Corporate Strategy in the Tobacco Manufacturing Industry: The Case of Philip Morris

The purpose of this case study is to identify corporate strategy options at Philip Morris in an uncertain business and legal environment. Because it controls approximately one-half of the domestic market for tobacco products, efforts by antismoking advocates directed toward getting Philip Morris to change its corporate policies are a major step toward getting policy changes accomplished within the entire tobacco manufacturing industry. The company has been the largest player in a structurally oligopolistic industry with only a small number of important competitors. In October 1999, on a web site position paper, Philip Morris admitted that smoking is a contributing factor to the development of a variety of diseases and that cigarette smoking was addictive. The paper examines legal issues pertaining to lawsuits directed toward claims on behalf of smokers and their families. A jury verdict in the Florida class action lawsuit on behalf of smokers, now under appeal, would require payments approximately equal to the entire market capitalization of Philip Morris on the day the verdict was announced. The paper outlines three possible organizational strategies in the face of continuing legal issues which threaten the future of the company: (1) Continue as they are now operating as a single company; (2) Spin off nontobacco components to shareholders as a separate company; and (3) Discontinue domestic manufacture and sale of tobacco products while maintaining an international tobacco business.