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Philip Morris International Inc   (PM)
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    Sector  Consumer Non Cyclical    Industry Tobacco
   Industry Tobacco
   Sector  Consumer Non Cyclical

Philip Morris International Inc

Business Description


Philip Morris International Inc. is a Virginia holding company incorporated in 1987. Our subsidiaries and affiliates and their licensees are engaged in the manufacture and sale of cigarettes and other tobacco products in markets outside of the United States of America. Our products are sold in approximately 160 countries and, in many of these countries, they hold the number one or number two market share position. We have a wide range of premium, mid-price and low-price brands. Our portfolio comprises both international and local brands.

Our portfolio of international and local brands is led by Marlboro, the world’s best selling international cigarette, which accounted for approximately 36% of our total 2008 shipment volume. Marlboro is complemented in the premium price category by Merit, Parliament and Virginia Slims. Our leading mid-price brands are L&M and Chesterfield. Our leading brands in the profitable low-price segment include Bond Street, Lark, Muratti, Next, Philip Morris and Red & White.

We also own a number of important local brands, such as A Mild, Dji Sam Soe and A Hijau in Indonesia, Diana in Italy, Optima and Apollo-Soyuz in Russia, Morven Gold in Pakistan, Boston in Colombia, Belmont, Canadian Classics and Number 7 in Canada, Best and Classic in Serbia, f6 in Germany, Delicados in Mexico, Assos in Greece and Petra in the Czech Republic and Slovakia. While there are a number of markets where local brands remain important, international brands are expanding their share in numerous markets. With international brands contributing approximately 75% of our shipment volume in 2008, we are well positioned to continue to benefit from this trend.

Distribution and Sales

The distribution and sales strategy for our products is tailored to the characteristics of each market, including retailer needs and capabilities, the wholesale infrastructure, our competitive position, costs and the regulatory framework. Our goals are speed, efficiency and widespread availability of our products, while at the same time contributing to the success of our direct and indirect trade partners. The four main types of distribution that we use across the globe are:

• Direct Sales and Distribution (“DSD”), where we have set up our own distribution directly to retailers.

• Single independent distributors who are responsible for distribution within a single market.

• Exclusive Zonified Distribution (“EZD”), where distributors have an exclusive territory within a country to enable them to obtain a suitable return on their investment.

• Distribution through wholesalers, where we supply either national or regional wholesalers who then service the retail trade.

In many countries we also service key accounts, including gas stations, retail chains and supermarkets, directly.

Procurement and Raw Materials

Our strategy is to procure tobacco and non-tobacco materials through third parties. We believe that this provides us with greater flexibility and is the most cost effective approach.

We purchase tobacco leaf of various grades and styles throughout the world, primarily through independent tobacco dealers. We also contract directly with farmers in several countries including the United States, Argentina, Mexico, Indonesia, Ecuador, Dominican Republic, Poland, Colombia and Portugal.

Our largest sources of supply are:

• The United States for Virginia (flue-cured) and Burley tobaccos, particularly higher quality varieties for use in leading international brands.

• Brazil, particularly for Virginia tobaccos but also for Burley.

• Indonesia, mostly for domestic use in kretek products.

• Turkey and Greece, mostly for Oriental.

• Argentina and Malawi, mostly for Burley.

Competition

We are subject to highly competitive conditions in all aspects of our business. We compete primarily on the basis of product quality, brand recognition, brand loyalty, taste, innovation, packaging, service, marketing, advertising and price. Our competitors include three large international tobacco companies and several regional and local tobacco companies and, in some instances, government-owned tobacco enterprises, principally in China, Egypt, Thailand, Taiwan, Vietnam and Algeria. Industry consolidation and privatizations of governmental enterprises have led to an overall increase in competitive pressures. Some competitors have different profit and volume objectives, and some international competitors are less susceptible to changes in currency exchange rates. We compete predominantly with American type blended cigarettes, such as Marlboro and Chesterfield, which are the most popular across many of our markets. We seek to compete in all profitable price segments.




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