Research On The Tobacco Industry Mergers And Acquisitions Performance

Tobacco is a state-monopolized industry in China and the state sells tobaccoexclusively. First of all, agriculture is the original source of tobacco market. Chinamainly plants flue-cured tobacco. However, there is no significant enhancement inplanting efficiency over the years and excessive production over sales has been a longterm situation. Secondly, the industry is a core part of tobacco business and itseconomic efficiency has improved significantly in recent years. Besides, the newpattern of brand structure, which is known as "461" and "532", has been shaped.Thirdly, sale is an essential part of the tobacco market. Domestic sale is stablygrowing, inter-provincial trading is increasing and consumers tend to be morehigh-end. In the global tobacco market, the manufacturing pattern has changed,resulting in a stable growth in yield instead of substantial increase. Meanwhile,cigarette manufacturing transferred from developed countries to developing ones,leading to a significant tobacco production decrease in United States, Japan and otherdeveloped countries and a considerable increase in developing countries includingBangladesh, Vietnam and others. Today, the total of smokers is accounted for aboutone fifth of the world’s smoking population and more than40percent of the tobaccoproducts are from the four major tobacco groups. The global tobacco marketdevelopment tends to returning to main business from diversified operation,highlighting brand advantage as well as large-scale overseas mergers and acquisitions.However, tobacco industry is faced with many challenges at the same time, such asthe tobacco tax increase, a run on the illicit trade and stringent government regulation.In this research, we applied a combination of empirical analysis and model analysismethod to the SCP analysis of China’s tobacco industry, the restructuring of industrial enterprises as well as the direction of industrial development. In the SCP analysis, wecame to the conclusions as follows: under the government regulation, China’s tobaccoindustry improves its market concentration through mergers and acquisitions.However, it is still low compared with some other countries. The absolute expensesbarriers and the existence of MES maintains the high entry barrier of tobacco industry.Tobacco industry has fairly strict restrictions on advertising and pricing behavior.Market structure has a significant positive correlation with market performance. In theinvestigation of corporate restructuring performance, we first introduced therestructuring process, restructuring forms and transformed relationship. Then weinvestigated the province reconstruction and inter-provincial reconstruction separately.Factor analysis was used in the province restructuring investigation and we concludedthat performance improvement appeared in about two-thirds of the corporations. Inthe investigation of inter-provincial restructuring, we used the total factor productivityanalysis and the results showed that63percent of the performance improvementattributes to technology advancement. Two aspects of the development direction ofChina’s tobacco industry were explored in this research. On one hand, due to theoutstanding contribution to the national financial that the tobacco industry makes, theprohibitive policy will be further applied to this particular industry based on themeasurement of price elasticity of cigarettes. On the other hand, since the horizontalintegration of tobacco industry has taken shape, our study was more focused on howto integrate the whole industry chain to achieve vertical integration and to improve theglobal competitiveness and influence of Chinese cigarettes.