Strategy Formulation - Essay Example

Strategy Formulation Question What is your impression of the world wide operation of Altria Altria is a worldwide corporation with internationalrecognition of its brands and hefty returns on its products. Banking on the opportunity provided by the early success of Philip Morris, Altria took a chance and explored the world by distributing its products worldwide due to the recessing US economy. Expansion into foreign markets proved successful for Altria and they added more countries to the list to distribute their products to. Some critics cite the reason for foreign expansion as to sell their controversial products where policies are not as strict as in the US. After the Master Settlement Agreement which imposed some marketing and selling sanctions on Altria's products, Altria had to reinvent their strategy and aim to expand worldwide where such restrictions weren't applicable. Although Altria has been successful in worldwide operations, their controversial tactics, health hazards of their products, increasing litigations and the availability of cheaper counterfeit products pose serious challenges to them to operate globally. Maybe to counter these threats, Altria has announced that it would split up the International division of Philip Morris in 2008 after the meeting on January 30, 2008 subject to favorable tax ruling. (Ambregni, 2008) Question 2: SWOT Analysis Altria's basic revenue comes from its cigarette brands of Philip Morris. Therefore any factors that affect Philip Morris brands, affects Altria to a large extent. Therefore the analysis done below is strongly related to the cigarettes brands of Altria Strengths Global Operations - Altria operates globally in more than 150 countries with over 25 Philip Morris brands (MapofWorld, 2005). Although their competition is strong, brands such as Marlboro being the most popular cigarettes in the world. Having different laws and opportunities to exploit certain rulings that are not applicable in US, Altria has penetrated the international market. Philips Morris international, once spun off, is expected to get 48 billion dollars of annual revenue. This would also free the international division to focus on external soils without any restrictions that the company still faces because of US policies. (Ambregni, 2008) Strong Brand Names - Altria is the parent company of basically cigarette manufacturing companies. Over the years Altria's company, Philip Morris have built strong brands such as Marlboro, Benson and Hedges, Philip Morris, Parliament, Virginia Slims etc. the popularity and awareness of these brand linking to Altria has created benefits for the company in terms of profitability, sales, product diversification and customer loyalty. Addictive Capability of their Products - Altria's companies all have a similarity in one aspect of the products made. They all have addictive tinges. Almost all Philip Morris cigarette brands, John Middleton's Cigars and SAB Millers brews contain the characteristics of leaving a person want more of it. Since customers want to keep having these products, Altria has ensured that its customers remain loyal and get 100% customer retention. Supports FDA Regulation - "Philip Morris USA is the only U.S. tobacco company that supports meaningful and effective regulation of tobacco products by the U.S. Food and Drug Administration (FDA)." This creates a competitive advantage for Altria in the US to have the support of FDA which the consumers follow very strictly. (Altria, 2005) Focus in One Area - In 2007, Altria spun off its food subsidiary Kraft Foods so that Altria could focus on tobacco side. By focusing on one area, the management and strategies can be all aligned to meet the corporation's objectives easily and more efficiently. (Ambregni, 2008) Opportunities Production in Foreign Markets - banking on the success in US, Altria can expand its operations further by increasing production in foreign markets. Some countries that have to import Altria products, have to pay high prices. By adding those countries to the list of production, Altria can increase its customer base further. Merge - The recent acquisition of John Middleton Inc., is a sign that Altria increasing its market hold into the cigars side as well. By merging with similar smaller companies, Altria can gain the hold of market inside and even outside US. Backwards Integration - The primary ingredient of Altria's premium product, cigarettes, is tobacco. The uncertainty of price, supply and availability of tobacco poses a threat to Altria if the supply of tobacco is disrupted. To minimize the occurrence of this event, Altria can integrate backwards to take control of the tobacco fields. Weaknesses Limited Consumers - The increasing health hazards posed by inhaling tobacco has left the target population of Altria very small. And with decreasing numbers (atleast in US) has created a worry for the corporation. Thus Altria's tobacco companies are weak in the sense that their target market is small. Constant Need of Lobbying - From 1998-2004, Altria has spend about $101,220,000 in lobbying the US government in not to adopt strict anti-smoking laws (PI, 2004). Due to the health hazards posed by smoking, more than 150 nations have signed the Framework Convention on Tobacco Control (FCTC) that bans tobacco advertising, promotion and sponsorship. Due to such lobbying practices, the US hasn't yet ratified this treaty. For Altria this is a sign of weakness as it makes such products that require heavy investment into lobbying and hoping that treaties and conventions don't get signed against their favor. (CAI, 2008) Own Health Researches Rejected - To counter the rising health concerns, Altria "founded the Tobacco Industry Research Committee [where the industry leaders] funded scientific research that the industry felt would address concerns raised about tobacco and its relationship to health". Later this and Center for Indoor Air Research were terminated in light of evidence pointing to the fact that these researches might be biased or could be misinterpreted in favor of the tobacco industry (EssentialAction, 2000). In 2000, Altria started the "Philip Morris External Research Program" (PMERP) which sponsored research in epidemiology, toxicology, respiratory disease, carcinogenesis, genetics, tobacco smoke and smoking behavior. But again, due to NGO criticism that the research would be biased didn't get response Altria wanted. (EssentialAction, Philip Morris External Research Program, 2000) Unorganized Labor - Altria's companies are known not have organized labor in their factories. Even their shareholders voted against a proposal that would allow employees to organize. Without organized labor, the employees may start to complain and also this could lead to the exploitation of tobacco growers in developing countries. Threats Ban on Smoking - With the researchers predicting that the number of deaths worldwide would double to 9 million people by 2020, international governments would be looking to take harsher steps to restrict smoking. Altria, whose major share of revenue comes from selling cigarettes worldwide, would be handicapped if some strict measures are taken in the future. Counterfeit Cigarettes - Altria's Philip Morris brands are produced, operated and licensed out in many different parts of the world. Even though there is a close check in the market, counterfeit cigarettes are available easily in the market especially in the third world nations. Counterfeit cigarettes harm the reputation of Altria, as well as reducing the sales of actual Altria's products. Competitors - The main threat Altria faces is from its competitors in the market. According to Hoover's analysis, there are three main competitors fighting for majority US market share. These competitors are Altadis, British American Tobacco plc and Reynolds American Inc. Altria is always wary to the actions taken by any of the competitors in the industry as it could impact the company. (Hoovers, 2007) Higher Tobacco Prices - Tobacco, being the major input in the production in Altria's major products (cigarettes), its supply is extremely important to Altria. An increase in tobacco price would make the inputs more expensive and as a result Altria would have to increase the prices of their cigarettes which would be unfavorable with the consumers. Question 3: Does Altria have a competitive advantage and/or a competitive strategy Altria is ranked 23rd on the FORTUNE 500 list, is included in the S&P 500, Dow Jones Industrials, called as one of the Dow Jones Global Titans and ranked 15th in FT Global 500 (Hoovers, 2007). Being in the top few in their indusrty means that Altria has the necessary skills and resources to outstrip the others. According to my analysis, Altria has competitve strategy from the start and because of this strategy, it has built itself a competitve advantage. Altria (then Philip Morris) started selling their cigarettes with the strategy on aiming it to men with the Marlboro brand with the Marlboro Man. Then the feminine brand of Virginia slims came in for women. With the increasing health awareness, the company introduced filters, cigarettes with less tar, and then in different types of hards and lights etc. Then Philip Morris changed it name to Altria to distance itself with the cigarette brand name. All these actions suggest that from the start, Altria is a customer oriented company whose aim is to acquire as many customers as possible and then retain them. The acquisition of Kraft Foods was another strategy to improve the image of Altria in the times of falling reputation because of smoking concerns. (Porter & Kramer, 2004) The current strategy that Altria employed soon after the Master Settlement Agreement is the 'philanthropic strategy'. The 2004 annual report of Altria suggested that the company had spent $1.2 billion worldwide on philanthropic works like charities, arts, environmental causes, health research etc. "What makes the philanthropic efforts of Altria so unique and interesting is that many of them - particularly their health-related giving - directly contradict the primary objective of the corporation: to sell more cigarettes" (Cornell, 2007). This gives the company a strategic advantage since even though cigarettes may be killing millions all over the world, Altria is doing something to improve the lives of others. (Altria, 2005) Question 4: Choose one of Altria's products. Describe the components of this product value chain. Atria's most popular cigarette brand in the world is Marlboro, thus it seems fitting to describe its value chain. It is described below in a production process like manner. Requisition of Raw Material - To make a cigarette, a requisition for the raw materials is sent. These raw materials include the most important component of tobacco which is available in huge quantities in the US. Growing of Tobacco - Tobacco is grown and harvested at the fields. Then the tobacco leaf is cured and dried in a specially constructed barn. These leaves are moistened so that they do not break when handled. Then they are sorted size, color, and quality, and tied in bundles for shipment to Philip Morris factories. (MadeHow, 2007) At the factory - The leaves are dried and moistened once again. Then they are packed into barrels called the hogsheads and aged up to one to three years to develop its aroma and its flavor. Till here most of the process is physical. (MadeHow, 2007) Making the Cigarettes - After blending, the mechanical; process starts and the leaves are compressed and shredded. The shredded tobacco is then scattered on the continuous roll of cigarette paper where the "machine rolls the shredded tobacco into the paper and cuts it to the desired length. A device then grabs each cigarette and fastens a filter in one end". finally the cigarettes are packed into boxes of 10 or 20 and then later packed into bigger boxes. (MadeHow, 2007) Sold to Customers - These 10 or 20 cigarettes packets are then sold to the customers in the general market. Question 5: What strategic alternatives are open to Altria Explain and justify your answer. With the medical community, especially in developed nations, biting on Altria's heels to discontinue the availability of cigarettes in public, Altria needs to respond to these challenges. With is major chunk of the revenues coming from cigarettes sales, Atria should look to diversify like it did before with Kraft Foods. This strategy would minimize the Altria's risk if some strict actions are taken against cigarette manufacturers. Another option that Altria can take is to expand into non-developed nations. These nations are troubled with so many different problems that they would not be restricting the cigarettes manufacturers in any way, thus clearing the way for Altria to gain higher profits. Backward integration to acquire farmers and suppliers has already been discussed. This strategy would reduce the risk of having an uncertain supply chain. People are skeptic towards Altria's effort to help people when on the other side, they are selling cigarettes. Altria can altogether stop these tactics and aim to concentrate on their core business. The option that Altria wants to take at the moment is to spin-off its International Philip Morris so that the same laws and regulations don't apply to the cigarettes as they apply now as once entity. This would separate the two companies and they both can realize their profits through different strategies. Strict laws are bound to come for Altria and other cigarette manufactures, even with high spending on lobbying. The best strategy would be to diversify the risk and hope that the lobbying remains a powerful force for smoking to remain legal in public. Works Cited 1. Altria. (2005). Altria's Companies' Actions and Initiatives. Retrieved January 27, 2008, from Altria: https://www.altria.org.hu/download/pdf/Actions_Initiatives.pdf 2. Ambregni, A. (2008). Altria to spin off Philip Morris International. Retrieved January 27, 2008, from Yahoo Financial News: http://uk.biz.yahoo.com/29082007/323/altria-spin-philip-morris-international.html 3. CAI. (2008). Stop Big Tobacco Campaign. Retrieved January 27, 2008, from Corporate Accountability International: http://www.stopcorporateabuse.org/cms/page1111.cfm#u.s. 4. Cornell. (2007). Is Philip Morris a Socially Responsible Company Retrieved January 27, 2008, from Cornell University: www.johnson.cornell.edu/internationaleducation/politics/cases/philipMorris.doc 5. EssentialAction. (2000). Global Partnerships for Tobacco Control . Retrieved January 27, 2008, from Essential Action: http://www.essentialaction.org/ 6. EssentialAction. (2000). Philip Morris External Research Program. Retrieved January 27, 2008, from Essential Action: http://www.takingontobacco.org/action/pmpr.html 7. Hoovers. (2007). Altria Group, Inc. Retrieved January 27, 2008, from Hoovers: http://www.hoovers.com/altria/--ID__11179--/free-co-factsheet.xhtml 8. MadeHow. (2007). Cigarettes. Retrieved January 27, 2008, from How Products Are Made :: Volume 2: http://www.madehow.com/Volume-2/Cigarette.html 9. PI. (2004). Lobby Watch. Retrieved January 27, 2008, from Public Integrity: http://www.publicintegrity.org/lobby/profile.aspxact=clients&year=2003&cl=L000203 10. Porter, Michael E. and Mark R. Kramer (2004). The Competitive Advantage of Strategic Philanthropy, Harvard Business Review, December. 11. World, M. o. (2005). Altria. Retrieved January 27, 2008, from Finance Maps of World: http://finance.mapsofworld.com/company/altria.html Read More