Development

It has been several years since attention was focused onthe need to promote Japan’s international water business.Rather than discussing strategies for international devel-opment simply from the theoretical perspective, the pub-lic and private sectors must jointly work seriously so thatJapanese companies can take the lead in receiving ordersfor as many representative projects as possible.

In May 2010, a consortium consisting of the Innova-tion Network Corporation of Japan, which was co-founded by the Japanese government and private-sectorcompanies, Mitsubishi Corporation, JGC Corporationand Manila Water Company acquired a 100 percentstake in United Utilities Australia Pty Limited. It wasannounced that United Utilities Australia, the Water-works Bureau of the Tokyo Metropolitan Governmentand Tokyo Suido Services Co. Ltd. would enter into aconsulting agreement. As such, moves have begun todevelop the international water business. The author sin-cerely hopes that these attempts can drive the establish-ment of a new Japanese-style international developmentmodel in which the expertise that Japan has accumulatedfor a long time in the field of water service operationscan be utilized in providing solutions to various water-related challenges facing the target country, city or area.Consequently, orders could be received continuously forwater-related businesses over a long period.

Notes:1 This forecast was published by Global Water Intelligence,

a research organization for the international water industry.2 Example requirements to be eligible for participating in the

bidding procedures include: (1) experience in the operationof water and wastewater services in at least two countriesincluding a developing country, (2) specifically, serving100,000 people, supplying 100,000 m3 per day and a rateof paid fees of 90 percent or more, (3) good management

performance (operating profit of $20 million or higher), (4)personnel responsible for general operation management,construction and finance must have at least 15 years ofexperience, and (5) experience in managing an expansionproject. These examples are indicated in Reference 1below.

References:1 Hiroyasu Saito, “Kanmin renkei—suidokai no kaigai shin-

shutsu wo kangaeru (Public-Private Partnerships—Consid-ering Moves into Overseas Markets by Japan’s WaterIndustry),” Suido Koron, April 2010, Nippon Suido Shim-bun.

2 Atsushi Miyawaki and Yasumoto Magara, Suido service gatomaranai tameni—suido jigyo no saikochiku to kanminrenkei (To Prevent Suspension of Water Service—Recon-struction of Water Business and Public-Private Partner-ships), Jiji Press, 2007.

3 Hiroyasu Saito, Suido jigyo no mineika · koumin renkei—sono rekishi to 21seiki no choryu (Privatization and Public-Private Partnerships for Water Service—Their History andTrends in the 21st Century), Nippon Suido Shimbun, 2005.

4 Kazunari Yoshimura, Mizu business—110 cho-en shijo nokobo (Water Business—Battle for a 110 Trillion Yen Mar-ket), Kadokawa Group Publishing, 2009.

5 “Expanding Opportunities for Global Water InfrastructureProjects,” JBIC TODAY, November 2009, Japan Bank forInternational Cooperation.(http://www.jbic.go.jp/en/report/jbic-today/2009/200911/index_02.html)

6 Yoshiaki Nakamura, Nihon no mizu business (Japan’sWater Business), Toyo Keizai, 2010.

7 Toshiyuki Hattori, Mizu business no genjo to tenbo—mizumajor no senryaku - nihon to shiteno kadai (Current Statusand Prospects of the Water Business—Water Majors’Strategies and Challenges Facing Japan), Maruzen Com-pany, 2010.

Fumihiko KAMIO is director of Strategy Research OfficeIII of NRI’s Center for Strategic Management and Innova-tion. His specialties include social capital policy, publiceconomy, policy evaluation and political finance.



As a leading think tank and system integrator in Japan, Nomura Research Institute is openingnew perspectives for the social paradigm by creating intellectual property for the benefit of allindustries. NRI’s services cover both public and private sectors around the world throughknowledge creation and integration in the three creative spheres: “Research and Consulting,”“Knowledge Solutions” and “Systems Solutions.”

The world economy is facing thorough structural changes led by the dramatic growth of ITindustries and the rapid expansion of worldwide Internet usage—the challenges of whichrequire new concepts and improvement of current systems. NRI devotes all its efforts toequipping its clients with business strategies for success by providing the best in knowledgeresources and solutions.

NRI Papers present selected works of NRI’s 5,000 professionals through its worldwide researchnetwork. The mission of NRI Papers is to contribute new ideas and insights into businessmanagement and future policy planning, which are indispensable for overcoming obstaclesto the structural changes in our society.

All copyrights to NRI Papers are reserved by NRI. No part of this publication may bereproduced in any form without the prior written consent of NRI.

Inquiries to: Corporate Communications DepartmentNomura Research Institute, Ltd.E-mail: [email protected]: +81-3-6660-8370

japanese strategy for global water business

Documents