British American Tobacco Company
British American Tobacco Company
As the nineteenth century drew to a close, three significant developments in the tobacco industry led to the formation of the British American Tobacco Company. The first was James Bonsack's invention in 1881 of a machine capable of rapid cigarette production—between 100,000 and 120,000 cigarettes per day—which, as Jordan Goodman reports, American businessman James Buchanan Duke's tobacco company began using in 1885. The second development was the formation in 1890 of the American Tobacco Company, which joined the five largest cigarette manufacturers in the United States under Duke's leadership. The final event occurred in 1901, when the American Tobacco Company purchased Ogden Ltd., a British tobacco firm that was beginning to achieve prominence.
In response, thirteen British companies, led by H. D. and H. O. Wills Ltd., formed the Imperial Tobacco Company within a few months of Duke's purchase of Ogden. Three more firms joined the Imperial Tobacco Company the next year. After a period of commercial warfare, the American and the Imperial tobacco companies reached an agreement: the American Tobacco Company withdrew from the British market and the Imperial Tobacco Company withdrew from the American market. As Jordan Goodman (1994) explains, the two companies then formed the British American Tobacco Company in 1902, two-thirds of which would be controlled by the American Tobacco Company, with the other third controlled by the Imperial Tobacco Company. The new British American Tobacco Company would supply the rest of the world's demand for tobacco. This structure would change in 1912, following the dissolution of the American Tobacco Company.
Throughout the world, high tariffs prompted companies to supplement their export strategies with direct foreign investment. Although both the American and Imperial tobacco companies had pursued foreign subsidies, transferring ownership of subsidies in Canada, Australia, Germany, Japan, China, and Australia to the new company, further developing these markets became the primary focus of the British American Tobacco Company. Under the leadership of Sir Hugo Cunliffe-Owen, who led the company after Duke's successor William R. Harris, the British American Tobacco Company increased its overseas activities. In particular, the company tried to develop its market in China.
Two cigarette companies existed in China, and the British American Tobacco Company consolidated them in 1902 to 1903; the company then sought to expand its sales in China. According to Sherman Cochran (1980), the company's success in China resulted from its decision not to dump surplus goods, but to invest in the creation of an efficient and vertically-integrated company. To do so, it relied on two competitive methods of distribution. The head of British American Tobacco Company's China branch, James Thomas, hired a combination of Western salaried employees—Wu Ting-sheng chief among them—and Chinese middlemen, who guided the managers to the best sites for growing tobacco and to sources of labor. At the same time, the company also developed a complex network of local commission agents, led by Zheng Bozhao. Although these two types of networks competed against each other, the Chinese sales network played a key role in the company's success in China.
The British American Tobacco Company employed a similar strategy of combining Western-style management with local distribution networks in its ventures in India and throughout Africa. In India, Howard Cox reports, the company also focused on growing leaf tobacco locally, setting up a subsidiary that even grew Virginia leaf. Eventually, in these business arrangements, the Western sales staff's job became one of managing the local distribution networks.
Through its cooperation with local competitors and investment in the tobacco industry where it sought market share, the British American Tobacco Company achieved a unique status among early multinational corporations. Indeed, its business practices became models for other companies seeking to expand access to foreign markets.
Cochran, Sherman. Big Business in China: Sino-Foreign Rivalry in the Cigarette Industry, 1890–1930. Cambridge, MA: Harvard University Press, 1980.
Cochran, Sherman. Encountering Chinese Networks: Western, Japanese, and Chinese Corporations in China, 1880–1937. Berkeley: University of California Press, 2000.
Cox, Howard. The Global Cigarette: Origins and Evolution of British American Tobacco, 1880–1945. London: Oxford University Press, 2000.
Goodman, Jordan. Tobacco in History: The Cultures of Dependence. London: Routledge, 1994.