FDI in a Developing Country Case of British American Tobacco

FDI- BAT

"FDI in a Developing Country: Case of British American Tobacco" examines the particularities of British American Tobacco's long, and complex, history in India. The article traces the company from its origins as the result of a merger between a major American tobacco company and a major British tobacco company in 1902 all the way up to present times. In addition to providing a seemingly comprehensive detailing of the mergers, acquisitions, and other changes in ownership, leadership, and revenue that have marked the company's history, including that within India, the article highlights some characteristics of British American Tobacco and its actions in India that distinguish the company from many others involved in foreign direct investment in a developing country. One of these was the decision by company leadership to align the company's business interests with the professed national interests of India and its government. The second distinguishing characteristic relates to the company's full integration into India, from management personnel to equity shares. While the company has a long and profitable history, the article makes clear that much of this continued success is the result of these distinguishing characteristics.

Analysis:

British American Tobacco entered the Indian market in 1906 with two major brands of cigarettes (Nayak 2008, p1). The company promptly commenced on a somewhat convoluted ownership path that included subsidiaries, associate companies, and joint ventures, among other arrangements; the Indian sector of the company has, over time, become to be known as ITC Ltd. (India Tobacco Company). One weakness of the article is the means by which the succession of companies, corporate names, and organizational dynamic is presented. These changes are, for the most part, not adequately contextualized as far as the reasoning for why the changes were made are concerned.

British American Tobacco made a decision relatively early in its tenure in India to actively align its interests with those of the Indian state. Upon independence from British rule, the Indian government set forth an array of developmental goals, including employment generation, increased foreign exchange reserves, local production as a replacement for importation, and private investment in a host of core industries and sectors (Nayak 2008, p5). To a degree, BAT internalized these goals as its own and embarked on a remarkable undertaking of investment and acquisition. This led the company to invest in and develop ventures in disparate industries like hospitality (notably up-market hotels), information technology, finance and financial services, in addition to those industries and products that are connected to the tobacco and cigarette business, at least in an ancillary way; these complementary businesses included investments in paper and tissue paper, aluminum foil, printing, and publishing, among other industries and products (Nayak 2008, p2). From this fundamental decision to align, in a way almost 'tie,' its interests to those of India as a whole, the company has reaped much in the way of profits, market presence, and public goodwill. The company has worked to present itself as a partner to the Indian public and government, and an integral part of Indian society and the economy, a remarkable feat considering that the core business of the company remains, to a large degree, cigarettes and, more broadly, tobacco.

As illustrated by the article, British American Tobacco, in marked contrast to many foreign firms operating in developing countries in a wide array of industries and business ventures, early on embraced its "Indianness." Directly following World War II the company faced rising expenses associated with hiring and bringing to India British managers. In response, BAT chose to increase the proportion of Indians serving on the management team, a decision that was looked upon positively by the Indian government (Nayak 2008, p3). The company was able to turn a challenging financial reality (rising cost of British managers) into a source of goodwill and trust with the government. The company is now almost exclusively Indian-run, and considers itself an Indian company. This has undoubtedly impacted the way in which the company is viewed by the Indian public and, just as importantly, by the Indian government.

Conclusion: