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Tobacco industry shrinks as smoking bans cut off foreign investments

Tobacco industry shrinks as smoking bans cut off foreign investments

Smoking bans are shrinking the tobacco industry worldwide, new research finds.

A study of 141 tobacco companies across 20 countries over a decade found that smoking bans in a company’s home country reduced their ability to invest abroad.

The study, Regulation as Country-Specific (Dis-)Advantage: Smoking Bans and the Location of Foreign Direct Investment in the Tobacco Industry, overturned the notion that bans would lead tobacco companies to target countries without bans, particularly in the developing world.

Professor Nigel Driffield from Warwick Business School said: “Not only did bans affect the tobacco firm’s cash flow, and therefore reduce their funds for international expansion, there is also evidence that they are sensitive to home public opinion when investing abroad.

“It seems that tobacco companies are sensitive to their public profiles and, as they seek new working relationships with governments and battle over issues such as plain packaging and intellectual property, do not want to be seen to be exploiting the poorest countries, who are often the ones without smoking bans.

“Smoking bans often reflect a negative political mood within their home country towards tobacco and so investing in poorer countries to make up for dwindling sales at home may seem exploitative and would be bad for their PR.”

Smoking bans are now in effect in more than 170 countries in public places and buildings.

Of the firms studied, researchers found that 53 engaged in foreign direct investment and 26 invested in countries without a ban.

Countries without a ban were found to be 50% more likely to invest in other nations with a ban.

Therefore, companies based in countries without a smoking ban had an advantage in the global tobacco market.

The World Health Organization estimates that more than six million people die every year from smoking related illnesses.

These figures are falling in the developed world, but continue to rise in developing countries.

The research attempts to illustrate the role that smoking bans can play in developed countries in trying to reduce these figures.

Driffield added: “The study reveals that national policy appears to have made firms situated in countries with smoking bans better corporate citizens.

“We found that in countries where the demand for tobacco is falling then a smoking ban hastens this process, and reduces still further the capacity of firms from that country to carry out FDI.

“Also, where a firm’s demand is increasing, then a ban dampens the extent to which this growth leads to internationalisation.”

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Smoking bans are shrinking the tobacco industry worldwide, new research finds