In the late 1920s, soon after the founding of Imperial Chemical Industries (ICI) in 1926 by the merger of four great British Corporations (including British Dyestuffs, Nobel Explosives and Brunner Mond), Lord McGowan the founding Chairman set forth into the world four of his most promising young men to seek business opportunity for the new flagship business powerhouse of Britain. One went to America, one came to the Subcontinent, one to China and South East Asia and one to Australia.
Two of them subsequently visited Pakistan: Richard Banks CBE who came to the subcontinent and amongst other ICI factories (including the oldest at Rishra on the Hoogly near Calcutta) founded the Soda Ash works at Khewra, district Jhelum, rising subsequently to the Main Board of ICI in London before retiring, and visited Khewra once again after many years in 1989. The second was Sir Peter Allen, who went to the Americas, and visited Pakistan in 1970 as Chairman of ICI PLC.
The Soda Ash factory at Khewra located at the heart of the Salt Range, the source of limestone and rock salt the two major materials required, would supply this basic chemical to the newly upcoming glass, soap, textile, leather and general chemicals industry across the sub-continent. The construction of the Works, after lengthy painstaking surveys, feasibilities and Head Office approval procedures, began in the late 1930s, and was immediately hit by World War II when the ship carrying plant and equipment was torpedoed by a German U-boat. Come a new set of plant and equipment the Works was completed and came into commercial production around the early to mid 1940's as a part of the Alkali Chemical Corporation of India (ACCI), controlled from Calcutta.
It continued as such until shortly after partition when it was incorporated in Pakistan as the Khewra Soda Company and control was vested to the Head Office of the new ICI Pakistan at Karachi. The Headquarters were housed in the still very visible Katrak Mansion between Merewether Tower and the other two major landmarks of Karachi, ie Karachi Port Trust (KPT) House and Qamar House (now EFU House).
In the 1950s and till the mid 1960s, ICI operations therefore consisted of a small Soda Ash business based on local manufacture and a very large and prosperous trading business predicated on imported proprietary ICI manufactured chemicals and dyes and a vast array of other allied chemicals and materials from over 100 overseas suppliers for which ICI Pakistan was Agent in Pakistan. Also in the 1950s a new custom-built ICI office was constructed at nearby West Wharf on leased KPT land which was further expanded and modernised over the years and exists to date. West Wharf was selected because ICI in the large part was a commercial importer of product by sea, and the architecture was primarily of a large warehouse to accommodate hundreds of contracted daily labour, mostly women, to repack and label imported bulk into smaller retail packs, to be finally distributed by a countrywide network of distributors, in some cases in parallel and shared with the network for Soda Ash distribution. In addition to commerce on the back of its own very large and traditional commercial import licenses, ICI Pakistan also acted as indenting agent, to the growing post Independence population of Pakistani commercial importers and industry, for its own as well as the many Agency products. The Company was managed through two offices, one at Karachi and the other at Lahore (located in the Co-operative Insurance building opposite the High Court on the Mall) supported by a network of the all-important distributors, the commercial lifeline of a very prosperous albeit predominantly trading business house. It was still an overseas trading branch essentially on the colonial model - the Chairman was driven in a grand Armstrong Siddeley limousine and socialised with the President of Pakistan.
In 1965 the first Pakistani was entrusted with the leadership of the Company when young Y. (Yusuf) M. Khan became Chairman (He was 38 years old and so the youngest ever to assume the leadership of ICI in Pakistan). It is relevant to mention here that the majority shareholders never reverted to expatriate leadership, except for a very short holding period in an emergency in recent years, whereas elsewhere in South and South East Asia leadership was not given to nationals till very much later and in some cases such as India was reverted back to expatriates. This succession coincided with the strong realisation that the future of a corporation such as ICI lays in expansion in the industrial sector, supported by the huge choice available in proprietary cutting-edge ICI technologies, many of which had potentially strong future markets in the country's growing economy, coupled with globally unmatched manufacturing expertise. This was not only in line with the national aspiration of the time which was to broaden the economic base beyond the traditional core agrarian sector, but also could serve in the long-term as a replacement for the company's trading base expected to reduce as national policy increasingly indigenized commercial trade. As a result, in quick succession, a textile auxiliaries plant at Karachi, a pharmaceutical factory at Narayanganj (on the outskirts of Dhaka, then East Pakistan) and an acquisition of the Fuller Paints Factory (JV of Fuller Paints of US with a Pakistani businessman in Lahore) were added to the company's operations and the Soda Ash Works expanded, all in the second half of the 1960s (the pharmaceuticals factory subsequently became a significant part of ICI Bangladesh, finally bought out by management when ICI exited BD many years later). In terms of corporate structure, in addition to the original ICI Pakistan engaged primarily in trading two additional ICI companies came into being ie ICI Pakistan Manufacturers Ltd (PML) consisting of the Soda Ash Business (relinquishing its old identity as the Khewra Soda Company) and the new Textile Auxiliaries Business, and the second Paintex Ltd housing the newly acquired paints business. It is also very appropriate to record here another potentially significant development of this period - the Company went into serious negotiations with the Fauji Foundation for the setting up of a Naphtha Cracker Plant which would have been a game changer both for ICI's future in Pakistan as well as the industrial future of Pakistan. A naphtha cracker plant (and a steel mill) considered at the time to be a critical precursor to the industrialisation of developing economies would have unleashed massive downstream industrialisation with obvious significant and far-reaching results. Unfortunately, however, the JV arrangements progressed to an advanced stage but could not be finalised.
In the late 1960s therefore the profile and nature of the company began to change very significantly. It became the underlying strategy to expand and broaden the company's manufacturing base to serve the expanding local markets, together with an appropriate focus on its traditional import trading business. And so through the 1970s every opportunity to expand, strengthen, de-bottleneck and modernise the company's manufacturing continued including approval in the late 1970s from ICI PLC to set up a brand new industrial project to manufacture Polyester Fiber, for which a site outside Lahore near Sheikhupura was chosen. It was to be based on ICI technology and would cater to the growing textile industry of the country. The plant went into commercial production in the early 1980s and added once again very significantly not only the company's operations but also to its technological base and overall profitability.
As the company became increasingly industrial and large, there came the recognition that on the "softer side" (as opposed to the growing "hard" asset base) there also needs to be an increasing and matching sophistication to appropriately "enable management" for the more complex future challenges. Consequently, through the 1970s there was a huge development effort very successfully mounted in the areas of organisation development, HR systems, leadership development and corporate culture. This together with an already strong integrity base and commitment to corporate governance and responsibility made the company a bastion of solid and sophisticated management, which proved itself as such in the next three decades of the company's history.
Through the 1980s the strengthening of the company continued by expansion, modernisation and de-bottlenecking of its major businesses, in addition to two other significant developments. Firstly, diversification through the revival and development of hitherto nascent as well as new businesses in leading edge ICI and ICI Associate products, for which markets had fully developed or become available, enabled by the highly increased earning capacity of the company which provided the necessary huge working capital outlays required for the development of these businesses. These businesses, essentially in the import/resale sector but with strong potential for local formulation, included pharmaceuticals (which eventually went into local toll manufacture), agrochemicals, general chemicals in particular tioxide, polyurethanes and water treatment chemicals (which also went into local formulation), and a select range of consumer products backed by the strong brand equity of the ICI Roundel. The second major advance, as in the 1970s, was in the area of corporate development. As the group grew and prospered it became increasingly imperative to develop in-house capability in the areas of utility services, corporate services and communications, technology acquisition and development, project construction and management, and safety, health and environment management. All this was developed and established at a very high level of sophistication and standard, including the establishment of a captive power plant at the Sheikhupura site (ICI Power Gen). At the same time, the three group companies ie ICI P, ICI PML and Paintex were merged into one entity, ICI Pakistan, to maximise all the available synergies in business, technology, finance, general management and overall corporate presence.
With all this under the company's belt, by the early 1990s it became a large, broad-based, strongly managed, largely self sufficient profitable entity with strong cash flows, with fully indigenized technology capability in certainly its traditional businesses and a dominant corporate image. This was critically instrumental in persuading the majority shareholder to make its largest ever overseas investment, anywhere in the World in Pakistan, for the manufacture of Pure Tperethalic Acid (PTA) at Port Qasim in 1995. This investment amounting to $450 million was to provide the critically strategic upstream completion of the textile chain in the country (PTA H Polyester Fiber H blended yarn H Fabric). It had an important first mover advantage and Government of Pakistan's support in the form of a favourable tariff to offset the cost impact of major infrastructure, which was unavailable and had to be funded by ICI. In addition, it was justified by four important business factors - a local corporation with a strong management and an equally strong forecast cash flows to sustain a very large cyclical business on its balance-sheet, a strong and growing local market, cutting-edge ICI technology and finally but very importantly it would derive commercial and technology benefits from a very strong global ICI International Business in PTA.
At this stage it is important to understand the external factors, concerning the Parent ICI PLC, which began to impact the future of ICI Pakistan (as indeed it would have the other ICI subsidiary companies) more significantly than before. ICI PLC had been for sometimes grappling with a fundamental dichotomy in its own business portfolio. It consisted on the one hand of what was termed the "heavy end" consisting of high capital cost more traditional basic chemicals and related businesses where competitiveness was mainly driven by the cost of manufacture.
This characteristic necessitated huge investments to achieve maximum scale and capacity with each investment to maximise competitiveness, which by definition could not keep in sync with global demand, the net effect being a detrimental cycle of over supply alternating with under supply and the lowering of average margins over the period. On the other hand, there was the "Light end" consisting of low capital but high R&D cost businesses, producing high value-added products capable of differentiating in the market, and consequently earning high margins.
Superimposed on this issue was another consideration which particularly impacted ICI Pakistan ie the differences between "regional businesses" bound generally by high tariff barriers to remain competitive and profitable and therefore necessarily by National boundaries, catering particularly to local markets vs. "international businesses" globally sustainable across national boundaries through competitive technological and commercial strengths and so capable of accessing and achieving major global market shares. With increasing capital expense and lowering margins of the heavy end businesses, and the ephemeral nature of the regional businesses as protective tariffs are subject to political whim and the businesses are therefore potentially vulnerable, both the categories were increasingly seen as an untenable drag on the high potential more profitable light end businesses.
Driven by a quest for shareholder value under the watchful eye of the all powerful London Stock Exchange and the large stock holding Investment Fund Managers, ICI clearly preferred the light end businesses and began to treat the "heavy end" and "regional businesses" marginal to core strategy deserving only sustenance capital till their ultimate divestment at the appropriate time.
As a result, ICI PLC progressively through the early 1990s and the early part of the new millennium, first demerged its most promising light end effects business ie pharmaceuticals, agrochemicals and seeds into Zeneca PLC a separate entity, to maximise shareholder value on the back of the ability to reinvest in itself their huge cash flows now no longer encumbered by the capital hungry heavy businesses.
Secondly, also acquired a group of light end businesses from Unilever to reposition itself and to pay off the resulting debt as a strategy divested first its PTA business to DuPont and then a large part of its remaining heavy end portfolio to Huntsman Corporation of the US, leaving Paints as its only truly strong international business.
The newly acquired businesses unfortunately proved not as successful as expected and Paints continued to be the only strong ICI Business, which ultimately became the attraction for Ackzo to acquire ICI PLC.
There is reason to believe that at the same time also under consideration were alternative strategies for global merger (with other global giants on the same model as the Anglo Dutch JVs of Shell and Unilever) which if had happened would have resulted in a very different future for ICI PLC and very possibly as a consequence for ICI Pakistan.
The impact on ICI Pakistan of the above background events, beginning the late 1990s was briefly as follows:
----- As a consequence of these strategic moves of ICI PLC, starting from the traditional Soda Ash and Polyester fiber already classified as regional businesses (as ICI had divested its international soda ash and fibre business much earlier), pharmaceuticals, agrochemicals and PTA also became regional businesses after their demerger/divestment.
----- Investment by ICI PLC as a strategic imperative became short and scarce as it struggled with its own repositioning and consequent debt and its newly acquired portfolio from Unilever had no significant potential in the Pakistani market. This was particularly detrimental to the Regional businesses soda ash/polyester fibre, which required regular investment to maintain market position and cost competitiveness by expanding scale of operation. This imperative became even more critical in this period as protective tariffs began to be lowered which unleashed vicious Asian competition wishing to dump product to fill up their huge expensive capacities. This phenomenon continued from time to time into the new millennium as well.
----- It became increasingly value destructive and untenable to sustain PTA on ICI Pakistan's balance-sheet as it hit by this time the expected cycle downturn internationally, only more intense than expected. It had also lost the support of the ICI International Business post its divestment to DuPont, and now categorised as a "regional business" became ineligible for investment to double capacity, as was the original strategy. This distress was only accentuated by the pressures on the rest of ICI Pakistan as explained.
ICI Pakistan nevertheless, during this period, continued to squeeze whatever investment it could from ICI PLC and also look for external non - ICI funding for expansion (eg ICI Pakistan did one of the first local Modarabas for its expansion of the Polyester Fiber Plant), successfully embark on ambitions restructuring and productivity improvement plans both technically and organisationally, and demerge the PTA business into a separate entity to allow opportunities for divestment which become clearly necessary.
The first attempt to divest Pakistan PTA to DuPont as a part of the larger divestment proved unsuccessful, but ICI Pakistan managed to gain support for the new PTA entity in the form of a capital injection by ICI PLC of 100 million pounds to bolster its balance sheet until a new divestment opportunity appeared. By the early part of the new millennium ICI Pakistan unencumbered by PTA, and its businesses further expanded and streamlined to the extent possible began to return to its traditionally robust profitability and value, and Pakistan PTA sustained by the very significant balance sheet support, and increasingly by the levelling off of the downturn and productivity gains through technical improvements, had begun to stabilise.
In the next period the company by sustained management action, continued to increase profitability through concerted gains in productivity, cost base efficiency, prudent financial management, expanding market shares and, targeted investment as could be won from ICI PLC in capacity and de-bottlenecking, both in ICI Pakistan as well as PPTA. The Company also continued to make progress in its corporate aspects, particularly Corporate Social Responsibility. This continued, until their ultimate acquisition by Ackzo Nobel a few years ago as a part of the global acquisition of ICI PLC, where the new strategy post Zeneca demerger did not pan out as planned and the ICI PLC continued to weaken in the intervening period.
Ackzo, a leading Coatings company in the world, set out to acquire ICI PLC globally primarily to gain a stronger global position in its core business, which ICI offered through its international paint business. Therefore, although post acquisition ICI Pakistan continued to add value to its businesses and maintain corporate significance by continuing to make critical investments and developments, the acquisition had in fact reconfirmed the old ICI PLC strategy for the Pakistani business and pre-ordained its future and progressive dissolution in three different directions. As a consequence PPTA went to Lotte of Korea, Paints to Ackzo Nobel of Holland and the local regional businesses to the Younus Brothers consortium of Pakistan.
However this re-positioning of ICI businesses should hopefully be very appropriate; PTA and Paints the businesses with international dimensions housed with owners of international strengths as a part of their core portfolio and focus, and the traditional regional (national) businesses with Pakistani entrepreneurs with strength and a strategic focus on expansion and diversification. It is therefore a well founded expectation that whereas the entity of the original ICI Pakistan does not exist anymore, its businesses will continue to exist and thrive into the future owned by committed owners in a more stable background, managed hopefully in the large part by ongoing ICI management, a good last thought for ICI Pakistan veterans particularly those who gave a lifetime to the company.
This story is not about individuals or individual actions. This story which became significant nearly five decades ago is of sound corporate strategy, consistently determined leadership, able deputies and an immaculate management cadre, which all put together forged a franchise over the last nearly half century which became the largest asset base in the private sector, one of the largest contributors of revenue to the national exchequer, which spawned by one count 23 CEOs of various corporate entities in the country, was known for its integrity, governance, responsibility and service standards, and continued to add, protect, recover and deliver value for its shareholders. This was done in a background of varying challenges including wavering and diminishing major shareholder commitment and interest in the latter years, and finally businesses highly attractive in the future have been delivered to new owners, which is a tribute to responsible stewardship. This story, therefore, needed to be told by someone at this watershed moment in the history of an Icon of the Corporate World of Pakistan.
(The writer is a former Chairman and Chief Executive of ICI in Pakistan, who over his 35-year career with the company also served in the Headquarter of ICI PLC, London twice: once as a Senior Corporate Planner and the second time as Advisor to the CEO. He was appointed OBE by Her Majesty the Queen in 1997 for services to ICI)
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