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
USDmillion
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 m
3
/d
and a reuse capacity of 10,000 m
3
/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.
TISOrigin 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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