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<strong>Tobacco Industry of China in Systemic Transformation and Upgrading</strong> Source from: Tobacco Asia 01/27/2014  The tobacco industry of China, in response to negative impacts of an unfavorable situation of economic development, is undergoing systemic transformation and upgrading with technological innovation and enhancement of awareness about marketing and competition.
Addressing the 7th Summer Davos Forum in northeast China's Dalian City on September 11, 2013, Chinese Premier Li Keqiang said that the Chinese economy has entered a crucial stage in which only systemic transformation and upgrading can realize sustained development. To adapt itself to the trend of development of the Chinese economy, the tobacco industry needs to focus energy on crucial points of efforts to promote its systemic transformation and upgrading to realize an "upgraded version" of the tobacco economy in China. Under impacts of fluctuations of the macroeconomic situation, under conductive and hysteresis effects of the global financial crisis, and under the policy of restricting consumption on public funds adopted by the new Chinese leadership, the tobacco industry of China encountered such serious problems as "relatively big fluctuations of economic operation", "structural imbalance of production and marketing which results in insufficient supply of well marketable products" and "insufficiency of the innovation capacity which results in a lack of support for structural improvement" from the end of 2012 to the end of June 2013. Judged from a certain perspective, the problems encountered by the tobacco industry in its development presently are just directions where it is planning to make breakthrough in future. These are just like what former Director-General Jiang Chengkang said in an address delivered at a working meeting on economic operation of the tobacco industry held in Beijing on April 16, 2013: "Efforts shall be made to well manage the crucial work of systemic transformation and upgrading of the tobacco industry, and to promote cigarette production in China to higher levels. In particular, energy shall be focused on well managing the work of full-scale realization of the '532' and '461' brands development targets, and making new breakthrough in the development of new products. The tobacco industry needs to adhere to the policies of promotion through the market and driving by innovation, further promote reform of ways of resources distribution, firmly keep in mind the awareness about marketing and competition, keep improving its mechanisms for innovation and encouraging competition, strive to realize breakthrough in the execution of major exclusive projects and in the development of key technologies, and seek novelty, changes and differences in the development of new products." To facilitate implementation of the strategic policy of "promoting cigarette production and marketing to a higher level", the STMA set out in 2010 the "532" and "461" targets guiding the development of competitive cigarette brands by Chinese tobacco manufacturers in the 2011-2015 five-year period. Specifically, the "532" brands development strategy provides that in the 2011-2015 five-year period, the tobacco industry will strive to develop two well-known cigarette brands each with an annual output of 5 million cases (250 billion cigarettes), three each with an annual output of 3 million cases (150 billion cigarettes) and five each with an annual output of 2 million cases (100 billion cigarettes). Two Fine Macro Approaches From the April 16 address of the STMA chief, it is noticeable that the STMA has actually put forward two fine macro approaches for fulfillment of the crucial task of improving the structure of cigarette brands – firstly, technological innovation to keep promoting technology to higher levels, and secondly, enhancement of awareness about marketing and competition. Under the first approach, efforts will be made to keep promoting the level of technology, in striving to make breakthrough in the execution of major exclusive research and development projects and in the development of crucial technology. Only by doing so, can the tobacco industry be expected to have good performance at the marketplace. Therefore, manufacturers of competitive cigarette brands are required to take technological innovation as a major strategic support and strive to make new progress herein. In maintaining their products, they need to focus their energy on technological transformation and upgrading, and on establishing complete raw and support materials supply guarantee systems and technical and technological guarantee systems. In the development of products, they need to actively promote improvement of the structure of products, highlight the styles and characteristics of brands, strengthen the development and marketing of low-tar cigarettes, and practically enhance the reputation and influence of products. In the development of raw materials, they need to promote independent development of core essences and flavorings, enhance their capacity of aromatization, highlight the characteristics, high quality, ecological nature and safety of products, and improve the inherent quality of leaf tobacco. Development of brands of "low-tar and reduced-harm" cigarettes has not only become an important direction of development of cigarette brands in China, but has also turned out to be a future orientation of development of brands by the entire tobacco industry. From January to June 2013, both the output and sales volume of low-tar cigarettes in China grew steadily, with the sales volume getting close to 185 billion cigarettes (3.7 million cases), up about 20 percent year-on-year. In particular, the output and sales volume of cigarettes each with a tar level of 6mg or lower all grew by 240 percent year-on-year in the six-month period. Low-tar and reduced-harm cigarettes have undergone rapid development, and have emerged as new best-selling tobacco products on markets in China over recent years. And, under the second approach, efforts will be made to enhance the awareness about marketing and competition. Awareness about marketing here means that tobacco manufacturers need to formulate strategies for cigarette production on the basis of verifying demand for cigarette products through the market. Awareness about competition here means that tobacco manufacturers are required to become aware of the current intense competition among cigarette brands at the marketplace. Although impacted by a somewhat unfavorable macroeconomic situation, the tobacco industry has registered steady improvement in terms of the scale, quality and efficiency of cigarette brands, particularly key brands over the past few years. Despite the fact that the tobacco industry saw its growth rate somewhat decline in 2012, the absolute quantity of growth has been on the increase. During January to July in 2013, the tobacco industry sold 1491.75 billion cigarettes (29.832 million cases), an increase of 0.2 percent, compared to the same period last year. Grade one, 2 and 3 registered a higher sales volume at the first 7 months; sales of the Grade one, 2 and 3 increased by 15.4 percent, 15.2 percent, 4.1percent respectively, and sales of the Grade one accounted to 17.9 percent of total sales volume in China's tobacco industry, increased by 2.2 percent year-on-year. The total sales volume of first three grades cigarettes accounted to 73.5 percent in total sales volume of China's tobacco industry, increased by 4.5 percent year-on-year. On first seven months in 2013, the tobacco industry of China sold 1207.75 billion cigarettes (24.155 million cases) of key brand cigarette, up 7.4 percent year-on-year, accounted to 78.4 percent of total sales of tobacco industry; and sales of 15 key brands of first three grades cigarettes generated 910.6 billion cigarettes (18.212 million cases), up by 9.8 percent year-on-year, accounted to 59.1 percent of total sales volume in China's tobacco industry, increased by 4.5 percent year-on-year, and commercial sectors generated 611.51 billion yuan in sales, up 12 percent, accounted to 78.8 percent of total sales of tobacco industry, up 2.2 percent year-on-year. At the same time, the tobacco industry makes efforts to expand the international market and actively participate in international competition drove by economic globalization and internationalization. CTBAT International Ltd, a Hong Kong-incorporated joint investment of subsidiaries of China National Tobacco Corp and British American Tobacco started official business operations on August, 2013.The joint venture, which established under the joint-venture contract singed by both sided, owns and will manage worldwide the international cigarette trademark, State Express 555. It will own also the worldwide rights outside China to the brand Double Happiness. This suggests that the tobacco industry made an import step towards attracting foreign investment and going global. Micro Development of New Types of Products Besides the aforesaid macro and overall strategies adoptable by the tobacco industry, tobacco manufacturers in China also need to attach great importance to a crucial point – development of new types of cigarette products on the basis of doing a good job of consumer research and market orientation. Presently, cigarette brands have entered an era of competition with development of new types of products as an important characteristic. In June 2008, the project of China Tobacco Hubei Industrial Co., Ltd. in central China's Hubei Province to develop the "light and elegant aroma" type of cigarettes of its time-honored competitive Yellow Crane Tower cigarette brand passed an appraisal for technical acceptance, which was of the great significance as a milestone in the development of Chinese-style new type of cigarette products. In May 2009, HongyunHonghe Tobacco Group in southwest China's tobacco-producing Yunnan Province – the largest Chinese tobacco manufacturer – officially unveiled its plan to develop the "delicate and sweet aroma" type of cigarettes of its competitive Yunyan brand family, deepening the drive to develop new cigarette products integrating "delicate aroma" with "sweetness". In August 2009, China Tobacco Henan Industrial Co., Ltd. in central China's Henan Province defined its decades-old Golden Leaf cigarette brand as a "mellow" style cigarette brand. In May 2011, China Tobacco Fujian Industrial Co., Ltd. in southeast China's Fujian Province developed a new member of its General Series of cigarette products – the Ecological Soft and Mild Aroma type. In March 2012, China Tobacco Zhejiang Industrial Co., Ltd. in east China's Zhejiang Province developed a cultural series of cigarette products named "Peacefulness" in its Liqun cigarette brand family, to demonstrate the core value of Liqun. In April 2012, China Tobacco Guizhou Industrial Co., Ltd. in southwest China's Guizhou Province developed a new type of cigarettes known as "Guiyan-National Liquor Aroma", creating a first liquor-related cigarette product. And in August 2012, the Mount Huangshan cigarette brand of China Tobacco Anhui Industrial Co., Ltd. in east Chinas' Anhui Province was defined as a representative brand of the "scorch sweet aroma" type of Chinese-style cigarettes. The development of new unique types of cigarette products by these enterprises has not only determined the basic direction of their future business development, but has also enabled them to set up fine images amid intense competition at the marketplace. To sum up, the unfavorable economic situation faced by the tobacco industry this year not only means a crisis and challenge that cannot be ignored, but is also an opportunity and new start point for it to improve both the quality and structure of cigarette brands. To realize systemic transformation and upgrading of the tobacco industry will be a long-term process and a major challenge, while improvement of the structure of existing cigarette brands in China is an important approach for the tobacco industry to deal with the current unfavorable situation of economic development, which is also an important manifestation for measuring whether systemic transformation and upgrading of the tobacco industry will be successful or not. Enditem Related Updates |
