Dow Corning Goes Thin to Win

In his informative and insightful book The Innovator's Solution, Clayton Christensen devotes an entire chapter to explaining how companies can "decommoditize" their products. The key, Christensen argues, is to have a product positioned in a spot in the value chain "where performance is not yet good enough" and improve that product with a new technological advancement, thereby adding new value.

This is precisely what Dow Corning, a venture between Dow Chemical (NYSE: DOW  ) , and Corning (NYSE: GLW  ) , appears to have done with the introduction of its new PlasmaStream platform -- a plasma coating process that can cover materials and substrates with a uniform coating only tens of nanometers thick.

The technology will allow Dow Corning's customers, including leading automotive, electronics, and plastics companies such as Visteon (NYSE: VC  ) , Rohm & Haas (NYSE: ROH  ) , and General Electric (NYSE: GE  ) , to further innovate their products.

PlasmaStream will allow these companies to improve their performance, as well as create competitive differentiation, by making their products more temperature- or scratch-resistant, or by enhancing such characteristics as waterproofing, adhesion, or anti-microbial properties.

Equally important, Dow Corning's new process is reported to reduce manufacturing costs by eliminating or minimizing costly steps, such as the drying and curing processes at automotive component manufacturers.

Furthermore, because the PlasmaStream process operates at room temperatures and uses little water and no solvents, manufacturers are freed from having to deal with a number of expensive and time-consuming environmental and regulatory processes.

Dow Corning isn't the only company working on these new coating processes. Earlier this year, DuPont (NYSE: DD  ) announced that it was partnering with a nanotechnology start-up, Ecology Coatings, to improve its own coating process. But that just confirms another point that Christensen stressed in his book: While it is indeed possible to "decommoditize" products, competitive forces are always working to "recommoditize" them.

That will most likely happen in this case, but in the meantime, Dow and Corning will benefit because they have located that sweet spot "where performance is not yet good enough" and found a way to make it better than its competitors -- at least for a time.

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Jack Uldrich is the author of two books on nanotechnology, including Investing in Nanotechnology: Think Small, Win Big. He does not own stock in any of the companies mentioned in this article. The Fool has a strict disclosure policy.


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