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British American Tobacco Company Analysis Essay


Introduction

British American Tobacco(BAT) is among the prime international tobacco manufacturers worldwide. The company is publicly traded and has sustained an extended 8-year success as the only tobacco business in Dow Jones world index. The BAT has invested approximately 112 million pounds in research and development and produces 725 billion cigarettes per year.

The BAT has establishments in over 50 markets (Collin, LeGresley, Mackenzie, Lawrence, & Lee, 2004). In addition to over 300 brands of cigarettes, BAT produces cigars, smokeless snus, pipe tobacco and Roll-your-own. Some of its famous international brands include Rothmans, Kent, Lucky Strike, Kool, Viceroy, Victory and Dunhill. The company’s brand is highly appreciated across the globe.

Vision and Mission

The vision of British American Tobacco is to become a leader in the tobacco industry. The company does not only wish to cover a wide market but also enhance the quality of its products. Its mission is to be the leading tobacco company in Central America and the Caribbean via sustainable competitive merits in an efficient organization.

The vision and mission of the industry have been a pacesetter to the workers in the organization and has helped to set realistic goals (Collin et al., 2004). Currently, the BAT has global recognition as a pit-bull in the tobacco industry.

Stakeholders

British American Tobacco, being a major industry, attracts various interested parties. The stakeholders include investors, the government, customers and consumers, employees and the local community. The stakeholders help the company to understand the consumers’ needs and how to improve their services.

They give priceless feedback on the services, procedures and products (Collin et al., 2004). Hence, they help the company to continually enhance its products and services. The management of the BAT has a chance to interact directly with the stakeholders through dialogue sessions, customer surveys, day-to-day interactions and partnerships.

The Five Forces Analysis

Environmental factors, both internal and external, can affect the general success of a company. British American Tobacco, like any other company, encounters political, economic, social and cultural factors as well as change in technology.

Political Factors

The government “places regulatory controls by imposing taxes and duties on tobacco products” (Cox, 2000, p. 47). There are also restrictions on exhibition and advertising of the tobacco products. Often, one can come across a warning that prohibits smoking in certain areas. BAT is well aware of such government policies and gets legal advice regarding such policies to work according to the law. The policies affect the company’s ability to reach a wide customer base.

Economic Factors

The tobacco market is non-elastic. A change in price does not have a significant change in consumption. Therefore, even during inflation the company can still make a considerable amount of profit. The British American Tobacco contributes a great quantity of income to over 150 countries since taxes imposed on tobacco products bring significant returns to the relevant governments.

Cox (2000) maintains, “BAT can offer job opportunities to over 100 million people worldwide as it covers a wide geographical region” (p. 49). Changes in prices come as a result of market forces with each industry facing unique factors (Glantz, Barnes, Bero, Hanauer, & Slade, 2007). The tobacco products are sold with imposed VAT. Besides, wholesalers and supermarkets are given discounts to enable them make a profit. In other words, the BAT guarantees that individuals that deal with tobacco products make substantial profit.

Social and Cultural Factors

The public is well aware of the health effects of tobacco. The British American Tobacco manages its operations wisely by putting relevant warnings on the packaging. The company has also built its public image by assisting in various projects such as elimination of child labor in tobacco growing countries (Cox, 2000).

Technology

Advancement in technology has led to the automation of a majority of the cigarette manufacturing processes. Packaging has also been automated. The British American Tobacco conducts research in technology to enhance productivity. The company invests in technological innovations and related research (Cox, 2000). It has also developed and endorsed new agricultural plants that enhance soil fertility and are environmental friendly.

Promotion and Awareness Campaigns

The British American Tobacco requires advertising its products, especially whenever it introduces novel products into the market. Besides, the company requires informing the clients about changes in prices whenever necessary. Over the years, the company has encountered numerous challenges in the promotion of its brands.

The challenges range from bans to lawsuits. However, BAT has adopted proper methods of advertising that warn the public of the possible consequences of smoking cigarette (Glantz et al., 2007). Advertising has always proved to be a significant factor in the success of a business and has helped BAT to gain popularity over other competitors. Successful advertising always results in the increase in the profit margin of the company.

Competition

Despite its popularity, British American Tobacco is not the leading tobacco company in the world. China National Tobacco Company, which is the largest cigarette company in the world, poses as a major competition. The company is managed and owned by the Chinese government and dominates the Chinese market. Another competitor is Japan Tobacco International (JAPAF).

The JAPAF owns 3 of the top cigarette brands in the world. They are Winston, Camel and Mild Seven. It also owns other brands and tobacco products. Imperial Tobacco Group is another competitor that is led by Davidoff and sells its products in over 160 countries (Glantz et al., 2007). The other key competitor is Altria Group. Altria Group owns four operating companies. Besides tobacco products, Altria Group also produces and sells wines.

SWOT Analysis

The study of threats, weaknesses, opportunities and strengths of BAT is used to examine the business strategies, structure, key personnel, products, operations and revenue.

Strengths

Strengths refer to the factors that have given BAT competitive advantage over other producers in the market. Both internal and external factors can pose as strengths and goodwill of the company. One of the BAT’s strengths is its geographic diversification. The company has establishments in over 50 countries, with each establishment operating independently.

The branches help BAT to exploit a wide market range and exploit growth opportunities in the various countries. The BAT has an establishment in China where the high demand for tobacco products acts as an opportunity the company to diversify its market. According to Glantz et al. (2007), China is the primary target market for BAT and other tobacco companies.

The British American Tobacco has shown considerable interest in the cultivation and development of tobacco. It has dedicated research facilities and funds to the development of environmental-friendly tobacco plants that help produce superior products. Thus, it has a competitive advantage over other companies.

The BAT purchases tobacco from its 250,000 farmers who work across the world. The farmers are directly contracted to the company and hence the company gets the best tobacco. As earlier stated, BAT is the second leading producer of tobacco in the world. By having over 300 brands of cigarette, it poses an active market stance and is able to maintain leadership in 50 out of 180 markets (Glantz et al., 2007). The company has a competitive advantage over other key players in the tobacco market since it manufactures different flavors of cigarette.

Weaknesses

In 2005, there was a significant decline in revenue of over £1,000 million from the year 2004. However, the revenue rose over the next three years. Nonetheless, revenues in America, Latin America and Asia-pacific kept dropping. These losses came as a result of a poor marketing mix and illegitimate trade resulting in a colossal reduction in market share. Poor financial management has led to the reduction of the amount of operating capital at BAT.

Such loss indicates inadequate internal controls, and it calls for the increase of financial capital. Major organizations and non-profit companies, like the European Union (EU) and the World Health Organization (WHO), want to outlaw the advertisement of tobacco and its products because of the health impact it has on the smokers.

According to Yach and Bettcher (2012), smokers suffer from the respiratory problem, related cancers, dental problems and even heart diseases. Research has shown the extent to which cigarettes can harm people’s bodies. The BAT faces a threat of losing a significant market share if EU and WHO outlaw the advertisement of tobacco products.

Opportunities

The major opportunity that all tobacco producers find fascinating is the market potential in China. About 40% of all cigarettes produced globally are consumed in China. There is a high demand for foreign brands in China. Consequently, BAT has an excellent market opportunity in China.

The demand cigarettes with low nicotine content is on the rise. Therefore, the BAT can focus on this market segment (Yach & Bettcher, 2012). The development of cigarettes with low amount of nicotine has resulted in an increase in the number of women that smoke, therefore a wider market for BAT. Another nicotine product that presents as an opportunity for BAT is the smokeless snus. The product is gaining popularity, and its market seems to be growing steadily and rapidly.

Threats

The major threat in tobacco industry is the production of counterfeit products. Criminal groups produce counterfeit cigarettes and smuggle them to countries like China. The criminals go unpunished. Besides, the penalties are not harsh, hence making the problem grow by the day. Other threats include health issues and illegally smoked products (Yach & Bettcher, 2012).

Individuals who smoke irresponsibly end up suffering from heart and respiratory problems. As people become more aware of their health, consumption of tobacco products declines. Also, illegal drugs like marijuana tend to pose a competition to tobacco since they are broadly smoked and popular than tobacco products (Yach & Bettcher, 2012).

Maximizing Competitiveness and Leadership Effectiveness

The British American Tobacco is committed to operating business with utmost integrity and transparency, with an aim of positively impacting the society, the government, the consumers, investors and the environment. The company ought to use the following strategies to maximize competitiveness:

  • Ensure responsible marketing of its products by including health warnings on packs
  • Ensure that it prevent children from gaining access to cigarettes as a way to build its public image
  • Have open dialogues with their stakeholders so as to identify challenges and formulate operation strategies
  • Fight tobacco trafficking alongside non-governmental organizations and law enforcement agencies

Communication Plan

Restrictions on advertising of tobacco products by enterprises and companies are useful parts of tobacco programs worldwide (Lee, Gilmore, & Collin, 2004). BAT should come up with a strategy that is committed to developing and promoting a range of new and improved tobacco and nicotine products. The company should also run advertisement campaigns aimed at educating the public on the dangers of excessive smoking.

Besides advertisement, the British American Tobacco should organize workshops to enlighten stakeholders on the importance of producing tobacco products that have low nicotine content. Moreover, the company should liaise with farmers and educate them how to grow quality tobacco products. Communication and constant cooperation with farmers will go a long way towards ensuring that BAT manufactures and sells quality tobacco products.

Besides, it will enable the firm to promote growth and generate funds for future investment. BAT should be dedicated to research and development of tobacco since it is the core of its business. The company’s objectives to improve its products are faced with some challenges such as e-cigarette regulations, retail display bans, alternative crops and ingredient bans. The British American Tobacco should focus on finding a way to cope with these challenges and eliminate them if possible (Lee et al., 2004).

Strategy and Organizational Structure

Organizational strategy helps a company to define and build its structure (Lee et al., 2004). BAT can use past statistics to determine its target areas and figure out a way to succeed. The company should evaluate the competition, market behavior, consumer wants and trends, societal norms and other factors. These factors go a long way towards formulating the operations policies of a business.

Governance and leadership Mechanisms

The BAT should monitor the managerial procedures carefully to avoid problems such as money laundry, poor management of assets, misuse of firm’s property and under-investments. The company has put in place strict measures that include an active Internal Control System (ICS), which is a recommended form of technology for all big and medium-sized corporations.

Ethical governance

The BAT ensures that clear succession plans are always put in place for every senior role in the organization. The company ensures that one “internal successoris available and ready for the short-term and two local successors for long-term development” (Yach & Bettcher, 2012, p. 210).

The company also launches global recruitment programs, which help to recruit experienced workers. The availability, readiness and willingness of able and committed leaders create a competitive drive for the organization. Indeed, ethical leadership in BAT has contributed to the growth and popularity of the company. For instance, the company has begun to dominate the Chinese market, thanks to its ethical advertisement approach and quality products.

Recommendation

The other way that BAT can improve the effectiveness of leadership in the corporation is through the establishment of a proper channel of communication. The top-down and bottom-up communication channels should be kept open and corrupt-free for clarity and integrity purposes. Effective leadership and communication create a stream of fresh air among the leaders, stakeholders and society, therefore resulting in a comprehensive success.

Conclusion

British American Tobacco has established itself as one of the largest producers and distributors of tobacco and related products. The company has shown its dedication to projects that benefit the society and environment. Investment in technology has enhanced productivity and quality of services in BAT.

The company has also been an important source of revenue for many countries. Its contribution to the countries’ income has helped it to gain support from investors and other major stakeholders. Besides, BAT’s leadership style has enhanced communication between the stakeholders and the firm’s management. The primary goal of the BAT is to dominate the global market and provide quality and superior products to consumers.

References

Collin, J., LeGresley, E., Mackenzie, R., Lawrence, S., & Lee, K. (2004). Complicity in contraband: British American Tobacco and cigarette smuggling in Asia.Tobacco Control, 13(2), 104-111.

Cox, H. (2000). The global cigarette: Origins and evolution of British American Tobacco, 1880-1945. New York: Oxford University Press.

Glantz, S., Barnes, D., Bero, L., Hanauer, P., & Slade, J. (2007). Looking through a keyhole at the tobacco industry: The Brown and Williamson documents. The Journal of the American Medical Association, 274(3), 219-224.

Lee, K., Gilmore, A., & Collin, J. (2004). Breaking and re-entering: British American Tobacco in China 1979-2000. Tobacco Control, 13(1), 75-84.

Yach, D., & Bettcher, D. (2012). Globalisation of tobacco industry influence and new global responses. Tobacco Control, 9(1), 206-216.

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