Formosa Plastics Corporation History

Address:

201 Tun Hwa North Road
Taipei
Taiwan

Telephone: (886) 22-712-2211
Fax: (886) 22-712-9211

Website: www.fpc.com.tw

Public Company
Founded: 1954
Employees: 4,471
Sales: $1.9 billion (2002)
Stock Exchanges: Taiwan

Company Perspectives:

Each individual in our Company takes personal pride in achieving performance excellence. Through our common goal we aspire to explore, challenge, and strive to exceed the best industry practice in every task performed. This enables us to maintain global competitiveness, achieve healthy, continual growth that will benefit society, and fulfill our commitment to our customers and responsibility to our colleagues.

Key Dates:

1954:: With $500,000 from his timber business and a $680,000 loan from the American economic aid mission, Wang licenses Japanese plastics technology and founds Formosa Plastics.
1958:: Nan Ya Plastics is founded as a downstream business to transform raw PVC resin into more consumer-oriented products.
1965:: Formosa Plastics Group diversifies into textiles.
1967:: Wang forms Formosa Chemicals & Fiber Corporation (FCFC) to produce rayon fibers from timber waste.
1981:: Wang acquires a money-losing vinyl chloride monomer (VCM) plant in Baton Rouge, Louisiana, Formosa's first U.S. plant.
1984:: Nan Ya Plastics, Formosa's flagship company, launches a course of diversification into the electronics sector, beginning with the manufacture of printed circuit boards and copper-clad laminates.
1992:: Formosa Petrochemical Corporation is founded to take charge of the construction in Taiwan of an oil refinery, naphtha cracking plant, and cogeneration plant.
1996:: Citing a lack of "filial piety," Wang Yung-ching permanently expels heir-apparent Winston Wang from the family business, leaving the future of Formosa's leadership uncertain.

Company History:

A pioneer of the Taiwanese plastics industry, Formosa Plastics Corporation is the world's largest producer and processor of polyvinyl chloride (PVC). In the mid-1990s, the company ranked as Taiwan's largest non-government enterprise and a significant contributor to the country's gross national product. Formosa Plastics Corporation is the keystone of a characteristically Asian interlocking group of public and private companies managed by the Wang family. Under the direction of its octogenarian patriarch, Chairman Yang-Chung Wang, the Formosa Plastics group generated a multibillion-dollar family fortune. Throughout the 1990s and into the early years of the 21st century, Formosa increased its presence at home and abroad, launching significant expansion projects, including diversification into such areas as computer components and power generation.

Building a Vertically Integrated Empire: The First 50 Years

The hallmarks of the Formosa Plastics empire--vertical integration, emphasis on commodities, and efficient production--were established and enforced by founder Y.C. Wang. Armed only with an elementary education, Wang took his first job selling and delivering rice for ten dollars a month at the age of 15. Shut out of the lucrative timber industry by the then ruling Japanese, the teenager started his own rice shop with $200 borrowed from his father in 1932. Wang soon moved from retailing to milling and put in long hours to compensate for the privileged status of his Japanese competitors. Undaunted by the World War II destruction of his operation, Wang built a bigger mill. The postwar ouster of the Japanese opened up the timber market to competition, and it was in lumber that Wang made his first fortune.

With $500,000 from his timber business and a $680,000 loan from the American economic aid mission, Wang licensed Japanese plastics technology and founded Formosa Plastics in 1954. He later joked to Forbes's Andrew Tanzer that at the time "he didn't even know what the P in PVC stood for." PVC is fabricated from ethylene, a petrochemical. First used in its plastic or flexible form for "wonder" fabrics like polyester and imitation leather, the substance's hard resin form was later used for everything from construction materials to computers.

Applying his innate knack for making commodity products to the new business, Wang increased production from five tons per day to 20 tons per day, thereby lowering his unit costs. Undaunted by a dearth of local customers, he created downstream businesses of his own to transform the raw PVC resin into more consumer-oriented products. The first was Nan Ya Plastics. Founded in 1958, this resin processor would consume over half of Formosa Plastics's annual output by molding the PVC resin into building materials like pipe, flooring, and window frames, as well as packaging material and a plethora of other products. The Wang family's third major enterprise was born of the patriarch's cost-cutting fervor. In the early 1960s, Nan Ya started manufacturing an imitation leather that required a woven backing. Instead of buying expensive imported cotton, Wang formed Formosa Chemicals & Fiber Corporation to produce rayon fibers from timber waste.

Strictly speaking, these three businesses--Formosa Plastics, Nan Ya Plastics, and Formosa Chemicals & Fiber--are not affiliated. They are, however, widely recognized as part of a powerful system of vertical integration. The Wang family owns at least 20 percent of each company's stock, and each of the companies holds a 1 percent to 4 percent stake in the other two. Taken as a whole, the group stands as one of the few (if not the only) mass producers of the four synthetic textile fibers--rayon, nylon, polyester, and acrylic--in the world. This status has given the Formosa group excellent economies of scale and consolidated its influence in the petrochemical industry.

Formosa gathered steam over the late 1960s and throughout the 1970s, maintaining strictly domestic operations and building up a potent export trade. By the mid-1980s, all but 15 percent of Formosa Plastics' production was exported.

International Expansion in the 1980s

Wang began to expand its production internationally in the early 1980s, investing over $200 million in U.S. production facilities from 1981 to 1985. These strategic acquisitions illustrated Wang's oft-praised knack for buying low, when commodities industries were at the bottom of their periodic cycles, then whipping them into shape in time for an upswing. His first noteworthy move was the 1981 acquisition of a money-losing vinyl chloride monomer (VCM) plant in Baton Rouge, Louisiana. From 1978 to 1981, this subsidiary of Imperial Chemical Industries had reportedly lost $80 million. In exchange for taking on the business's $27 million in debt, Wang got his first U.S. plant. He immediately began to bring the factory into line, turning excess real estate into $42 million in cash. He cut the payroll by over 44 percent, yet increased production by 35 percent, thereby bringing the company into the black within less than five years.

Wang applied the same principles to his $12 million purchase (also in 1981) of a PVC plant in Delaware from Stauffer Chemical. A near 50 percent decrease in the payroll and a 30 percent increase in production helped cut monthly losses of $2 million by 90 percent within four years. In 1983, Wang acquired Manville Corporation's bankrupt PVC pipe operations for $20 million cash and a $10 million note. As if on cue, the construction market recovered in 1984 and the business earned a $5.5 million profit.

In all, Wang bought 14 American PVC processors from 1980 to 1988. His 1988 acquisition of over 200 oil wells, a gas processing plant, and a pipeline company from Aluminum Company of America (Alcoa) extended Formosa U.S.A.'s vertical line of production upward, to the plastics industry's most vital need: petroleum.

While other leading petrochemical firms failed in the PVC business, Wang maintained strong profitability. Sympathetic observers have attributed his success to hard work and determination; others have characterized him as ruthless and driven. In spite of his advanced age, Wang worked long hours (reportedly 100 per week) and expected his employees to work similar hours (from 48 to 70 hours a week). Although his intimate knowledge of virtually every aspect of the group's far-flung operations was admirable, it could also be labeled "micromanagement." Writing in 1983 for Forbes, Arthur Jones noted Wang's daily (including Saturdays and Sundays) meetings with the managers of Formosa's hundreds of divisions. The combination of long hours and Wang's "relentless interrogations" were blamed for a high rate of nervous ailments dubbed "the Formosa Plastics syndrome" by local doctors.

The chairman's own children provided first-hand testimony of his "stranglehold" on the business. Daughter Charlene joined her in-laws, the Chiens, to create First International Computer Inc. in the early 1980s. In 1994, she told Pete Engardio of Business Week that she chose the computer industry because it was "something he [Y. C. Wang] knew nothing about." Son Winston told Fortune's Louis Kraar that he'd "never seen a decision made by anybody except the chairman."

Even Wang's philanthropic endeavors had an edge: Named for Y.C. Wang's father, the wholly owned Chang Gung Memorial Hospital Foundation owned one-third of Formosa Chemicals & Fibers and 6 percent of both Formosa Plastics and Nan Ya. The wholly owned Ming-Chi Institute of Technology also held significant stakes in the group.

But perhaps the most highly criticized aspect of Wang's business conduct was his handling of environmental considerations. In a lengthy 1985 profile of the Wang empire for Forbes, Andrew Tanzer quoted one competitor who asserted that "[Wang] doesn't play by the rules. If he gets caught polluting or evading taxes, he bargains with the [Taiwanese] government."

Wang tried to import those methods to the United States, but ran into slightly more formidable roadblocks in the form of both federal environmental regulation and citizen action groups. The state of Delaware sued Wang on 30 air pollution counts in 1984 and later shut down his plant there for two weeks. From 1984 to 1990, Formosa U.S.A.'s Texas plant in Point Comfort racked up no less than 40 citations from the Texas Air Control Board, resulting in well over $600,000 in fines. In 1988, when the first federal Toxics Release Inventory named Calhoun County--home of the Point Comfort plant--the most polluted county in the United States, the focus on Formosa intensified.

Nevertheless, Wang applied for permission to make a $1.5 billion addition to Point Comfort's ethylene capacity that fall. A seemingly endless string of roadblocks delayed the project. Wastewater violations brought record-setting fines from state and federal agencies. Texans United, a local environmental group, labeled Formosa "an international environmental outlaw." Published (but not necessarily substantiated) accusations of bribes, payoffs, kickbacks, and shakedowns further tarnished Formosa's image. The project was also plagued with legal disputes over construction contracts and worker safety. In 1992, Formosa and a group of its critics agreed to set up a Technical Review Committee that included company and community representatives. The new plastics and processing plants were completed and were cleared for production by state and federal agencies later that year. The company was finally able to begin production of PVC, polypropylene, and related chemicals in the fall of 1993. The same year, Formosa announced plans to fully integrate its North American PVC business.

Back in Taiwan, Formosa had encountered similar delays in the initiation of a $9.4 billion complex that would produce 450,000 metric tons of ethylene and 225,000 tons of propylene each year to supply over 20 downstream plants. The first phase of the project was a $3.3 billion naphtha cracking plant slated to begin production in 1998. This plant alone was expected to increase Taiwan's fiscal growth by 1 percent annually during construction and 1.5 percent annually by the end of the decade. Formosa borrowed $5.5 billion to fund the complex, which was projected to produce over $7 billion in annual revenues by 1998. Although thwarted in the early 1990s by bureaucratic delays, Formosa Plastics announced plans to build three additional plants on the banks of China's Long River in 1994.

Toward Diversification in the 1990s

Faced with a maturing PVC market in the mid-1980s, Wang established a research and development division and began investigating opportunities for diversification. He considered cement and pharmaceuticals, but focused instead on specialty chemicals for the fast-growing computer industry. Son Winston convinced his father that computer components fit in with the company's long-term strategy by virtue of their rapid commoditization. Although Wang had long eschewed joint ventures, Nan Ya sought the help of the Hewlett-Packard Company for technical advice in the creation of its circuit board plant. In keeping with Wang's previous successes, Nan Ya moved to vertically integrate the new operation by producing the chemicals needed to manufacture the circuit boards.

Speculation regarding the pattern of succession at Formosa began in the mid-1980s and continued through the mid-1990s in spite of the fact that the octogenarian Chairman Wang showed no signs of slowing down. At five years his junior, brother Y.T. Wang served as president of both Formosa Plastics and Formosa Chemicals & Fiber and appeared to be a likely candidate to assume the top seat. The brothers' many Western-educated children, who were involved in the business both at home and abroad, constituted a third tier of leadership. Y.C.'s son Winston and Y.T.'s son William had advanced to executive positions at Nan Ya. Winston was regarded as the driving force behind Nan Ya's diversification into semiconductors, LCD screens, and other electronic components. Other family interests were dominated by Y.C.'s progeny. Daughter Susan Wang held the title of assistant to the president at Formosa U.S.A., but according to a 1993 Chemical Week article, she was "widely acknowledged to have operational charge of the U.S. business." As previously mentioned, daughter Charlene was a top executive at First International Computer (FIC), a leading manufacturer of IBM clones and computer mother-boards that generated $600 million in annual sales by the mid-1990s. In November 1993, Formosa and FIC pooled $2.3 million to rescue Everex Systems, a California manufacturer of "high-end" personal computers, and Wang installed daughter Cher at its head. With such a deep pool of potential successors, the Wang legacy appeared secure in the mid-1990s.

Entering the 21st Century

By mid-1995, Formosa's flagship company, Nan Ya Plastics Corporation, was moving full steam ahead with its diversification projects, and Winston Wang, chief executive of Nan Ya and heir-apparent to the Formosa Group, was making Nan Ya Technology Inc., his joint venture with Japan's Oki Electric Industry Co., the top priority. Nan Ya Technology was spending NT$20 billion ($740 million) to build a factory for the production of 16-megabit dynamic random-access memory (DRAM) chips. At that time, the market in Taiwan was primed for a domestic supplier of DRAM chips, as 83 percent of the country's demand for the commodity was being met through imports. Wang's goal was to have the Nan Ya plant producing 2,500-wafers worth of chips per month by 1997. Nan Ya Technology was also slated to invest NT$15 billion for the manufacture of thin-film transistors and LCDs.

At the same time, Formosa was moving ahead with the expansion of its mainline chemical business into China. With the investment of $80 million to build five factories in Guangzhou, Xiamen, and two other Chinese locations, Formosa hoped to supply thousands of its existing customers who were setting up their own operations there. Construction was expected to be complete and the factories operational by 1997.

Late in 1995, however, scandal erupted at Formosa when it emerged that Winston Wang was having an extramarital affair with one of his graduate students at Taiwan University. Angry over the apparent shame that these revelations brought to the Formosa name, Chairman Wang Yung-ching suspended his son from his position at the helm of Nan Ya Plastics. Refusing to end the affair, Winston Wang was "sentenced" by his father to spend a year in exile in the United States. When the younger Wang returned to Taiwan in November 1996, however, the expected reconciliation between father and son did not materialize. Furious with his son for his lack of "filial piety," the Confucian edict of ultimate loyalty to parents, Wang Yung-ching permanently expelled his son from the family business. Industry analysts, who regarded Winston Wang as the most effective and business-savvy member of the family's second generation, predicted grave uncertainty for the future of Formosa.

Even after his 80th birthday in December 1996, however, Formosa's patriarch, Wang Yung-ching, proved undaunted in his determination to continue to expand the operations of his company throughout the end of the decade and into the early years of the 20th century. Late in 1996, Wang moved decisively to redouble Formosa's presence in the United States, investing $800 million in Formosa U.S.A.'s Texas facility.

Also in 1996, with plans in motion to diversify into power generation, Wang secured a stake in an Australian coal mine with the intent of establishing a steady supply of fuel for two major new power plants then under construction, one in Miaoli in southern Taiwan and the other in Fujian province, China. At the same time Formosa was taking measures to expand its core business on the home front, investing in 13 new petrochemical factories in Taiwan in the late 1990s.

Although the petrochemical industry in general entered a prolonged slump in the early years of the 20th century, Formosa continued to flourish: by June 2003, Formosa was able to foresee a profit of NT$12.41 billion for the upcoming fiscal year. Moreover, with its multitude of investments, the company was in prime position to reap handsome rewards upon the next economic boom.

Principal Subsidiaries: Formosa Petrochemical Corporation (FPCC) (32.65%); Mailiao Power Corporation (MPC) (25%); Yungchia Chemical Industries Corporation (49%); Mailiao Harbor Administration Corporation (MHA) (18%); Formosa Heavy Industries Corporation (FHI) (33.3%); Formosa Plastics Corporation, U.S.A.; Formosa Komatsu Silicon Corporation (24%); Formosa Asahi Spandex Co., Ltd. (50%); Formosa Daikin Advanced Chemicals Co., Ltd. (50%); Formosa Plasma Display Corporation (77.5%); Formosa Teletek Corporation.

Principal Competitors: BASF Aktiengesellschaft; E.I. du Pont de Nemours and Company; Sinopec Shanghai Petrochemical Company Limited.

Formosa Plastics Corporation History

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Key Dates:

Company History:

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