Tobacco companies experience losses

Courtesy of WikiMedia Commons  TOBACCO USE has declined in the U.S. due in part to strict laws and regulations. Overall usage declined from 42.4 percent in 1965 to 19 percent in 2011.

Courtesy of WikiMedia Commons
TOBACCO USE has declined in the U.S. due in part to strict laws and regulations. Overall usage declined from 42.4 percent in 1965 to 19 percent in 2011.

Commentary by
Michael Bianco

Smoking has been on the decline in the U.S. in the last few decades, with usage having gone down from 42.4 percent in 1965 to 19 percent in 2011 due to strict laws, regulations and education detriments of smoking on the habits’ detriments. While this decline is definitely a victory against a product that only serves to make money off of addiction, the tobacco companies on the other hand have been taking losses due to the change in cultural perception that has people avoiding the harmful goods.

With these pressures in the usual domestic markets, tobacco companies have reorganized their strategies and goals by finding ways to generate revenue through new methods previously overlooked.

While the U.S. and other first world countries are making strides in decreasing their tobacco use, the rest of the world lags behind in these anti-smoking activities, if the activities exist at all.
Additionally, with the rise of Asia as the new hot commodity for firms breaking into the untapped potential of a relatively new foreign market, tobacco companies have begun to increase their focus in this area as their original customer bases fade away amid regulations and restrictive laws. The small barriers to entry for a smaller country only serve to make this course of action more appealing to the corporations.

Phillip Morris, one of the largest tobacco companies in the world, serves as a good example of what happens when a large corporation breaks into the Asian market because of itsrecent activities in the last decade or so.

By advertising and sponsoring heavily along with setting up entire production industries and businesses in the country, the company starts to create a perpetual cycle to solidify its ties with the nation as a whole.

Asian countries then find themselves as economic prisoners of sorts who are at the mercy of this industry taking advantage of the situation. Despite the laws preventing Phillip Morris from extending its presence overseas, the purchase of the Asian tobacco firm Sampoerna cigarettes in 2005 circumnavigated these restrictions allowing the corporation break into this market indirectly through a proxy.

Following this, the usage of tobacco has skyrocketed in the Asian countries affected, particularly in Indonesia where up to two-thirds of men currently smoke.

Despite the worrisome statistics that show a disproportionate number of Indonesians smoking, there are indications that this trend will not be reversed anytime soon. With tobacco now being the second-largest employer in the country, the government is hesitant to begin placing similar restrictions to those in the U.S. since it would curb and diminish one of the largest sources of wealth, revenue and employment in the nation.

This dilemma, while unfortunate and undesirable, is pretty respectable as a clever ploy by Phillip Morris to recover from regulation in the U.S. by reorganizing its strategy, focusing on other alternatives and take advantage of the Asian markets that offer much growth opportunities.

By utilizing economics as a tool to hold countries “hostage,” Phillip Morris and other tobacco companies are readapting themselves to accommodate for the changing environment. Hopefully the nations will be able to regulate the corporations in order to curb their “addiction” to tobacco in the future.

Nov. 6, 2014

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