Measuring market orientation of Muscle Pharm Corp. (MSLP:US) British American Tobacco South Africa | Página 8

British American Tobacco South Africa: Evaluating the role and substance of its strategy in achieving sustainable competitive advantage

2.2 Value Chain Analysis of BATSA – Potentially a monopoly

The five business functions of BATSA value chain are as follows (DAFF, 2013):
(1) Research and Development (R&D): BAT is innovating in different areas among which include
additive products, capsules, non-combustibles and slims. (2) Sourcing: There are 600 commercial
farmers and additional contracted farmers BAT works with through AFGRI Limited which is a controlling
body for farmers. AFGRI Tobacco can be seen as a tobacco farmer cartel that annually produces about
nine million kilograms of flue cured tobacco from which 95% is sold to BATSA. (3) Production:
Heidelberg is the only production facility in South Africa and owned by BATSA. (4) Sales & Marketing:
Focused on GDB‘s – limited advertising possibilities due to raising regulation. (5) Distribution: 370
wholesalers and 65‘000 retailers. All these wholesalers and retailers are dependent on BATSA as the
company is responsible for more than 90% of the supply.

2.3 Sustainable competitive advantage – Economic Moat
Morningstar (2014) defined six features that can result in economic moats or sustainable competitive
advantage for companies.
(1)

Dominant Market Share. (2) Lowest Cost Structure/Producer. (3) Intangible Assets.

(4) (Copyrights, Patents, Approvals and Licenses provided by Government). (5) Exclusive
Corporate Culture. (6) Tremendous Customer-Switching Costs - Network Effects.
BATSA maintains an integrated supply chain ensuring continual delivery of quality leaf allowing BATSA
to react to changes that occur in demand and supply efficiently and effectively. Moreover it enables
BATSA to allocate their resources as efficiently as possible, leading to a substantial competitive
advantage. In brief BATSA is present at most stages and effectively controls most factors of production
in South Africa making it to a monopoly from a production perspective. The