7th December 1997

Tobacco sales take unprecedented plunge

During the first nine months of the year, cigarette sales -volumes of Ceylon Tobacco Company fell by 6 per cent, the biggest fall the company has seen in recent history.

The company says competition from non duty paid smuggled cigarettes and the emergence of a new white cigarette with a filter has depressed sales.

But the anti tobacco lobby strongly disputes these claims saying a part of the reduction is due to people moving away from tobacco addiction.

"We have found that there is a marked reduction in young people starting to smoke," a spokesman for the Anti Drug Information Centre (ADIC) said.

"People are also starting to quit smoking, this is perhaps reducing sales by a relatively small margin."

ADIC says they have so far not come across an illegally manufactured filter cigarette though a beedi wrapped in white paper like a cigarette without a filter has been in the market for some time.

"We have links around the country so if these are widely available we would know about it," an ADIC official said. However CTC says it has samples of the product.

ADIC believes the CTC is deliberately blowing up the issue in an attempt to get the government to reduce the excise duty on tobacco.

A spokesman for CTC denied the claim saying their figures were monitored by the government. "We have information that two or three cigarette making machines had been imported from China," the spokesman added.

Despite the drop in the volume of sales, overall revenue has grown to Rs 13.8 bn during the first nine months of the year from Rs 12.9 bn the pervious year. After-tax profits have also climbed to Rs 402 mn from Rs 370 mn.

CTC says higher export sales have helped improve turnover. Analysts also say the marketing of high margin up market brands and staff cuts have helped boost the bottom line.

"The negative financial impact of smuggled cigarettes is tremendous for the government of Sri Lanka and the CTC," the company said.

The industry once came out with an estimate of a Rs 1. 5 bn annual loss of government revenue due to smuggling. However the anti tobacco lobby believes these claims are wildly exaggerated.

ADIC says that in Canada the tobacco industry itself was once blamed for introducing smuggled cigarettes to the market to stampede the government into stopping a hike in tobacco excise duty.

CTC says it estimated the loss from the amount of duty they would have paid the government if they had retained their market share. However anti - tobacco lobbyists say this is an inaccurate method of calculating because it completely ignores the loss of market share due to people being weaned away from tobacco addiction.

Ceylon Tobacco Company pays more than Rs 13 bn in taxes to the government each year, which analysts believe may be substantially more than the expenditure incurred by the government in treating tobacco related illnesses.

In recent months the tobacco industry has faced severe setbacks in the US judicial system and companies have been forced pay out compensation. US tobacco giants have also been accused of deliberately suppressing medical evidence they have themselves gathered on how harmful tobacco addition is. Some countries have also banned cigarette advertising in sports, especially Formula One motor racing. The EU is also debating the issue of banning tobacco advertising in sports.

With the mounting outcry against tobacco addiction in the West, tobacco giants have increasingly turned to Asian emerging markets. They are accused of leading the female population and the youth into tobacco addiction by the use of unethical promotional tactics.

Lobbyists say in India a marketing campaign for cigarette in pink packaging targeted at females was prevented following a public outcry.

Inter-firm comparison a precedent to Credit Rating

By Bandula K. Sirimanna

The absence of a system for ranking individuals and enterprises on their credit worthiness has been discussed very often as a hindrance to the development of a debt market in Sri Lanka. There is no argument about that; but just having a system of credit rating, however well thought out the system may be, is unlikely to earn overnight acceptance among the business community.

As it is, ranking corporations and making those acceptable to the corporations itself is going to be quite a task. That is where a system for inter-firm comparison will come into rescue those who are to administer a system of credit rating.

At the outset it should be borne in mind that the primary focus of inter-firm comparison should not be to facilitate credit rating. Instead, firstly, it should be treated as a tool for improvement of productivity among our industries. All the other benefits including its role in determining a credit rating for the firm would only serve to be that of by-products.

There have been several attempts in the history of business of Sri Lanka, to introduce this concept for improvement of efficiency and effectiveness of the organization. Unfortunately, none could get off the ground due to the absence of a willing and acceptable regulatory body, which can play the role of a neutral intermediary.

ln the wake of recent consciousness for improvement of productivity and development of Sri Lanka as a financial hub of South East Asia, I believe it is opportune to invite the attention of authorities once again to take over the pivotal role of administration of such a system. The objective of this article is to initiate a dialogue between intellectuals and practioners, as a prelude to such a task.

Homogeneous group

The comparison to be undertaken should initially be between two comparables. Any attempt to compare coconuts with arecanuts or for that matter, apples with oranges, is bound to bear disastrous results. Firm is no exception to that. In view of that, it will be prima facie to identify a homogeneous group, the members of which could be readily compared. The primary industry or service could be a suitable starting point.

If we take the operations in the financial sector as an example, basically we can classify that into two categories as banks and non-banking financial institutions. However, this classification is too broad for constituent members to be considered as a homogeneous group.To facilitate our process we may have to get down to the next level. There the banks can be broadly classified into three groups as:

a) Commercial , b) Development, and c) Savings.

At this level we get a set of players who could be readily compared with each other.With necessary adjustments and modifications this concept could be readily extended to manufacturing, trading and service sectors as well.

Having identified such groups within industry, basically we must promote them to meet and work as a team. Very often than not such people are already grouped themselves together for different motives. The FHA -Finance Houses Association, the forum for Finance Companies in Sri Lanka is a living example to such a group. In such an eventuality the task will be reduced to addition of yet another objective, along with the establishment of a regulatory body.

The third step in this regard is the development of standards to gauge the performance of firms operating within in such (a subset of) industries. What is significant here, is to develop standards that reflect the performance of all aspects of industry without limiting itself to financial ratios and indicators.

An area we neglect very often is the efficiency of operations that are not indicated by the standard ratios frequently being used by the financial wizards of the firms.

The next step is the most important in today's context. That is structuring the management information systems of all such members to furnish the necessary information at the required level, at the required time. The speed and the reliability are the two important aspects that are not to be compromised for the sake of one against the other.

Neutral body

The importance of a neutral body acceptable to all members of such group will come into play at the next stage. You have to get all participants to send statistics of performance of the firm for a period agreed in advance, preferably for one calendar month. The neutral body will process such information and publish the performance of the firms in ready to compare format.

The firm will be identified only by a code number in this publication and no firm-specific information that would help to identfy the participant will be published in this document. The participant firm will be informed of the code allocated, enabling them to compare and contrast with others.

The entire process of Inter-firm comparison, like any other management tool warrants careful planning especially, at the industry level. The commitment to the task at micro as well as macro level will be absolutely crucial for its success. Once put on the track the system will take the firm through phases with relative ease and its benefits will far outweigh the trouble that one has to undergo to set up the system.

Initlally the system will help to instill mutual trust and provide opportunities to learn from the experience of each other. That will in turn, shape the values and attitudes of the participant and transform the passive individual firms into learning organizations that can look forward to the next millenium with confidence.

The benefits described herein are only of a core nature and peripheral benefits like its role on credit rating will spill over into various quarters encompassing the entire economy.

Inter-firm comparison is a process that addresses different facets of management for improvement of productivity of individuals and industry in a simple but effective way. The cost of introduction of this scheme is virtually confined to commitment of the participants and authorities to the task.

Thus the opportunity on offer is of immense potential. Further it provides an opportunity to gain so much for so little. All in all it sounds to be the next most logical step forward. Can we afford to ignore the obvious any more?

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