British American Tobacco plc (BAT) is one of the global leaders in the tobacco industry. It is the holding company of British American Tobacco Group of companies. It is engaged in the manufacturing, distribution and sale of tobacco products. The company offers wide range of cigarettes, cigars, pipe tobacco, roll-your-own tobacco, and smokeless snuffs through more than 300 national and international brands. BAT along with its associates produces 919 billion cigarettes through 49 cigarette factories in 41 countries. Out of all these facilities, four facilities and two separate plants also make cigars, roll their own and pipe tobacco.
BAT's vision is to achieve leadership of the global tobacco industry in order to create shareholder value. Quantitatively, we seek volume leadership among our international competitors. Qualitatively, we aim to lead our industry as the preferred partner of key stakeholders and in demonstrating responsibility.
Increasing volume and value share of the global tobacco market through organic growth and mergers, acquisitions.
BAT have also made further progress with our productivity savings and we are very much on track towards the target of reducing our costs by ?800 million by 2012, in addition to the ?1 billion saved between 2003 and 2007. The principal areas of focus continue to be the supply chain, through initiatives such as our Global Leaf Pool, overheads and indirect costs.
In 2008, for the seventh year running, we were included in the Dow Jones Sustainability Indexes and we published our first Sustainability Report.
We conducted our biennial employee opinion survey, Your Voice, in 2008 and we are, once again, encouraged by the results. Employee opinion at British American Tobacco compared favourably with other FMCG companies in the comparator group.
Internationally diversified brands
British American Tobacco has a portfolio of diversified brands in the tobacco category. The company offers its products through more than 300 brands with four Global Drive Brands (GDB) namely, Dunhill, Kent, Lucky Strike and Pall Mall which contribute to the company's growth. The improved brand performance helps company to reduce the impact of market volatility in a particular product segment and provides economic stability.
Wide international presence
A wide international presence of BAT helps in mitigating the risks associated with the over dependence on a particular market. British American Tobacco plc manufactures, distributes and sells tobacco products in more than 180 markets through its subsidiaries and associates across the globe. It operates in all the major markets such as Europe, the U.S., Africa and the Middle East and the Asia pacific region. This wide international presence shows that the company has wide spread sources of revenues and caters to businesses in different parts of the world. This helps in reducing its business risks across various geographies.
Global trade partners
BAT operates globally and has a leading market position. They also have partnerships with global trade partners, it helps them to expand their business operation and make their presence felt across the globe.
Declining market share in the sector
In the recent past the company has performed under the average growth and lost the market share over the last four years. Such underperformance could be attributed to a weak competitive position or inferior products and services offering or lack of innovative product and services.
It is involved in various legal and regulatory proceedings in many countries. Proceedings include smoking and health issues, and claims for economic loss arising from the treatment of smoking and health related diseases. These proceedings may have effect upon its financial condition and operations.
Taxation policies are the main weakness of the tobacco industry as government always increases tax burden on this industry to bring it out of the reach of rural people.
Now tobacco ads have been prohibited. Government has banned advertisement of tobacco products on any type of media.
Growing global tobacco industry
With the rapid growth of the global tobacco market and increase in young smoking population, the company has an opportunity to increase its revenue along with the growing global tobacco market. The company's position in the global market and increased adult population creates a potential opportunity in the adult smokers under 30 market segments. The company could leverage this growing global tobacco market to drive its top line growth.
Expanding Markets of smokeless tobacco
The growing marker for smokeless tobacco products creates an opportunity for the company to expand its business in this business segment. The increasing health awareness and regulations made tobacco manufacturers concentrate on the smokeless snus. Increasing market of snus across the globe will help company to improve its revenue and expand its business operations.
It offers a strong growth opportunity for the company, especially when entering new markets or launching new products or services. As the competition is rising in the industry, it becomes very important for a player to have a diversified geographical and product portfolio. The company has improved its global presence through strategic acquisitions from its inception. The company has acquired skandinavisk tobakskompagni's (ST) cigarette and snus business and also won the public tender for cigarettes assets of Tekel, a Turkish tobacco company. Recently it acquires control of bemtoel internasional Investama, a cigarette manufacturer based in Indonesia. These strategic partnerships give an opportunity to the company to undertake new projects and to further enhance its global presence.
Well the biggest opportunity for the tobacco industry can be to get hold of the foreign market by reducing its subsidies and applying that money in the foreign market.
Consolidation of tobacco industry
Tobacco industry is highly competitive; many acquisitions took place over the years which clearly show intense competition among companies. In such case if the company is not able to maintain the product quality, develop innovative, then such strong competition could reduce the sales volume of the company.
Illicit trade and imitative products
Illicit trade in the form of counterfeit and imitative products and smuggled genuine products are the major threats to the tobacco industry. A few factors responsible for the increase in illicit trade include poor enforcement of borders, weak laws, loosely regulated Free Trade Zones, lack of intellectual property rights protection and the growth of the internet as a trading medium. The increase in the cost of cigarettes due to high excise duties encourages the consumers to buy low cost smuggled products which effects on the sales volume and brand equity.
British American Tobacco operations are subjected to national and international regulations which change from time to time. During the recent years, tobacco regulations have been rising and becoming more stringent. FCTC (Framework Convention on Tobacco Control) adopted guidelines containing recommendations for government on tobacco policy-making. Such recommendations includes bans on tobacco companies publicizing their corporate social responsibility activities, bans on the display of tobacco products at the point of sale and the introduction of plain tobacco packaging. Furthermore, restrictions on smoking in public places and workplaces, design features of cigarettes, advertising and promotions will impact on the company's strategies. The World Health Organization is dedicated to a global ban on all tobacco advertising, promotion and sponsorship. Increasing such regulations may affect the sales volume and profits of the company
NGOs are the biggest threats to the tobacco industry as they are always ready with a new campaign to prohibit tobacco usage and all things.
Another threat is smuggled tobacco products or cigarettes which is somewhere harming global market as smuggled cigarette does not have excise duty on it and its supply is cheaper.
Political factors :
Taxation policy: This is the policy by the government in which it imposes tax on tobacco industry and its companies so that its consumption decreases. Because of rise in taxes the company will raise the price of the cigarette and thus the rural person will not be able to afford it.
Restriction: There are various policies and restrictions on tobacco industries and such kind of policies plays an important role in decreasing the percentage of tobacco consumption.
Tobacco sector is not working according to society as most of youngsters are getting prone to this smoking and chewing tobacco thus this is not fit for the society.
Overall it is harming not only smokers' also passive smokers
It is also increasing pollution and causing many harmful diseases.
These are the factors which affect business economically thus it is only the tax factors which is able to affect the cigarette business and is able to bring its consumption down and until people are addicted they will buy it.
New cigarette has come into the market that is e cigarette which will only give the feel and does not have any harmful effect.
British American tobacco-Annual report
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