I posted earlier this year on the strong growth in cigarette carcinogen sales despite the financial crisis. The world’s largest carcinogen producer, Altria, had earnings per share growth of 10% in 2008 and was increasingly moving into the ethyl alcohol market. Altria also split into two businesses in March 2008 Phillip Morris International (internationally-based) and Altria (US-based). The internationally based PMI is starting off in markets where it has relatively low market share but where restrictions on smoking are lax. The US based Altria has a substantial market share via its Marlboro product (also now marketed internationally via PMI) but faces increasingly tight restrictions on the distribution of a product that is known to kill. As I mentioned earlier Altria is increasingly moving into the smokeless tobacco (‘snuff’) market in the US.
Last August PMI launched Marlboro in China which is home to one third of the world’s cigarette smokers. He has also launched this product in the lucrative Indonesian market where the product is being marketed to youth at sports events and rock concerts. These developments are tracked in an excellent Business Week article.
These developments target an exhaustible resource since emerging markets are themselves increasingly adopting anti-smoking policies. There are now public smoking bans in China. But smoking is an ingrained part of the culture of many such countries and it will take some time for the anti-smoking message to bite. This is PMI’s window of opportunity.
Of course having a background for 50 years in the US-based tobacco wars will not hurt PMI either. The firm has considerable experience in deceiving the public and running rings around regulators. It has a comparative advantage in deceit. (In emerging nations I would take these skills seriously and ban PMI products simply for the reason that one could reasonably expect the PMI deceit to be effective!)
It is a pity about the 5.4 million people who will die around the world this year from cigarette-related causes. But good business strategy and, in times where the global economy is not strong, it is good to see at first-hand the benefits of globalisation.