Ditching diversification.

Since taking the CEO seat at Pittsburgh-based PPG Industries in 2005, Charles (Chuck) E. Bunch has been leading a charge to transform the coatings, glass and chemical company into a more focused and more global entity. CE talked with Bunch about his ambitious acquisition and divestiture program for the $10.2 billion company--and the strategy behind the dramatic change.

You recently announced a $3 billion acquisition of the European coatings business SigmaKalon, as well as the sale of two of your automotive glass businesses. How do these transactions factor into your growth plans for PPG?

PPG started as a glass company, added the coatings business about 20 years later, and then integrated into the chemicals business. In today's capital markets, investors want companies to be more focused. Size is still viewed as an advantage, but they want companies that are deep, not necessarily wide.

As a result, we face a challenge: transitioning from a more diversified company to a more focused company. We've made some progress in the last 10 years by growing our coatings businesses organically and also through acquisition activity, and by not being as aggressive in growing our glass and chemical businesses. In recent years, we decided on a more aggressive approach that includes both acquisitions focused again on coatings and optical markets, as well as actively divesting some of our glass businesses. We want to take the portfolio into just a few areas where we have clear leadership in focused, differentiated, value-added products.

What has been most challenging about that process?

The acquisition of SigmaKalon in July was a pretty big move for us. And we followed that with the sale of two automotive glass businesses representing $1 billion in sales to a private equity firm and the sale of a business in our specialty chemicals portfolio.

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Pulling these businesses, which represented 10 percent of our company, out of the portfolio is tough for our company culturally. They are some of our biggest and oldest businesses.

These are successful businesses. Is Wall Street's love of focus a big enough reason to make such a dramatic change?

Focus is a consistent theme, but it's also about global position. In auto glass, we now had a position where we were No. 1 in North America, but we didn't have a strong global position. In today's global markets where customers are consolidating and where most of the growth is now in developing parts of the world like China, India and Eastern Europe, you have to be willing and able to deploy assets and technologies to project your businesses around the world. We were in a situation where I don't think we could serve our customers in the way they wanted to be served around the world.

How long do you expect the transition to take?

We hope to complete the divestitures in the fourth quarter and complete this acquisition by the end of the year. Then over the next couple of years, we'll have to execute--integrate the acquisitions and manage the remaining glass and other businesses through the loss of some of their scale. So we're still a couple of years out on it.

What percentage of your sales and your earnings were from outside the U.S. five years ago versus today?

Five years ago, less than 30 percent came from outside the U.S. Next year, after we close these acquisitions, almost 50 percent of earnings will be from outside the U.S. And then looking at the growth rates, even if we do nothing else with the portfolio, in five years we would be close to 60 percent outside of North America. We'll have doubled our exposure in the company to the rest of the world rather than North America.

How difficult is it to find skilled workers in these markets?

It's a huge issue. We have to find and train people, teaching them not only the skills that they need from a business and technical standpoint, but also the PPG culture. To transfer businesses to growth regions you need people to execute. And you can't do it with expats. You need people on the ground who can speak the language. Young people in China are wonderful, but they don't necessarily have the right business skills and education or fit into the culture of a Western company.

What would you say is your biggest worry or concern today?

As a predominantly U.S. company, you worry about contracts with customers or economic policy on energy or health care. You don't worry as much about political instability and terrorism. Today, with this kind of geographic diversity, I can pick up The New York Times on any given day and be worried about something that's happened to our businesses. For example, there are terrorists blowing up pipelines of oil and natural gas in Mexico, so you get worried about that. You worry about instability or corruption in the Middle East or in Russia.

You spend about half your net profits in R & D. Can you tell me about three innovations that have come out of your program?

We developed Transitions, a photochromic lens that is clear indoors and turns sunglass-dark outdoors. We developed electrodeposition, an electrocoating process that revolutionized auto body paint and eliminated rust in cars. And we developed Teslin sheet, a synthetic printing material that will be used in tags incorporating RFID technology, among other things.

R & D is one of the most important things that we do. Our best positions in markets are typically when we are able to develop value-added, differentiated products that clearly create value for our customers. Being a research and development leader is the best way for us to create sustainable shareholder value.