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ASH/ Industry conduct/ Tobacco Explained: 7. Emerging markets
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7. "Emerging markets"

"They have to find a way to feed the monsters they’ve built. Just about the only way will be to increase sales to the developing world." 1

Ex tobacco company employee, R Morelli, explaining the importance of the developing countries to the industry.

 

7.1 Summary

With smoking rates declining or peaking in the mature markets of the west, the transnational cigarette companies have looked to expand their international operations, especially in Eastern Europe and Asia, but also Latin America and Africa.

They have exploited the recent opening up of countries that were once closed for trade because of political reasons, such as Central and Eastern Europe, and the former Soviet Union.

The American companies, with the help of their Government, have used economic muscle – and the threat of sanctions - to open up countries in Asia, such as Taiwan and Japan.

They have set out to exploit low smoking rates by women in many areas.

The companies have been trying to gain entry into China: with some 300 million smokers, China remains, for the tobacco companies, the prize. Industry executives talk about thinking about China as the limits of space or of defying the imagination. There is evidence of companies being involved in smuggling cigarettes into China.

The industry has been accused of employing double standards in advertising - especially in targeting youth, sex, the glamour of western lifestyles – in the difference of tar/ nicotine levels between developed and developing countries.

 

7.2 What is known - key facts about the move into developing countries

If there are no dramatic changes in cessation rates, no new interventions, and if children start smoking at expected rates, then the current 1.1 billion smokers in the world are predicted to rise to 1.64 billion by 2025. The death toll on current trends, shown below, reflects the lag between increasing smoking levels and onset of disease - effectively developing countries started later.
  Present By 2030

Developed countries

 2 million 3 million

Developing countries

1 million 7 million

Total

 3 million 10 million

In developing countries, women will be a particular focus as smoking rates are currently much lower among women, than among men. Prevalence of smoking among women in developing countries could rise from the current 8% to 20% by 2025.

 

7.3 What the tobacco industry said and what it knew

Feeding the monster

 An ex-tobacco employee interviewed by Marketing Week, says:

"They have to find a way to feed the monsters they’ve built. Just about the only way will be to increase sales to the developing world." 2 (R Morelli 1998)

 

A bright future in the developing world

 Tobacco Reporter says:

"Tobacco use in the developed nations will trend down slightly through the end of the century, while in the developing countries use could rise by about three percent annually .. A bright picture indeed! Not a smoke-free society, but continued growth for the tobacco industry." 3 (Tobacco Reporter, 1998)

 

So we should not get too depressed .. because this industry is consistently profitable

 "We should not be depressed simply because the total free world markets appears to be declining. Within the total market, there are areas of strong growth, particularly in Asia and Africa; there are new markets opening up for our exports, such as Indo-China and the Comecom countries; and there are great opportunities to increase our market share in areas like Europe … This industry is consistently profitable. And there are opportunities to increase that profitability still further." 4 (BAT, 1990)

 

Even if we do have to look elsewhere

 Steven Goldstone, RJR Nabisco Chairman:

"The international tobacco business has become an increasingly important source of earnings for RJR Nabisco and can be the most significant driver of our future tobacco earnings growth." 5 (Tobacco Reporter, 1998)

 

Like Asia

You know what we want", says a tobacco executive

"we want Asia." 6 (Quoted in Unhealthy Alliance, 1998)

 

Using what ever means necessary

 "The US government conducted three investigations on unfair tobacco trading practices of Japan, Taiwan and Korea …between 1985-1988, the United States’ Trade Representative (USTR) threatened these nations with sanctions on goods they exported to the US unless US cigarette companies were given free access to their markets. No other US agricultural product received the same attention and all three nations capitulated to the US’s demands." 7 (G Connolly, 1998)

 

Taiwan and Japan are opened up..

…teen smoking rates increased, too

 Both Taiwan and Japan yield to American pressure and open up their domestic markets to international brands, mainly American. A survey finds that in 1984 - two years before the markets was opened up - in Taiwan’s capital city, Taipei, 26 % of boys and 15% of girls had tried smoking. By 1990, the figures were 48 % for boys and 20% for girls. Smoking amongst Tokyo women increases from 10 per cent in 1986 to 23 per cent in 1991. 8 (1993)

 

So what if smoking increases - We can’t answer morals – we just please shareholders

 Rothmans Public Affairs Manager, Rothmans Exports:

"It would be stupid to ignore a growing market. I can’t answer the moral dilemma. We are in the business of pleasing our shareholders. We have a very strong feeling that if no one had heard of cigarettes in Timbuktu, then a Rothmans billboard would not mean anything. All we are doing is responding to a demand." 9 (J Sweeney 1988)

 

And health really isn’t an issue

Rothmans representative in Burkina Faso, Chris Burrell:

"The average life expectancy here is about forty years, infant mortality is high: the health problems which some say are caused by cigarettes just won’t figure as a problem here." 10 (J Sweeney 1998)

 

And why shouldn’t they smoke our brands

 Matthew Winokur, Director of Philip Morris-Asia, talking about overseas markets,

"if people are going to smoke, why shouldn’t they be able to choose American cigarettes." 11 (Cited by L Heise 1988)

 

They want to smoke them

 Michael Parsons from Philip Morris

"The demand for Marlboro is phenomenal. Its like saying: ‘What is the potential market for Levi jeans? Probably every second adult in Russia’." 12 (The Observer, 1992)

 

Its lucky that communism collapsed

 "Until recently, perhaps forty per cent of the world’s smokers were locked behind ideological walls. We’ve been itching to get at them ... That’s where our growth will come from." 13 (The Observer, 1992)

 

And the wall came down

May: Andreas Gembler, President of Philip Morris Europe:

"When the wall came down in 1989, there were tens of millions of consumers opening up to Philip Morris. If we hadn’t reacted the way we did, by now the train would have gone. We would have seen its end lights." 14 (Institutional Investor, 1996)

 

Its trench warfare out there

 November: " Thomas Marsh, RJ Reynold’s Regional President, says of Eastern Europe:

"Its trench warfare. Hand to hand combat. We talk with each other on certain issues of mutual interest, such as smoking and health issues, advertising restrictions, things like that. We have industry associations where we sit down and act like perfect gentlemen – and then we leave the meeting and go out and battle in the streets again." 15 (The Observer, 1992)

 

Lets not lose sight of the goal

Sir Patrick Sheehy says that BAT is

"striving for greater global reach … These are the most exciting times that I have seen in the tobacco industry in the last forty years." 16 (Tobacco Reporter, 1991)

 

And with over 300 million smokers, there is one prize left

 Rene Scull, Vice President, Philip Morris Asia:

"No discussion of the tobacco industry in the year 2000 would be complete without addressing what may be the most important feature on the landscape, the China market. In every respect, China confounds the imagination."

The limits of space

 Robert Fletcher, Rothmans Regional Public Affairs Manager:

"Thinking about Chinese smoking statistics is like trying to think about the limits of space." 17 (Window magazine, 1992)

 

 

References:

  1. R. Morelli, Packing it in, Marketing Week, 1991, 28 June, Vol 14, No 16, p30-34
  2. R. Morelli, Packing it in, Marketing Week, 1991, 28 June, Vol 14, No 16, p30-34
  3. Tobacco Reporter , Growth Through 2000, 1989, February
  4. Talk to TMDP, Chelwood, 1990, August [L&D RJR/BAT 16]
  5. Tobacco Reporter, RJR Restructures World-wide Tobacco Business, 1998, February, p10
  6. Quoted in L. Heise, Unhealthy Alliance, World Watch, 1988, October, p20 [C.7]
  7. G. Connolly, Smoking or Health: The International Marketing of Tobacco, Tobacco use in America Conference, 1989, 27-29 January, [C.7]
  8. S. Sesser, Opium War Redux, The New Yorker, 1993, 13 September, p78-89; N E Collishaw, Is the Tobacco Epidemic Being Brought Under Control, Or Just Moved Around? An International Perspective, Paper Presented at the 5th International Conference on the Reduction of Drug-Related Harm, Toronto, 1994, 6-10 March
  9. J. Sweeney, Selling Cigarettes to the Africans, The Independent Magazine, 1988, 29 October
  10. J. Sweeney, Selling Cigarettes to the Africans, The Independent Magazine, 1988, 29 October
  11. Quoted in L. Heise, Unhealthy Alliance, World Watch, 1988, October, p20 [C.7]
  12. M. Macalister, Making a Packet - the New Tobacco Gold-rush, the Observer Magazine, 1992, 8 November [C.7]
  13. M. Macalister, Making a Packet - the New Tobacco Gold-rush, the Observer Magazine, 1992, 8 November [C.7]
  14. H. Davidson, The Tobacco Giants’ Shopping Spree, Institutional Investor, 1996, May, p37
  15. M. Macalister, Making a Packet - the New Tobacco Gold-rush, the Observer Magazine, 1992, 8 November [C.7]
  16. D. Doolittle, BAT Lengthens its Global Reach, Tobacco Reporter, 1991, July [C.7]
  17. D. Ibison, Rothman’s Joint Deal Opens Heavenly Gates, Window Magazine, 1992, No 4, 16 October

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