The Future of Environmental Business in China and a Japanese Corporate Strategy

ABSTRACT

Since the 1990s, the domestic environmental problems of Japan and the other developed countries have basically been settled. Investments in environmental measures have plateaued, and the market for environmental businesses has become saturated. Many of the management resources that have been amassed by these countries, moreover, the technology, the know-how, and the personnel, have gone unused, and management teams have been forced to become stricter due to excesses in supply. In China, however, the current social and economic trends all point to the worsening of the environment. Population growth is persistent, the economy is in high economic growth, the consumption of raw materials has swiftly increased, and the efficiency of gas and energy use is still very low. Such environmental degradation, however, has accelerated environmental measures and prompted larger environmental investments. The Chinese environmental business market is now growing at a rate of over 15%.

Even though the reduction objective for major pollutants under the 10th 5-Year Environmental Plan is set high at over 10%, 2002 figures show that efforts in desulfurization and urban drainage treatment, problems that require sophisticated technology and large amounts of investment, are currently at a standstill. In order to resolve the shortage in environmental investment funds (including operating costs and environmental facility funds), the government, while continuing to reinforce current regulations, has shifted the focus of its policy measures toward more economic methods. With the goal of turning the main environmental businesses into profit-making enterprises, the government has hastened to create a system by which these government run operations could be handed over to the private sector. The government has already planned several measures to facilitate the push of environmental business into the free market: it plans to adopt a surcharge for pollutant emissions (to be collected even if the standard is cleared), collect charges for garbage and urban sewage disposal, reform the investment and loan program, and encourage foreign as well as domestic private investment.

The most marketable environmental business fields in China are sewage and garbage treatment facilities, consumable purifying chemicals, and after these, the facilities for air pollution control and the devices for environmental and pollution measurements. Meanwhile, however, according to interviews with Japanese businesses, the Japanese environmental businesses that are working in China are finding themselves in an uphill battle. Chinese environmental markets has low added value, environmental regulations are lax, and Chinese companies cannot bring to the table the same technological edge that Japanese companies can. It is possible that the Chinese business sense, so long accustomed to business in the public sector and with the ODA, as well as Japan's insistence on the catalog sales model have shackled the efforts to expand into the Chinese environmental market.

However, if the right junction can be found between Japan's technological capability and China's market potential, the environmental technology and know-how of Japanese corporations can be broadly utilized on the stage of Chinese environmental conservation. The following actions are important for this to be successful: (1) the promotion of a business strategy that would bring out each country's respective strengths, (2) the selection of regions that demonstrate demand and purchasing power, (3) the re-thinking of competition strategies such as the promotion of localization, (4) a decisive move toward total solution vending, and (5) market oriented public support, such as the examination of local market compatibility.