Objectives: To examine British American Tobacco’s (BAT’s) renewed interest in Cambodia from the early 1990s, reviewing negotiations to establish a joint venture and the subsequent conduct of BAT Cambodia (BATC).
Methods: Analysis of previously confidential BAT documents relevant to the Cambodian market.
Results: With the advent of comparative political stability in the early 1990s, BAT was quick to explore the possibilities for investment. The Cambodian government urgently required foreign investment, offering inducements and assistance to investors. In developing a joint venture, BAT saw a cost effective opportunity to dominate the local market and to defend its regional interests, Cambodia being viewed as strategically located to support smuggling. Given minimal advertising regulation, BATC have undertaken wide ranging promotions and sought to prevent advances in tobacco control.
Conclusions: BATC is presented as a contribution to Cambodia’s regeneration, but the documents highlight its exploitation of state incapacity and an escalating threat to public health.
Statistics from Altmetric.com
- BAT, British American Tobacco
- BATC, BAT Cambodia
- CTC, Cambodian Tobacco Company
- JV, joint venture
- SNC, Supreme National Council of Cambodia
- SOC, State of Cambodia
- SUTL, Singapura United Trading Limited
- STC, Singapore Tobacco Company
- SWRT, Subaru World Rally Team
- TTCs, transnational tobacco companies
- VFM, value for money
- YAUS, young adult urban smokers
Current levels of tobacco consumption in Cambodia indicate an emergent crisis for public health. The protracted health impacts of smoking have received limited attention nationally, perhaps predictably overshadowed in a country where poverty, poor sanitation, diseases such as malaria, hepatitis B and HIV/AIDS, road and landmine accidents, and inadequate health services contribute to an average life expectancy at birth of 56.4 years for men and 60.3 for women.1 While there is a dearth of reliable local data regarding tobacco related morbidity and mortality,2 smoking prevalence among Cambodian men is estimated to be among the world’s highest at around 70%, while women’s rates have been confined to approximately 10%.3–5
Concern about the future trajectory of the tobacco epidemic in Cambodia is, however, heightened by the prominent presence in the country of transnational tobacco companies (TTCs), the most prominent being British American Tobacco (BAT). As Cambodia emerged from civil war in the early 1990s, BAT rapidly identified it as an attractive and strategically important target. Such attraction was enhanced by a government desperate for foreign investment and the advertising freedom of a regulatory vacuum. Following negotiations protracted by ongoing instability, a shareholders’ agreement for a joint venture was agreed in September 19956 and BAT Cambodia Limited (BATC) was launched in June 1996.7 While projected by BAT as a significant contribution to Cambodia’s reconstruction, the establishment of BATC as a dominant local actor provides a case study in the exploitation of incapacity and poverty by TTCs8–10 and has serious implications for public health.
This paper is based on BAT documents acquired during numerous visits to the company’s Guildford depository during 2002 and 2003. Relevant documents were identified by iterative searching of the depository’s file level index. Initial use of broad geographic terms and place names led to more specific searches using relevant organisational terminology and individual names. Such searches identified 30 key files, containing approximately 5000 pages, which were then subjected to detailed page by page analysis. This was supplemented by more recent material obtained from the Minnesota Tobacco Document Depository.
The provenance of the tobacco industry documents and the issues raised in working with them have been previously described,11–14 while recent accounts have highlighted the specific difficulties incurred in working with BAT documents.15–17 Relevant documents available to this research are primarily correspondence between company employees in Southeast Asian offices and the company’s UK headquarters. The records of BAT Cambodia in Phnom Penh, for example, remain inaccessible.
The decision to make this paper a study of BAT specifically stems from the relative paucity of references to Cambodia in the accessible documents of Philip Morris, RJ Reynolds, and other leading TTCs. This probably reflects BAT’s dominance of the domestic market through its joint venture manufacture and importation of both of popular local and international brands.
Targeting Cambodia: establishing political influence
Within months of the 1991 Paris Peace Accord that brought some degree of political stability to the country after 20 years of war and civil conflict,18,19 Cambodia had been added to BAT’s list of potential new markets and designated for “priority action”.20 The company had operated in the country from 1931 until 1974, when it joined the exodus of foreign firms during the Khmer Rouge regime.21 The strategic rationale for re-entry highlighted Cambodia’s “growing and young population”,22 minimal tobacco control regulation, and the American trade embargo that provided an opportunity to pre-empt competition from US based TTCs22–25; “[s]hort-term we have the ability to freeze out Marlboro”.26 Key entry criteria included identifying consultants enjoying “good connections with the leading industry and political figures in the country who could provide insights into likely developments” affecting foreign investment.20
The government’s need for foreign capital27–29 is evident from documents reporting contacts with company personnel. In February 1991 Yap Boon Aun of BAT’s Singapore Tobacco Company (STC) held initial talks with government officials including Cham Prasidh, Deputy to the Prime Minister. Yap Boon Aun reported that the government intended to privatise all state run industries, harboured no reservations about majority foreign ownership of joint ventures, and admitted existing law on foreign investments could be outdated and “will be flexible to amend as necessary to satisfy investors requirements”.30
STC’s Julian Manning visited Cambodia later in 1991 and received similar encouragement. Kong Som Ol, the Minister of Planning and Chairman of the National Committee for Foreign Investment, informed Manning that redevelopment of the tobacco industry was intended to attract foreign investment and to improve the living standards of the rural poor.31 Manning reported Cambodian officials to be “extremely open to suggestions and advice in all areas concerning” foreign investment.31 At a 1992 meeting the Vice-Prime Minister Prince Norodom Chakrapong welcomed BAT’s proposed investment and confirmed both “that there were many incentives available to us as foreign investors and that he would be glad to help with any outstanding issues”.32
Manning’s visit to Cambodia also included meetings with the US Special Representative to Supreme National Council of Cambodia (SNC), Charles H Twining Jr, and with British Ambassador David Burns. They were reportedly “in accord in stressing that the West sees Cambodia as somewhat of a test case or demonstration of President Bush’s new world order”, with Burns providing assurances of his “willingness to give us whatever support he might be able in meeting the right people”.31
Manning concluded that Cambodia represented a “potentially lucrative opportunity” that could be exploited at “very preferential terms” through swift action.31 A note prepared for BAT’s tobacco executive committee similarly recommended moving quickly, noting that all of BAT’s main conditions for entering a joint venture (JV) could be satisfied.33 Despite concern about the “present turbulent nature of Cambodian politics”, Manning emphasised in early 1992 that “it is vital for the future that [we] preempt [sic] competition and ‘keep our foot in the door’”.34
Negotiating a joint venture
BAT’s preferred option was to become the majority shareholder in a JV developed alongside local interests. The entrepreneur Kong Triv emerged as a key potential partner, being “purportedly in control of transit [smuggled35] cigarettes into Cambodia/Vietnam and influential with Cabinet Ministers”30 and having recently agreed a 20 year lease on three tobacco factories and 15 warehouses with the government.36 Kong Triv sought foreign investors to expand his Cambodian Tobacco Company (CTC) and had contacted both Rothmans Singapore and Singapura United Trading Limited (SUTL), the latter a Singapore based distribution company with close ties to BAT.37 Such links gave BAT a competitive edge in negotiations,38 an advantage consolidated by Kong Triv’s willingness to accept BAT’s preference for a majority stake and an immediate takeover of CTC’s operations upon completion.32
Negotiations were disrupted by forthcoming elections in 1993, the main political parties having announced that commercial contracts issued by the Vietnamese backed State of Cambodia (SOC) government would be subject to review. BAT, however, considered it “unlikely that the majority of existing investment agreements and JVs would come under scrutiny” given the country’s need for foreign investment.36 Guilherme da Costa, of BAT’s New Business Development (NBD) division reported that the election results left Kong Triv “not as strong (politically speaking) as he used to be”, while the incoming coalition government were seemingly prepared to curtail his monopoly on cigarette production.39 The shifting political environment had seen the emergence of a “new ‘strong man’” with extensive political connections, Kok An of ANCO Bros (SUTL’s distributor in Cambodia),40 and the alternative of an agreement with ANCO provided BAT with a fall back position.39 BAT were also planning to streamline existing operations, apparently disguising this intention from the government during negotiations:
After the JVC is well established and the newly elected Cambodian government has settled down (probably end 1993), the JVC will study and present a full “package” to Government to re-negotiate the lease and the future (including closure) for the other two factories and their employees.36
Early discussions of disposal of the disused factories included offering them “back to the Government as part of our negotiating strategy, providing there is an agreement that these are not used as cigarette factories”.41
BAT became increasingly concerned with Kong Triv’s “unstructured” business practices, “guided only by considerations to increase capacity for more new brand launches, the aim for self-sufficiency and earliest quick return and profit”.42 An additional complication was the deteriorating relationship between CTC and SUTL,39 an ally with which BAT continued to hold quarterly meetings to discuss the “significant pace of market development in Myanmar, Cambodia and Laos”.43 Such concerns were outweighed by CTC controlling 50% of the domestic market44 and proposed JV benefiting from a previously negotiated 50% reduction in excise tax and a domestic production monopoly, agreements that would be assumed by a JV successor.36
Ultimately, a resolution was struck that encompassed each of the major actors, summarised by regional exports manager Patrick O’Keeffe as an arrangement whereby “the primary objective would be to dominate the local Cambodian market with CTC as the local manufacturer and ANCO as the local distributor for imported and local brands”.43 The culmination of four years of negotiations, a shareholders agreement announced in September 1995 provided BAT with a 51% share in a new JV, with 20% held by SUTL Investments and 29% by Kong Triv, who was also to be the first chairman of BAT Cambodia.6 The deal was not formally completed until June 1996,7 delayed by both a wait for government approvals and “the negotiation of adequate investment incentives under the Foreign Investment law”.46 With an expected total market share of 61%, 50% from BAT Cambodia and the remainder from existing export business, the strategic rationale for investment in Cambodia was reaffirmed as being “that it provides an opportunity to acquire a significant market share in Cambodia at relatively low cost”.45
The emphasis on securing dominance of the Cambodian market is later evident in attempts to undermine the hand rolled cigarette industry that BATC claimed accounted for around one third of the local market.46 The company complained to Cambodian officials that the hand rolled sector enjoyed unfair advantages over international producers, presented as a question of “social justice.”46 In a March 2002 letter to Ministry of Economy and Finance, BATC general manager MA Mokaddem drew attention to the costs of failing to tax hand rolled cigarettes, additionally accusing the sector of infringing trade mark and intellectual property rights, and of counterfeiting leading BAT brands.46 Mokaddem also wrote to Minister of Health, Hong Sun Hout, warning that the unregulated local industry had the potential to do “significant damage to the good work the various government functionaries are doing in discouraging smoking in Cambodia”. This was presented in unfavourable comparison to BAT’s adoption of “globally consistent marketing standards for the responsible promotion and distribution of tobacco products directed at informed adults”.47
Averting advertising regulation
The unlimited scope for advertising and promotional activities48 was a key part of the appeal of the Cambodian market. A 1991 regional assessment reported: “[n]o known restrictions in any form for Above-the-line or Below-the-line activities. Absence of any form of Government policy concerning tobacco issues, advertising and promotion.” BAT was predictably anxious to preserve this unrestricted marketing environment. A 1993 plan acknowledged that awareness of smoking and health issues would increase via the activities of WHO and the example of neighbouring Thailand, but estimated that ”the significant revenues generated by tobacco advertising will, in the short term, delay government anti-smoking initiatives until alternative forms of revenue are guaranteed”.49 The company needed to be “prepared for defensive action once the anti-smoking movement begins to gather momentum”49 and mounted intensive marketing campaigns designed to “reinforce 555 premium position and create brand awareness for new brands prior to communication restriction”.
An industry initiated programme of voluntary health warnings was developed for brands across Indochina,49 intended to “demonstrate that the industry is taking a responsible attitude in markets where there is no legal requirement for health warnings on product”.49 Accompanying measures included a planned visit to Cambodia, Myanmar, and Laos by STC’s corporate affairs manager “to appraise the Smoking and Health environment” and to establish “key governmental contacts”,49 while the region’s country managers were scheduled to attend a “Smoking and Health training seminar” in preparation for “the increasing pressures they will face in their markets”.49 BAT also planned to establish working groups with its competitors in these markets, proposing a voluntary code “between the companies to avoid irresponsible advertising which could provoke government officials and accelerate anti-smoking industry initiatives”.49
A clear concern behind such efforts was the avoidance of more stringent advertising regulation across the region. As outlined by BAT China’s Brendan Brady, BAT’s regional corporate image and avoiding the rapid loss of “communication facilities” required consideration of “industry co-operation on voluntary advertising restrictions which would negate the need for implementation of existing bans”.50
Marketing the epidemic
Cambodia has been inundated with an astonishing volume and variety of cigarette advertising since the early 1990s. Massive billboards, restaurant advertising, branded kiosks and cigarette carts, point of sale promotions, cigarette and gift giveaways, and branded umbrellas used by street vendors as well as more conventional mass media advertising have all been part of the onslaught of marketing by TTCs in Cambodia, particularly in Phnom Penh.51,52 Advertising expenditure on tobacco in all Cambodian media of over US$ 5 million (most directed at television) was second overall after cosmetics and perfume in 2001, and three cigarette brands were among the top 10 press advertisers.53 BAT’s promotional activities have focused on supporting State Express 555, their priority premium international brand in the region.
Global marketing strategies have sought to link leading cigarette brands with powerful aspirational imagery, often evoking supposedly “western” or “American” values such as prosperity, modernity, and independence.54,55 Local application of this broad strategy is evident in emphasising the “quality American blend cigarette message and the American original image” in marketing Lucky Strike.48 There are also indications that such imagery may increase the appeal of cigarettes to Cambodian women; a nationwide survey in 2000 revealed that a desire to be more western and more equal to Cambodian men was a key reason women begin smoking.56
Promotional activities for 555 in Asia have recently centred on an annual “birthday” celebration, “555 Day”. The 1998 event focused on the launch of “the most advanced 3D high definition film ever seen”, with cinema screenings “around the world, including the UK, Cambodia, India and China”.57 Material prepared for the promotional campaign in Cambodia described the amazed reaction to the film of “Jane Steeles, a secretary working in the frenetic environment of London’s West End”,58 simultaneously evoking both glamorous western imagery and a working situation to which Cambodian women could relate. The screenings were backed up by 10 pages of “advertorial creatives” developed for Cambodian broadsheets and “widely used to support 3 days of activity to celebrate 555 day 1998”.59
The prominence accorded to screenings represented a shift in strategy from the previous year. In 1997 cinemas were not used in 555 promotions in Cambodia because, according to BAT’s advertising agency Bates Dorland, “most cinemas are becoming sex shops!”.60 The multiple promotional opportunities open to BAT is evident from its 1997 summary of marketing regulation in key 555 markets, highlighting the gross inadequacy of Cambodia’s then legislation. Whereas neighbouring Thailand only allowed promotion at point of sale, marketing activities in Cambodia could also advertise via television, outdoor, magazines, newspapers, cinema, radio, airport, and promotions.60
Diverse associations with international sports were also used to enhance the appeal of BAT brands in Cambodia. Local television broadcast 555 sponsored English football, designed to “associate the brand with a quality presentation of a popular sport providing internationalism for the brand”. BAT’s sponsorship of the 555 Subaru World Rally Team (SWRT), a regional promotion developed in response to a perceived weakness among YAUS (young adult urban smokers), was viewed by BAT marketing strategists as “young and exciting and helping to contemporise the brand.” Bangkok-based “PR Motivator” Lynne Klapecki, who played a significant role in the SWRT campaign, described Indochina as “uncharted territory”61 while acknowledging the generally unrestricted marketing environment:
Politically and culturally “open.” Very unsophisticated population. Limited TV and press. Open advertising and promotion opportunities; limited by low spending power. No issue with events or motorsports as yet.61
Given the limited buying power of Cambodian consumers, penetrating the low price market with economy, or value for money (VFM), brands has been a key factor in BAT’s marketing strategies. The company’s 1993 Asia/Pacific Review outlined the requirement for a “consistent VFM product in the low price segment… particularly as markets become legal (Indo-China) or open to transit (Taiwan and Thailand)”.26 The marketing slogan for Viceroy, US-subsidiary Brown & Williamson’s VFM niche brand was “Quality American Blend at the Right Price”,48 suggesting that marketing international appeal was not restricted to premium brands.
A key problem confronting BAT was that, while urban centres were attaining a level of stability in the early 1990s, the countryside remained considerably more hazardous. Reports filed in 1992 noted an inability to coordinate marketing efforts outside Phnom Penh “due to security risks” and the uncertain political situation.23,24 Such uncertainty was commercially significant since rural Cambodia is home to over 80% of the population.62 Notwithstanding the perceived risks, reaching the rural market with 555 and Embassy campaigns figured prominently in medium term business projections. Objectives for Embassy included raising the rural profile of the brand by improving distribution and communication support to provincial markets while 555 promotions were to “[c]oncentrate on developing 555 awareness outside Phnom Penh” with specific emphasis on cinema advertising outside the capital.24
Cambodia and BAT: strategically valuable
While clearly designed to build the market for its products within Cambodia, BAT’s investment in a joint venture was equally motivated by requirements of regional strategy. According to a 1996 acquisitions and business development report:
The investment is also defensive in that it precludes Kong Triv from going into partnership either with an international competitor or one of the many regional opportunistic competitors. Such a partnership could threaten BAT’s currently strong position in south-east Asia.45
Consideration was given in 1996 to buying a manufacturing facility in Laos as a branch of BATC, Laos being viewed by BAT’s Asia Pacific regional business unit (RBU) as “strategically important in protecting BAT’s market position in neighbouring countries such as Cambodia and Vietnam”.63
The significance attached to regional considerations in shaping BAT’s Cambodia strategy is, however, most strongly evident in the context of smuggling. A 1994 B&W report attributes the interest of TTCs in Cambodia primarily in terms of facilitating contraband operations:
As JV negotiations progressed, BAT officials were well aware of the country’s significance to regional smuggling which, despite earlier company estimates,30 was seemingly not wholly controlled by Kong Triv. Guilherme da Costa estimated in 1994 that the 50% of the market not dominated by Kong Triv was “flooded with all sorts of imported brands”, almost all “duty not paid”.39 Paul McPhail of STC, similarly described the country as a “dumping ground for over 100 imported brands, and a key route point for the Indo-China cigarette transit business”.44
Cambodia has been particularly important in enabling access via contraband to the much larger neighbouring market of Vietnam. This significance was enhanced following Vietnam’s imposition of a ban on imported cigarettes in October 1990:
Unless Vietnam lift [sic] the ban on foreign cigarettes, Cambodia will serve as an important transit point for foreign companies. More brand introductions by tobacco companies are expected. The key strategic location of Cambodia will ensure that the black economy will continue to flourish.24
Accurate figures on the extent of the smuggling have been predictably difficult to establish but a government report refers to “warehouses [that] exist in no man’s land…stocked with cigarettes supplied by trucks driven through the Cambodian check point”, and suggests that 80% of cigarettes imported into Cambodia are subsequently smuggled into Vietnam.64 This complements a 1999 media report that suggested approximately 10 million cigarettes, with a street value of US$350 000, were being smuggled into Vietnam’s southern provinces from Cambodia on a daily basis.65
A 1993 report by Paul McPhail to regional exports manager Patrick O’Keeffe provides a clear indication of the company’s detailed knowledge of regional smuggling operations. Following his visit to Vietnam earlier that month, McPhail outlined company pricing structure on local GT (smuggled) stock, including that entering from Cambodia;
Ex factory price should be such that retail price falls at parity with GT (not fully controllable). GT price structure is:(In US$ per case)BATUKE to SUTL: $245SUTL to Importer (Cambodia): $290Importer to Wholesaler (Cambodia): $348Wholesaler to Trader (Cambodia border): $350Therefore GT exiting Cambodia at US $350(Laos route also appears to exit at US $350).66
The prominent role of SUTL in managing BAT’s interests in contraband markets35 highlights the difficulties entailed in their mutual involvement in the BATC joint venture. The scale of such trade illustrates the sensitivities required when negotiating with governments, and also highlights the potential conflict of interest that a legitimate joint venture could pose for lucrative contraband business. As outlined in 1994 by Fred Combe of BATUKE Singapore:
Given the sensitive nature of the markets serviced by SUTL, namely, Cambodia, Laos and Myanmar, it would be imprudent for BATCo to initiate discussions with the various governments. With the exception of Myanmar, duties and excise are relatively low in comparison to more mature markets in Asia. In addition, GT continues to be the dominant trade channel.Should BATCo or NBD [BAT’s New Business Development department] come close to concluding JV agreements in these markets, then clearly there would be a requirement to protect local manufacture against low-price imports. At this stage, a carefully orchestrated lobbying plan would be needed to ensure BATCo’s interests are preserved i.e. the balance of local manufacture v premium priced imports.67
In 2000 Patrick O’Keeffe, by then BAT’s CEO in Southeast Asia, reflected on the success of BAT’s joint venture in Cambodia. Describing it as “almost a model of what we would like to do everywhere”,68 O’Keeffe outlined the presence of international brands, rapid growth of the local brand Ara, increased use of local leaf, and new manufacturing investment to enable production of higher priced brands. Documents demonstrate that BAT’s interest in Cambodia reflected a calculation that dominance of the market could be achieved cheaply, assisted by financial inducements from post-civil war governments desperate for foreign investment. Perhaps more importantly to BAT, investment also served to entrench the company’s regional strength, while Cambodia was identified as well placed to facilitate lucrative smuggling to larger neighbouring markets.35
What this paper adds
Comparatively little is known about tobacco industry operations in Cambodia. This paper explores the establishment of British American Tobacco Cambodia (BATC) as the locally dominant actor. It highlights BAT’s exploitation of a desperate need for foreign investment, and the importance of Cambodia to its regional objectives.
BAT has predictably sought to present its involvement as a contribution to the economic and social reconstruction of Cambodia,6,7,47 and parts of the Cambodian government69 and regional media70,71 have endorsed this portrayal. The corporate documents provide a more disturbing account of the formation of BATC. Cambodia’s broader efforts to integrate with the global economy have largely been unsuccessful, described as having attracted investors “more concerned with pillaging its resources than strengthening the productive base of the economy”.18 As in other societies undergoing transition,8–10 in the case of BAT Cambodia such exploitation is exacerbated by an escalating threat to public health.
There are, however, encouraging signs that Cambodia will no longer provide an ideal scenario for TTCs. The Inter-ministerial Committee for Education and Reduction of Tobacco Use established in June 2001 has endorsed draft comprehensive tobacco control regulation, though the legislation has been delayed by a broader political deadlock (Greg Hallen, personal communication). Most promisingly, in May 2004 Cambodia signed the World Health Organization’s Framework Convention on Tobacco Control.72 The convention holds the promise of providing a powerful buttress to national tobacco control efforts,73 offering an opportunity to redress the imbalance of power and resources used by TTCs to expand the tobacco epidemic in developing countries.
The authors gratefully acknowledge additional information provided by Greg Hallen, Technical Officer for Tobacco Control, World Health Organization, Cambodia.
This work was supported by the Rockefeller Foundation’s Trading Tobacco for Health initiative, NIH grant R01 CA091021-03: “Globalization, the Tobacco Industry and Policy Influence”.
Documents cited in this paper not currently available on existing websites will be posted on the Tobacco Control Research page on the London School of Hygiene and Tropical Medicine website http://www.lshtm.ac.uk/cgch/tobacco/index.html.
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