British American Tobacco in South Korea
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Case Details:
Case Code : BSTR254
Case Length : 22 Pages
Period : 1998-2006
Pub Date : 2007
Teaching Note :Not Available Organization : British American Tobacco
Industry : Tobacco
Countries : South Korea
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Please note:
This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.
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"BAT Korea and Samsung Tesco can be seen as two of the
biggest overseas successes. They realized the importance of localization as the
main key to success in the Korean market at an early stage and acted upon it,
instead of insisting on operating based on business strategies that would only
work elsewhere."1
- Na Hong-suk, Senior Analyst at Good Morning Shinhan
Securities2, in 2006.
Introduction
For the year ending December 2006, UK-based tobacco company, British American
Tobacco Plc. (BAT) was the second largest company in the South Korean tobacco
market behind the local player Korea Tobacco & Ginseng Corporation (KT&G), which
had a market share of over 70%. The South Korean operations contributed
significantly to BAT's profits in the Asia-Pacific region for the nine months
ending September 2006. According to BAT's management, "In South Korea, profit
grew impressively with a strong growth in market share, driven by Dunhill and
Vogue, and cost savings. In addition, volumes were significantly higher,
reflecting volume distortions last year as a result of the excise increase at
the end of 2004."3
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In the year 2005, BAT had a share of 15.7% in the South
Korean Tobacco market, selling more than 13 billion sticks. The market was
valued at 11,514 billion Won4 in 2005 and
was estimated to grow to 13,212 billion Won by 2010.
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Though the market was estimated to grow in value
terms mainly due to an increase in prices, in volume terms, it was
estimated to go down to 77.4 billion sticks in 2011 as against 87
billion sticks in 2005.
The reduction in volume was attributed to the rising taxes and
widespread advertisements advocating the dangers of smoking and
consuming tobacco. BAT entered the South Korean market in the year 1998,
in the aftermath of the Southeast Asian economic crisis. After the
crisis, the South Korean government could no longer say no to
privatization and it allowed foreign companies to operate in the
country. |
British American Tobacco in South Korea
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