Control of British American Tobacco - Case Study Example

Introduction Tobacco industry comprises of different companies which are engaged in the growth, production, sale, marketing and distribution of the product. The industry is a multinational and continues to grow, it is estimated that over 5.5 trillion cigarettes are smoked each year global. However, many countries are enacted laws to restrict or control the consumption on tobacco on health grounds. In the US the industry has suffered a lot since the 1990s when the government sued the industry players over on the ground that tobacco causes cancer Overview of BAT Company BAT Company was founded in 1902, the company acquired different companies in America and the UK to form the current multinational corporation it has evolved to be. Currently BAT is the second biggest procedure of cigarettes in world with an estimated 10.5% of the total global share. Overview of BAT Company Company logo; source www.bat.com British American Tobacco Type Public Founded 1902 Headquarters London, England, UK Key people Jan du Plessis, Chairman, Paul Adams, Chief Executive Industry Tobacco Products Tobacco Revenue 25.2 billion (2006) Operating income 2.6 billion (2006) Net income 2 billion (2006) Employees 55,364 (2006) Slogan N/A Website www.bat.com PESTEL analysis PESTEL analysis is used to investigates the vital factors which affects an industry and the influence they have on a particular company or companies operating in that particular industry. PESTEL is means political, Economic, Social, Technological and Legal factors. Political factors entail government policies which are related to the industry, this includes tax policies, regulations and laws, tariffs and restrictions and other factors. The economic factors include the wider economic performance for example economic growth, exchange rates, interest rates and inflation. Social factors on the other hand relates to cultural issues which includes health, population growth, demographics, changes in consumer behaviours and other aspects. Technology factors include the adaptation of new available technology and new ideas such as automation, information technology and rate of technology change. Legal factors comprises of legal procedures, licensing, product legal descriptions and other legal factors. (Hollensen, 2004) Political factors whereby the company have to deal with the political interferences that may be practiced by the UK government. According to research political systems of nations affect the conduct of businesses, for example some countries practice collectivism while others practice capitalism political systems. The UK government practices capitalism in that it allows factors of production to be privately owned and the government performs only limited duties that the private sector cannot perform unlike in collectivism and communism that stresses collective goals. So BAT Company has no restrictions and hence we can conclude that it enjoys good external political environment. (London and Hart, 2004) Economical factors which mainly deals with financial forces in the economic environment. Such factors include foreign exchange rates, currencies and global monetary systems like the use of Euro currency, inflation, counter trade, balance of payments, monetary policies, and fiscal policies among others. After carrying out careful analysis of these factors BAT Company did not face a lot of these challenges with but only was subjected to few of them like inflation and the balance of payments. (Buckley, 2005) Social factors are other factors that the company has to consider before going international. Forces within the society such as religion, family, social structure and education may impact positively or negatively the way BAT Company will market its products. Social factors affect our attitude, opinions and interests on the way we view products from certain companies. (Buckley, 2005) Technological factors are another key factor to be put in consideration before going global. Advanced technologies are now being experienced by many companies as a result of the concept of globalization. Globalization has taken centre stage and now the use of e-commerce or internet marketing has been increasingly utilized by many firms. The technology of producing has continued to develop and more premium brands are being produced by the company to fulfil the new demands of the customers that keep changing with time. (Hollensen, 2004) Legal factors are another factor that must be analyzed before going international. The way the company operates in terms of operating rules of law for example how BAT Company will cope the legal rules in the UK is more important because it avoids conflicts and will enhance the success of the organization. The company is engaged in legal business practice of marketing tobacco products in form of cigarettes which is permitted by the UK laws. (Buckley, 2005) Political and economic analysis of BAT Political analysis Political environment is crucial for any industry operation in the world, political setting has a significant important to any industry and to each business operation whether it is big or small, whether the business is local national or multinational. Political policies of the country in which a business is located will definitely affect it. More so the when it comes to international company like BAT, the political factors of the host country and home governments both affects the company business operation. (London and Hart, 2004) The governments policies in the tobacco interest reflects the attitudes that the governments have towards the industry, and will shoe the governments scheme on how well to promote its national interests. Putting in consideration the government resources and its philosophy, different government will formulates different control measures to hinder or promote tobacco industry in their countries. These government policies will in turn directly affects the operations of the BAT Company in these particular countries. The perfect political climate in the current global market is supposed to stable, free and friendly encouraging free market, unfortunately this is never the case, and since many government are different controls to protect their markets and stability and freeness remains to be relative. There are number of political threats that continue to face BAT this are; 1. Heath policies 2. Advertisement bans 3. Pressure to use more health warnings on cigarettes packets (Douglas, et al 2006) Tobacco control, Different international laws have been formulated to control tobacco consumption globally. For example, the world health organization's Global Treaty on Tobacco control is a treaty which has placed different restrictions on advertisement, sale taxation and shipment of tobacco products, this treaty has been signed by more than 150 countries all over the world, including the US. Many countries have continued to ban or restrict its citizens to smoke; a good example is Sweden which currently has the lowest number of tobacco related disease. Hence tobacco industry especially the BAT has continued to loss big segment of its consumers in the western countries. (Douglas, et al 2006) Tariffs Trade tariffs are the main hindrance to trading between two countries. These trade tariffs depend with policies formulated by individual countries concerning how the countries wish to conduct its trading. The United Kingdom has developed some tariffs to hinder free movement of tobacco products in the country. This has continued to prevent BAT to fully access the UK market. These tariffs are being to taken to protect the citizens against dangers of smoking (London and Hart, 2004) A government control or restrict the activities of BAT company activities through encouraging it by offering support or through restricting it through laws and other trade policies. According to the international trading policies, government are allowed to control their markets by allowing or denying a company a permit to operate in that particular country. Thus, the political setting of different countries is a vital concern to BAT Company as an international company, and the company needs to analyze the political characteristics of international markets in which it is operating or intends to enter. (Douglas, et al 2006) Embargoes Embargoes are political trade tools that are put by trading bodies or governments in order to support a justified peace process. Trade embargoes in the UK has been used to support either the EU or the WHO in order to deny Tobacco industries to an opportunity bring to the market tobacco products that the government or WHO prohibit (WHO, 1996) Currently, BAT and other tobacco are lobbying for the European Union to remove a ban placed against smokeless alternatives to cigarettes. The ban was imposed in the UK in 1990 to ban US smokeless companies including BAT to import the tobacco products to the UK market. However, the UK government argue that lifting the ban will allow the BAT to promote its cigarettes alongside the smokeless tobacco. (London and Hart, 2004) The UK economy and the Tobacco industry Tobacco industry continues to provide a positive impact to many countries in terms of providing employment and revenues to the government. The industry provides large amounts of taxes and profits which are used to develop the overall economy of a country. For example, in the US tobacco industry reported to have accounted for $2.7 billion which was a 2.9% of the total agricultural total value. With economies of different countries improving especially the in Asia and other developing countries, the consumption of tobacco have continued to improve. BAT Company has reported high sales in developing countries such as those in Africa where the company continues to perform well. (London and Hart, 2004) The UK economy The UK is one of the countries which have realized high economic achievements. The country boasts of a well developed infrastructure, international relations, good education system and a large population capacity. The economy of the UK currently is among the biggest globally when it is measured using nominal GDP. UK rapid economic performance is being attributed to the policies that were implemented by the government to liberalize the market. The effect was increased foreign trade and increased local competitiveness. (Steven, 2002) Strong and stable macroeconomic The strong private sector growth has put an emphasis on maintaining of a stable macro-economy environment, most important being the stabilization of prices. Monetary policies of the UK currently are sound and have allowed the expansion of the economic growth in the UK. The inflation rate has been able to be brought down. On the international scene the competitiveness of the UK still continues to and the volume of its exports is increasing. On the local scene, the macroeconomic prospects remain good. Credit and profits are high, thus the volume of investment in the UK is expected to continue while the consumption rate is anticipated to remain solid. The stable macroeconomic is providing BAT with a good opportunity of doing business in the country. Good infrastructure and monetary polices. (Steven, 2002) Exchange rate The dollar and the UK sterling pound have been exchanging at relatively fluctuating mode for the last five years but recent statistics indicate that the exchange rates are going up. This will to some extend affect the product pricing strategies. Analysts believe that, the lower the value the UK currency the better, as it encourages more foreign investment which is important for the economic growth of the country. (Steven, 2002) Cigarettes consumptions and taxations Globally, the consumption of tobacco has continued to increase despite the political policies that different countries have been formulating to control the consumption of tobacco. The increase can be attributed to the continued expansion of BAT to many different countries especially the underdeveloped third world countries. The increase in production also can be attributed to high economic growth in different countries, the UK included. The current high population of the youth also can be seen as a reason why the number of tobacco is increasing because they are associated with high level of smoking. (Glantz, et al 1996) The current changing consumer behaviours have highly contributed to the changing patterns of tobacco industry. More people today, are more aware of their health conditions and are reducing their tobacco consumptions. Though, consumers purchasing power in many different countries continue to increase, the effect of policies which control advertisements of tobacco have continued to limit the volume of tobacco in many of western country. However, BAT has continued to do well in other developing countries especially in Africa where the rate of tobacco has continued to increase gradually. (Glantz, et al 1996) Conclusion Tobacco industry continue to be an important industry in the global market, it has developed over the years from a small industry into a big multinational industry. In the recent past the industry has been under big pressure from the different governments and the international heath organizations such as W.H.O on health grounds. The heath effects of tobacco and its contribution to diseases such as cancer has been the main issue of trade restrictions and control through tariffs and other restricting regulations. Market analysis in important in improving and ensuring the success of a company in an industry, in market analysis there are several tools that are used to analyze the performance of a company, PESTEL analysis is one of them. BAT Company has faced different political policies that are pressuring the company market plans. BAT Company as one other big player in the industry and it has been under pressure to continue operating profitable against the background of restrictions on tobacco marketing and consumptions. Government policies on tobacco trading in various countries in continue to pose as a threat in BAT Company's globalization efforts that have ensured that the company expands. Nevertheless, BAT Company has continued to do well in its business and continue to be one of the best well known names UK and in many other countries that it has its presence. Reference: Allen, D., and M.E. Raynor (2004): Preparing for a New Global Business Environment: Divided and Disorderly or Integrated and Harmonious Journal of Business Strategy 25, no. 5 (September): 16-25. Buckley, P.J. (2005): What is International Business Basingstoke, Hampshire; New York, NY: Palgrave Macmillan, Callard, D. 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