Embed Size (px)
Citation preview
EXECUTIVE SUMMARY:
2
For nearly 100 years, British American Tobacco has been building an international
reputation for producing high quality tobacco products to meet the diverse preferences of
consumers. Being listed in the London Stock Exchange, it has an active business presence
in 180 markets worldwide. It holds strong market positions around the world and has
leadership in more than 50 markets. It has 86 factories in 64 countries. The Head quarter
of BAT is situated in Globe House, Docklands Business District in London.
The company –
Has global market share of 15% with Rothman‟s merger.
Has more than 300 brands worldwide
Employs almost 100,000 people worldwide
Popular international brands are: Lucky Strike, Benson & Hedges, Dunhill,
Kent, Rothmans, Pall Mall, Viceroy, John Players Gold Leaf, State Express
555 etc. and regional brands are Star, Wills, Casino, Gold Flake etc.
Annual Shipments: more than 800 billion cigarettes
British American Tobacco
3
Works to reduce under age smoking
Contributes 13 billion pounds a year {PRIVATE
"TYPE=PICT;ALT="}to governments through taxes
Is one of the world's largest tree planters outside the paper and timber
industries{PRIVATE "TYPE=PICT;ALT="}
Has completed the largest merger in the cigarette industry {PRIVATE
"TYPE=PICT;ALT="}
Spent £30 million last year on environment, health and safety
BAT Vision:
BAT Regional Operations:
The Group is organized into six regions, namely –
America-pacific –USA, Japan and South Korea
Asia-Pacific - China, Indo-China, South-East Asia, Australia and Taiwan
Latin America – Central and South America, the Caribbean and Mexico
To be the world’s number one international tobacco group and to
perform within the top-tier of global companies in terms of sustainable
profit growth.
(Martin Broughton, BAT Chairman)
4
Europe – comprises over 50 countries including Russia
Africa –comprises more than 50 countries from Africa
MESCA –Middle East, South and Central Asia
British American Tobacco’s Market positions around the world in 2000
Total Market (billion) World Total (%) BAT Share
America Pacific 896 16.7 12.2
Asia Pacific 2214 41.2 3.9
Latin America 333 6.2 49.4
Europe 1228 22.9 16.9
AMESCA 697 13.0 34.1
BAT Global Market:
Six countries USA, Japan, Germany, UK, China and France account for half of the world
market in retail sales value terms and Japan, Russian, Germany and Brazil account for
other half of the total world market in volume terms. Overall, global cigarette market
volumes have been growing slowly. Prior to the Asian economic crisis in 1997, the
highest rates of growth were in Asia. This growth has been partially offset by the more
mature markets of North America and Europe. In terms of volume, the BAT Group
expects the global cigarette market to stabilize over the short to medium term and to
5
decline over the long term. However, even in the long term, it expects the market to
continue to grow in terms of value in retail sales due to increase excise taxes.
BAT History and Growth:
Tracing its‘ heritage back to a joint venture formed by the Imperial Tobacco Company of
the United Kingdom and The American Tobacco Company of the United States in 1902,
today's British American Tobacco was born on the world stage.
Recent past:
1972: The 1902 covenant with Imperial Tobacco is revoked.
British American Tobacco gained exclusive ownership of its
original brands, including State Express in the UK and Western
Europe.
1976:
1977:
1979:
The group underwent a comprehensive reorganization.
Its‘ operations were coordinated under a new holding company
B.A.T Industries.
The company acquired the international business of Lorillard and
several important brands, including Kent. Brown & Williamson.
It opened a new $150 million factory at Macon in Georgia.
The company exported its‘ first batch of cigarettes to China and
6
1980:
1981:
1984-1988:
1989:
1990:
1991:
1992:
continued for thirty years since the nationalization of its operations.
Imperial Tobacco sold its small, remaining shareholding in B.A.T
Industries.
Trading profits from the tobacco operations had tripled over the
past ten years to more than £463 million as production capacity
steadily increased.
B.A.T Industries acquired Eagle Star in 1984, Allied Dunbar a year
later and Farmers in 1988, enabling B.A.T Industries to become the
largest UK-based insurance company by 1989.
Pre-tax profits increased by 24 percent to over £2 billion.
B.A.T Industries changed its‘ strategy to re-focus on tobacco and
financial services, and to dispose of almost everything else.
Economic liberalization and the break-up of state monopolies
opened up new trading opportunities, especially in Central and
Eastern Europe and the Far East.
The group sold over 560 billion cigarettes in 160 countries,
yielding a trading profit from the tobacco operations of over £1
billion for the first time.
7
1997:
1998:
1999:
2000:
The first acquisition in the emerging democracies of Eastern
Europe was made with the purchase of Pécsi Dohánygyár,
Hungary's largest cigarette manufacturer.
The Board of B.A.T Industries announced a proposal to detach the
financial services from its‘ businesses and simultaneously
merged them with the Zurich Group.
British American Tobacco P.L.C. became a separately quoted
company on the London Stock Exchange.
British American Tobacco, the second largest international
tobacco company, announced a global merger with fourth largest
tobacco company Rothmans International.
Corporate headquarter relocated to Globe House, London.
British American Tobacco acquired the remaining 58.5 percent
of Imasco, the group's principal associate in Canada.
Imasco's non-tobacco interests were sold out and as a result British
American Tobacco is enjoying full ownership of Canada's largest
cigarette business, Imperial Tobacco.
8
British American Tobacco UK is the parent company of BAT Bangladesh.
During 1980‘s BAT Group was the number one cigarette manufacturing company in the
world, but now it is in the second position and its biggest competitor is PMI (Phillip
Morris International. BAT's major selling markets are China and USA. In terms of
volume and value combination, BAT is using low value, high volume concept, as most of
its brands are regional brands. In terms of volume, BAT sales for VFM brands accounts
for 67% and for premium brand it is 33%. But in terms of profit, its‘ premium segments
generates 67% profit and VFM only 33%.
VOLUME BASED PROFIT BASED
Responsible Company in a Controversial Industry:
British American Tobacco Group acknowledges the risky nature of the selling
products. The aim of BAT Group is to have a process of open and constructive dialogue
with the stakeholders, and to be known as a responsible company in a controversial
industry. It is committed to provide pleasures to consumers through excellent products
33% VFM
67% Prem.
33% Prem
67% VFM
9
and to respond to society‘s changing ideas of how a responsible tobacco company should
operate in the controversial industry.
British American Tobacco Bangladesh is one of the biggest multinational in
Bangladesh. It was incorporated on 2nd
February 1972. It is a public limited registered
company with an objective of producing international high and premium quality brand to
dominate the market. The Company has its Head Office and the cigarette factory in
Dhaka, a Green Leaf Threshing (GLT) Plant in Kushtia and a number of Leaf and Sales
offices throughout the country.
Company Foundation: 2nd
February 1972
Company CEO: Paul Kirkham (36)
Possess Entrepreneurial spirit
Company Life span: 30 Years.
Company Headquarter: DOHS Mohakhali, Dhaka, Bangladesh.
Number of employees: 220 managers and 1136 employees across
the country.
British American Tobacco Bangladesh
10
Product Offerings: International quality premium segment to
low segment. E.g. B&H, JPGL, SE 555,
London, Star etc.
Major Strategic Low value, High volume. Approach:
Target Customers: Premium segment to low segment.
Company Revenue: $32.6 billion for 1st quarter of 2001
Company Achievements: Recognized as a CLASS A COMPANY.
Major Competitors: Dhaka Tobacco Company (DTI), Alpha
Tobacco Company, Abul Khair Tobacco
Company, Nasir Tobacco Company etc.
Performance: Net Revenue: $31,888 million
Net Income: $518 million
Return on Investment: 85%
The ―Board of Directors‖ and Executive Committee (EXCO) govern the overall activities
of the company. The ―Board‖ is composed of 10 members who are called Directors. The
Chairman heads the ―Board‖. Chief Executive of BAT Bangladesh is called the
―Managing Director‖ who is normally appointed by ―BAT Holdings‖. Managing
Director of the company is the chairman of the Executive Committee. This committee
includes the head of all the functional departments. Head of every department (HOD‘s)
11
carries out their functions with the help of the line managers. Different departments have
different structure according to their functions and responsibilities.
History of BAT Bangladesh:
1910:
1926:
1929:
1930:
1947:
BAT Bangladesh started its voyage and operation in Calcutta as
Imperial Leaf Tobacco Company. At that time ITC was operating
all over the world in it‘s own name. Later it was named as “British
American Tobacco Company” (BATCo.).
The foundation stone of the Imperial Tobacco Company, after
having set in Calcutta, was next set in Moulovi Bazar, Sylhet.
Through this branch Bangladesh first came in touch with the
operations of BATCo.
ITC shifted its Moulvi Bazaar depot to Ananda Mansion in
Armanitola of Dhaka.
The company appointed M/S Deen Brothers as its distributor for
Dhaka.
During partition of India-Pakistan, there came in to being Indian
Tobacco Company and Pakistan Tobacco Company.
12
1954:
1965:
1972:
1977:
1988:
1998:
2000:
To meet the demand of East Pakistan, PTC set its plant in
Fouzerhat, Chittagong and went into operation.
A second factory was set up at Mohakhali, Dhaka fully equipped
with the most modern machinery and technology.
After liberation war, East Pakistan gained its independence as
Bangladesh.
February 02, under the provision of the Company Act 1913 BTC
formed.
M/S Deen Brothers resigned from the company‘s distributor ship.
The godown at Armanitola was shut down.
On March 22, the name of Bangladesh Tobacco Company (BTC)
was changed to British American Tobacco Bangladesh (BATB).
On 22nd November, BAT Bangladesh recognized as CLASS A
Company in 5 chapters.
13
Currently, BAT Bangladesh reports to the MESCA regional headquarters for its
performance review and strategic direction guidelines. But from January 1, 2002 BATB
will be part of ASIA PACIFIC and will report to respective headquarters in Malaysia.
14
15
16
Ownership Status of the Company:
BATB is listed in the Dhaka Stock Exchange (DSE). It has an authorized share capital of
Tk.400, 000,000 comprised of 40,000,000 ordinary shares of TK. 10 each. 65.91% of the
company‘s shares are held by Raleigh Investment Co. Ltd. UK; 26.99% by Investment
Corporation of Bangladesh; 2.86% by Sadharan Bima Corporation; 0.84% by Bangladesh
Silpa Rin Sangstha; 0.65% by Government of Bangladesh; 0.52% by Sena Kalyan
Sangstha and 2.23% by others.
Brand Portfolio:
In its‘ brand portfolio, BAT Bangladesh has a wide range of cigarettes for different
consumer segments. It is catering into premium segment, mid segment and low segment.
It doesn‘t have any brand in the very low segment. In its brand portfolio, BATB has
international premium quality Benson & Hedges both lights and full-flavored (which are
now produced locally in Bangladesh by maintaining international quality), other locally
produced international brands such as, State Express 555, John Player Gold Leaf
(Lights and full-flavored), and London (Launched recently on 3st of Nov 2001) and also
national Brands like Capstan, Star and Scissors.
Among BATB brands some are centrally managed, some are regionally and
others are locally managed. For management purpose, the brand team has segregated the
whole portfolio into two other segments: Strategic Brands and Tactical Brands. Due to
17
BRANDPORT
18
resource constraints, as it is not possible to support all the brands at a time, the company
provides all its support to the strategic brand portfolio that has long-term business
potentiality.
BATB as Socially Responsible Company in Bangladesh:
British American Tobacco Bangladesh is involved in various community
development programs in the country. The company is also one of the highest taxpayers
in the country, which constitutes 9% of government revenue, 80% of excise revenue.
The company contributes more than USD$200 million to government
annually.
Since the inception of its Afforestation Program in 1980, the company till
date has planted and distributed 35 million trees across the country. The
survival rate of these saplings is more than 91%.
It has been supporting Shandhani, a voluntary organization of medical
students.
The company is involved in vegetable seed multiplication program and
received the Food for Agriculture Organization (FAO) award for pioneering
the development of vegetable seed industry in Bangladesh.
In national disasters the company has been prompt in lending its support
on time to people of the affected regions.
19
British American Tobacco Bangladesh has won many awards during the last 30
years. The awards are the 1st prize of Prime Minister’s National Award on Tree
plantation 99, Prime Minister Afforestation Award in 1993, Presidents Award in
Agriculture in 1975, Sports Journalist Award and FAO Award in 1998 and the National
Trophy award in 2000.
20
Question No. 1: what are the industry’s dominant economic features?
It is extremely important for a company to understand the dominant economic features of
the relevant industry, as the character and structure of different industries are
significantly different. The basic economic traits in the tobacco industry are as follows:
Market Size: Total tobacco industry is segregated into two broad categories:
Cigarettes and other tobacco related products like, Biri, Chewing tobacco (Jarda),
Pipe tobacco etc. Dominating segment is the Biri, Jarda segment. Around 72.6%1
population who takes some kinds of tobacco products smokes Biri or takes other
forms of tobacco products. Cigarette Market consists of the rests 27.4%. Industry
trend indicates that cigarette segment is increasing gradually, as up trading from
Biri and other tobacco products to cigarette is taking place.
Tobacco Industry Segment Share
72.6%
27.4%
Cigarette Biri and other Tobacco Products
1 Source: Retail Audit-June 2001
INDUSTRY AND COMPETITIVE
ANALYSIS
21
Market Segment: The tobacco industry is divided into four-market segment:
Premium, medium, low and very low. Very low is the most potential segment in
volume terms, as this segment is the stepping-stone for up gradation from Biri to
cigarette segment.
1
Premium
Medium
Low
Very Low
37.74
35.34
21.83
5.09
0
10
20
30
40
"Segment Share in Tobacco Industry"
Premium
Medium
Low
Very Low
Analysis: From the above graph it is clearly visible that the very low segment has
the highest potentiality with a segment share of 37.74%, compare to premium
segment of holding 5.09%, medium share 21.83% and low segment share
35.34%.
Customers: Mostly Adult male, Urban, Semi-Urban and Rural.
22
Scope of Competitive Rivalry: National. Different tobacco related products
including cigarettes by different local companies are also available in the local
markets in different geographic locations in Bangladesh. Major players in the
industry are competing more in the entire national market in Bangladesh.
Stage in the Growth Cycle: In the tobacco industry, cigarette market is at
―Growing Stage‖ as switching tendency from Biri to very low segment is
increasing gradually. Biri market and other tobacco products are in saturation
and declining stage respectively.
Market Growth Rate: Market size of the industry indicates market growth rate.
The industry growth depends entirely on the country economy and the amount of
disposable income of the population. Tobacco Industry growth rate is 1-2%
annually. But this year (2001), cigarette market growth rate is about 8-9% and it is
expected to continue in the coming year as well.
Number of Rivals and their relative sizes: In Bangladesh Tobacco industry,
there are more than 100 companies playing around. British American
Tobacco Bangladesh is the market leader in all segment of the market with
47% volume share and 70% value share, followed by Dhaka Tobacco Industries,
Alpha Tobacco and Abul Khair Tobacco.
23
COMPETITIVE SCENARIO
BAT DTI Alpha AK Nasir
Vol. Share (est. 2000) 47% 17% 5% 6% 5%
Trading Profit 99 (Tk. Min)
476 100 21 71 N/A
Maximum Trade Margin
20% 67% 72% 67% 40%
Sales Force 960 630 440 250 260
These companies in the industry are competing among themselves both
domestically and nationally. Apart from all the tobacco companies, one external
threat is very active in the market and that is transit products (smuggled one) that
particularly competes in the premium and super premium segments.
Product characteristics: The products can be classified as a Fast Moving
Consumable Goods (FMCG) with a highly personalized characteristic due to
variant consumer choice (Full flavoured Virginia, US Blends, Low delivery),
brand preferences (Brand Image) and the affordability of the brand.
Distribution Channels: Large companies in the industry usually have their own
control on distribution. In some cases, large as well as small companies have
retailers channel to access the buyers. In the cigarette industry, as market is huge,
it is not economically feasible and manageable to have access to the ultimate
consumers directly. In most of the cases, distributors are playing the vital role
between the companies itself and its targeted smokers/ consumers.
24
BAT Bangladesh is not an exception. It has 60 distributors operating all
over the country bridging the gap between the two extreme parties. Though
distributors are independent yet, BAT Bangladesh monitors and control their
activities by having company representatives attached to each one of the
distributors.
Degree of Differentiation: Consumer tastes and preferences are not static. It
changes over time and experience. Brand image and internalization matters a lot.
To capture the target market and to sustain the existing one, tobacco companies
need to survey continuously about their product quality and taste whether it
matches with the expected level of satisfaction. The market leader BAT
Bangladesh conducts consumer product tests time to time and changes the
blends of its‘ brands according to the consumer need.
Resource Requirement: High technology, skilled human resources and
experienced management team with high managerial and technical competencies.
Ease of Entry and Exit: High capital requirements make entry and exit difficult.
Moreover, stringent government regulations are there for setting up new tobacco
companies in the industry.
25
Economies of Scale: High. As a capital-intensive industry, product quality and
consistency are key factors for success in the business. So, achieving economies
of scale and capacity utilization are very significant economic factors.
Learning and Experience Curve Effect: High. It is especially important for those
companies competing in the upper segment in the market to achieve economies of
scale and also competing with the international brands in the market. Consumer
tastes, preferences and choices are continuously changing. For instance, a shift
towards low delivery of cigarette is completely new in Bangladesh cigarette
industry. To meet the recent changes in consumer demand, technological changes
are required. Therefore, scale of economy can only be possible through learning
and experience.
Capacity Utilization: Required to achieve low cost production efficiency.
Industry Profitability: Above par. But this is possible, only when the firms are
cost focused, and the market is price sensitive.
Question No. 2:What is competition like and how strong are each of the competitive
forces?
Michael Porter‘s five forces model of competition is very useful in analyzing the
competitive situation, and the strength of the competitive forces in the industry.
26
The rivalry among competing sellers:
The main rivalry in the Industry is among the major competitors, which consist of
domestic manufacturers, and to some extent transit products in the premium price
segment in the market. Price and quality are the major determinants of rivalry
among competitors.
The other reasons behind rivalry are:
Demand by ASU 30 smoker group (Adult smoker under 30) for new
product innovation like, low delivery and US blended cigarette.
International brand image.
Low switching cost among buyers especially in the low segment, as
different brands are available.
Therefore, rival firms in the industry are likely to approach for licensing
agreement with international manufacture for international brands. Moreover, The
industry growth rate is in increasing trend due to tremendous potential in the
lower price segment of the industry, where consumers are in the trend of up
trading themselves from Biri to cigarette. Rivalry in this particular segment is
very intensive in terms of price rather than quality.
27
Substitutability:
There are as such no substitutes for cigarettes in the industry. But price, quality,
performance, perceived value of the product and brand image are the key factors
for brand substitution.
In the premium price segment, quality and brand image are key aspects for
the substitution. Due to high brand loyalty among consumers, it is very difficult
for the competing firms to enjoy substitutability effect in this segment.
In the mid-price segment, the key for the substitution is the cost as well as
price. Better product availability in terms of quality and cost creates extensive
competition for substitution. Therefore, product with more and new attributes can
create product substitution in this segment.
For instance,
In 1998, when BAT Bangladesh increased price of John
Player Gold Leaf (JPGL), its mid-segment brand, from Tk.2 to
2.50 per stick, then transit London took a huge chunk of the
market share of JPGL. This indicates substitutability effect in this
segment and price sensitivity of the smokers/buyers.
28
In the very low and low price segment, readily available and attractive
priced substitute creates competitive pressure by placing ceiling on the prices.
However, firms need to find out ways of cost reduction to be profitable.
Entry Barriers:
Entry barrier is a strong force in the industry as the industry is very attractive in
terms of growth and profitability.
The main barriers for potential entry are:
Government’s lawful barrier/restrictions for setting up new tobacco
industry.
Huge capital investment and extensive R&D requirements.
Ample resource requirements.
Access to technology and specialized know how.
The experience of learning and experience curve effects: lower unit
cost is a result of experience in producing the product in a large
quantity.
Economies of scale: high economies of scale in manufacturing make
new entry costly and risky.
Brand image, preferences and customer loyalty.
29
Possible way of entering into this industry is through merger or acquisition or
strategic alliances through licensing with international manufacturer.
Power of Suppliers:
The power of suppliers over the firms that depends on outsourcing of
raw materials including tobacco leaf, wrapping materials, filters,
cigarette papers and so on, is not so significant.
As cigarettes are classified as Fast Moving Consumable Goods and produced all
over the world, all the firms have the leverage to choose the wrapping materials
from anywhere in world.
Tobacco for medium and low price segment cigarette is grown in
Bangladesh and is capable of fulfilling the entire industry demand. 18-20%
tobacco for premium priced cigarette is also grown in Bangladesh and around
80% high quality tobacco is imported from different tobacco growing countries.
Therefore, suppliers tend to have less leverage to bargain over price and
quality.
30
Power of Buyers:
The bargaining power of buyers is high in this industry as:
Buyers are well informed about different brands available in the
market.
In the low-priced and very low priced segment, buyers have high bargaining
power as different brands are available and they can choose according to their
taste and preferences. But in the medium priced segment, quality, price and
availability of substitutes are key factors for substitution. In Bangladesh, mid
segment is entirely dominated by JPGL and no other substitutes are available.
Buyer‘s bargaining power will intensify in this segment subject to the
availability of other competing mid segment brands. In the premium segment,
consumers‘ high brand loyalty neutralizes their bargaining power.
Question No. 3: What are the drivers of change in the industry and what impact will
they have?
Changes that occur in an industry‘s structure and environment are influenced by the
driving forces of that industry.
31
Changes in long-term industry growth rate: There is a great potential of upsurge of
the cigarette industry in the domestic as well as in the international market.
Therefore, there is a tremendous scope for competition capturing additional
sales.
Product Innovation: It is the major driving force for tobacco industry.
Consumers‘ tastes are continuously changing. To keep pace with the
changing need, rivals in the industry are competing with each other by often
changing cigarette design, blends and launching new brands in the market.
BATB’s LONDON, Abul Khair Tobacco‘s MARINE etc. are examples of
launching new brands in recent time to satisfy the consumers.
It has been seen that there has been continuous shift of customer
choice from full flavored Virginia blend to low delivery cigarette (Lights
cigarette). Again, BATB’s JPGL Lights and Benson & Hedges Lights; Dhaka
Tobacco‘s Legend White etc. are all examples of low delivery cigarettes that
are now available in the market to satisfy consumer need and expectation
level.
Marketing Innovation: New ways of marketing the products to the targeted
consumers is an important driving force for getting their attention. Most of
the tobacco companies are dependent on the independent wholesalers and
32
distributors. Segmenting the market in terms of its geographic coverage,
strategic partnership with distributors, sponsoring national events and other
sale promotions are key success factors in the industry. For instance, Benson
& Hedges ―Star Search Program‖; JPGL‘s ‗World Adventure‘ are examples
of marketing these brands associated with the respective brand world to reach
the target audiences.
Technological Changes: Pace of technological change is very high in the
industry. Advances in technology can make a breakthrough and can shake the
industries competitive situation. For instance, due to high technological
setup BATB is successfully managing B&H production locally by retaining
international quality standard.
Changes in costs and efficiency: Now in Bangladesh, local suppliers develop
themselves to provide required services to the industry with wrapping
materials and other inputs including tobacco. This has reduced costs of
tobacco companies, which could have been high if it required importing those
from outside countries.
Changes in social concern, attitudes and lifestyles: Attitudes and lifestyle of the
people are changing. Tobacco companies are doing business in a
controversial industry. Anti-smoking group are playing very active role all
33
over the world. Dark Market is coming in the future where no above the line
communication (bill board, tvc‘s, poster, newspaper clippings etc.) will take
place. To combat with the situation, required steps need to be taken on a
timely basis. For instance, The three leading tobacco companies in the
world, BAT, PMI and Japan Tobacco has taken the initiative proactively to
follow some Marketing Standards globally to keep balance with the anti
tobacco lobbying group.
Question No. 4: Which companies are in the strongest/weakest positions?
British American Tobacco Bangladesh is the leading cigarette manufacturer in
Bangladesh with wide range of brand offering in different price segment in the market.
Most of its‘ brands are certified by its‘ parent company in UK. BATB’s core strength is
embedded within its brands. Its‘ vision of extending its leadership through world-class
performance refers to the ownership of all international brands with world class
standard compare to other competitors in the industry and thus sustain its leadership
position.
BATB’s core competency and distinctive capabilities on technological
development (Dhaka Cigarette factory and Kushtia Green Leaf Threshing Plant), skilled,
motivated workforces (through in house Training centre & Training at machine
34
35
manufacture site and also long term partnership contract with suppliers) and global
access to International market research(R & D at their global head quarter) has given
the opportunity to have competitive advantage over other competitors in the industry.
BATB enjoys around 47% market share in terms of volume and 70% in terms of value
share.
There is no other international cigarette manufacture operating in the
market. But some international brands are available, which come through the border of
Bangladesh as transit brands. This transit share in the market is around 0.3% (including:
B&H FF and B&H lights, Marlboro FF and lights).
MARKET SHARE of BAT Vs. OTHERS
Segment Share
BAT share in segment
Others
PREMIUM 5.09% 99.7% 0.3% MEDIUM 21.83% 100% 0% LOW 35.34% 49% 51%
(DTI 37%;Alpha 12%;others 2%) VERY LOW
37.74%
0%
100%
(DTI-18%; Alpha 5% Aziz 8%, Abul Khair 22%;New age tobacco 14%; Nasir Tob.
20% and others.)
Source: Retail Audit Oct-2001
36
LIGHTS SEGMENT SHARE:
LIGHTS SHARE
B&H Lights 10%
JPGL Lights 88%
Total BAT Bangladesh 98%
Marlboro Lights 2%
Note: Consider total light segment as 100%
BAT Bangladesh faces competition in the low and very low segment.
Though BATB does not operate in the very low segment, yet it faces competition, as
opportunity exists for huge chunk of market share in this segment due to up gradation
from Biri to cigarette. Dhaka Tobacco Industries (DTI) enjoys the most market share
among the domestic manufactures, which is around 37% in low and 18% in very low
segment, followed by Alpha 12% in low and 5% in very low and Abul Khair Tobacco
22% in the very low segment.
Question No.5: What strategic moves are rivals likely to make next?
Competitor‟s strategy and their next moves: Being the leader in the industry and to
sustain leadership, BATB should not be complacent and should predict its rivals‘
strategic moves and take initiatives accordingly. As mentioned earlier, there is a
tremendous potential in the low and very low segment of the market. Small companies
37
are more focused on very low price segment where BATB does not operate. The major
players concentrate on the following strategies to out perform rivals –.
Rapid new brand introduction. Rivals‘ most common strategy is to
introduce new brands in the market for a very short period of time,
pouring enough money in the promotional activities for short-term
volume growth. Once the growth is stagnant they introduce new
product by changing the brand name and packet design.
Continue in penetrating in the rural markets: Presence of
competitors in the rural market is very intense compare to the presence
of industry leader. Rural market penetration is the main strategy of the
local companies of Bangladesh where presence of market leader is
absent.
Emphasis more on Trade Margin and consumer promotion:
Many small local competitors offer a good deal of trade margin to their
retailers to promote their brands. They even offer good deal for
consumer promotion. But BATB, according to Company Act 294(B),
cannot allure consumers towards its‘ brands by offering direct
promotional campaign as it operates responsibly in the controversial
industry.
38
Better customer services.
“Offensive strategy”: To capture king share of low and very low
market segment. The strategy they are going to adopt is the low cost
strategy as the consumer in this segment are more interested in the cost
they are paying for the product rather than the quality of the product.
“Market niche strategy”: Some small companies strategy is to
operate in some niche market and establish their brands by engaging
their resources on promotional activities in an aggressive manner. For
instance, in Kustia, Nasir Gold from Nasir Tobacco Industries and in
Saver, Navy from Dhaka Tobacco has a very good market standing
compare to other available brands in the very low and low segment
respectively.
Who will be industry‟s major player: The industry trend shows that the major
players are likely to continue to retain their positions. The main rival companies‘
like Dhaka Tobacco Industries (DTI), Alpha Tobacco Industry, Abul Khair
tobacco , Nasir Tobacco Industries, Chittagong Tobacco Company (CTC) etc.,
will still be the major players in the industry.
39
Question NO. 6: What are the key success factors for competitive success?
Key success factors play a crucial role in determining what an industry has to emphasize
to be competitively and financially successful. The KSF‘s for tobacco industry are –
Technology related KSFs:
Product innovation capability
Expertise in a given technology.
Scientific research expertise for innovating new products and new
features.
Shorter lead-time for launching a product
Technical capability to make innovative improvement in Production
process.
Manufacturing related KSFs:
Low cost production efficiency.
Quality of operating system.
High utilization of fixed assets.
Low cost plant locations.
Low cost product design.
Flexibility in manufacturing
High labor productivity
40
Quality of manufacturer with fewer defects, consistency.
Distribution related KSFs:
A strong network of distribution.
Strategic partnership with Distributors (control distributors)
Fast delivery.
Low distribution costs
Marketing related KSFs:
Courteous customer service.
Appropriate advertising
Breadth of product line and product selection
Attractive Styling/packaging
Merchandising skills
Innovative and diversified promotional activities.
Skills related KSFs:
Talent work force with full-commitment.
Superior managerial skill
Quality control know-how.
Research & Development.
Well-established product development team.
41
Organizational Capability:
Ability to respond quickly with shifting market conditions.
Experienced and managerial know-how.
Convenient Location
Favorable image and reputation to all stakeholders.
Overall low cost provider.
Market intelligence network
Technical capability to make innovative improvements in production
processes.
Expertise in a given technology.
Access to adequate financial capital.
Question No.7: Is the industry attractive and what are its prospects for above-
average profitability?
The tobacco industry is very attractive because of its above average profitability, its
growth and growth in the country economy.
42
Question No. 1: How well is the company’s present strategy working?
The stronger the market standing of a company, the more likely that it has a well-crafted,
well-executed strategy. BATB market standings are being evaluated as follows:
Strategic Moves:
Market Share: BATB’s market share and market growth rate is in
increasing trend. According to 1999 market share, BATB had 38.99% share
compare to 42.98%2 in the year 2000 and 47.92% in the current year 2001, a
growth of 10.24% and 11.5% respectively. During this span of time, the
crucial competitor Dhaka Tobacco Industries had market share 25.02% in
1999, 20.44% in 2000 and 17.44% in the year 2001. DTI‘s declining trend and
subsequently BATB‘s increasing trend indicates the performance of the
company.
Profit Margin and sales: In September 2001, BAT BANGLADESH
had the sales of 13.1 billion sticks (sales revenue worth of 23 billion taka)
ever highest in its operational life in Bangladesh. Considering the company‘s
2 Retail Audit June 2001
COMPANY SITUATION ANALYSIS
43
profit after tax 3Tk.236,722,000 in 1999 and Tk.476,591,000 in 2000 indicates
almost 100% increase in its profit base.
Brand Portfolio Management: BATB caters a wide variety of brands
in the premium, medium, and low segment. Though very low segment is the
potential segment for this company, yet till now BATB does not operate here.
Moreover, low priced segment is the crucial segment for this company as
competitions are very active and continuously trying to eat up BATB‘s market
share. BATB recognized the importance of retaining a critical mass in the low
priced segment. Cash and profit generation, entry point of Biri up trading to
higher value portfolio, containment of local competition and lobbying position
are the vital reasons behind focusing on this segment.
As resources are scarce, it‘s not possible to engage all its resources
against all the brands and promotes all the brands at the same time. Looking at
the past trends, it has identified some strategic brands that will be profitable
for the company in the long run and decided to put all its efforts behind these
brands. BATB‘s ‗Strategic Brands’ are: B&H Family (both FF and lights),
JPGL Family (FF & Lights), and STAR. Other brands are Tactical brands
(SE 555, Capstan, and Scissors), which are in the portfolio for tactical purpose
to grasp the market segment by offering wide variety to the consumers.
3 Annual Report 2000
44
brand description
45
New Brand Launching:
To meet the consumer demand and being in the leadership position, BATB
continuously striving to place new blends of brands in the market. Recently, it
has launched LONDON in the 1.5Tk. segment to grasp this price segment and
act proactively compare to its competitors.
Portfolio Strategies:
As a market leader in the Bangladesh Tobacco industry, BATB follows
certain portfolio strategies to sustain its leadership in the competitive market.
To develop a long-term portfolio that will support the strategy
to drive growth in the market.
To continue to support improving performance of key drive
brands in the market.
To give value to its consumer as a consumer driven
organization.
To continue building international attributes to key brands.
To develop an effective range of portfolio options at all points.
Cycle planning meeting:
To promote strategic brands, Cycle planning meeting takes place in every
month. It‘s a 18 months rolling plan with 3 months firm plan. Under this plan,
46
CPM
47
a year is segregated into 12 different cycles focusing on all sorts of
promotional activities on a particular brand in that particular cycle for better
management of the resources with full concentration.
Trade Marketing & Distribution Strategy: The core concept of
BATB’s distribution strategy is selling in and selling out of the products to
the retailers and to the consumers respectively. BATB has 60 distributors
operating all over the country and a strong, dedicated Trade marketing team to
ensure sell-in and sell-out of its brands to the retail level and to the consumers
respectively. Though distributors are independent entity, yet the company
recognizes them as its Valued Business Partner (VBP‘s) and doing businesses
by having win-win situation with them.
To have effective trade marketing distribution following strategies are
followed by BATB:
Review and define a world-class distribution system.
Implement business plans for each distributor in line with the
company‘s objectives and strategies.
Exploit alternative channels of distribution i.e. cash and carry,
wholesalers to extend distribution and improve out of stock in the trade.
Re-structure warehouse operation – ‗Project Carry’.
48
Implement performance based contracts with all the
distributors to enhance performance – ‗Project Concord’.
Review logistic plan on a continuous basis and implement
unified supply chain structure, utilizing e-commerce tools where
appropriate.
Implement the change from supply-based demand to demand
management in the secondary supply chain.
Leadership Strategy: BATB’s competitive approaches are
--To strive for best-cost leadership emphasizing its offerings as
“Value for money” in the low price segment.
--To differentiate its product offering through international brand
image in their Premium and Medium price segment.
Lower Costs Differentiation
A Broad Buyer Segment
A Narrow Buyer Segment
Low Cost
Leadership
Strategy
Focused or Market Niche
Strategy based on
Differentiation
Broad Differentiation
Strategy
Focused or Market Niche Strategy
based on Low cost
A Best Cost Provider Strategy
BATB
BATB‟s COMPETITIVE ADVANTAGE
M
ARKET TA
RGE
T
49
To operate as ‗Best Cost Provider’ in the industry, BATB has to act
proactively on continuous basis. As an industry leader, three contrasting
strategic postures are open to BATB:
a) Stay on the Offensive Strategy:
The best defense is the good offense. Being offensive minded leader, BATB is
always act as first mover’s in the industry to sustain its competitive advantage
by offering new brands, quality enhancements of existing brands; improving
customer services and finding ways to cut production costs. BATB always
takes initiatives on capitalizing competitors‘ weaknesses. The ways of
achieving competitive gains at the expenses of rivals‘ weaknesses are:
Put more concentration on where rivals have a weak market
share or exerting less competitive effort.
Give special attention to such consumers of rivals whose
products lag on quality, features or product performance.
Make special sales pitches to the customers of rivals who
provide sub par customer service.
Introduce new product varieties that exploit gaps in the market
segment.
50
b) Fortify and Defend Strategy:
Through this strategy, BATB makes it harder for new firms to enter and for
challengers to gain ground. The goals behind BATB‘s strong defense are to hold
on to the present market share, strengthen current market position and protect its
competitive advantage. Some defensive actions of BATB‘s are:
Continuously striving to raise the competitive ante for
challengers and new entrants by spending more on advertising, higher
level of customer services and working on Retail Media4 to combat with
the dark market situation.
Introducing more brands to fill vacant niches that
competitors can slip into. BATB’s London launching is such an
example that filled the gap in the 1.5Tk. price segment.
BATB always keeps price reasonable with high quality
offering.
Incorporates personalized services to its distributors to
boosts customer loyalty.
4 Retail Media: A high quality grocery outlet giving the essence of the presence of a particular brand
without demonstrating that brand and creating a brand world for that brand. eg. Shop n Save, PQS, Stop n
Shop are B&H retail media.
51
c) Follow the Leader Strategy:
With this strategy BATB uses its competitive muscle to encourage runner-up
firms to follow. For instance, when BATB introduces tax-stamp, its biggest
competitor DTI also followed it by incorporating tax-stamps in their one/two
brands.
BAT Vs. Competiton-Volume Share
0
20
40
60
SEP -
OCT 1
998
NO
V -
DEC 1
998
JAN
- FEB 1
999
MAR -
APR 1
999
MAY -
JUN
199
9
JUL -
AUG
199
9
SEP -
OCT 1
999
NO
V -
DEC 1
999
JAN
- FEB 2
000
MAR -
APR 2
000
MAY -
JUN
200
0
JUL -
AUG
200
0
SEP -
OCT 2
000
NO
V -
DEC 2
000
JAN
- FEB 2
001
MAR -
APR 2
001
MAY -
JUN
200
1
BAT DHAKA ALPHA AZIZ SONALI
NASIR TRANSIT OTHERS
Analysis: From the above graph, its quite evident that BATB’s volume
1999, 2000 and 2001 are in increasing trend compare to its competitors. In
the same period of time some competitors had increasing and some had
decreasing trend.
52
Customer Service: BATB is very serious in maintaining its relationship
with its distributors, customers of the company. BATB‘s Customer Services
Center (CSC) is fully committed to provide world class customer services to
its distributors through ‗On time in-full‘ (OTIF) delivery from factory and
ensuring availability of stocks in all sales warehouses in right quantity, quality
and brand mix.
Any sorts of complaints are welcome. To give importance to their
comments a database ‘Customer Complaints Database’ has been created that
gives answer to any queries and takes measures instantly.
BAT Vs. Competition-Value Share
0
10
20
30
40
50
60
70
SEP -
OCT 1
998
NO
V - DEC
199
8
JAN -
FEB 199
9
MAR
- APR
199
9
MAY -
JUN 1
999
JUL
- AUG
199
9
SEP -
OCT 1
999
NO
V - DEC
199
9
JAN -
FEB 200
0
MAR
- APR
200
0
MAY -
JUN 2
000
JUL
- AUG
200
0
SEP -
OCT 2
000
NO
V - DEC
200
0
JAN -
FEB 200
1
MAR
- APR
200
1
MAY -
JUN 2
001
BAT DHAKA ALPHA AZIZ SONALI
NASIR TRANSIT OTHERS
Analysis: From the graph, BATB’s increasing value share (70%) trend is
visible compare to other competitors.
53
Corporate Reputation: BATB is continuously striving to enhance its
corporate image and reputation in order to operate responsibly in the
controversial industry.
Marketing Code of Conducts
BAT has taken certain voluntary marketing code of conducts to do business.
The following are some code of conducts that recognizes BATB as a
responsible company:
The Health Warning Clause must be on the front and back panel
of the pack in contrasting colour.
There must be two Health Warning Clauses for any tobacco
advertising in television and radio.
The size of the Health Warning Clause on all tobacco
communication must be10% of the total communication area.
There should not be any advertisement before 10.00 pm when
programs are primarily focused on adults.
There should not be any advertisement near schools, hospitals and
any place of worship.
54
Social Works:
BATB is engaged in different social works in the community. It has
benchmarked itself for Afforestation program in Bangladesh since 1980. So,
far, it has planted 35 million trees across the country. Besides this, the
company is also involved in vegetable seed multiplication project, supports
philanthropic organizations like Sandhani and other Social and Cultural
groups.
Youth Smoking Prevention (YSP) Campaign:
In August 2001, BATB launched a campaign known as Youth Smoking
Prevention Campaign to discourage youth smoking in our country. BATB is
always doing its business by keeping its philosophy intent—Smoking is an
adult choice. Its target consumers are ASU 30, Adult smoker under 30.
Intention is not to attract youth under 18 and non-smokers, rather intention is
to give an alternative offer to its target consumers, so that if an adult decides
to smoke, he can smoke BATB‘s brand.
Such campaign has been appreciated by many stakeholders and criticized
as well. Yet, its concern for youth smoking again indicates its responsibility
towards the society as a whole.
55
Question No. 2: What are the company’s resource strengths and weaknesses and its
external opportunities and threats?
No.1 leading cigarette manufacturing company in the
country in terms of market share and consistent leader
in liquidity and profitability.
Effective Trade Marketing and Distribution.
International brand-name image
Eminent Corporate reputation
Talented work force.
Strong and motivated Trade Union
Global sourcing for raw materials
Superior Technology
Strong Brand portfolio
Dedicated Distributors as valued business partner
Strong partnership with key suppliers.
Strengths:
Cannot operate in the very low segment
Not diversified as other competitors
Foreign exchange availability/restrictions for importing
raw materials for international brands
Pays excise where competitors avoid paying taxes to govt.
Weaknesses
56
Manage to operate in the very low segment
Utilize the merger facility with Rothman
Industries for regional sourcing.
Expansion of product line
Continuous R&D to have new blends
Further reduction of costs in the value chain
Diversification in unrelated products
Opportunities
:Weaknesses
Slow economic growth-hence low profit pool
Anti-Smoking lobbies
Change in excise rate.
Potential entry of international competitors
Merger between local companies and international tobacco
companies.
Unstable political situation
FOREX
Counterfeit Cigarettes
Competitiveness of cost base.
People-brain drain
Threats
:
57
Question No. 3: Are the company’s prices and cost competitive?
BATB is striving for best-cost cigarette producer not only in Bangladesh but also in the
international market when it is compared with other operating companies of British
American Tobacco. There is an intense competition in the region as well, to become most
competitive operation of British American Tobacco.
Action Plan Focus:
In order to achieve competitive position in the region BATB had taken initiative in the
year 1999 to achieve the regional benchmarks in different identified element of cost.
Fixed Cost:
1. Re-structuring the entire value chains, identifying the cost incurring
activities and then addressing them.
2. Manning reduction & improve people productivity.
Variable Cost:
1. Reduce leaf costs in real term through:
Increase farmer yield.
Achieve a real reduction in the average price paid to the
farmer.
Continue third party purchase for all Air/Sun Cured
tobacco.
58
2. Local Sourcing / Conversion of raw materials like Tipping paper,
packaging materials and so on.
3. Implement Go Cost global procurement initiatives.
Action Plan Implementation:
Reorganized as process driven organization rather than function
driven.
Right sizing of People.
Elimination of 5 finished goods warehouses and thus lead to cost
reduction.
Reduction of BATB owned Leaf Godowns and go for rent ones.
Develop local suppliers for raw materials.
Consider suppliers, distributors and farmers as Valued Business
Partner.
Exploiting global/ regional procurement facility to a greater extent.
Introducing Change Management program among all the employees.
Cascade down the vision and mission of the company at all level and
develop leadership in every employee with their own responsibility.
Looking at the BATB performance, it is evident that the BATB could keep its price
stable because it has the ability to produce efficiently with reduced production cost. But
still there are areas for improvement to become competitive in the region.
59
Question No. 4: How strong is the company’s competitive position relative to its
rivals?
BATB is the market leader in Bangladesh market because of its international brand
image, price competitiveness, and customer loyalty.
SIGNS OF COMPETITIVE STRENGTHS:
A leading multinational cigarette manufacturing company in the country.
Wide customer base and consumer loyalty due to international premium
quality brands.
Well positioned in the premium and mid segment where there is no presence
of competitors.
Cost advantages due to learning curve experiences.
Superior quality machinery and technological and innovational capability.
In position to capitalize an emerging market opportunities.
In order to analyze the competitive position of BATB, following qualitative assessment
has been carried out considering some industry‘s Key Success Factors (KSF’s) and on
its each pertinent indicator of competitive capability and potential competitive
advantage.
60
Weighted Competitive Strength Assessment
Rating Scale: 1 = Very weak; 10 = Very strong
KSF / Strength Measure
Weight
BATB
DTI
Alpha
Nasir
Abul
Quality/Product Performance 0.10 8/.80 5/.50 5/.50 2/.20 3/.30
Reputation / Image 0.10 9/.90 4/.40 4/.40 2/.20 2/.20
Technological Strength 0.10 8/.80 4/.40 3/.30 2/.20 2/.20
Manufacturing capability 0.10 7/.70 4/.40 3/.30 2/.20 2/.20
Distribution Capabilities 0.15 6/.90 5/.75 5/.75 4/.60 5/.75
New Product Innovation capabilities
0.10 5/.50 3/.30 2/.20 1/.10 1/.10
Financial resources 0.10 6/.60 8/.80 3/.40 3/.30 2/.20
Relative cost position 0.15 6/.90 6/.90 5/.75 4/.60 4/.60
Customer service capability 0.05 5/.25 4/.20 3/.15 2/.10 2/.10
Promotion / Advertisements 0.05 6/.30 7/.35 8/.40 4/.20 3/.15
Sum of weights 1.00
Weighted overall strength
rating
6.65 5.00 4.15 2.70 3.75
Analysis: From the above „Weighted Competitive Strength Assessment’, its being
quite evident that BATB is the market leader scoring high among its core
competitors, followed by DTI, Alpha Tobacco, Abul Khair Tobacco and
Nasir Tobacco Co.
61
Question No. 5: What strategic issues does the company face?
At present the strategic issues faced by British American Tobacco Bangladesh are
as follows:
Shouldn‟t BATB consider operating in the potential very low segment to
increase its market share?
BATB should capitalize the opportunity to enter into the very low segment,
as a huge chunk of ‗Biri‘ smokers are there who can use very low segment as
a steppingstone. BATB needs to have its products in this segment so that
potential consumers can have BATB offering in front of them at the time of
up trading and choose the preferred brand at the time of starting smoking
cigarettes.
Shouldn‟t BATB work on the accelerating growth of its market share to
support its 10 years strategic plan?
There was a time when BATB was the leader in each of its operating
segments. But due to competition in the low segment, in the recent past, it has
lost a substantial part of its market share in that segment. Furthermore,
existence of rivals in the very low segment is taking away the opportunity of
62
grabbing some market shares. Currently, BATB‘s market share is around
47%. To increase it to the desired level in the 10 years strategic plan, it needs
to restructure its brand portfolio by having its presence in all segments of the
market.
Isn‟t it essential for BATB to continuously lobbying with the government to
keep the excise duty in control?
There is a always constant pressure from the government to generate higher
revenue every year through increasing tax structure. BATB needs to manage
the Board of Revenue to sustain and keep the excise duty in control to manage
the costs.
Shouldn‟t BATB concern about the unethical behaviour of the competitors?
Though controversial, yet, cigarette is one of the most profitable industries
and the fast moving consumer goods in Bangladesh. BATB is operating in
Bangladesh market as a responsible company by paying taxes on time, but due
to some unethical practices by the local industries such as not paying properly
the exact taxes with respect to their actual sales to the government, rivals can
manage to sustain their pricing policy in the market. There are also quite a
63
significant numbers of transit products available in the market, which, as well
does not follow the available duty structure in Bangladesh.
Isn‟t it crucial for BATB to improve its KSF‟s and achieve the regional
benchmark target?
Although BATB is the market leader in Bangladesh, it is not the market leader
in the region. In order to achieve leadership in the region, BATB must focus
on attaining all the KSF‘s based on regional market and be a benchmark
company within the region.
Shouldn‟t BATB revise its brand portfolio in terms of strategic and tactical
brands for long-term growth of the company?
Currently, SE 555 is in the lists of tactical brands of BATB. It‘s a mysterious
brand that exhibits growth with out any support. If enough support is given
behind this brand this might help the company for achieving higher profit in
the long run.
Isn‟t it essential for BATB to substitute imported foreign tobacco leaves
with the local ones for reducing the supply chain costs on a continuous
improvement basis?
64
The cigarette market is growing and in order to sustain the current pricing of
the products, more and more imported tobacco grades have to be substituted
by locally grown tobacco grades.
Shouldn’t BATB prepare itself proactively for the coming Dark
Markets?
Market is becoming darker day by day. People are becoming health conscious
and as a result restrictions are becoming stringent than before. Even one day
will come when all sorts of advertisements will be banned. To deal with such
environment and protect its business BATB should take measures proactively.
65
VISION
―To extend our leadership through world-class performance.”
MISSION:
STRATEGIC IMPERATIVES:
STRATEGIC TASK ANALYSIS
To double our net revenue by the year 2005.
Grow our share of the total tobacco market.
Dominate key identified segments.
Focused, segmented, and differentiated brand portfolio
Excellent Trade marketing and distribution capability in end
markets
Excellent products with minimized supply chain costs.
Leading position in the market where we are not strong
Recognized as a responsible company in a controversial industry.
First Class managers in a key functions
66
GUIDING PRINCIPLES:
o Open-minded
o Enterprising Spirit
o Strength through diversity
o Freedom through responsibility
BATB VALUES:
Achievement: Vision, Map, and Consumer Focus
Commitment: Confidence, Standard, and Drive
Trust: Teamwork, Support and belonging.
CRITICAL SUCCESS FACTORS:
Strategy and Planning
Activities:
-Overall company strategy planning
-Cycle Planning and Sales Operational Planning
Supply Chain Management
Activities:
-Developing supply chain strategy and management
-Order Management
-Order fulfillment
-Inventory management
67
Resource management.
Activities:
-Manpower Planning
-Organizational Development
-Financial Planning and Management.
POP (Retail Marketing) Management.
Activities:
-Product Availability
-Trade Marketing in-store communication and
promotions.
-Retail Media in-store communication and activities.
Account Management.
Activities:
-Account (Grocery, Convenient, HORECA) Planning
-Account Profitability
-Business Development
Information Management
Activities:
-Market Intelligence
-Internal Monitoring
-Information Technology
68
STRATEGIC PLANNING:
During the second quarter of 2000, BAT Bangladesh conducted a full ten-year strategic
review of the Bangladesh market and the company position. Every year this 10-year plan
takes a concrete shape without any major changes in context of the ten-year vision.
BATB recognizes the need to both extend the current leadership position in all aspects of
the business with clear focus on identified must win segments, and to strengthen and
develop the portfolio to ensure the changing needs of consumers.
10 Strategic Directions of BATB:
Ten areas of strategic focus have been identified and they are as follows:
1. Increasing market profit pool
2. Dominate ASU (Adult Smoker Under) 30
3. Drive Lights
4. Drive International Brands
5. Ensure Volume Leadership in key segments.
6. Develop a channel-based distribution strategy and improve rural
penetration.
7. Efficient supply chain management with international quality standards
8. Drive Corporate Responsibility.
9. Development of People
10. Information technology
69
It is assumed that there will be no change from the current site of manufacturing, and
current manning levels will be sufficient to manage the growing business with a phased
introduction of high-speed machinery and a continuous working environment by
introducing 4 shifts in the factory rather having 3 shifts.
Short Term Action Plan:
Encourage improvement in compliance through introduction of an
effective banderole and tax system.
Coping with the new Government by consolidating excise
position/developing excise strategy with future decision makers.
Continue building and strengthening portfolio offer.
Rejuvenate portfolio with youthful appeal.
Concentration in rural penetration to target rural ASU30 (Adult smoker
under 30)
Put focused investment behind lights and International Brands (B&H,
SE555, JPGL etc.)
Introduce Lights at Low Priced segment to generate mass awareness and
drive up trading within portfolio.
Introduction of differentiated International Brand portfolio
Manage a tactical entry into very low segment to enhance rural penetration.
70
Develop a differentiated channel strategy.
Expand rural base while strengthening urban leadership.
Develop local production of Lights.
Explore Continuous Operation for capacity optimization.
Strengthen GLT (Green Leaf Threshing) process-quality improvement.
Explore Leaf substitution for imported leaf.
Harmonize logistics/warehousing for efficient delivery and cost efficiency.
Initiation in Sub-regional integration.
Continue to promote under-age smoking through YSP (Youth Smoking
Prevention) Campaign
„Marketing Code of Conduct‟ implementation.
Drive enlightened union relationships.
Non-management development.
Explore IT opportunities in Business.
Medium to Long Term Action Plan:
Ensure success of banderoles and reduction in excise evasion.
Continue to strengthen portfolio and encourage up-trading.
Reduce price gaps and provide stepping-stones to higher value brands.
71
Excise lobbying, rationalize slabs, increase floor of the market and increase
excise levied on Biris.
Continue to drive IB‟s and Lights and development of HORECA (Hotel,
Restaurant & Café).
Analyze the impact of regulatory limit on tar/nicotine delivery.
New product innovation: Ultra Lights, Menthol Lights etc.
Exploration of HORECA (Hotel, Restaurant & Café) and Retail Media.
Explore opportunities to expand premium and medium segments.
Continue to build „Star‟ brand while exploiting regional opportunities.
Leverage on IT to enhance business process.
Enhance leaf operation to support growing market demand
Build open and trustworthy relationship with pressure groups that will
allow joint efforts in managing industry.
Institutionalize BAT‟s role as a key development partner of the nation.
Drive flexible, non-hierarchical team-based structures into the
organization.
72
OBJECTIVES:
STRATEGIES:
Double Net Turnover by 2005.
Maintain more than 95% share of International Brand segment
whilst growing the segment from 27% to total filter to 35% by
2010.
Lights share to 6%by 2005 and 10% by 2010
Establish clear dominance in filter segment, achieving more than
60% share by 2010.
Grow share of total smoking tobacco market from 12% to 24% by
2010.
Recognition as a leader in technology and product innovation
through continuous R&D.
Continued focus on developing premium and medium IB‟s
--Reposition B&H and SE555 to drive up-trading and
block competition.
Grow Lights through:
--Strengthening of existing line extensions
Prepare portfolio for price increases in future.
73
AN
AL
YS
IS
OF
BA
TB„S CORPORATE, BUSINESS AND OPERATING STRATEGIES:
Corporate strategies:
BAT Bangladesh is a single business company and hence does not have
any corporate strategies.
Business strategies:
Develop Brand portfolio strategy with special focus on areas of
potential opportunity.
Develop excise strategy in line with corporate and market
objectives.
Effective Resource allocation and continuous review of BATB cost
base.
Review of long-term manufacturing strategy.
Achieve value growth through upward line extensions of drive
brands.
Achieve market dominance by improving share in sub-urban and
rural areas through:
--increase support for Star family.
--tactical launch of a brand in the very low segment.
74
Intensify competition with rivals by improving the quality of
products and increasing efficiency in producing and distributing
them.
Striving to become a lower and best cost producer of a higher and
higher quality product.
Improve the fabrication procedures and product quality as well as
methods to increase productivity.
Operating strategies:
Continuing business with MRP II CLASS A standard.
Continuously improve Product Quality Index (PQI) and Manufacturing
Quality Index (MQI) to meet Centrally Managed Brands (CMB)
targets.
Implementation and utilization of Retail Quality Index (RQI) system
introduced in 1999.
Ensuring continuous improvement in Tobacco Quality Ratio and Fill
Value.
Implementation of Quality Best Practices to achieve QUEST
(Quality Enabler Survey Team) target.
75
EVALUATION OF BATB’s FINANCIAL, MARKETING, AND PRODUCTION
PERFORMANCE, HUMAN RESOURCES, AND RESEARCH & DEVELOPMENT
PRACTICES AND SO ON:
Financial Performance:(in 000’sTK.)
RATIOS5 1999 2000
Net Turnover 4,203,304 5,388,977
Net Profit after tax 236,722 476,591
Total Current Asset 1,901,066 1,603,414
Total Current Liabilities 2,374,133 1,830,224
Operating Profit Margin 3.27% 4.2%
Net Profit Margin 1.66% 2.78%
Return on Assets 15.4% 33.1%
Return on Equity 15.5% 27.4%
Current Ratio .80 .876
Quick Ratio 1.28 1.30
Debt Ratio 53.4% 61.24%
Debt to Equity 71.2% 19.6%
Total Asset Turnover 2.71
Trading Margin 11.3% 14.6%
Interest Coverage 3.6 11.1
Effective Tax rate 30.5% 23.3%
Dividend Policy 66.9% 77.8%
5 Calculated from Annual Report 2000
.
76
From the table, it‟s being noticed that BATB‟s Return on Asset (ROA) is
33.1% in 2000 compare to 15.4% in 1999, which almost got doubled. This measures
the overall effectiveness of the companies‟ management in generating profits with its
available assets. It is a measure of the return on total investment in the company. As
BATB‟s ROA is in increasing trend, it appears that shareholders feel comfortable and
confident enough to invest in this company, rather any other place. In future, if
BATB can meet the sales forecasted demand its‟ ROA will definitely improve further.
Profitability Ratio
15.40%
33.10%
15.50%
27.40%
0%
10%
20%
30%
40%
1999 2000
Return on Assets Return on Equity
From the owner‘s perspective, BATB is also doing well. Its Return on Equity
increased from 15.5% in 1999 to 27.4% in 2000. Its‘ Net Turnover and Net Profit After Tax
has increased tremendously from Tk.4,203,304,000 (in the year 1999) to
Tk.5,388,977,000 (in the year 2000) and from Tk.236, 722,000 to Tk.476, 591,000
respectively that reflects a higher return on both assets and equity.
77
Current ratio measures the liquidity of the company i.e. the company‟s
ability to pay off the short-term obligations. From the table, it is very much evident
that BATB is having problems in maintaining its cash flow (current ratio 0.88). Its‟
short-term borrowing is also high and frequent and compare to industry average
(1.33), it is not in a good shape.
Moreover, the Debt to Equity ratio for BATB is 19.6% in the year 2000 and
71.2% in the year 1999. This indicates that BATB has improved its performance in
terms of debt-equity tremendously by managing cash effectively. In case of Debt ratio,
it measures the proportion of total assets financed by the company‟s creditors. The
figure, 53.4% in 1999 and 61.24% in 2000 indicates that BATB‟s investment is mainly
financed by external sources and therefore, has more financial leverage compared to
industry average.
Leverage Ratio
53.40%
19.60%
61.24%
71.20%
0%
20%
40%
60%
80%
1999 2000
Debt Ratio Debt to Equity
78
Both the Current Asset and Current Liabilities of the company are in
decreasing trend indicating that the company is focusing on investment rather than
having current assets in its hand (idle cash in hand) and having less amount of current
liabilities as a whole.
BATB‟s increasing trend in Operating Profit Margin (from 3.27% to 4.2%)
and Net Profit Margin (from 1.66% to 2.78%) also indicates that the company is also
doing well in earning profits on operations and its success with respect to earnings on
sales.
Profitability Ratio
1.66%
2.78%
4.20%
3.27%
0%
1%
2%
3%
4%
5%
1999 2000
Operating Profit Margin Net Profit Margin
Again, BATB‟s increasing Interest Coverage ratio (3.6 to 11.1) indicates the
company‟s ability to make contractual interest payment.
79
Marketing Performances:
Product: BATB’s has a wide variety of brands in its product line. It has
international premium quality (centrally managed) brands like, Benson & Hedges
(B&H) both full-flavored and lights, and SE555; Value for money (regionally
managed) brands like, John Player Gold Leaf (JPGL) both full-flavored and
lights, and LONDON; and Domestic Value for money (locally managed) brands
like, Star filter and plains; Scissors filter and plains; and Capstan.
Among its brand, BATB pays royalties for B&H, SE555 and LONDON. For all
international brands BATB needs to consult with IBG (International Brand
Group) in London. No decision can be taken without their due permission. Even
for advertisements and promotions every bits and pieces are guided by IBG
guideline.
BATB has developed the capability of producing all its international brands,
previously those were used to import from BAT UK operation at Southampton
factory. BATB brands are available in three types of SKU’s (Stock Keeping
Units): Hinge lit (HL), Soft-Cup (SC) and Shell and Slide. All international brands
and Capstan are available in 20s HL pack. It has 10s ‗Shell and Slide’ pack on
Star and Scissors and 20s Soft Cup pack on Star. Plain brands are available in 10s
Shell and Slide pack version.
80
Price: Competitive price is being offered by BATB while keeping pace with the
competitions. BATB products are available in the entire price segment of the
market except the very low segment. As around 87-90% of the total cigarettes are
sold in sticks rather than whole pack, price segmentation has been done on the
basis of per stick price.
In the premium segment at Tk.3 per stick, the parent products are Benson &
Hedges and State Express 555, with line extension of Benson & Hedges Lights.
These international brands have excellent product image with a segment share/
volume share of 99.7%.
In the medium price segment at Tk.2, John Player Gold Leaf is the bread and
butter for the company with international image in both Full- flavor and Lights
version. It has a 100% volume share in the market.
In the Low price segment at Tk.1 plus, the brands are Capstan filter, King Size
LONDON, Star filter, Scissors Filter, Star Plain and Scissors plain. These
brands have a volume share of 35.34% declining from 56.37%6 market share due
to tough competitors.
6 Source: Retail Census Q1 2000.
81
Place: BATB products are reached to the ultimate consumers through its
designated distributors. BATB has 60 distributors all over the country. These
distributors supply BATB products to the retailers under the supervision of
Territory officers (TO‘s) of the company. For 60 distributors there are 40 TO‘s
working in their respective territory.
Entire Bangladesh has been divided in to six geographic regions headed by 5
Regional Managers (RM‘s). These regions are Dhaka Metro, Dhaka Outer,
Chittagong, Khulna, Sylhet and Rajshahi. Regions are again divided into 12
strategic areas and headed by 12 Area Managers (AM‘s). Under each Area
Manager, there are Territory officers who are responsible for their defined
territory. Therefore, companies‘ managers are continuously monitoring the
performance of one or several distributors and ensuring effective distribution to
all the district markets.
BATB has classified the types of outlets in 3 categories: Grocery, Convenience
and HoReCa (Hotel, Restaurant & Café). The distributors cover groceries and
convenience outlets, whereas HoReCa channels are covered by company
designated HORECA managers to promote premium brands only in the
Metropolitan cities of Bangladesh.
82
Major sales are done through Cash & Carries, small mobile outlets who buys
directly through distributors. Small retail outlets also takes BATB‘s product from
some major retail stores in the wholesale bazaar (like Mowlobibazar of old
Dhaka), where all the trading takes place for all kinds of consumable goods.
These wholesalers buy cigarettes from different distributors. BATB never
encourage this particular channel, as this particular channel is very hard to
monitor and control.
Distributors of BATB are perceived as ‗valuable business partner of the
company. Therefore, they are also engaged in various company programs like
training and development, different workshop as part of continuous improvement
initiatives.
Promotion: BATB has strict CORA guidelines for promoting its brands. Apart
from CORA guidelines, there are strict IBG guidelines for promoting international
brands. For such kinds of brands, advertisements and promotional activities are
same all over the operating companies of British American Tobacco. Again
from legal point of view, under company act 294 (B), BAT cannot run any
promotions directly to its ultimate smokers like any other company.
83
In Bangladesh, television advertisements are banned in local broadcast television.
Now a days, other private channels like ETV, Channel Eye, ATN Bangla are used
to advertise BATB brands. Other promotional campaigns for Benson & Hedges,
State Express 555 and John Player Gold Leaf are done in other medias like
Magazines, Newspapers, Billboards and through entertainment shows like
sponsoring concerts. Branded outlets for JPGL and Star are now common type in
the market to promote that particular brand. Other merchandising materials for
promoting brands are: branded in-store cabinet, street cabinet, desktop, light-box,
canopy, sunscreens and so on. There are also cycle based promotions for outlets
like, poster, dangler, bunting, sticker, trade letter, consumer lift-let dispenser and
so on. These materials are temporary merchandising materials for promoting a
particular brand on that particular cycle.
Production Performances:
MISSION:
“We delight our consumer with superior quality product through most flexible
operation, and minimum cost at all times.”
BATB‘s production department has been renamed as Operations and
Manufacturing Department. In order to support the mission, this department is
performing successfully the following activities:
84
Product harmonization.
Meeting international quality standards.
Competitive position of EH&S in the group (Achieved 3.4 on scale
4.0).
Low cost producer.
Conversion cost Tk.43 per mille against Tk.43 per mille.
Conversion Cost ($/Mille)
1.17 1.12
0.92
0.71
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1998 1999 2000 2001
Analysis: From the above graph it is evident that conversion cost is
in declining trend over the past few years. Even 3 years back it was
$1.17/mille but now it has been reduced to $.71/mille almost 40%
reduction in costs that indicates BATB’s performance in this
ground.
85
Product cost Tk.296 per mille against Tk 300 per mille.
Product Cost ($/Mille)
6.05
5.18 5.394.99
0
1
2
3
4
5
6
7
1998 1999 2000 2001
Analysis: Looking into the trends of product costs year on year, it is
visible that BATB is striving to reduce its costs. In 1998, product
costs/mille was $6.05 but in recent year 2001, it managed to reduce
costs $4.99/mille, almost 18% reduction.
STRATEGIC INTENT--Manufacturing:
Clear core ideology.
Benchmark focus at every level.
Employees with skills to meet the most competitive performance
in the region.
86
Clear objectives / challenge / KPI for management and shop floor
employees.
Continuous improvement environment/no comfort zone.
Teams + Processes + Resource Allocation = Effective Results.
STRATEGIC DRIVERS - 2000 – 2002:
Improve productivity.
Continuous Quality Improvement.
Supply Chain Management.
Achieve MRP II Class A - in new checklists. (Strategic Planning,
Planning & Control, People & Team, Continuous Improvements and
New Product Development).
Human resources development.
- Strategic thinking
- Leadership and
- Team building.
Technical development.
- Effective Go Cost program.
- Technology effectiveness.
87
QUALITY STRATEGY:
To generate an integrated process of quality to exceed consumers‟
expectations that includes all managers/workforce, suppliers,
distributors and systems.
Quality Focus:
Continuous quality improvement.
Smoking Quality.
Physical, Chemical, Packaging aspect
Systems & Process (QUEST).
Consumer complaints.
Vendor development/partnership.
Effective training on Key Quality Methods.
Backward vertical integration:
BATB has developed some local suppliers as its valued business partner
to have wrapping materials by giving order on monthly basis. Most of its
suppliers deliver raw materials on ‗Just in time’ basis, usually less than a
day, for using in its‘ production line. BATB usually has one-year contract
with these suppliers where prices are settled for that period. It also has
agreement to have safety stock of raw materials for 1.5 month, work in
88
progress material for 7 days and finished materials for 7 days. For better
resource management, suppliers are well aware of sales forecast and
manufacturing plan of the company for next 18 months through direct link
with BATB‘s computer terminals. Technical helps are always extended to
the suppliers in case they ask for it.
KANBAN system of inventory control is a benchmark within British
American Tobacco’s operating companies. In BATB, only 4 hours raw
materials are available in the factory premises and thus benefiting the
company by releasing working capital, reducing inventory level and
opening up the spaces.
Leaf Performance:
MISSION:
“To exceed consumer‟s expectation by providing quality tobacco at a
competitive cost.”
LEAF OBJECTIVES:
Organize Cultivation
Quality Improvement
--Procure required quantity as per forecast
--At a Competitive Price
89
Import Substitution
Export
Corporate Image Enhancement
CHALLENGES:
Adjustments with the Sales and Operations Planning
(S&OP)
Storage
Arable Land Limitation
Weather
Unethical Competition.
Price Sustainance
Quality Improvement
STRATEGIES (Based on forecast):
Industrial requirements
Seedbed and plantation program
Crop registration and agreement
Crop inputs and logistics
Seed Planning.
90
LEAF OPERATION:
British American Tobacco Bangladesh, among one of the few operating
companies in BAT has got its independent leaf operation: leaf growing and
processing. Three regions in Bangladesh namely Kushtia, Manikganj and
Chittagong grow highest quality leaf due to favorable climatic condition.
The leaf growing is managed through about 11,500 BATB registered
farmers, who grow tobacco leaf in their lands with the financial and technical
support from the company. The leaf processing operation is done in the GLT
(Green Leaf Threshing) plant located at Kushtia. GLT runs for 5 months of the
year during the leaf buying and processing time. The hourly throughput (ideal) is
7,500 kg per hr, which cover both domestic and export requirements.
Company‘s Leaf Department is working side by side with the farmer to
achieve the tobacco-growing target and fulfill the local demand as well as the
export market in order to achieve highest international quality of tobacco. Leaf
planning is done on 30 months forecasted volume. The process of cultivating and
growing tobacco includes:
Seed bed management.
Field practices (Newly Developed Agriculture Practices).
Mature harvesting.
91
Barn management (Development in the Tobacco curing
equipment).
Curing management (Tobacco curing after harvesting).
Grading.
Hygiene & Sanitation (Social development process and
environmental awareness).
Growing policies - EH&S:
BATB follows I.C.M.S, to minimize the dependence of Agro-chemical and
optimize chemical fertilizer for best practices.
Integrated pest management:
Pest Management has become an increasing concern for Leaf department.
Although BATB is not directly involved in the cultivation but due to its deep
involvement in the tobacco growing process, it is the company‘s responsibility to
create awareness and manage pest control among the growers. This process
includes:
Make farmers understand for pursuing alternative crop
rotation practices to reduce/avoid the use of agrochemical.
Selecting appropriate agrochemicals.
Continuous Training
Continuous monitoring of environmental impact.
92
Future Challenges:
Cost is an important factor in the supply chain. To be competitive in terms of
costs, Leaf Departments planned some activities/actions like, rearranging
warehouse facility, substituting imported quality tobacco with locally produced
tobacco considering the quality parameters etc. In order to maintain costs at
certain level and for further cost minimization following programs has been
identified:
Improvement of barn capacity by increasing barn utilization and
efficiency through technological innovation considering the costs of
the manufacturing.
Striving for continuous quality improvement in order to substitute the
imported grade by local grades for the premium brands.
Increasing employee productivity in Green Leaf Threshing Plant to keep
the tobacco-processing cost competitive.
Ensuring buying cost of the tobacco without hurting farmers (VBP‟s)
by helping them increasing the overall growing yield significantly.
Managing Logistics and Warehouses in such a way that total costs
involvement will be minimized.
93
LEAF SOCIAL:
BATB‘s leaf department is actively participating in social works and thus
enhancing companies‘ corporate reputation. Their activities are scattered mainly
in the leaf growing areas with a target group of their valued business partners
(farmers).
Activities on Focus:
Forestry Education Program—to educate future generation
between the age group of 7-10 years.
Health and Hygiene—to educate VBP‟s regarding sanitary toilet
and develop healthy environment for better health and house
keeping and reduce risks of occurring different diseases. Around
92% VBP‟s erected Sanitary Toilets.
Primary education and Literacy---100% VBP‟s children are going
for primary education and 100% VBP‟s know how to sign their
names. As such, it is supporting Government program “Education
for All”. Around 99% children of VBP‟s are school going.
Family Planning---Its creating basic concepts and awareness
through motivational activities.
94
Safety---To ensure VBP‟s safety, BATB arranged leaf payment
through bank account for faster and dependable payment system.
Afforestation---It‟s a continuous improvement process that gained
momentum since 1985.
Human Resource Practices:
MISSION:
“Embedding a winning culture where people always strive to excel”
WHAT WAS BEFORE?
Earlier in BATB there exists two groups of people: Management and Non-
management/Union. There were always mistrust between these two groups.
Union always disagreed with the management decisions instead of cooperating
with them for the betterment of the company as a whole. These two groups were
busy in a tag of war with almost anything. A common understanding into any
issue was very uncommon. Nothing could be decided without negotiation. Win-
lose situation was very common in place of win-win situation.
All sorts of development efforts of human resource were confined into
management level; non-management-unionized employees were focused only to
95
technical training. Lack of business sense; communication gap, trust & forward
visibility in sharing company plan and strategic direction were regular
phenomenon for BATB that contributed to become a high cost base
manufacturing operation in the region.
How company was affected?
Due to lack of coordination between two groups, BAT Bangladesh was
recognized as a high cost base manufacturing operation in the MESCA region.
WHAT HAS BEEN CHANGED SO FAR AND HOW?
BATB now values its people as Human Capital. In 22nd
November 2001 MRP II
Audit, BATB achieved CLASS A in ‖People and Team Development’ with
benchmark recognition among BAT companies. To be in this position, it had
gone through extensive training programs including different skills development
programs for improving individual performance as well as group performance as
a whole. The company started to reshape its structural set-up by removing barriers
from early 1999.
Actions Taken:
Introducing Open-office concept. All offices were brought into a single
location and all offices were made open.
96
Introducing common dining facility: Managers and employees started
using the same dinning facility at the same time.
Same Uniform: Same uniform for everyone has been introduced
throughout the company to give the importance of shop floor
employees as part of one organization without any discrimination.
Open Discussion with MD: Managing Director of the company
initiated meetings with all levels of employees where issues
were/are discussed openly.
Family Day Concept: A Family Day concept emerged where all
members of the organization both management and non-
management participates along with their family members and
enjoys throughout the day.
Reward and Recognition: To motivate employees at all level, BATB
introduced recognition and reward system like, Champions for a
specific month for doing something extraordinary. As a result
people are becoming more open and interactive and participative
to grab the title. This has generated a positive competition among
the employees.
Winning in our world (WOW): For driving the WOW program
throughout the company, the main drivers are Trust, Commitment
and Achievement—core values of the company. For these values,
97
BATB has a very good corporate reputation for excellent
management practices. These WOW values are clearly defined and
employees, management & Union all are continuously striving to
achieve these values.
ACHIEVEMENT
Vision: We understand what each of us has to do.
Map: We believe in our plan.
Consumer focus: We live for our customers.
COMMITMENT
Confidence: We expect to win.
Standards: We keep raising our standards.
Drive: We take personal responsibly.
TRUST
Teamwork: We have trust in each other.
Support: We learn from Each other.
Belonging: We are proud of who we are.
98
IT Performance:
There was a time, when IT department acted as a supporting function as part of
finance department. But now, IT department has been expanded with its own
identity with the vision of driving business through IT.
A core objective of IT is to explore IT opportunities in the business to increase the
pace of regular business activities. In the last MRP II Audit, IT of BATB has been
recognized as Benchmark within BAT companies. Within BATB, all functional
activities are accelerated with IT solutions. The important benchmark
achievement is the solution named DATA WAREHOUSE, a ‗Decision Support
System‘ that integrates all the systems and data for making appropriate decisions
across the company.
Research & Development:
Research & Development is an on going process for BATB. As it is operating in a
controversial industry, anti smoking lobby always put pressures on the company.
Today‘s smokers are becoming alert and desire to have something with a lesser
amount of Tar & Nicotine percentage. To maintain certain level of these two
elements, BATB is continuously striving to achieve a desired level in its blends.
Lights is a kind of variety with less number of puffs.
99
Moreover, consumer preferences are changing. To meet the demand of their tastes
and preferences Product Development Manager and Blender are trying to develop
new blends and even to improve the current blends proactively. BATB Research
Lab is equipped with latest equipments like ‗Smoking Machines‘ that measures
the puff numbers/minute.
100
Problem areas of BATB both in terms of external and internal aspects are as follows:
MAJOR PROBLEMS
Strategic Problems
Brand Portfolio:
Consumers in Bangladesh are very price sensitive. Cigarette Industry is of no
exception. Around 87-90% cigarettes are sold on stick and market segmentation has
done also on the basis of stick price. BATB brands do not exists in all the existing
market segments. In those vacant segments, BATB does not have any product
available and therefore, it is always under potential threat of new product entry in the
market.
Operating in very low segment:
Market has great potential (volume terms/value terms) in the very low segment. But it
is not economically viable for BATB to operate in this segment and earn reasonable
profit after paying excise. As competitors are well known for unethical practices in
terms of excise payment, they are making profit by operating in this segment and
capture both volume and value share without facing any competition from the
industry leader.
PROBLEM ANALYSIS
101
Increasing Excise:
Excise management is always a big concern for BATB. There is a continuous
pressure for increasing excise demand from the government. BATB has to manage
the excise structure and put constant pressure for not making any excise structure
change, which has direct effect on pricing of its‘ brands.
Increasing Transit (smuggle) brands & Counterfeits:
According to Retail audit, major competition faced by BATB in its premium
segments from transit Marlboro (around .03%). There was a time when BATB used
to face competition with its own BAT companies cigarette brands. These brands are
not duty paid therefore, they are available in comparatively cheaper price compare to
BATB‘s brands. Sometime, counterfeits of some of the major brands of BATB like
JPGL, SE555 and Star or Scissors filters are available in the market. This has become
a serious concern for the company as the quality of the counterfeits is very low and
thus deteriorates company‘s reputation.
Industry Shifts:
Even till 1990s smokers preferred to smoke plain brand cigarette with a very strong
and hard taste. During 90s the smokers‘ preference started shifting towards full
flavored Virginia cigarettes with lower delivery and king size filter cigarette. Today‘s
industry is experiencing a fundamental shift in its business. Now smokers want to
smoke lower delivery cigarettes and therefore, preference for lighter cigarette has
102
been increased. To meet this industry demand, new technology in the industry with
huge capital investment is essential for overall industry success.
Potential threat for loss of market in terms of Value share:
The cigarette market is very price sensitive. In the early 2000, BATB had to reduce
the price of its mid segment brand JPGL due to loss of sales, a result of the price
increase by 2.5% in early 99‘s. To stabilize the situation, BATB had to increase its
sales volume to optimize its value share. Lots of cost reduction initiatives were taken
to balance the circumstances; like usage of raw materials, administrative costs,
production costs etc. In future, such kind of threat is always there for BATB.
Operational Problem:
High Manufacturing Costs:
Increasing Manufacturing cost is one of the key issues for the Operation department
BATB‘s product costs, conversion costs and material costs are higher than the other
operating companies of British American Tobacco and also higher than the region
(MESCA) average.
103
In order to resolve BATB‘s problem, the following alternative approaches can be
undertaken to boost up its long-term performance.
Brand Portfolio
Alternative 1: BATB has the resources available and thus, can fill up its vacant
segments when it will experience potential threat from new entry in the
market.
Pros:
No need to invest money right now behind this matter. Rather can
invest in other potential projects.
Management time can be utilized in some other sector.
No guarantee that new brands in those vacant segments will be a
success.
Cons:
Competitors can act proactively and launch new product category
while having collaboration with some other international competitors.
Competitors will have the opportunity to grasp the potential value and
volume share of those segments and consequently BATB will loose
the opportunity.
ALTERNATIVE STRATEGIES:
104
Alternative 2: BATB can start thinking proactively to have its presence in
every available market segment so that in future if any competition comes in
BATB will be in a upper hand position.
Pros:
BATB will grab volume and value share in those segments before
anyone else.
Competitors/international competition will have hard time to establish
their brands.
As Dark Market is coming up, it will be easier for the company to
establish new brands in those segments rather than launching during
‗Dark Market‘.
Cons:
There is no guarantee that it will be successful in launching brands in
those segments.
Time, money and energy can be a total wastage.
Operating in Very low Segment:
Alternative 1: BATB can think of operating in the very low segment, as it is a
very potential segment in terms of volume.
105
Pros:
It will be able to take the opportunity of grasping the market share
with its quality products as industry trend indicates up-trade of
smokers from ‗Biri‘ to Cigarettes.
Cons:
In short term, BATB might have to sacrifice profits to establish its
brand in the portfolio, as after paying excise it is not economically
viable for the company.
Alternative 2: There is no need for BATB to consider operating in the very
low segment, and it should be happy with its existing brand portfolio.
Pros:
It won‘t loose money and will be able to maintain its profit growth.
Cons:
Competitors are and will be capitalizing BATB‘s absence in the
segment and will continue grabbing the market share in this huge
potential segment.
106
Increasing Excise:
Alternative 1: BATB can lobby and maintain good relationship with the
Govt. officials for stable excise payment. On this issue, the company can take
proactive role suggesting different excise slabs in order to demonstrate win-
win scenario. This was done in the past and thus resulted positive outcome for
both government and the cigarette industry. For instance, As per BATB‘s
recommendation, tax-stamps have been implemented for cigarette industry to
increase the revenue of the government.
Pros:
Good relationship will help the company to operate successfully in
future.
Excise stability will give the company additional cash its hand.
Successful roll out of tax stamp will enhance competition within the
industry.
Alternative 2: Excise is not a matter of concern.
Cons:
Need to pay huge amount of money for excise.
BATB will be paying taxes, irrespective of what its‘ competitors are
doing. As such BATB will be the looser in terms of cash management.
107
Increasing Transient/Counterfeits:
Alternative 1: BATB can lobby with the Govt. and law enforcing agencies by
keeping good relationship with the government bodies, launching anti
smuggling campaign for promoting the negative impact of smuggling in the
country economy and suggesting alternatives for controlling the smuggling.
Furthermore, the company can influence Govt. to put more restrictions to
discourage counterfeits.
Pros:
Govt. will get more excises, as smuggled ones are not duty paid and
thus will get more revenue from the company.
BATB will be able to sell more and grab market share if no transit
brands are available.
It will be able to retain its reputation in terms of quality standard if
there are no counterfeit products.
Alternative 2: No need for BATB to take measurable steps in this regard.
Cons:
Company reputation will hamper for counterfeit products.
Govt. won‘t get excises for smuggled products.
In the premium level, the company will face competition where BATB
has almost 100% market share.
108
Industry shifts:
Alternative 1: The essence of ―fortify and defend” is to make harder for
firms to enter and for challengers to gain ground. Therefore, company can do
extensive research in order to identify the potential long-term growth in the
lights segment. It can also create a state of readiness within the company for
different low delivery cigarette for different price segment. The company can
launch brands on trial in the test market as a part of niche strategy to identify
customer group for low delivery smoke quality.
Pros:
Building new capacity ahead of market demand to discourage
competitors from adding capacity of their own.
Proactively respond to the industry shifts and taking necessary
measures proves BATB‘s leadership in the cigarette industry.
Cons:
More money involvement in research and development.
Potential loss of market in terms of Value share:
Alternative 1: BATB is the market leader in Bangladesh cigarette market and
its premium (B&H, SE555) and value for money (JPGL) brands are perceived as
109
international and high quality product. Therefore, company need to continue
―Stay-on the Offensive Strategy‖ focusing on its key brands.
Pros:
Will help for costs reduction in each value chain activities.
Quality enhancement.
Proactively taking market initiatives to increase market growth.
Cons:
Involvement of more research & development.
More capital investment.
Alternative 2: BATB can be defensive in nature rather offensive to tackle such
matter.
Pros:
Savings from research & development
Cons:
Competitors will utilize the opportunity.
The company will act as follower not the leader of the industry.
High Manufacturing Costs:
110
The costs of cigarettes are related with production capacity. BATB can put
more emphasize on large volume to capture economies of scale in its running
operations.
Pros:
Economies of scale will reduce costs base on per unit basis.
Union Management relationship:
BATB should be committed towards:
Duel Commitment of Company & Union.
Retain and Extend mutuality in terms of trust, influence, dignity,
and integrity.
Sustain environmental belief on „One family one team‟.
Pros:
Union morale will be stronger than before.
Union will not act as barrier in case of any change for the betterment
of the company.
Union leader will act as catalysts between the management and the
union.
111
There is nothing called best solution. Looking at BATB, in market the company is in the
best position and enjoying the market leadership. Following recommendations can be
made to support the company‘s overall strategy for further enhancements of its operations
in this country:
Continuously monitor 10 years strategic plan and its execution phases year
on year to have an overall balanced planning inline with the market
demand and its responses, and find out whether plans are aligned with the
global corporate strategies or not.
Identify opportunities and build on strengths
Brand portfolio should include brands in different price segments to fill
up the gaps (eg. at Tk. 2.5, 3.5 and even introducing super premium
brand).
Should think seriously for operating in the very low segments.
Should continuously monitor and reshuffle its strategic and tactical brand
portfolio as per the industry trend. For instance, can think of giving effort
behind SE555.
RECOMMENDATIONS:
112
BATB should try to achieve the economies of scale in order to reduce
cost of production per unit. Production Planning should be more focused
on utilizing the entire productive asset in the production floor.
It can think of focusing on unrelated business diversification.
BATB should outsource its daily administrative activities and put
concentration more on its business development activities.
BATB should continue to enhance its corporate images by continuing
different social activities and introducing new promotional campaigns like
YSP (Young Smoking Prevention).
Should maintain strong relationship with its suppliers and customers.
113
Implementing strategy entails converting the organizations strategic plan into action and
into results. And thus it is the most difficult task of strategic management. The
managerial task of implementing and executing the chosen strategy requires assessing
what it will take to make the strategy work and to reach the target performance on
schedule. The managerial skill here is being good at figuring out what must be done to
put the strategy in place, execute it proficiently, and produce good result.
Role of every manager in implementing and executing
the strategic plan:
Successful implementation can be a part of cooperation and collaboration of different
levels of managers across the company. The top management of BATB should
continuously reinforce and cascade down its mission, vision and strategies across the
company and transform each and every one within the company into manager in his/her
area of concentration for overall development and widening the business line.
Identify the task to be completed:
Formulate plan of actions for potential unfocused market segment and act
proactively to grab the existing opportunities.
Allocate more funds for R&D.
IMPLEMENTATION PLAN:
114
Continuously striving for innovative strategies to have edge over competitors
and ready to take any challenges.
Continuously motivate employees to retain their morals and to capitalize their
team effort to achieve company mission on time.
Re-fresh WOW program to sustain the ‗Change Management Program’.
Up-gradations of required machineries for coping with the increasing market
demand.
Lobbying and keeping good relationship with the Govt. for effective
implementation of ‗tax-stamp‘.
Find out cost occurring activities in the supply chain and try to fix up the
problem by finding cost effective methods.
Implement IT strategies by supporting all functions with Information
Technology (IT) and creating new arena to add velocity in the respective business
process.
Develop training programs with a training calendar throughout the
organization based on individual, functional and corporate needs to improve three
key areas i.e. knowledge, skills and attitude.
BATB has to transform its core competence ‘unique managerial skills’ in to a
distinctive competence with more refinement so that this becomes a competitive
advantage for the company.
115
BATB need to increase morals of its front-line management, Trade Marketing
& Distribution by offering them quick career growth, as they are the key contact
people between the consumers and the company.
Personnel responsible for the tasks:
Operations Managers: One of the major KSF in cigarette industry is
technological advancement. The introductions of high-speed
machineries can breakthrough production capacity per day and help the
company to gain economies of scale by reducing costs /mille. Moreover,
operation manager is responsible for streamlining the production
process to reduce costs and save time and enhance employee
productivity.
Planning & Logistic Manager: The planning and logistic manager has the
crucial responsibility of maintaining smooth operation in the whole supply
chain activities in a cost effective manner. Supply chain scopes starts from
leaf planning and logistics to finished product distribution to the
customers. All the processes involved need to be rearranged if necessary
and must becost effective to increase the profitability and velocity in the
overall supply chain activities.
116
Shifts/Plant Manager:
Allocate substantial resources in the potential high growth sector.
Monitoring production as per ‘Master Production Schedule’
(MPS).
Concentrate on TQM for zero defect strategy
Demand/Marketing Manager:
To forecast accurately about the market demand
To execute aggressive promotional campaign to attract potential
users.
To monitor distributors performance for achieving the companies
overall S&OP (Sales and operational planning) target.
Product Development Manager: For satisfying consumers/smokers according
to their desired needs, it is very important for product & development
managers to proactively take the steps of developing new blends and new
brands. The product manager should be ready with „Off the shelf’ brands so
that when ever market requires, the company can launch /introduce new
brands in the market. One of his core responsibilities is to change the
product design and look to enhance quality and attractiveness.
117
Brand Manager: Brand managers are the custodians of BATB brands.
Through research and development on consumers, competitors and
media, they need to find out consumers needs and wants and try to
satisfy those by getting aware of market demand in developing varieties
of brands for different price segments.
Human Resource Manager:
Attract the brilliant graduates by offering competitive
compensation packages.
Provide continuous training and development for human resource
development.
Arrange ‘WOW refresher’ program for sustaining core values of
the company.
Giving recognition to managers and employees for being change
agents, result oriented, and customer focused.
Environment, Health & Safety Manager:
Safety manager should continue to provide safety precautions to
prevent any hazardous event in the factory and to ensure human
life in order to prevent any kind of disruption in the production
floor.
118
He should look into different safety precautions like:
--Premises & housekeeping
--Electrical, mechanical hazards
--fire protection & prevention etc.
119
In any planning process, contingency plan needs to be incorporated for what if scenario.
Even the best plan may fail. There is no guarantee that specific plan(s) will work out
as planned. Thus, the need for a contingency plan arises.
In the BATB’s strategic plan, focal points are its volume share and profit margin. To
have higher volume share and incremental profit margin, some key assumptions are:
Growth in the premium segment.
Up-trade from Biri to low brand cigarettes.
Change in Cigarette: Biri consumption
Increase in value share.
Steady economic growth of the country.
No increase in the current tax structure.
If any of the above assumptions change due to external forces, there is a possibility
that BATB will not be able to achieve its targeted plan.
CONTINGENCY PLAN:
120
Therefore, the contingency plans are recommended as follows:
Cigarette Export in the international market(s):
Growth in the premium and mid segment contributes higher profitability margin.
BATB is recognized by the corporate Head Office for the leading candidate within the
region for exporting cigarettes. As a result BATB might consider exporting its premium
and mid segment brands in the international market and earn foreign exchange for the
company as well as for the country.
Diversification:
As cigarette industry is a controversial industry, the company might think or diversifying
to unrelated products like ITC (Indian Tobacco Company) and expand its business
horizon.
Out source the Manufacturing of lower brand:
The lower brands of BATB are produced in the low productive machine and the
current employee cost for BATB is Tk. 26,000 per month. With strategic alliance with
the local manufacturer, BATB can produce these brands with much cheaper cost. This
will enhance the profit margin of the company as well as well increase the sale volume
due to reduction in the retail price.
121
New style of brands in the portfolio (Low delivery and US blend cigarette):
As the tastes and preferences of the consumers are shifting towards low delivery
cigarette, the company can gear up its resource and technology and be at the state of
readiness so that demand can be created in the market. BATB can even think proactively
for US blend of cigarettes to compete with international competition ‗Marlboro‘ by
Phillip Morris.
It is therefore, suggested that a proper study should be carried out to identify each of the
contingency plan. Once the study is done, company should be prepared to implement the
plans within the shortest possible time.
