DOW'S STRATEGIC PANORAMA

Prepared for:
Dr. John Lang

Prepared by:
Lucas Restrepo Sylva
UWL: 29002500
CTL: 090125-81

MBA
UNIVERSITY OF WALES LAMPETER
COLLEGE OF TECHNOLOGY LONDON
2010
TABLE OF CONTENT

EXECUTIVE SUMMARY .................................................................................................... 3

INTRODUCTION ................................................................................................................. 4
A SHORT HISTORY............................................................................................................. 5
WHY TO BUY R&H? ........................................................................................................... 5
ACQUISITION PROCESS – WHAT WENT WRONG? ......................................................... 6
TURNING WEAKNESSES AND OPPORTUNITIES INTO STRENGHTS ............................ 7
Innovation: the foundation of specialties ............................................................................. 7
Productivity and Brand Equity Synergies ............................................................................ 8
Taking Care of Its Market ................................................................................................... 9
MARKET-RELATED STRATEGIES ................................................................................... 11
Market Penetration and Product Development: The Ansoff Approach ................................ 12
The Power of Being Different ........................................................................................... 13
WHAT COMES NEXT? ...................................................................................................... 14
CONCLUSIONS AND RECOMMENDATIONS ................................................................. 15
APPENDIX 1. INDUSTRY PERFORMANCE AND MARKET GROWTH RATE ............... 16
APPENDIX 2. SWOT ANALYSIS AND TOWS MATRIX .................................................. 19
APPENDIX 3. BCG MATRIX ANALYSIS ..........................................................................20
APPENDIX 4. DOW'S STRATEGIC BUSINESS MODEL .................................................. 23
REFERENCES .................................................................................................................... 24
BIBLIOGRAPHY ................................................................................................................ 26
EXECUTIVE SUMMARY

Dow Chemical has been passing through an enormous change in the last five years from
a top position within the basic chemical segment to being a significant player in the
specialty chemicals market. The general strategy based on the major decision of buying
Rohm and Haas has proven to be successful despite of the adverse economic situation.

The company has moved its pieces towards three main strategies: Market Penetration,
Product Development and Differentiation. These paths will take Dow to a higher share
in a high-growth high-margin market, will capitalize its colossal R&D capacity and
finally will generate recognition and loyalty among customers generating this way,
higher barriers for competitors and new entrants.

Having succeeded in the acquisition process, the new challenges for Dow Chemical are
to switch its actual capital structure through generation of profit and wealth and last but
not least, to take advantage of its powerful strengths to become an 'Earnings Growth
Company'.
INTRODUCTION

On July 2008, Dow Chemical Company, the American chemical giant announced the
acquisition of the also American, Rohm and Haas (The New York Times, 2008). This
announcement had large implications within the chemical industry and pushed Dow to the
realization of its organizational strategy of becoming an 'Earnings Growth Company' (Dow,
2009). However, this acquisition was just one of the set of strategic decisions made by the
company to achieve its goals and the almost failure of this created an adverse situation for the
company, aggravated also by the uneasy economical crisis. At this point external factors like the
K-Dow deal cancellation, the pronounced drop in the chemical market and the unusual high cost
of capital affected the company's financial performance, generating a marked shift in Dow's
capital structure.

Furthermore, the elevated purchase price of R&H and all the acquisition-related costs incurred
by the company placed Dow into a tough position generating discomfort among the
organization and its shareholders. Today Dow Chemical becomes a leader in the specialty
chemicals market and consolidates its position among the chemical industry. Its success is a
story of strategic decisions, leadership and perseverance, illustrating how a company can
survive and overcome the most adverse business environment.

This report will show and analyze the general strategy of Dow Chemical and the impact of the
Rohm and Haas (R&H) acquisition on it. To do this, the following pages will illustrate the path
taken by Dow from 2005 to the actual date, by using specific strategic analytical tools such as
TOWS and BCG matrixes and explaining through standard models the factors that motivated
Dow to acquire ROH and the elements that have contributed to the company's success.

As a constraint, reliable data about Market Share and Market Growth Rates is unlikely to be
found in academic papers and it is only available from expensive market research. The data used
for the construction of the BCG Matrix was calculated from financial statements so it cannot be
taken as absolute value.
A SHORT HISTORY

Dow Chemical was created on 1897 as a plant to produce and commercialise bleach within the
American market (Dow, 2010a). By 1922 the company had the record of the highest number of
new products in its portfolio, including products for construction, agro-science, materials and
chemical synthesis. Within this decade, Dow opened its first R&D laboratory beginning with
this a legacy of innovation. Simultaneously, a German businessman and a German scientist took
their small business from Esslingen, Germany to Philadelphia, USA with the objective of
expanding the market for its leather bates (R&H, 2010). The 30's was a decade of market
expansion for both companies, Dow opened its first international subsidiary in Canada and
R&H consolidated its position in the US market.

Although the 30's were a growing period, it was the WWII the triggering agent for industrial
and material development. The most remarkable achievements for the companies were the
production of magnesium, bromine and silicones by Dow and the development of Polymethyl
Methacrylate (trademarked as Plexiglas) by R&H (Dow, 2010a; R&H, 2010). These products
combined with the high military demand for advanced materials revolutionized the plastics
industry and generated one of the major paradigm shifts in the chemical field.

In the subsequent years the paths of both companies went different ways with Dow's focus on
basic chemicals and plastics and a strengthened position of R&H in the performance and
specialty chemicals. It was only until the 90's when Dow trough mergers and acquisition
(specially the acquisition of Union Carbide), turned its strategy towards specialty chemicals and
performance products and systems (Dow, 2010a). Meanwhile, R&H had expanded its market
not only penetrating the electronic, agro science and coatings sectors but exploiting the
advantages of globalization (R&H, 2010). Nowadays, Dow Chemical taking advantage of its
financial power, has taken the most obvious path towards its market penetration strategy. The
acquisition of R&H is supposed to drive the company to a significant change in its marketing
and revenue structure.

WHY TO BUY R&H?

On July 10 2008, Dow Chemical announced its deal to acquire R&H as a major step towards its
earnings-growth strategy (The New York Times, 2008). This acquisition would take advantage
of Dow's high market share in the commodities segment as well as the high growth rate of the
specialty chemicals segment and it was meant to improve Dow's performance trough generation
of cost synergies and shifting company's revenue structure.

In terms of Porter's five forces (Porter, 2008), the bargaining power of Dow after the acquisition
would be greater than the sum of the bargaining power of Dow and R&H as separate entities.
This would essentially reduce the costs of raw materials and generate barriers for competitors
and new entrants. The cost synergy was estimated around $800 million per year (Dow, 2008)
and at the end of 2009 the total figure reached $1.8 billion (Dow, 2010b) showing an effective
reduction in raw material and operational costs. Additionally, the supply chain integration as a
consequence of the acquisition would include the optimization of distribution channels, with
manufacture facilities around the world and a strategic geographical reach.
Another cost-reducer factor is the integration of the manufacturing operations. The combined
production capacity, the upstream products and processes similarities, the flexible production
systems and finally the closure of redundant plants and facilities make the acquisition an
attractive solution for plummeting operational costs while increasing market share.

As mentioned above, a significant change in Dow's revenue structure was an additional

objective of the acquisition. For a century the company was known for its broad basic chemicals
portfolio including basic plastics and polymers. However, the fast growing market of specialty
chemicals had not been successfully exploited by Dow despite of its incursion in the agro
science and care products segments. As a consequence of its market penetration strategy, Dow
was aiming to shift its revenue structure from the high volume – low margin commodities to the
high performance – high margin specialties generating value and loyalty among its customers
(Dow, 2009).

Figure 1. Dow's Revenue Structure Evolution.

As evidence of the revenue structure shift, Figure 1 shows the changing scenario for Dow
Chemicals in the last decade. Since the merger with Union Carbide (Watson, 2009) on 2001 the
income distribution went from commodities to about 50% in specialty products. At the end of
2009, the figures were close to Dow's objective of 33 – 77% in basics and specialties
respectably (Dow, 2010b).

ACQUISITION PROCESS – WHAT WENT WRONG?

The intention of Dow to acquire R&H paying $78 per share or in other words a total of about
$15.3 billion (Dow, 2008) made this an historic deal in the chemical industry. With this, Dow's
aim to penetrate the specialty chemicals market to compete directly against global companies
such as BASF, SABIC and DuPont was taking a short cut (Watson, 2009). However, this
considerable amount of cash was not in Dow's bank account and the sources of finance became
a significant issue for the entire negotiation. Due to the high cost and low availability of credit,
the company opted for three main sources of capital: debt from Citigroup, Merrill Lynch and
Morgan Stanley, preferred shares to be bought by Berkshire Hathaway and the Kuwait
Investment Authority and the 'K-Dow' joint venture arrangement with Petrochemical Industries
Company (PIC) of Kuwait (The New York Times, 2008; Dow, 2008).

By the end of 2008, Dow Chemical was facing two different threats turning the desired short cut
for market share into an uphill tortuous path. The financial and subsequent economic crisis
generated a marked downturn in the chemical market, dropping prices down to 50% (Dow,
2009). Additionally, PIC withdrew the K-Dow joint venture project due to the abrupt plunge in
the oil price, from $147 per barrel on July 2008 to only $37 per barrel on December in the same
year (Jolly, 2008). With these constraints in mind, Dow announced on January 2009 its inability
to close the acquisition within the agreed term and as a consequence R&H sued the company
requesting the immediate closure of the arrangement (Kouwe, 2009a) taking Dow to an
uncomfortable position for its decision makers.

Instead of additional high cost debt, Dow found financial relief selling preferred shares to the
Haas Family and Paulson & Company (previous owners of R&H) by $2.5 billion and the
company extended the term of its debt by one year paying 15% interest to its creditors.
Additionally, the organization agreed to pay extra $0.99 per share as a compensation for R&H
shareholders (Kouwe, 2009b). Finally, on April 2009 the closure of the acquisition was
announced and the transaction was completed.

TURNING WEAKNESSES AND OPPORTUNITIES INTO

STRENGHTS

After the acquisition of R&H, Dow Chemical has adjusted its strategy according to a new set of
threats and opportunities and also taking advantage of its existent strengths. Appendix 2 shows
the SWOT analysis of Dow in today's environment and using the TOWS matrix (Dyson, 2004;
Johnson, Scholes and Whittington, 2008) it is possible to identify the most significant strategies
adopted by the company. It is noticeable that R&H improved substantially Dow's strengths but
it also important the extent to what R&H's strengths help to overcome Dow's weaknesses and
threats.

Innovation: the foundation of specialties

Through the years one of the pillars of Dow's success has been the importance given to R&D.
This strength has become one of the most significant competitive advantage and brought to the
actual context, it is one of the main SO strategies. As shown in Figure 2, in the recent years the
investment in developing new products and services has increased, even though the sales of the
last year dropped considerably (Dow, 2010b). This investment has been focused on specialty
chemicals rather than commodities as an instrument for the before mentioned objective of
shifting revenue structure.

Figure 2. Reinvestment in R&D

$1,600 3.50%
$1,400 3.00%
R&D Expenses (million)

$1,200
2.50%
$1,000
2.00%
$800
1.50%
$600
1.00%
$400
$200 0.50%

$- 0.00%
2005 2006 2007 2008 2009
R&D Expenses
$1,073 $1,164 $1,305 $1,310 $1,492
($million)
R&D/Sales 2.32% 2.37% 2.44% 2.28% 3.32%

Another component of the innovation strategy is the intellectual property management

(Kotler et al, 2008), here Dow Chemical has a record of increasing number of patents as
a result of the high investment in R&D. In Figure 3, two indicators are shown, firstly the
number of patents per million dollar invested in R&D. An average of 10 between 2006
and 2008 and 11.7 in 2009 reflects not only the consistency of Dow's strategy but the
synergy after the acquisition of R&H. Secondly, the sales-to-patent ratio shows the
revenue generated per each patent owned by the company. An average of $4.6 million
per year is an attractive indicator and an incentive to keep the level of investment.
However, although in 2009 the number of patents was higher by 6000 compared with
2008, the revenue fell considerably due to external factors mentioned above.

Productivity and Brand Equity Synergies

Another SO and WT related strategy is the opportunity to generate synergy from the
acquisition of R&H. This synergy effect can be approached from three different
perspectives, firstly the cost synergy mentioned above, where production systems,
technology and facilities previously owned by each company can be shared for common
benefit giving Dow the ability to reduce redundant processes and take advantage of the
economies of scales.
Figure 3. Intellectual Property and Revenue

12.0 $5.50

11.0 $5.00
Patents/R&D Expenses
$4.50
10.0
$4.00
9.0
$3.50
8.0
$3.00
7.0 $2.50

6.0 $2.00
2006 2007 2008 2009
Patents/R&D 10.0 9.1 9.0 11.7
Sales/Patents $4.21 $4.48 $4.88 $2.57

Secondly, there is also synergy in the overall productivity of the company. The
increased capacity for specialty chemicals given by R&H let Dow not only to include
new products in its portfolio but to increase the offer of its existent products.
Additionally upstream similarities and the fact that several of Dow's commodities are
actually raw materials in specialties manufacture assuring the company a cheap and
reliable supply whether or not the market price and availability change due external
variables.

Thirdly, Dow's decision of keeping Rohm & Haas as a brand (R&H, 2009) takes
advantage of both companies' brand equity (Dibb et al, 1994). The strong position of
Dow in the commodities market and the superior performance and recognition of R&H
in the specialty segment give the unified company both a stronger market share and a
representative set of loyal customers.

Taking Care of Its Market

For more than one hundred years Dow has relied on its commodities' portfolio, this has
generated wealth and has been the principal source of cash. This 'cash-cow' behavior is
a consequence of the maturity state in the chemical products life cycle (see Figure 4).
To keep this source of revenue working Dow has used two powerful tools taken from
the low-cost leadership strategy.
Figure 4. Commodities Life Cycle

Growth Maturity

Sales

Time

The first one has been the advantage of enormous economies of scale due to the high
production capacity and the similarities within the principal processes such as Chlor -
alkali, Ethylene Oxide and Hydrocarbons (Dow, 2010b). The second and most
important one has been the successful joint ventures with strategic players around the
world and this specific strategy has allowed the company to increase its offer in the
commodities segment keeping the operational and transactional costs as low as possible
and therefore, making the business more profitable. Figure 5 shows the performance of
the joint ventures and the contribution to Dow's income for the last four years, it can be
seen that although the net profit has been irregular, the percentage earned by Dow has
been steady with an increasing trend demonstrating the confidence of Dow on its
strategy and the effectiveness of this one.
Figure 5. Joint Ventures Performance

$3,000 46.00%

$2,500 45.00%

44.00%
$2,000
43.00%
$1,500
42.00%
$1,000
41.00%
$500 40.00%

$- 39.00%
2006 2007 2008 2009
Total Profit ($million) $1,935 $2,451 $1,940 $1,469
Dow Share (%) 43.26% 42.68% 41.70% 45.68%
MARKET-RELATED STRATEGIES

Although Dow Chemical has been and still is known for its commodities' portfolio, it is
its primary objective to take its main market towards specialty products and to generate
differentiation among competitors. With the aim of analyse Dow's market position and
trend two main variables must be correlated: market growth and market share. These
variables are able to picture the position of a product or an SBU in a specific time and
are related to the product life cycle and the performance of the SBU (Hambrick,
MacMillan and Day, 1982), this picture as a tool is known as a BCG Matrix.

In Appendix 3 the Market Growth – Market Share matrixes are shown for Dow's
commodities SBU, Dow´s specialties SBU and R&H as a business unit for specialty
chemicals. Here the Relative Market Share (RMS) was calculated in relation to the
leading competitor and the Market Growth Rate (MGR) as an average growth rate for
each segment (commodities and specialties) in the last five years. Figure 6 shows the
position of each SBU in 2008 and their change after the acquisition process in 2009. It
is noticeable that despite of the economic recession, evident in the MGR drop, the
specialties SBU gained significant market share as an immediate consequence of the
acquisition.
Figure 6. SBU's Landscape
The size of each circle is related to the net annual sales and the figure shows evidence of
the market shrink between 2008 and 2009 as a result of the economic crisis, the drop in
prices and the low demand. It is also remarkable that the commodities SBU is located
always in the 'cash-cow' region of the matrix and as mentioned above, this specific SBU
has been so far, the most reliable source of cash for the company allowing it to the
before mentioned R&D reinvestment.

Market Penetration and Product Development: The Ansoff Approach

The company's market objective is clear: to switch the revenue structure to 1/3
commodities and 2/3 specialties (Dow, 2009). The achievement of this goal can follow
the path defined by Ansoff as Market Penetration (Johnson, Scholes and Whittington,
2008), in this strategy focused on increase the share in an existing market, the most
obvious step is to acquire or merge with a strategic competitor with a significant role
within the target market, and this is exactly what Dow did. As shown previously in
Figure 1, the source of revenue has changed almost to the desired target and more
important, Dow's RMS has moved in the right direction. Figure 7 illustrates the
movement of specialties SBU within the BCG matrix, non-surprisingly always within
the 'high-share' region. It is also shown that also the volume of sales has increased in the
SBU demonstrating the fact that the acquisition has been a successful strategy.
Figure 7 Dow's Market Share Path

Furthermore, the acquisition has had a different impact on the overall company's
strategy. The synergy created among both companies' Research and Development
departments has allowed Dow to increase its market also through Product Development.
Here the company has exploited both the tremendous R&D budget of Dow and the
innovative tradition of R&H, focusing in high-growth megatrends like Health and
Nutritional Products, Energy, Infrastructure and Transportation (Dow, 2009).

By comparing market data, it can be seen that the 'Ansoff approach' of Dow's strategy
has been giving positive results. A 10% increment in R&D budget added to the
innovation synergy has increased Dow's RMS by 15% from 2007 (Dow, 2010b), this is
an enormous step towards becoming the number one specialty chemicals company.

The Power of Being Different

To gain market share through acquisitions and develop new products based on
innovation is not enough for a company competing in a global basis, there is something
else needed to take the competitive advantage to the next step and here Dow's strategy
relies in a fundamental concept: Differentiation (Porter, 1980). With this approach Dow
capitalizes several of its strengths and according to Porter (1980) it raises the entry
barriers for substitutes and new entrants as well as it generates loyalty among customers
driving to a lower bargaining power from them and less opportunities for competitors.
Figure 8. Evolution of Dow (Adapted from Dow, 2010b)

In the search for differentiation, Dow (2010b) has divided its portfolio into three
integrated business models (see Appendix 4) where basic products are on the base
supporting the entire operations and high-performance-high-margin products are the key
for the differentiation strategy. Again and as mentioned above, the tremendous R&D
capability of Dow plays a major role as a core competence and it generates a high return
rate with an average of $21 per each dollar spent on R&D (see Figure 9).
Figure 9. Specialties Return on Investment

WHAT COMES NEXT?

Dow's strategies have shown to be successful, but every achievement has a cost. For the
company the acquisition of R&H has meant a big step towards its goals but also it has
taken Dow to a precarious financial state. The capital structure has seen a dramatic
change since 2007 where 57% of the total capital was equity as common shares and
retained earnings. In 2009 after the completion of the acquisition process 56% of the
capital was debt and the preferred shares bought for Berkshire Hathaway and the
Kuwait Investment Authority represented an extra 8%.

The next challenge for Dow Chemical is to change back its capital structure and the
tools for achieving this task are the efficient management of its assets and the
capitalization of its strategies into profit through both, the effective market penetration
and the delivery of high-margin high-value added products and services.
Figure 10. Capital Structure

CONCLUSIONS AND RECOMMENDATIONS

As an overall conclusion it is possible to say that Dow's strategies have been successful
within the analyzed period. The evidence of the increasing market share, the level of
innovation and differentiation inside the specialty segment and the efficient
management of its 'cash cow' commodities segment have taken the company close
enough to its desired objective of being an 'Earnings Growth Company' even though the
financial and market environment have been adverse.

It is important for Dow Chemical to keep the track taken until today and more important
for further growing to be able of convert every opportunity into strength. In these terms,
the broad and promising panorama offered by emerging economies and the ability to
transform the post-acquisition synergies into profit will ensure the growth and
sustainability of the company for decades to come. [3444]
APPENDIX 1. INDUSTRY PERFORMANCE AND MARKET
GROWTH RATE

Market Growth Rate (Basic Chemicals)

Sales 2005 Sales 2006 Relative Growth from Weighted

Company
($m) ($m) Market Share Previous Year Growth

BASF $ 59,451 $ 62,862 39.12% 5.74% 2.25%

ExxonMobil $ 43,000 $ 49,000 30.50% 13.95% 4.26%
Dow Chemical $ 46,307 $ 48,808 30.38% 5.40% 1.64%

Weighted
Total $ 160,670 Average 8.14%
Growth

Sales 2006 Sales 2007 Relative Growth from Weighted

Company
($m) ($m) Market Share Previous Year Growth

BASF $ 62,862 $ 75,050 41.43% 19.39% 8.03%

ExxonMobil $ 49,000 $ 53,000 29.26% 8.16% 2.39%
Dow Chemical $ 48,808 $ 53,092 29.31% 8.78% 2.57%

Weighted
Total $ 181,142 Average 12.99%
Growth

Sales 2007 Sales 2008 Relative Growth from Weighted

Company
($m) ($m) Market Share Previous Year Growth

BASF $ 75,050 $ 81,485 41.42% 8.57% 3.55%

ExxonMobil $ 53,000 $ 58,062 29.51% 9.55% 2.82%
Dow Chemical $ 53,092 $ 57,192 29.07% 7.72% 2.24%

Weighted
Total $ 196,739 Average 8.61%
Growth

Sales 2008 Sales 2009 Relative Growth from Weighted

Company
($m) ($m) Market Share Previous Year Growth

BASF $ 81,485 $ 64,139 41.37% -21.29% -8.81%

ExxonMobil $ 58,062 $ 45,338 29.25% -21.91% -6.41%
Dow Chemical $ 57,192 $ 45,549 29.38% -20.36% -5.98%

Weighted
Total $ 155,026 Average 1.83%
Growth
 Market Growth Rate (Specialty Chemicals)

Sales 2005 Sales 2006 Relative Growth from Weighted

Company
($m) ($m) Market Share Previous Year Growth

BASF $ 53,113 $ 66,006 23.81% 24.27% 5.78%

Dow Chemical $ 46,307 $ 49,124 17.72% 6.08% 1.08%
Bayer $ 34,804 $ 39,899 14.39% 14.64% 2.11%
DuPont $ 28,491 $ 28,982 10.45% 1.72% 0.18%
Mitsubishi Chemicals $ 21,277 $ 22,424 8.09% 5.39% 0.44%
SABIC $ 20,865 $ 23,019 8.30% 10.32% 0.86%
Lyondell $ 18,606 $ 22,228 8.02% 19.47% 1.56%
Akzo Nobel $ 16,153 $ 17,235 6.22% 6.70% 0.42%
Rohm & Haas $ 7,944 $ 8,308 3.00% 4.58% 0.14%

Weighted
Total $ 277,225 Average 12.55%
Growth

Sales 2006 Sales 2007 Relative Growth from Weighted

Company
($m) ($m) Market Share Previous Year Growth

BASF $ 66,006 $ 79,322 25.41% 20.17% 5.13%

Dow Chemical $ 49,124 $ 53,513 17.14% 8.93% 1.53%
Bayer $ 39,899 $ 44,664 14.31% 11.94% 1.71%
DuPont $ 28,982 $ 30,653 9.82% 5.77% 0.57%
Mitsubishi Chemicals $ 22,424 $ 25,655 8.22% 14.41% 1.18%
SABIC $ 23,019 $ 33,878 10.85% 47.17% 5.12%
Lyondell $ 22,228 $ 17,073 5.47% -23.19% -1.27%
Akzo Nobel $ 17,235 $ 18,481 5.92% 7.23% 0.43%
Rohm & Haas $ 8,308 $ 8,911 2.85% 7.26% 0.21%

Weighted
Total $ 312,150 Average 14.60%
Growth
 Sales 2007 Sales 2008 Relative Growth from Weighted
Company
($m) ($m) Market Share Previous Year Growth

BASF $ 79,322 $ 91,193 26.11% 14.97% 3.91%

Dow Chemical $ 53,513 $ 57,514 16.47% 7.48% 1.23%
Bayer $ 44,664 $ 48,182 13.80% 7.88% 1.09%
DuPont $ 30,653 $ 31,836 9.12% 3.86% 0.35%
Mitsubishi Chemicals $ 25,655 $ 28,957 8.29% 12.87% 1.07%
SABIC $ 33,878 $ 40,203 11.51% 18.67% 2.15%
Lyondell $ 17,073 $ 19,179 5.49% 12.34% 0.68%
Akzo Nobel $ 18,481 $ 22,563 6.46% 22.09% 1.43%
Rohm & Haas $ 8,911 $ 9,575 2.74% 7.45% 0.20%

Weighted
Total $ 349,202 Average 12.10%
Growth

Sales 2008 Sales 2009 Relative Growth from Weighted

Company
($m) ($m) Market Share Previous Year Growth

BASF $ 91,193 $ 70,461 32.03% -22.73% -7.28%

Dow Chemical $ 57,514 $ 44,945 20.43% -21.85% -4.47%
Bayer $ 48,182 0.00% -100.00% 0.00%
DuPont $ 31,836 $ 27,328 12.42% -14.16% -1.76%
Mitsubishi Chemicals $ 28,957 $ 27,088 12.31% -6.45% -0.79%
SABIC $ 40,203 0.00% -100.00% 0.00%
Lyondell $ 19,179 $ 30,829 14.02% 60.74% 8.51%
Akzo Nobel $ 22,563 $ 19,311 8.78% -14.41% -1.27%
Rohm & Haas $ - 0.00%

Weighted
Total $ 219,962 Average 5.05%
Growth
APPENDIX 2. SWOT ANALYSIS AND TOWS MATRIX

STRENGHTS WEAKNESSES
Innovation Capital Structure
INTERNAL

Broad Portfolio Capital Consuming Non-Strategic Assets

Productivity High Costs of Specialties
Reliability Low Margin of Commodities
Economies of Scale
Geographic Reach
OPPORTUNITIES THREATS
EXTERNAL

Growth in Emerging Economies Low Growth in US and Wester Europe

Strong Competitiveness -Joint Ventures- High Cost of Capital
High Market Growth for Specialties Drop in Market Prices
Steadiness in Commodities' Market
Post-Acquisition Synergies

STRENGHTS WEAKNESSES
Innovation Capital Structure
Capital Consuming Non-Strategic
Broad Portfolio
Assets
Productivity High Costs of Specialties
Reliability Low Margin of Commodities
Economies of Scale
Geographic Reach
OPPORTUNITIES SO WO
Growth in Emerging Joint Ventures Agreements for
Increase Investment on R&D
Economies Commodities
Strong Competitiveness for Increase Capacity for
Closure of Redundant Facilities
Commodities Specialties
High Market Growth for Cost Leadership for
Flexible Manufacturing Systems
Specialties Commodities
Steadiness in Commodities' Increase Supply for Emerging
Brand Equity Synergy
Market Economies
Post-Acquisition Synergies
THREATS ST WT
Low Growth in US and Wester
Europe
Exploration of New
High Cost of Capital Reduce the Working Capital Cycle
Geographic Areas
Cost Leadership for
Drop in Market Prices Increase Capacity for Specialties
Commodities
APPENDIX 3. BCG MATRIX ANALYSIS

Sales
2006 2007 2008 2009
BASF (Commodities) $ 27,928 $ 33,761 $ 37,505 $ 26,246
BASF (Specialty) $ 34,934 $ 41,289 $ 43,980 $ 37,893
Dow (Commodities) $ 23,598 $ 25,846 $ 27,635 $ 16,633
Dow (Specialty) $ 25,210 $ 27,246 $ 29,557 $ 28,916
R&H $ 8,308 $ 8,911 $ 9,575 -
RMS (Dow Specialty) 0.72 0.66 0.67 0.76
RMS (Dow Commodities) 0.84 0.77 0.74 0.63
RMS (R&H) 0.24 0.22 0.22 -
MGR (Specialty) 0.125 0.146 0.121 0.051
MGR (Commodities) 0.081 0.1299 0.086 0.018
APPENDIX 4. DOW'S STRATEGIC BUSINESS MODEL
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