Document DMz83YXRb7Z9Lm5xp937qwrRM

rmation the Press ^ IN%. && \ I A S & t f1 *vcb &' 845 Third Avmue, New York, N, Y. 10022 Area Code 212 PLazft 9*0900 onal industrial Conference board elease After 9:30 a.m. (ED5T) Thursday, May 18, 1967 inference Release KEYNOTE ADDRESS A talk by Robert K- Mueller Vice President, Monsanto Company at a special one-day meeting on "Plastics: A Management Dilemma" conducted by the National Industrial Conference Eoard Thursday, May lB, 1967, in The Waldorf-Astoria, New York City Thank you, and good morning. It is good to see that so many are interested in the plastics industry. I 8 we all like to hear that others have problems, too. Oscar Wilde once said .'asked about his new play -- "The play was a great success but the audience was llure!" With the fine turn-out this morning and our distinguished panelists we help but get a good review of the exciting dilemma that management now faces 4. e plastics industry. Last year there were 13 U. S. plastics molding and fabricating company ess failures, and 19 mergers resulting from the economic, technical, and market is taking place. Mergers were also occurring at a rate of about 80 per year in i.chemical industry during 1966. This churning and turmoil has been going on at `.this same tempo for some time in the plastics and chemical industry. In fact, J. S. manufacturers of molded and fabricated plastics products have bit the dust last 10 years, representing about $50 million liabilities. Despite these ness tribulations, the last thirty years of scientific effort in plastics have ded such sophistication in the disciplines involved - chemistry, pnysics, more ^ CMA 040189 A talk by Robert K. Mueller 2- The Conference Boar engineering, styling, and merchandising - that the plastics industry has substanti ly altered the raw material index of our times. Why then, with these great techni advances, is there, a management dilemma facing us today? Those of us who experienced the nitrate plastics heyday have seen that sector of the industry displaced with entirely new materials, ranging from the improved cellulosics to the vinyl family. Another instance - vinyl resins have j nearly supplanted the old Jute and linseed oil compositions and rejuvenated the floor covering business. A stream of plastics developments has created new busing and new products, in some cases at the expense of other materials. But, more ofte entirely new compositions have been developed to add to or enhance the materials o construction available to us. All of this development has taken place, and, yet, there are troubles brewing. Recently, the London Economist characterized the chemical industry in a manner which can be paraphrased for our plastics industry only too well. It's "1 an enchanted forest- Delicious little paths curve away invitingly into charming little glades; the addict wanders on, entranced, unable to resist each fresh deli until he finds himself lost and starving. Indeed, so vague are the industry's boundaries it is possible to invest in anything and still remain with it;" The ubiquitous nature of the industry is both its salvation and the sou of the management dilemma. And we find ourselves at a number of crosspaths in th wonder woods. Some managements decide to leave the woods. Recently, Distillers Company Ltd., a beverage producer with substantial chemical interests, sold off 1' plastics and chemical subsidiaries to British Petroleum Company Ltd., and now confines its affairs to the original whiskey business. But why leave the enchanted forest? Having spent most of my working ye in the plastics field, I cannot believe that this was a misspent youth, or that is an unattractive industry -- for either the investor, the manager, the supplie (more ) CMA040190 talk by Robert K. Mueller -3 The Conference Board .the customer. The industry has by and large performed in good style in coping ih continual technical advances. What we've got to do now is to learn to manage -well as we make. A Management Dilemma It was Aristotle who first used the metaphor "horns of the dilemma" to ranatize tne discomfort of decision-making. Today we have improved skills and tools 'management to aelp relieve this discomfort when we make decisions in this fascining plasTics r.sineos - if we learn to use them as tools and don't expect them to _le our fie:: Lsi'j;v- for us. In the scientific end of our business it has taken brains, fisted by all tne tools and machines available to give this industry its fantastic h. Now that we have come of age we certainly have the brains, and certainly, we fcn also use the new management tools that have become available to the business P ISn'* ager - and I'm not selling computers; I am selling a realistic, common sense |iagement approach to some perplexing problems which call for our best management Iforts as distinct from our technical efforts. F ^ Let's lace it - the uncertainties in the industry require continual isibn-making as to which plastics markets to select for profitable direction of Itogement time and money. Competing in these markets involves not only facing up ^consumer caprice but to Free World competition at a turbulence level never before P ^Countered in tr.e plastics business world. Of course, the complexity varies around (e vorld with different economic, political, and cultural settings. These dilemmas, ever, present a challenging opportunity for the management-minded to employ the systems and techniques which are now available. Some - notably Professor Galbraith - argue that the efficient producer mines what the consumer will have. This is simply not true in the plastics stry. In the all-pervading plastics business the consumer and the market economy still enthroned- The technically-minded plastics industry must now turn its (more ) CMA 040191 A talk by Robert K. Mueller -k- The Conference Board talents to decision-making in the complex commercial area, where the art and science of management is not so well developed as the science of manufacture and research in the physical world of plastics. The plastics industry has already profited from the science of manufacture, Now it has a mandate to cash in on the science and art of management. Our challenge is to manage as well as we make. Anatomy of the Industry The discussion this morning is in two parts - one in which our industry does very well, and one in which our industry needs to do better. What do we do well? We have an outstanding record of technical achievemen and growth -- witness the many dramatic uses of plastics in the Mercury spacecraft nose cones, Detroit's vinyl-covered hardtop auto roofs, artificial aortic, mitral, ; and tricuspid heart valves, plastic encapsulated transistors, Cadillac's six pound plastic instrument panel, the air-supported plastic greenhouses, the new uncrushable washable polyproplyene "straw hats," and on and on. We compete with metals, wood, paper, and other materials, yet we haven't stunted their growth. Actually, we have created wholly new markets and invented new products, at a commercial realization rate that is getting shorter and shorter with each new development surge. A banker friend of mine once defined an invention as something which ruined his investments. While we brag about how well we invent and make plastics, I am afraid that the management of these expanding international investments in plastics can be ruined unless we manage them better in the future. The reason thi is of concern is that unless we manage as well as we make, there will not be sufficient future profits in certain segments of the industry to sustain healthy growth. We don't yet have all the answers we need, and we must solve this manage dilemma by facing these prospects now. alk by Robert K. Mueller -5- The Conference Board To better understand the challenge, let's look briefly at the anatomy cf e industry as it is presently constituted. We retain the classical definition of plastics as man-made organic materis which with pressure, heat, or both, may be formed into almost any shape. Even hough they are closely related, we exclude synthetic rubber and man-made fibers wo distinct branches of the high polymer world that have really taken off in recent ars. The United States plastics industry today employs a quarter of a million n and women, and set a production record last year of 6.8 million tons of product, is was up 16 per cent over 1965, and its value was about 6.5 billion dollars. The te of growth of the worldwide plastics industry is greater than the United States te. One of our panel speakers has estimated that our United States plastics dustry, which had a position of about half the world production ten years ago, will op to about 35 per cent of the world output by 1970. It is interesting to note at the Soviet Union's plastics business has been estimated at about 7 per cent of e world volume - just short of a million tons last year - but growing very rapidly. Bill Cruse of the Society of the Plastics Industry tells me there are out 5>700 separate plastics companies in the United States. They can be divided to several groups: First, the material suppliers who take basic raw materials like acetylene, hylene, or propylene, and produce a spectrum of plastics in many forms. There are out 150 U. S. firms in this segment of the industry and they require large capital ~estment and extensive technical manpower. Most material suppliers today are ther chemical or petroleum companies. Plastics materials turned out by these basic suppliers go to other eate ries of firms. In some cases the basic producers even go downstream to final conumer articles. An interesting example is the forward plunge of Union Carbide into (more ) CMA 040193 A talk by Robert K. Mueller 6- The Conference Board the manufacture and sale of the disposable soda pop straw in the form of a poly ethylene tube "straw." However, generally, fabrication is a separate operation and there are now about 5,500 such United States companies which perform converting operations solely.. They comprise a distinct industry category and have separate dilemmas of their own. While some firms do cover the entire vertical chain of gathering raw materials and performing processing steps right down to the finished article, others dealing only with the conversion step are content to function in a more limited manner. There are many who make a good living distributing service and plastics products on a regional basis. Competition is sharpening at all levels, with changes in the anatomy of the Industry indicated by the many mergers, spin-offs, integration moves, and joint ventures of the day. Significant Decisions Facing Plastics Industry Management But perhaps there is a way in which to approach this "enchanted forest" which is planted with challenging business choices. Four decisions seem to be significant in the overall context: First - the choice of the material - i.e. selection of species of plastics like polyolefins, vinyls, or other families. When dealing with classes of other materials we don't just choose "metals," we select copper or stain less steel or titanium - species which are now well defined - and so it should be in plastics species as these materials become better known. It is interesting to note here that the chief volume markets of the future lie in thermoplastics, forecast to be over three quarters of all plastic types during the next decade. Most thermoplastics will be members of three species - polyolefins, PVC, and polystyrenes. The other quarter portion will be mainly in the thermosetting species - the phenolics, ure and melamines. All this doesn't rule out the impact of the polysulfones, (more ) CMA 040194 by Robert K. Mueller - 7- The Conference Board the polycarbonates, the polyphenylene oxides, just to mention a few of the newer polymers. econd decision is the route or the technical process by which the plastics product can be made. This is a subject in itself, ird decision area involves the total market action - how, when, where, why, and to whom are we selling and with whom are we competing? These factors vary tremendously throughout the world, and this aspect will be discussed by our panelists. "burth decision area concerns the life cycle of the material or product from infancy through maturity to decline. These cycles force integrations, spin-offs, and so on. The rise and fall of once promising plastics is part of the industry growing up. How many of us who spent time and money on polystyrene wall tile applications, or vinyl draperies, in their shining hours, recognized in time the relative decay of the life cycle of these businesses? duPont recently reviewed the marketing progress in Europe of its acetal resin, Delrin, after six years' effort. 60 per cent of the original applications still hold, 31 per cent had been terminated due to the item no longer being manufactured, and 9 per cent of the applications are now made from other materials. What we are really talking about is the need for a better system of Jng the plastics business, one which is comprehensive enough to embrace all rs, eliminates emotion and folklore from decision-making, introduces consistency, 8 basically an evolutionary process using the experimental method which we so ssfully employ in the scientific side of our business. Such a philosophy and is no more complex than those employed in other business sectors, where rate decisions are also being made in the face of multiple dilemmas. more ) CMA 040195 A talk by Robert K. Mueller - 8- The Conference Board The steel and auto industries set good examples in their use of input-out put analysis techniques for long-range economic projections of their business systems. A recent elaborate effort is the one by economist Clopper Almon, Jr., who has worked out growth estimates for 90 industries. Interactions of supplier indus tries like the coal mines or the steel consuming industries, or the auto or machinery business, are perceivable in these business equations with management science tech niques and computer tools. With such analyses, basic business decisions can be or Ot! fuJ Of Su: hc soundly made from a host of alternatives. This same management philosophy approach is available for use on the business configurations existing in plastics today. Hastily, I must say that any plastics industry manager who can be replaced by a computer, or any other tools of the management scientist, should be. However, there is no question in my mind that managers will be more successful in resolving dilemmas, if they will learn to use some of the decision-making tools available to them and their staffs. Outside expertise often is needed in designing a decision making process, to decide if these management science concepts are Justified, and !the 'rar. f'Arg- ru. his ' obr' p" and then to actually go about it. You know, an old Chinese proverb says there are few situations in life that cannot honestly be settled, and with little loss of time, either by suicide, a bag of gold, or by thrusting a despised antagonist over the edge of a precipice on a dark night! With the host of problems facing plastics management today we dare not use these Chinese alternates, but, better, we need to isolate primary decision areas which present us with choices of material, route, market action, or life cycle of the business. Here are five majoivclusters of these decision areas: *ther rthe 'a pc tive surcMeth and The Major Raw Material Producers We can begin with a typical one facing the large producer of monomers, those simple unpolymerized forms of certain chemical compounds. Where should he build his next plant? Perhaps when he chose two plant sites a decade ago in Brazil (more ) stoc bala 'and . own CMA 040196 by Robert K. Mueller - 9- The Conference Board ^olombia, t0 supplement exports of certain monomers from the United States to r South American countries, he probably didn't think this action would create a ~e dilemma. He had several choices open to him, but it was a manageable numoer ternatives. He looked at the locations of customers and raw materials, the y of labor, the transportation cost, the tariff situation, and the tax loads $have to carry. If there was much to consider then, look at what's been added. There's impact of the Latin American Free Trade Area. There's the factor of even longer plans he must now consider about other prospective plants of his own in Peru, ntina, Ecuador, and so on. There's the increased impact of foreign producers on . producers. There's an unresolved question of petrochemical feedstock quotas or. ;own base in the U. 3. There are special problems of recovering any investment d, and, if that weren't complication enough, the concepts of the mini-plant the super-plant create the need for a host of new decisions. I p.ardly need recite any more complications. The important point is that ~e are many -- so many that the algebra of combinations begins to work against 'decision-maker. It turns out that the maximum number of interrelated variables son can manipulate is only six or seven. So there are just too many alternaS and, now, too little time for leisurely evaluation. That's why computers must ly be used to help us look at more alternatives than we ever could alone, ods of analysis of this LAFTA type investment problem have already been developed .blished for the benefit of all of us by our friends in Union Carbide. Another example: Our government, in deciding on what petrochemical feed- quotas to allow u. S. producers, must consider what will happen to our ce of payments under various assumptions about the construction of plants here Droad. Each firm in the industry wants to see the effect of legislation on its profits. Obviously, both government and the firms in the industry would like more CMA 040197 A talk by Robert K. Mueller 10 - The Conference Board J to get some idea of the consequences without having to make an irreversible decision.| The answer: A computer simulation of sorts of the world's petrochemical business. One such simulation has recently been built by a well-known consulting firm. Another example of the computer as a tester of alternatives has to do witiii the construction of a plant, once the site has been chosen. If you will excuse this) Monsanto example - in 1961 when we were building our petrochemical complex at Chocolate Bayou, it was a computer using a critical path program which advised us what to do when. Before construction was complete Hurricane Carla hit. We couldn't] blame the computer for that! As a matter of fact, we gave it credit for staying eal during a crisis and telling us what to do next. An entirely new sequence of in stallation steps was undertaken, with no loss in elapsed time to complete. If we seem to imbue the machine with near-human power, we don't mean to. In telling how to schedule our construction, the computer just goes on trying out all sorts of chedules until it finds good ones. It tests lots of alternatives, more and faster,) t Eh [Bt Sir. than we could without electronic help. Later in the program today we shall consider finance, tariffs, internation| al trade, each from the point of view of a speaker expert in the field. I have not! t read their papers, hut I will wager they include such phrases as "assuming that," ir ir ha t "in the event that," and "of course, if." These, the traditional escape mechanisms) used by management facing decision, can be put into the decision-making equation to^ C' deal with such eventualities as "if funds are scarce," or "if there's a shortage of) skilled manpower," or many other variables which may be encountered. The Plastics Polymer Producer Now, let's turn to a second cluster of decision areas - those of the IS t pi managers of firms producing polymers. Most of these firms are already in monomer J production, but the pertinent question arises - "Should I integrate forward towardsj lies ^he consumer, and if so how should I go about it?" (more ) CMA 040198 by Robert K. Mueller 11 - The Conference Board jr First of all he must determine the attributes which a plastic must have tc jlace anotr.cr material in the marketplace. Of course, the producer of the itened material - be it paper, metal, or wood - is also glancing sideways at the lies business and contemplating his own future. Just the other day 1 was ting to a friend in the plastic pipe business. Plastic pipe - up 30 per cent over tyear to $170 million, is expected to hit the one third of a billion dollar marjlevel in 1970, and this may still be less than 5 per cent of the total pipe marjLSimulation techniques and model building are useful to the manager faced with tdilemmas. Distribution systems or acquisition decisions can be structured so ^sensitivity of all factors can be exposed for the manager to make his decisions, ^exposure forces clarification of objectives. In this example the question is i$-"Do you want to be in the plastics business, the pipe business, or the steel gess?" You can be in the first two, or the last two, but not in all of them, j From the viewpoint of the plastic polymer producer, there is the everent threat of retaliation by his existing customers if he tries to move into fimarkets. It is difficult to build new marketing systems and, thanks to B. Sherman and Clayton, there are problems involved in direct acquisitions of Iting firms. It takes time to build an enterprise. No matter which approach is feted, there will be a need for patient money, and, most of all, for sophisticated fcement. ' This makes the problem difficult from the point of view of the plastics (try, but, at the same time, equally difficult for companies interacting with pasties industry. i_ Here, again, there are common sense considerations and management tech88 which can help in taming the dilemma of "go" and "no go." It is possible jays to construct models of the most involved situation. duPont's Venture *15 program on Corfam is a well publicized example of a simulated consumer (more ) CMA040199 A talk by Robert K. Mueller - 12 - xne conference aoaras marketing situation in which, by mathematical model, the reactions and effects of other parties in the field can be rapidly estimated, and sales and profitability forecasts made. Customer acceptance or rejection, changes in the national economy, even upheavals in international politics, may be tested on such a model. Publicised! examples of such models exist in other Industries in the form of simulation tech niques, risk and merger analysis, optimization of capital budgeting, and other rdir ?Th: [for ic ihc. complex management science approaches which are used to tackle business dilemmas. Well-known companies using these tools in other industries include General Electric,i H. J. Heinz, Johnson & Johnson, Proctor & Gamble, Just to cite a few. The Fabricator-Convertor Let's take a third cluster of problems - those faced by the plastics fabricator and convertor, who may be dependent upon a single firm, or even several firms for raw materials. The fabricator-convertor may or may not have some processj know-how invested in his machinery. , For sure, he has an established franchise in the marketplace through his distributors and dealers. In addition to the technical problems peculiar to this operation, he faces continual business decision-making. What should he do about the integrated r| monomer-polymer firm which is considering going into the conversion end of the business, and may or may not be approaching his distributors with a prospective avi ttd snt ne rt. he ; tchr Iran fee ls e *gav' competitive line? Should he attempt to distribute his plastics products at the retail consumer level? These are realistic questions that must be faced by top management with the same fervor as facing a technical problem, and using all the experience, common sense, and analytical ability that can be mastered, for these problems will not go away. In the plastics industry's rapid growth, it has often fallen to the raw 1 material producer - representing the capital intensive end of the business - to develop transformation technology and create plastics product markets, and even je due. lid . au nt, lln. (more) CMA 040200 k by Robert K. Mueller - 13 - The Conference Board tributior. systems, to speed up the pull-through of the basic polymer production. 8 provision of capital, technology, credit, and market development cannot go on ver in this manner in the plastics business. The fabricating segment of the ustry has now developed to a point where these business components need to be Ldered and developed by this sector of the industry. Many of the operations in converting plastics are headed by managers who e historically operated very successfully through unusual brands of intuition know-how, and who have had limited experience in a worldwide business environt. We certainly need common sense and business acumen now, but we can also use machine help, too. True, computers have been adopted in many plastics con ing firms' record keeping, inventory control, and the like, but only rarely in field of business decision-making. Today, thanks to remote access computer bnology we find programs applicable to plastics businesses. The convertor has liable to him now the most modern business techniques, without a major in-house estment. Perhaps one of the outgrowths of this conference will be to provoke se in this sector of our plastics industry to explore the worth of such a gement approach to their problems. Stock programs are now available to all, and ve never seen any figures which indicate a cut-off point for the size of the employing them. The Customer Dilemma The dilemmas faced by the fabricator of plastics articles have a mirror e in a fourth cluster of dilemmas - those facing the purchaser of these plastics ducts. This customer-supplier interface, as we all know, is a ticklish one. Id the user of plastics parts integrate into plastics fabrication? The appliance d auto industry have in a big way. Take Admiral Corporation's vacuum forming t, or Hotpoint, or Kelvinator, or General Electric's mammoth regrigerator liner lding plant at Louisville. Take Ford's new huge blowmolding machine scheduled to (more ) CMA 040201 A talk by Robert K. Mueller - 14 - The Conference Board turn out up to forty-thousand plastic gas tanks for the 1968 T-Bird. Chrysler, GMC, Oldsmobile are not far behind. This is big business. It will take seven railroad cars of plastic resin per day just to keep Ford's fender liner operation going: The new Italian Fiat has revolutionary uses of plastics, up 30 per cent from last year to seventy-five pounds per car. The skills and management needed for such trans- rj forming operations are close enough to the talents possessed in their own companies5 to allow a safe business integration. The recent move on the part of the government to force safety factors in ^ the design of the automobile gives plastics an opportunity that could not be fore Ci: fir seen two years ago. The lamination of embossed vinyl to steel for some auto tops was so well accepted from an aesthetic standpoint it may move on to the hood and > fenders - not as an aesthetic measure, necessarily, but to cut down in specular gloss - one of the safety factors the government is advancing. But hard goods producers are not the only ones faced with business 'decisions at the plastics industry interface. Some examples: Take the paper companies, or the packaging industry - which is now the second largest market for plastics, after construction, and which consumed about 2.6 billion pounds. Also, the dairies are another example. Over 500 dairies are moving rapidly now to plastid milk bottles. The "Paxton Story" is a case of a cigarette company seeking a greater market share through improved packaging. The development effort came up with hi fsu He ;.ho. fthf. fbe<tiol tr: plastics as the material, and a process had to be created for fabricating the new package. These were all business decisions made on whether to be a customer for, [Mr or a fabricator of plastics articles. Such problems of complex economics are certainly amenable to business modeling and analysis. We must learn to use these techniques to give us realistic alternates from which we can make a business decision. fare j^onl. Sdea ?iy (more ) fCMA 040202 by Robert K. Mueller - 15 The Conference Board `rms Competing; with Plastics Now, let's wind up with a fifth cluster of problems. The firm selling ts that presently compete with plastics faces an extraordinary set of dilemmas b own. Should the firm get into the plastics business itself, or should it back with improved types, models, and grades of its own material': Should a "rsion to plastics, or a combination of plastics with other materials be tigated? So-called "atomic wood" is a good example of plastic impregnated plated wood making interesting strides in the furniture field. The AEC has been g with 4l different types of wood and 6 different woodworking companies to op these wood-plastic composites. Senator Hart's "Truth In Packaging" efforts have shaken up many a nest in ^plastics and paper industry by focusing consumer attention on the subject. The arkets' problem of bottlenecks at the meat counter was solved by the switch repackaged meat cuts which could be prepared at off-peak periods, and the ewife accepted this. However, now, some disgruntled customers are complaining t they can't see the complete cut. The transparent plastic meat tray, which has struggling in development limbo, for eight years that I know of, is now taking with its one hundred per cent visibility contribution, and the plastics indusi'diffuses itself one step further into a new business. The choices which the firms competing with plastics must face are cond not only with market-related problems, but lead them directly into the area /eloping new technology, which must be appraised before venturing into this of competition. However, the plastics business is different from others, not in its marketing and its technology, but in the fact that the materials it 6 with are man-made and man-conceived. In 1966, one chemical compound lene diisocyanate - was used to produce 100 million pounds of an entirely new oeition of matter, urethane foam. This moved quickly through 200 U. S. (more ) CMA 040203 A talk by Robert K. Mueller - 16 - The Conference Boar manufacturers' plants into the furniture upholstery market. Howard Gans, mere! ing director for Ward Furniture Company, of Fort Smith, Arkansas, predicts that within ten years plastics will, in fact, supplant wood in furniture, with the exception of antiques and some of the highest priced furniture. Last week, when in London, I saw an announcement of a United Kingdom company formed to produce instant furniture out of rigid polyurethanes. The systei tested in Scandinavia, consists of pouring chemicals into molds, with complete frame having attachments for legs or swivel bases formed after 10 minutes curing! These trends mean, of course, that both commodity and specialty plastics require a great deal of technical research time and development costs, and they fai high obsolescence risk factors. For the looker-on industry, to enter the plastics' business is easy - everybody's welcome - but to stay in it, profitably, requires patient and astute management, technical capability, time and money. 1! The attraction of the industry is reflected in the latest U. S. Departmri of Commerce input-output analyses of twelve basic industries. This, incidentally] is a good example of a management science approach to a complex forecasting probla The plastics industry leads all others in these projections, with a 183 index of | growth for 1970, compared to a 1963 base of 100. These input-output analyses wilH *J allow the manager to stand not so lonely and forlorn when business decisions are M made. He can have some quantitative evaluations of the choices in his dilemma s which can be helpful in deciding whether to bring his firm into the plastics industry. 1 4 Conclusion ' ! And now in conclusion, the five clusters of management dilemmas represeim by the decision area of the raw material producer, the polymer producer, the `M fabricator-convertor, the customer, and those competing with plastics, certainly d not exhaust the problems and the challenges in this "enchanted forest" of plastic'! (more ) by Robert K. Mueller - 17 - The Conference Board y are merely illustrative of the fact that managers need every assistance they can as international competition, technology, economic, political, and cultural tors take further hold. As an example of an entirely separate decision-making area, we can look at *e dilemmas posed by governmental framework, growing daily. These arc particularly rubodirig but nevertheless must be recognized and dealt with in business ctecision- ing. In addition to coping with overseas governmental postures, we must con- der what new constraints will be imposed by the Department of Justice, the deral Trade Commission, the Food and Drug Administration, the Commerce and Labor artments, the Bureau of Standards, and so on I One advantage that the keynote speedier has is the opportunity to raise estions without the obligation of supplying all the answers. And I certainly on't pretend to have all the answers. In this regard we are particularly fortunate `n being backstopped by a panel of experts who will explore the avenues leading to e answers, and hopefully deal with your questions. I would like to close with this thought. Our plastics industry was one of the first of the science-oriented industries. Its present management dilemma derives both from this technical origin and from the industry's astonishing growth ound the world. The first order of business is, of course, to get each individual any in fighting form with tight management in all functions, and particularly its home base environment. Without efficient parent operation, business dval away from home will be short lived. The best management philosophy and stems are essential, and these are available, if the industry will dedicate itself improving management with the same fervor that it has applied technical expertise create and manufacture improved products. This is our management challenge. Thank you for your attention. - 30 - b From: Joseph L. Naar, Director Division of Public Information CMA 040205 1. The very success of plastics, as materials of commerce, has brought with it the problems being discussed with you today, and the size and complexity of the industry associated with the production, sales, transformation, and distribution, forces-a much closer look as to where we are going, and how we are going to achieve a full realiza tion of the potentialities of the situation. In his keynote address, Bob Mueller has given you a broad review of the situation as he sees it with a background of the American chemical industry making the basic raw materials and having interests overseas. It is my purpose to attempt briefly to show some of the International ramifications and to highlight the fundamental decisions facing American industry in the context of world competition. To give a brief background for reference purposes, let us recall and amplify some of the data already known to you. Firstly, the growth of all plastics materials used in the U. S. has been, with minor exceptions, strongly upward since 1945. During the period 1944 - 1955, produc tion grew annually at an average rate of nearly 17%. For the period 1955 - 1965, the increase has been at an annual rate of about 12% and a reasonable assumption would be that for the next 10 years we should see an annual rate of increase of some 10%. Based on a 1966 figure of 6, 122,400 tons, this should give, by 1975, the really large figure of 17,450,000 tons. Figure I illustrates this point. CMA 040207 2. For the world as a whole by comparison, the rate of increase in the past few years (1962 - 1966) has been of the order of 15. 5% per year which means that the United States has actually been increasing its plastics production at a slower rate than the rest of the world. As a percentage of total world production, the United States has dropped from 54% in 1955 to 37.4% in 1965 and it is estimated that this will decrease further to 30% by 1975. Figure 2 illustrates this point. Should we look at the figures as they relate to the actual breakdown of the overall production numbers into the various types of plastics materials going into them, we get a very interesting situation. Figure 3 - World Plastics Production by Types The figures show clearly that all major producers of plastics materials tn the world today have determined that the chief markets of the future lie in the area of the thermoplastics, a fact well established in the United States as early as the I960' s when 70% of the production was in this category. Of even greater consequence has been the emer gence, at least as far-as volume is concerned, of the polyolefins, poly styrene and polyvinyl chloride type materials, as the basic polymers of the industry. For the world overall, even including the Comecon countries, some 90% of all thermoplastics produced are now m what we may call these three basic commodity types. I hasten to use the 3. term "basic" so that we can include copolymers, derivatives and modi fications to cover the detailed grades and types of materials that have been, or will be, developed for specific applications. Advances in technology have put one material, namely ethylene, as the major raw material for the production of these three basic types, and with the increasing pressure for the lowest production costs, access to a cheap and assured large volume source of ethylene is now an essen tial to any plastics materials producer who expects to enter, stay in or compete successfully in the largest part of the industry on a long term basis. Production of plastics materials worldwide has therefore expanded from the classical and traditional chemical companies, Du Pont, Union Carbide and Chemical, Dow, Monsanto, Imperial Chemical Industries, Farbwerke Hoechst, BASF, Montedison, Rhone Poulenc, and so forth, to the petrochemical companies, and finally back to the producers and refiners of crude oil, and even the natural gas (BPG) companies. To the above list of companies, we therefore can add Shell, Standard Oil of New Jersey, Phillips Petroleum, British Petroleum, Gulf, and others. It can be estimated that in the middle 1970's some 35 million tons of plastics materials based on ethylene will be involved in world commerce. The complex problems raised in determining where this production is to be based are not only of direct concern to the present CMA 040209 4. producers, but also to others who are exploring the possibility of enter ing the field and even to National Governments because of the long term potential effect on their economies. One key to a successful solution is the availability of cheap feed stocks for the plants now under construction or planned for the future. For a period, it appeared that only the United States had the detailed technology and domestic crude oil or natural gas supply necessary, but the rest of the world has rapidly advanced under the stimulus of available] knowledge and the drive for an increased standard of living. In addition, certain practices engendered by a long period of world affluence and high standards of living at home are leading to difficult competitive situations for United States management. Later speakers this morning will deal more in depth with the labor problems of the United States, the financing problems, and with the vexing question of tariffs, free trade zones, dutyfree areas, oil quotas and so forth. In the period just after 1950, large refineries were established in strategic areas in Europe, using principally crude oil from the Middle] East. The primary requirement was for heating oil, and the by-product; naphtha was either used as a gasoline additive or as a source of chemics and particularly ethylene and propylene. In the past few years the pro duction of naphtha has been more and more directed towards its use as a feedstock for chemicals and for manufacture of gas for fuel purposes. fCMA 040210 wo years ago it appeared that there might develop a shortage of conomic priced naphtha with the soaring demand for the product but le discovery of natural gas in the North Sea has eased this concern. '.Thus the European producer of plastics materials based on ethylene appears in a very good position to compete on a worldwide basis. Another area of heavy crude oil production has been the Caribbean and certain areas in the north of South America, whose products have, until recently, been exported more heavily to areas outside of, than to, the United States. The establishment of refineries -in Puerto Rico, with the associated chemical plants based on the naphtha produced, has now put a highly competitive manufacturing area in the sphere of the United States with immediate problems for the domestic industry. The skillful moves of Phillips Petroleum, Commonwealth Oil and Hess Chemical in this area are well known to you. Recent ^representations in Washington on the question of oil import quotas show f. .the heat that has been generated by these moves. Crude oil supplies from the Black Sea area have had the effect of helping stabilize world crude oil prices, but the growing need for the material for internal consumption in the Comecon countries has kept large quantities from being offered on the open market. This might not necessarily hold in the future. This concentration of crude oil in the Mid-East and Caribbean areas has led many world oil companies to seek other sources by CMA 040211 exploration to reduce the danger of increase of price by nationalization,' unilateral renegotiation of contracts and so forth. This search has beea highly successful, and at the present time adequate supplies of crude oil are available throughout the world under ever-increasing competitiv conditions. For the basic commodity plastics the key to the future must lie in an ability to compete on a global basis. To do this several factors have to be considered. Firstly there is this question of the size of pla required to economically compete. For ethylene, it is now clear that the minimum size is 350, 000 tons per year and preferably 450,000 ton per year. To provide the raw material stock for such a plant, it mui" be located adjacent to a crude oil refinery of suitable size and this refinery should operate at the highest efficiency, which means it mus have outlets for the economic sale of the products, other than naphth coming from the refinery operations. In the United States such situa tions exist for the Houston Ship Channel complexes and the Baton Ro" Taft Louisiana area. In Europe, naphtha demand and disposal of non-chemical by products favor the refiner or an association between a chemical fir1 and a refiner. Similarly, Japan has established large petrochemical compl and has pioneered in methods for reducing the transport costs of the 7. crude oil from the Mid-East. (The Idemitsu Maru recently made its maiden voyage from Kuwait to Japan with a load of 1, 500, 000 barrels of crude oil) Thus we recently hear of the Phillips - Showa Denko new petrochemical center. As the size of the ethylene plant has increased, so has the mini mum economic size of the polymer plant. For example, it is now con sidered that for any future production a polyethylene plant should not be smaller than 200, 000 tons per year; a polystyrene plant, 100,000 tons per year; and a polyvinyl chloride plant, 100,000 tons per year. These large plants call for vast capital resources and the reserves needed to sustain them when markets do not absorb the full output of new capacity, and the growing concern of American manu facturers over this situation inside the United States has caused many of them to seek associates or partners, both within the U. S. and with out . This trend is particularly noticeable abroad, and has led to some interesting combinations of companies and approaches to the problem. We have referred to, and this audience will be familiar with, the associated companies forming the refinery-chemical complexes in Puerto Rico and particularly those basing around the Commonwealth Oil facility. You might be interested in the situation in Spain, where the basic olefins plant at the Puertolano complex is Government owned, but no fewer than CMA 040213 (Figure 4) 8. three major world companies, each from a different country, Phillips (US), ICI (UK) and Montecatini (Italy), have joint agreements for suppl' of the olefins and have part ownership in the polymer plants themselve In a separate refinery-chemicals - polymer s set up in Tarragona, Esso- (US), Dow (US), Shell (UK-Dutch) and Farbwerke-Hoechst (Germany) a involved, (Figure 5) In Japan, we see a trend away from the anti-trust business approach introduced by General McArthur following World War II, an" a return to the more familiar and old style Japanese practice of grou ings of industries with interlocking interests and arrangements, the so-called Zaibatsu. Such practices condone and even encourage cart permit the division of markets, establish production quotas, fix price and carry out a whole host of practices considered restrictive of com petition in the U. S, The Japanese have long resisted any attempt to establish production facilities in their country by foreign companies, and where permission has been granted for the setting up of a joint company, effective control has always been retained by them. Theirv has been to establish facilities either by a patent or know-how licens or by developing their own technology using technical assistance fro wherever it could be obtained. They already have the necessary knowledge for the manufacture of the three main thermoplastics co modity materials, and are currently regrouping their petrochemical complexes and establishing what group will produce which polymer," CMA 040214 9. obviously aiming for a further aggressive approach to world markets. We have few details of how the U. S. S. R. and the Comecon nations are proposing to handle their plastics materials production questions, but some details are becoming clearer. They, too, ~~ recognize the shift to the three basic commodity type materials, and have agreements for the necessary know-how and the building of plants. Originally it was the hope of the U.S.S. R. that its Council / of Mutual Economic Assistance (Comecon) would become the control agency for integrating the economies and the economic planning of the Eastern European states with the Soviet Union itself and Mongolia, Recently, it has become more evident that the individual requirements for large capital spending, and the reluctance of individual states to i relinquish decision making power to a central authority has caused the Soviet Union to permit planning to proceed on a less elaborate basis. Once the immediate surge of demand is satisfied, however, I believe they will return again to a more planned approach to massive primary production facilities and that we can expect them to enter I world markets in competition with other nations. r CMA 040215 10. An interesting situation has developed in the Near East, where large amounts of natural gas (LPG) exist, but which have led to be "flared" for lack of sufficient economic incentive to collect and ship all of the material available. The development of the oxychlorination route for vinyl chloride monomer using ethylene as the basic raw material hydrocarbon has encouraged one large U. S. domestic pro ducer whose ability to compete profitably in the absence of a petro chemical base here and with the increasing price competition was becoming under question, to form a joint company with the Iranians, and this vinyl chloride monomer will be used to produce polyvinyl chloride. Since Iran cannot possibly be expected to absorb the full capacity of the plant announced, the material will obviously enter the world market. Joint companies are not new, but many large U. S. corporation are beginning to wonder whether the classical approach can be main tained when they do not have a controlling interest, especially as they contemplate restrictions on the control they can exercise, renegotiation of original agreements, sometimes under local govern ment pressure, then'large capital requirements to stay competitive a the difficulties of foreign exchange. An interesting sidelight on this question is seen in the recent sale by the Distillers Company in the U of their plastics and chemicals interests to the British Petroleum Gr including, as it does, a number of smaller companies set up jointly 11. various partners, including some from the United States. This growing feeling that some entirely new thinking is neces sary in approaching world markets has been highlighted this past year by the announcement of several large companies in the chemicals and plastics areas that they intend in the future to act like, and wish to be considered as, international companies rather than as American com panies with international operations. This approach is all the more urgent when we consider that no longer does any one country have a monopoly on raw materials, technology, money resources and skilled personnel, and the successes of today and yesterday are no guarantee of success in the future. So far we have considered the raw material situation only, but similar problems exist for the fabricator and converter. Although he now has the promise of cheaper basic plastics materials coming from these large plants, will he be able to improve his presently small operating margins of profit, or will he find increasing pressures as companies abroad attempt to bring in finished items based on lower cost raw materials and lower labor costs. The establishment of plastics processing plants in South Korea, Hong Kong, Taiwan and Thailand, using principally plastics materials manufactured in Japan is indicative of a trend which must affect our domestic manufacturers. It is well known that substantially all of the CMA 040217 12. plastics artificial flowers and plants sold in the U. S. are manufactured in the Far East. Similarly, with the loss of the majority of transistor radio set manufacture to the Japanese, the production of the plastic cases housing them has been lost also. Many consumer items, presentl large users of plastics materials, could be manufactured abroad and imported into the United States at lower cost than the domestic product, and the pressure will intensify. This, of course, is not unique for plastics, but now extends to fabricated steel, textiles and others. Gar Hufbauer will deal with the question of Tariffs as it relates to this problem shortly. It was the fortunate position of the United States for many year* to be a large exporter of plastics raw materials, while at the same tim very little material was imported. This position has now changed and '. I expect that it will not be long now before we will see an actual rever sal whereby more plastics raw materials are imported than exported. From the chart (Figure 6) it will be seen that the decline of exports had already stated in 1965. This situation will be, of course, particu larly acute when some of the large scale production plants now under construction abroad^are brought on stream and the surplus over immediate domestic needs has to be sold. We know, for example, that the Japanese have substantially increased their exports these past few years, and expect by 1970 to export over 100 thousand tons of polyethylene; and 50 thousand tons of polyvinyl chloride. Already thi 13. _ pressure is being felt by the low prices being offered, for example, by the Japanese for homopolymer polyvinyl chloride. Lest we think that our own large production is a shield against importation, let us remember the experience of the United Kingdom, who found itself suddenly turned from a net exporter of polyvinyl chloride to a net importer when the Norwegians made cheaper material available from a low cost operation. On all sides, American plastics industry is faced with an urgent necessity to plan carefully for the future, not only from the standpoint of the intense internal competition, but also from the growing strength and sophistication of the world producers. Certain end use items are already lost to the American manufacturer. Unfortunately, not all of the problems are technical in nature, since, in the ultimate analysis, questions of the cost of raw materials using world available sources, and the importation into the United States of either finished goods using plastics materials, or the polymers them selves, involve balance of trade and tariff considerations which are political questions also. What is certain is that the next five years will probably be the most exciting and important one for the business - statesmen of the plastics industry. CMA 040219 WORLD PLASTICS PRODUCTION (in metric tons) Country 1962 1963 1964 1965 1966 U. S. A. 3,673,500 4,063,000 4,580,500 5,298,000 6, 122, 400 West Germany 1,244,900 1,422, 200 1,739,900 1,973,900 2,200,000 Ja pan 831,300 1,061,600 1,376,000 .1,600,500 1, 937, 300 United Kingdom 664,400 744,700 858,100 957,100 1, 036,200 U.S. S.R. 495,700 587,300 .721, 100 819,000 940,000 Italy F ranee Benelux East Germany 498,900 454,400 182,600 165,800 621,300 507,000 209,500 181,400 716,600 610,900 299,800 198,600 816, 300 677,100 368,000 209,500 930,000 780,000 405,000 245,000 Others - Western World 597,600 722,400 868,000 1,020, 400 1,286, 000 Others - Comecon 158,700 210,500 294,800 419,500 488,000 so TOTAL 8,967,800 10,330,900 12,264,300 14,159,300 16,369,900 > A. J. Warner May, 1967 DeBell b R ichardson, Inc. Copyright U.S.A. PRODUCTION ASA PERCENTAGE OF TOTAL WORLD PRODUCTION PLASTICS RAW MATERIALS 1955 1958 1961 1962 1963 1964 1965 1966 1970 (est. ) 1975 (est. ) 54. 0 45.5 43.5 41.0 39.4 38. 0 37.4 37.4 35.0 30. 0 A. J. Warner May, 1967 Figure 3 MAJOR WORLD PLASTICS PRODUCTION BY TYPES (in metric tons) t yp^ 1962 U . O. 1964 1966 C t` 1) 11L O 5 l c s Phenol ics Aminoplastics Alkyd s Pol yesters Polyvinyl Chloride Polystyrene Polyolefins Other Thermosets Other Thermoplastics 71,700 262,600 194,100 248,500 96,200 551,000 577,800 980,500 274,000 417,100 73,000 314, 300 258,400 268,700 143,300 74 6, 900 765,100 I,345,500 251,000 414,300 81,600 430,800 294,800 317,500 204,100 1,269,800 1.088,400 1,873,000 68,100 494,300 TOTAL, 3,673,500 4,580,500 6,122,400 % Thermoplastics % Thermosets % Three Major Thermoplastic s 70. 7 29. 3 57. 4 73. 0 27. 0 62.4 78.5 21.5 69. 1 1962 14,300 57,200 92,400 50,500 11,700 119,900 68,800 174,600 21,800 53,200 664,400 64.8 35.2 54. 7 U. K. 1964 1966 15,200 64,600 113,300 52,700 17,800 180,000 82,000 237,000 26,800 68,700 14,200 71,100 124,400 58,900 27,900 205,700 118,400 289,500 4.7, 800 78,300 858,100 1,036,200 67. 9 32. 1 58. 2 68. 1 31.9 59. 2 1962 Ja pan 1964 1966 8.200 55,800 199,100 29,900 20,400 313,400 42,600 142,400 7, 800 11,700 12,600 77, 800 276,400 47,900 33,300 473,800 100,400 328,900 3, 500 21,400 1 3,600 95,500 340, 500 59, 000 44,800 485,400 191,000 628,300 3, 900 75,300 831,300 1, 37>, 000 1,937,300 62. 3 37.7 59. 9 68. 1 31.9 65.6 71.9 28. 1 67. 3 U. S. S. R 1962 37,300 93,000 102,300 46,800 23, 100 83,600 24,800 31,400 28,200 25,200 495,700 40. 8 59. 2 28. 2 A. J. Warner May, 1967 DeBell & Richardson, Inc. Copyright CMA 040222 I CMA 040223 Fipure 4 SPAIN PUERTOLANO COMPLEX Olefins Plant Calvo Sotelo State Owned 70.000 tons Ethylene 44.000 tons Propylene Polypropylene TARRAGONA COMPLEX Low Density PE 22, 000 tons High Density PE 5, 500 tons CMA 040224 Figure 6 U. S. EXPORTS OF PLASTICS Virgin Resin (in metric tons) I960 149,700 1961 142,000 1962 263,800 1963 267,200 1964 344,200 1965 303,700 1966 283,400 A. J. Warner May, 1967 CMA 040225