Page 63 - Business Principles and Management

C HAPTER 2 A SSESSMENT

CASE 2-2: Tobacco Rights?
Cigarettes are a lawful product in the United States. Many farmers grow
tobacco, and big companies such as Philip Morris process the leaves into
cigarettes. Thousands of people are employed in the industry, and local,
state, and federal governments earn billions of dollars in taxes on the
sale of tobacco products.
Although the Surgeon General of the United States has long required
that cigarette packages carry a warning stating that smoking is injuri-
ous to health, it was only in the 1990s that a concerted campaign was
mounted to discourage smoking and to punish tobacco companies. After
denying it for decades, senior managers of the tobacco companies admit-
ted that smoking was addictive and dangerous to human health. Law-
suits were filed against the company by state governments that claimed
compensation for the extra medical costs that had to be incurred for
treating people suffering from smoking-related illnesses. Individuals who
had become ill from smoking sued the tobacco firms for seducing them
into the habit through aggressive advertising. Groups such as flight
attendants claimed that they were subjected to secondhand smoke from
passengers and thus needed to be compensated for their suffering. In
addition, the government drew up plans to ban advertising of tobacco
products and ultimately to ban the product itself.
Faced with such opposition, the tobacco companies agreed to pay the
government billions of dollars, reduce their active advertising of the prod-
uct, and accept stringent laws on how the product would be described
and distributed. Philip Morris recognized that the United States was no
longer going to be a viable market for its cigarettes. The cost of doing
business was only going to rise as individual Americans began filing law-
suits. The company instead turned its attention to countries in Asia, such
as China, Thailand, and Turkey. In those countries, health concerns over
smoking were not yet fully recognized, and the governments earned lots
of money through taxing tobacco products. The quality of locally pro-
duced cigarettes was not high, and American cigarettes were highly val-
ued. Through creative advertising, American cigarettes had acquired an
image of success, glamour, and independence, all of which made a strong
mark on young Asian consumers, a huge market. Philip Morris agreed to
build cigarette factories in several foreign countries to create jobs, a move
welcomed by their governments. Sales of Philip Morris in foreign coun-
tries rose sharply while they stagnated in the United States.

THINK CRITICALLY
1. Is the behavior of Philip Morris to aggressively sell cigarettes abroad
socially responsible? Explain.
2. Should the foreign governments be as concerned over tobacco
smoking as the American government is?
3. Should individual Americans sue tobacco companies because they
smoke, although they have been warned through cigarette labels
that smoking is harmful?
4. Should Philip Morris have disclosed to the public that cigarette
smoking was addictive as soon as it found out?

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