MSc. International Business Management with Internship : British American Tobacco

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London south Bank University
International Strategic Management and Innovation
MMP_7_ISM_22/23
MSc. International Business Management with Internship (JAN)
Report Title: British American Tobacco
Submitted by
Aminul Islam
Id: 4036813
Submitted to
Dr Yehia Nawar
Date: 19/12/2022
Contents

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British American Tobacco................................................................................................3
Introduction........................................................................................................................3
Findings..............................................................................................................................4
BAT’s Current Strategic Positioning...............................................................................4
PESTEL Analysis........................................................................................................5
The External Micro Environment....................................................................................7
Porter’s Five Forces Model.........................................................................................8
Internal Analysis............................................................................................................10
Porter’s Value Chain Analysis...................................................................................10
Strengths and Weaknesses Analysis..............................................................................14
SWOT Analysis.........................................................................................................14
Innovation Strategy........................................................................................................15
BAT’s Strategic Situation..............................................................................................16
Cost Leadership.........................................................................................................17
Differentiation............................................................................................................17
Focus Strategy...........................................................................................................17
Future Expansion.......................................................................................................17
Recommendations for Growth and Development.............................................................18
Strategy Selection..........................................................................................................20
CANVAS Business Model for Strategy Implementation..............................................21

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Conclusions........................................................................................................................22
British American Tobacco
Introduction
British American Tobacco (BAT) is a global tobacco company dealing in tobacco
products, mainly cigarettes. The company was formed in 1902 after two companies, UK’s
Imperial Tobacco Company and US’s American Tobacco Company merged to form a joint
venture, the British American Tobacco. The new company set out to produce a superior product
at the lowest possible price. This was to be achieved through hiring the best people and
mechanizing production. As a global company, BAT operates in different markets with different
dynamics. Global competitors include Philip Morris and Malboro whereas at country level the
company faces market resistance from established local brands in different countries. Legislation
and civil activity against tobacco consumption pose a great challenge to tobacco marketing.
Lastly, technology such as vaping and nicotine pouches are some of the evolutions in the tobacco
industry to which BAT has to adopt and adapt.
This report aims to find out and explain the strategic trajectory that BAT has taken which
can explain its success. It uses PESTEL and SWOT to analyze the market for: potential new
entrants and substitutes-threats; bargaining power of suppliers and buyers-strengths and/or
weaknesses. The report will evaluate the effectiveness of the company’s adaptation strategies to
an evolving market, legal, technological, and political environment. The final report should

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enable the reader understand what BAT does, why it does it, and how it does it to achieve
success.
The study will use secondary data to compile a report on the company’s operations.
Multiple-source secondary data will be used to get an objective perspective of the company.
From the company’s website, first-hand information is available from its own reports. Consumer
index reports will be used to analyze tobacco consumption trends. Other longitudinal reports
about tobacco industry will be helpful in understanding evolution in tobacco industry and what it
means for its future.
Findings
BAT’s Current Strategic Positioning
BAT operates in the international tobacco market. The tobacco market is dynamic in
terms of changing legislation and campaigns which seek to curb tobacco trade (National Center
for Biotechnology Information, 2012), new scientific discoveries which associate tobacco
consumption with multiple health risks, new innovations seeking to replace tobacco
consumption; and climate change affecting tobacco farming (WHO, 2022). BAT has to contend
with these challenges for it to continue with tobacco business as a going concern. The internal
coping mechanisms adopted by BAT should be effective enough to enable the business to thrive
in a hostile environment. Put differently, BAT should strategically align its operations with the
external environment for optimal performance. To achieve such optimality, the company should
first assess the external environment within which it operates or seeks to operate. To perform an
external environment assessment, we use PESTEL analysis tool.

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PESTEL Analysis
The acronym PESTEL stands for- Political, Economic, Social, Technological,
Environmental, and Legal factors impacting a business’s macro environment.
Political Factors
The tobacco industry faces multiple challenges in the political economy. Spatial smoking
restrictions limit tobacco consumption by restraining smoking to within designated smoking
zones. Restrictions on public smoking has a significant impact on smoking prevalence among the
youth (Wakefield, 2000). Political regimes impose taxes on consumption of cigarettes to
discourage smoking. Studies by Ross and Chaloupka, (2003) found a negative correlation
between cigarette prices and smoking prevalence among youth. Increase in cigarette prices led to
declined smoking among youth population. Government policies that aim to discourage smoking
include levying excise duty on tobacco products which increases their cost thus discouraging
consumption. Other political factors include protectionist policies such as high tariffs on
imported tobacco and subsidies on tobacco farming which makes local tobacco products in such
countries cheaper. In China, for example, BAT has to rely on state-owned China National
Tobacco Corporation for distribution.
Economic Factors
Rising incomes have provided a growth trajectory for BAT. With income growth,
consumers have more disposable income with residual income to spend on luxuries like tobacco.
Developing countries like China and Brazil have a high growth rate which implies a growing
number of people who can afford to spend on cigarettes. Unlike developing or emerging
economies, developed countries have a static income and therefore offer little potential for
growth in cigarette-consumption (Burton et al., 2015). BAT should therefore seek to penetrate

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new emerging markets with an in to tapping into the growing middle-class consumers of
cigarettes.
Social Factors
Negative social attitudes towards tobacco smoking pose a barrier to BAT and other
tobacco products manufacturers. Traditionally conservative societies discourage tobacco
consumption habits such as smoking. Additionally, there is a growing awareness about the
negative health effects of tobacco consumption (Milcarz et al., 2018). Societies around the world
are discouraging smoking in public spaces to prevent the harmful effects of second-hand smoke.
The impact of these social moves is discouraging tobacco consumption which, in turn, impacts
negatively on tobacco sales. On the other hand, tobacco contains nicotine which has an addictive
effect on consumers. Even though a negative attribute, addiction provides a stable market for
cigarette manufacturers like BAT.
Technological Factors
Technological innovation is a multi-pronged element impacting tobacco industry. On the
one hand, development of improved seed varieties that are resistant to diseases and harsh
climatic conditions has improved tobacco yields (Miller, 2015). Innovative arming techniques,
such as the floating bed technique, are helping lower cost of production. On the other hand,
technological innovations such as vaping are acting as cigarette substitutes. BAT has to adapt to
these developments in the tobacco market. In this endeavor, the company has to invest in
research on new manufacturing techniques, new production line, and marketing its brands in the
new vaping market.