British American Tobacco

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British American Tobacco

British American Tobacco (BAT) boasts the relatively unusual distinction of being born as a fully fledged multinational enterprise. The company was created in 1902 as a jointly owned subsidiary of the leading tobacco companies of the United States (James Duke's American Tobacco Company, which owned two-thirds of BAT's share capital) and Great Britain (the Imperial Tobacco Company). Its initial productive assets comprised the brand rights, export factories, and overseas operations of the two founders, which included cigarette production plants in Germany, Canada, Australia, Japan, and South Africa. BAT can claim that, between the two world wars, it was the world's most geographically extensive multinational company, pioneering techniques of international marketing and human resource management. Heavily criticized for its role in promoting smoking in the Third World and recently subject to numerous cases of litigation in the United States, in the era of globalization the company has nevertheless consolidated its position as the producer of many of the world's leading cigarette brands, with factories in over sixty countries and operations in 180 distinct markets.

Formation and Early Growth

The agreement that created BAT in 1902 formed part of a global market-sharing arrangement between American Tobacco and the Imperial Tobacco Company through which the new company would become the jointly owned overseas arm of the two founders. Although initially BAT's main business lay in the export trade, the company increasingly expanded its production capacity via direct investments abroad. Its main focus for expansion during the first ten years was China, where both American Tobacco and Imperial had already developed a market based around Shanghai. Under the supervision of Duke's master salesman, James Thomas, BAT created a sales network for its cigarettes in China that transcended even the legendary scope of Standard Oil's kerosene distribution process there. Many Chinese merchants were integrated into the BAT selling system, and cigarette brands were created and marketed that appealed to local tastes. In spite of intermittent political obstruction and boycotts of its products, BAT's investments in China provided the firm with a platform for growth and a blueprint that could be adopted for other, similar markets as it expanded into India, South East Asia, Latin America, and the Middle East in the years preceding and following World War I.

A particular hallmark of this early phase of international growth was the encouragement given to the local cultivation of tobacco leaf suitable for use in cigarettes. Allying local production of raw materials to their own cigarette factories meant that in many markets BAT's operations became largely independent, although invariably before World War II these affiliated companies were managed by expatriates from the United States and, increasingly, Britain. With its headquarters based in London, management of the company from the outset inclined more toward the United Kingdom than America, but this was given a decisive tilt after the dissolution of American Tobacco in 1911 forced that company to sell off its holding in BAT, thus making Imperial the largest shareholder. Duke's active interest in the company effectively ended in 1914, and his position as the company's leading figure was assumed by the autocratic Englishman Hugo Cunliffe-Owen.

The Cunliffe-Owen Era

Under Cunliffe-Owen's tutelage the company continued to expand into Asia, Africa, and Latin America, but also made important investments in Germany and the United States, where it purchased the Brown & Williamson Corporation in 1927. The company developed an international management system between the wars in which accounting practices were harmonized globally but where the local "Number One" expatriate director was given a good deal of managerial latitude. The London-based directors, meanwhile, maintained a watching brief that required them to spend six months each year on tour. This system of international management was especially well suited to the conditions that prevailed during the 1930s and 1940s when the dislocation of the world economy and the rise of nationalism meant that autonomy of operations and a strong local presence paid dividends. Although the company's earning power dropped after 1929, BAT nevertheless was able to consolidate its position as the world's only true international tobacco firm.

Postwar Difficulties and Diversification

The postwar years saw BAT grappling with problems both internally and externally. Cunliffe-Owen's death in 1947 created a crisis of succession that was only resolved during the chairmanship of Duncan Oppenheim between 1953 and 1966. In this period the company's top management became more internationally diverse, and human resource management and training was systematically developed. The 1949 communist revolution in China, meanwhile, led to the loss of the company's largest market, and other major setbacks were experienced in Egypt, Indonesia, and India. Furthermore, while firms such as R.J. Reynolds, Philip Morris, and Rothmans International experienced growth during the 1960s and 1970s, when the market for international king-size filter tipped cigarettes and American blends expanded, BAT's hegemony of the international cigarette market was eroded because it lacked an international brand to compete with Winston, Marlboro, and Rothmans King Size. Accession of the United Kingdom to the European Economic Community in 1973 also led Imperial to sell off its shareholding in BAT during the course of the 1970s. Allied with the emerging evidence of the health consequences of smoking, BAT made concerted efforts under the successive leadership of Denzil Clarke, Richard Dobson, and Peter Macadam to diversify from tobacco into industries such as paper, cosmetics, and retailing, culminating in the formation of BAT Industries as a general holding company in 1976.

A Modern Tobacco Giant

During the 1980s, under the chairmanship of Patrick Sheehy, BAT successfully expanded into financial services. In 1989 the company repulsed an audacious takeover bid by Hoylake Investments, a consortium of financiers led by James Goldsmith, but the event signaled the end of BAT's almost thirty-year campaign of diversification. Tobacco and financial services became the core of BAT's business in the 1990s, and Sheehy's successor, Martin Broughton, oversaw the acquisition in 1994 of American Tobacco, an important move that brought the company global ownership of brands such as Pall Mall and Lucky Strike that could be used to combat Philip Morris's phenomenal success with Marlboro. The fall of Soviet communism boosted tobacco sales, and in 1998 BAT decided to sell its financial services to Allied Zurich and revert to being a purely tobacco-based company. In 1999 BAT merged with Rothmans International, the world's fourth-largest tobacco company, raising at a stroke its share of the premium international brands segment of the market from 11.3 percent to 17.6 percent through the addition of brands such as Rothmans King Size, Peter Stuyvesant, and Dunhill International.

See Also American Tobacco Company; Globalization.

▌ HOWARD COX

BIBLIOGRAPHY

Cochran, Sherman. Big Business in China: Sino-Foreign Rivalry in the Cigarette Industry, 1890–1930. Cambridge, Mass.: Harvard University Press, 1980.

Corina, Maurice. Trust in Tobacco: The Anglo-American Struggle for Power. London: Michael Joseph, 1975.

Cox, Howard. The Global Cigarette: Origins and Evolution of British American Tobacco, 1880–1945. New York: Oxford University Press, 2000.

Glantz, Stanton A., et al. The Cigarette Papers. Berkeley: University of California Press, 1996.

Nath, Uma Ram. Smoking: Third World Alert. Oxford: Oxford University Press, 1986.

United Nations Conference on Trade and Development. Marketing and Distribution of Tobacco. New York: United Nations, 1978.

subsidiary in commerce, a branch or affiliate of a larger unit that provides components or support services.

boycott an economic sanction imposed by an interest group to influence policy. In the 1900s, tobacco growers in Tennessee and Kentucky refused to sell leaf to the American Tobacco Company until prices were raised.

hegemony to exert control or superior influence over; to hold dominion over.

acquisition the purchase—sometimes called a merger—of a smaller company by a larger one. During the late twentieth century, major tobacco companies diversified their holdings through acquisition of nontobacco products.

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