Daikin, thriving in Asia and India, sets its sights on Africa

Tokyo

DAIKIN Industries, 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 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. Fighting off low-cost competitors through local partnerships and acquisitions, Daikin grabbed top share in markets such as India.

Africa, where LG and China's Haier are established giants, may seem like another difficult target for Daikin. But Yoshihiro Mineno, Daikin's senior executive in charge of Asia, said the company is 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," Mr Mineno told Reuters.

Conventional wisdom, he 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 Corp and Hitachi Ltd.

The United States, the world's largest market for air conditioning, has been tougher to crack. Daikin has struggled to compete with local rivals such as United Technologies' Carrier and Johnson Controls' York, which specialise in ducted air conditioning. Daikin acquired the US company Goodman in 2012 to strengthen its expertise in that area, but has made little headway.

In 2006, Daikin took over Malaysian contract manufacturer OYL Industries for US$2.1 billion. The deal boosted its purchasing power, and provided access to cheaper global suppliers and nimble product development. Two years later, it shocked the industry by agreeing to a partnership with major Chinese rival Gree Electric Appliances.

The deal gave Daikin mass-market production capabilities in return for access to its advanced inverter technology, which saves electricity by efficiently regulating temperatures.

Critics said the move amounted to self-sabotage because of the potential for such valuable components to be copied. The technology did end up in air conditioners from other Chinese companies. But Daikin expanded production so quickly with Gree's help that it drove smaller rivals out of the market.

Gree is still a partner in producing low-end models and components for Daikin, although they compete in most other segments. Daikin's sales have tripled since the OYL acquisition, with overseas markets now accounting for 80 per cent of its US$20 billion annual revenue.

Executives said Daikin's biggest growth driver is India, where it has established itself as a top player despite competition from LG, Samsung Electronics 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.

Daikin's market share in room air conditioners in India jumped from less than 2 per cent in 2010 to 17 per cent over eight years, lifting the company to the top total sales spot of air conditioners for commercial buildings and industrial use.

Mr Jawa will lead the expansion in Africa as well, the company said. It plans to set up a regional office in east Africa in a few months.

Mr 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." REUTERS