Current Trends in the Tobacco Industry - Essay Example

Business Management Current Trends in the Tobacco Industry The tobacco industry is found in all nooks and corners of the world. The industry is hugeand hence to cater to these, there are a lot of players in the market who try to meet up the demand. According to Hoover's analysis, there are three main competitors fighting with British American Tobacco for majority US market share. These competitors are Altadis, plc and Reynolds American Inc. and Altria (Phillip Morris). With such a competitive nature of the market and all of the players fighting with many different brands, several issues come into force for the competitors. The most concerning trend that is found in today's tobacco industry is the harm caused by cigarettes. Due to this threat, the customer base is decreasing and hence several steps are being taken by cigarette manufacturers to alleviate the harm. Another trend is the need for portraying a socially responsible picture for the consumers. The use of technology in customer identifications and analysis is becoming popular while using IT in the operations to manage the organizations better is another trend that is been seen more often. These trends are studied in more detail with the help of using British American Tobacco as the guide. British American Tobacco Background British American Tobacco is the most globalization brand in the world. The brand has millions of diverse customers across the globe, with access to over 180 markets globally, and makes the best quality tobacco products. The brand commits its customers to always be indulged in principles of corporate social responsibility, a practice kept running through out the group. Known brands include Pall Mall, Dunhill, Lucky Strike, and Kent (http://www.bat.com/) PEST Analysis PEST analyses are the external analyses of an organization's environment, which are out of the influence of the organization on the whole. Following is a pictorial representation of the same: (Source: http://www.marketingteacher.com/IMAGES/pest_logo.gif) Following is the PEST analyses conducted for British American Tobacco: Political UK is comparatively stable when it comes to politics However, the global politics is not the same as the local one, rather absolute differential, therefore, extra care needs to be taken since British American Tobacco mainly exports to some 180+ countries Social Society has generally never viewed smoking as a good habit, and therefore, many movements have been created all over the world against smoking, yet all in vain. Economic With huge scale exports, economy is strengthened by the organization, and also needs support from the same to keep the wheel moving. Technology Technological advancements need to be adopted by the organization, particularly the integration part. British American Tobacco currently has many systems deployed but working independently. Technological advancements have led to integrated and dependent systems to make lesser duplications possible, and provide more efficiency. SWOT Analysis SW presents the internal scenario of the organization, matched against the existing or anticipated external OT provides a plan for the future course of action. Following is a pictorial representation of the same: Strengths - Independence from single importer-monopoly - Brand loyalty and associated good will - Tremendous market segmentation Weaknesses - Lack of regional market knowledge - Unpredictability of Importers - Very less presence in the local market - Lack of internal process integration (Source:http://www.smartdraw.com/examples/content/Examples/SmartDraw/Marketing_Charts/SWOT_Analysis_Diagrams/SWOT_Example_-_4_L.jpg) Opportunities - Expanding local market pie share - Cushion in loyalty development of importers - Addictive nature of cigarettes Threats - Global instability of the duty regulations - Smuggling, particularly in Asian markets - Anti-Tobacco Stance of the Society Porter's 5 Forces Customers Cigarette is an additive product and that is a favourable point for the company as far its sales are concerned. Buyers are hooked to the brand of cigarette usually from the start so there is little bargaining that the customers can do. The buyers are also brand conscious and they don not change their brands rapidly and specially in UK. Even if the prices of the cigarette increases, the customers will continue to buy it because of its addictive nature. (www.learnmarketing.net/microenvironment.htm) Retailers and Suppliers Retailers get a nominal amount on retailing the cigarette however they are in much demand so they keep it. Also the retailers usually get branded settings and are paid extra to keep shelf space for a brand. As substitutes for the products exist, retailers have a bit of power over the companies. (www.learnmarketing.net/microenvironment.htm) Threat of New Entrants There are high barriers to entry. As there are only about 4 big companies in the UK, namely Imperial Tobacco Group, British American Tobacco, Gallaher and Philip Morris International, and therefore newer companies don't try to penetrate in this market. (www.learnmarketing.net/microenvironment.htm) Threat of Substitute Products As such no substitutes for cigarettes are that popular. People trying to leave this habit usually revert to nicotine gum, counseling, or behaviour modification. In extreme cases acupuncture needles are stuck in the bodies or the nicotine-averse images implanted in their minds however these are not that successful. (www.learnmarketing.net/microenvironment.htm) Competitive Rivalry Among the four top brands of cigarettes in UK, Imperial Tobacco Group is the market leader. However, this has created intense rivalry amongst all the competitors. This is not a good sign for the company since this much competition can make it harder for the rest to come to the standard of these leading companies. (www.learnmarketing.net/microenvironment.htm) Stakeholders The stakeholders such as the government, the media and the society play a major role in the business. Since smoking is considered a social evil, the society usually shuns the smokers. Laws, and deals such as the 'tobacco resolution' are the results of the anti-smoking society. The increase in taxes makes it harder for the company to sell their products. The UK tobacco sector is one of the most heavily taxed in the world, and UK cigarette prices are the highest in the EU, with taxes accounting for around 84.5 percent of the retail cost of a typical packet of cigarettes. (Bulow and Klemperer, 1998) (Knight, 2003) Trends of British American Tobacco Mergers and Takeovers Recently, British American Tobacco has strengthened its position in the Tobacco world market with different moves. As per the most recent developments, to expand their reach farther, British American Tobacco is in process of acquiring small firms internationally so as to have extended access to the markets, and to have stronger position at the same. The group is also quite close to the completion of purchasing House of Prince (HoP). As per the Citigroup officials, the huge network of supply chain that British American Tobacco carries with itself can assist in exceeding HoP's last years 30 billion cigarettes sales figure throughout Europe. This would have a net impact on British American Tobacco's sales rather than increasing the existing lines sales. At the same time, in the start of March 2007, British American Tobacco declared its results for the ended fiscal year showing an increase in operational profits of 7-8% with Middle East, Latin America, Africa, and Asia-Pacific are the major contributors to this increment. Apart from this, another major cause has been an increment in the sales volumes of subsidiaries that rose by 2%. It is noticeable that the net tobacco products sales was drove by the 4 major players of the market, giving it a volume increase of 17%. (http://www.tobaccoreporter.com/news/LateBreak.asp) Technology Generally, none of the competitive advantages are sustainable over longer periods of time. With the drastic growth and expansion at British American Tobacco over the years, the prime focus of the organization has rather shifted towards delivering the shareholders their worth, since it is a publicly owned organization. The focus has also been to reach production process transparency on the whole. There are two fold gains of this; firstly, the upcoming regulatory requirements would be met and alongside the share holder confidence would also rise pertaining to the same context. Often the initiatives taken by British American Tobacco for assurance of traceability ad tracking (of the production) give three distinct advantages bundled together: a) Compliance b) Increased operational efficiency c) Increased competency Compliance with the regulations is a far more accepted idea among consumer products makers; this is portrayed in the fact that around 35% of the manufacturing concerns is in the process of transition to have their focal point on the traceability and compliance as a source of their competitive edge, not a mandatory cost consumer anymore. A report mentioning Compliance and Traceability Benchmark has illustrated 3 main areas in which an organization would differentiate itself with respect to the deployment of technology solutions: (http://www.tobaccoreporter.com/news/LateBreak.asp) 1) The extent of integration that technology provides with other application 2) The extent of process transparency and self-traceability that technology provides 3) The extent of manual procedure elimination Enterprise Resource Planning (ERP) tools and Quality Management Statistics are the recommended ways for taking care of the traceability and compliance program. For the same, British American Tobacco plans to implement, and is currently in the phase of, the FlexiNet which can prove to be really fruitful for the organization. (http://www.apriso.com/en-us/Redirect/success_story_bat.htm) Corporate Social Responsibility Then the issue of Corporate Social Responsibility comes into play a great deal for a company such as British American Tobacco in the tobacco industry. While at one side the company looks to increase the sales of its cigarettes, the external pressures from the society ask for bans and laws against smoking. Keeping this in mind, the company must tackle the social issues while promoting it's product at the same time. The company's relation's manager and public speaker are the most important human resources for this issue. These people come into direct contact with the public therefore they should always be prepared for the answers chucked out to the public. It is the duty of the top level managers to brief the public figures so that a clear, friendly and innocent image of the company is promoted. (http://www.csr.gov.uk/) (CAI, 2008) Another problem arises from the fact that as a company selling cigarettes to the public, should is also promote cigarettes to the employees of the company Here is where the Corporate Social Responsibility of the company faces a dilemma. Promoting and forcing employees the use of cigarette inside the company is socially unacceptable and against ethics. The goals of the company should not interfere with the personal choices of the employees whether to smoke or not. (Brat, 2005) Conclusion British American Tobacco has been in the tobacco industry for well over a hundred years. This much time hasn't seen much change in the business strategies and hence the current scenario for the company isn't as good as many would have expected to be after all these years. Maybe the management of the company has realized this fact and have started to move in the right direction courtesy new mergers and takeovers. The need to implement a formal and specific human resource management strategy is imminent to keep the valuable workforce happy so that British American Tobacco can look for better days in the future. But with increasing amount of pressure from the media and the society, the government is passing new laws to demote the number of smokers in the country. Increase in the taxes has a dampening affect on the cigarette industry, however, the addictive nature of tobacco and nicotine will probably still keep the people hooked to the cigarette for many days to come. This is the respite that the cigarette manufacturers take plight in. Works Cited 1. "About British American Technology", Retrieved July 28, 2007, from BRITISH AMERICAN TOBACCO Official web link, Website: http://www.bat.com/ 2. Brat, Ilan (2005) "A Company's Threat: Quit Smoking or Leave" Retrieved on July 31, 2007, From The Wall Street Journal Online, Website: http://www.careerjournalasia.com/hrcenter/articles/20051221-chao.html 3. "BRITISH AMERICAN TOBACCO Smokes its competition with FlexNet", Retrieved July 28, 2007, from APRISO.COM, Website: http://www.apriso.com/en-us/Redirect/success_story_bat.htm. 4. CAI. (2008). Stop Big Tobacco Campaign. Retrieved January 27, 2008, from Corporate Accountability International: http://www.stopcorporateabuse.org/cms/page1111.cfm#u.s. 5. Hoovers. (2007). Altria Group, Inc. Retrieved January 27, 2008, from Hoovers: http://www.hoovers.com/altria/--ID__11179--/free-co-factsheet.xhtml 6. Knight, Steve R. (2003), "United Kingdom Tobacco and Products Annual 2003", Retrieved on July 31, 2007, From UK Tobacco and Products, Website: http://london.usembassy.gov/fas/pdf_reports/uk3008_tobacco.pdf 7. Klemperer, Paul and Bulow, Jeremy (1998), "The Tobacco Deal", Retrieved July 31, 2007, Website: www.nuff.ox.ac.uk/economics/papers/1998/w15/tobaccoweb.pdf 8. "Micro Environmental Factors", Retrieved on July 29, 2007, From Learn Marketing, Website: www.learnmarketing.net/microenvironment.htm 9. "Recent News on BRITISH AMERICAN TOBACCO", Retrieved July 28, 2007, from Tobacco Reporter web link, Website: http://www.tobaccoreporter.com/news/LateBreak.asp 10. "The UK government gateway to Corporate Social Responsibility" (2004), Retrieved on August 1, 2007, From Crown, Website: http://www.csr.gov.uk/ Read More