Oct 18, 2019 in Economics Essays

Executive Summary

This research paper reports on the aspects of globalization in the tobacco industry. It specifically addresses the benefits of globalization for the tobacco companies. In addition, the report covers the legal and policy regulations under the tobacco industry and how the tobacco companies have responded in creating a legal framework to curtail the policies that seek to control their activities. This report covers aspects that explain why some American cigarette companies have expanded their operations in transitional economies and emerging markets. It also covers the measures that governments and industry players should take in order to ensure a free and fair tobacco free initiative.

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Introduction

Globalization is the rise in the connection of the countries in the world through trade, technology and finance (McDaniel, Intinarelli, & Malone, 2008, p. 1). It is the merging of the worlds’ economies as a result of the innovations and technological advances that have created one global village. Rapid economic transformation has resulted in the opening of economies to accommodate global companies (Yach & Bettcher, 2000, p. 207). Over the past years, the world's economy has become interconnected due to the removal of trade barriers and increasing the importance of free trade.

It is vital to keep in mind that globalization has the potential to impede the progress of modern public health programs (McDaniel, Intinarelli & Malone, 2008). The commercialization and industrialization of various industries coupled with the search for new markets and low cost destinations has led to the creation of more opportunities than those available in the past two decades. Similarly, the tobacco industry has not lagged behind in this quest to internalization. Commercial cigarette production has gone a notch higher in this globalization domain. Vast majorities of the global smokers are above the age of 15 and account for one-third of the global population in the world’s developing and transitional economies.

Opportunities for the Cigarette Companies due to Globalization

The global shift towards trade liberalization that emanates from the multilateral trade agreements and other bilateral agreements has facilitated the penetration of new markets by the cigarette companies. In addition, there has been a shift from the past traditional markets to the world’s emerging markets in Africa, Eastern Europe, Asia, and Latin America (Yach & Bettcher, 2000). Transnational tobacco companies have expanded their global operations and international presence. The companies continue to support the trade liberalization policies and have brought about advanced and aggressive marketing and advertising techniques in order to develop a market niche. These companies have similar strategies that aim at reducing the tobacco control efforts that various governments, which use transnational economies have put in place. However, it is essential to remember that globalization opportunities are abundant and have increased in leaps due to the free trade and liberalization policies. The benefits of globalization include the positive benefits of liberal trade, free capital mobility, removal of investment barriers. These benefits have come along with increased opportunities for cigarette companies manage the changing global economic developing and adopting their strategies in global markets.

Cost Minimization Opportunities

One of the goals of globalization of companies is to enhance cost minimization. Various companies have established global markets due to the benefits that they derive from the production of products at low costs in emerging markets. At the same time, the tobacco companies have gone ahead in establishing markets in the emerging economies in order to gain from the positive benefits of trade liberalization and free trade. This comes from locating the low cost destination from which the companies will benefit.

Mergers and Acquisitions

Tobacco companies can gain through globalization by taking consideration of the global market place. Tobacco companies can manipulate the globalization trends onto their favor through mergers and acquisitions. This will ultimately improve their global bargaining power in a highly regulated industry. It is vital to note that the global mergers have played a crucial role in altering the world tobacco industry (Yach & Bettcher, 2000, p. 207).

Tariff Reductions

The global trade agreements under the umbrella of the WTO trade agreements will enable companies to benefit through the tariff reduction in the emerging economies (Yach & Bettcher, 2000, p. 207). Market liberalization and penetration is likely to offer tobacco companies more opportunities in development. This became possible due to the statistics of the emerging markets and transitional economies which indicates the the majority of smokers.

Creation of Global Brands

The tobacco industry is one practicing aggressive marketing and advertising. The industry strategies intimately link with the notion of international brands (Yach & Bettcher, 2000, p. 209). Thus, through aggressive advertising, large cigarette multinationals can enhance the creation of global brands. It is through the creation of global brands that various companies can penetrate some of the markets in the BRIC economies and the developing nations.  Therefore, the future success of the cigarette companies anchors on the creation of global brands that penetrate various world markets, identifying low cost destinations that will ensure the production of tobacco, and identifying the emerging markets with the most attractive trade policies.

Global Legislation and Control of the Tobacco Industries

Over the past decades, various authors have written about the consequences of globalization of the tobacco industries. Some authors indicate that the changing nature of this industry is likely to impede public health. In response to this, various economies have established and put in place mechanisms that will ensure global tobacco control. The industry players have responded with equal measure saying that these statistics and the tobacco legislations have enhanced the creation negative stances between legal and illegal products. These views have evoked mixed emotions between the tobacco industry players and the governments of various countries.

Some of the most notable industry responses included the 1993 Phillip Morris described the approach to take in order counter the strategies that aimed at limit tobacco control. In addition, the tobacco companies from British American Tobacco (BAT), Philip Morris (PM), R.J. Reynolds (RJR), Rothmans International, Reemtsma, to Gallaher came together under the framework of International Committee on Smoking Issues (ICOSI) in order to establish a common approach in the tobacco industry. One of its objectives was to control all those who threatened the freedom of their actions. Thus, the companies pledged to resist any attempts by governments that controlled their activities (McDaniel, Intinarelli, & Malone, 2008).  This marked the first significant attempts by the tobacco companies to control any litigation that could mutilate their business agendas. It is through the silent in litigation approach over the years that enabled the companies to flex their muscles. With the lack of  global approach towards litigation in the tobacco industry, the companies have resorted to harness the globalization forces to their favor.

One of the first principal approaches to control the activities of the tobacco industry players was the 2003 WHO Framework Convention on Tobacco Control. This sought to give various governments a universal policy in order to take control over the companies. One of the objectives of the WHO Framework Convention on Tobacco Control was to enable governments to create 100% smoke free zones, inform the public on the health risks, and limit tobacco control and marketing. This move focused on limiting the activities of the tobacco companies in order to enable governments imposing tough sanctions on the industry players. However, this led to the creation of disharmony between the industry players and the World Health Organization. The World Health Organization believes that these mitigation strategies will limit the activities of the tobacco industries in the global market place.

Tobacco control in the global market is powerless in the face of tobacco brand control (Yach & Bettcher, 2000, p. 208). The establishment of global brands such as Marlboro has made the litigation processes hard for governments and the policy makers. It is essential to remember that the tobacco companies often control vast budgets across the world, the behavior of the legislators, and the language of the tobacco control debate.  Thus, this shows a large contrast between tobacco control and the global tobacco industry makes it is hard to ascertain who administrates the global tobacco control mechanisms.
The tobacco industry players created INFOTAB in order to control the activities of the governments that focused on controlling the activities of the tobacco companies and challenge the tobacco control measures. The organization was also to find the tobacco-friendly environments in which companies can establish their markets. Other organizations such as the International Tobacco Growers association focus on advancing the claims that relate to the economic significance of tobacco in developing countries. This move is essential in justifying the claims of the companies in order to reduce the powers of litigation measures that the World Health Organizations has put in the developing countries.

Over the years, the tobacco companies have come together when threatened by the litigation policies and the measures that seek to ensure global public health through the tobacco control initiatives. The companies often sidestep their competitive concerns and come together in umbrella bodies so that they can claim their global economic significance. The regional bodies in various governments show an inclination towards the INFOTAB, and this has resulted to undermining of the policies that have sought to control tobacco.

As the tobacco companies continue to debate on the economic significance of the tobacco industry, it is essential that various countries adopt measures that will seek to identify the interconnectedness of the regional tobacco bodies in order to come up with an effective tobacco control policy. Fair and level playing ground will not emanate from foul play by the industry players, but from a common understanding of how the companies have improved those regional economies. This also highlights why the American companies have continued to establish international links and making it to control the tobacco markets in the developing countries and emerging markets.

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The Global Health Concerns about Tobacco

Globalization of the tobacco industry is said to impede public heath in the world’s transitional economies. Various authors continue to stress the significance of the public health and why governments must put in place tobacco control mechanisms. The World Health Organization has put emphasis on the significance of creating smoke free environments, and initiating public health programs that inform the public about the concerns of smoking. The emphasis is even higher in the developing countries and transitional economies where the majority of the smokers stay (McDaniel, Intinarelli, & Malone, 2008, p. 2).
Over the past decades, the shift of global smoking has gone to the developing nations and the transitional economies. Estimates indicate that by the year 2020, majority (70%) or (8.4 million) of deaths will occur in developing nations as a result of tobacco abuse. This might be worse if the tobacco growth in these countries will exceed the current 70 percent. Tobacco control measures should be increased in these countries.

In a nutshell, the World Health Organization indicates that a majority of the deaths, given that out of the 57 million deaths that occurred in 2008; only 36 million were as a result of non-communicable diseases. However, the most worrying situation is that tobacco projections continue to show that there are 1 billion smokers in the world. With the annual global cigarette standing at 1 billion, the risks that emanate from cigarette use will remain high forever. In addition, the statistics indicate that close to 6 million people pass away every year out of tobacco use and 600 000 deaths occur as a result of second hand smoke. The World Health Organizations indicates that tobaccos deaths will reach a time high of 7.5 million (WHO, 2011, p. 11). Thus, the public health concerns regarding tobacco use are justified.

Companies in the Transitional Economies and Developing Countries

Tobacco companies have taken the initiative to shift the benefits of globalization in their favor (Yach & Bettcher, 2000, p. 208). The surge of cigarette companies in the emerging markets and developing nations result from the formation of international brands. American cigarette companies have increased their international presence since free trade policies took the whims of the global economy. The Marlboro brand of PM is an indication of the creation of global brands by the American company. This has continued to take a leading position in enhancing its global business agenda.

Tobacco Free Initiative: The Way Forward

Informed Tobacco Free Debates

Governments must initiate public health education initiatives that lay their foundation on informed scientific information. It is essential that the governments work with the industry players to come up with cigarettes containing suppressed intoxicants (Yach & Bettcher, 2000, p. 211). Thus, governments and the industry players must seek information that is vital in making decisions.

Global Information Management

In order for governments to put in place a winning tobacco control strategy, it is vital to remember that the key to tobacco control is information. This information will include the negative economic impacts of tobacco, health effects, and the benefits of quitting (Yach & Bettcher, 2000, p. 211). Thus, with the right information, the governments will be able overcome the tobacco-related health problems.

Involvement in Global Regulation through Legal and Foreign Policies

The pursuit towards strengthening global tobacco control must recognize the fact the local tobacco control legislations may not fully control the tobacco multinationals (Yach & Bettcher, 2000, p. 211). It is vital to keep in mind that working together with foreign governments will ensure effective control of tobacco companies.

Conclusion

The benefits arising from globalization are high. Cigarette companies are likely to benefit in the global market. Proponents of free trade and liberalization have argued against the measures to control tobacco. This have emanated from arguments about the economic significance of the tobacco industry. Some of the ways that will ensure the promotion of a tobacco free agenda include measures that will enable governments to create their own control mechanisms, involvement in global regulation through legal and foreign policies, global information management, and informed tobacco free debates. It is critical that policy makers understand the need of working closely with the cigarette producers aiming to create a proper control mechanism.

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