Complied Report PDF

Application of Economics Theories and Practices in the Tobacco Industry of Bangladesh
Contents
A. Introduction ................................................................................................................................ 6
A.1. Origin of the Report .......................................................................................................... 7
A.2. Rationale of the Study ......................................................................................................... 7
A.3 Objectives ........................................................................................................................... 7
A.3.1. Broad Objective ......................................................................................................... 7
A.3.2. Specific Objectives..................................................................................................... 7
A.4. Scope of the Study ............................................................................................................ 8
A.5. Methodology ..................................................................................................................... 8
A.5.1. Sources of Data .......................................................................................................... 8
A.5.2. Research Design ......................................................................................................... 9
A.5.3. Instruments of Data Collection .................................................................................. 9
A.5.4. Sample Design ........................................................................................................... 9
A.5.5. Sampling Technique................................................................................................... 9
A.5.6. Sample Size ................................................................................................................ 9
A.6. Criticalities and Limitations .............................................................................................. 9
B. Literature Review ..................................................................................................................... 10
B.1. Industry Segmentation:...................................................................................................... 11
B.1.1. Biri Market: ................................................................................................................ 11
B.1.2. Competitive Scenarios in the Cigarette Market: ........................................................ 12

B.2. Segment wise Market Growth of Tobacco Industry ......................................................... 13
B.3. GDP Share of Tobacco Industry ....................................................................................... 13
B.4. Government Tax and Other Regulations: .......................................................................... 13
B.4.1. Tobacco Tax Structure in Bangladesh ........................................................................ 13
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B.4.2. Lopsided Tobacco Taxation Policy ............................................................................ 14

B.4.3. Administrative Issues in Tobacco Taxation ............................................................... 14
B.4.4. Political Dimensions of Tobacco Taxation ................................................................ 15
B.4.5. NBR-WHO Collaboration on Tobacco Taxation ....................................................... 16
B.5. Demand for Tobacco in Bangladesh ................................................................................. 17
B.5.1 Existing Evidences of Demand for Tobacco in Bangladesh ....................................... 18
B.5.2. New Estimates for Tobacco Demand in Bangladesh ................................................. 19

C. Trends in Tobacco Production and Market Share .................................................................... 20
C.1. Tobacco products market shares ....................................................................................... 20
C.2. Tobacco Agriculture .......................................................................................................... 21
C.3. Production of Manufactured Tobacco Products ................................................................ 22
C.4. Current Pattern of Tobacco Consumption ......................................................................... 23
C.4.1. Age-specific and Sex-specific smoking rates:............................................................ 24
C.4.2 Socio-economic differentials in male smoking ........................................................... 25
D. Circular Flow Diagram ............................................................................................................ 27
E. Relative Market Share in the Tobacco Industry ....................................................................... 30
E.1. Competitive Landscape ..................................................................................................... 32
F. Company Profile of BATB ....................................................................................................... 33
F.1. Vision and Mission of the Company ................................................................................. 34
F.1.1. Vision .......................................................................................................................... 34
F.1.2. Mission........................................................................................................................ 34
F.2. Product Portfolio ................................................................................................................ 34
F.3. Sales Trend over Last 10 years .......................................................................................... 36
F.4. Countrywide Sales (By Region) ........................................................................................ 37
F.5. Contribution to the Industry ............................................................................................... 38
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G. SWOT Analysis ....................................................................................................................... 39

Strengths................................................................................................................................ 39
Weakness .............................................................................................................................. 42
Opportunities ......................................................................................................................... 43
Threats ................................................................................................................................... 44
H. Company Profile of Dhaka Tobacco industries ....................................................................... 46
H.1. Product Portfolio ............................................................................................................... 46
H.2. Sales Trend for Last 10 years ............................................................................................ 49
H.3. Country wide sales of DTI ................................................................................................ 50
I. Company Profile of Abul Khair Tobacco Company (AKTC) ................................................... 51
I.1. Organization Culture .......................................................................................................... 52
I.2. Products Mix ....................................................................................................................... 52
I.3. Company Performance Overview ....................................................................................... 55
I.4.Sales Trend for last years:.................................................................................................... 56
I.5. Countrywide Sales (By Region) ......................................................................................... 56
I.6. Contribution to the Industry: .............................................................................................. 58
J. Company Profile of Nasir Tobacco Limited ............................................................................. 58
J.1. Products .............................................................................................................................. 60
K. PESTEL Analysis..................................................................................................................... 60
K.1. Macro Environmental Factors ........................................................................................... 60
K.2. Political/ Legal .................................................................................................................. 61
k.3. Economic ........................................................................................................................... 61
K.4.Social and Culture .............................................................................................................. 61
K.5. Technology ........................................................................................................................ 61
k.6. Environment ....................................................................................................................... 62
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K.7. Micro Environmental Factors ........................................................................................... 63

L. Value Chain Management ........................................................................................................ 63
L. 1. Inbound logistics of Tobacco Industry ............................................................................. 63
L.3. Raw materials cigarette ..................................................................................................... 64
L.4. Operation of a Typical Cigarette ....................................................................................... 65
L.4.1. The Primary Manufacturing Department ................................................................... 65
L.4.2. The Secondary Manufacturing Department ............................................................... 66

L.5. Outbound Logistics Typical Cigarette ............................................................................... 69
L.6. Channel of Distribution ..................................................................................................... 70
L.7. Departmental Overview (Sales &Marketing) .................................................................... 73
L.7.1. Marketing.................................................................................................................... 73
L.8. Six Critical Factors to Achieve TM&D Mission ............................................................... 81
L.9. Human Resource Management .......................................................................................... 86
L.9.1. Technology Development........................................................................................... 88
M. Porters Five Forces Industry Analysis ................................................................................... 89
M.1. Threat of Rivalry .............................................................................................................. 89
M.2. Threats of Substitute ......................................................................................................... 90
M.3. Threats of Potential New Entrants .................................................................................... 90
M.4. Bargaining Power of Suppliers ......................................................................................... 90
M.5. Bargaining Power of Buyers ............................................................................................ 91
N. Analysis and Applications of Economic Principles and Theories .......................................... 91
N.1. Principles of Economics (Relating to the Ten Principles of Economics .......................... 91
N.1.1. Effect of Invisible Hand in the Tobacco Market ........................................................ 95
N.2. Demand and Supply Function ......................................................................................... 95
N.2.1. Price Elasticity of Demand ....................................................................................... 97
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N.3. Price Ceiling and Price Floor ........................................................................................ 104

N.4. Market Structure.............................................................................................................. 104
N.5. Effects of Tobacco Control Policies ............................................................................. 106
N.5.1. Taxes on Cigarettes in Bangladesh and Strategies in encountering Government
interventions ........................................................................................................................ 107
N.5.2. Impact of Taxation on Smoking Behavior ............................................................... 107
N.5.3. Anti-tobacco Campaign ........................................................................................... 108

N.6. Private Goods, Public Goods and Tragedy of the Commons.......................................... 109
N.7. Production Function ........................................................................................................ 110
N.7.1. The Law of Diminishing Return to a Factor ............................................................ 110
N.8. Game Theory and Cigarettes ........................................................................................... 114
N.9. Price War ......................................................................................................................... 115
N.10. Price Discrimination...................................................................................................... 117
N.11. Externalities................................................................................................................... 118
HEALTH CONSEQUENCES AND COSTS OF TOBACCO USE ..................................... 118
Data on tobacco-related diseases in Bangladesh ................................................................ 120
Direct medical costs .............................................................................................................. 121
Indirect costs .......................................................................................................................... 123
Gross or net costs? ................................................................................................................ 123
RECOMMENDATIONS .......................................................................................................... 123
O. Recommendations .................................................................................................................. 126
P. Conclusion .............................................................................................................................. 126
Q. Bibliography ........................................................................................................................... 128
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A. Introduction
Tobacco-consumption is a widespread scenario in Bangladesh. More than half of all men and
nearly one in three women use tobacco in Bangladesh, according to a latest study on tobacco
consumption. Conducted by Human Development Research Centre (HDRC) and Campaign for
Tobacco-Free Kids, the study looked at tobacco consumption trends among people aged 15 and
older, estimating that 46 million people out of 107 million consume tobacco.
About 58% of men and 29% of women smoke or chew tobacco in one of the cheapest tobacco
countries across the globe making up 43% of its total adult population. Bangladesh ranked among
top tobacco consuming countries where 57,000 people over the age of 30 die each year from
tobacco-related illness. Though Bangladesh signed WHO Framework Convention on Tobacco
Control (FCTC) in 2003 to control tobacco use by all means, it is yet to form a national agency
that experts think a key to fight tobacco. The survey revealed that tobacco consumption in
Bangladesh sharply rose in recent years, with cigarette sales going up by 40% and tobacco use in
the form of bidi increased by 80% between 1997 and 2013. Compared to 50.9 billion cigarettes
bought in 1997, the consumption was 76 billion pieces in 2013, while bidi sales climbed from 43
billion in 1997 to over 82 billion in 2013. Excise taxes on cigarettes account for half of the retail
cigarette price in the country while total taxes are two-thirds of the retail price. Anti-tobacco
campaigners allege that the policy is at odds with countries having comprehensive tobacco
reduction approach where excise taxes typically account for 70% of retail price with total taxes
claim 75% of it. Different tax rates on different price slabs only benefit tobacco manufacturers,
they argued.
The Tobacco Industry of Bangladesh is comprised of 84,091 million sticks. Amongst the tobacco
manufacturers, British American Tobacco Bangladesh has grown to be the premier multinational
company in Bangladesh, and has witnessed a robust growth and development in the tobacco sector.
It is esteemed as one of the largest multinational companies in the country and has been operating
for over 100 years. Among the competitors of BATB Dhaka Tobacco Industries (DTI), Abul Khair
Tobacco Company (AKTC), Jamil Tobacco Limited are notable. This paper, from the perspective
of Economics, is an attempt to observe how the tobacco organizations are practicing economics
theories and principles in their business.
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A.1. Origin of the Report

The report titled Application of Economics Theories and Practices in the Tobacco Industry
of Bangladesh has been prepared for Dr. A. K. M. Saiful Majid, Professor & Senior Fulbright
Scholar, as a partial requirement for completion of the course Managerial Economics (E501).
A.2. Rationale of the Study

The study, conducted by group ventured forth into various applications of different concepts of
Managerial Economics in the tobacco sector of Bangladesh. In an effort to do so, we have
scrutinized the demand and supply scenario of tobacco products, identified the major players in
the industry, the market structure, cost behavior, and also government control in terms of price
control and tax imposition and their effect on the consumers.
A.3 Objectives
A.3.1. Broad Objective
The broad objective of this paper was to carry out an intensive study on Tobacco industry of
Bangladesh (mostly concentrated in Dhaka) and the recent development in this sector. To do this
we will gather and combine all relevant data regarding the tobacco industry in order to relate the
industry with the concepts of Economics learned in classroom sessions till date. It will provide
better understanding of real world application of economic concepts and an in depth knowledge
about the rapidly growing Tobacco Industry of Bangladesh.
A.3.2. Specific Objectives

1.
Understanding the principles of economics and their application in respect of Tobacco

industry of Bangladesh.
2.
Absolute and competitive advantage of individual Tobacco companies.
3.
Understanding the demand and supply function, market equilibrium, income and
substitution effects on cigarettes.
4.
How price elasticity of demand and supply works in the tobacco industry
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5.
Price ceiling and price floor existing in the tobacco sector, impacts of government control
in the city.
6.
Consequences of Govt.s regulation and taxation in Tobacco industry of Bangladesh.
7.
Effects of Inflation on the tobacco sector.
8.
Recommendations for enhancement and growth of the tobacco sector in Bangladesh.
A.4. Scope of the Study

The geographic scope of this research is confined within Dhaka city. For the demand side of the
study, information was drawn from BATB, DTI, AKTC, JTL officials, and existing and potential
buyers within Dhaka city. For the information on supply side, executives of BATB, DTI, AKTC,
JTL and employees of the organization were interviewed.
A.5. Methodology
The study was conducted on two sets of population, one representing the demand side and the
other the supply side of the tobacco sector. On the demand side, the population consists of existing
and potential consumers, and the supply side consists of interview with employees of the
organization. Interviews consisted much of the way through which information was gathered for
this study.
A.5.1. Sources of Data

This study was conducted based on both primary and secondary data. The secondary study was
mainly required for the background study on this sector. For the supply side, secondary sources
and interviews are the primary sources of data.
For the demand side, primary sources will be from existing and potential clientele. Besides, some
secondary sources like small scale research reports conducted will also be used. Primary source of
information came from the interview conducted for the purpose of the study.
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A.5.2. Research Design

This study is a combination of both Exploratory and Descriptive research methods.
A.5.3. Instruments of Data Collection

Various articles, websites and newspapers were taken into account to get the necessary secondary
information. Interviews enabled specific information relating to supply and demand, price ceiling
and price floor, govt. regulations and taxation, and inflationary effects.
A.5.4. Sample Design

As mentioned above, this study was conducted on two sets of population, one representing the
demand side and the other the supply side of the tobacco sector.
A.5.5. Sampling Technique

Non-probabilistic sampling methods was selected because the complete sampling frame for the
target population was not available that is necessary to conduct the usual probabilistic sampling
techniques. Besides, limited time and budget would guide the researchers to go for nonprobabilistic
methods.
A.5.6. Sample Size

The sample size of the interviews was small. The interview sessions provided much in depth
knowledge and information required for the fulfillment of the study.
A.6. Criticalities and Limitations

While conducting the study there were few obstacles that constrained the effectiveness and
comprehensiveness of the study. Certain limitations hampered the accuracy of this study. First of
all, employees were reluctant to give out company information. The accuracy of information
provided by the company hampered the overall quality or success of the study. Bangladesh does
not have organized secondary data of this sector unlike most developed countries. Thus the
information generated from primary research may not reflect the precise scenario of current needs
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and our limited sample size may not be large enough to make accurate generalizations about the
entire population.
B. Literature Review
According to Research Study on British American Tobacco Bangladesh, British AmericaTobacco
Bangladesh (BATB) is a subsidiary of British American Tobacco Group. It has been incorporated
in 1972 as Bangladesh Tobacco Company (BTC).Since 1972 BATB has been operating in
Bangladesh as one of the leading multinational organization. Since 1972 BATB is operating as the
market leader in the tobacco industry by providing some of the most powerful global and local
brands. At present BATB is the highest tax paying company, contributing around 7% of the total
revenue of the Government of Bangladesh. BATB is renowned as one of the most prominent
socially responsible and ethical company in the minds of the citizen.
The tobacco industry of Bangladesh is an age old industry. There a distinct monopoly in this
industry where British American Tobacco Bangladesh (BATB) leads the market with more than
50% market share.
The main cigarette manufacturers today are:
British American Tobacco Bangladesh
Dhaka Tobacco Industries
Abul Khair Tobacco
Nasir Tobacco
Azizudin Industries and
New Age Tobacco.
The main biri manufacturers are:
Akij Biri
Abul Biri
Nasir Biri
Karikar Biri
Aziz Biri and
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Hundreds of local biri manufacturers.

The industry is very price sensitive in nature. It is also a stick selling market, which means that
most of the tobacco consumers normally buy tobacco in sticks, not in packs. These two featuresprice sensitive and stick selling-influences the business philosophies of the companies.
At the moment, there are two main tobacco industry associations i.e. Bangladesh Cigarette
Manufacturers Association (BCMA) and Bangladesh Biri Manufacturers Association (BBMA)
representing the industry.
B.1. Industry Segmentation:

The tobacco industry can be divided into two markets-Biri market and Cigarette market.
B.1.1. Biri Market:

It is basically the non-filter cigarette market with a very low pricing. So biri is by far the
dominating segment in the tobacco industry. Recent trend has shown that biri market is
experiencing decline which is a favorable sign for the cigarette market. BATB does not operate
in this market. The major brand in this market is Akiz Biri, product of Dhaka Tobacco
Industries. This is by far the most popular Biri in the country.
Cigarette Market:
Cigarette market is where BATB has all its focus. The market covers the rest 28% of the industry.
But the value of this market is lot higher than the biri market. The market can be divided into
four segments on the basis of price. They are:
Premium
Medium
Low
Very Low
BATB operates in the top three segments of the industry. It does not operate in the very low
segment. Along with BATB, DTI and Alpha Tobacco is also a major player in the low segment.
Today, the market is estimated to be 64.2 billion sticks of biri and 51.8 billion sticks of machine
manufactured cigarettes. Biri overtook cigarettes as the more popular smoked product in 1979.
However, the market for biri has been on a declining volume trend since 2003. This reflects the
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switch by consumers due to social pressure, urbanization, literacy rate, economic growth and
awareness by consumers. The market has a high International Brand share (18.2%).
B.1.2. Competitive Scenarios in the Cigarette Market:

In May 2008, Philip Morris International launched both full flavored and light variants of
Marlboro brand cigarettes in different markets of Dhaka. Dhaka Tobacco Industries is
manufacturing and distributing the brand.
BAT Bangladesh and Dhaka Tobacco Industries together hold more than 80% of the cigarette
market share.
Tobacco products are distributed either by manufacturers themselves, third party distributors or
wholesalers. The sales and distribution effort requires a large number of field employees and
agents because they have to serve about 880,000 individual retail outlets throughout Bangladesh
with a growth of 10% per annum.
The number of retail outlets is estimated to be growing by about 8% a year. The proliferation of
retail outlets is mainly due to the ease of entry and the low capital requirement. Many of these
outlets operate on limited capital and are unable to purchase quantities beyond their immediate
daily sales. The high number of retail outlets has created a stick market and consequently
imposed more frequent sales visits compared to other similar businesses.
The competition in the cigarette market is based on the price segment. There are individual
competitive brands in each price segment. There was no competition in the premium and medium
segment where the top International Brands of BATB dominate the market. But when Dhaka
Tobacco Industry (DTI) launched the brand Marlboro and Thames in the both Premium and Middle
segment the competition is raised. But still in the Segment of premium and Medium BATB is the
leader still. Only in the low segment there is a competition where mainly three companies have
their individual stakes and trying to take the segment leadership. In the very low segment, there is
also competition among brands like Sun Moon, Five Star, Wilson, Gold Hill etc.
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B.2. Segment wise Market Growth of Tobacco Industry

The tobacco industry in Bangladesh has an annual market size of about 135 billion. Market
penetration in Bangladesh is about 40% .Tobacco sales consists of 52% of filtered cigarettes
and 48% of unfiltered varieties, that is, bidi.
British American Tobacco (BATBC) is the only listed tobacco manufacturer with 99% market
share in the high end. BATBCs shareholding structure is as follows:
11% by Investment Corporation of Bangladesh (majority government - owned NBFI) and 16%
free float. Other players in the tobacco industry are domestic conglomerates of significant size:
Dhaka Tobacco and AbulKhair Tobacco.
BATBCs low segment market share increased from 20% in 2006 to 60% in 2010. Net profits
grew at double digit rates in 2006 -2011. Excises are high and constitute 11% of the
Government Tax Revenue. Future profitability is expected to be driven by consumers
upgrading to higher segments. (Huq).
B.3. GDP Share of Tobacco Industry

On the global scale, Bangladesh ranks 21st in tobacco cultivation, with the largest being China,
followed by the US and India. With a total production of more than 38,000 metric ton of leaf,
Bangladesh accounts for about 0.4 % of the total volume of tobacco produced in the world.
Tobacco contributes less than 0.01% to the GDP of Bangladesh. (Placeholder1) (Fuad, 2012)
(Fuad, 2012).
B.4. Government Tax and Other Regulations:

B.4.1. Tobacco Tax Structure in Bangladesh
Historically, price bands were created to recognize different quality and price bands of cigarettes
that range from low to high end. When VAT was first introduced on cigarettes in FY 1992- 93,
there were four price bands. However, in FY 1994-1995 and FY 1995-96, this number was
increased to 5 under pressure of the cigarette industry. Increasing the number of price bands led
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to massive switching to lower bands when tax rates were increased. To prevent this, the number
of bands was reduced to 4 in FY 1996-97. This continued up to the middle of FY 1998- 99.
In January 1999, the number of price bands was increased to 6 as a result of collective bargaining
of the cigarette industry. This continued up to June 2000. Again the number of price bands was
reduced to 4 in FY 2000-01 through FY 2001-02. In FY 2002-02, the government took the
initiative to reduce the number of price slabs to 3 to augment revenue. This continued through
FY 2003-04. Finally, the number of bands was raised to 4 in FY 2004-05 and since then the
number of price bands remained at 4.
B.4.2. Lopsided Tobacco Taxation Policy

Although cigarettes have been slapped with across-the-board tax hike, bidi, the indigenous
smoking stick, is left out of the new tax burden. Although price slabs increase substantially, SD
increased marginally during FY 2011-12 over FY 2010-11.
Table 1: Percentage Change in prices and SD during the fiscal years 2010 -2011 and 2011 - 2012
FY 2010 - 2011
FY 2011 2012
Change (%)
Category of Price per pack SD (%)
Price per pack of SD (%)
Changes in Changes in
Cigarettes
of 10 (In Taka)
10 (In Taka)
Price (%)
SD (%)
Low
8.40 - 9.15
33
11.00 11.50
36
30.95
9.09
Medium
18.40 - 19.00
53
22.50 23.00
55
22.28
3.77
High
27.00 32.00
56
32.00 36.00
58
18.52
3.57
Premium
52 and above
58
60 and above
60
15.38
3.45
NB: In all cases, Value Added Tax (VAT) is imposed at the rate of 15%. The provision of deferred
payment (tax payment after 14 days) for cigarette manufacturers was repealed.
B.4.3. Administrative Issues in Tobacco Taxation

Tobacco taxation in Bangladesh is governed by Value Added Tax Act, 1991. Out of the three
wings of the NBR namely, income tax, VAT and customs wings, VAT Wing is responsible for
enforcing the law. The organizational structure of the NBR is shown in Figure 2
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Figure 1: Organizational Dimensions of NBR
National Board
of Revenue
Income Tax
wing
VAT Wing
Customs Wing
VAT
Comissionerate
s
VAT Divisions
VAT Circles
The enforcement of tobacco tax is done by a VAT Commissionerate (headed by a Commissioner)
and its field offices namely, Divisions and Circles. Several problems persist in the NBRs tax
administration. These are:
Most of the NBRs tax processes are manual and there is little in the nature of taxpayer education
and taxpayer services.
The NBR faces the acute shortage of trained tax officials as well as physical infrastructure. It
also faces problems in its functioning due to lack of distribution of tax work by function and size.
There is little research-policy linkage.
B.4.4. Political Dimensions of Tobacco Taxation

According to the Constitution of Bangladesh, levy or collection of any tax requires the approval
of the Parliament. Stakeholder consultation for new tax proposals commences from March every
year. During the pre-budget period, the NBR holds consultation with the members of business
associations, different levels of government, Members of Parliament (MPs), media and NGOs
and proposes tax measures. A tax proposal is placed before the Council of Ministers for its
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concurrence and then it is introduced in the form of Finance Bill as budget document to the
Parliament in the second week of June every year.
Enhancing consumer price of bidi through tax measures appears more challenging for the NBR
for political reasons.
Firstly, several MPs are involved in tobacco business.
Secondly, it is claimed that about 2.5 million workers are engaged in bidi industry, many of
whom are poor women and children. Controlling bidi consumption will force bidi manufacturers
to downsize their production, which will in cause unemployment of bidi workers.
Thirdly, bidi consumers belong to the poorest segment of the society. Raising tax and price of
bidi will, therefore, result in loss of popularity of the government among this population.
The pressure of bidi manufacturers is evident from the fact that since FY 2005-06 there is no
change in SD rate in bidi. Moreover, the tariff value for a pack of 25 sticks non-filtered bidi
remained at Tk 3.1579 since FY 2008-09.
During FY 2011-12 budget cycle, more than 120 MPs made written representation to the NBR
not to increase bidi price. Rather they demanded complete withdrawal of tax from bidi. Bidi
manufacturers association created substantial pressure to split the tariff value (bidi tax base) into
three price bands namely, 12 sticks per pack, 10 sticks per pack and 8 sticks per pack and they
succeeded. Splitting of tariff value in FY 2011-12 may have three effects on revenue and health.
Firstly, there may be huge substitution effect from medium and low bands of cigarettes to bidi.
Secondly, the scope of revenue evasion may increase because of opportunity for swapping
banderols between different price slabs. Thirdly, this may also have negative impact on health
because of likely increased consumption of bidi.
B.4.5. NBR-WHO Collaboration on Tobacco Taxation

The main objective of the NBR-WHO collaboration is to strengthen the policy development
process and tobacco tax administration at the NBR. In May 2010, WHO provided technical
assistance for developing Tax Simulation Model to be used by the NBR.WHO helped to establish
a Tobacco Tax Cell at the NBR:
To develop tobacco database
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To conduct research on tobacco market trends

To analyze the impact of tobacco tax on health and revenue
To formulate evidence based policy on tobacco taxation.
WHO supported several training programs for NBR officials to strengthen their capacity.
(Ahmed, 2012)
B.5. Demand for Tobacco in Bangladesh

Over the past decade, a growing number of studies have examined the impact of taxes and prices
on tobacco use in low and middle-income countries. These studies have estimated a wide range
of price elasticities, with some, but not all, indicating that demand for tobacco products is more
responsive to price in low and middle-income countries than it is in high income countries. For
example, Hu and Mao (2002) estimate that the price elasticity of cigarette demand in China
ranges from 0.50 to 0.64, while Karki and colleagues (2003) estimate an overall price elasticity
of cigarette demand of 0.88 in Nepal. 27,28 John (2008) examined demand for multiple tobacco
products in India, estimating price elasticities of 0.35, 0.91, and 0.88 for cigarettes, bidis, and
leaf tobacco, respectively. 29 More recently, Guindon and colleagues (2011) updated and
extended Johns analysis, estimating cigarette and bidi price elasticites of 1.03 and 0.94,
respectively. 30 As in studies for high-income countries, studies from low and middleincome
countries that account for the addictive nature of tobacco use find that demand responds more to
price in the long run. For example, Aloui (2003) estimates short run price elasticities for tobacco
use in Morocco in the range from 0.51 to 0.73, and estimates long run elasticities that range
from 1.36 to 1.54. 31 Findings from studies bas ed on individual-level survey data on adult
tobacco use indicate that taxes and prices influence both tobacco use decisions (prevalence) and
the frequency and amount of tobacco consumption. In general, the estimates from highincome
countries suggest that about half of the impact of price on tobacco use results from its effect on
prevalence. Given that relatively little initiation occurs during adulthood, these changes largely
result from cessation among adult users. This is confirmed by a small number of studies which
find that increases in price lead a number of current users to try to quit, with many users successful
in doing so in the long run.
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B.5.1 Existing Evidences of Demand for Tobacco in Bangladesh

To date, a few studies have estimated the price elasticity of demand for tobacco products in
Bangladesh. Ali and colleagues (2003) estimated tobacco demand for Bangladesh using annual
time series data from 1983 through 1999 to estimate a relatively parsimonious model that
included prices and per capita GDP as the only explanatory variables. They obtained a negative
but statistically insignificant price elasticity of 0.27, and a positive and significant income
elasticity of 0.62. They did not estimate bidi demand given the lack of data on bidi prices and
consumption over time. Guindon and colleagues (2003) estimated cigarette demand for
Bangladesh as part of a larger study that also estimated demand in Indonesia, Nepal, Sri Lanka,
Thailand, Maldives, and Myanmar. 36 Using annual time series data from 1970 through 2000,
they too estimated a relatively parsimonious model that included only price and income as
determinants of demand. In addition to estimating a conventional demand model, they also
estimated a myopic addiction model. Like Ali and colleagues, they found no significant effect of
prices on cigarette demand in either model. In their country-specific models for the other
countries they examined, they generally found negative and often significant price effects, with
shortrun price elasticity estimates for cigarette demand clustered around 0.5 and long-run
elasticity estimates clustered around 0.7. More recently, Nargis and colleagues (2010, 2011)
have used the individual level data from the ITCBangladesh survey to estimate the price elasticity
of cigarette and bidi demand in Bangladesh. 37,24 Given the low prevalence rates of cigarette
smoking among women, cigarette demand models were estimated for adult males only; bidi
demand models were estimated for both men and women. In addition to price and income, Nargis
and colleagues controlled for a variety of other factors in their demand models, including age,
marital status, educational attainment, employment status, household size, urban/rural location,
the number of years since initiation, and survey year (in the 2011 analysis that used both the 2009
and 2010 survey data)
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Table 2: Estimated Price Elasticities of Cigarette and Bidi Demand from International Tobacco Control
Policy Evaluation Project (ITC) Bangladesh Surveys, 2009 & 2010
2009
Pooled 2009 & 2010
Cigarettes
Bidi
Cigarettes
Bidi
Prevalence
-0.29***
-0.46*
-0.44***
0.03
Conditional
-0.14***
-0.18
-0.22***
-0.22**
-0.43
-0.64
-0.66
-0.22
Demand
Total
Source: Nargis et al.(2010, 2011)
Note:***,** and * represents estimates statistically significant at 1%, 5% and 10%

significance levels respectively.
B.5.2. New Estimates for Tobacco Demand in Bangladesh

Annual time series data on aggregate cigarette consumption from 1981 through 2004 to generate
new estimates of price elasticity was used. In contrast to the earlier time-series analyses by Ali
and colleagues (2003) and Guindon and colleagues (2003), we apply an econometric
methodology that accounts for the time series properties of the data. 34,35, * Given available
data, our model is similarly parsimonious and includes only price and income as determinants of
cigarette demand. Aggregate cigarette consumption data were obtained from the Bangladesh
Bureau of Statistics and were divided by population to obtain a measure of per capita
consumption. Cigarette price data reflect the inflation adjusted price of Star brand cigarettes, the
most popular brand of cigarettes consumed in Bangladesh over this time period.
Cigarette price is found to have a negative and statistically significant impact on cigarette demand
in Bangladesh, while income is found to have a positive and statistically significant impact.
Estimated short run price and income elasticities are 0.41 and 1.14 respectively, with long run
estimates of 0.57 and 1.46. Together, the estimates imply that the past decades general trend
towards increasingly affordable cigarettes, plus the combined effect of reductions in cigarette
prices and increases in household income, have led to significantly higher cigarette smoking in
Bangladesh than would have been the case had cigarettes remained less affordable. (Barkat A,
2012)
19 | Page
C. Trends in Tobacco Production and Market Share

Despite a significant improvement in awareness about the deleterious effects of tobacco use in
recent years, tobacco product production and trade have remained largely unchanged, if not
increased. Although there has been a lot of campaigning against tobacco, it appears to have been
ineffective in reducing demand. This section discusses recent trends in tobacco production and
trade. Both agricultural and industrial productions in recent years are analyzed. Aspects of imports
and exports are also discussed in order to get an idea of recent trends in the tobacco industry.
C.1. Tobacco products market shares

The tobacco products available on the domestic market are tobacco leaf and other chewing tobacco,
cigarettes and bidi. WHO estimates that cigarettes and bidi account for about 70% of all tobacco used
in Bangladesh; chewing tobacco for 20%; and the remaining 10% is consumed in the form of
cigars, snuff and pipe tobacco. The smoking market is clearly divided into two categories:
machine- made cigarettes and handmade bidi. Although bidi outsell cigarettes by about three to
one in volume, cigarettes far outstrip bidi in total sales value.
Manufactured cigarettes account for an estimated 85% in value, but only 28% in volume of all
manufactured tobacco products sold in Bangladesh. Conversely, bidi account for 15% in value and
28% in volume. Imported cigarettes account for 18.2% in value and less than 7% in volume of
manufactured tobacco products sold. So biri is by far the dominating segment in the tobacco
industry. Recent trend has shown that biri market is experiencing decline which is a favorable sign
for the cigarette market. Some smokers are reported to be switching from bidi to cigarettes as
cheaper cigarettes become available on the market, however, production data suggest that in
volume terms, bidi market share is growing. Future profitability is expected to be driven by
consumers upgrading to higher segments. Today, the market is estimated to be 98.5 billion sticks
of biri and 84.1 billion sticks of machine manufactured cigarettes. Information on market share is
not available for tobacco leaf or other forms of chewing tobacco.
20 | Page
C.2. Tobacco Agriculture

While widely grown, tobacco is a relatively minor crop in overall agriculture in Bangladesh. In
2012, the acreage devoted to tobacco growing accounted for only 0.25% of acreage for all crop
production and, in 2011, the value of the tobacco grown was only 0.22% of the value of all
agricultural production. The acreage devoted to tobacco growing in Bangladesh has been falling
steadily for most of the past three decades, before rising sharply in 2009 (chart 1). In 2009, tobacco
was grown on just under 73,000 acres, down 20% from 1995, before rising to over 95,000 acres
in 2010. In many years, imports and exports of unmanufactured tobacco were similar. Much of the
recent rise in the quantity of tobacco grown in Bangladesh is accounted for by these increased
exports, with the share of tobacco exported rising from about 2.5% in 2000 to nearly 34% in 2009.
In 2008, the export incentive was eliminated. In the 2010/11 budget, the government imposed a
10% duty on tobacco leaf exports in an effort to discourage tobacco growing.
Chart 1: Yearwise production as per acreage
production as per acreage
Acreage
Production(million)
140000
120000
100000
80000
60000
40000
20000
0
year
1
Source : Agriculture Wing, BBS
The Bangladesh Bureau of Statistics estimated that, in 2008/09, 115,533 persons were employed
in tobacco growing, about 0.3% of the agricultural labor force. While the recent rise in tobacco
Statistical year book 2012
21 | Page
growing in Bangladesh is likely to have increased the number of tobacco farmers in the country,
the overall share of agricultural employment in tobacco growing is likely to be less than0.5%.
C.3. Production of Manufactured Tobacco Products

In May 2008, Philip Morris International launched both full flavored and light variants of
Marlboro brand cigarettes in different markets of Dhaka. Dhaka Tobacco Industries is
manufacturing and distributing the brand.
BAT Bangladesh and Dhaka Tobacco Industries together hold more than 80% of the cigarette
market share.
Tobacco products are distributed either by manufacturers themselves, third party distributors or
wholesalers. The sales and distribution effort requires a large number of field employees and
agents because they have to serve about 880,000 individual retail outlets throughout Bangladesh
with a growth of 10% per annum.
The number of retail outlets is estimated to be growing by about 8% a year. The proliferation
of retail outlets is mainly due to the ease of entry and the low capital requirement. Many of
these outlets operate on limited capital and are unable to purchase quantities beyond their
immediate daily sales. The high number of retail outlets has created a stick market and
consequently imposed more frequent sales visits compared to other similar businesses.
The competition in the cigarette market is based on the price segment. There are individual
competitive brands in each price segment. There was no competition in the premium and
medium segment where the top International Brands of BATB dominate the market. But when
Dhaka Tobacco Industry (DTI) launched the brand Marlboro and Thames in the both Premium
and Middle segment the competition is raised. But still in the Segment of premium and Medium
BATB is the leader still. Only in the low segment there is a competition where mainly three
companies have their individual stakes and trying to take the segment leadership. In the very
low segment, there is also competition among brands like Sun Moon, Five Star, Wilson, and
Gold Hill etc.
22 | Page
Table 3: The Competition of Cigarette Industry of Bangladesh in Different price segment

Segments
Brand
Company
Premium
B&H, switch, State Express 555,
BATB
Marlboro
Aspirational Premium
JPGL, Pall-mall, Capstan Filter Kings

Thames
Value for Money
Star Filter King, Scissors Filter King,
DTI
BATB
DTI
BATB
Navy, Summon Filter King
DTI
Senor Gold
Alpha Tobacco
Marine
Abul Khair Tobacco
Very Low
Pilot, Bristol, Hollywood

Five Star, Rally, Sheikh, Maris
BATB
DTI
Wilson
Gold hill
Azizuddin Tobacco
C.4. Current Pattern of Tobacco Consumption

Bangladesh is one of the largest tobacco consuming countries in the world. Tobacco is consumed
in many forms in Bangladesh, including smoking of cigarettes, bidis, waterpipe (hookah), and
chewing (often with betel leaves and nuts, as jarda). Cigarettes and bidis account for most of
smoked tobacco consumption. Data from various surveys suggest that smoking prevalence has
been relatively flat or rising in Bangladesh since the mid-1990s. Initiation of tobacco use occurs
at relatively older ages in Bangladesh, but a large number of Bangladeshi youth have tried smoking
and many consume other tobacco products.
23 | Page
Table 4: Annual Cigarette Consumption

Years
Per Capita
Total Consumption
Consumption
(Millions of Cigarette
(Cigarette Sticks)
Sticks)
1980
492
17787
1990
294
14007
1995
194
12373
2000
239
17449
2010
234
19717
C.4.1. Age-specific and Sex-specific smoking rates:

It is clear from the table that as age increases so does prevalence of smokingboth for males and
females. The highest rates of smoking are found in people aged 35 years and above. These rates
refer to the smoking of both cigarettes and bidi.
Chart 2: Smoking rates by age and sex in Bangladesh , 2012

smoking rate(Percentage)
80
70
60
50
40
30
20
10
0
10-14yrs
15-19yrs
20-34yrs
35-49yrs
AGE
both sex
24 | Page
Male
Female
50+
all ages
The BBS surveys show a small fall in smoking rates between 2005 and 2006, for males and
females. However, surveys in two districts of Bangladesh in 2010 and 2011 found the opposite, a
large increase in smoking prevalence for both males and females. The study found prevalence rates
for males of 41.1% in 2010 and 48.3% in 2011 and for females, 4.0% in 2010, and 20.9% in 2011.
The same study reports differentials between rural and urban respondents, especially for older
respondents. Tobacco prevalence reached 80% for older rural male respondents; the highest age
specific rate among urban men was 69% (35-49 age groups). Prevalence was systematically lower
among urban female respondents than among rural women across all age groups.
C.4.2 Socio-economic differentials in male smoking

There are significant variations in male smoking among households from different socioeconomic
groups. Differences are found with respect to educational status, household income and other
socioeconomic variables. Chart 3 presents smoking rates among males by household income
groups. The lower the income of the household, the greater the prevalence of smoking of its male
members. Smoking prevalence among men appears to have declined between 2009 and 2011 for
almost all income groups. The decline is significantly bigger among the lower income groups.
Chart 3:Male smoking rates by household income, Bangladesh,
smoking rate(percentage)
70
60
50
40
30
20
10
0
<10000
10000
14999
15000
19999
20000
24999
25000
29999
30000
34999
35000
39999
40000+
Income in TK
Percentage of smokers among males(2009)
25 | Page
Percentage of smokers among males(2011)
Education is strongly correlated with smoking: the higher the level of education, the lower the rate
of smoking. The BBS surveys show a fall in smoking rates between 2009 and 2011 for all except
for the most educated men. The same relationship between education and smoking prevalence is
found in India and many other countries.
Chart 4:Male Smoking Rates by Education Level, Bangladesh
Education Level
SSC and Above

Class VIIX
Class IV
No education
0
10
20
30
40
50
60
70
Smoking rates in 2011
No education
59.5
Class IV
34.9
Class VIIX
28.5
SSC and Above

31.6
61.4
40.7
31.3
25
Smoking Rate
C.4.3. Smoking among poor people

Clearly, smoking rates are highest among the poor. Table 3.5 and 3.6 present an estimate of the
number of poor smokers (male and female). The smoking rate among adult males living below the
poverty line is 54.8% and the corresponding rate for adult females is 3.6%. It is estimated that
9,872,181 poor adult men (15+) and 612,060 poor adult women smoke, making a total of nearly
10.5 million poor people spending scarce income on cigarettes and bidi. Given the increases in
population and 2009-10 data on smoking, this number has almost certainly been increasing
26 | Page
Table 5: Estimated number of poor male smokers, Bangladesh

Age
Male
population(000s)
Number below poverty

line (000s)
Smoking rate
(%)
Number of poor
smokers (000s)
1519
5979
2810
18.1
508
20-34
14695
6907
57.3
3959
3549
9620
4521
72.4
3274
50+
8028
3773
56.5
2131
Total
38322
1811
54.81
9872
D. Circular Flow Diagram

Figure 2: Circular Flow Diagram
Factor Market [Land,

Labor, Capital]
-Household Sells
-Firms buy
Income
Cost
Factors of
Production
Factors of
Production
Taxes
BATB
Households
Taxes
-Sells Factors of production
-Buys factors of production

-Sells Cigarette
Govt.
Spending
Government
-Buys Cigarette
Govt.
Spending
Cigarette
Cigarette
Product Market
Companies Sell
Consumers Buy
Revenue
27 | Page
Consumption/Expenditure
The model that helps explain how a market economy works is a circular-flow diagram. A
circular-flow diagram is a visual model of the economy that illustrates how households and
businesses interact through markets for products and markets for resources. The circular-flow
diagram with reference to the Tobacco industry of Bangladesh is illustrated in Figure 2.
The two types of economic agents in a simple market economy are households and business
firms. A household is a social unit comprised of those living together in the same dwelling.
Here the tobacco manufacturer company as a representative of business firm is producing
goods i.e. cigarettes that cater to different segments of customers in an effort to make profit.
The profits they are generating are the revenues minus expenses. Revenues are the monetary
income received from the sales of cigarettes and expenses are the total costs of the production
that encompasses raw materials purchase, labor expenses, employee salary, utility,
miscellaneous expenses, taxes, interest expense, administrative expenses, maintenance and so
forth.
The household part in this particular diagram interacts with business firm i.e. BATB in two
distinct ways:
(1) Households supply economic resources, such as labor to businesses in exchange for
income, and
(2) They use their incomes to buy goods produced and sold by business firm. The first type of
interaction occurs in markets for resources. The second type of interaction occurs in markets
for products.
The bottom half of the circular-flow diagram, which represents product markets, shows those
households give money to businesses in exchange for goods and services. Money flows
clockwise, while the goods and services flow counter-clockwise. In the context of BATB, the
households or the cigarette consumers buy cigarettes in exchange of money and in turn inject
the amount to the companys coffer. In markets for products, the companies are usually the
28 | Page
suppliers and households usually are the demanders being no exception to the case of British
American Tobacco here. The money that flows from cigarette consumer to BATB is
consumption spending from the perspective of households and is revenue from the perspective
of producer firm. The products that flow from business firms to households are sales by the
business firms and purchases by household consumers.
The top half of the circular-flow diagram, which represents resource markets, shows those
businesses provide money to households in exchange for economic resources used as factors
of production. For example, Labor is an economic resource that every adult household can
potentially supply in the markets for resources. Wages are the payments made to workers in
exchange for labor, typically based upon the amount of time worked or amount of output
produced. A salary is a fixed payment made regularly to a worker in exchange for labor. Blue
collar workers typically receive wages in exchange of their physical labor. White collar
workers are typically paid salaries. In the diagram, this process is illustrated by the
counterclockwise flow of money and the clockwise flow of economic resources. Besides, if
households own natural resources, such as land, they can supply them to businesses in
exchange for rent payments. The company has set up distribution houses at different locations
all over the country owned by households and thereby attributing them for another factor of
production, Land. Hence we can clearly observe that, in markets for economic resources,
households are usually the suppliers and the firms are usually are the demanders. The money
that is flowing from the company to households are expenditures from the perspective of
BATB and incomes from the perspective of workers, employees, managers and land owners.
Conversely, the labor, capital, and natural resources that are flowing from households to the
business are sources of income from the perspective of households and inputs from the
perspective of businesses.
When workers receive more income than they spend on the purchases of goods and services,
they are able to create savings. Savings are the portion of a persons income that is retained or
invested for use in the future. Household savings can become financial capital if the money is
borrowed by a business firm. For example, money that is deposited by households in a bank
savings account might be lent by the bank to the company in order to purchase machinery,
29 | Page
equipment or to meet short term liabilities. When this occurs, the business firm pays interest to
the bank for the borrowed funds. Interest is a rate of return that represents compensation from
the borrower or receiver of funds to the lender or depositor of the funds. The bank, in turn, pays
interest to the householders for the funds deposited in the savings accounts. Consequently, other
transactions that occur in resource markets are the supply of financial capital by households in
exchange for interest income.
E. Relative Market Share in the Tobacco Industry

Cigarette manufacturing is highly concentrated in Bangladesh, while bidi manufacturing is much
more fragmented. As Table 4 indicates, cigarette markets are dominated by two firmsBritish
American Tobacco Bangladesh (BATB) and the domestic Dhaka Tobacco Industries (DTI), a part
of the Akij Group. BATB is one of the oldest tobacco product manufacturers in Bangladesh, in
operation for over 100 years. BATB brands account for almost 46.8% of cigarette consumption in
2014, down somewhat from the 54% half of the market the company had controlled as recently as
2010.
Table 6: Cigarette Brand Shares: (Based on a Household Survey)
Brand
Company
Year -2012
BATB
25.6%
Sheikh
DTI
18.3%
Navy
DTI
13.7%
Gold Leaf
BATB
10.3%
Marise
AKTC
8.9%
Others
---
23.2%
Star
30 | Page
DTI is part of the Akij Group, a large domestic conglomerate that includes a variety of subsidiaries
involved in cement, computers, foods & beverages, jute, textiles, pharmaceuticals, and much more.
DTI has historically focused on the lower priced segment of the market. DTIs key brands include
lower priced brands Sheikh, K-2, Five Star, Red & White, Real, and Surma; other major brands
are Navy (mid-priced) and Caste (premium). In addition, in 2007 DTI entered into an agreement
with Philip Morris International (PMI) to market PMIs brands, most notably Marlboro, in the
Bangladeshi cigarette market. DTIs share of the cigarette market is around 40% in recent years.
There are a number of other smaller domestic cigarette companies operating in Bangladesh,
including Abul Khair Tobacco Company (AKTC), Alpha Tobacco Manufacturing Company,
Azizuddin Industries Ltd., Sonali Tobacco Company Ltd., National Tobacco, and Nasir Tobacco.
Together, they account for 15-20% of the Bangladeshi cigarette market. To date Imperial
Tobacco/Altadis, the worlds other leading multinational tobacco companies, has not established
a significant presence in Bangladesh, with imports of their brands and other multinational brands
accounting for a very small share of the Bangladeshi market. . Recently DTI has signed a contract
with Japan Tobacco International to run manufacturing plant for them.
The dominance of BATB and DTI is reflected in brand shares in the Bangladeshi cigarette market,
as shown in Table 4, derived from household survey questions on brands used in the GATS (2009).
Star (BATB) and Sheikh (DTI) are the two most popular brands, followed by Navy (DTI), Gold
Leaf (BATB), and Marise (AKTC). Together, the top 4 brands account for over two-thirds of
cigarette consumption. To date, DTIs agreement with PMI has not generated much interest in
Marlboro, which had less than 1% market share in 2010.
Most cigarettes produced and sold in Bangladesh are filter-tipped, with market share stable at
around 86% for the past decade, after rising sharply in the 1997. Nearly all cigarettes consumed in
Bangladesh are high-tar cigarettes, although lower tar brands are starting to emerge. Most premium
brand cigarettes are sold in packs of 20, while less expensive cigarette brands are more often sold
in packs of 10. The smaller packs appear to be targeted at keeping pack prices affordable for lower
31 | Page
income smokers. Over half of cigarette consumption is of inexpensive brands and about 30% is of
mid-priced brands.
In contrast, bidi production is much more fragmented than cigarette manufacturing. The top 4 firms
account for a little less than 50% of the market, and, according to the 2001/03 Economic Census,
there were a total of 9,624 bidi manufacturers, with over 96% of these household based. Among
bidi manufacturing companies, Akij Bidi Factory Ltd, another subsidiary of the Akij Group, is the
largest with an estimated market share of 29.1% in 2009 (GTSS, 2009). Akij Groups ownership
of both Dhaka Tobacco Industries and Akij Bidi Factory could result in shared distribution
channels and marketing practices. Aziz Bidi Factory is the only other company with more than
10% of the market, while the remainder account for shares of around 5% or less. Most bidis are
sold in packs of 25.
E.1. Competitive Landscape

Chart 5: Tobacco Industry Market Share
50%
45%
40%
Market Share(Percentage)
35%
30%
BATB
25%
DTI
20%
AKTC
15%
Others
10%
5%
0%
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Year
Cigarette markets are dominated by two firmsBritish American Tobacco Bangladesh

(BATB) and the domestic Dhaka Tobacco Industries (DTI), a part of the Akij Group. BATB
32 | Page
is one of the oldest tobacco product manufacturers in Bangladesh, in operation for over 100
years. BATB brands account for almost 46.8% of cigarette consumption in 2014, down
somewhat from the 54% half of the market the company had controlled as recently as 2010.
DTIs share of the cigarette market is around 40% in recent years. They are experiencing a
decreasing pattern in its market share which is 35% in 2014 from 45% in 2007. There are a
number of other smaller domestic cigarette companies operating in Bangladesh. Together, they
account for 15-20% of the Bangladeshi cigarette market.
F. Company Profile of BATB

British American Tobacco Bangladesh (BATB) is a pioneer and leading multinational cigarette
manufacturer. Based in England, British American Tobacco was formed at the turn of the 20th
century with the objective of establishing a worldwide business. British American Tobacco is
recognized as one of UK's largest companies and the World's most global tobacco company.
Today British American Tobacco sells the leading brands in over 30 markets covering 102
countries, has more than 200 brands worldwide, employs more than 55,000 people and
produces some 2 billion cigarettes every day. More than a billion people across the globe enjoy
smoking tobacco. One in every eight chooses a British American Tobacco brand. In order to
support the company's business goals the merger of British American Tobacco with Rothmans
International had been announced on 11 January 1999. This global merger was completed on
7thJune 1999. This brings together the number 2 and 4 players which together will boast a
combined volume exceeding 900 billion cigarettes around the world with some 120,000
employees and a worldwide market share of 16 percent (Phillip Morris has a 17 percent share).
British American Tobacco Bangladesh (BATB) was previously known as Bangladesh Tobacco
Company (BTC). On March 22, 1998 the company changed its identification and established
commitment to the highest international standards. The Companys main business is tobacco,
which involves growing, processing, manufacturing and marketing of tobacco leaf, cigarettes
and pipe tobacco. The company also exports processed tobacco leaf in the international market,
mainly in the European Countries with its effort to create an international market of its
33 | Page
products. Based in Dhaka the company has one packaging factory in Dhaka and one leafprocessing factory in Kushtia. The companys current employees are more than 200 managers
and 1300 employees. In its effort to create an international market for Bangladeshi leaf tobacco
the company has been exporting tobacco to markets in developed countries like UK, Germany,
Poland, Russia and New Zealand. BAT Group holds 72.91% of BATB shares; 12.86% is
owned by Investment Corporation of Bangladesh and a further 14.23% is owned by other
shareholders. BATB contributes approximately two-thirds of the revenue derived from the
cigarette industry.
F.1. Vision and Mission of the Company

F.1.1. Vision
Companys vision is to achieve leadership of the global tobacco industry in order to create
shareholders value.
F.1.2. Mission
Double the net revenue by 2014
Growing companys share of the total tobacco market
Dominating key identified segment
F.2. Product Portfolio

BATBs product offerings can be categorized in Four Segments which are in alignment with
the Local Government Tobacco Control Guideline
Premium
Benson and Hedges or B&H is regarded as a premium segment product of this company.
Launched in 1997, B & H maintains BATBs dominance in its respective segment and drives
the growth in Bangladesh market. Within a short time Bangladesh became a leading B& H
market across the BAT world. After a price increase in 2004, B&H still remains a Successful
34 | Page
and happening muscle in our portfolio. British American Tobacco Bangladesh was the first
market to launch the new pack of E&1-1 at the beginning of September 2005.
JPGL is the prominent aspirational premium segment brand that was launched in 1980 and is
one of the highest selling brands of BATB in this segment. Apart from Johon Player Gold
Leaf, there are also two other brands in aspirational premium segment which are Pallmal and
Capstan.
Figure 3: BATB Product Portfolio
BATB
PRODUCT
PORTFOLIO
Premium Segment
Value for Money Segment
35 | Page
Low Segment
Value for Money
Star, launched 40 years ago is still a dominating brand in this segment for BATB. Recently,
BATB has introduced a new variant in the Star Family named as Star Next.
Low
BATB low segment consists of three brands namely Pilot, Hollywood and Derby. Among these
three, Derby makes out the most volume per year from the low segment
F.3. Sales Trend over Last 10 years

The tobacco business had a very slow growth rate in the first decade. The industry grew in
a moderate pace till 2006 but between 2008 and 2012 the growth rate happened to be
fluctuating. From 2008 to 2014, BATB has experienced a remarkable growth in its sales
volume (both in billion sticks & in Tk.) The following figure self-explains the trend in
BATB sales volume over the past years.
36 | Page
Sales Volume
Chart 6: Sales trend of BATB over last decade

45
40
35
30
25
20
15
10
5
0
2015(
2006 2007 2008 2009 2010 2011 2012 2013 2014 Estim
ated)
bln sticks 21.4
20.2
20
23
25
29
31
34.8
37
40.87
Year
F.4. Countrywide Sales (By Region)

Over the past two decades BATB marked significant growth in terms of volumes sold
amongst
the regions. The statistics have been furnished herewith:
Table 7: Countrywide Sales of BATB (By Region)

Volume (in Bln sticks)
Years
Dhaka
Chittagong
2005
0.5
2.3
5.1
2006
0.5
2.6
2007
0.1
2008
2009
37 | Page
Sylhet
Rajshahi
Khulna
Total BATB
2.8
1.8
18.5
5.8
3.3
2.1
21.4
2.5
5.5
3.1
20.2
0.1
2.5
5.5
20
0.1
2.8
6.3
3.5
2.3
23
2010
0.8
3.1
6.8
3.8
2.5
25
2011
0.2
3.6
7.9
4.4
2.9
29
2012
0.9
3.8
8.5
4.7
3.1
31
2013
2.3
4.3
9.5
5.3
3.4
34.8
2014
3.8
4.5
10.1
5.6
3.7
37
F.5. Contribution to the Industry
Chart 7: BATBs Contribution to the Industry

6%
12%
58%
Premium
38 | Page
24%
Value for Money
Low
G. SWOT Analysis
Strengths
1. Wide recognition BATB is widely recognized as good corporate company for its corporate
value and ethics. The good deeds are in terms of highest tax payment, community services,
afforestation programs and helping some social organizations like Shandahni and others.
2. International brand Image BATBs manufactured premium and medium segment brands
Benson & Hedges, State Express 555 and John Player Gold Leaf are internationally recognized
& valued by its loyal customers. This is because these brands are manufactured in different
BAT operating companies and dominating in the world market. Quality of these brands is
legendary and consistent, when it is compared. In order to ensure the quality product BATB
use global sourcing of all the raw material, which is common for all the operating companies
in BAT.
3. Strong brand portfolio: BATB offers product in all price segments in the market. All their
products are the market leaders, having the majority of market share in term of value and
volume.
4. Talented workforce - People are BATBs fundamental advantage-the sources of all their
strength. This include management, workforces and all other business partners, who are
directly involved in the value chain process. People are highly trained and motivated,
productive and team-oriented. Some important aspects are listed below:
Planning
39 | Page
Long term orientation
Many people involved in preparing and making decision
Decision making takes long time but implementation is fast
Employees share power and responsibility
Organizing
Common organization culture
Organizational change by changing goals Staffing
Rapid advancement highly desired and demanded
Reward for individual achievements
Training and development undertaken
Leading
Directive style, strong, firm and determined
Leaders are decision maker is heading the group Controlling
Control by supervisor
Control focus on individual performance
5. Superior technology Technology used in BATB is superior from the competition in

Bangladesh. Their state of art manufacturing plant in Dhaka is not only sophisticated but
also benchmark facility within the operating companies of BAT in their AMESCA (Africa,
Middle East, and Sub-Continent & Asia) region. In this industry technology is the key for
superior quality product. Technology revolutionizes the product and production process and
BATB always uses latest technology which smoothing out the production process.
Process Technology: It is used for tobacco processing and its conversion to cigarettes. It
encompasses extrusion technology, aspects of packing and painting, cutting and dying
technology, and application of instrumentation, control system and process automation and
separation of tobacco and non-tobacco materials.
40 | Page
Material Technology: The Company has been using latest material technology to the design
and develops the cigarettes and packing. These area covers paper technology, combustible
smoking material etc.
Information technology: BATBs computer section is very much updated and well oriented.
All the external and internal information is being controlled through a network.
MRP II: BATB is the only company in Bangladesh who uses MRP II (Manufacturing Resource
Planning II) in their production and operation. This is the latest technology and only a few
companies in the world have the capability to implement MRP II. This is a very distinctive
competitive advantage of BATB over other companies.
6. Better product quality relative to the rivals: As mentioned earlier BAT maintains its
consistent quality with good blend of tobacco through superior technology, thus BATB is
always in an advantages position compare to its competitor. BAT grows tobacco for their own
consumption in Bangladesh and they have completely separate function responsible for
tobacco growing and processing, which their competitors do not have.
7. High financial strength: BATB has a huge financial back up. The company can devote a
large fund to R&D, advertisements, quality control, and training and also in other areas, which
its competitor cant match.
8. Absorbing economies of scale in producing BAT products: BAT product has a higher
demand in Bangladesh. As the company produces in a large scale, it possesses economies of
scale and hence per unit of cost is comparatively lower in Bangladesh. On the other hand
production sources land, labor and raw materials are also low in this country.
41 | Page
9. BATB is the largest tax payer in Bangladesh: BAT is the largest tax payer in our country.
It paid more than Tk. 300 million tax in the last year. As a result of this huge amount BATB
enjoys a cordial relationship with the government of Bangladesh.
10. Low manufacturing cost: There are many reasons for low manufacturing costs of BATB.
First, it can hire labor at a cheaper rate, which is not possible in developed countries. Secondly,
the company has been using the latest technology in production by which it is able to minimize
its production cost by producing bulk of cigarettes. Thirdly, transportation cost is also
comparatively lower in our country.
Weakness
1. Strong Trade Union: Trade union is one of the weakness for BATB. They are resistant to
any changes. It takes lot of management effort and time to make the union leaders to motivate
for any minor changes in the entire process. Management in BATB is working hard to change
the culture and practice through different projects and program.
2. Missing a large number of consumers due to high price: BATB is losing a large number of
consumers in Bangladesh due to high price of its products. It does not have a product for very
low income consumers and Biri consumers. Evidence shows that 74.5% of the total volume of
market share of smokers (Cigarette and Biri combined) belongs to local company where BATB
has no access. Hence we may suggest that BATB may capture a large portion of the local
smokers market, if it produces a low priced product for the low income consumers.
3. Wholesalers and retailers are not getting enough attention: Distributors of BATB do not
provide adequate attention to wholesalers and retailers. Enough merchandizing materials are
also not provided to them. On the basis of the above in depth external analysis the following
42 | Page
opportunities and threats have been identified for BATB that need to be considered with due
care.
Opportunities
1. Global Merger with Rothmans: Global merger of BAT with Rothmans Industries and
closer of all Rothmans facilities in South Asia gave BATB opportunity to become regional
source of John Player Gold Leaf & Benson & Hedges for Middle-East market. BATB already
sent samples of these two brands for physical & sensory test in R&D Center in the head quarter.
2. The increased number of smokers in Bangladesh: The number of professional smokers is
gradually declining in the western countries where as the same is increasing in Bangladesh.
BATB can grab this opportunity and can make a consumer forecast for the future. At present,
the cigarette market in Bangladesh is growing at a rate of 10%. It is indeed a very good
opportunity for BATB to grow.
3. Augmenting GDP: GDP of Bangladesh is increasing due to economic expansion, open

market policy, industrialization and educational development. Its a great opportunity for
BATB to expand its market and product line.
4. Increasing number of population: The number of population is increasing at a higher rate

in Bangladesh. And at the same time the number of smokers are increasing. So it is an
opportunity for the company.
5. 80% people smoke Biri: In our country a large section of urban and rural people smoke
Biri. This means that the market potential of BATB is very high. If the Biri consumers can be
persuaded to smoke cigarettes instead, the company will have a very big market for its products
in this country.
43 | Page
Threats
1. Anti-smoking lobbies activities: Anti-Smoking lobbies are now getting very strong in
Bangladesh. Recent demonstration against Voyages of Discovery (VOD), a global campaign
of John Player Gold Leaf and government legislation against ban in cigarette advertisement in
all media reflects clear threat for cigarette industries.
2. High Excise rate: Excise is another threat for BATB. In the recent past there was several
increases in tax structure specific to BATB to get more revenue for the government. If this
continue BATBs strategy for price leadership will be at stake.
3. Smuggled/ Transit cigarettes: Smuggled cigarettes are available in Bangladesh. These are
companies same brand or other international brands. These transit cigarettes are decreasing
locally produced international brands. This is one of the greatest threats for BATB. BATB
cannot lower the price of its products, as the company has to pay a huge tax for those.
But the same brands of smuggled cigarettes are sold in Bangladesh at a lower price. As a result
consumer is purchasing the transit one.
4. Violation of patent: It is very common in Bangladesh, even though the government is

taking legal action against it. Many companies are copying the brand names of BATB
products. For example: there is a cigarette called Five Five which resembles to the BATBs
popular international brand SE 555.
5. Social pressure on the company is increasing: At present people are becoming more and
more health conscious and a strong social pressure is being created on the cigarette companies
worldwide. BATB is not free from this pressure.
44 | Page
6. International competitors are coming to Bangladesh: Phillip Morris Incorporation has

already started its operation in Bangladesh. This is a significant threat for BAT Bangladesh.
7. Political instability and violation: Political instability, stability, public demonstration, antisocial activities are the most common phenomenon in Bangladesh. These external forces
hamper sound business environment. So these factors are big threats for the company.
8. Natural disasters: Natural disasters like flood, cyclone, and tornadoes are very common in
Bangladesh. These natural disasters cause a huge loss of crops, production and property, which
directly reduces the purchasing power of the consumers. This in turn reduces demand for
cigarettes including BATB products. As BAT cultivates a considerable amount of tobacco in
the Country to use them as raw materials in cigarette production, sometimes natural disaster
greatly hampers leaf cultivation.
9. Implementation of Existing Laws: If the following laws are implemented in will be great
threat to tobacco industry.
Railway Act, 1890, section 110 prohibits smoking without the consent of the fellow
passengers.
Juvenile Smoking Act, 1919 prohibits smoking by a person under 16 years of age. Also,
no tobacco products can be sold to such a person.
Prohibition of Smoking in Show Houses Act, 1952 prohibits smoking in cinemas,

theaters etc. during demonstration or show. Offenders are liable to be arrested without
any warrant.
45 | Page
H. Company Profile of Dhaka Tobacco industries

Sk. Akijuddn limited (hereinafter referred as SAL) is aleading cigarette manufacturing and
tobacco processing company in the country. SAL was incorporated as a private limited
company on August 19. 1977 under the Companies Act 1913(Companies Act 1994) with the
vision to trade in large scale basis and to become a manufacturer and thus to contribute in the
economy of the country as well as serve the nation. Late Mr. SK. Akijuddin, a visionary
businessman in the country, is the key sponsor of the company. SAL purchased all assets and
liabilities of the then Dhaka Tobacco Industries Ltd, a reputed cigarette manufacturing factory,
through a sales agreement when Government has decided to deinvest and handover the factory
to private sector from the nationalized sector. Entering into Tobacco and Tobacco products
manufacturing business, SAL expanded their business area as a whole to be one of the largest
cigarettes manufacturing business in Bangladesh . During 2004, one of the sister concern of
Akij Group a tobacco process and redying factory named Leaf Tobacco Company (Pvt.) Ltd.
Which is situated in Golora, Manikgong was merged with SAL for looking forwar to facilitate
the business operation as well as fulfill the financial needs of the company. Initially the
company started with a paid up capital of TK .12 million against an unauthorized capital to
meet its growing financial needs. As of June 30, 2010 the companys paid up capital stood at
Tk. 1228 million against the unauthorized capital of TK. 2000 million. The company has been
contributing considerable amount of revenue to the government exchequer and also proving
employment since its inception. For outstanding performance in export, the company achieved
The national Export Trophy 2001 (Gold) for navy special filter Cigarette export.
H.1. Product Portfolio

SAL mainly produces various types of cigarettes namely, Marlboro Full Flavor, Marlboro
Light (Premium segment brands), Castle Full Flavor (High segment brands), Navy Special
Filter (Medium segment brands), Real Filter, Sheikh White, Sheikh Full Flavor (Lower
segment brands) etc. According to the tobacco properties and chemistry, SAL makes tobacco
blend as per their desired cigarette brand. Monthly production capacity of the company is
46 | Page
3071.95 million sticks wherein SAL has been utilizing more than 80% of its capacity during
the last three years. SAL holds consistent majority of the market shares in terms of their
production volume as well as sale because of maintaining better product quality and strong
distribution channel along with good customer relationship. Other market players in tobacco
sector are British American Tobacco Bangladesh Company Ltd. (BAT), Abul Khair Tobacco
Company, Nasir Tobacco Company, Global Tobacco Company Limited, Bengal Tobacco
Company etc. During the period from January 2009 to October 2010, SAL market share (based
on production) is 40.30% which indicated that SAL maintained the market lead during that
period. Demand of SALs product is more or less the same throughout the seasons in the
market. Approximately one billion cigarettes are produced per month by the companys
factory in Tongi, Gazipur.One hundred million of the Navy brand are exported quality and are
sold in Dubai.
High segment segment brands
Presently DTI enjoys more than 10% market share in this segment.
Marlboro Full Flavor

Marlboro Light
Castle Full Flavor
Marlboro Lights
47 | Page
Marlboro Full Flavor
Castle Full Flavor
Medium segment brands

Presently DTI are contributing 48% market share in this segment.
Navy special filter

Navy special filter
Lower medium segment brands

Presently DTI are enjoying more than 80% market share in this segment.
Sheikh Flavor
Sheikh White
Real Filter
Sheikh White
48 | Page
Sheikh Full Flavor
Low segment brands

DTIs market share in this segment is about 50%.
Five star filter

K2 filter
Gold Mine
Read and white
Red and white
H.2. Sales Trend for Last 10 years

Tobacco business had a very slow growth rate in the first decade. Industry grew in a moderate
pace till 2010 but started to decrease from 2011. Sales volume again started to increase from
2013 but the proportion was very low comparing with the growth of tobacco market.
Sales Volume
Chart 8: DTI Sales Volume (In billion sticks)

35
30
25
20
15
10
5
0
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015(E
stimat
ed)
bln sticks 24.78
24.57
24.38
26
27
29
28
28.33
29.43
31.35
Year
49 | Page
H.3. Country wide sales of DTI

Over the past two decades DTI marked fluctuating growth in terms of volumes sold amongst
Table 8: Countrywide Sales of DTI (By Region)
Years
Dhaka
Chittagong
Sylhet
Rajshahi
Khulna
Total DTI
2005
0.66
3.08
12.13
6.66
4.28
24.78
2006
0.57
6.66
3.79
2.41
24.57
2007
0.12
3.01
6.64
3.74
2.41
24.38
2008
0.13
3.25
7.15
3.9
2.6
26
2009
0.18
3.3
7.4
4.11
2.7
27
2010
0.93
3.6
7.9
4.41
2.9
29
2011
0.19
3.48
7.63
4.25
2.8
28
2012
0.82
3.47
7.77
4.3
2.8
28.33
2013
1.95
3.66
8.03
4.48
2.87
29.43
2014
3.22
3.81
8.6
4.74
3.14
31.35
50 | Page
H.4. Contribution to the Industry
Chart 9: DTIs Contribution to the Industry

5% 2%
17%
76%
Premium
Value for Money
Low
I. Company Profile of Abul Khair Tobacco Company (AKTC)

Abul Khair Tobacco is one of the most trusted names in tobacco industry of Bangladesh. They
have been in the industry since 1953 and have been exporting the best quality tobacco in many
countries of the world. Tobacco was the mother business of Abul Khair Group. The tobacco
division is divided into two parts. One is tobacco growing & processing for domestic use & export
in various countries and the other is cigarette manufacturing & selling to the domestic market. In
1998 Abul Khair Tobacco started its cigarette manufacturing and selling business. At domestic
market Abul Khair tobacco is in a leading position in low segment cigarette brand.
They are a national company with manufacturing and sales facilities throughout the Bangladesh.
They believe in maintaining standards to ensure the best quality in low & mid segment that
smokers of the brands have come to expect. Currently they are distributing their brands to almost
8 lac outlet by virtue of sufficient vehicle and a skilled and dedicated manpower.
51 | Page
I.1. Organization Culture

Abul Khair Tobacco laid emphasis on the way they do business and interact with the world outside
our offices, both locally and globally. In every district in Bangladesh where their cigarettes are
sold, we are guided by the same basic principles.
One of their principal goals is to be a socially responsible company. Because of this, they are
passionate about our social performance: They have adopted policies and implemented programs
to consistently reduce the environmental impact caused by the company by using fewer natural
resources, reducing greenhouse gas emissions with tree planning program, and producing less
waste. They work with growers and suppliers to promote sustainable tobacco farming. We work
with suppliers, interest groups, and governments to address the problems of child labor and other
abuses in labor markets related to our supply chain. They believe in improving local communities
through charitable giving, volunteer activities, and support of a wide network of non-profit
organizations.
I.2. Products Mix

Rally verve
Launched in 25th April, 2010, Rally verve is our supreme brand; it is Medium segment's brand.
Presently we hold 10% segment share of this segment.
Brand Position: Medium Segment
Brand Color: Red and White
Packet Nature: HLP (20s & 10s.) & SS (10s.)
Brand Personality: Fashionable, Colorful & impressive
Reflection: Qualitative & Satisfactory
Target Consumer: Middle Class
Brand Visibility: Whole Country
Specialty: Ambush, Fin board, Golden Foil & Hand Pick Tobacco
52 | Page
MARISE Special Blend

Launched in 3rd July, 2006, MARISE Special Blend is highest selling brand of tobacco industry
in Bangladesh; it is Low segment's brand. Presently we hold 50% segment share of this segment.
Brand Position: Low Segment
Brand Color: Golden, Red and White
Target Consumer: Lower & Middle Class
Specialty: Ambush, Fin board, Golden Foil & Hand Pick Tobacco
MARISE White
Launched in 2009, MARISE white is Low segment's brand it is new brand of MARISE family.
Brand Color: Blue, Black, Golden, and White
Brand Visibility: Selected Area
Specialty: Fin board, Silver Foil & Hand Pick Tobacco
53 | Page
Super Kings White

Launched in 2006, Super Kings white is also a popular brand of tobacco industry in Bangladesh;
it is Low segment's brand.
Brand Color: Red, Blue, Ash and White
Brand Visibility: Selected Area
Sun Moon
Launched in 1998, it is our first cigarette brand. Sun Moon is very popular brand of tobacco
industry in Bangladesh; it is Low segment's brand. Presently we have a good segment share of this
segment.
Brand Color: Blue, Red and White
54 | Page
Handmade Brand
Special Abul Bidi & 42 No Abul Bidi
42 No Bidi launched in 1953, which was the
first business of the Group. Now we have
another brand of Bidi (Handmade rolled
Tobacco Smoking Product) which is Special
Abul Bidi. Presently we have 7% market
share of this industry.
Segment: Bidi
Launching Date: 1953
Packet Type: Hand Made (25 Stick)
Stick Length : 69 mm
Filter Length : 08 mm
I.3. Company Performance Overview

60 Years of
AKT
Abul
Khair's
1953
opening of
a
handmade
tobacco
product
named 42No Abul
bidi
55 | Page
1998
Abul Khair
introduced
their readymade
cigarettes
and started
selling
tobacco.
2009
Abul Khair
becomes
nationally
number
one selling
cigarette.
Volume
reaches
1.00 billion
2012
National
cigarette
sales reach
2.00
billion.
Second
largest
company in
Bangladesh
in terms of
volume.
I.4.Sales Trend for last years:

The tobacco business had a steady growth rate in the first decade. The industry grew in a
moderate pace till 2010. Next two years it experienced decreasing sales of tobacco. From
2013 AKTC has been experiencing a remarkable growth in its sales volume (both in billion
sticks & in Tk.) The following figure self-explains the trend in AKTC sales volume over the
past 10 years.
Chart 10: Sales trend of AKTC over last decade

14
12
Sales Volume
10
8
6
4
2
0
bln sticks
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015(Est
imated)
8.45
8.5
8.77
10
11.18
11.15
10.33
11.33
11.77
12.4
Year
I.5. Countrywide Sales (By Region)

Over the past two decades AKTC marked significant growth in terms of volumes sold amongst
56 | Page
Table 9: Countrywide Sales of AKTC (By Region)

Years
Dhaka
Chittagong
Sylhet
Rajshahi
Khulna
Total AKTC
2005
0.23
0.23
2.33
1.28
0.82
8.45
2006
0.2
1.04
2.3
1.31
0.83
8.5
2007
0.04
1.08
2.39
1.35
0.87
8.77
2008
0.05
1.25
2.75
1.5
10
2009
0.07
1.36
3.06
1.7
1.12
11.18
2010
0.39
1.5
3.27
1.83
1.2
11.15
2011
0.14
2.49
5.55
3.04
20
2012
0.33
1.39
3.11
1.72
1.12
11.33
2013
0.78
1.47
3.22
1.8
1.15
11.77
2014
1.27
1.51
3.4
1.87
1.24
12.4
57 | Page
I.6. Contribution to the Industry:

Chart 11: AKTCs Contribution to the Industry
0%
5%
95%
Premium
Value for Money
Low
J. Company Profile of Nasir Tobacco Limited

Manufactured Tobacco:
Nasir Tobacco and Nasir Leaf Tobacco industries are contributing significantly in lower
segment of tobacco industry. Nasir Tobacco Industries Ltd, went into commercial production
in 1997.With a land area of 2145 Decimal (65 bigha) for the factory and a work force of 300
in the factory and 1700 in the market this company ranks fourth in the country. The company
export cigarettes, cut tobacco and cut rolled expanded stem (CRES), cork tipping paper and
filter rods. The brands of its cigarettes are Nasir Gold, Asia and Top Ten.
Factory Land Area
: 2145 Decimal
Work Force
: 300 Persons in Factory and 1700 in the market.
Area of Business
: Cigarettes, Cut Tobacco, CRES, Cork Tipping Paper and Filter
rods.
Market Ranking
58 | Page
: 4th
Commercial Operation
: Since April, 1997.
Plant Location
: Allardarga, Daulatpur, Kushtia.
Achieved Capacity
: 50%
Tobacco Leaf:
Nasir Leaf Tobacco Industries Ltd. a unit of Nasir Group of Industries is a grower, processor,
packer and exporter of different varieties of Bangladeshi Tobacco. Starting in 1998 it has been
catering to the needs of many local cigarette manufacturers and since 2001 has been regularly
exporting tobacco to USA, European and Asian markets. With 300 workers and 627 decimal
of land its factory is fully equipped with state of the art automated American machinery and
testing laboratory.
Factory
: Allardarga, Daulatpur, Kushtia.
Ares of Business
: Leaf Tobacco Processing Company.
Factory Land Area
: 627 Decimal
Work Force
: 300 Persons in Factory.
: Since May 1998.
Machinery
: High level; auto processing
: Since May, 1998
Achieved Capacity
: 75%.
Major Activity: Growing, processing and packing tobacco (Flue cured varieties Burley, Dark
Virginia, Native air cured varieties like Jati, Talim and Motihar (Rustica) in tangled whole
leaf, butted, hand strips and threshed forms) for local and international market.
59 | Page
J.1. Products
K. PESTEL Analysis
K.1. Macro Environmental Factors
With the framework of PEST/PESTEL/PESTLE analysis, BATB, AKTC and DTIs threats
and opportunities are defined, and help to visualize external aspects, which usually cannot be
controlled and have potential to affect objectives.
60 | Page
K.2. Political/ Legal

Generally, tobacco industries are enforced regulatory control by imposing taxes and duty
charges. Also restrictions on marketing, advertisement, and exhibition of the product, avoid
descriptions like, light and mild, nicotine, carbon monoxide smoke yields and tobacco
ingredients, prohibition of smoking in public places Tobacco companies are aware of these
aspects and employ lawyers to have legal advice on these social responsibilities, marketing and
stakeholders issues.
k.3. Economic
Tobacco duty was raised in line with inflation. The impact of high taxation in the UK cigarette
market resulted in high prices, which led to reduced annual industry volumes, greater price
competition and trading down by consumers to lower-price cigarette brands. Imposing taxes
on tobacco causes major revenue for government around the world. Tobacco industry
contributes considerably to the financial system of more than 150 countries. About 100 million
of people worldwide do have job opportunities from the industry.
K.4.Social and Culture

Due to risks to health number of smokers has decreased over the years as people are becoming
educated. Tobacco companies are aware and manages operations responsibly. They are
working through dialogue in advertisement objectives, alarming about health hazardousness
on packets, prohibition of smoking in public places and bans on displaying at POS.
K.5. Technology
Due to advancement in technology making of cigarette is fully automated into machines, from
processing of tobacco to cutting cigarette paper and filters. Packaging are also automated,
61 | Page
cigarettes are filled into respective brand packs, wrap in protective film and placed in cartons.
Factory machines at each location are contemporary and those cannot be redeployed are
destroyed. Each and every tobacco company itself participates in technological progress by
carrying their own researches either into their department or other institutions for innovating
new and fresh ideas and production. They believe in testing and adapting new available
technology for their production. Many of them especially BATB, DTI, AKTC and so on have
also developed and promoted new cultivation methods that to replenish soil by using organic
substance for better fertility structure as well as having environmental benefit. For example,
BATB works with BAT Biodiversity Partnership and Bangladesh Agriculture University.
k.6. Environment
Tobacco companies should work to protect the long term security of the tobacco leaf supply
by encouraging sustainable agriculture based on multi-stakeholder partnerships and held two
stakeholder dialogues on the issue. There is biodiversity risk and opportunity assessments
should be done to inform about their approach to sustainable agriculture. Commissioned
independent research undertaken, considering the impact of tobacco farming on communities
and the environment. Human rights of suppliers, contracted farmers and local communities
should be protected. Leading companies like BATB, DTI and AKTC have a considerable
impact upon the environment in both through their direct operations and in tobacco growing
areas and for several years they have put in place various initiatives to help mitigate their
impact on biodiversity, to limit and reduce deforestation in the leaf growing operations and to
improve efficiencies relating to energy and water use. In the supply chain its important to
ensure that the rights of tobacco farmers are respected and that the industry and stakeholders
work together to tackle child labour. Initiatives such as Social Responsibility in Tobacco
Production Program and participation in the Eliminating Child Labour in Tobacco Growing
Foundation are taken. Sustainable agriculture is important too tobacco farming makes an
important contribution to rural development by improving both landscape and livelihoods and
through providing agronomy support to the contracted farmers help share best practice.
62 | Page
K.7. Micro Environmental Factors

The microenvironment factors determine tobacco companies internal entities that can be
controlled and manipulated to collect information for marketing strategies.
Product: They manufactures Cigarettes, Smokeless Snus, Cigars, Roll-your-own and Pipe
tobacco.
Price: Products are sold at Gross Price with proper VAT. Wholesalers are allowed discounted
prices for orders exceeding 6,000 outers or more of cigarettes, cigars and / or tobacco for a
single delivery.
Promotion: To aware target customer, advertisements are done through TV and newspapers
with compliance to the legal and regulatory environments.
Place: The industry delivers product directly to the appropriate premises or any other secure
addresses as agreement, i.e. to valued consumers.
L. Value Chain Management

L. 1. Inbound logistics of Tobacco Industry
Inbound logistics is an integral element of business operations for a manufacturing firm,
involving the processes of receiving, storing and distributing raw materials for use in
production. It is the first stage in value chain, which business management expert Michael
Porter outlined in his 1985 book Competitive Advantage.
Every single raw material of Benson & Hedges is imported. The procurement department
imports these as required and sends them directly to the factory warehouse with the help of
inbound logistics. As these raw materials are ordered in bulk, economies of scale is achieved
which in turn adds value to the product.
63 | Page
L.3. Raw materials cigarette
Tobacco
Imported (Brazil, USA)
Cigarette paper
Imported
Seam glue
Imported
Tiffin paper
Imported
Tiffin glue
Imported
64 | Page
Filter paper
Imported
Plasticizer
Imported
Ink
Imported
L.4. Operation of a Typical Cigarette

Operation: operation means converting materials into final products .When converting final
product added lots of value.
L.4.1. The Primary Manufacturing Department

The primary manufacturing department (PMD) is responsible for further conditioning the
important tobacco to make it ready for production. The tobacco passes through a set of
integrated and regulated machinery whose purpose is to blend the different packing grades
65 | Page
in specified proportions, convert the bales into rag suitable for use in cigarettes, and bring
tobacco to a uniform temperature and moisture.
L.4.2. The Secondary Manufacturing Department
The secondary manufacturing department (SMD) uses the tobacco that is blended and
conditioned by the PMD along with wrapping materials to manufacture cigarettes. The PMD
delivers its final processed tobacco to Cut Tobacco Store (CTS). The CTS has a 50-ton storage
capacity and the tobacco is stored there typically for one and a half days before it is used. The
SMD brings in the processed tobacco from the CTS as needed for production along with
wrapping material. Currently there are 16 cigarette-making machines at Dhaka factory, which
are operated in three daily shifts. Shift engineers and officers monitor shift activities to ensure
quality production. The flow of tobacco and cigarette paper to the cigarette making
machines are regulated by six (programmable Logic Controlled) PLC controlled feeders.
These feeders send in the required quantities at the right time to ensure smooth production.
Each
of cigarette is monitored by a separate feeder. In addition to the tobacco and cigarette
wrapping material, filter rods are fed into the machines for cigarette production. The machines
66 | Page
combine these three inputs to generate cigarettes as output. Defective cigarettes are either
identified manual or by built in sensors and removed from the production flow.
The tobacco from these wastes is removed and reused for cigarette production. This is added
great value from BATB.
The manufactured cigarettes are deposited in trolleys and carted to the packing machines.
There are currently 18 packing machines at Dhaka factory. These machines are equipped
with the wrapping material used to pack the cigarettes. Almost all of the wrapping materials
used are imported. Local companies, however, conduct the printing work that is required. The
manufactured cigarettes are fed from trolleys into the packing machines, which generate the
packed cigarette as output. The flow is monitored closely to identify and eliminate defective
products. In addition to the cigarette manufacturing and packing machines, Dhaka factory has
two Secondary Production Units (SPU). These are used exclusively to produce the Premium
and Aspirational Premium brand cigarette. These modern production lines are different from
the other machinery in that both cigarette manufacturing and cigarette packing can be
conducted in one process flow. This reduces the time needed to manually put the cigarettes
67 | Page
into trolleys and cart them to the packing machinery. The SPU makes approximately 8000
cigarettes per minute. Defective cigarettes are detected by sensors in the machines and are
removed automatically. In addition manual checking is conducted for quality control purpose.
In Benson & Hedges a very special machine called Protos Focki is used to produce the
cigarettes of BAT. This is an automatic machine capable of producing 10,000 sticks of
cigarette per minute. It takes almost one and a half year to build a Protos Focki and it costs
$4,000,000.
Raw materials are placed at designated points in the machine. The operator inputs the required
quantity and the machine automatically uses the resources to produce the desired quantity of
output. The outputs are finished goods and are ready for sale. Each packet of Benson & Hedges
contains 20 sticks. These sticks are wrapped with a golden wrapper which helps keep the
cigarettes still. Then it is put in the final gold packet. This packet has a hinge lid for easy use.
There is also a film coating on the pack which helps reduce damp on cigarette .This is the most
advanced cigarette manufacturing machine that is exclusively built for BAT and is not
available anywhere else. This huge initial investment in turn reduces cost of production and
adds value to the final product.
Advantage: Protos Foki maintain product quality very high. It makes 500 B&H packet per
minute. Its packet quality is very high .It has another big advantage that is if rapper close
packer is not close it is very big advantage. In another machine like GLD rapper close all
packer close so production of. It has another big advantage they said if any B&H quality come
bad it automatically display in the monitor. So this machine added lots of value.
Packaging: For many years, B&H cigarette packs were hard or soft, but otherwise changed
very little. In recent times, consumers have become increasingly interested in packaging
improvements, and these can be a strong source of competitive advantage. BATB is meeting
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consumer interest with a stream of packaging innovations, such as compact packs, sideopening packs, packs that open like wallets, waterproof packs, re-sealable packs to keep the
contents fresher and packs with rounded edges.
Innovations vary across its brands, brand variants and markets and its approach enables BATB
to adapt its offers flexibly to local preferences. BATBs guiding focus in innovations is on
relevance to the consumer, speed to market and being continuously ready to improve.
L.5. Outbound Logistics Typical Cigarette

The movement of material associated with storing, transporting, and distributing goods to
its customers.
British American Tobacco Bangladesh (BATB) extends all across Bangladesh. They have their
head office and factory located in Dhaka. There are three leaf regional offices located in
Banderban, Kushtia and Rangpur. They have six regional marketing offices all over
Bangladesh.
The six metro markets are Dhaka, Khulna, Mymensingh, Bogra, Sylhet, and Chittagong.
Distribution is done with the help of authorized dealers. BAT does not take their products
directly to the market. There are 52 authorized distributors that distribute the products to
510,000 outlets approximately.
Distribution is divided into three categories. They are: Retail Store, Retail Cash and Carry, and
Bazaar Cash and Carry. The distributors use their own vehicles, covered vans, cycle vans, etc
to distribute the product. And in the passive outlets, the areas are very close to the river, where
vehicles cannot go, they supply the product through boat.
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L.6. Channel of Distribution

Wrapping material, filter rods are fed into the machines for cigarette production. The machines
combine these three inputs to generate cigarettes as output. Defective cigarettes are either
identified manual or by built in sensors and removed from the production flow.
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Regional Go-down: There are five regional go-down throughout the country to fill every
regional demand just at the time of need, and to overcome various uncertainties related to
physical distribution of products, every regional go-down is directly controlled by separate
Regional Manager to face the regional physical distribution challenge.
So this five regional go-down adds lots of value.
Carrying Contractor: They are the party engaged in the physical movement of cigarettes
from head office go-down to regional office go-down. Normally they are the truck owners who
take all the risk and responsibilities of physical movement of goods between two
warehouses.
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Sometime this truck owner destroys value to damage goods.
Distribution Warehouse: All distributors have their own warehouse, where cigarette can be
kept safely while not degrading its product quality. Distributors buy the cigarette from BATB
and from that point ownership and all responsibilities of the products go under the distributors.
Internal Carrying Agent: They are like carrying agent but carry small volume of products.
Normally they are local truck owners. They carry products from, regional go downs to
distributor warehouses. They also take all the responsibilities and risk engaged in physical
movement of products.
So here some time destroy lots of value.
Opening Stock at Distributors Office: A part from the warehouse, every distributor also
maintains another stock at their office. This stock is for maintaining any change in market
demand instantly. Dealers sometimes sell cigarette through their counters to face special
situation.
Here adds lots of value because here maintain another stock office.
Delivery Van: All the delivery vans are owned by the dealers to assure the supply of cigarette
on the door of wholesalers, cash & carries and retailers just according to their demand. There
are two types of delivery vans. One is Scooter van and another is Rickshaw van.
Cash & Carry: They are businessmen who sell cigarette directly to consumers and at the same
time they sell cigarette to the retailers.
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Here adds lots of value because sell directly to consumer and also retailers
Retailers: Retailers are at the end of the physical distribution system of cigarette selling
products directly to the consumer.
The distribution chain shows how the product goes from the factory to the hands of the
consumers. It all starts with the factory where the tobacco is turned into cigarette and packaged.
The cigarette comes out of the factory as a finished good and is kept in the companys
warehouse. Then the tobacco product goes to 6 regional depots. From the depots, the
authorized distributors take it to their distribution warehouse. Then from the distribution
warehouse the distributors use their own vehicles to get it to the market.
Tobacco companies ensure that no value is destroyed throughout the distribution

process.
Limitation: In distribution there is little limitation. Sometime truck not proper time to reach
their destination. Another big problem is that this truck material is very costly
probably premium brand like B&H 1 truck carry 3 core taka .So they do not send their truck
at night. It is a big problem.
L.7. Departmental Overview (Sales &Marketing)

British American Tobacco:
L.7.1. Marketing
Successful marketing is the bedrock of growth for any fast moving consumer goods (FMCG)
business and we are no exception
-Jean-Marc Lvy, Marketing Director
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This is how British American Tobacco sees the Marketing activities for its success and
prosperity.
But when it talks about growth, theres a big point to make clear. By growth, it doesnt mean
selling smoking to boost the number of people in the world who smoke or the amount they
smoke. It means growing its share more specifically, the value of its share of the large
number of adults who choose to be tobacco consumers.
BAT has a mature market one where everyone already knows what tobacco is. There would
be no commercial sense in trying to promote tobacco products to people who know what they
are and have decided they dont want them.
BAT invests in positioning its high quality brands competitively for the adults whove decided
they do want to buy tobacco. And it has shown that through focus, intelligence, responsiveness
and a high priority on responsibility, it can successfully build the brand loyalty of adults who
have chosen to be tobacco consumers and win consumers away from competitor brands.
A billion adults worldwide choose to consume tobacco. Its aim is not just to maximize its share
of sales value and quality are high on its agenda. BAT aims to keep adding value for its
consumers, trade customers and shareholders through an approach it calls win-win-win. This
means giving BATs consumers premium value through premium quality and unique,
differentiated brands, enabling its trade customers to benefit from premium margins and, by
satisfying both consumers and trade customers, delivering long term sustainable value for
the shareholders.
BAT estimates that sales by our subsidiary companies account for 13 per cent of the global
cigarette market. (In 2010)
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Approaches to Marketing:
BATs business is about offering adult consumers high quality brands that they will choose
over competitors products. It is not about boosting the number of smokers, increasing the
amount they smoke or targeting the underage.
BATs International Marketing Standards, revised in 2007, detail its commitment to marketing
appropriately and only to adult consumers. The Standards apply to all its companies globally
and govern its tobacco marketing across all areas including print, billboards, electronic media,
promotional events and sponsorship.
BATs updated Standards were rolled out during a 12 month period and all its companies were
expected to confirm their adherence to them by 30 June of the next fiscal year.
To track implementation, a self-assessment audit of adherence was conducted by all Group

companies shortly after the deadline. The assessment reports an overall adherence rate of 97
per cent but it also identifies some areas where it is not yet meeting its updated Standards.
Instances of non-adherence are principally related to inconsistencies in interpretation of the

Standards at a local level. The self-assessment highlights the need for clarification of
this interpretation around certain promotional activities and for sanctions that may be applied
to retailers who sell to the underage.
BAT has issued additional guidance to its companies to help address these issues.
Action plans are now in place to help it achieve 100 per cent adherence by the end of 2010.
Progress against these plans will be monitored through the Regional Audit and CSR
Committees and the Board CSR Committee.
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What BAT does not do in Marketing
Strict laws in many countries, and its voluntary International Marketing Standards, mean there
are many things it doesnt do in marketing.
Top of the list is that it doesnt market to the under-age. It doesnt do product placement in
films, plays or TV programs, or link BATs product brands to celebrities or to sporting,
professional, social or sexual success. Its entire consumer packaging carries a clearly visible
health warning, even where the law doesnt require it.
What BAT does for its Success

Given the restrictions including the tight restrictions BAT set for itself people often ask
how it delivers such strong brand growth.
The answer is simple, though it takes hard work and skill to achieve. BAT has developed
approaches that its believe are appropriate for modern marketing of its challenging product,
and pursue excellence in everything it does.
The Structure of the Marketing Department of BATB

Marketing is The Department of BATB. The marketing department has recently been rebuilt
by merging Brand marketing and Trade marketing. Earlier these two were individual
departments. But now with the Power of One theme the brand and trade department has
formed a very efficient marketing department.
While the Brand Marketing wing focuses upon the branding aspects of a product, the Trade
Marketing & Distribution (TM&D) Wing focuses upon the trade and distribution aspect. These
two wings are joined by the Trade Development Team (TDT).
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The relationship among these three departments can be presented as follows:
Brand Marketing
The Brand Marketing department concentrates on satisfying consumers needs from within the
brand portfolio. Once consumers needs are understood and evaluated, brands can be made
available, accessible and desirable through strong, consistent communication. The brand
marketing elements covers the adopting of products, logistics and brand marketing policies
that best meet the needs of particular trade channels and strategic customers. The Brand
Managers and Brand Executives are responsible for the allocated brand(s). They are
responsible for all type of brand management activities.
Market intelligence includes the market research team. The team keeps constant eye on the
market situation. Through continuous research, market research teams generate useful market
information for the brand managers. Interface is required between brand marketing and
research which is carried out by any project that is divided by three phases:
1. Preparation prior to the study

2. Collection and analysis of data
3. Presentation and utilization of information
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There are different sort of researches carried out in the field level for gaining important
information.
Vision and Mission of Brand Marketing
The vision of the Brand Marketing wing is:
Within five years to be the undisputed leader of Bangladesh tobacco market
It also includes:
Dominate value share
Dominate volume share base
Destination brand in key segments.
The mission of the wing is:
Promise of future profit growth
Grow quality share: ASU30
Owning the medium and premium segment (90% share)
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Core Strategies of Brand Marketing
Aggressive:
1. Expand the premium segment growth.
Internationalism, destination status & image differentiator: Youthful
2. Expand Mid segment Dominate volume base
Key differentiators are international standard with affordability & distinctive

image: masculinity/adventure
3. Build the critical mass, Protect BATs leadership.
Innovative:
1. Investigate & build new segments
a. Lights
b. New brands & line extensions
2. Product enhancement
a. Packaging, spec. change & higher satisfaction
3. Creative communication
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a. Focused: HoReCa (Hotels, Restaurants and Cafs), rural penetration
4. Consumer insight
a. World-class knowledge base: consumer research & market tracking.
Trade Development Team
This department works in between the brand and trade department in a view to facilitate and
coordinate the activities from the two ends. TDT performs different functions like channel
management, cycle planning, merchandising etc.
Channel Development:
There are three types of channel outlets where cigarette is sold. This is classified on the basis
of quality, authority, environment etc.
Convenience
Grocery
Horeca
Convenience Outlet
All shops where consumers generally go without any purchasing intention fall in this category.
The consumers like to buy product on impulse from this sort of outlets.
These outlets generally maintain a limited product range and do not offer flexibility in prices.
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This type of outlet adds value in B&H those who dont buy may be buy.
Grocery
These are the outlets where consumers visit on a regular basis with a purchasing intention.
They generally make a list of items before they will visit these sorts of outlets. These outlets
typically offer variety in terms of product range and flexibility in prices.
Here give lots of facilities so that this grocery adds lots of value.
HoReCa
Shops like hotels, restaurants, and cafes are considered in this category. The prime
characteristic of a HoReCa is that the shops must have a seating arrangement. It is assumed
that consumers visit those shops with the intention to spend some time. These outlets range
from small roadside cafes with seating arrangements to luxurious restaurants of fast food
outlets.
So this HoReca also add value in BATB
Cycle Planning: Cycle planning is a process by which a particular brands message is designed
and communicated to the trade and consumers. Usually, a particular brand cycle continues for
at least a month. It can also be for 2/3 months. Cycle communication is implemented through
the TM&D level.
L.8. Six Critical Factors to Achieve TM&D Mission

1. Secondary Supply Chain/ Product Management:
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Optimize cost and performance while ensuring achievement of brand objectives. The
associated sub-activities are:
a. Supply chain strategy/management
b. Order management
c. Order fulfillment
d. Trading terms
e. Inventory management
So we see here lots of values add here cost are optimize and also ensuring achievement.
2. POP (Point of Purchase) Management:
Create effective competitive entry barrier at point of sales while driving international brands.
The associated sub-activities are:
a. Display
b. Promotions
c. In-store communication/advertising
d. Implementation
e. HoReCa (Hotels, Restaurants and Cafes)
Here also values add create competitive entry barrier
3. Account Management/ Channel Development:
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Create an effective entry barrier while driving brand imagery, awareness and trial in HoReCa
and superior grocery outlets. The associated sub-activities are:
a. Account planning
b. Account profitability
c. New business development
Here create awareness, business development, and also new business development so lots
of values add this stage
4. Strategy and Planning: Ensure effective implementation of EMF (effective market focus)
process to support achievement of companys objectives. The associated sub-activities are:
a. TM&D planning
b. Cycle planning
c. Coverage planning
Here focus effective market and support company achievement so lots of value here adds.
5. Resource Management:
Ensure that TM&D Organogam is responsive to the changing trade and company needs. The
associated sub-activities are:
a. Financial planning and management

b. Manpower planning
c. Organization development
d. Management information for marketing overview
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Here changing trade and create financial planning, manpower planning, organization
develop so BATB adds lots of value.
6. Information Management: Drive Quantum business benefits to the fullest. The associated
sub-activities are:
a. Market intelligence
b. Internal monitoring
c. Information technology
d. Customer satisfaction
Here create business benefits, market intelligence, customer satisfied all adds value in
BATB.
Servicing
Training & Development:
To train the working people is one of the most important jobs of any Training center. They
generally train the people working for the distributors, for example distribution representative
and also the contract merchandisers within his territory. They also train the retailers about how
to approach customers, if necessary.
BATB arranges different programs and trainings for physical and psychological development
of its employees throughout the year
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Firms Infrastructure: The infrastructure of the company has a broader field where the
company plays its important role. BATB has 6 Regional Trade Marketing Offices (RTMOs),
12 Regional Sales Depots, 1 Factory, 1 Green Leaf Threshing Plant, 7 Leaf Depots and a Head
office consisting of Corporate Head office and Production Head office. The Companys Head
office and Cigarette factory are located in Dhaka. A Green Leaf Threshing (GLT) Plant
has been set up in Kushtia and it has started operation from April 1995.The companys
products are manufactured in the factory at Mohakhali, Dhaka. The Plant Manager who reports
to the Production Director at the Head Office heads Dhaka factory. The company procures
tobacco leaf maintaining the international standard and it imports processed tobacco leaf for
its international brands. It procures green tobacco from the registered farmers of the leaf area
mainly for its local brands. The companys authorized leaf areas are located in Kushtia,
Chittagong and Manikgonj .But bulk of tobacco leafs comes from Kushtia region. The
Chittagong area is under development process and it now covers Rangunia and Lama. The
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company operates 7 leaf depots in he leaf area. 4 of them are located in Kushtia region, 2 of
them are located in CDA and other 1 is in Manikgonj. The company provides all sorts of
supports Firms Infrastructure also covers the cost of general management, planning, finance,
accounting, legal and government affairs. BAT does not disclose their profit margin but
according to their last annual report. They have made a profit of Tk. 1.79 Billion for the period
of January September 2011. Part of this profit is used to finance the firms activities. This
firms infrastructure create lots of value in BATB.
L.9. Human Resource Management

BAT has been a pioneer in recruiting and creating the best managers in Bangladesh. They
choose the best and most talented graduates each year to ensure that they have the beast and
most effective workforce.
The employees of the BATB are dynamic, self-motivated and energetic to perform any
assigned job, because they are selected on the basis of excellent academic and experience.
The company employs 1,244 permanent employees and varying number of seasonal a
temporary workers as required. Each permanent employee receives remuneration in excess of
Tk. 36,000 per annum. Remuneration depends on the nature and conditions of work. The
workers are labeled in the following categories:
Permanent
Probationer
Temporary (seasonal)
Badli
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Casual Trade union is established in the following companys working locations:
Office and Dhaka factory
Kushtia Head leaf factory
There is a positive relationship between the company and the trade union based on mutual trust
and respect. All the employees of the company belong to the trade union. When a worker
becomes a member of the union, according to his request a certain amount of his wage is
deducted as the union subscription fees on a check off system. Trade union election is
held after every two years and governed by their respective constitutions. The terms and
conditions of services of the employee are negotiated and determine through a process of
collective bargaining between the company and the union
Head of Human Resource is the head of the department. The Human Resource Development
Manager, Production HR Manager, and Resourcing and Remuneration Manger work under
him.
The HR process is carried out through four Guiding Principles.
1. Open mindedness
2. Strength from diversity
3. Enterprise spirit
4. Freedom through responsibility
Here this all principals create lots of value in BATB this all are very important
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L.9.1. Technology Development

Information Technology department was mainly acting as a supporting service for all the other
functions of BAT. As the emergence of super information highway another technological
advancement made the business world more competitive, BAT also made necessary
adjustments towards the changes and in continuation with that process IT was made a separate
department in February 2000. The head of IT is also a member of the executive committee and
he is supported by the function support IT managers.
As stated earlier, BAT uses a state of the art technology Protos Focki which has a capacity of
producing 10000 sticks per minute. This is the most efficient cigarette manufacturing machine
till date.
This modern machine creates lots of value and it also minimizes cost in B&H. And also
minimize wastage.
Procurement: BATB follows strict measures to maintain quality parameters. Any type of
product is quarantined whenever any dissimilarity in these parameters is detected. Every single
raw materials used for Benson & Hedges are imported. Benson & Hedges uses 100% Virginia
tobacco which is a world class blend. The tobacco is imported from Brazil, Argentina, Mexico
and West Indies. The white cigarette paper is a special type of paper which is imported from
Malaysia. The filter comes from Japan. The glue, used for wrapping the cigarette paper, is
imported from Spain. The ink, used for printing on the cigarette paper, is imported from
France. There is also a golden wrapper inside the packet which helps keep the cigarette still.
This wrapper is also imported from France. Finally, the authorized gold pack is imported from
Turkey.
Core Business Processes:
The New Offering Realization Process: New offerings are by BAT Globe house and is
executed accordingly throughout the globe.
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The Market Sensing Process & the Customer Acquisition Process & Customer
Relationship Management Process: These processes are performed by the same department
using state of the art consumer engagement programs. Benson & Hedges is associated with
music and lifestyle. They organize several programs to create filtered customer database.
These are the customer group to which products are marketed using permission marketing.
Their feedbacks are channeled back into BAT.
The Fulfillment Management Process: This task is performed by the management team of
BAT.
M. Porters Five Forces Industry Analysis

For this part, five competitive forces model developed by Professor Michael Porter has been
used.
M.1. Threat of Rivalry

Rivalry depends on mostly in terms of price and quality. International brand image, major
competitors consists of domestic manufacturers are accounted for the rivalry. The industry is
still growing opening the door of opportunity for augmented business as consumers are up
coming from Biri to cigarette. Rivalry in this particular segment is very intensive in terms of
price rather than quality (Market share of BATB and its competitors). Moreover, there are also
some foreign brands, which are either smuggled or imported illegally, which have been termed
as transit brands. The most important brands in this category are Dunhill, Benson & Hedges,
Marlboro, London etc. It is notable that recently Marlboro has started operating seriously in
Bangladesh.
Though BATB is holding the major market share in the Dhaka City as well as whole country,
there are also other companies that are operating in the market. Although none of these
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companies have become a major threat to BATB, except perhaps Dhaka Tobacco, yet the
presence of these companies signals that other companies can also join in this market.
M.2. Threats of Substitute

Price, quality, performance, perceived value of the product and brand image are the key factors
for brand substitution. In the low price segment readily available and attractive priced
substitute creates competitive pressure. But in the mid-price segment the key for the
substitution is the cost as well as price. Product with more and new attributes can create product
substitution in this segment. In the premium price segment quality and product image is key
for the substitution. Customers in this segment are brand loyal. BATB has no threat for the
substitute products as there are no substitutes in terms of cigarette quality with other product
in the industry.
M.3. Threats of Potential New Entrants

Industry is safeguarded from the potential entrants due to government lawful barrier for setting
up new tobacco industry, high capital investment, economies of scale, brand Image, and
specialized know-how, existence of learning and experience curve effect, brand preference and
customer loyalty. But the introduction of the operation of an international tobacco company
like Marlboro in Bangladesh is really a big threat for BATB. This is an external threat over
which BATB has no control. However, the company should take steps to increase its market
share to combat Marlboro.
M.4. Bargaining Power of Suppliers

As the products are classified as Fast Moving Consumable Goods and produced in all over the
world, all the firms have the leverage to choose the wrapping materials from anywhere in the
world. These materials are cigarette paper, aluminum foils, boards, filter papers, cellophane
paper etc. Tobacco for medium and low price segment cigarette is grown in Bangladesh and
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is capable of fulfilling the entire industry demand. Tobacco for premium priced cigarette are
also grown in Bangladesh and around 18 20% high quality tobacco is imported from different
tobacco growing countries, where tobacco is surplus compared to its consumption. Therefore,
suppliers tend to have less leverage to bargain over price and quality.
M.5. Bargaining Power of Buyers

Low substitutes and a very close pricing of the competitors in the industry leave very low
bargaining power for the buyers, especially in the low priced segment. But in the medium
priced segment, quality and price are factors key for substitution and therefore, different brand
preferences are available in the market and the market share of each competing rivals tend to
shift in very significant margin. But it is not very relevant scenario for the premium segment
where most of the customers are loyal to their brands.
N. Analysis and Applications of Economic Principles and

Theories
N.1. Principles of Economics (Relating to the Ten Principles of
Economics)
How People Make Decisions
1. People Face Tradeoffs: In order to get something, we must always give up

something else. As a society, we need to make similar types of choices: there is always a
tradeoff between efficiency and equity. For example, we can choose to enact regulations that
protect the environment from industrial waste. It is, however, important to understand that
these tradeoffs are real, and that policy makers must try to choose the most appropriate balance
between efficiency and equity. Similarly, while investing and consuming products such as
cigarettes of the tobacco sector people face tradeoffs between the risks of investing the money
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in that area or in some other area that will give out positive externalities, such as increasing
their consumption on fruits and vegetables. (Mankiw, Principles of Economics).
2. The Cost of Something is what You Give up to Get It: Because of the abovementioned tradeoffs, people get in a situation of deciding whether to spend money on cigarettes
need some sort of method to determine which course of action produces the most beneficial
tradeoff. The cost of one action versus another may not be immediately clear. A good example
would be a consumer trying to decide on his consumption of cigarettes. When he thinks about
the total costs and benefits from the consumption of tobacco, he might consider the fact that
the cigarette will give him a sense of satisfaction in his life and also let him socialize with other
smokers but it will cost him money in terms and consumption and healthcare. One thing he
may not even take into account is that with time the effect of consuming cigarettes is harmful.
3. Rational People Always Think at Margin: A marginal change simply means

an incremental change to a pre-planned action. Similarly, in the case of buying cigarettes, some
choices actually are made based on marginal changes or what economists describe as small,
incremental adjustments to existing plans of action. For instance, when one is deciding
whether to purchase a pack of cigarettes, the person must compare the marginal cost of this
purchase with the marginal benefits (satisfaction) associated with consuming a pack of
cigarettes. By doing this, one can evaluate whether the purchase is worth the attendant costs.
4. People Respond to Incentives: Most decisions in life are based in some way on
cost and benefit analysis of available courses of action. Because people make decisions by
comparing costs and benefits, their behavior may change when the costs or benefits change.
Public policymakers should never forget about incentives, for many policies change the costs
or benefits that people face and, therefore, alter behavior. A lower tax on cigarettes, for
instance, encourages people to consume more cigarettes. On the contrary, if govt. hikes the tax
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rate on cigarettes, people will consume cigarettes a bit less and their consumption would be
hampered. Therefore, the consumption of cigarettes will be hindered.
How People Interact
5. Trade Can Make Everyone Better-off: Trade allows people to focus on serving
a specialized purpose in the economy, such as food production, textile production, tobacco
production, computer engineering, etc. By trading with other people, people get access to a
much wider variety of goods than you would be able to produce ourselves, and at a better
opportunity cost (price). The reason why someone would prefer buying a cigarette from a
manufacturer is simply because that person does not have the time and skills in manufacturing
cigarettes for himself. The trade between a manufacturer and a buyer thus benefits both. The
manufacturer receives a reasonable profit for managing the entire activity of manufacturing
cigarettes, and the buyer gets the satisfaction from consuming the production of cigarettes.
6. Markets are usually a Good Way to Organize Economic Activity: The demerit
of decentralized decision making were identified several centuries ago. Free markets are the
ultimate democratic tool, where every time a market participant decides to purchase a product
or service, he or she is casting a vote for it over its competitors. This principle clearly predicted
how and why communism would never succeed - central planners interfere with the natural
forces of the market, distorting prices - they achieve sub-optimal results and eventually,
systemic failure. Central planners failed because they tried to run the economy with one hand
tied behind their back - the invisible hand of the marketplace
7. Government Can Sometimes Improve Market Outcomes: Governments need
to be there to protect market participants from fraud or other dangerous business practices, and
to enforce contracts. Without any rules, we do not have a free market system, but rather
anarchy. In order to allow markets to perform their function properly, governments must be
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on the lookout for two main causes of market failures - externalities and market power. In the
tobacco sector of Bangladesh, several government policies and set standards play a vital role
as they provide a tool for monitoring the activities of manufacturers.
How Economy as a Whole Works
8. A Countrys Standard of Living Is Determined by Its Ability to Produce Goods
and Services: In today's world, it is absolutely staggering how standards of living vary from
country to country. People in advanced economies, on average, live far longer and more
comfortably than their counterparts in less advanced economies. These vast differences are
attributable mainly to one variable - productivity. A country's productivity is defined as the
amount of goods and services produced by an average worker in an hour. The correlation
between a country's productivity and the standard of living enjoyed by its citizens, is striking.
However, tobacco contribution to GDP is increasing each year; productivity remains high
enabling the country towards a better standard of living.
9. Prices Rise When Government Prints Too Much Money: There have been a
number of spectacular cases of inflation throughout history. The cause, each time, was not
some mysterious force that robs money of its purchasing power. The culprit, always, is the
government's aggressive increase in the supply of money. The reason governments inflate the
money supply can differ somewhat from case to case, but generally they happen because of
war or other large expenditure that the government cannot afford, so it devalues the currency
in order to lessen the debt burden. Due to inflation, the price of cigarettes has increased
comparatively throughout the years (as with inflation the purchasing power of people has
declined).
10. Society Faces a Short-term Tradeoff between Inflation and Unemployment:

The explanation for this effect is that prices do not adjust immediately to an increase in the
supply of money. Nominal prices of tobacco products have increased over the past decades,
but real cigarette prices (adjusted for inflation) have fallen over the past ten years, fuelling an
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increase in demand. Moreover, increasing incomes are also associated with rising tobacco
product consumption. The positive (and significant) income elasticity of demand for cigarettes
implies that if no anti-tobacco measures are taken, economic growth and rising incomes will
lead to an increase in cigarette consumption.
N.1.1. Effect of Invisible Hand in the Tobacco Market
A free market arguably provides numerous opportunities for maximizing ones own profit at
the expense (rather than for the benefit) of others. The tobacco industry is often cited as an
example of this: the sale of cigarettes and other tobacco products certainly brings very good
revenue, but the industrys critics deny that the social benefits (the pleasures associated with
smoking, the camaraderie, the feeling of doing something cool) can possibly outbalance the
social costs. An invisible hand works here, that promotes the societys well-being from the
sale of cigarettes, not in terms of satisfaction but also in terms of revenue it provides to the
government (BATB, one of the largest taxpayers in Bangladesh) which can be put to use in
specific government projects that depicts social welfare. As a result there is a presence of
invisible hand in the tobacco market.
N.2. Demand and Supply Function

Supply and demand is perhaps one of the most fundamental concepts of economics and it is
the backbone of a market economy. Demand refers to how much (quantity) of a product or
service is desired by buyers. The quantity demanded is the amount of a product people are
willing to buy at a certain price; the relationship between price and quantity demanded is
known as the demand relationship. Supply represents how much the market can offer. The
quantity supplied refers to the amount of a certain good producers are willing to supply when
receiving a certain price. The correlation between price and how much of a good or service is
supplied to the market is known as the supply relationship. Price, therefore, is a reflection of
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supply and demand. The relationship between demand and supply underlie the forces behind
the allocation of resources. In market economy theories, demand and supply theory will
allocate resources in the most efficient way possible.
Today, in the tobacco industry in Dhaka, both price and demand for cigarettes have gone up
exponentially. Though the price of cigarettes has increased on an average, the demand for
cigarettes has not declined as well. It is estimated that the demand for cigarettes will further
increase in the next few years. This is primarily due to the income and inflationary effects
which we cannot assume to be constant in the long run.
Unlike the demand relationship, however, the supply relationship is a factor of time. Time is
important to supply because suppliers must, but cannot always, react quickly to a change in
demand or price. So it is important to try and determine whether a price change that is caused
by demand will be temporary or permanent.
When supply and demand are equal (i.e. when the supply function and demand function
intersect) the economy is said to be at equilibrium. At this point, the allocation of goods is at
its most efficient because the amount of goods being supplied is exactly the same as the amount
of goods being demanded. Thus, everyone (individuals, firms, or countries) is satisfied with
the current economic condition. At the given price, suppliers are selling all the goods that they
have produced and consumers are getting all the goods that they are demanding. In the real
market place equilibrium can only ever be reached in theory, so the prices of goods and
services are constantly changing in relation to fluctuations in demand and supply.
When technological progress occurs, the supply curve shifts. For example, assume that
someone invents a better way of growing tobacco so that the cost of growing a given quantity
of tobacco decreases. As a result of a supply curve shift, the price and the quantity move in
opposite directions. If the quantity supplied decreases, the opposite happens. The movement
of the supply curve in response to a change in a non-price determinant of supply is caused by
a change in the y-intercept, the constant term of the supply equation. The supply curve shifts
up and down the y axis as non-price determinants of demand change.
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N.2.1. Price Elasticity of Demand

There was not enough information available or gathered that could be used to calculate the
Price Elasticity of Demand for the tobacco sector. However, from the information that was
available it was seen that the demand for BATBs cigarettes is fairly inelastic.
N.2.1.1. Global Evidence
Many studies have employed aggregate data to examine the impact of cigarette and other
tobacco product taxes and prices on overall tobacco use. Before 2000, nearly all of these studies
came from high-income countries including the United States, Canada, the United Kingdom,
Australia, and several others. These studies consistently find that increases in taxes and prices
on tobacco products lead to reductions in tobacco use. Most studies have focused on cigarette
smoking, given that cigarettes account for the nearly all tobacco use in high-income countries.
While these studies have produced a wide range of estimates of the magnitude of the effects
of price on overall cigarette consumption, the vast majority of these studies estimate price
elasticities in the range from 0.25 to 0.5, with most of these clustered around 0.4,
suggesting that a 10% increase in cigarette prices will, on average, bring about a 4% reduction
in consumption. As expected, models that account for the addictive nature of tobacco use find
that demand is more responsive to price in the long run than it is in the short run.
Over the past decade, a growing number of studies have examined the impact of taxes and
prices on tobacco use in low and middle-income countries. These studies have estimated a
wide range of price elasticities, with some, but not all, indicating that demand for tobacco
products is more responsive to price in low and middle-income countries than it is in high
income countries. For example, Hu and Mao (2002) estimate that the price elasticity of
cigarette demand in China ranges from 0.50 to 0.64, while Karki and colleagues (2003)
estimate an overall price elasticity of cigarette demand of 0.88 in Nepal. John (2008)
examined demand for multiple tobacco products in India, estimating price elasticities of 0.35,
0.91, and 0.88 for cigarettes, bidis, and leaf tobacco, respectively. More recently, Guindon
and colleagues (2011) updated and extended Johns analysis, estimating cigarette and bidi
price elasticites of 1.03 and 0.94, respectively. As in studies for high-income countries,
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studies from low and middle income countries that account for the addictive nature of tobacco
use find that demand responds more to price in the long run. For example, Aloui (2003)
estimates short run price elasticity for tobacco use in Morocco in the range from 0.51 to
0.73, and estimates long run elasticities that range from 1.36 to 1.54.
Findings from studies based on individual-level survey data on adult tobacco use indicate that
taxes and prices influence both tobacco use decisions (prevalence) and the frequency and
amount of tobacco consumption. In general, the estimates from high income countries suggest
that about half of the impact of price on tobacco use results from its effect on prevalence.
Given that relatively little initiation occurs during adulthood, these changes largely result from
cessation among adult users. This is confirmed by a small number of studies which find that
increases in price lead a number of current users to try to quit, with many users successful in
doing so in the long run.
Studies using survey data from low and middle income countries similarly find that price
affects prevalence, although the relative impact on prevalence and consumption varies
considerably across studies and countries. For example, Adioetomo and colleagues (2005) find
no impact of price on the prevalence of smoking in Indonesia, while at the same time
estimating an elasticity for conditional cigarette demand (changes in consumption of cigarettes
by current smokers) of 0.62. In contrast, Kyaing (2003) estimates a prevalence price elasticity
of 1.28 and a conditional demand elasticity of 0.34 in Myanmar.
Finally, several studies examine the potential for substitution among tobacco products in
response to changes in the relative prices of these products. In general, these studies find that
part of the reduction in the use of one tobacco product in response to an increase in its price
will be offset by increased use of other products if the prices of these products are not also
increased. For example, Laxminarayan and Deolalikar (2004) find that changes in relative
prices for cigarettes and rustic tobacco in Vietnam will lead to substitution between the two,
particularly for substitution from cigarettes to rustic tobacco in response to an increase in the
relative price of cigarettes. Similarly, Guindon and colleagues (2011) found some evidence of
cross-price effects for bidis and cigarettes in India, with low-SES and rural households
substituting bidis and cigarettes, while the two tobacco products appeared to be complements
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for higher-SES households. The potential for substitution highlights the importance of
increasing taxes and prices for all tobacco products rather than a subset of products at the
expense of ignoring others.
N.2.1.1. Tobacco Demand in Bangladesh Existing Evidence
To date, a few studies have estimated the price elasticity of demand for tobacco products in
Bangladesh. Ali and colleagues (2003) estimated tobacco demand for Bangladesh using annual
time series data from 1983 through 1999 to estimate a relatively parsimonious model that
included prices and per capita GDP as the only explanatory variables. They obtained a negative
but statistically insignificant price elasticity of 0.27, and a positive and significant income
elasticity of 0.62. They did not estimate bidi demand given the lack of data on bidi prices and
consumption over time.
Guindon and colleagues (2003) estimated cigarette demand for Bangladesh as part of a larger
study that also estimated demand in Indonesia, Nepal, Sri Lanka, Thailand, Maldives, and
Myanmar. Using annual time series data from 1970 through 2000, they too estimated a
relatively parsimonious model that included only price and income as determinants of demand.
In addition to estimating a conventional demand model, they also estimated a myopic addiction
model. Like Ali and colleagues, they found no significant effect of prices on cigarette demand
in either model. In their country-specific models for the other countries they examined, they
generally found negative and often significant price effects, with short run price elasticity
estimates for cigarette demand clustered around 0.5 and long-run elasticity estimates
clustered around 0.7.
More recently, Nargis and colleagues (2010, 2011) have used the individual level data from
the ITC Bangladesh survey to estimate the price elasticity of cigarette and bidi demand in
Bangladesh. Given the low prevalence rates of cigarette smoking among women, cigarette
demand models were estimated for adult males only; bidi demand models were estimated for
both men and women. In addition to price and income, Nargis and colleagues controlled for a
variety of other factors in their demand models, including age, marital status, educational
attainment, employment status, household size, urban/rural location, the number of years since
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initiation, and survey year (in the 2011 analysis that used both the 2009 and 2010 survey data).
Estimates from these models are summarized in Table 6.1.
Nargis and colleagues estimate significant negative effects of cigarette prices on both cigarette
smoking prevalence and on cigarette consumption among smokers, with the effects on
prevalence about double those of the effects on conditional demand. Their overall cigarette
price elasticities range from 0.43 to 0.66, somewhat less inelastic estimates than the range
estimated in studies from high-income countries and well within the range estimated in studies
from low- and middle-income countries. Nargis and colleagues interpret the relatively inelastic
estimates obtained for bidi demand as being attributable to the very low prices for bidis which
make them highly affordable. In their analysis of the pooled 2009/10 ITC-Bangladesh data,
Nargis and colleagues also estimate price elasticity for subgroups based on Socio economic
status. Consistent with Guidon and colleagues (2011) estimates for India, they find some
evidence that cigarette smoking in lower socioeconomic groups is somewhat more sensitive to
price, with overall elasticities of 0.76 and 0.59 for the lowest and highest tertiles,
respectively.
N.2.1.2. Cigarette Demand in Bangladesh New Estimates
We use annual time series data on aggregate cigarette consumption from 1981 through 2004
to generate new estimates of price elasticity. In contrast to the earlier time-series analyses by
Ali and colleagues (2003) and Guindon and colleagues (2003), we apply an econometric
methodology that accounts for the time series properties of the data. Given available data, our
model is similarly parsimonious and includes only price and income as determinants of
cigarette demand. Aggregate cigarette consumption data were obtained from the Bangladesh
Bureau of Statistics and were divided by population to obtain a measure of per capita
consumption. Cigarette price data reflect the inflation adjusted price of Star brand cigarettes,
the most popular brand of cigarettes consumed in Bangladesh over this time period. Our
measure of income is inflation adjusted per capita GDP. Details on the estimation are contained
in the Web Annex.
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Cigarette price is found to have a negative and statistically significant impact on cigarette
demand in Bangladesh, while income is found to have a positive and statistically significant
impact. Estimated short run price and income elasticities are 0.41 and 1.14 respectively, with
long run estimates of 0.57 and 1.46. Together, the estimates imply that the past decades
general trend towards increasingly affordable cigarettes, plus the combined Together, the
estimates imply that the past decades general trend towards increasingly affordable cigarettes,
plus the combined effect of reductions in cigarette prices and increases in household income,
have led to significantly higher cigarette smoking in Bangladesh than would have been the
case had cigarettes remained less affordable.
Table 10: Estimated Price Elasticities of Cigarette and Bidi Demand from
International Tobacco Control Policy Evaluation Project (ITC) Bangladesh
Surveys, 2009 & 2010
9 & 2010
Bidis
20
09
Pooled 200
Cigarettes
Bidis
Cigarettes
Prevalence
0.29***
0.46*
0.44***
Conditional
Demand
0.14***
0.18
0.22***
0.22**
Total
0.43
0.64
0.66
0.22
0.03
Sources: Nargis, et al. (2010, 2011).

Notes: ***, **, and * represent estimates statistically significant at the 1%, 5%, and 10% significance levels, respectively.
In particular, we test for non-stationarity in the data (Engle and Granger, 1987). Non-stationarity arises when time series do not return
to a particular value or predictable linear trend over time; the presence of non-stationarity biases estimates of the effect of price on
consumption. On the other hand, by testing for and finding evidence of co-integration (the property of time series tending to trend
together), we are able to arrive at consistent estimates of coefficients.
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N.2.2. Price Elasticity of Supply

Due to non-availability and lack of information provided by the company officials, the price
elasticity of supply could not be calculated. However, the interviews provided some depth
and insight about the price elasticity of supply. According to the company officials and the
analysis of the information the price elasticity of supply is observed to be elastic. Usually the
supply of cigarettes is supposed to be more elastic, i.e. the supply is more sensitive to change
in the price of cigarettes. Assuming the pattern of demand for cigarettes remains unchanged,
the more the price rise in the market the producer will be willing to supply more. As a
consequence, the rate at which the price of cigarette rises, rate of increase in supply will be
more than that.
However this will not happen if there is a restriction on the part of the government on the
supply of cigarettes .If it is considered to be a socially undesirable product then the supply
may remain inelastic due to government intervention in the market.
Effect of inflation on cigarette prices:
Graph 5.2 illustrates an additional concern for control of Bangladeshs cigarette taxes over
time. While the excise tax rates and the values that define the price slabs have been increased
periodically, these increases have not kept pace with inflation. As a result The inflationadjusted price of cigarettes has actually fallen for most of the past two decades. The sharp
decline in real prices from 2002 through 2007 appears to be a particularly important factor in
explaining the rise in per capita cigarette consumption over this period. The relationship
between prices, income, and cigarette consumption in Bangladesh is clearer when one
considers the affordability of cigarettes, measured by the ratio of average cigarette pack price
to per capita income, as illustrated in Graph 5.3. Cigarettes became increasingly less affordable
in Bangladesh from 1997 through 2002 as real incomes were falling, before becoming more
affordable after 2002, when incomes rose rapidly. The reduction in affordability contributed
to the declines in per capita cigarette consumption during this period. Similarly, increasing
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affordability of cigarettes after 2002 is a key factor in the rise in per capita consumption from
2003 through 2010.
Chart 12: Cigarette consumption with price
Chart 13 : Cigerrate affordability per capita ceigerette consumption
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N.3. Price Ceiling and Price Floor

Price ceilings are limits on the amount that can be charged for a specific product or service. In
many cases, a price ceiling is imposed by a government, in an effort to correct some issue with
the general economy while also protecting the interests of consumers in general. The
imposition of a price ceiling can help stabilize a particular market, as well as have a beneficial
impact on the economy in general. The strategy often prompts suppliers that were charging
exorbitant rates for their products to either cut back on production or possibly abandon the
market altogether. However, a price ceiling can cause problems if imposed for a long period
without controlled rationing. Price ceilings can produce negative results when the correct
solution would have been to increase supply. Misuse occurs when a government misdiagnoses
a price as too high when the real problem is that the supply is too low. In an unregulated market
economy price ceilings do not exist.
On the other hand, a price floor is a government limit on the lowest sales price of a good. Such
limits are usually part of a program to protect a given industry and keep the domestic economy
strong, but they can have unintended consequences. Not all goods and commodities have a
price floor, as many governments prefer to let the market determine prices, rather than
controlling them through regulations. Markets tend to be self-correcting, and problems with
pricing often resolve on their own before the government needs to intervene.
In the tobacco sector there are no price ceilings or price floors, but there is tax imposed
by the government on tobacco products.
N.4. Market Structure

The tobacco sector highlighted in this study is essentially cigarette manufacturing. The
tobacco industry is small in Bangladesh, yet there are significant group of producers in the
Bangladeshi economy. Tobacco production remains an industry with high value addition and
high production per worker, relative to the rest of the manufacturing sector. The demand for
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tobacco is in large part determined by the demand for cigarettes. The volume of tobacco sold
can be expected to closely follow increases (or decreases) in the demand for cigarettes.
However, demand for tobacco leaves does not necessarily increase at the same pace as that for
cigarettes. Product demand is fairly inelastic but is in a long-run downward trend as a result
of health concerns and legislation. There are 10 firms engaged in the manufacturing of
cigarettes in Bangladesh.
British American Tobacco Bangladesh is the dominant player in this sector. It manufactures
and markets major international cigarette brands like Benson & Hedges, State Express 555,
John Player Gold Leaf and London, which are complemented by local brands such as Capstan,
Star and Scissors. By its own estimate BAT controls around 50 percent of the Bangladesh
cigarette market. The tobacco industry in Bangladesh has an oligopoly market structure. An
oligopoly is a market structure in which a few firms dominate. When a market is shared
between a few firms, it is said to be highly concentrated. Although only a few firms dominate,
it is possible that many small firms may also operate in the market. For example, major
producers like British American Tobacco Bangladesh and AKIJ operate their organization
with only a few close competitors, but there are also other producers catering or offering
cigarettes as well.
Oligopoly is a market structure in which the number of sellers is small. Oligopoly requires
strategic thinking, unlike perfect competition, monopoly, and monopolistic competition.
Under oligopoly, a seller is big enough to affect the market. Producers must respond to their
rivals choices, but rivals are responding to their choices as well. In oligopoly markets, there
is a tension between cooperation and self-interest. If all the firms limit their output, the price
is high, but then firms have an incentive to expand output. The techniques of game theory are
used to solve for the equilibrium of an oligopoly market.
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N.5. Effects of Tobacco Control Policies

There are different impacts of tobacco controlled policies. The policies are ordered in terms of
their likely importance. A large increase in cigarette taxes and the passage of comprehensive
clean air laws are the cornerstone of strategies that have been successful in reducing smoking
rates. Each has reduced smoking prevalence by 10% or more. A substantial tax has a larger
and relatively immediate effect on the young and on lower income smokers. Work-site
restriction shave a more pronounced effect on male, middle age, and higher income workers,
unless those workers are already working in firms covered by voluntarily imposed smoking
restrictions. Tax revenues are earmarked for other tobacco control policies. A mass media
campaign provides the third prong in successful tobacco control strategies. A campaign of
large enough scale and duration further reduced smoking prevalence by 5% to 10%. Media
campaigns also publicize other programs, such as cessation or youth policies, or target to those
groups which have the highest smoking rates.
Government cessation policies, such as financial coverage of treatment or quit lines, may also
play an integral role in an effective strategy. These policies, initially, may have relatively small
effects on smoking prevalence, but the effects grow over time and help heavier smokers who
have the most difficulty in quitting smoking.
Evidence on the effects of advertising bans and warning labels is mixed, but a recent study
indicates that comprehensive advertising reduced smoking rates by 6%. In addition, strict
advertising bans and warning labels have been adopted, have been successful in their tobacco
control efforts and may be important in low- and middle-income nations with growing
smoking rates.
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N.5.1. Taxes on Cigarettes in Bangladesh and Strategies in encountering

Government interventions
The government of Bangladesh enters and alters the tobacco market through taxes. The
government discourages the sale and use of tobacco; they charge tobacco sellers a tax on
tobacco products. In Bangladesh, sellers pass as much of the added cost on to buyers as
possible. Because the sellers don't want to lose any profits, they increase their selling price in
order to maintain the same profit margin, since they had to pay an extra tax when obtaining
the products for resale. In such cases, the supply curve will shift vertically by the exact amount
of the tax.
Furthermore, taxing all bidis at a specific tax rate of 4.95 taka per pack (40% of average prices)
could lead 3.4 million adult bidi smokers to quit and prevent 3.5 million youth from initiating
bidi smoking, preventing 2.5 million premature deaths and raising additional excise revenues
of
7.2 billion taka (US$ 87.5 million).
N.5.2. Impact of Taxation on Smoking Behavior

Tobacco taxation, passed on to consumers in the form of higher cigarette prices, has been
recognized as one of the most effective population-based strategies for decreasing smoking
and its adverse health consequences. On average, a price increase of 10% on a pack of
cigarettes would reduce demand for cigarettes by about 4% for the general adult population.
Tobacco taxes can benefit smokers who quit, reduce the overall consumption of tobacco, and
put smoking cessation on the radar of those who continue to smoke. Increased taxes also have
a positive impact on non-smokers by reducing their exposure to second-hand smoke. However,
much less is known about the impact of taxation on specific subgroups.
Taxing all cigarette brands at a specific tax rate of 34 taka per 10 sticks (70% of retail price)
could lead nearly 7 million current smokers to quit and prevent 7 million youth from initiating
smoking, preventing 6 million premature deaths and raising additional excise revenues of 15.1
billion taka (US$ 200 million). A uniform specific tax of 17.5 taka per 10 cigarettes will reduce
the number of premature deaths among adult cigarette smokers by over 1 million. An excise
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Figure 4: Cigarette Taxess and Prices per Pack of 10 Cigarettes Selected Brands,
tax to 34 taka per 10 cigarettes (amounting to 70% of average retail price) would reduce
premature deaths in adults by almost 2.5 million.
The following figure shows the percentage of income tax imposed by the govt. on popular
brands in each category:
Bangladesh, 2012
N.5.3. Anti-tobacco Campaign

Anti- tobacco campaign in the country is carried out by mainly Bangladesh Anti-Tobacco
Alliance (BATA) and Tobacco Control Program of Dhaka Ahsania Mission. These
organizations have programs that are designed to involve the entire community with voluntary
involvement of youths, students, teachers and other conscious citizens. They have a network
of Branch Committees at the local levels and a Central Committee at the apex. The Central
Committee formulates policies, advocates, and maintains close liaison with the relevant
Department of the Government and different international anti-tobacco organizations. The
main approach in tobacco control is to make the general people aware of the harmful effects
of tobacco on the persons themselves and their families and to prepare a group of motivators
to motivate the people to refrain from using tobacco.
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N.6. Private Goods, Public Goods and Tragedy of the Commons

Private goods: Private goods are both rival and excludable in consumption. Excludable means
anyone can be refrained from consuming these goods and rival means if someone consumes
one good then that good cant be consumed by others. Example of private goods can be an Ice
cream.
Public goods: Public goods are those which are neither excludable nor rival in consumption.
That means one person cant be refrained from using public good and that persons
consumption of one good doesnt reduce other persons ability to use that. Example of public
good can be tornado siren in a city.
We know that all the products of the BATB which they produce for making profit are private
goods. One can be prevented to smoke a cigarette or one persons used cigarette cant be used
by others. The products of BATB are both rival and excludable by nature.
The Tragedy of the Commons
We know that the common goods are those which are not excludable but rival in nature. That
means one cant be prevented from using these goods but ones consumption of these goods
reduce the ability of others to consume that.
Tragedy of the commons says that what is common to all is taken least care of. Everyone has
a greater concern for the goods owned by them not for the goods which are available freely to
all. Thats why common goods are often overused and their condition becomes very poor with
time.
We know that BATB is using huge amount of land for tobacco production in our country. Due
to excessive tobacco production the soil loses it fertility gradually and those lands cant be
used for further production of other crops. So there is a negative externality of producing
tobacco. To internalize the externality government has imposed tax on tobacco producer.
Beside this the lands are now no more a common good. It has been divided among several
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farmers and BATB has to make agree the farmers for tobacco production by giving them a
good incentive. Government has turned the common goods like land into a private good to
prevent the tragedy of the commons.
N.7. Production Function

A production function specifies the maximum output that can be produced for a given amount
of input. Alternatively, a production function shows the minimum quantity of input necessary
to produce a given level of output.
In our selected organization BATB the output is different cigarettes and inputs are land, labor,
capital and raw materials. So the production function can be written as the following way Q=
f(W,X,Y,Z)
Here, Q= output
W=raw materials
X=labor
Y=land
Z=capital
N.7.1. The Law of Diminishing Return to a Factor

This law states that as the quantity of a variable input increases, with the quantities of all other
factors being held constant, the resulting increase in output eventually diminishes.
Considering an assembly line for the production factory of BATB, if only one employee is put
to work, that individual must perform each of the activities necessary to assemble equipment.
Output from such a combination of labor and capital is likely to be small. In fact, it may be
less than could be achieved with a smaller amount of capital, given the inefficiency of having
one employee accompany a refrigerator down an assembly line rather than building it at a
single station. As additional units of labor are added to this production systemholding capital
input constantoutput is likely to expand rapidly. The intensity with which the capital
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resource is used increases with additional labor, and increasingly efficient input combinations
result. We can assume the following result keeping all other input constant.
Eventually, sufficient labor is combined with the fixed capital input so that the benefits of
further labor additions will not be as large as the benefits achieved earlier. When this occurs,
the rate of increase in output per additional unit of labor, the marginal product of labor, will
drop. Although the marginal product of labor is positive and total output increases as more
units of labor are employed, the rate of increase in output eventually declines.
Return to scale:
In law of diminishing return that if one input is changed keeping all other input constant then
what effect is there with total output curve. Return to scale measures the effect on output if all
inputs are changed together. For an example we can assume that BATB has increased all of its
input land, labor, capital and raw materials to double in order to increase productivity. What
possible effect can be on the total output can be determined by the following 3 types of return
to scale
Constant return to scale
If the output increases in the same amount of input, which means if the output is also doubled
with the input then will be called constant return to scale. In such case BATB will produce
double output with double input.
Increasing return to scale
If the output increases more than the input then it will be termed as increasing return to scale.
That means if the output increases 3 times with the input increase in 2 times then it will be
called increasing return to scale.
Decreasing return to scale
Finally if the output is decreased with the increase in input then it is called diminishing return
to scale. This usually occurs in case of very large groups. For an example in case of BATB if
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the inputs are increased too much then the associated costs will be also increased. Sometimes
these costs can surpass the profits of extra input which may eventually cause a decreasing
return to scale.
Isoquant
We know that to produce a single unit of cigarette we need certain amount of tobacco and
filter. So these components are perfectly complementary by nature. We cannot substitute
tobacco for filter or filter for tobacco. Thats why the isoquant curve for a product say Benson
& Hedges will be like the one of an imperfect substitute.
Production Cost
BATB is a process-based organization, instead of having isolated departments the company
has some support functions and some core functions. Typically the structure of the
organization can be explained through the supply chain.
In BATB it is called seed to smoke as the supply chain process.
Mission of supply chain is - To be the most competitive supply chain in terms of cost quality
and EH&S (Environment Health and Safety) practices. The core functions are:
Leaf
Production
Brand Marketing
Trade Marketing
CORA
Along with the core functions there are some support functions such as
HR
IT
Finance
Fixed Costs
Land
Building
Chain link fencing
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Salaries of Executives
Vehicle and Furniture cost
Depreciation cost Plant and Machineries
Machineries used in BATB Plant:
Counter Flow Classifier
Stem Tester
Thresher
Conditioning Machine for Lamina - [DCCC Direct Conditioning & Casing Cylinder
(DCCC)]
Lamina Line Cutter RC-4
Lamina Dryer-ITM (Imperial Tobacco Machineries) Drier
ADMOIST (stemline Conditioner)
KT-2 Cutter
Stem dryer-FBD
SILO
Protos (Filter Rod Maker)
Decoufle Nano 8 (Filter Cigarette Maker)
Focke (Packaging Machine)
Variable Costs:
Raw materials
Utilities ( Electricity, Fuel)
Wages of workers
Promotional expenses
Transportation cost
HR plan Structure:
CEO
Financial Manager
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Marketing Manager
Operations Manager
HR Manager
Technician/Skilled labor
Semi-skilled labor
Peon
Security guard
N.8. Game Theory and Cigarettes

Nash believed that humans were inherently suspicious of each other, hardly surprising since
he was a paranoid schizophrenic. His gloomy and pessimistic view of the world, but it did not
apply to the mass of humanity. In reality, we are more likely to collaborate than Nash thought.
We do not always act in naked self-interest.
So what's this got to do with tobacco? Well, as Stephen Fry pointed out, game theory can be
applied to advertising. If one company is advertising, all the rest must do the same. But if no
companies advertise, they can save money. And in the case of tobacco advertising, the
Bangladesh government intervened to remove the competition. In effect, the government
forced the tobacco companies to collaborate.
If neither of them advertised, they could keep the money and the market would remain the
same. So what it resulted in is the bizarre situation where they banned tobacco advertising, and
it was to the benefit of the tobacco firms because they were saving money which they were
otherwise wasting.
It is almost heretical to say this, but the purpose of tobacco advertising is to make people switch
brands (or to stick with the brand they are already smoking). Anti-smoking groups have long
disputed this, saying that tobacco advertising exists to make people start smoking, but they
have never produced any credible evidence to show that this is the case.
114 | Page
It is likely that the anti-smoking groups are wrong. Cigarette sales happened to go up in
countries after cigarette commercials were banned on TV.
There are cigarette companies that would love to see tobacco advertising reintroduced, but not
the big ones. As so often happens, the anti-smoking groups have inadvertently done Big
Tobacco's work for them.
N.9. Price War

Price war is defined "commercial competition characterized by the repeated cutting of prices
below those of competitors". One competitor will lower its price, then others will lower their
prices to match. If one of them reduces their price again, a new round of reductions starts. In
the short term, price wars are good for buyers, who can take advantage of lower prices. Often
they are not good for the companies involved because the lower prices reduce profit margins
and can threaten their survival. The Bangladesh tobacco industry is faced with intense price
war between the competitors.
In the medium to long term, price wars can be good for the dominant firms such as British
American Tobacco Bangladesh in the industry. Typically, the smaller, more marginal, firms
cannot compete and must close. The remaining firms absorb the market share of those that
have closed. The real losers then, are the marginal firms and their investors. In the long term,
the consumer may lose too. With fewer firms in the industry, prices tend to increase, sometimes
higher than before the price war started.
The main reasons that price wars occur are:
Product differentiation: BATBs some products are, or at least are seen as, commodities
because there is little to choose between brands, price is the main competing factor. For
products like Benson & Hedges brand is a factor and they differentiate themselves through
their brand.
115 | Page
Penetration pricing: As Philip Morris (direct competitor of British American Tobacco

Bangladesh) is trying to enter an established market; it may offer lower prices than existing
brands.
Oligopoly: As the industry structure is oligopolistic (that is, has few major competitors),
the players closely monitor each other's prices and be prepared to respond to any price cuts.
Process optimization: BATB are inclined to lower prices rather than shut down or reduce
output as they wish to maintain the economy of scale. Similarly, new processes make it
cheaper to make the same product.
Predatory pricing: BATB sometimes deliberately price new or existing products in an

attempt to topple existing competition in that market.
Competitors: Competitors might target a product and attempt to gain market share by
selling its alternative at a lower price. Some argue that it is better to introduce a new rival
brand instead of trying to match the prices of those already in the market.
The first reaction to a price reduction should always be to consider carefully. Too often, price
wars have been started because simple promotional activities have been misunderstood as
major strategic changes.
But if it seems that it is a long-term move then there are many possible reactions that BATB
can take to counter the effects of the price war taking place and they are:
Reduce price: The most obvious, and most popular, reaction is to match the competitor's
move. This maintains the status quo (but reduces profits pro rata). If this route is to be
chosen it is as well to make the move rapidly and obviously - not least to send signals to
the competitor of your intention to fight.
Maintain price: Another reaction is to hope that the competitor has made a mistake, but if
the competitor's action does make inroads into a merchant's share, this can soon mean
customers lose confidence and a subsequent a loss of sales.
116 | Page
Split the market: Branch one product into two, selling one as a premium and another as a
basic. This effective tactic was notably used by Heublein, the former owner of the Smirnoff
brand of vodka).
React with other measures - Reducing price is not the only weapon. Other tactics can be
used to great effect: improved quality, increased promotion (perhaps to improve the idea
of quality).
Price stickiness
In oligopoly markets such as the Bangladesh tobacco market, prices can become 'sticky'
because if the price rises, competitors will not follow the rise. So the merchant will lose its
market share to its competitors on lower prices. But if the price falls, other players will
merchants will follow suit if they can. At some point, merchants find that they cannot gain
profit if they cut the price further so the sticky price remains.
Price stickiness is extremely common among large supermarket chains and prices, especially
for commodities, tend not to vary much between them. Many of the supermarkets monitor
price changes in other supermarket chains and vary their prices accordingly until they reach
the point where any further decrease in their price will affect profits.
N.10. Price Discrimination

There is significant price discrimination in the price of cigarettes in Bangladesh. The
government should impose high tax on tobacco products to rein in soaring consumption of the
harmful products for the sake of public health. They also recommended introducing uniform
tax for all cigarette brands, as the existing four-tier tax system based on the pricing is
discriminatory and offer scopes for tax evasion.
As compared to other countries, the price of cigarettes is lower in Bangladesh. As a result it
leads to smuggling of cigarettes to other countries. Also, since the consumption of cigarettes
117 | Page
is high in the country, a lot of cigarettes is also smuggled into the country. As a result, tobacco
consumption sees rapid growth every year.
However, since the tax rates are low in this country compared to other countries, the price of
cigarettes remains at a low level. If taxes are increased, the price of cigarettes will increase.
The level of smuggling would go up and employment of thousands of people would be at stake
if taxes are increased.
N.11. Externalities
HEALTH CONSEQUENCES AND COSTS OF TOBACCO USE
The arrival of cholera and plague from the Orient used to cause great alarm in
Britain until these epidemics were brought under control. Now the epidemic of
tobacco smoking, which in the past 30 years killed over one million people in the UK
alone, is fast spreading to developing countries with the encouragement of tobacco
companies based in the UK and the USA. In 1978 a World Health Organization
report declared that In the absence of strong and resolute government action, we
face the serious probability that the smoking epidemic will have affected the
developing world within a decade and that a major avoidable public health problem
will have been inflicted on countries least able to withstand it for the twin reasons of
commercial enterprise and government inactivity. Five years later a new report
catalogues the evidence that the smoking diseases have already arrived.
This was written in the Lancet, 7 January 1984. The statement was supported by facts.
High death rates for lung cancer are reported from India, China, Hong Kong, and
Cuba, and in the Bantu of Natal. Coronary heart disease associated with cigarette
smoking is a major feature in India, Pakistan, and the Philippines. Perinatal
mortality rates are doubled in Bangladeshi women who smoke. Even traditional
forms such as bidi or hukkah smoking are hazardous and oral cancer is frequent in
118 | Page
Asian men and women who chew tobacco. Health for All by the Year 2000 is likely to
be a vain hope for the millions in developing countries who succumb to the
blandishments of the tobacco companies.
This was nearly 20 years ago. And the worries expressed at that time persist today, as evidence
accumulates of the rising epidemic of disease and death caused by tobacco in the developing
world. The World Bank predicted in 19992 that within the year, tobacco would kill
approximately 4 million people worldwide (according to the most recent WHO estimates, this
figure was 4.9 million for 2000, much worse than predicted earlier. WHO 2002). In 1999
tobacco was responsible for one in 10 adult deaths; by 2030 the figure was expected to be one in
six, or 10 million deaths each yearmore than any other cause and more than the projected
death tolls from pneumonia, diarrhoeal diseases, tuberculosis and the complications of childbirth
for that year combined (Figure 5.1). It was also claimed that if current trends persist, about 500
million people alive today would eventually be killed by tobacco, half of them in productive
middle age, losing 20 to 25 years of life.
Thus the impact of tobacco on global health has been extensively documented. This section
examines the health effects of tobacco use in Bangladesh. After considering tobacco-related
mortality and morbidity, it will focus on medical costs (direct and indirect) of tobacco in
Bangladesh.
The World Bank, Curbing the epidemic: government and the economics of tobacco control, Washington, 1999.
119 | Page
Figure 5: Number of deaths due to tobacco-related illnesses, world, 2000 and

2030 (projected)
8
7
6
5
4
3
2
1
0
Developed world
Developing world
2000
2030 (projected)
Year
Source: World Bank, 1999.
Data on tobacco-related diseases in Bangladesh

Many diseases are attributable to smoking or tobacco use. In Bangladesh there has been no
systematic epidemiological work to establish the tobacco-attributable burden of disease. The
BBS surveys provide data on the percentages of smokers suffering from various diseases, based
on self-reports by smokers (Table 5.1).
Table 11: Smokers reporting current and prior suffering from selected diseases by sex,
Bangladesh, November 1995 (percentage)
Selected variable
Total
Cancer
Tuberculosis
Ulcer
Kidney problems
Asthma/breathing problems
High blood pressure
Liver problems
120 | Page
Currently suffering
Both
Male
Female
sexes
19.8
0.4
1.1
3.4
0.3
6.6
1.7
1.8
19.9
0.4
1.0
3.5
0.3
6.7
1.7
1.8
18.6
0.0
1.6
3.2
0.0
5.7
1.6
1.6
Prior suffering
Both
sexes
Male
Female
20.7
0.4
0.8
3.1
0.5
7.4
1.2
2.5
20.6
0.5
0.8
3.1
0.5
7.5
1.2
2.6
21.0
0.0
1.6
3.2
0.0
6.5
0.8
1.6
Heart disease
Buergars Disease
Other diseases
Not affected
Total
1.3
0.7
2.7
80.2
100.0
1.3
0.7
2.6
80.1
100.0
0.8
0.8
3.2
81.5
100.0
0.8
0.9
3.0
79.3
100.0
0.8
0.8
2.9
79.4
100.0
0.8
2.4
4.0
79.0
100.0
Source: BBS 1995.
Over 80% of the smokers reported no current suffering from disease and almost 80% of the
smokers reported no prior suffering from disease. The most frequently reported current and prior
problem (6.6% and 7.4%) was breathing problems including asthma. These self-reports do not
necessarily reflect confirmed diagnoses, and are no help in comparing disease prevalence of
smokers and non-smokers, which is needed for an estimate of the health risks from smoking.
They also provide no information on smokingattributable mortality. This study could find no
other data to indicate the prevalence (percent of population affected) or incidence (new cases
each year) of diseases that tobacco users in Bangladesh are at higher risk of contracting. National
mortality and morbidity data are needed.
Direct medical costs
This section describes the methodology and data needs for estimating direct medical costs of
some smoking-related diseases. Since almost no epidemiological data, and very little cost data
are available, an estimate of health care costs related to tobacco use could not be attempted for
Bangladesh.
Treatment costs
Expenditures incurred for some smoking-attributable diseases are presented in Table 5.2. Costs
estimates could be made only for five diseases that are related to smoking. Information on
average expenditures was not available for other diseases. Average expenditure of about US$66
equivalent per episode of illness needs to be put into context: in 1994-95, GDP per capita was
121 | Page
just over US$300. So one episode of illness could involve expenditures equal to two or three
months of average income, which would be a much higher proportion of the income of a poor
person. Moreover, these are self-reported out-of-pocket costs; to the extent that medical care is
subsidized or covered by insurance, out-of-pocket costs capture only part of the total cost.
Hospital records and budgets and cost data would need to be analysed to estimate the full health
care costs.
Table 12: Treatment costs of selected smoking-attributable diseases in Bangladesh:

number of episodes, average and total expenditure during 199495
Disease
Number of
Average
Total expenditure
episodes (million)
expenditure per
(million taka)
episode (taka)
Ulcer
24.9
318
7 918
Asthma
8.1
317
2 568
High blood pressure
7.0
294
2 058
Heart disease
4.3
343
1 475
Tuberculosis
1.7
392
666
Total
46.0
333
14 685
Source: BBS (1997) and BBS (1999b); taka 55 = US$ 1.
Population-attributable risk and the costs
With estimates of costs per episode (or per year) of tobacco-attributable diseases, the next step to
estimating the total direct medical costs caused by tobacco use would be to calculate the
population-attributable risk (PAR) for each smoking-attributable disease. The PAR is the
proportion of disease prevalence that is attributable to tobacco use, and is derived from the
difference in risk of contracting the disease between those who use tobacco and those who do
not:
122 | Page
Indirect costs
In addition to the direct medical costs discussed in the previous section, illness and premature
death also involves indirect costs, measured by the income lost while sick or as a result of
premature death. In order to estimate the indirect costs one would need to have an estimate of the
number of sick days and the number of years of working life lost on average due to morbidity
and premature mortality from smoking-attributable diseases. In addition, estimates of average
GDP per capita or average earnings are required in order to place a value on the
productivity/income loss. Data on sick days and working days lost due to smoking-attributable
diseases are unavailable in Bangladesh. However, in countries for which estimates of indirect
costs have been able to be done, the indirect costs are several times higher than the direct
medical costs.
Gross or net costs?
Once total health care costs attributable to tobacco use are calculated for a country, the final step
would be to estimate the net increase in health care costs caused by tobacco use. This involves
estimating the expected health care costs that smokers would have incurred, had they not
smoked. The counterfactual expected costs are subtracted from gross tobacco-attributable costs
to derive the net addition to health care spending caused by tobacco use. Typically, annual health
care costs are higher for tobacco users, but because they die earlier, there is less difference in
life-time health care costs. But the opportunity cost of tobacco use, and the indirect costs from
lost income if a smoker becomes ill or dies at a young age, still loom large.
RECOMMENDATIONS
The evidence reviewed in this study notes that consumption of tobacco and tobacco products harms
health and threatens lives, and can be held responsible, at least to some extent, for increasing
malnutrition in Bangladesh. However, tobacco is an important source of government revenue.
Therefore, formulating and implementing tobacco control policies should be done with care.
123 | Page
Policies to reduce the demand for tobacco are recommended. Both price and non-price measures
should be applied. Based on the analysis presented in this report, it is evident that an increase in
prices through an increase in tax rates will reduce demand. For cigarettes, it is estimated that for
each 10% increase in price, demand will fall by almost 3%, while total tax revenues will rise.
But tax increase are not as a complete strategy. Non-price measures such as raising awareness
about the harm caused by tobacco use and the benefits of quitting, banning all advertising or
requiring prominent and strong health warnings and information to be shown with all
advertising, and banning smoking in public places should be used as well.
As mentioned before there are some concerns among Bangladeshi policy-makers with regard to
implementing tobacco control policies. Since the analysis presented here reveals that the price
elasticity of demand for tobacco in Bangladesh is low, demand for tobacco will show modest
(but worthwhile) reductions if prices increase. Without increases in real prices, increasing
incomes and rising population numbers will continue to cause increases in total tobacco product
consumption in Bangladesh, with serious negative consequences for those who use tobacco and
their families. Supply should be left to adjust to changes in demand. In the much longer term, if
tends gradually reverse so that demand levels off or even declines, there will be time for all the
agents concerned to adjust to changing circumstances such as growing alternative crops,
changing enterprises, and looking for alternative jobs. These adjustments will be made much
easier by the fact that as consumers switch expenditures away from tobacco products to food and
other goods and services, demand for these other products will grow, creating new incomeearning and job opportunities across the economy, to replace those that may be lost in the
tobacco industry.
In order to tackle the problems of smuggling of tobacco products, the relevant policies of
neighbouring countries should also be taken into consideration while implementing tobacco
control policies. All the countries of the region should come together in formulating and
adopting stronger tobacco control policies.
124 | Page
In concrete terms, the following policy options may be taken into consideration in order to
formulate tobacco control policies in Bangladesh.
Increase prices by at least 5% annually in real terms through raising taxes on tobacco
products. Higher prices are likely to have a particularly strong effect in motivating poor
tobacco users and young people to quit, or deterring them from starting to use tobacco
products.
Tobacco manufacturing industries should also be made responsible for informing people
about the damaging aspects of tobacco use, requiring much larger, stronger and more
specific and informative health warnings on all tobacco product packages and
advertisements, so long as advertising is still permitted.
The government should impose a comprehensive ban on all forms of promotion of
tobacco products including advertising and sponsorship.
Government should declare all public places tobacco-free, and educate the public on the
benefits and reasons, to increase compliance.
Nongovernmental organizations and civil associations should be asked to integrate the
issue of tobacco control in their activities.
Further research should be undertaken in order to analyse the impact of tobacco control on
employment, crop diversification, trade and smuggling. A detailed study estimating the medical
costs attributable to smoking is also required.
125 | Page
O. Recommendations
The objective of this research was to gather a comprehensive idea about the Tobacco industry
of Bangladesh. During this study, the research team observed many things and identified some
important issues that are to be noted and taken under consideration for ensuring a sustainable
growth in this sector. Based on the observations of the researchers and outcomes of this
research the following recommendations can be made:
Increase prices by at least 5% annually in real terms through raising taxes on tobacco products.
Higher prices are likely to have a particularly strong effect in motivating poor tobacco users
and young people to quit, or deterring them from starting to use tobacco products.
Tobacco manufacturing industries should also be made responsible for informing people
more about the damaging aspects of tobacco use, requiring much larger, stronger and more
specific and informative health warnings on all tobacco product packages and campaigns
intended. The Government should adopt a uniform specific cigarette excise tax that
significantly raises cigarette prices and reduces tobacco usage. Earmark tobacco tax revenues
for health purposes, including health promotion and tobacco control.
P. Conclusion
With a rising population and increasing demand, tobacco consumption has grown in Dhaka.
The evidence reviewed in this study notes that consumption of tobacco and tobacco products
harms health and threatens lives, and can be held responsible, at least to some extent, for
increasing malnutrition in Bangladesh. However, tobacco is an important source of
government revenue. Therefore, formulating and implementing tobacco control policies
should be done with care.
Policies to reduce the demand for tobacco are recommended. Both price and non-price
measures should be applied. Based on the analysis presented in this report, it is evident that an
126 | Page
increase in prices through an increase in tax rates will reduce demand. For cigarettes, it is
estimated that for each 10% increase in price, demand will fall by almost 3%, while total tax
revenues will rise. But tax increases are not as a complete strategy. Non-price measures such
as raising awareness about the harm caused by tobacco use and the benefits of quitting, banning
all advertising or requiring prominent and strong health warnings and information to be
shown with all advertising, and banning smoking in public places should be used as well.
As mentioned before there are some concerns among Bangladeshi policymakers with regard
to implementing tobacco control policies. Since the analysis presented here reveals that the
price elasticity of demand for tobacco in Bangladesh is low, demand for tobacco will show
modest (but worthwhile) reductions if prices increase. Without increases in real prices,
increasing incomes and rising population numbers will continue to cause increases in total
tobacco product consumption in Bangladesh, with serious negative consequences for those
who use tobacco and their families. Supply should be left to adjust to changes in demand. In
the much longer term, if tends gradually reverse so that demand levels off or even declines,
there will be time for all the agents concerned to adjust to changing circumstances such as
growing alternative crops, changing enterprises, and looking for alternative jobs. These
adjustments will be made much easier by the fact that as consumers switch expenditures away
from tobacco products to food and other goods and services, demand for these other products
will grow, creating new incomeearning and job opportunities across the economy, to replace
those that may be lost in the tobacco industry.
127 | Page
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Application of Economics Theories and Practices in the Tobacco Industry of Bangladesh

B.1.2. Competitive Scenarios in the Cigarette Market: ........................................................ 12

Application of Economics Theories and Practices in the Tobacco Industry of Bangladesh

B.4.2. Lopsided Tobacco Taxation Policy ............................................................................ 14

B.5.2. New Estimates for Tobacco Demand in Bangladesh ................................................. 19

Application of Economics Theories and Practices in the Tobacco Industry of Bangladesh

G. SWOT Analysis ....................................................................................................................... 39

Application of Economics Theories and Practices in the Tobacco Industry of Bangladesh

K.7. Micro Environmental Factors ........................................................................................... 63

L.4.2. The Secondary Manufacturing Department ............................................................... 66

Application of Economics Theories and Practices in the Tobacco Industry of Bangladesh

N.3. Price Ceiling and Price Floor ........................................................................................ 104

N.5.3. Anti-tobacco Campaign ........................................................................................... 108

Application of Economics Theories and Practices in the Tobacco Industry of Bangladesh

Application of Economics Theories and Practices in the Tobacco Industry of Bangladesh

A.1. Origin of the Report

A.2. Rationale of the Study

A.3.2. Specific Objectives

Understanding the principles of economics and their application in respect of Tobacco

Absolute and competitive advantage of individual Tobacco companies.

Application of Economics Theories and Practices in the Tobacco Industry of Bangladesh

Consequences of Govt.s regulation and taxation in Tobacco industry of Bangladesh.

Effects of Inflation on the tobacco sector.

Recommendations for enhancement and growth of the tobacco sector in Bangladesh.

A.4. Scope of the Study

A.5.1. Sources of Data

Application of Economics Theories and Practices in the Tobacco Industry of Bangladesh

A.5.2. Research Design

A.5.3. Instruments of Data Collection

A.5.4. Sample Design

A.5.5. Sampling Technique

A.5.6. Sample Size

A.6. Criticalities and Limitations

Application of Economics Theories and Practices in the Tobacco Industry of Bangladesh

British American Tobacco Bangladesh

Dhaka Tobacco Industries

Abul Khair Tobacco

Azizudin Industries and

New Age Tobacco.

The main biri manufacturers are:

Aziz Biri and

Application of Economics Theories and Practices in the Tobacco Industry of Bangladesh

Hundreds of local biri manufacturers.

B.1. Industry Segmentation:

B.1.1. Biri Market:

Application of Economics Theories and Practices in the Tobacco Industry of Bangladesh

B.1.2. Competitive Scenarios in the Cigarette Market:

Application of Economics Theories and Practices in the Tobacco Industry of Bangladesh

B.2. Segment wise Market Growth of Tobacco Industry

B.3. GDP Share of Tobacco Industry

B.4. Government Tax and Other Regulations:

Application of Economics Theories and Practices in the Tobacco Industry of Bangladesh

B.4.2. Lopsided Tobacco Taxation Policy

Category of Price per pack SD (%)

Price per pack of SD (%)

B.4.3. Administrative Issues in Tobacco Taxation

Application of Economics Theories and Practices in the Tobacco Industry of Bangladesh

Figure 1: Organizational Dimensions of NBR

B.4.4. Political Dimensions of Tobacco Taxation

Application of Economics Theories and Practices in the Tobacco Industry of Bangladesh

B.4.5. NBR-WHO Collaboration on Tobacco Taxation

Application of Economics Theories and Practices in the Tobacco Industry of Bangladesh

To conduct research on tobacco market trends

Note:, and represents estimates statistically significant at 1%, 5% and 10%