I. The history of Philip Morris International begins in 1847, when Philip Morris opened his first tobacco store in London England. When Philip Morris died, his wife Margaret and brother Leopold took over the business. Philip Morris went public in 1881 as Philip Morris & Company. Four years later, Philip Morris & Company became Philip Morris & Co., Ltd. PM & Co., Ltd. left the Morris family’s control in 1894, when it was taken over by William Curtis Thomson and his family. In 1902, Gustav Eckmeyer incorporated Philip Morris & Co. Ltd. in New York. 1919 was an important year for PM & Co., Ltd.: the Philip Morris coronet logo was introduced, the company was acquired in the United States by an American, shareholder held company, and it was incorporated under the name Philip Morris & Co., Ltd., Inc. in Virginia. In 1924 the Marlboro brand was introduced, and would become the company’s most famous brand. In the mid-1950s, PM & Co., Ltd., Inc. launched Philip Morris International (PMI) to manufacture and market its products worldwide.
Philip Morris (Australia) became the first affiliate outside of the United States to produce and market the company’s products in 1954. Marlboro was first manufactured outside the US in 1957 in Switzerland. Ten years later, in 1967, Philip Morris & Co., Ltd., Inc. established separate companies to each be responsible for specific parts of the company’s operations: Philip Morris Industrial, Philip Morris International and Philip Morris Domestic. Philip Morris International organized a license agreement with Japan Tobacco to begin manufacturing Marlboro cigarettes in Japan. PMI opens its largest factory in the Netherlands in 1980. This factory is still PMI’s largest in the world today.
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PMI is incorporated as an operating company of Philip Morris Companies Inc. in 1987 and two years later, PMI operating income tops $1 billion. In 1992, the largest single investment by a U.S. company in Europe at the time, PMI acquires a majority holding in Czech Republic Tabak AS, a state owned company, for $420 million. In 2008, PMI spins off from Altria, becoming the world’s largest international tobacco company. (Philip Morris International, 2014) “Our goals are to provide high quality and innovative products to adult smokers, generate superior returns for shareholders, and reduce the harm caused by smoking while operating our business sustainably and with integrity.” (Philip Morris International, 2014)
II. Organizational Strengths and Weaknesses
A. Strength: PMI owns Marlboro
1. Marlboro has been the number one selling cigarette brand in the world since 1972. (Philip Morris International, 2014) 2. Owning Marlboro, the number one brand in the world, is a distinctive competence because it is a huge advantage over its competitors. Marlboro has been the number one selling brand in the tobacco industry since 1972. It currently has sales greater than that for its four closest competitors combined. To become the bestselling brand in the industry, and maintain that standing for 42 years, shows the competence and grasp that Philip Morris International has on the worldwide tobacco industry.
B. Strength: PMI owns 7 of the world’s top 15 cigarette brands 1. Owning 7 of the world’s top 15 selling cigarette brands is a strength because it is a big advantage to own almost half of the top selling brands in a market. 2. With Marlboro taking a distinctive lead on the list and L&M as the third top selling cigarette in the world, PMI has a distinct advantage over their competitors. With PMI owning almost half of the top 15 selling brands, and the other half being owned by several different competitors, PMI has a much better chance of a cigarette purchase being one of their brands than anyone else.
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C. Weakness: In the tobacco industry
1. It is an organizational weakness to be in the tobacco industry because, while as one point tobacco was a growing market, due to legislation, taxation and public opinion, the industry is weakening. 2. Philip Morris International can minimize its weakness of being in the tobacco industry by increasing its development of Reduced-Risk Products (RRPs).
Reduced-Risk Products refer to products that could possibly reduce the risk of using tobacco products compared to smoking a combustible cigarette. PMI is currently working on this as shown in the opening of its first plant designed for the production of RRPs just outside Bologna, Italy. PMI is currently in the construction phase of a larger facility, with the same purpose, in Crespellano, Italy. It is expected to be operational by year’s end 2016. (Philip Morris International, 2014)
D. Weakness: Second Organizational Weakness
1. Reason it is considered a weakness
2. Discuss how the organization can minimize this weakness.
III. Opportunities / Threats
A. Opportunity: Chinese market
1. This opportunity comes from PMI’s external environment. The force creating this opportunity is a political/legal force because it is the government that has to allow PMI access in to the Chinese tobacco market. 2. The Chinese tobacco industry, while being almost completely state owned, accounts for more than 40% of cigarettes consumed globally. This is the largest tobacco industry in the world.
B. Opportunity: E-cigarette market
1. The E-cigarette market is an opportunity stemming from the company’s external environment. It is driven by the socioeconomic force as societies, globally, are realizing the health risks that come with traditionally smoking cigarettes. 2. The E-cigarette market is growing at a rapid rate due to the health risks that come from smoking traditional cigarettes. As the awareness of these risks grows globally, the e-cigarette market will become a socially acceptable replacement around the world.
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C. Threat: Higher tobacco related taxes
1. Higher tobacco related taxes are a threat that originates from the organization’s external environment. The force it is coming from is a political/legal force because the various governments dictate excise taxes. 2. Governments impose increased taxes on tobacco products for two reasons: public health issues and revenue. These various taxes can be between 30% and 80% of cigarette revenues in various countries. These tax increases and other unfavorable changes to the structure of how these taxes are figured lead to less demand due to higher prices. (Trefis, 2014)
D. Threat: Proposed anti-tobacco legislation
1. Anti-tobacco legislation is a threat that originates in the organization’s external environment. The force it is coming from is political/legal because legislation comes from the government. 2. Governments discourage cigarette and tobacco use by initiating anti-tobacco laws and legislation. Legislation such as limiting where you can smoke (i.e. only in designated areas or not indoors of businesses) discourages tobacco use. This then leads to reduced sales and therefore reduced profits. Anti-tobacco legislation, such as legislation calling for disclosure in various countries and mandating plain or generic packaging for tobacco products, can result in the government taking or modifying the property rights of a tobacco company’s trademarks for what it deems as being in the best interest of the people. (Trefis, 2014)
IV.Summary
A. Philip Morris, through a license agreement with state owned Chinese National Tobacco Corporation, in the only international company to have such an agreement. However, until the Chinese government decides to open the market to foreign companies, operations in the country remain limited and it is not expected to make any significant growth. PMI is working to develop some low-risk products to use as an alternative route to enter the Chinese market to help give it a competitive advantage. (Trefis Team, 2013) Because the tobacco industry is primarily state owned in China, the government has complete control over when Philip Morris International can take advantage of this opportunity. PMI has developed a new product called HeatSticks, as an alternative to traditional cigarettes, to allow it to compete in this market.
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HeatSticks will be produced and manufactured under the Marlboro name. Current e-cigarettes use liquid nicotine, while the HeatStick will use actual tobacco. The HeatStick will heat tobacco to 660 degrees Fahrenheit causing a vapor to be inhaled instead smoke as when burning the tobacco. Similar products “represent a potential paradigm shift for the industry, public health and adult smokers,” says CEO Andre Calantzopoulos. (Philip Morris to debut e-cig with real tobacco, 2014) B. As anti-tobacco legislation and increased taxes drive down the demand for tobacco products in developed countries, international tobacco companies, like Philip Morris International, have directed their efforts in developing and transitional economies around the world, like the Asian market.
They are creating demand in these countries through advertising, producing and selling tobacco products. It has shown to be an effective means of overcoming legislation in developed countries, as 84% of tobacco users live in these areas. International tobacco companies are also directing advertising and sales towards children in these countries, since the sooner a person gets addicted to tobacco, the longer they will be a customer of the tobacco industry. (Shah, 2014)
Works Cited
Philip Morris International. (2014).
Company Overview. Retrieved November 14, 2014, from www.pmi.com: http://www.pmi.com/eng/about_us/company_overview/pages/company_overview.aspx
Philip Morris International. (2014).
Our Brands. Retrieved November 16, 2014, from www.pmi.com: http://www.pmi.com/eng/our_products/pages/our_brands.aspx
Philip Morris International. (2014).
Our History. Retrieved November 14, 2014, from www.pmi.com: http://www.pmi.com/eng/about_us/pages/our_history.aspx
Philip Morris International. (2014, October 10).
PMI opens pilot plant and celebrates groundbreaking on construction of new manufacturing facility for potentially reduced-risk products. Press Release. Retrieved November 16, 2014, from http://www.pmi.com/eng/media_center/press_releases/Pages/201410101014.aspx
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Philip Morris to debut e-cig with real tobacco. (2014, June 26).
New York Post. Retrieved November 16, 2014, from http://nypost.com/2014/06/26/philip-morris-to-debut-e-cig-with-real-tobacco/
Shah, A. (2014, January 5).
Tobacco. Retrieved November 16, 2014, from Global Issues: http://www.globalissues.org/article/533/tobacco#ExpandingintoDevelopingNationsMarkets
Trefis. (2014).
Philip Morris International (PM).
Retrieved November 14, 2014, from www.trefis.com: http://www.trefis.com/stock/pm/model/trefis?freeAccessToken=PROVIDER_cdf8c3471854385cf55ca0dd3cf7d9d1fd516873#
Trefis Team. (2013, March 5).
A Closer Look At Philip Morris’ Asia Opportunity. Retrieved November 14, 2014, from www.forbes.com: http://www.forbes.com/sites/greatspeculations/2013/03/05/a-closer-look-at-philip-morris-asia-opportunity/
