Tuesday, November 29, 2011

China's Cleantech Success: Threat or Opportunity? - Part I

Today, China is the world’s cleantech manufacturing leader, and its innovation capacity is rising.

This phenomenon is a cause of angst among many in the U.S. watching China's heavily subsidized research, development, and manufacturing ventures increase market share. That anger toward China grew this year as the global solar industry suffered a glut of goods that exceeded market demands, and U.S. solar tech firms saw profits plummet.  Resentment then morphed into action, as petitions were filed with the U.S. International Trade Commission and the Commerce Department to demand investigations of Chinese companies allegedly flooding the U.S. market with solar cells and panels at below market prices.

But is China more of a threat or opportunity for companies in the solar supply chain? That perspective depends on where you are in that chain.  If U.S. companies can learn how to piggyback on Chinese production, the perceived threat would become an opportunity.

Take, for example, Innovalight Chief Executive Officer Conrad Burke.  When the floor fell out from under solar panel prices Burke turned from producing panels using his firm's patented technology to licensing that technology directly to Chinese solar cell producers.  Innovalight leveraged expansion of solar manufacturing in China, and Burke thinks other large U.S. corporations should have the sense to follow suit.  

Seen in this light, China's production is a sourcing opportunity rather than a threat.  According to the Organization for Economic Co-operation and Development (OECD), 55% of China's exports are attributed to production and assembly, and 58% of those are driven by foreign enterprises, of which 38% are entirely foreign-owned.  This is a reason why there is not one Chinese company among the world's top-10  high-technology firms in terms of revenue.  China's export performance can often be attributed to efficient assembly operations, with value-added inputs imported from US and European producers who see those opportunities.

And while anger abounds at a Chinese government subsidizing both cleantech R&D and commercialization, the financial landscape for Chinese cleantech innovation goes far beyond state funding. There is a huge influx of new venture capital and private equity funds focused on Chinese cleantech.   According to analyst Shawn Lesser, limited partners around the globe are increasing their exposure to China.  38% of European LPs plan to have more than a tenth of their PE exposure in the Asia-Pacific region in the next two years; 41% of North American LPs and 87% of Asia-Pacific LPs aim to have a similarly high proportion.  And, Stephen Marcus of the Cleantech Group estimates that 86% of cleantech joint ventures with a Chinese company involve a foreign partner.

American-financed cleantech is penetrating Chinese markets in new ways, with opportunities created by superior US innovations matched to Chinese manufacturing prowess.  

China needs these collaborations with foreign companies and investors.  U.S. firms bring a wealth of innovation as well as experience adapting technologies to servicing the needs of myriad industries.  Chinese firms hungry for these partnerships are growing rapidly. 

Where do you see opportunities or threats in China's emerging cleantech sector?  I'll explore a few emerging opportunities in our next installment.

No comments:

Post a Comment