Nordic biogas company uses market research to make strategic decision on China market entry

After winning their first project in China, a company selling biogas upgrade systems was evaluating the possibility of China to become a potential growth market. As a result, the firm contacted ARC Consulting to assist in better understanding the customers, the market size, legal and regulatory requirements. As a direct result of the deliverables of the project, further cooperation procedures and projects such as market penetration and an expansion strategy was immediately discussed and outlined.

ARC Consulting successfully delivered a market research report of the biogas upgrade systems on the Chinese market to the client. Based on insufficient government support and the set up regulatory requirements at the time, the client decided to wait for a more suitable time to enter the market.

Nevertheless, the provided market information and attributed knowledge by ARC Consulting enabled the client to continuously watch the market conditions for new projects and potential business partners for immediate access when the opportunity arise.

China is one of the largest and fastest growing economies in the world and the fast speed of development represents a large growth potential for many industries. One of the sectors with the largest potential is the renewable energy market (23.5% market growth CAGR from 2009-2012) and biogas upgrading. Biogas production (China has the most medium and large biogas plants in the world) reached 16 billion m3 in 2011 with a CAGR of 12.2% from 2006-2011: with 42 million households using biogas in 2011 and the consumption is expected to reach 22 billion m3 by 2015, driven by consumption in the car market, increase of NGV and CNG stations and strong government agenda to use cleaner fuels and utilizing more renewable energy.

After winning the first project, our client was evaluating the business potential in the market.  As a result, ARC Consulting was contacted to help in understanding the “why”, “how”, “where” and “when” to enter the Chinese market.

This project was built both on qualitative and quantitative data using market reports, secondary data research and connecting with key stakeholders and industry experts for face-to-face interviews, phone calls and email.

The report concluded that the Chinese market had potential in the aspects of the availability of feedstock, biogas plant population, the infrastructure as it was in an early stage of development, along with an increasing market demand. However, the lack of government subsidies at the time in this area served as a handicap for development, especially for foreign technologies at a higher price point. Nevertheless, the situation of government support was believed to change in the near future. As a result, ARC Consulting recommended continuous penetration efforts on a smaller scale while at the same time watching the market closely for changes in order to be ready when conditions turn favorable. In addition, in order to stay close to the market while minimizing costs, a strategic cooperation with a business partner was considered as the optimal investment mode.

To answer the “where” question, an analysis of the key provinces was done to provide a holistic view of the potential for our client in China.  The criteria used to rate the provinces were: Availability of feedstock, Level of development of biogas distribution channels, End market potential, Natural gas resource availability, and Entrepreneurial spirit.  The result of the analysis showed that Shandong, Jiangsu, Guangdong, Zhejiang were the provinces with the highest (current) potential, while several other areas was considered to have high future potential.

The competitive landscape can be divided into alternative technologies and competitive companies.

Alternative technologies can be divided into 4 main categories:  PSA, Water scrubbing, Chemical absorption, and others.  The most frequently used technology is chemical absorption.

In terms of competitive players, only 2 key companies were detected in the market, and in general, the consensus was that the companies only had limited success so far.

Based on this information, the recommendation was to keep a passive role in the market while keeping a close watch on the market trends and regulatory changes. To ensure market presence and customer intimacy, it was advised to cooperate with a reliable partner to provide quality services to customers in the first year to highlight the importance of quality and reliability and to move away from only price considerations.

The strategic business partner can also be very helpful to identify possible local suppliers for key components that can help minimize costs. Together with the client, ARC Consulting assisted in outlining a strategic business plan on the Chinese market. The strategy was initially decided to build up a presence on the market and to focus on winning projects. After an initial time period of around two years, a direct sales organization was decided to be put in place with a localized supply base for key components. When the right market conditions arise, the client could also consider deploying a local manufacturing unit via a joint venture with a local partner, a WFOE or using a contract manufacturer.

  • Updated market information and knowledge in the fast-moving renewable energy sector.
  • Collection of both quantitative and qualitative data in the Chinese market.
  • A comprehensive overview and analysis of the Chinese market
  • Outlined geographical focus areas based on the client’s requirements and strategic goals in China.
  • Overview of the competitive landscape in China in terms of alternative technologies and companies.
  • Provided a comprehensive overview of the regulatory requirements and trends in China.
  • Outlined a strategic business plan together with the client on how to build the organization in China over the coming few years.

See more about our market entry consulting services and our experience in the energy and environment sector.

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