With 80 years experience in the gases business, Osaka-based Air Water Inc. is one of Japan’s leading industrial gas companies.

Citing its extensive and ever-growing filed of endeavour for industrial gases, the company likens its business model to a single, living tree.

Like a tree and with strong roots in gas technology, Air Water has grown with the times and boasts the industrial, medical, chemical and lifestyle sectors as its broadly spreading branches – with a diverse range of applications and peripheral technologies as its leaves.

The advances of the booming electronics industry, among others, continues to drive forward the need for gases, especially in the leading-edge North Pacific Rim region. Such demand or green shoots is therefore enabling companies such as Air Water to branch out even further.

This is something our interviewee this month affirms, as gasworld discusses the growth opportunities ahead with Air Water’s Hiroshi Aoki, Chairman, President and CEO.

Mr Aoki is well aware of the need to achieve a healthy market balance and sustain growth by building a broad business portfolio.

It’s a strategy that has served the company well during its 25 years at the top and is likely to be increasingly important as Japan’s manufacturing industry rapidly reaches maturity.

As the country’s manufacturing industry attains its peak and plateaus, the scope for industrial gas demand from this sector naturally hits something of a glass ceiling.

“We would like to aim for sustainability as a long lasting company with stability and growth power, by not heavily depending on the industry-related business, but instead balancing our business portfolio with consumer-related businesses,” explains Mr Aoki.

“The large scale onsite and bulk business for the steel, petrochemicals, and electronics industries has been recovering (from recession). Brand new factories conglomerating in the Osaka Bay area for production of flat-panel displays started their operations in a positive mood, and Air Water is supplying gases to many of these factories in the area.”

“However, the cylinder business, which is heavily used in the civil construction industry, is still not showing the signs of recovery. It will take some time to return to its most recent peak, though the performance of the major manufacturing industries will again expand in line with the export recovery.”

Rebound and recovery
Even with a well-balanced business portfolio, it’s clear from our interview that the recession, coupled with a maturing market, has impacted upon the Japanese gases business.

It’s no secret that Japan was hit hard by the global economic collapse. The race to recovery is now on however, and as 2009 draws to a close a sense of optimism is resurfacing.

So how has Air Water seen business in Japan affected? And how does Mr Aoki assess the consequences of this for the industrial gas community in Japan?

“We estimate that the actual economic rebound would be in late 2010, but industrial gas demand in 2009 will recover to the level of 80-90% of the 2008 level. Japanese manufacturers should proceed with facility and R&D investment aggressively, in order to precede the current position as the supply base of high quality products in the global market.”

“At the same time, advances into overseas markets to enhance manufacturing capacity for the local market may be accelerated with a global view. Air Water closely observes those aspects.”

Mr Aoki goes on to describe how the crippled consumer confidence and manufacturing slump immediately enforced a chain reaction-style drop in demand for gases in Japan across all three business types – onsite, bulk and packaged gases.

If we were to extend the analogy and compare this depressed period to the Air Water business tree, the onset of recession perhaps represented the autumnal fall of crisp, golden leaves; ready for the emergence of fresh, green shoots once more.

Explaining the drop-off in demand, Mr Aoki tells us, “The influence of the global economic downturn in the domestic market started with declining manufacturing activity in the export industry and reached into business investment and consumer consumption.”

“As a consequence, the onsite business experienced large production cuts - especially in the steel, petrochemicals, and electronics industries, who are the major users for the industrial gas. The reduction of industrial gas demand in the steel industry was severe, even compared to examples throughout recent history. Bulk and cylinder business experienced low performance as well, due to decreasing demand from construction business in the civil sector and private investment.”

A maturing market
Further pruning the branches of domestic growth for industrial gas companies in Japan, is the ever-maturing nature of its market.

As industrial globalisation and an ageing population takes effect, manufacturing in Japan has matured, says Mr Aoki. However, Air Water remains optimistic about the green shoots of new gas applications that are still to be explored.

Moreover, the neighbouring and fast developing economy of China could also afford a glimmer of hope for Japanese gas companies.

“The entire economy of Japan sees low growth prospects ahead due to industrial globalisation and an ageing population. Because of this, the manufacturing has matured and the industrial gas market cannot foresee large growth.”

“The Chinese market will be more and more important for manufacturers in Japan and therefore its highly possible that many companies may embark on China. On the other hand, decreasing domestic manufacturing is inevitable, and Japanese industry cannot ignore its importance as the closest adjacent country with the biggest developing market. We have to say the Chinese market contains both advantageous and disadvantageous aspects.”

Air Water has maintained an endeavour to expand and nurture its business tree throughout its 80 year history and shows no sign of abandoning this endeavour yet.

Despite the slightly restrictive market conditions, the company is keen to explore the opportunities ahead and Mr Aoki points out that Air Water can ‘pioneer’ in a number of new applications and technologies.

These include breakthroughs in the ever-significant environmental sector, where advanced Japanese technologies could be of a huge benefit, the reduction of CO2 emissions, and ventures into new energy and solar cells – which Mr Aoki says the company ‘should aggressively pursue’.

Future plans
It’s clearly a case of going where the growth is – in this instance from an applications perspective and not necessarily geographically, although the company isn’t ruling this out either.

Going forward then, what does the future hold for Air Water Inc. as we move on into 2010 and the years beyond?

The company is currently working on a new mid-term business plan for the next three years ahead, which will come into effect in April 2010, and has adopted the vision, ‘To be the commanding presence in the industrial gas industry’.

Based on this vision, Air Water has ‘strived to cultivate’ opportunities in the localised, small domestic market to date and achieved success, while it’s a foresight that will see the company focused on finding potential demand, especially in the areas of steel and chemicals, in the future.

Further still, the recession-accelerated market maturity in Japan could yet see Air Water branch out even further and ‘review our overseas business accurately in order to maintain our high growth power in the next 10 years and beyond’.

Mr Aoki concludes positively, “Looking at the Japanese domestic business with closer attention, we believe there is still room for new needs for both large and middle scale onsite business in the steel and petrochemicals sectors, and bulk & cylinder gases for other sectors.”

“We should realise these possibilities and at the same time, should not forget paying attention to China – which is growing to be the largest market in the world.”

“Currently, we are working on the next mid-term business plan, while analysing structural change of the domestic industry caused by accelerating globalisation. We will continue to work towards our unwavering business philosophy: Concentrate member companies’ knowledge and expertise on the creation and development of businesses that concern air, water, and the planet in general, in the spirit of entrepreneurship that contributes to society.”

About Air Water
Air Water Inc. was established by three industrial gas manufacturers, through two major consolidations carried out in 1993 and 2000.

The company is constantly striving for growth and Mr Aoki captures exactly what the company stands for in a few simple words.

He says, “We have enjoyed our 80 year history in the industrial gas market since our establishment and grown to be the best comprehensive gas manufacturer in Japan with own infrastructure for manufacturing, distribution, and supply in the area from steel onsite to bulk and cylinder business.$quot;

Competitive strengths
Business in the Japanese gas market is both ultra-competitive and very customer focused.

When asked about Air Water’s strengths amidst such competition, Mr Aoki responded, “The most important competitive edge of Air Water is the management’s attitude for constant self-change and the capability to execute the actions.”

“We continuously pay attention to revolution of the business portfolio to maintain stability as a company. In our industrial gas business, we have been establishing win-win relationships with our customers by creating our own business model, free from a conventional model.”

“Certain technical skill is fundamental in order to provide competitive service in the area of customer relationships. We have strong confidence in providing gas generation plants, especially for the middle and small capacity plants. Although it is important for any business, Air Water’s core competence is to directly capture end customers.”