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Pollution has boosted 3M sales in China

China's severe pollution problems have been a boon to at least one American company.

While it is mostly known among U.S. consumers for Scotchgard and the Post-it Note, St. Paul, Minn.-based 3M is increasingly known in China for its face masks and water filters.

A man wearing a 3M mask in Beijing
Getty Images
A man wearing a 3M mask in Beijing

Addressing air and water quality problems in rapidly developing countries such as China is a relatively new but fast-growing business for 3M. Though the company has long sold face masks in hardware stores across the U.S., these days it's Chinese buyers who don the masks just to walk around outside in their own cities.

"Air quality issue in China is well known," said H.C. Shin, 3M's executive vice president of International Operations, when he spoke at a recent 2015 Outlook meeting with investors and analysts.

3M will have total sales in China, across all product categories, of about $3.2 billion in 2014, according to the company. Sales growth in its air quality business this year is expected to come in at 50-55 percent, and growth in its water segment is seen rising 45-50 percent.

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It's an environmental issue and health issue at the same time. People in Beijing or Shanghai wake up in the morning and start the day by checking the AQI, or the air quality index. The Air Quality Index is a measurement of certain pollutants in the air. Many Chinese cities have AQI levels far above what is considered safe.

The 3M face mask is one of the best-selling masks in China, said FBR Capital Markets analyst Ajay Kejriwal, though he did not have sales figures. It was designed and manufactured by 3M teams in China and priced to fit the wallet of the average Chinese consumer.

Of course, there is always the possibility of domestic companies creating their own, cheaper alternatives to 3M's masks. Experts also note that 3M's high growth in China could also take a hit as the economy there slows down. China's gross domestic product (GDP) grew 7.3 percent on year in the July-September period, the slowest pace in nearly six years.

Tackling China's poor air quality alone could be worth hundreds of millions of dollars, H.C. Shin said at the Outlook meeting. And while air pollution is severe in China, the World Health Organization indicates that countries such as Iran, India, and Pakistan may be worse off.

All four countries are among the developing nations that account for roughly 40 percent of 3M's sales. China accounts for roughly 20 percent of international sales, according to 3M.

"I think the 3M brand is one of the most powerful brands in emerging markets—China, India and Brazil," said Kejriwal. "I think Apple is big, of course. But 3M is right up there. And 3M has been in many of these countries for decades. They are well positioned there."

Food safety and water quality could also present opportunities for 3M, said Shin, who noted that the company's likely to develop other products in the same manner—close to the customers they hope to serve.

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"Water quality is as much of a problem as air quality in China," Shin said. Roughly half of China's water sources are polluted, and illness from water kill 60,000 people per year, and sicken another 190 million, according to Nature News.

Rather than develop big water filtration systems to sell to municipal governments, 3M has products that go directly to consumers—countertop water filtration systems. The company has set up 2,000 kiosks around the country, where customers can bring water samples poured from their own faucets, Shin said. After a test, they can get a recommendation on a system they can carry home that day.

Both the face mask and the water filters are examples of a new approach built around what 3M executives call "local and regional megatrends"—broad social and economic developments that the company can try to capitalize on. Whereas almost all research labs were once U.S.-based, an increasing number of them are positioned in these markets around the world. Taking a decentralized approach to serving different markets around the globe ensures products are made to fit.

The company is trying this approach in countries all over the world—it is developing earthquake-resistant building materials in Japan, and lightweight aircraft and vehicle materials to conserve fuel in Europe.

Shares of 3M on Thursday hit a new 52-week high of $164.68.