Vous êtes sur la page 1sur 40

1

I. INTRODUCTION
About WITCO

The West Indian Tobacco Company (WITCO) is a member of the British American
Tobacco Group (BAT) operating within the Caribbean. WITCO is in the business of
manufacturing and distribution of Tobacco products in Trinidad and Tobago business
partners in the Caribbean. WITCO was established in 1904 by Mr. John Phillips and in 1970
became a Public Company of which 49.87% of the shares are currently publicly traded on the
Trinidad and Tobago Stock Exchange (TTSE). Collectively, the company has over 3,000
institutional and individual shareholders of which BAT is the single largest, with a total
shareholding of 50.13%.
WITCO employs over 200 persons and operates from a single location at the corner of
Eastern Main Road and Mt D'or Road, Champs Fleurs, Trinidad. The company supplies
cigarettes to markets in the region in 172 stock keeping units (SKUs) of which its brands
include Benson & Hedges, Pall Mall, Phoenix, Craven A, Matterhorn, Dunhill, Broadway, du
Maurier, Embassy, Empire, Viceroy, Morello, and Bristol.
The mission of the company is to sustain our market leadership in Trinidad and Tobago
and to be the number one manufacturing center in the Caribbean. This statement together
with their guiding principles (freedom through responsibility, strength from diversity, open
minded and an enterprising spirit) reflect their organizational culture. The organisational
structure encourages a participative style of leadership in which WITCO employs. In
accordance with Tannenbaum & Schmidt (1973) this leadership style is one where there is
little micro management by executive management. Extensively, team members are
motivated as a result of their contribution in the decision making, thus leading to employee
satisfaction.
According to Trompenaars (1993), a companys culture can also be explained by the guided
missile/ achievement culture Trompenaar, Riding the Waves of Culture (1993). Speaking to
this definition, WITCO is highly egalitarian in that everyone has a part to play in decision
making and applies a team approach. They are also highly task oriented and very focused
on delivering quality products. The tobacco companys guiding principles are exemplified its
culture and leadership style. Together with leadership style and culture, WITCOs culture
leads them to have competitive advantage in the industry and aids to sustain them as number
one in the market.
2

Witco operates in an industry where they have monopolistic power but they are not a
monopoly because the barriers to entry though high, are wide open, therefore it is imperative
that they remain on the alert and maintain constant competitive advantage.
For this purpose it is necessary to employ strategies that will help them to maintain said
competitive advantage.



























3

VMOST




II. EXTERNAL ENVIRONMENT
a. PEST Analysis

POLITICAL AND
LEGAL
Marketing and advertising restrictions via the Tobacco
Control Act 2013.
Mandatory graphic warning messages on packaging (as at
2015) affecting customer's desire to purchase henceforth,
affecting industry's profit.
High import tariffs limits the competition in the local
industry.
ECONOMIC While Trinidad and Tobago experienced slow growth, its
neighbouring CARICOM countries continued to recovery
from 2008/09 recession as the economies remained down.
Tobacco is a commodity crop heavily driven by demand and
supply and has seen consistent increases in the last 3 years
VISSION
Worlds best at satisfying consumer moments in tobacco and
beyond
ANALYSIS: Consumers are at the core of all activities associated in producing the
product. The vision captures the essence of the company.
MISSION
To sustain our market leadership in Trinidad and Tobago and to
be the number one manufacturing centre in the Caribbean.
ANALYSIS: A methodical and expounding declaration which mirrors the purpose and
methods of operations.
OBJECTIVES
Growth; Sustainability; Wining Organisation; Productivity
ANALYSIS: The objectives of the company meets customer needs by being brand
focused and creating shared value. This approach to business using these objectives
effectively uses resources to increase profits, improve operating margins and invest in
future endeavours ultimately benefiting the customer
STRATEGIES
Strength from diversity
ANALYSIS: This strategy enables growth and ensures investment in the future through
diversification by seeking new opportunities in tobacco and beyond. This will also in turn
increase market share.
TACTICS
Consumer lead; Globally aligned; Consciously responsible
ANALYSIS: Consumers are the determinants of success and so to win, the consumer
must be won. A global business approach from being aligned to BAT is evident and this is
leveraged to prevail against competition using a matrix organisation. Consciously
assuming consequences for decisions made in an industry that is controversial means
being transparent and responsible and it shows in the approach to sustainability,
policies, principles and standards.
4

driving up cigarette prices. In 2012, there was a 14% increase
in tobacco prices, resulting in 4.5% product increase.
Brazil is the main exporter of tobacco in the region.
Zimbabwe, Turkey or the U.S. are alternatives but do not
have the same grade/quality as Brazil, making the industry
susceptible to Brazil.
The industry is exposed to foreign exchange risk in the
importing of raw material and exporting its final product to
distributors/buyers.
The proposed law will affect the industrys processes as more
money will be spent to print the graphic messages eating
away at profits for the industry and remitted taxes for the
state.
38% of the industrys income goes toward government taxes
SOCIAL AND
ENIRONMENTAL
Heavy criticism of the industry as Trinidad and Tobago
culture and industry have been accused of targeting teenagers
to the addictive product.
The industry believes in environmental protection by
imploring waste management initiatives.
The industry contributes handsomely to charities but under
law is unable to publicise its contribution.
Child labour is rampant in the industry in countries such as
Argentina, Brazil, China, India, Indonesia, USA and
Zimbabwe. Brazil has made efforts to cub this.
Cigarette smoking is estimated to contribute to 20% of all
deaths by heart attacks and about 30% of all cancer deaths.
According to statistics from the Dr Elizabeth Quamina
Cancer Centre, lung cancer in Trinidad and Tobago is the
number one cancer among men aged 25 to 59 years.
TECHNOLOGICA
L
Technological advancements in the production and
distribution such as commercial hybrid seeds and best
practice guidance on agronomy, alternative fuels, irrigation
and mechanisation, agrochemical use, integrated pest
management and curing methods.
Competition from alternative products challenges the tobacco
industrys technological innovativeness with the advent of e-
cigarettes, heat-not-burn devices, hookahs, cigars and
reduced toxicant cigarettes


The industrys impeding Tobacco Control Act has brought about increased tax and
manufacturing costs concerns and questions about the ability to influence buyer behaviour
fearing a negative impact on the industry. Inherently, the industrys constant accusation of
targeting teenagers from social groups and highlighting of its contribution to lifestyle diseases
has dampened its image enormously by social, health and public awareness groups. While
controversial and addictive, the industry stresses its products are for responsible adults and
despite international statistics on deaths associated with tobacco use, little empirical
information has been documented about the relationship between tobacco smoking and
mortality in Trinidad and Tobago.
5


Nonetheless, there is little concern for competition with the protection of very high import
tariffs which helps ensure the industrys sustainability. On a macroeconomic front, economic
recovery is still fragile regionally and internationally. Barbados, having not fully recovered
from the 2008 crisis, relapsed into recession in 2013 and Jamaica, with its highly leveraged
economy, continues to record negative growth. Luckily, the industry has benefited from its
inelastic product overall.

The recent shortage of US currency in Trinidad and Tobago has affected the manufacturing
industry. The unavailability of foreign exchange has resulted in the inability of manufacturers
to meet financial obligations to foreign suppliers. If the situation continues it can adversely
impact manufacturers credit ratings with suppliers, as well as overall competitiveness, and,
ultimately, business employment levels.














INDUSTRY LIFE CYCLE

The Tobacco Industry is in the Growth Stage of the industry life cycle. There has been
consistent growth in sales and profits, and customers are knowledgeable about the industrys
Porters Five Forces of
Competitive Position
West Indian Tobacco
Company Ltd
alan chapman 2005, based on Michael Porter's Five Forces of Competitive Position Model.
RIVALRY: LOW - MEDIUM
GROWTH LEVEL ON THE INDUSTRY LIFE
CYCLE MARKET SHARE IS HIGH, THUS LOW
RIVALRY
LITTLE COMPETITION IN THE TOBACCO
INDUSTRY HOWEVER, THERE ARE
ALTERNATIVE USES SUCH AS OTC E-
CIGARETTE (HOOKAHS), HEMP,
WHICH HAVE BECOME VERY
POPULAR AND TRENDY
SUPPLIER POWER: MEDIUM
HIGH SWITCHING COST AS BRAZIL IS
THE KEY SUPPLIER OF TOBACCO BASED
ON LOCATION, QUALITY AND
RELATIONSHIP BUT THERE IS ACCESS TO
MANY ALTERNATIVE SUPPLIERS

THREATS OF SUBSTITUTE PRODUCT:
MEDIUM
1. E-CIGARETTES ARE BECOMING VERY
POPULAR AND BECOMING AN
ALTERNATIVE TO TOBACCO
PRODUCTS BUT NOT AS POPULAR
2. LEGISLATION TO BE EFFECTED TO
INCLUDE GRAPHICAL WARNINGS ON
PACKAGES CAN BE BOTH COSTLY
AND DETER THE USE OF TOBACCO
PRODUCTS
BUYER POWER: LOW
1. ADDICTED CUSTOMERS STILL BUY
2. INCREASED ILLNESS ASSOCIATED WITH
SMOKING REDUCES THE PURCHASE/USE OF
CIGARETTES
3. PRICE INCREASE GENERALLY DOES NOT
AFFECT BUYERS PURCHASING POWER
4. IMPORTANCE IS PLACED ON CUSTOMER
FEEDBACK IN DELIVERING TO ITS
CUSTOMERS IN PACKAGING AND QUALITY
5. SYMBOLIC AND EMOTIONAL LINK IN
SMOKING (TRENDY, STRESS RELIEF)

NEW MARKET ENTRANTS: LOW
High customs duty on tobacco products (33.8%),
according to the 2011 WTO data.
Strong international presence from one major player
in the Caribbean
Brand identification
Lack of differentiation can threaten the company
with new innovative products such as e-
cigarettesPressure from lobby groups may be a
barrier to entry
6

product. Within the last three (3) years, the industry has experienced price increases
nevertheless, sales figures continue to grow. Its growth stage is also evidenced by its low rivalry.

KEY SUCCESS FACTORS



In determining the industrys Key Success Factors, tobacco companies take their customers,
competition and the corporation into consideration. Tobacco manufacturers ensure that all
their products are made from the best tobacco leaves in order to derive the best value for
customers in terms of taste. All brands are reviewed from time to time to assess its
performance and to enhance competitive advantage against rivals and given its controversial
nature, tobacco companies enjoy economies of scale.

CUSTOMER AND COMPETITOR ANALYSIS

As the analysis continues to explore the other layers of the external business environment, a
synopsis of the tobacco industrys customer profile and competitor analysis has been
identified below.

WITCOs targeted customers are responsible adult consumers (18 years and over) in the
domestic market and the CARICOM markets it operates in.

Table: Customer segmentation by price and quality by Lynch (2009 p113)
Key
Success
Factors

Quality
Products
Brand Name
Economies
of Scale
7

Segment
Product and
Branding
Pricing Market growth 2012 - 2013
Premium Dunhill
Prices set above
regular and economy
categories.
The market growth reflects a strong
performance of the key brands, Dunhill,
du Maurier and Broadway, where volume
in the premium category has grown, but
is off-set by lower sales volume in the
export market. Domestically there was an
increase in the year 2013 by $83 million
and in the CARICOM market a decrease
of $6 million.
Value for
money
(Regular)
Du Maurier
Standard prices:
adequate value added
but large volume
market [National
Brand]
Economy Broadway
Lower price, highly
price competitive: low
value added but large
market








Competitor Analysis Philip Morris vs WITCO
Given the companys strong market presence WITCOs major competitor is the international
brand, Marlboro by Philip Morris International (PMI).
8








9

Assessing the dynamics of the environment: Degree of Turbulence

The tobacco industry clearly identifies a low degree of turbulence of 2. The Tobacco Industry
has shown that their target markets are both national and regional markets, it generally adapts to
new regulations, can extrapolate their own experience into the new conditions. They can also
predict the future due to environmentally changing environment and century long existence in
the domestic market.






















10


III. INTERNAL ANALYSIS
a. Resource Audit

Physical Capital
Factory strategically located in Champ Fleurs Trinidad where state of the
art manufacturing facilities are located nearby other successful
manufacturing companies (Unilever and Carib Brewery)
Financial Capital
Largest and most profitable Manufacturing Companys stock on the
T&TSE with a HOLD stock recommendation
Continuous growth in Revenues and Profits and a 31% income
distribution going to dividends.
WITCO also benefits from its global affiliation and support, financial
and otherwise from its parent company BAT.
Majority of fixed assets is attributable to the companys to of the line
Plant and Equipment.
Intellectual Capital
Though the strength of its parent company BAT, it has patents. WITCO
itself does not engage in Technology and Development.
Human Capital
Highly skilled professionals. There is access to quality international
resources through international recruitment through related parties in the
BAT group.
Social Capital
Supports many local initiatives in accordance with tobacco regulations.
WITCO strongly stamps carbon footprint via its waste management an
eco-friendly initiatives and systems in place
Customer Capital
Customer database, stock retailers according to consumer preference,
customer opinions are very important to them overall a customer
oriented company
Information Capital
SAP inventory system, group intranet, geographic distribution strategy,
Customer tracking database and retailer/customer relationship are all
utilised
Organizational
Capital
Matrix organizational style, participative leadership, guided missile
achievement culture

Despite being a subsidiary of BAT, the company operates on little dependency on its parents
resources. However, the parent companys association contributes to the strong will of the
companys overall resources particularly in WITCOs ability to access quality human resources
and information resources.




11

CRITICAL SUCCESS FACTORS- INTERNAL












WITCO prides itself on 4 Success Factors which have led to the companys continual growth.
The companys strategy has laid the foundation for years of success and is constantly reviewed,
so that employees understand and deliver enjoyable customer moments while ensuring that the
business is well managed and sustainable. Significance is placed on human resources by
developing great people and great teams by ensuring that the company is a great place to work
while fostering their Win-Win-Win initiatives which adds value to customers, trade customer
and shareholders. Principles of WITCO are guided by the companys culture, their enterprising
spirit and strength from diversity these factors together with their dynamic product portfolio of
the best quality allows WITCO to stand strong and maintain their leadership position in the
market.


VALUE CHAIN
A companys value chain essentially represents the internal activities in which it engages in
when transforming inputs into outputs. Specifically to note in the below Value Chain of WITCO
is the companys outbound logistics, Marketing and Sales; and Services.
For instance, the company engages in economical packaging with master cases consisting of
fifty (50) cartons each. This increases the amount of stock transported at any given time.
Likewise, distribution is geographically laid out as it occurs every week to 85% of the outlets
(stores that open daily); and the other 15% of stores (night clubs, bars and crime hot
spots/dangerous areas) occurs biweekly. This distribution strategy aids the company in reduce
Critical
Success
Factors
Dynamic
product
portfolio
Principles
Winning
organisation
Strategy
12

carbon emissions and save on transport expenses, which can help to increase the overall profit
margin.
While advertising is prohibited by law for the product, health warnings on packages have
contributed in gaining customers trusts as the products are targeted to responsible adults.
Considerably, the company has created a portfolio of products that are specific to different
customer needs as identified by Dunhill, Du Maurier (considered the national brand), and lastly
Broadway. Expensive- Low Priced in that order.
In terms of advertisements, they have upgraded the pack of Du Maurier approximately six times
since the inception and are constantly seeking (as best as they can and within the regulations
which are stringent).This keeps the brand interesting and relevant to new consumers as well as
helps to retain their regular consumers. Promotion of National Steel Pan by the WITCO
Desperadoes as well as being heavily involved in beach clean ups and panting of trees (this is an
effort to give back to the environment the CO2 that they use in operations).


13

HUMAN RESOURCE MANAGEMENT
Table: Human Resource Cycle, Fombrun et al. (1984)







REWARDS
Merit Bonuses awarded based on PAR
Corporate Prestige and Recognition Programs
Promotions
Profit sharing/Stock Options (discretionary)

Efficient Shipment
agreement with
suppliers

Contingency plan in
Standardized
procedures carried
out by machines to
allow for quality
products
Distributing to large
retail chains:
groceries, petrol
stations and small
individual retailers
offering the right
FIRM
INFRASTR
UCTURE
HR
MANA
GEME
MNT
TECHNO
LOGY
DEVELO
PMENT
PROCUREM
ENT
Porters Value Chain
Adapted from Lynch 6ed
Lynch, R. (2011). Strategic
Management. 6th ed.
Pearson Higher Education,
pp.137-139.

14




WITCO boasts that its human resources is one of the key valued elements of the organisation.
After all, it is the people who deliver the companys strategy. Having a talented workforce
has become one of the most critical factors in the industry. The companys reputation as a
leading employer helps them stand out in an increasingly competitive international
employment market. Based on the above cycle, it is important to note that the attractions of a
rewarding career with a company such as WITCO values contribution and supports
professional learning and development thus benefiting both company and employee.
Its model focused on driving high performance; developing the next generation of leaders;
valuing the diversity of employees; encouraging and rewarding entrepreneurial behaviour;
and creating an engaging culture where individuals and teams can be successful. Providing a
safe place to work, protecting employees wellbeing and listening to views are also
fundamental.

OPERATIONS
A snapshot of the companys operations takes a specific look at into the Customer services
objectives, Resource Utilization, Inventory Management and Quality Management. The
operation of the company Customer Service Objectives. The underlying functional objectives
15

of customer service are to resolve service issues, improve the customer experience and
generate customer loyalty. WITCOs related objectives include quantified levels of positive
feedback, successful problem resolution and customer retention.
Speaking to the companys inventory management operations, WITCO oversees and controls
the ordering, storage and use of the materials used to manufacture its products with the
utilization of its manufacturing, storage, logistics and human resources, exemplified below.
The tobacco is stored up to three months.
The company invests in total quality management using the ISO 9001 system. Optimum
quality is ensured in product quality by reducing foreign matter and routinely testing all
products for chemicals, including alkaloid levels.
Resource Utilization Objectives
Resource Type Examples
Manufacturing Machines, materials
Storage Warehouses
Logistics Trucks, Air cargo, Carriers
Human Labour, Scientific, Technical personnel




MARKETING
WITCOs strategies are restricted to brand preference and advertising, aimed only at adult
smokers, through restricted channels in compliance with the Tobacco-Control Act. Their
entire tobacco products feature an appropriate health warning on primary packaging but
WITCO does not believe that packaging should be plain with health messages as the Act
suggests. The companys main distribution channels are hotels, members clubs, nightclubs,
bars, supermarkets (mini marts), and small shop owners.
16


WITCO is a pure monopolistic organisation, manufacturing and distributing cigarettes
throughout the West Indies. In analysing its Value System it is proven to have high barriers
to entry, differentiated products and few suppliers.

WITCO
17

MCKINSEY 7S MODEL

SHARED VALUES
- Customer centric
- Innovative
- The importance of its Human
Resources
STRUCTURE
- Matrix Structure
- standardised processes and
shared back office services
- Risk managemnt and
internal contros working
hand in hand with fostering
innovation, thus reflecting
the company's strategic
direction

SYSTEMS
- Use of SAP, an inventory
management system
- Talent Systems for Training,
Development and
Recruitment
- Internal internet (intranet)
to accessing and sharing with
BAT subsidiaries.
STYLE
- Fosters a culture of personal
ownership, valuing
empoyees' talents,
innovation,consumer
satisfaction and corporate
citizenry
- Democratic Leadership with
littlte micro-managing

STAFF
- Human Resource bigget
resource
- Invests in career
development through
training and development
(with other BAT companies)
- 'Points' tracking as a
Performance Management
System
- Financial rewards - stock
ownership, bonuses (reward
levels vary)
Skills
- Well experienced
staff,expecially at executive
level
- Consistent training and
development as allocated in
each budget
- Strong customer relations
skills
- Outsources IT, Distribution
and Waste Management
STRATEGY
- Market Penetration
18


WITCO has been quite a successful company over the years and the interrelation of the
elements in the aforementioned model can attest to that. The company recognises its human
resources are its most valuable and has mechanisms in place to not only enhance but continue
to value its resources. Based on the its three (3) main products (with different target markets),
its distribution and other key functions within the organisation which has helped deliver the
best to its customers, a Matrix structure seems most appropriate with a democratic leadership
style. This has lead to a culture of personal ownership and empowerment in delivery and
business innovation. WITCO has 97% market share but does not take this for granted hence
the companys market penetration strategy and aim to consistently meeting customers needs.
WITCO is a fast-moving consumer goods company, hence the need to always listen to
customer feedback.

VRIO FRAMEWORK WITCO

Resources Valuable? Rare?
Costly
to
Imitate?
Exploited by
Organization?
Competitive Implications?
Tobacco
Products
Y N N Y Competitive Parity
Human
Resource
Y Y N Y Temporary Advantage
R & D Y Y Y Y Sustained Advantage
Financial


RESOURCE BASED VIEW AND COMPETITIVE ADVANTAGE

Tangible Assets Heterogeneous Immobile Competitive
Implications
All Physical Assets N N No Competitive
Advantage
Intangible Assets
Organizational
Culture
Y Y Competitive
Advantage
Experience Y Y Competitive
Advantage
Nationalistic Brand Y Y Competitive
Advantage
Targets whole society Y N Temporary
Advantage
Intellectual Property
of Parent Company
(BAT) vs Non
Subsidiaries of BAT
Y N Temporary
Advantage


19

As identified above, WITCO displays competitive advantage in some areas and temporary
advantage in others. While there is no real competitive advantage in WITCOs physical
assets, there is strength when collaborated with other assets. Its competitive advantage is
primarily within its intangible assets namely its culture and brand which are two strong
components the company has worked on for over a century to distinguish.

WITCO invests in the quality of its leaf, through its people on the ground and relationships
with local farmers. However, WITCOs above-market planning and the global visibility of its
leaf pool further drives cost efficiencies and helps to provide the company with a competitive
advantage.


CORE COMPETENCIES AND DISTINCTIVE CAPABILITIES

WITCOs key raw material Tobacco leaves, while valuable and greatly exploited by the
company through its long standing relationships and networks is not necessarily considered
costly to imitate or rare allowing for competitive parity. The company prides themselves on
its Human Resources and Research and Development as key resources in its success resulting
in temporary advantage and sustained advantage respectively. All these resources, coupled
with its consistently strong financial position allows for WITCO to remain competitive in the
industry.

John Kays Foundations of Corporate Success, Oxford University Press, 1993 identifies four
key elements to a firms distinctiveness which is identifiable in its strong intangible assets
such as its strong nationalistic brand and century long presence in the industry.
20




PORTFOLIO ANALYSIS
An analysis of WITCOs portfolio shows the level of the three main brands of tobacco
manufactured and sold in Trinidad and Tobago. Dunhill, is a luxury brand that is priced
above average and sold at particular outlets such as clubs, supermarkets, bars, pharmacies and
malls. Du Maurier, the second level of cigarette is classified as value for money and is the
preferred choice of consumers and Broadway which is the lowest level that is rarely
purchased unless Du Maurier is unavailable.

DISTINCT CAPABILITIES
Architecture
Strong relationship with suplliers and retailers/customers
Workable teams via matrix structure
Innovation
limited advertising
redesign packaging
Customer tracking system
Reputation
Long standing relationship (over 100 years)
fostering customer loyalty
A nationalistic brand
Strategic Assets
WITCO has monopoly power
Barriers to entry
Strength of the parent
21

BCG Matrix


STARS
The brand has a significant amount of
market share and growth. It is customers
number one choice of cigarette.






PROBLEM CHILD


CASH COWS


DOG

With reference to the BCG Matrix above, Du Maurier which is known as the national brand
is seen in to be, stars. WITCO does not have much of a Dog or Problem Child product based
on the make-up of the business portfolio.

BOWMANS CLOCK
The analysis goes deeper into defining the relationship between customer value and prices by
the use of the Bowans Clock. WITCOs position on the clock is based on the customer
perceived value. Customers at positions 1 and 2 are concerned with price and that the product
meets its threshold requirements. These customers are attracted to the lower level brand
(Broadway) with the brand emphasis on usefulness over design or packaging. In contrast,
customers at position 5 gravitate to the higher end brand (Du Maurier, Dunhill) as they even
prepared to pay a premium price.
WITCO also utilises the Hybrid positioning approach which offers neither the lowest price
nor the highest quality. Focused differentiation provides high value at premium prices, while
targeting a niche category and compensating for lack of volume by high margins. The high
value is often a result of perception, cultivated through careful selection of sales outlets rather
22

than any substantial differentiation in the actual product. The Dunhill brand falls under this
category.


LEADERSHIP AND CULTURE
WITCO utilizes the matrix organizational structure, where employees report to more than one
manager. This ensures that employees and managers from different departments can work in
synchronously in line with the companys VMOST. Efficient exchange of information,
efficient lines of communication, high levels of productivity, high staff morale, high
customer satisfaction and enhanced creativity and innovativeness are just some of the
advantages WITCO has enjoyed as a result of this model.

Consequently, this organisational structure encourages a participative style of leadership in
which WITCO employs. In accordance with Tannenbaum & Schmidt (1973) this leadership
style is one where there is little micro management by executive management. Extensively,
BROADWAY
DU MAURIER AND
DUNHILL
23

team members are motivated as a result of their contribution in the decision making, thus
leading to employee satisfaction.
According to Trompenaars (1993), a companys culture can also be explained by the guided
missile/ achievement culture Trompenaar, Riding the Waves of Culture (1993). Speaking to
this definition, WITCO is highly egalitarian in that everyone has a part to play in decision
making and applies a team approach. They are also highly task oriented and very focused
on delivering quality products. The tobacco companys guiding principles are exemplified its
culture and leadership style. Together with leadership style and culture, WITCOs culture
leads them to have competitive advantage in the industry and aids to sustain them as number
one in the market.
GUIDING PRINCIPLES





















FINANCIAL ANALYSIS
WITCO is the largest company in the manufacturing sector on the TTSE. WITCO has
experienced continued growth in sales and profitability in 2013. Its performance can be
linked to its investments made over the years in its assets leading to the reflection of the
strong performance of its key brands Dunhill, Du Maurier and Broadway. While the company
has experienced a decline in actual physical sales from its products due to customer lifestyle
changes, actual sales figures were offset by the slight increase in the price of the products.

The companys performance could be affected in the near future given the impeding
amendment to the 2010 Tobacco Control Act would bring changes to the tobacco business.
On the upside, WITCO has ample time to prepare itself for the changes which take effect in
2015.

24

The Board declared a final dividend of $1.60 per share, payable in April, 2014. This brought
the total dividends paid for the year to $4.54 versus $3.82 for the previous year, an 18.8%
increase. This continuous improvement speaks to the companys attractive dividend policy.


SWOT AND EVR CONGRUENCE





STRENGTHS
- Addictiveness makes for inelastic product
- Nationalistic Brand with over 100 years
operating in the industry with 3 strong
competitive brands
-Strong Market Position: 97% market share
- Financial strength: Growing revenues and
profit, millions in assets, little debt
- Agronomical support to the farmers for
producing quality tobacco leaves
- Regional and global reach via BAT
WEAKNESSES
- Longer decision making due to
partiipaticive leadership style and
dependency on BAT to make Strategic
decisios
- Lack of innovation in product
development over the years
- Strong dependency on key Supplier -
Brazil

OPPORTUNITIES
- Entry into International Market- to
target new customers in areas that
provides potential for growth in sales.
- Developing safer alternatives to smoking
- Diversification for Light Cigarettes, E-
Cigarettes




THREATS
- Impeding Tobacco Act can affect sales
- Prohibition of sponsorship limits
presence of corporate citizenry
- Increasing lifestyle changes resulting in
more prsons quitting cigarette smoking
- Increase pressure from socail groups
against the controversial product


25

26

EVR CONGUENCE




Values
Environment Resources
Leadership and culture
speaks to the companys
that is in line with
strategy
Strengths outweigh the
Weaknesses
Expertise in place maximize on
opportunities and tackle
threats.
27










TOWS
MATRIX





EXTERNAL OPPORTUNITIES (O) EXTERNAL THREATS (T)



O1. Entry into International Market- to target new customers
in areas that provides potential for growth in sales.
T1. Prohibition of sponsorship limits presence of corporate
citizenry


O2. Developing safer alternatives to smoking
T2. Increasing lifestyle changes resulting in more persons
quitting cigarette smoking


O3. Diversification T3. Impeding Tobacco Act can affect sales



T4. Increase pressure from social groups against the
controversial product




INTERNAL STRENGTHS (S) (SO) Maxi-Maxi Strategy (ST) Maxi-Mini Strategy


S1. Addictiveness makes for inelastic
product Maximize on profits to make safer alternatives (S4, O2)


S2. Nationalistic Brand with over 100
years operating in the industry with 3
strong competitive brands Capitalize on addictiveness of tobacco to enhance product
development and expand on diversification of products and
market development ( e-cigarettes, hookahs) (S1, O3)
Utilize internal expertise of WITCO and parent BAT to
deal with impeding tobacco Act 2015 (S6, T3)


S3. Strong Market Position: 97%
market share


S4. Financial strength: Growing
revenues and profit, millions in assets,
little debt
Expand on international presence through its BAT ownership
for WITCOs specific brands (S6, O1)


S5. Agronomical support to the farmers
for producing quality tobacco leaves

S6. Regional and global reach via BAT



INTERNAL WEAKNESSES (W) (WO) Mini-Maxi Strategy (WT) Mini-Mini Strategy


W1. Longer decision making due to
participative leadership style and
dependency on BAT to make Strategic
decisions
Reduce dependency of tobacco (brazil as supplier) by
diversification into non tobacco products (W3, 03)
With Improvements in innovativeness (expanding e-
cigarettes, hookahs) this can minimise the threat of pressure
groups against tobacco. (W2, T4)


W2. Lack of innovation in product
development over the years


W3. Strong dependency on key
Supplier - Brazil


28


Strategy
Suggestion
Prescriptive
Strategy




29


Strategy Proposal and Logic

Their main current strategy is market penetration and they also uphold cost management in
certain aspects, after an analysis of the organization and its current strategic position one possible
strategy that would satisfactorily maintain and drive competitive advantage is protecting and
building on the cost management leading to a sustained cost leadership. This would specifically
include controlling cost drivers i.e. maintaining economies of scale which would inevitably make
the barrier to entry high for new comers. For Witco sources of economies of scale could include
volume of production and specialized machines, a company with a high level of production is
able to purchase and use specialized manufacturing tools that cannot be kept in operation in
small companies, thus because Witco produces at large to supply Trinidad and Tobago and other
countries in the region they can easily maintain a high level of production and continue using at a
low cost the specialized machines. Whereas a new comer does not have the market share to
produce volumes .Also, through high volume of production the company would continue to build
lower per unit cost manufacturing operations and will have lower average costs of production.
Due to the highly specialized staff and organizational culture, according to Adam Smith, they
can produce high volumes at low costs. In their favour, Witco can use the learning curve model
to relate the volume of production and costs over time. Their history in the industry combined
with BATs history can help them to further reduce cost in productions and thus have a greater
profit margin. Also, they can continue to engage in resource sharing, i.e. the combining of
similar activities and sharing of resources across sister units. Because Witco produces cigarettes
only, they use the same plants to manufacture the different brands. Outsourcing of main activities
can help them to continue to reduce cost. As it is, Witco currently outsources distribution and
waste operations, perhaps outsourcing of more activities, marketing for example, would help to
further reduce costs. Witco also has the advantage of being the only producer in the industry in
Trinidad, thus if they were to introduce a new product they can have the cost advantage.



Evaluation and Justification of Selected Strategy
30

Cost management and leadership specifically in the areas mentioned above are adequate
now and in the near future for WITCO because it will enable reduction of operation costs to gain
further competitive advantage. For the past five years WITCO has been able to cut costs of sales
in some aspects, but others-core business expenditure remains constant and as a result they have
not been able to save in those areas. In 2013, there was a 1% decline in cost of sales as compared
to 2012. Also according to the annual report of 2012 cost of sales increased by 11.2 percent to
$246.9 million, primarily driven by higher raw material prices on the international market. Total
overheads amounted to $144.9 million, which was an increase of 4 percent over the prior year
and reflected an increase in distribution and administration costs which were driven primarily by
inflationary pressures.
To gain a greater competitive advantage and to heighten the barriers to entry for new comers it is
imperative that they become the lowest cost producers in the industry i.e. through the specific
options mentioned above.
When paired with Porters fiver forces, this strategy appears more lucrative. The new entrants
may have to invest heavily to reduce their costs prior to entry, WITCO is the only company that
produces tobacco products in Trinidad, therefore another producer attempting to enter the market
will face great difficulties in starting up and producing at low cost. Also, WITCO would be able
to reduce the threat of rivalry through pricing strategies. Because they produce at a lower price
through economies of scale, they would be able to set the prices for their products as the lowest
in the market. Thus, competitors or would be competitors would be forced to set their prices
equal to slightly lower than theirs. Low prices would also be able to help them battle substitutes
and would be substitutes. The E-cigarette, imported independently by various companies is a
possible threat in the future. Cost leadership would also enable WITCO to sustain themselves in
the event that suppliers raise prices, a rival would not have this advantage and may not be able to
absorb additional cost. Finally, if the main buyers insist on lower prices, WITCO will be able to
cut back on revenues and still have big earnings, due to low cost production.
To justify this strategy, assessments of its feasibility, acceptability and suitability would be done:



Suitability:
31

In terms of exploiting opportunities, low cost leadership can allow WITCO to enter into new
markets and produce at low prices using economies of scale .This is possible because they
already have the machinery and specialized human resources to do so. This could allow them to
have low prices of products and also it could help them in absorbing the cost of a start-up
company in a new market. Also, if they were to develop safer alternatives to smoking, which
other BAT subsidiaries are doing then seeking low cost leadership will definitely put them at an
advantage especially because the can use BATs learning curve to learn from.
Low cost leadership, specifically the economies of scale will allow them to continue to
capitalise on the fact that cigarettes are addictive so whether or not they are priced high or low,
they would be able to continue to have high returns. In addition, because they have a widely
ranged portfolio, continued importation from different suppliers will meet their needs for
economies of scale
The industry lifecycle model shows that the tobacco industry in Trinidad is in the growth
stage. There is consistent growth in sales and profits, and customers are knowledgeable about the
industrys product. Within the last three (3) years, the industry has experienced price increases
nevertheless, sales figures continue to grow. Its growth stage is also evidenced by its low rivalry.
It can be seen from the industry lifecycle that if the cost leadership strategy is implemented it
would benefit the company through low cost production versus the high prices of commodities.
Possibly the company would not be able to do anything about high priced commodities but they
can in fact offset the price by economies of scale and experience and technology which all aid in
cost reduction.


32

The companys core competencies, i.e. its Human Resources and Research and Development
which are key resources in its success results in temporary advantage and sustained advantage
respectively. All these resources, coupled with its consistently strong financial position allows
for them to remain competitive in the industry. These competencies sanction cost leadership in
that they are already established entities in the organization and funds do not need to be
expounded on this as often as other developing units.
Thus, protecting and building cost management and leadership strategy at this point in time
for the purposes of now and the near future, is opportune because it is necessary for the company
to be prepared for any shocks that might come, whether it is in the form of a new competitor, or a
raise in commodity prices. Cost reduction will ensure that the company could absorb the shock.



Acceptability:
Because this strategy has already been in place at a lesser degree, and the results have proven
positive there will be little to no hesitation of acceptability. Stakeholders acceptance or no
acceptance before implementation of this strategy is important because. 49.87% of the shares
are currently publicly traded on the Trinidad and Tobago Stock Exchange (TTSE). Collectively,
the company has over 3,000 institutional and individual shareholders of which BAT is the single
33

largest, with a total shareholding of 50.13%.Thus BAT will necessarily accept the strategies
before implementation if they see it fit. WITCO has BATs experience as a group from which
they can draw; this helps to reduce costs of experimenting with technology, and research and
development costs that may be spent by a new company who does not have support of a parent
company. This strategy will evidently continue to satisfy financial goals of WITCO and thus
BAT and the other shareholders, and given the organizational culture which is a reflection of the
guiding principles, the quality of the products will remain high. Based on financial analysis for
the year 2013, it can be said that combined with their main strategy, market penetration, the cost
management would have been reflected as well. They have had High returns on capital employed
and continuous growth in Revenues and Profits, good liquidity position, satisfactory profit
margin and a 31% income distribution going to dividends.
Feasability:
This strategy is geared at sustaining low production costs, this is quite possible on an internal
level, however, externally, the company cannot control the prices of the commodities, namely
tobacco especially because the price fluctuates often. Also, it would be difficult for them to
predict the exchange rates of foreign currencies which they use; this can be a source of shock for
them if prices rise. But, contingency plans are in place for tobacco if their regular suppliers fall
through on occasion for various reasons, hence it is imperative to control all costs on the inside
for absorption of shock purposes to gain that competitive advantage that the future competitors
will not have. Since the company has been financially successful thus far, there are in fact
adequate funds to support this strategy; also human resources are sufficient as well. These factors
are important because one of the features of cost leadership is economies of scale which require
good human resources and finances. WITCOs current strategy is cost management of
overheads- though successful cost leadership is necessary. Cost management is a more
sophisticated approach and holds that costs must be considered relative to the revenues
generated. Cost leadership is essential to long-term survival However, if competitors come into
the market they will necessarily need to be ready.




34

Brief Discussion of Rejected Options
Other possible strategy options include revamping the value chain to reduce costs These were
rejected because they were deemed as less critical. Shifting to E-Business technology, i.e. using
the internet for doing business. Also, simplifying product designs would not be effective for
Witco because they already face legislation which limits their packaging designs. Relocating of
facilities would be ineffective because Witco distributes to Trinidad and many countries in the
region, also WITCO is a subsidiary of BAT, this means that there are other subsidiaries in other
parts of the world, to relocate could mean going out of business, it would take away the essence
of WITCO

Statement of Main Strategy Objectives (VMOST)
VMOST

The VMOST of the organization will not change as this strategy existed before, and this proposal
is simply to build on it. Changes will not be large enough to affect the Vision and Mission.
However, the main objectives for the strategy would include


35

Resource Allocation and Budgeting
Resource allocation are judged by 3 criteria:
1) The contribution of proposed resources towards the fulfilment of the organizations
mission and objectives: The Cost leader ship, specifically cost drivers will is in fact in
keeping with WITCOs mission and vision, thus allocating resources to it will be an
investment toward achieving the companys objectives. However it is important to note
that because this is a protect and build strategy, WITCO already has resources allocated
for this, but in lesser amounts.
2) Its support of key strategies: As said above the decision to continue with cost
leadership was based on protect and build thus, it was imperative that before the
decision was made the core competencies and the value chain would be taken into
account. Cost leadership by nature will enhance the value chain and this profit margin.
The core competencies as seen in the picture below will necessarily be improved.

3) The level of risk associated with a specific proposal: See section below




36



Formulation of Specific Plans for Implementation

Specific Objectives of Strategy

Quantifiable:
To reduce expenditure on all operations
To attain price leadership


Unquantifiable:

To maintain customer loyalty by delivering on time
To achieve manufacturing excellence by using the best tools and machines and human
expertise
To increase design productivity
Reduce wastage

The general objectives of the organization i.e. the vision and the mission will remain the same as
this strategy will not change the outcomes of day to day running of the organization.










37





Strategic Theme: Cost Leadership: Controlling Cost Drivers

Objective Measure Target Initiative
F
i
n
a
n
c
i
a
l

To reduce
overhead and
production
costsrevenue
growth
% revenue from
all output
>50% year 1
>70% year 3
Economies of scale:
specialized
machines/manufacturing
tools
More specialized staff
Learning curve model
from BAT
Outsourcing operations


C
u
s
t
o
m
e
r


Price leadership
to accompany
cost leadership
Responsive
Supply


Prices compared
to competitors
100% year 1 Lowest costs in industry

On time delivery >50% year 1
Loyalty to customers
through constant on time
supply
P
r
o
c
e
s
s

Manufacturing
Excellence
Cycle time yield >50% year 1
Specialized
manufacturing tools
Training for all factory
staff
Increase design
productivity
reduce wastage

Engineering
efficiency

>70%year 3


L
e
a
r
n
i
n
g

&

G
r
o
w
t
h

Manufacturing
learning

Time to new
process maturity

38

































39




Monitoring and Control Processes:
Once the strategy has begun, then monitoring and controls become operational.
Continued motivation of employees in known as a limitation to cost leadership, but the
companys culture and leadership style can combat that.
WITCO should be aware that there are risks involved in continuing with this strategy, these
include technological transformation that nullifies past investment or learning, however this is
unlikely to affect them because of the fact that the parent company BAT is a leader in the
industry for new technology and they will be the first to know about it before the competitors.
Another risk that they should be weary of is low cost learning by industry new comers. Due to
the innovations in science and technology, new comers may have an upper hand in the industry
for less than the price that WITCO pays.
In addition, the inability to see requires products or a market change may hinder this
strategys performance. If the market has shifted, and consumers have new preferences that
WICTO does not produce then it does not matter the cost of their products, they will necessarily
be out of the game. For instance, WITCO does not manufacture E-cigarettes, and people are
becoming more health conscious and legislations are putting bands on tobacco in public places,
this may lead to a shift in market.
Inflation costs may also hinder this strategy but, due to the nature of their products this has
not affected them before. Consumers spend for cigarettes.

Conclusion
Protecting and building on cost management and leadership will aid in sustaining Witcos
competitive advantage and keeping them at the position in the industry that they currently
occupy. Maintenance of the economies of scale in order to cut cost in operations will serve them
40

well presently but also prepare them for any shocks that might arise due to new comers in the
industry, substitutes or rise in prices of commodities, any of which could occur at any time.

References
Ansoff, H. (1979). Strategic management. 1st ed. New York: Wiley.
Lynch, R. (2014). Strategic Mangement. 6th ed. England: Pearson, pp.4-418.