Environmental Market Analyses Overview

• Introduction
• Market Estimates and Analysis
• Identifying Environmental Business Opportunities
• Recommendations

Suggested Printing Layout: Landscape

INTRODUCTION

Domestic U.S. environmental market growth has slowed throughout the 1990s. According to the Environmental Industry Coalition:

Much lies at stake for the future of more than 30,000 companies (many of them small businesses) and 80,000 public entities (mostly water works and waste collection) that operate in the U.S. environmental industry. Uncertain market drivers have led to a flat and even declining domestic market. Annual growth that ranged 10-15 percent from 1985-1990, ranged 2-5 percent from 1991-1995 and fell to 1.2 percent in 1996, the lowest growth rate on record.

In contrast to the domestic U.S. market, international environmental markets grew rapidly during the 1990s, exceeding 10 percent annually in many developing nations. According to Environmental Business International (EBI), U.S. environmental industry exports nearly doubled from $9.6 billion in 1993 to $18.4 billion in 1997. In 1996 and 1997, export revenue growth represented more than 50 percent of the growth of the entire U.S. environmental industry.

Those exports, however, still represent only 10 percent of U.S. environmental industry revenue generation. Although this figure has continued to grow steadily, it has not been enough to save U.S. environmental firms from the harsh realities of slow or even negative total revenue growth. Further, U.S. export revenues do not compare favorably with those of Japan, Germany and other Western European nations whose export revenues have long represented between 15% and 20% of output. The fact that U.S. environmental export revenues comprise a relatively small portion of total U.S. environmental industry revenues would be less worrisome if exports were not emerging as such an important source of new growth.

As many Asian economies began their descent into a sustained currency and financial crisis following the events of July 1997, expectations have fallen for Asian demand for imported goods of any kind, let alone environmental technologies. This report will suggest ways to facilitate the process of responding to those changing conditions in Asia, and will provide an analytical framework for identifying near-term opportunities that might otherwise go unrecognized.

MARKET ESTIMATES AND ANALYSIS

Various organizations and agencies produce environmental market size estimates and forecasts. Estimates vary widely, and few have been fully adjusted to account for changing economic conditions since the onset of regional economic troubles in July 1997.

Best Market Reports � Pollution Control Equipment

Best Market Reports are snapshots of a given market segment as they are described by U.S. Department of Commerce Foreign Commercial Service and U.S. Department of State officials. Best Market Reports data are derived from the "Best Prospects" sections of the FY99 Country Commercial Guides (CCG), based on 1998 statistics. For the purpose of this report, we have extracted the Asian markets that were included in the FY 1999 Best Market Report for Pollution Control Equipment. Detailed assessments of market potential, competition and market barriers as described in the Best Market Reports are included in the individual country sections.

Summary of Best US-AEP Markets for Pollution Control Equipment Based on 1998 Statistics
(millions of U.S. dollars)

Because Commercial Service posts abroad are only asked to identify a limited number of best prospects, the Best Markets listed for each country or industry should not be considered exhaustive. Some industry sectors from large country markets, although not included in the Best Market reports, might be larger than the same reported industry sectors of smaller country markets.

Also, data are compiled using local sources and reflect the best estimates of Commercial Service officers abroad. Statistical accuracy is affected by several factors, including lack of published figures in certain markets and varying data collection techniques.

Environmental Business International Market Estimates

The following figures provided by Environmental Business International, Inc. attempt to incorporate the early effects of the economic crises. EBI provided the environmental market analysis and statistical data based on independent primary research, with extensive interviews of government officials, industry leaders and executives of U.S. and regional environmental companies, and information provided by  US-AEP. Other information in this report is based on published articles appearing in EBI's regional newsletter, Asia Environmental Business Journal, and other references listed above.

Asian Environmental Markets

[Click here to view the above table in PDF format]

IDENTIFYING ENVIRONMENTAL BUSINESS OPPORTUNITIES

A major challenge for the US-AEP program is gathering consistent market data that most accurately identify environmental equipment opportunities and threats for U.S. firms. EBI and DOC produce arguably the best overall market estimates. However, it is difficult to follow those market estimates down to actual environmental equipment sales, customers, and competitors. Therefore, we will include  customs data as it becomes available to represent the sum of import transactions in US-AEP countries. (Because of market complexities, customs data is not provided for India, Indonesia or Sri Lanka). This analysis provides U.S. environmental companies with an assessment of foreign competition and overall imported equipment market growth and decline.

To evaluate market potential and the likely buying patterns of potential customers, exporters must know  the customer's motivation to buy and ability to buy. 

Motivation to buy is a key component of any buying decision and is determined by several factors, including the level of regulatory enforcement and whether the environmental technology is discretionary or non-discretionary. Discretionary environmental technologies are not critical to an industry's ability to produce output, such as end-of-pipe technologies. Non-discretionary environmental technologies include equipment essential to operations. During difficult economic times, demand for non-discretionary products is likely to remain relatively strong compared to demand for discretionary goods, although many companies will try to find cheaper substitutes. If those substitutes are available domestically at lower prices, demand for imported goods may fall.

Avoiding official sanctions is by far the largest single factor motivating industries to make environmental investments, particularly when those purchases focus less on process efficiency and more on end-of-pipe compliance. To the extent that policymakers offer "carrots" (i.e., tax breaks or low-interest loans) along with the more traditional sticks (i.e., fines or plant closures), these incentives can also spur demand for environmental technologies.

Ability to buy is essentially a financial issue. Sales are unlikely if the buyer lacks lacks the funds or credit to pay for the purchase. The fundamental measures of a potential customer's ability to buy are found in economic performance data. Industry sectors with poor or negative revenue growth are less likely to rally the finances necessary for investment in environmental technologies than more robust sectors.

Trends in Environmental Degradation and Regulatory Enforcement

To some extent, trends in environmental quality can serve as a predictor of investment in environmental protection. Generally, public concern and public policy begin to direct resources to environmental solutions when societies become aware of environmental degradation. Of course, many social, political and economic factors influence this process. Nevertheless, the relationship between environmental quality and environmental investment is often most evident when environmental degradation is   particularly egregious or highly visible to the public. Incidents of gross environmental damage, especially those resulting in human suffering, can catalyze rapid action to address environmental problems.

Rapid action does not necessarily imply immediate sales for providers of environmental goods and services. Translating new laws or better enforcement into business opportunity can be slow. However, companies should monitor environmental quality and public policy responses as a gross barometer of medium- to long-term opportunities.

Trends in Economic Performance

The ultimate measure of industry-level demand for environmental goods and services would be data describing existing buying patterns for such goods and services. In the U.S., the Bureau of the Census collects information regarding the pollution abatement capital and operating costs incurred by domestic manufacturing industries. Unfortunately, such data is not available for most countries outside of the U.S. We must therefore look to other indicators of likely environmental spending behavior.

A general rule that we apply to the distressed economies of Asia is that environmental demand is likely to be strongest in those sectors of the economy with the strongest economic performance. Only those industries with sufficient revenues can afford to purchase environmental products or make production process modifications. To the extent that economic performance data is available, we can identify the most robust sectors of the economy where we expect to see environmental demand. To further inform our efforts to discover high growth/high demand sectors, we also examine export performance. Economic recovery in Asia will continue to be led by those industries with the greatest export success. Those exporting industries will most likely have sufficient capital to purchase environmental products and services.

RECOMMENDATIONS

The following country environmental market overviews provide an assessment of market size, market drivers and barriers, and foreign competition. By visiting economic and industrial performance data, they also examine potential customers� ability and motivation to buy environmental goods and services.

We recommend that as U.S. environmental businesses prioritize environmental market opportunities in Asia, they pay close attention to industries that are both motivated to buy (under regulatory pressure via reported non-compliance) and show some ability to buy (positive economic performance) during the ongoing crisis recovery. Those industries identified as priorities should be investigated in more detail with the assistance of in-country US-AEP Technical Representatives to determine firsthand the following information:

Motivation To Buy:

1. Why in the industry non-compliant?
2. What are the associated fines for non-compliance?
3. What is the likelihood of fines being assessed?
4. Has there been public outcry in these cases?
5. What is the likelihood that continued non-compliance will result in production shutdown?
6. Has the company lost international customers because of non-compliance? Have their international customers been informed?

Identifying Specific Product Needs:

1. What technologies are currently being used in the industry?
2. What are the performance characteristics of these technologies?
3. Which companies have been providing these technologies?
4. At what price are these technologies being sold?
5. What payment terms are currently being offered? What does the competition offer?

Ability to Buy:

1. Does the local buyer have good credit?
2. Are vendors receiving payment and in what time frame?
3. What are the typical terms used by the potential buyer � cash with order, letters of credit, open accounts, or consignment?
4. What are the currency exchange controls, political risk conditions, and shipping risks?

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