Porters 5 Forces

Invented by Michael E. Porter, Porters 5 forces is an important framework used to analyze the
competitiveness within an industry and the effectiveness of business strategy. The 5 forces that
shape the business of British American Tobacco Bangladesh (BATB) are enumerated below with
their respective parameters.

Rivalry among Existing Firms

Company Market Share

BATBC 46%

Dhaka Tobacco 40%

Abul Khair Tobacco Co. Ltd. 11%

Others 3%

Currently BATB aces the market by means of having 46% share of the market. According to
Herfindahl-Hirschman Index (HHI) tobacco industry is 3846 which indicates that this market is
highly concentrated and hence the rivalry is low.

The Degree of Differentiation and Switching Cost is also moderate to low in this industry.
Switching Cost depends on the following parameters.

Monetary Low
Psychological High
Effort and Time based Low

Considering Scale of Economies and Exit barrier it can be stated that almost all of the companies
have earned scale of economies and the industry is capital intensive and ensuing in Low Rivalry
and High Rivalry respectively.

Therefore, it can be concluded that the Rivalry overall is MODERATE.

Threat of New Entrants
Threat of New Entrants hinge on the proper utilization Economies of Scale, Access to Channels of
Distribution and maintenance of Relationships and Legal barriers.

BATB and the contemporaries have achieved Economies of Scale and therefore the threat from
new entrant is quite low.

The firms in these industries have strong ties with their suppliers and distributors and the
relationship is least likely to change. Therefore, the threat is low again.

As this industry faces high taxation, the threat to enter this industry is quite high for a new
company. Due to high Legal barrier, the industry remains sort of immune to new entrants.

Therefore, it can be concluded that the Threat from New Entrant is LOW.

Competitive Force 3: Threat of Substitute Products

Vape, e-cigarettes are some of the substitute products that are available. However in order to show
the impact of Substitute products we are devolving in the different segments of the product line.

Segment BATBC Dhaka Tobacco Abul Khair

Premium Benson & Hedges Marlboro

Aspirational Premium John Player Gold Leaf, Castle

Pall Mall, Capstan

Value for Money Star Navy Gold Life

Low Pilot, Hollywood, Gold Mine, Sheikh Marise

Derby
 Segment Share (Volume)
Premium
5%
Aspirational Premium
8%

Value for Money

13%

Low
74%

2Market Share in Terms of Segments

Segment Share (Revenue Contribution to Govt.)

Premium
19%
Low
41%

Aspirational
Premium
19%

Value for Money

21%

1Segment Share in Terms of Revenue Contribution

The threat of substitute is being depicted in the following table.

Segment Threat of Substitute

Premium High

Aspirational Premium Moderately High

Value for Money Low

Low -

Bargaining Power of the Buyers

Cigarette Products have low Price sensitivity contrasted to other products. In this matter,
Psychological effect comes first. Consequently, the relative bargaining power of the customers is
also low as they have to take whatever the company offers.

Therefore, it can be concluded that the overall Threat of bargaining Power of the buyer is LOW.

Bargaining Power of Suppliers

The suppliers also have low call on the companies as the number of suppliers is staggeringly high
moreover there is low differentiation in terms of raw materials used for the production.

Hence, the overall Threat from bargaining Power of Suppliers is LOW again.

Considering the Porters 5 forces framework, it may be concluded that the overall profitability in
this industry is HIGH and promises a steady and sustainable growth in the future.