Philip Morris Changes its Business Structure

Published on January 18th, 2012 00:00

With the regulatory environment that becomes stricter in the West, Philip Morris International is planning to differentiate its strategy depending on the region it operates in.

Philip Morris

In developed economies, cigarette companies have acknowledged the fact that smoking rate will drop and are left with no alternative but to increase the prices occasionally to make up for decreasing volumes. Also, cigarette companies are moving forward smokeless tobacco products which are considered to be less dangerous than regular cigarettes. At the same time, languid regulations and increasing net disposable incomes in developing and transition economies present a great opportunity for the company to raise the cigarette volumes by artificially lowered prices, or reduced prices to capture market share. Philip Morris International has powerful rivals as British America Tobacco and Imperial Tobacco Group in various geographical segments. We have a $75 price determination for Philip Morris International, which is approximately 5% lower than the market price.

Philip Morris dropped the prices of its popular Marlboro cigarette brand by 40% in Senegal. For instance a package of Marlboro cigarette can be bought in US for $6; the same brand in Senegal is sold for only 79 cents. This occurs despite of the fact that up-scale cigarettes as Marlboro are taxed are levied at 45% in the country. The low-cost, locally produced cigarettes are only levied 20%. Also there is no any law banning the sale of tobacco products to young people in Senegal. It was found out that about 33% of adults and 20% of teens are already smoking. The given move will help Marlboro rival against the locally-produced smokes.

According to estimates East Europe, Middle East and Africa comprise 23% of the company’s stock price. The price reduction will help the company raise the market share step-by-step from 23.1% at present to about 23.6% by the end of 2014. Australia’s Federal Government charged Philip Morris Asia of changing its business structure in order to start legal proceedings the plain packaging regulation. A month ago, the company sued the Australian government blaming it of infringing Australian-Hong Kong Bilateral Investment Treaty.

In March 2010, Philip Morris Asia got a stake in Philip Morris’s Australia operation as it knew that plain packaging law was going to be adopted. Tobacco industry will probably face troubled moments in future as the legal and regulatory framework becomes severe. However, there are still great number of regions in the world that allow essential opportunities for tobacco companies to establish their lodgment.

By Kevin Lawson, Staff Writer. Copyright © 2011 All rights reserved.

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