Smokers Case

Having 45.8 percent of market share till 2010, British American Tobacco is still the main market leader in tobacco market. http://www.bata.com.au/group/sites/BAT_7WYKG8.nsf/vwPagesWebLive/DO7WYLAG?opendocument&SKN=1) .However time is not going so easy for tobacco industry these. Due to overwhelming promotion of anti smoking products and campaigns and constricting regulations it is a major question for BAT how to sustain itself in changing market policies in coming 5 to 10 years.

Stakeholders:

Global distributors

British American Tobacco Group holds an enormous structure with its subsidiary companies with 50 factories producing near about 715 billion cigarettes per year in 41 countries. (http://www.bata.com.au/group/sites/BAT_7WYKG8.nsf/vwPagesWebLive/DO7XF2GH?opendocument&SKN=1). It is the world's second largest quoted tobacco group by market share, with its brands sold in more than 180 markets. Among its distributors, China stands in the first place with its state owned industry. In addition to it, it is also the largest international tobacco company in the Asia Pacific region. In India, its subsidiary company ITC is the largest tobacco company of the country.

Consumers

As were born globally, its consumer are scattered all around the globe. As per the statistics given in their website, smokers in consume around 2200 billion cigarettes per year. As per National health survey from Australian Bureau of Statistics, in the year 2004-05, 23% of adults were current smokers. Among them 21% of adults reported regular daily smokers while 2 % reported smoking occasionally. The figure below shows the prevalence of smokers in year 1995 and 2004-2005. (http://www.abs.gov.au/ausstats/abs@.nsf/mf/4831.0.55.001)

As is evident from figure the number of smokers is seen to be decreasing from year 1995 till 2004-05. This, apparently ensure a big threat to the tobacco company from financial point of view. Also is seen that the decrement is in almost in equal proportion for both male and females which indicates that a widespread awareness has been introduced to both male and female smokers. Also from the statistics, the highest rate of male smokers have been found between age group 18-24 and for women are of age group 25-34.

According to a paper presented by McDermott, Russell and Dodson (2002), there are chances that people who start smoking at under age are more likely to change to a heavy smoker in later time. It is because of their dependency in nicotine. However it can be said that adults are the main target smoker for the company.

Investors

As we know BAT has got diverse range of investor, from individual to state governments. It has always been trying to make a uniform strategy to sustain a long term value shareholder value to all kinds of investors. Figure below shows the growth in share price in last 10 year from 2001 to 2010(BAT 10th annual report).

Source: British American tobacco, 10th annual report

This indicates significant growth in the profit of the company. Because of its variety of brands and brand specific advantage, it has been able to attract many local suppliers. Being number one tobacco seller in international market like India justifies its profundity in number of local suppliers.

As per their business model for sustainable growth they have embraced three-step model namely;

Consumer

Sourcing

Production

Figure: Three step model for sustainable growth, 10th Annual Report, BAT, 2010

In the first place they understand the insight of profile and preference of smoker at different geographic locations so they can manufacture product accordingly. In second place they work closely with farmers who are tobacco and other raw product suppliers. This helps in managing their risk of uncertainty in supply chain. In the last but not the least, they focus in production as efficiently as they can and by various means like upgrading their machinery, downsizing their factories or even consolidating them if necessary.

Employees

As per the information given in the website, currently 60,000 employees from 180 countries are employed by BAT. Following the motto "we are global company of individuals" people from round the globe with diverse cultural and ethnic backgrounds have mixed to achieve a single organisational goal.

Trade unions

Various trade unions have been formed in different factories of BAT with occasional disputes between the workers and the employers. The most recent dispute occurred in November 2004 at Southampton then there was pay dispute between workers and employers.( http://www.bat.com/group/sites/uk__3mnfen.nsf/vwPagesWebLive/DO6PQHTD?opendocument&SKN=1 ). However due to the effective management later this dispute was solved with mutual agreement. Due to its enormous structure and number of workers formation of trade unions is inevitable but as long as management of aware enough to provide liberal advantages to its worker there shouldn't be any big problem.

Governments

Government regulations are different in different countries and that significantly affects the price of the products. Due to the increased excise duty or restriction in volume of production, the price of the cigarette will rise. Eventually this will affect the sales of the products. Therefore government regulation is also an important factor that should be carefully watched as and when they change.

Risk and Key Uncertainties:

Illicit trade:

Illicit trade is the form of duplicate products, smuggled products or products that are manufactured evading the taxes and excise. This provides significant risk to the industry as they can easily attract consumer with their cheap rates. British American Tobacco is trying pretty much to confront this by operating Anti Illicit Trade (AIT) teams globally and regionally and investing massively in R&D of this area. However it still remains as significant risk to the company.( p 42 10th annual report)

Tax and excise

Most of the time tobacco products are subjected to high