[Intl-tobacco] Thailand: BAT opens a subsidiary

[Robert Weissman]

BAT moves cautiously after tax cut
Thai subsidiary now in operation
by Voranai Vanijaka

THAILAND;
Source: Bangkok Post, Tuesday, 4/10/01

'Surprised? We were surprised. But we fully understand the intention,"
Patrick O'Keefe, chairman of British American Tobacco (BAT) said of
Thailand's increase in excise taxes on tobacco last month.

BAT, one of the world's largest tobacco companies, contributes some US$20
billion a year to national exchequers worldwide through excise taxes and
duties.

Locally, the excise tax on cigarettes has risen to 75% from 71.5%. The
increase, along with higher taxes on alcoholic beverages, are expected to
bring the government an extra 7.48 billion baht in revenue annually.

The government said it needed the extra money to help fund its ambitious
and costly social programmes.

Mr O'Keefe said it was understandable that the government needed funding
for its programmes which were more important to the country than the
tobacco industry.

However, he expressed concerns, saying that "it was a very large increase
...  that may depress the cigarette market which would take some time to
recover."

Yesterday, BAT officially launched its Thai subsidiary after operating
through a representative office for more than 10 years.

"We can legally do it now, and have always wanted to," Mr O'Keefe said,
adding that the new Foreign Business Law had "given us a chance to be
closer to our business [in Thailand]".

The Thai subsidiary opened with 17 staff and "assuming business goes
well", Mr O'Keefe plans to add five to seven more people a year.

Currently, BAT holds less than one percent market share in Thailand and
hopes to double that share by next year.

Foreign cigarettes currently control around 13% of the
40-billion-baht-a-year cigarette market, dominated by the state-owned
Thailand Tobacco Monopoly (TTM).

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

BAT introduced its mainstream London brand last Wednesday, and the premium
Lucky Strike is expected to follow within four to five weeks.

While a 2% market share is the goal by year-end, the company admits that
ambitions in Thailand tend to be characterised by a "wait and see"
attitude now common among foreign investors.

"It [tax increase] changes expectations a bit and slows down the market.
...  We're looking at things a step at a time," said Mr O'Keefe. But he
added that one price increase wouldn't deter the tobacco giant.

The future of BAT, as well as those of other foreign tobacco companies,
would lie in a tie-up with the TTM, he said.

"There's a need for partnership. We have to look at the real potential,
and take advantage of Afta," he said, referring to the Asean Free Trade
Area.

Only Thailand and parts of Indonesia possess the leaf quality that can
produce tobacco of an international standard. BAT has been working with
local farmers to develop production methods that will yield higher returns
and gain more productivity.

Mr O'Keefe suggested that Thailand also had the potential to produce
foreign brands locally for export.

The London and Lucky Strike brands are imported from Singapore.

However, Mr O'Keefe said that he would like to see Thailand as a
production centre "as soon as possible, but that depends on the Thailand
Tobacco Monopoly".

Malaysia, where half the male population are smokers according to the
World Health Organisation, is the top market for BAT with a 70% market
share.

However, Mr O'Keefe said that given the market size, purchasing power and
a partnership with TTM, Thailand could surpass Malaysia in five to six
years.

"We have to think on two levels: domestic and regional," he said.