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How Ban on Smoking can Affect Tobacco Industry

How Ban on Smoking can Affect Tobacco Industry

The link between tobacco & cancer has led to the ban on smoking in various countries. WHO states that probably around 6 million people die each year due to tobacco related illness & thousands of them suffer due to second hand smoking. This has made 170 countries to support WHO’s Tobacco Control Programme and have committed to comprehensive ban on smoking.

The countries who implemented this policy have naturally seen a decline in smoking. Within a year, places where UK introduced the ban saw results of 4,00,000 people quitting it. But ban like these have also given a consequence that is surprising for the industry of tobacco.

It is naturally believed that tobacco firms in countries with tobacco ban starts targeting the markets that are without bans. These happen to be countries that are poorer and which paves a way to develop newer markets for huge western tobacco firms. But as a matter of fact it is not true. In fact, the legislation of ban on smoking, leads to the decline in such a way that the tobacco companies expand internationally.

A study had taken place on 141 firms across twenty countries for a 10 year period’s time, seeking for the explanation of patterns regarding FDI (Foreign Direct Investment). It was found that tobacco industry is undoubtedly widespread, and almost 53 tobacco firms were engrossed in FDI, among which 26 were investing in smoking banned countries. Many of the countries that were newly target were poor.

However, if the ban of smoking takes place at home or a personal level, the likelihood of the firms internationalising will reduce. Not only the cash flow is affected by the bans and reduction of international expansion funds, but there seems to be one more reason. The tobacco companies seem to be sensitive regarding their reputation and profiles in the public’s eye. Along with seeking new relationships and trade with government bodies, and battling over issues like intellectual property and plain packaging, they do not appreciate being seen as an authority that is exploiting the countries or places of poor.

So investing in poor countries to make up their dwindling sales can seem quite exploitative and also bad for the PR.

Swelling tide

The ones that tried higher involvement from FDI had at times struggled with legislation swelling tide against tobacco. For instance, India has completely banned FDI when it comes to manufacturing of cigarettes, in order to reduce the consumption. Instead of overseas investment, the firms of tobacco are diversifying the products into something new, like e-cigarettes. The global majors that were investing in the country have been impacted by this decision, like the country of Japan.

The field is now clear for the companies that do not have bans. Hence, flipside of banning certain international tobacco firms is, it leaves an open field for firms without the ban making it more detrimental for the health of citizens.

Huge firms in U.S and U.K, argue that these firms produce products with lower quality and are not regulated. The local products, in Indonesia happen to be the mix of clove and tobacco, making people believe it’s healthy and leading to more consumption. As this idea is growing with conviction, where the ban of FDI is taking place this can end the tobacco industry in the future. Until then, firms and countries with no ban will see rise in profit.