British American tobacco in Bangladesh

Prepared by: Md.Alamgir Hossain 123011190

Section: 01Bus 306: International BusinessDate of submission: 5th AUGUST, 2015

BATB Company:

“Success and Responsibility go together”

British American Tobacco Bangladesh Company Limited manufactures and sells cigarettes primarily

in Bangladesh. The company offers its products under the Benson & Hedges, John Player Gold Leaf,

Pall Mall, Capstan, Star, Bristol, Derby, Pilot, and Hollywood brands. It also exports tobacco leaves.

The company was formerly known as Bangladesh Tobacco Company Limited and changed its name

to British American Tobacco Bangladesh Company Limited in 1998. British American Tobacco

Bangladesh Company Limited was founded in 1910 and is headquartered in Dhaka, Bangladesh.

British American Tobacco Bangladesh Company Limited is a subsidiary of Raleigh Investment Co.

Ltd.British American Tobacco Bangladesh Company Limited is a subsidiary of British American

Tobacco Group and is one of the oldest and largest multinational companies operating in Bangladesh.

It was established in 1971 and since then it has been the market leader in the country.

Political Economy in Bangladesh:

Government regulations have increased in the recent years. Tobacco companies cannot use any

vehicle to promote any of their products and they also cannot organize any event.

Or competition with their brand name. That is the reason BAT had to stop organizing a popular

program of their’ – “B & H Star search. In Bangladesh BAT faced many problem, one of them is

political economy. Bangladesh’s Political economy for tobacco Business is not good at all. Some

rules and regulations about tobacco business are given below:

Bangladesh’s tobacco industry is mainly regulated by the Smoking and Using of Tobacco products

(Control) Act, 2005 and the Smoking and Using of Tobacco Products (Control) Rules, 2006.

Amendment of the Smoking and Tobacco Usage (Control) Act was passed in May 2013. The

amendments are:

Wider definition of tobacco products - Apart from Cigarette, Cigar and Biri, now Gul, Jorda,

Khaini also part of tobacco products

Ban on tobacco sale to minors - Retailers cannot sell tobacco product to anyone below 18

years of age

Increased fine for public smoking - Authorized officer can fine Tk. 300 to a smoker for

smoking in a public place, which was previously Tk. 50

Ban on advertising at POS (Point of Sale) - Advertising & promotion of tobacco products is

banned

50% Pictorial Health Warning on both sides of the principle areas (will be in effect after

Rules Amendment)

Regulation on descriptor - Light, Mild, Low-tar, Extra, Ultra words as descriptors cannot be

used

Wider ban on public place smoking -.

Ban on CSR initiative branding - Company name, sign, trademark & symbol cannot be used

for branding of CSR initiatives.

According to section 5(3) of Amendment of the Smoking and Tobacco Usage (Control) Act, “any

person engaged in social activities under Corporate Social Responsibility or in case of donation on

such activities, shall not use any name, sign, trademark, or symbol of any tobacco manufacturing

company or cause them to be used or shall not encourage other persons to use those.”

Profitable business:

British American Tobacco Bangladesh Company Ltd. (BATBC) has been operating since 1910 in the

country. The firm manufactures and market cigarettes it designs its products line to focus various

customer segments based on their income level e.g., premium segment (Benson and Hedges) high

segment(john player Gold Leaf).medium segment(star),and lower segment (Pilot).

In 2009 and 2010 production capacity has been expanded by 25% from 24bn sticks to 30bn sticks per

year. Recent price increases: in 2011 the tobacco industry witnessed significant price hikes due to the

plan in the 2011-12 government budget to increase supplementary duties from 10 to 30% (total duties

and VAT are 69% of cigarettes retail price) and corporate taxes from 27.5% to 35%. In 2013 the

company achieved highest ever gross sales volume (BDT 109 bn) along with 18% production growth

compared to last year. This progress was driven by volume growth and tax led price increase. In 2013,

the company operating profit margin was 30.4% which was 25.0% in 2012.This improved margin is

the result of better brand mix, focus marketing strategy and smart cost management program. Around

more than 90% revenue of the firm is segmented from local cigarettes sales whereas rest is obtained

from exporting tobacco leaf. The firm procures raw material from local source. It has around 32,400

registered farmers across the country. In 2013 it produced 35.34 bn cigarettes sticks which were 30.04

bn in 2012. BATB is the highest private sector tax payer of the country and contributed two third of

the total tax collection of the industry. In 2013 it contributed BDT 84.36 bn as duty, VAT and other

levies.

Purpose of this FDI with OLI:

The UK-based BAT group holds G5.91’% share in the company.28.7% is owned by Government of

Bangladesh agencies while 5.39% share is owned by other shareholders.

. Based in Dhaka the company has one packaging factory in Dhaka and one leaf-processing factory in

Kushtia. This leading business organization in the industrial sector is employing more than 1,300

people and more than 200 managers directly and a further 40,000-+- indirectly as farmers, distributors

and suppliers. They have business contracts directly with 18,000 registered farmers who produce high

quality tobacco leaf.

The internal factors help to find out the strength and weakness, the threats and opportunities

can be comprehended by scanning the external environment.BATB are not allowed to go for public

promotion, the tobacco companies can use their resources for other purposes. Like BAT is investing

for and increasing their filed force. BATB cannot promote their products using public media vehicle.

But BATB believe that, such regulation will restrict companies like, they contribute to the welfare of

the country. As a responsible organization, they have certain duties towards the environment and

community in which they operate. BATB CSR activities are, therefore, designed to contribute to the

social and environmental sustainability of the community. Their CSR activities solely focus on

improving the lives of farmers and do not promote any of their products.

In Bangladesh, tobacco market is pretty strong. Even now; the migration rate is good enough to

sustain the cigarette industry. 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. Although fertile land

across the country is shrinking, tobacco farming is increasing day by day, mostly because the

government is not taking proper initiatives to stop tobacco cultivation and encourage farmers to

cultivate other crops.  According to the Department of Agriculture Extension, a total of 108,000

hectares of land have been brought under tobacco cultivation this year, 38,000 hectares more than the

last, while farmers cultivated tobacco on 70,000 hectares of land. Of the total land, 40,000 hectares of

land was in Kushtia, 28,000 hectares in Bandarban, 30,000 hectares in Nilphamari and Lalmonirhat

and 10,000 hectares in Ranpur. British American Tobacco (Bat), Dhaka Tobacco and some other local

companies are engaged in making farmers interested in tobacco farming to ensure supply of raw

materials. So BAT was decided to come doing business at Bangladesh. A great strength of

internalization theory is that it provides clear conditions for the choice of entry mode. International

expansion through wholly owned subsidiaries takes place within the MNE when the benefits of

internalization. Internalization theory focuses on imperfections in intermediate product markets.

Internalization occurs only when firms perceive the benefits to exceed the costs. When internalization

leads to foreign investment the firm may incur political and commercial risks due to unfamiliarity

with the foreign environment. Doing research we have found that BATB is doing business through

Greenfield ventures because it is wholly owned subsidiary made from the scratch to the end by the

foreign company in the new country Bangladesh. BATB has own industry at Bangladesh. It is taking

natural resources from Bangladesh most because this tobacco industry cultivating tobacco in

Bangladesh. We know that Internalization avoid transaction costs and risks including the costs of

negotiating, monitoring and enforcing an agreement. If we follow to the BATB Company, we will see

that they are reducing the transaction cost. Through cultivating tobacco this country they are getting

enough tobacco from this country. So, they are reducing their transportation cost or importing cost

most. And labour cost in Bangladesh is very low who are working at tobacco industry. From these

things they are getting benefited. BATB is doing business well because this industry can sell their

product at lower cost. If these types of products imported from foreign countries, the price would be

high. Because of producing in this country its price is mush low. BATB also doing segmented from

another region to another region in whole Bangladesh because their transaction cost is very low. As a

result we can say that British American Tobacco is doing business through Greenfield ventures and it

is so much profitable business in Bangladesh.

International business strategy:

BATB company follow Transnational strategy.From transnational strategy we know that An

international business structure where a company's global business activities are coordinated via

cooperation and interdependence between its head office, operational divisions and internationally

located subsidiaries or retail outlets . A transnational strategy offers the centralization benefits

provided by a global strategy along with the local responsiveness characteristic of domestic

strategies. These all character is folllowing BATB company.So we can say that BATB company is

doing business through transnatonal 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 to ensure sell in

and sell out of its brands to the retail level and to the customers respectively. Through distributors are

independent entity,yet the company recognises them as its Valued Business partner and doing

business by having win-win situation with them. To have 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.

__Implement performance based contracts with all the distributors to enhance performance.

__Implement the change from supply based demand to demand management in the secondary supply

chain

To generate an integrated process of quality to exceed consumers’ expectations that includes

all managers/workforce, suppliers, distributors and systems.

Conclusion:

BAT has ensured value addition at every stage of the supply chain. BAT must further focus on price,

quality and performance of their product lines and brands to stay competitive in the industry.

Although people are becoming more aware of the health hazards of smoking, but customers who

smoke on a regular basis face tremendous difficulty in giving it up. Moreover, the increasing activities

of anti-smokinglobbyists will not have much effect on the regular smokers. Still, BAT should

contribute extensively on research and development for better variety of tobacco leaves that will be

less injurious for health and more cost effective for the customers. On account of advancement in

microbiology, BAT should involve scientists more frequently to come up with a variety that

eliminates the harmful qualities of tobacco and only the useful qualities are available for consumption.

This can trigger a complete revolution and can be sold as some product of great herbal value.

British American Tobacco Bangladesh is a company with world class people, products, systems and

processes and tools. They are the first company in Bangladesh to be awarded Class A status as part of

the international and prestigious total business excellence programmed, MRPII, audited by

internationally renowned consultants Oliver Wight. Theyhave a total company commitment to

excellence and drive for continuous improvement.

For a company like BATB, operating in a highly controversial and sensitive industry and working

with more than 1300 employees, internal communication is very important to facilitate decision

making and making them able to face the stakeholders. Thought challenging, BATB is doing a

successful job in devising a successful portfolio of tools for internal communication and the process

of continuous improvement keeps their model functional.

References:

ADHUNIK (Amra Dhumpan Nibaron Kori). 1988. “Proceedings of the First National Seminar on

Tobacco and Smoking, 1988, Dhaka, Bangladesh.” Dhaka.

"Welcome to DSE - Dhaka Stock Exchange". Dsebd.org. Retrieved 2015-03-11.

"British American Tobacco Bangladesh - British American Tobacco Bangladesh".

Batbangladesh.com. Retrieved 2015-03-11.

"British American Tobacco: Our History". Bat.com. Retrieved 18 April 2011.

Porter ,ME(1996)what is strategy? Harvard Business Review, November –December, 61-78. The

value chain

http://www.bat.com/group/sites/uk