COOL RUNNINGS
Japan’s Daikin, the world’s top maker of air conditioners, eyes Africa for expansion.
TOKYO: Daikin Industries Ltd, the world’s largest maker of air conditioning equipment, is turning to Africa for further expansion, 10 years after a successful gamble on sharing its key technology with a Chinese company.
As Japanese manufacturers such as Panasonic Corp stepped back from home appliances over a decade ago to avoid price wars with Asian rivals, Daikin did the opposite, going head-to-head with the likes of South Korea’s LG Electronics Inc.
Fighting off l ow-cost competitors through local partnerships and acquisitions, Daikin grabbed top share in markets such as India. Africa, where LG and China’s Haier Group Corp are established giants, may seem like another difficult target for the Japanese company.
But Yoshihiro Mineno, Daikin’s senior executive in charge of Asia, said the company was used to silencing critics, recalling the controversy more than 15 years ago over its decision to target mass markets overseas.
“Many sceptics at the time said it would be impossible to make profits in the ‘volume zone’ in Asia, and that it was pointless to invest there,” he told Reuters in an interview.
Conventional wisdom, Mineno said, held that the 94-year-old company should focus on high-end markets.
Daikin saw limited potential for growth in that area, however, and executives knew the company would have to focus on low cost and high volume if it wanted to boost its global presence.
The company’s market value now exceeds those of electronics conglomerates Panasonic and Hitachi Ltd.
“If advanced technologies or addedvalue products are your only selling points, your rivals are likely to catch up and overtake you,” said Hideki Yasuda, an analyst at the research arm of Ace Securities.
“But Daikin’s business model is backed by cost competitiveness,” he added. “It’s among a few Japanese companies that can compete head to head with the Chinese.”
Executives say Daikin’s biggest growth driver is India, where it has established itself as a top player despite competition from LG, Samsung Electronics Co Ltd and local manufacturers.
It appointed Indian industry veteran Kanwal Jeet Jawa to lead operations there, built a sales network and localised production with low-cost know-how from OYL Industries Berhad.
Daikin took over Malaysian contract manufacturer OYL for $2.1 billion in 2006. The deal boosted its purchasing power, and provided access to cheaper global suppliers and nimble product development.
Daikin’s sales have tripled since the OYL acquisition, with overseas markets now accounting for 80% of its $20 billion annual revenue.
Two years later, Daikin shocked the industry by agreeing to a partnership with major Chinese rival Gree Electric Appliances Inc.
The deal gave the company mass-market production capabilities in return for access to its advanced inverter technology, which saves electricity by efficiently regulating temperatures.
Gree is still a partner in producing low-end models and components for Daikin, although they compete in most other segments.
Daikin’s market share in room air conditioners in India jumped from less than 2% in 2010 to 17% over eight years, lifting the company to the top total sales spot of air conditioners for commercial buildings and industrial use.
“Jawa will lead the expansion in Africa as well,’’ the company said.
Daikin plans to set up a regional office in east Africa in a few months.
Jawa said Daikin would continue to aim for the volume zone.
“It’s a very price-sensitive market,” he said of Africa. “We want to use our leverage of Indian operations and we want to replicate what we have done in India.”
Daikin is adding production capacity for further global expansion. It opened an assembly plant in Vietnam in May and plans another in Malaysia this year.
“The company is also considering a new Indian plant to help produce products for Africa,’’ Jawa said.
Daikin has set a 2020 sales target of 90 billion yen ($812.71 million) for Africa and the Middle East, an increase of 11% from last year, but Mineno said it might need to revise that upward.
“Globally, I still see a lot of growth potential that can be unleashed by our volumezone strategy,” he said.