Lead market potential for mbr in China

Robert Orzanna

Lead market potential and diffusion of

(semi-) decentralised membrane biore-

actor technology for wastewater treat-

ment and reclamation in China

Bachelor thesis in cooperation with the chair of Micro-

economics at the European University Viadrina and the

Fraunhofer Institute for Systems and Innovation Re-

search ISI

Karlsruhe, 02.01.2013

I gratefully acknowledge the endorsement of Christian Sartorius from Fraunhofer ISI

who always had a sympathetic ear for my concerns, the Chinese colleagues from ISI

who shed light on the complexity of the Chinese language and finally Pia Lipp from

TZW, Daniel Martin from Martin Systems AG and Christoph Haberkern from Huber SE

who were available for interviews and shared their practical knowledge on MBR tech-

nology with me.

Abstract

China faces major challenges with respect to the availability and quality of its freshwa-

ter resources. On the one hand, its freshwater resources are naturally unevenly distrib-

uted, leading to local water stress in the Northern and Eastern provinces. On the other

hand, increasing urbanisation and rapid industrialisation are leading to an ever growing

demand for clean water and at the same time are causing severe water pollution. Both

trends make changes to China‘s wastewater treatment sector inevitable in order to sat-

isfy future demand for clean, potable water and reduce the damages to the environ-

ment by insufficiently treated wastewater. Addressing this problem, advanced waste-

water treatment and reclamation technologies are experiencing large growth in China,

particularly evident for membrane bioreactors (MBR). Apart from advantages of supe-

rior effluent quality suitable for wastewater reuse, MBRs have comparably small space

requirements and are suitable for decentralised or semi-decentralised wastewater

treatment at the immediate point of origin, proposing a radical innovation opposed to

the traditional concept of centralised wastewater treatment which is challenged due to

its inflexibility, cost-intensity and high maintenance requirements. For China (semi-)

decentralised MBRs may be a solution to its water resources deteriorating both in vol-

ume and quality, much of which is caused by insufficient sewer systems and wastewa-

ter treatment plants. Thus, with the large-scale adoption of (semi-) decentralised MBRs

China could successfully undertake a leapfrogging process in its water sector, skipping

at least partly centralised wastewater treatment systems and making use of its second

mover advantages to conceivably take over the lead in the future development of

MBRs as an environmental innovation (eco-innovation) in the wastewater treatment

industry. Based on the lead market framework developed by Beise and Rennings

(2003; 2004; 2005), throughout this thesis specific lead market factors are analysed in

a cross-country comparison to reveal the lead market potentials for China in the field of

(semi-) decentralised MBR. The study confirms an ongoing shift from former MBR lead

markets towards traditional lag markets both with respect to demand and supply-side

aspects. This result suggests that lead markets for an innovation are not necessarily

stable over time and may shift from first mover countries to early or late follower coun-

tries which experience particular high growth rates and can successfully benefit from a

high demand in a leapfrogging process.

Keywords: Lead markets, membrane bioreactors, MBR, eco-innovation, China

Contents

Abstract ....................................................................................................................... 3

List of abbreviations ................................................................................................... 6

1 Introduction .......................................................................................................... 8

2 Membrane bioreactor technology ..................................................................... 11

2.1 Definition ............................................................................................ 11

2.2 MBRs for wastewater treatment and reclamation ............................... 13

2.3 Technical background ........................................................................ 15

2.3.1 Internal and external MBRs................................................................ 16

2.3.2 Membrane fouling and aeration ......................................................... 16

2.4 Value chain ........................................................................................ 17

2.5 Innovation potential of (semi-) decentralised wastewater

treatment and reclamation ................................................................. 18

3 Lead market concept ......................................................................................... 21

3.1 Seven lead market advantages .......................................................... 24

3.1.1 Demand advantage ........................................................................... 24

3.1.2 Price advantage ................................................................................. 25

3.1.3 Regulatory advantage ........................................................................ 25

3.1.4 Export advantage ............................................................................... 26

3.1.5 Transfer advantage ............................................................................ 26

3.1.6 Market structure advantage ............................................................... 27

3.1.7 Supply-side advantage ...................................................................... 28

4 International diffusion and global market overview ........................................ 29

4.1 Diffusion of MBR technology in China ................................................ 31

4.2 Relevance of greywater recycling ...................................................... 34

5 Assessing the lead market potential for MBR technology in China ............... 36

5.1 Demand advantage ........................................................................... 37

5.2 Price advantage ................................................................................. 39

5.3 Regulatory advantage ........................................................................ 42

5.3.1 Overview on national policies and regulation ..................................... 43

5.3.2 Local legislation ................................................................................. 46

5.3.3 MBR technology design standards..................................................... 48

5.4 Export advantages ............................................................................. 49

5.5 Market structure advantage ............................................................... 52

5.6 Transfer advantage ............................................................................ 56

5.7 Supply-side advantage ...................................................................... 59

6 Conclusions ....................................................................................................... 65

6.1 The role of lead market factors .......................................................... 65

6.2 Strategy recommendations ................................................................ 67

Bibliography .............................................................................................................. 68

List of abbreviations

AMTA: ............................................... American Membrane Technology Association

BAT: ....................................... Best available technology, Best available technology

BOT: ..................................................................................... Build-Operate-Transfer

BOW: ........................................................................................ Beijing Origin Water

CAGR: ...................................................................... Compound annual growth rate

CAS: ......................................................................... Conventional Activated Sludge

eMBR: ............................................................... External loop membrane bioreactor

EPC: ..................................................... Engineering, procurement and construction

FS: .......................................................................................... Flatsheet membranes

FYP: ................................................................................................. Five-Year-Plan

GTIS: ................................................................. Global technical innovation system

HF: ...................................................................................... Hollow fibre membranes

KPI: ..................................................................................Key performance indicator

MBR: ...................................................................................... Membrane bioreactor

MEDINA: ........................... Membrane-Based Desalination: An Integrated Approach

MEP: ................................................................ Ministry of Environmental Protection

MF: ...................................................................................................... Microfiltration

MLSS: ....................................................................... Mixed liquor suspended solids

MT: ......................................................................................... Multitube membranes

NF: ....................................................................................................... Nanofiltration

NIC: ............................................................................. Newly Industrialised Country

O&M: ............................................................................ Operation and maintenance

PE: .......................................................................................... Population Equivalent

POTW: ................................................................... Publicly owned Treatment works

RBC: ........................................................................ Rotating Biological Contractors

RCA: ................................................................... Revealed Comparative Advantage

RLA: ........................................................................ Revealed Literature Advantage

RO: ................................................................................................ Reverse osmosis

RPA: ............................................................................. Revealed Patent Advantage

SBR: ............................................................................. Sequencing Batch Reactors

sMBR: .................................................................. Submerged membrane bioreactor

TIS: .............................................................................. Technical innovation system

UF: ........................................................................................................ Ultrafiltration

WCPS Index: ...................... Wastewater collection, water pollution and stress Index

WWTP: .......................................................................... Wastewater treatment plant

8 1 Introduction

1 Introduction

With globalisation and increasingly interconnected actors there arises an ever increas-

ing number of global problems, some of them not yet acknowledged by everyone, oth-

ers - particularly evident in the environmental sector - urgent and of serious character.

One of these issues frequently termed the ―Global Water Crisis‖ refers to the increasing

lack of potable water resources and local water stress induced by excessive water use,

an increasing demand for clean water by a growing world population along with in-

creasing water pollution as a result of rapid urbanisation and industrialisation that ex-

ceeds the treatment capacity of existing wastewater treatment infrastructure. By 2030 it

is expected that half of the population worldwide will suffer from water shortages

(OECD 2008). Even traditionally water-rich countries such as Germany will be faced by

local water stress1. Sufficient freshwater access is amongst the most valuable re-

sources and its unavailability a serious concern for the social and economic well-being

of a country. Albeit the whole water sector is called for innovative solutions to address

global water stress it is the wastewater treatment sector that in the past was unable to

adapt to the changing conditions in many countries. Yet with membrane bioreactors

(MBR) there exists an advanced wastewater treatment and reclamation technology

which has the potential to transform the wastewater treatment sector from the tradi-

tional concept of centralised sewage clarification towards a (semi-) decentralised ap-

proach which is acknowledged of being able to contribute to more effective wastewater

treatment and provide sustainable water reclamation and conservation possibilities2.

MBRs are wastewater treatment plants (WWTP) that combine the conventional biologi-

cal treatment process with membrane filtration technology for liquid-solid separation,

resulting in an effluent quality which is suitable for versatile reuse purposes. Due to

their small spatial footprint and compact size they can be operated directly at the

source of the wastewater generation. Such a decentralised treatment concept pro-

poses a radical innovation that impacts the whole value chain including WWTP design,

commission, construction and operation. Whilst in developed countries - including

those that have pioneered the development of MBR in the past - path dependencies

and built-up water infrastructures have limited the adoption of MBRs to particular

niches, Newly Industrialised Countries (NIC) are experiencing large growth potentials

as a lot of their national problems around water result from improper wastewater treat-

ment and insufficient sewer systems.

1 Studies in small river basins showed that in certain regions in Germany groundwater recharge will significantly decrease until 2050 (BMU 2010, 22).

2 As Friedler (2005) notes, decentralised wastewater reuse can significantly reduce the fresh-water demand by up to 30 percent.

9 1 Introduction

China is amongst the countries with the largest growth potentials for MBRs as a (semi)

decentralised wastewater treatment and reclamation solution. Throughout the last 20

years the country has positioned itself as a global power with remarkable economic

development albeit much happened at cost of its environment and ecological balance,

particular of its water resources. 16 of the 20 most seriously polluted cities in the world

are located in China and a 300 million Chinese people do not have access to safe

freshwater resources (Gleick 2009). Furthermore, about one-fifth of the Chinese river

streams are unsuitable for any use (CGTI 2012). In the municipal sector ongoing high

urbanisation3 has led to rapid growth of megacities that lack sanitation systems and

municipal wastewater treatment4 as the development of a sufficient water infrastructure

could not keep pace with the random growth of the cities. Similar problems occurred in

the industrial sector where rapid industrialisation has led to excessive water use and

produced enormous amounts of wastewater which are frequently discharged into the

environment without or with insufficient treatment due to missing wastewater treatment

facilities5. Besides deteriorating water quality local water stress is another serious con-

cern. China is endowed with about 2,100 m3/year of water resources per capita which

is only one-third of the world average of 6,200 m3/year (World Bank 2009). In addition,

water resources are unevenly distributed across the country with local water stress

being particularly evident in the Northern provinces. These regions account for about

60 percent of the total population but are endowed with only 19 percent of the available

freshwater resources (M. Li 2011) which is 500 m3/year per capita in North China or as

little as 100 m3/year in Beijing (CGTI 2012). In the next decades water demand is likely

to increase further at a Compound annual growth rate (CAGR) of 1.5 percent per year

(M. Li 2011). Taking together all the water related problems they account for several

hundred billion RMB annually (CGTI 2012).

In recent years China has recognised its key challenges of increasing water stress,

deteriorating water quality and insufficient sanitation which are threatening the future

economic development as well as political and societal stability of the country. Since

2005 the number of wastewater treatment plants rose by 25 percent annually to exceed

3,000 nationwide (CGTI 2012). During the 11th Five-Year-Plan period (FYP ) (2006 to

3 By 2030, China is expected to have 62 percent of its population in the urban sector compared to 46 percent in 2009 (Peng 2012).

4 It is estimated that the wastewater treatment rate in the municipal sector is less than 60 per-cent and only 8.5 percent of the treated wastewater is reused (Frost & Sullivan 2012; Frost & Sullivan 2011b).

5 The recycling rate of industrial wastewater accounts for only 40 percent compared to 75 to 85 percent in developed countries (W.-W. Li et al. 2012).

10 1 Introduction

2010) the central government allocated USD 1.76 billion to the wastewater treatment

and reclamation sector, of which a large proportion was invested in MBR technology

(Frost & Sullivan 2012; Frost & Sullivan 2011b). For many Chinese applications MBRs

are considered as best available technology (BAT) and their large adoption is officially

recommended by the Ministry of Environment Protection (MEP), encouraged through

directive guidelines for wastewater reclamation and reuse in the current 12th FYP.

The recent dynamics in China indicate an integral role of MBR technology in the future

development and catching-up process that aims at greater environmental sustainability.

From this perspective, by adopting MBRs China country may potentially take the lead

in the development of (semi) decentralised MBR technology and provide effective

wastewater management systems which on the one hand would allow the country to

successfully overcome its own ecological problems and at the same time gain a com-

petitive advantage in the future as the necessity for wastewater treatment and reclama-

tion together with more stringent environmental regulations are apparent not only in

China but in large parts of the world.

Along with China‘s generally growing strength in technological capabilities this thesis

will therefore identify the potentials of the country to transform its large demand for

MBRs into the creation of a competitive domestic MBR industry with future lead suppli-

ers that will provide MBR technology ―Made in China‖ and help to solve water related

problems in foreign countries. The empirical part of this work is founded on the lead

market concept by Beise (2001) and extended by Beise & Rennings (2003; 2005)

which estimates the lead market potentials of a country with respect to seven dimen-

sions including (1) demand, (2) prices and costs, (3) regulation, (4) export, (5) market-

structure (6) transfer and (7) supply-side. The thesis compares the Chinese potential

as a late mover country with other NICs as well as first mover countries that led the

development of MBR technology in the past. As such this case study hopes to find em-

pirical evidence for an increasing dominance of China in the fields of environmental

innovations (eco-innovations), both in adoption and expertise as one strong tier of its

national transition strategy.

The thesis is structured as follows: Section 2 introduces membrane bioreactors as a

(semi) decentralised wastewater treatment and reclamation innovation and briefly ex-

plains its technical background. Section 3 reviews the lead market concept together

with the seven country-specific lead market advantages and presents the methodology

for the indicators that are used throughout the empirical study. Section 4 then provides

a global market overview and the international diffusion of MBR technology. Section 5

assesses the lead market potential of China in a cross-country comparison. Finally

Section 6 derives conclusions on the lead market potential of China.

11 2 Membrane bioreactor technology

2 Membrane bioreactor technology

2.1 Definition

A membrane bioreactor is a wastewater treatment system that combines a conven-

tional biological oxidation process with physical membrane filtration. In contrast to the

conventional activated sludge (CAS) treatment which uses gravity settling and requires

a secondary clarifier to separate solids from the treated effluent, an MBR uses mem-

brane filtration modules to withhold particles above the pore size of the membranes.

The filtration units are usually equipped with either microfiltration (MF) membranes with

a pore size of 0.6 µm or ultrafiltration (UF) membranes with a pore size of 0.1 µm that

both effectively withhold suspended solids and provide complete disinfection by filtering

pathogens, bacteria and viruses6. Due their qualities the main application of MBRs is

for tertiary industrial or municipal wastewater treatment and reclamation (Hermanowicz

2011). The configuration and setting of an MBR treatment plant vary to a large extent

depending on the requirements of the respective environment. Figure 2 provides a

broad classification based on different criteria together with an end-user segmentation.

Figure 1: MBR filtration process with different membrane pore sizes in comparison to

conventional wastewater treatment.

Source: Author‘s illustration.

6 Whilst MF or UF is sufficient for almost all non-potable reuse applications it can be expanded by an adhered filtration stage using nanofiltration (NF) or reverse osmosis (RO) to remove remaining dissolved substances such as salts or organics and produce potable water quali-ty.


Figure 2: Classification of MBRs.

Source: Author‘s illustration based on Judd and Judd (2011) and Frost & Sullivan (2008).

Decentralised wastewater treatment technologies

Sequencing Batch Reactor (SBR)

Biological Aerated Filter (BAF)

Moving Bed Bioreactor (MBBR )

Membrane bioreactor (MBR)

Purpose

Wastewater treatment and safe discharge

Coastal

Brackish

Surface

Wastewater reclamation

Groundwater recharge

Irrigation and landscaping

Industrial use (boiler water)

Domestic (toilet flushing)

Potable water supply

enhancement

Configuration type

Internal, submerged

(SMBR)

External loop, sidestream

(EMBR)

Membrane types

Hollow fibre

Poly vinyldene fluoride (PVDF)

Polyvinylchloride (PVC )

Ceramic

Flatsheet

Membrane size

Microfiltration (MF)

Ultrafiltration (UF)

Nanofiltration (NF)

Treatment capacity

centralised > 60,000 m3/d

semi-decentralised 600 - 60,000

m3/d

decentralised 0.6 - 600 m3/d

End-user application

Commercial Municipal Rural Industrial

Landfill

Petrochemical and chemical

Steel and metal

Food and beverage

Agricultural

Treated water source

Wastewater Surface water

River

Reservoir

Pre- and post- treatments

Coagulation

Poly Aluminium Chloride (PAC)

NF

RO


2.2 MBRs for wastewater treatment and reclamation

Membrane bioreactors are used for industrial and municipal wastewater treatment

whenever traditional wastewater treatment such as CAS, Rotating Biological Contrac-

tors (RBC) or Sequencing Batch Reactors (SBR) cannot be used due to space re-

quirements7, excessive mixed liquor suspended solids concentrations (MLSS) or

whenever high water quality of the effluent is required such as for wastewater reuse or

discharges to sensitive environments.

Table 1: Advantages and disadvantages of MBR technology.

Advantages of MBR Disadvantages and prob-

lems of MBR

Footprint ⊕ Small footprint and com-

pact modular systems due to

four time‘s higher MLSS con-

centration than conventional

treatment (Sutherland 2009)

which significantly reduces the

size of the aeration tank and

does not require secondary

clarifiers.

⊖ High installation costs

for small on-site treatment

plants.

Possible solutions

Standardisation and proc-

ess optimisation through

packaged solutions.

Costs ⊕ Total lifespan costs are

becoming comparable to con-

ventional treatment plants if

long membrane life is pro-

vided.

⊕ Significant reduction of an-

nualised costs from USD

⊖ Membrane life and foul-

ing remain a challenge.

⊖ High energy demands

for aeration process to pre-

vent membrane fouling and

pressure needed to oper-

ate the filtration process.

7 Typical footprint limitations are exceeding unit land costs, lack of physical space or legal re-strictions.


0.90/m3 in 1995 to USD

0.08/m3 in 2005 (Her-

manowicz 2011). Operation

and maintenance (O&M) costs

are expected to decrease by

another 15 to 20 percent until

2017 (Peng 2012).

Possible solutions

Research indicates incre-

mental improvements on

membrane lifetime.

Operation ⊕ Ease of operation, less

maintenance and operator

attention with large automa-

tion potentials and a very ro-

bust system design that can

handle fluctuating nutrient

concentrations.

⊕ Little need for chemical

agents for the actual wastewa-

ter treatment process.

⊖ Complex and relatively

new technology with limited

design and operational

experience is causing plant

failures.

⊖ Operational safety con-

cerns and public accep-

tance issues for wastewa-

ter reuse.

⊖ Chemical agents still

required for the cleaning

process of the membranes.

Possible solutions

Better training and educa-

tion together with local

partnerships and technol-

ogy transfer.

Quality ⊕ Overcomes the problem of

poor sludge settling and re-

duces total sludge generation

in comparison to conventional

technologies.

⊕ Steady effluent that meets

most of the international stan-

dards on wastewater dis-

charge and reuse.

⊕ Effluent quality is sufficient


to be directly fed to a reverse

osmosis process without fur-

ther treatment which is not

possible with conventional

plants unless the effluent is

treated with MF or UF alike.

Source: Mostly based on Judd and Judd (2011).

The above advantages make MBR the technology of choice for applications where

significant value is added to the effluent such as in sensitive environments or water-

stressed regions and where special emphasis is put on wastewater reusability at the

direct point of origin. Due to their small footprint they can be operated (semi-) decen-

tralised without the need for a built out water infrastructure and can be embedded un-

remarkably in the environment, an advantage that is acknowledged to be a radical in-

novation and which is described further in Subsection 2.5. Nonetheless, in many cases

there is still a cost disadvantage for MBR compared to centralised WWTPs which may

be overcome through the large-scale production and realisation of economies of scale

as well as learning effects. Furthermore, despite its automation potentials the operation

of MBRs is still more expensive but may become less expensive in the future. Yet it is

difficult to determine the total net effect with some calculations assigning competitive

lifetime costs for particularly small-scale systems when the focus is on wastewater rec-

lamation whilst others still see major disadvantages for MBRs (Fatone 2007), leaving

some uncertainty concerning the economic impact of MBRs in the future.

2.3 Technical background

The most important and cost-intensive component of an MBR is the membrane filtra-

tion unit. The unit consists of several modules which themselves are typically equipped

with either hollow fibre (HF), flatsheet (FS) or multitube (MT) polymeric membranes.

The types of membranes differ with respect to the direction of the wastewater flow. For

FS and HF the water flows from the outside to the inside of the membranes whereas

for MT the flow is in the reverse direction. Another difference is apparent in the location

of the filtration unit. FS and HF units are usually directly submerged in the biological

aeration tank whereas MT units usually sit outside in a secondary filtration tank.


Table 2: Overview on membrane types commonly used in MBR systems.

HF FS MT

Flow direction Inwards Inwards Outwards

Location Submerged Submerged External

Source: (The MBR Site 2012a).

Predominantly manufacturers of filtration units and MBR systems prefer HF mem-

branes over FS and MT membranes due to 20 percent lower production costs (Peng

2012). In contrast, FS and MT membranes are less prone to fouling and obstruction (cf.

Subsection 2.3.2) which is one of the main reasons for higher operating costs in com-

parison to conventional treatment technologies.

2.3.1 Internal and external MBRs

Membrane bioreactors can be found in two different plant configurations depending on

the location of the membrane filtration unit. Internal, immersed or submerged MBRs

(SMBR) directly integrate the filtration unit into the biological aeration tank whereas for

side-stream or external loop MBRs (EMBR) the filtration unit is located in a separate

tank. Thus, the footprint of a sMBR is typically smaller than that of an eMBR of compa-

rable treatment capacity. Furthermore, the separate filtration tank requires the waste-

water to be pumped from the aeration tank to the filtration unit, thereby increasing en-

ergy use by up to two orders of magnitude (Beddow 2010a). sMBRs are usually fa-

voured over side-stream solutions due to their smaller footprint which is an important

consideration in municipal applications. Nonetheless eMBRs have an important advan-

tage in that they allow the optimisation of both processes the biological treatment and

the membrane filtration separately from each other which is typically desired in indus-

trial applications where high effluent quality is required. Furthermore eMBRs facilitate

maintenance, cleaning and replacement of the membranes due to their placement in

the external tank.

2.3.2 Membrane fouling and aeration

MBRs have comparably low operational requirements due to their high automation po-

tential. Yet one of the biggest operational challenges is membrane fouling which de-

scribes constraints in membrane permeability caused by obstructed pores. Under such

circumstances the membranes cannot process the incoming wastewater flow properly.

Whilst some fouling is called reversible and can be reduced through sufficient aeration

and changes in direction and intensity of the water flows in order to reduce viscosity


and high solids concentration, some of the fouling is irreversible. Irreversible fouling

requires chemical cleaning or, in the last resort, the complete replacement of the mem-

branes (Hermanowicz 2011). The aeration process is a crucial factor influencing the

efficacy of an MBR. It is required for both the biological treatment process and the pre-

vention of membrane fouling. However, whilst oxidation requires rather small air bub-

bles membrane fouling can be controlled better with larger bubbles that are capable of

cleaning the surface of the membranes. Thus, the potential to use a single aeration

stream for both processes is limited resulting in a higher energy use than for conven-

tional treatment. Even the most advanced MBRs still need 0.1 kWh/m3 more energy

than CAS plants (Hermanowicz 2011).

2.4 Value chain

The MBR value chain is split into four production stages. On the first stage is the

chemical industry which supplies the raw substances. These are used by membrane

suppliers for the production of HF, FS and MT membranes. These membranes are

then packaged together and sold as MBR modules by MBR equipment suppliers. Engi-

neering, procurement and construction (EPC) companies and design institutes are then

responsible for the integration of the MBR modules into the MBR treatment system and

specify the local design requirements. Apart from a small number of system solution

suppliers that are horizontally integrated along the complete value chain, generally

there are a few membrane producers, a large number of small MBR module and

equipment suppliers and a well-sorted number of foremost national EPC companies

that are specialised on MBR system integration.

Figure 3: Companies along the MBR value chain. Shape sizes correspond to the ap-

proximate number of companies.


Chemical industry Membrane producers MBR module

and equipment suppliers

System egineering, procurement and

construction (EPC) companies and design institutes


2.5 Innovation potential of (semi-) decentralised wastewa-ter treatment and reclamation

(Semi-) decentralised treatment is a relatively new concept that became technically

feasible and economically viable with the development of compact membrane bioreac-

tors. As opposed to the traditional concept of centralised wastewater treatment which

collects and transports large amounts of municipal, industrial wastewater and rainwater

through a sewer system to a single central wastewater treatment plant, in a decentral-

ised or semi-decentralised approach wastewater is treated close or directly at its point

of origin, often without any connection and independently from a centralised sewer sys-

tem. Thus, (semi-) decentralised treatment effectively closes the water cycle of produc-

tion consumption and reclamation. There is no general capacity definition of (semi-)

decentralised treatment. As Binz (2008) notes it rather depends on the national or re-

gional context. Whilst in the EU decentralised treatment is defined by a treatment ca-

pacity of up to 50 population equivalent8 (PE) and semi-decentralised for up to 1,000

PE, in China the definition of decentralised treatment is used on a much larger scale

with up to 1,000 PE for decentralised and 100,000 PE for semi-decentralised treatment

respectively.

Table 3: Capacity definition of (semi-) decentralised treatment in China.

Decentralised treatment Semi-decentralised treatment

1 – 1,000 PE (0.6 – 600 m3/d) 1,000 – 100,000 PE (600 – 60,000 m3/d)

Source: (Binz 2008).

8 PE is the ratio of the pollution load produced by industry in comparison to the equivalent load which is produced by individual households in the same time. For example industrial wastewater that has 1,000 PE is equivalent to the amount of wastewater produced by 1,000 households.


Figure 4: Schematic comparison of centralised (left) and (semi-) decentralised (right)

wastewater treatment.


Decentralisation offers a variety of advantages that may radically transform the waste-

water treatment sector. First, treated wastewater can be directly fed back into the water

cycle of its consumers, thereby reducing the amount of new freshwater withdrawals by

as much as 30 percent (E, R, and N 2005). As such it makes its users independent

from water access limitations or water price increases. Second, a built out water infra-

structure and sewer system is not required9, saving large investment and maintenance

costs for the latter. Third, extracted substances are not mixed and transported together

in the first place to be separated again in a centralised treatment plant but can be di-

rectly reused for different purposes such as phosphorus extracted from domestic

wastewater for the production of fertilisers or dyestuffs extracted from industrial waste-

water for the production of paints.

There are various fields of application for (semi-) decentralised MBRs. One is the

treatment and reclamation of domestic greywater. Thereby the slightly polluted grey-

water from sources such as hand basis or showers is collected separately from the

highly polluted blackwater such as from kitchen effluents through a dual plumbing sys-

tem and effectively treated by an on-site MBR that resides in the basement of the build-

ing. The treated effluents can then be directly reused for garden irrigation or toilet flush-

9 In case of a combined wastewater stream there is only a single pipeline connection required to connect the user with the treatment system. In cases of greywater treatment which is considered to have the largest efficacy potentials a dual plumbing network is required which separates the slightly polluted greywater from the blackwater.


ing. Other fields of application can be found in municipal communities for apartment

complexes (semi-decentralised), industrial on-site systems (decentralised) as well as

industrial parks (semi-decentralised) or commercial buildings such as hotels and shop-

ping centres. However, apart from the various benefits there are a number of open

questions that come along with a decentralisation of wastewater treatment, much of

which is related to administrative considerations of ownership, operation and control as

well as general public awareness and acceptance of wastewater reuse.

Now with information on the innovation potential of MBR technology, the next section

reviews the lead market concept which will be used throughout the following sections to

assess the overall conditions for MBR technology in China in comparison to other

countries. This will then provide insights on the potentials in China for a leapfrogging

process which would mean skipping the current generation of centralised treatment

plants in favour of a (semi-) decentralised approach and develop the capabilities to

successfully market MBR technology ―Made in China‖ on the global market.

21 3 Lead market concept

3 Lead market concept

The lead market concept was first described by Beise (2001). It provides a theoretical

framework to understand and explain the global diffusion of innovations and the deter-

minants which constitute the potentials for a country to become the pioneering country,

the ―lead market‖, for an innovation. The existence of a lead market industry for an in-

novation is highly beneficial for a country as the lead market significantly shapes the

characteristics of an innovation and defines the global standards (Gerybadze, Meyer-

Krahmer, and Reger 1997). As previous case studies on lead markets (Beise and Ren-

nings 2003; Beise 2004; Beise and Rennings 2005) showed, the lead market often

denotes the country in which a globally dominant innovation had been first widely

adopted before it was commercialised world-wide10. The reason behind is that the

early adoption of an innovation allows firms to preserve their leading position by con-

stantly improving their product solutions (learning-by-doing) and by receiving valuable

long-term user feedback (learning-by-using) as well as market knowledge. Prominent

lead markets for specific innovations are the U.S. for information technology (Nation-

Master 2012a) , Scandinavia for cellular mobile phone technology (NationMaster

2012b) or Japan for the ancient fax technology (NationMaster 2012c). All three coun-

tries have in common that they were the first to adopt the respective technology on a

large scale. However, before an innovation design becomes the globally dominant de-

sign it faces competition from alternative innovation designs that provide the same

function and are preferred by other countries as each country initially has different

preferences and demand conditions and therefore demands different designs. Over

time one innovation design wins the race on the world market and is widely adopted in

―lag market‖ countries (Kotabe and Helsen 1998; Kalish, Mahajan, and Muller 1995).

The global success of a single innovation thereby follows the implication that at a cer-

tain point of time the advantages of an international standardisation must have over-

compensated for the different preferences of countries, making the coexistence of sev-

eral innovation designs obsolete. According to the lead market concept, the success of

the international diffusion of a particular innovation design over other competing de-

signs and the leading role of a country in designing these standards can be explained

by nation-specific demand, market and supply-side conditions. The lead market con-

10 As Beise (2001) notes, the lead market does not have to be the country in which the innova-tion was initially created. For the previously mentioned innovations none of them were in-vented in the country in which they first took off, such as the PC which was invented in France and cell phones as well as the fax machine were invented in the U.S.


cept refines them into a typology of seven interdependent lead market advantages11:

(1) demand advantage, (2) price advantage, (3) regulatory advantage, (4) export ad-

vantage, (5) market structure advantage, (6) transfer advantage and (7) supply-side

advantage. These advantages allow the identification of a lead market for a specific

innovation design as the lead market identifies the country that claims most of the ad-

vantages in comparison to other countries. The following section introduces each of the

advantages in detail together with indicators that allow for an empirical assessment of

the lead markets conditions with respect to MBR technology.

11 The original typology of Beise (2001) contains five lead market advantages that were later extended by regulatory advantages (Beise and Rennings 2005) in order to explain particu-larly environmental innovations more accurately. For the purpose of this thesis the term ―supply-side advantage‖ was introduced which is equivalent to traditional technological per-formance described in other studies on lead markets to consistently explain all nation-specific drivers by a set of advantages.


Figure 5: Lead market advantages for MBR technology and indicators for their assessment.



3.1 Seven lead market advantages

An empirical analysis of the seven lead market advantages aims to assess the lead

market potential of a country for a specific innovation design. Thereby different vari-

ables and indicators for which sufficient data is available approximate the seven fac-

tors. Generally the higher the value of the lead market advantages of a country or the

more lead market advantages a country shows, the higher its lead market potential in

comparison to other countries. Lead market advantages can be classified into two dif-

ferent groups: demand-oriented conditions such as prices and costs, demand or regu-

lation and supply-oriented conditions such as export, transfer, market structure and the

supply-side. The initial motivation behind the lead market concept by Beise et al. is that

in contemporary times classical supply-side factors such as technological performance

and expertise of national firms alone is no longer sufficient to explain the dynamics for

innovations that seem to be increasingly driven by other more demand-oriented factors.

Nonetheless, both demand-oriented and supply-oriented sides have to be considered

in a lead market analysis which is the reason for the inclusion of the supply-side advan-

tage as the seventh advantage.

3.1.1 Demand advantage

Demand advantages can be described by national conditions that a country is exposed

to which facilitate the early adoption of an innovation design that due to its merits is

likely to be adopted worldwide in the future. As such, these countries will be at the fore-

front for an innovation as soon as the beneficial characteristics are demanded world-

wide. For MBR it is argued that countries which today suffer most from water scarcity,

water pollution and insufficient public sewage are likely to anticipate the future global

demand for MBRs earlier and thus have a demand advantage. In order to quantify the

demand, a composed Wastewater collection, water pollution and stress (WCPS) Index

is used as indicator for the demand advantage. The index is normalised between 0

(lowest advantage) and 100 (highest advantage) with each of the sub-indicators having

equal weight. Another indicator of a demand advantage is a supportive public environ-

ment. The more a society values the merits of a certain innovation design the more

likely it will emerge as the nationally preferred design and may be successfully abroad

as soon as these merits are perceived in other countries alike. Public support for MBR

technology was approximated by a 2012 consumer survey on the public acceptance of

reused wastewater (GE Power & Water 2012).


3.1.2 Price advantage

Price advantages refer to national conditions of a country that cause relative price re-

ductions of an innovation design in comparison to designs preferred by other countries.

Price decreases for an innovation compensate other countries for the different demand

preferences. Attracted by these relative price reductions countries will abandon their

designs in favour of the less cost-intensive design and encourage its international diffu-

sion. Price reductions are mainly the result of cost reductions caused by economies of

scale through learning progresses with the technology and factor price changes. In the

case of MBR factor price changes are approximated by membrane prices as an impor-

tant input factor in the production12. Thus, countries with low membrane prices have at

least one price advantage in their production of MBRs. Another price advantage are

anticipatory factor prices. Countries that anticipate future factor price changes at an

early stage are likely to have a price advantage. For MBRs the municipal water price is

taken as an anticipatory factor price approximation as sufficient data is available for a

global comparison. Thereby countries with high water prices have a price advantage as

with further scarcity of global water resources it is anticipated that water prices will

raise which will increase the demand for wastewater reuse technologies such as MBR.

3.1.3 Regulatory advantage

Demand and price advantages sufficiently explain the demand-oriented aspects for

most of the innovations. Eco-innovations such as MBR, however, to some extent face a

double externality problem (Rennings 2000) in that they reduce environmental harms

such as a reduction of water pollution but do not provide any or only low additional user

benefit compared to conventional technology. Under these circumstances firms will

have no incentive to invest and develop eco-innovations albeit in the long run they

could gain a competitive advantage such as by increased efficiency for resources

which are at least partly private goods (Porter and Van der Linde 1995). In this case a

regulatory advantage refers to national conditions that prevent market failure when

competitive market structures alone are not capable of providing environmental innova-

tions. They facilitate the development process of eco-innovations by stimulating de-

mand through policies, measures and a supportive environment which gives firms an

incentive to provide eco-innovations. To assess a regulatory advantage for MBR recent

Chinese environmental water policies on both national and local levels are reviewed.

Apart from the qualitative assessment a regulatory advantage is further approximated

12 The production of MBRs is to a high degree automated. Thus labour costs differences are not the most significant indicator.


by a Regulatory Index which is composed of two indicators ―Government Effectiveness‖

and ―Regulatory Quality‖ (GII 2012). The reason behind is that the pure existence of

environmental policies alone does not constitute an advantage unless these policies

are enforced, controlled and monitored. Countries are ranked on a scale ranging from 0

(lowest regulatory advantage) to 100 (highest regulatory advantage).

3.1.4 Export advantage

An export advantage is described by national conditions that facilitate the adoption of

the national dominant design in other countries and enable a country to develop world-

wide applicable innovation designs rather than idiosyncratic solutions. Such conditions

are the inclusion and consideration of international demand preferences in the devel-

opment process of own innovation designs – in other words the sensitivity for foreign

problems and needs – a traditional export orientation of national firms as well as na-

tional conditions that are similar to conditions in many foreign countries. For the last

factor it can be argued that the closer two countries are with respect to their cultural,

social, economic and environmental conditions, the more likely one of the two countries

adopts the innovation design which was initially preferred by the other country (Vernon

1979). For MBR technology the similarity of national and global conditions, i.e. the

standardisation potential, was approximated by three environmental conditions that

were compared with the global average. These were water quality as measured by the

Water Quality Index (EPI 2010a), Percentage of territory suffering from water stress

(EPI 2010b) and Population connected to wastewater collection system (OECD 2012).

It is argued that countries whose environmental conditions are similar to global condi-

tions are more likely to develop MBR systems that can be operated worldwide. In order

to measure the traditional export orientation of national firms and their sensitivity for

foreign demand preferences the export ratio for water purifying systems (commodity

code 842121) of each country with its three major trading countries was taken into con-

sideration (UN Comtrade 2011). The argumentation behind is that countries with a

highly diversified export structure are more likely to develop standardised MBR sys-

tems compared to those countries whose exports are highly dependent on the three

major trading countries.

3.1.5 Transfer advantage

A transfer advantage is best described by national conditions that support transferring

the perceived benefit of a national innovation design or national demand conditions to

other countries. Thus a transfer advantage can be seen as the high reputation of a

country for a specific innovation. A transfer advantage explains why a technology is still

produced in the country of initial adoption and not in the countries that adopted the


technology subsequently. Countries with a transfer advantage reduce the perceived

risk and uncertainty by adopting a future successful innovation at an early stage, an

effect which is known as the demonstration effect of adoption (Mansfield 1968). Closely

related to reputation is the visibility of a country for a specific technology on an interna-

tional level which can be seen as another transfer advantage. Visibility of MBR tech-

nology was approximated by the Revealed Comparative Advantage (RCA), a measure

of the technological specialisation of a country13.

3.1.6 Market structure advantage

A market structure advantage refers to conditions of the national market that increase

the degree of competition. Previous case studies revealed that lead markets typically

have highly competitive, low concentrated markets. The reason behind is that compa-

nies that face strong competition will demand more and different innovation designs,

i.e. they will have to invest more in development, in order to find the best design that

will allow them to outcompete their rivals and gain the rewards in form of market share.

Firms that are successful by choosing a specific innovation are likely to be followed by

other firms deciding for the same innovation and as such facilitating the adoption of a

nationally dominant innovation design. In order to estimate the market structure advan-

tage for MBR technology the size and market shares of the MBR industry was chosen

as an indicator to approximate market concentration. In order to collect information on

suppliers of membranes, filtration modules and equipment as well as process engineer-

ing companies and consulting firms an online search was conducted using six different

databases (The MBR site 2012; Water & Wastewater Direct 2012; Environmental Ex-

pert 2012; MBR Network 2012; Tradekey 2012; Alibaba 2012). It is argued that the

more companies from each of these fields are active in the market the more vital ap-

pears to be the industry and the higher the degree of competition putting pressure on

companies to innovate.

13 The RCA is calculated using the exports of a country i for ―Water filtering or purifying machi-nery or apparatus‖ (commodity code 842121) Ewi, the imports of a country i for Water filter-ing or purifying machinery or apparatus Iwi, the total exports of a country i Eni and the total

imports of a country i Ini: . RCAhyp is the normalised

RCA to constrain the values on a scale between -100 and 100. Values between -20 and +20 indicate neutrality. Values greater +20 indicate a specialisation in MBR exports and a comparative advantage of the respective country whereas values smaller -20 indicate a comparative disadvantage respectively.


3.1.7 Supply-side advantage

A supply-side advantage is constituted by national conditions that enable a country to

actively develop innovations and guarantee advantages in technological performance

in comparison to other countries. Traditional lead markets for an innovation have an

abundance of knowledge resources as well as intellectual property rights and partici-

pate in technology clusters or technical innovation systems. That is, their industries are

vital and the different actors are well interconnected with each other. A supply-side

advantage for MBR technology is identified by an analysis on national patent (RPA)14

and literature (RLA)15 specialisations, university-industry collaboration in R&D (WEF

2012), the state of cluster development (WEF 2012) and a qualitative review of the

existing networks for membrane sciences and MBR technology.

14 , with Pmi indicating the number of patent registra-

tions for semi-permeable membranes of country i, Pti the total number of patent registra-tions of country i over all technologies, Pmw the global number of patent registrations for semi-permeable membranes and Ptw the global number of patent registrations over all technology fields.

15 , with Lmi indicating the number of literature publica-

tions for MBR technology of country i, Lti the total number of literature publications of coun-try i in four important water and membrane journals (Desalination Journal 2012; Water Re-search Journal 2012; Journal of Membrane Science 2012; Bioresource Technology Journal 2012), Lmw the global number of literature publications for MBR technology and Ltw the number of literature publications of the country selection which has been published in the four journals.

29 4 International diffusion and global market overview

4 International diffusion and global market overview

The first commercial membrane bioreactors were developed in the 1960s with the U.S.

supplier Dorr-Oliver Inc. being the first to combine CAS reactors with UF flat sheet

membranes which were located in an external tank. However, low economic value of

the produced effluent, high membrane costs together with the problem of fouling and

high energy demands limited the application of these eMBRs to single industrial niche

markets where high effluent quality was demanded regardless the high costs such as

for landfills or ship-board sewage (Judd and Judd 2011). Albeit the first MBRs were

less successful on the U.S. market in the 1970s they diffused more successfully on the

Japanese market through license agreements between Dorr-Oliver and Sanki Engi-

neering Co. Ltd. At around the same time the Canadian firm Thetford Systems which

was later renown as ZENON Environmental also launched an external MBR for domes-

tic wastewater treatment. Similar developments also began in France and later on in

the UK. A major breakthrough for commercial application was marked by the invention

of submerged MBRs in Japan as part of a government-funded research program at the

end of the 1980s. The integration of the previously externally located membrane unit

into the bioreactor combined with the use of membrane aeration to limit fouling reduced

operating costs significantly and made the application of MBRs more economical in

other sectors apart from industrial niche markets. From that time on Japan has pio-

neered the MBR development with companies such as Kubota, Asahi Kasai or Mitsubi-

shi Rayon and has become the lead market for small-scale domestic wastewater

treatment systems, operating about 3800 MBR plants compared to about 600 in

Europe and about 300 in China (Wang et al. 2008; Lesjean and Huisjes 2008; Itokawa

2009; Judd and Judd 2011). Due to the early adoption Japanese MBR suppliers could

benefit from higher penetration rates for a significant time period and gain market

knowledge as well as user feedback to further improve MBR technology and retain a

strong position against other countries (cf. Figure 18: Global market share for MBR

suppliers in 2007.), particularly in membrane production. Apart from Japan other early

suppliers of MBRs emerged in Canada (ZENON Environmental that is now part of GE

Water Technologies) and in Germany (Wehrle Werk AG) (Sutherland 2009). With the

maturing of the technology other developed markets such as Europe and North Amer-

ica soon followed with a wider adoption from the late 1990‘s onwards. Around the turn

of the millennium MBR technology was increasingly acknowledged by industrial experts

and academics as the best available technology for wastewater treatment with recla-

mation purposes. From 2000 onwards this has led to significant global growth in all


sectors in terms of number of plants and installed capacity16, yet with major differences

between the regions. In 2003 a market study analysed the number of installed plants

by regions. Thereby already 73 percent of all plants were operated in Asia, followed by

North America with 16 percent and Europe with 11 percent (Pearce 2008). Within the

last decade this share remained stable (Frost & Sullivan 2008) with large demand com-

ing from Asia-Pacific and increasingly from Middle East countries. This strong diffusion

of MBR technology worldwide reveals its maturity and its chances in becoming a global

standard design which is widely acknowledged as the best available technology (BAT

for wastewater treatment and reclamation.

Figure 6: First significant MBR development and diffusion in selected countries.

Source: (Fatone 2007; Judd and Judd 2011).

16 Between 2000 and 2012 the increase in capacity was more than thirteen-fold with Swanage plant (13,000 m

3/d) in the UK and Brightwater plant (170,000 m

3/d) in the U.S. being the

largest plants at their time respectively (The MBR Site 2012a).

1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011

United States

United Kingdom

Spain

Singapore

Japan

Italy

India

Germany

France

China

Canada

Austalia


Figure 7: International diffusion of MBR technology approximated by sales trends.

Source: Own calculations based on (Frost & Sullivan 2008; Frost & Sullivan 2011b).

4.1 Diffusion of MBR technology in China

In 2011, the global MBR market was estimated at USD 838.2 million and is projected to

grow at a CAGR of 22.4 percent, reaching a total market size of USD 3.44 billion in

2018 (WaterWorld 2012). In comparison, the Chinese market was valued USD 308.1

million in 2011 – thus constituted about one third of the global market - and is expected

to grow at an even higher CAGR of 28.9 percent, with a total market size of USD 1.35

billion in 2017 (Frost & Sullivan 2011a). Key drivers that facilitate the high growth rates

in China are increased confidence in the technology and public awareness, an increas-

ing number of domestic manufacturers, a set of new policies targeting water quality as

well as wastewater reclamation, and reductions in membrane costs due to advance-

ments in the technology and domestic production that lead to cost advantages against

other water supply sources such as desalination or the South-to-North Water Diversion

Project (Frost & Sullivan 2011a; ADB 2012).

First interest in MBR technology in China emerged in the early 1990s with nationally

funded lab-scale research projects (Zheng et al. 2010), predominantly at Tsing Hua

University (Beijing), Zheijang University (Hangzhou) and Tianjin University, all of which

are located in the arid Northeast of the country. Between 1995 and 1998 the first pilot

0

50

100

150

200

250

300

350

400

450

2004 2005 2006 2007 2008 2009 2010 2011 2012

US

D m

illio

n

China

Rep. of Korea

United States

Japan

Northern Europe

Southern Europe

Central and Eastern Europe

Canada

Australia


eMBR and later sMBR plants were developed. From 2000 on first residential and in-

dustrial small-scale plants have been built with treatment capacities < 100 m3/d. These

soon followed medium-scale systems in the municipal and industrial sector with capaci-

ties up to 1,000 m3/d and first feasibility studies on large-scale plants exceeding capaci-

ties of 10,000 m3/d. During the first decade of the new century many nowadays domi-

nant domestic suppliers of MBR filtration units entered the market, such as Beijing Ori-

gin Water Technology Company (BOW 2012) in 2001 or Shanghai SINAP Membrane

Tech Co., Ltd. (Shanghai SINAP 2012) in 2008. Albeit MBR technology was initially

seen as the preferred wastewater treatment and reclamation technology for small

(semi-) decentralised applications such as in smaller communities, in China within 12

years of adoption there has been a strong trend towards large-scale plants for which

the country has gained much international recognition17. From 2006 onwards there

was a rapid increase in adoption of large-scale systems with a CAGR of 50 percent

compared to 11.5 – 12.5 globally (Judd and Judd 2011). In an international comparison

China is amongst the countries with the largest number of large-scale MBR plants (cf.

Figure 8). This is also reflected in the market segmentation. With its predominantly

large-scale WWTPs the municipal sector is responsible for more than two third of the

MBR turnover. A clear assessment of the (semi-) decentralised diffusion potential, on

the other hand, is rather difficult. Considering the regional differences in treatment

sizes for the definition of treatment modes (cf. Table 3: Capacity definition of (semi-)

decentralised treatment in China.), from a Chinese perspective many of the large-scale

MBRs indeed fulfil the criteria for (semi-) decentralised treatment. This is particularly

evident in the industrial sector where semi-decentralised MBRs are used for wastewa-

ter treatment within major industrial parks such as the ―Yangtze River International

Chemical Industrial Park‖ operating a plant with a capacity of 40,000 m3/d (Frost & Sul-

livan 2011b). Yet the diffusion of small-scale on-site treatment in the traditional under-

standing which is believed to have the largest potentials on water conservation is still

limited in China as exemplarily shown by the relevance for greywater treatment.

17 In 2007, the Chinese company Beijing Origin Water built the worldwide first MBR with a ca-pacity of 100,000 m

3/d (Beijing Wenyu River MBR plant). Similar ambitious projects fol-

lowed. After upgrade completion which was commissioned in 2010, Qinghe wastewater treatment plant located in Beijing will become the largest MBR plant worldwide with a treatment capacity of 240,000 m

3/d (Water-technology 2011).


Figure 8: Diffusion of the 20 largest MBR plants worldwide.

Source: (The MBR Site 2012b).

Figure 9: Chinese MBR market segmentation by turnover in 2010.

Source: (Frost & Sullivan 2011b).

USA; 6

China; 5 Australia; 2

Rep. of Korea; 2

Oman; 1

France; 1

Turkmenistan; 1

Qatar; 1 Brazil; 1

Municipal 71%

Petrochemical 9%

Chemical 4%

Steel & Metal 4%

Power 3%

Textile & Dye 2%

Leachate 1%

Others 6%

Industrial 29%


Figure 10: Centres of leading MBR activity in China by geographical location.

Source: (CGTI 2012).

From a geographical perspective the adoption of MBR is to a high degree driven by

water scarcity and water pollution and as such particularly evident in East China with

the North facing local water stress and the South facing significant water pollution.

Thus, a large proportion of large-scale municipal plants for wastewater reuse are lo-

cated in the Northeast whereas most of the large-scale industrial plants for wastewater

treatment are located in the Southeast. Additionally it is these areas where regulation is

strongly facilitating the adoption of MBR technology and where much R&D as well as

domestic production is located.

4.2 Relevance of greywater recycling

In China residential buildings account for only 12 percent of the total water consump-

tion but are responsible for 60 percent of all wastewater discharges (CGTI 2012). More

than half of that wastewater can be classified as slightly polluted greywater which indi-

cates the high potential for greywater recycling. Yet greywater treatment faces major


obstacles with respect to public awareness and government attitudes which hinder a

wide diffusion of MBR for greywater recycling (CGTI 2012):

High fragmentation of the market segment with a large number of poorly de-

signed product solutions lower confidence in the technology and limit long-term

acceptance by end-users.

Overlapping administrational responsibilities of several involved authorities

at different administrative levels cause conflicts in regulation and commission

approvals.

Misalignment of incentives as in China greywater treatment systems are typi-

cally not run by individual households due to excessive costs. Thus, control

over the systems is usually split amongst several parties such as solution pro-

viders, building developers and owners which misalign incentives.

Preference for large-scale infrastructure was already emphasised in Section

4.1. The reason behind is the realisation of economies of scale which supply

reclaimed water at lower costs than most greywater treatment systems.

36 5 Assessing the lead market potential for MBR technology in China

5 Assessing the lead market potential for MBR tech-nology in China

Following the lead market concept which was introduced in Section 3, the international

diffusion pattern together with the global market share of MBR manufacturers (cf. Fig-

ure 18: Global market share for MBR suppliers in 2007.) indicate a lead market role of

Japan due to its early wide-spread adoption and the U.S. as well as Germany respec-

tively with respect to their market dominance. Albeit it was initially assumed that an

existing lead market for the first generation of a given innovation is likely to be the lead

market for subsequent generations alike (Beise 2004, 1014), recent case studies re-

vealed the transition potential of former lag markets towards future lead markets (See

Horbach et al. 2012). A possible explanation is that lag markets may benefit from their

late entry into a market of increased maturity, certainty and less risk perception,

thereby overcoming the former lead market in a catching-up or leapfrogging process.

With respect to the large demand increase and market dynamics for MBR technology

in China there are reasons to believe that the country may use its demand advantage

to transform from a late adopter into a future lead market.

In the following subsections the seven lead market advantages from the lead market

concept are applied to membrane bioreactors as an eco-innovation design in the

wastewater treatment and reclamation sector in a cross-country comparison. First de-

mand, price and regulatory advantages are identified in order to estimate the degree of

demand-oriented factors. In a second step export, transfer, market structure and sup-

ply-side advantages are analysed to estimate the degree of supply-oriented factors that

facilitate the development and production of (semi-) decentralised MBR technology.

The selection of the countries for the cross-country comparison was based on different

reasons. Canada, France, South Korea and Italy were included due to their strong re-

search activities. Japan was included due to its early adoption and current market

dominance, same as Germany, and the U.S. where MBRs have been developed first.

Singapore was included due to its significant high level of water stress and the large

policy incentives to overcome this problem (see NEWater project). Denmark was in-

cluded due to its strong patent specialisation. The UK was included due to the signifi-

cant size of its MBR industry. Turkey was added to the selection due to its export spe-

cialisation. Spain was considered due its operation of some of largest MBR plants in

Europe. Similar to China, India, Russia and Israel were considered due to their high

demand potentials; the last two representing significant growth markets as identified by

the interview partners (cf. Section 3.1.5).


5.1 Demand advantage

As shown by the WCPS Index (cf. Figure 11), recent Chinese dynamics for MBR tech-

nology can be explained by high demand for all three sub-indicators which were identi-

fied as important for the adoption of MBRs (cf. Subsection 3.1.1). First, less than 50

percent of the population is connected to wastewater collecting systems, which is the

second lowest value after India. Between 1996 and 2009 the total length of the urban

pipeline network in thousands of kilometres increased by only 7 percent (M. Li 2011).

This considerably low value might indicate that in fact rather (semi-) decentralised

treatment options could have been considered. Second, the quality of China‘s water

resources is relatively low with only Israel, Turkey and Australia facing poorer quality.

Third, albeit local water stress in the Northern provinces is frequently mentioned the

most problematic issue an international comparison reveals other countries facing sig-

nificantly more water stress. In China around 20 percent of the territory suffers from

water stress which is relatively low compared to Israel with around 75 percent, Austra-

lia with 45 percent or even the U.S. with 21 percent. Thus, depending on the perceived

relevance of each of the factors China‘s demand can be considered slightly higher or

lower as shown by Figure 11. Nonetheless the demand potential is considered to be

significant enough to constitute a demand advantage with particularly water stress be-

ing expected to increase not only in China but worldwide in the next decades.

Another key for the adoption of MBRs, particularly in regions with high water stress

such as China is the public acceptance and trust in the technology for water reuse ap-

plications (Beddow 2010b). The reuse potential in China is high as indicated by a

wastewater reuse rate of only 8.5 percent in 2010 (Frost & Sullivan 2011b). A recent

GE Water Survey (GE Power & Water 2012) reveals that in China citizens are well in-

formed and aware of the origin of their water sources. In comparison to 69 percent in

the U.S. and 85 percent in Singapore 86 percent of the Chinese population knows

where their water comes from. Considering that Singapore due to its challenging water

situation is amongst the countries with the highest awareness and valuation of its water

resources worldwide, for China the results indicate attitudes of general awareness and

public interest in water-related topics.

Apart from public awareness, in China there are also strong trends of an increased

public support and private funding. Facilitated through effective government regulation

(cf. Section 5.3) market opportunities for the private sector arose across the whole wa-

ter value chain, including the wastewater treatment sector. As such investments from

private equity and venture capital funds increased significantly from USD 50 million in

2010 to USD 400 million in the first four months of 2011 (CGTI 2012).


Overall China's demand advantage for MBR technology is clearly visible and to a high

degree explains the country's rapid adoption of MBRs in the last decade.

Figure 11: National demand advantages for MBR technology approximated by the

composed WCPS Index*.

Source: (United Nations 2011; OECD 2012; EPI 2010c).

* For India and Russia no data was available on the population connected to wastewater collect-ing system. Instead the indicator population with access to sanitation from EPI (2010c) was used. For Singapore the low score is explained by missing data on water stress and a zero score on wastewater collection due to 100 percent of population being connected to public sewage.

0 10 20 30 40 50 60 70 80 90 100

Singapore*

Canada

Russian Federation*

Denmark

United Kingdom

Rep. of Korea

Japan

France

Germany

Italy

Netherlands

Spain

USA

Turkey

Australia

Israel

China

India*

WCPS Index

Wastewater Collection Index Water Pollution Index Water Stress Index


5.2 Price advantage

A price advantage refers to national conditions that make the application and produc-

tion of MBR technology in a country more economical than in other countries. Applica-

tion-specific factors are approximated by municipal water prices whereas production-

specific factors are approximated by membrane production costs surrogating one ele-

ment of the value chain.

Figure 12: Financial burden for households from annual water costs and water tariff

changes*.

Source: Own calculations based on GWI (2012).

The price of publicly supplied water is an important factor for the adoption of MBRs as

high prices make the use of recycled water more attractive. Tariff hikes, including

* For the Netherlands, Singapore and Israel average household water tariffs and changes have been calculated based on the available data from the survey.

-1% 2% 4% 6% 8% 10% 12% 14%

India

China

Rep. of Korea

Russian Federation

Israel*

Singapore*

Spain

Italy

Turkey

Germany

Netherlands*

Japan

France

Denmark

USA

United Kingdom

Canada

Australia

Annual water costs (percentage of GDP per capita, PPP)

Water tariff change 2007 - 2012


wastewater discharge fees, represent major revenue drivers and as such make the

operation of any WWTP economically more beneficial, which is particularly important

for (semi-) decentralised MBRs where potential operators such as individual house-

holds or commercial customers have an increased incentive to reclaim their wastewa-

ter. As revealed by Figure 12, in China annualised water costs per capita are very low

in an international comparison. With respect to the 25 Chinese cities which were sur-

veyed in the GWI (2012) report, water tariffs increased by only 2.6 percent between

2007 and 2012. The low increase reveals a lack of enforcement on the local govern-

ment level. As set out by the National Development and Reform Commission which is

responsible for pricing policies in China, wastewater tariffs should have changed from

USD 0.13/m3 to USD 0.19 – 0.20/m3, representing an increase of 68 percent (GWI

2011). In contrast, the new policies have not been implemented on a local level and

wastewater tariffs remained unchanged at USD 0.13/m3. Thus, China will realise its

application-specific price advantage only if it effectively enforces the implementation of

its policies on all governmental levels (cf. Section 5.3).

Cheaper innovation designs will replace more expensive designs and over time will

become the globally dominating standard design. In China, MBR technology used for

wastewater reclamation has a relative cost advantage in comparison to other water

supply sources such as normal tap water, water desalination or the South-North Water

Diversion (cf. Figure 13). With average costs of RMB 1 – 1.5 /m3 for recycled water

generated by an MBR wastewater reclamation is economically very attractive in the

Northern cities such as Beijing or Tianjin that with around RMB 4 /m3 have the highest

municipal water tariffs nationwide (CGTI 2012). Thus, it is expected that the adoption of

MBRs will further increase in these areas which will drive down production costs for

MBR technology.


Figure 13: Costs range of different water supply sources in China.

Source: (M. Li 2011).

It can be argued that the country that offers the highest cost reductions for an innova-

tion design has a production-specific price advantage. The rapid increase in the appli-

cation of MBRs in China may be a result of significant price reductions and wider public

acceptance, particularly in the municipal sector (Pearce 2008). And indeed, taking into

account membrane prices (cf. Figure 14) as one important input factor in the production

process, Chinese membrane prices are almost 50 percent lower than the international

average. This cost advantage was confirmed by interviewed German MBR suppliers

(cf. Section 3.1.5) who attribute China very competitive prices for membranes and

modules, however, often at costs of quality. As such the reputation of Chinese mem-

branes is rather low and even the domestic market is still preferring foreign products

(Frost & Sullivan 2011b).

0 2 4 6 8 10

Reused water

Normal tap water

Water desalination

South-North Water Diversion

RMB/ton


Figure 14: Chinese membrane prices in an international comparison.


5.3 Regulatory advantage

Effective regulation can be a major driver for the diffusion of eco-innovations which

would have not been provided by the market due to their partly public good character

(Beise and Rennings 2005). In China, regulation has gained a particularly strong im-

pact on the widespread use of advanced wastewater reclamation technologies since

the announcement of the ―Technical policy on municipal water reclamation‖ in 2006

when the central government for the first time acknowledged water stress in the North

and East of the country and thus prioritised the reclamation of wastewater. The policy

set out guidelines on R&D, marketing and plant building activities to promote the use of

wastewater reclamation facilities. In 2010, during the 11th FYP period (2006 – 2010) the

―Catalogue of Environmental Protection Industry Equipment (Products) Encouraged by

the State‖ thereby assigns MBR technology a preferential status for wastewater reuse

technologies. During the current 12th FYP period (2011 - 2015) authorities are expected

to provide another set of stringent policies and facilitating measures. As such, in Janu-

ary 2011 the highest political authority, the national State Council, announced an an-

nual investment plan of USD 142.5 billion (RMB 0.8 trillion) to the whole water sector

(representing a 50 percent increase from 2010) during the 12th FYP period and dedi-

cated its Central Number One document solely to the problems around water (CGTI

2012). The policies set out there were extended by the Central Number Three docu-

ment and the actual 12th FYP agenda. Out of these national plans in the following the

most important policies are reviewed which are considered to be highly relevant for a

wider diffusion and development of MBR technology.

0 50 100 150 200 250 300 350 400 450

Average price for HF membranes

Average price for FS membranes

USD/m3

International suppliers Chinese suppliers


5.3.1 Overview on national policies and regulation

Table 4: Overview on recent national policies in the Chinese water sector.

Description Implications for MBR technology

Water consump-

tion

Introduction of a threshold of 670 billion m3 of na-

tional annual water consumption by 2020 and 700

billion m3 by 2030 as well as a reduction of 30 per-

cent in water intensity per unit of GDP and industrial

output.

Considering the consumption of 599 m3 in 2010 it shows

the high demand for water conservation and water rec-

lamation to remain below the threshold. Thus, the policy

supports the application of MBRs for wastewater recla-

mation.

Water pollution

control

Identification of 9 highly polluting industries and

introduction of new stringent discharge standards

such as the ―Discharge Standard of Water Pollut-

ants for Pulp and Paper Industry‖ which is stricter

than most U.S. or EU standards (W.-W. Li et al.

2012).

MBRs could be adopted in industrial applications to meet

the new discharge standards and to reclaim valuable

substances that can be feed back into the production

process.

Discharge reductions for COD by 8 percent and

ammonia nitrogen by 10 percent between 2011 and

2015. Further reduction of five heavy metals (arse-

nic, cadmium, lead, chromium, mercury) from indus-

try effluents by 15 percent based on 2007 levels.

MBRs can effectively reduce the amount of COD or am-

monia nitrogen and reclaim heavy metals in the waste-

water. Thus, the use of MBRs for wastewater treatment

and reclamation is supported by this policy.


Introduction of the Grade 1 level A and B discharg-

ing standards in the municipal sector by the Ministry

of Environmental Protection in December 2002.

Large cities and municipalities are required to meet

grade A whilst plants in lower-tier regions are re-

quired to meet level 1B.

Most of the existing municipal WWTPs need to be retro-

fitted in order to meet the new standards which are com-

parable with western standards. Since previous experi-

ences with large-scale municipal MBRs have been posi-

tive it is expected that MBR will win the tender for retrofit-

ting the WWTPs.

Water tariffs In China, water tariffs for industrial users are gener-

ally much higher than those for domestic users and

have increased by 9 percent annually over the last

decade. Thus, it is expected that they will increase

further during the 12th FYP period.

Freshwater prices that are higher than prices for reused

water are likely to increase the incentive for industrial

users to either invest in decentralised MBR treatment

plants for self-operation or buy recycled water from the

municipal sector.

Construction The Chinese government is compensating for 50

percent of the total installation costs for municipal

WWTPs.

Whilst MBR technology in general will possibly benefit,

the compensation makes larger investments more attrac-

tive to largely benefit from economies of scales. Thus,

most of the municipal WWTPs under current commission

are clearly exceeding the capacity for decentralised

treatment (cf. Subsection 2.5.)

Operation Users of reclaimed water are compensated by 0.5

RMB/ton.

Compensation is expected to increase decentralized

MBR adoption as an advanced reclamation technology.


Wastewater

treatment and

reclamation rate

Increase of the wastewater treatment rate from cur-

rently 50 to 80 percent for localities and from 75 to

85 percent for cities.

Yet the lack of knowledge and expertise may hinder the

adoption of MBRs in most of the rural areas regardless

the new targets. Nonetheless particularly in cities an

increased application of MBRs can be expected.

By 2015, 20 - 25 percent of the municipal wastewa-

ter in the Northern cities should be reclaimed re-

spectively 10 - 15 percent in Southern cities as de-

fined by the Ministry of Environmental Protection.

Increasing reclamation targets strongly incentivise the

use of MBRs in the municipal sector.

Source: (CGTI 2012; Frost & Sullivan 2011b).


The above policies reveal a high priority for wastewater treatment and reclamation.

With the quality gap between standards for discharge and reuse narrowing the overall

incentive for wastewater reuse is considerably high. All this together facilitates the dif-

fusion of MBR reclamation technology. However, there is no clear evidence for a strong

regulatory advantage for decentralised on-site treatment. In contrary, central and local

governments that play an important role in the decision process in China still seem to

favour centralised wastewater treatment solutions (CGTI 2012), an attitude not only

evident by large-scale MBRs in the municipal but also in the industrial sector. On the

other hand, particularly industrial users would prefer decentralised solutions due to the

increased costs of a pipeline network for centralised treatment and the diversified

wastewater streams from different companies particularly evident in industrial parks

which increase the complexity of the treatment process.

5.3.2 Local legislation

Effective regulation, and as such a constituted regulatory advantage, not only requires

the existence of facilitating national policies but their implementation, enforcement and

control on a local level. Similar to the lack of implementation of recent water tariff in-

creases (cf. Subsection 5.2) reluctant implementation on a local level is also apparent

in other policy fields, such as the water standards. In contrast to the U.S. or Europe

where central governments set out minimum requirements which are then refined on a

sub-national level thereby taking into account local characteristics, the Chinese central

government formulated its latest discharge standards rather uniform based on the

Best-Available-Technology (BAT) which at the moment is MBR. However, due to large

local differences and economic growth considerations which are still the most relevant

for many localities discharge standards were often not put into force (CGTI 2012). This

is particularly evident in poorer North West China with a total MBR market size of only

nine percent (Frost & Sullivan 2011b) but also in more developed East China such as

revealed by a recent Greenpeace investigation (China.org.cn 2012). It showed that

companies still have large incentives illegally discharging unprocessed wastewater and

local authorities often do not want or cannot inspect the company‘s activities. Another

example was the national target set out in the 10th FYP (2001 – 2006) to construct

thousands of new WWTPs. By the end of 2006 a study revealed that half of them did

not work properly or were not commissioned (Gleick 2009). Frequent reasons were

corrupt local governments that desire to sustain uncontrolled economic growth or au-

thorities that are constrained by inadequate budgets that hinder proper monitoring and

enforcement. Central authorities are aware of these issues and introduced measures to

overcome the lack on a local level, such as through the implementation of penalties

such as fines of up to RMB 100,000 or production halts for companies and key per-


formance indicators (KPI to evaluate and promote government officials not only on the

basis of economic performance.

In an international comparison China therefore only ranks at the lower bottom with re-

gards to government effectiveness in implementing and enforcing policies (cf. Figure

15). It is argued that as long as the lack of implementation remains MBR technology is

unlikely to diffuse countrywide but remain a technology for the highly developed coastal

areas.

Figure 15: Estimation of regulation enforcements for selected countries.

Source: (GII 2012).

Albeit there could be identified a general lack of central policy implementation, there

are at least eleven Northern cities in China whose policies the regulation of the waste-

water reuse market are increasingly enforcing wastewater reuse technologies (Peng

2012). Amongst the pioneering cities for water reuse are Shenzhen and Beijing.

Shenzhen aims to increase its wastewater reclamation rate from 11 percent in 2009 to

80 percent in 2020 (ADB 2012), Beijing, the world‘s scarcest city, aims to reach 70 per-

cent by 2015 from 50 percent in 2010. In order to fulfil this target all wastewater treat-

ment plants should be upgraded to wastewater reuse plants (Peng 2012).

0 25 50 75 100 125 150 175 200

Russian Federation

India

China

Turkey

Italy

Spain

Rep. of Korea

Israel

Japan

France

USA

Germany

United Kingdom

Netherlands

Australia

Canada

Denmark

Singapore

Regulatory Index

Government effectiveness Regulatory quality


5.3.3 MBR technology design standards

As of this writing there are no technological standards for MBR systems and each sup-

plier provides its own idiosyncratic solution. Thus, MBR components are not compatible

with each other leading to possible lock-in effects with a certain supplier. The problem

is widely acknowledged (Kraemer et al. 2012) and efforts are grounded in the creation

of networks such as the European MBR-Network (MBR Network 2012) which strive for

the definition of common standards. Yet not Europe but China might be the first country

to pursue comprehensive technology design standards. First national design criteria for

MBR systems were defined by the Catalogue of Environmental Protection Industry

Equipment in 2007 which put the focus on water quality aspects. In 2010 they were

extended by a new set of criteria that changed the focus away from demand aspects

towards competitive aspects of cost-effectiveness and energy efficiency. With such

comprehensive standards China has a clear regulatory advantage if other countries will

follow the Chinese MBR design in the future.

Table 5: Excerpt of national MBR key design requirements in China.

Key requirements in Edition 2007 Key requirements in Edition 2010

Influent water quality: COD < 400 mg/l,

BOD5 < 200 mg/l, pH 6~9, NH3-N < 20

mg/l.

Treatment capacity per membrane unit of

325~1000 tons/d.

Operation flux > 120 L/m2hm, water re-

cycling rate > 95 percent.

Operation lifetime for FS membranes > 8

years and for HF membranes > 5 years.

Membrane and system operation lifetime

> 5 years.

Limit of energy consumption per ton of

water treated < 0.5 kWh/ton

Discharged wastewater to meet the

Standard for ―Design Guidelines for

Wastewater Reuse Project‖ (GB50335-

2002).

Discharged wastewater quality to meet

the Standard of Grade I Level A from

―Municipal Wastewater Discharge Stan-

dard‖.

Reused wastewater quality to meet the

―Standard for Reuse of Recycling Water

for Urban Water Quality‖ and ―Standard

for Urban Miscellaneous Water Con-

sumption‖.



5.4 Export advantage

Countries whose environmental, regulatory and social conditions are similar to global

conditions are more likely to develop MBR systems that are accepted and can be op-

erated worldwide (Beise 2004). Therefore similarities between conditions at home and

abroad create export advantages. As indicated by Figure 16, apart from the indicator

"Population connected to wastewater collecting system" China‘s water related envi-

ronmental conditions are close to the global average which is located in the centre of

the web chart. That is, its requirements on water quality and water reuse facilitate the

production of MBR systems that could potentially be operated in many different coun-

tries. Yet China‘s low result on the ―Population connected to wastewater collecting sys-

tem‖ of 42 percent in comparison to the global average of 62 percent is of special inter-

est. On the one hand a poorly built out sewer system incentivises (semi-) decentralised

as opposed to centralised systems. On the other hand it sets the requirements for

rather large-scale than small on-site treatment, at least in the municipal sector. Albeit

large-scale municipal plants constitute a large proportion of the worldwide demand

(Frost & Sullivan 2008), particularly in the developed countries that are still leading the

production of MBRs large-scale Chinese systems might therefore not diffuse.


Figure 16: Environmental standardisation potential for MBR technology*.

Source: (EPI 2010a; OECD 2012; EPI 2010b).

* The standardisation potential is approximated by the proximity of national environmental conditions compared to the global average represented by the centre of the web chart. For Singapore data on water stress was not available.

China

USA

Canada

Spain

Germany

United Kingdom

Japan

France

India

Italy

Netherlands

Rep. of Korea

Singapore*

Turkey

Israel

Russian Federation

Australia

Denmark

Water Quality Index Population connected to wastewater collection system % of territory suffering from water stress


Another mean assessing the potential for China in the development of worldwide

adoptable MBR systems is its export structure for MBR and water filtering machinery

(Commodity code 842121) and the export share of the three major trade partners. As

shown by Figure 17, China is amongst the three countries with the most diversified

export structure for water filtering machinery. Thus, providing systems for various coun-

tries China is more likely to develop standardised MBRs rather than idiosyncratic sys-

tems that can be operated only in a limited number of countries. Hence, this diversified

export structure constitutes a significant export advantage for China.

Figure 17: Export diversification for MBR and water filtering products*.

Source: (UN Comtrade 2011).

* For Spain only export data from 2010 was available. Japan largest trade partner is filed under ―Other Asia‖ and includes several territories such as Taiwan, Macao and Hon Kong. How-ever, considering that its third largest trade partner is mainland China the overall export dependency from China is considerably high.

0% 20% 40% 60% 80% 100%

Canada

Japan*

Netherlands

Singapore

Australia

Rep. of Korea

USA

Italy

United Kingdom

France

Denmark

Spain*

Israel

Turkey

China

India

Germany

Export ratio

1st trade partner 2nd trade partner 3rd trade partner Other


5.5 Market structure advantage

Countries with highly competitive markets are considered to be more vital and capable

of providing and supporting more innovation designs (Beise 2004). Figure 18 reveals a

highly concentrated global MBR market that is dominated by Japanese, U.S., German

and Singaporean suppliers.

Figure 18: Global market share for MBR suppliers in 2007.

Source: (Frost & Sullivan 2008).

These lead suppliers are to a large extent horizontally integrated, that is producing

membranes, membrane filtration modules and providing customers with a complete

MBR treatment plant typically in form of a Build-Operate-Transfer (BOT) project. As

such traditional first mover countries such as the U.S, Japan and Germany have a

clear lead supplier advantage.

The global dominance of the lead suppliers was also reflected in the early days of the

Chinese market. In 2007 Japanese Asahi Kasai and Singaporean United Envirotech

accounted for more than 50 percent of the MBR market share. Within four years, how-

ever, market shares changed significantly with Beijing Origin Water Technology Com-

pany ( now accounting for approximately 30 percent of the market (cf. Figure 19). BOW

has become the Chinese flagship MBR supplier with the largest installed capacity,

most in the municipal sector, that was involved in many representative MBR pilot pro-

2% 2%

9%

8%

35%

2%

11%

5%

26%

Mitsubishi Rayon (Japan)

Toray Membranes (Japan)

Kubota (Japan)

Asahi Kasei (Japan)

GE Water Technologies (USA)

Koch Membranes (USA)

Siemens Water Technologies (Germany)

United Envirotech (Singapore)

Others


jects that rose international attention, such as plants for Beijing Olympic Village in 2008

or the Grand National Theatre (Peng 2012). The evolution process of BOW from a

small contracting company to China‘s most renowned MBR supplier is shown through

MBR plant commissions (cf. Table 6). At the beginning BOW had started as an engi-

neering contractor using foreign MBR units, predominantly from Japanese Asahi Kasai,

before providing completely integrated system solutions.

Figure 19: MBR market share development in China from 2007 (left) to 2011 (right).

Source: (Frost & Sullivan 2008; Frost & Sullivan 2011b).

32%

25%

7%

5%

4%

3%

24%

United Envirotech (Singapore)

Asahi Kasai (Japan)

Siemens Water (Germany)

Norit (Netherlands)

Kubota (Japan)

GE Water (USA)

Others

30%

40%

30%

BOW (China)

GE Water, Asahi Kasei, Memstar, Siemens Water, United Envirotech, Mitsubishi

Litree (China), Motimo (China), Toray (Japan), Others


Table 6: Selected MBR WWTPs > 10,000 m3/d in China.

MBR

installation

Location Wastewater

origin

Membrane

supplier

Capacity

in m3/d

Engineering

contractor

Commissioned

Huizhou

Dayawan

Petrochemical

Guangdong Petrochemical Asahi Kasei 25,000 NOVO 2006

Wenyu River

water treat-

ment plant

Beijing Polluted river Asahi Kasei 100,000 Origin Water 2007

Wuxi Cheng-

bei WWTP

Jiangsu Municipal Origin Water 50,000 Origin Water 2009

Wuxi Hudai

WWTP

Jiangsu Municipal Origin Water 21,000 Origin Water 2010

Source: (Judd and Judd 2011).

A selected lead supplier analysis might not provide sufficient insights on the competi-

tiveness of a market. Therefore the total size of the internationally visible MBR industry

was taken into account by a conducted search of online company databases. As Figure

20 reveals the Chinese MBR industry is very vital and active featuring at least 34 of the

total 251 companies that were identified for the country selection. A large proportion of

the market is constituted by small and less sophisticated MBR filtration module suppli-

ers and membrane producers amongst which there are some large HF and FS mem-

brane producers such as Tianjin MOTIMO or Shandong Zhaojin Motian (cf. Table 7).

Overall the market analysis confirms the previous result that China lacks system pro-

viders that offer horizontally, over the whole value chain integrated package solutions.

Albeit the country has a vital MBR market its expertise in providing packaged solutions

is yet limited. By now BOW might in fact be the only Chinese supplier that is capable of

providing complete packaged solutions abroad. This segment is acknowledged to drive

future demand (Frost & Sullivan 2008) and even global lead suppliers such as Siemens

with its XPress solution launched in 2004 deliver this segment. To summarise, a me-

dium market structure advantage can be identified for China that, however, could

change significantly if the country‘s small vendors make use of economies of learning

to supply small-scale packaged MBR systems for (semi-) decentralised niche treat-

ment.


Figure 20: Size of the internationally visible MBR industry (by absolute number of firms)

for selected countries.

Source: (Alibaba 2012; Tradekey 2012; the MBR site 2012; MBR Network 2012; Envi-ronmental Expert 2012; Water & Wastewater Direct 2012).

Table 7: Leading Chinese MBR and membrane suppliers.

Company Products

Beijing Origin Water Complete MBR system solutions

Suzhou Vina Filter Co., Ltd. HF membranes and MBR modules

Shanghai SINAP FS membranes and MBR modules

Shanghai Megavision HF and FS membranes, MBR modules

Tianjin Motimo Membrane Technology Complete MBR system solutions

Zhaojin Motian HF ultrafiltration membranes and mem-

brane modules

USA 23%

China 13%

Germany 10%

United Kingdom

9%

India 8%

Canada 6%

Netherlands 6% Singapore

4%

France 4%

Spain 3%

Turkey 3%

Italy 2%

Japan 2%

Australia 2%

Denmark 2%

Rep. of Korea 2%

Israel 1%

Russian Federation 0%

Andere 17%


Source: (BOW 2012; Motimo 2012; Shanghai SINAP 2012; Megavision 2012; VINA FILTER 2012; Motian 2012).

5.6 Transfer advantage

The ability of a country to shape the preferences and demand of other countries for a

certain technology can be best described as a transfer advantage (Beise 2004). The

influence on foreign demand and preferences is dependent on the visibility of a national

innovation design and therefore influenced by the export orientation of a country. Due

to its generally strong export orientation the international visibility of Chinese products

is considerably high and the label ―Made in China‖ generally recognised. However, as

Figure 21 shows its export specialisation on MBRs and water filtration machinery is

highly negative and does not show a positive trend. As Beise (2004) notes, the overall

transfer advantage is most difficult to approximate with quantified indicators. Whilst the

transfer effect itself can be measured by the export data as shown above, reputation

and recognition of a country for a specific technology is difficult to evaluate. Certainly

the four important events of Olympic Games in Beijing1, the Shanghai Expo and

Guangzhou Asia Games in 2008 and 2010 helped to raise attention for large-scale

MBR plants that have been installed exclusively for these events and have been a

growth driver for the MBR market. Such large-scale systems further emphasis the ma-

turity of the technology and indicate that the perceived risks for investments in MBR

plants have declined.

1 For the Olympic Games an MBR plant with a wastewater treatment capacity of 60,000 m3/d

and a reuse capacity of 10,000 m3/d was constructed by Siemens AG (Siemens AG 2008).


Figure 21: Export specialisation on MBR and water purifying machines for selected

countries.

Source: (UN Comtrade 2011).

Reputation of China was also tried to estimate by expert interviews with two German

MBR suppliers and one research institute.

Table 8: Interview partners and their relevancy of MBR technology.

Interview partner Relevancy of MBR technology

Martin Systems AG Production of membrane modules

equipped with flatsheet membranes. The

membrane modules are used in MBRs for

various applications but predominantly for

wastewater treatment in special niche

-100 -75 -50 -25 0 25 50 75 100

USA

United Kingdom

Turkey

Spain

Singapore

Russian Federation

Rep. of Korea

Netherlands

Japan

Italy

Israel

India

Germany

France

Denmark

China

Canada

Australia

RCA

2002-2004 2005-2007 2008-2011


environments, such as on ships or in po-

lar regions. Martin Systems AG built two

decentralised MBR systems in China, one

for greywater treatment for a university in

Beijing, the other one for a residential

building of 100 residents in Binhu.

Huber SE Production of three different types of

MBRs equipped with ultrafiltration flat-

sheet membranes, ranging in capacity

from 10 – 75 m3/d over 10 – 300 m3/d to

more than 300 m3/d. Huber SE has been

active on the Chinese market for 20

years. By now they installed one decen-

tralised MBR for the University of Interna-

tional Business and Economics in Beijing.

Water Technology Center (TZW) Scientific partner for water utilities, gov-

ernmental bodies and offices. Specialised

on research in drinking water production.

Experience in MBR limited to a feasibility

study on an MBR in cooperation with

Huber SE to increase water reuse op-

tions.

Both German MBR suppliers confirmed the high demand for MBR technology in China.

They also confirmed that increased production of membrane filtration modules gener-

ates economies of scale and drives down costs for MBRs, the latter being particularly

evident in China with its high number of firms producing membrane filtration modules.

Apart from the demand increase they also perceive an increase in competition from

Chinese firms on the Chinese market, resulting in a market share of 90 percent for

Chinese companies that make a presence on the market for small European suppliers

less beneficial. A major advantage for China that was mentioned by both suppliers is

the membrane production which in contrast to the MBR modules has a good price per-

formance ratio (cf. China‘s dominance in photovoltaic cells production). One supplier

further confirmed a stronger dominance and visibility of Chinese manufacturers at in-

ternational exhibitions and conferences and a general trend that technological innova-

tions are more and more presented in the Asian markets rather than the European and


American markets. Overall they see the Chinese market developing towards the pro-

duction of very cost-competitive MBR systems.

5.7 Supply-side advantage

Factors that lead to a supply-side advantage are those of knowledge and expertise that

allow the actors within an industry to actively develop, produce and market new innova-

tions. Knowledge and expertise on MBR was approximated by patent registrations.

With regards to patent registrations for semi-permeable membranes between 1993 and

2010 the Revealed Parent Advantage does not show a significant specialisation for

China (cf. Figure 22). However, considering China's increasing lead in the production

of photovoltaic cells production regardless its low patent specialisation for photovoltaic

(Walz 2011) sufficient expertise for the production of MBR systems may nonetheless

be existent.


Figure 22: Relative patent specialisation for semi-permeable membranes between

1993 - 2010*.

Source: (Fraunhofer ISI 2010; PATSTAT 2010).

Apart from a patent analysis, expertise and knowledge was further estimated by the

Revealed Literature Advantage which shows the literature specialisation of a country

on MBR in comparison to all publications in four major water, membrane and desalina-

tion journals. In contrast to the RCA the RLA confirms a high specialisation on MBR

publications for China. From all MBR related articles which have been published in the

four considered journals between 1986 and 2012, 22 percent were published by au-

thors with a Chinese affiliation.

* For India no patent registrations were available for the years 1993 – 1998 whereas for Turkey no patent registrations were available for the whole period analysed.

-100 -80 -60 -40 -20 0 20 40 60 80 100

USA

United Kingdom

Turkey*

Spain

Singapore

Russian Federation

Rep. of Korea

Netherlands

Japan

Italy

Israel

India*

Germany

France

Denmark

China

Canada

Australia

RPA

1993-1998 1999-2004 2005-2010


Figure 23: Literature specialisation on MBR technology for selected countries.

Source: (ScienceDirect 2012).

Summing up, there is considerable evidence of existing and further increasing Chinese

expertise in the fields of MBR technology. Yet an important factor worth to consider is

how well connected the relevant actors are in order to effectively benefit from the

knowledge that resides between these actors.

Actors who are connected with each other within a network constitute a major advan-

tage on the supply-side for a specific technology. A strong network is more likely to

provide a strong lobby that is able to allocate the important financial resources for a

widespread diffusion and to create a common vision for the future development of MBR

technology. On a global level the most important and most vital networks for membrane

sciences and MBR technology are the American Membrane Technology Association

(AMTA), the UNESCO Centre for membrane science and technology coordinated by

Australia, Membrane-Based Desalination: An Integrated Approach (MEDINA) coordi-

-100 -80 -60 -40 -20 0 20 40 60 80 100

India

Russian Federation

USA

Israel

Spain

Denmark

Canada

Japan

Netherlands

Turkey

France

Germany

Australia

United Kingdom

China

Italy

Rep. of Korea

Singapore

RLA


nated by Italy, the Singapore Membrane Technology Centre and the European MBR

networks AMADEUS as well as EUROMBRA coordinated by Germany (Yi and Shi

2012). These networks can be considered the places where much of the MBR devel-

opment and research is taking place. With respect to the participating companies and

institutions Chinese actors are at least not directly part of these clusters and as such

not represented in the membership structures.

In contrast to the global perspective a national view, however, reveals indeed some

network activities in China such as shown by Binz (2008). In his work on decentralised

MBR technology he concluded that there cannot be identified a strong technical inno-

vation system (TIS) for decentralised MBR in China although there is partly strong sup-

port by legislations as identified in Section 5.3.1 and a considerable number of firms as

well as research institutions in that field. However, these actors rather act isolated from

each other in different niches. Yet the TIS for MBR is part of a larger more dynamic

network for membrane wastewater treatment technology represented by the ―Mem-

brane Industry Association of China‖ that could potentially facilitate (semi-) decentral-

ised MBR technology. However there are noteworthy obstructions. On the one hand

dominant actors from the wastewater treatment and construction sector facilitate and

favour centralised treatment systems such as large-scale MBR plants that actually hin-

der the diffusion of decentralised solutions. On the other hand the Chinese TIS for

membrane wastewater treatment technology is embedded within global technical inno-

vation systems (). Albeit in principle the Chinese TIS could benefit from global connec-

tivity Binz also identified trends that rather show an adoption of the existing regime of

centralised treatment from abroad.

On a firm level Chinese lead suppliers such as BOW present themselves as well con-

nected within national but also international actors. For many companies, including

BOW, the so-called ―returnees‖ might play an important role who return to China after

completion of their education abroad where they had established connections with im-

portant actors in their business area.


Figure 24: Example of the Technical innovation system for Beijing Origin Water com-

pany.

Source: (BOW 2012).

A general view on the state of cluster development reveals that yet China‘s capability in

providing strong network clusters is limited. In a comparison with the country selection

the country ranks only in the middle of the field. However, as these results of the World

Economic Forum are solely based on surveys their expressiveness should be consid-

ered with caution.

TIS Origin Water

Chinese Tsinghua University

Chinese Academy of Sciences

Beijing‘s Guo Huan Tsinghua

Environmental Engineering Design

and Research Institute

Austrialia Commonwealth Scientific and

Industrial Research Organisation

(CSIRO)


Figure 25: State of the general cluster development for selected countries.

Source: (WEF 2012).

1,0 1,5 2,0 2,5 3,0 3,5 4,0 4,5 5,0 5,5 6,0 6,5 7,0

Russian Federation

Israel

Spain

Turkey

Australia

Denmark

France

India

China

Rep. of Korea

Canada

Netherlands

USA

Germany

United Kingdom

Japan

Singapore

Italy

Index value 1 = very poor; 7 = very good

65 6 Conclusions

6 Conclusions

6.1 The role of lead market factors

Summarising the findings of the previous sections the high relevance of the lead mar-

ket concept with its inclusion of demand-oriented factors apart from supply-oriented

factors becomes apparent. Albeit high supply-oriented advantages for (semi-) decen-

tralised MBR technology remain in traditional first-mover countries like the U.S, Japan

or Germany - such as evident by the lead supplier factor - second-mover countries are

gaining more and more in significance. This is particularly evident for Australia, Singa-

pore but also to some extent for South Korea and China. From the analysis partially

large potentials can be identified for China. On the one side the country has a very high

(environmental) demand advantage which is further facilitated by very strong govern-

ment commitment to water improvements. Similar to other technology fields it has a

significant cost advantage in the production of some of the main components which for

MBRs are the membranes and filtration modules. In addition, the country gained large

increases in expertise and knowledge in MBR technology in recent years as evident by

the country‘s largest WWTPs both in the municipal and industrial sector that were con-

structed by domestic companies (Zheng et al. 2010). On the other side obstructions still

remain. Particularly the focus on an innovative (semi-) decentralised treatment ap-

proach is limited and centralised treatment is still favoured by authorities and the influ-

ential construction industry. From that perspective the following conclusions can be

drawn. First, the future will possibly see a further internationalisation of the MBR supply

chain with membranes and filtration modules being supplied by Chinese firms rather

than currently foremost Japanese lead suppliers due to cost advantages whilst the im-

plementation and design of the plants will be accomplished by Singaporean or Austra-

lian firms apart from U.S. and German lead suppliers. Second, one of China‘s main

focuses is the construction of large-scale municipal plants both for wastewater treat-

ment and reclamation which are increasingly commissioned by domestic companies

such as Beijing Origin Water or Tianjin Motimo Ltd. Such large-scale municipal plants

constitute a large proportion of the global demand for MBR technology and it is con-

ceivable that Chinese companies will more and more provide MBR technology to de-

veloping countries and other NICs such as already evident for other wastewater and

drainage technologies (cf. adoption of Chinese state-of-the-art technology in India

(Thomas 2012)) whilst the provision of particularly complex industrial plants with spe-

cial requirements on process treatment may remain a specialisation of developed

countries, foremost U.S. GE Water with its ZeeWeed MBR technology that is likely to

continue its worldwide lead (Pollution Solutions 2012).

66 6 Conclusions

Table 9: Summary of the lead market potential for MBR technology for selected countries.

AU CA CN FR DE DK IN IL IT JP NL RU SG KR ES TR UK US

Demand advantage ⊕ ⊖ ⊕ ⊙ ⊙ ⊙ ⊕ ⊕ ⊙ ⊙ ⊙ ⊙ ⊕ ⊙ ⊕ ⊙ ⊙ ⊕

Price advantage ⊕ ⊙ ⊕ ⊙ ⊙ ⊕ ⊙ ⊖ ⊙ ⊕ ⊙ ⊙ ⊕ ⊙ ⊙ ⊙ ⊙ ⊕

Regulatory advantage ⊕ ⊕ ⊕ ⊕ ⊙ ⊕ ⊖ ⊕ ⊙ ⊙ ⊙ ⊕ ⊕ ⊙ ⊕ ⊖ ⊙ ⊕

Export advantage ⊖ ⊖ ⊕ ⊙ ⊕ ⊙ ⊙ ⊕ ⊙ ⊖ ⊙ n.r. ⊖ ⊙ ⊙ ⊕ ⊙ ⊙

Market-structure advantage ⊖ ⊙ ⊕ ⊙ ⊕ ⊙ ⊙ ⊖ ⊖ ⊖ ⊙ ⊖ ⊙ ⊖ ⊙ ⊙ ⊕ ⊕

Transfer advantage ⊙ ⊙ ⊖ ⊖ ⊕ ⊙ ⊖ ⊕ ⊕ ⊕ ⊙ ⊖ ⊕ ⊖ ⊙ ⊕ ⊙ ⊕

Supply-side advantage ⊕ ⊕ ⊙ ⊙ ⊕ ⊕ ⊖ ⊙ ⊕ ⊕ ⊕ ⊖ ⊕ ⊕ ⊙ ⊙ ⊕ ⊕

Legend: ⊕ significant advantage, ⊙ neutral, ⊖ significant disadvantage, n.r. not ranked, ■ high lead market potential

67 6 Conclusions

6.2 Strategy recommendations

The identification of the lead markets for MBR technology allows drawing different

strategy recommendations. With respect to China the analysis indicates that foreign

MBR companies should take into account the specific demands of China for large-

scale centralised treatment plants and be present in the market with demonstration

plants, such as through licensing or FDI. Second, MBR system configurations that are

successful and preferred by the Chinese market are more likely to be adopted world-

wide than system configurations preferred by other countries due to China being at the

forefront of a worldwide trend towards large-scale systems. The identification of China

as one of the lead markets therefore possibly allows multinational companies to create

a competitive advantage by learning from the preferences of the Chinese users and

developing innovations that cannot only be successfully commercialised in China but

worldwide. As such, companies may avoid innovations that are incompatible with the

Chinese environment. Third, focusing on the Chinese demand can reduce the costs for

global market research as global demand and future MBR trends might be anticipated

by the development of the Chinese market. Fourth, in times of globalised markets even

local companies that do not operate outside their local markets should consider China

as one of the lead markets in their innovation strategy as their local MBR solutions

could face competition from Chinese MBR configurations in the future. Ignoring lead

markets will cause them to be locked in to their specific idiosyncratic technology.

For German suppliers benefiting from the Chinese lead market potential would mean to

make use of established Chinese networks such as provided by Publicly owned Treat-

ment works (POTW). Particularly the majority of small German vendors should cooper-

ate with local system integrators and partners to integrate the whole value chain in or-

der to compete with large horizontally integrated system solution suppliers such as GE

Water or Siemens Water Technologies. Albeit German vendors might not be able to

provide the capacity required to meet the demand for large-scale applications they can

offer their expertise for small on-site treatment and supply not only the technology but

also education about the technology which still often hinders the proper operation of

MBR plants in China.

68

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