Commercial many laws around the world concerning the use,

Commercial Analysis

British American Tobacco plc (BAT) was formed because of a joint venture between Imperial Tobacco Company and American Tobacco Company in 1902. Which has risen to be the largest tobacco company in the UK, and the second largest in the world. It is listed on the London Stock Exchange and is a part of the FTSE 100.

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BAT believes in “satisfying consumer moments”, they aim to concentrate on improving consumer’s needs, behaviour and concerns. By doing this, they can be the best in the industry and achieve their wanted success. (British American Tobacco, 2016)

Another objective that BAT has set is innovation and exploration of other products within their industry. They always want to give their customers options, and believe that there is a lot of potential in “Next Generation Products” doing this will help them grow in the market. (British American Tobacco, 2016)

BAT operates in the tobacco industry, they are big in their industry and are said to contribute to economies. Tobacco is an addictive substance and very commonly used around the world, it constantly faces criticism due to its nature and effect on people, and so there are many laws around the world concerning the use, marketing, sales and other aspects of it, making it a difficult industry to compete in. 

China is the biggest producer of tobacco, and the biggest in its industry originates there. Following it is BAT, they are market leaders in 50+ countries and own several subsidiaries helping them extend their reach further.

BAT’s income source mostly comes from the sale of tobacco related products; Cigarettes, Cigars, Loose tobacco, e-cigarettes and other Next Generation Products, they offer a variety of products for adults that choose to consume tobacco in different forms. BAT owns multiple cigarette brands including; Kent, Dunhill, Lucky Strike, Pall Mall and Rothmans, they make up for over a third of sales emphasizing its size.

With BAT being the second largest tobacco company in the world its biggest competitors are companies in its league rather than smaller ones. These include (Chinese peeps), Imperial Brands PLC, Philip Morris International Inc. and Japan Tobacco Inc.

 

 

 

 

 

 

SWOT analysis

Strengths
·         2nd biggest tobacco company in the world
·         Expanded in Kenya

Weakness
·         Laws
·          

Opportunities
·         Next Generational Products
·         Increase in population

Threats
·         Increasing health concerns
·         Competition

 

Strength

BAT rank on the top end of the FTSE 100 companies, showing their profits to be very high. As of their last annual report they were said to make a profit of £4,655m from operations, putting them at the second largest tobacco company in the world. Investors are getting 169.4p total dividend per share which was 10% higher than the year beforehand showing their investment is paying off.

In the last 18 months BAT has bought Twisp a South African vaping company, further achieving their objective of expanding into Next Generational Products, following this sale BAT’s shares rose by 2.2% showing the relevance of such a move. BAT has also received some praise for being great employers, they were employer of the year in Kenya and named a top employer in Asia Pacific showing they care for their employees, and strengthening brand image.

Weakness

Despite these achievements BAT has also suffered many some challenges; Tobacco products are very highly criticised and regulated. All countries have different laws against them, e.g. In the UK they have to be sold in plain packaging, can’t be displayed around a shop just behind a counter and have to have images of the harm they cause, and information about how harmful they are to your body. These all limit BAT as they’re products become undifferentiable compared to other cigarettes and so consumers will just resort to the cheapest option.

Opportunities

The increase in population is a constant opportunity the company faces, as there is legal age to buy cigarettes (check that it’s the same for all countries), every year they have more and more potential customers. There biggest task is trying to advertise to these consumers as the face that their packaging must be plain and are limited in the way they can advertise and sell their products it becomes more challenging.

BAT aims to make £5bn from E-cigarettes and some other next generational products, this gives the company the perfect opportunity to expand and get ahead of its competitors by offering more alternatives. Tobacco consumers are becoming more aware of the health risks of smoking cigarettes and are opting for alternatives like e-cigarettes, hence increasing the market for next generational products. (Torrance, 2018)

Threats

Increasing health concerns are a big threat to BAT as its decreasing their customer count, and hence decreasing their opportunities to make more profit. Governments and activists constantly make sure that there is a lot of information out there about the harm of tobacco and incentives and ways to help quit. There are also laws on how tobacco product packaging must show pictures of the harm of using it.

Although BAT is the second largest tobacco company in the world, competition is a large factor. Sometimes smaller companies can be big competition because they might not have as many restrictions as a company the size of BAT does and they set lower prices. With the prices of cigarettes being so high, consumers start to lose brand loyalty and follow the prices that they can afford.

 

Accountability

Accountability is responsibility, being answerable and liable for actions. (Dykstra, 1939). Just like every organisation BAT needs to be accountable, but within the organization there are certain limits to accountability, being too transparent can cause issues for the business. A large amount of people works for and rely on this business in different ways so accountability and controls are key.

If the business sets the limit of how transparent they are they’ll have the issue of always having to meet it which can be troublesome

The limits of accountability – Martin Messner

Martin Messner believes that the best way to deal with the problem of conflicting accountabilities is to focus on a group of stakeholders, because not all users’ needs are the same and so there’s many conceptions of accountability. This is supported in accounting standards, which state that the users of financial statements are the “addressees of accountability” (Messner, 2009)

Organisations like BAT have many stakeholders to be accountable to, and it’s not possible to be accountable to everyone. So Messner states that we should concentrate on one group, particularly the users of financial statements because they are more important to the business as they include investors and shareholders. It’s unrealistic to be accountable to everyone, but by choosing a group they can be sure that they operate in a way to focus on those stakeholders. This definition of accountability is very specific and neglects BAT’s duty to its customers.

Customer Focus: An Accountability Dilemma – Mikael Cäker

Cäker believes accountability to a customer is an important factor, and will lead to management accounting being able to focus on other classical tasks like financial performance. In this article, the definition used for accountability is ‘the willingness and ability to explain and justify one’s acts to self and others’ (Munro and Hatherly, 1993). Being accountable to customers helps the organisation just as much as customers because pleasing customers will build brand loyalty. (Cäker, 2007) **

Customer accountability is important, but there is a limit. Being accountable for communicating with customers to hear their needs and to incorporate them is vital, but too much transparency can be toxic. Messner believes that the financial users are the group to focus on because they are our investors and shareholders without which the business won’t run. These two groups have different needs from the business, and so the accountability definition that Cäker uses is an expansion on Messner, as he believes customer accountability will help everything else.

Pathologies of Accountability – Johnathan Koppell

Koppell suggests a five-part typology of accountability conceptions: Transparency, liability, controllability, responsibility, and responsiveness. These questions can determine accountability; were facts revealed of the organisations performance, were there consequences for its performance, did the organisation do what the principal wanted, were the rules followed, and was expectation met? (Koppell, 2005)

Compared to both Messner and Cäker, Koppell goes into a lot more detail to discover accountability and his definition opens the word up to a bigger duty of care. There are so many different definition and interpretations to accountability that businesses are able to use it to justify their actions.

 

Controls

In 2015 BBC panorama led an investigation that uncovered evidence of bribery at BAT. It was discovered that BAT had been bribing civil servants and politicians in East Africa, for many different reasons. A whistle-blower, Paul Hopkins worked for BAT in Kenya for 13 years bought all this information to light explaining it was the cost of business in Africa. (BBC News, 2015)

BAT used these bribes to receive information about their competitors in Kenya and to undermine tobacco control regulations that saved many lives in Rwanda, Comoros, and Burundi. Bribery is seen to be a cost of business in Africa, which is a big problem because it has severe effects. (Adeyeye, 2017).  One of the bribes was paid to an official at the Burundi’s Ministry of Health in exchange for some support concerning illegal tobacco products, he was helping BAT to undermine a bill and stated he could “accommodate any amendments before the president signs”. The official later denied taking a bribe which contradicted documents proving so. (Boseley, 2015)

The bribes were carried out by Paul Hopkins after being given orders by his superiors. It can be argued that the subsidiaries shouldn’t be solely responsible for the issue because BAT set such high standards, and it is unfair as the subsidiaries are located all around the world where policies differ that they felt the only way to meet them was to bribe.

BAT is such a big company and has subsidiaries all around the world, to make sure everyone is abiding by the rules and not causing any legal issues they need implement more controls, so if anything does go wrong they can catch it before it goes too far and their image is damaged. There are many types of internal and external controls that can be implemented to be sure there’s consistency throughout the business. BAT is a global company and all their subsidiaries are in different countries they have different laws to abide by, this makes it a bit more difficult for them as a company and the individual subsidiaries may feel forced to break rules to keep up to the company’s high standards. Making controls an important factor in keeping BAT at the top of the industry and within the laws of the land they operate in. (Financial Reporting Council, 2014)

The money used for the bribery had to come out the company accounts, but should not have been approved for that use. A internal control that needs to be implemented is to have two people approve a transaction to reduce risk of money being used for briberies or other illegal reasons. This should work in a way that when someone wants to spend over a certain minimum amount in the business e.g. £1,000 it would have to be signed off by two people entrusted with the role of monitoring the businesses incomes and outcomes. This way it would be harder and less likely for anyone in the company to try and use money for such reasons. This is a preventative control, placed to discourage faults or indiscretions.

Another preventative control that should be placed is; Meetings need to be recorded in a transcript, there should be someone there writing down what is being said and taking note. Although this is a more difficult control because some meetings will be confidential, they will have to hire staff that will note all these meetings to make sure nothing illegal is happening and if they hear something they want to flag they take it up to a board that is put together to hear such things. If what is flagged is found to be concerning it can be dealt with immediately before it goes any further, decreasing the risk of people attempting to do things like bribery. This is a good internal control for the business because they will always be able to track what’s going on and it can even be used to look back on for research or other needs.  

A last internal control that needs to be implemented is shareholders need to issue more internal audits, this is the best chance they have of always having an honest insight into the company’s activities and accounts. This would help them to trust the managers more and avoid unnecessary things like bribery charges. To do this BAT would need to assign the job of the internal audit to trusted members within the organisation, that would carry out audits in their subsidiaries. To make this a stronger control they would send their accountants to different subsidiaries that they don’t currently work for to take away any familiarity or sympathy towards the people they are auditing. This is a detective control put in place to spot the errors or irregularities that have already occurred and discouraging them from happening in the first place.

250 more words (1050)

Section B – 700 words

BAT is part of an industry that is seen to be immoral, there are clear health hazards to using tobacco and addiction to nicotine. Cigarette smoking is responsible for many deaths all around the world. By producing, selling and making a profit from selling these products to customers some can say BAT isn’t being held accountable for their operations. They are fuelling addiction and sending people to their death beds. Alternatively, consumers have the freedom of choice, and they choose to buy these products knowing the harm they cause.

“Accountability is being responsible and answerable to your actions”. BAT follows the laws and has their products the way that is legally required, with health warnings, images, plain packaging, limited marketing options and high prices. Doing this makes BAT responsible and answerable to their actions, tobacco is their product they will not be dropping out of the industry. BAT has been around for hundreds of years and is unrealistic to expect them to just stop all sales. The company is proving responsibility by showing their innovation and exploration into Next Generational Products that will be safer then cigarettes, but this change doesn’t happen overnight and they have millions of employees to answer to. They contribute to economies so deciding one day to stop sales would be irresponsible, they are proving that they are accountable to the customer by listening and seeing that people want to quit cigarettes but would like a source of nicotine in a safer way