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Chapter # 1

Organizational Description

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Pakistan Tobacco Company

Introduction:
Pakistan Tobacco Company Limited (PTC) is a part of British American Tobacco - the world's
most international tobacco group - with brands sold in 180 markets around the world. Pakistan
Tobacco's operations in Pakistan began in 1947, making it one of Pakistan's first foreign
investments.

Principal line of business:


The company produces high quality tobacco products to meet the diverse preferences of millions
of consumers, and it works in all areas of the business - from seed to smoke.
The company provides a number of reputed brands of cigarettes to consumers in Pakistan,
including Benson and Hedges, Embassy, Gold Flake, Capstan and Gold Leaf.

Location:

Registered Office:
Pakistan Tobacco Company Limited
Dubai Plaza, Plot No. 5
Street 20, Salman Market, F-11/2
P.O. Box 2549
Islamabad-44000
Telephone: +92 (51) 2083200, 2083201
Fax: +92 (51) 2111913
Web: www.ptc.com.pk

Regional Sales Offices:


North Punjab & N.W.F.P.
House # 57-A/6, Satellite Town
Rawalpindi
Telephone: +92 (51) 4582390-91
Fax: +92(51) 4582392

Total Number of Employees:


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Total number of employees as at December 31, 2008 was 1,655 (2007: 1,668).

Reason for decreasing Employees


• Organizational restructuring
• Telecom sector attracted many employees of the company at high pays, as a result high
turnover of employee observed. This issue is somewhat now resolved by the company as
it has started paying more incentives to the employees and also giving training and
development courses to its employees.

Awards Won in the current year:


The Company was awarded the following Awards:
• Corporate Excellence Award by the Management association of Pakistan
• BAT’s Global Environmental Health & Safety Award
• BAT’s Global Leaf Award.
• 25th Corporate Excellence Award in Business and Industry Category
• PTC Annual Report for 2007 was recognized as the best in its category by ICAP

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Focus of the Organization
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The Company focuses on the following operational targets:
• Continued strong volume and profit growth.
• Increased focus on productivity savings.
• Launch of the 3rd cycle of our social reporting dialogues.
• Improved corporate governance.
• Environment, Health & Safety

Organizational Culture
Our culture consists of values we derive from our 4 guiding principles. We are currently in the
process of launching internal campaigns to further inculcate these values into the daily lives of
our employees. Our guiding principles in brief are:

Guiding principles
We follow four guiding principles that represent:
• Strength from Diversity
• Open Minded
• Freedom through Responsibility
• Enterprising Spirit
Our Guiding Principles describe the organization we are and the type of organization we want
to be. They represent the common values at the heart of our success.

1. Strength from Diversity


Strength from Diversity reflects the cultural mix within the Company and a work environment
that respects employees’ individual differences. It also reflects our vision of harnessing diversity
– of people, cultures, viewpoints, brands, markets and ideas – to create opportunities and
strengthen performance.
For this reason, we are interested in what will differentiate you from others – what makes you
unique.

2. Open Minded
Open Minded reflects our openness to change, opportunities and new ideas, including ways of
addressing regulatory issues and changing social expectations. We seek to listen without
prejudice, actively and genuinely considering other viewpoints.

3. Freedom through Responsibility

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Freedom through Responsibility describes how we make decisions: as close to the consumer as
possible. It also affirms our belief that decision-makers should accept
responsibility for their own decisions.

4. Enterprising Spirit
Enterprising Spirit has been a characteristic of our business for more than a century. It is
reflected in our ability to grow our business and its value within challenging environments– in
the confidence to seek out opportunities for success, to strive for innovation and to accept
considered risk-taking as part of doing business.

5. Capacity and production


Against an estimated manufacturing capacity of 43,991 million (2007: 42,797 million) cigarettes,
actual production was 41,159 million (2007: 38,183 million) cigarettes. Actual production was
sufficient to meet market demand. There was no production through any outside manufacturing
source.

PTC and Corporate Social Responsibility:

Maintaining a large scale Corporate Social Responsibility (CSR) program in the midst of
political change and economic uncertainty was not only a challenge but also a personal stretch
for the people involved. In the past, we have seen and surmounted many hurdles, however, the
kind of problems we faced in NWFP in 2008 were unprecedented. In this context, it is indeed a
testament to the steadfast nature of our resolve that we remain partners of first choice for our
communities, and our CSR initiatives continue undeterred, with the same energy and resolve as
before. Our afforestation program continues, with an expansion of the total plantation area and
increased distribution of saplings. In the area of public health, we have completed construction of
8 water filtration units, with 5 more planned in 2009. Our Mobile Doctors Units continued to
operate extensively treating patients in the underprivileged areas; this was in addition to the 19
medical camps organized in the year. We also held free eye camps and diabetic
screenings in partnership with various organizations such as Merck and Layton Rehmatullah
Benevolent Trust. In education, the Company’s Learning Resource Centers saw 588 more
students graduate, with an 11% increase in the number of female students. Some 200 students
have been provided with the Adult Basic Education Society scholarships during the course of the
year. We also continued our tradition to engage with our stakeholders, having initiated

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Stakeholder Dialogue at the end of 2008. Our well established sustainability agenda will see us
publishing a Stakeholder Report in 2009. PTC is well aware of the unique challenge of operating
in the ‘field’, and is committed to rise to the occasion. I commend their efforts in the year past,
and am confident that despite some testing times ahead, we will continue to contribute to the
communities that we work with. People The people in PTC have always been one of our greatest
asset and we will continue to invest in the same through various initiatives that help us build a
winning organization. These include programs such as WAADA focusing on shop floor
employee morale, continuous investment in focused functional/leadership training programs and
coaching programs for first line leader such as TLDW (Team Leader Development Program). An
Employer Branding campus campaign by the name of “Battle of Minds” was also launched in
2008, focusing on attracting the right talent to our organization, and this was met with
great success. Demand for our highly developed local talent also remained high and during 2008,
15 of our managers were sent out for long and short term assignments
to various Operating Companies of BAT around the globe. Environment Health & Safety
PTC has always been a leader in the field of Environment, Health & Safety. EHS principles are
woven into the fabric of our organization and have now become part of the culture in all areas of
our business from seed to smoke. Our endeavor to improve
environmental programs has been recognized repeatedly by the Parent Group (BAT) with PTC
being awarded the annual EHS Excellence award for the fourth consecutive year in 2008 and
also, being awarded the accident free award for 2008 with “No Lost
Work day Case” incident reported across the organization during the year.

Core Competencies
• Business Process Re-engineering
2008 has also been a year of change for PTC with a number of Business Process Re-
engineering initiatives successfully implemented across the Company as the organization
embarked on a challenging and ambitious journey classifying our must do objectives to
succeed in the market as the “Big Mountains” and focusing our resources behind the same.
The Enterprise Program Office played a vital role in supporting the Company strategy by
setting-up the governance structures and process framework for effective program and project
management. Projects implemented during the year focused on the key areas of Talent,
Growth, Illicit Trade reduction, Productivity improvement and proactive approach to
Regulations. PTC is on the forefront of adopting best practices on Corporate Governance and
Reporting standards, as our Annual Report for 2007 was recognized as the best in its category
by ICAP. In addition to the above, PTC won the 25th Corporate Excellence Award in Business
and Industry Category from the Management Association of Pakistan which is recognition of
the excellent management processes in our Company.

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• Productivity approach to productivity
Concentrates on smart cost management, marketing efficiency and capital effectiveness –
deploying our resources effectively to increase profits and generate funds to reinvest in our
business.
• People
The people in PTC have always been one of our greatest asset and we will continue to invest
in the same through various initiatives that help us build a winning organization. These
include programs such as WAADA focusing on shop floor employee morale, continuous
investment in focused functional/leadership training programs and coaching programs for
first line leader such as TLDW (Team Leader Development Program). An Employer Branding
campus campaign by the name of “Battle of Minds” was also launched in 2008, focusing on
attracting the right talent to our organization, and this was met with great success.

Competitive Advantage of PTC:

Competiti
ve Scope

Corporate Structure of PTC:

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Chapter # 2

External & Internal Analysis

(A) External Analysis:

Tobacco Industry Analysis

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Industry overview:
The tobacco industry is a source of revenues, employment and foreign exchange for the country.
The industry has to pay very high excise and sales tax while complying with various strict rules
and regulations of the government. During 2007-2008, it contributed above Rs.68 billion as
Central Excise Duty and Sales Tax. Despite its contribution to the economy, the industry is
highly criticized for its negative impacts on the society.

Structure of Industry:
In Pakistan the industry consists of farmers who grow tobacco, firms that convert the raw
materials into finished goods (Cigarettes), exporters and importers of tobacco and its products.
Smuggling of tobacco products to and from neighboring countries is also quite common.

Size and number of sellers:


In Pakistan, tobacco cultivation occupies a relatively small area of 0.27% of the total irrigated
land. The country has been divided into various zones depending on the type of tobacco being
grown in that region. The details and amount of production is mentioned in appendix1.
The major firms involved in the manufacture of finished goods and exports include

 Pakistan Tobacco Company,


 Lakson Tobacco Company,
 Souvenir Tobacco Company,
 Saleem Cigarette Industry,
 Universal Tobacco Company,
 Imperial Cigarette Industry,
 Khyber Tobacco Company,
 International Cigarette Industry,
 Walton Tobacco Company
 Sarhad Cigarette Industry.

Of these firms Pakistan Tobacco Company is the market leader with lakson Tobacco Company
in second place.

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Number of buyers:
The firms that manufacture finished goods act as purchasers themselves, buying it from the
farmers. They serve as intermediaries that purchase, process and resell.
In the local market, Twenty-nine percent of men and 3.4% of women smoke cigarettes
regularly, concluded the National Health Survey, while the Pakistan Society of Cancer
Prevention says 37% of men and 4% of women over 15 years of age are smokers. According to
Pakistan Pediatric Association, 1,000 to 1,200 children between the ages of 6 and 16 years take
up smoking every day.
Cigarette consumption in Pakistan is five times higher than in India with 620 cigarettes per
adult per annum against 119 for India¹. This shows that the market for tobacco industry is very
immense locally. Chewing tobacco is in demand in the villages.
Along side this; various countries are also acting as buyers for the tobacco industry.

Product differentiation:
The major product differentiation exists between chewing tobacco and cigarettes and cigars.
The main differentiation exists between the manufactured goods in the form of branded
cigarettes. The firms target different segments of the society with different price levels.
Differentiation also exists between imported and local cigarettes and cigars. Consumers are
willing to pay a premium price for the imported product especially cigars.

Entry conditions and government regulations:


There are no entry conditions as such but when a company enters the industry, it has to abide by
all the rules and regulations of government. This is very costly especially in terms of
advertising. The firms have to inform the consumers about the potential health hazards related

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to tobacco products. This implies that in order to enter as a manufacturer, heavy investment is
required.
The government is providing incentives to the tobacco growers in order to promote the industry.
This is being done through the Pakistan tobacco board. The board tries to find out their
problems and to educate them about the cultural operations, plant protection measures, picking
and curing operations. Other responsibilities of the board are to regulate, control and promote
the export of tobacco and tobacco products, and to fix grading standards.

Demand and supply:


The tobacco board also manages the demand and supply in the industry. According to legal
requirements, the tobacco manufacturing and exporting companies are required to inform their
tobacco requirements by the 21st of October to the Pakistan Tobacco Board. After discussions
between the Board and other stakeholders like buyers, growers, dealers, etc. and taking into
account factors like crop size, prices, domestic usage and exports, these figures are finalized.
In this way the growers get a rough estimate of how much they should grow. This creates a
balance between demand and supply. The Pakistan Tobacco Board, in collaboration with
tobacco companies, holds meetings in the tobacco growing areas to inform the growers about
the requirements of tobacco companies.

Image:
The industry has a negative image among its consumers and the general public. This is due to
the various health hazards associated with tobacco consumption. People are also blaming the
government for its support for the industry. Smoking is the cause of lung cancer in 90% of the
cases. Its users get addicted to it.
Although the companies can not change the nature of their product, they are trying to build a
socially responsible image in the eyes of the consumers. PTC is currently engaged in various
programs such as afforestation, Mobile doctors program, Youth smoking prevention, learning
resource centers. The laskson group has set up Lakson medical center (Sahiwal hospital) and a
Medical complex in Sawabi NWFP.

Price:
The government fixes the lowest price that firms can pay to growers. There is a restriction that
price for the current year can not be lower than that paid in the preceding year. The tobacco
board has specified the criteria for fixing prices.
Smuggling is resulting in revenue leakage for the government. Some groups say that high
taxation on the tobacco industry is encouraging smuggling.

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(B) Internal Analysis:

Pakistan Tobacco Company

SWOT Analysis

Strengths
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• Economies of scale in production
• Enterprise resource management for quick and cost effective operations
• Efficient management
• Marketing efficiency and capital effectiveness
• Business process re-engineering

Weaknesses
• Wastage of material in production.

Opportunities
• Growing demand of cigarettes despite such anti smoking campaigns.

Threats
• Illicit sector activities
The illicit sector continues to be the single biggest threat to long term commercial
viability and sustainability of the legitimate sector along with its adverse impact on
Government revenue

• Law and Order Situation


• The law and order situation has been precarious, culminating in the bombing at the
Marriott hotel which led to collateral damage to our Head Office in Islamabad.
• The general security situation in the country continued to deteriorate in 2008 and it was
especially difficult in the tobacco growing areas of NWFP.

• Technology
• Changing Optimization techniques not only to ensure capacity enhancement but also to
adhere to international Environment, Health and Safety standards.
• Available resources
• Need of Raw material for meeting rising demand of cigarette
• Government intervention for decreasing the cultivation of tobacco

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• Social and economic trends

• Social trends:

• Increasing know how of cigarettes’ hazards

• Anti - cigarette campaigns and litigations

• Economic trends:

• Rising taxes

• High inflation

• Rupee devaluation
• Rising commodity and oil prices
• Sharp increase in energy costs.

• Government action

• Cigarette use prohibition and awareness in people for hazards of smoking

• Ban on sales promotions

• Ban on product advertisements including sports sponsorships, TV, radio and outdoor
hoarding.

• Changing Consumer needs

• Switching to Discount brands due to decreasing purchasing power of the consumers

• Threat of rivalry and new entrants

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PTC faces rivalry from Lakson Tobacco Pakistan in major, after it there is no other big
market player and cannot affect the sales of PTC that much.

As there have been the anti tobacco campaigns internationally, there is a threat that the
other international industries might direct themselves for the developed countries to
ensure their sustainability. Pakistani market may also be in the threat for the international
companies to enter, as government policies for the entry are much relaxed but afterwards
the company has to abide by the strict rules and regulation for operating in the region.

PORTER’S MODEL:
1. Rivalry among existing firms:
In Pakistan only two major companies compete with each other. These are Pakistan tobacco
company and lakson tobacco company. So rivalry among firms is normal.

2. Bargaining power of buyers:


Cigarette consumption in Pakistan is five times higher than in India with 620 cigarettes per adult
per annum against 119 for India. This shows that the market for tobacco industry is very
immense locally. According to Pakistan Pediatric Association, 1,000 to 1,200 children between
the ages of 6 and 16 years take up smoking every day. Therefore bargaining power of buyers is
relatively low.

3. Bargaining power of suppliers:


Most of the tobacco used by the firms is produced in Pakistan, but still a considerable amount of
tobacco is imported every year so suppliers have some bargaining power regarding the prices
especialy.

4. Potential Entrants:
While the anti-tobacco movement in the USA helped lower cigarette sales, Big Tobacco, the
largest US companies: Philip Morris, R.J. Reynolds and Brown and Williamson have continue to
expand overseas.. They have flooded the markets in Asia and Eastern Europe with
advertisements, promotional products and cut-price brands designed to encourage new smokers.

5. Substitutes:
Substitutes are easily available in Pakistan so people have the option to switch to brands of other firms.

6. Other Stakeholders:
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Every year, the government spends some US$20,000 on anti-smoking messages but Anti-tobacco
campaigners are also playing there role to minimize smoking but cigarette companies spend
millions of dollars annually on advertising so this threat is neutralized upto much extant.

Potenti
al
entrant

Medium
threat of
new
Bargaini entrants
ng
power
Industry
of Low
supplier Competito bargain
ing
Supplie rs
power
rs of
Large
number
of
buyers
Relatively is Rivalry
of medium among
existing
firms
Other
stakehold
ers
High threat
of
substitute

Substitut
es

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Porter’s Model
TOWS Matrix

• Large number of brand


loyal customers.
Wastage of material in
• Economies of scale in production
production

• Good distribution
network

• ERP

• Growing Consumer • Retaining Loyal • Plant replacement


Market. Customers which ensures least
• Less no. of companies • Attracting new customers
in the market. material wastage and
by promotions
high production

• Illicit sector activities • Production of harm • Discount brands to


• Technology free cigarettes be focused more
• Social, politico-legal • Pull Strategy to be
adapted
and economic trends

• Threat of rivalry and


new entrants

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Chapter # 3

Organizational Strategies

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Corporate Strategy:
In the current conditions prevailing in the country, PTC is undergoing multi- dimensional
directional Strategies, from enhancing revenues; profits and market share to cutting down
Cost of production, and somewhat retrenchment (Organizational Restructure) as and when
needed for the organizational interests.

Directional Strategy:

• Vertical Integration (Backward Integration)


PTC is in backward integration as it has grown its own tobacco cultivation fields, hence
procuring the raw material from its own resources. But still it is in a limited scope, as the
cultivation place also changes the taste and color of tobacco. Therefore, they have also done
some contracts with farmers on standing field basis i.e. the whole field is purchased from
farmers the before it is harvested by estimating the yield of field.

Portfolio Strategy:

GE Business Screen Strategy


Factors that Affect Market Attractiveness
Market Size Big 10
10-30 = Low
Market growth High 10
Market profitability Medium 5 30-60 = Medium
Pricing trends Medium 5
60-90 = High
Competitive intensity / rivalry Medium 5
Overall risk of returns in the industry Medium 5
Segmentation High 10
Distribution structure (e.g. retail, direct, wholesale High 10
60

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actors that Affect Competitive Strength H = 10, M = 5, L = 0
Strength of assets and competencies High 10
High 10 0-30 = Low
Relative brand strength
Market share High 10 30-60 = Medium
Customer loyalty High 5
Relative cost position (cost structure compared with Medium 5 60-90 = High
competitors)
Distribution strength Medium 5
Record of technological or other innovation High 10
Access to financial and other investment resources Medium 10
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• Hence, despite the fact that the Tobacco industry is facing the threats in
external environment, PTC is expected to grow, and should invest more in
order to gain maximum market share.

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Functional Strategies
• Marketing Strategy
o Pull Strategy
Distributors are given License for the sale of products. Certain sales
targets are set for them which they are to meet.
The major market the company is focusing now a days is a youth
between the age of 16-20.

o Penetration Pricing
Price war has already been started by PTC in the previous years by
cutting down the prices of the products by half of the current selling
prices. As a result more people are purchasing the products, that has
lead PTC to gain a market share of 46.3%. Discount brands of PTC
including Gold Flake have seen a rigorous growth in sales. Almost
18% sales growth in Gold Flake has been observed as compared to
previous year.

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• Financial Strategy
Debt to equity ratio is reduced significantly to make the business less
leveraged. The ratio is dragged down from 0.28 to 0.16. hence making
attempts to transform the financial system into a flexible one.

• Research and Development strategy


PTC is in Technological leadership as it has a modernized plant and
machinery which produces high number of sticks at a certain time. In
addition to this, a major issue in PTC was a high material wastage which has
been drastically reduced after having installed a software made by Sirilankan
Tobacco Company.

• Operational Strategy
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o Advanced Manufacturing Technology
Major issue in PTC was a high material wastage which has been drastically
reduced after having installed a software made on CAD/CAM basis by Sirilankan
Tobacco Company.
o Mass Production
PTC is in mass production and has also achieved economies of scale in it. In 2008
almost 42 Billion sticks had been produced.

• Purchasing Strategy
o Multiple Sourcing
Indigenously procured
For most discounted brands like Gold Flake & Capstan local tobacco is
procured which is mostly from NWFP.
Imports
PTC also imports tobacco for its two products;
Gold Leaf- from Brazil
Dunhill- from Belgium

o Just in time Concept


PTC is now adapting Just in Time Concept for the procurement of the material
to ensure the freshness.

• Human Resource Management Strategy


o Recently foreign training to unskilled labor was given to make them
working more efficiently.
o High Incentives are paid to the employees to ensure their loyalty
with the company and decreasing the turnover.

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Chapter # 4

Strategy Implementation

Business Process Re-engineering:

A number of Business Process Re-engineering initiatives successfully implemented across the


Company as the organization embarked on a challenging and ambitious journey classifying

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the must do objectives to succeed in the market as the “Big Mountains” and focusing
resources behind the same.
The Enterprise Program Office played a vital role in supporting the Company strategy by
setting-up the governance structures and process framework for effective program and project
management. Projects implemented focused on the key areas of Talent, Growth, Illicit Trade
reduction, Productivity improvement and proactive approach to Regulations.

Organizational Restructuring:

To enhance the efficiency and productivity of the Company, PTC has reorganized its core
committee “The Executive Committee of the Board” (ExCo) in 2006. In this context a
subcommittee of the ExCo was created namely “The Operations Committee (OpCo) that
comprises of the senior managers from all function of the Company. After this segregation
ExCo’s primary responsibility shall be to assist the Board in the formulation and driving of
the strategy whilst the OpCo under the authority delegated by the ExCo shall operate to run
the day to day operations of the Company. This will allow operational issues to be dealt with
the focus and sense of urgency that they deserve, releasing the Executives Directors and the
Head of the Departments to concentrate on strategy formulation and direction setting.
Furthermore the scope of influence of the Board Compensation Committee was expanded to
include all the employees of the Company.

Reward & Recognition (R&R) system:

A well motivated and energized workforce is instrumental for the success of any business. To
achieve this and reinforce a high performing culture a unique Reward & Recognition (R&R)
system was put into place whereby employees are recognized for their efforts and rewarded
instantly.

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Chapter # 5

Evaluation and Control

Evaluation and Control:

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Earning Per Share:

PTC evaluates its performance in terms of earnings per share, as it is public limited company
having most of the stake with British American Tobacco. The first priority of the company will
be the shareholder’s wealth for which the most applicable tool is EPS.
The past trend in EPS is as follows:

The rising EPS with each successive year show the increasing performance of PTC.
So as a result, there will be less deviation from the rate at which the shareholders will be paid.
This consequently leads to stability in the share price as there is less risk associated with the
security.

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Chapter # 6

Case Study

Slump in International Tobacco Industry but Growing PTC:

Pakistan Tobacco industry:


Tobacco industry makes a significant contribution to all sectors of the economy, from farming to
manufacturing to retailing. The tobacco industry is the largest employer in NWFP, besides this
the other one million persons are dependent on it countrywide. On the other hand, its
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contribution to the government revenue receipts is very sizeable by the way of federal excise
duty and sales tax. According to a study carried out, the industry is the single largest contributor
to federal excise duty. (Study by The News)

Cigarette production in Pakistan:


According to press reports, Pakistan’s total cigarette market is around 89 billion sticks. While the
legitimate sector supplied 74 billion sticks to the market, the remaining 15 billion is cigarettes
were either smuggled into the country or marketed by counterfeiters and non-duty paid
manufacturers inflicting heavy losses to the federal exchequer. Cigarettes are the most highly
taxed products in the country and up to 78 per cent of the retail price is realized by the federal
government in the form of federal excise duty and sales tax. Pakistan has long porous border
with India, China and Afghanistan which makes it impossible to completely seal them. (Study by
The News)

Cigarette Buyers:
The firms that manufacture finished goods act as purchasers themselves, buying it from
the farmers. They serve as intermediaries that purchase, process and resell.
In the local market, Twenty-nine percent (29%) of men and 3.4% of women smoke
cigarettes regularly, concluded the National Health Survey, while the Pakistan Society of
Cancer Prevention says 37% of men and 4% of women over 15 years of age are
smokers. According to Pakistan Pediatric Association, 1,000 to 1,200 children between
the ages of 6 and 16 years take up smoking every day.
Cigarette consumption in Pakistan is five times higher than in India with 620 cigarettes
per adult per annum against 119 for India. This shows that the market for tobacco
industry is very immense locally. (Reference: NUST Research Center)

Image:
The industry has a negative image among its consumers and the general public. This is
due to the various health hazards associated with tobacco consumption. People are

34
also blaming the government for its support for the industry. Smoking is the cause of
lung cancer in 90% of the cases. Its users get addicted to it.

Although the companies can not change the nature of their product, they are trying to
build a socially responsible image in the eyes of the consumers. PTC is currently
engaged in various programs such as afforestation, Mobile doctors program, Youth
smoking prevention, learning resource centers. The laskson group has set up Lakson
medical center (Sahiwal hospital) and a Medical complex in Sawabi NWFP. (Reference:
NUST Research Center)

International Tobacco Industry overview:


Phillip Morris began his tobacco sales in England in 1847. During their rise to the top, Phillip
Morris & Co., Ltd. has developed into two divisions, Phillip Morris USA and Phillip Morris
International. The combined sales of these cigarettes has given Phillip Morris USA a market
share of 49.9%, just under half of the total cigarette sales in America (taken from
http://www.phillipmorrisusa.com). This level of excellence is rivaled by their main competitor,
Reynolds American, Inc. Reynolds American, Inc. is the newly formed parent company of the
R.J. Reynolds Tobacco Company and Brown and Williamson Tobacco USA. This merger took
place on July 30, 2004, and combined R.J. Reynolds (the 2nd largest tobacco manufacturer in
the country) with Brown and Williamson Tobacco USA (the 3rd largest tobacco manufacturer in
the country) (taken from http://www.reynoldsamerican.com). This merger created a company
with a market share of approximately 33.3%, the only figure that comes close to Phillip Morris
USA’s whopping 49.9%These days, R.J. Reynolds Tobacco and Reynolds American, Inc. have
diversified their product lines to include items not involving tobacco. Their acquisition of food
giant Nabisco shows this trend away from tobacco, and is perhaps the largest reason why their
tobacco products have lost their market share to Phillip Morris.

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Issues and Threats for the Tobacco Industry:

International Industry:
In the last decade or so, there has been a large anti-smoking backlash in the United
States. The recent out-of-court settlement of $360 billion between "Big Tobacco" and
participants in a class action suit has spurred the development of anti-smoking
coalitions in other parts of the world.

The decline in smoking in North America, especially the United States, has been offset
by a strong push from the large tobacco companies to find converts in the developing
world. As tobacco control is tightening in the West, transnational tobacco companies are
becoming more active in developing countries. The result is that tobacco use is
declining at the rate of 1.5% in the West but at the same time it is increasing at the rate
of 1.7% in the developing countries.

While the anti-tobacco movement in the USA helped lower cigarette sales, Big Tobacco,
the largest US companies: Philip Morris, R.J. Reynolds and Brown and Williamson, as
well as the British American Tobacco Co., have continue to expand overseas. They
have flooded the markets in Asia and Eastern Europe with advertisements, promotional
products and cut-price brands designed to encourage new smokers.

Some of the government sanctions, which have been primarily handed down from the
FDA, have been a minor hindrance to the tobacco companies themselves, such as
compliance checks for ID requirements where tobacco is sold (Benjamin, 2000).
However, some have been much more damaging to the product and the companies,
requiring a label on the package that would deter customers, the regulations on their

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advertisements, and the lawsuit settlement that resulted in the yearly payment to state
governments (Benjamin, 2000). A dwindling market has been created by these
sanctions. By imposing such sanctions, the government has been changing tobacco’s
image to be more ugly and unattractive. This “deglamorization” of tobacco has lead to
decreases in sales margins in recent years (Viscusi, 2002). It also deters the sale to
barely-legal young adults who may want to experiment, causing a potential profit loss
for the tobacco companies.

WASHINGTON (Reuters) May 22, 2009 --“Cigarette companies systematically lied for
years in order to sell tobacco products they knew were dangerous”, a U.S. appeals
court said on Friday May22, 2009. The U.S. Court of Appeals for the District of
Columbia ruled the companies, including Altria Group Inc. and its Philip Morris USA unit,
violated federal racketeering laws by conspiring to lie about the dangers of smoking.

British American Tobacco has become the latest UK Company to be targeted in Russia
with threats of legal action for "misleading" consumers and infringing their rights and for
"nicotine genocide", allegedly for making huge profits at the expense of Russians'
health, by the country's consumer rights agency, Rospotrebnadzor.

Furthermore, Scotland is going to ban cigarette displays in stores; Crackdown includes


outlawing vending machines after research found underage smokers are among their
main users.

Tobacco is a pesticides dependent crop as its broad and succulent leaves provide
favorable conditions for the development of many pests and diseases. The pesticides
used in the tobacco cultivation happen to assimilate in the leaves which then sometimes
become an integral part of the leaf. These leave are then processed and used in
manufacturing the cigarettes, and thus consequently the final consumer also consumes
some doze of pesticides during smoking. This leaves some bad impacts on the body in
case of continuous smoking like; vomiting, headache, respiratory problems, and
convulsions.

Pakistani Industry:
The News Pakistan (May 22, 2009)-- With World No-Tobacco Day on 31st May 2009,
expectations run high because nothing short of withdrawal of the controversial Statutory
Regulatory Order (SRO) legitimising the creation of designated smoking areas in
Pakistan will be acceptable to anti-tobacco networks, alliances, and campaigners
working at both the national as well as the global levels.

On May 27, a collaborative activity has been planned with the Ministry of Railways for
implementation of Article 6 of the No-Smoking Ordinance, which ordains that all public
transport has to be smoke-free. The activities will conclude with a ‘No Smoking

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Awareness Campaign with the Traffic Police’ on May 30th. More than 8,000 stickers
prepared by the Traffic Police will be distributed on the occasion.

PTC Views on the above stated Issues:


At Pakistan Tobacco Company, we have long accepted that smoking is risky. Our
business is not about persuading people to smoke; it is about offering quality brands to
adults who have already taken the decision to smoke. We strongly believe that smoking
should only be for adults who are aware of the risks.

In a nutshell, our view on smoking is this:

British American Tobacco companies produce fine quality products that provide
pleasure to many millions of adult smokers around the world. Along with the pleasures
of cigarette smoking come real risks of serious diseases. We also recognise that for
many people smoking is difficult to quit.

Smoking is a cause of various serious and fatal diseases such as lung cancer,
respiratory disease and heart disease.
The risks associated with smoking are primarily defined by epidemiological (population
statistical) studies that show that groups of lifetime smokers have a far higher incidence
of certain diseases than comparable groups of non-smokers. These risks tend to be
greater in groups that start smoking younger, smoke for longer, and smoke more
cigarettes per day.

The statistics, however, do not tell us whether a particular individual smoker will avoid
an associated disease by smoking less, and all smoking behaviours are associated with
significantly increased health risks. Studies also show that the only way to avoid
smoking-related risks is not to smoke in the first place, and the best way to reduce the
risks is to quit.

Similarly, the discussion on the issue of Pesticides inclusion in the tobacco can be
detained to the statement that we have a modernized manufacturing process for the
production of cigarettes, which ensures the removal of such pesticides out of the
tobacco leaves.

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References:

 www.thenetwork.org.pk/pressrelease04-01-08.htm
 NUST Research Center
 The News
 Reuters
 Business Recorder (www.brecorder.com)
 Pakistan Tobacco Board (www.ptc.com.pk)

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