[Intl-tobacco] Korean Companies Hope Smokes Will Extinguish Fires of Animosity (fwd)

[Robert Weissman]

Korean Companies Hope Smokes Will Extinguish Fires of Animosity
by MEEYOUNG SONG / Staff Reporter of THE WALL STREETJOURNAL
Source: The Wall Street Journal Interactive Edition, Friday, 1/28/00

CIGARETTE COMPANIES in North Korea and South Korea are hoping citizens of
the two countries soon will be smoking their way to improved ties.

A new cigarette brand called Hanmaum, or "One Spirit," goes on sale next
month, the product of an unusual manufacturing and marketing alliance by
companies on opposite sides of the demilitarized zone that divides the
Korean peninsula. "This is the first time a same-brand product will be
manufactured and distributed both in North and South Korea," says Lee
Cheul Soo of Korea Tobacco & Ginseng Corp., the South Korean partner in
the joint venture. "It was a very long and difficult process, but we made
it."

The two Koreas are still technically at war, but mixing marketing with
reunification politics has become all the rage. The trend partly has been
spurred by South Korean President Kim Dae Jung's "sunshine policy" toward
the North, which aims to increase business interaction between the
neighbors in the hope of improving relations. The most publicized project
has been Hyundai Group's tours for South Koreans to the popular Kumkang
Mountain in North Korea. In late 1998, Korea Fuji Film used the same
mountain as a backdrop for a film ad, using the catch phrase "Bring back a
picture of Mount Kumkang." A more recent print ad by Sammi Fur Co. shows a
young woman dressed in a typical black-and-white hanbok, or traditional
dress common in North Korea. The caption reads: "When Korea is reunified,
we dream of wearing our Sammi fur coats with you at Kaema Heights," an
area in the North known for its cold climate.

Korea Tobacco is one of 581 South Korean companies authorized to do
business with North Korea. Most take part in small-scale businesses,
importing primary goods such as agricultural products and exporting
industrial goods, or are related to the larger conglomerates' businesses.
But Korea Tobacco is taking things to a whole new level, because the
cigarettes are both made and sold in North Korea as well. The smokes will
be made in a factory near Pyongyang in North Korea, with raw materials and
machinery supplied by Korea Tobacco. The North Korean partner is the
state-owned Kwang Myong Song General Corp. The company couldn't be reached
for comment.

ALTHOUGH the final touches to the marketing campaign haven't been
completed, the strategy will be to focus on the joint manufacturing. "The
ads will be explanatory, to help consumers understand how the cigarettes
were made," says Jang Koo at Korea Tobacco's business-support bureau. He
didn't know if North Korea would run its own ads.

Although promoting an unhealthy, cancer-provoking product as the first
cross-border project between the two Koreas may seem worrisome to many
countries that spend large amounts of money trying to make people quit
smoking, Korea Tobacco hasn't heard of complaints so far.

"Cigarettes are luxury products," says Mr. Lee. "It appeals to one's
emotions. Therefore, people in North and South Korea will feel a
togetherness when they smoke Hanmaum."

Korea Tobacco currently manufactures 21 brands of cigarettes. Last year's
sales are estimated to total 4.22 trillion won ($3.74 billion). Hanmaum is
expected to eventually to account for 2% to 3% of that figure.

When Korea Tobacco got the idea of doing business with North Korea in
1996, it didn't know where to start. The company spent two years doing
research and simply trying to find potential partners. "People in North
Korea are hard to contact," says Mr. Lee at Korea Tobacco.

The big break came in 1998, when a North Korean businessman advised them
to contact a North Korean government office that oversees business
relations with the South. That office appointed Kwang Myong Song, a
trading company, to be Korea Tobacco's partner. The companies contacted
one other through Kwang Myong Song's representative office in Beijing. A
joint manufacturing contract was signed in July 1999.

THE MACHINERY had to be shipped to North Korea on Chinese ships traveling
between South Korea's Inchon port and North Korea's Nampo port, on the
western coast. It shouldn't be shipped by land because a heavily armed
border separates the two Koreas.

The name Hanmaum was chosen because it was the only one that both
companies had put on their separate lists of suggested names. The logo,
three mountains in a circle, was suggested by Korea Tobacco, and modified
by Kwang Myong Song.

Korea Tobacco invested $2.4 million in Kwang Myong Song to manufacture a
total of 100 million packs of cigarettes a year. A pack of 20 cigarettes
will cost about 1,500 won in South Korea; in the North, most will be
rationed or sold at luxury shops and hotels.

Though the cigarettes only go on sale in March, early samples have fans in
at least one South Korean office. "It's a bit mild," says an official at
the Ministry of Unification, "But even if it doesn't taste good, just the
thought that North and South Koreans will be smoking the same cigarettes
together makes it taste good."

Write to Meeyoung Song at meeyoung.song@awsj.com