[Annotated] Dow Chemical shows how American industrials and globalization mix

It has also managed to maintain the share of cash going to labor

What does it take for an American industrial champion to succeed in an age of^[각주:1] globalization and impatient investors? Some observers^[각주:2] argue that it has become impossible. The world is just too nasty^[각주:3] and unfair, they bleat^[각주:4]. Perhaps they should take a look at Dow Chemical, a firm born in Michigan in 1897 that has hustled hard^[각주:5] enough to be at the top of its industry 120 years later.

When Dow completes its planned^[각주:6] $130bn merger with DuPont, a longtime^[각주:7] rival, probably at the end of this year, it will become the largest chemical company in the world by sales^[각주:8]. This new colossus^[각주:9] will keep changing - in 2018-19 the plan is for it to split into^[각주:10] three specialized^[각주:11] firms. "New Dow" will focus on selling chemicals^[각주:12] to the automotive^[각주:13], construction and packaging industries^[각주:14]. The other two smaller companies will concentrate mainly on the agricultural^[각주:15] and electronics industries^[각주:16]. 

This is a good moment, before the three-way^[각주:17] split^[각주:18], to take stock. Being in the chemicals business is like swimming in a vat of^[각주:19] sulphuric acid^[각주:20]. Of the industry's 20 largest firms in 1996 only four remain in the ranking today. Some were dissolved^[각주:21], such as ICI, a British company. There has been one spectacular bankruptcy in recent memory^[각주:22], with LyondellBasell defaulting on^[각주:23] $24bn of debt in 2009. It is unlikely to be the last. 

The industry is brutal^[각주:24]. Its customers have consolidated^[각주:25] and boosted their bargaining power^[각주:26] in the past 20 years. Consumer-goods^[각주:27] and car firms, for example, have completed mergers worth $16trn. The prices of its raw materials^[각주:28], oil and gas, gyrate^[각주:29]. It is capital-intensive^[각주:30]: a "cracker^[각주:31]", or petrochemical plant^[각주:32], costs $2bn or more and takes years to build. And private firms^[각주:33] must compete with^[각주:34] state-owned^[각주:35] ones from China and the Middle East, which have access to^[각주:36] subsidized credit^[각주:37] and raw materials. 

That was the landscape^[각주:38] when Dow's boss, Andrew Liveris, took over^[각주:39] in 2004. Since then the firm has made big mistakes. After the financial crisis^[각주:40], in 2009, it had to cut its dividend^[각주:41] (for the first time in 97 years) after mismanaging^[각주:42] its finances. But three initiatives^[각주:43] have kept its underlying^[각주:44] business competitive. 

First, Dow has ruthlessly^[각주:45] shuffled^[각주:46] its portfolio^[각주:47], ditching^[각주:48] less profitable businesses, including its century-old^[각주:49] chlorine^[각주:50] operation, and buying specialized ones that have barriers to entry^[각주:51]. When it is formed, New Dow will have $50bn of sales, and will have bought and sold businesses with $40bn of sales since 2004.

Second, Dow has made an effort to think hard about customers as well as chemistry. It reorganized around^[각주:52] categories of client, and boosted research^[각주:53] and development (R&D) in order to conjure up^[각주:54] new ways to help them. For the automotive industry^[각주:55], for example, Dow used to supply rubber and polystyrene^[각주:56]. Now it sells carmakers^[각주:57] expensive sound-absorbing^[각주:58] foam^[각주:59]. Each year 5,000 products are launched, double the number of a decade ago.

The third step was to invest heavily in plant to lower costs. Dow has sunk $8bn into^[각주:60] complexes^[각주:61] in the Mexican Gulf coast that have access to cheap shale gas^[각주:62]. And it has invested about $4bn in a joint venture in^[각주:63] Saudi Arabia with Aramco, the state oil firm, that can take advantage of Aramco's access to low-cost^[각주:64] oil.

Some of Dow's shareholders have been just as intractable^[각주:65] as its industry. In 2014 Third Point, an activist fund, attacked it, calling for it to break itself up^[각주:66]. Dow gave it two board seats out of a total of 13. Since then, with Third Point holding a gun to its head^[각주:67], Dow has produced steady earnings^[각주:68] and sped up its reinvention^[각주:69]. Mr Liveris says he learned to have a "dual horizon", with one eye on the one-to-two-year perspective of the stockmarket^[각주:70] and the other on the longer time periods - a decade or more - that it takes for a cracker^[각주:71] or R&D project to wash its face^[각주:72].

Stay paranoid^[각주:73] 

Investors can see the results of Dow's struggle. Gross margins^[각주:74] have risen. Return on capital^[각주:75] is low, partly because it overspent^[각주:76] on acquisitions^[각주:77]. But as the Mexican Gulf and Saudi projects come on stream^[각주:78] over the next two years, profits are expected to increase, notes Hassan Ahmed of Alembic Global, a research firm. After the merger with DuPont, Dow's return should rise above 15%, putting it in the industry's first quartile^[각주:79]. Its shares have kept pace with^[각주:80] the S&P 500 index in the past decade and are valued on^[각주:81] a higher multiple of free cashflow^[각주:82] than Alphabet, Google's parent.

Dow also shows that success can be good for employees as well as shareholders. Largely^[각주:83] due to^[각주:84] the purchase and sale of different businesses, staff turnover^[각주:85] has been high: a third joined in the past five years. But the number of employees has risen by over a fifth since 1996, to 56,000, about half of them in America. 

Another measure to look at is the "labor share^[각주:86]", or the proportion of the firm's gross cashflow^[각주:87] that is spent on wages, as opposed to reinvestment or giving shareholders dividends^[각주:88] and buy-backs^[각주:89]. Across American business the share of cashflow that goes to labor has declined markedly^[각주:90]. At Dow it has remained flat^[각주:91], at about 50% since 1996. In absolute terms^[각주:92] its salary bill has soared^[각주:93].

If there is a grumble about^[각주:94] the example that Dow sets, it is that consumers may lose from consolidation^[각주:95]. Firms may be able to jack up prices^[각주:96]. Still, this risk is biggest in agricultural chemicals^[각주:97], rather than the industrial ones that New Dow will specialize in^[각주:98]. Antitrust^[각주:99] regulators^[각주:100] will probably allow the Dow-DuPont deal.

Chemical firms can never rest easy^[각주:101]. Car sales are flagging in^[각주:102] America, which could hurt demand. China's two giants, ChemChina and Sinochem, may soon merge and could eventually threaten their more sophisticated Western rivals. The cycle is not dead: a spike in^[각주:103] gas prices, relative to oil prices, could hurt Dow's margins. But the chemical industry's capital base^[각주:104] has grown by only 1% a year for the past half-decade^[각주:105]: firms are being disciplined^[각주:106] about adding new capacity. And Western ones have learned to keep adapting^[각주:107]. The lesson from Dow is that American industrial companies^[각주:108] can prosper in^[각주:109] a system of open boarders and capital flows^[각주:110]. It isn't easy but it is possible. Mr Liveris leads President Trump's advisory council on^[각주:111] manufacturing^[각주:112]. He should pass on the message.

1. in an age of ; …의 시대에. [본문으로]
2. observer ; 3. 관찰자; 관측자 [본문으로]
3. nasty ; 2. (성격・행동 등이) 못된[고약한/심술궂은] [본문으로]
4. bleat ; 2. ~ (on) (about sth) (약하게) 푸념하다 [본문으로]
5. hustle hard ; [verb] making everyday a payday always on the hustle no one gets a break because time is money!!!! [본문으로]
6. planned ; [형용사] 계획된; 정연한(orderly); 예정대로의; 조직적인(organized), 계통적인 [본문으로]
7. longtime ; [형용사] 여러 해의, 오랫동안의. [본문으로]
8. sale ; 2. [pl.] sales 매출(량) [본문으로]
9. colossus ; 1. [sing.] (격식) 대단히 중요한 사람[것]; 거인, 거대한 것 [본문으로]
10. split into ; ~로 분열하다 [본문으로]
11. specialized ; [형용사] 전문적인, 전문화된 [본문으로]
12. chemicals ; [명사] (작물학) 화학 약품(化學藥品) [본문으로]
13. automotive ; [형용사] (격식) 자동차의 ;; US [|ɔ:tə|moʊtɪv] UK [|ɔ:tə|məʊtɪv] [본문으로]
14. packaging industries ; 포장 디자인 업계 [본문으로]
15. agricultural ; [형용사] 농업의, 농사[농예]의, 농학(상)의 [본문으로]
16. electronics industry ; 전자 기술 산업 [본문으로]
17. three-way ; [형용사] (명사 앞에만 씀) 3방향의; 3자간의 [본문으로]
18. split ; 1. DISAGREEMENT | [C] ~ (between A and B) | ~ (with sb/sth) (사람들 사이의) 분열, 불화 [본문으로]
19. vat ; [명사] 통(특히 산업 현장에서, 액체를 담는 데 쓰는 대형 통) [본문으로]
20. sulphuric acid ; [명사] H₂SO₄ (화학) 황산 [본문으로]
21. dissolve ; 2. [타동사][VN] ~ sth (in sth) (고체를) 녹이다, 용해시키다 [본문으로]
22. in recent memory ; 근래에, 최근에 [본문으로]
23. default on ; …의 이행을 게을리하다. (채무) [본문으로]
24. brutal ; 2. 인정사정없는, 잔인할 정도의 [본문으로]
25. consolidate ; 1. (세력 있는 위치・성공의 가능성 등을) 굳히다[강화하다] [본문으로]
26. bargaining power ; [명사] 협상력 [본문으로]
27. consumer goods ; [명사] 소비재(식품・의류 등의 물품), [복수형 명사] (경제학) 소비재, 소비자 물자(= consumers' goods)(↔producer goods). ;; 참고 capital goods [본문으로]
28. raw material ; [명사] 원자재, 원료, 소재 [본문으로]
29. gyrate ; [동사] 빙빙 돌다, 선회하다; (특히 신체 일부를) 빙빙 돌리다 [본문으로]
30. capital-intensive ; [형용사] 사업・산업이 자본 집약형의 ;; 참고 labour-intensive [본문으로]
31. cracker ; 3. (英 비격식) 기막히게 좋은[재미있는/멋진 등의] 것 [본문으로]
32. petrochemical plant ; 석유화학공장 [본문으로]
33. private firm ; [명사] 사기업 [본문으로]
34. compete with ; ~와 겨루다 [본문으로]
35. state-owned ; [형용사] 국유의, 국영의, 국가 소유의 [본문으로]
36. have access to ; …에게 접근[출입]할 수 있다, …을 면회할 수 있다 [본문으로]
37. subsidized credit ; Credit provided on terms below normal market rates. Subsidized credit may be granted to encourage particular forms of activity, including, for example, exports, provision of affordable rented housing by housing associations, or the growth of entrepreneurship among minority groups. It may also be granted as a corrupt favour to people or firms with political influence. Credit may be subsidized by governments, or lending institutions may cross-subsidize some borrowers out of the profits on other loans. [본문으로]
38. landscape ; 1. [C] 풍경(넓은 어느 지역, 특히 시골 지역에서 눈에 띄는 모든 요소를 통틀어 가리킴) ;; 흐름상 "계획, 큰 그림, 청사진" 정도의 의미 [본문으로]
39. take over ; (기업 등을) 인수하다, (~로부터) (~을) 인계받다 [본문으로]
40. financial crisis ; [명사] 금융, 제정위기 [본문으로]
41. dividend ; 1. 배당금 [본문으로]
42. mismanage ; [동사] 잘못 관리[경영]하다 [본문으로]
43. initiative ; 1. [C] (특정한 문제 해결・목적 달성을 위한 새로운) 계획 [본문으로]
44. underlying ; [명사 앞에만 씀], (참고: underlie) 1. (겉으로 잘 드러나지는 않지만) 근본적인[근원적인] [본문으로]
45. ruthlessly ; [부사] 무자비하게; 잔인하게. [본문으로]
46. shuffle ; 4. [타동사][VN] (종이・물건의 위치・순서를) 이리저리 바꾸다, 정리하다 [본문으로]
47. portfolio ; 3. (금융) (개인・기관의) 유가 증권 보유 일람표 [본문으로]
48. ditch ; 1. [타동사][VN] (비격식) (더 이상 원치 않거나 불필요한 것을) 버리다; (교제하던 사람을) 차 버리다 [본문으로]
49. century-old ; 1세기 동안, 1세기가 넘는, 아주 오래된 [본문으로]
50. chlorine ; [명사] Cl 염소 ;; US·UK [|klɔ:ri:n] [본문으로]
51. entry ; 3. JOINING GROUP | [U] ~ (into sth) 가입[입회](할 수 있는 권리・기회) [본문으로]
52. reorganize ; [동사] 재조직[재편성]하다 ;; organize around ; ~에 대한것을 조직, 편성하다 [본문으로]
53. boost research ; 연구를 활성화 하다 [본문으로]
54. conjure up ; ~을 상기시키다[떠올리게 하다], 생각해내다 [본문으로]
55. automotive industry ; [명사] 자동차 산업 [본문으로]
56. polystyrene ; [명사] (또한 Styrofoam 특히 美) 폴리스티렌, 스티렌 수지 ;; US [|pɑ:li|staɪri:n] UK [|pɒli|staɪri:n] [본문으로]
57. carmaker ; [명사] 자동차 제조업자 [본문으로]
58. sound absorbing ; (환경공학) 음의 흡수(音~吸收) [본문으로]
59. foam ; 1. [U] ('foam |rubber) (의자・매트리스 등에 쓰는) 발포 고무 [본문으로]
60. sink sth into sth ; (투자 등의 목적으로 많은 돈을) ~에 쏟아 붓다 [본문으로]
61. sink sth into sth ; (투자 등의 목적으로 많은 돈을) ~에 쏟아 붓다 [본문으로]
62. shale gas ; [명사] (지질학) 셰일 가스 [본문으로]
63. joint venture ; [명사] (상업) 합작 투자 (사업) [본문으로]
64. low-cost ; [형용사] 비용이 적게 드는, 값싼 [본문으로]
65. intractable ; [형용사] (격식) 문제・사람이 아주 다루기 힘든 [본문으로]
66. break sth up ; ~을 부수다[나누다/분해하다] [본문으로]
67. hold[put] a gun to one's head ; ~를 협박하여 일을 하게 만들다 [본문으로]
68. produce earnings ; 수익을 얻다 [본문으로]
69. reinvention ; [명사] 재발명, 재고안, 재창조 [본문으로]
70. stock market ; [명사] 증권 거래업; 주식 시장, 증권 거래소 [본문으로]
71. take for ; [VERB] to consider or suppose to be, esp mistakenly [본문으로]
72. wash its face ; (사업 따위가) 그럭저럭 되어 가다 [본문으로]
73. paranoid ; 2. 편집성의, 편집증적인, 편집증 환자의 [본문으로]
74. gross margin ; (회계) 매상 총이익 ;; gross margins ; Plural form of gross margin [본문으로]
75. Return on capital ; (금융투자) 자본이익률 ;; Return on capital (ROC), or return on invested capital (ROIC), is a ratio used in finance, valuation and accounting, as a measure of the profitability and value-creating potential of companies after taking into account the amount of initial capital invested. [본문으로]
76. overspend ; [동사] over・spent , over・spent / -'spent / ~ (on sth) (돈을) 너무 많이 쓰다[과용하다], (계획보다) 초과 지출하다 [본문으로]
77. acquisition ; 3. [C , U] (상업) (기업) 인수, 매입(한 물건) [본문으로]
78. on stream ; [부사] (특히 일관 작업에서) 조업하여, 활동[가동]하여; 조업 개시 직전에 [본문으로]
79. quartile ; [명사] (통계) 사분위수(四分位數: 통계 변량을 도수 분포로 정리하였을 때 적은 것으로부터 ¼, ¾ 자리의 변량 값) ;; 참고 quintile ;; US [|kwɔ:rtaɪl;|kwɔ:rtl] UK [|kwɔ:taɪl] [본문으로]
80. keep pace with ; …와 보조를 맞추다, …에 따라가다, ~에 뒤쳐지지 않고 따라가다 [본문으로]
81. be valued on ; ~에 의해, ~을 기반으로 평가된다 [본문으로]
82. free cash flow ; FCF (경제) 잉여현금흐름, 여유현금흐름 [본문으로]
83. largely ; [부사] 크게, 대체로, 주로 [본문으로]
84. be largely due to ; 대부분, 주로 ~ 때문이다 [본문으로]
85. turnover ; 2. [sing.] ~ (of sb) (기업의 직원) 이직률 [본문으로]
86. labor share ; (노동) 노동분배율 [본문으로]
87. gross cash flow ; Gross revenue is simply the total amount of money which is coming in. Cash flow, however, is the amount of money which comes to YOU once you've subtracted your costs from gross revenue. [본문으로]
88. dividends ; (회계) 배당금 [본문으로]
89. buy-back ; (경제) 역구매, 자사주 매입 [본문으로]
90. markedly ; [부사] 현저하게, 두드러지게, 뚜렷하게 [본문으로]
91. remain flat ; 현 상태로 유지되다, 침체되어 있다 [본문으로]
92. in absolute terms ; 절대치로 보다 ;; absolute term ; (수학) 절대항 [본문으로]
93. soar ; [v] 1. (가치・물가 등이) 급증[급등]하다[치솟다] [본문으로]
94. grumble ; 1. ~ (about sth) | ~ (that…) 불만[불평] 사항 [본문으로]
95. consolidation ; 1. 합동, 합병; 통합, (부채 등의) 정리 [본문으로]
96. jack up prices ; 가격을 올리다 [본문으로]
97. agricultural chemical ; 농약 [본문으로]
98. specialize in ; ~을 전문으로 하다 [본문으로]
99. antitrust ; [형용사] (명사 앞에만 씀) 법이 독점 금지의 [본문으로]
100. regulator ; [명사] (산업・상업 분야의) 규제[단속] 기관[담당자] [본문으로]
101. rest[breathe] easy ; 안심하다 [본문으로]
102. flag ; 2. [자동사][V] 지치다; 약해지다, 시들해지다 [본문으로]
103. spike ; 5. [C] (주로 단수로 비격식 특히 美) 급등, 급증 [본문으로]
104. capital base ; the capital structure of a company (shareholders' capital plus loans and retained profits) used as a way of assessing the company's worth [본문으로]
105. half decade ; 5년 간 [본문으로]
106. discipline ; 2. [타동사][VN] 훈육하다 [본문으로]
107. adapt ; 2. ~ (yourself) (to sth) (상황에) 적응하다 [본문으로]
108. industrial company ; 산업체, 제조업체 [본문으로]
109. prosper in ; ~(분야)에서 성공하다, 번창하다 [본문으로]
110. capital flows ; (경제) 자본흐름 [본문으로]
111. advisory council ; [명사] 자문위원회 [본문으로]
112. manufacturing ; [명사] 제조업 [본문으로]