The Economy, Trade and Industry Ministry’s decision to establish a water fund was prompted by concerns that Japanese companies will fall farther behind foreign rivals in the water-related business.
Japanese companies already are far behind European water majors and Singapore and South Korean firms, which are supported by their governments.
The government hopes to turn things around by financing half the cost of the fund in an effort to double the number of water-related business orders. It also plans to shoulder about half the costs Japanese companies will incur to purchase foreign water treatment companies with annual profits ranging between 5 billion yen and 10 billion yen.
The government has asked Nomura Holding, Inc. and other companies to contribute to a water fund and plans to encourage an Australian fund with extensive experience in infrastructure-building projects to do so as well. Forming ties with such a company likely will provide the ministry with an advantage in obtaining information about planned mergers and acquisitions abroad.
The weakness of Japanese companies compared with European water majors has been repeatedly pointed out.
To deal with the situation, the Innovation Network Corporation of Japan, jointly run by the public and private sectors, announced in May that it had purchased an Australian water business company in cooperation with Mitsubishi Corp. and other companies.
Public organizations are also dipping their toes in the water business. The Japan Bank for International Cooperation plans to include water-related businesses in its loan targets for developed countries.
However, as it is difficult to offer financing only to water-related businesses in the overall framework of public assistance, the government came up with the idea of a water fund.
International competition
Japanese companies are considered superior in individual water-related technology but do not fare well in overall planning, which includes water and sewage maintenance, purifying water and installing monitoring systems.
Recently, Japanese trading companies have taken over a number of corporations in developing countries can handle numerous water-related business orders. The ministry believes Japanese companies will be able to catch up with the water majors if the government assists them financially.
Not all will be smooth sailing, however.
The French company Veolia Water, a division of the world’s leading firm providing water services, Veolia Environment, chalked up sales of 1.6 trillion yen in fiscal 2008, while sales of the second largest company, Suez of France, came to 800 billion yen. Japan’s total water-related business is between 100 billion yen and 200 billion yen.
South Korea has underlined its determination to strengthen its water-related business by promoting as a national project the desalination of seawater.
The Singapore government also plans to invest 20 billion yen over five years in the water-related business.
Business scale and past achievements are key factors in building up water-related businesses.
Osamu Goto, a partner of A.T. Kearney, a global management consulting company, said, “Unless Japan establishes a cooperative system between the public and private sectors over the next few years, Japan will be incapable of catching up with major companies.”
