A. Schulman, Inc. - Company Profile, Information, Business Description, History, Background Information on A. Schulman, Inc.

3550 West Market Street
Akron, Ohio 44333

History of A. Schulman, Inc.

A relatively small plastics manufacturer, A. Schulman is something of an anomaly in an industry dominated by huge diversified companies. The company concentrates on producing special plastic resins and compounds. Unlike its larger competitors--BASF, Himont, Dow, Hoechst, Monsanto, and Quantum--which derive profit from small margins on massive production runs of common plastics, A. Schulman produces high margin, special-use plastics that demand the employment of special technologies and production methods. As a result of its technological innovation, A. Schulman avoids direct competition with specialty plastics divisions of larger companies.

The company was founded by Alex Schulman, who established a rubber brokerage in Akron, Ohio, in 1928. Working out of a small shop, Schulman purchased and resold wholesale and scrap rubber, which his customers would refashion into a variety of rubber products. While Schulman cultivated a clientele, the business remained small. The largest consumers of rubber were tire makers, automobile companies, and hose manufacturers. These companies purchased raw virgin rubber on a huge scale, providing few large sales opportunities for Schulman's enterprise.

In 1930, just as Schulman's business became stable, the nation was plunged into the Great Depression. Demand for most products, including rubber, fell precipitously. Before rubber stocks were depleted, prices nosedived, eliminating demand for used rubber. A few years later, when rubber became scarce, this demand recovered, providing some support to Schulman's business and enabling him to realize a small margin on his sales. The A. Schulman Company recovered from the Depression slowly, as Alex Schulman's business depended almost entirely on the successes and resources of his customers. Fortunately, Schulman was not crushed by fluctuations in the broader rubber market or larger final markets, as were many tire, automobile, and hose manufacturers.

By the late 1930s and early 1940s, the onset of war in Europe and then in the Pacific caused industrial demand for rubber to increase. Rubber was an important war commodity, and sources of rubber were limited. As a result, a premium was placed on companies that could recycle scrap rubber, producing a useful product from waste. A. Schulman and several other companies in the scrap rubber business were placed under the authority of a war production board that had responsibility for coordinating efficient production of essential commodities and setting prices. Often, Schulman did not know who his customers ultimately were. While it took a few months to gain footing, Schulman's company went into full production, supplying mulched rubber for recasting into tires, window seals, and numerous other products.

The scarcity of rubber during the war helped to accelerate the development of substitute and synthetic rubber products. The most important of these is what we know today as plastic, which was extremely useful in small castings, exhibiting many of the same resilient and durable qualities as rubber. Although the primary ingredient in plastic was petroleum, also a crucial and limited war commodity, plastic like rubber could be recycled. As the war progressed, A. Schulman began to accept scrap plastic for chipping and shipment to casting mills. By the end of the war, A. Schulman had doubled its product line to include scrap rubber and scrap plastic. In 1950, having heard some convincing arguments from a young salesman named William Zekan, Schulman realized he stood on the threshold of a new industry.

Schulman hired Zekan in 1937 after meeting him on the golf course of the Rosemont Country Club, where the 18-year old Zekan worked as a caddie. Although Zekan started at A. Schulman as an office boy, earning less than he could as a caddie, he stayed with the business and was promoted to salesman just before he enlisted in the army at the outbreak of the war. Zekan returned to the company after his tour, and in 1947 he was tapped by Schulman to head his New York sales office. Here the shy and reserved Zekan learned the art of sales. He honed his skills of persuasion, and later told Chemical Week, "The customer is going to buy, everything being equal, from the guy that he likes the best." Zekan performed exceptionally well in New York, and when he was called back to Akron in 1953, it was to take the number two position under Alex Schulman.

Schulman and Zekan developed a new strategy during this period to abandon the scrap markets and move the company into the plastics manufacturing business. Rather than molding its own products, A. Schulman would draw on its substantial reputation as a raw product supplier and concentrate on making plastic compounds. This product is manufactured in the form of pellets, smaller than peanuts. By applying heat, these pellets could be extruded or molded into many types of finished products.

The company grew considerably during the 1950s, mostly on the strength of cheap oil as well as the increasing number of applications for plastic. For the first time, automobile manufacturers began molding plastic parts for cars, including dashboards, interior side panel trim, and window insulation.

Searching for new growth markets, Schulman established a network of small plants in Britain, France, and Germany. There he hoped to get in on the ground floor of emerging industries in postwar Europe. The company later established a plant in Canada that served various plastics consumers in that country, including the automotive industry.

Alex Schulman died in 1962, and his will specified that Zekan should succeed him as president of the company. For his part, Zekan had become so deeply involved with executive decisions under Schulman that, despite the founder's sudden death, the transition to new leadership was smooth.

The 1960s were a period of strong growth for A. Schulman. It was during the decade after Schulman's death that the company began to really define its place in the industry. The company began to produce plastics, albeit in smaller quantities than competitors, with special characteristics. Often the tolerances of these products were specified in advance of manufacture by the customer. The company then instructed its laboratories to design a plastic to meet those specifications. Thus, with the employment of technology, A. Schulman was able to offer a limited quantity of plastics that could outperform other plastics.

As a major player in this vital niche market, A. Schulman was somewhat insulated from the competition elsewhere in the industry. Because A. Schulman dealt in a unique family of products, it was able to sell on quality and not price. This produced a new sales philosophy which, Zekan later told Forbes, was "We don't talk price, we talk quality."

The company's ability to build such a strong position in the market led Zekan to consider expansion. Rather than just the addition of production facilities, Zekan was concerned with innovations in his product line. Unable to adequately fund technological research internally, he went forward with plans to take the company public in 1972.

In 1973 an Arab-Israeli war triggered an oil embargo against the United States that caused the price of petroleum to skyrocket. For plastics producers like A. Schulman, this meant temporary shortages of raw materials and necessary price increases. While these price increases were ultimately passed along to the consumer, the net effect was a serious recession that forced many companies in the plastics industry to go out of business. A. Schulman remained insulated from much of this activity because it produced a product defined by quality and technology rather than simply by price. Nonetheless, the company did suffer some reverses due to the onset of recession.

By 1977 inflationary pressure had stabilized, but a second oil crisis two years later caused additional price shocks that continued to cut into demand. By 1982, automobile manufacturers had entered a prolonged period of serious financial trouble. Because they were large consumers of specialty plastics, A. Schulman's growth continued to lag. Hoping to tie its products to growing companies in the automotive industry, A. Schulman began cultivating relationships with Japanese plastics manufacturers, with the intention of gaining supply contracts with Japanese car makers.

The timing was perfect. Several companies, including Honda and Toyota, began building large production facilities in the United States during this time. In 1988, A. Schulman established a joint venture with Japan's largest chemical company, the Mitsubishi Kasei Vinyl Company, and set up a new plastics plant at Bellevue, Ohio. With the help of Mitsubishi Kasei, A. Schulman concluded numerous supply contracts with Honda, Nissan, and Toyota.

The addition of new customers forced A. Schulman to modernize and expand its production facilities. The company spent $33 million to expand worldwide capacity by 25 percent. Still, the company avoided becoming overly reliant on only a few customers in a single industry. The company's five largest accounts comprised less than ten percent of sales.

Zekan had a hands-on leadership style and a genuine love of selling. He kept the reins of the company tightly in his hands, prompting some critics to fear that this concentration of power could leave a void in management. But A. Schulman had a highly capable second tier of management that would be put to the test and would ultimately rise to the challenge in 1989, when Zekan, aged 69, underwent surgery for treatment of cancer. It was at this juncture that Zekan promoted three senior managers in preparation for his retirement. One of these was Terry Haines, who was named president, while Zekan remained chairperson and CEO.

However, retirement never came. Zekan remained in charge of the company until his death in January, 1991. Haines remained president and took on the duties of CEO as well. Robert Stefanko, who ran the finance department, was elected chairperson. With the death of Bill Zekan, A. Schulman lost the last link to its founder. But it also marked the beginning of a new era.

The modern A. Schulman's primary line of business remains engineering and manufacturing specialty plastic compounds that are made at seven plants in North America and Europe, each equipped with its own laboratory. These products include PVC for automobile window seals, special polyethylene films for shopping bags and agricultural crop covers, and polypropylene film for packaging candy bars, snack food, cosmetics, and textiles. The company's plastics may also be found in patio furniture, lawn sprinklers, garden and pool equipment, toys, and games.

In its merchant sales business, A. Schulman purchases production overruns and surplus stocks of plastic materials and resells them directly to customers through its marketing operations as a broker. Finally, as a distributor, A. Schulman sells plastic products of other companies, including Akzo nylon resins, Enichem neopropene elastomers, Exxon polypropylene and Epsilon polypropylene.

While the company had shunned growth by acquisition for nearly its entire existence, A. Schulman took over the French plastics company Diffusion Plastique in August, 1991. Initial integration of the business was difficult but ultimately successful. In addition, the company's joint venture with Mitsubishi Kasei posted its first profit in 1992. That year A. Schulman posted its tenth consecutive record for annual net income and was ranked 12th on the Fortune 500 list of companies with highest total return over ten years, averaging 37.2 percent. Maintaining very little debt, a unique line of products, and a diversified customer base, A. Schulman is well positioned to maintain steady rates of growth.

Principal Subsidiaries: Sunprene Company (70%); N.V. A. Schulman Plastics, S.A. (Belgium); A. Schulman, Inc., Ltd. (UK); A. Schulman GmbH., (Germany); A. Schulman Canada Ltd. (Canada); A. Schulman A.G. (Switzerland); A. Schulman S.A. (France); A. Schulman Plastics S.A. (France).

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Further Reference

A. Schulman Inc., Akron, OH: A. Schulman Inc.A. Schulman Inc. Annual Reports, Akron, OH: A. Schulman Inc., 1989, 1990, 1991, and 1992."A. Schulman Inc., Plastics Supplier Profits from Foreign Affairs," Barron's, November 19, 1990."A Plastics Play on the Dollar's Dip, Fortune, November 11, 1985."Pssst! Plastics," Barron's, April 7, 1986."Schulman: A Timely Switch to Plastics," Chemical Week, July 9, 1986."You Just Work Your Heart Out," Forbes, March 5, 1990."Zekan's Rise from Office Boy to Chief Executive," Chemical Week, July 13, 1988.

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