Notes on Intercultural Communication

Learning to do Business in China

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Learning to do Business in China

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The Evolution of BAT’s Cigarette Distribution Network in China 1902 – 1952

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Hatamen cigarettes

http://www.bbc.co.uk/news/magazine-20042217

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(…) Today, a visit to the Duke Homestead and Tobacco Museum in Durham provides one with a fascinating overview of the history of tobacco, the development of a unique local tobacco culture, and the pioneering role of the Duke family in the manufacture and marketing of cigarettes. Less well-known is the fact that the Duke family was involved in the global marketing of tobacco products well before the term “globalization” was coined. It is reported that immediately after the invention of the cigarette machine in 1881, James B. Duke (1865-1925) leafed through a world atlas to survey the population of foreign countries. Upon coming to the figure 430,000,000 he exclaimed: “That is where we are going to sell cigarettes.” The country was China and from 1890, when the first cigarettes were exported there by the Dukes, sales skyrocketed to 1.25 billion cigarettes in 1902 and to 12 billion in 1916 earning $20.75 million with a net profit of $3.75 million. From 1915 through the 1920s, more cigarettes were exported each year (with one exception) from the United States to China than to the rest of the world combined. British American Tobacco Company (or BAT, a multi-national company formed in 1902 with the Duke’s chief competitors in England) would sell 80 billion cigarettes in China in 1928 alone and amass a total profit of over $380 million between 1902-1948. Leading the way was James A. Thomas (1862-1940), the managing director of BAT in China from 1905 to 1922 (…).

Stanley K. Abe

received 17.11.2012 at http://ducis.jhfc.duke.edu/archives/tobacco/introduction.html

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(…) There was an anti-cigarette movement in the early 1900s, but it was more concerned with morality than health. A rise in smoking among women and children fed into a wider concern about the moral decline of society. Cigarettes were prohibited in 16 different US states between 1890 and 1927.

(…)

Bonsack’s cigarette machine

retrieved 18.11.2012 at http://news.bbcimg.co.uk/media/images/63659000/jpg/_63659428_cigarette_machine_bonsack.jpg

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Howard Cox of the University of Worcester says Thomas was one of the first Westerners to understand Chinese ways of doing business, based on networking and reciprocal favours. At first, cigarettes were imported from the US, but manufacturing soon shifted to China. For Cox, this transfer of production technology rather than product marks a move from colonial trade towards the current age of globalisation and multinational corporations. Thomas had his own team of salesmen from the US, but he also formed joint ventures with established Chinese firms to distribute his product. This way of doing business is the norm today for international firms hoping to tap into the Chinese market. (…)

received 17.11.2012 at http://www.bbc.co.uk/news/magazine-20042217

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Howard Cox about James A. Thomas

(…) Under the managerial guidance of James Thomas, BAT soon began to look beyond (those) limited horizons. On assuming control in Shanghai, therefore, Thomas began to step up local production facilities and recruited an expatriate sales team who, supported by salaried Chinese interpreters, could take these low-priced cigarettes “up-country” and establish relations with the traditional Chinese merchant houses that managed China’s internal trade. During the ten years in which Thomas was in control of BAT’s operations in Shanghai, the company established an extensive network of Chinese dealers who conducted warehousing arrangements for them beyond the treaty ports, and who took responsibility for the distribution of their products to the final consumer. So effective did these links with Chinese merchants become, that, by the latter part of the 1920s, the need for Western salesmen to engage in travelling had more or less ceased.

(…)

Traditionally, American tobacco manufacturers had merely employed a few travelling salesmen to make contact with local jobbers and retailers, while the bulk of the trade remained in the hands of independent wholesalers who supplied small retailers with a variety of goods, of which tobacco was only one. However, during the mid-1880s the largest cigarette manufacturers began to set up their own warehouses to serve dealers in the largest cities. The effect of this was to eliminate many commission merchants and some of the largest urban jobbers from the distribution system for cigarettes in the United States.

(…)

One of the tasks of these travelling BAT salesmen was to monitor the market conditions in the different parts of the country to which they travelled. This was undertaken through the completion of Form 163, a survey of market conditions which had been designed by Thomas during his early excursions into the field. The form was completed monthly by all of the company’s travelling representatives as they visited dealers, before being returned to the company’s headquarters in Shanghai. It set out the prevailing conditions for each town in terms of population, dealers operating, depot facilities available, stock levels by brand, the local currency exchange rate and the general income levels of the inhabitants. Duke had understood well the importance of accurate information of this kind, and his chief accountant in New York, W.R. Harris, created an accounting system for the American organisation, based around daily reports on brand sales by town, in order to keep stocks flowing smoothly.

(…)

Important as the American and other foreign salesmen were to the company’s early growth in China, the expansion of BAT’s distribution system also necessitated the increasing participation of Chinese merchants. One reason for this lay in the provisions of the trade treaties themselves which prevented foreigners from owning land outside of the treaty ports and thus presented BAT with severe problems in terms of expanding their network of warehouse provision. To overcome this it was necessary to develop a system of warehouses which were under the ownership of Chinese nationals. In addition, BAT needed to tap into the well-established Chinese trading networks that already delivered goods extensively within China.

Download here the whole pdf, or see below for the online versions.

UNIVERSITY OF WORCESTER , Learning to do Business in China: the Evolution of BAT’s Cigarette Distribution Network, 1902-41 by Howard Cox 1997. This is an electronic version of an article published in Business History, Vol.39, No.3, (1997), pp.30-64. Business History is available online at: http://journalsonline.tandf.co.uk/fbsh
Received 17.11.2012 at http://www.google.de/url?sa=t&rct=j&q=james%20thomas%20cigarettes&source=web&cd=2&ved=0CCwQFjAB&url=http%3A%2F%2Feprints.worc.ac.uk%2F221%2F2%2FLearning_to_do_Business_in_China.pdf&ei=J32nULyfCMnNswavtIGAAw&usg=AFQjCNHbO53II9i8xtSNravGLxFi3_qXcQ

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James A. Thomas with two Eunuchs

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See more about the Life of James A. Thomas in the Duke University / North Carolina, USA http://library.duke.edu/lilly/about/lillyartproj/

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reviewed 17.11.2012

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