British American Tobacco in South Korea
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Case Code: BSTR254 Case Length: 22 Pages Period: 1998-2006 Pub Date: 2007 Teaching Note: Not Available |
Price: Rs.400 Organization: British American Tobacco Industry: Agriculture Countries: South Korea Themes: International Business, Globalization Business |
Abstract Case Intro 1 Case Intro 2 Excerpts
"BAT Korea and Samsung Tesco can be seen as two of the biggest overseas successes. They realized the importance of localization as the main key to success in the Korean market at an early stage and acted upon it, instead of insisting on operating based on business strategies that would only work elsewhere."
- Na Hong-suk, Senior Analyst at Good Morning Shinhan Securities, in 2006.
Introduction
For the year ending December 2006, UK-based tobacco company, British American Tobacco Plc. (BAT) was the second largest company in the South Korean tobacco market behind the local player Korea Tobacco & Ginseng Corporation (KT&G), which had a market share of over 70%. The South Korean operations contributed significantly to BAT's profits in the Asia-Pacific region for the nine months ending September 2006. According to BAT's management, "In South Korea, profit grew impressively with a strong growth in market share, driven by Dunhill and Vogue, and cost savings. In addition, volumes were significantly higher, reflecting volume distortions last year as a result of the excise increase at the end of 2004."
In the year 2005, BAT had a share of 15.7% in the South Korean Tobacco market, selling more than 13 billion sticks. The market was valued at 11,514 billion Won4 in 2005 and was estimated to grow to 13,212 billion Won by 2010. Though the market was estimated to grow in value terms mainly due to an increase in prices, in volume terms, it was estimated to go down to 77.4 billion sticks in 2011 as against 87 billion sticks in 2005. The reduction in volume was attributed to the rising taxes and widespread advertisements advocating the dangers of smoking and consuming tobacco. BAT entered the South Korean market in the year 1998, in the aftermath of the Southeast Asian economic crisis. After the crisis, the South Korean government could no longer say no to privatization and it allowed foreign companies to operate in the country.
BAT was one of the first foreign tobacco companies to enter the market by establishing a regional headquarters in Seoul in 1998. The company was able to increase its market share in South Korea from just 1% in 1999, by localizing its brands and setting up a factory in Sacheon5, to produce cigarettes locally. According to John Taylor (Taylor), Former President of BAT Korea, "You have to become Korean to be successful here. We have never considered Korea as our second home but our only home while operating here."...
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