Japan’s Daikin to expand into Africa, eyes sales upwards of $812.71 million from Africa and Middle East

Having emerged as a top player in the fiercely price sensitive Indian market, Daikin the world’s biggest manufacturer of air conditioning equipment maker is one of the few Japanese companies that can compete head to head with the Chinese.

The world’s largest maker of air conditioning equipment is turning to Africa to expand its market.

More than a decade ago, Japanese manufacturers, including, Panasonic, stepped back from their home appliances market in order to avoid a price war with their peers. Japan’s Daikin Industries chose to go head-to-head with the likes of South Korea’s LG.

Having fought off low-cost competitors by way of acquisitions and local partnerships, Daikin grabbed the top spot in the price sensitive Indian market where LG and China’s Haier are established giants.

Having silenced its critics in India, Daikin plans on expanding into Africa.

Daikain is used to silencing critics, said Yoshihiro Mineno, Daikin’s senior executive in charge of Asia in reference to decision the company took more than 15 years ago over its strategy to target mass markets overseas.

“Many skeptics at the time said it would be impossible to make profits in the ‘volume zone’ in Asia, and that it was pointless to invest there,” said Mineno.

Defying conventional wisdom that it should focus on high-end markets, the 94-year old company went ahead with its planned expansion into India and emerged as the dominant top player in the country.

“Being the No. 1 player in inverter machines gave us access to government officials and allowed us to influence regulations,” said Mineno, while adding that stricter energy consumption rules, for instance, made Daikin inverters more attractive.

He went on to add, “We effectively created a market for inverter air conditioners with Gree”.

Daikin’s market value now exceeds those of electronics conglomerates including Hitachi Ltd and Panasonic Corp.

“If advanced technologies or added-value products are your only selling points, your rivals are likely to catch up and overtake you,” said Hideki Yasuda, an analyst at the research arm of Ace Securities. “But Daikin’s business model is backed by cost competitiveness. It’s among a few Japanese companies that can compete head to head with the Chinese.”

Daikin appointed industry veteran Kanwal Jeet Jawa to lead its Indian operations there. Jawa built a sales network and localized production with low-cost know-how from OYL.

As a result, Daikin’s market share in India for room air conditioners jumped from less than 2% in 2010 to 17% in 2018, lifting the company to the top total sales spot of air conditioners for commercial buildings and industrial use.

The air condition market in the United States however has been a tougher nut to crack. Daikin has struggled to compete with U.S. companies such as Johnson Controls’ York and United Technologies’ Carrier which specialize in ducted air conditioning.

In 2012, so as to gain expertise in that area, Daikin had acquired Goodman. But that made little headway.

The trade war between the United States and China have now added another layer of complexity for Daikin since it assembles air conditioners in the U.S. using some Chinese-made parts.

Daikin may need to export components from elsewhere in Asia if the trade war escalates, said Mineno.

AFRICAN MARKET

Jawa will also lead Daikin’s expansion into Africa, said the company where it plans on setting up a regional office in east Africa in a few months.

Daikin would continue to aim for the volume zone, said Jawa.

“It’s a very price-sensitive market,” said Jawa in reference to Africa. “We want to use our leverage of Indian operations and we want to replicate what we have done in India.”

Daikin is adding to its existing production capacity as it readies itself for yet another global expansion. It opened a new assembly plant in Vietnam in May and plans on opening another in Malaysia later this year.

It is also considering opening a new assembly plant in India to help produce products for Africa, said Jawa.

The company has set a sales target of $812.71 million (90 billion yen) for Africa and the Middle East for 2020, an increase of 11% from last year, but Mineno said that figure is likely to be revised upwards.

“Globally, I still see a lot of growth potential that can be unleashed by our volume-zone strategy,” he said.

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