China National Tobacco Company \"The departments of tobacco monopoly administration in the provinces, autonomous regions and municipalities directly under the Central Government shall be responsible for the tobacco monopoly within the areas under their respective jurisdiction, and shall be under the dual leadership of the department of tobacco monopoly administration under the State Council and the people's governments of the provinces, autonomous regions and municipalities directly under the Central Government, with the leadership of the department of tobacco monopoly administration under the State Council as the main leading authority'' The Law of the People's Republic of China on Tobacco Monopoly: Article 4, Chapter 1. Mission CNTC has no official mission statement. It is instead guided by The Law of the People's Republic of China on Monopoly (shown above) and monitored by both corporate and government based entities. The mission and goal of CNTC changes annually as the firm must adapt and adjust to achieve goals set by the governing members of the People's Republic of China (PRC). As such it is difficult to make any judgments or recommendations with respect to the mission statement. Company Overview In January 1982, the PRC formed ????????, the CNTC. The company is a state-owned, state-run enterprise, \"empowered to operate all aspects of China's tobacco industry, which covers plantation of tobacco, purchase and allocation of leaf tobacco, manufacture and distribution of cigarettes, cigars and other tobacco products, and import and export businesses for China's tobacco industry.\"1 CNTC has since become the single largest producer of tobacco products on the planet owning nearly 40% of the global market.2 According to data compiled by Bloomberg, CNTC's 2010 figures make it the world's 18th largest company by profit and the 30th largest by sales.3 1 He, P., Takeuchi, T., & Yano, E. (2012, June 14). An overview of the China National Tobacco Corporation and State Tobacco Monopoly Administration. In NCBI. Retrieved June 19, 2014, from http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3541807/ 2 Campaign for Tobacco-Free Kids. (2012). The Chinese Tobacco Market and Industry Profile. In global.tobaccofreekids.org. (pg.1) Retrieved June 18, 2014, from http://global.tobaccofreekids.org/files/pdfs/en/TI_Profile_China.pdf 3 Loo, D. (2012, March 6). China's tobacco monopoly bigger than HSBC. In Bloomberg. Retrieved June 22, 2014, from http://www.bloomberg.com/news/2012-03-06/china-s-tobacco-monopoly-bigger-by-profit-than-hsbc.html The CNTC monopoly controls 98% of the Chinese tobacco market. In 1985, the Chinese government created ???????, the State Tobacco Monopoly Administration (STMA) to act as a government administrator for CNTC, and, it monitors the monopoly on behalf of the Chinese government while CNTC oversees tobacco production.4 STMA operates under the watchful eye of the Ministry of Industry and Information, which is the official oversight entity for CNTC and STMA. \"A professional member of the STMA staff pointed out that the STMA was the responsibility of the Ministry of Industry and Information, not merged into it, so the STMA remains a relatively independent organization, protected by the Law of the PRC on Tobacco Monopoly.\"5 Figure 1 was adapted from \"Tobacco taxation and its potential impact on China\" (2008 Hu et al.). It gives a general overview of the reporting structure within the Chinese government including CNTC and STMA. Figure 1: CNTC and STMA Organizational Position6 4 China Tobacco. (n.d.). In Wikipedia. Retrieved June 18, 2014, from http://en.wikipedia.org/wiki/China_Tobacco 5 He, P., Takeuchi, T., & Yano, E. (2012, June 14). An overview of the China National Tobacco Corporation and State Tobacco Monopoly Administration. In NCBI. Retrieved June 19, 2014, from http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3541807/ Corporate Structure CNTC's corporate structure is divided into three main parts. Figure 2 identifies the hierarchal structure and division of responsibility. Head Office Is: Administration and central leadership Does: Independent economic industry oversight Provincial-Level Tobacco Monopoly Administrations (PTMA) Is: Many 'independent' provincial-level firms working under the oversight of SNTC & STMA Does: 33 administrative firms oversee 57 industrial facilities & 1,000 commercial enterprises7 Accessory Departments Is: China Tobacco Society, the Zhengzhou Tobacco Research Institute, the Hefei Institute of Economics and Technology Does: Promote tobacco research linking scientists and their research to one another Figure 2: CNTC Corporate Structure8 China's tobacco industry adopts a system of unified leadership, vertical management and monopolized operation. The official website for CNTC lists its current leadership as follows: Chief Administrator/President: Deputy Administrators: Discipline Inspection Head: Jiang Chengkang Zhang Baozhen, He Zehua, Li Keming, Zhang Hui Pan Jiahua9 Sources report CNTC currently employs between 510,000 and 520,000 workers, has 183 factories, 150 drying plants, and 30 research institutes. According to the Chinese Academy of Social Sciences, as of 2012, an estimated 60 million people make their living through farming, manufacturing, and sales jobs related to the tobacco industry.10 6 Hu, T., Mao, A., Shi, J., & Chen, W. (2008). [Image]. How is China's domestic industry regulated. (2011, May 18). In Caixin Online. Retrieved June 26, 2014, from http://english.caixin.com/2011-05-18/100260353.html 7 Chinese Government. (n.d.). State Tobacco Monopoly Administration. In Chinese Government's Official Web Portal. Retrieved June 16, 2014, from http://english.gov.cn/2005-10/03/content_74295.htm 8 He, P., Takeuchi, T., & Yano, E. (2012, June 14). An overview of the China National Tobacco Corporation and State Tobacco Monopoly Administration. In NCBI. Retrieved June 19, 2014, from http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3541807/ 9 Chinese Government. (n.d.). State Tobacco Monopoly Administration. In Chinese Government's Official Web Portal. Retrieved June 16, 2014, from http://english.gov.cn/2005-10/03/content_74295.htm Operations CNTC's operational structure is divided among its PTMA units. Figure 3 lists the primary PTMA's operating within the CNTC family. In traditional firms these might be considered as departments, but in the Chinese system they operate as independent economic entities. China Leaf Tobacco Production, Procuring and Sales Corporation China Tobacco Trading Center China Tobacco Machinery Corporation China National Tobacco Import and Export Corporation China Cigarette Sales and Marketing Corporation China Tobacco Materials Corporation Tan Li International Co. Ltd. China Tobacco Industrial Development Center CLTPPSC President: Zhao Xing CTTC CTMC CNTIEC President: Li Zehua President: Li Fuchen President: Li Shiyon CCSMC President: Tian Zhongzhen CTMC President: Bian Youlun President: Lui Peixang Director: Zhang Yongdong Figure 3: CNTC Provincial-Level Tobacco Monopoly Administrations 11 Diversification and Trade China Tobacco Industrial Development Center, founded in 1998, is the entity charged with managing CNTC's non-tobacco related industries, as well as exploring potential new avenues for investing and expanding.12 China National Tobacco Import and Export Corporation was founded in 1985, and has the exclusive rights to import and export tobacco commodities in China. Its purpose is twofold: 1) protect Chinese tobacco interests from outside threats and 2) expand Chinese tobacco to the international marketplace. It is forging new alliances and has expanded its reach into the international market. It currently has 13 branch companies in global tobacco centers across the world.13 10 Tiezzi, S. (2013, December 30). China's tobacco addiction. In The Diplomat. Retrieved June 25, 2014, from http://thediplomat.com/2013/12/chinas-tobacco-addiction/ 11 Chinese Government. (n.d.). State Tobacco Monopoly Administration. In Chinese Government's Official Web Portal. Retrieved June 16, 2014, from http://english.gov.cn/2005-10/03/content_74295.htm 12 China Tobacco Industrial Development Center. (n.d.). In Tobacco China Online. Retrieved June 18, 2014, from http://act.tobaccochina.net/english/zmj/index57.htm 13 TobaccoChina (n.d.). China national Tobacco Import & Export Corporation (CNTIEC). In Tobacco China Online. Retrieved June 18, 2014, from http://act.tobaccochina.net/english/zmj/index51.htm Tian Li International was founded in Hong Kong in 1989, and its primary purpose was to create and foster international relationships and contacts from outside the Chinese borders. Today, Hong Kong is once again under Chinese control, but Tian Li International continues to research and explore potential new markets, products, and trade alliances with the hope of improving China's export potential in the future.14 Procurement and Manufacturing China Leaf Tobacco Production, Procuring and Sales Corporation was founded in 1986 and is responsible for putting into action the State Planning Committee's annual procurement plan. The corporation uses this plan to negotiate contracts with local growers to supply raw tobacco. It is also responsible for monitoring new technologies and advances in the industry, as well as educating growers about new techniques and methods. Through its efforts, the quality of Chinese tobacco and the yield per hectare has improved dramatically.15 China Tobacco Trading Center is responsible for supplying materials related to tobacco production. It coordinates the supply chain of raw materials to production. It is a membershipbased organization. A supplier or manufacturer must be a member of the center in order to do business in the Chinese tobacco market.16 CNTC's value chain is unique in that it controls every aspect of its supply chain from farming to sales. Growers are not considered part of CNTC, directly. They are considered to be independent entities, however their lack of say over what is grown on their land speaks to the contrary, giving CNTC indirect control. CNTC \"negotiates\" contracts with local growers that determine what percent of land may be used for tobacco growth, what seed types are to be planted, and what type of fertilizer is to be used. Growers are obligated to purchase these products from CNTC at a predetermined price. All tobacco grown in China must be sold to CNTC. The price for the tobacco is determined at the time of contract negotiations and the state is obligated to purchase all tobacco grown under these contract conditions.17 CNTC has the added benefit over its competition for being self-reliant and does not have to depend on the 14 Tian Li International Co., Ltd. (n.d.). In Tobacco China Online. Retrieved June 18, 2014, from http://act.tobaccochina.net/english/zmj/index58.htm 15 TobaccoChina (n.d.). China Leaf Tobacco Production, Procuring and Sales Corporation (CLTPPSC). In Tobacco China Online. Retrieved June 18, 2014, from http://act.tobaccochina.net/english/zmj/index52.htm 16 TobaccoChina (n.d.). China Tobacco Trading Center (CTTC). In Tobacco China Online. Retrieved June 18, 2014, from http://act.tobaccochina.net/english/zmj/index56.htm 17 Food and Agriculture Organization of the United Nations. (2003). Issues in the global tobacco economy: Selected case studies. (p. 34). Retrieved June 16, 2014, from ftp://ftp.fao.org/docrep/fao/006/y4997e/y4997e00.pdf import of raw materials to produce an end product. Figure 4 below depicts the pieces and the flow of CNTC value chain. Figure 4: CNTC's Value Chain18 Research & Development China Tobacco Machinery Corporation, founded in 1998, is primarily charged with modernizing China's outdated equipment. However, it also oversees much of the R&D related to tobacco in China.19 Little is known about the amount of funding CNTC provides for R&D efforts. Unlike its foreign competitors, CNTC initially did little in the way of independent R&D, choosing instead to acquire existing technologies through trade or purchase. The company has recently changed its focus away from the acquisition of foreign technologies towards its own R&D. As a result, CNTC now produces and exports some of the most advanced tobacco production equipment on the planet. Marketing Products and Price CNTC produces all types of tobacco related products, but cigarettes make up the largest market segment at 99.7%. Cigars currently hold only 0.2% of the market, but they are a steadily growing segment. Loose tobacco accounts for the remaining 0.1%.20 The majority of cigars 18 China's tobacco industry is leaving other in its smoke. (n.d.). In Tompkins International. Retrieved June 21, 2014, from http://www.tompkinsinc.com/article/2010/chinas-tobacco-industry-leaving-others-smoke 19 TobaccoChina (n.d.). China Tobacco Machinery Corporation(CTMC). In Tobacco China Online. Retrieved June 18, 2014, from http://act.tobaccochina.net/english/zmj/index55.htm 20 MarketLine. (2013, August). Tobacco Industry Profile: Global. (p.12). Retrieved 1 June 2014, from Business Source Complete database. currently consumed in China are imported, but recent efforts to tap into the growing demand for cigars has prompted CNTC to invest in its own production plant to improve production of China's most popular domestic brand, Great Wall (Figure 5). When fully completed in 2013, it will be able to produce two billion cigars a year, up from the 300 million it currently produces annually.21 Figure 5: CNTC Most Popular Cigar & Cigarette Brands Like most tobacco firms, CNTC produces many different brands of cigarettes. Unlike the multinationals, many of these brands are regional and sold only in local provinces. In the past, restrictions have limited trade between provinces and allowed for local brand dominance. Additionally, Chinese culture has attached a certain air of, \"local pride\" to smoking local brands, making them very popular. Consolidation efforts have decreased the number of brands produced. However, it is estimated that CNTC still produces upwards of 900 different varieties and brands of cigarettes today.22 The most popular national brand (by sales) is ???, Red Pagoda Hill, accounting for 6.2% of all cigarette sales in China.23 With so many brands to choose from it is not surprising that cigarette prices vary tremendously. Customers can expect to pay anywhere from 50 cents to several hundred dollars for a pack of cigarettes. About half of Chinese smokers spend 5 ($0.80) or less on a pack of 20 21 Close, but no cigar. (2010, April 20). In China Economic Review. Retrieved June 24, 2014, from http://www.chinaeconomicreview.com/node/26535 22 Rauchen, Zigaretten und Gedichtwahre-smoking, Cigarettes and safe face. (2012, July 5). In China Survival. Retrieved June 17, 2014, from http://chinasurvival.wordpress.com/2012/07/05/rauchen-zigaretten-und-gesichtwaren-smoking-cigarettes-and-safe-face/ 23 Ibid. cigarettes.24 The average price for a pack of cigarettes is $ 0.75.25 Due to its unique situation and large rural population, 75% of China's cigarette sales come from low quality, inexpensive lines. Class D (low quality) cigarettes are the most highly produced lines and most popular in poor, rural regions. Class C (moderate quality) cigarettes bring in the highest gross profit. Class C is most popular in urban areas. Premium and foreign brands demand higher prices and are found almost exclusively in metropolitan areas.26 Figure 6: CNTC Good Cat Cigarette Brand The demand for premium cigarettes is rising and so is the price, a carton of one of China's most sought after premium brands, Good Cat, (Figure 6) can sell for upwards of 5,600 ($890).27 Promotion Since joining the WTO in 2001, and later ratifying the WTO's Framework Convention on Tobacco Control, China has made several changes to tobacco marketing rules. Chinese law now 24 Juan, S., & Qingyun, W. (2012, November 9). WHO urges tax hike on tobacco. In Chinadaily.com. Retrieved June 22, 2014, from http://www.chinadaily.com.cn/china/2012-11/09/content_15898713.htm 25 Mazars. (n.d.). The global tobacco industry. In Mazars. Retrieved June 21, 2014, from http://www.mazars.ie/Home/News/Publications/Reports-Surveys/Thought-Leadership/The-Global-Tobacco-Industry 26 Campaign for Tobacco-Free Kids. (2012). The Chinese Tobacco Market and Industry Profile. In global.tobaccofreekids.org. Retrieved June 18, 2014, from http://global.tobaccofreekids.org/files/pdfs/en/TI_Profile_China.pdf 27 Chen, T. (2012, March 1). Chinese internet fumes over luxury cigarettes. In CHINAREALTIME. Retrieved June 29, 2014, from http://blogs.wsj.com/chinarealtime/2012/03/01/good-cat-luxury-cigarettes-anger-netizens/ bans tobacco advertising in mass media, through radio, movies, TV, newspapers and magazines, as well as in public places, such as waiting rooms, theaters, conference halls and sports centers.28 The rules on outdoor advertising are not as clear. Internet based advertising, and advertising in social media, are beyond the scope of the current law and therefore still allowed. Laws banning tobacco marketing are often not enforced to their full extent and indirect forms of marketing are legal. Very little is known about CNTC's marketing strategies, but it appears to primarily market through indirect means, such as sponsorships of teams, groups, organizations, schools, and events. Additionally, they use \"brand stretching\" or brand extension techniques.29 The following lists several methods used by CNTC in its marketing efforts. Exploiting Chinese Culture: Gift giving, for example, is a long-standing custom in China used to express a desire to establish and maintain relationships. Marketing encourages gifting of tobacco for wedding and business arrangements alike. Marketing low tar and light cigarettes to the new \"health conscious\" consumer. Marketing to women and children: Tobacco in China has been historically linked to masculinity, power and strength; it is now being marketed to businesswomen as a way to be seen as an equal in the business world. Marketing efforts aimed at children range from colorful packaging and flavoring to candy cigarettes that actually produce smoke. Among 14 year olds, 11 percent of boys and 3 percent of girls smoke.30 Brand-Stretching includes using their bands and logos on clothing, boats, automobiles and other consumer goods.31 Cleverly, the Chinese professional soccer league is known as the \"Marlboro Professional Soccer League...\"32 28 WHO Representative Office China. (n.d.). Tobacco advertising, promotion and sponsorship in China. In World Health Organization: Western Pacific Region. Retrieved June 25, 2014, from http://www.wpro.who.int/china/mediacentre/factsheets/tobacco_taps/en/ 29 WHO Representative Office China. (2014). Tobacco advertising, promotion and sponsorship in China. In World Health Organization: Western Pacific Region. Retrieved June 25, 2014, from http://www.wpro.who.int/china/mediacentre/factsheets/tobacco_taps/en/ 30 Davis, C. (2013, October 3). Smoking: Chinese tots say they will light up when they grow up. In Chinadaily.com. Retrieved June 25, 2014, from http://usa.chinadaily.com.cn/epaper/201310/03/content_17008506.htm 31 Campaign for Tobacco-Free Kids. (2012). The Chinese Tobacco Market and Industry Profile. In global.tobaccofreekids.org. Retrieved June 18, 2014, from http://global.tobaccofreekids.org/files/pdfs/en/TI_Profile_China.pdf Freebies: According to reports by the WTO, British American Tobacco hands out free samples in Beijing nightclubs in an effort to attract women and youth to try their brand.33 Figure 7 below shows the results of a GATS (Global Adult Tobacco) survey conducted in 2010. In the study Chinese citizens were asked where they saw tobacco advertisements in the last 30 days, a majority viewed advertisements on TV. Figure 7: GATS 2010 Survey of % of Chinese Adults Noticing Ads34 Placement CNTC controls transportation and distribution of raw and processed materials and ultimately determines what products will be sold in which regions of the country. China Tobacco Materials Corporation was founded in 1984 to manage and oversee the distribution of all tobacco products in China. Under its control, distribution in China has decentralized into smaller independently operated distribution firms who are closely monitored by CNTC. Today it 32 Hammond, R. (n.d.). Big tobacco's global expansion. In Takingontobacco.orf. Retrieved June 26, 2014, from http://www.takingontobacco.org/addicted/main.html 33 King, M. (2012, November 23). Chinese tobacco market dominated by China National Tobacco. In Companies and Markets.com. Retrieved June 26, 2014, from http://www.companiesandmarkets.com/News/ConsumerGoods/Chinese-tobacco-market-dominated-by-China-National-Tobacco/NI6066 34 WHO Representative Office China. (2014). Tobacco advertising, promotion and sponsorship in China. In World Health Organization: Western Pacific Region. Retrieved June 25, 2014, from http://www.wpro.who.int/china/mediacentre/factsheets/tobacco_taps/en/ oversees 16 joint operation enterprises, five subcontracted enterprises and 14 cooperative enterprises from one of 26 provincial offices around China.35 China Cigarette Sales and Marketing Corporation has the sole responsibility for sales and marketing of tobacco in China. This entity is charged with performing market studies, formulating sales strategies, and coordinating and supporting regional markets. It forecasts the demand for tobacco products in the upcoming year, in support of the State Planning Committee's efforts. It helps develop new products and cultivates new markets. It operates closely with distribution to make sure that the right products hit the shelves in the right markets. 36 At the consumer sales level, distribution is still largely controlled by CNTC with only 14% of tobacco products sold through independent retailers, about 13% in supermarkets, just under 8% in convenience stores, and the remaining minimal percent of total is sold in service stations.37 Social Responsibility CNTC is well aware of the negative aspects of the tobacco industry and like its global counterparts makes efforts to improve the image of the tobacco firm. CNTC and its subsidiaries invest heavily in social responsibility programs to win public and political support, on both domestic and international levels. Corporate social responsibility programs supported by CNTC include building and supporting rural schools (\"Hope Schools\") and the \"Dream Campaign,\" which provides scholarships to high school students. Environmental projects such as \"Gold Leaf Eco Fund,\" plants trees, and the \"Green Yangtze River\" campaign adds to CNTC's efforts to give back to the community.38 Additionally, they invest in other community improvement projects like the $58 million sports complex built by the Hongta Tobacco Company before the 2008 Summer Olympic Games.39 35 China Tobacco Materials Corporation. (n.d.). In Tobacco China Online. Retrieved June 18, 2014, from http://act.tobaccochina.net/english/zmj/index54.htm 36 China Cigarette Sales and Marketing Corporation(CCSMC). (n.d.). In Tobacco China Online. Retrieved June 18, 2014, from http://act.tobaccochina.net/english/zmj/index53.htm 37 MarketLine. (2013, August). Tobacco Industry Profile: Global. (p.12). Retrieved 1 June 2014, from Business Source Complete database. 38 Campaign for Tobacco-Free Kids. (2012). The Chinese Tobacco Market and Industry Profile. In global.tobaccofreekids.org. (pg. 16) Retrieved June 18, 2014, from http://global.tobaccofreekids.org/files/pdfs/en/TI_Profile_China.pdf 39 Frick, M. (2011, August 30). Scenes from the tobacco harvest: Why China can't quit smoking. In DANWEI Tracking Chinese Media and Internet. Retrieved June 23, 2014, from http://www.danwei.com/scenes-from-thetobacco-harvest-why-china-cant-quit-smoking/ Strategy Since its inception, CNTC has been tasked to achieve four goals: 1) acquire new technology, 2) internationalize, 3) diversify, and 4) consolidate. In addition to these four formal goals, CNTC has been actively promoting internal competition and strengthening of foreign alliances in an effort to position itself for entry into the global market. Goal 1: Acquire New Technology Since the 1980s, CNTC has made a concerted effort to modernize its industry. It has primarily done so through cooperation with foreign firms. In the past China has granted access to its market to international firms, in exchange for access to modern equipment, techniques, processes, and research.40 Former Philip Morris Chief Executive, Louis Camilleri, told investors once, "To come up with new technology is really the only avenue to get into a place like China.''41 CNTC continues to work in cooperation with foreign firms integrating and adapting new technologies to optimize their industry, but has since begun an independent R&D program to advance its own interests. Goal 2: Internationalize CNTC is looking to expand even further into international markets. In order to be able to compete on a more even playing field, CNTC has implemented three main strategies: 1. Increase export of tobacco goods produced in China to other nations. 2. Establish factories abroad. 3. License Chinese brands to foreign companies. CNTC has begun producing several brands of American-blend cigarettes for export to Southeast Asian markets. Tobacco related equipment manufactured in China has reached such a high quality that it has become a desirable supplier of these items, especially in Asia.42 Examples of CNTC's internationalization efforts include: Purchase of Viniton (Group) Co., Ltd., the largest cigarette company in Cambodia 40 He, P., Takeuchi, T., & Yano, E. (2012, June 14). An overview of the China National Tobacco Corporation and State Tobacco Monopoly Administration. In NCBI. Retrieved June 19, 2014, from http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3541807/ 41 Esterl, M. (2012, October 29). Philip Morris Seeks and Edge in China. In Wall Street Journal. Retrieved June 16, 2014, from http://online.wsj.com/news/articles/SB10000872396390444657804578052664166255722 42 He, P., Takeuchi, T., & Yano, E. (2012, June 14). An overview of the China National Tobacco Corporation and State Tobacco Monopoly Administration. In NCBI. Retrieved June 19, 2014, from http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3541807/ Purchased a controlling interest in Lao China Hongta Good Luck Tobacco Company in Laos Purchase of Guogan Cigarette Factory in Myanmar through its subsidiary Qujing Cigarette Factory Purchase of Sinoroma Industry Com SRL in Romania43 Goal 3: Diversify Diversification efforts are occurring within the tobacco industry as well as beyond. Chinese firms are expanding marketing efforts beyond regional boundaries. The top five firms are now marketing their products on shelves in every province in China. Firms are capitalizing on brand diversification by marketing \"light\" or flavored products. Additionally, CNTC is investing heavily in the emerging cigar and e-cigarette market segments. Outside of the industry, CNTC has branched into hospitality (purchased four star hotels), banking (purchased Industrial Bank in 2010), the automotive industry, chemicals, road construction, and hydroelectric plants.44 A joint venture with PMI announced in 2012, is expanding CNTC into pharmaceuticals as both firms explore tobacco-based vaccines.45 Goal 4: Consolidate Since 2003, CNTC has gone through considerable efforts to consolidate the number of cigarette producers in China. In 2001, there were 185 producers of cigarettes. By 2010, this number declined to 30. The number of cigarette brands has decreased from over 1,800, to approximately 900 during the same period. Currently, there are 30 official brands in China.46 CNTC has already given notice that it plans to cut the number of domestic cigarette brands to less than 20.47 The consolidation efforts of the past decades have concentrated the market. As of 2010, the top five CNTC subsidiaries accounted for 43.5% of all sales. The top five brands alone 43 Campaign for Tobacco-Free Kids. (2012). The Chinese Tobacco Market and Industry Profile. In global.tobaccofreekids.org. (pg. 9) Retrieved June 18, 2014, from http://global.tobaccofreekids.org/files/pdfs/en/TI_Profile_China.pdf 44 He, P., Takeuchi, T., & Yano, E., loc.cit. 45 Esterl, M. (2012, October 29). Philip Morris Seeks and Edge in China. In Wall Street Journal. Retrieved June 16, 2014, from http://online.wsj.com/news/articles/SB10000872396390444657804578052664166255722 46 Campaign for Tobacco-Free Kids, loc.cit. 47 Hedley, D. (2011, December 11). Opportunities in the Tobacco Market. In Euromonitor International. Retrieved June 21, 2014, from http://blog.euromonitor.com/2011/12/opportunities-in-the-tobacco-market-.html now make up 26% of all sales.48 Figure 8 shows the top five cigarette brands produced in China for 2010. Figure 8: Top 5 Cigarette Brands in China, 201049 As of 2010, the STMA mandated a new strategy in an effort to create leading brands that can compete in the international market. \"532\" and \"461\" plans are already being implemented across CNTC. Under the \"532\" plan, the goal is to develop: o Five brands that produce more than 20 billion sticks, per year o Three brands that produce more than 20 billion sticks, per year o Two brands that produce more than 50 billion sticks, per year Under the \"461\" plan the goal is to have: o Twelve brands whose sales exceed 40 billion, per year o Six brands whose sales exceed 60 billion, per year o At least one brand whose sales exceed 100 billion, per year.50 48 Campaign for Tobacco-Free Kids, loc.cit. 49 Euromonitor International. (2011). [Figure Image]. Campaign for Tobacco-Free Kids. (2012). The Chinese Tobacco Market and Industry Profile. In global.tobaccofreekids.org. (pg. 5) Retrieved June 18, 2014, from http://global.tobaccofreekids.org/files/pdfs/en/TI_Profile_China.pdf 50 Ibid. (pg. 17-18). Figure 9 compares, side by side, the decline in cigarette producers and the rise in market dominance of the top ten brands as a result of consolidation efforts. Figure 9: CNTC Producer Counts and Brand Concentrations, 2002-2008 51 Supply consolidation and improvements to efficiency have also been a focus of CNTC who watches over an estimated \"340 tobacco leaf warehouses, 485 third party warehouses and 166 factory warehouses.\"52 Distribution centers were not spared in the consolidation efforts of the state (Figure 10). Figure 10: CNTC Distribution Center Counts, 2004 v. 200853 51 China's tobacco industry is leaving other in its smoke. (n.d.). In Tompkins International. Retrieved June 21, 2014, from http://www.tompkinsinc.com/article/2010/chinas-tobacco-industry-leaving-others-smoke/ 52 Ibid. Between 2004 and 2008, the number of distribution centers decreased from 1,694, to approximately 350. Further consolidation efforts are expected. The most efficient and productive centers have been modernized and out of date facilities are replaced with newer, larger centers. 350 CNTC distribution centers supply five million state owned retail stores.54 Promote Internal Competition The tobacco industry in China is entering a new phase and is undergoing a reform of the state-owned enterprises. The Chinese hope these efforts will loosen the administrative handcuffs that regional firms previously felt and allow for more open competition. Early efforts were initiated in 1995 when the Yunnan Hongta Group was established. Jiang Ming, Head of the STMA Central was quoted as having said, \"Establishing tobacco corporations, like the Yunnan Hongta Group, is the right direction towards further reforming our tobacco industry and an important content of building modern enterprise systems. Another significant goal is to unite the small-scale domestic tobacco enterprises to deal with the coming global competition.\" Today the Yunnan Hongta Group has become the biggest tobacco corporation in Asia and has contributed more than 13% of the total tax revenues by China's tobacco industry.55 The success of the Yunnan Group's efforts has prompted other local governments to consolidate their regional firms into one. Those that were successful in the 1990s are now being favored by the state in its effort to further consolidate the market. The merger efforts of the Chinese government have resulted in three distinct segments: the Yunnan segment, the Hunan segment, and the Shanghai segment. A few powerful regional firms dominate the once decentralized market. The hope is that these firms will represent the entire Chinese tobacco industry as it prepares for the rapidly approaching foreign competitors.56 Strengthen Foreign Alliances Falling under the heading of internationalization, but rightfully deserving of its own discussion, is that of alliances with multinational tobacco giants. CNTC, since its inception, has negotiated and groomed strategic alliances with PMI, BAT, and JTI. In 1994, PMI and CNTC entered an agreement whereby CNTC would begin producing Marlboro and other well-known PMI brands in CNTC factories. Cigarettes produced in CNTC 53 Ibid. 54 Ibid. 55 Wang, J. (2008). Global-market building as state building: China's entry into the WTO and market reforms of China's tobacco industry. Retrieved June 24, 2014, from http://www.iub.edu/~rccpb/Wang_Theory%20Soc_08.pdf 56 Ibid. factories would be sold and marketed to Chinese consumers, as well as prepared for export to other Asian nations. The price for PMI was the exchange of knowledge and technology. In 2005, this agreement was extended and a joint equity effort in Switzerland was announced, which would introduce Chinese brands to the global market.57 PMI also helps distribute CNTC brands outside China, to Poland and the Czech Republic.58 BAT entered the Chinese market in 1903, but was forced out in the 1950s due to changes in the political climate. In the 1980s, BAT China (as the firm is called) returned to the Chinese market. CNTC imports, markets and sells some of BAT's most popular brands in China.59 CNTC and BAT have undertaken several joint ventures over the past two decades. BAT has also shown commitment to supporting CNTC's efforts by helping \"China's agriculture by setting up tobacco leaf base and guiding tobacco farmers to grow tobacco leaf.\"60 In 2000, JTI began producing cigarettes in China and has since managed to produce and market 400 million cigarettes in China. JTI helped extensively with Chinese efforts to enter the Japanese market through one of its subsidiaries. Now Chinese cigarette brands can be found on Japanese shelves. The alliance comes at a small price for JTI who loses a percentage of its domestic market as a result of this agreement.61 57 He, P., Takeuchi, T., & Yano, E. (2012, June 14). An overview of the China National Tobacco Corporation and State Tobacco Monopoly Administration. In NCBI. Retrieved June 19, 2014, from http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3541807/ 58 Esterl, M. (2012, October 29). Philip Morris Seeks and Edge in China. In Wall Street Journal. Retrieved June 16, 2014, from http://online.wsj.com/news/articles/SB10000872396390444657804578052664166255722 59 He, P., Takeuchi, T., & Yano, E., loc.cit. 60 He, P., Takeuchi, T., & Yano, E. (2012, June 14). An overview of the China National Tobacco Corporation and State Tobacco Monopoly Administration. In NCBI. Retrieved June 19, 2014, from http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3541807/ 61 Ibid. British Petroleum Plc (BP) Company Information British Petroleum Company Plc is one of the world's largest integrated oil and gas companies. BP engages in exploration, production, marketing, and trade of oil and natural gas, power, and natural gas liquids. The company is headquartered in London, England. Recorded revenues for 2012 were $388,285 million, a 0.5% increase from 2011. Operating profit for 2012 was $18,809 million, a 51.6% decrease from 2011, and recorded net income in 2012 was $11,816 million, a 54.7% decrease from 2011. The firm's net income five year compound annual growth (CAGR) rate was 1.10%, and the operating cash flow five year CAGR was -11.74%. BP's executive management staff primary goals are to ensure that the firm is operating in accordance with all regulatory requirements, foreign and domestic. Each member of the executive staff is responsible for imparting corporate level goals into their function, in addition to creating a framework for their organization that ensures strategic success and compliance. Top management within BP's structure has remained relatively unchanged in recent years. Each member of the executive staff has held multiple titles within the organization, indicating that BP values individuals who are committed to BP. The top three earners at BP in 2013 (See Table 1) have all served BP, in some fashion, for 27 years.1 Table 1. BP Executive Compensation, adapted from Morningstar Name/Title Key Executive Compensation Byron Elmer Grote/Executive Director and Chief Financial Officer Robert W Dudley/Executive Director and Managing Director Iain Cameron Conn/Executive Director and Chief Executive, Refining and Marketing 2007 2008 2009 2010 2011 4,060,00 0 2,736,00 0 - 4,676,00 0 3,090,00 0 1,586,00 0 4,267,00 0 1,597,00 0 1,739,00 0 931,000 6,114,250 1,324,00 0 7,477,00 0 3,458,00 0 2,179,00 0 1,840,00 0 2,154,750 2,616,000 1,343,500 Mission Statement BP's mission statement is: \"We deliver energy to the world. We find, develop and produce essential sources of energy. We turn these sources into products that people need everywhere. The world needs energy and this need is growing. This energy will be in many forms. It is, and will always be, vital for people and progress everywhere. We expect to be held to high standards 1 BP.com. (2012). Annual Report. Retrieved October 24, 2013, from http://www.bp.com/content/dam/bp/pdf/investors/BP_Annual_Report_and_Form_20F_2012.pdf pp. 133. in what we do. We strive to be a safety leader in our industry, a world-class operator, a good corporate citizen and a great employer. We are BP.\"2 Corporate Strategy BP's stated corporate strategy is focused on long term growth, integrating a culture of safety into operations, and value creation for shareholders. The company intends to focus on efficient execution in operations and capital usage while simplifying operations by carefully managing their assets portfolio to focus on their identified strengths and higher performing assets. 3 Their portfolio is built around their perceived strengths in exploration, deepwater, giant fields, and gas value chains so they can standardize their operations.4 BP believes that operating efficiently at all stages of the hydrocarbon value chain creates more value for shareholders, since benefits and costs can often be shared across business units.5 BP has completed an assets divestment program that disposed of $38 billion during the last four years. The company expects to launch new upstream projects that will double the realized 2011 unit operating cash margins by 2014. Another goal is to generate an increase of 50% net cash provided by operating activities by 2014 based on 2011 results. The company anticipates using half of incremental operating cash for reinvestment and will attempt to strengthen their balance sheet by targeting a net debt to net debt plus equity (gearing) ratio within the lower half of the 10-20% range.6 Key Sales Markets BP's key market in total revenue and upstream revenue has historically been the Americas; however, as shown in Error: Reference source not found, the Asia and Australia market is becoming an increasingly important contributor to BP's upstream revenue. The Africa market experienced growth from the 2003 levels but has since tempered. BP's upstream revenues in 2 BP plc. (2013). Our Values. Retrieved October 30, 2013, from http://www.bp.com/en/global/corporate/aboutbp/company-information/our-values.html 3 BP plc. (2013). Strategy. Retrieved October 30, 2013, from http://www.bp.com/en/global/corporate/ investors/strategy.html 4 Ibid. 5 BP plc. (2013). Our business model. Retrieved October 30, 2013, from http://www.bp.com/en/global/corporate/about-bp/company-information/our-business-model.html 6 Strategy, op. cit. Europe were stable until 2009 when the Eurozone energy consumption began to decrease. These movements are in line with the overall economic conditions and energy consumption of the regions. Key Production Markets BP has significant natural gas reserves and a geographically diverse portfolio (Table 2). Production is measured as million cubic feet produced per day (MCF/d). Table 2. BP Regional Production, adapted from Annual Report Regional Production BP Subsidiaries 2012 Region Africa Asia Australasia Europe North America South America Total subsidiaries 2011 MCF(d) Production Percentage MCF(d) Production Percentage 590 633 787 422 1,664 2,097 6,193 10% 10% 13% 7% 27% 34% 100% 558 618 795 368 1,857 2,197 6,393 Regional Production BP Equity Affiliates 2012 9% 10% 12% 6% 29% 34% 100% 2011 MCF(d) Production MCF(d) Production Percentage Percentage Russia - TNK-BP Total Rest of Asia Total South America Total Equity Affiliates 734 72 394 61% 6% 33% 699 34 392 62% 3% 35% 1,200 100% 1,125 100% In the last two years, the majority of production has been in North America and South America. By the end of 2014, 15 major projects are scheduled to go into production. Most of these projects are in the higher cash margin areas of Angola, the North Sea, the Gulf of Mexico, and Azerbaijan.7 Additional projects are under development in Canada, Trinidad & Tobago, Algeria, Egypt, the Middle East, and Asia-Pacific.8 In early 2013, BP sold their 50% stake in TNK-BP to Rosneft in a deal that resulted in a 12.8% share of Rosneft. With BP's previous holdings, the company held approximately 20% equity in Rosneft when the deal closed. It is estimated that this deal has increased BP's Russian equity reserve holdings in comparison with their holdings from TNK-BP.9 7 BP plc. (2013). Upstream major projects. Retrieved October 30, 2013, from http://www.bp.com/en/global/corporate/investors/strategy/upstream-major-projects.html 8 Ibid. 9 Simko, S. (2013, October 3). BP PLC ADR Analyst Report. Retrieved from Morningstar Investment Research Center. Major Business Units Strategy Upstream10 BP is increasing focus on assets that can provide high-margin contributions to operating profit. The company is divesting non-profitable assets and focusing on the core strengths that they believe will add the most value to their operations. To leverage their strengths, BP is pursuing four themes of exploration: deepwater oil in the Gulf of Mexico and the Atlantic basin; deepwater gas and liquids in North Africa; increasing operations in the Asia gas market through positions in India, China, and Australia; and the Arctic frontier.11 The company has set short term goals of increasing overall production by 1% by 2015, with a 10% production growth in LNG for 2013.12 They plan to execute 15 to 20 exploration wells annually.13 They also anticipate improving recovery rates from all new and existing operations.14 Downstream15 Downstream operations are focused on generating free cash flow, reducing exposures in refining when not part of an integrated value chain, and to reorienting the geographic mix of the downstream footprint to better serve growth markets.16 BP's downstream operations are 10 BP plc. (2013). Upstream. Retrieved October 30, 2013, from http://www.bp.com/en/global/corporate/aboutbp/company-information/group-organization/upstream.html 11 BP plc. (2013, October 18). Exploration Review. Retrieved October 28, 2013, from http://www.bp.com/content/dam/bp/pdf/investors/bp_exploration_review_2013_10_18_slides_and_script.pdf 12 S&P Capital IQ. (2013, October 28). BP p.l.c. ADS. Retrieved October 28, 2013, from NetAdvantage database. 13 Exploration Review op. cit., pp. 5. 14 BP plc. (2012). 2012 Annual Report. Retrieved October 18, 2013, from SEC EDGAR website http://www.sec.gov/edgar.shtml pp. 21. 15 BP plc. (2013). Downstream. Retrieved October 30, 2013, from http://www.bp.com/en/global/corporate/aboutbp/company-information/group-organization/downstream.html 16 BP plc., 2012 Annual Report., op. cit., pp. 21. strategically selected based on their ability to serve major energy markets and maximize integrated value chains. Value Chain Analysis Safety BP states that safety is at the heart of everything in their operations. They conduct operational audits, risk reviews, and incident investigations, as well as conduct workforce safety training while attempting to provide a corporate culture that embraces the value of safety in the workplace.17 Deepwater Horizon refocused BP's attention on corporate-wide safety. They are implementing a system safety approach to their organizational risk management, using recommendations from the National Academy of Engineering.18 BP opened their Houston Monitoring Center in February 2013 to help protect against disastrous incidents and created a new Safety and Operational Risk function that sets requirements, provides technical support to operations, and intervenes in unsafe operations. BP also constructed a $3 million training facility equipped with a drilling simulator for crew team practice.19,20 To lead safety programs for the downstream business, BP appointed and hired an independent expert to its Board of Directors to provide an objective assessment of safety plans, operational safety performance, and training implementation processes.21 The high cost of cleanup and litigation related to oil spills may be mitigated through preventive efforts such as these. 17 BP plc. (2013). How we manage safety. Retrieved October 28, 2013, from http://www.bp.com/en/global/corporate/sustainability/safety/how-we-manage-safety.html 18 System Safety Approach Encouraged After BP Oil Spill. (2011, December 15). Retrieved October 28, 2013, from http://www.laboratoryequipment.com/news/2011/12/system-safety-approach-encouraged-after-bp-oil-spill 19 Fowler, T. (2013, February 13). BP Promotes A New Approach To Safety - Corporate Intelligence - WSJ [Blog post]. Retrieved October 28, 2013, from http://blogs.wsj.com/corporate-intelligence/2013/02/13/bp-promotes-a-newapproach-to-safety/?mod=mw_streaming_stream 20 Ibid., pp. 46. 21 Ibid., pp. 48, 49. Environmental Sustainability BP's environmental program is managed through an operating management system (OMS) that is responsible for the development, execution, and monitoring of all things environmental.22 This functional group must continually evaluate its efforts and implement corrective action plans to further reduce environmental impacts and improve energy usage resulting in gaining operating efficiencies.23 Efforts to improve the reduction of environmental impacts are broken into two main approaches. The first initiative is a collaborative effort that the firm is undertaking with the Imperial College in the United Kingdom.24 They are creating climate models to help better predict potential physical issues associated with climate change, and they used this approach successfully in 2012 on the South Caucasus Pipeline project. Through analysis, the firm was better able to understand their risks of landslides and the depth cover required for river crossings.25 These types of models are continually reviewed, and newly recognized risks for a project are evaluated by the firm's engineers in case additional measures or safeguards are needed to prevent impacts. 26 BP's second approach to environmental concerns is to prepare for the possibility of additional environmental legislation adopted in their operating areas. While focusing on reducing emissions, the company recognizes that additional costs may be incurred in order to meet new regulation requirements or to pay required fees on emissions. To remain competitive, BP has included a carbon cost into its pricing model.27 By accounting for these potential costs upfront, BP is better prepared for future requirements. 22 Ibid., pp. 51. 23 Ibid., pp. 51. 24 Ibid., pp. 52. 25 Ibid., pp. 52. 26 Ibid., pp. 52. 27 Ibid., pp. 52. Research & Development BP has extensive R&D capabilities and operates as a technology leader. Their Houston monitoring center houses one of the largest supercomputing centers; the 110,000 square foot center is capable of processing over a thousand trillion floating point calculations per second. 28 The company is very focused on using technology to drive continuous process improvement. Recent focuses include low cost alternatives to conventional methods such as reducing operating expenses or producing higher volume returns during production. After Deepwater Horizon, BP developed new methods for well capping and containment in productive wells after a critical incident. They developed a total well capping and tooling system that can be deployed from their Houston office to any location in the world within days. 29 BP has filed approximately 30 patents related to incident response and now has valuable experience in large scale disaster response that many of their competitors have never experienced. 30 Exploration BP's exploration performance is displayed in Table 3. Table 3. BP Exploration Performance, adapted from Annual Reports Year Success rate for exploratory wells Average of International Peers Standard Deviation Year Reserves Replacement Ratio Average of International Peers Standard Deviation 2010 88.39% 70.99% 9.25% 2010 1.06 1.19 0.55 2011 85.36% 71.62% 12.56% 2011 1.03 1.29 0.24 2012 84.63% 79.61% 6.45% 2012 0.77 1.00 0.17 BP's Houston supercomputing center supports BP's seismic imaging technologies as well as advanced modeling techniques, allowing the company to set records or create the industry standard in exploratory performance. BP holds the industry record for the fastest land seismic survey, at 50km2/day, set in Jordan.31 They have also set an industry record of 18,000 vibration points per day during seismic survey. This is ten times more shots per day than conventional 28 BP plc. (2013). Supercomputing. Retrieved October 17, 2013, from http://www.bp.com/en/global/corporate/about-bp/bp-and-technology/more-discovery/super-computing.html 29 BP plc., 2012 Annual Report., op. cit., pp. 51. 30 Ibid., pp. 48. methods, reducing the survey time from five years to just over a year, an almost 80% reduction in survey time.32 BP deploys these technologies during the exploration process to increase the likelihood of a successful exploratory well, to significantly reduce geological surveying time, and to create advanced modeling of the geological structure to make data driven decisions. These activities give BP an advantage over their competitors by reducing exploration costs, a significant expense for oil and gas producers. BP's explorations efforts have been more successful and more consistent than the entire peer group, as demonstrated in Figure 1. Figure 1. Success Rate of Exploratory Wells, adapted from Annual Reports Production BP's production performance is displayed in Table 4. Table 4. BP Production Performance, adapted from Annual Reports Year Production from active wells Average of Peers Standard Deviation Year Average production per day Average of Peers Standard Deviation 2010 14.24% 12.68% 34.85% 2010 3,822 3,587 2,130 2011 12.87% 12.14% 37.93% 2011 3,453 3,462 2,198 2012 13.46% 12.06% 40.37% 2012 3,331 3,360 2,064 Year Return on average capital employed Average of Peers Standard Deviation Year Weighted average cost of production ($) Average of Peers Standard Deviation 2010 4.32% 15.28% 6.96% 2010 6.09 8.02 1.43 2011 12.15% 18.46% 5.08% 2011 8.33 9.91 1.52 2012 -3.59% 11.75% 7.82% 2012 9.74 10.99 1.52 31 BP plc. (2013). Land seismic imaging. Retrieved October 17, 2013, from http://www.bp.com/en/global/corporate/about-bp/bp-and-technology/more-discovery/land-seismic-imaging.html 32 Ibid. BP uses advanced drilling technologies that make it economical to extract large volumes of natural gas.33 Approximately 50% of BP's current natural gas production uses hydraulic fracturing and the company intends to leverage the technologies they fine-tuned in the United States to explore unconventional resources in international locations.34 In Oman, BP conducted the first successful high-rate water fracturing by pumping 1 million barrels at 80 barrels a minute.35 Successful drilling operations in Oman will position the company closer to key emerging markets in Asia, including China and India. BP also uses its OMS to guide continuous improvement, risk management, and performance improvements across its various production processes.36 Maximizing production efficiencies and ensuring adherence to standardize operational techniques have benefited BP, as they consistently out perform their peer group in regards to processing costs, as shown in Figure 2. Figure 2. Weighted Average Cost of Production, adapted from Annual Reports Transport & Trade BP operates a transportation and trade system for oil and gas that utilizes a network of pipelines, ships, trucks and trains in order to provide a reliable supply of fuel, energy, lubricants, and petrochemicals to customers worldwide. The company also has an ownership position in export terminals associated with the LNG value chain. BP uses an integrated supply and trade program to manage trading operations around the globe through the use of supply management, commodity trading, risk management, and technology.37 Marketing BP's marketing performance, compared to the peer group is displayed in Table 5. 33 BP plc. (2013). Unconventional resources. Retrieved October 17, 2013, from http://www.bp.com/en/global/corporate/about-bp/bp-and-technology/more-recovery/unconventional-resources.html 34 Ibid. 35 Ibid. 36 BP plc. (2013). How we operate. Retrieved November 27, 2013, from http://www.bp.com/en/global/corporate/sustainability/bp-and-sustainability/how-we-operate.html 37 BP plc. (2013). Integrated supply & trading (IST) trading analytics. Retrieved October 31, 2013, from http://www.bp.com/en/global/corporate/careers/opportunities/trading-analytics.html Table 5. BP Realized Prices, adapted from Annual Reports Year 2008 2009 2010 2011 2012 Realized Gas Price ($) 6.00 3.25 3.97 4.69 4.75 Average of Peers 6.04 4.17 4.47 5.22 5.22 Standard Deviation 1.26 0.71 0.62 0.76 0.93 Realized Oil Price ($) 90.20 56.26 73.41 101.29 102.10 Average of Peers 88.19 55.43 72.49 100.72 100.99 Standard Deviation 2.11 1.57 1.51 2.36 1.71 Average realized prices can be used to measure a firm's success in marketing. While gas is a commodity product, firms can impact their realized prices by which markets they target and how much of their sales volume is based on contracts or market pricing. BP consistently outperforms their peer group in realized prices for oil. However, BP's realized prices for natural gas underperform in comparison to the peer group. BP's natural gas marketing efforts are not as strong as the peer group. BP's natural gas products are sold through long term contracts and spot market trading. To serve customers, BP manages the process from the gas field or storage facility through delivery to the point of use.38 BP also provides assistance through physical, risk management, industry information, and financial management tools to help the purchaser select the appropriate options for their business needs.39 38 BP plc. (2013). Natural gas. Retrieved October 31, 2013, from http://www.bp.com/sectiongenericarticle.do? categoryId=3050046&contentId=3050873 39 Ibid. Social networking industry Functional Areas for Jive Software Below sections applied for each company indicated above. 1. Company information: a. What else in terms of general information do we need to know about the company? b. Include who they are and where they fit into the industry. c. What is their complete company structure? d. How many businesses or product lines are they in? e. Where do they do business?: Location f. Mission/vision of the company 2. major functional area of the company - Corporate strategy a. What are those major areas (business units) ? (I.e. marketing, human resources, IT, R&D, etc.) i. Note: One way to help determine that is by looking at the company's hierarchical chart. If they have a top officer in charge of an area it is a pretty good indication that the company thinks it is important, but certainly you will review important areas in most companies like marketing, finance, HR, IT, R&D, and so on. ii. Note: No chart w/ names and positions of every company officer. Interested only in functional areas of the firm; don't need a personal bio on every member of the firm (only important ones). In fact we most likely don't need a player roster with names at all. We need to know the functions firm think are important, not who heads up that area. 3. Value Chain Analysis What is unique about production and operations? When doing a Value Chain Analysis where do they add value to their products and where do they have non-value adding parts of the chain that they outsource or maybe should outsource? What are their processes? Are these different than competitors'? Do they have unused capacity? That means wasted or underutilized resources or assets, which in turn means they aren't getting the ROA, ROE, ROI they should be. On the other hand, unused capacity can also be a deterrent for other companies challenging them because they can ramp up in the face of competition and probably do so with new economies of scale. Do they have inventory issues? Are they a just-in-time business model that has little inventory? Why are there differences from company to company? Is their workforce highly skilled? Is it full time or part time? Do they outsource? What is their quality? Look at each functional area of the firm and ask these kinds of questions. IMPORTANT NOTE: You may not be able to answer every question. Each company is unique. You might run into some brick walls. Just be sure not to quit or ignore areas if you don't find something immediately