[Intl-tobacco] Thailand: TTM seeks foreign brands to sign production deals (fwd)

[Robert Weissman]

TTM seeks foreign brands to sign production deals
Strategy to boost its market share
by Wichit Sirithaveeporn
Source: Bangkok Post, Wednesday, 1/24/01

"If you can't beat them, join them," say executives of the Thailand
Tobacco Monopoly, who are looking to restore its market share by signing
production contracts with foreign cigarette manufacturers.

Formal details of which foreign brands would be produced under contract by
the TTM would emerge this year, said managing director Suchon
Watanapongvanich.

Companies that have expressed interest in a contract production
arrangement include British American Tobacco, the manufacturer of the 555
brand, and Japan Tobacco, the manufacturer of Mild Seven.

Mr Suchon said building strategic partnerships was crucial for stemming
the continued erosion in the TTM's market share.

Foreign cigarettes currently control around 13% of the
40-billion-baht-a-year cigarette market. The state-owned TTM dominates the
market, led by its popular Krong Thip brand, and is one of the most
profitable state enterprises.

Tax has been the major barrier to foreign cigarette brands to date. Import
taxes on cigarettes are prohibitive, often representing over 75% of the
retail price of a pack. Some foreign producers have been accused of
excessive price-cutting to stake out a place in the local market.

Cumbersome import procedures have also limited the growth of foreign
cigarette sales in the market, and smuggling is a perennial problem.

But Mr Suchon said superior technology and financing support gave foreign
manufacturers a competitive edge over the TTM.

Even though foreign firms cannot set up domestic manufacturing plants,
entry was relatively easy through plants in Malaysia or the Philippines.

Philip Morris, the manufacturer of Marlboro cigarettes, controls some 80%
of all foreign cigarette sales in Thailand, with the rest divided among
British American Tobacco, RJ Reynolds and Japan Tobacco.

Mr Suchon said a partnership with a foreign producer would give the TTM
additional revenues, technology and technical expertise, although he
declined to provide further details.

A major concern, however, was that foreign brands produced locally under
licence would be able to avoid import tariffs, thereby bringing retail
prices much closer to those of the monopoly's key brands.

Mr Suchon acknowledged the issue but said the benefits outweighed the
risks.

"We need to accept the reality of the situation. Bringing in a partner
will help give us needed expertise," he said.

In other markets worldwide, foreign brands typically took no more than a
30% market share, Mr Suchon said, as consumer brand loyalty helped cap
gains.

Japan Tobacco, he said, had set targets of 300 million cigarettes annually
if it was able to set up a domestic production deal.

Local production would also give foreign brands additional export
opportunities in the region through tax benefits under the Asean Free
Trade Area.