Korean cigarette maker KT&G expands in Kazakhstan and Indonesia

The world's seventh largest tobacco operator by value, Korean cigarette maker KT&G is in an expansion phase. It has just invested heavily in Kazakhstan, in the classic cigarette and electronic device segments, as well as in Indonesia. KT&G is also benefiting from a partnership with Philip Morris to establish itself in new markets.

Although little known to the public, the Korean cigarette manufacturer KT&G is gradually gaining momentum. Discreet in Western Europe but a leader in its domestic market, KT&G exports its products to Asia, the United States and Eastern Europe. The seventh largest tobacco multinational in terms of revenue, KT&G is also the seventh largest in terms of market capitalization.[1].

Investments in two new production sites

KT&G now intends to strengthen its production capacities abroad. Having reached an agreement and received support from the Indonesian Ministry of Investment, the cigarette maker launched the construction of a factory in East Java in September 2023.

On October 11, 2023, KT&G began construction of another 200,000 m2 plant in Kazakhstan.², which should be operational in 2025[2]. Designed as a "hybrid production base", the Kazakhstan plant is expected to produce both classic cigarettes, heated tobacco and electronic devices such as e-cigarettes[3]The location of this plant in Kazakhstan will support a strategy of product distribution throughout the Eurasian region.

The two new plants would double KT&G's overseas production capacity. KT&G hopes to increase its sales by 50 % by 2027 and, in its long-term strategy unveiled in January 2023, intends to carry out a "Leap to the world's top tier"In 2021, KT&G achieved a net profit of 700 million euros.[4]Its other business segments include food and beverages, health foods ("functional foods"), pharmaceuticals and real estate.

Partnership between KT&G and Philip Morris International

In January 2020, KT&G entered into a partnership with Philip Morris International (PMI) to market various “smoke-free” products alongside the IQOS heated tobacco device.[5]. This allowed KT&G to launch its lil SOLID heated tobacco device and Fiit tobacco sticks in Russia in August 2020, and three weeks later in Ukraine. As KT&G’s products are mid-range, this collaboration notably allows PMI to position its IQOS product at the high end. It also facilitated the implementation in Japan of KT&G’s lil HYBRID combination device, which combines tobacco leaves and e-liquid. In this way, PMI was able to increase its market share to compete with Japan Tobacco International (JTI) on its own turf.

The alliance with PMI thus offers KT&G the opportunity to extend its scope of action and to take advantage of its commercial networks. However, KT&G's mixed investments indicate that, like PMI, the Korean operator is not giving up on producing conventional cigarettes.

Philip Morris is also very active in Kazakhstan

PMI also has a production site in Kazakhstan and has repeatedly lobbied the country. In 2019, PMI enlisted Kazakh medical researchers to provide scientific backing for its IQOS products. That effort failed after the National Coalition for a Tobacco-Free Kazakhstan intervened. In spring 2020, PMI tried to block the adoption of the new public health code Kazakh, but had been rejected in Parliament The Global Tobacco Industry Interference Index 2021, however, considers that Kazakhstan lacks transparency in its relations with tobacco manufacturers, and that preventive measures are necessary to protect its public actors from this industry[6].

Keywords: KT&G, PMI, Kazakhstan, Indonesia, heated tobacco, hybrid products

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[1] NB: not being listed on the stock exchange, the Chinese CNTC does not appear in these rankings. See our file Tobacco, agreements and concentration of actors.

[2] Dong-hwan K, KT&G to build tobacco factory in Kazakhstan, The Korea Times, published October 17, 2023, accessed the same day.

[3] Woo-Hyun S, KT&G to build new tobacco plant in Kazakhstan, The Investor, published October 13, 2023, accessed October 17, 2023.

[4] Financial Information, KT&G, accessed October 17, 2023.

[5] Newer Nicotine and Tobacco Products: Philip Morris International, Tobacco Tactics, published February 9, 2023, accessed October 17, 2023.

[6] Assunta M, Global Tobacco Industry Interference Index 2021. Global Center for Good Governance in Tobacco Control (GGTC), November 2021, 72 p.