Sophisticated Consumer Marketplace:
Understanding the Opportunity
Managing Director, Philip Morris Korea Inc.
Prime Minister Goh,
Deputy Prime Minister Lee,
Ladies and gentlemen,
First of all, I would like to say that I am very grateful to the
Asia Society for its invitation to address this prominent gathering
and share some of my thoughts about the increasingly sophisticated
Many in Asia are aware of the new Korea. Young people in China,
Japan and Southeast Asia think Korea is hip. They love its pop culture,
watch its movies and TV soaps, and visit for the skiing, the shopping
and the nightlife.
In western countries, people are becoming more aware of the economic
and technological changes, rather than the cultural sophistication.
Korea is known as probably the most wired country in the world.
It’s perceived as a leader in Internet use and in hi-tech
industries such as mobile telephones, LCDs and semi-conductors.
There’s a passion for innovation here, a passion for new tastes
and new experiences, a passion for democracy and advocacy. In short,
this is a very dynamic place and to succeed in business, you have
to stay alert and engaged.
Within Philip Morris International, Korea is well known for sophistication
in terms of brand choice and consumer taste. In response to this,
in March, we designed a new brand of cigarette specifically for
this market. Called Elan, it is low-tar in taste and superslim
in shape. This type of cigarette which in, say, Europe, would be
for the occasional smoker and more popular with women than men,
is very popular with regular male smokers here. This is the third
such product we have launched specifically to meet Korean consumer
preferences just in the last year and it has changed the character
of the product portfolio that sustained us since we entered the
market 15 years ago.
Recently, at Philip Morris Korea, we conducted a nationwide survey
to get an updated sense of how people here view us as a company.
I’m happy to report that the number of people who view us
favorably has doubled since 2001, when we did the last survey. Believe
me, when you’re a tobacco company, that’s a nice statistical
At the same time, though, a number of people remain unfavourable
to us. As you know, we manufacture a product that is harmful to
health. So this kind of response is understandable. But what surprised
me was that, when the unfavorable people were asked why they didn’t
like us, the main reason given was that we were “foreign”.
That came like a punch in the stomach, because like many companies
who have been here for a while, we have started to think of ourselves
as, if not Korean, at least very much part of the local scene.
I myself, in case you hadn’t noticed, am a foreigner.
If you’re wondering about my accent, I’m from Liverpool
in England, and I went to the same high school as The Beatles, so
I can’t pretend to be Korean. But in the 15 years that we’ve
been here, our managing directors have all been Korean. Indeed,
one became the president of the Philip Morris Asia region and another
is the president of our office in Kazakhstan. All but a handful
of our 400 employees are Korean. We pay local taxes, of course,
and we conduct our business in Korean, except for my meetings, which
we do in English with a Liverpool accent.
So, what can we do about this problem of being perceived as “foreign”?
On one side, we note that Korea is becoming increasingly comfortable
with the presence of foreign companies in industries that were previously
closed. So, we expect this negativity to dissipate with time. At
the same time, though, we need to make greater efforts to highlight
our involvement with, and long-term commitment to, Korea.
One way to do this is to work closely with the community to develop
programs that would address its needs. For example, we are involved
in programs in Korea to combat hunger. We are also very active in
supporting NGOs who deal with the issue of domestic violence. We
also have environmental projects that include beach cleaning and
wetland preservation campaigns.
On the business side, we have been recognized as one of the 10
best employers in Korea. We employ over 400 people in our factory
and head office, and another 600 are employed by our distributors.
We believe that we have also played a significant role working with
regulators and the industry to level the playing field for international
tobacco companies in the market.
I do think that there is some progress still to be made on this
front and I would not want to let the opportunity offered by this
public forum – and the presence of the deputy prime minister
– go without making my case. So please forgive me for speaking
Since the liberalization of the tobacco industry in 2001 and, subsequently,
the setting up of our green field factory in South Gyeongsang Province
in 2002, there remain hurdles to our business. Such hurdles mostly
stem from what we would like to call the "unfinished"
liberalization process. Prior to the liberalization of the industry,
the retail licensing system and local trade practices favored the
national tobacco company. Today, they still do.
I believe that a solution needs to be found that would provide
equal opportunity to all existing and future players within the
I do not believe that foreign companies are discriminated against
because they are “foreign.” But I do believe that this
sentiment causes a slowdown in the country’s efforts to detect
and deal with the unfair business practices that get in the way
of its ambitions to be a regional business hub.
One factor in business is uncertainty or, if you like, unpredictability.
It is a risk that needs to be minimized as much as possible. In
Korea, government has historically introduced new regulations with
little debate, creating an uncertainty which prevents many companies,
Korean and foreign, from developing real long-term visions for their
future. Let me give an example from our business, regarding taxation.
As I have said, as a tobacco company, we recognize that cigarettes
are products that are harmful to health. We recognize that many
governments opt for taxation and pricing measures to reduce tobacco
consumption and advance public health objectives. We fully respect
the public health goals of the Korean government and believe that
the country should have strong and effective regulations on tobacco,
towards which we are ready to work with all interested parties.
However, what we consider to be counter-productive to all concerned
are drastic tax increases. We believe that tax increases, be they
for government revenue purposes or for tobacco control purposes,
should be regular and incremental. Predictability and the ability
to plan for the future is the cornerstone for all businesses. Unpredictable
change is difficult to manage and can seriously damage our business
and the employees and partner companies that depend on it. To this
end, Philip Morris Korea is in the process of developing a tax proposal
for consideration by the government.
When I say that we fully respect the government’s public
health goals, I do not speak lightly. We wish to have the opportunity
to work with the government, the public health community, NGOs and
all interested parties towards this end. In the meantime, we do
our part to remind consumers of the health effects and addictiveness
of smoking and to help prevent young people from smoking. We work
closely with our trade partners, especially at the retail level,
to prevent sales to minors. We also sponsor a very active youth
smoking prevention program, which involves seminars for teachers
and parents, discussing ways to prevent young people from smoking.
This may seem contradictory, but we are engaged in such activities
because we know that these are the things that society expects of
us and we also believe that it is the right thing for us to do as
a responsible tobacco company.
Philip Morris, and indeed all international companies, support
the government’s efforts to introduce effective and rational
regulations as Korea strives to become a truly open market and begins
to qualify as a regional business hub. At the same time, I would
add that it is important that such regulations be enforced in an
appropriately vigorous, fair and transparent manner. I am confident
that, with such a commitment by government, market practices will
soon catch up with the current level of sophistication of the Korean
I am also confident that, as our company’s presence here
deepens and lengthens, we international businesses will be perceived
more and more as part of the Korean scene and less and less as “foreign.”