The Dow Chemical Company
Headline Case Study
Megan Phillips
York College of Pennsylvania
Megan Phillips
About Dow Chemical
Dow is a company that serves over 180 countries by combining science and technology
to innovate in specialty chemicals, advanced materials, agrosciences and plastic businesses.
Incorporated in 1897, Dow began with the purpose of manufacturing and selling bleach on a
commercial scale (“History,” 2014). In 2013, the company had profits of $57 billion and
employed 53,000 across the world. In addition, it produced over 60,000 products that were
manufactured in 36 countries at 201 sites, making it a formidable force ("The DOW Chemical,"
2014). It has product segments of Electronic and Functional Materials, Coatings and
Infrastructure Solutions, Agricultural Sciences, Performance Materials, Performance Plastics and
Feedstocks and Energy ("The DOW Chemical," 2014). The overall strategy of the company is to
“invest in a market-driven portfolio of advantaged and technology-enabled businesses that create
value for our shareholders and customers ("The DOW Chemical," 2014).”
SWOT Analysis
Strengths
Weaknesses
- Experience
- Large company
- Resources
-Leaving Original Market
- Diverse Portfolio
- High Margin Products Focus
- Reputation
SWOT Anaysis
Opportunities
- New Markets/Products
- Global Market
-Environmentally Friendly Operations
Threats
- Economy
-Raw Materials
- Costs
A SWOT Analysis, as featured above, is essential in understanding the internal and
external factors that affect a long-running company, such as Dow. Internally, the Dow Chemical
Company has strengths and weakness, which indicate a successful past and a promising future.
The company has 120 years of experience in operations, access to monetary resources, and a
diverse portfolio of goods in varying industries ("The DOW Chemical," 2014). Weaknesses
within the company are its relatively large size, the recent departure from their original bleach
product, and reputation as an environmentally irresponsible company (Rallis, 2012). The main
weakness to Dow Chemical is that they have recently announced their original departure from
the chlorine manufacturing industry. Dow is planning to sell off at least $5 billion of their low-
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margin businesses, which is about 10% of their business ("The DOW Chemical," 2014). This
could be problematic for the company with such a lengthy history. They have held a market
leader position within the minds of the consumers for quite some time, thus repositioning the
company in the near future could present difficulties.
Whereas, the strengths and weaknesses are relative of internal operations, opportunities
and threats reflect the external environment. Opportunities abound for Dow Chemical with new
products and the expansion of global markets, will result in additional markets for the company
("The DOW Chemical," 2014). One of the main reasons that Dow is exiting the chemical bleach
industry is because there is a high level of competition and therefore low profitability in the
market. The company is refocusing on higher margin products that will create higher returns for
shareholders (“DOW Selling Chlorine Chemicals Businesses”, 2013). Threats to Dow include
the consistently fluctuating domestic and global economy, the availability of raw materials for
products, and variable costs of materials ("The DOW Chemical," 2014). Porter’s 5 Forces Model
is also essential in understanding the nature of competition within an industry. Dow Chemical
operates in several industries due to its wide product portfolio. The model below examines the
Inorganic Chemical Manufacturing industry.
Porter’s 5 Forces Model
Threat of
New
Entrants
Power of
Suppliers
Level of
Competiion
Power of
Buyers
Substitutes
Threat of New Entrants
The barriers to enter the Inorganic Chemical Manufacturing industry are medium, but
increasing. There is a high need for capital as specialized equipment and workforce is necessary
to operate in the industry (Phillips, 2014). Additionally, in this industry investment in research is
necessary as new products are imperative to businesses. However, the most prominent barrier to
entry is the regulation of operations by governmental and environmental groups—these
combined barriers make the threat of new entrants low (Phillips, 2014). As Dow entered this
industry over 100 years ago, they had a relative advantage over new competitors because the
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level of technological change and fixed costs were low. However, the recent volatility of the
industry proved reason to executives that the low cost and low margin no longer proved valuable
to Dow Chemical.
Power of Buyers
Companies must establish a relationship with buyers in the manufacturing and
construction sectors, which are generally the end users (Phillips, 2014). This means the power of
the buyers is high in this industry—as it was reflected with the recession of 2008. From 20082009, revenues dropped a staggering 16.3%, but have steadily increased in the years after the
recession (Phillips, 2014). The volatility of this industry may explain why Dow Chemical is
selling off their equipment and technology in favor of high-margin products.
Substitutes
There is opportunity for substitutes in the Inorganic Chemical Manufacturing industry,
such as soda ash manufacturers in comparison to glass substitutes (Phillips, 2014). This industry
is globalizing at a higher than average rate, so companies are also competing with imported
chemicals. These chemicals are produced at facilities that are large-scale and low cost, making
them a viable substitute (Phillips, 2014). The amount of substitutes could also be a reason that
Dow Chemical made the decision to exit the industry.
Power of Suppliers
The “Power of Suppliers” is strong in the Inorganic Chemical Manufacturing industry
because access to competitively priced raw materials is essential to staying competitive.
Economies of scale are also favorable to the purchaser as large volumes of production reduce
costs (Phillips, 2014). The result of this is that suppliers have a high power because they rely on
these industries to do business (Phillips, 2014). The variable supply of costs and reliance on
supplies resulted in low margins in the inorganic chemical industry, which was another
contributing factor of Dow exiting the industry.
Level of Competition
The level of competition within the Inorganic Chemical Manufacturing industry is high,
the main competitors: Dupont and Dow Chemical only make up 7.4% and 5% of the industry
(Phillips, 2014). The industry is in the mature portion of the product life cycle and is in a
relatively fragmented market (Phillips, 2014). As a result, competitors receive low margins
resulting in a price war because the industry’s technology and quality has not changed (Phillips,
2014). As Dow operates within this industry, the company and senior leaders have had to
maximize on opportunities and reduce the presence of threats. These opportunities and threats
will require quick thinking and strategy reformulation by the company.
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Organizational Situation
Opportunities
The opportunities that Dow Chemical should exploit in the future will be in new global
markets and new higher margin products ("The DOW Chemical," 2014). For example, the
company is refocusing on the ‘Electronic and Functional Materials’ segment because of its
commitment to continuously innovate and rapidly produce new products. Therefore, this
segment will have a better chance to maximize opportunities in emerging geographical areas,
such as China and India, along with high-growth industries ("The DOW Chemical," 2014). The
sales grew by 5% from 2012-2013 and with the global recovery on pace, emerging economies
should be a source of growth as their interest grows in home and personal care products, along
with an increase in demand for higher “specialty biocides and for cellulosics used in food and
pharmaceutical applications ("The DOW Chemical," 2014).”
Threats
The global economy is one of the greatest threats to Dow Chemical. The company
attributed 67% of its sales and 47% of its property investment outside of the United States ("The
DOW Chemical," 2014). This means that the company is vulnerable to elements such as
fluctuation in currency exchange values or the unstable nature of politics in emerging countries
("The DOW Chemical," 2014). The company attributes two-thirds of its sales to countries
outside of the United States, which makes them vulnerable to factors such as legislation of a
respective country. However, Dow Chemical’s management has implemented several measures
to reduce these threats, as discussed later.
Company Reaction
Opportunities
The company is capitalizing on the opportunity by adding production facilities and
eliminating their low-margin chlorine-related products. As noted by Dow’s Global Director of
Energy and Climate Change Policy, Russel Mills, “It will be especially important to address
mutually beneficial sustainable growth opportunities for developing nations (Mills, 2012).” Dow
executives have also committed to growth in high-margin technologies which will enhance its
financial strength ("2012 Annual Report," 2013). As pictured below from the 2012 Annual
Report, Dow has developed their portfolio for the purposes of integration, which will allow the
company to grow in the future by developing technology ‘downstream ("2012 Annual Report,"
2013).’ Thorough planning will give the company a consistent vision and provide a guideline for
Dow to capitalize on the opportunities of developing economies and new technologies.
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Threats
Dow Chemical is minimizing the threats of the global economy in multiple ways, even
though their 2014 business plan assumes a similar macroeconomic environment as 2013 “The
DOW Chemical Company”, 2014). Foremost, they are committing to paying down on debt to
reduce the risk that creditors would call in outstanding debts ("2012 Annual Report," 2013).
They have also increased investments in enterprise growth projects in the U.S. Golf Coast and
the Sadara joint venture in the Middle East ("2012 Annual Report," 2013). By establishing jointventures in overseas operations, Dow Chemical receives access to new markets, distribution
networks, increased capacity, shared costs/risks, and access to resources (employees, financing,
and technology. Management reduces these threats by generally starting bought or new
technology—especially if overseas—as joint ventures. Additionally, to manage the global
economy risk, Dow Chemical enters into hedging transactions—using options and futures—
pursuant to established guidelines and policies (“The DOW Chemical Company”, 2014).
Personal Recommendations
Although the Dow Chemical Company officials are managing their opportunities and
threats with due diligence, there is room for improvement. For example, due to the global
economy, Dow has little price power—they lost 1.3 billion in lost price in the 2nd half of 2012
("2012 Annual Report," 2013). My recommendations for top officials and managers include
eliminating, raising, reducing, and creating certain factors within the company. Eliminating
lower margin products, such as the chlorine and polypropylene, will allow the company to focus
on new technology (“The DOW Chemical Company”, 2014). Raising prices and releasing new
technology will benefit the company by positioning it as a high-quality product; the company has
recently been subject to downward prices globally (“The DOW Chemical Company”, 2014). In
order to limit the effects of a global economy, the company should reduce new joint ventures
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and/or attempt to establish more control of processes in current joint ventures where they have
50% or less ownership of the company (“The DOW Chemical Company”, 2014). As they are
currently in the process of creating higher-margin products, the company should invest more in
the Research & Development sector of the business. The global economy is recovering, but
overall it is unstable so investments should only have a moderate increase ("2012 Annual
Report," 2013). A visual representation of my recommended actions for Dow Chemical is below
in a Four Actions Framework.
Four Actions Framework
Eliminate
Raise
Low Margin Segments
Price
A New Value
Curve
Reduce
Create
Joint Ventures
High Margin Segments
Dow Chemical Strategy Canvas
8
7
6
5
4
3
2
1
0
Old Strategy
New Strategy
Industry
The “New Value Curve” is represented in the Strategy Canvas shown in the graphic
above. Traditionally, this industry has high purchase and wage costs due to the materials and
skill of workers needed (Phillips, 2014). However, by establishing themselves as a market leader
in quality and buying for economies of scale, the company should retain lower-cost purchase
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contracts (Phillips, 2014). Long-term contracts and good relationships with suppliers and buyers
are vital in this industry as there is a limited amount of each (Phillips, 2014). Although higher
buying prices may turn away customers of lower-margin products, that is the desired effect. The
company should move towards higher-margin products as it develops new technology. However,
this price increase should reflect an increase in quality, which would result in the reduction
and/or increase of control in joint ventures. By establishing standards throughout the company, it
delivers a consistent product or service to the customer, which increases customer loyalty.
Additionally, as a company with less-than-ideal image to the environmentally aware, Dow needs
an increase their environmental reputation (Rallis, 2012). Increasingly, end-users are looking for
a high quality product that is environmentally friendly, so it would be beneficial for them to
regain control in companies that are hurting the company’s reputation with consumers. Senior
managers should implement changes that optimize the opportunities that they have created by
eliminating poor-performing and low-margin products. In total, Dow Chemical has a very
promising future as they shed their image of low-margin products and move towards highermargin technology.
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References
2012 annual report. (2013, February 15). Retrieved from
http://www.dow.com/investors/pdfs/161-00784_2012_Annual_Report.pdf
Dow selling chlorine chemicals businesses. (2013). TCE: The Chemical Engineer, (870/871), 7.
History. (2014). Retrieved from http://www.dow.com/company/aboutdow/history/timeline.htm
Mills, R. (2012). Green chemistry. OECD Observer, 98-99.
Phillips, J. (2014, February). Inorganic chemical manufacturing in the us. Retrieved from
http://clients1.ibisworld.com.ezproxy.ycp.edu:8000/reports/us/industry/competitivelandsc
ape.aspx?entid=463
Rallis, D. (2012, November 5). Yet another leak at dow chemical. Retrieved from
http://www3.gmiratings.com/home/2012/11/yet-another-leak-at-dow-chemical/
U. S, Securities And Exchange Commission, (2014). The dow chemical company (1-3433).
Retrieved from website: http://phx.corporate-ir.net/phoenix.zhtml?c=80099&p=irolSECText&TEXT=aHR0cDovL2FwaS50ZW5rd2l6YXJkLmNvbS9maWxpbmcueG1sP2l
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