2

3
Contents
Success Story of Pakistan Tobacco Company ........................................................................... 6
Institute of Business Administration .......................................................................................... 6
University of the Punjab, Lahore ............................................................................................... 6
Introduction of PTC ................................................................................................................... 8
History of PTC ....................................................................................................................... 8
Structure/ Departments of PTC .............................................................................................. 8
Production Units ........................................................................................................................ 9
Research & Development .......................................................................................................... 9
Major Brands ............................................................................................................................. 9
Premium Class ....................................................................................................................... 9
Middle Class .......................................................................................................................... 9
Lower Class ........................................................................................................................... 9
Focus of the Organization .......................................................................................................... 9
Guiding principles .................................................................................................................... 10
Strength from Diversity ....................................................................................................... 10
Open Minded ....................................................................................................................... 10
Freedom through Responsibility .......................................................................................... 10
Enterprising Spirit ................................................................................................................ 10
Core Competencies .................................................................................................................. 11
Productivity .......................................................................................................................... 11
Approach to productivity ................................................................................................. 11
People ............................................................................................................................... 11
Competitive Advantage of PTC: .............................................................................................. 12
External & Internal Analysis ................................................................................................... 12
External Analysis ................................................................................................................. 12
Industry overview ............................................................................................................ 12
Structure of Industry ........................................................................................................ 12
Size and number of sellers ............................................................................................... 13
Number of buyers ............................................................................................................ 13
Product differentiation ..................................................................................................... 13
Entry conditions and government regulations ................................................................. 13
Demand and supply.............................................................................................................. 14


4
Image.................................................................................................................................... 14
Price ..................................................................................................................................... 14
Internal Analysis ...................................................................................................................... 15
SWOT Analysis ................................................................................................................... 15
Strengths .......................................................................................................................... 15
Weaknesses ...................................................................................................................... 15
Opportunities.................................................................................................................... 15
Threats.............................................................................................................................. 15
Technology .......................................................................................................................... 15
Available resources ............................................................................................................ 15
Illicit sector activities ....................................................................................................... 15
Social and economic trends ................................................................................................. 15
Social trends ..................................................................................................................... 15
Economic trends............................................................................................................... 16
Government action ............................................................................................................... 16
Changing Consumer needs .................................................................................................. 16
Threat of rivalry and new entrants ....................................................................................... 16
PORTERS MODEL: .............................................................................................................. 16
Bargaining power of buyers ................................................................................................. 16
Bargaining power of suppliers ............................................................................................. 16
Potential Entrants ................................................................................................................. 17
Substitutes ............................................................................................................................ 17
Corporation strategies .............................................................................................................. 17
Directional Strategy: ............................................................................................................ 17
Portfolio Strategy ................................................................................................................. 17
Functional Strategies ................................................................................................................ 19
Marketing Strategy............................................................................................................... 19
Pull Strategy ..................................................................................................................... 19
Penetration Pricing ........................................................................................................... 19
Financial Strategy ................................................................................................................ 20
Research and Development strategy .................................................................................... 20
Operational Strategies .......................................................................................................... 20
Advanced Manufacturing Technology ............................................................................ 20


5
Mass Production............................................................................................................... 20
Purchasing Strategy ............................................................................................................. 20
Multiple Sourcing ............................................................................................................ 20
Just in time Concept ................................................................................................................. 20
Evaluation and Control: ........................................................................................................... 21





6

Success Story of Pakistan Tobacco Company


Presented to:-
Mam WajihaKazmi
Presented by:-
Name Roll No. Session
Abdul Ghaffar 030 BBA(HONS.) 6
th

semester
Mohsin siraj 023 BBA(HONS.) 6
th

semester
Abdul Rehman Khan 058 BBA(HONS.) 6
th

semester
Sidra Anwar 045 BBA(HONS.) 6
th

semester
Asma Gouse 2009-06 BBA(HONS.) 6
th

semester

Institute of Business Administration





University of the Punjab, Lahore



7



















With the 65 Years, Story of Excellence, we produce a testament of the Companys work
ethic and commitment to help develop Diverse sectors of agriculture, manufacturing, trade
and social responsibility, et al. Our story of 65 rewarding years encapsulates the key
milestones we have thus far crossed intertwined with the meaningful contribution we have
made along the way in social and economic terms. Our journey continues as we Endeavour to
outdo ourselves in setting the highest standards of corporate excellence.



8
Introduction of PTC
History of PTC
Pakistan Tobacco Company was founded in 1947 with a view to overtake the business of Imperial
Tobacco Company of India, in the territories and regions include in east and West Pakistan. The
parent company of PTC is British American Tobacco, which is a well-reputed company of the world. It
stands at 2nd position in the of world cigarette market. PTC is the part of BAT industries group, which
has worldwide employees strength of 190,000, and operations in more than 80 countries.
PTC was the first foreign company to set up business in Pakistan. A pilot production plant was set up
in a warehouse in Karachi Port with a monthly production of 30 million cigarettes against sales of 160
million, the gap being made up by imports.
The rapid expansion of cigarette market led to establishment of Jhelum Factory in 1955. The same
year PTC became a Public Limited company. In 1952, development of the Leaf Area rapidly
progressed in NWFP.
Hence PTC was the first foreign investment in Pakistan and pioneered the manufacture of cigarettes
and cultivation of Virginia tobaccos in the country and also start research work in the field of tobacco
to produced finest quality tobacco in Pakistan.
In 1965, because of fiscal incentives a factory was established in Dhaka. In December 1971, East
Pakistan we lost and the effect on PTC was traumatic both psychologically and operationally 60% of
the sale volume was lost and the company was left holing a massive production capacity y and
inventories surplus. Surgical measures were essential for survival and this included of management
by 30% retrenchment / separation of over 500 employees and a cut in emoluments for those retained.
With the resettlement / separation of over 500 employees and a cut in emoluments for those retained.
With the resettlement of operations, to meet increasing demand, a cigarette factory was set up at
AKORA KHATTAK in 1975. Major developments since then are modernization of GLT (Re-drying)
plant in 1988, continued investment in upgrading primary and Secondary manufacturing facilities at
AKORA KHATTAK and JHELUM Factories (the Karachi plant having been closed in late 1991) and
the acquisition of high speed Loga / Max D makers.
PTC is also famous for its social welfare activities. It performs this job through sponsoring the sports
events, tree plantation, and free mobile dispensary for rural areas. PTC is also doing work in the field
of R&D.
Structure/ Departments of PTC
PTC is lead by the Chairman/Chief Executive, and then there are departmental heads who are
responsible for their departments. Following are the departments of the PTC:
Corporate & Regulatory Affairs
Finance
Human Resource
Information Technology
Production
Leaf
Marketing
Sales Marketing
Brand Marketing



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Production Units
PTC has two production units one in Jhelum and other is in Akora Khattak. Akora Khattak unit is the
largest production unit in Pakistan. At the time of formation PTC had one unit in Karachi which was
closed later.
Research & Development
PTC has its own Research & Development pogrom. PTC is doing research in IT and Leaf. PTC was
the 1st company in Pakistan that became millennium compliant. PTC is doing research in Leaf and
providing guidelines to tobacco growers. PTC is also doing research in Sunflower seed for oil
production.
Major Brands
Cigarette may be classified by tobacco, by flavor or by length. On Pakistan Cigarettes are classified
according to taste quality and length which are as follows;
Premium Class
It is the Cigarette produced by the best available tobacco. Gold Leaf is considered in this class. After
getting the right of Benson & Hedges by PTC now it is also included in this class.
Middle Class
The tobacco of these cigarettes is little hard and in this class Wills, Red & White, Morven Gold is
included.
Lower Class
In this class Embassy K-2 Royal and all Mardan Wala brands such as Daily, Time Square, Rangers
etc. are included. The taste of these Cigarette is very hard and lower income group people smoke
mostly these brands.
Some brands are classified according to length and sizes. Brands of PTC classified according to size
and length are as follows;
KSFT King size filter
RSFT Regular Size Filter
LSFT Long size filter
The Packing is also given different names according to their classification and their variety.
HL Hidge Lid
SS Shell & Slide
SC Soft Cup
EP Emperor Pack
Focus of the Organization
The Company focuses on the following operational targets:
Continued strong volume and profit growth.
Increased focus on productivity savings.
Launch of the 3rd cycle of our social reporting dialogues.
Improved corporate governance.
Environment, Health & Safety Organizational Culture Our culture consists of values
we derive from our 4 guiding principles.


10
We are currently in the process of launching internal campaigns to further inculcate these
values into the daily lives of our employees. Our guiding principles in brief are:
Guiding principles
We follow four guiding principles that represent:
Strength from Diversity
Open Minded
Freedom through Responsibility
Enterprising Spirit
Our Guiding Principles describe the organization we are and
the type of organization we want to be. They represent the
common values at the heart of our success.
Strength from Diversity
Strength from Diversity reflects the cultural mix within the
Company and a work environment that respects employees
individual differences. It also reflects our vision of harnessing
diversity of people, cultures, viewpoints, brands, markets and ideas to create opportunities
and strengthen performance. For this reason, we are interested in what will differentiate you
from others what makes you unique.
Open Minded
Open Minded reflects our openness to change, opportunities and new ideas, including ways
of addressing regulatory issues and changing social expectations. We seek to listen without
prejudice, actively and genuinely considering other viewpoints.
Freedom through Responsibility
Freedom through Responsibility describes how we make decisions:
As close to the consumer as possible, It also affirms our belief that decision-makers should
accept responsibility for their own decisions.
Enterprising Spirit
Enterprising Spirit has been a characteristic of our business for more than a century. It is
reflected in our ability to grow our business and its value within challenging environments
in the confidence to seek out opportunities for success, to strive for innovation and to accept
considered risk-taking as part of doing business.5.Capacity and production Against an
estimated manufacturing capacity of 43,991 million (2007: 42,797 million) cigarettes, actual
production was 41,159 million (2007: 38,183 million) cigarettes. Actual production was
sufficient to meet market demand. There was no production through any outside
manufacturing source.



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Core Competencies
Business Process Re-engineering2008 has also been a year of change for PTC with a number
of Business Process Re-engineering initiatives successfully implemented across the Company
as the organization embarked on a challenging and ambitious journey classifying our must do
objectives to succeed in the market as the Big Mountains and focusing our resources
behind the same.
The Enterprise Program Office played a vital role in supporting the Company strategy by
setting-up the governance structures and process framework for effective program and project
management. Projects implemented during the year focused on the key areas of Talent,
Growth, Illicit Trade reduction, Productivity improvement and proactive approach to
Regulations.
PTC is on the forefront of adopting best practices on Corporate Governance and Reporting
standards, as our Annual Report for 2007 was recognized as the best in its category by ICAP.
In addition to the above, PTC won the 25th Corporate Excellence Award in Business and
Industry Category from the Management Association of Pakistan which is recognition of the
excellent management processes in our Company.
Productivity
Approach to productivity
Concentrates on smart cost management, marketing efficiency and capital effectiveness
deploying our resources effectively to increase profits and generate funds to reinvest in our
business.
People
The people in PTC have always been one of our greatest asset and we will continue to invest
in the same through various initiatives that help us build a winning organization. These
include programs such as WAADA focusing on shop floor employee morale, continuous
investment in focused functional/leadership training programs and coaching programs for
first line leader such as TLDW (Team Leader Development Program). An Employer
Branding campus campaign by the name of
Battle of Minds was also launched in 2008, focusing on attracting the right talent to our
organization, and this was met with great success.



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Cost Leadership
Strategy
Differentiation
Strategy
Cost Focus
Strategy
Differentiation
Focus Strategy
Competitive Advantage of PTC:




External & Internal Analysis
External Analysis
Industry overview
The tobacco industry is a source of revenues, employment and foreign exchange for the
country. The industry has to pay very high excise and sales tax while complying with various
strict rules and regulations of the government. During 2007-2008, it contributed above Rs.68
billion as Central Excise Duty and Sales Tax. Despite its contribution to the economy, the
industry is highly criticized for its negative impacts on the society.
Structure of Industry
In Pakistan the industry consists of farmers who grow tobacco, firms that convert the raw
materials into finished goods (Cigarettes), exporters and importers of tobacco and its
products. Smuggling of tobacco products to and from neighboring countries is also quite
common.
Lower Cost Differentiation



13
Size and number of sellers
In Pakistan, tobacco cultivation occupies a relatively small area of 0.27% of the total irrigated
land. The country has been divided into various zones depending on the type of tobacco being
grown in that region. The details and amount of production is mentioned in appendix1.The
major firms involved in the manufacture of finished goods and exports include
Pakistan Tobacco Company
Lakson Tobacco Company
Souvenir Tobacco Company
Saleem Cigarette Industry
Universal Tobacco Company
Imperial Cigarette Industry
Khyber Tobacco Company
International Cigarette Industry
Walton Tobacco Company
Sarhad Cigarette Industry
Of these firms Pakistan Tobacco Company is the market leader with lakson Tobacco
Company in second place.
Number of buyers
The firms that manufacture finished goods act as purchasers themselves, buying it from the
farmers. They serve as intermediaries that purchase, process and resell. In the local market,
Twenty-nine percent of men and 3.4% of women smoke cigarettes regularly, concluded the
National Health Survey, while the Pakistan Society of Cancer Prevention says 37% of men
and 4% of women over 15 years of age are smokers.
According to Pakistan Pediatric Association, 1,000 to 1,200 children between the ages of 6
and 16 years take up smoking every day. Cigarette consumption in Pakistan is five times
higher than in India with 620 cigarettes per adult per annum against 119 for India. This
shows that the market for tobacco industry is very immense locally. Chewing tobacco is in
demand in the villages. Alongside this; various countries are also acting as buyers for the
tobacco industry.
Product differentiation
The major product differentiation exists between chewing tobacco and cigarettes and cigars.
The main differentiation exists between the manufactured goods in the form of branded
cigarettes. The firms target different segments of the society with different price levels.
Differentiation also exists between imported and local cigarettes and cigars. Consumers are
willing to pay a premium price for the imported product especially cigars.
Entry conditions and government regulations
There are no entry conditions as such but when a company enters the industry, it has to abide
by all the rules and regulations of government. This is very costly especially in terms of
advertising. The firms have to inform the consumers about the potential health hazards
related to tobacco products. This implies that in order to enter as a manufacturer, heavy


14
investment is required. The government is providing incentives to the tobacco growers in
order to promote the industry. This is being done through the Pakistan tobacco board. The
board tries to find out their problems and to educate them about the cultural operations, plant
protection measures, picking and curing operations. Other responsibilities of the board are to
regulate, control and promote the export of tobacco and tobacco products, and to fix grading
standards.
Demand and supply
The tobacco board also manages the demand and supply in the industry. According to legal
requirements, the tobacco manufacturing and exporting companies are required to inform
their tobacco requirements by the 21stof October to the Pakistan Tobacco Board. After
discussions between the Board and other stakeholders like buyers, growers, dealers, etc. and
taking into account factors like crop size, prices, domestic usage and exports, these figures
are finalized.
In this way the growers get a rough estimate of how much they should grow. This creates a
balance between demand and supply. The Pakistan Tobacco Board, in collaboration with
tobacco companies, holds meetings in the tobacco growing areas to inform the growers about
the requirements of tobacco companies.
Image
The industry has a negative image among its consumers and the general public. This is due to
the various health hazards associated with tobacco consumption. People are also blaming the
government for its support for the industry. Smoking is the cause of lung cancer in 90% of
the cases. Its users get addicted to it. Although the companies cannot change the nature of
their product, they are trying to build a socially responsible image in the eyes of the
consumers. PTC is currently engaged in various programs such as a forestation, Mobile
doctors program, Youth smoking prevention, learning resource centers. The laskson group
has set up Lakson medical center (Sahiwal hospital) and a Medical complex in Sawabi
NWFP.
Price
The government fixes the lowest price that firms can pay to growers. There is a restriction
that price for the current year cannot be lower than that paid in the preceding year. The
tobacco board has specified the criteria for fixing prices.
Smuggling is resulting in revenue leakage for the government. Some groups say that high
taxation on the tobacco industry is encouraging smuggling.



15
Internal Analysis
SWOT Analysis
Strengths
Economies of scale in production
Enterprise resource management for quick and cost effective operations
Efficient management
Marketing efficiency and capital effectiveness
Business process re-engineering
Weaknesses
Wastage of material in production.
Opportunities
Growing demand of cigarettes despite such anti smoking campaigns.
Threats
Illicit sector activities
Law and Order Situation
Available Resources
Technology
Law and Order Situation
The law and order situation has been precarious, culminating in the bombing at the
Marriott hotel which led to collateral damage to our Head Office in Islamabad.
The general security situation in the country continued to deteriorate in 2008 and it
was especially difficult in the tobacco growing areas of NWFP.
Technology
Changing Optimization techniques not only to ensure capacity enhancement but also
to adhere to international Environment, Health and Safety standards.
Available resources
Need of Raw material for meeting rising demand of cigarette
Government intervention for decreasing the cultivation of tobacco
Illicit sector activities
The illicit sector continues to be the single biggest threat to long term commercial viability
and sustainability of the legitimate sector along with its adverse impact on Government
revenue
Social and economic trends
Social trends
Increasing know how of cigarettes hazards


16
Anti - cigarette campaigns and litigations
Economic trends
Rising taxes
High inflation
Rupee devaluation
Rising commodity and oil prices
Sharp increase in energy costs.
Government action
Cigarette use prohibition and awareness in people for hazards of smoking
Ban on sales promotions
Ban on product advertisements including sports sponsorships, TV, radio and outdoor
hoarding.
Changing Consumer needs
Switching to Discount brands due to decreasing purchasing power of the consumers.
Threat of rivalry and new entrants
PTC faces rivalry from Lakson Tobacco Pakistan in major, after it there is no other big
market player and cannot affect the sales of PTC that much. As there have been the anti
tobacco campaigns internationally, there is a threat that the other international industries
might direct themselves for the developed countries to ensure their sustainability.
Pakistani market may also be in the threat for the international companies to enter, as
government policies for the entry are much relaxed but afterwards the company has to abide
by the strict rules and regulation for operating in the region.
PORTERS MODEL:
In Pakistan only two major companies compete with each other. These are Pakistan Tobacco
Company and lakson Tobacco Company. So rivalry among firms is normal.
Bargaining power of buyers
Cigarette consumption in Pakistan is five times higher than in India with 620 cigarettes per
adult per annum against 119 for India. This shows that the market for tobacco industry is very
immense locally. According to Pakistan Pediatric Association, 1,000 to 1,200 children
between the ages of 6 and 16 years take up smoking every day. Therefore, bargaining power
of buyers is relatively low.
Bargaining power of suppliers
Most of the tobacco used by the firms is produced in Pakistan, but still a considerable amount
of tobacco is imported every year so suppliers have some bargaining power regarding the
prices especially


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Potential Entrants
While the anti-tobacco movement in the USA helped lower cigarette sales, Big Tobacco, the
largest US companies: Philip Morris, R.J. Reynolds and Brown and Williamson have
continue to expand overseas. They have flooded the markets in Asia and Eastern Europe with
advertisements, promotional products and cut-price brands designed to encourage new
smokers.
Substitutes
Substitutes are easily available in Pakistan so people have the option to switch to brands of
other firms.
Corporation strategies
In the current conditions prevailing in the country, PTC is undergoing multi- dimensional
directional Strategies, from enhancing revenues; profits and market share to cutting down
Cost of production, and somewhat retrenchment (Organizational Restructure) as and when
needed for the organizational interests.
Directional Strategy:
Vertical Integration (Backward Integration)PTC is in backward integration as it has grown its
own tobacco cultivation fields, hence procuring the raw material from its own resources. But
still it is in a limited scope, as the cultivation place also changes the taste and color of
tobacco. Therefore, they have also done some contracts with farmers on standing field basis
i.e. the whole field is purchased from farmers the before it is harvested by estimating the
yield of field.
Portfolio Strategy
Focused brand portfolios communicated through state-of-the -art adult smoker
engagement program



18

Hence, despite the fact that the Tobacco industry is facing the threats in external
environment, PTC is expected to grow, and should invest more in order to gain maximum
market share.



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Functional Strategies
Some important functional strategies are as follows.
Marketing Strategy
Financial Strategy
Operational Strategy

Marketing Strategy
Pull Strategy
Distributors are given License for the sale of products. Certain sales targets are set for them
which they are to meet. The major market the company is focusing now days is a youth
between the age of 16-20.
Penetration Pricing
Price war has already been started by PTC in the previous years by cutting down the prices
of the products by half of the current selling prices. As a result more people are purchasing
the products, that has lead PTC to gain a market share of 46.3%. Discount brands of PTC
including Gold Flake have seen a rigorous growth in sales. Almost18% sales growth in Gold
Flake has been observed as compared to previous year.



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Financial Strategy
Debt to equity ratio is reduced significantly to make the business less leveraged. The ratio is
dragged down from 0.28 to 0.16. hence making attempts to transform the financial system
into a flexible one.
Research and Development strategy
PTC is in Technological leadership as it has a modernized plant and machinery which
produces high number of sticks at a certain time. In addition to this, a major issue in PTC was
a high material wastage which has been drastically reduced after having installed software
made by SirilankanTobacco Company.
Operational Strategies
Advanced Manufacturing Technology
Major issue in PTC was a high material wastage which has been drastically reduced after
having installed software made on CAD/CAM basis by SirilankanTobacco Company.
Mass Production
PTC is in mass production and has also achieved economies of scale in it. In 2008 almost 42
Billion sticks had been produced
Purchasing Strategy
Multiple Sourcing
Indigenously procured
For most discounted brands like Gold Flake & Capstan local tobacco is procured which is
mostly from NWFP.
Imports
PTC also imports tobacco for its two products;
Gold Leaf- from Brazil
Dunhill- from Belgium
Just in time Concept
PTC is now adapting Just in Time Concept for the procurement of the material to ensure the
freshness.
Human Resource Management Strategy
Recently foreign training to unskilled labor was given to make them working more
efficiently.
High Incentives are paid to the employees to ensure their loyalty with the company and
decreasing the turnover


21


Evaluation and Control:
PTC evaluates its performance in terms of earnings per share, as it is public limited company
having most of the stake with British American Tobacco. The first priority of the company
will be the shareholders wealth for which the most applicable tool is EPS.





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References:
NUST Research Center
The News
Reuters
Business Recorder (www.brecorder.com)
Pakistan Tobacco Board (www.ptc.com.pk)