NEW YORK -- DowDuPont, born last September from the merger of U.S. titans Dow Chemical and DuPont, sees Asian markets as crucial for building fine chemicals, the new entity's executive chairman told The Nikkei.
The merged company targets the first half of 2019 for a planned split into three businesses specializing in the fields of agriculture, materials science and specialty products, in pursuit of market leadership, said Andrew Liveris, who served as CEO of Dow Chemical. Edited excerpts from the interview follow.
Q: How do you intend to approach Asian markets?
A: Our strategy has been very simple: Build the big commodities in places that have low-cost feedstocks, like Saudi Arabia or the U.S., but inside markets in Asia, build the fine chemicals, the value-added chemicals.
We have had very low market share in Asia because we've not had the capacity to supply the markets there for a long time. In the last seven years, we've added the Sadara [Chemical, a joint venture with Saudi Aramco] facility, but also U.S. facilities. That gives our Asia operations the chance to grow faster using materials from Saudi Arabia. We are moving product very quickly into Asia. Half of the output of the facility in Saudi Arabia will come to Asia.
Q: What impact do you see from China's environmental regulations?
A: I was just in China with President Donald Trump's visit, and I listened very carefully to ... the Chinese side on their prioritization. I think sustainable urbanization and sustainable agriculture are two imperatives of the current Chinese leadership, which means the word "sustainable" is very key to them. Blue skies, clear waters and green forests are what President Xi Jinping talks about. I don't think they're going to go backwards on that. I think you'll see more closures, more modernization.
You'll see the Asian chemical market increasingly decommoditize, from high volume to high value. There are supply-side issues in China, which are structural, but also in the rest of Asia -- Taiwan, South Korea and Japan have this issue of making commodity products off of imported oil, and it is not affordable. You'll see structural changes occur, and the best examples of the early stages of that are in places like Singapore, which are going to high-tech, high-value chemicals.
Q: Why is DowDuPont splitting into three companies, and when will the process be complete?
A: To the second question, the timing is based on the separation of two balance sheets to create three, across the world, with the complexity of legal entities and information technology systems and the extraction of synergies. Let's say the first half of 2019, roughly. We will know a lot more by the time we get to Q3-Q4 of '18, because much of the separation of the balance sheets into their different credit structures will be clear.
As for "Why?" -- because, in today's global economy ... to grow and grow faster than the market, you have to have focus and deep capability in different markets, and to be No. 1 or No. 2, you have to have that focus on scale.
Today, the public markets in the United States, and elsewhere actually, are demanding more short-term returns, because of uncertainty. The world is getting more uncertain. Wherever you put your money to invest, you need to feel comfortable you can have a return over a period of time. That period of time is becoming shorter and shorter, so instead of five or 10 years, it's now three years, or even one year. To get short-term returns, you have to have speed, agility and focus -- not massive diversification.
Driven by uncertainty and cheap monetary policy, the pressure on owners to have returns, or on pension funds, is increasing. Enterprises that, like ours, are owned by the pension funds have to respond to it.
[To run such an enterprise] today, you have to be an excellent portfolio manager. After this merger is finished, we at Dow will have changed 70 percent of our portfolio in seven years.
Q: Some have described this administration's trade policy as protectionism. Does that accurately describe what President Trump is trying to do?
A: A few years ago, I wrote a book called "Make It in America." In that book ... I said there is no such thing as "free trade." There's such a thing as "fair trade." And what this president is saying is that one of the reasons the U.S. has been an open economy for four or five decades is that, in essence, it used its consumption ... and opened up its borders so that goods could come from anywhere in the world.
The unintended consequence was that the U.S. investment base went down, U.S. factories went down and manufacturing as a percent of the economy went down to 11 percent, from 25 percent. The job losses in the United States in manufacturing over the years 2000 to 2010 were over 5 million. If I want free access or fair access to your market, that is not protectionism; that is fairness.
Q: Do you think the U.S. does not need to join the Trans-Pacific Partnership trade pact, that it should pursue bilateral trade relations?
A: I think a multilateral agreement can go to the lowest common denominator easily ... In the TPP, there were several exceptions -- like pharmaceuticals, or biopharmaceuticals in particular -- that were difficult, and each country had its exception list. I never saw the full details of TPP; they were not made available to businesses. But I got the strong impression that the negotiators went to the exceptions, the lowest common denominator, and each industry had an issue with different parts of it. It was complicated. In the sense of simplicity, I would think bilateral [dealings] would make better sense.
With the U.S. and Japan, it's very clear what trade is. It's very clear that Japanese companies like to invest in the U.S. Many have done that. So then, what are the two or three things that have to be solved between the U.S. and Japan? That's a much simpler conversation than introducing China, Vietnam, the Philippines, Malaysia, Indonesia, Australia or New Zealand.
Especially if you look at [economies with which the U.S. runs a trade deficit]: Don't worry about the ones that are even; go to the ones that have an issue with deficit. I think that's the approach [the U.S. government is] using.