by Miki Shimogori
TOKYO, Feb 14 (Reuters) - Japan Tobacco Inc (JT), the world's third-largest tobacco group, sees huge growth potential in China once it wins membership of the World Trade Organisation (WTO), president Masaru Mizuno said on Monday.
Mizuno also appeared to take heart from what he saw as signs of a stabilisation in sales in Russia, where a lengthy slump in this major market had been seen as a key factor in a poor showing for the company's overseas business.
The overseas downturn has fuelled doubts over Japan Tobacco's ability to manage huge international operations, an expansion that followed its takeover last year of the international tobacco business of RJR Nabisco Holdings Corp of the U.S.
"We must pay special attention to China, especially as regards its international trade conditions," Mizuno said in an interview.
"It will not be easy to get into China ... But given the recent popularity of our products in South Korea and Taiwan, I think we can see some positive prospects for the Chinese market," he said, referring to its imminent WTO entry.
Any business strategy in China -- the world's biggest tobacco market -- would be crafted by JT itself, rather than by its Geneva-based subsidiary, JT International S.A., which was set up last October to take control of overseas tobacco operations part of which were acquired from RJR Nabisco.
JT holds a 75 percent share of Japan's tobacco market -- the world's largest after China and the United States -- and has a powerful presence in Asia with its flagship Mild Seven cigarettes. But it was little known outside the region until the RJR International takeover.
The nearly $8 billion buyout of RJR International, known for its Camel and Winston brands, made JT the world's third-largest cigarette maker -- behind Philip Morris (NYSE:MO - news) of the United States and UK-based British American Tobacco (quote from Yahoo! UK & Ireland: BATS.L) (BAT).
China now accounts for about 30 percent of the world's cigarette demand and is five times the size of Japan's market.
Analysts said the market, a virtual monopoly of China National Tobacco Corporation, would be pressed to open once China wins WTO membership. BAT has had a historically strong presence in China, but JT is not a stranger, they said.
Last year, JT and Shanghai Gaoyang International Tobacco Co agreed the Chinese firm would produce two of JT's cigarette brands from this year.
JT EYES JOB CUTS, PLANT CLOSURES
Besides China, Japan Tobacco, which operates in some 70 countries, would focus on 16 core target countries -- 11 mature markets and five growing markets in Asia, eastern Europe and Russia, Mizuno said.
As for Russia, which accounted for about one-fifth of JT's overseas tobacco sales in volume terms, Mizuno said there were signs the market was stabilising the slump that resulted from its economic crisis.
Japan Tobacco, which was privatised in 1985 but is still owned 67 percent by the government, now operates 20 RJR International factories in 17 countries in addition to the factory it already had in Manchester, Britain.
To wipe out worries about its international operations, the company this month unveiled a five-year business plan under which it aims to eliminate a total of 4,500 jobs, or 13 percent of its global tobacco-related work force, and streamline operations.
While cutting the number of its brands to 139 from 197 in the next five years, Japan Tobacco would further consolidate its 25 domestic cigarette plants, Mizuno said. Plant closures, however may require lengthy talks with workers and labour unions. He gave no specific targets for plant closures.
Mizuno said he also saw more room for consolidation in eastern Europe, but gave no details.
To strengthen the value of its flagship brands -- Camel, Winston, Salem and Mild Seven -- the company would boost spending on overseas sales promotion by $100 million this year. About 90 percent of that will be used for the four flagship brands.
Its share, viewed as a core defensive stock, ended on Monday up 0.11 percent or 1,000 yen ($9.24) at 901,000, recovering from a low of 750,000 on January 4.:
