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Sincethe Imperial Tobacco Group diversified into a number of other markets, including financial services, restaurants and electronics. However inthe group decided to concentrate its activities on tobacco products.
Government anti-smoking initiatives and changing social attitudes have led to a decline in smoking rates in mature Western markets, although growth continues in the emerging markets of Asia, the Middle East and Eastern Europe. In the UK, the tobacco industry has progressively reduced its workforce as a result of increasing mechanisation and lower demand.
The decline in smoking rates within mature markets has made it difficult for Imperial Tobacco to acquire additional sales without taking away market share from its competitors, thus increasing the extent of competitive rivalry in the industry. Legislation brought forward in the EU inbanning the advertising of tobacco products, has made it more difficult for Imperial Tobacco to promote brand differentiation.
As a result, the danger of product switching by consumers has grown as a threat, as cigarette manufacturers find it more difficult to hold onto their customer base. This further increases the extent of competitive rivalry.
The existence of high exit costs, in the form of non-transferable fixed assets, such as manufacturing plants and cigarette rolling machinery means that the large players in the tobacco industry will compete fiercely to maintain their market share and would likely remain in the market, even if profit levels are low.
High exit-costs work in favour of Imperial Tobacco in that they deter potential new entrants from entering the market. Imperial Tobacco has grown to an extent that it now benefits from economies of scale, whereby they have been able to invest in an automated internal supply chain, thus increasing their efficiency and production rate.
Such economies of scope from the Imperial Tobacco Group make it difficult for new entrants to enter the market and compete. As with all businesses, the Imperial Tobacco Group depends on suppliers to some extent. The main suppliers to Imperial Tobacco are tobacco cultivators, although the group relies on other non-tobacco supplies, including polypropylene film, aluminium foil and filter rods.
Though no substitute exists for the product that tobacco farmers supply, the abundance of suppliers of tobacco leaves as is indicated by the above statement results in the relative bargaining power of individual suppliers being low. The Imperial Tobacco Group can switch easily from one supplier to another, at a low cost.
Since most suppliers come from poor, agricultural lands, suppliers are in large part heavily dependent on the custom of large tobacco companies to survive, thus reducing their bargaining power. By doing this, Imperial Tobacco is able to use the threat of growing more tobacco itself to ensure that independent suppliers do not exploit their supply position, thus further reducing their bargaining power.
Buyers of tobacco products include supermarket retailers, wholesalers and local grocers. The ban on advertisements of tobacco products which makes it harder for Imperial Tobacco to differentiate its products makes it is easier for powerful purchasing companies to switch to a suitable alternative product from another supplier.
However, since it is difficult for a purchasing company to start cultivating tobacco themselves and since the costs of setting up cigarette-rolling machines and factories are high, a buying company cannot easily perform backward integration, to become their own supplier.
Therefore by definition, the buying company will always be dependent on the tobacco manufacturers. The threat of substitutes to the products of Imperial Tobacco is low but includes products such as nicotine gum, denicotinized cigarettes and nicotine patches.
Fortunately for the tobacco industry, purchasing companies do not promote these items as alternatives to tobacco and therefore they do not pose a threat to this industry.Imperial Holdings is studied in terms of its stp, swot analysis and competitors along with tagline, USP and sector.
Imperial Holdings is studied in terms of its stp, swot analysis and competitors along with tagline, USP and sector. sector or industry.
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