The China National Tobacco Corporation, established in January 1982, is primarily responsible for the foreign economic technology production, supply, sales, import and export business of its subsidiaries in accordance with national laws and relevant laws and regulations., decrees, guidelines and policies of the Council of State and in accordance with national plans. Cooperation and implementation of centralized and unified management.
This article examines the ambitions and prospects of the China National Tobacco Corporation to 'go global' and describes the globalization ambitions of the CNTC, and its global business strategy focused on internal restructuring, branding and expansion of operations in the abroad in selected markets. This article concludes that the company has undergone substantial change in the past two decades and is therefore poised to become a new global player in the tobacco industry.
Keywords: corporation, tobacco, market, strategy
Introduction
The China National Tobacco Corporation, commonly known as China Tobacco for short as CNTC, is a Chinese manufacturer of state-owned tobacco products. It has a virtual monopoly in China, which accounts for about 40% of total global cigarette consumption, and is the world's largest manufacturer of tobacco products, average by revenue.
The company was supervised by the State Administration of Tobacco Monopolies, while the Ministry of Finance of the People's Republic of China acted as a shareholder. Although it is a national giant with 98% of the domestic market, the organization escapes locally. China Tabaco subcontracts orders to smaller local factories. In turn, these factories complete orders and deliver them for distribution from China Tabaco. The smaller local factories pay a kind of tax on China Tobacco, but keep much of their profits. In turn, retail distributors purchase cigarettes from China Tabaco, and the profits that China Tabaco makes from those sales are in turn taxed by the State Tobacco Monopoly Administration (STMA).
The CNTC is under the jurisdiction of the State Tobacco Monopoly Administration (also founded in 1982), this organization is responsible for enforcing the tobacco monopoly in China. While the STMA administers the monopoly, China Tabaco is the corporate entity responsible for the marketing, production, distribution, and sale of tobacco products. The CNTC, which produces a third of the world's cigarettes, is the world's largest tobacco company. For the past 60 years, the CNTC has focused on supplying a huge domestic market. As the market has become increasingly saturated and potential foreign competition looms, the company has turned to overseas expansion.
Development
Key factors behind the CNTC's global business strategy
A primary goal of China Tobacco and the STMA has been modernization. As recently as the 1980s, China's independent tobacco factories used outdated equipment to the extent that some processes were even carried out by hand. To achieve its modernization goal, the STMA allowed a small number of foreign companies to enter the country, in exchange for modern equipment. Although the deals generally favored China, it allowed foreign companies to gain hard-to-get connections within China, and at high levels within the tobacco monopoly itself. Acceptance of foreign competition sparked a massive demand for tobacco production equipment in the 1990s, which has since slowed down. However,the major factories in China now count their cigarette output in the tens of thousands per hour.
At the same time, China Tobacco has consolidated its factory base, currently, there are 130 cigarette factories in China, up from 180 in 1997. To further its consolidation goal, China Tobacco plans to reduce the number of factories below than 100 in the near future. This has led to a greater production and variety of brands than was possible before. In fact, many brands manufactured by one or two small regional factories have been licensed to large factories, becoming hits across the country.China Tobacco, like many other tobacco companies, produces a large number of brands, more than 900, the most. large of which, Hongtashan (Red Pagoda Hill), accounts for only 4% of total sales. Another notable brand were Chunghwa and etc. Thus,Class D quality cigarettes enjoy the highest production rates in China, while Class C quality cigarettes account for the highest gross profit. However, there are high-quality national brands in China, although they are difficult to find in rural areas without reputable retailers.
With almost a third of smokers worldwide (300 million) and 40% of global tobacco production (2.5 trillion cigarettes), China has the largest tobacco industry in the world. The state monopoly China National Tobacco Corporation is the fourth largest Chinese company in terms of profits, employing 510,000 people in 33 provinces and contributing 7-11% of government tax revenue annually. On a global scale, CNTC's earnings exceed British American Tobacco (BAT), Philip Morris International (PMI) and Altria combined. Despite the size of the Chinese industry, given its national orientation, analyzes of the globalization of the tobacco industry to date have focused on the major transnational tobacco companies (TTC).
After joining the World Trade Organization (WTO) in 2001, and in the face of increasing saturation of the domestic market, the CNTC declared ambitions to 'go global'. The limited academic attention to globalization and the CNTC to date comes largely from business studies.
Tobacco was brought to China by merchant traders during the 16th century. Leaf cultivation became firmly established in the mid-19th century and smoking since the late 19th century with the automation of cigarette manufacturing. During the first half of the 20th century, BAT dominated the industry with an 82% market share and a handful of national companies. Political instability and conflict for decades undermined attempts to regulate the industry.
BAT was to leave China in 1953 given the nationalization of the industry after the establishment of the People's Republic of China. The domestic industry grew rapidly, with the construction of many small factories, increasing annual cigarette production by an average of 11% per year between 1949 and 1958. However, the industry was also highly uncoordinated, controlled at the provincial level by local monopoly offices that depended on of the ministries of light industries, commerce and other financial entities. In 1963, the China Tobacco Industrial Corporation was established to try to achieve greater efficiencies through centralized administration of purchasing, production and sales. Production and income increased dramatically, and remitted tobacco taxes increased by 4.RMB 1 billion during 1958-1962, to RMB 5.6 billion during 1963-1966. The corporation was dismantled in the wake of the Cultural Revolution in 1966 and the industry returned to its fragmented structure.
Economic reforms under the Open Door Policy, beginning in the late 1970s, allowed for imports of new technology and knowledge. To reassert central control, the CNTC was formed in 1981 to administer the 28 provincial companies. The profits and tax revenues were distributed among the central and provincial governments, the CNTC, and various subsidiaries. In 1983, the State Council established the State Tobacco Monopoly Administration as the administrative and regulatory body for the industry. The formally separate entities, in practice the CNTC and the STMA are "one institution with two nameplates" that govern the industry through a vertical bureaucracy. The CNTC carries out central planning, manages raw materials,sets regional production quotas for sheets and products, and is the umbrella company for provincial companies. The STMA manages and regulates the national monopoly with parallel structures at the provincial level governed by municipal and provincial authorities.
China's export-led growth and its 'global factory' status faced increasing competition from lower-wage emerging economies in the late 1990s. In 1998, President Jiang Zemin appealed to Chinese companies to improve product development, seek foreign markets, and establish overseas manufacturing. This policy was called the 'Go Global' strategy in 2000.
The interest of the tobacco industry in foreign expansion was first raised after the signing of the General Agreement on Tariffs and Trade in 1993. As stated by STMA Director Jiang Ming, to ensure the long-term development of the tobacco industry, we must follow a «Great Tobacco». "Strategy". He envisioned the establishment of foreign companies and diversification into non-tobacco sectors. Similarly, CNTC director Xun Xinghua stated that the industry was "seizing every opportunity to expand and occupy foreign markets." Given the continued exclusion of TTC's competition from China's import quota system, and the size of the domestic market, the industry's initial efforts were limited.
The industry anticipated changes after joining the WTO. They describe that the TTCs pushed hard to access the closed Chinese market during the accession negotiations. Import quotas were maintained, but import tariffs were reduced from 70% in 1996 to 25% in 2004, along with opportunities for a wider distribution of foreign brands. Tobacco imports increased in value and quantity starting in 2001. Given the potential erosion of domestic market share, as in Japan, along with the signing of China and subsequent ratification of the Framework Convention for Tobacco Control (FCTC), firmer plans were made to "compensate for internal losses abroad." In 2003,the industry was called to 'actively implement the' global 'strategy to establish stable international markets', coinciding with the removal of the requirement for retail permits to sell foreign cigarettes in China.
It can be seen that the industry has changed dramatically since the mid-2000s, from mostly focused on the domestic realm, to the increasingly external gaze in four ways. First, CNTC is a "natural resource finder" as the industry aims to obtain quality sheets to align its products with the brands of transnational tobacco companies (TTC). The establishment of local leaf procurement companies in the main tobacco-producing regions of Brazil, Zimbabwe and the United States ensures a constant supply to the needs of the feed industry both domestically and abroad. Second, CNTC is a "market finder." The CNTC has been exporting since the 1980s,but the scale and scope of exports since the late 2000s suggests a more concerted strategy. Third, the CNTC is an 'efficiency seeker', establishing overseas operations in key strategic areas for specific markets. Seeking to further reduce operational costs to obtain higher profit margins, CNTC operations abroad strive to use locally grown tobacco leaves and hire locals whenever possible, thus increasing efficiency by removing cultural and cultural barriers. language. The strategic location of the main offshore production bases in each region is a clear indication of the search for efficiency. Fourth, CNTC is a "strategic asset finder",as it oversees foreign markets seeking investment opportunities for business growth through mergers and acquisitions. The CNTC's globalization efforts are expected to intensify.
Product development: brand consolidation and premiumization
To improve global competitiveness, the development of Chinese products involved three strategies: consolidation of brands in a smaller number with mass appeal; adaptation to attract foreign markets; and premium products with higher added value. First, historically, a large number of Chinese companies made thousands of local brands at many different prices. The number of brands was drastically reduced, to a few with broader appeal, to improve economies of scale and enable overseas marketing. In 2001, STMA selected 36 brands to support through advantageous policies such as priority access to raw materials and technology. The result was an 11% increase in the market in two years.
In 2004, STMA announced plans to limit the mid- and high-priced brands to 100 in three years. In 2006, this became known as the 'two by ten' strategy with plans for ten large-scale manufacturers to produce ten key brands. In 2007, emphasis was placed on so-called "two jumps" by which major provincial brands were encouraged to enter the domestic market and strong national brands to enter the world market. This was followed in 2010 by the '235' strategy, to develop two brands that sold more than five million cases; three brands that sell more than 3 million cases; and five brands selling more than 2 million boxes, and the '461' strategy, with 12 brands to earn revenue over RMB 40 billion, 6 brands over RMB 60,000 and 1 mark more than RMB 100 billion for 2015.
By 2013, consolidation had reduced cigarette brands from around 2000 in the late 1990s to 90. These remaining brands had a larger share of the domestic market. In 2010, seven brands exceeded $ 4.4 billion in annual sales, with five brands - Hongtashan, Baisha, Double Happiness, Furongwang and Chungwa - looking to sell more than 5 million cases ($ 14.7 billion) a year. In addition to defending against global brands like Marlboro in the domestic market, the consolidation aimed to create Chinese global brands for foreign markets. In 2013, the CNTC sold 70 billion clubs abroad, comprising 74 brands. This was reduced to 30 brands in 2014, with many tailored to key markets.
Along with consolidation, the CNTC has pursued a premiumization strategy since 2008. In China, luxury brand cigarettes are an important currency of guanxi (a system of social media and influential relationships to facilitate business and other transactions). Premium brands enjoyed an increase in sales, as the economy grew, and manufacturers launched luxury versions of familiar brands or new brands. In 2012, luxury brands sold more than 2 million cases and enjoyed a 20% increase over the previous year. Despite a price cap from STMA, anti-corruption measures and a public smoking ban for government officials, the production and sale of luxury brands continued to increase. The market share grew, from 6% in 2007 to 25.2% in 2014,the only segment to see growth in 2014. Mid-priced products had modest growth, while the economy segment fell dramatically from 59.7% to 28.3% during the same period. Abroad, premium brands are seen as key to efforts to improve the perceived quality of Chinese products. The CNTC documents suggest that it will seek to establish global brands that are comparable in quality and price to the TTC brands.The CNTC documents suggest that it will seek to establish global brands that are comparable in quality and price to the TTC brands.The CNTC documents suggest that it will seek to establish global brands that are comparable in quality and price to the TTC brands.
Expansion of Chinese cigarette exports
Chinese cigarette exports date back to the establishment of the China Shenzhen Tobacco Trading Center in 1984. In 1985, the China National Tobacco Export Corporation (CNTIEC) was created to oversee the trade in tobacco products, technology and accessories, as well as international economic cooperation. However, exports were kept small and distributed among many different companies. Between 1991 and 1995, the CNTC exported more than 100 brands to 37 countries, including Virginia cigarettes (smoke-cured) to Southeast Asia; mixed cigarettes to Europe, the US, Russia and Africa; and herbal cigarettes to Korea and Japan. The restructuring of the industry since the mid-1990s saw the closure of several export branches of provincial companies.Focusing on quality over quantity, underperforming brands and markets subsequently declined, and exports declined to a record low in 1998-1999.
The imminent accession to the WTO prompted a more strategic focus on exports. In 2000, the CNTIEC was reorganized and renamed the China Tobacco Import Export Group (CNTIEG). CNTIEG became the parent company of all CNTC operations abroad and export branches of provincial companies. In 2008, CNTIEG became China Tobacco International (CTI), focused on supporting the CNTC's 'strategic need to' 'go global'. In 2011, the first annual meeting on tobacco market expansion was held, which adopted a three-stage strategy for export growth: a) market entry and establishment of a distribution network; (b) authorized production by local manufacturers;and (c) establishment of local production facilities. At the 2013 meeting, five export manufacturing facilities were announced in Shanghai, Guangdong, Yunnan, Hunan and Zhejiang, and Jilin, each focused on nearby regions and "cultural advantage". For example, Yunnan Tabaco would target Southeast Asia.
Chinese exports, as a share of total production, remain relatively small but have increased since 2004, from 4.35% to 5.08% in 2013. However, in volume this represents a 60% increase from 16.3 to 26 billion bars, surpassing the Korean company KT & G to become the fifth largest exporter in the world. The export value has also increased, from US $ 100 million in 1999 to US $ 500 million in 2013. In 2015, a link between the 'One Belt, One Road' and 'Go Global' strategy was announced to improve access to foreign markets of the CNTC. This initiative refers to the extension of the so-called Economic Belt of the Silk Road, which links western China with Europe through Central Asia,the new Maritime Silk Road from the southern coast of China to Europe through North Africa and Southeast Asia.
Conclusions
Previous analyzes of the global tobacco industry recognize the importance of the CNTC, but generally exclude it, due to its strong national focus. The findings of this thesis suggest, however, that the Chinese industry has been steadily positioning itself to become a global player since the late 1990s. While the Chinese tobacco industry is likely to remain, in the medium term, primarily dependent on its huge domestic market of 350 million smokers, indicators suggest the emergence of a new Chinese TTC in the next decade.
This thesis also shows that the "global" ambitions of the Chinese tobacco industry have been driven by both internal and external forces. Internally, the market has approached saturation among adult men with smoking prevalence rates of 53%. Future growth is likely to come from population growth and rising rates of female smoking. However, the ratification and implementation of the FCTC since 2005 has increased support for more stringent tobacco control measures, albeit tempered by weak political will and enforcement. Although important changes have been made to strengthen tobacco control legislation, there are still significant gaps compared to the FCTC requirements.
Externally, after accession to the WTO in 2001, it was anticipated that the opening of the market would bring greater foreign competition as in other Asian countries. This, in turn, would lead to a gradual reduction in domestic market share. To date, however, the Chinese government has maintained firm control over the industry and market access, limiting joint ventures to technology transfers and sheet development and, more recently, reciprocal production and distribution agreements. More influential has been the broader support, in Chinese economic policy, for the 'go global' strategy to be key to the country's emergence as a global economic superpower. The size of the Chinese tobacco industry compared to existing TTCs, and thereforeits potential to generate significant foreign profits has prompted the government to promote the expansion of the industry abroad.
If partially understood, the global ambitions of the Chinese tobacco industry will have profound impacts on public health. Chinese industry is favored by size, weak domestic regulation, and government support for overseas expansion. If successful, this will lead to more global competition for prices, new products and heightened marketing, all of which will result in increased tobacco use. Beyond the WTO, there is much uncertainty about how tobacco will be handled in key negotiations for major trade and investment deals, such as the Trans Pacific Partnership. As the CNTC increasingly mimics the globalization strategies of TTCs, it is now necessary to include China, along with other emerging TTCs, in global tobacco control efforts.
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