Philip Morris to control $300-M joint venture

Philip Morris Co. Inc. (PMCI) is taking a majority stake in the joint venture that will set up a new $300-million cigarette manufacturing facility in Southern Tagalog but will keep La Suerte Cigar & Cigarette Factory as its partner.

At present, PMCI has a licensing agreement with La Suerte through its local subsidiary, Philip Morris Philippines Inc., but it has no equity in the manufacturing plant that has been producing and selling Philip Morris cigarettes in the Philippines for decades.

PMPI corporate affairs director Renato Salud told reporters that PMCI now wants to take an active role in the manufacture and marketing of its products in the Philippines in anticipation of the projected growth in the Asian cigarette market.

According to Salud, Philip Morris products now account for only 26 percent of the Philippine cigarette market dominated by Fortune Tobacco Co., the flagship company of the Lucio Tan Group and maker of such cigarette brands as Hope and Winston.

Salud admitted that Fortune Tobacco's Hope brand is still the biggest selling cigarette brand in the country, followed by PMCI's Marlboro and Philip Morris 100s. The rest of the market, he said, was accounted for by other Fortune brands.

When the multinational company spins off the joint venture with La Suerte, however, Salud said PMCI expects its market share to improve dramatically since it would also bring the company's marketing expertise into the business while improving production capacity through modernization.

Top officials of PMCI's Philippine subsidiary, Philip Morris Philippines Inc., met with Trade and Industry Secretary Manuel Roxas II last month to explore the possibility of tapping government incentives available to export industries.

Hit hard by a dramatic contraction in the increasingly health-conscious markets of Europe and North America, the world's biggest cigarette manufacturer has been moving into Asia and Africa where the markets continue to expand by leaps and bounds.

Philip Morrris already has tobacco processing and manufacturing facilities in Remban, Malaysian and Malang, Indonesia.

During his meeting with PMPI managing director George Farrah, Roxas said the company remains upbeat about the prospects in the Philippine market and the Asian market in general.

According to Roxas, the company plans to put up a new joint venture -- La Suerte -- which would eventually register its project with the Board of Investments.

Philip Morris, Roxas said, intends to close down its existing facility along South Super-Highway in Parañaque and move its operations to Southern Tagalog where it will construct a new and expanded manufacturing facility.

The new facility will be one and a half times bigger than the company's existing plant and will increase its production capacity from 20 billion cigarette sticks to 30 billion sticks.

"They are planning to export part of their production so they are thinking of registering as an export business," Roxas said. "This would qualify them for incentives available to all export industries."

"They want to continue and expand their business here because of our Western-style of doing business as well as our workforce," Roxas said. "Add to this the fact that the Philippines is the 15th largest cigarette market in the world."

Philip Morris plans to source part of its tobacco requirements from local sources. Traditionally, the company imports 60 percent of its requirement for Virginia tobacco while buying the rest from local producers.