2. Agenda
• Introduction
• Environmental Analysis
• Industry Analysis
Industry
Analysis
• Pakistan Tobacco Company
Industry
Analysis
• Lakson Tobacco Company
Industry
Analysis
• Recommendations
Recommendati
ons
• Conclusion
6. Legal Environment
Legal System is conducive and easier
than other countries in the region
Procedure takes longer time but costs
less
World Bank Report on Pakistan,2007
7. Technology
35 % growth in computer usage
35 Million of software exports
Ministry of Information website
9. Pakistan Tobacco Industry
Largest yield than any crop
Employs 1 million Pakistanis
Tobacco usage rate is growing
at 1.7% in the developing
countries
Figures taken from Pakistan Tobacco Board website
10. Pakistan Tobacco Industry
27 cigarette manufacturing
factories &15 Tobacco
companies
Average installed capacity of
plants is 126 billion packs
Average installed capacity of
plants is 126 billion packs
11. Pakistan Tobacco Industry
Cigarette manufacturing in
Pakistan-duopoly
Pakistan Tobacco Lakson Tobacco
company (PTC) Company (LTC)
12. Usage of Tobacco in Pakistan
Cigarettes Huqqa Snuff Pan Others
61% 13% 22% 10% 5%
Pakistan Tobacco Board, 2007
13. Industry Attractiveness
Porter’s Five Force
Bargaining Power
of Buyers
(medium to high)
Threat of Competitive Threat of
New Entrants Rivalry Substitutes
(low to medium) (medium to high) (low to medium)
Bargaining Power
of Suppliers
(low to medium)
15. History
From Imperial Tobacco Company of India to Pakistan
Tobacco Company
Parent Company: British American Tobacco
Incorporated in 1947
PTC produces high quality tobacco products to meet
the diverse preferences of millions of consumers
The company works in all areas of the business -
‘from seed to smoke’
17. Mission Statement
Mission Statement: We strongly believe that real business success
is not just about profits measured in numbers but also as
importantly, about how those numbers are achieved. Our corporate
strategy clearly reflects this strong commitment balancing
responsibility firmly alongside people, growth and productivity
• PTC’s New Mission Statement: Transform PTC to perform
responsibly with the speed, flexibility and enterprising spirit of an
innovative, consumer focused company
18. Evaluation of Mission
Statement
Components of a Statement Previous Current
Customers No Yes
Products or Services No No
Markets No No
Technology No No
Concern for Survival, Growth and Yes Yes
Profitability
Philosophy Yes Yes
Self Concept No No
Concern for Public Image Yes Yes
Concern for Employees Yes No
19. Other Guiding Forces
Long-term
Objectives
Business Principles
• Growth Values
• Productivity • Mutual Benefit
• Responsibility • Responsible
Product • Strength from
• To Become A Diversity
Winning Stewardship
• Good Corporate • Open Minded
Organization
Conduct • Freedom
through
Responsibility
• Enterprising
Spirit
20. SWOT
People and HRM Lack of Complete
Weakness
Strength
Financial Muscle
Vertical Integration
BAT Backing
Product Innovation PTC is part of the BAT
Marketing Group compared to
Operations/Supply Chain local manufacturers it
CSR cannot respond to
Technology changes in the
Brand Equity
business environment
Quality
Factory Location
quickly because
Influence on Government decision making
Value Leadership consumes time
Distribution Channels
Market Leader
Enterprising Spirit
Large share in the premium
segment
21. SWOT (contd.)
Threats
Opportunities
FCTC Industry Growth
TV Ads Banned Young Smokers
Anti-Smoking Ordinance Promising Mid Tar Segment
2002
Local Firms Gaining Share
and Experience
Smuggling
TFI-Pakistan
Phillip Morris takes over LTC
Tax Changes
Controversy over Support
Price (Possible Hike)
22. SWOT & Strategy Formulation
SO Strategies
Capacity enhancement to meet demands (S2-O1)
Introduce new int’l brands, Lucky Strike for young adults (S3, S4, S9-O1, O2, O3)
Brand extensions: medium nicotine & tar e.g. Dunhill Lights, (S4, S9-O3)
ST Strategies
Hasten elimination of illicit trade (S12-T5)
Aggressive strategy against Lakson (All S-T7)
Influence PTB to prevent harmful tax changes (S12-T8)
Improve image among farmers: resolve support price controversy w/o raising the costs
(S7, S8, S12-T9)
Wipe out local competition with international expertise
23. WO Strategies
Maintain reliable suppliers and more involvement with farmer community
(W1-O1, O2, O3)
Structural & cultural changes for more decentralized decision making &
frequent communication so PTC can exploit opportunities as they come
(W2-O1, O2, O3)
WT Strategies
If possible acquire a tobacco supplier and gain control over the entire
process and resolve the controversy over tobacco support prices (W1-T9)
Acquire local firms to gain the expertise and flexibility of local firms (W2-T4,
T7)
24. Internal Factor Evaluation
Matrix
Exten
Factor Weight Rating
ded
Strengths
People and HRM 0.05 4 0.2
Financial Muscle 0.10 3 0.3
BAT Backing 0.10 4 0.4
Product Innovation 0.10 4 0.4
Marketing 0.10 3 0.3
Operations and Supply Chain 0.10 3 0.3
Strategically Located Manufacturing Facilities 0.05 3 0.15
Technology 0.10 3 0.3
Brand Equity 0.10 3 0.3
Quality 0.10 3 0.3
Corporate Social Responsibility 0.025 3 0.075
Influence on the Government of 0.025 3 0.075
25. External Factor Evaluation
Matrix
Factor Weight Rating Extended
Opportunities
Industry Growth 0.30 3 0.9
Smoking Trend on the Rise among Youth 0.10 3 0.3
Promising Mid Tar Segment 0.05 3 0.15
Threats
in the Process of Implementing FCTC 0.025 3 0.075
Tobacco Ads on Television Banned 0.025 4 0.1
“Prohibition of Smoking and Protection of Non-Smokers Health” Ordinance 2002 0.025 3 0.075
Controversy over Tobacco Support Price (Possible Hike) 0.025 2 0.05
Tax Evading Sector 0.15 2 0.3
TFI-Pakistan 0.05 2 0.1
Phillip Morris International (PMI) takes over Lakson Tobacco Co Ltd 0.20 4 0.8
Changes in Taxation 0.025 2 0.05
Local Companies Gaining Market Share and Experience 0.025 4 0.1
Total 1.00 3.00
27. Internal Audit
Pakistan Tobacco Company Limited was
incorporated in 1947.
Current number of employees in PTC is
90,000 in 180 countries.
PTC employs over 2000 people country
wide.
PTC had its first factory in Karachi in 1948,
Jehlum in 1955, and Akora Khattak in 1976.
Rationalization Strategy – Karachi Factory
Closed in 1991.
28. Human Resource Management
PTC is the best
employer in Pakistan
PTC is an indirect
source of employment
through its business
partners in packaging,
publishing and media
houses
29. Compensation & Rewards
Paid Overtime
Workers Retirement Fund (7% contribution by employer)
10% Employer Contribution to Provident Fund
Housing Allowance
Car Allowance
Other Retirement Provisions
Hajj Schemes
Scholarship Schemes
Motorcycle Draws
Employee of the Month
Free Medical Sessions
30. Recruitment, Induction & Training
Exporting Talent – Growth Academy – To
Induction
Training
Recruitment
Exchange Programs to develop internal talent
harness global talent and leadership
Campus Campaigns Amaze Yourself - In
Internships 2007, a new on-line tool
for new inductees was
launched. Amaze
Yourself provides the
Management Trainee entrants with an
Program opportunity to learn
about the Company, its
values, systems and
processes, on-line
Guiding Principles
Mastermind Playshop
(GPMP) – to provide
new employees with a
better understanding of
the company’s Guiding
Principles
31. Production, Operations and
Supply Chain
Rs 1.2 billion investment in tangible fixed assets in
2007
Running the factories 24 hours a day, 7 days a week
and 358 days during the year
Achieved the highest ever production of 38 billion
sticks
Cigarettes Per Man-Hour (CPMH), a key productivity
metric, improved to 17,750 in 2007 (15,271 in 2006)
32. Marketing
PTC has implemented several initiatives in the following categories
Market Development – Introducing Dunhill in its super premium brand
Market Penetration – 10 HL and Menthol variant of John Players Gold Leaf
Product Development – Transforming Capstan International into Capstan by
Pall Mall (Repositioning)
Aggressive Distribution
Responsible marketing
Trade marketing expertise
Promotional strength
Strong brand portfolio
33. Brands Available in Pakistan
Super High and
Premium Premium
• Dunhill (Rs.85) (>Rs.50)
• Gold Leaf
• Benson &
Hedges
Medium Low Category
Category (<Rs.20)
(Rs.20 –Rs.30) • Embassy
• Capstan
• Gold Flake
• Wills Kings
37. Corporate Social Responsibility
The ACCA/WWF awarded PTC the Best Social
Report Award for, its 2004- 05 Social Report in 2007
Better Health Facilities
Water Related Initiatives
Education
39. Strategic Options
for Different Brands
Cash Cow (Capstan)
Dunhill)
Flake)
Stars (B&H, JPGL,
Question Marks (Gold
Integration (Backward, Intensive strategies Product development
Horizontal) • Market penetration Concentric
Market Penetration – • Market Development diversification
Dunhill embarking on • Product Development
an e-marketing route Retrenchment
Divestment –Gold
Market Development Flake is the volume
Product Development – driver and has
2007 was a year of achieved high levels
innovation for John of growth: divestment
Players Gold Leaf (10 is not an option
HL pack and a cool
menthol variant)
Joint Ventures
40. Strategic Position &
Action Evaluation Matrix
Competitive Advantage Rate
Financial Strength Rate
Market Share -1
Return on Investment 6
Product Quality -1
Leverage 6
Product Portfolio -2
Liquidity 6
Brand Equity -1
Working Capital 6
Technology -2
Cash Flow 6
HR -1
Profitability 6
Support of Int’l Player -1
Share Price 6
Marketing, Sales & Distribution -2
Average 6
Price Competitiveness -2
Cost Control & Productivity -1
Internal Strength Of Influence on Government -2
Factory Location -2
PTC: Quantification
Control over Suppliers & Distributors -3
CSR -1
Average -1.57
41. Strategic Position &
Action Evaluation Matrix
Environmental Stability Rate Industry Strength Rate
Political Stability -6 Growth Potential & Size 6
Economic Prospects -4 Industry Profitability 4
Social/Demographic Trends -1 Bargaining Power of Customers 6
Technological Advancements -2 (lower is better)
Legal/Regulatory Environment -3 Bargaining Power of Suppliers 3
Environmental Concerns (Pressure -3 (lower is better)
Groups, Activists, WHO’s FCTC) Threat of New Entrants 6
Average -3.2 Threat of Substitute Products 6
Vulnerability (legislation, tax 2
External Position changes, agricultural cyclicality )
Competitive Structure (Oligopoly) 2
Quantification Intense Competition
Ease of Capacity Expansion 4
Average 4.33
44. Quantitative Strategic Planning Matrix
• Introduce Lucky Strike (a brand popular among
young adults) and other international brands in
Strategy 1 the Pakistani Market
• Increase CSR spending particularly concerning
the tobacco farming community. Invest in
agricultural technology to make processes more
efficient ad hence increase output with the same
Strategy 2 input.
45. Strategy 1 Strategy 2
Attractiveness Score 6.65 5.65
Strategy 1 is the more attractive alternative since it scored 6.65 against a
score of 5.65 by Strategy 2
46. Lakson Tobacco Company
(LTC)
• Public Listed company on Karachi
Stock Exchange
• Employees are more than 5000
• Market leader in low price segment
• Largest leaf processing plant
• Largest Exporter
• Factory Locations at
– Dadu
– Sahiwal
– Rawalpindi
– Swabi
47. Philip Morris International Inc &
LTC
Increased its share up to 97.62 percent in
2007
Increased its share up to 97.62 percent in
2007
Increased its share up to 97.62 percent
management was changed on 9th March
2007n 2007
48. Brands of LTC
Red &
Royals White
Diplomat K2
Morven
Gold
Advertising through BTL activities
49. LTC Vision
We maintain transparency in our financial
practices towards shareholders and institutions
by assiduously following the laws of business,
while working for continuous increases in share
holder value to extent allowed by macro-
economics environment.
We enact high ethical values while
implementing all our management policies and
procedures, internally and in our interaction
with our suppliers and distributors, with a view
to fostering long-term relationships.
50. LTC Mission
To exceed the expectations of our customers by
producing and supplying high quality products while
executing with strong ethical standards, total
transparency and complete fairness in all areas of our
business.
51. Evaluation of LTC Mission Statement
COMPONENT PRESENCE
Customers Yes
Products Yes
Markets No
Technology No
Concern for Survival ,Growth and Profitability Yes
Philosophy Yes
Self Concept No
Concern for public image Yes
Concern for employees No
53. Strengths Weaknesses
Patronage and Support of an Transfer of management control
international player i.e. Philip Morris might hurt the company
International performance in short run
SWOT Second largest cigarette Bad reputation and legal cases
manufacturer in the country with the taxation authorities
Analysis of Strategic location of factories and
established distribution network
Lack of trained workforce and
processes
LTC Largest Leaf Processing Factory in
the country
Brand is weaker than the other
competing firms
Successful Brands in the country
Strong network of sister concerns
and availability of financial resources
Dedicated workforce
Opportunities SO Strategies WO Strategies
Agriculture support is Increase marketing and sales efforts Train workforce and improve the
increasing which is leading in the Middle East market human resource systems
to better crop of tobacco Explore new markets with the Improve the financial reporting
Wide market accessibility experience of Philip Morris system and settle tax law suits
under WTO Educate and train farmers to get best Improve brand awareness
Licensing of brands from quality raw material
multinationals Increase the production capacity
Business friendly Launch new brands and types of
government cigarettes to attract young generation
Increased access to the
general public with the
emerging marketing
54. SPACE Matrix
INTERNAL STRATEGIC POSITION EXTERNAL STRATEGIC POSITION
Financial Strength (6 is the best) Environmental Stability (-1 being best)
Return on Investment 5 Technological Changes -3
Leverage 2 Rate of Inflation -1
Liquidity 5 Demand Variability -3
Working Capital 5 Price Range of Competing Products -2
Cash Flow 4 Barriers to entry into market -2
Competitive pressure -3
Ease of exit from market -2
Price Elasticity of Demand -5
Risks involved in business -3
Competitive Advantage (-1 being best) Industry Strength (6 is the best)
Market Share -2 Growth Potential 3
Product Quality -4 Profit Potential 3
Product Life Cycle -3 Financial Stability 3
Customer Loyalty -4 Technological Know-how 2
Competition Capacity Utilization -5 Resource utilization 3
Technological Know-how -5 Ease of Entry into market 1
Control over suppliers and distributors -5 Productivity, capacity utilization 2
57. Financial Analysis 2006
Gross Profit • Better cost and
increased by
2.4% expense control
Operating Profit • Increased Marketing &
Decreased by
7.4% Distribution Expense
EPS 25.25 • Issue of Bonus Shares
Sales
• Constant on Previous
year level
60. Recommendations
Grow and • Use integrative strategies
Build
Vertical • Acquire a tobacco supplier
and gain control over the
Integration entire process
Horizontal • Acquire local firms to gain
the expertise and flexibility
Integration of local firms
61. Recommendations (contd)
• Introduce internationally available
Market famous brands of BAT such as Kent,
Development Lucky Strike, Rothmans and Pall Mall
into Pakistan’s market
Introduction of • QSPM Matrix scores for introducing
Lucky star brand in Pakistan is higher,
Lucky Strike making it more favorable
Responsiveness
to Changing • Quicker decision making process
Market