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Japan Tobacco, Inc.

© Jason Gottlieb

About 35% of Japanese adults smoke. Of the male population, some 56% puff the dirty leaf. The Japanese Ministry of Health and Welfare has launched its own war on smoking, in a 1997 white paper calling cigarettes a health hazard, and detailing (to the extent Japanese white papers ever detail anything) the link between tobacco and lung cancer. But how seriously is this message supposed to be taken when the majority stockholder in Japan's largest tobacco company is the Japanese government itself?

Until 1997, the Ministry of Finance owned 100% of Japan Tobacco, Inc. In that year, the Ministry, under the specter of the Asian financial crisis, sold off a third of the corporation to the general public to raise cash. But a full two-thirds of JT (as it is known) is still held by the Finance Ministry, which managed JT to US$900 million in profit in 1998, on sales of almost US$22 billion.

Like Americans, Japanese are generally aware of the dangers of smoking. All tobacco advertisements carry warnings similar to the American Surgeon General's warning, often citing the legal smoking age (twenty), reciting health dangers, and cautioning smokers to be polite to non-smokers. Smoking has been decreasing, both in general, and among men.

But somewhat unlike America, there is virtually no trace of social stigma associated with smoking. Non-smoking sections in restaurants are rare. American movie stars who do not hawk tobacco in the United States appear on billboards regularly (Charlie Sheen's ads for Parliament and James Coburn's for Lark being notable examples). And the very government that warns against tobacco not only sells tobacco, but has recently expanded its operations.

In March 1999, Japan Tobacco purchased the entire international tobacco business of American tobacco giant RJR Nabisco. That company had decided to overhaul its operations severely, separating its litigation-sensitive tobacco arm from its fairly mundane food-production arm. Part of RJR's overhaul included the US$7.83 billion sale of its international business, which makes Japan Tobacco -- and thus, the Japanese government -- the world's third largest cigarette producer. RJR's international business includes footholds in rapidly growing markets in several African countries, and the largest prize of them all, the heavy-smoking People's Republic of China.

The Chairman and CEO of RJR Nabisco, Steven Goldstone, was quoted as saying, "The sale of Reynolds International accomplishes a paramount strategic objective for our company." That strategic objective was, apparently, chucking a loser. After divesting itself of its international holdings, RJR Tobacco (the new, separate tobacco-only company) exceeded analysts' expectations for its first independent quarter by only suffering a 35% drop in profits on US$1.91 billion in sales. The company's stock has declined from $30 to about $26 -- compared to $2 before the sale.

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