How Dow Does China

The CEO of the world’s second largest chemical company said both Dow and China are undergoing critical transformations.

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Andrew Liveris arrived on his first trip to China as a young hire for Dow Chemical the day Mao Zedong died in 1976. Since then, said the now chairman and CEO of the $49 billion company, the country and Dow have each undergone head-spinning transformations. Both, he said, are now pivoting away from volume manufacturing to providing technology-driven solutions. It just so happens, he says, that Dow’s goals dovetail amazingly well with China’s.

“Growth prospects are not as automatic as in the go-go days of the 1980s, 1990s and 2000s,” he told attendees as he kicked off the Ninth China Business Conference held at Columbia University in early April. “We need to do what pilots do: know your destination and set one eye on the horizon and the other to take readings from the instrument panels” to continue making short-term strides while positioning for the long term. “I call it the ‘dual horizon mindset,’” he said. “With China, it’s a matter of choice. We can all choose to participate in the new China.”

An Innovation Pivot

Dow’s global strategy reflects a move from cyclical commodity chemicals with up-and-down cycles and margins in the 5 percent to 10 percent range to innovative specialty products with profits of 20 percent-plus. The company has sold off product lines such as those that make the ingredients for plastic grocery bags, cut bureaucracy, and invested in R&D facilities and scientific head count. “Ten years ago, we rode cyclical economies like they were roller coasters,” said Liveris, a mustachioed, Australian-born chemical engineer. “Knowing how fast changes are coming, knowing our back was against the wall, we transformed Dow” to become much more responsive to real-time shifts in the marketplace, he noted.

The plan was based on identifying the problems of the world and offering solutions to client partners. That’s an about-face for Dow, which was previously known for its spotty environmental record and as the one-time maker of Agent Orange, an herbicide used to destroy crops and trees during the Vietnam War. Under Liveris’s watch, the company decided to address the global need for clean water, clean energy generation and conservation, and agricultural productivity.

Division heads were told to prioritize growth prospects in each of 180 countries where Dow operated. In China, that meant responding to goals of the government, SOE partners, and the middle class. Identifying strongly also meant maintaining a decided local presence. Liveris said only 15 Dow employees of the 5,000 on the ground aren’t Chinese.

In 2009, Dow Chemical opened its R&D facility in Shanghai, the company’s second largest in terms of employment (500 Chinese scientists and engineers) and its top producer of patents. The company has received the Most Innovative Company award from the China Petroleum and Chemical Industry Federation and China Chemical Industry News, and was named Best Innovator in China by consulting firm A.T. Kearney.

The aim, said Liveris, is to address Chinese problems and then export the technologies throughout the world. “Collaborate locally, innovate globally,” he called the approach.

Some recent China-led Dow innovations include:

  • an abatement technology used in furniture paint, which converts formaldehyde in the air into harmless water vapor,
  • an eco-friendly washing machine, developed with China’s Haier Group, which reduces water consumption by more than 30 percent while removing as much as 99 percent of bacteria during washing
  • and PackXpert, food packaging that provides better food safety and extended shelf life in a lighter format that is less expensive to ship.

A New Chapter

In mid-December, Dow and DuPont agreed to a merger of equals. Should they receive necessary approvals, the $130 billion, all stock deal will eventually result in the new DowDuPont splitting into three separate companies in the agricultural, material sciences and an innovation-driven specialty product industries. Liveris will become executive chairman and DuPont CEO Edward Breen will take the CEO spot.

Liveris is a big believer in public/private collaboration, noting that sustainability issues are too big for one sector to handle. “Air pollution kills 1.6 million Chinese citizens a year. By 2025, 1.8 billion people in the world won’t have access to water and the world faces a 60 percent increase in food requirements.” Innovations, he said, “don't happen in a vacuum. They come from the willingness of the government, and the private sector, to ultimately make life better.”

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