Philip Morris International

Philip Morris International

Final ProjectDate of Submission: 15th December, 2014Fall 2014

Group MembersJoyanta Sen (1110109030)Imroj Ahmed (1110069030)Farabi Amin (1110063030)Sajedul Haque (1120359030)Faiyad Bin Khaled (1110162030)Farhan Abid Chowdhury (1110196030)Mushfiqur Rahman Farazi (1130007030)

Submitted ToMohammad Hannan Miah Senior Lecturer,School of BusinessNorth South University

Letter of Transmittal

15th December 2014

ToMohammad Hannan Miah,Faculty Member, Department of ManagementSchool of Business North South University Baridhara, Bashundhara, Dhaka

Subject: Submitting the project report on Strategic Management of Philip Morris International

Sir,We would like to present our term paper, on Philip Morris International. While preparing this term paper we had learned and acquired so many knowledge on strategic management. We had also learned about teamwork, writing, observing, analyzing and most importantly how to sketch a businesss strategies, which they apply on their business to achieve their goals. It was highly exhilarating and appreciable task, assigned for us. We were greatly inspired, while working on the project.Thank you for guiding us and providing us an opportunity to demonstrate our potentials, talents and skills on Strategic Management.

Sincerely, Mushfiqur Rahman FaraziOn behalf of the Group 04 of Sec: 07

Acknowledgement

Making this project has been a great task for all of us. Since the beginning of our work we have come through many confusions and dead-ends, but still, we managed at the end. First of all, we would like to thank almighty Allah for giving us patience and strength in order to complete this project successfully.We would like to extend our gratitude to our faculty Mohammad Hannan Miahfor his immense support. We are grateful to him for guiding us and helping us to finish this project.Our honest respect goes to Mr. Sheikh Mohammad Zillani, Consumer Engagement Specialist, PMI. Without his vast help and support it would not be easy for us to make a report on PMI.Finally, we would like to thank each other for the wonderful cooperation we had shared among ourselves as group members. Our dedication and strong teamwork has resulted in the successful completion of this project. We have learned extensively on different strategies of a leading Tobacco company.This project has helped us to gain some knowledge and has exposed some interesting answers.

Group Members of this ProjectJoyanta Sen (1110109030)Imroj Ahmed (1110069030)Farabi Amin (1110063030)Sajedul Haque (1120359030)Faiyad Bin Khaled (1110162030)Farhan Abid Chowdhury (1110196030)Mushfiqur Rahman Farazi (1130007030)

Table of ContentsIntroduction9About the company10Mission11Vision11Why we have chosen this company11Purpose12Which industry PMI belongs to13Industry Analysis14Industry Structure and Major Players of the Industry15Controlling forces of profitability & Industry Profitability16Segments of Cigarette17Market Shares18Industry Life Cycle18General Environment Analysis19Political19Economic19Social21Technological22Environmental22Legal23Competitive Environment Analysis25Porters Five Forces Analysis25Threat of new entrants25Barriers to entry25Government and legal conditions25Huge capital requirements26Economies of scale26Access to distribution channel26Product differentiation27Cost advantage independent of size27Expected retaliation27Bargaining power of suppliers28Supplier concentration28Switching cost28Threat of forward integration28Threat of Substitutes29Bargaining Power of Buyers30Intensity of Rivalry31Industry Rival32Rivalry intensify32Macro-environment affecting Porters Five Forces33Demographic33Economic34Political and legal34Sociocultural34Technological35Global35Physical353I Analysis36Immediate competitors36Core Competency of BAT36Impending Competitors36Invisible Competitors37SWOT Identification38Matching External Analysis with Opportunities and Threats38Matching Internal Analysis with Strengths and Weaknesses39SWOT Identification Table40Business Canvas Model of PMI0Business Canvas and Current Model of Philip Morris International0Key Partners0Equity Partners0Event Management Partners0Partnership with government agencies and regulators1Other Strategic Partnership1Key activities1Key Resources2Strong Customer Base2Brand Value and Recognition2Financial Resources2Human Resources2Physical resources3Value proposition3Customer relationship3Channel4Customer segment4Cost Structures5Cost of Purchasing of raw materials5Fixed Costs and Employee Benefit Plans5Marketing and Advertising Costs5Revenue Stream6Current Business Model of PMI7Core Competency1Corporate Level Strategy2Mission2Vision2Ultimate objective3Strategic Alliance3Product Diversification4The Relation between Corporate Level Strategy of Philip Morris and Its Mission5Corporate Risk Management6Brand name to capture the market7Subsidy from India and Malaysia7Business level Strategy8Key Issues of Business Level Strategy8Who will be served?8Current Customer Segment9Future Customer Segment9What needs to be satisfied?10How those needs to be satisfied?10Five generic business level strategies11Differentiation strategy11Competitive positioning and value creation frontier13Product Life Cycle15Match between Business Level Strategy and Corporate Level Strategy18Functional Level Strategies19Management Division19Corporate Strategy and Decision making Wing19Corporate Affairs19Service development and Management20Corporate sales20Marketing Division20Marketing Strategies22Marketing Mix23Finance Division25Central Accounts25Costing and Factoring25Revenue Assurance26Taxation26Employment Opportunities and Facilities PMI27Some Terms of Employment PMI27Linking the Resources, Core Competency, Capabilities with Functional Level Strategies for Value Creation29Company Structure and Control System33Division and departments33Top Management35Company structure and control system44Value chain analysis45Primary activities46Support activities47Strategic Analysis (4P)48Position48SWOT Analysis51Strength51Weaknesses53Opportunities54Threats54Proposed Business Model55Cost Minimization Strategy56Conclusion0Recommendation1Corporate Level Strategies1Business Level Strategies2Functional Level Strategies4

Executive Summary

This report has been conducted on Philip Morris International, a global tobacco company, entered in Bangladesh with the collaboration of local giant Akij Group. The purpose of the study remains at the core of finding the three level strategies pursued by PMI to sustain in the competitive industry and also to safeguard their business and growth. However, to satisfy the purpose we have conducted a systematic analysis externally as well as internally on PMI and the tobacco industry in determining the competitive position it acquires compared to its competitors. In finding the reason behind the success entrance of PMI, its core competency for instance, the worldwide brand recognition and leading-edge R&D came into the view in every aspect of the study. Because of the fact that PMI will have to go long way to be the market leader, PMI has been recommended with a proposed business model and some alterations in three level strategies so that the company can cherish the triumph even in the long run.Furthermore, due to a lack of time allowed to compute all the data a very deep tentative research was not possible, however a satisfactory analysis of the company within the time frame was constructed.

Introduction

Its been almost three thousand years tobacco has been smoked. In a magazine Lafferty (2014), told about the history of smoking, Christopher Columbus found it when he landed in the Americas in 1492, but ancient temple carvings show tobacco being smoked in Central America as long ago as 1,000 BC. From the very beginning tobacco has arrived, it has divided opinion, sparked controversy and generated substantial revenue through tax. Tobacco consuming rate in Bangladesh is also very high. According to research of Barkat (2012), Over 58% of men and 29% of women use some form of tobacco, whether smoked (both cigarettes and bidis) or smokeless. In 2012, an estimated 46.3 million adults used some form of tobacco product, smoked or smokeless. Most smokers are male 28.3% of adult men smoke manufactured cigarettes and 21.4% smoke bidis. In contrast, smokeless tobacco use is substantial across both genders, with 26.4% of men and 27.9% of women using some form of smokeless tobacco. The companies doing business in Bangladesh in this industry are: British American Tobacco, Philip Morris International, Dhaka Tobacco Company, Alpha Tobacco Company, Sonali Tobacco, Abul Khair Group, Nasir Gold Tobacco, Imperial Tobacco etc. Because tobacco, the main constituent of cigarettes, isthe single greatest cause of preventable death globallyand isaddictive, the company's operations (and its competitors) are highly controversial and are increasingly the subject of litigation and restrictive legislation from governments concerned about the health impacts of its products.

About the company

Philip Morris International Inc. (PMI) is the leading international tobacco company, with the worlds top international brands, including Marlboro, the worlds best-selling cigarette brand. According to data of PMI (2013), PMI held an estimated 15.7% share of the total international cigarette market outside of the United States, or 28.3% excluding the Peoples Republic of China and the United States. 2013 was the sixth consecutive year that saw them meet or exceed their mid- to long-term adjusted diluted earnings per share (EPS) growth target of 10-12%. This consistent level of double-digit currency-neutral EPS growth puts us at the forefront of all major global consumer products companies. Phillip Morris International entered in Bangladesh Tobacco Market by doing an agreement with Akij Group of Industries in the year 2008. Later on, both the companies came into an agreement that the production and distribution of the brand Marlboro will be done in collaboration with Dhaka Tobacco of Akij Group but the management, executive and other legislative departments will be directly supervised by Phillip Morris Management SA. Thus PMI launched their only brand in Bangladesh Marlboro.

Mission

Invest in Leadership: We will invest in excellent people, leading brands and external stakeholders important to our businesses' success.Align with Society: We will actively participate in resolving societal concerns that are relevant to our businesses.Satisfy Adult Consumers: We will convert our deep understanding of adult tobacco consumers into better and more creative products that satisfy their preferences.Vision

Provide high quality and innovative products to adult smokers, generate superior returns for shareholders, and reduce the harm caused by smoking while operating our business sustainably and with integrityWhy we have chosen this company

Philip Morris International Inc.(PMI) is an American global cigarette andtobaccocompany, with products sold in over 200 countries with 15.6% of the international cigarette market outside the United States. Their international and local brands are sold in more than 180 markets. They have the industrys strongest and most diverse brand portfolio, led byMarlboro, the worlds number one selling brand. In Bangladesh, British American Tobacco Bangladesh (BATB) is the number one tobacco company in tobacco industry of Bangladesh, which was incorporated in 1972. Accrding to the research of Rahman (2010), The market share of BATB is around 44% in the Dhaka Metro. In this high competitive market PMI is also doing well. So, we have chosen this company because we wanted to study how they are doing their business. Moreover, we wanted to find out what are the strategies that they use to sustain in this competitive industry and what are their core competencies. Purpose

In Bangladesh tobacco industry they are doing good business in highly competitive market. PMI is fighting with leading brands BATB. So, we wanted to study on their business strategies which are helping them to succeed and do a research on the industry it belongs to.

Which industry PMI belongs to

Philip Morris International Inc.(PMI) belongs to the tobacco industry. Itsthe leading international tobacco company, with seven of the worlds top 15 international brands, including Marlboro, the worlds best-selling cigarette brand. In Bangladesh, British American Tobacco Bangladesh (BATB) is on the top in tobacco industry of Bangladesh, which was incorporated in 1972 and it alone has 44% share in Dhaka city. So, PMI is still fighting in this highly competitive market.About 58% of men and 28.7% of women smoke or chew tobacco in one of the cheapest tobacco countries across the globe making up 43% of its total adult population, it showed. Bangladesh ranked among top tobacco consuming countries where 57,000 people over the age of 30 die each year from tobacco-related illness. The survey revealed that tobacco consumption in Bangladesh sharply rose in recent years, with cigarette sales going up by 40% and tobacco use in the form of bidi increased by 80% between 1997 and 2010. Compared to 50.9 billion cigarettes bought in 1997, the consumption was 71.8 billion pieces in 2010, while bidi sales climbed from 43bn in 1997 to over 81bn in 2010.

Industry Analysis

Bangladesh ranked among top tobacco consuming countries where about 58% of men and 28.7% of women smoke or chew tobacco (HDRC, 2010). According to Global Adult Tobacco Survey (2009), the total smokers in Bangladesh are 20.3 million. The tobacco industry is mainly driven by young population growth and innovative value chain strategy. The overall tobacco industry can be divided into two market segments: Bidi market and Cigarette market. The Bidi market is comprised of 69% of the tobacco industry and by far it dominants the industry. However, recently the Bidi market is experiencing decline in sales. The other segment of the tobacco industry is the Cigarette market. Cigarette is one of the leading segments in the tobacco industry of Bangladesh that is comprised of 31% of the industry. The Cigarette market can further be divided into four segments: Premium, High, Medium and Low market segments. Bangladeshs annual cigarette sales are now estimated at more than Tk 10,000 crore. The cigarette industry is growing at a rate of 3.4%. The cigarette industry of Bangladesh has been approached to maturity stage in the recent years. Overall cigarette industry experienced a slump in 2013 because of turbulent external factors which progressively worsened towards the end of the year. Moreover, the consistent rise in excise duty and regulatory restrictions are the biggest challenges for the sector. Therefore, companies try to find innovative strategies in terms of qualities, pricing and marketing to cope up with the challenging environment where they can operate and maintain competitive advantages. The segment growth varied during the year. The Low segment, which was growing over the last few years, witnessed a slow down this year. The Medium and High segments were more resilient due to product quality and favorable market dynamics. The Medium segment took a sharp decline in the first half but made a partial recovery during the latter half of the year. The High segment which was on a declining trend in previous years started to recover in 2013 due to prudent pricing and distribution expansion. However, the Premium segment once again came under heavy pressure and experienced a decline after the mid-year price increase. Price hikes by cigarette manufacturers in the second half of the year resulted in an improvement of the profit margins despite a low sales volume. Historically in the cigarette segment, sales volume decline due to price hikes has always been temporary and has recovered within a short-time span. The trend is expected to continue this round and cigarette manufacturers are expected to show better revenue and profit growth in the upcoming years.Industry Structure and Major Players of the IndustryThe current cigarette industry of Bangladesh is oligopoly in nature with limited number of players. Cigarette industries follow different segments for marketing and satisfying customers. Due to high entry Barriers such as huge capital requirements, strict rules & regulations, incumbency advantage, unequal access to distribution channel, economies of scale and have made it difficult for new firms to enter the industry. Currently there are four market segments in tobacco industry- Premium, High, Medium and the Lower segments. Not all the companies in tobacco industry cover these segments. Dhaka Tobacco covers the premium and lower segments, Sonali Tobacco, Abul Khaier Tobacco and Alpha Tobacco operates in the lower segments of the tobacco industries. Only BATB operates in all the segments of the market. However, there are some individual importers who import some branded cigarette like Dunhill, Camel, Black etc. In every segment there are various brands which may cause the brand dilution.Premium brand is the higher brand of cigarette in the market. There are various brands which could be considered as the premium brand. Basically in Bangladesh there are Benson & Hedges- regular, lights and Marlboro- regular and lights are the two brands which operate in the premium segment. Market of the premium segment is not very big and this is not a cash cow too for any firm, but it provides the brand image. Now in Bangladesh there are only two companies operating in this segment. Even though British American Tobacco is the market leader of tobacco industry in Bangladesh, it faces fierce competition from the new entrant Marlboro of Philip Morris International. Marlboro entered the Bangladesh market in partnership with Dhaka Tobacco Industry, a concern of local tobacco giant Akij Group. In the premium cigarette segment, BATB holds approximately 66% of the market share and rest of the market share held by Philip Morris Bangladesh. Controlling forces of profitability & Industry ProfitabilityControlling forces for profitability for the cigarette industry in Bangladesh are; Quality of the product Consumption Efficient Distributing Channel Customer satisfaction Cost and time Efficient Innovative marketing strategy like below the line marketing activity Government rules and regulation

Industry profitability includes major key points like: Customer base and strong customers relationships Growth of the country Customer demand and usage Government rules and regulations Role of suppliers Role of the local distributors

Segments of Cigarette

SegmentsBATBPMI & Dhaka TobaccoAbul Khair TobaccoSonali Tobacco

PremiumB&H- FF and BGMalboro-Red and GoldN/AN/A

HighGold LeafN/AN/A

MediumJPGL, Pall MallCastle

LowStar, Capstan, Pilot, Scissors, Gold FlakeNavy, GoldMine, K2, SheikhMarise, Top10, Gold LifeGold Hill, Sunmun

Market Shares

Industry Life Cycle

General Environment Analysis

Political

Political factors have a positive effect on the industry

Political instability is a common scenario in Bangladesh. The clash between the two major parties hampering the economic growth of this country. Bangladesh economy had faced a difficult time in 2013 as the clash between the two parties and their allies was very intense. Tobacco industry as a whole suffered a lot, as the production and the distribution system was affected by the political instability. The political clashes has reduced a lot after the controversial 5th January election. Awami league as a ruling party has a strong position and from the recent action of the opposition it is clear that the political situation of this country will remain same for at least next few months. Current governments have a favor towards the tobacco industry and it didnt increase the tax for last three years due to lobby by the lawmakers. Politicians consider the Tobacco industry owners and the workers as their potential vote bank, so many MPs are trying to make sure that the tobacco business stays out of trouble. EconomicEconomic factors have positive effect on the industry

In Bangladesh, the gross domestic product (GDP) in Fiscal Year 2013 (ended 30 June 2013) grew by 6.1%. This growth rate is not good compare to last few years but it is still good enough for a developing country like Bangladesh. The foreign exchange is a key factor for our economy because As Industry grew by 9.0% and our industrial capital goods are heavily relies on imports. For this we need a stable exchange rate and the good sign is that its stable and still in a good move since 2012.Inflation is a key indicator of an economy because purchasing powers of individuals heavily rely on inflation. The current inflation rate is 7.44 which is still good compare to 2010. Due to political instability it is really difficult to keep it in this figure but it is still in good figure because food inflation is not rising too much as it is predicted.The unemployment rate is on average near about 5% in last five years. The problem is that the most unemployed people are underemployed. People are engaged more in agricultural sector than it requires are the main reason of the underemployment. But people are slowly but gradually moving to the manufacturing sector for searching a better live hood. Though they are not skilled in this sector but as the labor cost is still low and as they are interested in this sector it is not difficult task to make them skilled workforce through the training process.The access of credit is not so easy at this moment because some loan manipulation has occurred in last years. But it is not yet tough if the business idea and process is good enough. Besides at this moment bank has excess money supply because political uncertainty deterred investment. So it is easy to get the credit at lower interest rate and it is really helpful for a business. After all we have a close look in global economy because global economy influences a lot in our local economy because of globalization. SocialSocial factors have a negative effect on the industry According to the World Health Organization (WHO) Bangladesh is worlds one of the highest tobacco consuming country. According to them Bangladesh has about 20 million male smoker. So it is obvious that cancer patients in Bangladesh is high. The tobacco related death rate is 5% higher than India. People are becoming aware of the causes and consequences of cancer, but many people smokes even after knowing that it causes death. There are social causes behind this. In this densely populated country people are having different kind of problems and frustration regarding various issues is growing among them. It is seen that smokers smoke a lot when they are under pressure. Adventure seeking teens sometimes try smoking and they get used to it and they cant give up, sometimes kids see their parents smoking and try to copy them, sometimes friends are the reason behind smoking. Many people dont like smokers and there are many organization who prefer to recruit nonsmokers. Government and social organizations runs different anti-smoking campaign to make people aware. Anti-tobacco campaigns are getting success, many people giving up smoking or trying to give it up. There is also a pressure from the family members to give up smoking, many parents today talks about the bad effects of smoking and discourages their kids. TechnologicalTechnological factors have positive effect on the industryTechnological factors affect the operations of any industry. In Bangladesh almost all the existing tobacco companies follows the same technology. For e.g. inspirer of being an international organization Phillip Morris uses the same technology and factory as the local company Aziz . Where Aziz produces cheap cost biri and PMR produces high quality cigarettes. The making process of all the cigarette are almost the same. It is the raw materials that is different. The tobacco industry in Bangladesh are offering different flavors and taste of cigarettes. This is because of the available technology are enough for the industry to offer new things every once in a while. EnvironmentalEnvironmental factors have negative effect on the industryTobacco industry can be identified as an enemy of the environment. This is because tobacco are plants that needs to be cultivated but these plants make the land fertile for growing more tobacco and makes it incapable of growing any other thing. In a country like ours where we are highly dependent on agriculture the entry of tobacco in agriculture is bad for the environment. It is making the land incapable of producing crops that are really needed. Moreover growing tobacco are getting more attractive to the farmers because of the financial assistance from the tobacco industry and also higher income. If more and more farmers gets interested in cultivating tobacco it is a real danger for the environment because the amount of fertile lands will decrease.Tobacco industry also leads to extensive deforestation because they need to make room for new crops and also the need for timber to fuel the heaters to dry tobacco leaf.The environmental impact of tobacco production has been taken up by the major tobacco companies as part of their portfolio for corporate social responsibility. The major tobacco companies display their environmental credentials by describing on their websites their adoption of sustainable and low-impact practices from farm to factory. But no matter how clean or green tobacco production can be, ameliorating environmental concerns ignores the most obvious environmental impact of tobacco productionthe deaths of almost five million people worldwide each year.Currently British American tobacco is cultivating tobacco in Bangladesh on the other hand Phillip Morris is importing their tobacco from other countries. But it is only a matter of time. Soon they are also expected to start their cultivation operation in Bangladesh.LegalLegal factors have a negative effect on the industryWhen doing a business in a particular country a company must follow the rules and regulations of that country. Legal issues has a huge influence on the industry. Laws varies from country to country, state to state. Bangladesh has laws that regulates the tobacco industry and it became a Party to the WHO Framework Convention on Tobacco Control on June 14, 2004. The Smoking and Tobacco Products Usage (Control) Act, 2005, which is amended by the Smoking and Tobacco Products Usage (Control) (Amendment) Act, 2013, is the principal law governing tobacco control in Bangladesh. The Smoking and Using of Tobacco Products (Control) Rules, 2006 provide further guidance to the extent they do not contradict with provisions of the Act. The most important features of the amended law are:All kind of smokeless tobacco came under law. Accordingly leaves, roots, branches and other parts of tobacco or such plants should be treated as intoxicants. In addition to smoking tobacco, tobacco powder (gul), aromatic tobacco (jorda), processed tobacco (khoyni) and white leaves (Sada pata) of tobacco will be considered as tobacco products.Pictorial warnings, covering 50% of the surface, on both tobacco packet sides (also for chewing tobacco and bidis) are included. They should be combined with written messages.The definition of public places & public transports is elaborated. Covered restaurants, workplaces & festival venues are to be considered as public places. The fines for smoking at public places or transports has been increased from 50 taka to 300 taka. Furthermore, owners/managers of public places/transports will also be liable for ensuring their places/transports to be smoke free.All direct and indirect advertisements and promotions for tobacco products are banned. Also sponsorships and CSR (corporate social responsibly) propaganda by tobacco companies are banned. Additionally, smoking scenes in films, video documentaries or in TV dramas are a punishable offence.The sale of tobacco to or by minors is banned. The fine for violation is 5.000 taka.The law also formally established the National Tobacco Control Cell (NTCC) at the Ministry of Health & Family Welfare. NTCC will work for the proper implementation of the law, monitor tobacco control activities, research on tobacco control and do related activities/actions on tobacco control.Bangladeshs tobacco tax structure is complex. In Bangladesh an excise tax is imposed as a percent of price of the tobacco products. This excise tax varies significantly across tobacco products and brands. Cheaper brands have much lower tax rates than expensive ones. The tax structure for cigarette is a tiered structure that imposes different ad-valorem taxes based on retail price slabs. A VAT of 15% on all tobacco products is applied to all tobacco products. Competitive Environment Analysis

Porters Five Forces AnalysisThreat of new entrantsTobacco industry of Bangladesh is now in a maturity stage as the people of Bangladesh are aware of the product and there is a huge group of customers who enjoys smoking and have chosen their preferred brands. However, threat of new entrants is low because of following reasons:Barriers to entry

Tobacco industry contains some sophisticated rules and regulations. There are certain numbers of legal barriers to enter this market because tobacco is injurious to health and it also creates negative impact on the environment. Some foreign well known cigarette producers are already in the market, some local investors also has joined the race. So, it will be very difficult for a new company or brand to compete with those existing market pioneers. Government and legal conditions

Government and legal barriers are very high for new entrants as tobacco contains nicotine which is very dangerous for human health as well as the environment. Health concerns have fostered legal and regulatory pressures and it limits the growth prospects of this mature industry. Moreover government has strong barrier of marketing and advertising such kinds of products. At the moment, there are two main tobacco industry associations i.e. Bangladesh Cigarette Manufacturers Association (BCMA) and Bangladesh Biri Manufacturers Association (BBMA) representing the industry. These associations also have strict policies of producing cigarettes. Huge capital requirements

To compete with the existing companies a new company has to invest a lot of money. Tobacco industry needs a great amount of capital investment. Technological advancement now has taken the industry in a new standard and the existing companies are using new technologies to give the consumers more value. To compete with them a new company has to invest a great amount of money for buying modern equipment and machineries. Economies of scale

The existing firms are running their operation for many years. So it is hard for a company to enter with a new spirit to compete against the cost advantage of other competitors. The industry is very price sensitive in nature. It is also a stick selling market, which means that most of the tobacco consumers normally buy tobacco in sticks, not in packs. These two features-price sensitive and stick selling-influences the business philosophies of the companies. So it is a disadvantage for the new company. Access to distribution channel

Bangladesh government has strict policy against direct advertisement of tobacco. So distribution channel needs to be very strong to sell the product and increase the consumption of tobacco. Moreover, a new entrant may have to persuade the distribution channels to accept its product by providing extra incentives which reduce profits.Product differentiation

Product differentiation creates a barrier to entry by forcing entrants to incur expenditure to overcome existing customer loyalties. Tobacco industry of Bangladesh is no longer in a growth stage. The existing companies have different categories of cigarettes for different customer segments. This is a very challenging task for the new entrants because consumers are familiar with the existing products and they are habituated in consuming these. A new company has to recruit a trained workforce who can accept the challenge.Cost advantage independent of size

Existing companies has cost advantage not related to size. The existing firms has expanded their business for many years. They are enjoying cost advantage because of their land, technology, management, supply chain system, know-how, distribution channel and loyal customer base. For a new entrants it is very difficult to compete with these points.Expected retaliation

Expected retaliation from the competitors are very high because strong and powerful companies are involved in this industry. The new entrants in this marketplace will be treated seriously by existing firms, they may find themselves under attack by these incumbents. The number of competitors who will retaliate is high, they are holding a large portion of the economy, and they are capable of controlling the access of resource and distribution channel, last of all they have capability to influence government and local bodies.

Bargaining power of suppliersThe main components of production of cigarettes are cigarette paper, seam glue, tiffin paper, tiffin glue, filter paper, plasticizer, tobacco, ink, cigarette butt or filter. The bargaining power of suppliers are low because of following reasons:Supplier concentration

This is an advantage of supplier. But in the tobacco industry this advantage is missing. Because the companies like British American Tobacco, Dhaka Tobacco Industries, Abul Khair Tobacco, Nasir Tobacco, Azizudin Industries and New Age Tobacco produces their tobacco in the rural areas of Bangladesh. Philip Morris imports its tobacco. Other components are also imported by them. So the suppliers are fragmented and their bargaining power is also low.Switching cost

There is no point of switching cost because the companies are engaged in vertical integration as the companies produces their raw materials by using their own resources.Threat of forward integration

Threat of forward integration is very low because the companies produces their raw materials. Only they import their machineries from different organization but they are not really a threat because they are operating in a different manufacturing industry. Moreover, it is a risk for the new entrants because the industry switching cost and legal barriers are very high.

Threat of SubstitutesThough cigarettes are by far the most common form of tobacco product used in the whole world, it is not the only form. There are many substitute tobacco products for cigarettes. Most of these products are very often used by the people who are in a period of quitting the habit of smoking. All the substitute products and the level of threat posed by them is given belowBidis: Threat of smoking bidis is very low as these are products that consist of hand-rolled tendu leaves containing low-grade tobacco and are tied up with string. Thus premium cigarette smokers are not likely to convert towards bidis.Chewing tobacco: Chewing tobacco like Jorda is very popular in Bangladesh. They have a very large number of consumers. Usually they come up with Beatle-nut and posing a constant low level threat as a substitute of cigarette. Cigars: The threat of smoking cigar is moderate. The appeal of many flavors, cigars have traditionally been taxed at a much lower rate than cigarettes, resulting in much lower consumer prices.Pipes: Pipes use black tobacco which carries a higher risk giving a mortality rates of 20 - 40% higher. Water pipes, also called Hookahs or Shisha have become more popular in very recent years among teens and young adults. Therefore the threat seems to be pretty much moderate.Natural cigarettes: Threat is high as these cigarette brands are advertised and heavily promoted as safer because they are additive-free but they contain chemicals which are extremely dangerous when burned and inhaled. PREPS: This stands for "Potentially Reduced Exposure Products". These are alternative tobacco products put out by various tobacco companies with the explicit or implied claim that they are less harmful than mainstream products. They have been approved to help with smoking cessation and obviously posing a very high threat. Herbal Cigarettes: Herbal cigarettes also called tobacco-free cigarettes or nicotine-free cigarettes are cigarettes that do not contain any tobacco, instead being composed of a mixture of various herbs and other plant material. They are often used as a substitute for standard tobacco products, and many times are promoted as a tobacco cessation aid. So the threat from this is very high.E-cigarettes: An electronic cigarette is a battery-powered vaporizer which simulates tobacco smoking by producing a vapor that resembles smoke. As people have a perception that e-cigarettes are safer than smoking tobacco products and possibly as safe as other nicotine replacement products, therefore it is also posing a very high threat to this cigarette industry.Bargaining Power of BuyersConsidering the fact that cigarette is an individual consumer product, the buyers that can be detected for cigarette industry is just the consumers and the retailers. Consumers: The consumers are the ultimate buyers of the cigarettes. Illustrating some factors of the consumers of cigarette industry like the high brand loyalty of consumers, habituation factor and addictiveness makes the consumers a bit weaker in terms of the bargaining power. The consumers usually do not shift to other brands than what they are habituated to smoke. Moreover it is not a habit that can be easily ceased which puts the consumers in a position not to pose very high power while bargaining. On the other hand considering the economic and pricing factor, many of the consumers in a consumer insight generation survey by Phillip Morris International in 2014 inferred that constant increase in price due to high duty on cigarettes might cause them to shift towards lower priced brands or reduce smoking or quit. Therefore, analyzing the above situation the bargaining of consumers can be taken as moderate in cigarette industry.Retailers: Another primary buyer of cigarette industry is the retailers who sell cigarettes to the consumers. A retailer insight generation survey by Phillip Morris International in 2014 reveals that the bargaining power of retailers in cigarette industry is low as because of the consumer demand and other trade marketing factors, they have very little to say in case of exerting their power. Intensity of RivalryThe competitive rivalry in the Tobacco industry of Bangladesh is very high. Since the inception of Marlboro brand in Bangladesh in the year 2008, the intensity of rivalry in the 10 billion premium cigarette market has been increased multiple times. There are also some different factors that are fueling the rivalry among the companies in Tobacco Industry of Bangladesh.The process of new technology creation, utilization, and commercialization ultimately leads to changes in organizational patterns, and in particular, strategic alliances and mergers and acquisitions as firms restructure themselves around the opportunities being created. For example to enter in the market and compete with the market leader BATB, PMI went for strategic alliance with volume leader of Tobacco industry of Bangladesh Akij Group. Besides, innovative technology, marketing and branding strategies are constantly used by the two major competitors in premium market, BATB & PMI to compete with each other. Besides, new technologies are being used constantly to market innovative products. The new launched high technological product of BATB is B&H Fine Cut. To compete with PMI is bringing another high technological product with ultra-modern technology to provide smell free smoking and charcoal filter. So the rivalry in premium market is extreme. Besides in medium and low segment the competition is not as fierce as the premium segment, although in low segment Navy & Star are tough rivals competing each other.Industry Rival

In Bangladesh Tobacco industry, competitors are heterogeneous. Companies differ themselves in terms of resources and capabilities and seek to differentiate their products from competitors. For example BATB has the most efficient supply chain for which taking advantage greater availability of their product and thus outperforming immediate competitor PMI in premium cigarette category. Rivalry intensify

Competition in Tobacco Industry of Bangladesh is too much intensified because many almost equally balanced competitors are there in every segment. Industry growth as mentioned earlier is somewhat moderate which a big issue is also. Moreover, fixed cost and storage cost is very high in Tobacco industry. Lastly, the exit barrier is also very high in Tobacco industry of Bangladesh due to specialized assets, fixed costs of exit, strategic interrelationship, emotional barriers, government and social restriction etc.

Macro-environment affecting Porters Five Forces

The macro-environment is grouped into seven environmental segments:1. Demographic 2. Economic 3. Political/Legal 4. Sociocultural 5. Technological6. Global7. PhysicalIn Tobacco industry, to successfully deal with uncertainty in the external environment and achieve strategic competitiveness, companies must be aware of these segments. These are the segments which indirectly creates both opportunities and threats for the companies.Demographic

Demographic segments are commonly analyzed on a global basis because of their potential effects across countries borders and because many firms compete in global markets. Population size, Age structure, Geographic distribution, Ethnic mix and Income distribution are the factors that are playing a big role in the tobacco industry of Bangladesh. As a result this segment is inducing bargaining power of buyer

Economic

Usually price increased do not affect the brand loyal segment, but the lower segment gets influenced with the price increase. Price increase may depend on lot of factors, like increase in tax or the price increase of the raw materials. And with his increase in the purchasing power and economic emancipation, consumers will shift to higher segment brands. This segment induces threat of buyers and threat of competitive rivalry.Political and legal

Due to political instability Tobacco industry as a whole suffer a lot, as the production and the distribution system is affected. Besides, legal issues has a huge influence on this industry. The regulations for a tobacco company is usually more than other FMCG companies. In Bangladesh it is even getting stricter day by day because of recent amendments. This segment induces threat of suppliers and threat of new entrants. Sociocultural

Increasing awareness of the consumers might well affect the sale of the brands. Increasing health campaign, awareness and lifestyle of people also affect the consumption of cigarettes. Like more stressful life can lead to more consumption of cigarettes. People also get influenced in choosing their brands influenced by their peer or reference group. Threat of substitute and threat of buyer is covering this segment.

Technological

The production of cigarettes and quality control and checking can have influence on the overall production process to a great extent. Import of new machinery includes a lot of internal communication with the factory workers to make them understand the operation and also to reduce their fear of getting laid off because of the new machinery. Threat of suppliers is an issue in this segment.Global

Global market has very little to influence the tobacco industry of Bangladesh interms of direct product import. As directly importing tobacco has a very high excise duty so importing globally produced is not an efficient way to cigarette business in Bangladesh. On the contrary most of the machineries that are being used to produce cigarettes are imported. Thus bargaining power of buyers is a factor of this segment.Physical

This segment refers to potential and actual changes in the physical environment and business practices that are intended to positively respond to and deal with those changes. Considering the factors like Minimizing a firms environmental footprint, Availability of water as a resource, Producing environmentally friendly products, Reacting to natural or man-made disasters; obviously a tobacco cannot go with this factors as cigarette is a product that instead harms people health. But corporate social responsibilities done by these tobacco companies can be major issue to cover this segment. All the five forces of porters induce this segment.

3I Analysis

3I represents Immediate, impediment and invisible competitors for a company. The 3I analysis of Philip Morris Bangladesh is given below Immediate competitors

Philip Morris only produces Marlboro cigarette in Bangladesh and it is a premium brand. They have two types of cigarette one is Marlboro Red and another one is Marlboro Gold. Both of them are same in price. The immediate competitor to them is British American Tobacco and if we consider as brand then it would be Benson & Hedges. It has four sub brands within the same price range of the Marlboro cigarettes. These are Benson & Hedges Full Flavour, Benson & Hedges Blue Gold, Benson & Hedges Switch and Benson & Hedges Fine Cut. Core Competency of BAT

BAT has a very strong distribution channel. Their system of monitoring is very up to date. Benson & Hedges is coming up with new flavors of cigarettes within the same price range.Impending Competitors

If the other tobacco companies with low market share operating in Bangladesh come up with a premium brand then they can become impending competitors of Philip Morris. Currently along with BAT there are Abul Khair Tobacco, Nasir Tobacco, Alpha Tobacco and Azizuddin Tobacco who are dominating the medium and low price segment of cigarette. If they come up with a premium brand they can become an immediate competitor of Philip Morris. But currently they are the impending competitor of Philip Morris. Invisible Competitors The potential invisible competitor is Japan Tobacco International or JTI. JTI, acquired in 1999 from R.J. Reynolds, is an operating division of Japan Tobacco Inc., handling the international production, marketing and sales of the group's cigarette brands. It sells Camel, Salem, and Winston brands outside the USA. They can enter into Bangladesh with their widely held brand Camel & Winston which are also seems to be popular among many of the Bangladeshi Consumers. Among this two Winston falls under premium cigarette category which might be a potential competitor in the premium cigarette market of Bangladesh.

SWOT Identification

Matching External Analysis with Opportunities and Threats PESTLEPolitical- PositiveEconomical- PositiveSocial- NegativeTechnological- PositiveLegal- NegativeEnvironment: Negative

Opportunities: Number of smokers increasing. According to WHO there are 21.9 million smokers in Bangladesh. The young people (15 to 24) is 20% of the countrys total population, so there is a huge market opportunity considering these young customers. Purchasing power increased as a result migration from cheaper cigarettes to premium brands increasing. Increasing push sales through retailers by providing them attractive incentives and training. Introducing light cigarettes and smokeless cigarettes Introducing a High end product to compete Gold Leaf. Adding value by introducing new technologies

Porters 5 ForcesThreat of new entrants- LowBargaining power of buyers- ModerateBargaining power of suppliers- LowThreat of substitutes- ModerateRivalry among firms- High

Threats: Anti-smoking campaigns are getting popular and awareness is increasing. Tobacco regulation laws and taxation policies are very strict. Pressure from the environmentalists, as tobacco has a very adverse effect on the environment. Intense competition between the existing firms BAT and other tobacco companies already have loyal customer base. Political situation is mostly unstable; a change in government may seriously affect the entire industry.

Matching Internal Analysis with Strengths and WeaknessesStrengths: Investing heavily in brand development and innovation Continually researching to improve customer satisfaction and creating loyal customer group Unique promotional and aggressive marketing strategies Forming strategic alliance with local player Akij Group Strong and dedicated management team The parent company Philip Morris International, USA is a top class cigarette manufacture and its brand Malboro is widely recognized

Core competenciesStrong Brand Recognition Leading-Edge R&D

Industry wants the following factors:Strong Customer BaseContinually Innovation and Product DevelopmentCustomer ResponsivenessComplying with tobacco rules and regulationsEfficient Distribution ChannelEfficient Supply Chain ManagementBrand RecognitionDiversified portfolio of products

Core competencies of competitorsStrong distribution channelDiversified portfolio of products

Weaknesses: Due to limited manufacturing facilities PMI cannot offer all of its popular brands (like L&M, Camel etc) Not diversified in terms of geographical operations(e.g. their current market is mainly in Dhaka and Chittagong) and products both Even though the companys performance is good, still BATB is the dominant player in the industry (especially in premium cigarette market) The immediate competitor BATB has World class operations (Supply chain) and Inventory management system The companys distribution channel is not strong enough compare to its competitor BATB

SWOT Identification TableStrengths Weakness OpportunityThreats

Investing heavily in brand development and innovationDue to limited manufacturing facilities PMI cannot offer all of its popular brands (like L&M )

Number of smokers increasing. According to WHO there are 21.9 million smokers in Bangladesh.Anti-smoking campaigns are getting popular and awareness is increasing

Continually researching to improve customer satisfaction and creating loyal customer groupNot diversified in terms of geographical operations(e.g. their current market is mainly in Dhaka and Chittagong) and products both

The young people (15 to 24) is 20% of the countrys total population, so there is a huge market opportunity considering these young customers.Tobacco regulation laws and taxation policies are very strict

Unique promotional and aggressive marketing strategies

Focusing only on premium market segments where as BATB currently offering medium and medium segments customers besides its premium brandPurchasing power increased as a result migration from cheaper cigarettes to premium brands increasing.Pressure from the environmentalists, as tobacco has a very adverse effect on the environment

Forming strategic alliance with local player Akij Group

Even though the companys performance is good, still BATB is the dominant player in the industry (especially in premium cigarette market)

Increasing push sales through retailers by providing them attractive incentives and training.Intense competition between the existing firms

Strong and dedicated management team

The immediate competitor BATB has World class operations (Supply chain) and Inventory management system

Introducing light cigarettes and smokeless cigarettesBATB and other tobacco companies already have loyal customer base.

The parent company Philip Morris International, USA is a top class cigarette manufacture and its brand Malboro is widely recognized

The companys distribution channel is not strong enough compare to its competitor BATB

Introducing a High end product to compete Gold LeafPolitical situation is mostly unstable, a change in government may seriously affect the entire industry

Adding value by introducing new technologies

5

Business Canvas Model of PMI

Business Canvas and Current Model of Philip Morris International

Key Partners

Equity Partners

Philip Morris International Bangladesh operates as a subsidiary of Philip Morris International, Inc. Phillip Morris International entered in Bangladesh Tobacco Market by signing an agreement with Akij Group of Industries in the year 2008. Both the companies unite their respective business activities by transferring selected assets and liabilities, with each party holding an equal economic interest. Later on, both the companies came into an agreement that the production and distribution of the brand Marlboro (in the premium segment) will be done in collaboration with Dhaka Tobacco of Akij Group but the management, executive and other legislative departments will be directly supervised by Phillip Morris Management SA.Event Management Partners

Due to strict tobacco control regulations, tobacco companies are not allowed to promote their products directly through print and electronic media. Therefore, Philip Morris International took a strategy to promote their product in an indirect way by arranging different luxurious events. PMI arranges different concert Rock Nation, Rock City, Rock Town and style (premium event) through which they promote their brand. To organize these types of events, they rely on their strategic event management partners Live Square, PaperFox, Bitopi Spotlight.

Partnership with government agencies and regulators

To comply with the rules and regulation Philip Morris International closely work with regulators and law enforcement agencies. Moreover, PMI also work closely with retailers and other partners to implement youth smoking prevention programs.Other Strategic Partnership

Philip Morris International has signed a global partnership with US-based NGO Verit to improve the working conditions on firms in the countries (including Bangladesh) where tobacco is purchased for PMI products. Verit has played a critical role, providing experience, advice and hands-on support from conception, to implementation, to monitoring of the ALP (Agricultural Labor Practices) Program. Key activities

Few key activities of PMI is giving them an extra edge. Being a global premium brand they need to maintain quality. So, to make it sure they import best ingredients for Marlboro. Another thing is a global organization can never run well if they dont hire best and qualified people. So, PMI also do that very carefully.To reach the customer and ensure satisfaction they make their product available everywhere and sometimes they are doing direct marketing as they cannot go for open advertising because of legal issues. Their creative employees keep working for different product innovation (like packaging), programs, events and other activities to reach their customer.

Key Resources

Strong Customer Base

PMI is one of the leading cigarette companies in the tobacco industry with approximately 17000 premium consumers out of a total market of approximately 54000 consumers (based on operations in the premium segment only in Dhaka City). BATB is their only direct competitor which is also the market leader having approximately 35000 consumers in the premium segment. Brand Value and Recognition

PMI has brand recognition around the world for its quality products and it is continually trying to boost its brand value even further by going through different important strategic alliances and partnerships. PMI has taken the different types of initiative to create its brand value and recognition for its premium brand Malboro. PMI heavily involve in consumers engagement to enhance its brand value by arranging different types of events like Rock Nation Concert, Be the One (a grooming session for upcoming business leaders) etc.Financial Resources

As PMI is a subsidiary of Philip Morris International Inc., therefore, it has a strong financial support from its parent company. Moreover, PMI Bangladesh has also the access to get the financial support from the countrys one of the successful tobacco giant Akij Group. Human Resources

Every enterprise requires human resources, but people are particularly prominent for this certain business model. Human resources are crucial in knowledge-intensive and creative industries like Tobacco industry because they rely heavily on human resources of experienced scientists and a large and skilled sales force.Physical resources

As a manufacturing company PMI heavily rely on capital intensive physical resources like manufacturing facilities, buildings, machineries, vehicles and distribution network. Value proposition

First of all, PMI produce Marlboro and it's an American global brand which is a premium class cigarettes. So, it has a brand value which gives the user a status that they belongs to social class A/B. Another thing is though Marlboro is a premium brand and they are comparatively lighter version compare to other still they have a Marlboro regular version which is a bit stronger. So that they can stick with the brand.For the variation they make innovative packaging and limited edition version which makes customer a bit different. PMI cannot do their advertising things openly because of legal issues so that they sponsor different events and sell limited edition cigarette with free gifts.Sometimes, they also go for direct marketing by their attractive and persuasive representative and make a very short survey afterward give some souvenir to them.Customer relationship

To maintain a good relation with customers PMI discourage their customers by showing safety and awareness issues like "Smoking kills" this things are written on the packet which reflects care for their customer.PMI targets basically below 30 aged people who are young and fun loving so for them they arrange concerts and other programs for young people. In those events they also sell Marlboro's limited edition with souvenir and those sells people are very smart, friendly, attractive and persuasive.Channel

Most of the time channel they use to deliver the value is individual small stores near us and another way is selling in different HORECAs. They also deliver the value through direct marketing and in different events they sponsor by their highly qualified employees. Usually non premium brand don't have particular shelf for Marlboro in superstores but as a premium brand PMI does that for Marlboro.Customer segment

The main product of PMI is Marlboro which they divide into different segments by finding out common interest of them. In segmentation they have made a link in geographic, demographic, psychographic and behavioral segment. First in geographic segment most of the customers of them are urban people who can afford Marlboro cigarettes. Marlboro is a premium brand which everyone cannot afford. Basically they are target age is legal age of smoking to 29, that means young people who belongs to social class only A and B. Most of them have high income or come from pretty well of family and they are educated. In this sense like BAT they dont have products targeting every segment. Now, if we think about their segment according to their behavior we found that most of them are young and enthusiastic. They pick Marlboro because they are not heavy smoker or sometimes occasional smoker who likes lighter version of cigarettes. Cost Structures

Cost structure of an organization is very important in determining the business model. PMI has quite a bit expensive cost structure as it is the largest cigarette companies in Bangladesh.Cost of Purchasing of raw materials

PMI purchases the high quality tobacco leaf from the farmers from more than 30 countries including Bangladesh. Therefore, PMI each year incur huge amount of costs for purchasing high quality raw materials which is a major source of the expense of the company.Fixed Costs and Employee Benefit Plans

The company has to bear large amount of fixed costs because of their production facilities, machineries, buildings and other equipment. Moreover, PMI provides a range of benefits to their employees to attract the most talented people in the industry. The employees benefit plans include employee pensions, postretirement health care and postemployment benefits (primarily severance). At December 31, 2010, our discount rate was 5.40% for their pension and postretirement plans. This rate was 50 basis points lower than 2009 discount rate.Marketing and Advertising Costs

To compete in this competitive industry PMI has flourished them by spending huge amount of money in advertising and marketing. With this strategy PMI has now captured almost 32% market share. The main target market of PMI is urban people. Through organizing different luxurious events they have reached almost 17000 premium customers but for that they had to bear lot of cost. Revenue Stream

PMI has only one revenue stream which is coming from the product they are offering Marlboro. As PMI follows the fixed pricing strategy, therefore, their revenue and earnings will boost up only when they could sell large volumes of cigarette. They constantly facing fierce competition from BATB in the premium cigarette segment, therefore, they are working hard to increase their revenue stream by targeting new market segments and trying to survive in the industry.

Current Business Model of PMI

As described in the business level, corporate level and functional level strategy of Philip Morris, they are upholding their flagship brand Marlboro using several strategies formulated by business, corporate and functional level strategy. To be specific, Differentiation strategy is the business level strategy they are following. Strategies like, strategic partnership, consumer engagement, trade marketing & promotions, quality control, regulation, research & development, effective branding, insight generation and all other strategies have led Marlboro for differentiation.

Core Competency

To point out, Philip Morris International has started operation in Bangladesh in the year 2008 with their flagship brand Marlboro. Since then its capturing the market share of premium cigarette segment. Now, the question definitely arises that on what basis in terms of competitive advantage, PMI is proceeding in the industry. After analyzing several resources and capabilities of Philip Morris International, it is inferred that the global brand image and recognition is the competitive edge that Phillip Morris have in the industry over their competitors. To mention, Phillip Morris International is the no.1 tobacco company which has operation in 180 countries. And regarding Marlboro, it is the only cigarette brand to be in the top ten most valued brand list globally. Therefore reputation of Marlboro globally is itself giving the brand a competitive edge over its competitors.

Corporate Level Strategy

Corporate level strategy is the key driver of a companys business model. A company fights for its position in a particular industry and the industry is evaluated and determined by the manager ranked higher in an organization. The main purpose of corporate level strategy is to make decision about which industry the company will run its operation. Another big role the corporate strategy plays is to determine the use of limited resources. Other strategy has to be linked up with corporate level strategy of an organization to get their preferable resources. It also determines the efforts and activities done with the business and functional level strategy. Now here will be a brief description about how the corporate level strategy works in the Philip Morris internationals Bangladesh operation.MissionBy providing better and more creative product; related to tobacco and gaining customer satisfaction is the main focus of Philip Morris. To compete with other brands and to ensure excellence in value creation for the customers Philip Morris will use their experience which was gained by operating in this particular industry for a long period of time.VisionProvide high quality and innovative products to adult smokers, generate superior returns for shareholders, and reduce the harm caused by smoking while operating our business sustainably and with integrity.

Ultimate objectiveAs a company which is newly operating in the market of Bangladesh, the ultimate objective of Philip Morris is to grab most of the market share of tobacco industry. Their main focus is on the consumers who are consuming or willing to consume premium cigarettes by providing them a smoother and perfectly blended tobacco smoking experience.Philip Morris is an US based company and now they are targeting the people of Bangladesh. They are focusing towards the Asian market more and more. Even they have operation in India but they dont have their operation in China as well. So we think that they are operating in Bangladesh to capture the Asian market slowly. So, there concern will be not to lose their brand value and by keeping this in mind we are analyzing their corporate level strategy. In Bangladesh Philip Morriss corporate level strategy:1) Strategic Alliance2) Product DiversificationStrategic Alliance

Philip Morris is one of the largest players in the tobacco industry. Recently in the year 2008 Philip Morris started their operation in Bangladesh. It was a clean whistle towards the market leader British American Tobacco. Because the main cigarette brand of Philip Morris is Marlboro which is the bestselling brand in the world. Marlboro is considered as a premium brand and obviously its closest competitor is Benson and hedges which is a premium brand of British American Tobacco. One of the strategies Philip Morris international uses is strategic alliance. They entered into a joint venture with Dhaka Tobacco of Akij Group. Dhaka tobacco is a local tobacco giant and it holds 40 percent shares of the local market by manufacturing mid and lower segment cigarettes. By making a strategic alliance named joint venture with Dhaka tobacco Philip Morris is basically using their agreement to produce and develop their product for the market of Bangladesh. Akij has launched the global tobacco leader Philip Morris's brand as a franchisee. After starting the operation in Bangladesh Philip Morris which is the US-based world's largest tobacco company audited, evaluated and validated the factory where the premium brand would be produced. As Philip Morris is using imported roasted tobacco and they are at the same time very much quality focused so they valued the facility of Dhaka tobacco as the most reliable source to produce its premium brand Marlboro. It helped them to introduce their flagship product Marlboro to Bangladesh. By using the agreement with Dhaka tobacco, Philip Morris has made their way to Bangladeshi tobacco industry smoother. Using the production and distribution of Dhaka Tobacco, PMI has captured almost 30% market share in the premium cigarette segment of Dhaka City. The operation of PMI is still limited to Dhaka City. Using the distribution chain they are planning to expand by the year 2015. Product Diversification Product Diversification is a primary form of corporate level strategy. In Bangladesh if we consider the whole market the number of consumers smoking a premium brand cigarette is very low. To compete and sustain in the tobacco market of Bangladesh launching a mid or lower brand cigarette is highly preferable to increase the market share and profitability. Keeping in mind Philip Morris is thinking about trying this concept within Bangladesh as well.In Bangladesh half of the people live below the poverty line but the tobacco consumption rate among this group is relatively high. In a research it has been found out that 10 million people in Bangladesh currently malnourished could have an adequate diet if money spent on tobacco were spent on food instead. So the number of consumers in this lower category segment is really high. To serve this segment BATB and different local tobacco companies have several brands. Moreover this lower category segment gives a large amount of revenue to the companies. According to an official of Philip Morris Bangladesh they are going to follow this product diversification strategy very soon. They are going to introduce lower brand cigarette for Bangladeshi market. And it can be said that if they launch lower brand cigarette their target market as well as revenue will increase. They will also be able to compete in a different segment. The Relation between Corporate Level Strategy of Philip Morris and Its Mission

So the corporate level strategies of PMI are Strategic Alliance and Diversification and their mission is By providing better and more creative product, related to tobacco and gaining customer satisfaction is the main focus of Philip Morris. To compete with other brands and to ensure excellence in value creation for the customers Philip Morris will use their experience which was gained by operating in this particular industry for a long period of timeThe strategic alliance strategy has helped both of the companies. It has helped PMI to use the facilities of Akij and as well as to use their distribution channel. Akij already has 40 percent shares in the local market who only produces the mid and lower segment cigarettes. With the help of Akijs distribution channel Philip Morris has already captured 30% of the market share in the premium cigarette segment of Dhaka city. They have different types of cigarette in the same price which helps them to grab more consumers in the premium brand segment. Philip Morris is a very experienced player in this industry. They have found that if they could refine the tobacco more and make the filter with more quality they will be able to capture the premium cigarette market. This has helped Philip Morris to grab a good amount of share in a very small time. Using the channel of Akij they are planning to expand throughout the country by 2015.The main goal of PMI is to gain consumer satisfaction by offering them better and creative products. In order to compete in heavily in the tobacco industry of Bangladesh where most of the people live under poverty line coming up with a lower brand will be helpful. In order to compete in the lower brand segment Philip Morris is planning to come up with a lower brand cigarette very soon. This strategy will help Philip Morris to gain more consumers from different segments. Moreover If they come up with the lower brand segment it is expected that their this move will be very successful as they are a very strong and old player in this industry and this will also help to the consumers to enjoy the brands of such a renowned cigarette manufacturer who ensures international quality. This will help Philip Morris to snatch the market dominance of British American Tobacco and other local cigarette manufacturer.Corporate Risk ManagementCorporate risk management is used to reduce every kind of possible risks of the organization. Corporate level management keeps eye on the risks of business level management and functional level management and give guidance to its operation. It also monitors the economic and social risks of the area of operation.

Brand name to capture the market

Philip Morris recently started their operation in Bangladesh tobacco industry. It is a strategic decision of the company to capture the Asian market more strongly. In these case the company is using their brand name to make it easier for their business level management by making it different from their rivals. They launched Marlboro in Bangladesh to compete with British American Tobaccos pioneer brand Benson and Hedges. So the brand name of Marlboro itself is a key to advertisement to the consumers. If they tried to enter the market with a new brand that will definitely slow down their operation in Bangladesh as people have to gather knowledge about a new product and sometimes it takes a lot of time to make people educated about a new product.Subsidy from India and Malaysia

Philip Morris operates its business internationally. In Asian market they are operating in India, Indonesia, Malaysia, Pakistan, Vietnam, Singapore, and Japan and now they set up their operation in Bangladesh. Bangladesh is a country where the tobacco industry is already established so it will take time to be the owner of major shares in this industry. Already British American Tobacco is dominating in this market. In Bangladesh the laws and regulations against cigarettes are strong but not as strong as the developed countries and maximum number of people are under the line of poverty so there is a huge price sensitive market which is really potential. But as cigarette is a price elastic product so people who are buying British American Tobaccos brand will keep consuming their favorite brand. Now as Bangladesh is not strong enough in implementing law suits and there are scopes to falsify the quality assurance so it is easier for other companies to start their business and keep running its business with loopholes. Keeping in mind Philip Morris decided to use subsidy from India and Malaysia if they face any challenges. Business level Strategy

An organizations main focus should be provide value to the customers. To do so, they have to think about the strategies by which they can gain competitive advantage. Competitive advantages separate a company from its rivals. To gain competitive advantage company has to focus on their core competencies. Business level strategy is very important because companys long term performance depends on it.Key Issues of Business Level StrategyThere are some key issues of business level strategies which are concerned about the customers Of an organization and satisfying customers is the foundation of successful business strategies.Therefore, before discussing about the business level strategies of Philip Morris, key issues in the business level strategies are being discussed below:Who will be served?Philip Morris started its operation in Bangladesh by doing a strategic alliance with Akij. The company now sells its premium brand cigarette Marlboro in Bangladesh. As they are selling the premium brand cigarette the main target market is the people who are very quality conscious instead of price in terms of smoking. Basically the high income people are the target market of Philip Morris. Higher Income people means the people of middle class, upper middle class, and upper class. Moreover Philip Morris is planning to come up with lower brand cigarette in Bangladesh. If they come up with the lower brand cigarette then then their target consumer will be the people of middle class and lower class. They are the people who are price sensitive when it comes to smoking.

Current Customer SegmentHigher Income Group of people who are quality conscious in terms of smokingConsumer SegmentPhilip Morris

Future Customer Segment

Higher Income Group of people who are quality conscious in terms of smoking

Consumer SegmentPhilip Morris

Lower Income Group of people who are price sensitive in terms of smoking

What needs to be satisfied? Philip Morris wants to fulfill customer satisfaction by giving its consumer creative, better products and the best smoking experience. Currently they are selling premium cigarettes and giving a variety of flavor in the same price. The company focuses to give the consumers best smoking experience with quality ingredients and attractive ingredients. Moreover the company is planning to come up with lower brand cigarette to grab the whole market and to meet the smoking need of the lower and middle class people How those needs to be satisfied?

Philip Morris has got very popularity in the premium brand cigarette in a very short period of time. They have almost captured the 30% market share in the premium cigarette segment of Dhaka city. To give consumers best smoking experience Philip Morris gives quality ingredients in their cigarette which includes imported tobacco, better quality filter. The premium product Marlboro has 3 different types of flavors in the same price range. This allows consumers to choose from a variety of product. If we consider the case of premium brand cigarette their attractive packaging is also an addition here which to some extent attracts consumes. Philip Morris will come up with lower brand cigarette very soon. If they come up with it they will fulfill the need of the lower income people of Bangladesh by giving them a cigarette in a price which they can easily afford.

Five generic business level strategies

Figure: Five generic business level strategiesDifferentiation strategyPhilip Morris has entered the Bangladesh tobacco industry with their most selling brand Marlboro. Currently they are operating in the premium market of tobacco industry. The customer who consumes premium brands of cigarettes are not conscious about the price what they basically look for is the quality offered by the producer. Thus, rather than following the cost leadership strategy, they are following differentiation strategy in the Market.Philip Morris tried to enter the market using their brand name and brand value to differentiate their products from others. By operating for long time in the tobacco industry they have gained their experience regarding how to satisfy customers of a particular segment. So when they were looking for a company to make a strategic alliance they were very choosy and they evaluated each and every aspect of production system of the local cigarette manufacturers who offered to make a joint venture. After all the inspections they find out Dhaka tobacco as the most deserving one. So all the efforts show how they are ensuring their quality. They also tried to make their production system compatible with their mission by using imported tobacco which gives the customer the opportunity to taste the cigarette which maintains international quality. Philip Morris refines their tobacco and blends it very neatly to reduce the hazardous elements and also uses the finest and smooth cigarette paper. They also conscious about the filters which also holds the value of a premium brand.Philip Morris also cares about the customer tastes. They are using some unique selling points of their product to create the difference with the competitors. To mention, the recently launched new flavor of Marlboro named Marlboro Advance has the USP of less smelling Technology with Charcoal Filter. Another point of differentiation is their packaging. Packaging of every flavored cigarettes maintains the elegant look. That ensures the premium quality of cigarettes with premium pricing.Now there is an opportunity towards them is to grab the other segments, if they want to do this they have to enter the mid and lower level market segment. They are trying to figure out the strategies to enter those market. If they want to maintain their premium brands they will look for different strategies. They may come up with cigarettes with new brand name and follow cost leadership or integrated cost leadership and differentiation strategy for those brands.Competitive positioning and value creation frontier

Figure: value creation frontier

Philip Morris has chosen differentiation strategy to compete in Bangladesh tobacco industry. In the value creation frontier they are trying to achieve quality as excellence. They launched Marlboro recently in Bangladesh and it is a premium brand. So to compete with other brands it has to communicate its product as a better quality product than others. Keeping in mind they have selected the production plant of Dhaka tobacco to produce their cigarettes. It also assures responsiveness to customer by using Akijs distribution channel and also they have come up with image stores to give knowledge to the customers about their presence in the market and ensures the availability of the product.

Figure: Competitive Positioning (M= Marlboro, B&H= Benson and Hedges, JP= John Player Gold leaf, PM= Pall Mall, Navy)In this figure we can see that Philip Morris wants to create this perception in consumers mind that they will offer better quality at same price than their closest rival British American Tobaccos premium brand Benson and Hedges.

Product Life Cycle

The tobacco industry of Bangladesh is already in Maturity stage. So Companies which are fighting in this industry are more likely trying to differentiate them in terms of value providing.

Figure: Product Life Cycle of Tobacco Industry

The tobacco industry of Bangladesh is mostly dominated by British American tobacco and other local companies. More than half of all men and about one in three women in Bangladesh consume cigarettes. British American Tobacco's Benson and Hedges is the lone player in the Tk 10 billion premium tobacco market. The company sells about 200 million B&H sticks a month. But Philip Morris International believes that it can make an early impact in this market because of its global fame. Now to strengthen the trade marketing segment, PMI is largely focusing on the creating good reputation in the trade market. They are creating Image Stores in all the areas of Dhaka City. Approximately they have now almost 37 image stores solely for the purpose of strengthening the trade market relationship. Philip Morris International has captured almost 30% market share in the premium cigarette segment of Dhaka City.Ansoffs Matrix

The Ansoff Matrix is a marketing planning tool which usually aids a business in determining its product and market growth. This is usually determined by focusing on whether the products are new or existing and whether the market is new or existing. Therefore after the analysis it can be said that in the case of Bangladesh operation Philip Morris followed the market development strategy. Philip Morris is a US based company which has expanded its operation in Bangladesh through strategic alliance with Akij group. Currently it produces its number one selling cigarette brand Marlboro in Bangladesh and with this bestselling cigarette they started serving Bangladesh market which was completely new market to them. So it can be said that they are followed market development strategy. To give consumers a best smoking experience recently Marlboro came up with a new brand which is Marlboro Advance. Moreover we have found out that Philip Morris will come up with lower brand cigarette in future. Therefore it can be said Philip Morris is now pursuing Product Development Strategy as the company has introduced and will introduce new products in the existing market.The BGC Matrix The BCG matrix is based on the product life cycle theory. The tobacco industry of Bangladesh is at maturity stage. Currently there are large foreign companies and a good amount of local companies are there in the market who are competing with each other in different segments. If we consider about the market growth rate it is relatively low as there are a good amount of company operating in the industry so the market growth rate is low. In case of the market share it is seen that Philip Morris is offering different flavors of cigarette in the same price range in order to capture the premium cigarette market. Moreover the company is also planning to come up with lower brands. Using the distribution channel of Akij Philip Morris has already captured 30% share in the premium brand cigarette in Dhaka city. So it can be said that market share is high and is expected to get higher as they expand their operation. So after the analysis Philip Morris can be identified as Cash Cow with high relative market share and low market growth rateMatch between Business Level Strategy and Corporate Level StrategyPhilip Morris is following differentiation strategy targeting the middle class to upper class people of Bangladesh and selling their premium brand Marlboro. Philip Morris International has separate business level management for their operations in Bangladesh. Business level managements strategy is very effective to gain the performance wanted by the corporate level management. Philip Morris international, a US based Cigarette manufacturer started their operation in Bangladesh recently. So they are using market development strategy to enter a new market which is Bangladesh with their existing product Marlboro. Corporate level management wants to grab the market in a shorter time frame and business level has used the brand name to differentiate their products from the other competitor. Now Marlboro captured 30% of the market share of premium brand cigarettes in a very short time. They are using differentiation strategy because the consumer of premium brands are not price sensitive, they are more quality conscious. They have used their experience to struggle in a matured market. They ensured premium quality to make the customer satisfied and consumer also feels their money is spend in a right place. Functional Level Strategies

Organizations main objectives are not only to fulfill customers needs by providing them what they want but also to sustain in the business. PMI is doing the same. But due to late entry in the market they are not market leader but they are competing with market leader to be the next leader in the market and hopefully they will be able to be so.PMIs product Marlboro is a premium cigarette in Bangladesh. Most of the customers in Bangladesh either Consumes PMIs Marlboro or BATs Benson and hedges. This is a sort of addiction to its consumers.To sustain in the market PMI followed some excellent functional level strategies. With their strategies they can ensure efficiency, quality, innovation, and customer responsiveness.Management DivisionManagement division of PMI is comprised of 5 units-Corporate Strategy and Decision making Wing

This unit decides the corporate strategies that PMI uses and takes the decisions. Before implementing any important decisions, the approval of this unit is required. Corporate Affairs

This unit is basically a communication unit, the key responsibility of this wing is to communicate with higher authorities and policy makers. In order to run the business an organization need to ensure that it dont face any action from the administration or the policy makers. Meetings with different ministries and Parliamentary committees plays a very important role in running business smoothly.

Brand

This particular unit is responsible for branding and promotional activities. This unit monitors market trends and oversees advertising and marketing activities to ensure the right message is delivered for their product or service. Brand unit works with different teams, including product developers, R&D, marketing personnel and creative agencies to make sure their company brand values and image are followed. Service development and ManagementThis unit main focus is on developing their service facilities, it is their responsibility to manage the Dealers and the Agents. Corporate sales

They are the one who are responsible for overall sales of Phillip Morris International. One of the important duty of this unit is to forecast the sales of PMI. This unit helps the corporate strategy and decision making wing in decision making by providing the necessary forecasting data. Marketing Division

The marketing division Of Phillip Morris International has 3 partsProduct development TeamThe main function of the product development team is to find out new scopes for existing products. Through various surveys the product development team are trying to find out what consumers want. Due to this team they were able to introduce new flavor of cigarettes. This teams function is not only to meet new consumer needs but also see what the competitors are doing. If the competitors are introducing a new flavored cigarette this team needs to find out about it and see its market potential. If it is lucrative than this team needs to do something about it. In most cases they come up with a similar product to compete with the rivals.

Media TeamOne of the most important teams in the marketing division for PMI is the media team. The main function that this team performs are monitoring the media, trade promotions, Consumer insights, Holding events. Since PMI cant directly promote their product due to certain regulations they do the following I.Trade promotions- The function of people engaged in this work is to offer different discounts to the vendor. This discounts are not only limited to cash but also this can be free merchandise, For example free t-shirt if the vendor sales a certain amount. They can also get a instant cash back if they buy certain amount of Products at a time. Moreover the vendors are also offer