China’s 12th Five Year Plan has set a national 16 percent overall building energy use reduction goal by 2015.
To achieve these ambitious targets, new building construction codes, practices and materials will have to be used. In addition, existing buildings will have to be retrofitted. To get an idea of where the markets will be, I have included a table of targets provided by Deutsche Bank and quoted by the Institute for Building Efficiency, an initiative of Glendale-based Johnson Controls Inc.
As you will note there is a lot of low-hanging fruit available for those with the products and know how. While I may have been hard on parts of their PR strategy, Johnson Controls is poised to capitalize on a market which is staggering in terms of breath and depth.
Remember, China builds Rome every two weeks, and then there are all the Romes that have already been built and the fact that Chinese buildings use twice as much energy as their Western counterparts.
The catch is the programs and their implementation are as yet still fuzzy. As usual, broad goals are going to be worked out at the provincial and local levels and will result in uneven policies and implementation. In the midst of this confusion is opportunity. The question is, do you have cost-effective solutions and the guts to go after the gold?
What should you do?
Run, do not walk, to the plane with your energy saving products and services. Select areas and start talking to provincial and municipal leaders about how you can help them to shape their bidding specifications. They need the expertise, and it will give you the opportunity to create specifications around what you are offering. This approach takes time, energy and some resources but is a cheaper and more efficient strategy for going after markets than trying to compete against your competitors’ specifications.
It has worked in the past for little firms like GE Power, which ended up with 60 percent of the gas turbine industry after generously donating time and expertise to the Chinese government on how to structure their gas turbine bidding specifications.
Unfortunately, you will have to be cagy about your strategy. Giving the local government a rundown on your technology and specs may end up being a great opportunity for one of their local good friends. You may wish to structure your specifications in terms of “guaranteed” energy savings based on the particular strengths of your product or service.
Do the black box approach which allows the government technicians to examine the outputs without disclosing the intellectual property and materials. In part, the reason is that many of the solutions which will make a huge difference are ridiculously simple and inexpensive. The added value is that you are selling a process, solutions which need to be implemented as part of a cohesive system.
To understand what is going on in China currently, you need to come to China, go to any city and just look at the buildings being erected. Except for a few “green” showcases, what you will see are un-insulated interior and exterior concrete walls, unsealed vapor and wind barriers, windows and doors that lack simple weather stripping, no thermal transfer barriers, un-insulated pipes and ducting, open top chillers…the list goes on and on.
Many of the things that we take for granted are not part of the building vocabulary in China. Cost is one factor, greed is another but just as important is a lack of available materials and systems or understanding of how they work.
Make sure you provide life cycle costs and payback periods. Be willing to provide guarantees, but make sure you specify that improper use and maintenance will void the warranty. Provide simple training materials and hands-on training, not just at start-up, but periodically, as the maintenance staff will change every few months. Monitor and improve your products and services based on the conditions in the field, not the laboratory.
You may want to think of offering operational and maintenance services as part of a second step guarantee, as maintenance is the third rail of Chinese building. The government is offering incentives for companies which provide the services/goods and capital as part of a package.
Also remember new technology and systems qualify for more favorable tax treatment. If you need to set up a manufacturing or service facility, in essence put it out to bid. Let different municipalities know that whoever gives you the best package wins. Again, the bigger you or your consortium is, the more leverage you will have. Be aware our friends from other areas, including those energy efficient Europeans, are going after this market and will be tough competitors.
This is one example where you can do well by doing good, so as the saying goes, “Just do it.”