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Management, Organizational
Policy and Practices
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Assignment No. 1
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Overview of the Company

Philip Morris (Pakistan) Limited an affiliate of Philip Morris International Inc. (PMI), is a public
listed company on the Karachi and Lahore Stock Exchanges. The principal activity of Philip
Morris (Pakistan) Limited is the manufacture and sale of cigarettes for Pakistan's domestic
market. (pg 18 PMP 2014)
Porters Five Forces Analysis
The five forces framework helps identify the sources of competition in an industry or sector.
These include threat of entrants, bargaining power of supplier and customers, threat of substitutes
and competitive rivalry. (Gerry Johnson, 2008)
New Entrants
The threat of new entrants in the tobacco industry is low to medium. The threat of new entrants
in the tobacco industry can be medium at the low level and it can be easy for the local and small
companies but it is not easier for the any company to enter the market at the national level. There
can be various reasons for that; the tobacco industry in Pakistan is dominated by the two major
industry players, Pakistan Tobacco Company and the Philips Morris Pakistan. It will be very
difficult for the potential company to get the economies of scale in Pakistan. There must be high
initial costs for manufacturing plant, packaging cigarettes at mass level. There are also inherent
problems with this industry, advertising restrictions by the Government of Pakistan; even
Pakistan Philips Morris Pakistans Executive of marketing has been fined for violation of the
advertising rule (Campaign for Tobacco Free Kids)
The existing popular brands are also a great barrier for the new entrants, for example, Capstan,
which alone holds 14 percent market. (pg 33, PTC, 2014) Due to advertising restrictions itll be
very difficult for the new entrants to compete and develop new brand awareness
Suppliers
In Pakistan, the Tobacco grower or farmers provide the tobacco to manufacture and dealers.
Most of the tobacco farmers are located in Khyber Pakhtunkhwa the normally sell their crop at
public auctions but Government has started a program to protect the farmers. Pakistan Tobacco

Board (PTB) has been developed which normally fixes the tobacco prices. However still there
are many farmers who rejected the prices and demanded to eliminate this price fixing system
recently the growers of Khyber Pakhtunkhwa have rejected the decision of Pakistan Tobacco
Board about fixing the price of the tobacco At Rs. 117 per Kg and demanded the government to
fix the price of the tobacco at Rs. 183.4 per Kg because they claimed that Rs. 159.5 was the
production cost of the crop. A farmer representative in a press conference demanded Rs. 3
Billion subsidy for the tobacco producing districts and he further added that they dont accept the
monopoly of the multinational tobacco manufacturing and producing companies and they will
not tolerate exploitation and economic genocide of poor tobacco grower. (DAWN 2012)
Therefore from the above discussion, it is clear that the supplier of tobacco have low to medium
power.
Buyers
The economic conditions have great effects on the tobacco industry as buyer would not able to
spend and move to purchase the cheap brands. However it should be worth noting that addictive
customers even they know that tobacco is harmful, cannot leave it and also Cigarette and
smoking is considered as a style and fashion in youngster in Pakistan and many people even
dont care about the Quality of the cigarette and cannot differentiate among different cigarette
brands. The switching cost in term of price is also low in the tobacco industry as customers can
easily move from one brand to another. However we can conclude that the bargaining power of
buyers is low.
Substitutes
The substitute for tobacco in Pakistan is using the tobacco in another form. Tobacco is used in
Pakistan in many forms including cigarette, Huqa, Snuff, Pan, sheesha etc but most popular use
of tobacco in Pakistan is Cigarette. We can say that there is no as such substitute for the cigarette
in Pakistan. People used to smoke and addictive people dont compromise on the cigarette.
Although there are many health campaigns for awareness in the public about the bad effects of
cigarette on the health and few people want to leave smoking and they use the medicines and
pills that are recommended by doctors can a substitute for tobacco but they are very minors.
Therefore we can say that in Pakistan the threat of substitute is very Low.

Competition
In Pakistan the Tobacco industry has two major players, Pakistan Tobacco Company and Philip
Morris Pakistan and they have captured almost 80 percent of the market and the remaining 20
percent referred to small manufacturer and illicit market and the illicit sector causing 10 billion
losses to government annually (The Nation. 2012). The rivalry among the existing player is high.
The price competition is very high and both the companies have many brands of different price
ranges to capture the market. Although there are many restriction on advertising of tobacco in
Pakistan (Pakistan Today) but still companies try their best to make the awareness of their brands
(The News. 2012). Each company is trying the best for making new brand in order to compete
with the competitor. Therefore we can say that the competitive rivalry in the tobacco industry of
Pakistan is high.

References:

Gerry Johnson, 2008. Exploring Corporate Strategy: Text &Cases with Companion
Website Student Access Card (8th Edition). 8 Edition. Prentice Hall.

Guilty: Philip Morris Executive in Pakistan Fined for Violating Advertising Rules Campaign for Tobacco Free Kids. 2012. Guilty: Philip Morris Executive in Pakistan
Fined for Violating Advertising Rules - Campaign for Tobacco Free Kids. [ONLINE]
Available
at:http://www.tobaccofreekids.org/tobacco_unfiltered/post/2012_04_11_pakistan/?
utm_source=alert&utm_medium=email&utm_campaign=tobacco_unfiltered.

Growers reject tobacco price, demand subsidy | DAWN.COM. 2012. Growers reject
tobacco price, demand subsidy | DAWN.COM. [ONLINE] Available
at:http://dawn.com/2012/06/28/growers-reject-tobacco-price-demand-subsidy/.

Illegal tobacco trade causing Rs 10b loss to govt annually | The Nation. 2012.Illegal
tobacco trade causing Rs 10b loss to govt annually | The Nation. [ONLINE] Available
at: http://www.nation.com.pk/pakistan-news-newspaper-daily-english-online/business/04Jun-2012/illegal-tobacco-trade-causing-rs-10b-loss-to-govt-annually.

Tobacco advertising to be monitored and controlled. 2012. Tobacco advertising to be

monitored and controlled | Pakistan Today | Latest news | Breaking news | Pakistan News
| World news | Business | Sport and Multimedia. [ONLINE] Available
at:http://www.pakistantoday.com.pk/2011/10/12/city/islamabad/tobacco-advertising-tobe-monitored-and-controlled/.

Philips Morris Pakistan (2014) Annual Report 2013, [online] Retrieved from:
http://philipmorrispakistan.com.pk/financials.htm

Tobacco industry advertising tactics need to be exposed - thenews.com.pk .

2012. Tobacco industry advertising tactics need to be exposed - thenews.com.pk .

[ONLINE] Available at: http://www.thenews.com.pk/Todays-News-6-112285-Tobaccoindustry-advertising-tactics-need-to-be-exposed.