US-based Dow Chemical is a major player in the global chemical industry. Its primary business segments are "hydrocarbons and energy' and 'packaging and specialty plastics'. The first category includes inputs for plastics production such as ethylene and propylene, for which natural gas is a key raw material. Would the optimal international strategies for Dow's pharmaceutical business and its chemical Products in the second category, such as acrylics, resins, and polyethylene, are used in industries ranging businesses have been the same? Why or why not? from food packaging and cosmetics to auto manufacturing and construction. Here, ethylene and HINT: Recall that the main international strategies are: (1) localization, (2) international, (3) global, and propylene are among the raw materials. The main customers for both segments are, of course, (4) transnational. All of these are described in the textbook. manufacturers rather than individual consumers. The company operates through a multitude of subsidiaries throughout the world, including a number of separate US-registered companies and wholly or partially-owned producers in Germany, the UK, Korea, 1.) Why would it be advantageous for a commodity chemicals company like Dow to centralize Brazil, China and other countries. In addition, Dow also has joint ventures in Thailand, Kuwait, and Saudi production in a relatively small number of large plants worldwide rather than locating a larger Arabia, where the company's equity stakes range from 32.77% (in the case of Map Ta Phut Olefins, in number of smaller facilities in each of the countries it serves? Thailand) to 50% (in the case of SCG Dow Corp, also in Thailand). Due to the commodity nature of most bulk chemicals, price competition among Dow and its 2.) Suppose that a Dow subsidiary producing polypropylene sourced its propylene feedstock from competitors-companies like BASF, Bayer, Dupont, and Mitsubishi-is intense. Winning the competitive another Dow subsidiary in a different country. If the first were in a high tax jurisdiction and the race generally requires having the lowest costs. Dow has long been among the cost leaders. second in a low tax jurisdiction, how might the company use transfer pricing to shift profits from For years, the company was organized around a matrix with three elements: functions (e g. R&D, the former to the latter, thereby reducing its total tax. If the company proposed such a strategy manufacturing, marketing), businesses (e-g., ethylene, plastics, pharmaceuticals), and geography (e-g., to move profits from one of its joint ventures to a wholly owned subsidiary, why would its joint Spain, Germany, Brazil). Managers' job titles incorporated all three elements-for example, plastics venture partner be likely to object? marketing manager for Spain-and most managers reported to at least two bosses. The plastics marketing manager in Spain, for example, might report to both the head of the worldwide plastics 3.) When selling in markets outside of the countries where they are based, why might Dow's business and the head of the Spanish operations. The objective was to make operations responsive to subsidiaries require customers to have letters of credit (L/C's)? If there were a banking crisis in both local market needs and corporate objectives. Thus, the plastics business might be charged with one of those countries, why might L/C's become less reliable as a payment mechanism for minimizing Dow's global plastics production costs, while the Spanish operation might be charged with customers located there? determining how best to sell plastics in the Spanish market. This matrix structure was an advantage when the company diversified into the pharmaceuticals 4.) How might Dow's marketing strategy for bulk chemicals in less developed countries be different industry, where regulatory and marketing requirements vary much more from country to country than from its strategy in developed countries? What aspects of its marketing strategy might remain had been the case for Dow's traditional businesses. To accommodate the varying priorities of its the same? Consider the facts that less developed countries typically have less well-developed different businesses, Dow then adopted a flexible process in which senior executives at headquarters set transport networks and distribution systems and more diffuse markets. Chemicals demand is goals for each industry sector. One of the three elements of the matrix-function, business, or also likely to be more price elastic than in developed countries geographic area-was given primary authority in decision making. Which took the lead depended upon HINT: Here "Marketing strategy" refers to the so-called "four P's": product, price, place, and promotion. the type of decision involved and the market or location in which the company was competing. Later on, Dow divested itself of its pharmaceutical activities and refocused on chemicals. At this point, the company decided to abandon its matrix structure in favor of a more streamlined structure based on 5.) Following the company's exit from the pharmaceutical sector, management determined that global business divisions. The change was driven by the realization that the matrix was too complex and eliminating the matrix would be essential in order to compete on cost. This implies that the six costly to manage in the intensely competitive global environment, particularly given the company's management layers eliminated in the transition to the new structure would cost the company renewed focus on commodity chemicals, where competitive advantage often went to the low-cost more than they were worth once it had refocused on its bulk chemicals business. Is this producer. As Dow's CEO put it, "We were an organization that was matrixed and depended on plausible? Why or why not? teamwork, but there was no one in charge. When things went well, we didn't know whom to reward; and when things went poorly, we didn't know whom to blame. So, we created a global divisional structure and cut out layers of management. There used to be 11 layers of management between me and the lowest-level employees, now there are five."