Pakistan Tobacco Company

An overview of the company

Presented by
Adnan Ahmad | Sawaira Rahman | Saim Khan | Zain Ashfaq

Strategic Management 12/26/18 Bahria University

Table of Contents
Chapter 01: Introduction to the firm ..................................................................................... - 1 -
1.1 Vision: ......................................................................................................................... - 1 -
1.2 Mission:....................................................................................................................... - 1 -
1.3 Chairman’s Massage: .................................................................................................. - 1 -
1.4 Guiding Principles: ..................................................................................................... - 2 -
1.5 National Footprint of the company: ............................................................................ - 2 -
1.6 Board of Directors: ..................................................................................................... - 3 -
1.7 Organizational Structure: ................................................................................................. 4
1.8 Strategic Objectives: ........................................................................................................ 5
1.9 Business Model: ............................................................................................................... 6
1.10 Financial Highlights: ...................................................................................................... 7
1.11 Products: ........................................................................................................................ 8
Conclusion: ............................................................................................................................ 8
Chapter 02: A Glimpse from the Past and into the Present ....................................................... 9
(STEP -2) ................................................................................................................................... 9
PTC’s Vision.......................................................................................................................... 9
PTC’s Mission ....................................................................................................................... 9
A Historical Perspective: ..................................................................................................... 10
Strengths and Weaknesses of PTC: ..................................................................................... 13
Strengths: ......................................................................................................................... 13
Weaknesses: ..................................................................................................................... 13
Analysis of Balance Sheets: ................................................................................................. 14
Conclusion: .......................................................................................................................... 15
Chapter 03: Internal and External Analysis of the Firm (STEP 3) .......................................... 16
Internal Analysis: ................................................................................................................. 16
Primary Activities: ........................................................................................................... 16
Secondary Activates: ....................................................................................................... 18
External Analysis: ................................................................................................................ 19
General Environment: ...................................................................................................... 19
Porter's five forces model analysis: ................................................................................. 22
Chapter 04: Business Level Strategies of the firm................................................................... 23
1. Overall Cost Leadership: .............................................................................................. 23
2. Differentiation: .............................................................................................................. 23
3. Integrated Overall Cost leadership and Differentiation: ............................................... 23
Strategy for John Player Gold Leaf: .................................................................................... 24
Strategy for Benson & Hedges: ........................................................................................... 24
 Strategy for Dunhill: ............................................................................................................ 24
Strategy for Capstan and Gold Flake: .................................................................................. 25
Conclusion: .......................................................................................................................... 25
Chapter 05: Resource Base View of the Firm ......................................................................... 26
Types of Resources: ............................................................................................................. 26
Tangible Resources: ......................................................................................................... 26
Intangible Resources: ....................................................................................................... 28
Organizational Capabilities:............................................................................................. 29
Conclusion: .......................................................................................................................... 30
Recommendations .................................................................................................................... 31
 Chapter 01: Introduction to the firm

Pakistan Tobacco Company Limited (PTC) is a subsidiary of the

British American Tobacco (BAT) plc. The Company was incorporated
in Pakistan in 1947 making it the first multinational in Pakistan.
Starting from a single warehouse near Karachi port, the Company is
now the largest cigarette manufacturer in Pakistan. For PTC it has been
a voyage in pursuit of excellence since 1947 driven by the vision to be
the “First Choice for Everyone”.

1.1 Vision:

Our consumers are at the core of everything we do and our success

depends on addressing their preferences, concerns, and behaviors. We
know that these are fragmenting and evolving at an unprecedented pace,
and consequently, we are focusing on providing a range of tobacco and
nicotine products across the risk spectrum. In addition, we are clear that to
win in this space we need to understand our consumers’ preferences and
further invest in a pipeline of ever-evolving innovations.

1.2 Mission:

Delivering our commitments to society, while championing informed

consumer choice.

1.3 Chairman’s Massage:

With the level of commitment exuded by our employees not just in the
company turnaround in 2017 but in the last 70 years, we are confident
about our future as a business entity and also as a major contributor to this
Country. We are ready to face the toughest of challenges and for whatever
there is to come in future.
Mueen Afzal
Chairman of the Board

-1-
1.4 Guiding Principles:

1.5 National Footprint of the company:

 18 Leaf Depots

 04 Regional Trade Offices

 02 Factories

 06 Regional Leaf Offices

 17 Sales Offices

 12 Ware Houses

-2-
1.6 Board of Directors:

-3-
1.7 Organizational Structure:

4
1.8 Strategic Objectives:

The Company focuses on these main areas

and continues to grow in transforming
tobacco ambition.

5
1.9 Business Model:

PTC has a significant Manufacturing tobacco PTC’s well- PTC place consumers
interest in tobacco products is a large scale developed at the heart of their
growing and they have operation and we have distribution channels business. They invest
expert technicians out state-of-the-art are critical enablers of in world-class
in the field who manufacturing facilities their growth strategy, research to
support over 40,000 in the country. PTC allowing them to roll understand changing
farmers. They manage works to ensure that our out innovations on a consumer needs and
the whole supply chain costs are competitive national scale. buying behavior. This
responsibly, including and that they use their drives their supply
the sourcing of leaf resources as effectively PTC continuously chain, product
and other materials, as possible. The review their route to development,
and work with production facilities are market, including our innovations, brands
suppliers to create a designed to meet the relationships with and trade activities.
long-term shared needs of an agile and wholesalers, PTC aims to satisfy
understanding of our flexible supply chain – distributors and consumers while
social, environmental providing a world-class logistics providers. addressing
and economic impacts. operational base that is expectations about
fit for the future. how they should
PTC aims to secure our market their products.
long-term supply chain Ensuring leaf and
and bring real benefits products are in the right PTC is developing
to local communities, place at the right time in innovative solutions
from promoting good the manufacturing to evolving their
agricultural practices process is a major portfolio with more
to investing in logistical exercise. The differentiated tobacco
community projects. nature of our business products as well as
allows PTC to pool next generation
resources and maximize nicotine products.
efficiency.
This supports their
aim to champion
consumer choice by
providing a range of
products across the
risk continuum.

6
1.10 Financial Highlights:

These ratios show the Net Turnover has declined vs. last year owing to a decline in sales volume
in 2017 primarily driven by the rise in market share of the illicit sector. Cost of sales has
remained stable with inflationary increase offsetting the impact of the reduction in volume. Net
Finance Income has reduced vs Last Year because of lower availability of funds for
investments trickling down from lower revenue in H1’17. Income Tax Expense has reduced vs
Last Year. This is the direct impact of the decline in sales volume resulting in a decline in
taxable income for the year.

7
1.11 Products:

Brand SKUs

Dunhill 2

John Player Gold Leaf 2

Benson & Hedges 2

Capstan – Pall Mall 1

Gold Flake 2

Embassy 1

Capstan Filter 1

These are the major products produced by PTC. John Player Gold leaf and Dunhill are the two
regional brands distributed in South Asia, all the other brands are local, meaning only being
distributed in Pakistan. The SKUs show that the brands are available in two options. For
example, Dunhill is available in two formats, one is Dunhill Light and the other one is Dunhill
Strong. Both are different in terms of flavors and quality of the nicotine. Such is applicable for
the remaining brands of the company as it tries to deliver the best quality of smoking experience
to its consumers.

Conclusion:

Pakistan Tobacco Company (PTC) is a subsidiary of British American Tobacco (BAT)

Company. It was founded in 1947 after independence in newly born Pakistan with being its
first office in Karachi and the first factory to be situated at Akora Khatak, the land was gifted
by the then ruler of the region Abdul Qayyum Khan. It was the first Multi-National Cooperation
(MNC) in the country and was welcomed with great gratitude. The company then grew to what
is today in the country as the leader in cigarette manufacturing and contributing to 5% of the
GDP (nominal) of the country. It has 9 Board of Directors (BOD) that are from diverse
backgrounds working long hours for the betterment of the company. It has a diverse network
of employees both national and international who work tirelessly for the betterment of the
company. PTC produces 11 cigarette SKUs under 7 brands which are widely used and are quite
popular in the user base. This is also reflected in the financial figures as their profits rise every
year, just except the transition from ’16 to `17 as the regulations were strict and inflation rose
to an all-time high. Despite all the problems arising PTC still is the No.1 brand for cigarettes
in Pakistan and is a profitable firm.
8
 Chapter 02: A Glimpse from the Past and into the Present
(STEP -2)

PTC’s Vision

Satisfying Consumer Moments

We believe that by being the world’s best at satisfying consumer moments,

we will become the leader in our industry. Consumers are at the core of
everything we do and our success depends on addressing their evolving
concerns, needs and behaviors.

Tobacco and Beyond

The second part of our vision – tobacco and beyond – recognizes the
strength of our traditional tobacco business and the opportunities we see in
next-generation tobacco and nicotine products. There is a great potential
business opportunity because consumers are looking for choices and
product categories in which we are uniquely placed to succeed.

PTC’s Mission

Champion Informed Consumer Choice

We need to continue to ensure that our adult consumers are fully aware of
the choices they are making when they purchase our products. We
recognize that we have a responsibility to offer a range of products across
the risk continuum, but we will also defend people’s right to make an
informed choice.

Deliver our Commitment to Society

As society changes and priorities and needs shift, we must be ready to meet new challenges
and take advantage of new opportunities. We are a major international business and with this
status comes responsibilities such as being open about the risks of our products, supporting
rural communities worldwide and minimizing our impact on the environment.

9
A Historical Perspective:

Pakistan Tobacco Company Limited was incorporated in 1947 immediately after partition
when it took over the business of the Imperial Tobacco Company of India which had been
operational in the subcontinent since 1905. Starting from a single warehouse near Karachi port,
the Company is now the largest cigarette manufacturer in Pakistan. For PTC it has been a
voyage in pursuit of excellence since 1947 driven by the vision to be the “First Choice for
Everyone”.
It was the only Multi-National Cooperation (MNC) at that time in Pakistan and was granted
the rights to work in Pakistan as one by none other than the father of the nation himself, Quaid-
E-Azam Muhammad Ali Jinnah, and the land was gifted by the ruler of Nowshera region as a
progressive step to framing a bright future for Pakistan in Akora Khattak, where the huge plant
is now located and cigarettes are manufactured. It is updated according to the needs of the
environment as the company proceeds. It was working with the machine LOGA and GDX-2 in
the 1990s which were able to make 3000 CPM (cigarettes per minutes) with 27 people working
on it. after that, in the late 2000s, the company acquired ISO 9001:140001 / SA 8001
certifications. The company also bought the new technology as a replacement of the old one
named Protos ER 90 which is now capable of making 10000 CPM with only one person
working on it. The tobacco is now also being locally procured. The factory situated at Jehlum
is the first factory in Pakistan to get 5S certification and the company is looking forward to
making its footprint in the technology further.

Time Period Technological Innovation

1971 Development of IT department

Awarding of first 4 personal computers to the company – HR department

1981 – 1982
and Finance Department

1984 – 1985 IBM servers integrated in management services

10
1988 Introduction of IBM servers to the factories

Spare System and Duration Inventory System (R&RS) was installed at

1992
Lahore office

1993 – 1994 First Email system introduced

1995 – 1996 Implementation of MRP II in the factory

1999 – 2000 V-SAT system deployed between the two factories and Head Office

2001 – 2002 CS3 – A ERP system was implemented

2003 – 2004 GENA 2 – A new system for end-user computing solutions

2004 – 2005 SAP ERP System employed

11
 2005 – 2006 Trade Team mobility – provided with laptops and VPNs

Global WIFI for head office

HOT Backup site
2007 – 2013
Telepresence and video conferencing solutions
Three years satisfactory rating by ITGC Audit

TaO implementation, warehouse management system for both factories

Azure Cloud
2014 – Till
Microsoft Outlook Implemented
Date
Microsoft Office 365 implemented
Telepresence in factories

The mission and vision at the time of establishment of the company were to be the best MNC
in Pakistan, which is proved at this time, and to present the smokers with the best quality
cigarette in the country.
At the start of the company all the items required for functionality of the firm were imported
from England, the raw materials, machinery, spares, all that was needed to run the firm. The
funding was done from the headquarters until the firm started to make a profit and could stand
as an independent subsidiary. (No numerical data was available with the company about this,
although they did tell us that the foreign funding stopped in the 1970s when the company started
to make a considerable profit.)
At the time of foundation as the materials were imported so the suppliers were all England
based the technical equipment such as machinery, the raw materials such as tobacco, filter
paper etc. The strategic partners of the firm were the Government of Pakistan and the
distributors of the firm in form of Pakistan Railways, and some local firms also. The customers
at that time were mostly the elite families of the country as much awareness about cigarettes
was not present at the time and it was considered as a luxury brand only.

12
Strengths and Weaknesses of PTC:

Strengths:

 1st MNC of Pakistan and the largest cigarette manufacturing firm of Pakistan
 Implementing the latest technology in the firm to ensure continuous production
 Integrated IT system ensuring smooth operations
 Cutting edge technology factories
 Supply chain networker spread all over Pakistan
 Strong Employee Retention
 Gender equality policies in practice
 HR policies to maintain work-life balance
 HR talent management

Weaknesses:

 The competitive advantage of being a top cigarette manufacturer is a weakness in itself

as the cigarette is a controversial product in Pakistan
 For it to maintain its competitive position in the market against low-cost low-quality
brands in Pakistan, PTC has to bear additional marketing costs to ensure its products
reach the masses.
 Long Working hours to ensure proper work functionality
 Lower numbers of Warehouses and sales points in the country
 Source of income is only limited to cigarettes
 Weak cost structure in comparison with the competitors due to imported machinery and
parts

13
Analysis of Balance Sheets:
2017 2016 2015 2014 2013 2012

14
The analysis of the balance sheets for the past few years show that the company has acquired
more non-current assets to its portfolio. In 2015, it peaked its non-current assets in terms of
land, plant, and equipment but then it laid off some of the items, still, it has a growing base of
its non-current assets. The company has an increase of Rs. 2.94 billion since 2012 in its land,
plant and equipment category, which is a growth of 51.55% from 2012 to 2017, very stable and
progressive growth for a firm.
The company has more focus on increasing its current assets, as clearly shown in the table that
the company has more stock-in-trade in the year `17 than in any other year and its managing
its inventory and spares efficiently so that it does not burden on the company. Its current assets
have increased by an amount of Rs. 15.3 billion from 2012 to 2017 which is a huge amount
and a success for any firm in the country showing a growth of 187% in the past 5 years.
The company tends to decrease its non-current liabilities by laying off extra weight as clear in
the table that the company since 2014 is reducing its non-current liabilities from approximately
Rs. 15 billion in 2015 to Rs. 13.68 billion in 2017. PTC can further cut them down by investing
into CSR and paying off their taxes early.
A look on the current liabilities indicates that as the company mostly works in credit, and also
with an increase in the equipment and raw material price along with the strict legislation, the
company’s current liabilities are rising at rocket’s pace with every coking day. The firm must
ensure timely payments by its customers so that it can pay to the suppliers and hence keep the
current liabilities down. The current liabilities are on the increase since 2012 from Rs. 8.5
billion to Rs. 13 billion in 2017. This is a concern for the company at times when it is out of
cash as how it will pay the liabilities.

Conclusion:

PTC has evolved from a small factory at Karachi port to the largest FMCG in Pakistan. It has
a tremendous history and events that made it so supreme on its competitors. The integration of
technology and human resource policies along with ERP systems took the firm to the heights
where it stands today. PTC now has a strong footprint in Pakistan, it has certain strengths
attached to it that make its competitive advantage and competitive position in the market, but
these things also create some challenges for the firm along with an increment to the weaknesses
of the firm. The analysis of balance sheet shows that PTC is doing well along the timeline with
an increase in assets year after year. This shows the commitment of the company to expand
more in the business and capture the remaining of the market share. The pace adopted by PTC,
if it continues like this then PTC will surely be the major player in the manufacturing industry
of Pakistan in particular and the overall industry in general.

15
Chapter 03: Internal and External Analysis of the Firm (STEP 3)

Internal Analysis:

The internal analysis of a firm refers to its internal operations that are being carried out in the
firm, such as; Operations, logistics In/Out, Marketing and sale, and Aftersales services. These
are the primary functions a firm must perform in order to do business in the market. There are
some support functions that help the firm to efficiently maintain the working of its core
functions such as; Human Resource, Administration, Procurement and Information
Technology. If the primary functions are the pillars of an organization, then these support
functions act as the adhesive that holds the pillars together. We will look into the depth of all
these functions one by one via the Value Chain Analysis.

Primary Activities:
These are the activities that make a firm possible of doing operations.

Inbound logistics:
Inbound logistics is primarily associated with receiving, storing, and
distributing inputs to the product. It includes material handling, warehousing, inventory
control, vehicle scheduling, and returns to suppliers. PTC has 12 warehouses in the country
and they have implemented Warehouse Management System (WMS) in all their warehouse
which help them to manage their inventory, keep a list of incoming items along with labor
management system so that they know when the things will arrive and how to sort them out in
the warehouse to minimize honeycombing. The warehouses are located in the northern part of
the country which is a point of consideration for the company as they should build a warehouse
in the southern part of the country to minimize transportation cost as they have a factory near
Jhelum that can provide the required material to the southern part.

16
Operations:
Operations include all activities associated with transforming inputs into the final
product form, such as machining, packaging, assembly, testing, printing, and facility
operations. PTC has proved itself in terms of operations management as the company is
constantly working got to enhance its manufacturing capabilities. They have upgraded their
production technology from LOGA and GDX 2 to now Protos 90ER which has increased the
cigarette manufacturing capacity from 3000 CPM to 10000 CPM. They are further in the
process making it more efficient to enhance production. They have moved from hand packing
of the cigarettes to semi-automated packing of the packs and now to fully automated packing
which has reduced the lead time increasing productivity.
Outbound Logistics:
Outbound logistics is associated with collecting, storing, and
distributing the product or service to buyers. These activities include finished goods,
warehousing, material handling, delivery vehicle operation, order processing, and scheduling.
As stated earlier PTC uses WMS to manage its inbound logistics also the same system serves
their outbound logistics need to ensure the operations run smoothly and the product reaches the
end consumer.
Marketing and Sales:
These activities are associated with purchases of products and services
by end users and the inducements used to get them to make purchases. They include
advertising, promotion, sales force, quoting, channel selection, channel relations, and pricing.
PTC has 17 sales offices that are spread over the whole country in all the major cities of
Pakistan. This ensures the nation-wide reach of PTC in competition to its rivals. PTC has an
extensive marketing team that enables its sales to grow which is clear in the financial figures.
Their product mix also aids to their marketing and sales, as they have a variety of brands to
satisfy the needs of every class of the society.
Services:
This primary activity includes all actions associated with providing service to
enhance or maintain the value of the product, such as installation, repair, training, parts supply,
and product adjustment. PTC does not produce any good that can have a service after sales, but
it still enables its consumers to reach back to the company in case of any complaint by the end
consumer, retailer or distributor.

17
Secondary Activates:
These are the activities that support the primary functions of a firm and
hold the primary functions together. These include four functions of procurement, HR, IT and
administration.

Procurement:
Procurement refers to the function of purchasing inputs used in the firm’s value
chain, not to the purchased inputs themselves. 14 Purchased inputs include raw materials,
supplies, and other consumable items as well as assets such as machinery, laboratory
equipment, office equipment, and buildings. There are 10,000 farmers from which they buy
their tobacco and all of them are local farmers mostly consisting the area of Punjab. For their
packing of materials, they have a contract with Packages group that supply them printed packs
of cigarettes. Tipping paper is procured via Tann Philippines, Austria. These are the major
elements they need to produce their products.
Human Resource:
Human resource management consists of activities involved in the
recruiting, hiring, training, development, and compensation of all types of personnel. Human
Resource is the strongest point of the firm as they have a string retention rate (quoted at 84%)
which is very high for an MNC of this caliber working in Pakistan. Their recruitment is done
both national and international visible in their Board of Directors and their top management
team with gender diversity also an essential part. They employee integrated work system in
their whole office so that if any help is needed to anybody they can access all the people. PTC
provides 70% on-the-job training to its employees, 20% classroom training and the rest of 10%
is done via the environment of the company. PTC measures people performance against the
mapped-out Performance Objectives which are linked to company objectives for the year. The
same process also helps evaluate people potential for future progression in the organization.
PTC places a high value on quality of conversations between individuals and their line
managers whereby the plans are laid out for the year and feedback and development is available
to their people to help them not only meet but also go above & beyond their outlined business
and people goals.

Information Technology:
Every value activity embodies technology. The array of technologies
employed in most firms is very broad, ranging from technologies used to prepare documents
and transport goods to those embodied in processes and equipment or the product itself. As
stated earlier in the report about the technological innovations of the company and the systems
they have implemented into the organizations such as SAP, WMS, ToA, Protos and other
systems, it shows that the company has seriously looked into their IT matters and has done
some serious investment into this department. This provides them the edge over their
competitors in the market as none follows this outline.
Administration:
General administration consists of a number of activities, including general
management, planning, finance, accounting, legal and government affairs, quality
management, and information systems. No information was provided by any of the members
of the organization as it was termed classified in their organization.

18
External Analysis:

General Environment:

The general environment is composed of factors that can have dramatic effects on firm strategy.
We divide the general environment into six segments: demographic, sociocultural,
Political/legal, Technological, Economic, and Global. The key trends and events in each of the
six segments of the general environment in light of PTC are appended below:

1. Demographic Environment:

The undermentioned table provides the demographic content of smokers in Pakistan. It

highlights the age groups, the region-wise distribution, the education level and awareness of
the individuals

19
Most the Pakistan tobacco company targets the age group between 22 to 40 and the most the
population having higher or lower income is targeted by PTC by providing them the product
line of a different brand at a different range of prices.

Social-Cultural Environment:

The overall prevalence of smoking reported ranged from 16.7 – 33% (Average national figure
21.6% with 36% males and 9% females). In a study conducted in rural Pakistan, 10% of
females agreed to be active smokers. The prevalence of waterpipe smoking or ‘Shisha’ was
also found to be 33% the details of the content is mentioned below:

On the basis of the above-provided data, it seems that the average no. of smokers have increases
and it has a positive impact on the demand for tobacco in the market. On another hand in
Pakistani society, the habit of smoking is detested but regardless of this fact the habit of
smoking as increased by 10 % per year. The issue of environmental pollution is not of critical
nature in the industry as the industry is not responsible for any anti-environment activity.
However, it is heavily criticized for the health hazards that are caused by smoking. The tobacco
companies try to improve their public image first through media advertising and secondly by
engaging in other activities that improve their overall image. PTC started its plantation
campaign in this regard a few years back and also started the production of edible oil (Sun
drop) for these reasons

Political and Legal:

In Pakistan, no law regarding tobacco purchased and selling has been having been
legislated but the taxes and the customs duty on the tobacco and its product ingredients have
multiplied. The duty on the tobacco has increased up to 52 % and sales tax has increased up
to the level of 30 % and is increasing yearly. In view of the above factors, PTC being a market
leader in the Pakistani market faces a lot of financial burden due to the continuous increase in
the rates of taxes and sales duty increased by the Government of Pakistan. The bulk of the
20
illegal cigarettes are local Duty Non-Paid (DNP) which represents more than 85% of the illicit
market. DNP cigarettes are produced in Pakistan on which duties and taxes have not been paid
to the Government

Technological:

Cigarette making, once done entirely by hand, is today almost fully automated, with the cut
tobacco, cigarette paper, and filters continuously fed into cigarette-making machines. The
technology has advanced dramatically over the years, but the quality is not forgotten; each
cigarette is automatically quality controlled to ensure that it meets every benchmark for its
specification. This shows that their dramatic change in the technology used globally and it has
impacted the PTC. As to maintain their market share the best quality has to be delivered to its
customers. That is achieved by adopting new technologies e.g. LOGA, GPX2 and PROTOS
ER90.

Economic Environment:

Tobacco industry provides important revenue, both for companies and the government.
Amount represents3.7 percent of the entire general domestic sales taxes collected by the
Federal Board of Revenue for the financial year 2017. The Tobacco industry provides
employment opportunities to a large number of people who are involved in the farming,
production, and trading of Tobacco products in the country. According to the estimation,
approximately 11 million peoples are directly and indirectly employed in the Tobacco industry.
PTC gives a share of approx. 5% in the country’s GDP and a number of employees at the
company rages to 2500 personnel’s.

Global Environment:

Founded in 1902, British American Tobacco (BAT) is one of the world’s leading consumer
goods companies and provides tobacco and nicotine products to millions of consumers around
the world. It has a presence in more than 200 markets and has market leadership in more than
55 countries and factories in 42. Employing more than 55,000 people worldwide, BAT is proud
that it is frequently rated as a top employer in different countries around the world. With more
than a century’s legacy of being the leaders in driving change through innovation, BAT is
passionate about its tobacco business and takes pride in offering consumers a choice of high-
quality products and market-leading innovations that meet the varied preferences of consumers.

In July 2017, British American Tobacco p.l.c acquired the remaining 57% of Reynolds
American Inc. (RAI) that BAT did not own, creating a stronger, global tobacco and Next
Generation Products company. The addition of RAI’s operating company’s means BAT’s
combined portfolio now also includes three out of the four bestselling cigarette brands in the
US as well as one of the leading brands sold in the US Vapor Products retail market. BAT has
not just revolutionized the markets it operates in with the state of the art processes and
sophisticated mechanisms but has also developed the talent of these countries – giving them
opportunities of international exposure and capacity building.

21
Porter's five forces model analysis:

Industry Attractiveness Porter’s Five Force:

Bargaining Power of Buyers (low to medium): Cigarette consumption in Pakistan is five

times higher than in India with 620 cigarettes per adult per annum against 119 for India. This
shows that the market for the tobacco industry is very immense locally. According to the
Pakistan Pediatric Association, 1,000 to 1,200 children between the ages of 6 and 16 years
take up smoking every day.

The threat of Completion (low to medium): only two major companies compete with each
other. These are Pakistan Tobacco Company and Lakson Tobacco Company.

The threat of New Entrants Rivalry (medium to high): The market is a mix of free market
structure and oligopoly

Substitutes (low to medium): Substitutes are easily available in Pakistan so people have the
option to switch to brands of other firms

Bargaining Power of Suppliers (low to medium): Most of the tobacco used by the firms is
produced in Pakistan, but still a considerable amount of tobacco is imported every year

22
 Chapter 04: Business Level Strategies of the firm

PTC is a huge firm in the Pakistani market with 7 brands and 11 SKUs that are popular among
the user of different demographics. Owing to its success the company has to develop different
strategies for its brands to ensure that I take ups the major market share. There are 3 main
business level strategies that are most widely used in business practices.

1. Overall Cost Leadership:

The first generic strategy is overall cost leadership.
Overall cost leadership requires a tight set of interrelated tactics that include:
• The aggressive construction of efficient-scale facilities.
• Vigorous pursuit of cost reductions from experience.
• Tight cost and overhead control.
• Avoidance of marginal customer accounts.
• Cost minimization in all activities in the firm’s value chain, such as R&D, service,
sales force, and advertising.

2. Differentiation:
As the name implies, a differentiation strategy consists of creating
differences in the firm’s product or service offering by creating something that is
perceived industrywide as unique and valued by customers. Differentiation can take
many forms:

• Prestige or brand image (Adam’s Mark hotels, BMW automobiles).

• Technology (Martin guitars, Marantz stereo components, North Face camping
equipment).
• Innovation (Medtronic medical equipment, Apple’s iPhones and iPads).
• Features (Cannondale mountain bikes, Honda Goldwing motorcycles).
• Customer service (Nordstrom department stores, Sears lawn equipment retailing).
• Dealer network (Lexus automobiles, Caterpillar earthmoving equipment).

3. Integrated Overall Cost leadership and Differentiation:

Perhaps the
primary benefit to firms that integrate low-cost and differentiation strategies is the
difficulty for rivals to duplicate or imitate. This strategy enables a firm to provide two

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 types of value to customers: differentiated attributes (e.g., high quality, brand
identification, reputation) and lower prices (because of the firm’s lower costs in value-
creating activities). The goal is thus to provide unique value to customers in an efficient
manner. Some firms are able to attain both types of advantages simultaneously.

After interviewing the staff of PTC and an analysis of their responses, we came to the
conclusion that PTC uses not one strategy, but a combination of strategies for its brands. The
overall goal of the firm is to be the market leader via providing low-cost products to the market,
slightly differentiated according to the consumers, achieving economy of scales. At this point
in time with increased direct and in-direct competition, it is difficult for the firm to do so. The
firm has adopted different strategies for its brands that are discussed below.

Strategy for John Player Gold Leaf:

John Player Gold Leaf starts from the story of its
founder, John Player who started a small tobacco-selling business in 1877 and turned it into a
company, John Player and Sons. John Player Gold Leaf is the leading premium offer in the
country. It is the most selling brand of the company and the company tries to achieve overall
cost leadership with this product as people like it the way it is and are willing to pay Rs. 140
for a pack of Gold Leaf Cigarette. The company makes more profit from it by achieving lower
costs of production to increase profit margin.
PTC is launching another variant of Gold Leaf as Gold Leaf Light with a white packing that
will be based on a differentiation strategy to capture the further market of the competitors.

Strategy for Benson & Hedges:

Benson & Hedges was launched in Pakistan in March
2003. Since then it has been also a favorite of the Pakistani consumers. It is the 3rd most favorite
brand of cigarettes for consumers. Its price is around Rs. 160. Like John Player gold leaf the
company also tries to ensure that it makes this brand on the economy of scales to ensure low
cost and high profits and maximum satisfaction to the end consumer.

Strategy for Dunhill:

Dunhill is the most profitable brand for PTC after Gold Leaf, Dunhill
light is popular among the users, but it has a very strong rival in the market as its sister brand
of the same name Dunhill Light Imported. Local Dunhill is available for Rs. 150 while
imported one is available for Rs. 180. People tend to prefer the imported one as there is not
much difference in the price, and the imported one has superior quality. PTC is now trying to
make its Dunhill brand a market capturer for that particular niche by lowering the asking price
for its product. An official of the company told that they are selling Dunhill light on negative
margins to ensure the selling of the SKU. PTC adopts differentiation strategy for Dunhill by
introducing limited edition packs or flavored packs to ensure that the company makes its selling
possible.

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Strategy for Capstan and Gold Flake:
These two are the brands of PTC that are
known to the lower middle class or lower class of the society as these do not have much quality
but are cheaper as they are built on overall cost leadership strategy to capture most of the market
of these social classes. They both are available in the price range of Rs. 50 – 70. This is very
much in range for the lower class people who tend to smoke for most of the day. These are the
brands which let PTC compete in these demographics against other brands such as PINE &
Red and white. The low-profit margin is kept on these products to ensure the consumers do not
switch to other brands.

Brand Business Strategy for the respective Brand

John Player Gold Leaf Overall cost leadership

Benson & Hedges Integrated Cost leadership and Differentiation

Dunhill Differentiation

Capstan and Gold Flake Overall cost leadership

Conclusion:
After interviewing the staff at PTC we found out that the overall goal of the firm
is to be the cost leader in the market, but to attain it, it uses different strategies for its brands to
ensure its overall goal is achieved. For example, as shown in the table Dunhill uses
differentiation strategy to ensure the market it has as attained and John Player Gold Leaf uses
overall cost leadership to aid the company. These strategies are formulated according to the
current internal and external environment, trends and events which let the company knows that
when to implement what and how so that they keep pace with the competitors.

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 Chapter 05: Resource Base View of the Firm

The resource-based view (RBV) of the firm combines two perspectives: (1) the internal
analysis of phenomena within a company and (2) an external analysis of the industry and its
competitive environment. A firm’s resources must be evaluated in terms of how valuable, rare,
and hard they are for competitors to duplicate. Otherwise, the firm attains only competitive
parity.
A firm can have resources in the form of Tangible (cash, plant, buildings) and Intangible
(Human resource, Research, and development) and organizational capabilities. Let us take a
look into them one by one.

Types of Resources:

Tangible Resources:

Financial Resources:

Entity Amount

Cash from receipts Rs. 112.5 Billion

Stock-in-trade Rs. 14.4 Billion

Cash to Current Liabilities Ratio 51.64 % (Approximately Rs. 5 Billion)

Cash and Bank Balance Rs. 7.14 Billion

Earnings per Share Rs. 37.47

Market Price per share Rs. 2148

Physical Resources:
PTC is a large company having 2 factories, one in Akora Khattak,
Nowshera and the other in Jhelum, Punjab. It also has 4 regional offices in the country located
at:
CENTRAL PUNJAB

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200-FF Block, Central Commercial Area,
Phase 4, DHA, Lahore Cantt
SOUTHERN PUNJAB
Office No. 602, 6th Floor,
The United Mall, Main Abdali Road,
Multan.
NORTH
1st Floor, Faran-101, Civic Centre,
Phase IV, Bahria Town, Islamabad.
SINDH & BALOCHISTAN
Office No. 903, 9th Floor,
Emerald Tower (Plot No. G - 19),
Main Clifton Road, Clifton Block 5,
Karachi 75600.

PTC has 12 warehouses at Sargodha, Jhelum, Islamabad, Lahore and many other places. It also
has 06 Regional offices across the country. Along with that it also has 16 leaf depots.

Technological Resources:
The company has invested many times in its technology as
discussed early in the report. They have moved from old generation cigarette manufacturing
unit LOGA and GDX 2 to now Protos 90ER which has increased the cigarette manufacturing
capacity from 3000 CPM to 10000 CPM. They are further in the process making it more
efficient to enhance production. They have moved from hand packing of the cigarettes to semi-
automated packing of the packs and now to fully automated packing which has reduced the
lead time increasing productivity. They have also invested in their warehouse management
system and implemented SAP in their organization to ensure timely communication and
management of the operations.

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Intangible Resources:

Human Resource:
The company is
popular for its HR practices. It has
recently won the best employer of Asia
Pacific Award 2018 due to its excellent
retention rate. They also have gender
diversity at their offices and factories
with harassment policies equal for all
present on the floor. They have flexible
hours’ policy which can help the
employees to work with flexibility
without compromising any productivity.
They also hold different pieces of
training and seminars for the
employee’s team building and
development so that they can give their
maximum output to the company. They
also have an excellent overtime pay
schedule which entitles them to have twice the rate of their daily pay if they work for more
than 9 hours a day. Monetary benefits available to these workers may be classified as
• Wages and Salary;
• Incentives;
• Fringe Benefits; and
• Bonus.
Old Age Grant is payable in lump-sum at the rate of 50% of the average wages of an insurable
worker for his completed years of service. Workers who have continued to maintain their
commitment to the organization for a long period of time is given long service awards.
Eligibility for this award is the completion of 25 years of service. The employees eligible for
this reward are given Rs.12000/- each as their reward for their loyalty with PTC. A special
party is arranged for this purpose. Each year PTC sends seven workers to Mecca for pilgrimage
(Hajj). Six of these members are from Akora Khattak Factory and one is from Leaf Area.
Financial Assistance of Rs.110, 000 is given to each employee who proceeds on Hajj. Each
year Workers’ Welfare Board grants scholarships to academically talented children of workers.
These scholarships are provided to 24 students on merit basis. Maximum of Rs.400 is granted
to post matriculate students and Rs.500 to post-intermediate students. PTC gives two types of
bonuses to its permanent employees every year.
• Contractual Bonus
• Profit Bonus
PTC provides the following benefits to its employees to keep them motivated, confident, up-
to-date and to make them better citizens of the community:
• Free Computer Courses

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• Dastakari Center
• Farewell
• Housing Schemes
• Factory Mosque
• Sports Activities
• Traveling Facilities
• Uniform and Smoking Allowance
• Burial Expenses
• Retirement Party
• Blood Donation Camp
• Social Security

Reputation and Goodwill:

PTC has a name in the country as it is the first MNC of the country
and a market leader in the cigarette manufacturing. Its products are known for their superior
quality among other brands of the country. They have many SKUs which target different social
classes and have a strong following among them. Not only, this is the factor from consumer
end but also being as an employer they have gained a name in the market, which is clear from
their HR policy, people are willing to work for PTC. PTC works to ensure maximum
satisfaction to the consumers and its clear from the award from Nelson Survey which states:
“PTC provides maximum satisfaction to its consumers”. The company is also famous for
providing training to its Farmers and investing in their farms to ensure the best quality of
tobacco. It is also very much active in doing CSR activities. PTC has been awarded awards
such as CSR round the clock 2017 by NFEH, another also being awarded by NFEH for
biodiversity and conservation 2017. In 2017, PTC signed a MoU with the Capital Development
Authority (CDA) under which they will be carrying out plantation drives in Islamabad. PTC
signed another MoU with the National Highways Authority (NHA) to do plantation on M1
motorway. In 1985, PTC started an initiative called Mobile Doctor Units. Through this
programme, PTC provides free medical assistance and advice. It operates 7 mobile ambulances
with doctors in Akora Khattak, Yar Hussain, Sher Garh, Manshera, Jhelum and Mianwali. In
2017 alone, through this initiative more than 78,000 patients were treated, bringing an average
of about 213 people each day. The doctors who are with these ambulances are more than
qualified and the feedback of this Program from patients has always been overwhelming.

Organizational Capabilities:
Organizational capabilities are not specific tangible or intangible
assets, but rather the competencies or skills that a firm employs to transform inputs into outputs.
In short, they refer to an organization’s capacity to deploy tangible and intangible resources
over time and generally in combination and to leverage those capabilities to bring about the
desired end. PTC has used its tangible and intangible resources to provide maximum value to
the customers. They have used their tangible technological resources along with their intangible
HR and goodwill to create a name in the market that is trusted by the consumer all over the

29
nation and it is proved by the satisfaction level of the end consumers. PTC also innovates its
products by introducing newly limited edition packs of their SKUs to survey the market for the
new product and have an idea of its demand.
From the HR policies, it is also evident that PTC retains its employees well and motivates them
to work for it and establish a career for themselves. The interviewers told their personal
experience that they had initially thought to serve only for 4-5 years and then move on to some
other company, but they have now been working for the past 11 years, happily, due to the
employee-friendly policies of the firm. These all factors combine to the success of PTC that is
evident in its financial statements.

Conclusion:
An MNC such as PTC has to work very hard to get its affairs right as it is
competing in a very large market and competitive environment. Via the resource-based view
of the firm, it is evident that PTC has made an impact by the way it has managed its tangible
and intangible resources and has grown them to support the company in all environments. Since
1970, the company has grown its resources to have a firm grip on the market and it is successful
in doing so. Organizational capabilities are also reflected in their financial statements as they
are among the most profitable firms of Pakistan with an annual profit of Rs. 9 Billion. This is
not achieved if all the process does not work with one another in harmony and PTC has shown
that, as it made them work together.

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 Recommendations

Pakistan Tobacco Company (PTC) is a well-known MNC in the country, consisting of two
factories, 12 warehouses, 17 sales office across the country. Its national reach is immense and
the value for money its product offer is like none another brand in the whole country. Customer
satisfaction is also very much on the top gear as their SKUs respond to the need of every aspect
of the society. PTC’s profits also tell the same story as they are among the few highly profitable
firms in the country. They add 5% to the GDP (Nominal) of the country which is a huge amount
considered by an MNC in a country. PTC passes all barriers with flying colors, but every firm
or company has some room for improvement. Following are the recommendations for the
company to look at and enhance their capabilities further:

 New SKUs should be introduced in the market such as new flavors of the cigarettes and

other technological products such as vape, electronic cigarettes or pipes.

 Quality of the SKUs can be enhanced in comparison to the imported brands competing

in the same market in terms of nicotine level, filter paper, and flavors.

 Inventory turnover days are 229, which is a huge figure for a product that is perishable

such as cigarette which will lose its taste and quality after one month. This figure must

be brought down to an acceptable number so that the consumers get a fresh experience.

 Packing of the cigarettes can be further enhanced in comparison to imported brands as

they have more space in them with reattaching able seal.

 Product duplication by the local manufactures in the country is a threat for PTC as they

print the same packs for their cigarettes and are sold in the market which is of low

quality, hence damaging the image of the company.

 A system of identification of the company’s original product must be embedded in the

pack to recognize it.

 PTC product for the lower class such as Capstan is of low quality and is very harmful

to health, despite being a low price cigarette it should be in conformance with the health

standards.

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 PTC does not have a warehouse in the Southern part of the country which increases the

cost of distribution, it should use its Jhelum factory and build a warehouse at Punjab-

Sindh border to reach the market.

 Filter paper that is procured internationally has a huge amount of tax duty attached to

it which can be cut down by making it locally and of the same or better quality.

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