Case Study III-6 • BAT Taiwan: Implementing SAP for a Strategic Transition 485Monopoly tax at NT$830 per
1,000 sticks of cigarettes (mille)1) Import duty levied 27% of CIF (import) price2) Excise tax @ NT$590 per 1,000 sticks3) Health tax @ NT$250 per 1,000 sticks4) Value added tax (VAT) @ 5% of consumer priceOld Tax Law New Tax LawEXHIBIT 1 Tax Law Change in TaiwanCompany, as its sole distributor. In April 2000, both
distributors were merged and now operate under a new
corporate entity known as Concord Tobacco Company.
The Rothmans merger also resulted in a more
progressive portfolio of brands being available to the BAT
Taiwan market. Prior to the merger, BAT’s major brand was
SE555, but its 2.5-percent market share was declining due
to its older consumer profile. After the merger, the BAT
market share was slightly boosted from 4.9 percent to
5.3 percent, and the spend focus was shifted to Dunhill, an
ex-Rothmans brand, which was more appealing to younger
adults.^1 The Taiwan management team also rationalized
its brands’ stock keeping units (SKUs) to improve its
marketing focus and use of resources.
Taiwan has more than 70,000 retail outlets, of which
about 4,000 outlets are under five large convenience store
chains: 7-11 (about 2,600 outlets), Family Mart (about
1,000), Circle K, Hi Life, and Niko Mart. These five large
chain stores are still growing at a rapid pace, at the expense of
the independent “mom and pop” stores and “beetle hawkers,”
and currently account for 43 percent of BAT’s volume.
Taiwan’s business environment has also been under-
going some major changes due to major bilateral negotia-
tions in preparation for entry into the World Trade
Organization (WTO). To provide a more level playing field
for international tobacco companies, the Taiwan Tobacco
and Wine Monopoly will have to be dissolved. Two new
laws relating to the new administration and taxation of
tobacco products were passed in April 2000, but have yet to
be enforced, pending Taiwan’s accession—which has been
delayed by the deferment of China’s entry. The legislated
change in Tobacco Tax legislation from a specific tax per
mille to a mixed tax regime will have significant impacts on
pricing, market size, and profitability. (See Exhibit 1.)
In the face of these changing market dynamics, and
the BAT-Rothmans merger, BAT Taiwan commissioned
Bain Consulting to do a full market potential study, to assess
the size of the market opportunities and to identify the
investment opportunities. This study identified Taiwan as
one of the key profitable growth markets in the Asia Pacific
region. It also highlighted various strategic options to pursue
in order to realize BAT potential in this market: Besides a
higher level of investment behind its “drive brand”
(Dunhill), a change in business model would be necessary to
grow the business and to reap supply-chain savings.
Under the new business model, Taiwan would be
directly importing its own products and selling directly to
key accounts (e.g., big five convenience chains) and its dis-
tributor, who would also focus on direct store delivery, as
opposed to selling only to the wholesale trade as it had in
the past. The plan was to begin direct importing by January
1, 2001. The direct-sales operation would be piloted first in
Taipei and then rolled out to the rest of Taiwan sometime
before mid-year 2001.The IT Function at BAT
The information technology (IT) function within BAT
mirrors the overall company structure. The global CIO is
located at Globe House and has direct reports with
responsibilities for IT infrastructure, IT service delivery,
e-business and business system initiatives, and IT people
and processes. Under the global CIO, there has been an
increased emphasis on global strategies to help reduce
the costs of implementing integrated IT solutions and
ongoing IT service delivery. For example, the newly
appointed head of business integration at Globe House(^1) The launch of Dunhill 1mg in July 2000 contributed to the
growth of the Dunhill brand family by 170 percent in 2000.