A SMOKING PERFORMANCE

Ecuador 2015 | INDUSTRY | INTERVIEW

TBY talks to Hernán Irigoyen, General Manager of ITABSA (Phillip Morris), on the power of the right workforce and countering contraband products.

Hernán Irigoyen
BIOGRAPHY
Hernán Irigoyen holds a Bachelor’s Degree in Business Administration for the Universidad Católica Argentina and postgraduate studies from the Instituto Argentino de la Empresa. He started his career in an administrative capacity subsequently entering the financial department of various companies. He joined Philip Morris International in 1995 as a Financial Planning Analyst. Over the past 20 years, he has held diverse positions in several functional areas and markets; Ecuador among others, where he held the position of Corporate Affairs Director in 2008-09. In July 2013, he returned to Ecuador as Managing Director for Ecuador and Peru.

What is the history behind ITABSA, and of its affiliation with Philip Morris?

We started our activities in Ecuador forty years ago, and since then, we have been growing our presence nationwide through diverse products and services. Philip Morris International's presence in Ecuador is not only limited to ITABSA; we are one team, but three companies: TANASA purchases local varieties of tobacco for export to 12 countries and for the manufactures of cigarettes, which is our core business; PROESA, the best and one of the largest distribution companies in Ecuador, distributes those cigarettes and selected products from other leading companies in Ecuador to almost 70,000 points of sale nationwide, and ITABSA which provides general and administrative services for all three companies.

Where are you investing the bulk of your resources?

We have a long lasting tradition of investing in human capital, as we believe that the key to a successful business is people. Globally, technology is changing fast, but in our business we also face constant and accelerated regulatory and taxation changes. Without top-notch people, we cannot react rapidly so as to remain competitive. Our companies have an excellent pedigree in supporting talent, and Philip Morris International around the world has no less than 14 senior managers and directors who launched their careers in Ecuador.

How has tobacco agriculture evolved over the past decade?

We buy tobacco in Ecuador not only for internal consumption, but also for export to 12 countries around the world, including selected markets in the EU zone, the US, and other Latin American markets. Like all agricultural businesses, uncertainty abounds because of reliance on climate and international prices; yet we are proud to both export and use high quality Ecuadorian Burley, the main tobacco strain in Ecuador, although there is some Virginia tobacco production, too. Tobacco agriculture is greatly important for us, being our main raw material. Therefore, we not only buy tobacco in Ecuador, but also contribute to tobacco growing communities through the application of Philip Morris International's Good Agricultural Practices standards and in social aspects, such as child labor prevention.

How important are Ecuadorian operations in comparison to other countries in the region?

Regular smokers in Ecuador are few and far between, averaging six or seven cigarettes a day, whereas in other markets it might be up to 28 a day. Bearing that in mind, the local market is small. However, through the development of our exports and distribution of other business lines, we have become the fourth largest operation in the Latin American region, and Canada.

How would you assess the current situation in tobacco smuggling in Ecuador?

Ecuador, being a dollarized economy, offers good margins for smugglers, especially in the case of products bearing a high tax burden, like cigarettes. A pack of 20 cigarettes pays at least three dollars in taxes (Excise and VAT), which is a huge incentive for smugglers bringing in contraband. The authorities achieved a key milestone with the approval of the new Criminal Law in 2014, which includes a provision that penalizes petty contraband through fines and the seizure of illegal products. We support government efforts through a campaign to increase retailer awareness of the risk to income and security of selling contraband products. Awareness is key, as smugglers are damaging the economy, since contraband products do not use Ecuadorian tobacco, employ talented Ecuadorian workers, or pay tax to the IRS.