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The Dow Chemical Company is an American chemical company with headquarters located in Midland, Michigan. Dow Chemical is a multinational firm that has a presence in over 175 countries. As of December 2007, the company was the second largest in the world in terms of chemical sales. From 2003 to 2007, net sales grew from nearly $33 billion to approximately $54 billion. The company employs 46,000 people worldwide. Dow Chemical operates in four major product categories: engineering and basic plastics, industrial chemicals, agricultural products, and hydrocarbons and energy. Dow subdivides the global market into five regions. These are, in order of importance (2007 sales): North America, Europe, Asia Pacific, Latin America, and India/Middle East/Africa.

Dow Chemical Was Founded In 1897 By Herbert H.

Dow, a Canadian chemist. The company began as a start-up enterprise that commercially exploited Herbert Dow’s invention of extracting bromine and chlorine from Midland’s natural supply of underground brine. By 1902 Dow Chemical was producing mass quantities of bleach and potassium bromide. Facing stiff predatory pricing strategies by the British (in the bleach markets) and the Germans (in the bromide business), Dow Chemical early on established the tradition of diversifying its product line based on common process technology. By the early 1940s Dow had expanded well beyond bleach, chlorine, and the bromides and was a major producer of phenol and related products (e.g., dyestuffs), magnesium metal (extracted from seawater), agricultural chemicals, and resins and plastics (most notably, ethyl cellulose and polystyrene), which were becoming one of the company’s most important business areas.

World War II

Dow Chemical played an important role during World War II. And, conversely, the war established for Dow a foundation for its postwar expansion. First, the war demonstrated the strategic and commercial importance of the company’s magnesium process. Most notably, its magnesium metal proved critical to the war efforts as it was needed for making strong yet lightweight parts for transportation equipment and for aircraft. Second, the war compelled the formation of Dow’s important joint venture with Corning Glass (Dow Corning) to produce silicone and related products for military use. As with magnesium, the silicones would prove of important commercial importance in the postwar period. Third, the requirements of the war effort led Dow to establish its position in the great petrochemical complex of the Southwest.

By 1942 Dow had constructed and was operating its Freeport, Texas, complex to turn out products— heavy chemicals and ethylene-based synthetics—for the military. Over the next 60 years, Freeport would become Dow’s largest site and “one of the largest integrated chemical manufacturing sites in the world.” In 2003 this site alone produced nearly 30 billion tons of chemical products representing nearly a quarter of Dow’s total output worldwide.

Fourth, because of Dow’s ability to mass-produce styrene, a critical ingredient in styrene-butadiene synthetic rubber, the war introduced Dow as a major player in the synthetic rubber industry and, at the same time, gave Dow its first experience constructing and operating a plant in another country (i.e., a styrene plant in Sarnia, Ontario, Canada).

The Postwar Years

The postwar period has been one of great opportunities to expand upon the advances made during the war, but it also brought great challenges. In the 1960s and 1970s, Dow confronted a series of legal and public relations problems unprecedented for a U.S. chemical company. The issues surrounding such Dow products as Napalm and Agent Orange (both developed for the military during the Vietnam War), the Dow-Corning breast implant controversy, and the DBDC soil fumigant case have continued to plague the company through drawn-out lawsuits and a continued residue of taint to its image right up to the present day.

There were also challenges facing the U.S. chemical industry in general, and Dow in particular. In the 1980s, Dow, as other chemical companies, faced stiff competition from the major oil companies—Exxon, Shell, and British Petroleum (BP), who had integrated backwards into petrochemicals. The large refiners had access to cheap raw materials, deep pockets, and economies of scale that even the chemical companies could not easily match. In the 1990s, the U.S. chemical industry went through a general decline in profits. (except for a peak in 1995–96) due to high feedstock costs, “recession-induced low pricing,” and increasing competition from both chemical and backward-integrated oil companies in different product markets.

Despite these issues and challenges, Dow has grown and expanded as a company over the last few decades. It has done so by retaining a growth strategy for most of the period, and up to the present day. Indeed, the company was willing to go heavily into debt in order to support this focus on growth. As a result, Dow is one of the larger chemical companies that has remained in the field as a competitor to the oil companies in the petrochemicals field. Dow’s growth strategy hinged upon four major interrelated components.

First there was its commitment to an aggressive research and development (R&D) program. Dow of course looked for new products, as it did in its discovery of a commercial process for styrene. However, Dow Chemical concentrates mostly in the business of making basic chemical and intermediate commodties. This focus on improving economies of production (and finding cheap raw materials and feedstock) meant that Dow could successfully use a low-price strategy to gain markets and thus help to expand old markets, and find new ones for existing products.

Second, Dow has proven itself very flexible in changing its organizational structure as it outgrew older structures, and especially to facilitate internal communications and access expanding external markets. Restructuring in the 1960s and 1970s centralized the marketing function and linked R&D more closely with other departments in order to motivate employees to innovate solutions as they came across problems in their areas of expertise. By the 1980s Dow reorganized geographically to take optimal advantage of its growing international network.

Third, Dow Chemical has expanded and diversified through an increasingly robust program of strategic merger/acquisition and joint venture and partnering arrangements. Its first important joint partnership with Corning Glass brought Dow into silicone and its products. In 1960 Dow entered into the pharmaceutical industry by acquiring the drug company Allied Labs. Dow expanded its pharmaceutical business in 1981 with the purchase of Merrell Drug. Dow’s 2001 acquisition of Union Carbide, while highly controversial, has propelled the company into a leading petrochemicals company. Dow’s recent joint venture with Cargill to make polymers from renewable (agricultural) resources has introduced Dow into advanced materials and bio refinery products.

Dow has also been successful in forming outsourcing relationships to further optimize efficiencies. Regarding suppliers, by the 1990s Dow had contracts with 50 qualified suppliers to assure quantity and quality; this helped to improve the quality and cost structure of the company. Dow also has outsourced a large portion of its IT requirements to Accenture, which has helped the company reduce operating costs by $70 million annually while improving time to market by 10 percent.

Fourth, Dow has been successful in taking advantage of the post–World War II globalization movement. Dow established its first overseas subsidiary in Japan in 1952. But it was in Europe that Dow made its first major incursion. Dow was one of the first U.S. chemical firms “to establish a strong European manufacturing presence.” Following the war, at the request of the German government, Dow took over, refurbished, and operated some of Germany’s largest pre-war plants. Dow completely integrated these plants to form one, large complex. By 2000 Dow had a world-sized plant built at relatively low cost to itself and strategically located to the markets of both western and eastern Europe. In the 1960s, Dow built a large chemical complex in Terneuzen, Switzerland, and under the threat of an aggressive pricing strategy, Dow expanded its European presence as a supplier of chlorinated solvents including carbon tetrachloride and chloroform.

In the 1980s, taking advantage of the free trade and privatization policies of the Mercosur countries, Dow entered South America, and made important gains in Argentina. Here, in the late 1990s, Dow acquired the Bahia Blanca petrochemical complex and entered into a joint venture with Petrobas, Repsol, building a 450,000 ton-per-year petroleum cracker. These actions meant that Dow had strengthened its role as a leading player in Mercosur’s petrochemical sector. The latter demonstrates that Dow exploited the advantages of joint ventures with local firms. These benefits included closer availability of raw materials and markets, the sharing of costs and risks, and access to expertise and contacts critical in doing business in a foreign market. For example, Dow (as did BASF) formed a strategic joint venture with Petronas in Malaysia and so expanded the company’s presence in Asia.

Dow plans to continue its four-tiered growth strategy over the foreseeable future, including further acquisitions and joint ventures in its search for new technology and a growing market presence in Europe, Asia, and Latin America. The company is also incorporating into its strategy local environmental, social, and economic needs of the developing countries that it enters.

Bibliography:

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Arora, E. Landau, and N. Rosenberg, eds., Chemicals and Long-Term Economic Growth (John Wiley & Sons, 1998);
“Dioxin Cleanup: State and Federal Agencies Wrangle with Dow Chemical Over Contaminated Rivers,” Chemical and Engineering News (v.86/32, 2008);
“Dow Chemical Co., Annual Report (2007);
Findlay, A Hundred Years of Chemistry, 3rd ed. (G. Duckworth, 1965);
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Haber, The Chemical Industry: 1900–1930: International Growth and Technological Change (Oxford University Press, 1971);
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Whitehead, The Dow Story (McGraw-Hill, 1968);
“What’s Next: India: Bhopal Has Cast a Long Shadow: Now the Legal Wrangling Threatens to Trip Up Dow Chemical,” Business Week (June 9, 2008).

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