Dow Chemical case study

Topics: Argentina, Foreign exchange reserves, Risk Pages: 3 (737 words) Published: February 10, 2014
Introduction
The project provides Dow Chemical with a once-in-a-lifetime opportunity to become the leading petrochemical company in Argentina as well as in Latin America. In addition, the petrochemical sector in Argentina is also an oligopoly, posing a low business risk for this project.

1.1 Key advantages of the Bahia Blanca petrochemical pole
• The PBB cracker is gas-based making it less costly to operate as compared to a naphtha-based cracker;
• There is an excess demand for Polyethylene and it is forecasted that the demand will increase further over the next 16 years due to continued improvement in standard of living;
• Ability to build customer relationships and a relationship with the Argentine government allowing Dow Chemical to open a new market locally;
• The Bahia Blanca area has the necessary infrastructure and facilities to do business in petrochemicals. Further, there is easy access to factors (abundant resources and affordable energy);
• The Argentine government has eliminated all duties and lifted other restrictions in reciprocal trade between members of Mecosur; allowing Dow Chemical to make inroads into the Latin American market;

• PBB has no debt, implying a low possibility of financial distress; • Petrochemical businesses have high margins, implying low business risk; and
• Dow Chemical has an advantage over Perez and Copesul as it has its own advanced polyethylene production technologies that can be applied to the PBB plant.
1.2 Risks involved
• The success of this venture depends on whether Dow can build a successful alliance with ethane suppliers;
• The price of polyethylene fluctuates according to crude oil prices. With the company’s business cycle, it is possible that PBB may experience losses in Q2 and Q3. Dow must therefore have sufficient working capital to absorb those losses temporarily;

• Although the Argentinean Peso is maintained at parity with the US Dollar, there is the remote risk that the Argentine government is...
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