Donaldson is an international manufacturer of engine and industrial filtration systems. In 2007 the company increased its capital expenditures in Asia by 64% and in Europe by 46%,^[1] highlighting its growth strategy. Donaldson is hoping to take advantage of several trends unfolding in foreign markets. In Europe, the increasing popularity of diesel engines in the face of climate change has made the need for engine filters paramount, as diesel fuel, while more efficient, releases more soot and pollutants than regular gasoline. In Asia, the tremendous growth of developing nations like India and China is being powered by coal plants with archaic emissions standards - leading to over 750,000 deaths per year in China alone.^[2]

As China's national income increases, however, Donaldson is betting that the demand for industrial air and liquid filtration will rise, allowing the company to reap rich rewards - and that the Chinese government will continue to allow private companies to sell products to manage pollution. Another risk to Donaldson comes from rising steel prices, as many of the company's products use steel as an input, meaning more expensive steel would squeeze margins. Though the filtration industry is highly competitive, with many diversified manufacturers, Donaldson faces its most direct competition from Cummins, Clarcor, and Pall.

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