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How to compete in the most restricted industry

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By Cristian Cojanu
While the tobacco industry faces more and more restrictions, cigarette manufacturers still have to invest, to make profit, and to win share of market. Business Arena talks exclusively to Mark Rock, General Manager of JTI Romania, Moldova and Bulgaria, about the company's plans and challenges, its strategy for growth, and the importance of JTI Romania in a global corporation with about 26,000 employees.
”When I was offered the job here I answered wholeheartedly: yes, please!” says Mark Rock, or Rocky, as he’s known; he explains that experience has taught him that being open to every opportunity brings rewards.
JTI Romania’s GM went into the tobacco industry in 1987. Before coming to Romania, he was Vice President (VP) in UK market and VP Global Sales & Trade Marketing in Geneva, supporting JTI markets across the group.
Last year, he arrived in Romania. Moving from Geneva, a city with such a high quality of life, how does he find Bucharest in comparison? “I fell in love with Romania at first sight. My first impression was the people – they are Romania’s great asset,” he says. “I find them caring and welcoming, hardworking and interesting. They have made me and my wife Muriel feel at home. Actually, it is very like my native Scotland, only much warmer.” Rocky thinks the food is great, and the internet is very fast. But he finds it difficult to drive in Bucharest, because of the traffic and the bad infrastructure, which is a minus across the country.
“There are still lots of things to be done in Romania. Given this, another exciting part of our coming here is that we are now part, even if in a small way, of the future development of this country. Since I’ve been in the country I’ve discovered what a fascinating and surprising place it is. Such a green country, with stunning landscapes and interesting architecture. After seeing lot of cities (Iasi, Sibiu, Ploiesti, Bucharest, Alexandria, Constanta) I’ve noticed the diversity, and how much Romania is growing.”

Romania on JTI’s global map

With almost 30 years’ experience in the tobacco industry, Rocky knows that the business is all about people; the most valuable lesson he learned in Sales and Marketing is that if you want to sell something you have to understand your customers’ needs, so it’s vital to listen. The best marketing requires a deep experience of people and what they want from their lives… “Working with people is always a challenge, whether you have 10, 100 or 1,000, it’s the same tough job,” he says.
Romania is well known in the JTI group for the professionalism of its employees. More than 30 Romanians have management roles worldwide in JTI, and Romania is a hub for the region, coordinating Moldova and Bulgaria as well. The management team for the three countries consists of more than 70% Romanians. “It was in Geneva that I heard a lot about the high calibre of the people developed by JTI Romania.”
And due to the professionals, the local business has many assets recognised within the JTI Group – including the cigarette factory in Pipera. JTI was the first multinational tobacco company to manufacture for the local market, then operating under the name of R.J. Reynolds in 1993 and 1994. ”Since then, JTI’s Romanian factory has become a model of efficiency and operational excellence”, Rocky said. In the Japanese business culture they talk about attention to detail and continuous improvement: the factory in Bucharest was the first company in Romania to be certified 5S Best in Class (one of the core principles of the Japanese Kaizen management philosophy, related to continuous progress in small steps). The accolade was awarded in October 2009 by Kaizen’s founding father, Professor Masaaki Imai. Since then, the Bucharest factory has renewed its certification every year after stringent audits.
In July 2012, JTI invested €25 million in the production facilities, creating over 125 new jobs. The factory exports about 70% of its production. In 1993, the company started its operations in Romania by importing cigarettes from Germany, but since 2009 the tables have turned: today Germany imports from the JTI factory in Bucharest. All told, JTI Romania exports to markets across the EU, South America and Asia – more than 50 countries worldwide.

Shining a light on to the dark side of the market

Rocky points out one critical threat that damages market evolution. “The main challenge that the tobacco industry faces nowadays is the black market, which is boosted by fiscal policies and the regulatory framework,” he outlined.
It’s important to view the problem in a geo-political context. Romania’s borders are part of the EU’s borders – in fact, the longest border of any EU state: over 2,000 km, including its coastline. In the neighbouring countries which are outside the EU and don’t comply to the European tax policy, the price of a pack of cigarettes differs widely from the prices in Romania; in Ukraine, for example, a pack of cigarettes is four or five times cheaper.
In January 2016, the contraband had a massive share of market, with 17.8%. It’s no secret that in the border regions the illegal trade represents a daily activity. “In the North-East the percentage was about 35%,” says Rocky, “and there are some towns and villages in the region where 80-90% of tobacco products are contraband.”
JTI provides expertise and support to governments and local authorities to fight the illicit trade. Locally, JTI supported the fifth regional anti-contraband public campaign, developed in the border counties in the North-East, North, West and South-West, in partnership with the National Fiscal Agency, National Customs, and Border Police. Since 2010, JTI donated to the National Customs 38 dogs and necessary equipment for fighting contraband, which have had excellent results at the customs points.
JTI invest globally more than USD 50 million every year in the fight against illegal trade. In Europe, the company work in close cooperation with the Anti-Fraud Office (OLAF), with whom JTI has a cooperation agreement which extends to 2022.
But Rocky emphasises that the illegal trade is a consequence of the government’s fiscal policies and the regulatory framework. JTI signalled a situation without precedent: the initiation of an Emergency Ordinance transposing the Tobacco Directive, although an identical draft law was voted recently by the Senate. “We comply with the law everywhere in the world where we are present, but we need clarity and predictability. Uncertainties could seriously damage the legal sales. If the legal market becomes dysfunctional, the illegal market will be the only winner. Cigarettes producers are facing difficulties in production planning and stock management, with potential significant losses, but this implies proportionally higher losses to the state budget. After all, 80% of the price of a cigarettes pack is tax paid to the State and for every percentage lost to contraband, the State loses 35 million euro. The Romanian taxpayer is by far the biggest loser in this context,” Rocky explained.
The draft law transposing the Tobacco Directive provides essential changes in respect of cigarettes (ingredients and flavours) and packaging: health warnings appearing on the front and the back of the pack on a surface of 65%; health warnings of 50% of the lateral surface of the packs.    

Keep going forward, even in small steps

One might think these huge challenges and increased demonisation of the tobacco industry would discourage anyone, but to the question related to plans for the next period, JTI’s General Manager answers: “We are a legal business, producing controversial products. We are very open and transparent about our products, not only when it comes to the associated health risks, but also about the ingredients, published on the Ministry of Health website, and about everything we innovate. We continue to invest. A business can’t keep developing without investments.”
But every investment is the result of analysis. And as Rocky points out, one of the most important rules, in business and in life, is that “when you realise that you have got something wrong, even if you have invested a good deal in it, cut your losses and stop.” Keeping it simple and being honest with yourself helps to maintain a clear mind and to take the optimal decisions, he says.
The GM’s expectations for the business are to grow the share of market – winning smokers from competitors; to achieve ever-higher standards for the factory; to increase exports; to develop JTI people, and to be involved in community life.
“It’s not only the big ideas that count – it’s usually a series of small steps that improve our operations. We do everything according to the Japanese philosophy of continuous improvement, both in the factory and in Sales and Marketing, where we actually prefer steady sustainable growth to huge leaps. The equity and image of a brand is built over time.”
In 2015, the two entities that JTI has in Romania, JTI Manufacturing and JTI Trading, had a cumulative turnover of about €879 million – around 12% growth vs. 2014 turnover of approximately €787 million.
“The excise tax, VAT and other duties, contributions and profit tax we pay is impressive. Last year, JTI Romania paid about €800 million to the state budget.” The whole industry has paid in 2015 to the State budget around 3 billion Euros, being the second largest taxpayer after the oil sector.  In the European Union, tax revenue from tobacco adds-up to EUR 82 billion.
What growth does he forecast for the next few years? “As in any other industry, it would be wonderful to have a clear expectation of percentage increases in sales volumes or profits. But we depend very much on the authorities’ capacity to fight contraband, on the coherence of taxation policy, and regulatory demands,”
he says.

Return to community

Despite the profound changes that the industry faces, as well as daily challenges, a long term strategy also applies to JTI’s Corporate Social Responsibility programmes. “We owe our business success to the community, so we want to return something to the community where we live and work.”
“When I came to Romania,” he says, “I found out that the 16-year JTI Encounters series has become a national cultural brand in Romania, with its policy of staging only premieres and top companies.” JTI is also a special partner of the International Theatre Festival in Sibiu; supporter of Gigi Cciuleanu’s Romania Dance Company; the national tours Pianul Calator, Flautul de Aur, Duelul Viorilor; Transylvania International Film Festival, and Comedy Cluj. Being the most important Japanese investor in Romania, JTI is sponsoring and promoting events related to Japanese heritage, including a Romanian-Japanese Cultural Centre.
Through another programme, JTI Seniors, 45 elderly people lacking support and resources have been given daily a meal and medicine.

Just love your work and the success will come

Aiming for success and doing business for business’s sake can be fun, but doesn’t necessarily bring happiness. So it’s important to like your work in order to be happy. His advice: “Make sure you know what is important in life, and make sure you enjoy your life. I get great satisfaction from coming to work every day and I take great pleasure in being with my family and friends. The balance is crucial – if I am unhappy in one part of my life, it will affect the other.”
This isn’t an easy philosophy to apply, because of the time constraints. “Having six kids, I’m a taxi driver during the week-end. But as a Glaswegian I love football, being a Celtic supporter, and I also find time to play golf at the weekend when I get the chance. I like music and reading, and the social side of life too, relaxing with friends and family.”
Does he understand Romanian? ”Iau lectii de limba român, dar cel mai mult învt de la colegi si de la prieteni.”
As he likes the country, has he thought about living in Romania permanently? “Maybe, but that would be a decision to make with my family. And to be honest, I don’t like to make fixed plans for life. It would be a bit depressing if I thought nothing would change again – new adventures are important in life. But whatever we decide I can be very sure of this: if I ever leave Romania, I will miss it very much.”
Has Rocky ever thought about being an entrepreneur, establishing his own business instead to put his talent to use on behalf of a corporation?
“What’s great in JTI is that I feel like an entrepreneur, because the company gives everyone a chance to take the initiative, to take calculated risks, encouraging us to come up with ideas and put them into action. The tobacco industry is an area where crisis is normal, so it’s vital that people have the leeway to be innovative. When you have to make decisions in a critical situation, you can’t wait for the boss to advise you. It would be like waiting for an opinion before you put out a fire.”
Pointing out the striking sculpture by Giulian Dumitriu, titled “Higher Together”, that stands in the company’s reception area, Rocky said: “In a highly original manner it represents JTI corporate values – Enterprising, Open, Challenging.  We are all entrepreneurs working in a challenging industry, and we are open to any new idea. In fact, just as I said yes! when I was given the chance to come to Romania, I’m convinced that this is the key to great success: being open to all opportunities.”

The editorial is also available in our print edition.

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