MONSANTO AND THE GLOBAL WATER

TREATMENT INDUSTRY

Elizabeth Elvienna - 29118060

Gema Rendrahadi - 29118194 SYNDICATE 10
I Made Devantara - 29118149
Soraya Rizka K. - 29117527
Salla Schmoekel- 29118903
 INDUSTRY OVERVIEW

Monsanto, one of the biggest player in the biotech company is very committed to sustainable
development, it decided to assess the attractiveness of water treatment industry before deciding further
investment.

In April 1999, Robert Horsch (president of Monsanto’s sustainable development) stated that “the demand
for water was already exceedingly supply in a number of world areas.” Monsanto debated whether to
attack this issue from biology side (potentially creating plans that survive in salty soil and drier climates)
or from technology side (in-home water purification)

The water treatment industry provided drinking water treatment, wastewater treatment, process water
treatment, boiler and cooling tower treatment and water conditioning for residential, municipal,
commercial and institutional and industrial.

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 INDUSTRY OVERVIEW

Growth of drinking water treatment segment was affected by a number of factors: public concern about
water quality and usage, end-user education, legislation, the economic condition of the end-use markets
and technological improvements.

There are several challenges Monsanto has to face in municipal drinking water treatment (industry
consolidation and globalization) and residential drinking water treatment (competitors which is bottled
water and water purification equipment that consist of three devices: Point of Use, Point of Entry and
Filter Pitchers)

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Porter’s Five Forces

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 Rivalry Among Competitors - MODERATE

▰ Rapid Growing Industry

▰ Many Old player firm (Hercules, Nalco, Calgon, Drew, Kurita)
▰ Not over demanded (Many Player & many demand)
▰ No significant/dominant firm (Market shares shared evenly even)
▰ Self appeal & disfigure advertising among Segment
(Bottled water firm vs Water filtration Firm)
▰ Competitors are diversified and not specialized

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 Threats of New Entrants - STRONG

▰ Entry barriers are low

In the early 1990s, many new companies entered the market resulting in over 50.000 water
treatment companies in the US.
▰ No patents or other intellectual property protection in place
For residential drinking water, it didn’t use advanced technology or require sophisticated
manufacturing technique.
▰ Didn’t require large capital outlays so its relative easy to enter the market.
Small firms from Southeast Asia and US using rustic technology can easily enter the market

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Threats of Substitute Products - STRONG

Who are the substitute competitors? → Bottled water

▰ Is the substitution attractive in price & have better performance?
Bottled water is convenient & the price is very affordable

▰ How is the sales and growing of substitute?

Bottled water is the fastest growing product in US beverage industry (growth 41% in 4 years).
It is also distributed world wide

▰ If buyers switch to substitute, will the switching cost low?

Individual buyers might stop subscribing drinking water from water treatment companies.
And it’s very easy to find water bottles in stores
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 Bargaining Power of Suppliers - WEAK

▰ There are trend towards backward integration to produce raw material

(components and customized pieces produce by specifications)
▰ Acquisition (Japanese Company, some equity from WaterHealth), Joint Venture
(Eureka Forbes) and Licensing Agreement (Russian Center) allowing Monsanto
to do backward Integration.
▰ The input of Monsanto products are standard so there are many potential
supplier.

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 Bargaining Power of Buyers - STRONG

Buyers: Municipal and Residential

▰ Monsanto customers is sensitive with price
▰ Substitute are available (bottled water)
▰ Buyer switching costs to substitute products are low
▰ Buyers orders are important to sellers
Water treatment companies needed to customize offerings and be more flexible when
customers decided what types of chemistry and equipment they’re willing to pay for.
▰ Buyers are well informed about the purchased they are considering
Through end-user education for customer from the company.

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 Was it worthwhile for Monsanto to enter the
industry?

From the Porter’s Five Forces analysis, the collective impact of the five competitive forces is
moderate so this industry is attractive in the sense that Monsanto can expect to earn good
profits and nice return on investment.

We think it’s worth it for Monsanto to invest in the wastewater treatment. This happens
because water is becoming severely limited and like any commodity this means that water is
getting more valuable. This investment also align with Monsanto’s commitment towards
sustainability which is improving water quality and treatment facilities. Moreover, through
this investment the company will also be well positioned to benefit from the challenges of
water scarcity.
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