The Impact of Regional Trade Integration on Firm Organization and Strategy: British American Tobacco in the Andean Pact

Processes of regional trade integration may have an important impact on firms' strategies and forms of organization. This article provides an empirical case study of the impact of regional trade integration in the Andean Pact in the 1990s on the strategies and organization of British American Tobacco (BAT), using internal tobacco industry documents. BAT conducted an integrated strategy by lobbying on tax and tariff rates and intellectual property regulations, whilst simultaneously adapting its market strategies and attempting to modify its internal organization. The company incorporated substantial sales in illicit markets into its strategy, and launched new legal export operations within the region, in part to assert ownership over contested trademarks. It attempted to significantly modify its internal organization by better integrating its national operating companies on a regional basis, but was only partially successful in this due to resistance from its powerful Brazilian subsidiary. Changes in intellectual property rules also intensified competition between BAT and its main competitor, Philip Morris, culminating in a legal dispute between the two firms and leading BAT to develop a more coherent strategy on trademark ownership. These findings raise implications for understanding, and regulating, tobacco industry activities worldwide.