Bill 514/09 80% of cigarette pack surfaces be devoted to graphic warnings of the dangers associated with smoking Bill 287/10 reg. 466/10
HOW THE ISSUES AFFECT PHILIP MORRIS INTERNATIONAL (PMI) The labeling requirements and recent tax increase harm its investments and infringe on its trademarks in violation of the Switzerland-Uruguay bilateral investment treaty Counterfeit cigarettes (more than 50% of market) have a significant advantage because they are not regulated
A country with a population of 3 million in South America GDP $33,3 billion (2009) Economy based in the agro industry PMI doubles Uruguay’s GDP.
ACTORS Unions: Tobacco Workers Union World Health Organization’s Framework Convention on Tobacco Control (WHO FCTC) General Public:
ACTORS (Cont.) These groups also offered to provide technical and legal assistance to the government of Uruguay.
INFORMATION Inelastic cigarrette consumption (10% price increase, 5% consumption decrease) Agreement on Trade-Related aspects of Intellectual Property rights (TRIPS) into BIT obligations between Uruguay and Switzerland, that was signed in 1988 Market share
INFORMATION (cont.) Agreement with Organización Panamericana de la Salud regarding legislations to fight against tobacco consumption Statistics: A consumer spends an average of $1.50 per day on cigarettes 800,000 consumers Us$438m per year is the industry size Us$ 100m are from PMI
INFORMATION (cont.) VAT (22%) Production taxes (70% of production costs) Production costs 4% of taxes collected comes from cigarettes.
INFORMATION (cont.) Danger of Smoking 25% fatality rate of smoking related cancer. 4500 deaths per year caused by cigarettes
INFORMATION Social costs: Smoking-related health care spending Effects on worker productivity. Campaign to lower smoking rates among its population, as 50% Tabaré Vázquez, a trained medical doctor whose term as the country’s President ended March 1, promoted Uruguay’s anti-smoking laws. On the campaign trail and in declarations since his election, Mujica stressed that he will continue his predecessor's policies.
INTERESTS Uruguayan Government Protect population´s health Reduce health costs Protect the country´s image of health concerned Increase Foreign direct investment
INTERESTS (cont.) Smokers Ease of getting product Low Price Freedom to smoke freely Boxes of cigarettes without unpleasant pictures Non Smokers
Intellectual property rights affected by the law
Bilateral investment treat between Uruguay and Switzerland
ARENAS ICSID – International Centre of Settlement of Investment disputes PMI asked this court to issue an order for Uruguay to suspend the tobacco regulations, in addition to order an economical compensation for PMI’s losses. The conflict is expected to be dealt at this court. PMI states that the Switzerland-Uruguay Investment Treat protects their trademark and intellectual properties, by considering them a way of investment.
INTEGRATED STRATEGY NON MARKET SCOPE MARKET SCOPE MANAGEMENT Sue URUGUAY on violation of bi-lateral investment treat considering Brands as part of firm´s investment, quite a new idea. Manufacture and market brands to tobacco consumers in 160 countries. Owning 7 of world´s most famous 15 brands If PMI wins it will set jurisprudencyand make best use of its marketing resources 2010 Q2: Operating income $2.974 MM ($238MM in LATAM). Units: 241 Bill (26 bill in LATAM) INTEGRATED STRATEGY Implementation coordination VALUE CREATION and CAPTURE Generate interest in their particular brands
IMPORTANCE OF NON MARKET STRATEGY In the tobacco industry Non Market Strategy is key to success because: People are becoming health conscious Governments are pressured by the public and health institutions to act against cigarette consumption International organizations like WHO are becoming active in preventing cigarrette caused diseases.