How James Hardie Went From Asbestos To Cement King

How James Hardie Went From Asbestos To Cement King

How did James Hardie Industries evolve from manufacturing asbestos cement sheets to becoming the world leader in fiber cement building products? Let’s take a look at their growth journey.

James Hardie Industries is globally recognized as the leading manufacturers of fiber cement and fiber gypsum building materials. With headquarters in Dublin, Ireland, the company operates in different parts of the world, such as the United States, Australia, Europe, New Zealand, and the Philippines.

To get a better understanding of where James Hardie Industries stands in the world market, here are some notable facts and statistics:

In order to truly understand how James Hardie Industries became one of the top global building materials companies, let’s take a closer look at its journey…

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The Beginnings of James Hardie Industries

How James Hardie Founded the Company

James Hardie Industries has a long history dating back to the 19th Century. It all started when James Hardie - the person whom the company is named after - emigrated to Australia from Scotland in 1888. He was around 36 years old when his enterprising nature and search for new opportunities took him to the city of Melbourne in Australia.

There, Hardie set up his first business as a trading company. This trading company was the original predecessor to the business currently operating as James Hardie Industries.

As he came from a family that ran a tannery business, he chose to focus on importing animal hides, oils, and other tanning agents. However, recognizing the need for growth and expansion, the James Hardie company began to branch out and acquire import agencies for various other products as well.

Andrew Reid Joins the Enterprise

While James Hardie was conducting his business in Australia, he kept in touch with fellow Scot, Andrew Reid, whom he befriended while working as a shipping agent in Scotland. Encouraged by Hardie’s success in Australia, Reid also headed to Melbourne in 1892 to join Hardie's business. By 1895, around the age of 28, he became a full partner.

The two men brought their special strengths to the table; Hardie’s sound economic judgment complemented Reid’s enthusiasm and vision. The business benefited greatly from the influence of the two business partners.

james-hardie-andrew-reidSource

Business in the Early Years

In 1903, while Hardie was on a trip to London, he encountered a new material known as "fibro-cement". This was a building composite invented at the end of the 19th Century in France. It used asbestos fibers to reinforce cement sheets and was widely used as a roofing and lining slate.

Demonstrating incredible business sense and foresight, Hardie decided to start importing the material into Australia. The new material proved to be immensely popular as not only was its low cost and highly durable, but it was also fire-proof and easy to transport – ideally suited for Australia's hot climate.

This decision proved to be pivotal as the company became the largest dealer of asbestos cement at that time.

james-hardie-storefront-1903Source

Key Takeaway 1: Take Calculated Risks

James Hardie was a man who understood the importance of seeking out novelty and taking calculated risks from the beginning.

His astute business sense recognized the potential of penetrating the market for fibro-cement. Not many people were aware of it in Australia, and it was a risky move.

But soon, it went on to become the product for sturdy and affordable construction. Poetically enough, it also laid the foundation of the giant business entity that we know James Hardie Industries to be now.

Thus, venturing into the market with a new product did have its risks, but also propelled the company to new heights.

The Early Developments and Challenges

Hardie Retires and Reid Takes Over

The first major change that the company went through was the retirement of James Hardie. In 1911, at the age of 60 and after almost 23 years of leading the business, James Hardie called it a day.

As he left, Hardie sold his half of the business – shares amounting to £17,000 to his partner Andrew Reid.

This change in leadership had the potential to negatively impact the company since the balance between the two partners who worked off each other's strengths was disrupted. However, fortunately for the James Hardie Industries, this was not the case.

Andrew Reid was able to lead the company well enough and successfully navigate the uncertain times during and after World War I. Even though the company retained the original name of James Hardie, it was the Reid family that led the expansion of the business from 1911 till 1995.

The Outbreak of World War I

The first challenge that the company was faced with was whether it could survive through the rough times that the first world war had brought in its tow.

Before the outbreak of the war, the James Hardie company enjoyed the rising sales of imported fibro-cement products. However, once the war erupted in 1914, it spelled disaster for the global economy.

It resulted in the disruption of shipping which adversely impacted trade between countries. In Australia, export industries suffered due to the closing of markets, capital inflow slowed abruptly, and vital imports were cut off.

This ban on imports was the most significant blow to James Hardie as its entire business relied on importing products. Responding promptly to the situation, the company made the critical decision to start producing fibro-cement products within Australia.

Initially, it did have to import the machinery to produce asbestos cement, but by 1917, it had started fiber-cement production at its own plants.

This proved to be a great decision in the post-WWI context. Australia experienced a boom in the housing industry, and as fibro-cement building materials were affordable, easy to manufacture, and quick to install, their demand surged.

The company went from the leading importer of fibro-cement to become a thriving manufacturer of building materials within Australia.

Key Takeaway 2: Turn Challenges into Opportunities

When James Hardie was faced with the ban imposed on imports, it could very well have spelled the end of the company. But where others would see a dead end, the company’s leadership saw an opportunity.

By choosing to begin the production of fibro-cement materials in Australia, not only did James Hardie successfully overcome the challenge, but it also laid the path for the company to become self-reliant through production in the long run.

Technological Advancements and Subsequent Expansion

The Development of the Sutton Process

When the company first began its production, it focused on asbestos reinforced cement. However, instead of stopping there, James Hardie decided to experiment with its technology and sought to innovate.

By 1920, James Hardie had begun to develop its own fiber cement formulas and production processes. They were motivated by the need to come up with cost-effective production practices and improved building materials.

James Hardie’s first breakthrough came in 1923 when the company introduced the “Sutton Process.”

Named after the employee who had developed it, the process used flat sheets of asbestos cement wrapped around a mandrel and cured underwater to form pipes. This pipe-making process was particularly beneficial due to the low capital cost it required.

By 1926, within a few years of introducing this new technique, James Hardie had successfully refined the whole process to the point of perfection.

Due to the Sutton process, the company was able to make pipes that measured up to 3.6 meters in length and that too at considerably lower costs than the traditional pipe production techniques.

The Company Expands its Operations in Australia

Following the Sutton process, the operations grew to the extent that the James Hardie Industries felt it necessary to split into two different branches.

Thus, it separated its import agency operations by assigning them to a separate company, and meanwhile, enhanced its focus on further building its fiber-cement business.

The company consistently kept working on improving its production processes and technological efficiency. This continuous investment led to the company adding the latest and most modern equipment in construction technology by the end of the 1930s.

The low-cost alternative processes helped cut down on costs and allowed the company to expand its production operations across Australia with plants in Sydney, Victoria, Western Australia, Newstead, and Riverdale.

James Hardie Starts Mining Asbestos

After the successful venture into fibro-cement production, the next step for the company was to set up its own asbestos mining operations. This decision was partly driven by the substantially increased demand for material following World War II.

In 1944, James Hardie formed the Asbestos Mines Pty Ltd. as a joint venture with Wunderlich, a CSR company. The mine was opened in Baryulgil, which was a small Aboriginal Australian community. The residents of the indigenous community were offered full-time jobs, and by 1949, the mines had 35 employees.

1944-james-hardie-asbestos-minesSource

Although the mine yielded a relatively small asbestos output, it greatly contributed towards meeting the high demand for the product.

Branching out the Business

The company’s growth was further supported by its move to get listed on the ASX (Australian Stock Exchange) in 1951. James Hardie thus became a publicly owned company in Australia.

Meanwhile, the company continued its pursuit of innovation and, in 1959, launched a new production process called the 'autoclave'.

The autoclave was a steam-curing process through which asbestos cement pipes were made resistant to sulfate attacks.

All these developments were aimed towards the company diversifying its portfolio and configuring itself to broader expertise. 

So much so that by the middle of the 20th Century, the company had expanded its expertise in asbestos to various other areas such as automobile products and railroad brake components.

It eventually came to be recognized as the largest manufacturer and distributor of building products, insulation, pipes, and brake linings containing asbestos. The company was branching out regarding its range of operations and building a diverse profile of manufactured goods.

Key Takeaway 3: Innovation and Diversification Are Critical For Growth

The development of the Sutton and the autoclave processes depicted James Hardie's refusal to stay content with the familiar and ordinary.

Instead, the company opted to invest in technological research and look for innovative ways to make its production process more efficient and cost-effective at the same time. The result was improved products at lower costs.

The other reason behind James Hardie's continued growth during these decades was that the company did not limit itself to one mode of business, choosing instead to build up a diverse profile.

It looked towards new avenues and decided to begin mining asbestos, even with the fiber-cement business. The way that James Hardie continued to innovate, diversify and branch out really helped it expand its operations across Australia and eventually the world.

The Company Faces the Greatest Challenge to its Expansion

Merger and Expansion into International Markets

In 1962, James Hardie entered into a joint venture with Turner & Newall - the United Kingdom's leading manufacturer of asbestos products. 

It was basically a merger of both companies' brake lining division, with James Hardie taking 60% of the shares. The company would later go on to purchase the remaining 40% in the year 1980.

James Hardie also branched out into other international markets, specifically in the Pacific Southeast. The company even had its shares in the fiber cement production plants located in Malaysia and other parts of the world.

The Dangers of Asbestos and the Company’s Initial Response

During the middle of the 20th-century, concerns regarding the health hazards of asbestos started rising at an alarming rate. 

Workers exposed to asbestos products were developing different pleural abnormalities like asbestosis and malignant mesothelioma.

asbestos-manufacturing-plantSource

Considering all these dangers, the company realized that the asbestos business could not be sustained in the long term. For the sake of its employees’ health, James Hardie began working towards developing asbestos alternatives to reinforce cement.

Following the late 1970s, James Hardie focused its efforts on developing a sustainable and more health-conscious production model. At the same time, it also continued its policy of diversification.

This change in strategy was well-timed, too, since governments all over the world had started banning the use of asbestos by the late 1970s. It was apparent that the asbestos industry would not survive for much longer.

Reorienting the Business

How did James Hardie, whose entire business model was heavily reliant on asbestos, manage to survive this global shift?

The company had always displayed a knack for amazing foresight, which was why it had initiated efforts to develop asbestos-free fiber cement even before the material was banned entirely by the Australian government in 2003.

The company achieved its major breakthrough in the middle of the 1980s when it succeeded in developing a new cellulose-based fiber to reinforce cement.

At the same time, James Hardie also introduced a new insulation material that was based on magnesia. These successive developments were extremely fortunate for the company since they allowed it to gradually completely move away from the asbestos market. 

While James Hardie was developing alternatives, it went through numerous structural changes as well. Throughout the 1980s, the company reoriented itself to function primarily as a building products business. 

It continued to expand into different areas; an example being its acquisition of Reed International’s paper operations and Australian publishing for $52 million.

Following this purchase, James Hardie divided itself into three basic business units: Building Products, Paper Merchanting and Converting, and Technology and Services.

Key Takeaway 4: Learn From Your Mistakes and Grow

When the health concerns of asbestos became serious, James Hardie did not hesitate in changing its production completely.

The company reinvented itself in these two decades and revamped its business model to accommodate safe practices. Once again, R&D was a critical factor in helping the company overcome serious challenges.

The development of the cellulose-based fiber cement was a game-changer for the company since it could now phase out its use of hazardous asbestos while retaining its business as a building products manufacturer.

Hence, instead of sticking to the mistake, they found a way to ensure it never happened again – propelling the company into the future of customer and employee-centric practices.

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Dawn of a New Era for James Hardie

Expanding into the United States

The development of asbestos-free fiber cement encouraged the company to boost its exports. The U.S market was of great interest to the company, so it focused its efforts on penetrating there.

In 1988, James Hardie set up a subsidiary in the U.S. and started marketing its fiber cement products to the United States' building industry. Initially, the company imported its products from Australia to meet the sales in the U.S. Eventually, James Hardie opened its own fiber cement production operations in the United States, with its first plant opening in Fontana, California, in February 1990.

However, despite setting up a production facility in the U.S., it was difficult to persuade the local builders to switch to James Hardie products instead of sticking with the traditional vinyl and treated hardwood materials.

The shift was so slow in the coming and so hard to bring about that a review of the company's operations in 1991 even suggested the management shut down its plant in the U.S. However, James Hardie decided not to exit the U.S. market just then, choosing instead to grind it out.

This decision paid off for the company, as after going through an economic recession, the U.S. building market entered a phase of revitalization. Fibre cement's strength and versatility sparked the interest of the U.S. market, and by 1994, the James Hardie subsidiary was able to report its first profit.

Unsurprisingly, the fiber cement business became the company's largest source of profit. By the end of the 20th Century, around 1998, 45% of its sales were attributed to the U.S., which conversely also made up for 61% of its profit.

Within two years, James Hardie owed 60% of its annual revenue and 90% of its profits to the U.S.

James Hardie Goes Through Another Significant Change in Leadership

Even after the company went public in 1951, the Reids were major shareholders and thus maintained their influence over the company. This continued until 1995, where the business was predominantly under the control of the Reid family.

That year, John Reid - the grandson of Andrew Reid - was forced to resign from his position as the company's head. This change was brought about because of a costly loan guarantee made through James Hardie in the late 1980s.

It was a significant turn for the company since it had gone on for decades under the leadership of the Reid family, and suddenly this was no longer the case.

Replacing Reid was Keith Barton, who immediately set about reorienting the company according to his own vision. Firstly, he highlighted the building products segment of the business as the point of special focus. Furthermore, he also decided to focus on growing the business in the United States.

In line with these motivations, the company pushed towards entering the U.S. gypsum wallboard market. At the time, this accounted for 50% of the worldwide market. James Hardie built and also bought plants in the states of Georgia, Nevada, Louisiana, and Texas. Additionally, the company decided to start its own mining operations for gypsum as well.

Within two years of taking over, Barton had managed to expand the company once more. James Hardie purchased the Australian Boral Ltd.’s Briar Gypsum plasterboard operations in Arkansas in 1997 at the cost of A$121 million.

This acquisition increased James Hardie’s production capacity by 2,000 million square feet. Thereby, James Hardie became the fourth largest producer of gypsum in the United States.

Taking Responsibility

In 1999, James Hardie received numerous files for compensation related to asbestos injuries. James Hardie and its subsidiaries had already been providing monetary compensation to the victims of its asbestos operations since the 1980s.

Although a judicial inquiry in 2004 claimed that James Hardie was under no legal obligation to provide compensation, the company still found it in its best interests to negotiate a compensation deal.

Finally, in February 2007, the shareholders approved the Amended and Restated Final Funding Agreement so that the company would provide long-term funding to AICF - the Asbestos Injuries Compensation Fund.

The company took responsibility for the damage caused by its previous operations and worked toward ensuring the future health and safety of its employees. It dedicated itself to developing safe and sustainable production practices.

Establishing James Hardie Industries and Expanding the Fibre Cement Business

During the late 1990s, James Hardie also decided to establish a new Dutch holding company - James Hardie Industries NV. JHI NV was appointed in order to control the fiber cement and gypsum business.

Within the company’s previously existing structure, there were many financial inefficiencies associated with repatriating U.S. based profits to Australia. Therefore, to avoid incurring additional taxes, the company became a resident of The Netherlands to benefit from the US-Netherlands tax treaty.

The shift to the Netherlands also helped to distance the company from the negativity surrounding its involvement in the asbestos liabilities in Australia. However, the company maintained its listing on the ASX and the core of its Australian shareholders as well.

James Hardie’s business prospects also looked up, with the fiber cement business doing especially well. In the year 2000, the company added six more fiber cement plants in the U.S and opened a new facility in Texas.

The United States was experiencing a boom in its construction industry, with mortgage rates dropping and the demand for fiber cement products escalating.

The fiber-cement industry was not only flourishing in the U.S. alone. By the end of the year 2000, James Hardie had also expanded into South America - buying a factory in Chile - and even in Asia by operating a plant in the Philippines.

However, at the same time, the business for gypsum was dwindling. By 2002, the company had sold off all its divisions related to gypsum and exited the gypsum business altogether.

The company had now refocused itself primarily as a fiber-cement business once again.

The Company Shifts its Corporate Domicile to Ireland

After the US-Netherlands tax treaty was amended in 2004, the company found it difficult to adapt its operational structure in compliance with the new regulations. This was an important driving factor in the decision to relocate the company’s corporate domicile.

According to Dutch law, the company was allowed to move its domicile within the European Union itself, provided that 75% of the shareholders agree to the shift.

Certain factors such as a stable political environment, a well-educated workforce, and a robust legal and taxation system heavily influenced the decision as well.

In February of 2010, James Hardie Industries finalized its transformation into a Societas Europaea (SE) company and also moved its corporate domicile to Ireland. In June of the same year, the company implemented the shift and became subject to Irish law.

Key Takeaway 5: Adapt to the Changing Business Trends

James Hardie was able to survive such challenging times because they responded well to the changes in the business arena.

The company management saw the potential of sticking with the initial operations in the U.S. even though profits were not immediate. This decision paid off in later years by establishing James Hardie as a leading name in the U.S.

James Hardie was also wise to sell off its gypsum business when it saw that the market for that division was not doing well.

The company was always receptive to the market trends, whether it be related to reorienting its business model or managing a PR crisis, as in the case of the asbestos liabilities. Adapting its strategy along with the changing situation was the key factor in James Hardie's success.

The James Hardie Industries of Today

James Hardie Industries has continued to grow since the big changes it went through in the preceding decades. 

From 2010 onwards, the company also expanded its operations in Europe and established a presence in the global market.

In 2014, James Hardie began a significant renovation process for its factory in Plant City, Florida. The company brought in the latest equipment and expanded the premises with a 100,000 square foot addition, making the plant the largest of its kind in the world.

In April 2018, James Hardie Industries also acquired Fermacell, a fiber gypsum and cement-bonded boards business. This way, the company once again came to deal in both fiber cement products and fiber gypsum as well.

Let’s look at how far the company has come and how it continues to evolve and grow:

Overview of the Current Business Model

Currently, James Hardie Industries presides over four different operations that fall under the umbrella of James Hardie International Group Limited and they are as follows:

  1. James Hardie 117 Pty Ltd
  2. North America’s Fibre Cement Operations
  3. Asia Pacific Fibre Cement Operations
  4. Europe Building Products Operations

The company markets its fiber cement products under a variety of brand names, including:

  • HardiePlank
  • HardiePanel
  • HardieTrim
  • HardieBacker
  • Aspyre Collection by James Hardie
  • Artisan
  • Reveal
  • Cemplank
  • Scyon
  • Linea

Its fiber gypsum products, on the other hand, are marketed under the brand Fermacell. The company also sells fire-protection boards under the brand name AESTUVER.

Sustainable Practices

The company has dedicated its resources to pursue sustainable manufacturing practices. Most of James Hardie’s raw material comes from local sources in order to cut down on the negative environmental impact caused due to transportation of materials.

James Hardie also follows wastewater and air emission regulations. The wastewater from the factories is internally recycled and reused before being discharged into publicly owned treatment plants.

How James Hardie Handled the Pandemic

When the COVID-19 pandemic struck, the company’s priority was the safety of its employees, customers, partners, and products.

The company offered its employees 80 hours paid COVID-19 sick leave, distributed 60,000 masks, and conducted 3,918 COVID tests. Moreover, the company also offered a free onsite daily lunch program.

As for the business side of things, the company worked towards cutting down on costs and prepared for a slow recovery. The pandemic did, however, lead to some tough but necessary decisions, such as scrapping dividend payouts and the planned closure of three factories.

However, business analysts still pegged James Hardie as the top candidate to emerge out of the pandemic in solid shape once the economy starts to stabilize.

Indeed, the company’s annual report for the fiscal year 2021 show record results, with the net sales of North America Fibre Cement Segment increasing by +17%, the Europe Building Products Segment net sales increasing by +12%, and the Asia Pacific Fibre Cement Segment net sales increasing by +11%.

Vision for the Future

James Hardie Industries views its investments in Research and Development to be critical to its organic growth. By innovating new products and technologies that emphasize sustainability and reduce the company’s operating costs.

The company's current leadership envisions James Hardie as a global consumer-branded company that delivers organic growth with consistent and strong returns.

In 2019, James Hardie had adopted LEAN - a system of management practices aimed at improving efficiency and effectiveness by cutting down on waste. The company will continue this strategy as it leads to substantial savings and allows the company to deliver high-quality products at lower costs.

In the future, James Hardie seeks to engage the homeowners directly through its marketing strategy. It also seeks to expand the business by maintaining existing and venturing into new markets.

Lastly, James Hardie seeks to achieve global innovation to address the market gaps and grow organically.

Key Takeaway 6: Play to Your Strengths

James Hardie Industries’ current success can be owed to the fact that it never lost sight of its strengths.

Once it became clear that the company’s fiber cement business was the one thing that was consistently doing well across the global markets, James Hardie chose to focus their business model around it.

Within the fiber cement business, James Hardie made sure to adopt a differentiated approach to offer endless possibilities for both external and internal designs.

The company focused its efforts on what it knew best and gradually invested in expanding the business over time in an organic way.

Strategic Takeaways

Growth by the Numbers

Year

2021

2017

Share Price

$53.81

$22.62

Annual Revenue

US$2,909 Million

US$1,922 Million

Dividends

US70.0 cents per share

US28.0 cents per share

Workforce

4,800

2,390

Annual Gross Profit

US$1,052 Million

US$675 Million

Following are the critical takeaways from James Hardie Industries’ 130+ years of business:

Respond to Market Demands

A crucial factor behind James Hardie’s success was that the company had a deep understanding of which specific product markets had potential from the very beginning. It transitioned from an import business to becoming a specialist in fiber cement products because it recognized these products' growing demand.

The company also abandoned its fiber gypsum operation when it saw that the market prospects for gypsum products were not looking good. But once the material came back in demand, James Hardie acquired Fermacell to get back into the fiber gypsum market.

Pursue Sustainable Business Models

Another key takeaway from James Hardie’s journey would be to prioritize sustainable growth. James Hardie delved into acquiring the raw materials for manufacturing its products by opening its own mining operations.

By ensuring that the raw materials for manufacturing their products were locally sourced, they not only cut down on transportation costs but also avoided the resulting adverse impact on the environment.

Invest in Research and Development

James Hardie owed its expansion and growth to the development of innovative production processes that cut down on costs and provided an improved quality of goods that delighted its customers.

Innovation and technological advancement can offer cost-effective business alternatives to existing production practices, and no one knew that better than James Hardie. That's not all. Innovation also leads to major breakthroughs, such as James Hardie's breakthrough in developing cellulose-based fiber cement.

Innovation helped the company stay in business after the banning of asbestos and continue to scale up.

Think About Long Term Gains

The company succeeded partly due to the foresight displayed by its management. If James Hardie had exited the U.S. market based on the less than successful performance in the first few years, then it might not have grown into the industry giant it is today.

The company’s decision to look at the bigger picture and not be disheartened by the short-term failure was what led to it finally reaping profits in the North American market.

Makes Mistakes But Learn From Them

James Hardie made its fair share of mistakes, as is natural for any business. But what is more crucial is that James Hardie Industries used those mistakes to learn valuable lessons. The continuance of asbestos operations despite the health hazards was a serious matter.

James Hardie recognized how crucial it was for businesses to practice safe and sustainable models of business. Now it complies with various policies aimed at ensuring a safe and healthy working environment at the company.

Despite all the odds, James Hardie Industries remains committed to growing organically and becoming a trusted name in the market. 

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