British American Tobacco, Strategies Planning and Management

Content Pages

1. Executive Summary2 2. Introduction 3-4 3. 1 Company Background3 3. 2 Organisation Structure3 3. 3 Cultural of Company3 3. 4 Leadership Style4 3. Analysis 5-10 4. 5 External Environment 4. 6. 1 General Environment – PESTEL Analysis5 4. 6. 2 Industry Environment – Porter’s 5 Forces Analysis6 4. 6 Internal Environment 4. 7. 3 Vision/ Mission7 4. 7. 4 Long Term Objectives/ Grand Strategies 7-8 4. . 5 Business Objectives/ Strategies – Value Chain Analysis9 4. 7. 6 Financial Analysis10 4. Discussion 11-22 5. 7 Key Issues 5. 8. 7 Cigarette smuggling and illegal trading 11-12 5. 8. 8 Government regulatory12 5. 8. 9 Protecting Ecosystem13 5. 8. 10 External Environment13 5. 8 SWOT Analysis 5. 9. 11 Strength 14-15 5. 9. 12 Weaknesses16 5. 9. 13 Opportunities17 5. 9. 14 Threats18 5. 9 Balance Score Card 5. 10. 15 Financial 19-21 5. 10. 16 Internal Business Process21 5. 10. 17 Customers22 5. 10. 8 Learning and Growth22 5. Recommendations23 6. References 24-25 7. Appendixes 26-27 1. Executive Summary During past 100 years, British American Tobacco (Malaysia) (BAT (M)) has sustained and slowly become the market leader in Malaysia since established in 1912. Core competence of BAT (M) is the strong financial support from the mother company and it ranked among 25 top companies on Bursa Malaysia in terms of capital. Besides that, it owned 61% of market shares in the tobacco industry of Malaysia (British American Tobacco Malaysia, 10th April 2012).

By carry out the internal and external analysis can help to determine how BAT (M) manages their internal resources to reduce the burden of external forces’ impact. External factors are unpredictable, thus BAT (M) has to set up risk management and strategic planning to overcome or reduce the impact from the forces. However, analysis the value chain of BAT (M) can determine how the support and primary activities add value to the products and services in order to generate more profits and differentiate itself among its competitors.

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Key issues that brings a major impact to British American Tobacco is cigarettes smuggling across the country. It causes the loss of tax revenues for the government and to the company which will also affect the economy of the country. Under the government regulatory, it stated that smoking is risky for health problems. While BAT introduces harm reduction products, some governments agencies refuse to accept the product that passes laboratory test in successfully reduce content of tobacco in a piece of cigarette.

Participating in biodiversity project to protect the ecosystem after tobacco planting had incurred more operation cost to the company. Another major key issues to BAT is cause external environment which is natural disaster. BAT can prepare to face the disaster but cannot prevent it from happening. In conclusion, there are several strategies which are suitable and specifically recommended to the company in order to perform better. These strategies include purple ocean strategy, blue ocean strategy and horizontal integration.

The purple ocean strategy is a strategy that poises the company’s position before it could proceed to the blue ocean. A blue ocean refers to an unknown market space that is untainted by any competition (Business Dictionary, 2012). Both oceans strategy assist in helping the company to establish the new market and search for fresh customers. While the horizontal integration is a strategy that able to increase the company’s market share in the tobacco industry, at the same time converting competitions into partnerships. 2. Introduction 3. 1 Company Background

British American Tobacco Malaysia (BAT (M)) that formed in 3rd November 1999 is merger between Rothmans of Pall Mall (M) Bhd. and Malaysia Tobacco Company Bhd. , it is the children company under the British American Tobacco Group. BAT (M) had employed around 1,200 employees to carry out its business activities and there are 200 brands in BAT (M)’s portfolio that successfully distributed to worldwide. Core competence of BAT (M) is the strong financial support from the mother company and it ranked among 25 top companies on Bursa Malaysia in terms of capital.

Besides that, it owned 61% of market shares in the tobacco industry of Malaysia (British American Tobacco Malaysia, 10th April 2012). 3. 2 Organisation Structure Organisational Structure of BAT (M) is categorized as functional structure which classified in 5 functional groups (Appendix 1) that under the control of Board of Director (BOD). The current composition of BAT (M)’s BOD includes 4 Executive Directors and 3 Non-Executive Directors that come from different professional background (Appendix 2). Main duty of these BODs is to identify risk, examine and decide strategic plan, management of regulation and rules in the company. . 3 Culture of Company Culture of BAT (M) on discussion and decision making is very concern about their employees as they are the key stakeholders and their greatest asset. Every year BAT (M) will conduct an employee dialogue program named “Your Voice” (British American Tobacco Malaysia, 10th April 2012) by Human Resource Manager to survey on employee’s issues, opinions or expectations on functional and cross functional sessions. “Your Voice” includes three processes of Listen, Decide and Deliver. 3. 4 Leadership Style

The current Managing Director of BAT (M), William Toh Ah Wah encourages the transparent style on leading method. Therefore, the Standard/ Principle of Business Conduct are applied for leading and to ensure the governance on decisions and judgments made by all employees is legal and comply with regulations (British American Tobacco Malaysia, 10th April 2012). BAT (M) used this standard as a requirement to its employees’ behavior and honesty so that it can effectively prevent unwanted issues such as conflict of interest, corruption, insider dealing, whistle blowing and misuse of company’s resources. . Analysis 4. 5 External Environment 3. 1. 1General Environment PESTLEI Analysis Sources: 1) British American Tobacco Malaysia, Regulation and Engagement 2011 2) British American Tobacco Malaysia, Operating Responsibility 2011 3) British American Tobacco Malaysia, the illegal cigarette trade 2011 4) British American Tobacco, regulation and lobbying 2011 Conclusion: The unpredictable changes in the environment are the critical factors for British American Tobacco Malaysia to set the planning strategic.

The changes of external environment factors like political, economic, social, technology, environment and legal would direct or indirect affect BAT (M) primary and support activities such as procurement, marketing and sales, inbound and outbound logistics, productions and others. Thus BAT (M) has to do in depth analysis by using PESTEL analysis in order to set strong planning strategies. 3. 1. 2 Industry Analysis Porter’s Five Forces High Threat of New Entrants * Huge amount of capital investment needed * Existing loyalty to Major brands -Dunhill, Marlboro Strict government rules and regulations * Difficulty in achieve economic of scale * Difficulty in product differentiation * Scarcity of raw material-tobacco High Bargaining Power of Buyer * Low switching cost * Some other alternatives for consumers * Customers are price sensitive * Purchase large volume - Food court, grocery shop * The products are not extremely important to buyers High Bargaining Power of Supplier * There are only few suppliers of tobacco * No raw material substitution * High switching costs High level of Industry Rivalry * Rarely competitors about same size JTI, Philip Morris * Slow market growth * Undifferentiated products and services Low Threat of Substitute * Prices range of tobacco in Malaysia is quite close * Illegal products may be the alternatives * Substitute products - Nicotine patches, gum Sources: British American Tobacco Malaysia, 2011 British American Tobacco, 2011 Conclusion: Porter’s five forces shows that BAT(M) is currently facing high level of industry rivalry, high threat of new entrants, high bargaining power of buyer, high bargaining power of supplier, but low threat of substitute.

Overall of the tobacco is unattractive, but by understanding the threat and opportunity of the industry, BAT(M) can now look for resolution to maintain their sustainability. 3. 2 Internal Environment 3. 2. 1 Vision/ Mission BAT (M) vision is to obtain more market shares and become the market leader for the global tobacco industry so that it can ensure the sustainability of business and follow by bring more values. It missions is improve the productivity in terms of quality and quantity, as BAT (M) believes that act responsibly in productivity will bring the growth to its brand and also value of the business. . 2. 2 Long Term Objective/ Grand Strategies Source: British American Tobacco Malaysia Annual Report 2011, Pg 78- Pg 126 Growth In order to improve the growth on sales and distribution channel, BAT (M) introduced the in-house Direct Store Sales (DSS) operation in 2005. However to continuity growth, BAT (M) decides to further set up Exclusive Distributors (EDx) that different from the past process Exclusive Distributors (EDs) and currently the best practice in the in-house operation is the hybrid combination of DSS, EDs and EDx. Productivity

BAT (M) with strong competitive position but slow market growth had developed few strategies in order to achieve its company vision and mission which aim to add value for its company shareholders. In order to ensure the supply chain and production of the main materials which is tobacco leaf is smooth and sustainable, BAT (M) had introduced a tobacco plantation “Leaf Program” from 2007 that cooperate with worldwide farmers to produce quality tobacco leaf at the same time continuity in growth for organization and its market. Winning Organization

In order to boost up the financial and management synergy as a winning organisation, BAT (M) set up a policy of Director’s remuneration that aimed to motivate directors for more competitive and aggressive to achieved higher sales and better manage the business. This reward strategy is evaluated all director’s individual performance on an annual basis and then giving remuneration as benefits to attract directors for further improvement. The effort that all directors put in business will virtually become a good models or examples for employees to follow. Responsibilities For Corporate Social Responsibilities, BAT (M) is concerned on its customer’s health risk therefore it never stops on product development. Recently it introduced a harm-reduction cigarette into the market, Swedish style Smokeless Snus. According to several independent health experts, this new product is 90% less harmful compare to the normal smoking cigarette (British American Tobacco, 2011). At the mean while protecting the environment with harm reduction by effectively reduce the energy use, carbon dioxide produced, waste, water use and other material use. 3. 2. 3 Business Objectives/ Strategies

Primary Activities Supportive Activities The Value Chain analysis for BAT is as below: Recruiting, Hiring, Training, Developing Purchasing raw materials, fertilizers, pesticides, equipments, machinery 1. Channels to market 2. Product, Pricing, Promote 3. Sales force effectiveness 1. Warehousing 2. Order Processing 3. Shipping Manage feedback 1. Harvesting 2. Drying 3. Conversion 4. Packaging 1. Material Handling 2. Inventory Control Research & Development, Product Innovation, Product Design General Management, Finance, Corporate Strategy Sources: Pearce and Robinson 2009, Pg 249 – Pg 251 Conclusion:

The business strategy for British American Tobacco (BAT) refers to the long term plan by management in order to achieve the company’s goals and objectives. The current business strategy for BAT focuses on the company’s growth, responsibility, productivity and wining organization (BAT Malaysia, 2012). The current effects resulting from BAT’s business strategy are making the company in a strong financial position and strong management team. While the future effects are improve the quality of BAT’s products and attract more customers. 3. 2. 4 Financial Analysis Financial position of British American Tobacco Malaysia

Ratios and Working Capital| 2009RM’000| 2010RM’000| 2011RM’000| Interpretation| Liquidity ratio:Current ratio=Current Asset Current Liabilities| 240,220466,340=0. 52=0. 52:1| 363,018526,910=0. 69=0. 69:1| 152,984719,362=0. 21=0. 21:1| The current ratio of BAT (M) is below 1, this means that BAT (M) may face the problems of paying its debts on time. However, a low value does not show the critical problems, but BAT (M) has to concern the management. High level of current ratio indicates that BAT (M) is making efficient in its assets. | Leverage ratio:Debt-to-total Assets ratio=Total Debts Total Assets| 1,378,1261,635,849=0. 4=0. 84:1| 1,490,4761,801,751=0. 83=0. 83:1| 1,278,4231,585,160=0. 81=0. 81:1| The debt-to-total-assets ratio of BAT (M) is above 0. 8, thus its means the company is depend on debt financing. | Activity ratio: Total asset turnover=Sales Total assets | 697,371 1,635,849=0. 43=0. 43:1| 784,477 1,801,751=0. 44=0. 44:1| 802,832 1,585,160=0. 51=0. 51:1| Total assets turnover ratio of BAT (M) is increasing on each year, thus it indicated that BAT (M) is efficient in using assets to generate revenues. | Fixed assets turnover=Sales Fixed assets| 697,371 1,137,906=0. 61=0. 61:1| 784,477 1,127,458=0. 0=0. 70:1| 802,832 1,125,439=0. 71=0. 71:1| BAT (M) has an increasingly ability to generate sales from fixed-asset investment (property, plant & equipments). | Profitability ratio:Return on total sales=Net income (before tax)Sales| 650,936697,371 =0. 93=0. 93:1| 741,805784,477 =0. 95=0. 95:1| 775,278802,832 =0. 97=0. 97:1| ROS of BAT (M) is increasing every year from 2009 to 2011, it might indicate BAT (M) is growing efficiently and has a good sign for future. | Return on total assets=Net income(after tax)Total assets| 640,8491,635,849=0. 39=0. 39:1| 736,3811,801,751=0. 41=0. 41:1| 774,2441,585,160=0. 9=0. 49:1| The ROA of BAT (M) is increasing since 2009 to 2011. This means the higher the return on assets ratio, the more efficiently the company is using its asset base to generate sales. | Sources:British American Tobacco Malaysia Annual Report 2011, Pg 141- Pg 144 British American Tobacco Malaysia Annual Report 2010, Pg 150- Pg 153 Conclusion: The inventories turn over in tobacco industry is much more rapidly than the account payable becoming due. Although the debt-to-total assets ratio of BAT (M) is slightly over the normal level 0. 5, but for BAT (M) it is still consider safe in this stable industry.

Overall of the BAT (M) financial performance is consider healthy, in this high level rivalry industry, BAT (M) still can maintain increasing their revenues and fully utilize the assets to generate more profit. 4. Discussion 5. 6 Key Issues 4. 1. 1 Cigarette smuggling and illegal trading Cigarette smuggling had caused huge losses on revenue for British American Tobacco (BAT) and government around the world. One of the countries that had been hit hardly by this problem is China. China market are accommodate with cigarette smuggling that are possibly the largest smuggling effort in the world.

Amount up to US$1. 8billion in lost tax revenues annually (British American Tobacco and Cigarettes Smuggling in China, 2006) had been recorded cause by these activities. The main reason cigarette smuggling is popular is because the government effort to reduce or stop the amount of people from smoking. Government of China uses the method of increasing the tax opposes to cigarette. Tax rises up to 200% in Hong Kong in year 1991 (British American Tobacco and Cigarettes Smuggling in China, 2006) that subsequently increase the trade in black market.

The method did not successfully reduce the amount of smokers but pathetically shifted smokers towards illegal trade in black market. The demand in black market rises because the price of cigarette is relatively lower than the cigarette in legal trade market. This encourages the cigarette smuggling in that country. British American Tobacco is interested in entering the huge potential market in China. Although China government is in effort of reducing smokers in their country, BAT remains their interests in their market.

Under the Chinese Law, the State Tobacco Monopoly Administration is the sole agency allowed to trade in tobacco (British American Tobacco and Cigarettes Smuggling in China, 2006). Collaborating with the government agencies seems to be a success for Bat in entering the market but cigarettes smuggling activities had cause BAT to face difficulties in entering the market. Annually, China market losses 30%-50% in total to illicit trade in cigarettes. BAT sales figure to China declines dramatically in year 1991 at the beginning of implementing China’s method in reducing smokers.

It is difficult for BAT to sustain their business in China and the amount of Tax revenues losses to cigarettes smuggling are huge. Government agencies are revising another method in reducing smokers in the country while custom officials in China have been preventing the worst impact on cigarettes smuggling in the nation every day. Economy in Malaysia faces negative impact from the current illegal trade all over Malaysia. British American Tobacco Malaysia reveals that the illegal trades of cigarettes in Malaysia had raises from 20 per cent in year 2002 to 36. 3 per cent in 2010.

While the legal volume of cigarettes trade had reduces. This lost in legal volume in cigarettes trade had resulted in the losses of tax revenues up to at least RM2 billion annually. The illegal trade also impacted on the health issues of citizens in a country. Government tends to increase or remain the price of cigarettes in high prices in an effort of preventing, reducing and encouraging smokers to quit smoking. Illegal trade of cigarettes became popular among smokers because the price are lower, thus forcing them to purchase cigarettes from illegal traders.

With the low price on illegal cigarettes, people are tend to pick up smoking that will cause an increasing health risk and issues in that country either to the smokers nor to the public’s cause by environmental tobacco smokes (ETC) (British American Tobacco Malaysia, 2011). 4. 1. 2 Government regulatory Smoking had been classified as risky to health issues by World health Organizations. British American Tobacco (BAT) introduced harm reduction on cigarettes became the key elements in their business strategy (British American Tobacco Malaysia, 2011).

Research and development team has been put up on finding methods for smokers to minimise their health risk without them completely quitting smoking. Research and development team in BAT had successfully found a way in reducing the tobacco content in cigarettes that may possess minimizing health risk for smokers. BAT believes it will brings benefits for smokers in the future as the content of tobacco are reduced but most governments agencies suggested it should be prevented rather than reducing the tobacco content in cigarettes.

Reducing health impact on tobacco use is BAT long-term strategy in benefitting the smokers. Harm reduction program are still carrying on in researching and developing methods. 4. 1. 3 Protecting Ecosystem The recent establishment of British American Tobacco (BAT) Biodiversity Partnership with Fauna and Flora International (FFI), the Tropical Biology Association (TBA) and Earth-watch Institute (Earthwatch Institute Case Studies, 2010) is to protect and maintain the environment after it had been used for tobacco planting.

In this partnership, they aim to provide social responsibilities towards the public and also environment. There are steps and procedures to be followed in protecting the environment. BAT are recognize as the sectors leaders (Earthwatch Institute Case Studies, 2010) because their initiative in proper forestation and social responsibility programs. In completing these activities, extra cost are incurred. Efforts of forestation required extra funding from the company.

This increases the operational cost of BAT and left those answering investors question on their return of profits margin. Extra investment might be needed to ensure the program to be proceeding. Cost incurred are in huge amount because BAT’s tobacco leaf suppliers are in different regions, therefore, proper planning is advise before programs can be fully carry out for all their suppliers. 4. 1. 4 External Environment An external environment factor is also an unpredictable problem towards British American Tobacco.

External environment in the like of natural disaster such as fires on plantation cause by weather, plantation infected by insects, typhoon and more cannot be predicted. This natural disaster will destroy the whole plantation and there is no possible ways that BAT’s suppliers can do to prevent it. The tobacco plantation destroyed will cause the company to losses entirely in the plantation cost. It will also causes shortage of supplies towards BAT manufacturing plant and delayed their manufacturing process.

This mishap can cause huge losses to the company annual profits. Insurances are not covered because damages done by natural disaster is not included. BAT will suffers a total lost in the event of strike of natural disasters. 5. 7 SWOT Analysis Source: Pierce and Robinson 2009. Conclusion: From the above SWOT analysis diagram, BAT (M) is currently located in Cell 2 as it’s company substantial internal strength might affected by the major environment threats in the long run basis. . 2. 1 Strength BAT (M) main strength is that it has a strong financial position or support from the mother company, The British American Tobacco Group. Furthermore, it also ranked among top 25 companies in Bursa Malaysia in terms of capitalization. BAT (M) is the market leader of local tobacco industry as it owned 61% of the market shares and it has comprehensive distribution network that can reach whole nation (British American Tobacco Malaysia, 10th April 2012).

Besides that, the collaborative commerce relationship that linked business-to-business (B2B) with its key customers such as 7-Eleven, Carrefour, Shell, Tesco and Wal-Mart is convenient channel to distribute its products. The numerous types of products that provided by BAT (M) can fulfill several types of customer’s preference and following by have stronger customer royalty that automatically generated from the strong brand equity. 4. 2. 2 Weaknesses

One of the internal weaknesses of BAT (M) is the company not diversified in investing other segment of industry or businesses. Therefore, BAT (M) is easily will be affected whenever there are any external issues that impact on tobacco industry. Besides that, there is no online presence for BAT (M)’s customers to place order or check the pricing information and other details of the products. This may caused it to lost potential customers that interested to purchase in bulk amounts as for retail purposes.

Furthermore, the numerous types of brands and products that BAT (M) offers to their customers is causing diseconomy of scale to its production line and procurement department. The fewer amounts it purchases from its suppliers, the less negotiation power BAT (M) had. 4. 2. 3 Opportunities The strong financial support or capitalization of BAT (M) can give it chances of take over and acquisition the small company that have less market shares in the local Tobacco industry, this can save its time of retraining new batch of human resources and purchasing new machineries.

Furthermore, BAT (M) can easily expand its product’s portfolio by take over others brands. The influences of technology, it encourage BAT (M) to provide another business model that offer more flexibility to customers which is online basis. This will easy for customers to placing order and get products without spending extra time and cost such as petrol to travel from one place to another. 4. 2. 4 Threats The external changes of Government in terms of regulations on taxes rate leading to BAT (M) further contraction.

Furthermore, the small sizes of local brands that using cheaper technology to produce similar types of products but selling it with lower price bring impact on BAT (M) market. The illegal smuggling is another external impact that cost BAT (M) to lose its business as in the illegal products is cheaper due to refuse pay tax. Annual average Illegal cigarette trade in Malaysia was 36. 1% in 2011, which means 1/3 of the country is not going to purchase any products from BAT (M) (British American Tobacco Malaysia, 10th April 2012). 5. 8 Balance Score Card Financial

Objectives| Measures| Targets | Initiative| Achievement| 1) Maximizing shareholder interest towards the company 2) Contributing part of profits as social responsibilities towards the market| * Profits & cash flow * Interpret financial ratio for evaluating performance| * Growth in earning per shares (EPS) * Maintaining share’s market value level| * Ensure employee understand and acknowledge financial goal of business * Maintaining good relationship with bankers, financial adviser and insurance agent to improve company’s performance| * Successfully increase revenues and sales * Efficiently using acquired assets|

Internal Business Process Objectives| Measures| Targets| Initiatives| Achievements| 1) Channelling momentum to operate at a faster, better and smarter way| * Encourages employee work smarter and more efficientlySources : British American Tobacco’s Annual Report, 2011| * Reduction on requirement of man-days | * Implementing Enterprise Resource Planning (ERP) solutions| * Pilot market in Malaysia tobacco industry * Introduce subcontract manufacturing for large volume productions * Implement various key information technology to support globally-integrated business| Customers

Objectives| Measures| Targets| Initiatives| Achievements| 1) Maintaining in responsibility 2) Build stakeholders and shareholders values| * Sustaining share values and improving company commercial’s sustainability * Participating in afforestation program| * Community * Awarding scholarships * Marketplace * Financial aids * Workplace * Employee Volunteer Program (EVP)| * Community Pillars * Poverty alleviation * Education * Employee volunteerism * Environment * Underprivileged & disabled community| * Offset carbon dioxide release to environment through afforestation * Improve company’s commercial’s ability * Completing targeted groups responsibilities * Completing initiatives in bringing a better quality life for community pillars| Learning and Growth

Objectives| Measures| Target| Initiative| Achievement| 1) Continuing to drive goals momentum| * Measuring British American Tobacco Malaysia versus competitor’s shares of market in the Value for Money (VFM) segmentSources : British American Tobacco’s Annual Report, 2011| * Achieving good reputation and response from customer with their new products| * British American Tobacco choose to use strategic brand in enhancing market growth * Introduce different brand of cigarettes * enhance market capabilities and strong distribution network * Different brand has different unique capabilities | * Winning in premium Lights and Menthol segment of cigarettes. A portfolio’s strategy by BAT planned years ago before winning the awards. | Balance Score Card (BSC) 4. 3. 1 Financial In the financial view of British American Tobacco (BAT), the key objectives is to maximize their shareholders interest towards the company and also contributing parts of their profits as social responsibilities towards the market. BAT regularly measures revenues and focuses on company cash flows to maintain their shares market values level.

Another effort BAT took is to interpret their financial ratio and use the information gathered to evaluate their business performances. This had lead to the growth in earning per shares (EPS) and successfully increases their revenues and sales annually. Efficiently in using their acquired assets with minimum wastage also assisted BAT in achieving their business financial goals. Employees in BAT are well lead in understanding the financial goal and also acknowledging the way to achieve the business goals. They took the initiative to maintain good relationship with banker, financial adviser and insurance agent to improve the company’s profits in order to maintain the shares market value level of the company. 4. 3. 2 Internal Business Process

Internal business processes is essential in maintaining and building a trust from shareholders and customers. Analyzing the best business processes can help the company to perform better to achieve the desire outcome. British American Tobacco Malaysia (BAT (M)) adopted channeling the business processes momentum into operating faster, better and smarter to meet their strategy requirement. Efficiency in performing business process and delivery effectiveness results is suitable in engaging into nowadays globally-integrated environment. BAT (M) targets productivity in their processes by encouraging employees to identify ways to work smarter and more efficiently. A campaign name as “Make Time to Win” had been introduced to the employee.

These measures are done by reducing unnecessary workload such as completing work with zero errors to create effectiveness, reduce complexity and bureaucracy in the company’s business process to enable employee to perform faster and create efficiency in their work and lastly to enhance work-life balance enablers which focuses on the culture and working environment in the company by providing a comfortable environment and adaption to company’s culture program. The outcome of this campaign had been accomplished with the results in total man-days reductions of the company and generated a total savings of RM10. 4million for the company worldwide in 2011 (British American Tobacco Malaysia annual report, 2011). Other than that, BAT (M) took the initiatives in implementing Enterprise Resource Planning (ERP) solutions in daily business processes and became the pilot market for ERP solutions in Malaysia’s tobacco industry.

This also guided the company into introducing subcontract manufacturing method for large volume productions in Japan, Australia and Global travel retail (British American Tobacco Malaysia annual report, 2011) and thus, implementing various key information technology initiatives to support the globally-integrated business. 4. 3. 3 Customers Customers play a huge role in the company strategy planning. Providing clear and quality products to customers is vital for British American Tobacco Malaysia (BAT (M)). Maintaining BAT (M) responsibilities on their products had been set from the past to ensure the company promotes their products responsibly. Collaborating with government agencies in promoting the products only to legal age customer became one of the major objectives of BAT (M).

Besides that, participating in forestation program became part of BAT (M) annual event in order to perform their social responsibilities towards the social in a way that offset carbon dioxide emission to the environment cause by smoker using the company’s products. This had managed to sustain the shares value and shows improve in company’s commercial ability. BAT (M) targets 3 major segment in the society which is the community, marketplace and workplace. In the company appearance to the community, BAT (M) awards scholarships to talented students in helping them to persuade their studies. Selected students are giving these opportunities by British American Tobacco Malaysia as part of the contributions towards the society.

While in marketplace, the company provides financial aids for higher education to the tobacco growing community to ease their financial difficulties. Studies on the growing and managing the plantation assist the tobacco growing communities in producing more quality products for BAT (M). Lastly in workplace, the company organize employee volunteer program for a deserving causes. Employee Volunteer Program (EVP) is the company culture of giving back to the community. EVP allows employees dedicating their time and efforts for good cause towards the community. To give a helping hand to the community pillars, BAT (M) took the initiatives steps in allocating budgets and lends their helping hands to the community that needed the most.

The activities done are such as poverty alleviation on building homes for poor family, providing education in awarding scholarships, employee volunteerism that promotes company culture of giving back to the community with employee volunteer program. It has done across the Peninsular Malaysia. On the other hand, the important of environment has lead the company’s employee to volunteered time towards environment conservations by cleaning waterfall and a beach and also to support the underprivileged and disable community. Volunteered time by the company EVP program throughout Malaysia to assist them in different aspect, thus improving their health, benefits and living standard. 4. 3. 4 Learning and Growth Learning and growth is an important segment in the framework because it supports the visions and ability to sustain the company in long-term.

British American Tobacco Malaysia (BAT (M)) visions are to obtain more markets shares and become market leaders for global tobacco industry. BAT set an objective of continuing to drive goals momentum in achieving their visions. In the current situation, BAT (M) had strengthened the company leadership in the Malaysia’s tobacco industry with the healthy and positively growth trend in their financial analysis. Measuring the Value for Money (VPN) segment from 2009 to 2011 of BAT (M) and their competitor is crucial for the company survival in the market. This ensures the sustainability and also their vision in becoming the industry leader in the Malaysia’s tobacco industry.

Along the year from 2009 to 2011, BAT (M)’s VPN are recorded at 7. 7percent, 8. 9percent and 9. 4percent while their competitor had 10. 2 percent, 11. 0percent and 10. 3percent relatively. The figures shows that BAT (M) share of market had been increasing positively against their competitor and successfully reduced the VPN gap between BAT (M) and their competitor from 2. 6percent to 0. 9percent (British American Tobacco Malaysia annual report, 2011). BAT (M) target of gaining good reputation and response from customers with their products is achieved by obtaining awards in premium “Lights” and “Menthol” segment of cigarettes. This is a portfolio’s strategy planned years ago before being awarded the success.

In order to meet their vision, BAT (M) practice strategic brand as their initiative in market growth. Introducing various brand of cigarettes to enhance their market capabilities such as Pall Mall, Kent, Dunhill, Peter Stuyvesant is few types of cigarettes brand innovates by BAT(M) and strengthen their distribution network is part of the strategic steps taken. These different brands of cigarettes have different unique capabilities for the smokers such as triple filter charcoal technology, menthol and spearmint flavor cigarettes. These innovations assisted the company in obtaining more markets share and becoming the market leader in the industry. Conclusion:

The activities and programs organize by British American Tobacco in alliance with British American Tobacco Malaysia in different segment and aspect had significantly improve the business operation, the social responsibilities and managing the company strategy plan in a proper way. It fits accordingly to the company visions of obtaining more market shares and become market leader for global tobacco industry so that it can ensure the sustainability of business and follow by bring more values. 5. Recommendations It was found out that British American Tobacco (BAT) is facing huge competition among the tobacco industry due to numerous brands in the market. In addition, cigarettes typically bring a bad perception to people lately.

So, instead of scrambling around, the company is proposed to get rid of the red oceans by moving its business slowly toward the blue oceans, but not immediately. Thus, applying the purple oceans strategy could be the first step for BAT. The phase “purple oceans” means to stay in the combination of both red oceans and blue oceans. Hence, this strategy enables the play safe method and allows BAT to maintain its existing loyal customers, at the same time generating new extra customers through the product innovation. According to Dr Joe Leung, the first scholars that propose the purple ocean strategy, there are total 5Cs needed to be master before an enterprise could position itself in the purple oceans and the 5Cs are namely as cost, cash, customer, competence and counterpart (Fortune Making, 2012).

Only when BAT able to mastered the 5Cs and poises themselves in the purple oceans, then only the company could explore toward the blue ocean. For BAT, the blue ocean could be established through product innovation. Since the company has their own research centre which is located at Southampton UK (BAT, 2012), therefore BAT could make use of it to develop their new products. For instance, create cigarettes that bring harmless to our health by replacing those harmful ingredients inside the cigarette. Once cigarette is harmless, it is not only creating the new market for BAT, but also changing people’s perception toward smoking. Furthermore, the government no longer got the reason to resist cigarette.

Besides than using the oceans strategy, horizontal integration could be an alternative strategy recommended to BAT in order to improve the company’s business strategy. The horizontal integration is a strategy that allows the company to increase its market share in the tobacco industry through merging or taking over the similar companies (Biz Dharma, 2012). Since BAT is having a strong financial position, therefore the company may utilize this advantage in order to merge with those weaker companies. By applying this strategy, BAT able to grow its market share rapidly and what most important is it could reduce the number of competitors for BAT and switch them to become partners. 6.

References British American Tobacco Malaysia, About Us: Who We Are, 10th April 2012 <http://www. batmalaysia. com/group/sites/BAT_7RYJ8N. nsf/vwPagesWebLive/DO7SUK8D? opendocument&SKN=1> Fortune Making, Purple Ocean Strategy, 2012 <http://www. cgcc. org. hk/b5/chamber/bulletin/files/Bulletin_1283245054. 627253640. pdf> British American Tobacco, Research and Development, 2012 <http://www. bat. com/group/sites/uk__3mnfen. nsf/vwPagesWebLive/DO52ANF5? opendocument&SKN=1> British American Tobacco (Malaysia), Our Strategy, 2012 <http://www. bat. com/group/sites/uk__3mnfen. nsf/vwPagesWebLive/DO659KVX? opendocument&SKN=1>

British American Tobacco (Malaysia) Berhad, 2011, Reports and Financial Statements, viewed 20th June 2012, <http://www. batmalaysia. com/group/sites/bat_7ryj8n. nsf/vwPagesWebLive/DO7SUKSJ/$FILE/medMD8SFEPS. pdf? openelement>. British American Tobacco (Malaysia) Berhad, 2010, Reports and Financial Statements, viewed 20th June 2012, <http://www. batmalaysia. com/group/sites/bat_7ryj8n. nsf/vwPagesWebLive/DO7SUKSJ/$FILE/medMD8FAC73. pdf? openelement>. British American Tobacco (Malaysia) Berhad, 2011, viewed 20th June 2012, <http://www. batmalaysia. com/group/sites/BAT_7RYJ8N. nsf/vwPagesWebLive/DO7RYJJK? opendocument&SKN=1>

British American Tobacco (Malaysia), Our Strategy, 2012 <http://www. bat. com/group/sites/uk__3mnfen. nsf/vwPagesWebLive/DO659KVX? opendocument&SKN=1> British American Tobacco and Cigarettes Smuggling in China, “Keys to the Future”, 2006 http://www. plosmedicine. org/article/info%3Adoi%2F10. 1371%2Fjournal. pmed. 0030228 British American Tobacco Malaysia Annual Report, Government Regulatory, 2011 http://www. batmalaysia. com/group/sites/bat_7ryj8n. nsf/vwPagesWebLive/DO7SUKSJ/$FILE/medMD8SFEPS. pdf? openelement British American Tobacco Malaysia, Illegal trade in Malaysia, 2011 http://www. batmalaysia. com/group/sites/BAT_7RYJ8N. nsf/vwPagesWebLiveO8PBFUP? opendocument&SKN=1

Earthwatch Institute Case Studies, integrating biodiversity into business management and operations, British American Tobacco Biodiversity Partnership, 2010 http://teebforbusiness. earthmind. net/files/Earthwatch_Case_Studies-HSBC_SHELL_-American_Tobacco. pdf Fortune Making, Purple Ocean Strategy, 2012 <http://www. cgcc. org. hk/b5/chamber/bulletin/files/Bulletin_1283245054. 62725_36-40. pdf> British American Tobacco, Research and Development, 2012 <http://www. bat. com/group/sites/uk__3mnfen. nsf/vwPagesWebLive/DO52ANF5? opendocument&SKN=1> Biz Dharma, Horizontal Integration, 2012 < http://bizdharma. com/blog/what-is-vertical-and-horizontal-integration/> 7. Appendixes Appendix 1: Organization Structure of BAT (M) B. O. D Appendix 2: Corporate Information of BAT (M)

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