Impulses for a Resilient Strategy: Rubber in the Americas: our speakers introduced us to thoughtful ideas reflecting our theme. Impulses for a Resilient Strategy. They focused on strategies designed to add an extra 'bounce' to our steps to help our industry move ahead of the competition.

Welcome readers. This year marked the 6th annual Rubber in the Americas (RITA) conference sponsored by LANXESS Corporation and Rubber World Magazine. This year we also welcomed Rhein Chemie Corporation as a co-sponsor.

Our speakers introduced us to thoughtful ideas reflecting our theme: Impulses for a Resilient Strategy. They focused on strategies designed to add an extra 'bounce' to our steps to help our industry move ahead of the competition.

Today's complex world needs new strategies. We, along with our customers and suppliers, need to be ready to take advantage of the new landscape for business growth in the markets we each create. Every influence that affects our businesses happens at lightning speed; we cannot react-It's too late then. We must be proactive in our decisions and be increasingly adept in our foresight.

Among the facts affecting the current business climate are significant global trends like:

* The rising global powers of China and India

* The rise in nationalism as struggling companies and countries look increasingly for protection

* The volatility of the global money movement. Global trading takes mere nano seconds to complete and easily creates a dangerous momentum

* The average tenure of Chief Marketing Officers in large corporations is 29 months. Think about what that means. Consumer purchasing motives are changing radically, demanding new appropriate sales promises. Customers are saying: "We're not buying the same stuff for the same reasons."

* The extreme competition that is now the status quo. In fact, there's nothing you sell that customers can't buy elsewhere (in Brazil, Russia, India, or China) or do without.

The global business world is filled with:

* Multinational corporations 

* Empires of One

* Sophisticated customers, suppliers and consumers

* Changing lives

* Technological developments

* Rapid knowledge transfer

The future is coming fast. Globalization has now shifted into warp drive. What does all of this mean to us? What are we--one industry with customers and suppliers dependent on it--to do?

I believe we need:

* To hone our listening skills to keep a finger on the pulse and keep our eyes on the horizon

* To track external change continuously and further out

* To look beyond and around the periphery of our market(s)

* To decide our responses earlier

* To engage our stakeholders in the debate

* To choose better routes forward

* To be able to adjust our thinking as we go

* To avoid, or even use, some of the pitfalls along the way

As an industry, we must be supple, responsive and agile. We need flexible strategies to remain on top, to remain resilient. To be resilient, we need insight, knowledge, experience, opportunities.

Let me take this opportunity now to thank our excellent speakers, each of whom shared their insights, their knowledge, and their experiences so we can foresee challenges and work towards solutions before a crisis develops. In other words, we need "impulses for a resilient strategy" and this is exactly what our speakers delivered.

Dr. Boudewijn van Lent

Vice President,

Technical Rubber Products

North America 

LANXESS Corporation

In the keynote address, Dr. Axel Heitmann, Chairman of the LANXESS Board of Management, discussed his company's path towards leading change in the global chemical industry. "At LANXESS, we are determined to find new ways to unlock the potential of under-managed and under performing assets by embracing an entrepreneurial model, well beyond the scope of the chemical industry's vision of itself in the past," he told the audience. "We have come a long way. What was once dismissed as just a smokestack industry is now a company with a bright future."

Heitmann said that he believes LANXESS has won success as the result of consistent implementation of a four-phase corporate strategy. Phase One, he said, involves reducing costs and improving performance. "Among other things, this means implementing a price-before-volume strategy and achieving growth in high-margin businesses." Phase Two is a highly targeted restructuring process aimed at generating a sustained cost base reduction. Phase Three involves portfolio adjustments--either by developing partnerships or business divestitures and the fourth phase is strategic growth through acquisitions.

"But tall buildings require particularly strong foundations," he advised. Heitmann said foundation-building has been at the forefront from the inception. "We have three cornerstones--management expertise, business design expertise and market expertise."

Dr. Heitmann pointed out that management expertise was the force behind creating 15 operationally independent business structures over two years--5 of them dealing specifically with rubber. In addition, there is the LANXESS subsidiary, Rhein Chemie Corporation, serving the rubber industry with pre-dispersed rubber chemicals, processing promoters, release agents, and specialty polymers. "We are particularly proud that this transformation was achieved without harming our operating performance," Heitmann told the audience. "In fact, business as a whole has improved considerably."

"Nowhere is the second cornerstone--business design expertise--more evident than at our new German fine chemicals subsidiary, Saltigo," said Heitmann. "Instead of closing down these operations, LANXESS put the best employees in what was one of our weakest businesses where they have created a separate legal enterprise that will prove that chemicals can be profitably managed."

He cautioned that market expertise, the third LANXESS cornerstone, needs to balance opportunities and risks. "Asia presents particular market opportunities, but there are significant risks too" he said. "Because we understand this market, LANXESS has consistently invested only where local conditions favor our projects."

"Industrial innovation is results-oriented and demand driven," Dr. Heitmann concluded. "Quickly, efficient and reliable response is the key and that is where we need to work together."

Dr. Axel Heitmann

Chairman of the LANXESS

Board of Management

LANXESS Corporation

Bill Best, Applications Development Manager for LANXESS Technical Rubber Products, wrapped up the conference with a spirited analysis of current North American automotive trends. "I am predicting that Toyota will take over the number one spot this year," he began, adding that Toyota expects to produce 9.6 million vehicles in 2006. "Toyota seems to be doing everything right. GM and Ford's combined profits for 2004 and 2003 are less than Toyota's profits for 2004 alone. Both Ford and GM are operating at below the recessionary levels of 2000. The costs for healthcare and pension in 2004 were over 2 thousand dollars per vehicle for GM and over 15 hundred dollars at Ford, double and triple their 2001 levels. Toyota's costs rose 20 dollars to $183 U.S."

Best cautioned: "To be a Tier I Supplier to the Asian transplants requires an engineering and sales base in Asia. However, most of the Tiers prefer to work with the imports because they put twice as much value on product development and innovation."

Today, China has 8 major car companies. By the end of the decade it is expected that excess capacity will be about 60% and half the companies will disappear. "Even now China is a net exporter of vehicles with new competitors such as Geely and Chery shipping to Asia, Africa and the Middle East," Best told the audience. He went on to state that by 2010 China will have local content laws in force. "So if you're not there now, don't go!"

Best claimed that Ford and GM will continue to decline, that supplier costs will not be passed on to the OEMs, and that fabricators and custom mixers would be the hardest hit parts of the OEM supply chain.

For driveline and power steering sealing, there is a conversion trend towards LANXESS Therban[R] LT because previous materials experienced low temperature failure with lower viscosity fluids. EPDM is the elastomer of choice for all primary braking seals and hoses. "If brake-by-wire is successful--and it is about 5 years away--there will be fewer seals and hoses which is not good news for the rubber industry," Best predicted.

In fuel economy, high oil prices will put more emphasis on alternative fuels. This means a greater market share for both hybrid vehicles and diesel. "And the first diesel hybrid vehicle will be marketed by Toyota," Best added.

The forecast for fuel cell vehicles is only about 2-3% of global vehicle production 2020 because car companies have hit a cost wall on developing an efficient manufacturing method for producing fuel cells. Best concluded by saying that engineers in Detroit today are putting the most effort into alternative power train developments, automotive safety and advanced electronics. "What is significant," he said, "is that three years ago, there was no alternative power train program to speak of in Detroit."

Bill Best

Applications Development

Manager for LANXESS

Technical Rubber Products

LANXESS Corporation

Speaking from 17 years experience in the chemicals and energy industries, and nearly 30 as an analyst of energy policy issues, William Ichord, Managing Director of Global Affairs and International Counsel for the American Chemistry Council, brought a sharp perspective to discussion of the intersection of energy and chemicals. He took the audience back to the energy crunch of the 1970s when chemical manufacturers struggled for survival as the price of oil rose from 3 dollars to 37 dollars over six years ending in 1979. "That is the equivalent of about 90 dollars today," he said. "And thirty years later we still have energy on our minds."

Ichord pointed out the effect of that crisis was to make the chemical industry very efficient. Fuel and power consumption increased by only .05% between 1974 and 2005 while industry productivity went up 85.7%. However he warned that the efficiency rate alone will not sustain the industry in a global economy. "We are at a cost disadvantage. We have lost 60 billion dollars in the chemical industry to overseas operations and about 100 thousand jobs," Ichord told the audience. "The chemical industry used to account for a 20 billion trade surplus; it now is a 9 billion dollar trade deficit."

The present situation has been aggravated by at least two policy decisions made in the 1980s and 1990s, he pointed out. Restrictions put on the use of coal in the 1980s forced U.S. utilities to build natural gas fired plants. This, in turn, increased demand and put utilities in direct competition with the chemical industry for natural gas. The demand problem created by the first policy was compounded by policies restricting access to energy in the U.S. Congress passed bills making exploration and drilling for oil and gas on the west coast, east coast and eastern Gulf of Mexico out of bounds.

"Despite dire warnings from a variety of voices, Congress has failed to act until recently," said Ichord. "Today", he continued, "the American Chemistry Council is asking Congress to do three things. We are asking it to fully fund the conservation and energy efficiency measures that were passed in last year's legislation. Second, we are requesting that it take another look at some of the disincentives for coal and nuclear electricity generation so that future expansion by the utilities is not done with natural gas. Finally, we are asking Congress to open up the restricted areas to natural gas and oil production to make these reserves available." * Ichord drew attention to data that clearly demonstrate U.S. manufacturing pays the highest prices in the world for its natural gas supplies. He also showed that even the most optimistic forecasts for alternative energy urgently require new supplies, either from new domestic production or LNG imports, to meet future demand.

"The difference between now and the 1970s is that we are now operating in a global economy," Ichord said. "Today's energy policy is also the nation's defacto manufacturing policy?

* In December, 2006, Congress passed a bill which will allow oil and natural gas exploration in the deepest waters off Florida's Gulf Coast. The bill, when signed by the President, will allow exploration in large areas of the Gulf of Mexico, stretching from Florida's panhandle westward in the deep waters of the outer continental shelf. While opening up 8 million acres to exploration, 97% of the US offshore continental shelf remains off-limits.

William Ichord

Managing Director of

Global Affairs and

International Counsel

American Chemistry Council

In her examination of the operating environments faced by North American entrants to Asian markets, Dr. Sharon Guo, the Manager of the Technical Center/Business Development, LANXESS (Shanghai) Company Limited, told the audience that Asia is characterized by two dimensions--vastness and variety. The region is both a vast land mass and the world's most populous region. She cautioned that it is wrong to overlook the tremendous diversity of cultures, philosophies, political systems, economic and technological levels and business strategies found in Asian markets.

"To operate successfully in China you need good Guanxi," said Guo, referring to the network of relationships that are at the heart of Chinese business culture. "These relationships are reciprocal. They bring you benefits, but also obligations to provide benefits to others? Guo stressed the importance of being guided by these relationships, particularly in making business contacts. "Visiting the wrong person or wrong department will often be considered as not giving the key person face and creating significant obstacles for future dealings."

India is a potential new rubber power house, said Guo. Unlike other parts of Asia, India has a strong force of very well trained, English speaking technical personnel, however poor infrastructure continues to weigh down economic development. Despite this, OEMs are beginning to expand and invest. Both Suzuki and Hyundai have indicated their Indian manufacturing facilities will be a global source for small cars and sales for the Indian automotive supply industry are expected to reach double-digit growth over the next couple of years.

"Japan is still a powerful force in synthetic rubber," Guo reminded her listeners. Ranked no. 2 in production and the 3rd largest global consumer, Japan's auto industry is still very strong abroad, despite a negative domestic growth rate. "In order to get a buyer's attention and establish a relationship in Japan, a sales person needs to work long and hard but the payoff is almost unbreakable customer loyalty," she said. The slow pre-purchase evaluation process that characterizes the Japanese customer relationship is a fact of the business culture and one which foreign companies often find slow and frustrating.

"Though the legal systems and business cultures are often complicated, change is occurring at a dynamic pace, giving paramount importance to having a good understanding of the business climate and customer base," concluded Guo.

Dr. Sharon Guo

Manager of the Technical

Center/Business Development

LANXESS (Shanghai)

Company Limited

John Quinn, President and CEO, Excel Polymers LLC, gave a spirited address titled The Big Squeeze--Strategies for Winning. Quinn presented a model showing compounders and converters squeezed by petrochemical giants and polymer producers on one side and OEMs and consumers on the other.

Quinn adapted a model created by Michael Porter * to analyze the industry market in the rubber compounding. Porter's model focuses on five market forces: buyers, suppliers, potential industry entrants, product/market substitutes and rivalries among industry competitors.

Beginning with suppliers, Quinn showed that the global supply base is expanding with the emergence of Asian, Indian and European suppliers. "As suppliers look at their returns and exit products that are not profitable, those downstream in the supply chain are forced to seek out other solutions for their customers," said Quinn.

He said that thermoplastic elastomers (TPE) and thermoplastic vulcanizate (TPV) technologies, new developments in the thermosetting, and rubber and coextrusion applications, all appear to the thermosetting rubber market as substitute technologies.

With a huge diversity of buyers in the supply chain, global sourcing will continue to accelerate, according to Quinn. More purchasing networks will evolve with a continued drive towards commoditization. Potential entrants to the market include current compounders who have been regionalized globally and are left with excess capacity, and Asian capability entering under the Asian OEMs.

Quinn predicted more consolidation among the 45 or so of Excel competitors in the US, Canada and Mexico. "I honestly think the Asian model may take hold and there will be more alignments with the entire supply chain in the future," he said.

Quinn told the audience that Excel Polymers is a heritage custom mix business but "today our business and revenues are 30% proprietary technology. We want to maintain and grow in this direction because it lets us help our customers speed their development process. It is also a differentiator."

Turning to the Excel Polymers strategy, Quinn outlined four key strategic levers for the company: technology leadership, LEAN practices, global agility and training associates and customers on ways to measure and capture the value Excel delivers. "Our vision for Excel Polymers is To Be the First Choice in Elastomer Systems Worldwide:' he concluded.

* Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors, Free Press, 1998

John Quinn

President and CEO

Excel Polymers LLC

Markets, Trends and Innovations in Olefinic Thermoplastic Elastomers

Sunit Shah, Director of Technology for Solvay Engineered Polymers. focused his discussion on markets, trends and innovations in Thermoplastic Vulcanizates (TPVs). Keys to TPV performance are discrete elastomer morphology, good interracial control between continuous and dispersed phases, and uniform and complete crosslinking in the rubber phase.

TPV demand in N. America is expected to grow at an annual rate of 5% through 2010, Shah told listeners, with about 55% of consumption in the automotive sector. In Europe, demand is expected to grow at an average annual rate of 6% with the automotive sector increasing from 49% to 54% of the total. "Consumption in the automotive industry is forecast to grow at about two and a half times the growth rate of vehicle production," said Shah. "This means a lot of substitution for other materials such as thermoset rubber, metal and other plastics."

He told the audience there are several factors accounting for this growth. "TPVs are recyclable, colorable and easy to process." He continued, pointing out that in weatherseal applications, they offer significant design flexibility (including colored TPV seals and top coats), lower specific gravity for weight reduction, and the potential for providing an all-olefinic automotive weatherseal system.

Shah discussed several product innovations in Solvay's NexPrene[R] line of competitive TPV products. One of the most significant innovations in the Solvay portfolio is NexPrene[R]: 9500 SHF (Super High Flow) TPV. This product has a melt viscosity that is up to 60% lower than conventional TPV which translates into higher melt flow rates, shorter fill times, longer possible flow lengths and much lower cycle times. It also offers superior surface aesthetics compared with conventional TPVs. It is particularly well suited for applications that include glass encapsulation, where lower melt temperatures and injection pressures avoid glass breakage.

Solvay also produces two grades of NexPrene[R] 9600 melt bondable TPV materials designed to bond to a variety of engineering plastics such as nylons, polyesters, polycarbonates, and elastomeric substrates. He told the audience that NexPrene[R] 9000 foamable TPV technology uses a conventional foaming agent and processing equipment to produce 100 % closed cell foam parts with characteristics that are critical for automotive primary seals and at a lower cost compared to cross-linked EPDM foam.

Sunit Shah

Director of Technology

Solvay Engineered Polymers

Positioning Personnel in a Global Environment

"Although LANXESS attempts to take an innovative path to solutions, I have no problem admitting that we are still searching for solutions to many of the issues around positioning personnel in a global environment as we move forward," began Zhengrong Liu, Global Head of Human Resources for LANXESS AG.

"How do you determine management hierarchy when jobs are increasingly project oriented and, particularly in middle management, changing so fast? How do you measure personal performance or distribute incentives in a global organization where local profitability does not count as much as in the past? These are the kinds of complex challenges that human resources professionals face as companies globalize."

Liu explained that LANXESS inherited a nine level management hierarchy when it was spun off from Bayer. "Now we have four," he said. "The key question was whether the complex structures of the past were appropriate for a new business model." He continued to say that LANXESS management determined that the old hierarchy had become dysfunctional and urgently required changing as job descriptions and projects were defined by rank.

LANXESS addressed the performance management question by delinking the goal-setting and review process from the monetary discussion of incentives. "As management, what we really want from the goal setting and review process is honest dialogue about what went wrong, what went well and to understand the real potentials that we might be able to tap," said Liu. "If you have the dollar signs in front of you during such a dialogue, you can only have negotiations. You have a defensive employee sand-bagging in front of you and a supervisor adding 20% to the target. What we really see is who has the better negotiating skills."

Dividing the bonus into two parts solved the incentive issue. "The larger part we call profit participation. It is global," Liu explained. "The only target is the global profitability of the entire company." Everyone participates in this package and there is no complicated mathematical formula needed to calculate it.

We reserve a smaller part for business management to distribute, Liu said. "If we entrust line managers with the businesses, we see no reason that Human Resources should be telling them how to distribute this bonus. We only ask that they use it to show employees that the company appreciates their effort and in a timely manner."

Liu concluded that global Human Resources policies and systems are always a compromise between local interests and local diversity and the need to steer your business globally. "But once you position your policy and systems this way, you will find that employees become more willing to accept them and to live with the shortcomings."

Zhengrong Liu

Head of Human Resources

LANXESS AG

"Breakthroughs are a quantum leap into a different state of functioning. Much like when you first learned to ride a bicycle--when you acquired the skill of balance, you made a quantum leap to a new state of functioning." Grounded by his experiences with the World Bank, USAID, and years of management consulting, Dr. Param Srikantia, from Baldwin Wallace College in Berea, Ohio, challenged the audience to redefine their thinking about the architecture of breakthroughs in an era of globalization.

Srikantia wove five key propositions about breakthrough thinking and actions through a fabric of anecdotes and examples about fully experiencing the opportunities of working in a global context. "Large markets and cheap labor are the booby prizes of globalization," he said, continuing that the real prize is in situations that enable breakthroughs by creating a new realm of free play for innovation. "The merging of cultures can free managers from the dominant assumptions of culture--their own or a foreign culture."

He also proposed that conventional problem-solving approaches might be over-rated. Instead, suggested Srikantia, try applying appreciative valuing--looking for those peak moments of performance when your organization was performing at its highest level. He went on to say that as human beings we are often constrained by our mental models of what is possible. In this age of globalization, we risk losing the tremendous opportunities to energize the synergies, experiences and best practices by imposing these conditional interpretations that constrain action. He drew inspiration from the well known Einstein quote "The world we have made as a result of the level of thinking we have done thus far creates problems we cannot solve at the same level of thinking at which we created theme."

The third proposition is that the most widely held U.S. metaphor of the "organization-as-machine" may be obsolete in an era of globalization as it implies a closed system. Breakthroughs occur from extraordinary things that ordinary people do and will come from metaphors that honor the need for a resilient strategy in resilient organizations. Thinking of the organization as a machine can only produce a better oiled machine; in the dynamic volatility of international commerce, we need metaphors that are not rigid and free up our imagination (such as the organization-as-orchestra).

Dr. Srikantia told listeners that the abundance of a society goes beyond the economist's ideas of wealth and poverty. He gave several examples of successes that were won by actually defying the principles taught in business schools. The fifth proposition was introduced with a discussion of the distinction between states of "Doing" and "Being". "If you ask an American about their TQM process they will tell you the 15 things that they are doing, but when you ask a Japanese TQM manager the answer will probably be about who they are "Being", he said. "Being is an aspect of your inner passion and commitment. You will still do many of the same things, but it will begin not from duty or tasks but from passion." He concluded by proposing that breakthroughs in an era of globalization in a world of scarce resources are the result of acts grounded in the passion of "Being".

Dr. Param Srikantia

Baldwin Wallace College