Imperial Chemical Industries Plc Business Information, Profile, and History
History of Imperial Chemical Industries Plc
Imperial Chemical Industries was formed by the 1926 merger of Great Britain's four major chemical companies: Nobel Industries Limited, the United Alkali Company, the British Dyestuffs Corporation and Brunner, Mond and Company Limited. The birth of the ICI coincided with the rise of the two other great chemical cartels, namely, Du Pont and the IG Farben. Unlike its foreign competitors, however, the ICI was never dismantled by the government.
Perhaps the most famous of the four companies that merged into the ICI was the dynamite business founded by Alfred Nobel. Before Nobel's invention of dynamite, blasting for engineering purposes had been done with gunpowder. Previous experiments with nitroglycerine, a more powerful substance, had ended disastrously. Nobel's contribution to explosives was twofold. He first mixed nitroglycerine with porous clay so that the nitroglycerine became relatively safe to handle. He then invented a detonating device that controlled the blast. Nobel's dynamite, more powerful and predictable than gunpowder, made ambitious civil engineering projects like the Suez canal possible. Dynamite was also important in clearing land for railroad tracks.
By 1883, 12 years after its founding, Nobel had built his British Dynamite Company into a company with £1 million in annual sales. Due to the dangers associated with making dynamite, Nobel's first large plant was located in a rural area of Scotland. Transportation was a problem for the company because Parliament had passed stringent laws concerning the transport of nitroglycerine. Many shipments of the explosive liquid had to be smuggled to factories--sometimes even in hat-boxes.
Like the Swede Alfred Nobel, the founder of Brunner, Mond and Company was also a foreigner. Ludwig Mond was a university-educated German Jew who emigrated to England, first of all, because the alkali industry was there and, secondly, because anti-semitism was on the rise in Germany. Despite an inauspicious beginning, in 1871 Mond and his partner John Brunner were able to build a strong alkali business on the grounds of a former girl's school. Mond and Brunner's contribution was to produce alkalis using the Solvay, rather than the Leblanc process.
The third alkali manufacturer that would become a part of the ICI was the United Alkali Company. The United Alkali Company began as an association of Lancashire producers who engaged in price-fixing and also set production quotas. Like its rival, the Brunner, Mond Company, the UAC conducted a large business in China and Japan in the mid-nineteenth century.
The fourth segment of the ICI, the British Dyestuffs Company, was formed much later than its three fellow companies. The BDC was formed as a response to the embargo of German dyes during World War I, which had seriously depressed some segments of British industry. In comparison with their American and German peers, British dye-makers were not technologically advanced. This was in part due to the large English textile industry which used its political and economic resources to keep dye prices low and thereby discourage research into more sophisticated production methods.
At the beginning of World War I the dynamite company founded by Nobel was a major supplier of ammunition. As the war progressed, however, there was less open warfare than predicted. Instead, the war developed into an extended seige and, as a result, high explosives rather than bullets were needed. These high explosives were very different in composition from Nobel's gunpowder. The TNT and lyddite that were required for English troops to blast their way through German defenses were coal tar derivatives, and these, of course, came from the dye industry. So the British Dye Company, to its surprise, found itself a manufacturer of armaments. Since TNT could be used more economically when mixed with ammonium nitrate, the Brunner, Mond Company, which by then was a major supplier of ammonia, was also pressed into service, along with the United Alkali Company.
In 1926 Nobel Industries Limited and the Brunner, Mond Company were the two largest companies in the otherwise enervated British chemical industry. Both companies had been shaken by the 1925 merger of many German chemical firms into the IG Farben--the largest cartel the world had ever seen. Since the IG Farben was in direct competition with British companies for exports, it was feared more than the Du Pont cartel which operated primarily in the United States.
Both Nobel and Brunner, Mond Company initially considered joining the IG Farben, but were unable to reach a satisfactory agreement with the Germans. After months of negotiations it was decided that a British cartel would be formed. The architects of this British cartel were Sir Harry McGowen of Nobel Industries and Sir Alfred Mond. British Dyestuffs and the United Alkali Company, weakened by a world-wide depression, were in no position to withstand pressure from their more powerful competitors and also agreed to the merger. The newly formed British cartel was soon in contact with Du Pont, Allied Chemical and the IG Farben. According to Sir Harry McGowen, the formation of the Imperial Chemical Industries was "the first step in a comprehensive scheme . . . to rationalize the chemical manufacture of the world."
The newly formed Imperial Chemical Industries was divided into nine groups: alkalis, cellulose products, dyestuffs, explosives, fertilizers, general chemicals, "leathercloth" (rubberized fabric), lime and metals. Early in the ICI's history, fertilizers were chosen as the company's main growth area, and 10% of its capital was concentrated in a fertilizer plant in Billingham, England. By 1929 the onset of the Depression in the U.S. caused the demand for fertilizer to fall and the native demand was not large enough to support the huge Billingham works. In order to partially protect its investment the ICI signed an agreement with the IG Farben which established production quotas for nitrogen, the main ingredient in fertilizer. In 1935 it was agreed that the IG Farben would sell nitrogen in all of Europe, except for Spain and Portugal, and also South and Central America, while the ICI would control the markets in the United Kingdom, Spain, Portugal, Indonesia and the Canary Islands. It was agreed by both groups that the Asian market would be shared.
Despite the agreement with the IG Farben, nitrogen sales for the ICI decreased and the Billingham works were eventually closed. The ICI's return on equity dropped to 4% in the early 1930's. The company then tried to produce oil from coal, but despite government subsidies the oil produced by the ICI could not compete with regular oil. In the mid-1930's, with two failed plans behind it, the ICI finally began to give more attention to its neglected dyestuffs division.
Unlike American and German dyemakers, British dyemakers had never used their knowledge of chemistry to diversify into plastics, specialty chemicals or pharmaceuticals. The dyestuffs division, with only a small research budget, was able to begin production of agricultural and rubber chemicals around 1929. It was the alkali division and not the dyestuffs division which discovered polyethylene, one of the ICI's few contributions to the industry.
Polyethylene is a versatile plastic produced when ethylene is subjected to extreme pressure. Previous polyethylene experiments had exploded; therefore, in 1933 the ICI forbade its scientists to pressurize ethylene. However, in 1935 ICI researchers Perrin and Manning defied the ban and produced 8 grams of the polymer. Despite infighting over whether polyethylene would be developed by the alkali or plastics division, it was patented and sold as an insulating material.
ICI's work with polyethylene was interrupted by World War II. When Britain's rearmament began in 1935 ICI became a major producer for the British government. This pre-war production raised a problem for ICI in that the new plants built for the war effort would stand idle after hostilities ended and, consequently, could lead to bankruptcy for the company. ICI was reluctant to imitate Du Pont's policy and charge higher prices for their products in order to pay for the new construction. Fortunately an agreement was reached between the ICI and the British government whereby the government paid for the construction of new plants and the ICI managed them for a reasonable fee.
Almost every industry in Britain required ICI chemicals. In addition, munitions, light metals and guns were manufactured in ICI managed plants. During this time the ICI attempted to make an atomic bomb, but did not succeed. A disagreement between the director of the Manhatten project and the ICI resulted in company researchers not being allowed to work with American scientists on atomic research.
The end of the war brought two major changes for ICI. The first was a result of the anti-trust suit brought by the U.S. against the 800 various agreements the ICI had signed with Du Pont to regulate competition. Although the legal decision against the ICI-Du Pont partnership was not rendered until 1952, the exchange of technical information and cooperation on prices and markets ended in 1948. The second important post-war event was the 1952 opening of a huge chemical complex in Wilton, England. The Wilton works included a 4,000 ton nylon polymer unit as well as ammonia and hydrogen plants, and production facilities for phenol and organic chemicals. Despite this new complex, however, most of the ICI's productive capacity was obsolete.
ICI, unlike the largest German and American chemical companies, did not prosper during the 1950's. There were two reasons why this happened. The first reason was that the company had lost its monopoly over the chemical markets of Britain and her colonies. The second reason was its outmoded productive capacity and old-fashioned managerial style. ICI was not in a position to either defend its old territory or take advantage of the opportunities that "decartelization" offered.
Until the mid-1960's, the ICI continued on their same course. It was a small company in relation to its product line and rather than specializing in a few products that it could have efficiently manufactured in large plants, ICI manufactured hundreds of products inefficiently. Forbes magazine, in describing this stage in ICI's history, said that, "Nothing short of a full-scale industrial revolution could have saved ICI."
Increased exports and larger and more efficient plants saved the company from bankruptcy. Beginning in 1965, the ICI initiated an ambitious building plan that included an ethylene cracker in Britain, fiber spinning operations in Germany, and a huge PVC plant in Bayonne, New Jersey. The course pursued by the ICI had some inherent risks, and most important of these was over-capacity. Nonetheless, the expansion permitted ICI to produce chemicals at a more competitive price. After the building plan was underway in 1967, sales in Europe increased an average of 33% a year until the end of the decade.
While ICI expanded externally in the late 1960's, internal changes were also taking place, the most important of which was a change in labor relations. Shop employees began to be paid weekly rather than hourly wages, and most enjoyed substantial raises. In return for the increase in their wages these workers began to assume duties and responsibilities that had previously been the concern of supervisors. By the early 1970's productivity had climbed 11%, although ICI remained behind its competitors in this respect.
The 1970's did not begin well for ICI. Between 1970 and 1972 ICI's profits declined 13% while profits for the largest U.S. chemical manufacturers increased between 18% and 26%. Throughout the decade profits were erratic. For example, the year 1974, when profits climbed to £568.6 million, was followed by a 33% drop in 1975. Despite inexpensive natural gas from the North Sea, plastics and fibers depressed profits in 1975 and subsequent years.
Although Britain had joined the Common Market in 1972, ICI focused its attention not on Europe but on the U.S. In 1971 ICI purchased Atlas Chemical Industries and was almost immediately issued a restraint of trade judgement. As a result, Atlas's explosives division had to be sold. Perhaps it was due to this experience that convinced management at ICI to concentrate more on American investments rather than on any further acquisitions. ICI's U.S. investment in 1977 included a paraquat plant in Bayport, Texas and a new laboratory for ICI Stuart Pharmaceuticals division.
In Britain the company's fertilizer division proved to be a consolation. After the discovery of natural gas in the North Sea during the previous decade, ICI had signed a long-term contract for inexpensive gas. ICI's feedstock for its ammonium nitrate fertilizer was so inexpensive that it would sell fertilizer for £60 a ton when the market price was £80. By 1975 ICI controlled over one half of the British market for ammonium nitrate. Prices fell so low that other fertilizer producers requested the British government to raise ICI's prices. The government, mindful of ICI's price-cutting escapades during the 1920's, threatened to introduce a pool-price system unless ICI increased its prices and refrained from keeping competitors out of the market.
All in all, the chemical company did not perform substantially better in the 1970's than it had in the previous two decades. It was still a large but often inefficient company committed to many products which were not profitable. The future began to look more promising in 1982, however, when Sir John Harvey-Jones took over the reins of ICI.
One of Harvey-Jones' major accomplishments was to end ICI's dependence on bulk chemicals which had accounted for 40% of profits in 1979. After three years of his stewardship, this figure was reduced to 16%. Harvey-Jones also deemphasized polyethylene and concentrated on higher margin products like drugs and specialty chemicals instead. The results were impressive. By 1983 profits had climbed to $939 million, which was more than double the year before.
As part of ICI's revitalization program, Harvey-Jones began to look for additions to the company's product line. One of the more interesting products was polyester produced by genetically engineered bacteria fed on starch and water. This bacteria produced polyester has yet to make its way into clothes manufacturing, but has had success as a surgical stitching.
In 1984 ICI launched a major acquisition campaign that has yet to end. ICI's first step was to buy Beatrice's chemical division for $750 million. This purchase was followed by many smaller purchases and then the 1986 purchase of Glidden Paint. Since the acquisition of Glidden ICI's paint shipments have been increasing at a healthy rate of 7%, twice the industry average.
An ICI executive was quoted in 1986 as saying that ICI has enough cash to acquire two more companies the size of Glidden. Indeed, the company seems poised for such acquisitions since it has asked to extend its borrowing limit from $7.5 to $10 billion. However, the company still confronts many problems. During 1985 profits slipped 12%. ICI blamed the decline on the strength of the pound, but The Economist magazine cited a continuing problem with bulk chemicals and also a decrease in fertilizer sales. Additionally, the plastics market was plagued by overcapacity, as usual. ICI has reduced its dependence on low-margin products like fertilizers and bulk chemicals, but it also must become less dependent on its former staples.
In 1964 Forbes reported that ICI's problems were inveterate in that ICI had been designed to dominate the British Empire, leaving the U.S. to Du Pont and Europe to the IG Farben. However, as the British Empire dissolved the ICI found itself laden with slow moving products and, as a result, unable to compete with the other international companies. This theory has been corroborated by the ICI's post-war performance. Under Harvey-Jones ICI has finally started to re-orient itself towards more profitable goods, but this program will take time.
Harvey-Jones retired in 1987, and the future of ICI may depend on the shrewdness of his successor, Denys Henderson. Most western chemical companies have reached the same conclusion as ICI, namely, that drugs and specialty chemicals are the wave of the future and that bulk chemicals are no longer profitable. As ICI continues to diversify into more value-added products it is going to confront increasingly intense competition. Only time will tell if ICI's upward trend can sustain itself.
Principal Subsidiaries: ICI Petroleum Ltd.; ICI Finance Ltd.; Nobel's Explosives Co., Ltd.; Scottish Agricultural Industries plc (62%). The company also lists subsidiaries in the following countries: Argentina, Australia, Canada, China, France, India, Japan, Malaysia, The Netherlands, New Zealand, Pakistan, South Africa, West Germany, and the United States.
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