Korean companies enter lucrative water industry abroad

A seawater desalination plant constructed by Doosan Heavy Industries & Construction located in Saudi Arabia / Courtesy of Doosan Heavy Industries & Construction

By Chung Hyun-chae

Many people consider water as a free, abundant public good. Little do they know that fresh water amounts to only 2.5 percent of all water on Earth. As populations around the world grow fast, especially in developing countries, water supply remains small relative to demand. Meanwhile, in the developed world, including Korea, people tend to use water recklessly.

The ongoing global warming has exacerbated the situation, with many parts of the world suffering from chronic droughts. As a result, water has become an even more valuable commodity for a growing number of people across the globe.

Companies face high entry barriers to water industry

Against such a backdrop, managing water resources and turning seawater into fresh water have become more lucrative businesses, attracting a larger number of companies at home and abroad.

Top global water companies, including two based in France — Suez, a multinational corporation, and Veolia Water, the world’s largest supplier of water services — have been strengthening their presence mostly in the Middle East and Africa.

In Korea, the state-run K-water has been managing the nation’s water resources for decades. The company has been sharing its know-how with the developing world from 2011, after completing the $20-billion four-river restoration project, which aimed to renew Korea’s four biggest rivers to restore the nation’s fresh water ecosystem. The four rivers are the Han, Geum, Nakdong and Yeongsan. The scheme started in January 2010 and was completed in December 2011.

The refurbishment project has helped secure water resources, enhance water quality, control floods and droughts, and create water-based leisure infrastructure.

K-water shared its know-how on water management with Thailand and has been selected as the preferred bidder by the Thai government in 2013.

“I heard that there were other offers from Algeria and Myanmar some time ago, but this case is our first official business abroad. Thailand will be our test bed. The current situation in Thailand is chaotic, but once it becomes stable, the Thai government will likely push the business forward,” said Ryou Woong-seon, a senior manager at K-water.

“We feel that we should help developing countries that have poor water resource management by providing business know-how,” Ryou added.

The water industry is in fact difficult for new players to penetrate because of the high barriers to entry.

“The water industry is very capital intensive, so it benefits from economies of scale like other basic industries. Korean companies are weak in the global markets in that sense,” Kang Jeong-hwa, a senior researcher at Korea Eximbank Overseas Economic Research Institute (KERI), explained while adding that it is difficult to ignore the fact that Korea has little political power when negotiating for orders.

Despite the difficulty of entering the market, however, many companies are still considering water industry projects.

A seawater desalination plant constructed by GS E&C located in Algeria Courtesy of GS E&C

“As the overseas construction market is saturated, a number of construction companies are looking to expand into a new business, in particular, the water related business. However, they won’t be able to do so for one or two more years,” said an industry source who declined to be named.

According to Kang, the water industry is roughly categorized into four parts.

“There are the water supply facility business, sewerage construction business, seawater desalination business and industrial water treatment business in the water industry,” Kang said.

Local companies enter seawater desalination business

At present, most local private companies can penetrate only the seawater desalination business, which requires only advanced technology and not political clout.

Doosan Heavy Industries & Construction, one of the largest Korean heavy industrial companies, is No. 1 in the world in seawater desalination. It is the only company that has a track record in all three desalination methods.

“With all our technologies, we can build any freshening facility and tailor it to the requirements of a region,” said Seo Kang-chul, a public relations general manager at Doosan.

Reverse osmosis (RO), one of the three desalination methods, uses a separation membrane to filter salt content. The company secured an RO-type plant construction order from Chile in 2013 and will begin work in 2016.

“It is a significant achievement in that we were able to enter the Latin American market, which has a promising industrial fresh water market and an active mining industry,” Yoon Seok-won, the vice president of Doosan Heavy Industries & Construction, said in a press release.

Yoon also said the company plans to enter the water treatment business because of its high technology and to diversify to the East Asian, Latin American and Australian markets.

However, even though local companies have high technology in seawater desalination business, they are not yet recognized in the global market because of the lack of track record that showcases their advanced technology.

GS E&C, a leading Korean engineering and construction contractor, has been building its track record by acquiring global firms. For example, it took over Spanish desalination and water treatment company Inima in 2011 in order to obtain Inima’s track record. The longer a company’s proven track record, the easier it will receive orders from global markets.

“Because of the nature of the water industry, where it takes time for companies to produce tangible results, we don’t have much to say right now, but we see the water business as a new growth engine in the mid to long run. And basically, we are focusing on our overseas business,” said Lee Sung-woo, a manager at GS E&C, in a telephone interview.

Besides these two leading companies, many other companies are entering the water business as well.

“Though the seawater desalination business makes up a small portion of the water industry, we decided to enter the business through a consortium with foreign firms,” Lee Min-kyu, a manager at Hyundai Heavy Industries, said.

Samsung Engineering, the first Korean engineering firm, established in 1970, also expanded its wastewater treatment business by adding a seawater desalination business. Another Samsung affiliate, Cheil Industries, started a materials business in its R&D center in Gyeonggi Province. The two companies are expected to provide comprehensive solutions in the water business.

Kolon Global is another company that has gone into the water and sewage business.

“We built water purification plants worth a total of 70 billion won in Sri Lanka, Vietnam, Tanzania and Africa,” said Chung Hui-bong, a general director at Kolon Global.

Water market has much potential

According to the report “Local Water Industry’s Strategy for Overseas Expansion” released by KERI in February, the size of the world water market would grow to $689 billion in 2018. After 2015, when the global economic crisis ends and developing countries see rapid growth, the global water industry will grow at an average of 5 percent annually according to the report.

As for the water supply business, global companies supplied drinking water to some 968 million people around the world in 2013. This number is projected to increase to 1.1 billion in 2015, according to data from KERI.

“Due to environmental problems including global warming, water shortage will become more severe. As countries develop, water demand will rapidly increase. The water market will inevitably grow fast,” Kang said.

Kang also advised local companies to focus on particular regions.

“The target regions could be developing countries where entry barriers are relatively low compared to markets top global companies have already penetrated. Getting orders takes a great deal of time. Local players need to have patience while consistently polishing their technical skills,” Kang added.