Japanese air conditioner maker steps up manufacturing in Africa

Japanese air conditioner maker Daikin is expanding its manufacturing presence in Africa. The firm plans to cash in on global warming that has seen temperatures in Africa rise faster than global average over the past 60 years and replicate its success in another hot and similar-sized market – India.  The company recently opened an assembly facility in Nigeria and is also in the process of securing a manufacturing location in Algeria.

Due to the high costs and tariffs associated with importing finished products into Africa, Daikin has encountered challenges in competing against Korean and Chinese rivals (LG and Gree Electric, respectively). As of now Daikin is estimated to hold only 2-3% of the African air conditioner market. The rest is dominated by Chinese brands. By manufacturing locally Daikin believes it can compete against other imported brands in Africa

The assembly facility in Nigeria receives components from a Daikin plant in India. By importing relatively cheap parts from India, Daikin seeks to bring down its tariff costs. Through this strategy, Daikin seeks to price its air conditioners between US$400 and US$540. Despite the price range being higher than that of Chinese brands, the firm believes the lower power consumption of its products will attract African consumers.

Daikin established a sales office in Nigeria in 2020 and it currently works with two distributors that promote and sell its products as well as provide after-sales support. Daikin’s new assembly plant is located within the site of one of its resellers. To enhance its service offering, Daikin, in partnership with local vocational training institutes, launched training centres in Nigeria to upskill local air-conditioner installers and technicians.

Daikin also has a meaningful presence in East Africa. Although Kenya and Tanzania are currently served with air-conditioners manufactured in India, Daikin hopes to make its product even more affordable. In Tanzania it has introduced a pay-as-you-go subscription service to make its air conditioners more accessible. Business customers, including restaurants, pharmacies, and beauty salons, can pay just over US$1 a day (with weekly and monthly plans available) to activate the air conditioners through a smartphone app. However, these clients must cover installation and electricity expenses. While Daikin retains ownership of the air conditioners. The strategy here is to encourage customers to eventually buy the units outright.

Africa accounts for only about 3% of the global air conditioner market despite being home to 18% of the world’s population. But with the continent urbanising at a fast pace and global warming making living conditions hotter the market for air conditioners across the Global South is likely to grow. According to the Intergovernmental Panel on Climate Change (IPCC) Africa has already warmed by more than 1°C since 1901.

 

References

‘In Africa, Daikin offers cool-air hailing for $1.20 a day’, Nikkei Asia, 05 June 2020

‘Estimates of world air conditioner demand’, Japan Refrigeration and Air Conditioning Industry Association, July 2022

‘Japan's Daikin to build air conditioners in Nigeria in renewed push’, Reuters, 30 September 2022

‘Nigeria is our most important market in Africa for growth, expansion – Gulenc’, Business Day, 07 October 2022

‘Manufacturer partners institute to enhance workforce growth’, The Guardian Nigeria, 1 June 2023

‘Daikin & DaiTech inaugurate the new flagship facility to strengthen their partnership in Nigeria’, Daikin Industries, June 2023 

‘Integrated Report 2023’, Daikin Industries, 2023

‘Daikin bets on Africa with new production sites in Nigeria and Algeria’, Nikkei Asia, 21 January 2024

‘Africa Population’, Worldometer, Accessed 16 February 2024