Intercontinental Tobacco Company
Naveen Natarajan, ITC’s general manager
By Thomas Schmid
Indian conglomerate BBM Group was named after its founder and c.e.o. Bommidala Bhanu Murthy, and is today one of the country’s largest manufacturers and traders of tobacco products and by-products. The group comprises well-known companies like Hilton Tobaccos (RYOs, pipe tobaccos, cigarettes), Premier Tobacco Packers (leaf), Bommidala Enterprises (rag and cigarettes), and Bommidala Brothers (leaf).
Likewise, a member of the consortium is Intercontinental Tobacco Company FZE (ITC), headquartered in the Ajman Free Zone in the emirate of the same name. In 2000, BBM took the decision to establish a new division, initially tasking it with distributing rag and cigarettes supplied by the group's India-based outfits.
But, in April 2012, the company also acquired a cigarette factory from its previous owners, enabling it to begin manufacturing in the UAE itself, according to general manager Naveen Natarajan. He cites two primary reasons for BBM to establish its UAE presence and eventually expand ITC’s business portfolio to cigarette manufacturing as well: to cater to tobacco companies who own legitimate brands; and to facilitate brand owners’ capability to supply their own raw materials so they can maintain full control over their brand quality.
“With our presence in the Gulf region now spanning close to 20 years, our products and services are highly competitive and we are very customer-centric,” Natarajan asserts.
Benefits Abound at UAE Location
Businesses located within the various free zones scattered around the country (including the one in Ajman) are entirely exempted from paying any tariffs and duties on raw material imports and exports (including finished goods). Furthermore, according to Natarajan, “the shipping hub at Jebel Ali not only has very efficient cargo handling facilities but also provides connections to all major ports within the region and beyond.” The logistics factor is complemented by the geographical location of the UAE, which puts ITC in quite easy proximity to its key markets in the Middle East and Africa. Yet as a matter of rule, no location in the world only has advantages. ITC’s general manager admits that this also holds true for the UAE and its emirate Ajman. “Overall, we face much higher cost here for staff wages and salaries, utilities, factory maintenance, and operation than we would in India, for example,” Natarajan elaborates.
OEM Drives ITC Business
Unlike its competitor GTI, ITC predominantly is a contract manufacturer, with the majority of its OEM clients shipping in their own raw materials, which are then transformed into finished product at the Ajman factory. “In fact, 85% of our annual output is for customer brands,” Natarajan points out. The remaining 15% of production is delegated to the company’s own cigarette brands, the first of which were launched in 2012 and the latest one only having been rolled out as recently as 2015. For its in-house brands, ITC exclusively uses Virginia and American tobacco blends, whereas the Virginia types account for 80% of all imports while the American blend varieties make up the remaining 20%, the principal supplier countries being the UA, India, and African nations like Malawi and Zimbabwe. The company also mostly relies on foreign suppliers for all other raw materials needed. “Our cigarette paper is imported from Indonesia and Europe and tipping papers and filters are procured from China. Only packing materials are purchased locally,” Natarajan says.
West Africa, Middle East are Key Markets
As far as ITC’s own brands are concerned, Natarajan names the West Africa region as its key market. “The chief reason is that we can deliver a good Virginia blend product at a value price, which is imperative to West African distribution partners and end consumers alike.” However, in its capacity as a contract manufacturer, the Middle East is of significantly higher importance for the company. “The [Middle East’s] close proximity to our production base helps us to offer a shorter delivery lead time [to our OEM clients], which is a definitive competitive advantage.” While ITC is presently not very active in Asia, Natarajan discloses that the company also “would like to establish [its] own brands in the Central Asian markets.” Yet there are certain hurdles to take. “The main challenges we would have to overcome there are the tightly controlled regulations on tar and nicotine levels in the different territories and the wildly varying mandatory health warnings requirements, as well as of course keeping our prices to an affordable level.” However, the company surely would have more than enough resources to comfortably sustain such a market expansion – and both for its own brands and OEM production orders in parallel. After all, Natarajan divulges that “our factory’s total annual production capacity is around eight billion sticks, yet at this moment we only utilize around 50% of that.”