Dyanmics of Strategy Paper

8/11/2019 Dyanmics of Strategy Paper

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I. INTRODUCTION

About WITCO

The West Indian Tobacco Company (WITCO) is a member of the British American

Tobacco Group (BAT) operating within the Caribbean. WITCO is in the business of

manufacturing and distribution of Tobacco products in Trinidad and Tobago business

partners in the Caribbean. WITCO was established in 1904 by Mr. John Phillips and in 1970

became a Public Company of which 49.87% of the shares are currently publicly traded on the

Trinidad and Tobago Stock Exchange (TTSE). Collectively, the company has over 3,000

institutional and individual shareholders of which BAT is the single largest, with a total

shareholding of 50.13%.

WITCO employs over 200 persons and operates from a single location at the corner of

Eastern Main Road and Mt D'or Road, Champs Fleurs, Trinidad. The company supplies

cigarettes to markets in the region in 172 stock keeping units (SKUs) of which its brands

include Benson & Hedges, Pall Mall, Phoenix, Craven A, Matterhorn, Dunhill, Broadway, du

Maurier, Embassy, Empire, Viceroy, Morello, and Bristol.

The mission of the company is to sustain our market leadership in Trinidad and Tobago

and to be the number one manufacturing center in the Caribbean. This statement together

with their guiding principles (freedom through responsibility, strength from diversity, open

minded and an enterprising spirit) reflect their organizational culture. The organisational

structure encourages a participative style of leadership in which WITCO employs. In

accordance with Tannenbaum & Schmidt (1973) this leadership style is one where there is

little micro management by executive management. Extensively, team members are

motivated as a result of their contribution in the decision making, thus leading to employee

satisfaction.

According to Trompenaars (1993), a companys culture can also be explained by the guided

missile/ achievement culture Trompenaar,Riding the Waves of Culture(1993). Speaking to

this definition, WITCO is highly egalitarian in that everyone has a part to play in decision

making and applies a team approach. They are also highly task oriented and very focused

on delivering quality products. The tobacco companys guiding principles are exemplified its

culture and leadership style. Together with leadership style and culture, WITCOs culture

leads them to have competitive advantage in the industry and aids to sustain them as number

one in the market.


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VMOST

II. EXTERNAL ENVIRONMENT

a. PEST Analysis

POLITICAL AND

LEGAL

Marketing and advertising restrictions via the TobaccoControl Act 2013.

Mandatory graphic warning messages on packaging (as at2015) affecting customer's desire to purchase henceforth,affecting industry's profit.

High import tariffs limits the competition in the localindustry.

ECONOMIC While Trinidad and Tobago experienced slow growth, itsneighbouring CARICOM countries continued to recoveryfrom 2008/09 recession as the economies remained down.

Tobacco is a commodity crop heavily driven by demand andsupply and has seen consistent increases in the last 3 years

VISSION

Worlds best at satisfying consumer moments in tobacco and

beyondANALYSIS: Consumers are at the core of all activities associated in producing theproduct. The vision captures the essence of the company.

MISSION

To sustain our market leadership in Trinidad and Tobago and to

be the number one manufacturing centre in the Caribbean.ANALYSIS: A methodical and expounding declaration which mirrors the purpose andmethods of operations.

OBJECTIVES

Growth; Sustainability; Wining Organisation; ProductivityANALYSIS: The objectives of the company meets customer needs by being brandfocused and creating shared value. This approach to business using these objectiveseffectively uses resources to increase profits, improve operating margins and invest infuture endeavoursultimately benefiting the customer

STRATEGIES

Strength from diversityANALYSIS: This strategy enables growth and ensures investment in the future throughdiversification by seeking new opportunities in tobacco and beyond. This will also in turnincrease market share.

TACTICS

Consumer lead; Globally aligned; Consciously responsibleANALYSIS: Consumers are the determinants of success and so to win, the consumermust be won. A global business approach from being aligned to BAT is evident and this isleveraged to prevail against competition using a matrix organisation. Consciouslyassuming consequences for decisions made in an industry that is controversial meansbeing transparent and responsible and it shows in the approach to sustainability,policies, principles and standards.


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driving up cigarette prices. In 2012, there was a 14% increasein tobacco prices, resulting in 4.5% product increase.

Brazil is the main exporter of tobacco in the region.Zimbabwe, Turkey or the U.S. are alternatives but do nothave the same grade/quality as Brazil, making the industry

susceptible to Brazil. The industry is exposed to foreign exchange risk in the

importing of raw material and exporting its final product todistributors/buyers.

The proposed law will affect the industrys processes as more

money will be spent to print the graphic messages eatingaway at profits for the industry and remitted taxes for thestate.

38% of the industrys income goes toward government taxes

SOCIAL AND

ENIRONMENTAL

Heavy criticism of the industry as Trinidad and Tobago

culture and industry have been accused of targeting teenagersto the addictive product.

The industry believes in environmental protection byimploring waste management initiatives.

The industry contributes handsomely to charities but underlaw is unable to publicise its contribution.

Child labour is rampant in the industry in countries such asArgentina, Brazil, China, India, Indonesia, USA andZimbabwe. Brazil has made efforts to cub this.

Cigarette smoking is estimated to contribute to 20% of alldeaths by heart attacks and about 30% of all cancer deaths.

According to statistics from the Dr Elizabeth QuaminaCancer Centre, lung cancer in Trinidad and Tobago is thenumber one cancer among men aged 25 to 59 years.

TECHNOLOGICA

L

Technological advancements in the production anddistribution such as commercial hybrid seeds and best

practice guidance on agronomy, alternative fuels, irrigationand mechanisation, agrochemical use, integrated pestmanagement and curing methods.

Competition from alternative products challenges the tobaccoindustrys technological innovativeness with the advent of e-cigarettes, heat-not-burn devices, hookahs, cigars andreduced toxicant cigarettes

The industrys impeding Tobacco Control Act has brought about increased tax andmanufacturing costs concerns and questions about the ability to influence buyer behaviourfearing a negative impact on the industry. Inherently, the industrys constant accusation oftargeting teenagers from social groups and highlighting of its contribution to lifestyle diseaseshas dampened its image enormously by social, health and public awareness groups. Whilecontroversial and addictive, the industry stresses its products are for responsible adults anddespite international statistics on deaths associated with tobacco use, little empirical

information has been documented about the relationship between tobacco smoking andmortality in Trinidad and Tobago.


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Nonetheless, there is little concern for competition with the protection of very high importtariffs which helps ensure the industrys sustainability. On a macroeconomic front, economicrecovery is still fragile regionally and internationally. Barbados, having not fully recoveredfrom the 2008 crisis, relapsed into recession in 2013 and Jamaica, with its highly leveraged

economy, continues to record negative growth. Luckily, the industry has benefited from itsinelastic product overall.

The recent shortage of US currency in Trinidad and Tobago has affected the manufacturingindustry. The unavailability of foreign exchange has resulted in the inability of manufacturersto meet financial obligations to foreign suppliers. If the situation continues it can adverselyimpact manufacturers credit ratings with suppliers, as well as overall competitiveness, and,ultimately, business employment levels.

INDUSTRY LIFE CYCLE

The Tobacco Industry is in the Growth Stage of the industry life cycle. There has been

consistent growth in sales and profits, and customers are knowledgeable about the industrys

Porters Five Forces of

Competitive Position

West Indian TobaccoCom an Ltd

RIVALRY:LOW-MEDIUM

GROWTH LEVEL ON THE INDUSTRY LIFE

CYCLE MARKET SHARE IS HIGH, THUS LOW

RIVALRY

LITTLE COMPETITION IN THE TOBACCO

INDUSTRY HOWEVER, THERE ARE

ALTERNATIVE USES SUCH AS OTC E-

CIGARETTE (HOOKAHS), HEMP,

WHICH HAVE BECOME VERY

POPULAR AND TRENDY

SUPPLIER POWER:MEDIUM

HIGH SWITCHING COST AS BRAZIL IS

THE KEY SUPPLIER OF TOBACCO BASED

ON LOCATION,QUALITY AND

RELATIONSHIP BUT THERE IS ACCESS TO

MANY ALTERNATIVE SUPPLIERS

THREATS OF SUBSTITUTE PRODUCT:

MEDIUM

1. E-CIGARETTES ARE BECOMING VERY

POPULAR AND BECOMING AN

ALTERNATIVE TO TOBACCO

PRODUCTS BUT NOT AS POPULAR

2. LEGISLATION TO BE EFFECTED TO

INCLUDE GRAPHICAL WARNINGS ON

PACKAGES CAN BE BOTH COSTLYAND DETER THE USE OF TOBACCO

PRODUCTS

NEW MARKET ENTRANTS:LOW

High customs duty on tobacco products (33.8according to the 2011 WTO data.

Strong international presence from one major plain the Caribbean

Brand identification Lack of differentiation can threaten the comp

with new innovative products such as cigarettesPressure from lobby groups may b

barrier to entry


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product. Within the last three (3) years, the industry has experienced price increases

nevertheless, sales figures continue to grow.Its growth stage is also evidenced by its low rivalry.

KEY SUCCESS FACTORS

In determining the industrys Key Success Factors, tobacco companies take their customers,

competition and the corporation into consideration. Tobacco manufacturers ensure that all

their products are made from the best tobacco leaves in order to derive the best value for

customers in terms of taste. All brands are reviewed from time to time to assess its

performance and to enhance competitive advantage against rivals and given its controversial

nature, tobacco companies enjoy economies of scale.

CUSTOMER AND COMPETITOR ANALYSIS

As the analysis continues to explore the other layers of the external business environment, asynopsis of the tobacco industrys customer profile and competitor analysis has been

identified below.

WITCOs targeted customers are responsible adult consumers (18 years and over) in the

domestic market and the CARICOM markets it operates in.

Table: Customer segmentation by price and quality by Lynch (2009 p113)

KeySuccessFactors

Quality

Products

Brand Name

Economies

of Scale


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SegmentProduct and

BrandingPricing Market growth 2012 - 2013

Premium DunhillPrices set aboveregular and economy

categories. The market growth reflects a stronperformance of the key brands, Dunhildu Maurier and Broadway, where volumin the premium category has grown, buis off-set by lower sales volume in thexport market. Domestically there was aincrease in the year 2013 by $83 millioand in the CARICOM market a decreasof $6 million.

Value formoney(Regular)

Du Maurier

Standard prices:adequate value added

but large volumemarket [NationalBrand]

Economy Broadway

Lower price, highlyprice competitive: lowvalue added but largemarket

Competitor AnalysisPhilip Morris vs WITCO

Given the companys strong market presence WITCOs major competitor is the international

brand, Marlboro by Philip Morris International (PMI).


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Assessing the dynamics of the environment: Degree of Turbulence

The tobacco industry clearly identifies a low degree of turbulence of 2. The Tobacco Industry

has shown that their target markets are both national and regional markets, it generally adapts to

new regulations, can extrapolate their own experience into the new conditions. They can also

predict the future due to environmentally changing environment and century long existence in

the domestic market.


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III. INTERNAL ANALYSIS

a. Resource Audit

Physical CapitalFactory strategically located in Champ Fleurs Trinidad where state of theart manufacturing facilities are located nearby other successfulmanufacturing companies (Unilever and Carib Brewery)

Financial Capital

Largest and most profitable Manufacturing Companys stock on theT&TSE with a HOLD stock recommendation

Continuous growth in Revenues and Profits and a 31% incomedistribution going to dividends.

WITCO also benefits from its global affiliation and support, financialand otherwise from its parent company BAT.

Majority of fixed assets is attributable to the companys to of the line

Plant and Equipment.

Intellectual CapitalThough the strength of its parent company BAT, it has patents. WITCOitself does not engage in Technology and Development.

Human CapitalHighly skilled professionals. There is access to quality internationalresources through international recruitment through related parties in theBAT group.

Social CapitalSupports many local initiatives in accordance with tobacco regulations.WITCO strongly stamps carbon footprint via its waste management aneco-friendly initiatives and systems in place

Customer Capital

Customer database, stock retailers according to consumer preference,

customer opinions are very important to them overall a customeroriented company

Information CapitalSAP inventory system, group intranet, geographic distribution strategy,Customer tracking database and retailer/customer relationship are allutilised

OrganizationalCapital

Matrix organizational style, participative leadership, guided missileachievement culture

Despite being a subsidiary of BAT, the company operates on little dependency on its parents

resources. However, the parent companys association contributes to the strong will of thecompanys overall resources particularly in WITCOs ability to access quality human resources

and information resources.


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CRITICAL SUCCESS FACTORS- INTERNAL

WITCO prides itself on 4 Success Factors which have led to the companys continual growth.The companys strategy has laid the foundation for years of success and is constantly reviewed,

so that employees understand and deliver enjoyable customer moments while ensuring that thebusiness is well managed and sustainable. Significance is placed on human resources bydeveloping great people and great teams by ensuring that the company is a great place to workwhile fostering their Win-Win-Win initiatives which adds value to customers, trade customerand shareholders. Principles of WITCO are guided by the companys culture, their enterprising

spirit and strength from diversity these factors together with their dynamic product portfolio ofthe best quality allows WITCO to stand strong and maintain their leadership position in themarket.

VALUE CHAIN

A companys value chain essentially represents the internal activities in which it engages inwhen transforming inputs into outputs. Specifically to note in the below Value Chain of WITCO

is the companys outbound logistics, Marketing and Sales; and Services.

For instance, the company engages in economical packaging with master cases consisting of

fifty (50) cartons each. This increases the amount of stock transported at any given time.Likewise, distribution is geographically laid out as it occurs every week to 85% of the outlets(stores that open daily); and the other 15% of stores (night clubs, bars and crime hotspots/dangerous areas) occurs biweekly. This distribution strategy aids the company in reduce

Critical

Success

Factors

Dynamic

product

portfolio

Principles

Winningorganisation

Strategy


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carbon emissions and save on transport expenses, which can help to increase the overall profitmargin.

While advertising is prohibited by law for the product, health warnings on packages havecontributed in gaining customers trusts as the products are targeted to responsible adults.Considerably, the company has created a portfolio of products that are specific to different

customer needs as identified by Dunhill, Du Maurier (considered the national brand), and lastlyBroadway. Expensive- Low Priced in that order.

In terms of advertisements, they have upgraded the pack of Du Maurier approximately six timessince the inception and are constantly seeking (as best as they can and within the regulationswhich are stringent).This keeps the brand interesting and relevant to new consumers as well ashelps to retain their regular consumers. Promotion of National Steel Pan by the WITCODesperadoes as well as being heavily involved in beach clean ups and panting of trees (this is aneffort to give back to the environment the CO2 that they use in operations).


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HUMAN RESOURCE MANAGEMENT

Table: Human Resource Cycle, Fombrun et al. (1984)


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WITCO boasts that its human resources is one of the key valued elements of the organisation.After all, it is the people who deliver the companys strategy. Having a talented workforcehas become one of the most critical factors in the industry. The companys reputation as aleading employer helps them stand out in an increasingly competitive internationalemployment market. Based on the above cycle, it is important to note that the attractions of arewarding career with a company such as WITCO values contribution and supports

professional learning and development thus benefiting both company and employee.

Its model focused on driving high performance; developing the next generation of leaders;valuing the diversity of employees; encouraging and rewarding entrepreneurial behaviour;and creating an engaging culture where individuals and teams can be successful. Providing asafe place to work, protecting employees wellbeing and listening to views are alsofundamental.

OPERATIONS

A snapshot of the companys operations takes a specific look at into the Customer services

objectives, Resource Utilization, Inventory Management and Quality Management. Theoperation of the company Customer Service Objectives. The underlying functional objectives


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of customer service are to resolve service issues, improve the customer experience and

generate customer loyalty. WITCOs related objectives include quantified levels of positive

feedback, successful problem resolution and customer retention.

Speaking to the companys inventory management operations, WITCO oversees and controls

the ordering, storage and use of the materials used to manufacture its products with theutilization of its manufacturing, storage, logistics and human resources, exemplified below.

The tobacco is stored up to three months.

The company invests in total quality management using the ISO 9001 system. Optimum

quality is ensured in product quality by reducing foreign matter and routinely testing all

products for chemicals, including alkaloid levels.

Resource Utilization Objectives

Resource Type Examples

Manufacturing Machines, materials

Storage Warehouses

Logistics Trucks, Air cargo, Carriers

Human Labour, Scientific, Technical personnel

MARKETING

WITCOs strategies are restricted to brand preference and advertising, aimed only at adult

smokers, through restricted channels in compliance with the Tobacco-Control Act. Theirentire tobacco products feature an appropriate health warning on primary packaging butWITCO does not believe that packaging should be plain with health messages as the Actsuggests. The companys main distribution channels are hotels, membersclubs, nightclubs,

bars, supermarkets (mini marts), and small shop owners.


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WITCO is a pure monopolistic organisation, manufacturing and distributing cigarettes

throughout the West Indies. In analysing its Value System it is proven to have high barriers

to entry, differentiated products and few suppliers.

WITCO


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MCKINSEY 7S MODEL

SHARED VALUES

- Customer centric

- Innovative

- The importance of its Human

Resources

STRUCTURE

- Matrix Structure

- standardised processes andshared back office services

- Risk managemnt andinternal contros working

hand in hand with fosteringinnovation, thus reflecting

the company's strategicdirection SYSTEMS

- Use of SAP, an inventorymanagement system

- Talent Systems for Training,Development and

Recruitment

- Internal internet (intranet)to accessing and sharing with

BAT subsidiaries.

STYLE

- Fosters a culture of personalownership, valuingempoyees' talents,

innovation,consumersatisfaction and corporate

citizenry

- Democratic Leadership withlittlte micro-managing

STAFF

- Human Resource biggetresource

- Invests in careerdevelopment through

training and development

(with other BAT companies)- 'Points' tracking as a

Performance ManagementSystem

- Financial rewards - stockownership, bonuses (reward

levels vary)

Skills

- Well experiencedstaff,expecially at executive

level

- Consistent training anddevelopment as allocated in

each budget

- Strong customer relationsskills

- Outsources IT, Distributionand Waste Management

STRATEGY

- Market Penetration


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WITCO has been quite a successful company over the years and the interrelation of theelements in the aforementioned model can attest to that. The company recognises its humanresources are its most valuable and has mechanisms in place to not only enhance but continueto value its resources. Based on the its three (3) main products (with different target markets),

its distribution and other key functions within the organisation which has helped deliver thebest to its customers, a Matrix structure seems most appropriate with a democratic leadershipstyle. This has lead to a culture of personal ownership and empowerment in delivery and

business innovation. WITCO has 97% market share but does not take this for granted hencethe companys market penetration strategy and aim to consistently meeting customers needs.

WITCO is a fast-moving consumer goods company, hence the need to always listen tocustomer feedback.

VRIO FRAMEWORKWITCO

Resources Valuable? Rare? Costlyto

Imitate?

Exploited byOrganization?

Competitive Implications?

TobaccoProducts

Y N N Y Competitive Parity

HumanResource

Y Y N Y Temporary Advantage

R & D Y Y Y Y Sustained Advantage

Financial

RESOURCE BASED VIEW AND COMPETITIVE ADVANTAGE

Tangible Assets Heterogeneous Immobile Competitive

Implications

All Physical Assets N N No Competitive

Advantage

Intangible Assets

Organizational

Culture

Y Y Competitive

Advantage

Experience Y Y CompetitiveAdvantage

Nationalistic Brand Y Y Competitive

Advantage

Targets whole society Y N Temporary

Advantage

Intellectual Property

of Parent Company

(BAT) vs Non

Subsidiaries of BAT

Y N Temporary

Advantage


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PORTFOLIO ANALYSIS

An analysis of WITCOs portfolio shows the level of the three main brands of tobacco

manufactured and sold in Trinidad and Tobago. Dunhill, is a luxury brand that is priced

above average and sold at particular outlets such as clubs, supermarkets, bars, pharmacies and

malls. Du Maurier, the second level of cigarette is classified as value for money and is the

preferred choice of consumers and Broadway which is the lowest level that is rarely

purchased unless Du Maurier is unavailable.

DISTINCT CAPABILITIESArchitecture

Strong relationship with suplliers and retailers/customers

Workable teams via matrix structure

Innovation

limited advertising

redesign packagingCustomer tracking system

Reputation

Long standing relationship (over 100 years)

fostering customer loyalty

A nationalistic brand

Strategic Assets

WITCO has monopoly power

Barriers to entry

Strength of the parent


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BCG Matrix

STARS

The brand has a significant amount of

market share and growth. It is customers

number one choice of cigarette.

PROBLEM CHILD

CASH COWS DOG

With reference to the BCG Matrix above, Du Maurier which is known as the national brand

is seen in to be, stars. WITCO does not have much of a Dog or Problem Child product based

on the make-up of the business portfolio.

BOWMANS CLOCK

The analysis goes deeper into defining the relationship between customer value and prices by

the use of the Bowans Clock. WITCOs position on the clock is based on the customer

perceived value. Customers at positions 1 and 2 are concerned with price and that the product

meets its threshold requirements. These customers are attracted to the lower level brand

(Broadway) with the brand emphasis on usefulness over design or packaging. In contrast,

customers at position 5 gravitate to the higher end brand (Du Maurier, Dunhill) as they even

prepared to pay a premium price.

WITCO also utilises the Hybrid positioning approach which offers neither the lowest price

nor the highest quality. Focused differentiation provides high value at premium prices, while

targeting a niche category and compensating for lack of volume by high margins. The high

value is often a result of perception, cultivated through careful selection of sales outlets rather


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than any substantial differentiation in the actual product. The Dunhill brand falls under this

category.

LEADERSHIP AND CULTURE

WITCO utilizes the matrix organizational structure, where employees report to more than one

manager. This ensures that employees and managers from different departments can work in

synchronously in line with the companys VMOST. Efficient exchange of information,

efficient lines of communication, high levels of productivity, high staff morale, high

customer satisfaction and enhanced creativity and innovativeness are just some of the

advantages WITCO has enjoyed as a result of this model.

Consequently, this organisational structure encourages a participative style of leadership in

which WITCO employs. In accordance with Tannenbaum & Schmidt (1973) this leadership

style is one where there is little micro management by executive management. Extensively,

BROADWAY

DU MAURIER AND

DUNHILL


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team members are motivated as a result of their contribution in the decision making, thus

leading to employee satisfaction.

According to Trompenaars (1993), a companys culture can also be explained by the guided

missile/ achievement culture Trompenaar,Riding the Waves of Culture(1993). Speaking to

this definition, WITCO is highly egalitarian in that everyone has a part to play in decisionmaking and applies a team approach. They are also highly task oriented and very focused

on delivering quality products. The tobacco companys guiding principles are exemplified its

culture and leadership style. Together with leadership style and culture, WITCOs culture

leads them to have competitive advantage in the industry and aids to sustain them as number

one in the market.

GUIDING PRINCIPLES

FINANCIAL ANALYSISWITCO is the largest company in the manufacturing sector on the TTSE. WITCO hasexperienced continued growth in sales and profitability in 2013. Its performance can belinked to its investments made over the years in its assets leading to the reflection of thestrong performance of its key brands Dunhill, Du Maurier and Broadway. While the companyhas experienced a decline in actual physical sales from its products due to customer lifestylechanges, actual sales figures were offset by the slight increase in the price of the products.

The companys performance could be affected in the near future given the impeding

amendment to the 2010 Tobacco Control Act would bring changes to the tobacco business.On the upside, WITCO has ample time to prepare itself for the changes which take effect in2015.


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The Board declared a final dividend of $1.60 per share, payable in April, 2014. This broughtthe total dividends paid for the year to $4.54 versus $3.82 for the previous year, an 18.8%increase. This continuous improvement speaks to the companys attractive dividend policy.

SWOT AND EVR CONGRUENCE

STRENGTHS

- Addictiveness makes for inelastic product

- Nationalistic Brand with over 100 yearsoperating in the industry with 3 strong

competitive brands

-Strong Market Position: 97% market share

- Financial strength: Growing revenues andprofit, millions in assets, little debt

- Agronomical support to the farmers forproducing quality tobacco leaves

- Regional and global reach via BAT

WEAKNESSES

- Longer decision making due topartiipaticive leadership style and

dependency on BAT to make Strategicdecisios

- Lack of innovation in product

development over the years- Strong dependency on key Supplier -

Brazil

OPPORTUNITIES- Entry into International Market- totarget new customers in areas that

provides potential for growth in sales.

- Developing safer alternatives to smoking

- Diversification for Light Cigarettes, E-Cigarettes

THREATS

- Impeding Tobacco Act can affect sales

- Prohibition of sponsorship limitspresence of corporate citizenry

- Increasing lifestyle changes resulting inmore prsons quitting cigarette smoking

- Increase pressure from socail groupsagainst the controversial product


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EVR CONGUENCE

Values

EnvironmentResources

Leadership and culture

speaks to the companys

that is in line with

strategy

Strengths outweigh the

Weaknesses

Expertise in place maximize on

opportunities and tackle

threats.


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TOWS

TRIX

EXTERNAL OPPORTUNITIES (O) EXTERNAL THREATS (T)

O1. Entry into International Market- to target new customersin areas that provides potential for growth in sales.

T1. Prohibition of sponsorship limits presence of corporatecitizenry

O2. Developing safer alternatives to smokingT2. Increasing lifestyle changes resulting in more personsquitting cigarette smoking

O3. Diversification T3. Impeding Tobacco Act can affect sales

T4. Increase pressure from social groups against thecontroversial product

INTERNAL STRENGTHS (S) (SO) Maxi-Maxi Strategy (ST) Maxi-Mini Strategy

S1. Addictiveness makes for inelasticproduct Maximize on profits to make safer alternatives (S4, O2)

S2.Nationalistic Brand with over 100years operating in the industry with 3

strong competitive brands Capitalize on addictiveness of tobacco to enhance productdevelopment and expand on diversification of products and

market development ( e-cigarettes, hookahs) (S1, O3)

Utilize internal expertise of WITCO and parent BAT to

deal with impeding tobacco Act 2015 (S6, T3)S3. Strong Market Position: 97%

market shareS4. Financial strength: Growingrevenues and profit, millions in assets,little debt

Expand on international presence through its BAT ownership

for WITCOs specific brands (S6, O1)

S5. Agronomical support to the farmersfor producing quality tobacco leaves

S6. Regional and global reach via BAT

INTERNAL WEAKNESSES (W) (WO) Mini-Maxi Strategy (WT) Mini-Mini Strategy

W1. Longer decision making due toparticipative leadership style anddependency on BAT to make Strategicdecisions

Reduce dependency of tobacco (brazil as supplier) bydiversification into non tobacco products (W3, 03)

With Improvements in innovativeness (expanding e-cigarettes, hookahs) this can minimise the threat of pressurgroups against tobacco. (W2, T4)

W2. Lack of innovation in productdevelopment over the yearsW3. Strong dependency on keySupplier - Brazil


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Strategy Proposal and Logic

Their main current strategy is market penetration and they also uphold cost management in

certain aspects, after an analysis of the organization and its current strategic position one possible

strategy that would satisfactorily maintain and drive competitive advantage is protecting and

building on the cost management leading to a sustained cost leadership. This would specifically

include controlling cost drivers i.e. maintaining economies of scale which would inevitably make

the barrier to entry high for new comers. For Witco sources of economies of scale could include

volume of production and specialized machines, a company with a high level of production is

able to purchase and use specialized manufacturing tools that cannot be kept in operation in

small companies, thus because Witco produces at large to supply Trinidad and Tobago and other

countries in the region they can easily maintain a high level of production and continue using at a

low cost the specialized machines. Whereas a new comer does not have the market share to

produce volumes .Also, through high volume of production the company would continue to build

lower per unit cost manufacturing operations and will have lower average costs of production.

Due to the highly specialized staff and organizational culture, according to Adam Smith, they

can produce high volumes at low costs. In their favour, Witco can use the learning curve model

to relate the volume of production and costs over time. Their history in the industry combinedwith BATs history can help them to further reduce cost in productions and thus have a greater

profit margin. Also, they can continue to engage in resource sharing, i.e. the combining of

similar activities and sharing of resources across sister units. Because Witco produces cigarettes

only, they use the same plants to manufacture the different brands. Outsourcing of main activities

can help them to continue to reduce cost. As it is, Witco currently outsources distribution and

waste operations, perhaps outsourcing of more activities, marketing for example, would help to

further reduce costs. Witco also has the advantage of being the only producer in the industry in

Trinidad, thus if they were to introduce a new product they can have the cost advantage.

Evaluation and Justification of Selected Strategy


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Cost management and leadership specifically in the areas mentioned above are adequate

now and in the near future for WITCO because it will enable reduction of operation costs to gain

further competitive advantage. For the past five years WITCO has been able to cut costs of sales

in some aspects, but others-core business expenditure remains constant and as a result they have

not been able to save in those areas. In 2013, there was a 1% decline in cost of sales as compared

to 2012. Also according to the annual report of 2012 cost of sales increased by 11.2 percent to

$246.9 million, primarily driven by higher raw material prices on the international market.Total

overheads amounted to $144.9 million, which was an increase of 4 percent over the prior year

and reflected an increase in distribution and administration costs which were driven primarily by

inflationary pressures.

To gain a greater competitive advantage and to heighten the barriers to entry for new comers it is

imperative that they become the lowest cost producers in the industry i.e. through the specific

options mentioned above.

When paired with Porters fiver forces, this strategy appears more lucrative.The new entrants

may have to invest heavily to reduce their costs prior to entry, WITCO is the only company that

produces tobacco products in Trinidad, therefore another producer attempting to enter the market

will face great difficulties in starting up and producing at low cost. Also, WITCO would be able

to reduce the threat of rivalry through pricing strategies. Because they produce at a lower price

through economies of scale, they would be able to set the prices for their products as the lowest

in the market. Thus, competitors or would be competitors would be forced to set their prices

equal to slightly lower than theirs. Low prices would also be able to help them battle substitutes

and would be substitutes. The E-cigarette, imported independently by various companies is a

possible threat in the future. Cost leadership would also enable WITCO to sustain themselves in

the event that suppliers raise prices, a rival would not have this advantage and may not be able to

absorb additional cost. Finally, if the main buyers insist on lower prices, WITCO will be able to

cut back on revenues and still have big earnings, due to low cost production.

To justify this strategy, assessments of its feasibility, acceptability and suitability would be done:

Suitability:


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In terms of exploiting opportunities, low cost leadership can allow WITCO to enter into new

markets and produce at low prices using economies of scale .This is possible because they

already have the machinery and specialized human resources to do so. This could allow them to

have low prices of products and also it could help them in absorbing the cost of a start-up

company in a new market. Also, if they were to develop safer alternatives to smoking, which

other BAT subsidiaries are doing then seeking low cost leadership will definitely put them at an

advantage especially because the can use BATs learning curve to learn from.

Low cost leadership, specifically the economies of scale will allow them to continue to

capitalise on the fact that cigarettes are addictive so whether or not they are priced high or low,

they would be able to continue to have high returns. In addition, because they have a widely

ranged portfolio, continued importation from different suppliers will meet their needs for

economies of scale

The industry lifecycle model shows that the tobacco industry in Trinidad is in the growth

stage. There is consistent growth in sales and profits, and customers are knowledgeable about the

industrys product. Within the last three (3) years, the industry has experienced price increases

nevertheless, sales figures continue to grow. Its growth stage is also evidenced by its low rivalry.

It can be seen from the industry lifecycle that if the cost leadership strategy is implemented it

would benefit the company through low cost production versus the high prices of commodities.

Possibly the company would not be able to do anything about high priced commodities but they

can in fact offset the price by economies of scale and experience and technology which all aid in

cost reduction.


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The companys core competencies, i.e. its Human Resources and Research and Development

which are key resources in its success results in temporary advantage and sustained advantage

respectively. All these resources, coupled with its consistently strong financial position allows

for them to remain competitive in the industry. These competencies sanction cost leadership in

that they are already established entities in the organization and funds do not need to be

expounded on this as often as other developing units.

Thus, protecting and building cost management and leadership strategy at this point in time

for the purposes of now and the near future, is opportune because it is necessary for the company

to be prepared for any shocks that might come, whether it is in the form of a new competitor, or a

raise in commodity prices. Cost reduction will ensure that the company could absorb the shock.

Acceptability:

Because this strategy has already been in place at a lesser degree, and the results have proven

positive there will be little to no hesitation of acceptability. Stakeholders acceptance or no

acceptance before implementation of this strategy is important because. 49.87% of the shares

are currently publicly traded on the Trinidad and Tobago Stock Exchange (TTSE). Collectively,

the company has over 3,000 institutional and individual shareholders of which BAT is the single


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largest, with a total shareholding of 50.13%.Thus BAT will necessarily accept the strategies

before implementation if they see it fit. WITCO has BATs experience as a group from which

they can draw; this helps to reduce costs of experimenting with technology, and research and

development costs that may be spent by a new company who does not have support of a parent

company. This strategy will evidently continue to satisfy financial goals of WITCO and thus

BAT and the other shareholders, and given the organizational culture which is a reflection of the

guiding principles, the quality of the products will remain high. Based on financial analysis for

the year 2013, it can be said that combined with their main strategy, market penetration, the cost

management would have been reflected as well. They have had High returns on capital employed

and continuous growth in Revenues and Profits,good liquidity position, satisfactory profit

margin and a 31% income distribution going to dividends.

Feasability:

This strategy is geared at sustaining low production costs, this is quite possible on an internal

level, however, externally, the company cannot control the prices of the commodities, namely

tobacco especially because the price fluctuates often. Also, it would be difficult for them to

predict the exchange rates of foreign currencies which they use; this can be a source of shock for

them if prices rise. But, contingency plans are in place for tobacco if their regular suppliers fall

through on occasion for various reasons, hence it is imperative to control all costs on the inside

for absorption of shock purposes to gain that competitive advantage that the future competitors

will not have. Since the company has been financially successful thus far, there are in fact

adequate funds to support this strategy; also human resources are sufficient as well. These factors

are important because one of the features of cost leadership is economies of scale which require

good human resources and finances. WITCOs current strategy is cost management of

overheads- though successful cost leadership is necessary. Cost management is a more

sophisticated approach and holds that costs must be considered relative to the revenues

generated. Cost leadership is essential to long-term survival However, if competitors come into

the market they will necessarily need to be ready.


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Brief Discussion of Rejected Options

Other possible strategy options include revamping the value chain to reduce costs These were

rejected because they were deemed as less critical. Shifting to E-Business technology, i.e. using

the internet for doing business. Also, simplifying product designs would not be effective for

Witco because they already face legislation which limits their packaging designs. Relocating of

facilities would be ineffective because Witco distributes to Trinidad and many countries in the

region, also WITCO is a subsidiary of BAT, this means that there are other subsidiaries in other

parts of the world, to relocate could mean going out of business, it would take away the essence

of WITCO

Statement of Main Strategy Objectives (VMOST)

VMOST

The VMOST of the organization will not change as this strategy existed before, and this proposal

is simply to build on it. Changes will not be large enough to affect the Vision and Mission.

However, the main objectives for the strategy would include


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Resource Allocation and Budgeting

Resource allocation are judged by 3 criteria:

1) The contribution of proposed resources towards the fulfilment of the organizations

mission and objectives:The Cost leader ship, specifically cost drivers will is in fact in

keeping with WITCOs mission and vision, thus allocating resources to it will be an

investment toward achieving the companys objectives. However it is important to note

that because this is a protect and build strategy, WITCO already has resources allocated

for this, but in lesser amounts.

2) Its support of key strategies: As said above the decision to continue with cost

leadership was based on protect and build thus, it was imperative that before the

decision was made the core competencies and the value chain would be taken into

account. Cost leadership by nature will enhance the value chain and this profit margin.

The core competencies as seen in the picture below will necessarily be improved.

3) The level of risk associated with a specific proposal: See section below


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Formulation of Specific Plans for Implementation

Specific Objectives of Strategy

Quantifiable:

To reduce expenditure on all operations

To attain price leadership

Unquantifiable:

To maintain customer loyalty by delivering on time

To achieve manufacturing excellence by using the best tools and machines and human

expertise

To increase design productivity

Reduce wastage

The general objectives of the organization i.e. the vision and the mission will remain the same as

this strategy will not change the outcomes of day to day running of the organization.


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Strategic Theme: Cost Leadership: Controlling Cost Drivers

Objective Measure Target Initiative

Financial

To reduce

overhead andproduction

costsrevenue

growth

% revenue fromall output

>50% year 1

>70% year 3

Economies of scale:

specialized

machines/manufacturing

tools

More specialized staff

Learning curve model

from BAT

Outsourcing operations

Customer

Price leadership

to accompany

cost leadership

Responsive

Supply

Prices comparedto competitors

100% year 1 Lowest costs in industry

On time delivery >50% year 1

Loyalty to customers

through constant on time

supply

Process

Manufacturing

ExcellenceCycle time yield >50% year 1

Specialized

manufacturing tools

Training for all factorystaff

Increase design

productivity

reduce wastage

Engineering

efficiency >70%year 3

Le

arning&

Growth Manufacturing

learning Time to new

process maturity


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Monitoring and Control Processes:

Once the strategy has begun, then monitoring and controls become operational.

Continued motivation of employees in known as a limitation to cost leadership, but the

companys culture and leadership style can combat that.

WITCO should be aware that there are risks involved in continuing with this strategy, these

include technological transformation that nullifies past investment or learning, however this is

unlikely to affect them because of the fact that the parent company BAT is a leader in the

industry for new technology and they will be the first to know about it before the competitors.

Another risk that they should be weary of is low cost learning by industry new comers. Due to

the innovations in science and technology, new comers may have an upper hand in the industry

for less than the price that WITCO pays.

In addition, the inability to see requires products or a market change may hinder this

strategys performance. If the market has shifted, and consumers have new preferences that

WICTO does not produce then it does not matter the cost of their products, they will necessarilybe out of the game. For instance, WITCO does not manufacture E-cigarettes, and people are

becoming more health conscious and legislations are putting bands on tobacco in public places,

this may lead to a shift in market.

Inflation costs may also hinder this strategy but, due to the nature of their products this has

not affected them before. Consumers spend for cigarettes.

Conclusion

Protecting and building on cost management and leadership will aid in sustaining Witcos

competitive advantage and keeping them at the position in the industry that they currently

occupy. Maintenance of the economies of scale in order to cut cost in operations will serve them


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well presently but also prepare them for any shocks that might arise due to new comers in the

industry, substitutes or rise in prices of commodities, any of which could occur at any time.

References

Ansoff, H. (1979). Strategic management. 1st ed. New York: Wiley.

Lynch, R. (2014). Strategic Mangement. 6th ed. England: Pearson, pp.4-418.

Documents

Dyanmics of Strategy Paper