Strategic Issues in Global Business: Applying Theories and Concepts to British American Tobacco

  1. Introduction

Theories and concepts concerning Global Business can be used to explain and analyze the issues involved in global business. As businesses become global in nature, business activities and economies become interdependent. Global business requires managers to understand and apply knowledge to business decision making and problem solving in the highly dynamic business environment. Strategic management is a process of planning in a business through identification of an organization’s objectives. The three stages of strategic management process include strategy formulation, strategy implementation, and strategy evaluation. Strategic management concepts and theories can be used by managers to guide their decision making and problem solving activities in their organizations.

This management report applies knowledge and concepts of strategic management to the case study of British American Tobacco (BAT). British American Tobacco is a multinational company based in London, United Kingdom. Founded in 1902, the company has been one of the leading Tobacco producers and distributors for a long time. The company leads in more than 60 countries and has its presence in more than 200 markets across the world. BAT sold 676 billion cigarettes produced in 46 factories in 2013. The company employs more than 57,000 people in its markets. The main strategic aspect of the company is localization strategy whereby the company acts as part of the local communities and producing Tobacco that suits local tastes of the smokers in the countries where the business operates. Despite being in a controversial business with questions about the health issues of its products, the company is trying to act as responsibly as possible through its sustainable operations. This report will use the following concepts to analyse the business: Changing nature of Business Management, Strategy Formation, Globalization, and culture and ethics.

  1. Changing nature of business Management

Business management is a changing concept which requires businesses to become more integrated and interdependent in the world business environment. The internal and external structures of British American Tobacco are designed in such a way that they can adapt to the changing needs of business management activities. Some of the themes or concepts of changing nature of business that apply to BAT are: growth of large firms, economies of scope and diversification strategies.

Growth of Large Firms

Global markets have offered large firms an opportunity to expand. British American Tobacco is a large growing company. The company’s growth strategy enables the firm to respond to the increasing demand of Cigarettes across the world. Lowering of trade barriers through regional integration such as European Union and the development of a global market provide the firm with an opportunity to expand. The company takes advantage of demand in the global market to expand through acquisitions. For example, the company expanded in the Indonesian market in 2011 by acquiring Indonesia’s Bentoel which is now its subsidiary. This is referred to as external expansion whereby the company expands as a result of the emergence of a global marketplace. The company also expands through internal development whereby the company sources materials from 100,000 farmers across the world in order to take advantage of areas with low costs of production.

Diversification Strategies

Horizontal diversification involves the expansion of markets for existing product ranges. Vertical expansion involves expansion into earlier or later stages of productions. Lateral diversification is the expansion into related industry to widen range of goods or services. Lastly, conglomerate expansion involves the expansion of the firm into completely unrelated business and selling completely different products or services. BAT has diversified into different business areas over its history. The main type of diversification for the company is the horizontal diversification because the company acquires businesses in geographical markets to expand its markets for the existing products. These include: acquisition of Gimbels, Kohl’s in 1979, Marshal Fields of USA in 1982 and Bentoel of Indonesia in 2011.

Economies of Scope

Economies of scope are the cost savings achieved by firms for increasing their product mix. British American Tobacco offers a wide range of Cigarette products in different markets in order to reduce its costs of production. For instance, the company has expanded from the traditional cigarettes to include next-generation e-cigarettes in its product mix. In this case, the company uses new technology to produce both the traditional cigarettes and the e-cigarettes in order to reduce costs of production and achieve economies of scope.

  1. Strategy formation

Every company forms its own strategies in order to survive in the highly competitive global market. In this area, BAT will be analyzed in terms of strategic options and strategic choice, Generic strategies and competitive advantage, and localisation pressures and competitive strategies.

Strategic Options and Strategic Choice

Strategic options of a business to meet its objectives are based on two approaches: environment-based and resource-based approaches. In terms of environment-based approach, the organisation considers generic strategies of cost leadership and differentiation, market options and expansion methods. BAT has identified both internal and external opportunities for expansion, and has expanded through acquisitions of businesses in international markets and development of new production methods to improve its product offering. In terms of resource-based approaches, businesses utilize their unique resources to improve their architecture, innovation and reputation of the firm. The main resource of BAT is brand image and reputation which enables it to achieve competitive advantage. The company also has a good network of businesses across 200 markets which enable it to achieve a large market share in the international market.

Generic Strategies and Competitive Advantage

According to Michael Porter, there are two strategies that organizations in global markets can use to create value and attain competitive advantage: low cost strategy and differentiation strategy. From these strategies five generic strategies are identified. Cost leadership-low cost involves offering products to a wide range of customers at the lowest prices in the market. Cost leadership-best value involves offering products to wide range of customers at the highest price-value available in the market. Differentiation involves production of unique products. Focus-low cost involves offering products to a small range of customers at the lowest prices in the market. Focus-best value involves offering.

Leave a Reply

Your email address will not be published. Required fields are marked *