STRATEGIC MANAGEMENT

By Sashika Wijeratne
Student NO: UWIC/MBA/MT/14/05
Assignment 1

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Statement of Originally of Submitted Work

I, Uhanowitage Sashika Hareen Wijeratne , Student ID : UWIC/MBA/MT/14/05

Module Name : Strategic Management
I hereby confirm that the work presented here
In this report and in all other associated material; is wholly my own work.
And I agree to assessment for plagiarism

Signature

: Sashika Wijeratne

Date

: 20/01/2013

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Executive Summary
This report consist of internal and external environmental factors which affect the
Ceylon Tobacco Company which is enjoying the monopoly of tobacco industry in Sri
Lanka and strategic position of the organization as at now and possible factors which
may cause an impact to the organizational performance of Ceylon Tobacco Company
and critical areas for the board of directors to focus on the sustainability of business in
terms of short term as well as long term.

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Contents
1.

Introduction........................................................................................... 5
1.1 Overview to the Ceylon Tobacco Company......................................................5

2. Situation Analysis.................................................................................... 6
2.1 Analyzing the External Environment..............................................................6
2.1.1 Political Environment...........................................................................6
2.1.2 Economical Environment......................................................................6
2.1.3 Social Environment.............................................................................. 7
2.1.4 Technological Environment....................................................................7
2.1.5 Environmental Analysis........................................................................7
2.1.6 Legal Environment.............................................................................. 8
2.2 Analyzing the Micro Environment..............................................................9
3. Strategy................................................................................................. 10
3.1 SWOT Analysis................................................................................. 10
3.2 Marketing Stratergy..........................................................................10
3.3 Segmentation................................................................................... 10
3.4 Strategic Targeting.................................................................................. 11
3.5 Strategic Positioning................................................................................ 12
4. Factors Affecting the Future performance of the organisation...............14
5. Conclusion & recommendations for Board of Directors.........................15
5. References............................................................................................. 17

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1. Introduction
1.1 Overview to the Ceylon Tobacco Company
Ceylon Tobacco Company a member of the global tobacco giant British American
Tobacco Group is the only legal manufacturer for cigarettes in Sri Lanka. British
American Tobacco group operates in more than 180 countries in the world and Sri
Lankan Operation has started in the year 1906 and is the single largest tax payer in the
country for Sri Lankan government.
Company operates in highly regulated environment and 86% of the revenue is paid
back to the government as taxes and operates ina model called seed to smoke which
means total process of growing tobacco plant to manufacturing cigarette happens in
the country. In the year 2011 company sold over 4.5 billion cigarettes and annual
turnover for the year was Rupees 76 billion and profit after tax was close to Rupees
6.6 billion.

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2. Situation Analysis
2.1 Analyzing the External Environment
Looking at factors of external environment which creates an impact to the operations
of Ceylon Tobacco Company, those can be analyzed critically using PESTEL analysis.
2.1.1 Political Environment
Looking at the political scenario of the country where traditionally government
heavily relies on the tax amounts generated through tobacco but under the political
manifesto of the President His Excellency Mahinda Rajapaksha it is going on
controlling the usage of tobacco and alcohol and preventing the youth being addicted
to them. Main parties in the political arena who have interests in the operation of
Ceylon Tobacco Company are finance ministry and health ministry.
Full stop to Intoxication (Mathata Titha) is evident through Mahinda Chinthana
vision which is the political manifesto of the president which came in to light during
his first tenure as the president and is continuing on this tenure as the president for the
second terms as well. This made the volumes to decline annually. Also due to high
taxation it creates a lucrative market to smuggled duty not paid cigarettes which is
mainly handled by the henchmen of politicians.

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The demotivation happens through political arena is a blessing in disguise as well

where it will make interests of the new entrants to the market to low levels and to
invest in the country which will make sure the monopoly of the cigarette industry to
be retained by Ceylon Tobacco Company.
2.1.2 Economical Environment
With the war which was dragging on for close to three decades ending up in the year
2009 steady growth in the economy was witnessed from there onwards. Economic
growth rate for the 2nd quarter of the year was at healthy 6.7% which stands as a
witness to the economic prosperity in the country with that we can see the buying
power of the people is growing and with that 1.8 Million smoker population of Sri
Lanka is set to spend more on their consumption of cigarettes which may come in the
way of moving to high end brands or from the increase in the daily consumption. This
will add more revenue to the company.
Also looking at the other way around where with the economic development and
other industries contributions to the government income is increasing consistently
dependency government had for the cash flow of the country from tobacco is
diminishing which makes government to take policy decisions against tobacco
industry in a manner without being worried about the loss of the income due to the
drop of the sales and to control tobacco sales.

2.1.3 Social Environment

Smoking is recognized as a method of networking where at any given place where it
is allowed to smoke it can be seen that smokers flock together and enjoy smoking
while networking with each other.
With people the country becoming knowledgeable with the development once a habit
which was accepted as sociable is now looked down upon where now tobacco
consumption is accepted as more of an anti-social act. Where immense of pressure is
put upon the smokers and encourage them to quit or reduce the habit of smoking. Also
the government health warning is a mandatory requirement in the cigarette packets as
well as prohibition of smoking in enclosed public areas and a ban of selling of
tobacco products to people who are under the age of 21.

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2.1.4 Technological Environment

With the advancements in technology cigarette manufacturing had become a fully
automated process where from processing of tobacco up until packing of
manufactured cigarettes very less human interaction is required now with the
introduction of high tech machines and it had cut down the manufacturing costs
significantly. New tobacco cultivation techniques and tobacco leaf curing through
paddy husks instead of using firewood are some other technological advancement that
had made the cigarettes making process a more eco-friendly process. Also the
methods of interaction with consumers also have changes with the new technological
tools coming in to the market place as well as social networking sites taking center
stage in the lives if the consumers.
2.1.5 Environmental Analysis
While the impact on smoking of cigarettes is well known to everyone the impact it
causes to the environment from tobacco seeds to the manufactured cigarettes in
known only to less number of people. Growing tobacco gives attractive benefits to the
farmers and an alternative for foo with high income levels. Tobacco cultivation uses
pesticides heavily and now slowly but steadily moves on to organic methods.
Cigarette butts which are non-bio degradable is another menace to the environment
and it had become toxic to children, wildlife and pets.

2.1.6 Legal Environment

Ceylon Tobacco Company operates in a highly regulated environment and is governed
by the National Authority on Tobacco and Alcohol act no 27 of 2006 which had
imposed a restrictions of promoting tobacco products to consumers as well as selling
tobacco products to the people who are under 21 years old is banned. As well as
smoking in enclosed public areas are prohibited by this act.

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2.2 Analyzing the Micro Environment

Micro environment of the Ceylon Tobacco Company is explained using potters five forces
model.

Competitive Rivalry in
Tobacco Industry Low
Threat of New Entrants (Moderate)
CTC owning major
Although Operating in share
a highly regulated
environment and significantly
of
almost
lower volumes in numbers
salescigarettes
of cigarettes profits gained by the
99%for of
business in Sri Lanka is the
highest in the
Asian region for BAT.
market
in South
the
country
competition
-This may make competitors
interested
in entering in to the market
is minimal.
Only in the very low
value
segment
which
competes
with Beedi there is a
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but in
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segments
where
values is generates
it
is
entirely

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Bargaining Power of
Suppliers - High
Bargaining Power of
Customers low

With Government
promoting food crop
among farmers with
subsidized rates for
fertilizers high returns
can now be gained
through food crop.

With only one company

with operating in Sri
Lanka no real choice of
shifting from one player
to
other
players
products in the country
therefore low bargaining
power is there for
consumers.

To attract farmers to
grow tobacco higher
prices should be paid
which increases
bargaining power of
suppliers.

Threat of Substitutes (Moderate)

2.

For the people who are addicted to tobacco can move in to

smokeless products such as chewing tobacco or smokeless
tobacco products are challenges for Ceylon Tobacco Company.

3. Strategy
From the earlier chapter it explains the external environment which is
related to Ceylon Tobacco Company in terms of micro and macro
environment. From that it explains us that although this business which is
regarded as highly controversial and regulated still attractive to invest on.
This chapter will look in to the internal environment of the company.

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3.1 SWOT Analysis

Figure 3.1 SWOT Analysis

3.2 Marketing Strategy

Looking at the current strategy of CTC where volumes are declining year on year a
value growth model is identified to sustain in the business in a profitable manner
therefore analysing the segments of the market will give a better insight on how
market is faring at the moment.
3.3 Segmenting
Looking at the brand portfolio of Ceylon Tobacco Company clear focus is given on
growing the premium segment of Sri Lanka. Because on current context majority of
the consumers are smoking the Brand Gold Leaf which is in the high segment of the
brand portfolio. More consumers moving upwards to the premium brands Such as
Dunhill mean more profits for the organization. Where the profit of a pack of such
brand may be equal to 4 times you can earn from a lower segment brand.
But the problem lies on with industry such as this is where consumers are very loyal
to the brand which they are smoking and from the researchs carried out by the

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Nielson company shows that main brand Gold leaf is smokers are spread across all
socio economic classifications.

Figure 3.2 Brand Segmenting

3.4 Strategic Targeting

Since clear identification on the segment is done where to grow value of the business
to sustain in the business in a profitable manner that can be achieved through targeting
the premium segment of the brand portfolio. In the current context where premium
segment is targeted to grow it can be achieved through expanding the current
premium range which is on offer for the consumers which will give more choices to
the consumers to try out high end products which in return will give high profits for
the organization. This can be shown through Ansoff Matrix where Sri Lankan market
is penetrated to almost 100% and expanding opportunities are low product expansion
will be the best option to go through to achieve higher revenues.

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Figure 3.3 Ansoff Matrix

3.5 Strategic Positioning

Depending on the strategy which is product expansion Bowmens Strategy clock can
be used to determine the Competitive positioning of the brands which need to be
focused on for growth.

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Figure 3.4 Bowmens Strategy Clock

Due to the internal and external environment impacts as well as the capability of the
organization where key strength of Ceylon Tobacco Company lies with tobacco
business and the organizational culture also rallied around it and purpose of the
organization is to grow the value of the business in a sustainable manner focused
differentiation is identified. Introducing new products from brands in the portfolio
which have higher perceived value at a higher price will be the strategy to look
forward to. From this value growth of the business can be achieved.

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4. Factors Affecting the Future performance of the organisation

While engaged in a highly controversial industry where internal as well as external
factors play a major role on the future performance of the organization where external
stake holder pressure can have a major impact on the business where although in the
current situation where biggest external stake holder government relies heavily on the
tax money of the Ceylon Tobacco Company slowly but steadily other industries are
growing up there for if there comes a situation where the money generated through
the taxes of tobacco is not important in relation to the health hazards and other social
implications coming with that government might turn back on Ceylon Tobacco

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Company there for having a cordial relationship with government is very important to
the organization due to the very nature of the business it is engaged in.
Being the benchmark for corporate excellence is another critical factor which will
shape up the future of the organization where being transparent in its transactions with
all stake holders of the organization and living up to the four guiding principles which
are enterprising spirit, strength through diversity, open minded and freedom through
responsibility will keep the organization moving forward. In the current changing
business context the organization should be dynamic enough to adapt to the changes
happening around through clear strategies and implementing those strategies in to the
actions.
For that the strategy should be evaluated on whether it fits with the current
environment and does it exploit the key resources of the organization as well as
whether it is a sustainable one and whether the elements of the strategy you are
adopting is internally consistent and also whether the organization has enough
resources to pursue the selected strategy and whether it is an implementable one.
Threat of competitors entering the market will affect the organization heavily where if
that happens there is a possibility on losing the market share to the competitor which
will hit the bottom line off the company performances.

5. Conclusion & recommendations for Board of Directors

Ceylon Tobacco Company being the monopoly organization for providing cigarettes
to Sri Lanka enjoys healthy net profits which had increased by seven times in the last
seven years growing from one billion to seven billion rupees while operating at a
highly regulated environment. Looking at recommendations
Recommendations for Short Term

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Being an organization which is a member of a global multinational more opportunities

should be provided for the employees to work in the other countries where mother
company operates in which will give the employees of CTC the experience in
working with higher regulations which may be imposed in future where in other
countries those regulations might already be imposed on as well as it will motivate the
employees to give their maximum to the organization where they know that their hard
work will be recognized by the organization.
Clear and concise communication channel from the top management till the growund
level employee should be introduced where then all the employees will be able to
speak in one voice about the organization as well as its changes happening from time
to time.
Recruitments to the middle and senior managerial level appointments from the outside
the industry which will being in fresh and creative thinking to the organization rather
than the traditional way of thinking which happens in the organization.
Recommendations for Long Term
Having a cordial relationship with government at all times will be a key to sustain and
grow in the market place where decisions taken by the ruling government can
critically impact on the Business of Ceylon Tobacco Company.
Enhance the technology in the factory and keep it up to date and look out for
opportunities to export the products in to the neighboring countries such as Maldives
and Afghanistan will increase the revenues of the organization as well and become a
hub for tobacco manufacturing will add value to the organization as well as for the
country which will bring valuable foreign income to the organization.

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6. References

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1. Johsson, G.,Scholes, K.,Whittington (2005). Exploring Corporate Strategy ,

7th Edition [Books]

2. Ceylon Tobacco Company PLC Annual report 2008-2011

http://www.cse.lk/financials.do?id=381&symbol=CTC.N0000
3. Ceylon Tobacco Company PLC, Marketing line of Sight Sri Lanka
2011
4. Ceylon

Tobacco

Company

PLC,

Marketing

Finance

Sharing

Knowledge Sri Lanka 2010

5. Ceylon Tobacco Company PLC, Market Analysis Sri Lanka V5 2009
6. Ceylon Tobacco Company PLC, CORA/Legal Guidelines on Trade &
Consumer Engagement

7. Marcilien,

C.

(2012).

Strategic

Capability

Strategic

Management [Course notes]

8. Marcilien, C. (2012). Business Level Strategy : Strategic
Management [Course notes
9. Kariyawasam, C. (2012). Segmenting ,Targeting, Positioning

Marketing Management
[Course notes]
10.Kariyawasam, C. (2012). SWOT Analysis : Marketing Management
[Course notes]
11. British American Tobacco website
http://www.bat.com

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