Dow Chemical makes major strategic adjustments to divest basic chemicals

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Dow Chemical makes a major strategic adjustment to divest basic chemicals. China Business News reported on April 14 that when Dow Chemical announced its financial report for the previous year this spring, shareholders may not be surprised by the 79% drop in net income. Due to the huge fluctuations in oil prices, most chemical companies had already expected the Waterloo. 　　But they may not have expected that among the five major segments of Dow Chemical (hereinafter referred to as "Dow"), the "basic chemicals" business performed really poorly. 　　In 2008, the business had sales of $5.6 billion but EBIT of only $15 million. 　　Dow realized that divesting the above-mentioned unprofitable businesses and suspending production faster was one of the ways to save its performance. 　　Divestiture is not the only method, acquisitions and reorganization are also underway. Another decision was quickly made: Despite the difficulty of credit, Dow still raised a huge amount of US$16.3 billion in funds. In early April 2009, Rohm and Haas, the largest fine chemical company in the United States, was taken over. 　　This is the largest merger and acquisition in the world's petrochemical industry since 2000. It is also a decisive step in realizing the new strategy of "Tomorrow's Dow" (that is, "shifting to a high value-added and profit-growing enterprise"). 　　The good times of basic chemicals are no longer based on the business classification of fiscal year 2008. Dow's main business segments include five sub-groups: basic chemicals, basic plastics, Dow AgroSciences, functional plastics and functional chemicals. 　　In the basic chemicals business, some of Dow's housekeeping products rose to fame during World War II. However, after more than half a century of leap-forward development and the lowering of barriers to many difficult processes, competition in basic chemical industries has focused on the "scale" effect. 　　Due to two new situations: a large number of factories are located in Europe and the United States, and the demand for basic chemicals has moved from developed regions to Asia, Dow's scale competitiveness in this business is no longer and it faces unprecedented threats. 　　Management scientist Michael Porter once said that in Asia, where "economies of scale" prevail, new entrants must accept the reality of cost disadvantages. 　　Moreover, even if "economies of scale" are not counted, existing manufacturers will rely on the "experience curve", * * A series of advantages such as policies, equipment purchased at pre-inflation prices, and the best sources of raw materials make it difficult for new entrants to resist. 　　Figures over the years show that Dow's "horse step" strategy of "sticking to Europe and the United States and not entering Asia" for basic chemicals is not a successful strategy. 　　From the original annual report on the Dow website, the reporter found that from 2004 to 2007, the profit before interest and taxes of the basic chemicals business dropped from the initial US$1.6 billion to US$813 million in 2007, and then to US$15 million in 2008. 　　The situation was not good in 2008, and the shortcomings of high cost and low efficiency were exposed to the public. 　　Save performance: Divide and peel off Dow's painful determination and get rid of the baggage. 　　In mid-2008, the company stopped production of four basic chemicals, and 20 high-cost enterprises will cease operations one by one in 2009. 　　Looking back at the history of chemical companies, spin-offs are not uncommon. 　　If you turn the clock back to the 1980s, DuPont reluctantly sold more than 20 production lines. At that time, oil prices suddenly rose and the U.S. inflation rate reached more than 10%. Selling was the fastest way to recover. 　　In 2006, Dow transferred its chrome tanning chemical business in South Africa to LANXESS to improve its leather industry chain. Lanxess is actually a new company spun off from the Bayer Group, engaged in the production of consumer chemicals such as textiles and leather. 　　However, Dow not only treats its basic chemicals business by closing down operations, divesting, etc., it also forms alliances with companies in the Middle East that have advantages in oil resources, striving to get started as quickly as possible. 　　Extending "selling" assets to high value-added industries is only the first step. Filling unprofitable businesses requires thinking. 　　The acquisition of Rohm and Haas was a key move. Because it is no longer Dow’s position to win by relying on scale, it must seek benefits from higher value-added industries. 　　It took Dow less than four months to raise enough money, determined to win Rohm and Haas. There is only one reason for daring to make such a risky move: It's a good deal. 　　George Stalk, senior partner of the Boston Consulting Group, pointed out in "Five Strategies for the Future" that a major strategy for American companies in the future is to "bypass economies of scale." 　　So what are the industries with higher added value? 　　“"Agriculture" is an area that all large multinational chemical companies are unanimously optimistic about. It can easily avoid economic cycles and achieve long-term development. 　　Bayer purchased Aventis Crop Science during its business reorganization in 2002 and immediately established the "Bayer Crop Science" department. In 2008, Bayer CropScience's sales reached 6.382 billion euros, and its EBIT reached 1.603 billion euros. 　　One of Dow's subgroups, "Dow AgroSciences", is also growing rapidly. From the financial report on the company's website, reporters found that from 2004 to 2008, Dow AgroSciences' revenue increased from US$3.3 billion to US$4.535 billion, and its profit before interest and taxes also climbed from US$586 million to US$761 million. 　　In addition to the magnet of agriculture, Rohm and Haas, which is proficient in electronic materials and coatings, is also an attractive cake. 　　Dow CEO Li Weicheng believes that: “Merging Rohm and Haas' business into Dow will enable us to accelerate the growth of our functional products business and establish a leading position in the global specialty chemicals and advanced materials fields. ” 　　The most significant benefit is that some of Dow's and Rohm and Haas' businesses are directly complementary. After Dow established its coatings division in 2007, it began to explore and become familiar with the downstream applications of coatings. “Rohm and Haas directly faces customers and has extensive contacts and resources, and Dow happens to be a supplier of raw materials, which can reduce the cost of coating production. ”Zhang Ping, media manager of Dow Chemical Greater China, told reporters. 　　An industry insider also told reporters that Dow is researching some equipment for producing coatings, which can also be directly applied to Rohm and Haas' process manufacturing. In the electronics field, Dow's polymer technology and Rohm and Haas' display films can also cooperate with each other. 　　From the 1980s to 2000, many multinational companies experienced the pain of strategic transformation. Global oversupply, the rapid acceleration of informatization (and economic globalization), and changes in the way companies create value have all contributed to waves of strategic transformations. 　　In the long run, if this transformation is successful, it will not only maximize the interests of shareholders, but also bring higher and more sustainable value realization.