Cigarette Maker Aims High

Source from:  Joong Ang Ilbo 10/09/2009

YEONGJU, North Gyeongsang - Stepping inside the KT&G tobacco manufacturing plant in Yeongju, which is two hours away from Seoul, a countless number of cigarettes is being quickly filtered, sorted and packed by a group of automated state-of-the-art machines, leaving the smell of freshly packed cigarettes hanging in the air.

Although the recent economic downturn and increased awareness of the dangers of smoking have decreased the number of smokers here - from 67.6 percent of the male population in 2000 to 40.4 percent last year - the local tobacco industry is more competitive with foreign cigarette makers than ever. The Korean government only began allowing imported cigarettes to be sold here in 1988. But support for local brands remained strong even after the import ban was lifted, and it was difficult for foreign tobacco manufacturers including Philip Morris, British American Tobacco and Japan Tobacco to penetrate the market. However, times have changed. Although the Korean tobacco market is not seen by foreign firms as fully open in terms of regulations, consumers are more open to purchasing foreign products, allowing foreign companies a bigger market share.

"With the increase in the number of Korean students studying abroad, local consumers easily become acquainted with foreign brands from all industries, including the tobacco industry," said a KT&G official. "Many Koreans, especially the younger generation, now have a favorable view of foreign goods." Reflecting this shift, KT&G's market share in the domestic tobacco industry has fallen in the past several years to less than 70 percent. With more imported cigarettes flowing into the market, the local cigarette company had a market share of 68.1 percent in the first quarter of last year that dropped to 64.3 percent in the first quarter of this year. The three major foreign cigarette makers hold the remainder of the market share. "We are ready to compete, to regain and retain our domestic market share," said a KT&G official, noting that the company is aiming for a 76 percent market share by next year. The manufacturing plant in Yeongju, which opened in 2003, is the company's biggest asset. The 343,200-square-meter (3.7 million-square foot) factory is the largest in Asia in terms of size - it is 15 times bigger than a football field. The plant can produce 2.2 billion packs of cigarettes a year, which is equivalent to 40 percent of local cigarette demand. The company also oversees a growing export business. Its overseas sales reached 253.4 billion won ($215.9 million) for the first half of this year, a 13 percent increase on-year. It currently has manufacturing plants in Iran and Turkey, and is planning to open one more in Russia late next year. Meanwhile, the company is also working to diversify, and is moving into the pharmaceutical, real estate management and investment asset management sectors. Enditem