Consolidation in the tobacco industry
- Hammond & Purcell Consulting
- 88 Norwich Street
- San Francisco, California 94110, USA;
A quiet revolution has taken place in the international tobacco industry in the past 10 years. Riding the wave of economic liberalisation and free trade pushed by developed countries and the international financial institutions, the cigarette companies have massively increased their manufacturing capacity in developing countries and in the countries of eastern Europe and the former Soviet Union. Although politicians and many tobacco control advocates still talk of the multinational tobacco companies “exporting death and disease”, the reality is that more and more of the causes of this death and disease are being manufactured locally, from China to Mexico to Russia. In fact, Philip Morris, RJ Reynolds, and British American Tobacco (BAT), the world’s three largest multinational cigarette companies, now each own or lease plants in at least 50 countries spanning all corners of the globe.
A number of factors have driven this overseas expansion, including: the opening up of formerly closed economies in eastern Europe, the former Soviet Union, and China; pressure on governments by the international financial institutions to privatise previously state-owned industries and to relax laws restricting foreign investment; the attempt by these countries to attract foreign investment through the provision of tax incentives and the lifting of import duties; cheaper labour and transport costs; the threat of further regulation in the multinational companies’ home countries; the attempt by these companies to shield an increasing proportion of their assets from lawsuits in developed countries; and the desire to locate cigarette manufacturing plants closer to sources of tobacco leaf, an increasing proportion of which is being purchased overseas.
Certainly the United States is still the world’s largest exporter of cigarettes. As home to two of the world’s three largest multinational cigarette companies, it exported 217 billion cigarettes in 1997. Yet this was an 11% drop from the previous …