Friday, 3 May 2013

Case Study: British American Tobacco

Our goals are to grow our brands and the value of the business, to improve productivity and to embed the principles of corporate responsibility around the Group
Brands They Produce: Dunhill, Kent, Lucky Strike, Pall Mall, Bensons & Hedges etc

They have the dominant market share in: Canada, Australia, Brazil, South Africa, Pakistan, Norway and many more.


  • HQ in London
  • R&D in Southampton and Cambridge (university towns)
  • 52 Factories worldwide, plus 4 specific cigar factories

Tobacco Leaf Sourcing: 

  • Purchase 460,000 tonnes of tobacco leaves
  • 80% of the tobacco leaves are from emerging countries
  • The supply chain is made up of around 250,000 farmers
  • Tobacco leaves are produced under a 'Social Responsibilty in tobacco production programme

Global Brands Drive:

  • Trying not to be reliant on just USA and Western Europe as while there are high profit margins there is a decline in sales volume
  • Trying to break into emerging economies where volumes are set to rise like Indonesia, where lots of cheap tobacco is sold until a lot of people are addicted

An ethical approach means that shareholders, consumers and producers are happy. BUT there are some issues...

Developing Economies and Tobacco:

  • Largest agribusiness in Kenya, contracting over 17,000 farmers who work on 15,000 hectares.
  • In these regions food production had dropped dramatically
  • The danger is that tobacco cultivation will replace food crops
  • Tobacco sourced from the devloping world tends to be used to make less expensive brands - cigarrettes made from tobacco grown in Brazil cost half of ones with American tobacco
Developing economies and tobacco: 
  • Shift in production to LEDCs because of their lower labour costs, with many factories in South East Asia
  • Factories in places like Singapore and Kores are closer to destination markets
  • Closure of UK factories like one in Southampton
Marketing and Tobacco:
  • Harder to advertise cigarrettes in MEDCs due to advertising bans
  • Iincreased activity in NIC and LEDC markets as oppose to MEDCs, where it is declining in part due to health/social issues
BAT in India:

  • It is an emerging market
  • Around 5 million children under the age of 15 are addicted to tobacco
  • BAT are actively advertising to convert people, particularly the young, to cigarettes eg branded pop concerts, free samples
  • TNCs can now own factories outright in India

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