Dow Chemical Case
When Petroquímica Bahia Blanca S.A. (PBB) began the process of becoming privatized by the Argentine government, Dow Chemicals saw the acquisition of this company as a golden opportunity to become the leading polyethylene player in Latin America. Dow Chemical’s was already a major player in the chemicals (ethylene), plastics (polyethylene), and agricultural products industries holding position as a low-cost producer. Breaking each segment of their business down into these categories respectively, Dow Chemicals was able to generate annual revenues of 20.2 billion making them the leader in market position worldwide for some chemical product lines accounting for 7% of global capacity. Dow embraced a strategy of horizontal and vertical, integration, technological leadership, and international presence. Dow’s largest volume chemical was Ethylene, in which, 11.3 billion pounds were in capacity. Dow had expanded across the globe by locating world-scale petrochemical complexes in emerging economies accounting for 94 plants in more than 30 countries by 1995. Most of Dow’s investments were concentrated in Brazil where they had built a petrochemical complex that manufactured products other than ethylene and polyethylene as well as in Argentina where over 100 million was invested in facilities that produced petrochemicals, herbicides, insecticides, and fungicides. Dow Chemical’s always saw a benefit in expanding business in Argentina but never pursued it because the state controlled the oil supplies, gas and power. PBB, being in Argentina, and the expected growth in polyethylene demand made this acquisition very appealing. The decision to buy PBB would prove to be a meticulous one as it was one step in a grandeur plan for Dow. They not only had to consider what to bid for PBB in the privatization, but also develop an overall plan for the development of Dow’s polyethylene business in Argentina.
The ethylene and polyethylene business were the drivers of the success of Dow Chemicals. Ethylene was produced from oil or natural gas and used to make polyethylene, which is the world’s most widely used plastic. Polyethylene accounted for approximately three-quarters of ethylenes’ demand. Ethylene plants or hydrocarbon “crackers,” separated either naphtha molecules (derived from crude oil) or ethane molecules (derived from natural gas). Which then produced ethylene for Polyethylene production. It was twice as expensive to “crack” naphtha molecules than ethane allowing gas rich economies such as North America to use ethane plants where gas poor countries like Japan utilized naphtha plants. Polyethylene plastic was used to manufacture many every day products from trash bags to toys. Polyethylene was separated into three categories.
· Optical clarity, soft feel, printability. Most commonly found in supermarket-related film and sheet applications such as bread bags. 2.
HDPE—High density polyethylene
· Tough, opaque, and rigid. Most commonly found in milk jugs (nearly half of this plastic’s blow-molded volume) 3.
LLDPE—Low linear density polyethylene
· Strength, optical clarity, soft feel, and printability. Most commonly found in garbage bags.
LDPE began commercialization in the late 1930s, HDPE was introduced in the mid-1950s and LLDPE in the 1970s. LLDPE was meant to replace LDPE due to its cost advantage but fell short because customers did not want to purchase the new equipment to produce LLDPE. With so much of Dow Chemical’s investments, products and revenues tied into ethylene and polyethylene, it was imperative they have a strong interest in these plants and production there of.
When evaluating the Ethylene and polyethylene business you have to look at what drives the business forward to make it profitable. The three different types of Polyethylene(LDPE, HDPE, LLDPE) and the plastic products the chemical makes and the...
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