Wednesday, June 21, 2017

Paper: The Taiwan Tobacco and Liquor Corporation: To ‘join the ranks of global companies’

Takin' a break.

So there I was, surfing the net, and stumbled across this paper on the Tobacco and Liquor Monopoly's drive to become a global corporation: Jappe Eckhardt, Jennifer Fang and Kelley Lee (2017) The Taiwan Tobacco and Liquor Corporation: To ‘join the ranks of global companies’, Global Public Health, 12:3, 335-350. It notes:
In this context, this paper analyses how TTL shifted, from a company focused on domestic customers, to a more outward looking company. TTL’s ambitions to globalise were initially prompted by a significant decline in domestic market share due to foreign competition from the 1990s onwards and further fuelled by WTO membership and the adoption of stricter domestic tobacco control regulations. Efforts to expand exports and other foreign operations have been limited by the company’s bureaucratic nature, and ongoing political tensions between Taiwan and China. However, by building on the success of TTL’s alcohol export business and by taking advantage of potential warming relations with China, TTL has the opportunity to become a regional company with global ambitions.
According to the paper, the current TTL has its origins in the old Japanese opium monopoly (which I discussed here). That agency then took in the pharma, camphor, and salt bureau to form the Monopoly Bureau. The authors relate:
When the Taiwan Provincial Monopoly Bureau was formed in 1945, the monopoly extended to eight products: opium, salt, camphor, tobacco, alcohol, matches, weights and measures, and petroleum. Following reorganisation, the name was changed to the Taiwan Tobacco and Wine Monopoly Bureau in 1947, maintaining a monopoly over alcohol, tobacco and camphor until 1968. The monopoly remained in control of the tobacco market until 1987, when the first steps towards market liberalisation took place with the import of foreign cigarettes (STMA, 2012).
Petroleum and opium in the same monopoly bureau! The TTL changed again when its monopoly was officially abolished in 2002, and it has diversified into supplements, cosmetics, and food products. The firm's name was also changed at that time.

The authors continue...
While through most of the 1990s TTL was able to keep its market share above 60% (Table 1), the market became almost equally split between foreign and domestic cigarettes in 2003, almost immediately after WTO accession, and further declined to below 50% in 2004 (Wen, Cheng, et al., 2005). Since then, TTLs market share has dropped to 29.9% of the Taiwanese market (Table 1). 
According to the authors, two factors will hurt TTL domestically in the future. First, foreign cigarette firms are starting to build factories in Taiwan. There is also a domestic start up company in that field. Second, massive cigarette smuggling continues, especially in the wake of 42% tax increase in 2013. Smuggled cigarettes are a tradition in Taiwan, and they reduce tax revenues and TTL's market share (just today 18 tons of smuggled tobacco was seized). Additionally, with the restrictions on indoor smoking, the activities of anti-smoking organizations, and the drop in smoking among the young, the market in general is shrinking.

TTL followed everyone else in the late 1990s and attempted to expand into China, but the election of Chen Shui-bian and the local cigarette monopoly, as well as the lack of a clear business and marketing strategy, have prevent much expansion into that market, the authors say. Alcohol exports to southeast Asia have been more successful. TTL also attempted to license production of its products in China, but failed miserably due to Chinese protectionism. The firm is, the authors imply, too focused on China.

One interesting thing about this paper is the contradictions in what should be easily accessed and clear public data....
On main export destinations (Table 2), in 2001 these were led by China (including Hong Kong and Macau). By 2014, exports to the combined markets of China, Hong Kong and Macao had grown substantially, remaining among the top five export destinations for TTL. However, Table 2 suggests Vietnam had become the largest export market, followed by Japan, Korea and Thailand. While it is difficult to distinguish exports by TTL versus Imperial Tobacco to Japan and Korea, exports to China, Vietnam and Thailand are likely to be largely TTL’s. The importance of Vietnam as an export market, as indicated by data from the International Trade Centre (2015a) and shown in Table 2, appears to contradict company reports (see e.g. TTL, 2012), which state that up to 90% of export revenue is from China. The lack of reliable and detailed data on the legal, and significant illegal, trade of tobacco products may explain this anomaly. While annual reports contain important information on company finances, data on key indicators of globalisation set out by Lee and Eckhardt (2016a), such as FDI and exports by foreign market, are not provided by TTL. Standardised data on such indicators across tobacco companies remains needed.
Vietnam is a key market, and I have had a rum manufactured for that market by TTL, which you can get in Vietnamese worker shops here, which has a red star on its label. It was quite good after I had three large glasses of it.
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