Dow Chemical 2009 Annual Report Download - page 38

Table of Contents
Competition
Historically, the chemical industry has operated in a competitive environment, and that environment is expected to continue. The Company experiences
substantial competition in each of its operating segments and in each of the geographic areas in which it operates. In addition to other chemical companies, the
chemical divisions of major national and international oil companies, advanced material suppliers and producers of crop protection chemicals and agricultural
biotechnology provide substantial competition in the United States and abroad. Dow competes worldwide on the basis of quality, technology, price and
customer service, and for 2009, continued to be the largest U.S. producer of chemicals and plastics, in terms of sales.
Raw Materials
The Company operates in an integrated manufacturing environment. Basic raw materials are processed through many stages to produce a number of products
that are sold as finished goods at various points in those processes.
The two major raw material streams that feed the integrated production of the Company’s finished goods are chlorine-based and hydrocarbon-based raw
materials.
Salt, limestone and natural brine are the base raw materials used in the production of chlor-alkali products and derivatives. The Company owns salt
deposits in Louisiana and Texas; Alberta, Canada; Brazil; and Germany. The Company also owns limestone deposits in Texas.
The Company purchases hydrocarbon raw materials including liquefied petroleum gases, crude oil, naphtha, natural gas and condensate. These raw
materials are used in the production of both saleable products and energy. The Company also purchases electric power, benzene, ethylene, propylene and
styrene to supplement internal production. Expenditures for hydrocarbon feedstocks and energy accounted for 35 percent of the Company’s production costs
and operating expenses for the year ended December 31, 2009. The Company purchases these raw materials on both short- and long-term contracts.
Other significant raw materials include acrylonitrile, flame retardants, aniline, bisphenol, methanol, rubber, carbon black, ammonia, formaldehyde,
acetic acid and toluene diamine. The Company purchases these raw materials on both short- and long-term contracts.
The Company had adequate supplies of raw materials during 2009, and expects to continue to have adequate supplies of raw materials in 2010.
Method of Distribution
All products and services are marketed primarily through the Company’s sales force, although in some instances more emphasis is placed on sales through
distributors.
Twenty-seven percent of the sales of the Basic Chemicals segment in 2009 were to one customer, with which the Company has an ongoing supply
contract. Sales to MEGlobal, a 50:50 joint venture with Petrochemical Industries Company (K.S.C.) of Kuwait, represented approximately 11 percent of the
sales in the Basic Chemicals segment. Excess ethylene glycol produced in Dow’s plants in the United States and Europe is sold to MEGlobal. Ten percent of
the sales of the Hydrocarbons and Energy segment in 2009 were to another customer, with which the Company has an ongoing supply contract. Other than the
sales to these customers, no significant portion of the business of any operating segment is dependent upon a single customer.
No single product accounted for more than 5 percent of the Company’s consolidated net sales in 2009.
Research and Development
The Company is engaged in a continuous program of basic and applied research to develop new products and processes, to improve and refine existing
products and processes, and to develop new applications for existing products. Research and development expenses were $1,492 million in 2009,
$1,310 million in 2008 and $1,305 million in 2007. At December 31, 2009, the Company employed approximately 6,700 people in various research and
development activities.
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