[Intl-tobacco] BAT Putting Down Roots in S. Korea (fwd)

[Robert Weissman]

BAT Putting Down Roots Here With Cigarette Plant in Sachon

22 August 2001
Korea Times
By Nho Joon-hun
Staff Reporter


British American Tobacco (BAT) was dead serious about the Korean market when
it decided early this month to build a cigarette processing plant in Sachon,
Kyongsang-namdo.

But BAT Korea and its CEO John Taylor are even more serious about expanding
its market share and sending out the message that they are here for the long
haul.

``We had made up our mind that we were going to be a local producer and we
were prepared to put down roots in Korea,'' said the Australian tobacco
expert.

In choosing Sachon, Taylor and his team reviewed a total of 72 locations,
narrowed it down to three and had a third party of experts filter through
the short list to make certain that the decision was right.

``There was nothing wrong with the other potential locations in terms of the
availability of manpower and other resources and expatriate comfort, but the
provincial government showed exceptional enthusiasm,'' Taylor said.

There are many good reasons why BAT chose to enter into local production
even though it is a well-known fact that it is very expensive to manufacture
cigarettes here, about twice what it costs in Brazil.

For one thing, the Korean government has begun imposing import tariffs on
foreign cigarettes from July along with the liberalization of the domestic
tobacco market, whose production had been monopolized by the Korea Tobacco
and Ginseng Corp.

``The tariffs will increase from 10 percent and an additional 10 percent
every year till they reach 40 percent, and this could push me to complete
the plant earlier than scheduled although we will have to make sure that the
project is done right,'' said Taylor.

The increasing of tariffs, which would most certainly push prices up, is one
thing, but the more important part of the decision to invest heavily in the
Sachon plant was made due to the unique public perception here.

``I spent an enormous amount of money on doing research on imported versus
locally manufactured cigarettes, and the result suggests that it is
important for them to be made in Korea,'' he said.

And so with tremendous support from the Kyongsang-namdo provincial
government, BAT decided to build the ultra-modern cigarette processing plant
here in Korea, and work is already well under way.

``In the initial stages, we will be producing specifically for the Korean
market, although we have not decided on which brand we will be producing
first,'' Taylor said, hinting that it could very well be Dunhill Lights,
which happens to be the best-selling imported cigarette here.

Commenting on the size of the plant, he said it will initially have a
capacity to produce 400 million packs a year, which is 8 percent of the
Korean market, and be expandable to 1 billion packs, which would be a
whopping 20 percent of the market.

Overall, the operation of the plant will create an economic effect of 1.4
trillion won for the province over a period of 10 years and create jobs for
about 1,000 workers.

BAT's enthusiasm about the project is natural when considering that its
market share here has been increasing at a steady, or even robust, rate over
the past year, quickly catching up with Philip Morris.

Last month, BAT, the world's second largest cigarette producer, sold a total
of 393.1 million packs, picking up 31.9 percent of the foreign cigarette
market and 4.8 percent overall.

What is even more exciting for BAT is the fact that 357.1 million packs of
Dunhill Lights were sold during the same month, up from 114.2 million packs
a year ago and considerably more than the 294.1 million packs of Mild Seven
and 148.7 million packs of Marlboro.

All the discussion about producing and selling cigarettes make BAT and
Taylor look as if they are encouraging smoking, but nothing could be further
from the truth.

``What we do is tell people about the risks that go with smoking and let
them decide if they want to smoke. Our primary objective is to drum up
popularity among people who knowingly decide that this is a habit that they
can handle,'' Taylor said.

In living up to his promises, Taylor and his team have launched a website
(www.batkorea.com) which advises visitors on the dangers of smoking and
provides other information about smoking to raise awareness about the risks
involved.


jakenho@koreatimes.co.kr