Tobacco Industry in Malaysia

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PORTERS 5 FORCES ANALYSIS FOR BAT MALAYSIA:
The tobacco industry is a very competitive market and only about 3 very large corporations control the entire market. In Malaysia, British American Tobacco (BAT) is the biggest company in the industry, but others such as JT International are steadily growing in brand name. All companies battle for market share through heavy advertising budgets and slotting deals. The cigarette market is well into the maturity stage, and some might even argue that given the recent anti-smoking campaigns and lawsuits the industry is nearing the decline phase. However, sales show that decline has not yet been reached. Apparently, brand loyalty still exists. The tobacco industry has a very low threat of entry. A few powerful firms control most of the industry. Any new entrants would be sure to receive heavy retaliation from the other companies fighting to keep their share of the lucrative industry. For example, BAT is by far the industry leader with estimated tobacco sales of RM 3 billion in 2009. They have a huge base of resources with which to attack other competitor entrants. They could easily start promotions such as "buy one, get one free" or offer coupons at certain times during the year to discourage entrants to the industry. Many small companies will not be able to compete with the capital requirements in the tobacco industry. The barriers to entering the tobacco industry are numerous. First, the high volume of cigarette sales gives existing firms economies of scale, which would be a disadvantage for newcomers to the market. The products currently on the market are differentiated somewhat in their design, but mostly through the large advertising budgets that are used to promote them. It isn’t odd now to see tobacco companies pour up to RM 40 million a year into promotions and advertising- nine times what they spent in 1971 (Elliot, New York Times, September 22, 1999). These firms have finely tuned distribution channels, which...
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