Globalisations Impact On British American Tobacco Economics Essay

There are many definitions and understandings of the term “globalisation” which can be found from many sources. The writer’s understanding of the term “globalisation” is that operations all around the world are growing more and more interdependent on goods and services in a way that nationality doesn’t serve as a boundary any more. The actual and potential, positive and negative impacts of globalisation can be limitless and are depending on which views are taken and what operation it is applied to. It is easier to limit the amount of data viewed through a PESTLE analysis on the subject company.

Multinational enterprises (MNEs) are the entities that are most usually associated with globalisation other than countries. They have a headquarters in one home country but have operations and assets in other countries. These MNEs have to always be very sensitive and sensible when operating or planning to operate in foreign environments. They have to plan and react quickly to adapt to foreign environments and all other factors that might affect productivity and support of foreign operations.

Alternatively, other than building new operations which may or may not work in a new environment, MNEs can also acquire successful business models or acquire successful operations if their finances allow them doing so.

With businesses come investments. When a MNE invests in a foreign nation or foreign environment, is it called a “foreign direct investment” (FDI). Most countries are very welcoming to FDIs. It is a help to their economy when a foreign investment comes in. Some countries go to great lengths to improve their infrastructure and support systems as well as other financial attractions such as tax rebates or preferential tax discounts for a certain period of time.

This is because FDIs result in not only a boost of currency into their economy, it also implies much jobs made for locals to take up and can mean well improvement for the local community. This can for the short and long term well boost and improve the standard of living for the local communities employed to assist in operations of the MNE.

1.2 Globalisation on British American Tobacco (BAT)

BAT as its namesake was formed as a joint venture between Imperial Tobacco of the United Kingdom and American Tobacco of the United States. BAT was an answer to an intense trade war which provided a solution to both founding companies and allowed for more freedom and growth of the tobacco industry by their means (British American Tobacco – Our history, 2010).

As of such, even the beginning of BAT can be seen an effect of globalisation. It was formed between founding companies of different nationalities and now has operations of production, manufacture and marketing in at least 36 countries (British American Tobacco p.l.c. (BAT) – Group websites, et al 2010). Dealing in business with the tobacco industry for around 98 years, BAT has had to be very sensitive and quick to respond to global issues regarding their operation all around the world in many countries.

In their effort of attaining their vision which is to “achieve leadership of the global tobacco industry”, BAT has expanded their operations by building and acquiring successful business models in at least 36 countries (British American Tobacco – Our strategy, 2010). The FDI provided by BAT is extensive and very welcome in all these assisting nations.

Even though there is a social stigma that tobacco companies are facing controversy such as pollution and being harmful to their users, it is a well known and concrete fact that the tobacco industry is a well rewarding industry for all the players, stake holders and share holders involved.

That being said, BAT does not ignore the pleas and demands of local and international non-governmental organisations (NGOs) as well. BAT employs a substantial effort in reducing the inherent risks a cigarette user has to face such as reducing tar in their cigarettes. BAT also has efforts in protecting the environment which will be explained in more detail in later parts of this document. In the following pages will be a PESTLE analysis of BAT facing globalisation and suggestions which could improve their conditions in facing these challenges.

2.0 PESTLE analysis of BAT facing globalisation

2.1 Political analysis of BAT facing globalisation

Globally BAT is well known as a MNE which brings many successful tobacco brands into international operation. BAT is not seen as facing any direct political pressure since 1937 when Japan invaded China and caused cigarette sales to cease for more than 4 years. The tobacco industry along with BAT does seem to face some pressure from certain NGOs but that will be explained further in the following segments.

2.2 Economic analysis of BAT facing globalisation

BAT as an MNE provides good and services expected of a player in the tobacco industry. BAT rewards their share holders and stake holders very well. The FDI invested by BAT brings employment opportunities and development to most of the countries they invest in. “Tobacco is the world’s most widely cultivated non-food crop. Even in countries that do not have tobacco manufacturing, tobacco distribution is an important source of economic activity. Tobacco taxes are a major source of revenue for almost every government in the world” (British American Tobacco – Tobacco’s economic contribution, 2010).

2.3 Socio-cultural analysis of BAT facing globalisation

As mentioned before, the tobacco industry along with BAT faces stigma for its products which bring inherent risks to their users. It is obvious that if you burn anything and inhale the smoke you would eventually damage your lungs. Consumers are now growing more aware of this and BAT has responded by efforts to reduce tar and other contaminants in their products. BAT still markets the aroma, flavour, taste and texture of their products along with the image. BAT maintains that it is the user who decides whether or not they want to expose themselves to the risks of smoking cigarettes (British American Tobacco Malaysia – Should smokers smoke less or lower tar?, 2010).

2.4 Technological analysis of BAT facing globalisation

BAT is also dependent on the state of technology that the country they invest in. The process begins from farming of tobacco crops, to processing of tobacco, to manufacture of tobacco products and eventually delivery of tobacco products. Low tech processes such as farming and curing of tobacco can also lend their techniques to farmers who can apply those techniques to other crops. The manufacture of tobacco is a highly automated and high technology process which involves building factories around the world and securing the best machinery (British American Tobacco – Manufacturing, 2010). Delivery of tobacco and tobacco products rely on transport and infrastructure logistics which need cooperation with the government to provide the best infrastructure which will also benefit the citizens of the nation.

2.5 Legal and legislative analysis of BAT facing globalisation

BAT is not seen to be a culprit in the eyes of legal and legislative power in any reports. The tobacco industries along with BAT are in fact victims to illicit trade as a result of high priced cigarettes due to high taxes imposed on tobacco products all over the world. Illicit trade could expose users to more risks as counterfeit products can not guarantee the high standard and qualities that BAT maintains. There are also links that illicit trade could fund other more sinister illegal activities (Tobacco Underground | Articles, 2010). BAT is also interested in battling child labour and working with the United Nations (UN) in countries where human rights are abused such as México and Brazil (British American Tobacco – Eliminating Child Labour in Tobacco Growing Foundation, 2010).

2.6 Environmental analysis of BAT facing globalisation

Tobacco products are results of the tobacco crops and that is why BAT has placed high emphasis on renewable productivity and enhancing use of natural resources. BAT has efforts in ecosystem and biodiversity protection (British American Tobacco – Biodiversity Partnership, 2010), protection of woodlands and renewal of firewood through afforestation programmes (British American Tobacco – Afforestation programmes, 2010). BAT aims to be self sufficient in its operations so that they don’t add burden to the damaged environment.

3.0 Illicit trade of tobacco products

The international tobacco industries along with BAT are facing a loss and a threat from the growing scourge of illicit trade. Illicit trade includes contraband, counterfeit and smuggled tobacco products. The reason for this on going phenomenon is because of the ever increasing price of cigarettes.

Smuggled tobacco products are the least harmful of the illicit trade. Usually they are smuggled from areas where taxes are non existent or significantly lower than the targeted areas of sales. This eats into the profits of BAT and affects profits of shareholders, stakeholders and governments in the form of lost taxes.

Contraband is similar so smuggled products but it might be more damaging than smuggled items are the sources of contraband could be from theft, hijacking of delivery trucks, breaking and entering of shipment crates and other violent and damaging methods (Tobacco Underground | Articles, 2010).

Counterfeit could be the most dangerous form of illicit trade to the user. The user is attracted to illicit trade as prices of counterfeit are far more affordable than authentic tobacco products. What the user does not suspect is that the counterfeit product does not hold the high standards and quality of BAT and could cause more risks and damage to the users’ health and overall wellbeing.

The losses from illicit trade not only cause losses to BAT and their accompanying share holder and stake holders. It also undermines the abilities of BAT to return the profits to the government in the form of taxes. Purchasers of illicit tobacco items could also be shocked to know that they could be indirectly financing terrorist activities of violent terrorists such as al-Qaeda and the Real Irish Republican Army (IRA) (Tobacco Underground | Articles – Terrorism and Tobacco, 2009).

3.1 Recommendations on the struggle against illicit trade

They consumers are the people supporting illicit trade. There should be more education programmes and campaigning that could be done to educate the public against the ills of illicit trade. The buyers might stop if they know the illicit products they purchase are possibly linked to violence, abuse, and terrorism.

They might also switch back to original tobacco products if they learn that counterfeit tobacco producers do not carry out as much research and development work and ensure a high quality and standard which aims to satisfy user demands and reduce the inherent risks of smoking.

It is high time that the governments of countries worldwide realise that illicit trade in tobacco causes all the above damages and on top of that also reduces the tax money that the governments could potentially be paid. It is partly due to the governments’ high taxes on tobacco products that illicit trade occurs. The funds collected from taxes on legitimate tobacco product sales can be put to good use such as the wide and varying governmental functions.

The government should further act on its part by enforcing laws against illicit trade. There are in existence laws and policies against illicit trade but they are simply not enforced to an acceptable level which can decrease the rate of illicit trade.

4.0 BAT’s damage to mankind and its environment

BAT is with the rest of the tobacco industry is an industry which grows and profits from burning plants which produce pollutants and risk damaging the user and the people around the user. The environment is also affected through a means of mass miniscule repetitive non systematic open burning.

As a means of providing primitive fertilisers, untrained, unprofessional and inexperienced farmers burn wood harvested from woodlands. This is the first instance of burning. When crops are harvested, there is a process called curing which is sometimes accelerated through means of inefficient burning which helps dry the tobacco leaves in a shorter time. This is the second instance of burning.

When the crops are cured, they are transported by land, sea or air to the factories to be made into cigarettes or other forms of tobacco products. Indirectly, the burning of fuels by the land, sea or air transport is the third instance of burning.

When the tobacco reaches the factories, the tobacco is put into various automated processes which will eventually turn the cured tobacco into cigarettes or other forms of tobacco products. Indirectly, by the use of power needed move the machinery in the factories, there are carbon fuels being used by power generators. This is the fourth instance of burning.

Then there is another instance of burning by transport of the finished tobacco product from the factory to the storage facilities or warehouses and another instance when transporting the said tobacco products to the retailers.

Finally when the consumer purchases and starts to light and inhale the cigarette smoke, this is assumed to be the seventh and last stage of burning. Burning is not the only pollution. There is a chance of littering which the tobacco product user might contribute to.

Throughout the production process, there are also chances that those involved in the production process are also smoking cigarettes themselves. From this simple short journey, we can see at least seven stages of burning and carbon emissions being released. It is wishful thinking to say that BAT is unaware of this but wishes to contribute to environmental efforts.

4.1 Recommendations on BAT’s environmental efforts

Carbon emissions are only one of BAT’s environmental damage which it can help address. Through thorough research and development (R&D), BAT has managed to discover certain techniques which help in irrigation of pesticides and fertilisers which can improve efficiency and effectiveness in farming of tobacco crops. There are also plans in the future to genetically modify (GM) tobacco crops to be hardier, more resistant to pests and infections and produce more yield per crop and yield sooner than traditional non GM tobacco crops (British American Tobacco – Leaf research, 2010).

BAT also invests time in properly training their farmers so that they can receive the best results with the shortest amount of time. Farmers are given practical training on optimal farming techniques which the farmers can then apply on other crops as well (British American Tobacco – Social Responsibility in Tobacco Production, 2010).

BAT encourages their farmers to plant their own renewable sources of wood for fuel in countries where wood is used as fuel. It is generally to offset carbon emissions by planting more greens. This is attributed to the effect of plants absorbing carbon dioxide as they grow (British American Tobacco – Afforestation programmes, 2010).

5.0 Conclusion

In conclusion, although BAT is a highly successful MNE which produces much monetary profit for their share holders, stake holders and foreign invested governments; BAT still has reasons to improve and be a more productive entity.

In dealing with the scourge of illicit trade, they have to be more proactive and cooperate with governments of the world to engage and discourage tobacco product users from supporting illicit trade. If illicit trade is eliminated, more of the funds from purchases of legitimate tobacco products would flow back into the legitimate tobacco companies and the governments that they pay their taxes to.

In dealing well with the environment, BAT is doing well but still can improve on conservational and preservation efforts. With more R&D, BAT should be able to uncover more ways to reduce environmental damage throughout their operations and also seeks ways to harness the use of natural resources more efficiently. In doing so, BAT can secure the environment as a renewable resource which can be better utilised in the future.