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Industry Report

Industry reports, briefs and video-clips issued by Samsung Economic Research Institute

Finding Opportunities in the Water Industry

Finding Opportunities in the Water Industry

HA Joo Hyun

Nov. 30, 2011

Transcript

Welcome to our video program. I'm Joo-Hyun Ha from the Industry and Strategy Department I.

No substance other than air is more irreplaceable and essential to life than water. Water is a resource that is seemingly everywhere, easy to obtain, and unlimited in supply. Recently however, increasing scarcity has made water a highly valuable resource. According to a survey, growing populations, economic growth, and urbanization will continuously increase demand for water, but current water supplies will only meet 60% of demand by 2030.

At the same time, climate change, extreme drought and rainfall are growing in frequency and strength, making it more difficult to obtain water resources. This raises concern that a water crisis similar to the oil shocks of the 20th century is approaching.

What are the effects of water shortages on industries? Currently, industry is expected to show the highest demand for water on rapid economic growth across the world. Water shortages in industry have the potential to cause production disruption, as well as power shortages, price hikes, tighter regulations, and conflicts with local communities.

Water shortages are particularly acute in China. Industries with high water use are already restricted in the Northern part of the country which experiences perennial water shortages. The Chinese government even inserted a goal to reduce water consumption per industrial value added output by 30% until 2015 in its 12th Five-Year Plan. Water shortages have emerged as one of the most serious issues for governments, academia, non-government organizations and businesses all around the world.

To cope with climate change, businesses have already made great efforts to adapt to a low carbon economy. In the future, adapting to a low water economy will present another major task as water grows increasingly scarce. In the low water economy era, using water more efficiently and securing stable water resources will be more critical than ever. Companies that adapt to the low water economy early on will be better equipped to survive into the future.

Some forward looking companies have already cut down on water use substantially.

Intel reuses water from local treatment facilities for outdoor landscaping and cooling its data centers, and recycles most of the water it uses internally. Demand for water reuse is expected to rise in the IT industry, which needs large amounts of water to cool down data centers, but does not need water of drinking quality.

Google realized a 100% water reuse rate for two of its eight data centers around the world. It has set a goal of increasing the recycling rate up to 80% for the remaining six.

Other firms have instituted systems that do not require fresh water for production or drinking. Devon, a Canadian energy company, uses sea water for producing oil sands, while China's COSCO, the second largest shipping company in the world, supplies drinking water for its sailors from sea water using desalination facilities on board their ships.

At the same time, other companies are welcoming the shortage of water. Water supply has been traditionally the task of the public sector. However, the growing need for advanced treatment skills, facilities operating expertise and large-scale financing has created business opportunities for private firms. This may reflect a trend of the times where water makes money.

Veolia and Suez, two French water suppliers, are the two most influential companies in the global water market in terms of revenue. Local authorities in France began commissioning supplies of tap water and sewage treatment to private firms with long- term contracts from the 1960s. This led to the growth of specialized water companies boasting a long list of projects and facilities operations experience. The two firms first integrated design, execution, and services for tap water supply and sewage treatment and then entered new business areas, including industrial water supply and seawater and underwater development. Now, these two firms are attempting to tap into China and other emerging markets.

Among new entrants in the water industry are some nontraditional firms. GE, Siemens, and IBM, long powerhouses in electronics, are acquiring water treatment technologies through M&A and research. Both GE and Siemens acquired or started a water treatment equipment and facilities business, and then expanded to solutions by using their existing engineering expertise and information technologies. Both firms now enjoy high growth.

IBM has brought the water industry to a new level. In 2009, it launched intelligent water management services that enable customers to monitor water quality and quantity and respond to new decisions or emergencies as quickly as possible. What GE, Siemens and IBM have done in the water industry is pave the way for a mechanism to supply clean water efficiently and on a stable basis.

Unlike in the past, when water was regarded as an unlimited resource, water is now a critical economic issue. In this regard, the most important priority for companies is increasing their awareness of water and making efforts to reduce and reuse water at all levels. Companies in the water industry will need to develop new technologies like filtering and desalination as well as businesses like water trading. Korean companies can seize opportunities in the water industry if they commit themselves to bringing about advanced technologies and innovative ideas.

Thank you for watching. I'm Joo-Hyun Ha.

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