BAT downsizes in Malaysia but expands in Vietnam

25 March 2016

On 17 March, British American Tobacco (BAT) Malaysia announced it is shutting down its cigarette manufacturing factory in Petaling Jaya. Although BAT blamed excise tax increases and plans for plain packaging of tobacco for this decision in Malaysia, in reality it is just a strategic business decision to become more competitive. In fact immediately after this announcement its share price went up.

Shutting down its manufacturing facility does not mean BAT Malaysia is wrapping-up its business in Malaysia – far from it. It is just a restructuring exercise. BAT controls 62% of the cigarette market share and is still nurturing its business in Malaysia. It will now be cheaper for it to import its cigarettes from Vietnam and Indonesia and sell to the over 4 million smokers in Malaysia. AFTA has enabled import tariffs to be zero.

Publically BAT is flogging the ‘tobacco control horse’ for its restructuring exercise in order to apply pressure on the Malaysian government. Strategically BAT’s business decision was already in the making. It still has more than 700 workers in Malaysia and access to about 80,000 retail outlets to keep smokers addicted and continue recruiting new smokers.

BAT has already started putting in place its expansion plans in Vietnam. It has started the construction of a new joint-venture (VINA-BAT) of US$7.3 million plant with state owned VINATABA in the southern province of Kien Giang. This factory will aim to export 50 per cent of the cigarettes, 750 million sticks, produced in its first five years.

Although the WHO FCTC requires Parties to find alternate livelihood for tobacco farmers, with this new BAT business venture, tobacco cultivation is also expected to expand in Vietnam. To enhance public goodwill, BAT and VINATABA jointly donated US$22,900 to a charity that builds houses in Kien Giang.

All in all, the 125 million smokers in the ASEAN region, which has a young growing population, remains attractive and lucrative to Big Tobacco. Governments should put in place the most stringent tobacco control measures (plain packaging, high excise taxes, TI-CSR ban) and not be threatened, persuaded or coerced by the tobacco industry’s myths, tactics and arm twisting.

For information on TI denormalization, check out SEATCA’s Tobacco Industry Watch website

Previous ASEAN Tobacco Watch updates can be found here