10.1 The global tobacco manufacturing industry
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More than 5000 billion cigarettes are manufactured worldwide each year by an industry dominated by five main players: the state owned industry in China, which accounts for more than one third of global market share, and four transnational companies which vie for dominance in the remaining market (Table 10.1).1
Table 10.1
Estimated global market share of tobacco companies, 2007
|
Company |
Estimated market |
|
Chinese National Tobacco Corporation |
35 |
|
Philip Morris (International and US groups) |
19 |
|
British American Tobacco |
17 |
|
Japan Tobacco |
11 |
|
Imperial Tobacco |
6 |
|
Others |
12 |
According to industry reports, China National Tobacco Corporation (CNTC) has a more than 99% market share in China,2 making it the single largest tobacco manufacturer in the world.1 Philip Morris (International and US operations combined) runs second to Chinese National Tobacco, with 19% of global market share, followed by British American Tobacco, Japan Tobacco (recently merged with British-based Gallaher)1 and Imperial Tobacco (now merged with Spanish-based Altadis).3 The driving force behind consolidation of the tobacco companies is the desire to increase market share, particularly in emerging markets. For example Japan Tobacco's takeover of Gallaher has given Japan Tobacco market dominance in Russia, the largest market in Europe.4[1]
Philip Morris International (PMI) is the largest of the multinational tobacco companies. It owns seven of the top 15 global brands including Marlboro, which according to PMI has held the number one position in the world since 1972. Other leading international brands owned by PMI include Chesterfield, Diana, Parliament, L & M, Lark, Merit and Virginia Slims.5
Senior executives at PMI are optimistic about the future for their company5 and to a large extent, this is facilitated by the spin-off of PMI from the parent company Altria6(See also Section 10.11.1). Additionally, the establishment of licensing agreements and joint ventures with local tobacco industries has extended PMI's market reach. One of the most important of these agreements is PMI's partnership with the CTNC.6 The agreement establishes a joint-venture company equally owned by both tobacco groups, to be headquartered in Lausanne. It licenses the CTNC to produce and distribute Marlboro in China, and in return, facilitates entry for the CNTC to the global tobacco market with a portfolio of 'Chinese heritage brands'7 carefully modified to appeal to foreign palates,6 as well as providing the CNTC with other international business opportunities. Both companies benefit from shared sales, distribution and other business infrastructure.7
British American Tobacco ranks as second largest transnational tobacco company after PMI. According to BAT, one in six of the world's smokers chooses a BAT brand. Although BAT has about 300 brands in its portfolio, it regards Dunhill, Kent, Lucky Strike and Pall Mall as its most important 'Global Drive' brands. Since 2005, BAT has also become active in the market for Swedish-style snus.8[2]
The Imperial Tobacco Group (ITG) has substantially increased its global expansion since the mid-1990s, through brand acquisition (as has occurred in Australia) as well as increase in market share. Since its acquisition of Reemtsma Cigarettenfabriken GmbH in 2003, ITG has become the second largest tobacco company in Germany and the fourth largest international tobacco company in the world, manufacturing and distributing cigarettes, loose tobaccos, cigars and smoking-related paraphernalia such as cigarette papers, filters and tubes. The company cites Asia, Eastern Europe, Africa and the Middle East as its key growth regions, and its leading global brand as West, particularly in Germany, and central and Eastern Europe.3
The trend towards globalisation of the tobacco industry has lead to a globalised approach to marketing, research and lobbying,9 and factors such as trade liberalisation have opened new and lucrative markets to the transnational companies. Companies are increasingly focused on their 'international' brands, it being more cost effective to manage and market a smaller number of iconic brands than to develop smaller, market-specific brands.10
Although the companies engage in strong competition, as an industry they are generally united in their desire to promote their products and undermine tobacco control measures.[3] At an international level, the tobacco industry engages against instrumentalities including the World Health Organization, the World Bank and the United Nations. It fights bitterly to discourage countries from adopting the Framework Convention on Tobacco Control. The industry has marshalled and given voice to an international lobby for tobacco growers, especially powerful in countries where tobacco is a major agricultural commodity.[4] Using arguments honed over decades of cooperation, the industry as a whole continues to peddle misinformation about the nature of its products, obfuscates about addiction, and persists in its denials that advertising recruits new smokers.10 Many of these issues are discussed in later sections of this chapter.
[1]Japan Tobacco is not discussed further in this chapter because it has only minor engagement in the Australian market through a small number of imported brands.
[2] For further information on snus, see Section 10.7.3 , Chapter 3 Section 3.33 and Chapter 12 Attachment 12.3 .
[3] An important exception is Philip Morris USA, which has broken ranks by publicly supporting proposed legislation which would grant the US Food and Drug Administration regulatory authority over tobacco products. See Section 10.24.1 .
[4] The tobacco industry has been adept at styling itself as a vital contributor to the economies of some countries. For discussion, see Chapter 17, Section 17.3.4.
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