Hongta eyes expansion into Russian market through Donskoy tie-up
Hongta Tobacco Group, China’s Tobacco manufacturer, expressed its intention to expand into the Russian market, sources close to the matter affirmed Monday.
Analysts said that such a move is a big risk.
The Russian business daily Kommersant, quoting Savvidi Lvan Lgnatievich, the President of Donskoy Tabak, reported that The Hongta, based in Yunnan, may use manufacturing capability of the Russian tobacco company Donskoy Tabak in a primary connection with the final aim of getting the South Russia-based company.
It is said in the report that tobacco company Donskoy Tabak would manufacture nearly 2 billion Hongta-branded cigarettes each year for the local market at the setting period, and then increase the production to 10 billion cigarettes by using Donskoy’s spare capacity.
The tobacco company, owned by Chinese State, could get a 0.5 % share of the Russian tobacco market according to the agreement, which is likely to be accomplished by early July.
A management staff at Hongta, who wanted to be unnamed, affirmed the report when reached by the Global Times Monday, but denied any comments and information providing.
In accordance with Hongta, last month Lgnatievich, being in Hongta, discussed with Hongta President Liu Wandong future cooperation projects in Russia.
Wang Nengyuan, a tobacco industry analyst and partner at the Adfaith Management Consulting, said to the Global Times Monday that, Hongta’s overseas recognition is low in comparison with other international tobacco brands, and there is no evidence if the Chinese company can make a successful business in Russia.
Wang Nengyuan said that if Chinese companies want to be globally recognized, they should adapt to the overseas market and manage sales networks.
Huang Xiaoyun, a tobacco industry analyst, was concordant with Wang’s opinion, stating that Chinese companies are not well-informed about the overseas markets and regulations, which could expose future development of the companies to risks.
In accordance with the China International Council for the Promotion of Multinational Corporations, China experienced a pure loss of $26.8 billion in overseas investments in 2011.
Huang said that they have not to be afraid of risks, considering the uncertain external environment, foreign partners are likely to reduce acquisition requirements to facilitate their financial pressures.
In November last year, Ria Novosti, Russian State news agency, told that Donskoy Tabak would be ready for sale because the tobacco company suffered from high taxes and new anti-smoking law in the country.
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