Corporate Strategy of British American Tobacco - Essay Example

CORPORATE STRATEGY OF BRITISH AMERICAN TOBACCO Introduction British American Tobacco Plc is a leading global tobacco company based in London. In business for more than 100 years, British American Tobacco is the world’s most international tobacco group and the second largest tobacco group employing more than 90,000 people with manufacturing industries in 66 countries. BAT operates through 81 factories and produces more than 850 billion cigarettes and uses more than 660 millions kilos of tobacco per year. It has achieved a great success in the last few years and now it is in the progress focusing on international business and aiming at becoming more customers oriented. British American Tobacco aims at leading the industry as the preferred partner of stakeholders qualitatively and seeks volume leadership among the global tobacco competitors qualitatively. It has been keeping its vision of achieving leadership of the global tobacco industry as a milestone for last few years. It has also been putting efforts to maintaining balanced approach to achieve growth, improved productivity and developing to be a winning organization. The company’s leading international brands include Lucky strike, Dunhill, Kent, State Express555, Rothmans, Benson and Hedges, Winfield and John player Gold leaf. It also produces fine cut tobacco, pipe tobacco and fine cigars. The international tobacco industry produces currently about 5.5 trillion cigarettes a year, of which 17 % market share is hold by British American Tobacco. Strategic Initiatives British American Tobacco believes that the application of a consistent strategy would always be helpful to build a sustainable business. Growth, productivity, responsibility and winning organization are the four elements of the corporate strategy of British American Tobacco. The vision of British American Tobacco is to achieve leadership of the global tobacco industry through its strategies for creating shareholder values based on growth, productivity, responsibility and winning organization. It had been consistent in its strategy and as a result it could measure the effectiveness and results of the strategy. BRITISH AMERICAN TOBACCO’S CORPORATE STRATEGY During 2003, the efforts to expand British American Tobacco’s market share was obstructed by major competitor’s higher growing marketing spend and other factors. In order to achieve proposed growth, it had to seek for an imaginative way to challenge the status quo in the market. British American Tobacco brought forward a new range of light menthol products, differentiated by menthol taste rather than the usual tar deliveries and hence it could change the market trend. It was quite a radical and advanced approach to the menthol category especially in Japan. This most strategic approach resulted to the launching of successful product Kent in over fifteen years, and also resulting to a noticeable increase in the market share. The success of new Kent menthol was a good example for British American Tobacco of how innovative ideas and strategic approaches can drive growth. Restructuring in Canada and UK has been considered to be key developments during 2003. it resulted in driving for an effective and efficient integrated supply chain. British American Tobacco believed that it can improve its services to the customers and hence it can release funds that can be invested in its brands to increase the drive in its organic growth. Social Responsibility Strategy Michael Hopkins is of the opinion that British American Tobacco is curious company to include as an example of close links between a company and development. A hugely profitable concern based upon selling tobacco products is not everyone’s idea of an ethical organization” (Michael Hopkins, p. 62) The most important element of the company’s business strategy is to maintain social responsibility. As it manufactures products that can be harmful to the health of the customers, one of the goals of its responsibility strategy is to reduce harm to meet both consumer needs and reasonable societal expectations. British American Tobacco developed and disseminated its statement as the basis on which the business will be run in terms of responsibility. It could produce a corporate social responsibility framework in the way that it would possibly turn to be most responsible tobacco company in the 21st century. Marcus Grant and Joyce OConnor say that British American Tobacco has recently become the first tobacco company to produce such a Social Responsibility Report. It has thus mounted a challenge to those who believe there cannot be a socially responsible tobacco company by rigorously following best practices on how stakeholders should be consulted and outcomes reported” (Marcus Grant and Joyce OConnor, p. 34) The Corporate Social Responsibility of British American Tobacco means- How a business considers its economic, social and environmental impact in its way of operation Voluntary actions that a business would be able to take over and above compliance with minimum legal requirements in terms of responsible behavior Maximizing the benefits and minimizing the downsides of its operational footsteps To be viewed as a contributor to sustainable development goals. The overall approach to productivity is about using global resources to increase profit margins and generate funds for reinvesting in the business. The productivity program also looks at reducing overhead costs and indirect costs. During 2004, factory improvements in logistics took annual savings up to ₤ 120 million. During 2003 and 2004, British American Tobacco could save ₤ 153 million per year on overheads and indirect costs. The social responsibility and social activities of the company includes wide range of social and welfare activities like non profit organizations and educational campaigns. Europa, Europa emphasize that British American Tobacco is currently carrying out a five year program of conservation activities in countries around the world. The company and its subsidiaries support communities and not-for-profit organizations around the world in the fields of the environment, education, and employment, primary health care, and arts and culture. In the UK, the company has a particular focus on supporting programs relating to the environment, tertiary education and the arts including a donation of ₤3, 800, 000 to help establish the UK’s first international centre for Corporate Social Responsibility” (Europa, Europa, p.126) Social Responsibility of a tobacco company includes making child aware of the after effects of smoking. Youth smoking is always a critical issue in the society because number of child smokers seems to be increasing day by day. It is evident that a large number of youth do not have the basic awareness of the health problems resulting from the use of tobacco. In this crucial time, British American Tobacco is committed to organize programs every where in such a way that it should tackle the issue of under age smoking, with emphasis on education. The company acknowledges that some people are critical about the involvement of tobacco companies in putting efforts against youth smoking and accept that they must not support some sorts of actions in those countries where stakeholders believe that they should not be involved. Socially Responsible Smoke Screen Even though the company can be extremely socially responsible through its official reports and documents, there should be a question in most minds that how can a business be socially responsible if its products can harm people? The social responsibility interest of British American Tobacco came in context of growing successes by the tobacco control movements. There were anti-tobacco groups especially in Western countries becoming triumphant in persuading governments to restrict tobacco advertising and promotions. Tobacco control movement had persuaded World Health Organization to begin working on a ‘framework convention on tobacco control. British American Tobacco sees this as a threat to its growing markets in developing countries. The company’s social responsibility program was actually designed to help British American Tobacco regain control of the tobacco agenda. It needs a license to operate in the future. It needs to make a five years or ten years plan and it cannot do unless it can understand what public expect from them. If there are people who are really on the anti side and don’t want to indulge with it, they also over a period of time will effectively embarrass it. British American Tobacco has been working for certain times to counter the popular perception that it normally targets children. The company’s reports always show that we believe that children should not smoke, and smoking should only be for adults who understand the risk associated with it.  We are working with governments and non-governmental organization to help prevent youth smoking. Bob Burton and Andy Rowell say that this sort of promise rings hollow with Simon Chapman, professor of public health and community medicine at the University of Sydney and editor of the Tobacco Control Journal. Chapman has studied the tobacco industrys sponsorship of youth anti-smoking programs and considers them a sham” (Bob Burton and Andy Rowell) Smoking is an adult custom, and hence British American Tobacco company doesn’t want kids to smoke. This sorts of reports and advices can be seen throughout the reports published by the company. Researches show that this sort of reports and instructions actually incite kids to smoke. During 2001, British American Tobacco had joined Philip Morris and Japan tobacco in order to adopt an international marketing system. This globally consistent international marketing standard represents a rising of the bar and thus established a standard for the industry world wide. According to Bob Burton and Andy Rowell by pro-actively setting new international tobacco marketing standards, the multinationals could be trying to counter a number of proposals that the WHO has been working on to curb the amount of cigarettes that are consumed on an international level. It was reported that British American Tobacco had destroyed the documents that include advice from an attorney who warned about the danger which the documents posed to the defense of future litigation. Its policy of destroying documents also had been developed for global application suggesting that other tobacco victims cases around the world may have also been compromised. In late August 2002 lawyers from the US Department of Justice interviewed McCabes attorneys to examine whether the destruction of documents could have affected cases launched by smokers against British American tobaccos US subsidiary. (Bob Burton and Andy Rowell) Business Environment of British American Tobacco British American Tobacco is well positioned in the market and ready for future expansion. But still, it is noticeable that hikes in excise rates will mean consumers facing price rises above inflation. As a result, it is assumed that there would be some consumer switching to cheaper brands as it is quite common in any market. The major competition and threat is that there would be smuggling and counterfeit. Excise varying levels put by governments have made wide tax differentials across national boarders and it seems to be a major factor in increasing smuggling and counterfeit activities. The company had been always facing allegations and thereafter probes by governments about rumors from the side of anti-smoking campaign groups. It was reported that the “British government is considering an investigation into the countrys largest tobacco company, following allegations it has been involved in cigarette-smuggling in Colombia. The accusations were made by an anti-smoking campaign group ASH, which has linked the company, British American Tobacco, to an elaborate smuggling ring in Colombia” (bbc.com) The public are well aware of the effects of tobacco consumption especially of child tobacco smoking. This is the area that always brought the company to be more socially responsible, or to be said to be socially responsible. British American Tobacco nowadays includes graphic health warnings on packs and excessive restrictions, or even bans, on smoking in public places like restaurants and bars. It is scientifically proved that tobacco use is one of the main preventable causes of death in the world. It is one of the basic factors in illness such as cancer, heart and other respiratory diseases. Second hand smoking also can cause lung cancers and heart diseases in healthy non smokers. Every year, about 4 million people die due to tobacco related diseases world wide. The tobacco industry also is highly controversial one. It is the main reason why a tobacco company is extremely interested in Corporate Social Responsibility activities. Though people consume British American Tobacco products, most of them are well aware that the social responsibility shown by the company is part of the customer orientation and marketing strategies and these products are harmful to their health. Increasingly stringent regulation regimes affect the manufactures worldwide and sale of the company’s products may potentially impact on volumes and profits. From the view point of the market place, change in the economic, political regulatory or situations in the countries and regions in which the company operates may have an adverse effect on its investments and businesses or on its consolidated results of operations. While competitors change their brands, launch new and innovative products, reposition the prices, it may also potentially affect the company’s proposed results. Changes in currency values and interest rates worldwide may have an adverse effect on the financial condition or operations of the company, and as a result, funding and liquidity risks may expose the company to shortages of cash needed in the operations of the company. Changes in asset returns, salary increases, and inflation and long term interest rates also can affect the retirement benefits arrangements operated by the company. The future According to the four elements corporate strategy, British American Tobacco always aims to be a leader in the industry, and in order to be so, it always takes most appropriate measures. In order to manage and control counterfeits, group companies are required to assess the illicit trade risks in their operating environment so that it can report significant issues centrally, and to develop appropriate anti illicit trade policies that are consistent with the company’s overall strategies. British American Tobacco is becoming more initiative to work for wider accountability to society and engage in constructive dialogue with their stakeholders on the issues both social and fair trade issues. Nowadays, general public expects large companies to use their economic strength for social goals and to show environmental responsibility. British American Tobacco recognizes that by running the business, they can help drive the engine of economic development. Youth smoking is quite crucial issue that needs to be addressed in the wider context of adolescent behavior. British American Tobacco’s main aim is to help prevent under aged people from smoking, and a sincere approach towards the same can bring a great success in its milestones. If it wants to ensure that effective programs are developed and carried out, and that children smoking tobacco gradually increases, it can bring more success stories in this critical market issues. The Company plans to continue fighting juvenile smoking by carrying out education campaigns in the future. If the retailers are well trained not to sell cigarettes to persons less than 18 years old, it also will make change in the market trend and as a result the company can concentrate only on the target market. In order to manage regulations successfully, major regulatory trends need to be monitored centrally. The company and its subsidiary groups are required to have in place a regulatory strategy to identify regulatory issues material to their operating environment. In order to build a successful future, it needs to develop and implement a business continuity plan covering the key risks related to the marketplace. To maintain a competitive advantage, the company must seek to anticipate and respond to new consumer trends through continuous innovation and to develop new products and markets. The company must respond to new consumer trends to develop packaging and technologies including products and potentially reduced harm. Conclusion This work represents the corporate strategy analysis of British American Tobacco and its strategic initiatives since 2003. This work outlines the environment in which it operates including social responsibility issues and child smoking. This details how the business can be more successful in its future and how can it manage and control the difficulties it may face or is currently facing in order to gain competitive advantage in the market place. References MARCUS GRANT and JOYCE OCONNOR (2005), Corporate Social Responsibility and Alcohol: The Need and Potential for Partnership, CRC Press, ISBN 0415949483 MICHAEL HOPKINS (2007), Corporate Social Responsibility And International Development: Is Business the Solution? Earthscan EUROPA, EUROPA (2002), The International Directory of Corporate Philanthropy, Routledge. BRITISH AMERICAN TOBACCO (2003), Annual reports and Accounts 2003, British American Tobacco BRITISH AMERICAN TOBACCO (2004), Annual reports and Accounts 2003, British American Tobacco BRITISH AMERICAN TOBACCO (2007), Annual reports and Accounts 2003, British American Tobacco BRITISH AMERICAN TOBACCO (2005), Annual reports and Accounts 2003, British American Tobacco BOB BURTON AND ANDY ROWELL (2002), British American Tobaccos Socially Responsible Smoke Screen, Center for Media and Democary, PR Watch.org, Retrieved 15/12/2008 from http://www.prwatch.org/prwissues/2002Q4/bat.html BBC.COM (2000) British American Tobacco facing smuggling probe, bbc.com http://news.bbc.co.uk/2/hi/europe/645989.stm D. DOUGLAS BLANKE, VERA DA COSTA E SILVA (2004), Tobacco Control Legislation: An Introductory Guide, World Health Organization Read More