The industry lynchpin is China National Tobacco Corp., a state-owned monopoly that makes more than one-third of the world's cigarettes, and … The development of new brands, to appeal to a wider global market beyond Chinese diasporas, is likely to increase via JVs with existing TTCs. Parent agency: State Council of the People's Republic of China: Website: www.sasac.gov.cn It is expected that CNTC will soon progress to M&As of small and medium-sized foreign tobacco companies, mimicking TTCs such as JTI and Imperial Tobacco (Qing, 2015). This paper examines the ambitions and prospects of the CNTC to ‘go global’. Cited by lists all citing articles based on Crossref citations.Articles with the Crossref icon will open in a new tab. Fourth, CNTC is a ‘strategic asset seeker’, as it monitors foreign markets seeking investment opportunities for business growth through M&A. Leaf cultivation was firmly established by the mid-1800s, and smoking from the late nineteenth century with the automation of cigarette manufacturing. To triangulate Chinese source data, we searched Google and Baidu for news on the globalisation ambitions of the Chinese industry. Future growth is likely to come from population growth and increasing female smoking rates (currently 2.4% for adult females). Tobacco companies are concerned with the sale and distribution within the province of all tobacco products regardless of where they are produced. State-owned enterprise China National Tobacco Corporation is a near monopoly, manufacturing 98 percent of the tobacco products in China, … Export value (unadjusted) has also increased, from US$100 million in 1999 to US$500 million in 2013 (Figure 4). Source: Trade Map. The corporation was dismantled in the wake of the Cultural Revolution in 1966 (STMA, 1997) and the industry reverted to its former fragmented structure. Source: Compiled from STMA (1996–2014). One case contains 50,000 sticks of cigarettes. To understand the global business strategy of the Chinese industry, we searched the websites of the CNTC (http://www.tobacco.gov.cn), and industry news sites, Tobacco China (http://www.tobaccochina.com), Tobacco Market (http://www.etmoc.com) and China Tobacco (http://www.echinatobacco.com). The China National Tobacco Corporation (CNTC), which produces one-third of the world’s cigarettes, is the largest tobacco company in the world. Using indicators set out in Lee and Eckhardt (2016), and Lee et al. The strategic location of major offshore production bases in each region is a clear indication of efficiency seeking. The China National Tobacco Corp., which serves China’s 300 million smokers, is by far the largest cigarette maker in the world. Chinese exports, as a proportion of total production, remain relatively small but rising since 2004, from 4.35% to 5.08% by 2013. But the $10,000 contribution from Switch, a Nevada-based company planning to open a … Overseas, premium brands are seen as key to efforts to improve the perceived quality of Chinese products (Feng, 2014b). With annual sales of over 4 million cases, Hongyun Honghe is the world’s fourth largest by sales volume after PMI, BAT and Japan Tobacco International (JTI) (Anon, 2008). As well as fending off global brands such as Marlboro in the domestic market, consolidation aimed to create global Chinese brands for foreign markets. These were previously searched to understand market access strategy by TTCs into China (Holden, Lee, Gilmore, Fooks, & Wander, 2010; Lee et al., 2004; Lee & Collin, 2006; Zhong & Yano, 2007). While negotiations appear to have been unsuccessful, industry analysts predict that the CNTC’s ‘massive current account surplus built up over years means that no company is too large to be purchased for cash’ (Euromonitor, 2008), a sentiment echoed by others (The Economist, 2014). However, by volume this represents a 60% increase from 16.3 to 26 billion sticks (STMA, 2005, 2014), surpassing Korean company KT&G to become the world’s fifth largest exporter (Zhang & Zhang, 2013). Foreign operations have been established to secure tobacco leaf from Brazil, USA and Zimbabwe. Our more than 1,000 crews provide oilfield services in 55 countries. In 2003, the Beijing Cigarette Factory split from Beijing Tobacco Company to merge, along with the Tianjin Cigarette Factory, with the Shanghai Tobacco Group (STG) (Zhou, 2004). The CTIEC targets Europe, while United Overseas (Panama) produces Chinese brands for the Americas (CTI, 2014, 2014c). With nearly one-third of the world’s smokers (300 million), and 40% of global tobacco production (2.5 trillion cigarettes), China has the largest tobacco industry in the world (Li, 2012). The resultant structure potentially dwarfs existing TTCs and serves as a springboard for globalisation. BAT was required to leave China in 1953 given the industry’s nationalisation following establishment of the People’s Republic of China (Lee, Gilmore, & Collin, 2004). China National Tobacco, a state monopoly that is by far the biggest cigarette maker in the world, plans to list its international unit on the Hong Kong stock … The overall vision of provincial reforms has been to establish a three-tiered system, with municipal factories becoming subsidiaries (with legal authority) or branches (without legal authority) of provincial industrial companies, and the latter acting as CNTC subsidiaries (Liu, 2006). High profits and tax revenues sustained government support in China for cigarette manufacturing at the provincial, municipal and county levels over many decades. In 1999, JTI licensed production of Mild Seven to Shanghai Gaoyang International Tobacco Company (Lai, 2009). The tobacco industry contributed ¥840.4 billion (equivalent to about US$122 … We use cookies to improve your website experience. China National Tobacco Corp, the world's largest maker of tobacco products by revenue, announced during its annual meeting in Beijing last week that … The result was an increase to 11% market share within two years (Zeng, 2010). Overall, restructuring of the Chinese tobacco industry since the early 2000s has been seen by industry sources as a key strategy for CNTC to become globally competitive. It is believed that CNTC may follow in the footsteps of JTI, eventually pursuing public listing for the most successful firms, but remaining part owned by government (Anon, 2003). The China National Tobacco Corporation (CNTC), which produces one-third of the world’s cigarettes, is the largest tobacco company in the world. At the time of writing there are negotiations for a similar JV between Yunnan Tobacco Industrial and Imperial Tobacco (Yu, 2015). The China National Tobacco Corporation: From domestic to global dragon? Map of distribution of CNTC’s foreign-based operations. Local monopoly bureaus regulate and administer the industry at the provincial level (Xu & He, 2003). In 2008, CNTIEG became China Tobacco International (CTI), focused on supporting ‘CNTC’s strategic need to “go global”’ (Wang, 2008). In 2004, STMA announced plans to limit mid- and higher-priced brands to one hundred within three years (STMA, 2004). China National Tobacco Corporation. However, the industry was also highly uncoordinated, controlled at the provincial level by local monopoly offices reporting to ministries of light industries, commerce and other financial entities (STMA, 1997). Profits and tax revenues were distributed among the central and provincial governments, CNTC and various subsidiaries (State Council, 1981). In 2003, Anhui became the first province to implement these reforms by establishing Anhui Tobacco Industrial to manage the assets of five manufacturers (Zhou, 2004). In 2012, CTPMI opened an office in the Democratic Republic of Congo to launch heritage brands (CTI, 2014c). Focusing on quality over quantity, underperforming brands and markets were subsequently dropped, and exports declined to an all-time low in 1998–1999 (STMA, 2000). Formally separate entities, in practice the CNTC and STMA are ‘one institution with two name plates’ (STMA, 1997) governing the industry through a vertical bureaucracy (Wang, 2009). The paper concludes that the company has undergone substantial change over the past two decades and is consequently poised to become a new global player in the tobacco industry. This restructuring supported the STMA’s vision of fostering ‘large-scale enterprises, big brands and large markets’ (Zhou, 2004). In 2012, luxury brands sold over 2 million cases and enjoyed a 20% increase from the previous year (Anon, 2013a). Seeking to further decrease operational costs for greater profit margins, CNTC’s overseas operations strive to use locally grown tobacco leaf and hire locals where possible, thereby increasing efficiency through removing cultural and language barriers. Mar 2012 – May 2012 3 months. Figure 4. Industrial companies centralise the management of manufacturing and allow pooling of resources among factories (Tong et al., 2008). Source: Compiled from Liu and Ren (2009) and STMA (2000, 2002, 2003, 2005, 2006). Shanghai Tobacco licensed production of Zhongnanhai, Golden Deer and Red Double Happiness to JTI for distribution in Russia (Zhang & Zhang, 2013). Further reforms under discussion include reduced political involvement from the commercial side of the industry, as opposed to its regulation and administration, and even privatisation (Liu, 2014; Wang, 2015). Second, official Chinese data are government controlled and not verified by independent sources. Corporate governance reforms were also accelerated in 2005, with manufacturing facilities becoming limited liability companies led by boards of directors (Liu, 2006). In 1963, the China Tobacco Industrial Corporation was established to try to achieve greater efficiencies through centralised management of procurement, production and sales (STMA, 1997). The China National Tobacco Corporation (CNTC), which produces one-third of the world's cigarettes, is the largest tobacco company in the world. For example, RJR licensed the Xiamen Cigarette Factory to produce Camel cigarettes in 1980 (Lin, 1984). Source: Compiled from BAT (2013), CTI (2014a), CTIEC (n.d.), Hongta Group (2010), MOFCOM (2015), Namibia Oriental Tobacco (n.d.), STMA (2006), STMA (2009, 2012), Tobacco-free Kids (2010), United Castle America (n.d.) and Zhejiang Tobacco Industrial (2015). Chinese cigarette exports date from the creation of the China Shenzhen Tobacco Trading Centre in 1984. China National Tobacco Corporation operates as a tobacco company. As Holden et al. Value of tobacco exports, 1992–2013 (US$ millions). Domestically, the market has neared saturation among adult males with 53% smoking prevalence rates. These are likely to appeal to overseas Chinese, rather than serve as global brands, given their close affinity with Chinese cultural tastes and practices. This work is supported by the National Cancer Institute, US National Institutes of Health [grant number R01-CA091021]. Figure 6. The primary and secondary data sources were compiled into a chronological narrative according to these three questions. The China National Tobacco Corporation (CNTC) and Philip Morris International (PMI), an international operating company of Altria Group, Inc., (NYSE:MO), … In 1993 PMI signed licensing agreements for Marlboro (Shanghai Cigarette Factory) and other brands (Lai, 2009; PMI, 1993). Import quotas remained in place, but import tariffs were reduced from 70% in 1996 to 25% in 2004, along with opportunities for wider distribution of foreign brands. Supported by favourable government policies and substantial resources, the restructured domestic industry has achieved greater economies of scale. Source: Compiled from UN Comtrade Database (2015). Over the past 60 years, the CNTC has been focused on supplying a huge domestic market. Consider these numbers: In 2013, the China National Tobacco Corporation (CNTC) manufactured 2.5 trillion cigarettes. In 1983, the State Council established the State Tobacco Monopoly Administration (STMA) as the industry’s administrative and regulatory body (State Council, 1983). Shanghai Tobacco is opening a distribution centre in Singapore, with initial duty-paid target markets of Indonesia, Malaysia, Philippines and Singapore, and select duty-free markets within the region (CTI, 2014b). This analysis shows that the ‘go global’ ambitions of the Chinese tobacco industry have been spurred by both internal and external forces. Connecting decision makers to a dynamic network of information, people and ideas, Bloomberg quickly and accurately delivers business and financial information, news and insight around the world. Figure 1. China National Tobacco Corporation (China Tobacco) is a State Owned Enterprise located in Beijing China, Asia., SWFI has 2 subsidiaries, 1 personal contacts available for CSV Export. Third, CNTC is an ‘efficiency seeker’, setting up overseas operations in key strategic areas to target-specific markets. To reassert central control, the CNTC was formed in 1981 to manage the 28 provincial companies (State Council, 1981). Tobacco industry interest in foreign expansion was first raised following China’s signing of the General Agreement on Tariffs and Trade in 1993. China tobacco imports [data file], 2016. Source: Anon (2014). The industry is likely to remain state-owned and controlled for the foreseeable future. Third, we found inconsistencies in data on key indicators from different sources. In 2015, a link between the ‘One Belt, One Road’ and ‘Go Global’ strategy was announced to improve CNTC’s access foreign markets (Qing, 2015). The limited scholarly attention to globalisation and the CNTC to date has come largely from business studies (Wang, 2009). The paper does not draw on industry documents held in the Truth Tobacco Documents Library. By closing this message, you are consenting to our use of cookies. Register to receive personalised research and resources by email, An International Journal for Research, Policy and Practice. The paper assesses the extent to which this strategy has been successful to date, the likely prospect that China will join the ranks of existing TTCs, and the implications for tobacco control worldwide. This initiative refers to the extension of the so-called Silk Road Economic Belt, linking western China with Europe through Central Asia, to the new Maritime Silk Road from China’s southern coast to Europe via North Africa and Southeast Asia (Knowler, 2015). China National Tobacco Corporation is a tobacco firm based in Beijing. Using Chinese and English language sources, this paper describes the globalisation ambitions of the CNTC, its global business strategy focused on internal restructuring, brand development and expansion of overseas operations in selected markets. View more. Jennifer Fang http://orcid.org/0000-0003-2676-8571, 1. Given potential erosion of domestic market share, as in Japan and Taiwan, along with China’s signing and later ratification of the Framework Convention on Tobacco Control (FCTC), firmer plans were made to ‘make up for domestic losses overseas’ (Zhou & Cheng, 2006). Political instability and conflict over decades undermined attempts to regulate the industry (STMA, 1997). In 2003, the industry was called upon to ‘actively implement the “go global” strategy to establish stable international markets’ (STMA, 2004), coinciding with the removal of the requirement for retail permits to sell foreign cigarettes in China (Tong et al., 2008). Provincial governments also introduced protectionist measures in the 1990s, including near monopolies, to protect local companies regardless of productivity and efficiency (Wang, 2009). For example, there were negotiations between Hongta Group and Donskoy Tabak in 2012 for Hongta’s purchase of 0.5% share of Russia’s largest national tobacco manufacturer. Establishing local leaf procurement companies in key tobacco growing regions of Brazil, Zimbabwe and the USA ensures a steady supply to feed growing industry needs both domestically and abroad. In 2011 the first annual meeting on tobacco market expansion was held which adopted a three-step strategy for export growth: (a) market entry and establishment of a distribution network; (b) licensed production by local manufacturers; and (c) establishment of local production facilities (Ju, 2011). Below, the same research outputs are grouped by subject. Foreign operations established during the early 1990s were limited in scope and focused on Asia, notably Laos, Cambodia and Myanmar. Finally, trends in exports suggest an increasingly outward looking Chinese industry. First, historically, a large number of Chinese companies manufactured thousands of local brands at many different price points (Anon, 2014). However, given the economic and political importance of the industry, including its significant contribution to public revenues, wholesale privatisation is unlikely to precede the pursuit of a global business strategy in the near future (Wang, 2015). In 2008, a ‘merger of two giants’ occurred between Yunnan’s Hongyun and Honghe Groups, forming the Hongyun Honghe Tobacco Group. Over the past 60 years, the CNTC has been focused on supplying a huge domestic market. The CNTC undertakes central planning, manages raw materials, sets regional production quotas for leaf and products, and is the umbrella company for provincial firms. Much secondary analyses, in turn, are based on official sources. From 1991 to 1995, CNTC exported over 100 brands to 37 countries including Virginia (flue-cured) cigarettes to Southeast Asia; blended cigarettes to Europe, the USA, Russia and Africa; and herbal cigarettes to Korea and Japan (STMA, 1996). Despite an STMA price cap, anti-corruption measures and public smoking ban for government officials (China News, 2014), production and sale of luxury brands continued to rise (Feng, 2014b). In exchange, PMI and the China National Tobacco Import and Export Group Corp. (CNTIEGC) established a 50-50 joint venture to offer a range of Chinese brands on the global market, expand the export of tobacco products and tobacco materials from China and explore other business opportunities. Given continued exclusion of TTC competition by the Chinese import quota system (Lee et al., 2004), and size of the domestic market, initial industry efforts were limited. By China National Tobacco Corporation. Mid-priced products saw modest growth, while the economy segment fell dramatically from 59.7% to 28.3% during the same period (Euromonitor, 2013, 2015). The major reason as to why CNTC entered into joint venture with the U.S Company called Celanese Fibre Corporation was to seek partnership in … This began to change in the mid-2000s as the CNTC looked to expand foreign production and distribution of Chinese brands. The China National Tobacco Corporation (CNTC), which produces one-third of the world’s cigarettes, is the largest tobacco company in the world. Figure 3. Looming WTO access prompted a more strategic approach to exports. CNTC has been exporting since the 1980s, but the scale and reach of exports since the late 2000s suggests a more concerted strategy. The Company produces cigarettes, flue cured tobacco, and other products. (2016), for which there is available data, CNTC appears poised to ‘go global’, but its global business strategy is unlikely to follow the pattern of existing TTCs. View more. (2010) describe, TTCs pressed hard to access the closed Chinese market during accession negotiations. The China National Tobacco Corporation (CNTC), which produces one-third of the world’s cigarettes, is the largest tobacco company in the world. China National Tobacco also operates import and export businesses. In 1986, Huamei was established in Xiamen’s Special Economic Zone (SEZ) as an equity JV between Xiamen Cigarette Factory and RJR, developing Golden Bridge as a leading brand by 1989 (Lai, 2009). View more. Joint brands include Win and Xingxin, developed by Hongyun Honghe Group and Myanmar’s Fu Xing Brothers Group (Lei, 2013), and Zhongnanhai (Totem) developed by Shanghai Tobacco and the Chinese-Mongolian JV (CTI, 2014a). If even partially realised, the global ambitions of the Chinese tobacco industry will have profound impacts for public health. The foreign operation produces brands of the respective parent companies or licensed production of other companies. This article is part of the special issue ‘The Emergence of Asian Tobacco Companies: Implications for Global Health Governance’. There has been substantial consolidation, to transform a highly fragmented and inefficient industry, into fewer, larger and more competitive firms with clearer geographical (national, provincial and municipal), functional (manufacturing, sales and administration) and regulatory (central and provincial STMAs) delineation. Over the past 60 years, the CNTC has been focused on supplying a huge domestic market. In 2013, CNTC sold 70 billion sticks overseas comprising 74 brands. This, in turn, would lead to a gradual shrinking of domestic market share. To address these three caveats, triangulation of multiple data sources was undertaken where possible. It is owned by the Chinese government and enjoys… As the market has become increasingly saturated, and potential foreign competition looms, the company has turned to expansion abroad. The China Tobacco Yearbook (1981–2014) was reviewed for information on key strategies and annual industry performance. During the first half of the twentieth century, the industry was dominated by BAT with 82% of market share (Tong, Tao, Xue, & Hu, 2008), and a handful of domestic companies (Benedict, 2011). As observed by industry analysts, As domestic firms in China mainly dominate the local cigarette industry, the industry’s globalization level is relatively low and is expected to remain low in the future … .The industry’s globalization level is low due to the low foreign ownership levels of the industry’s firms in China. Similarly, CNTC Director Xun Xinghua declared that the industry was ‘seizing all opportunities to expand and occupy foreign markets’ (Anon, 1993). China, COVID-19 Impact and Recovery Analysis | Tobacco Market Procurement Intelligence Report Forecasts Spend Growth of over USD 190, COVID-19 Impact and Recovery Analysis | Tobacco Market Procurement Intelligence Report Forecasts Spend Growth of Over USD 190, Tobacco Transformation Index Finds Most of the 15 Largest Tobacco Companies are Failing to Advance Harm Reduction, Conflicts Among State-Owned Global Tobacco Companies and Governments Impede Tobacco Control Efforts, Burden of COVID-19 on the market & rehabilitation plan | Tobacco Market 2019-2023 | Demand for Smoking Tobacco Products to Boost. Production and revenues rose dramatically, and tobacco taxes remitted increased from 4.1 billion RMB during 1958–1962, to 5.6 billion RMB during 1963–1966 (STMA, 1997). Hover over the donut graph to view the FC output for each subject. This was reduced to 30 brands by 2014, with many tailored to key markets (Feng, 2014a). As CNTC increasingly mimics the globalisation strategies of TTCs, there is a need to now include China, along with other emerging TTCs, into global tobacco control efforts. China National Tobacco Corporation operates as a tobacco company. Shanghai City, China - Participated in a project about designing an automatic package flow line In 2013 it manufactured about 2.5 trillion cigarettes. TTC hopes that these agreements would lead to greater market access were disappointed in 2006 when the government announced a ban on all new manufacturing facilities, including JVs with foreign companies, as part of stronger tobacco control measures (Ding, 2006). CNTC annual production and export in billions of sticks (1980–2013). For example, Yunnan Tobacco would target Southeast Asia (Zhu & Tian, 2007). 5 Howick Place | London | SW1P 1WG. Alongside consolidation, CNTC has pursued a strategy of premiumisation since 2008. The China National Tobacco Corporation (CNTC) is the largest tobacco company in the world. In 2010, seven brands exceeded US$4.4 billion in annual sales, with five brands – Hongtashan, Baisha, Double Happiness, Furongwang and Chungwa, seeking to sell over 5 million cases (US$14.7 billion) annually (Zeng, 2010). These remaining brands held larger domestic market share. While they pressed for full or part-ownership of local manufacturing, the STMA limited JVs to leaf production and licensed manufacturing of foreign brands by Chinese companies (Lee et al., 2004). Another indicator of globalisation is product development to promote a small number of Chinese ‘heritage’ brands overseas, as well as premium brands. For instance, Viniton Group and Lao Liaozhong Hongta Fortune Tobacco have established production and distribution bases in Southeast Asia. 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