EXECUTIVE SUMMARY:

British American Tobacco

For nearly 100 years, British American Tobacco has been building an international reputation for producing high quality tobacco products to meet the diverse preferences of consumers. Being listed in the London Stock Exchange, it has an active business presence in 180 markets worldwide. It holds strong market positions around the world and has leadership in more than 50 markets. It has 86 factories in 64 countries. The Head quarter of BAT is situated in Globe House, Docklands Business District in London. The company

Has global market share of 15% with Rothmans merger. Has more than 300 brands worldwide Employs almost 100,000 people worldwide Popular international brands are: Lucky Strike, Benson & Hedges, Dunhill,
Kent, Rothmans, Pall Mall, Viceroy, John Players Gold Leaf, State Express 555 etc. and regional brands are Star, Wills, Casino, Gold Flake etc.

Annual Shipments: more than 800 billion cigarettes

Works to reduce under age smoking Contributes 13 billion pounds a year {PRIVATE

"TYPE=PICT;ALT="}to governments through taxes

Is one of the world's largest tree planters outside the paper and timber industries{PRIVATE "TYPE=PICT;ALT="} Has completed the largest merger in the cigarette industry {PRIVATE "TYPE=PICT;ALT="} Spent 30 million last year on environment, health and safety

BAT Vision:
To be the worlds number one international tobacco group and to perform within the top-tier of global companies in terms of sustainable profit growth. (Martin Broughton, BAT Chairman)

BAT Regional Operations:

The Group is organized into six regions, namely America-pacific USA, Japan and South Korea Asia-Pacific - China, Indo-China, South-East Asia, Australia and Taiwan Latin America Central and South America, the Caribbean and Mexico 3

Europe comprises over 50 countries including Russia

Africa comprises more than 50 countries from Africa MESCA Middle East, South and Central Asia

British American Tobaccos Market positions around the world in 2000

Total Market (billion) America Pacific Asia Pacific Latin America Europe AMESCA 896 2214 333 1228 697 World Total (%) 16.7 41.2 6.2 22.9 13.0 BAT Share 12.2 3.9 49.4 16.9 34.1

BAT Global Market:

Six countries USA, Japan, Germany, UK, China and France account for half of the world market in retail sales value terms and Japan, Russian, Germany and Brazil account for other half of the total world market in volume terms. Overall, global cigarette market volumes have been growing slowly. Prior to the Asian economic crisis in 1997, the highest rates of growth were in Asia. This growth has been partially offset by the more mature markets of North America and Europe. In terms of volume, the BAT Group expects the global cigarette market to stabilize over the short to medium term and to

decline over the long term. However, even in the long term, it expects the market to continue to grow in terms of value in retail sales due to increase excise taxes.

BAT History and Growth:

Tracing its heritage back to a joint venture formed by the Imperial Tobacco Company of the United Kingdom and The American Tobacco Company of the United States in 1902, today's British American Tobacco was born on the world stage.

Recent past:
1972:

The 1902 covenant with Imperial Tobacco is revoked. British American Tobacco gained exclusive ownership of its original brands, including State Express in the UK and Western Europe.

1976:

The group underwent a comprehensive reorganization. Its operations were coordinated under a new holding company B.A.T Industries.

1977:

The company acquired the international business of Lorillard and several important brands, including Kent. Brown & Williamson.

It opened a new $150 million factory at Macon in Georgia. The company exported its first batch of cigarettes to China and

1979:

continued for thirty years since the nationalization of its operations.

1980:

Imperial Tobacco sold its small, remaining shareholding in B.A.T Industries.

1981:

Trading profits from the tobacco operations had tripled over the past ten years to more than 463 million as production capacity steadily increased.

1984-1988:

B.A.T Industries acquired Eagle Star in 1984, Allied Dunbar a year later and Farmers in 1988, enabling B.A.T Industries to become the largest UK-based insurance company by 1989.

1989:

Pre-tax profits increased by 24 percent to over 2 billion. B.A.T Industries changed its strategy to re-focus on tobacco and financial services, and to dispose of almost everything else.

1990:

Economic liberalization and the break-up of state monopolies opened up new trading opportunities, especially in Central and Eastern Europe and the Far East.

1991:

The group sold over 560 billion cigarettes in 160 countries, yielding a trading profit from the tobacco operations of over 1 billion for the first time.

1992:

The first acquisition in the emerging democracies of Eastern Europe was made with the purchase of Pcsi Dohnygyr, Hungary's largest cigarette manufacturer.

1997:

The Board of B.A.T Industries announced a proposal to detach the financial services from its businesses and simultaneously

1998:

merged them with the Zurich Group. British American Tobacco P.L.C. became a separately quoted company on the London Stock Exchange.

1999:

British American Tobacco, the second largest international tobacco company, announced a global merger with fourth largest tobacco company Rothmans International.

2000:

Corporate headquarter relocated to Globe House, London.

British American Tobacco acquired the remaining 58.5 percent of Imasco, the group's principal associate in Canada.

Imasco's non-tobacco interests were sold out and as a result British American Tobacco is enjoying full ownership of Canada's largest cigarette business, Imperial Tobacco.

British American Tobacco UK is the parent company of BAT Bangladesh. During 1980s BAT Group was the number one cigarette manufacturing company in the world, but now it is in the second position and its biggest competitor is PMI (Phillip Morris International. BAT's major selling markets are China and USA. In terms of

volume and value combination, BAT is using low value, high volume concept, as most of its brands are regional brands. In terms of volume, BAT sales for VFM brands accounts for 67% and for premium brand it is 33%. But in terms of profit, its premium segments generates 67% profit and VFM only 33%.

VOLUME BASED

PROFIT BASED

33% Prem 67% VFM

33% VFM 67% Prem.

Responsible Company in a Controversial Industry:

British American Tobacco Group acknowledges the risky nature of the selling products. The aim of BAT Group is to have a process of open and constructive dialogue with the stakeholders, and to be known as a responsible company in a controversial industry. It is committed to provide pleasures to consumers through excellent products 8

and to respond to societys changing ideas of how a responsible tobacco company should operate in the controversial industry.

British American Tobacco Bangladesh

British American Tobacco Bangladesh is one of the biggest multinational in Bangladesh. It was incorporated on 2nd February 1972. It is a public limited registered company with an objective of producing international high and premium quality brand to dominate the market. The Company has its Head Office and the cigarette factory in Dhaka, a Green Leaf Threshing (GLT) Plant in Kushtia and a number of Leaf and Sales offices throughout the country.

Company Foundation: Company CEO:

2nd February 1972 Paul Kirkham (36) Possess Entrepreneurial spirit 30 Years. DOHS Mohakhali, Dhaka, Bangladesh.

Company Life span: Company Headquarter:

Number of employees:

220 managers and 1136 employees across the country.

Product Offerings:

International quality premium segment to low segment. E.g. B&H, JPGL, SE 555, London, Star etc.

Major Strategic Approach: Target Customers: Company Revenue: Company Achievements: Major Competitors:

Low value, High volume.

Premium segment to low segment. $32.6 billion for 1st quarter of 2001 Recognized as a CLASS A COMPANY. Dhaka Tobacco Company (DTI), Alpha Tobacco Company, Abul Khair Tobacco Company, Nasir Tobacco Company etc.

Performance:

Net Revenue: $31,888 million Net Income: $518 million

Return on Investment: 85%

The Board of Directors and Executive Committee (EXCO) govern the overall activities of the company. The Board is composed of 10 members who are called Directors. The Chairman heads the Board. Chief Executive of BAT Bangladesh is called the

Managing Director who is normally appointed by BAT Holdings. Managing Director of the company is the chairman of the Executive Committee. This committee includes the head of all the functional departments. Head of every department (HODs)

10

carries out their functions with the help of the line managers. Different departments have different structure according to their functions and responsibilities.

History of BAT Bangladesh:

1910:

BAT Bangladesh started its voyage and operation in Calcutta as Imperial Leaf Tobacco Company. At that time ITC was operating all over the world in its own name. Later it was named as British

1926:

American Tobacco Company (BATCo.). The foundation stone of the Imperial Tobacco Company, after having set in Calcutta, was next set in Moulovi Bazar, Sylhet. Through this branch Bangladesh first came in touch with the

1929:

operations of BATCo. ITC shifted its Moulvi Bazaar depot to Ananda Mansion in Armanitola of Dhaka.

1930:

The company appointed M/S Deen Brothers as its distributor for Dhaka.

1947:

During partition of India-Pakistan, there came in to being Indian Tobacco Company and Pakistan Tobacco Company.

11

1954:

To meet the demand of East Pakistan, PTC set its plant in Fouzerhat, Chittagong and went into operation.

1965:

A second factory was set up at Mohakhali, Dhaka fully equipped

with the most modern machinery and technology.

After liberation war, East Pakistan gained its independence as Bangladesh.

1972:

February 02, under the provision of the Company Act 1913 BTC formed.

M/S Deen Brothers resigned from the companys distributor ship.

1977:

The godown at Armanitola was shut down.

1988:

On March 22, the name of Bangladesh Tobacco Company (BTC) was changed to British American Tobacco Bangladesh (BATB).

1998:

On 22nd November, BAT Bangladesh recognized as CLASS A Company in 5 chapters.

2000:

12

Currently, BAT Bangladesh reports to the MESCA regional headquarters for its performance review and strategic direction guidelines. But from January 1, 2002 BATB will be part of ASIA PACIFIC and will report to respective headquarters in Malaysia.

13

14

15

Ownership Status of the Company:

BATB is listed in the Dhaka Stock Exchange (DSE). It has an authorized share capital of Tk.400, 000,000 comprised of 40,000,000 ordinary shares of TK. 10 each. 65.91% of the companys shares are held by Raleigh Investment Co. Ltd. UK; 26.99% by Investment Corporation of Bangladesh; 2.86% by Sadharan Bima Corporation; 0.84% by Bangladesh Silpa Rin Sangstha; 0.65% by Government of Bangladesh; 0.52% by Sena Kalyan Sangstha and 2.23% by others.

Brand Portfolio:
In its brand portfolio, BAT Bangladesh has a wide range of cigarettes for different consumer segments. It is catering into premium segment, mid segment and low segment. It doesnt have any brand in the very low segment. In its brand portfolio, BATB has international premium quality Benson & Hedges both lights and full-flavored (which are now produced locally in Bangladesh by maintaining international quality), other locally produced international brands such as, State Express 555, John Player Gold Leaf (Lights and full-flavored), and London (Launched recently on 3 st of Nov 2001) and also national Brands like Capstan, Star and Scissors.

Among BATB brands some are centrally managed, some are regionally and others are locally managed. For management purpose, the brand team has segregated the whole portfolio into two other segments: Strategic Brands and Tactical Brands. Due to

16

BRANDPORT

17

resource constraints, as it is not possible to support all the brands at a time, the company provides all its support to the strategic brand portfolio that has long-term business potentiality.

BATB as Socially Responsible Company in Bangladesh:

British American Tobacco Bangladesh is involved in various community development programs in the country. The company is also one of the highest taxpayers in the country, which constitutes 9% of government revenue, 80% of excise revenue.

The company contributes more than USD$200 million to government annually. Since the inception of its Afforestation Program in 1980, the company till date has planted and distributed 35 million trees across the country. The survival rate of these saplings is more than 91%.

It has been supporting Shandhani, a voluntary organization of medical students. The company is involved in vegetable seed multiplication program and received the Food for Agriculture Organization (FAO) award for pioneering the development of vegetable seed industry in Bangladesh.

In national disasters the company has been prompt in lending its support on time to people of the affected regions.

18

British American Tobacco Bangladesh has won many awards during the last 30 years. The awards are the 1st prize of Prime Ministers National Award on Tree plantation 99, Prime Minister Afforestation Award in 1993, Presidents Award in Agriculture in 1975, Sports Journalist Award and FAO Award in 1998 and the National Trophy award in 2000.

19

INDUSTRY AND COMPETITIVE ANALYSIS

Question No. 1: what are the industrys dominant economic features?
It is extremely important for a company to understand the dominant economic features of the relevant industry, as the character and structure of different industries are significantly different. The basic economic traits in the tobacco industry are as follows:

Market Size:

Total tobacco industry is segregated into two broad categories:

Cigarettes and other tobacco related products like, Biri, Chewing tobacco (Jarda), Pipe tobacco etc. Dominating segment is the Biri, Jarda segment. Around 72.6%1 population who takes some kinds of tobacco products smokes Biri or takes other forms of tobacco products. Cigarette Market consists of the rests 27.4%. Industry trend indicates that cigarette segment is increasing gradually, as up trading from Biri and other tobacco products to cigarette is taking place.
Tobacco Industry Segment Share
27.4%

72.6%

Cigarette
1

Biri and other Tobacco Products

Source: Retail Audit-June 2001

20

Market Segment: The tobacco industry is divided into four-market segment: Premium, medium, low and very low. Very low is the most potential segment in volume terms, as this segment is the stepping-stone for up gradation from Biri to cigarette segment.

"Segment Share in Tobacco Industry"

37.74 40 30 20 10 0 5.09 35.34 21.83

Premium
Very Low Low Medium Premium

Medium Low Very Low

1
Analysis: From the above graph it is clearly visible that the very low segment has the highest potentiality with a segment share of 37.74%, compare to premium segment of holding 5.09%, medium share 21.83% and low segment share 35.34%.

Customers: Mostly Adult male, Urban, Semi-Urban and Rural.

21

Scope of Competitive Rivalry: National. Different tobacco related products including cigarettes by different local companies are also available in the local markets in different geographic locations in Bangladesh. Major players in the industry are competing more in the entire national market in Bangladesh.

Stage in the Growth Cycle: In the tobacco industry, cigarette market is at Growing Stage as switching tendency from Biri to very low segment is increasing gradually. Biri market and other tobacco products are in saturation and declining stage respectively.

Market Growth Rate: Market size of the industry indicates market growth rate. The industry growth depends entirely on the country economy and the amount of disposable income of the population. Tobacco Industry growth rate is 1-2% annually. But this year (2001), cigarette market growth rate is about 8-9% and it is expected to continue in the coming year as well.

Number of Rivals and their relative sizes: In Bangladesh Tobacco industry, there are more than 100 companies playing around. British American Tobacco Bangladesh is the market leader in all segment of the market with 47% volume share and 70% value share, followed by Dhaka Tobacco Industries, Alpha Tobacco and Abul Khair Tobacco.

22

COMPETITIVE SCENARIO
BAT Vol. Share (est. 2000) Trading Profit 99 (Tk. Min) Maximum Trade Margin Sales Force 47% 476 20% 960 DTI 17% 100 67% 630 Alpha 5% 21 72% 440 AK 6% 71 67% 250 Nasir 5% N/A 40% 260

These companies in the industry are competing among themselves both domestically and nationally. Apart from all the tobacco companies, one external threat is very active in the market and that is transit products (smuggled one) that particularly competes in the premium and super premium segments.

Product characteristics: The products can be classified as a Fast Moving Consumable Goods (FMCG) with a highly personalized characteristic due to variant consumer choice (Full flavoured Virginia, US Blends, Low delivery), brand preferences (Brand Image) and the affordability of the brand.

Distribution Channels: Large companies in the industry usually have their own control on distribution. In some cases, large as well as small companies have retailers channel to access the buyers. In the cigarette industry, as market is huge, it is not economically feasible and manageable to have access to the ultimate consumers directly. In most of the cases, distributors are playing the vital role between the companies itself and its targeted smokers/ consumers.

23

BAT Bangladesh is not an exception. It has 60 distributors operating all over the country bridging the gap between the two extreme parties. Though distributors are independent yet, BAT Bangladesh monitors and control their activities by having company representatives attached to each one of the distributors.

Degree of Differentiation: Consumer tastes and preferences are not static. It changes over time and experience. Brand image and internalization matters a lot. To capture the target market and to sustain the existing one, tobacco companies need to survey continuously about their product quality and taste whether it matches with the expected level of satisfaction. The market leader BAT Bangladesh conducts consumer product tests time to time and changes the blends of its brands according to the consumer need.

Resource Requirement:

High technology, skilled human resources and

experienced management team with high managerial and technical competencies.

Ease of Entry and Exit: High capital requirements make entry and exit difficult. Moreover, stringent government regulations are there for setting up new tobacco companies in the industry.

24

Economies of Scale: High. As a capital-intensive industry, product quality and consistency are key factors for success in the business. So, achieving economies of scale and capacity utilization are very significant economic factors.

Learning and Experience Curve Effect: High. It is especially important for those companies competing in the upper segment in the market to achieve economies of scale and also competing with the international brands in the market. Consumer tastes, preferences and choices are continuously changing. For instance, a shift towards low delivery of cigarette is completely new in Bangladesh cigarette industry. To meet the recent changes in consumer demand, technological changes are required. Therefore, scale of economy can only be possible through learning and experience.

Capacity Utilization: Required to achieve low cost production efficiency.

Industry Profitability: Above par. But this is possible, only when the firms are cost focused, and the market is price sensitive.

Question No. 2:What is competition like and how strong are each of the competitive forces?

Michael Porters five forces model of competition is very useful in analyzing the competitive situation, and the strength of the competitive forces in the industry.

25

The rivalry among competing sellers:

The main rivalry in the Industry is among the major competitors, which consist of domestic manufacturers, and to some extent transit products in the premium price segment in the market. Price and quality are the major determinants of rivalry among competitors.

The other reasons behind rivalry are:

Demand by ASU 30 smoker group (Adult smoker under 30) for new product innovation like, low delivery and US blended cigarette.

International brand image. Low switching cost among buyers especially in the low segment, as different brands are available.

Therefore, rival firms in the industry are likely to approach for licensing agreement with international manufacture for international brands. Moreover, The industry growth rate is in increasing trend due to tremendous potential in the lower price segment of the industry, where consumers are in the trend of up trading themselves from Biri to cigarette. Rivalry in this particular segment is very intensive in terms of price rather than quality.

26

Substitutability: There are as such no substitutes for cigarettes in the industry. But price, quality, performance, perceived value of the product and brand image are the key factors for brand substitution.

In the premium price segment, quality and brand image are key aspects for the substitution. Due to high brand loyalty among consumers, it is very difficult for the competing firms to enjoy substitutability effect in this segment.

In the mid-price segment, the key for the substitution is the cost as well as price. Better product availability in terms of quality and cost creates extensive competition for substitution. Therefore, product with more and new attributes can create product substitution in this segment.

For instance, In 1998, when BAT Bangladesh increased price of John

Player Gold Leaf (JPGL), its mid-segment brand, from Tk.2 to

2.50 per stick, then transit London took a huge chunk of the market share of JPGL. This indicates substitutability effect in this segment and price sensitivity of the smokers/buyers.

27

In the very low and low price segment, readily available and attractive priced substitute creates competitive pressure by placing ceiling on the prices. However, firms need to find out ways of cost reduction to be profitable.

Entry Barriers: Entry barrier is a strong force in the industry as the industry is very attractive in terms of growth and profitability.

The main barriers for potential entry are:

Governments lawful barrier/restrictions for setting up new tobacco industry.

Huge capital investment and extensive R&D requirements. Ample resource requirements. Access to technology and specialized know how. The experience of learning and experience curve effects: lower unit cost is a result of experience in producing the product in a large quantity.

Economies of scale: high economies of scale in manufacturing make new entry costly and risky.

Brand image, preferences and customer loyalty.

28

Possible way of entering into this industry is through merger or acquisition or strategic alliances through licensing with international manufacturer.

Power of Suppliers:

The power of suppliers over the firms that depends on outsourcing of raw materials including tobacco leaf, wrapping materials, filters, cigarette papers and so on, is not so significant.

As cigarettes are classified as Fast Moving Consumable Goods and produced all over the world, all the firms have the leverage to choose the wrapping materials from anywhere in world.

Tobacco for medium and low price segment cigarette is grown in Bangladesh and is capable of fulfilling the entire industry demand. 18-20% tobacco for premium priced cigarette is also grown in Bangladesh and around 80% high quality tobacco is imported from different tobacco growing countries.

Therefore, suppliers tend to have less leverage to bargain over price and quality.

29

Power of Buyers: The bargaining power of buyers is high in this industry as:

Buyers are well informed about different brands available in the market.

In the low-priced and very low priced segment, buyers have high bargaining power as different brands are available and they can choose according to their taste and preferences. But in the medium priced segment, quality, price and availability of substitutes are key factors for substitution. In Bangladesh, mid segment is entirely dominated by JPGL and no other substitutes are available.

Buyers bargaining power will intensify in this segment subject to the availability of other competing mid segment brands. In the premium segment, consumers high brand loyalty neutralizes their bargaining power.

Question No. 3: What are the drivers of change in the industry and what impact will they have?

Changes that occur in an industrys structure and environment are influenced by the driving forces of that industry.

30

Changes in long-term industry growth rate: There is a great potential of upsurge of

the cigarette industry in the domestic as well as in the international market. Therefore, there is a tremendous scope for competition capturing additional sales.

Product Innovation: It is the major driving force for tobacco industry.

Consumers tastes are continuously changing. To keep pace with the changing need, rivals in the industry are competing with each other by often changing cigarette design, blends and launching new brands in the market. BATBs LONDON, Abul Khair Tobaccos MARINE etc. are examples of launching new brands in recent time to satisfy the consumers.

It has been seen that there has been continuous shift of customer choice from full flavored Virginia blend to low delivery cigarette (Lights cigarette). Again, BATBs JPGL Lights and Benson & Hedges Lights; Dhaka Tobaccos Legend White etc. are all examples of low delivery cigarettes that are now available in the market to satisfy consumer need and expectation level.

Marketing Innovation: New ways of marketing the products to the targeted

consumers is an important driving force for getting their attention. Most of the tobacco companies are dependent on the independent wholesalers and

31

distributors. Segmenting the market in terms of its geographic coverage, strategic partnership with distributors, sponsoring national events and other sale promotions are key success factors in the industry. For instance, Benson & Hedges Star Search Program; JPGLs World Adventure are examples of marketing these brands associated with the respective brand world to reach the target audiences.

Technological Changes: Pace of technological change is very high in the

industry. Advances in technology can make a breakthrough and can shake the industries competitive situation. For instance, due to high technological setup BATB is successfully managing B&H production locally by retaining international quality standard.

Changes in costs and efficiency: Now in Bangladesh, local suppliers develop

themselves to provide required services to the industry with wrapping materials and other inputs including tobacco. This has reduced costs of tobacco companies, which could have been high if it required importing those from outside countries.

Changes in social concern, attitudes and lifestyles: Attitudes and lifestyle of the
people are changing. Tobacco companies are doing business in a controversial industry. Anti-smoking group are playing very active role all

32

over the world. Dark Market is coming in the future where no above the line communication (bill board, tvcs, poster, newspaper clippings etc.) will take place. To combat with the situation, required steps need to be taken on a timely basis. For instance, The three leading tobacco companies in the world, BAT, PMI and Japan Tobacco has taken the initiative proactively to follow some Marketing Standards globally to keep balance with the anti tobacco lobbying group.

Question No. 4: Which companies are in the strongest/weakest positions?

British American Tobacco Bangladesh is the leading cigarette manufacturer in Bangladesh with wide range of brand offering in different price segment in the market. Most of its brands are certified by its parent company in UK. BATBs core strength is embedded within its brands. Its vision of extending its leadership through world-class performance refers to the ownership of all international brands with world class standard compare to other competitors in the industry and thus sustain its leadership position.

BATBs core competency and distinctive capabilities on technological development (Dhaka Cigarette factory and Kushtia Green Leaf Threshing Plant), skilled, motivated workforces (through in house Training centre & Training at machine

33

34

manufacture site and also long term partnership contract with suppliers) and global access to International market research(R & D at their global head quarter) has given the opportunity to have competitive advantage over other competitors in the industry. BATB enjoys around 47% market share in terms of volume and 70% in terms of value share.

There is no other international cigarette manufacture operating in the market. But some international brands are available, which come through the border of Bangladesh as transit brands. This transit share in the market is around 0.3% (including: B&H FF and B&H lights, Marlboro FF and lights).

MARKET SHARE of BAT Vs. OTHERS Segment Share

PREMIUM MEDIUM LOW

BAT share in segment 99.7% 100% 49% 0%

Others 0.3% 0% 51% (DTI 37%;Alpha 12%;others 2%) 100% (DTI-18%; Alpha 5% Aziz 8%, Abul Khair 22%;New age tobacco 14%; Nasir Tob. 20% and others.)
Source: Retail Audit Oct-2001

5.09% 21.83% 35.34% 37.74%

VERY LOW

35

LIGHTS SEGMENT SHARE:

LIGHTS SHARE

B&H Lights JPGL Lights Total BAT Bangladesh Marlboro Lights Note: Consider total light segment as 100%

10% 88% 98% 2%

BAT Bangladesh faces competition in the low and very low segment. Though BATB does not operate in the very low segment, yet it faces competition, as opportunity exists for huge chunk of market share in this segment due to up gradation from Biri to cigarette. Dhaka Tobacco Industries (DTI) enjoys the most market share among the domestic manufactures, which is around 37% in low and 18% in very low segment, followed by Alpha 12% in low and 5% in very low and Abul Khair Tobacco 22% in the very low segment.

Question No.5: What strategic moves are rivals likely to make next?

Competitors strategy and their next moves: Being the leader in the industry and to sustain leadership, BATB should not be complacent and should predict its rivals strategic moves and take initiatives accordingly. As mentioned earlier, there is a tremendous potential in the low and very low segment of the market. Small companies

36

are more focused on very low price segment where BATB does not operate. The major players concentrate on the following strategies to out perform rivals .

Rapid new brand introduction. Rivals most common strategy is to introduce new brands in the market for a very short period of time, pouring enough money in the promotional activities for short-term volume growth. Once the growth is stagnant they introduce new product by changing the brand name and packet design.

Continue in penetrating in the rural markets: Presence of competitors in the rural market is very intense compare to the presence of industry leader. Rural market penetration is the main strategy of the local companies of Bangladesh where presence of market leader is absent.

Emphasis more on Trade Margin and consumer promotion: Many small local competitors offer a good deal of trade margin to their retailers to promote their brands. They even offer good deal for consumer promotion. But BATB, according to Company Act 294(B), cannot allure consumers towards its brands by offering direct promotional campaign as it operates responsibly in the controversial industry.

37

Better customer services. Offensive strategy: To capture king share of low and very low market segment. The strategy they are going to adopt is the low cost strategy as the consumer in this segment are more interested in the cost they are paying for the product rather than the quality of the product.

Market niche strategy:

Some small companies strategy is to

operate in some niche market and establish their brands by engaging their resources on promotional activities in an aggressive manner. For instance, in Kustia, Nasir Gold from Nasir Tobacco Industries and in Saver, Navy from Dhaka Tobacco has a very good market standing compare to other available brands in the very low and low segment respectively.

Who will be industrys major player: The industry trend shows that the major players are likely to continue to retain their positions. The main rival companies like Dhaka Tobacco Industries (DTI), Alpha Tobacco Industry, Abul Khair tobacco , Nasir Tobacco Industries, Chittagong Tobacco Company (CTC) etc., will still be the major players in the industry.

38

Question NO. 6: What are the key success factors for competitive success? Key success factors play a crucial role in determining what an industry has to emphasize to be competitively and financially successful. The KSFs for tobacco industry are

Technology related KSFs:

Product innovation capability Expertise in a given technology. Scientific research expertise for innovating new products and new features.

Shorter lead-time for launching a product Technical capability to make innovative improvement in Production process.

Manufacturing related KSFs:

Low cost production efficiency. Quality of operating system. High utilization of fixed assets. Low cost plant locations. Low cost product design. Flexibility in manufacturing High labor productivity

39

Quality of manufacturer with fewer defects, consistency.

Distribution related KSFs:

A strong network of distribution. Strategic partnership with Distributors (control distributors) Fast delivery. Low distribution costs

Marketing related KSFs:

Courteous customer service. Appropriate advertising Breadth of product line and product selection Attractive Styling/packaging Merchandising skills Innovative and diversified promotional activities.

Skills related KSFs:

Talent work force with full-commitment. Superior managerial skill Quality control know-how. Research & Development. Well-established product development team.

40

Organizational Capability:

Ability to respond quickly with shifting market conditions. Experienced and managerial know-how. Convenient Location Favorable image and reputation to all stakeholders. Overall low cost provider. Market intelligence network Technical capability to make innovative improvements in production processes.

Expertise in a given technology. Access to adequate financial capital.

Question No.7: Is the industry attractive and what are its prospects for aboveaverage profitability? The tobacco industry is very attractive because of its above average profitability, its growth and growth in the country economy.

41

COMPANY SITUATION ANALYSIS

Question No. 1: How well is the companys present strategy working? The stronger the market standing of a company, the more likely that it has a well-crafted, well-executed strategy. BATB market standings are being evaluated as follows:

Strategic Moves:

Market Share: BATBs market share and market growth rate is in

increasing trend. According to 1999 market share, BATB had 38.99% share compare to 42.98%2 in the year 2000 and 47.92% in the current year 2001, a growth of 10.24% and 11.5% respectively. During this span of time, the crucial competitor Dhaka Tobacco Industries had market share 25.02% in 1999, 20.44% in 2000 and 17.44% in the year 2001. DTIs declining trend and subsequently BATBs increasing trend indicates the performance of the company.

Profit Margin and sales: In September 2001, BAT BANGLADESH

had the sales of 13.1 billion sticks (sales revenue worth of 23 billion taka) ever highest in its operational life in Bangladesh. Considering the companys

Retail Audit June 2001

42

profit after tax 3Tk.236,722,000 in 1999 and Tk.476,591,000 in 2000 indicates almost 100% increase in its profit base.

Brand Portfolio Management: BATB caters a wide variety of brands

in the premium, medium, and low segment. Though very low segment is the potential segment for this company, yet till now BATB does not operate here. Moreover, low priced segment is the crucial segment for this company as competitions are very active and continuously trying to eat up BATBs market share. BATB recognized the importance of retaining a critical mass in the low priced segment. Cash and profit generation, entry point of Biri up trading to higher value portfolio, containment of local competition and lobbying position are the vital reasons behind focusing on this segment.

As resources are scarce, its not possible to engage all its resources against all the brands and promotes all the brands at the same time. Looking at the past trends, it has identified some strategic brands that will be profitable for the company in the long run and decided to put all its efforts behind these brands. BATBs Strategic Brands are: B&H Family (both FF and lights), JPGL Family (FF & Lights), and STAR. Other brands are Tactical brands (SE 555, Capstan, and Scissors), which are in the portfolio for tactical purpose to grasp the market segment by offering wide variety to the consumers.

Annual Report 2000

43

brand

description

44

New Brand Launching:

To meet the consumer demand and being in the leadership position, BATB continuously striving to place new blends of brands in the market. Recently, it has launched LONDON in the 1.5Tk. segment to grasp this price segment and act proactively compare to its competitors.

Portfolio Strategies:
As a market leader in the Bangladesh Tobacco industry, BATB follows certain portfolio strategies to sustain its leadership in the competitive market.

To develop a long-term portfolio that will support the strategy

to drive growth in the market.

To

continue to support improving performance of key drive

brands in the market.

To

give value to its consumer as a consumer driven

organization.

To continue building international attributes to key brands. To develop an effective range of portfolio options at all points.
Cycle planning meeting:
To promote strategic brands, Cycle planning meeting takes place in every month. Its a 18 months rolling plan with 3 months firm plan. Under this plan,

45

CPM

46

a year is segregated into 12 different cycles focusing on all sorts of promotional activities on a particular brand in that particular cycle for better management of the resources with full concentration.

Trade Marketing & Distribution Strategy: The core concept of

BATBs distribution strategy is selling in and selling out of the products to the retailers and to the consumers respectively. BATB has 60 distributors operating all over the country and a strong, dedicated Trade marketing team to ensure sell-in and sell-out of its brands to the retail level and to the consumers respectively. Though distributors are independent entity, yet the company recognizes them as its Valued Business Partner (VBPs) and doing businesses by having win-win situation with them. To have effective trade marketing distribution following strategies are followed by BATB:

Review and define a world-class distribution system. Implement business plans for each distributor in line with the
companys objectives and strategies.

Exploit alternative channels of distribution i.e. cash and carry,

wholesalers to extend distribution and improve out of stock in the trade.

Re-structure warehouse operation Project Carry.

47

Implement

performance

based

contracts

with

all

the

distributors to enhance performance Project Concord.

Review

logistic plan on a continuous basis and implement

unified supply chain structure, utilizing e-commerce tools where appropriate.

Implement the change

from supply-based demand to demand

management in the secondary supply chain.

Leadership Strategy: BATBs competitive approaches are

--To strive for best-cost leadership emphasizing its offerings as Value for money in the low price segment. --To differentiate its product offering through international brand image in their Premium and Medium price segment.

BATBs COMPETITIVE ADVANTAGE

Lower Costs Differentiation

M A R K E T T A R G E T

A Broad Buyer Segment

Low Cost Leadership Strategy

Broad Differentiation Strategy A Best Cost Provider Strategy

BATB

A Narrow Buyer Segment

Focused or Market Niche Strategy based on Low cost

Focused or Market Niche Strategy based on Differentiation

48

To operate as Best Cost Provider in the industry, BATB has to act proactively on continuous basis. As an industry leader, three contrasting strategic postures are open to BATB:

a) Stay on the Offensive Strategy:

The best defense is the good offense. Being offensive minded leader, BATB is always act as first movers in the industry to sustain its competitive advantage by offering new brands, quality enhancements of existing brands; improving customer services and finding ways to cut production costs. BATB always takes initiatives on capitalizing competitors weaknesses. The ways of

achieving competitive gains at the expenses of rivals weaknesses are:

Put

more concentration on where rivals have a weak market

share or exerting less competitive effort.

Give

special attention to such consumers of rivals whose

products lag on quality, features or product performance.

Make

special sales pitches to the customers of rivals who

provide sub par customer service.

Introduce new product varieties that exploit gaps in the market

segment.

49

b) Fortify and Defend Strategy:

Through this strategy, BATB makes it harder for new firms to enter and for challengers to gain ground. The goals behind BATBs strong defense are to hold on to the present market share, strengthen current market position and protect its competitive advantage. Some defensive actions of BATBs are:

Continuously

striving to raise the competitive ante for

challengers and new entrants by spending more on advertising, higher level of customer services and working on Retail Media4 to combat with the dark market situation.

Introducing

more brands to fill vacant niches that

competitors can slip into. BATBs London launching is such an example that filled the gap in the 1.5Tk. price segment.

BATB
offering.

always keeps price reasonable with high quality

Incorporates
boosts customer loyalty.

personalized services to its distributors to

Retail Media: A high quality grocery outlet giving the essence of the presence of a particular brand without demonstrating that brand and creating a brand world for that brand. eg. Shop n Save, PQS, Stop n Shop are B&H retail media.

50

c) Follow the Leader Strategy:

With this strategy BATB uses its competitive muscle to encourage runner-up firms to follow. For instance, when BATB introduces tax-stamp, its biggest competitor DTI also followed it by incorporating tax-stamps in their one/two brands.

BAT Vs. Competiton-Volume Share

60

40

20

0
SE P -O N CT O V 1 - D 998 EC JA N 1 - F 998 EB M AR 1 - A 999 PR M AY 1 - J 999 U JU N L - A 199 9 SE UG P 19 -O 9 N CT 9 O V 1 - D 999 JA EC N 1 - F 999 M EB AR 2 - A 000 PR M AY 2 - J 000 U JU N L - A 200 0 SE UG P 2 - O 000 N CT O V 2 - D 000 JA EC 2 N - F 000 M EB AR 2 - A 001 PR M AY 2 - J 001 U N 20 01
BAT NASIR DHAKA TRANSIT ALPHA OTHERS AZIZ SONALI

Analysis: From the above graph, its quite evident that BATBs volume 1999, 2000 and 2001 are in increasing trend compare to its competitors. In the same period of time some competitors had increasing and some had decreasing trend.

51

Customer Service: BATB is very serious in maintaining its relationship

with its distributors, customers of the company. BATBs Customer Services Center (CSC) is fully committed to provide world class customer services to its distributors through On time in-full (OTIF) delivery from factory and ensuring availability of stocks in all sales warehouses in right quantity, quality and brand mix. Any sorts of complaints are welcome. To give importance to their comments a database Customer Complaints Database has been created that gives answer to any queries and takes measures instantly.

BAT Vs. Competition-Value Share

70 60 50 40 30 20 10 0
19 98 -F EB M AR 19 99 -A PR M AY 19 99 -J U N JU 19 L -A 99 UG SE 19 P -O 99 C NO T 19 V 99 -D EC JA 19 N 99 -F EB M AR 20 -A 0 PR 0 M AY 20 00 -J U JU N 20 L -A 0 UG 0 SE 20 P -O 00 C NO T 20 V -D 00 EC JA 20 N 00 -F EB M AR 20 -A 0 PR 1 M AY 20 01 -J U N 20 01
DHAKA TRANSIT ALPHA OTHERS AZIZ SONALI

-O C SE P NO

-D V

BAT NASIR

Analysis: From the graph, BATBs increasing value share (70%) trend is visible compare to other competitors. 52

JA N

EC

19 98

Corporate Reputation: BATB is continuously striving to enhance its

corporate image and reputation in order to operate responsibly in the controversial industry.

Marketing Code of Conducts

BAT has taken certain voluntary marketing code of conducts to do business. The following are some code of conducts that recognizes BATB as a responsible company:

The Health Warning Clause must be on the front and back panel
of the pack in contrasting colour.

There must be two Health Warning Clauses for any tobacco

advertising in television and radio.

The

size of the Health Warning Clause on all tobacco

communication must be10% of the total communication area.

There

should not be any advertisement before 10.00 pm when

programs are primarily focused on adults.

There should not be any advertisement near schools, hospitals and

any place of worship.

53

Social Works:
BATB is engaged in different social works in the community. It has benchmarked itself for Afforestation program in Bangladesh since 1980. So, far, it has planted 35 million trees across the country. Besides this, the company is also involved in vegetable seed multiplication project, supports philanthropic organizations like Sandhani and other Social and Cultural groups.

Youth Smoking Prevention (YSP) Campaign:

In August 2001, BATB launched a campaign known as Youth Smoking Prevention Campaign to discourage youth smoking in our country. BATB is always doing its business by keeping its philosophy intentSmoking is an adult choice. Its target consumers are ASU 30, Adult smoker under 30. Intention is not to attract youth under 18 and non-smokers, rather intention is to give an alternative offer to its target consumers, so that if an adult decides to smoke, he can smoke BATBs brand.

Such campaign has been appreciated by many stakeholders and criticized as well. Yet, its concern for youth smoking again indicates its responsibility towards the society as a whole.

54

Question No. 2: What are the companys resource strengths and weaknesses and its external opportunities and threats?

Strengths:

No.1 leading cigarette manufacturing company in the country in terms of market share and consistent leader in liquidity and profitability.

Effective Trade Marketing and Distribution. International brand-name image Eminent Corporate reputation Talented work force. Strong and motivated Trade Union Global sourcing for raw materials Superior Technology Strong Brand portfolio Dedicated Distributors as valued business partner Strong partnership with key suppliers.

Weaknesses

Cannot operate in the very low segment Not diversified as other competitors Foreign exchange availability/restrictions for importing raw materials for international brands Pays excise where competitors avoid paying taxes to govt.

55

Opportunities :Weaknesses

Manage to operate in the very low segment Utilize the merger facility with Rothman Industries for regional sourcing. Expansion of product line Continuous R&D to have new blends Further reduction of costs in the value chain Diversification in unrelated products

Threats :

Slow economic growth-hence low profit pool Anti-Smoking lobbies Change in excise rate. Potential entry of international competitors Merger between local companies and international tobacco companies. Unstable political situation FOREX Counterfeit Cigarettes Competitiveness of cost base. People-brain drain

56

Question No. 3: Are the companys prices and cost competitive? BATB is striving for best-cost cigarette producer not only in Bangladesh but also in the international market when it is compared with other operating companies of British American Tobacco. There is an intense competition in the region as well, to become most competitive operation of British American Tobacco.

Action Plan Focus:

In order to achieve competitive position in the region BATB had taken initiative in the year 1999 to achieve the regional benchmarks in different identified element of cost. Fixed Cost:

1. Re-structuring the entire value chains, identifying the cost incurring activities and then addressing them. 2. Manning reduction & improve people productivity.
Variable Cost:

1. Reduce leaf costs in real term through:

Increase farmer yield. Achieve a real reduction in the average price paid to the farmer.

Continue third party purchase for all Air/Sun Cured tobacco.

57

2. Local Sourcing / Conversion of raw materials like Tipping paper,

packaging materials and so on.

3.

Implement Go Cost global procurement initiatives.

Action Plan Implementation:

Reorganized as process driven organization rather than function driven.

Right sizing of People. Elimination of 5 finished goods warehouses and thus lead to cost reduction.

Reduction of BATB owned Leaf Godowns and go for rent ones. Develop local suppliers for raw materials. Consider suppliers, distributors and farmers as Valued Business Partner.

Exploiting global/ regional procurement facility to a greater extent. Introducing Change Management program among all the employees. Cascade down the vision and mission of the company at all level and develop leadership in every employee with their own responsibility.

Looking at the BATB performance, it is evident that the BATB could keep its price stable because it has the ability to produce efficiently with reduced production cost. But still there are areas for improvement to become competitive in the region. 58

Question No. 4: How strong is the companys competitive position relative to its rivals? BATB is the market leader in Bangladesh market because of its international brand image, price competitiveness, and customer loyalty.

SIGNS OF COMPETITIVE STRENGTHS:

A leading multinational cigarette manufacturing company in the country. Wide customer base and consumer loyalty due to international premium quality brands.

Well positioned in the premium and mid segment where there is no presence of competitors.

Cost advantages due to learning curve experiences. Superior quality machinery and technological and innovational capability. In position to capitalize an emerging market opportunities.

In order to analyze the competitive position of BATB, following qualitative assessment has been carried out considering some industrys Key Success Factors (KSFs) and on its each pertinent indicator of competitive capability and potential competitive advantage.

59

Weighted Competitive Strength Assessment

Rating Scale: 1 = Very weak; 10 = Very strong

KSF / Strength Measure Quality/Product Performance Reputation / Image Technological Strength Manufacturing capability Distribution Capabilities New Product Innovation capabilities Financial resources Relative cost position Customer service capability Promotion / Advertisements Sum of weights Weighted overall strength rating

Weight 0.10 0.10 0.10 0.10 0.15 0.10 0.10 0.15 0.05 0.05 1.00

BATB 8/.80 9/.90 8/.80 7/.70 6/.90 5/.50 6/.60 6/.90 5/.25 6/.30

DTI 5/.50 4/.40 4/.40 4/.40 5/.75 3/.30 8/.80 6/.90 4/.20 7/.35

Alpha 5/.50 4/.40 3/.30 3/.30 5/.75 2/.20 3/.40 5/.75 3/.15 8/.40

Nasir 2/.20 2/.20 2/.20 2/.20 4/.60 1/.10 3/.30 4/.60 2/.10 4/.20

Abul 3/.30 2/.20 2/.20 2/.20 5/.75 1/.10 2/.20 4/.60 2/.10 3/.15

6.65

5.00

4.15

2.70

3.75

Analysis: From the above Weighted Competitive Strength Assessment, its being

quite evident that BATB is the market leader scoring high among its core competitors, followed by DTI, Alpha Tobacco, Abul Khair Tobacco and Nasir Tobacco Co.

60

Question No. 5: What strategic issues does the company face? At present the strategic issues faced by British American Tobacco Bangladesh are as follows: Shouldnt BATB consider operating in the potential very low segment to increase its market share?

BATB should capitalize the opportunity to enter into the very low segment, as a huge chunk of Biri smokers are there who can use very low segment as a steppingstone. BATB needs to have its products in this segment so that potential consumers can have BATB offering in front of them at the time of up trading and choose the preferred brand at the time of starting smoking cigarettes.

Shouldnt BATB work on the accelerating growth of its market share to support its 10 years strategic plan? There was a time when BATB was the leader in each of its operating segments. But due to competition in the low segment, in the recent past, it has lost a substantial part of its market share in that segment. Furthermore, existence of rivals in the very low segment is taking away the opportunity of

61

grabbing some market shares. Currently, BATBs market share is around 47%. To increase it to the desired level in the 10 years strategic plan, it needs to restructure its brand portfolio by having its presence in all segments of the market.

Isnt it essential for BATB to continuously lobbying with the government to keep the excise duty in control?

There is a always constant pressure from the government to generate higher revenue every year through increasing tax structure. BATB needs to manage the Board of Revenue to sustain and keep the excise duty in control to manage the costs.

Shouldnt BATB concern about the unethical behaviour of the competitors? Though controversial, yet, cigarette is one of the most profitable industries and the fast moving consumer goods in Bangladesh. BATB is operating in Bangladesh market as a responsible company by paying taxes on time, but due to some unethical practices by the local industries such as not paying properly the exact taxes with respect to their actual sales to the government, rivals can manage to sustain their pricing policy in the market. There are also quite a

62

significant numbers of transit products available in the market, which, as well does not follow the available duty structure in Bangladesh.

Isnt it crucial for BATB to improve its KSFs and achieve the regional benchmark target?

Although BATB is the market leader in Bangladesh, it is not the market leader in the region. In order to achieve leadership in the region, BATB must focus on attaining all the KSFs based on regional market and be a benchmark company within the region.

Shouldnt BATB revise its brand portfolio in terms of strategic and tactical brands for long-term growth of the company?

Currently, SE 555 is in the lists of tactical brands of BATB. Its a mysterious brand that exhibits growth with out any support. If enough support is given behind this brand this might help the company for achieving higher profit in the long run.

Isnt it essential for BATB to substitute imported foreign tobacco leaves with the local ones for reducing the supply chain costs on a continuous improvement basis?

63

The cigarette market is growing and in order to sustain the current pricing of the products, more and more imported tobacco grades have to be substituted by locally grown tobacco grades.

Shouldnt BATB prepare itself proactively for the coming Dark Markets?
Market is becoming darker day by day. People are becoming health conscious and as a result restrictions are becoming stringent than before. Even one day will come when all sorts of advertisements will be banned. To deal with such environment and protect its business BATB should take measures proactively.

64

STRATEGIC TASK ANALYSIS

VISION

To extend our leadership through world-class performance.

MISSION:

To double our net revenue by the year 2005. Grow our share of the total tobacco market. Dominate key identified segments.

STRATEGIC IMPERATIVES:

Focused, segmented, and differentiated brand portfolio Excellent Trade marketing and distribution capability in end markets Excellent products with minimized supply chain costs. Leading position in the market where we are not strong Recognized as a responsible company in a controversial industry. First Class managers in a key functions

65

GUIDING PRINCIPLES:
o Open-minded o Enterprising Spirit o Strength through diversity o Freedom through responsibility

BATB VALUES:
Achievement: Vision, Map, and Consumer Focus Commitment: Confidence, Standard, and Drive Trust: Teamwork, Support and belonging.

CRITICAL SUCCESS FACTORS:

Strategy and Planning Activities: -Overall company strategy planning -Cycle Planning and Sales Operational Planning

Supply Chain Management Activities: -Developing supply chain strategy and management -Order Management -Order fulfillment -Inventory management 66

Resource management. Activities: -Manpower Planning -Organizational Development -Financial Planning and Management.

POP (Retail Marketing) Management. Activities: -Product Availability -Trade Marketing in-store communication and

promotions. -Retail Media in-store communication and activities.

Account Management. Activities: -Account (Grocery, Convenient, HORECA) Planning -Account Profitability -Business Development

Information Management Activities: -Market Intelligence -Internal Monitoring -Information Technology

67

STRATEGIC PLANNING:
During the second quarter of 2000, BAT Bangladesh conducted a full ten-year strategic review of the Bangladesh market and the company position. Every year this 10-year plan takes a concrete shape without any major changes in context of the ten-year vision. BATB recognizes the need to both extend the current leadership position in all aspects of the business with clear focus on identified must win segments, and to strengthen and develop the portfolio to ensure the changing needs of consumers.

10 Strategic Directions of BATB:

Ten areas of strategic focus have been identified and they are as follows: 1. Increasing market profit pool 2. Dominate ASU (Adult Smoker Under) 30 3. Drive Lights 4. Drive International Brands 5. Ensure Volume Leadership in key segments. 6. Develop a channel-based distribution strategy and improve rural penetration. 7. Efficient supply chain management with international quality standards 8. Drive Corporate Responsibility. 9. Development of People 10. Information technology
68

It is assumed that there will be no change from the current site of manufacturing, and current manning levels will be sufficient to manage the growing business with a phased introduction of high-speed machinery and a continuous working environment by introducing 4 shifts in the factory rather having 3 shifts.

Short Term Action Plan:

Encourage improvement in compliance through introduction of an

effective banderole and tax system.

Coping

with

the

new

Government

by

consolidating

excise

position/developing excise strategy with future decision makers.

Continue building and strengthening portfolio offer. Rejuvenate portfolio with youthful appeal. Concentration in rural penetration to target rural ASU30 (Adult smoker

under 30)

Put focused investment behind lights and International Brands (B&H,

SE555, JPGL etc.)

Introduce Lights at Low Priced segment to generate mass awareness and

drive up trading within portfolio.

Introduction of differentiated International Brand portfolio Manage a tactical entry into very low segment to enhance rural penetration.

69

Develop a differentiated channel strategy. Expand rural base while strengthening urban leadership. Develop local production of Lights. Explore Continuous Operation for capacity optimization. Strengthen GLT (Green Leaf Threshing) process-quality improvement. Explore Leaf substitution for imported leaf. Harmonize logistics/warehousing for efficient delivery and cost efficiency. Initiation in Sub-regional integration. Continue to promote under-age smoking through YSP (Youth Smoking

Prevention) Campaign

Marketing Code of Conduct implementation. Drive enlightened union relationships. Non-management development. Explore IT opportunities in Business.

Medium to Long Term Action Plan:

Ensure success of banderoles and reduction in excise evasion. Continue to strengthen portfolio and encourage up-trading. Reduce price gaps and provide stepping-stones to higher value brands.

70

Excise lobbying, rationalize slabs, increase floor of the market and increase

excise levied on Biris.

Continue to drive IBs and Lights and development of HORECA (Hotel,

Restaurant & Caf).

Analyze the impact of regulatory limit on tar/nicotine delivery. New product innovation: Ultra Lights, Menthol Lights etc. Exploration of HORECA (Hotel, Restaurant & Caf) and Retail Media. Explore opportunities to expand premium and medium segments. Continue to build Star brand while exploiting regional opportunities. Leverage on IT to enhance business process. Enhance leaf operation to support growing market demand Build open and trustworthy relationship with pressure groups that will

allow joint efforts in managing industry.

Institutionalize BATs role as a key development partner of the nation. Drive flexible, non-hierarchical team-based structures into the

organization.

71

OBJECTIVES:

Double Net Turnover by 2005. Maintain more than 95% share of International Brand segment whilst growing the segment from 27% to total filter to 35% by 2010.

Lights share to 6%by 2005 and 10% by 2010 Establish clear dominance in filter segment, achieving more than 60% share by 2010.

Grow share of total smoking tobacco market from 12% to 24% by 2010.

Recognition as a leader in technology and product innovation through continuous R&D.

STRATEGIES:

Continued focus on developing premium and medium IBs --Reposition B&H and SE555 to drive up-trading and block competition.

Grow Lights through: --Strengthening of existing line extensions

Prepare portfolio for price increases in future.

72

 AN AL YS IS

Achieve value growth through upward line extensions of drive brands. Achieve market dominance by improving share in sub-urban and rural areas through: --increase support for Star family.

OF

--tactical launch of a brand in the very low segment.

BA TBS CORPORATE, BUSINESS AND OPERATING STRATEGIES:

Corporate strategies:
BAT Bangladesh is a single business company and hence does not have

any corporate strategies.

Business strategies:

Develop Brand portfolio strategy with special focus on areas of potential opportunity.

Develop excise strategy in line with corporate and market objectives.

Effective Resource allocation and continuous review of BATB cost base.

Review of long-term manufacturing strategy.

73

Intensify competition with rivals by improving the quality of products and increasing efficiency in producing and distributing them.

Striving to become a lower and best cost producer of a higher and higher quality product.

Improve the fabrication procedures and product quality as well as methods to increase productivity.

Operating strategies:

Continuing business with MRP II CLASS A standard. Continuously improve Product Quality Index (PQI) and Manufacturing Quality Index (MQI) to meet Centrally Managed Brands (CMB) targets.

Implementation and utilization of Retail Quality Index (RQI) system introduced in 1999.

Ensuring continuous improvement in Tobacco Quality Ratio and Fill Value.

Implementation of Quality Best Practices to achieve QUEST (Quality Enabler Survey Team) target.

74

EVALUATION OF BATBs FINANCIAL, MARKETING, AND PRODUCTION PERFORMANCE, HUMAN RESOURCES, AND RESEARCH & DEVELOPMENT PRACTICES AND SO ON:

Financial Performance:(in 000sTK.)

RATIOS5
Net Turnover Net Profit after tax Total Current Asset Total Current Liabilities Operating Profit Margin Net Profit Margin Return on Assets Return on Equity Current Ratio Quick Ratio Debt Ratio Debt to Equity Total Asset Turnover Trading Margin Interest Coverage Effective Tax rate Dividend Policy 11.3% 3.6 30.5% 66.9%

1999
4,203,304 236,722 1,901,066 2,374,133 3.27% 1.66% 15.4% 15.5% .80 1.28 53.4% 71.2%

2000
5,388,977 476,591 1,603,414 1,830,224 4.2% 2.78% 33.1% 27.4% .876 1.30 61.24% 19.6% 2.71 14.6% 11.1 23.3% 77.8%

Calculated from Annual Report 2000

75

From the table, its being noticed that BATBs Return on Asset (ROA) is 33.1% in 2000 compare to 15.4% in 1999, which almost got doubled. This measures the overall effectiveness of the companies management in generating profits with its available assets. It is a measure of the return on total investment in the company. As BATBs ROA is in increasing trend, it appears that shareholders feel comfortable and confident enough to invest in this company, rather any other place. In future, if BATB can meet the sales forecasted demand its ROA will definitely improve further.
Profitability Ratio 40% 30% 20% 10% 0% 33.10% 15.40% 15.50%

27.40%

1999 Return on Assets

2000 Return on Equity

From the owners perspective, BATB is also doing well. Its Return on Equity increased from 15.5% in 1999 to 27.4% in 2000. Its Net Turnover and Net Profit After Tax has increased tremendously from Tk.4,203,304,000 (in the year 1999) to

Tk.5,388,977,000 (in the year 2000) and from Tk.236, 722,000 to Tk.476, 591,000 respectively that reflects a higher return on both assets and equity.

76

Current ratio measures the liquidity of the company i.e. the companys
ability to pay off the short-term obligations. From the table, it is very much evident that BATB is having problems in maintaining its cash flow (current ratio 0.88). Its short-term borrowing is also high and frequent and compare to industry average (1.33), it is not in a good shape. Moreover, the Debt to Equity ratio for BATB is 19.6% in the year 2000 and 71.2% in the year 1999. This indicates that BATB has improved its performance in terms of debt-equity tremendously by managing cash effectively. In case of Debt ratio, it measures the proportion of total assets financed by the companys creditors. The figure, 53.4% in 1999 and 61.24% in 2000 indicates that BATBs investment is mainly financed by external sources and therefore, has more financial leverage compared to industry average.

Leverage Ratio 80% 60% 40% 20% 0% 1999 Debt Ratio 2000 Debt to Equity 53.40% 71.20% 61.24% 19.60%

77

Both the Current Asset and Current Liabilities of the company are in decreasing trend indicating that the company is focusing on investment rather than having current assets in its hand (idle cash in hand) and having less amount of current liabilities as a whole. BATBs increasing trend in Operating Profit Margin (from 3.27% to 4.2%) and Net Profit Margin (from 1.66% to 2.78%) also indicates that the company is also doing well in earning profits on operations and its success with respect to earnings on sales.

Profitability Ratio
5% 4% 3% 2% 1% 0% 1999 2000 1.66% 3.27%

4.20% 2.78%

Operating Profit Margin

Net Profit Margin

Again, BATBs increasing Interest Coverage ratio (3.6 to 11.1) indicates the companys ability to make contractual interest payment.

78

Marketing Performances:

Product: BATBs has a wide variety of brands in its product line. It has
international premium quality (centrally managed) brands like, Benson & Hedges (B&H) both full-flavored and lights, and SE555; Value for money (regionally managed) brands like, John Player Gold Leaf (JPGL) both full-flavored and lights, and LONDON; and Domestic Value for money (locally managed) brands like, Star filter and plains; Scissors filter and plains; and Capstan.

Among its brand, BATB pays royalties for B&H, SE555 and LONDON. For all international brands BATB needs to consult with IBG (International Brand Group) in London. No decision can be taken without their due permission. Even for advertisements and promotions every bits and pieces are guided by IBG guideline.

BATB has developed the capability of producing all its international brands, previously those were used to import from BAT UK operation at Southampton factory. BATB brands are available in three types of SKUs (Stock Keeping Units): Hinge lit (HL), Soft-Cup (SC) and Shell and Slide. All international brands and Capstan are available in 20s HL pack. It has 10s Shell and Slide pack on Star and Scissors and 20s Soft Cup pack on Star. Plain brands are available in 10s Shell and Slide pack version.

79

Price: Competitive price is being offered by BATB while keeping pace with the
competitions. BATB products are available in the entire price segment of the market except the very low segment. As around 87-90% of the total cigarettes are sold in sticks rather than whole pack, price segmentation has been done on the basis of per stick price.

In the premium segment at Tk.3 per stick, the parent products are Benson & Hedges and State Express 555, with line extension of Benson & Hedges Lights. These international brands have excellent product image with a segment share/ volume share of 99.7%.

In the medium price segment at Tk.2, John Player Gold Leaf is the bread and butter for the company with international image in both Full- flavor and Lights version. It has a 100% volume share in the market.

In the Low price segment at Tk.1 plus, the brands are Capstan filter, King Size LONDON, Star filter, Scissors Filter, Star Plain and Scissors plain. These brands have a volume share of 35.34% declining from 56.37% 6 market share due to tough competitors.

Source: Retail Census Q1 2000.

80

Place: BATB products are reached to the ultimate consumers through its
designated distributors. BATB has 60 distributors all over the country. These distributors supply BATB products to the retailers under the supervision of Territory officers (TOs) of the company. For 60 distributors there are 40 TOs working in their respective territory.

Entire Bangladesh has been divided in to six geographic regions headed by 5 Regional Managers (RMs). These regions are Dhaka Metro, Dhaka Outer, Chittagong, Khulna, Sylhet and Rajshahi. Regions are again divided into 12 strategic areas and headed by 12 Area Managers (AMs). Under each Area Manager, there are Territory officers who are responsible for their defined territory. Therefore, companies managers are continuously monitoring the performance of one or several distributors and ensuring effective distribution to all the district markets.

BATB has classified the types of outlets in 3 categories: Grocery, Convenience and HoReCa (Hotel, Restaurant & Caf). The distributors cover groceries and convenience outlets, whereas HoReCa channels are covered by company designated HORECA managers to promote premium brands only in the Metropolitan cities of Bangladesh.

81

Major sales are done through Cash & Carries, small mobile outlets who buys directly through distributors. Small retail outlets also takes BATBs product from some major retail stores in the wholesale bazaar (like Mowlobibazar of old Dhaka), where all the trading takes place for all kinds of consumable goods. These wholesalers buy cigarettes from different distributors. BATB never encourage this particular channel, as this particular channel is very hard to monitor and control.

Distributors of BATB are perceived as valuable business partner of the company. Therefore, they are also engaged in various company programs like training and development, different workshop as part of continuous improvement initiatives.

Promotion: BATB has strict CORA guidelines for promoting its brands. Apart
from CORA guidelines, there are strict IBG guidelines for promoting international brands. For such kinds of brands, advertisements and promotional activities are same all over the operating companies of British American Tobacco. Again from legal point of view, under company act 294 (B), BAT cannot run any promotions directly to its ultimate smokers like any other company.

82

In Bangladesh, television advertisements are banned in local broadcast television. Now a days, other private channels like ETV, Channel Eye, ATN Bangla are used to advertise BATB brands. Other promotional campaigns for Benson & Hedges, State Express 555 and John Player Gold Leaf are done in other medias like Magazines, Newspapers, Billboards and through entertainment shows like sponsoring concerts. Branded outlets for JPGL and Star are now common type in the market to promote that particular brand. Other merchandising materials for promoting brands are: branded in-store cabinet, street cabinet, desktop, light-box, canopy, sunscreens and so on. There are also cycle based promotions for outlets like, poster, dangler, bunting, sticker, trade letter, consumer lift-let dispenser and so on. These materials are temporary merchandising materials for promoting a particular brand on that particular cycle.

Production Performances: MISSION:

We delight our consumer with superior quality product through most flexible operation, and minimum cost at all times.
BATBs production department has been renamed as Operations and Manufacturing Department. In order to support the mission, this department is performing successfully the following activities:

83

 Product harmonization.
Meeting international quality standards.

Competitive position of EH&S in the group (Achieved 3.4 on scale 4.0). Low cost producer.
Conversion cost Tk.43 per mille against Tk.43 per mille.

Conversion Cost ($/Mille) 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00 1.17 1.12 0.92 0.71

1998

1999

2000

2001

Analysis: From the above graph it is evident that conversion cost is in declining trend over the past few years. Even 3 years back it was $1.17/mille but now it has been reduced to $.71/mille almost 40% reduction in costs that indicates BATBs performance in this ground.

84

Product cost Tk.296 per mille against Tk 300 per mille.

Product Cost ($/Mille)

7 6 5 4 3 2 1 0 6.05 5.18

5.39

4.99

1998

1999

2000

2001

Analysis: Looking into the trends of product costs year on year, it is visible that BATB is striving to reduce its costs. In 1998, product costs/mille was $6.05 but in recent year 2001, it managed to reduce costs $4.99/mille, almost 18% reduction.

STRATEGIC INTENT--Manufacturing:

Clear core ideology. Benchmark focus at every level. Employees with skills to meet the most competitive performance in the region.

85

Clear objectives / challenge / KPI for management and shop floor employees.

Continuous improvement environment/no comfort zone.

Teams + Processes + Resource Allocation = Effective Results.

STRATEGIC DRIVERS - 2000 2002:

Improve productivity. Continuous Quality Improvement. Supply Chain Management. Achieve MRP II Class A - in new checklists. (Strategic Planning,

Planning & Control, People & Team, Continuous Improvements and New Product Development).

Human resources development. Strategic thinking Leadership and Team building.

Technical development. Effective Go Cost program. Technology effectiveness.

86

QUALITY STRATEGY:
To generate an integrated process of quality to exceed consumers expectations that includes all managers/workforce, suppliers,

distributors and systems.

Quality Focus:

Continuous quality improvement. Smoking Quality. Physical, Chemical, Packaging aspect Systems & Process (QUEST). Consumer complaints. Vendor development/partnership. Effective training on Key Quality Methods.

Backward vertical integration:

BATB has developed some local suppliers as its valued business partner to have wrapping materials by giving order on monthly basis. Most of its suppliers deliver raw materials on Just in time basis, usually less than a day, for using in its production line. BATB usually has one-year contract with these suppliers where prices are settled for that period. It also has agreement to have safety stock of raw materials for 1.5 month, work in

87

progress material for 7 days and finished materials for 7 days. For better resource management, suppliers are well aware of sales forecast and manufacturing plan of the company for next 18 months through direct link with BATBs computer terminals. Technical helps are always extended to the suppliers in case they ask for it.

KANBAN system of inventory control is a benchmark within British American Tobaccos operating companies. In BATB, only 4 hours raw materials are available in the factory premises and thus benefiting the company by releasing working capital, reducing inventory level and opening up the spaces.

Leaf Performance: MISSION:

To exceed consumers expectation by providing quality tobacco at a competitive cost.

LEAF OBJECTIVES:

Organize Cultivation Quality Improvement --Procure required quantity as per forecast --At a Competitive Price

88

Import Substitution Export Corporate Image Enhancement

CHALLENGES:

Adjustments with the Sales and Operations Planning (S&OP)

Storage Arable Land Limitation Weather Unethical Competition. Price Sustainance Quality Improvement

STRATEGIES (Based on forecast):

Industrial requirements Seedbed and plantation program Crop registration and agreement Crop inputs and logistics Seed Planning.

89

LEAF OPERATION:
British American Tobacco Bangladesh, among one of the few operating companies in BAT has got its independent leaf operation: leaf growing and processing. Three regions in Bangladesh namely Kushtia, Manikganj and Chittagong grow highest quality leaf due to favorable climatic condition.

The leaf growing is managed through about 11,500 BATB registered farmers, who grow tobacco leaf in their lands with the financial and technical support from the company. The leaf processing operation is done in the GLT (Green Leaf Threshing) plant located at Kushtia. GLT runs for 5 months of the year during the leaf buying and processing time. The hourly throughput (ideal) is 7,500 kg per hr, which cover both domestic and export requirements.

Companys Leaf Department is working side by side with the farmer to achieve the tobacco-growing target and fulfill the local demand as well as the export market in order to achieve highest international quality of tobacco. Leaf planning is done on 30 months forecasted volume. The process of cultivating and growing tobacco includes:

Seed bed management. Field practices (Newly Developed Agriculture Practices). Mature harvesting.

90

 Barn management (Development in the Tobacco curing equipment). Curing management (Tobacco curing after harvesting). Grading. Hygiene & Sanitation (Social development process and environmental awareness).

Growing policies - EH&S:

BATB follows I.C.M.S, to minimize the dependence of Agro-chemical and optimize chemical fertilizer for best practices.

Integrated pest management:

Pest Management has become an increasing concern for Leaf department. Although BATB is not directly involved in the cultivation but due to its deep involvement in the tobacco growing process, it is the companys responsibility to create awareness and manage pest control among the growers. This process includes:

Make farmers understand for pursuing alternative crop rotation practices to reduce/avoid the use of agrochemical. Selecting appropriate agrochemicals. Continuous Training Continuous monitoring of environmental impact.
91

Future Challenges:
Cost is an important factor in the supply chain. To be competitive in terms of costs, Leaf Departments planned some activities/actions like, rearranging warehouse facility, substituting imported quality tobacco with locally produced tobacco considering the quality parameters etc. In order to maintain costs at certain level and for further cost minimization following programs has been identified:

Improvement of barn capacity by increasing barn utilization and efficiency through technological innovation considering the costs of the manufacturing. Striving for continuous quality improvement in order to substitute the imported grade by local grades for the premium brands. Increasing employee productivity in Green Leaf Threshing Plant to keep the tobacco-processing cost competitive. Ensuring buying cost of the tobacco without hurting farmers (VBPs) by helping them increasing the overall growing yield significantly.

Managing Logistics and Warehouses in such a way that total costs involvement will be minimized.

92

LEAF SOCIAL:
BATBs leaf department is actively participating in social works and thus enhancing companies corporate reputation. Their activities are scattered mainly in the leaf growing areas with a target group of their valued business partners (farmers).

Activities on Focus:
Forestry Education Programto educate future generation

between the age group of 7-10 years.

Health and Hygieneto educate VBPs regarding sanitary toilet

and develop healthy environment for better health and house keeping and reduce risks of occurring different diseases. Around 92% VBPs erected Sanitary Toilets.
Primary education and Literacy---100% VBPs children are going

for primary education and 100% VBPs know how to sign their names. As such, it is supporting Government program Education for All. Around 99% children of VBPs are school going.
Family Planning---Its creating basic concepts and awareness

through motivational activities.

93

Safety---To ensure VBPs safety, BATB arranged leaf payment

through bank account for faster and dependable payment system.

Afforestation---Its a continuous improvement process that gained

momentum since 1985.

Human Resource Practices: MISSION:

Embedding a winning culture where people always strive to excel

WHAT WAS BEFORE?

Earlier in BATB there exists two groups of people: Management and Nonmanagement/Union. There were always mistrust between these two groups. Union always disagreed with the management decisions instead of cooperating with them for the betterment of the company as a whole. These two groups were busy in a tag of war with almost anything. A common understanding into any issue was very uncommon. Nothing could be decided without negotiation. Winlose situation was very common in place of win-win situation.

All sorts of development efforts of human resource were confined into management level; non-management-unionized employees were focused only to

94

technical training. Lack of business sense; communication gap, trust & forward visibility in sharing company plan and strategic direction were regular phenomenon for BATB that contributed to become a high cost base

manufacturing operation in the region.

How company was affected?

Due to lack of coordination between two groups, BAT Bangladesh was recognized as a high cost base manufacturing operation in the MESCA region.

WHAT HAS BEEN CHANGED SO FAR AND HOW?

BATB now values its people as Human Capital. In 22nd November 2001 MRP II Audit, BATB achieved CLASS A in People and Team Development with benchmark recognition among BAT companies. To be in this position, it had gone through extensive training programs including different skills development programs for improving individual performance as well as group performance as a whole. The company started to reshape its structural set-up by removing barriers from early 1999.

Actions Taken:

Introducing Open-office concept. All offices were brought into a single location and all offices were made open.
95

Introducing common dining facility: Managers and employees started using the same dinning facility at the same time.

Same Uniform: Same uniform for everyone has been introduced throughout the company to give the importance of shop floor employees as part of one organization without any discrimination.

Open Discussion with MD: Managing Director of the company initiated meetings with all levels of employees where issues were/are discussed openly.

Family Day Concept: A Family Day concept emerged where all members of the organization both management and nonmanagement participates along with their family members and enjoys throughout the day.

Reward and Recognition: To motivate employees at all level, BATB introduced recognition and reward system like, Champions for a specific month for doing something extraordinary. As a result people are becoming more open and interactive and participative to grab the title. This has generated a positive competition among the employees.

Winning in our world (WOW):

For driving the WOW program

throughout the company, the main drivers are Trust, Commitment and Achievementcore values of the company. For these values,
96

BATB has a very good corporate reputation for excellent management practices. These WOW values are clearly defined and employees, management & Union all are continuously striving to achieve these values.

ACHIEVEMENT

Vision: We understand what each of us has to do. Map: We believe in our plan. Consumer focus: We live for our customers.
COMMITMENT

Confidence: We expect to win. Standards: We keep raising our standards. Drive: We take personal responsibly.
TRUST

Teamwork: We have trust in each other. Support: We learn from Each other. Belonging: We are proud of who we are.

97

IT Performance:
There was a time, when IT department acted as a supporting function as part of finance department. But now, IT department has been expanded with its own identity with the vision of driving business through IT.

A core objective of IT is to explore IT opportunities in the business to increase the pace of regular business activities. In the last MRP II Audit, IT of BATB has been recognized as Benchmark within BAT companies. Within BATB, all functional activities are accelerated with IT solutions. The important benchmark achievement is the solution named DATA WAREHOUSE, a Decision Support System that integrates all the systems and data for making appropriate decisions across the company.

Research & Development:

Research & Development is an on going process for BATB. As it is operating in a controversial industry, anti smoking lobby always put pressures on the company. Todays smokers are becoming alert and desire to have something with a lesser amount of Tar & Nicotine percentage. To maintain certain level of these two elements, BATB is continuously striving to achieve a desired level in its blends. Lights is a kind of variety with less number of puffs.

98

Moreover, consumer preferences are changing. To meet the demand of their tastes and preferences Product Development Manager and Blender are trying to develop new blends and even to improve the current blends proactively. BATB Research Lab is equipped with latest equipments like Smoking Machines that measures the puff numbers/minute.

99

PROBLEM ANALYSIS
Problem areas of BATB both in terms of external and internal aspects are as follows:

MAJOR PROBLEMS

Strategic Problems

Brand Portfolio: Consumers in Bangladesh are very price sensitive. Cigarette Industry is of no exception. Around 87-90% cigarettes are sold on stick and market segmentation has done also on the basis of stick price. BATB brands do not exists in all the existing market segments. In those vacant segments, BATB does not have any product available and therefore, it is always under potential threat of new product entry in the market.

Operating in very low segment: Market has great potential (volume terms/value terms) in the very low segment. But it is not economically viable for BATB to operate in this segment and earn reasonable profit after paying excise. As competitors are well known for unethical practices in terms of excise payment, they are making profit by operating in this segment and capture both volume and value share without facing any competition from the industry leader.

100

Increasing Excise: Excise management is always a big concern for BATB. There is a continuous pressure for increasing excise demand from the government. BATB has to manage the excise structure and put constant pressure for not making any excise structure change, which has direct effect on pricing of its brands.

Increasing Transit (smuggle) brands & Counterfeits: According to Retail audit, major competition faced by BATB in its premium segments from transit Marlboro (around .03%). There was a time when BATB used to face competition with its own BAT companies cigarette brands. These brands are not duty paid therefore, they are available in comparatively cheaper price compare to BATBs brands. Sometime, counterfeits of some of the major brands of BATB like JPGL, SE555 and Star or Scissors filters are available in the market. This has become a serious concern for the company as the quality of the counterfeits is very low and thus deteriorates companys reputation.

Industry Shifts: Even till 1990s smokers preferred to smoke plain brand cigarette with a very strong and hard taste. During 90s the smokers preference started shifting towards full flavored Virginia cigarettes with lower delivery and king size filter cigarette. Todays industry is experiencing a fundamental shift in its business. Now smokers want to smoke lower delivery cigarettes and therefore, preference for lighter cigarette has

101

been increased. To meet this industry demand, new technology in the industry with huge capital investment is essential for overall industry success.

Potential threat for loss of market in terms of Value share:

The cigarette market is very price sensitive. In the early 2000, BATB had to reduce the price of its mid segment brand JPGL due to loss of sales, a result of the price increase by 2.5% in early 99s. To stabilize the situation, BATB had to increase its sales volume to optimize its value share. Lots of cost reduction initiatives were taken to balance the circumstances; like usage of raw materials, administrative costs, production costs etc. In future, such kind of threat is always there for BATB.

Operational Problem:

High Manufacturing Costs:

Increasing Manufacturing cost is one of the key issues for the Operation department BATBs product costs, conversion costs and material costs are higher than the other operating companies of British American Tobacco and also higher than the region (MESCA) average.

102

ALTERNATIVE STRATEGIES:
In order to resolve BATBs problem, the following alternative approaches can be undertaken to boost up its long-term performance.

Brand Portfolio
Alternative 1: BATB has the resources available and thus, can fill up its vacant segments when it will experience potential threat from new entry in the market.
Pros: No need to invest money right now behind this matter. Rather can invest in other potential projects. Management time can be utilized in some other sector. No guarantee that new brands in those vacant segments will be a success. Cons: Competitors can act proactively and launch new product category while having collaboration with some other international competitors. Competitors will have the opportunity to grasp the potential value and volume share of those segments and consequently BATB will loose the opportunity. 103

Alternative 2: BATB can start thinking proactively to have its presence in every available market segment so that in future if any competition comes in
BATB will be in a upper hand position.

Pros: BATB will grab volume and value share in those segments before anyone else. Competitors/international competition will have hard time to establish their brands. As Dark Market is coming up, it will be easier for the company to establish new brands in those segments rather than launching during Dark Market. Cons: There is no guarantee that it will be successful in launching brands in those segments. Time, money and energy can be a total wastage.

Operating in Very low Segment:

Alternative 1: BATB can think of operating in the very low segment, as it is a very potential segment in terms of volume.

104

Pros: It will be able to take the opportunity of grasping the market share with its quality products as industry trend indicates up-trade of smokers from Biri to Cigarettes.

Cons: In short term, BATB might have to sacrifice profits to establish its brand in the portfolio, as after paying excise it is not economically viable for the company.

Alternative 2: There is no need for BATB to consider operating in the very low segment, and it should be happy with its existing brand portfolio.

Pros: It wont loose money and will be able to maintain its profit growth.

Cons: Competitors are and will be capitalizing BATBs absence in the segment and will continue grabbing the market share in this huge potential segment.

105

Increasing Excise:
Alternative 1: BATB can lobby and maintain good relationship with the Govt. officials for stable excise payment. On this issue, the company can take proactive role suggesting different excise slabs in order to demonstrate winwin scenario. This was done in the past and thus resulted positive outcome for both government and the cigarette industry. For instance, As per BATBs recommendation, tax-stamps have been implemented for cigarette industry to increase the revenue of the government.

Pros: Good relationship will help the company to operate successfully in future. Excise stability will give the company additional cash its hand. Successful roll out of tax stamp will enhance competition within the industry.

Alternative 2: Excise is not a matter of concern.

Cons: Need to pay huge amount of money for excise. BATB will be paying taxes, irrespective of what its competitors are doing. As such BATB will be the looser in terms of cash management. 106

Increasing Transient/Counterfeits:
Alternative 1: BATB can lobby with the Govt. and law enforcing agencies by

keeping good relationship with the government bodies, launching anti smuggling campaign for promoting the negative impact of smuggling in the country economy and suggesting alternatives for controlling the smuggling. Furthermore, the company can influence Govt. to put more restrictions to discourage counterfeits.
Pros: Govt. will get more excises, as smuggled ones are not duty paid and thus will get more revenue from the company. BATB will be able to sell more and grab market share if no transit brands are available. It will be able to retain its reputation in terms of quality standard if there are no counterfeit products.

Alternative 2: No need for BATB to take measurable steps in this regard. Cons: Company reputation will hamper for counterfeit products. Govt. wont get excises for smuggled products. In the premium level, the company will face competition where BATB has almost 100% market share. 107

Industry shifts:
Alternative 1: The essence of fortify and defend is to make harder for

firms to enter and for challengers to gain ground. Therefore, company can do extensive research in order to identify the potential long-term growth in the lights segment. It can also create a state of readiness within the company for different low delivery cigarette for different price segment. The company can launch brands on trial in the test market as a part of niche strategy to identify customer group for low delivery smoke quality.
Pros: Building new capacity ahead of market demand to discourage competitors from adding capacity of their own. Proactively respond to the industry shifts and taking necessary measures proves BATBs leadership in the cigarette industry. Cons: More money involvement in research and development.

Potential loss of market in terms of Value share:

Alternative 1: BATB is the market leader in Bangladesh cigarette market and

its premium (B&H, SE555) and value for money (JPGL) brands are perceived as

108

international and high quality product. Therefore, company need to continue

Stay-on the Offensive Strategy focusing on its key brands.

Pros: Will help for costs reduction in each value chain activities. Quality enhancement. Proactively taking market initiatives to increase market growth.

Cons: Involvement of more research & development. More capital investment.

Alternative 2: BATB can be defensive in nature rather offensive to tackle such

matter.
Pros: Savings from research & development

Cons: Competitors will utilize the opportunity. The company will act as follower not the leader of the industry.

High Manufacturing Costs:

109

The costs of cigarettes are related with production capacity. BATB can put more emphasize on large volume to capture economies of scale in its running operations.
Pros: Economies of scale will reduce costs base on per unit basis.

Union Management relationship:

BATB should be committed towards:

Duel Commitment of Company & Union. Retain and Extend mutuality in terms of trust, influence, dignity, and integrity.

Sustain environmental belief on One family one team.

Pros: Union morale will be stronger than before. Union will not act as barrier in case of any change for the betterment of the company. Union leader will act as catalysts between the management and the union.

110

RECOMMENDATIONS:

There is nothing called best solution. Looking at BATB, in market the company is in the best position and enjoying the market leadership. Following recommendations can be made to support the companys overall strategy for further enhancements of its operations in this country:

Continuously monitor 10 years strategic plan and its execution phases year on year to have an overall balanced planning inline with the market demand and its responses, and find out whether plans are aligned with the global corporate strategies or not.

Identify opportunities and build on strengths Brand portfolio should include brands in different price segments to fill up the gaps (eg. at Tk. 2.5, 3.5 and even introducing super premium brand).

Should think seriously for operating in the very low segments. Should continuously monitor and reshuffle its strategic and tactical brand portfolio as per the industry trend. For instance, can think of giving effort behind SE555.

111

BATB should try to achieve the economies of scale in order to reduce

cost of production per unit. Production Planning should be more focused on utilizing the entire productive asset in the production floor .

It can think of focusing on unrelated business diversification.

BATB should outsource its daily administrative activities and put

concentration more on its business development activities.

BATB should continue to enhance its corporate images by continuing

different social activities and introducing new promotional campaigns like YSP (Young Smoking Prevention).

Should maintain strong relationship with its suppliers and customers.

112

IMPLEMENTATION PLAN:
Implementing strategy entails converting the organizations strategic plan into action and into results. And thus it is the most difficult task of strategic management. The managerial task of implementing and executing the chosen strategy requires assessing what it will take to make the strategy work and to reach the target performance on schedule. The managerial skill here is being good at figuring out what must be done to put the strategy in place, execute it proficiently, and produce good result.

Role of every manager in implementing and executing the strategic plan:

Successful implementation can be a part of cooperation and collaboration of different levels of managers across the company. The top management of BATB should continuously reinforce and cascade down its mission, vision and strategies across the company and transform each and every one within the company into manager in his/her area of concentration for overall development and widening the business line.

Identify the task to be completed:

Formulate plan of actions for potential unfocused market segment and act proactively to grab the existing opportunities. Allocate more funds for R&D.

113

 Continuously striving for innovative strategies to have edge over competitors and ready to take any challenges. Continuously motivate employees to retain their morals and to capitalize their team effort to achieve company mission on time. Re-fresh WOW program to sustain the Change Management Program. Up-gradations of required machineries for coping with the increasing market demand. Lobbying and keeping good relationship with the Govt. for effective implementation of tax-stamp. Find out cost occurring activities in the supply chain and try to fix up the problem by finding cost effective methods. Implement IT strategies by supporting all functions with Information Technology (IT) and creating new arena to add velocity in the respective business process. Develop training programs with a training calendar throughout the organization based on individual, functional and corporate needs to improve three key areas i.e. knowledge, skills and attitude. BATB has to transform its core competence unique managerial skills in to a distinctive competence with more refinement so that this becomes a competitive advantage for the company.

114

 BATB need to increase morals of its front-line management, Trade Marketing & Distribution by offering them quick career growth, as they are the key contact people between the consumers and the company.

Personnel responsible for the tasks:

Operations Managers: One of the major KSF in cigarette industry is technological advancement. The introductions of high-speed

machineries can breakthrough production capacity per day and help the company to gain economies of scale by reducing costs /mille. Moreover, operation manager is responsible for streamlining the production process to reduce costs and save time and enhance employee productivity.

Planning & Logistic Manager: The planning and logistic manager has the crucial responsibility of maintaining smooth operation in the whole supply chain activities in a cost effective manner. Supply chain scopes starts from leaf planning and logistics to finished product distribution to the customers. All the processes involved need to be rearranged if necessary and must becost effective to increase the profitability and velocity in the overall supply chain activities.

115

Shifts/Plant Manager:
Allocate substantial resources in the potential high growth sector. Monitoring production as per Master Production Schedule (MPS). Concentrate on TQM for zero defect strategy

Demand/Marketing Manager:
To forecast accurately about the market demand To execute aggressive promotional campaign to attract potential users. To monitor distributors performance for achieving the companies overall S&OP (Sales and operational planning) target.

Product Development Manager: For satisfying consumers/smokers according to their desired needs, it is very important for product & development managers to proactively take the steps of developing new blends and new brands. The product manager should be ready with Off the shelf brands so that when ever market requires, the company can launch /introduce new brands in the market. One of his core responsibilities is to change the product design and look to enhance quality and attractiveness.

116

Brand Manager: Brand managers are the custodians of BATB brands. Through research and development on consumers, competitors and media, they need to find out consumers needs and wants and try to satisfy those by getting aware of market demand in developing varieties of brands for different price segments.

Human Resource Manager:

Attract the brilliant graduates by offering competitive

compensation packages. Provide continuous training and development for human resource development. Arrange WOW refresher program for sustaining core values of the company.

Giving recognition to managers and employees for being change agents, result oriented, and customer focused.

Environment, Health & Safety Manager:

Safety manager should continue to provide safety precautions to prevent any hazardous event in the factory and to ensure human life in order to prevent any kind of disruption in the production floor.

117

He should look into different safety precautions like: --Premises & housekeeping --Electrical, mechanical hazards --fire protection & prevention etc.

118

CONTINGENCY PLAN:

In any planning process, contingency plan needs to be incorporated for what if scenario. Even the best plan may fail. There is no guarantee that specific plan(s) will work out as planned. Thus, the need for a contingency plan arises.

In the BATBs strategic plan, focal points are its volume share and profit margin. To have higher volume share and incremental profit margin, some key assumptions are: Growth in the premium segment. Up-trade from Biri to low brand cigarettes. Change in Cigarette: Biri consumption Increase in value share. Steady economic growth of the country.
No increase in the current tax structure.

If any of the above assumptions change due to external forces, there is a possibility that BATB will not be able to achieve its targeted plan.

119

Therefore, the contingency plans are recommended as follows:

Cigarette Export in the international market(s):

Growth in the premium and mid segment contributes higher profitability margin. BATB is recognized by the corporate Head Office for the leading candidate within the region for exporting cigarettes. As a result BATB might consider exporting its premium and mid segment brands in the international market and earn foreign exchange for the company as well as for the country.

Diversification:
As cigarette industry is a controversial industry, the company might think or diversifying to unrelated products like ITC (Indian Tobacco Company) and expand its business horizon.

Out source the Manufacturing of lower brand:

The lower brands of BATB are produced in the low productive machine and the current employee cost for BATB is Tk. 26,000 per month. With strategic alliance with the local manufacturer, BATB can produce these brands with much cheaper cost. This will enhance the profit margin of the company as well as well increase the sale volume due to reduction in the retail price. 120

New style of brands in the portfolio (Low delivery and US blend cigarette):
As the tastes and preferences of the consumers are shifting towards low delivery cigarette, the company can gear up its resource and technology and be at the state of readiness so that demand can be created in the market. BATB can even think proactively for US blend of cigarettes to compete with international competition Marlboro by Phillip Morris.

It is therefore, suggested that a proper study should be carried out to identify each of the contingency plan. Once the study is done, company should be prepared to implement the plans within the shortest possible time.

121