into the Future
Ceylon Tobacco:Growing in a controversial market
What is CTC's overall aim with regard to Sri Lanka in the long-term?
We are a tobacco-manufacturing organisation. We manufacture and
sell cigarettes to adult consumers who wish to make an informed
choice. In Sri Lanka the total tobacco market is about 10 billion
sticks. CTC controls 47 percent of this market.
is also the beedi market, smuggled and counterfeit market and the
illicitly manufactured cigarettes. CTC believes that this is a sustainable
industry in the future. We have to generate profits for our shareholders
within the parameters of the concerns raised by the stakeholders.
So we have to look at it from that point of view. CTC totals 10
percent of national tax revenue. Last year we contributed Rs. 25
billion in customs duties, excise, and corporate taxes. Altogether
CTC adds a substantial amount to the government coffers.
is achieving growth in terms of turnover and profits in Sri Lanka.
How does this compare with other British American Tobacco (BAT)
subsidiaries around the world and how significant is CTC's returns
with that of its counterparts in the region?
depends on each market. In the Asia-Pacific region to which we belong,
the markets have turned in profits. You have to be competitive on
quality and price and deliver what the customer demands. Our customer
is an adult customer and we have to focus on what he wants. Whatever
we export we have to be competitive on cost and quality. One of
the major tasks of BAT is to drive productivity. Our BAT strategy
is to establish the leadership position in the tobacco market.
three pillars that we work on in order to do this is concentrate
on both acquisitive and organic growth, productivity and responsibility
because we are marketing a controversial product. We have over the
years been extremely productive and have been able to meet shareholder
expectations through very good management practices in the reduction
of cost, increasing of productivity within the factory and through
our suppliers as well. Eight years ago our leaf producers produced
600 kg of leaf per hectare and now they produce 1200 kg per hectare.
We have done two things to achieve this. We have increased the farmer's
wealth through productivity improvements rather than increase the
a quasi monopoly, does it give you a competitive advantage or is
it better if you had competition?
We consider ourselves to have competition. We benchmark
ourselves against the region and the BAT world in general. CTC believes
that if the company doesn't have competition you will never improve
your quality and professionally manage your business. Sri Lanka
is considered as a centre for management excellence in the BAT,
because we focus on these areas.
has moving out of advertising affected your bottom line?
We are a mature market. By advertising we are only creating brand
awareness among smokers. This is a line that the anti-tobacco lobby
will never accept. Our sales were about 60 percent of the total
tobacco market in 1986. Today it has fallen to 47 percent. This
is because of education and people are responsive to the risks associated
with smoking. The Chairman of BAT in his exit interview last month
had stated that if the market has become smaller, we have to live
with it. We are growing in a contracting market.
apparently faces stiff competition from illegal brands such as Gold
Seal and counterfeits. Are these locally made or imported?
far as we are aware they are imported.
Sri Lankan government appears to be the biggest beneficiary in terms
of tax revenue from CTC. Does the government provide the relevant
support in combating the menace of illicit cigarettes?
Very much, because they know that their revenue streams
are also being affected. The government authorities have gone all
out to support us and we very much appreciate their support.
is the tax composition in the price of a cigarette?
Approximately 80 percent. The average tax composition
in other nations is around 55 percent. Raising the price will develop
the black market. There is a fine line between social cost and black
illicit cigarettes and counterfeits pose higher health risks to
That I am not prepared to say because we have not analysed it. We
don't know what the quality of the products are.
habit of smoking appears to be declining in particular among the
urban Sri Lankan population. Does this affect CTC's business?
Yes, it does. Unless you have taken management decisions
such as increasing productivity and cutting down cost, it does affect
is BAT's overall strategy towards the global decline in smoking?
Globally smoking is more or less stagnant, and BAT will continue
to look towards increasing their share within the market.
tobacco industry is globally faced with an aggressive anti-tobacco
lobby. How is CTC combating this?
We educate our retailer universe as to why they should
not sell cigarettes to youngsters. We also carry messages at retail
points. We are not the enforcers of the law. The law prohibits anyone
under the age of 16 purchasing a cigarette. However we have instructed
our retailers to sell cigarettes to adults over 18. There is no
law that prevents us from advertising, though there is a perception.
We have on a voluntary basis withdrawn from advertising because
there was a perception among the public that advertising attracts
smoking. However it is not necessarily that a consumer buys a shirt
each time it is advertised.
we have to respect public perception. Then we came out with a voluntary
code for our marketing activities in 2000. Now there is not a single
board talking about John Player Gold Leaf and we don't do any product
sponsorship. We do corporate sponsorships only, such as backing
an artist's exhibiting or supporting a book publication.
is a collective decision that we have taken to follow a voluntary
code of marketing. We constantly have discussions with stakeholders.
We enhanced our code in 2002. In Sri Lanka we reached a peak in
the late nineties. Despite being strict about our marketing activities,
we still get complaints. Our marketing department is very committed
to enforcing the voluntary code that has been agreed to.
are ethical dilemmas with regard to smoking such as smoking among
young individuals, smoking related diseases and individuals spending
excessive funds on smoking while neglecting other priorities. How
can CTC as a tobacco company address these?
We are totally against under aged smoking. We have always
maintained that position.
regard to health issues we agree. That is why we always encourage
people to be aware of the product, be conscious of the health risks
associated with it. Smoking should be an informed adult choice.
People make lifestyle choices. Our product is controversial and
we make no bones about it.
it possible to develop new types of cigarettes, which actually do
not have any medical implications while providing the relevant satisfaction
to the smoker?
We are working on it. CTC is not part of the research
umbrella but our parent company is working on it. We have not done
local research on this.
is involved in many projects of social responsibility and community
development in Sri Lanka. How does this help towards the business
strategy of the company?
I don't perceive it as a business strategy. The modern
shareholder does not only think about the return, but also wants
to know how the business is conducted. You have to be open and transparent.
They ask how the company contributes to the community within which
they operate. Profit is not the only motive of the shareholder anymore.
have introduced a technique called Sloping Agricultural Land Technology
(SALT) by which soil erosion is prevented in the hilly areas and
add nitrogen back to the soil.
are the major challenges faced by CTC in Sri Lanka in the course
of its day-to-day operations?
Counterfeits and illicit cigarettes are the biggest challenges.
have been in the company for the past 31 years. What was the most
challenging moment you encountered in your career with CTC?
The greatest one is that we have seen a tremendous transformation
in the culture of the company. Up to 1990 we were voted as the worst
employer - employee relations management company, but today we are
the best. We are very open and transparent with the workers. There
is no compartmentalised thinking.
peace process and the cessation of hostilities - has it contributed
towards the bottom line of the company and how?
Markets have opened up. Quietly but slowly the markets
are moving up. We were always there in the north and the east, but
the point of penetration or the product availability was at times
an issue. Peace has certainly contributed in a big way.
has a work force of around 390. How is your labour turnover and
what mechanisms do you have in place to retain and develop your
Retaining is easy because the wages are high. We have a good training
structure in place, which helps retain our people. When there is
an eight to nine percent growth rate in the labour market, then
the labour turnover is going to be low. Also our career development
process is very good.
has a separate subsidiary by the name of Advent the role of which
is providing IT consultancy. How does Advent add value to CTC, BAT
and are there plans to provide services to others outside the BAT
We have a very good IT base and have agreed to provide
support to other BAT companies.
you see potential for the Sri Lankan economy and how do you think
that Sri Lanka can make it into the league of developed nations?
We have enormous potential. However we have to recognise and effectively
market Sri Lanka as a product, overseas. Then you need to identify
the platforms on which the economy can be developed. Infrastructure
is a must. Telecommunication and transport have to follow. We have
a highly educated population, but our educational thrust has to
change, to meet the identified demands of the economy.
education is a must to be competitive and to communicate with the
rest of the world. This is a way of getting into the league of the
Tiger nations. Also we need to change our mindset.