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.