Challenged by Growth in Asia

With manufacturing facilities in 30 countries, Air Products & Chemicals is already a very international company. But if the company succeeds in meeting its goal for the Asia-Pacific region--to multiply its size in the next decade--it will be one with a much stronger Asian flavor.

"If we do not have a business that is multiples of $1.3 billion and multiples of the 4,500 employees we now have in Asia, we will not have had a successful stint in Asia," says Robert D. Dixon, the Singapore-based president of Air Products Asia. The company, he says, has been growing at 15% annually in Asia, more than double its overall growth rate. "We're viewing Asia not just as an 'outpost' but as the global leader in some of our businesses."

In the rest of the world, Air Products focuses its resources on a few promising sectors. But in Asia, all of the company's businesses are growing rapidly. In many ways, Dixon says, Asia, excluding Japan, has entered a period of fast growth that resembles what the U.S. and Europe went through in the 1950s and '60s. A 21-year veteran of Air Products who came to Singapore two years ago, Dixon had done everything from setting up power plants--a business the company is no longer in--to managing the high-volume North American cylinder gas business.

To take advantage of opportunities in the region, Air Products is rapidly building up its local capabilities. Dixon says the company will soon operate three major R&D centers in Asia that will not be satellites of operations in Europe and the U.S. but rather "centers of excellence" in their own right. Food freezing, a market that Dixon says is "driven by Asia," is a prime candidate for an R&D buildup. At the moment, Air Products runs several technical support centers in Asia as satellites of Western operations.

Leadership is also moving to Asia. In electronics, the company has moved to Taiwan the head of its global electronics specialty chemicals business and the head of its global semiconductor factory supply business. At some point in the future, Dixon says, it is likely that the two Americans who now run these businesses will be replaced by Asians.

These moves emphasize the fact that more than half of Air Products' sales of materials and gases to the electronics industry are in Asia. Dixon expects that the electronics industry will account for a smaller percentage of Air Products' future total sales in Asia as the company starts supplying more and more industrial gases such as oxygen and nitrogen to customers in the petrochemical industry. Several petrochemical complexes are planned or under construction in Asia now, he says, and sales to the petrochemical industry will outpace sales to the fast-growing electronics industry.

The American Chemistry Council ranks Air Products as the safest large American chemical company, and the firm tries to use this record as a competitive advantage. To be the industry leader in safety is an objective that it had been trying to achieve for 30 years, Dixon says. Customers in the electronics industry particularly care about safety, not only to ensure the welfare of their employees, but also because accidents can shut down billion-dollar plants.

Air Products is keen to transfer its safety culture to Asia, where recently recruited employees are often charged with handling some of the company's most hazardous substances. The electronics industry is a particularly high consumer of toxic and volatile materials.

So far, the safety record of Air Products' Asian staff is strong. For the past two years, internal audits have shown that Asia is the safest region of the world for the company's operations. "When you meet someone from Air Products, safety is the first thing that comes out of their mouth," Dixon says. "It's a challenge to get new recruits to think in that way, but it's nonetheless something that we feel we can project worldwide."

ETHICS IS another corporate value that is high on Dixon's list. He has personally headed many training sessions where discussing ethical behavior leads to passionate debate.

In most situations, it is easy to decide what is ethical and what is not, Dixon says. But the Asian context gives rise to new questions, such as whether an Air Products executive should give money to a customer whose son just had a baby. In some countries, the customer would be offended not to receive a gift from his supplier, but in other contexts, to offer the gift might look like a bribe. Dixon says that when torn, the "newspaper test" is a good tool. "Think how you would feel if something you did made the front page of the paper tomorrow. Would you feel good? Would your spouse be happy with you?"

One thing Dixon knows he cannot hope for as he seeks to transplant his company's culture and capabilities into Asia is the support of large numbers of experienced employees from other parts of the world. Air Products executives from the U.S. and other parts of the world are very few in Asia, numbering fewer than five in most countries. "We cannot build a business on expats," Dixon says.

It is costly to move managers and technicians from far away, especially people from the U.S., who normally get a princely package when sent abroad, Dixon says. The flip side of this constraint is that local executives have a more intimate knowledge of the local market and suffer no language or cultural handicap.

Air Products nonetheless moves plenty of its people from country to country on short-term assignments. Technical expertise is often brought in on a case-by-case basis. Conversely, Asian managers travel to the U.S. and Europe to attend training programs lasting as long as two years. "It's not by happenstance that our Asian executives move into senior positions," Dixon says. "It's the result of well-thought-out, very active management."

South Korea is an example of this strategy at work. Air Products' entire management team in South Korea is local. It is in Korea that one finds the company's largest Asian customer, Samsung Electronics. And last year, S.Y. Lee, president of Air Products' gas operations in South Korea, and another senior executive received the firm's Chairman's Award, set up in the 1980s to recognize employees who contribute to Air Products in an exceptional way. The two were the first Asians to receive the award and did so largely for their work in securing the Samsung account.

In South Korea, Air Products is supplying industrial gases and electronic specialty gases to Samsung's giant "seventh generation" liquid-crystal display (LCD) complex in the city of Tangjeong. The site is already the world's largest production center for flat-panel displays, and it is likely to grow larger as Samsung further expands.

Air Products' facilities occupy only a small space at the Tangjeong site and look quite ordinary until one starts to understand the technical challenges involved. With its gigantic proportions, Samsung's LCD complex consumes such large quantities of electronic specialty gases like nitrogen trifluoride and silane that the gases are supplied to the production line by pipeline.

Kyo Yung Kim, a senior director of Air Products in Korea, says that Air Products set up the largest ISO bulk specialty gas system through underground pipeline in South Korea. He notes that Air Products has a long experience in handling toxic and pyrophoric substances such as silane gas. Air Products is also supplying Samsung's other South Korean facilities that manufacture flat-panel displays and semiconductors.

Samsung selected Air Products for the job, but it was also a matter of Air Products' deciding to expend significant resources on expanding its business with Samsung. Dixon notes that many companies are developing rapidly in Asia. But as has happened in Western countries, this high growth no doubt will be followed by a period of industry consolidation when less-well-managed companies will suffer.

"If we only deliver something to someone by truck, and if that relationship ends, we simply stop supplying them," Dixon says. "But if we go out and build a $15 million plant, perhaps not really near anything else ... we effectively make a bet that we picked the right people." He adds that Air Products must carefully select which Asian steel mills it will supply with industrial gases because too many are under construction.

At a time when managers of chemical companies are cutting back on investment and laying off people in Western countries, Dixon is facing the challenge of managing growth. It's "not unreasonable" to think that Air Products will employ 10,000 people in Asia within a few years, he says. "But it needs to be a team that is trained, skilled, safe, and ethical, when most of these people do not have 20 years with Air Products and, in fact, have only two."