Source: Compiled from STMA (1996–2014). This paper examines the ambitions and prospects of the CNTC to ‘go global’. State-owned enterprise China National Tobacco Corporation is a near monopoly, manufacturing 98 percent of the tobacco products in China, … As observed by industry analysts, As domestic firms in China mainly dominate the local cigarette industry, the industry’s globalization level is relatively low and is expected to remain low in the future … .The industry’s globalization level is low due to the low foreign ownership levels of the industry’s firms in China. This data exclude overseas production which has also risen sharply since 2008, reaching 1.57 million cases in 2014 (Qing, 2015). The Chinese industry is advantaged by sheer size, weak domestic regulation and government support for overseas expansion. The CNTC undertakes central planning, manages raw materials, sets regional production quotas for leaf and products, and is the umbrella company for provincial firms. The corporation was dismantled in the wake of the Cultural Revolution in 1966 (STMA, 1997) and the industry reverted to its former fragmented structure. Parent agency: State Council of the People's Republic of China: Website: www.sasac.gov.cn Faculty of Health Sciences, Simon Fraser University, Burnaby, Canada, Note: The CNTC and STMA also manage other tobacco-related entities including leaf, machinery, accessory materials, research institutes, technology centres and tobacco museums, China Council for the Promotion of International Trade. Local monopoly bureaus regulate and administer the industry at the provincial level (Xu & He, 2003). Applying Dunning and Lundan (2008), the industry can be seen to have shifted sharply since the mid-2000s, from largely domestic focused, to increasingly outward looking in four ways. One case contains 50,000 sticks of cigarettes. Registered in England & Wales No. Headquarter is set in Vancouver, BC and operation center in Toronto, ON. To understand the global business strategy of the Chinese industry, we searched the websites of the CNTC (http://www.tobacco.gov.cn), and industry news sites, Tobacco China (http://www.tobaccochina.com), Tobacco Market (http://www.etmoc.com) and China Tobacco (http://www.echinatobacco.com). Mar 2012 – May 2012 3 months. View more. As the market has become increasingly saturated, and potential foreign competition looms, the company has turned to expansion abroad. China National Tobacco Corporation, trading as China Tobacco, (Chinese: 中国国家烟草公司) is a Chinese state-owned manufacturer of tobacco products. In 2018, it donated over $45 million to multiple Charity Federations of the municipal and provincial level, including a $3.02 million donation to Wuxiang, Shanxi for constructing Migration Village, and a $3.1 million donation to Xiamen Foundation for Disabled Persons for charitable activities. A target of 8 million cases by 2020 was declared in 2014 with the aim of catching the sales volumes of leading TTCs (Anon, 2013b; Lu, 2014). Despite the size of the Chinese industry, given its domestic orientation, analyses of tobacco industry globalisation to date have focused on leading transnational tobacco companies (TTCs) (Lee, Eckhardt, & Holden, 2016). While negotiations appear to have been unsuccessful, industry analysts predict that the CNTC’s ‘massive current account surplus built up over years means that no company is too large to be purchased for cash’ (Euromonitor, 2008), a sentiment echoed by others (The Economist, 2014). In 2004, STMA announced plans to limit mid- and higher-priced brands to one hundred within three years (STMA, 2004). In 2014, the share of revenue contributed by foreign-funded enterprises (including those from Hong Kong, Macau and Taiwan) is expected to be only 0.1% of the industry’s total. These remaining brands held larger domestic market share. The findings of this paper suggest, however, that the Chinese industry has been steadily positioning itself to become a global player since the late 1990s. Over the past 60 years, the CNTC has been focused on supplying a huge domestic market. The primary and secondary data sources were compiled into a chronological narrative according to these three questions. Below, the same research outputs are grouped by subject. Over the past 60 years, the CNTC has been focused on supplying a huge domestic market. Previous analyses of the global tobacco industry recognise the importance of, but generally exclude, the CNTC because of its strong domestic focus. The result, a crowded and fragmented industry, was seen by the STMA as problematic ahead of WTO accession and foreign competition. China National Tobacco Corp, the world's largest maker of tobacco products by revenue, announced during its annual meeting in Beijing last week that … In 2003, Anhui became the first province to implement these reforms by establishing Anhui Tobacco Industrial to manage the assets of five manufacturers (Zhou, 2004). Mid-priced products saw modest growth, while the economy segment fell dramatically from 59.7% to 28.3% during the same period (Euromonitor, 2013, 2015). Industrial companies centralise the management of manufacturing and allow pooling of resources among factories (Tong et al., 2008). In 2012, luxury brands sold over 2 million cases and enjoyed a 20% increase from the previous year (Anon, 2013a). The searches used the keywords ‘China National Tobacco Corporation’, ‘Chinese tobacco industry’ and specific company names combined, using Boolean terms, with such terms as ‘global*’, ‘strategy’, ‘foreign’, ‘trade’ and ‘investment’. Tobacco companies are concerned with the sale and distribution within the province of all tobacco products regardless of where they are produced. As Holden et al. Domestically, the market has neared saturation among adult males with 53% smoking prevalence rates. The CTIEC targets Europe, while United Overseas (Panama) produces Chinese brands for the Americas (CTI, 2014, 2014c). Export markets have also begun to diversify beyond Asia. China National Tobacco Corporation. As stated by STMA Director Jiang Ming, to ensure long-term development of the tobacco industry, ‘we must follow a “Big Tobacco” strategy’ (Huang, 1993). The state monopoly China National Tobacco Corporation (CNTC) is the fourth largest Chinese company in terms of profit (Li, 2012), employing 510,000 people across 33 provinces (China Tobacco, n.d.), and contributing 7–11% of government tax revenues annually (Han, 2013). Shanghai Tobacco licensed production of Zhongnanhai, Golden Deer and Red Double Happiness to JTI for distribution in Russia (Zhang & Zhang, 2013). This was reduced to 30 brands by 2014, with many tailored to key markets (Feng, 2014a). China’s export-led growth, and status as the ‘world’s factory’ (Zhang, 2013), faced growing competition from lower-wage emerging economies by the late 1990s. In 2015, a link between the ‘One Belt, One Road’ and ‘Go Global’ strategy was announced to improve CNTC’s access foreign markets (Qing, 2015). At the 2013 meeting, five export manufacturing facilities in Shanghai, Guangdong, Yunnan, Hunan and Zhejiang, and Jilin were announced (Anon, 2013b), each focused on nearby regions and ‘cultural advantage’. Third, we found inconsistencies in data on key indicators from different sources. The China Tobacco Yearbook (1981–2014) was reviewed for information on key strategies and annual industry performance. This strategy is evident in agreements with TTCs supporting the development of Chinese brands. The China National Tobacco Corporation (CNTC), which produces one-third of the world’s cigarettes, is the largest tobacco company in the world. China National Tobacco also operates import and export businesses. The strategic location of major offshore production bases in each region is a clear indication of efficiency seeking. Despite an STMA price cap, anti-corruption measures and public smoking ban for government officials (China News, 2014), production and sale of luxury brands continued to rise (Feng, 2014b). (, Trade policy, health, and corporate influence: British American Tobacco and China’s Accession to the World Trade Organization, ‘Key to the future’: British American Tobacco and cigarette smuggling in China, The globalisation strategies of five Asian tobacco companies: An analytical framework, Tobacco industry globalization and global health governance: Towards an interdisciplinary research agenda, Breaking and re-entering: British American tobacco in China 1979–2000, Tobacco control in China: still a long way to go, Eyes on the prize: Transnational tobacco companies in China 1976–1997, China’s Tobacco industry and the world trade organization, Global-market building as state building: China’s entry into the WTO and market reforms of China’s tobacco industry, British American Tobacco’s tactics during China’s accession to the World Trade Organization. BAT was required to leave China in 1953 given the industry’s nationalisation following establishment of the People’s Republic of China (Lee, Gilmore, & Collin, 2004). The China Law Education website was searched for official decrees and statements related to the tobacco industry. Figure 2. It is believed that CNTC may follow in the footsteps of JTI, eventually pursuing public listing for the most successful firms, but remaining part owned by government (Anon, 2003). From 1991 to 1995, CNTC exported over 100 brands to 37 countries including Virginia (flue-cured) cigarettes to Southeast Asia; blended cigarettes to Europe, the USA, Russia and Africa; and herbal cigarettes to Korea and Japan (STMA, 1996). Tobacco Sales Bans are No Good. View more. Foreign operations have been established to secure tobacco leaf from Brazil, USA and Zimbabwe. CNTC has a market share of 44 % and sells about 99 % of its cigarettes in china. Import quotas remained in place, but import tariffs were reduced from 70% in 1996 to 25% in 2004, along with opportunities for wider distribution of foreign brands. In 1983, the State Council established the State Tobacco Monopoly Administration (STMA) as the industry’s administrative and regulatory body (State Council, 1983). Similarly, CNTC partnered with BAT to form China Tobacco British American Tobacco (CTBAT) International in 2013, with worldwide rights to BAT brand State Express 555, and Chinese brand Double Happiness outside of China (BAT, 2013). First, CNTC is a ‘natural resource seeker’, as the industry aims to source quality leaf to bring its products in line with TTC brands. Much secondary analyses, in turn, are based on official sources. By China National Tobacco Corporation. Finally, trends in exports suggest an increasingly outward looking Chinese industry. The Company produces cigarettes, flue cured tobacco, and other products. Another indicator of globalisation is product development to promote a small number of Chinese ‘heritage’ brands overseas, as well as premium brands. We sought information on industry restructuring, mergers and acquisitions (M&A), joint ventures (JV), foreign direct investment (FDI), target markets and product development. Hover over the donut graph to view the FC output for each subject. For example, land in the Zambezi region, Namibia has been leased to Namibia Oriental Tobacco to grow tobacco leaf for China, generating much controversy in a country with high levels of food insecurity (Dlamini, 2015). This analysis shows that the ‘go global’ ambitions of the Chinese tobacco industry have been spurred by both internal and external forces. On a global scale, CNTC profits exceed British American Tobacco (BAT), Philip Morris International (PMI) and Altria combined (Bloomberg News, 2012). The China National Tobacco Corporation (CNTC) is the largest tobacco company in the world. Leaf cultivation was firmly established by the mid-1800s, and smoking from the late nineteenth century with the automation of cigarette manufacturing. CNTC has great influence on the Chinese tobacco control policy, because its headquarters, its CEO as well as its organisational … As CNTC increasingly mimics the globalisation strategies of TTCs, there is a need to now include China, along with other emerging TTCs, into global tobacco control efforts. The China National Tobacco Corporation (CNTC), which produces one-third of the world's cigarettes, is the largest tobacco company in the world. High profits and tax revenues sustained government support in China for cigarette manufacturing at the provincial, municipal and county levels over many decades. Fourth, CNTC is a ‘strategic asset seeker’, as it monitors foreign markets seeking investment opportunities for business growth through M&A. CNTC annual production and export in billions of sticks (1980–2013). In 2006, this became known as the ‘two by ten’ strategy with plans to have ten large-scale manufacturers produce ten key brands. Figure 1. There is also rapid growth of Chinese offshore production with over half of the 50.4 billion sticks of Chinese cigarettes sold internationally (2011) produced overseas (STMA, 2012). The development of new brands, to appeal to a wider global market beyond Chinese diasporas, is likely to increase via JVs with existing TTCs. Political instability and conflict over decades undermined attempts to regulate the industry (STMA, 1997). In 2013, consolidation had reduced cigarette brands from around 2000 in the late 1990s to 90 (Figure 3). In 2003, STG and Gallahers signed reciprocal trademark license agreements and, the following year, launched each other’s brands in China and Russia (Gallaher, 2004). Between 1998 and 2009, this consolidation reduced the number of companies to one-sixth (Figure 2). China tobacco imports [data file], 2016. Foreign operations established during the early 1990s were limited in scope and focused on Asia, notably Laos, Cambodia and Myanmar. Joint brands include Win and Xingxin, developed by Hongyun Honghe Group and Myanmar’s Fu Xing Brothers Group (Lei, 2013), and Zhongnanhai (Totem) developed by Shanghai Tobacco and the Chinese-Mongolian JV (CTI, 2014a). For example, Yunnan Tobacco would target Southeast Asia (Zhu & Tian, 2007). China National Tobacco Corporation operates as a tobacco company. Alongside consolidation, CNTC has pursued a strategy of premiumisation since 2008. In 1998, President Jiang Zemin called on Chinese companies (including state-owned enterprises) to improve product development, pursue foreign markets, and establish manufacturing abroad (CCPIT, 2007). With annual sales of over 4 million cases, Hongyun Honghe is the world’s fourth largest by sales volume after PMI, BAT and Japan Tobacco International (JTI) (Anon, 2008). First, as a government-controlled monopoly, the CNTC is not required to report as a public company (e.g. Looming WTO access prompted a more strategic approach to exports. In 1985, the China National Tobacco Import Export Corporation (CNTIEC) was then formed to oversee trade of tobacco products, technology and accessories, as well as international economic cooperation (STMA, 1997). By the late 2000s, Chinese overseas supply chain has also improved. The paper concludes that the company has undergone substantial change over the past two decades and is consequently poised to become a new global player in the tobacco industry. The foreign operation produces brands of the respective parent companies or licensed production of other companies. China, COVID-19 Impact and Recovery Analysis | Tobacco Market Procurement Intelligence Report Forecasts Spend Growth of over USD 190, COVID-19 Impact and Recovery Analysis | Tobacco Market Procurement Intelligence Report Forecasts Spend Growth of Over USD 190, Tobacco Transformation Index Finds Most of the 15 Largest Tobacco Companies are Failing to Advance Harm Reduction, Conflicts Among State-Owned Global Tobacco Companies and Governments Impede Tobacco Control Efforts, Burden of COVID-19 on the market & rehabilitation plan | Tobacco Market 2019-2023 | Demand for Smoking Tobacco Products to Boost. In 1986, Huamei was established in Xiamen’s Special Economic Zone (SEZ) as an equity JV between Xiamen Cigarette Factory and RJR, developing Golden Bridge as a leading brand by 1989 (Lai, 2009). Beijing, 100045 Recommended articles lists articles that we recommend and is powered by our AI driven recommendation engine. In 1999, JTI licensed production of Mild Seven to Shanghai Gaoyang International Tobacco Company (Lai, 2009). For example, the removal of provincial protectionism allowed provincial manufacturers to sell their brands nationally, fuelling domestic competition and, in turn, product and brand development, and the expansion of successful companies (Wang, 2009). However, exports remained small-scale and distributed across many different companies. If successful, this will lead to increased global competition on price, new products and intensified marketing, all resulting in increased tobacco consumption. No potential conflict of interest was reported by the authors. The paper does not draw on industry documents held in the Truth Tobacco Documents Library. The international database UN Comtrade (http://comtrade.un.org/) was used to compile Chinese tobacco trade data. These were previously searched to understand market access strategy by TTCs into China (Holden, Lee, Gilmore, Fooks, & Wander, 2010; Lee et al., 2004; Lee & Collin, 2006; Zhong & Yano, 2007). Our more than 1,000 crews provide oilfield services in 55 countries. Source: Compiled from UN Comtrade Database (2015). To address these three caveats, triangulation of multiple data sources was undertaken where possible. In 2010, seven brands exceeded US$4.4 billion in annual sales, with five brands – Hongtashan, Baisha, Double Happiness, Furongwang and Chungwa, seeking to sell over 5 million cases (US$14.7 billion) annually (Zeng, 2010). At the time of writing there are negotiations for a similar JV between Yunnan Tobacco Industrial and Imperial Tobacco (Yu, 2015). The industry at the provincial level was also restructured into three distinct entities – industrial companies, tobacco companies and local monopoly bureaus (Zhou, 2004). A ‘long-term strategic cooperative partnership’ with PMI agreed in 2005 involves licensed production and distribution of Marlboro in China, and the establishment of jointly-owned China Tobacco Philip Morris International (CTPMI) to launch and distribute Chinese brands in foreign markets. Profits and tax revenues were distributed among the central and provincial governments, CNTC and various subsidiaries (State Council, 1981). In 2007, the so-called ‘two leaps’ was emphasised whereby leading provincial brands were encouraged to enter the national market, and strong national brands to enter the global market (Zeng, 2010). It produces one-third of the world’s cigarettes and for the past 60 years, has been focused on supplying its huge domestic market. Cited by lists all citing articles based on Crossref citations.Articles with the Crossref icon will open in a new tab. In exchange, PMI and the China National Tobacco Import and Export Group Corp. (CNTIEGC) established a 50-50 joint venture to offer a range of Chinese brands on the global market, expand the export of tobacco products and tobacco materials from China and explore other business opportunities. Using indicators set out in Lee and Eckhardt (2016), and Lee et al. About First China Tobacco First China Tobacco Company Ltd. (FCT) was established in 2012. We use cookies to improve your website experience. The China National Tobacco Corporation (CNTC) and Philip Morris International (PMI), an international operating company of Altria Group, Inc., (NYSE:MO), … First, historically, a large number of Chinese companies manufactured thousands of local brands at many different price points (Anon, 2014). The industry anticipated change following WTO accession. Hong Kong and Macau received substantial investment due to their SEZ status and proximity to the mainland. Shanghai City, China - Participated in a project about designing an automatic package flow line With nearly one-third of the world’s smokers (300 million), and 40% of global tobacco production (2.5 trillion cigarettes), China has the largest tobacco industry in the world (Li, 2012). Figure 5. These sources were used to map the industry’s history and changes to its structure over time. In 2013, CNTC sold 70 billion sticks overseas comprising 74 brands. In 2008, a ‘merger of two giants’ occurred between Yunnan’s Hongyun and Honghe Groups, forming the Hongyun Honghe Tobacco Group. Source: Compiled from STMA (1997) and Zhou (2004). Using Chinese and English language sources, this paper describes the globalisation ambitions of the CNTC, and its global business strategy focused on internal restructuring, brand development and expansion of overseas operations in selected markets. Export value (unadjusted) has also increased, from US$100 million in 1999 to US$500 million in 2013 (Figure 4). It is expected that CNTC will soon progress to M&As of small and medium-sized foreign tobacco companies, mimicking TTCs such as JTI and Imperial Tobacco (Qing, 2015). The industry’s focus on expanding overseas production is expected to continue, encouraged by favourable government policies (Feng, 2014a). These are likely to appeal to overseas Chinese, rather than serve as global brands, given their close affinity with Chinese cultural tastes and practices. In 1991, BAT agreed to license manufacturing of Derby by the Wuhu Cigarette Factory, while Rothmans was licensed by the Shandong-Rothmans JV (Lai, 2009). (IBIS World, n.d.). The China National Tobacco Corporation was founded in January 1982. The Great Leap Forward (1958–1960) and ensuing famine (1959–1961) slowed production to 5.1% annually (Benedict, 2011). The paper adopts the framework set out in Lee and Eckhardt (2016) to organise and analyse the factors assessing the global business strategy of CNTC including the key factors driving the strategy, key tactics used, and the extent to which the company has succeeded to date. Structure of the Chinese tobacco industry. The industry lynchpin is China National Tobacco Corp., a state-owned monopoly that makes more than one-third of the world's cigarettes, and … BAT and Yunnan Tobacco Company agreed in 1999 to ‘jointly develop and produce blended cigarettes’, in addition to leaf cultivation and training (BAT, 1999). To triangulate Chinese source data, we searched Google and Baidu for news on the globalisation ambitions of the Chinese industry. China National Tobacco, a state monopoly that is by far the biggest cigarette maker in the world, plans to list its international unit on the Hong Kong stock … Figure 3. The resultant structure potentially dwarfs existing TTCs and serves as a springboard for globalisation. Lacking its own networks, JVs were formed with TTCs to produce and distribute Chinese cigarettes abroad (CTI, 2014a; Zhang & Zhang, 2013). Second, official Chinese data are government controlled and not verified by independent sources. He envisioned the establishment of overseas companies and diversification into non-tobacco sectors (Huang, 1993). Global market leader Philip Morris’ IQOS brand and other products that heat tobacco instead of burning it are banned in China, where state monopoly China National Tobacco Corp. accounts for nearly all tobacco sales and generates important tax revenues for the country. Figure 6. Total number of Chinese tobacco companies (1998–2009). China National Tobacco Corporation is the largest tobacco producer in the entire world owned by the Chinese government (Young, 2006). The tobacco industry contributed ¥840.4 billion (equivalent to about US$122 … The China National Tobacco Corporation (CNTC) is the largest cigarette producer in the world, with domestic and export sales totaling 2,589.08 billion pieces in 2015, approximately two and a half times that of the world's leading multinational tobacco companies, Philip Morris International and British American Tobacco. Externally, following WTO accession in 2001, it was anticipated that market opening would bring greater foreign competition like in other Asian countries. Consider these numbers: In 2013, the China National Tobacco Corporation (CNTC) manufactured 2.5 trillion cigarettes. The world's largest tobacco company, interestingly, is China National Tobacco, a state-owned monopoly. Tobacco use kills nearly half a million Americans and costs the nation about $170 billion in health care bills each year. In Michigan, the annual toll is more than 16,000 deaths and over $4.5 billion in health care costs. The paper assesses the extent to which this strategy has been successful to date, the likely prospect that China will join the ranks of existing TTCs, and the implications for tobacco control worldwide. China National Tobacco Corporation (CNTC)is a state owned Chinese company and the biggest cigarette corporation of the world. The table to the right includes counts of all research outputs for China National Tobacco Company (CNTC) published between 1 September 2019 - 31 August 2020 which are tracked by the Nature Index. This, in turn, would lead to a gradual shrinking of domestic market share. Overseas, premium brands are seen as key to efforts to improve the perceived quality of Chinese products (Feng, 2014b). Importantly, FDI has been coordinated to minimise competition among Chinese companies on the global market (CTI, 2014c). Only about 1 % of its products are sold in the international market. 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