China lights up hope for Big Tobacco

Scott Tong and Kai Ryssdal Aug 28, 2009

China lights up hope for Big Tobacco

Scott Tong and Kai Ryssdal Aug 28, 2009


KAI RYSSDAL: American tobacco companies have about two weeks left before the Food and Drug Administration officially starts keeping an eye on ’em. The FDA’s first tobacco regulator starts work on September 14. That’ll probably make it more difficult for big tobacco to do business. But overall the industry thinks its prospects are better than ever. Two words make that so: Emerging markets, especially in Asia.

Our China bureau chief Scott Tong is with us on the line from Shanghai. Hey Scott.

Scott Tong: Hello Kai.

Ryssdal: Give us some sense, would you, of how tobacco factors into everyday life over there?

Tong: Well you walk into a business meeting in China. You shake the person’s hand, you exchange business cards and then you get offered a smoke. I mean, it’s the equivalent of a cup of coffee in China’s part of business life. And then if the two companies cut a deal, then you’re going to have dinner at a fancy Chinese restaurant and then a carton of cigarettes will be given as a gift. In which case, it’s China’s version of the fruit basket.

Kai, it’s just interwoven into the everyday business life of China here.

Ryssdal: At the same time though, life for Big Tobacco in the United States is getting very difficult. It sounds like it’s getting a lot easier over there.

Tong: The global picture is the best that it’s been in the last five or ten years. And the reason, it’s the emerging markets. I mean, the U.S. and the mature markets are shrinking by maybe 2 or 3 percent every year, according to the industry guys. The emerging markets are going up by maybe 4 percent.

So it shakes out this way: ACcording, to one anti-smoking advocate, if you’re a global tobacco company and you can convince the men in Asia to switch to an American brand and get a certain number of women to pick up the habit, basically everyone in America could quit today and it wouldn’t matter.

Ryssdal: It sounds like tobacco companies are doing over there what they used to do over here, which is really specifically targeting their advertising and their marketing.

Tong: In Indonesia, cigarettes are basically marketed the way toothpaste is marketed. TV ads, radio ads, newspaper ads, billboards. In India, tobacco companies are sponsoring some clothing lines. In Taiwan, fruit flavored cigarettes are on the market, giving the subtle suggestion that it’s like fruit.

Now all of that is arguably legal in a lot of these countries. And then according to some tobacco critics, the industry is using some less legitimate — they’ve taken methods discredited in the west and they’re applying them in Asia.

For instance, in Thailand, documents say that industry groups have planted scientists in key research groups to kind of skew the debate over second-hand smoke. And in China, where foreign brands still limited in the market, companies have been known to smuggle their brands into China to build brand awareness.

Ryssdal: You know Scott, when I was over there, as you all know, it’s not uncommon to walk into a restaurant and have clouds of cigarette smoke wafting across the restaurant. Is the government at all interested in any kind of the restrictions that we’ve seen over here?

Tong: The government is and it’s signed up to implement some advertising and marketing bans over the next several years. But it’s going to be hard, because in everyday life, where you go to a restaurant and you know, smoking everywhere. You check into a hotel, it’s really hard to find a non-smoking room. There is movement in the eyes of some, but it could take 20 years or more to really change tobacco and smoking life here.

Ryssdal: You say China’s still a fairly closed market to Western tobacco companies, yet those tobacco companies are marketing pretty hard over there, yes?

Tong: Well, foreign brands maybe have 5 percent of the market or less. But you have to remember how big this place is, Kai. China was 350 million smokers, so that’s more than the U.S. has people. So the industry figures, just like every other industry on the planet, you have to be in China.

But as far as China and the global tobacco market, Kai, I’ll leave you with this: Marlboro’s parent company, Phillip Morris, is also taking its marketing and branding expertise and its sharing them with Chinese companies that want to go global. So the next big multinational company in this space couldl be a Chinese company, Kai.

Ryssdal: Alright, Scott Tong in our Shanghai bureau. Thank you Scott.

Tong: OK. Thanks a lot Kai.

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