Capturing China's water needs

Asked about his milestone 2009 acquisition in China, A.O. Smith Corp. chief executive Paul Jones sighs and rolls his eyes.

Quality and production problems dogged the early integration of Tianlong Holding Co. Ltd. near Shanghai, which builds water-filtration systems for homes and businesses. What's more, the multistory building with an inefficient design and slow freight elevators threw productivity bottlenecks into the expansion Jones had in mind.

Opting for a fresh start, Milwaukee-based A.O. Smith decided to move the entire production to Nanjing, untangling red tape every step along the way.

Jones has no regrets, however. "We are absolutely glad we are there," he said last week.

If Milwaukee aspires to become a global hub of water technology, business leaders had better start thinking about China with all of its headaches.

China occupies a prominent place in the global $483 billion market for equipment that treats, recycles, analyzes, desalinates, pumps and transports water - a market that's expected to grow to well over $600 billion by 2016.

China already ranks as the third-biggest market for water infrastructure, behind the U.S. at No. 1 and No. 2 Japan. Growing anywhere from 6% to 9.9% annually, China's water market is on track to overtake Japan's and occupy the second spot, not least because of an industrial policy that many dub "growth at any cost," which has resulted in rampant pollution and water scarcity.

Those are among the findings in a sweeping report from the University of Wisconsin-Milwaukee, which used a federal grant to analyze global markets for water infrastructure. The result of a year of work by eight university researchers, the report is the most comprehensive examination of the global economics of water to emerge from anyone in Milwaukee in the three years since the city began to rally around the water hub idea.

Sizing up opportunities
The notion of looking systematically at global water-technology opportunities remains relatively new. Only in recent years have investment banks begun to track the water-technology sector in the same way they follow banking, oil or automakers.

Equally recent is Milwaukee's effort to build a new economic identity centered on water technology.

About three years ago, university and business leaders began drafting a strategy to coax jobs and investment from an indigenous stable of water companies. UWM created a graduate-level School of Freshwater Sciences and is spending tens of millions of dollars on new research facilities and even a water policy think tank. Marquette University launched a curriculum in international water law, and UW-Whitewater has a business curriculum in water.

At stake for Milwaukee is a new toehold in the global economy. According to the report, the world market for water-related equipment is on a scale with the global information technology market ($650 billion in 2010); the mobile-phone market ($600 billion); pharmaceuticals ($450 billion); and telecommunications infrastructure ($300 billion).

The UWM analysis derives much of its data from Global Water Intelligence, a leading industry research group in Oxford, England. UWM's perspective on the potential for market growth is consistent with research in the past two years from the World Bank, Goldman Sachs, Deutsche Bank, J.P. Morgan and McKinsey & Co.

At 428 pages, organized by nation and individual U.S. states, the UWM report takes the reader on a whirlwind tour of the world of water.

It examines policies and problems in major markets - those that are the biggest, the fastest growing, or representative of certain regions or issues.