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| KT&G CEO Baek Bok-in, left, and Philip Morris International CEO Andre Calantzopoulos pose after signing a partnership agreement at the Four Seasons Hotel in Seoul, Wednesday. Courtesy of KT&G |
By Nam Hyun-woo
KT&G has teamed up with Philip Morris International (PMI) under which the former will use PMI's sales and marketing network to export its signature lil e-cigarette devices.
Following the agreement, KT&G's lil heating devices will go on sale outside the Korean Peninsula with PMI's e-cigarette brand IQOS.
"The global tobacco industry saw a paradigm shift in 2014 following PMI's launch of IQOS, and KT&G was deeply inspired by the movement," KT&G CEO Baek Bok-in told reporters in Seoul. "The strategic collaboration with PMI is an important opportunity for us to further lift brand awareness and move forward with plans to enhance our product development capabilities."
The initial term of supply has been set for three years, but both companies agreed to possibly extend the contract once the products' sales reach a "milestone."
For the specifics of the agreement, KT&G will provide its four e-cigarette products _ lil Hybrid, lil Plus and lil Mini heating devices and lil Vapor flavored vaping device ― and receive an "undisclosed royalty" from PMI. Over the branding of those products in overseas markets, both companies said they are considering using KT&G's lil brand and PMI's IQOS brand in parallel.
The tobacco makers did not reveal which specific market they are targeting, but the U.S. will not be included as the first outreach due to stricter regulations on tobacco products. Also, they agreed for KT&G to tap into PMI's resources, knowledge and worldwide infrastructure, but have no obligation to share patents.
"We are able to bring PMI's resources, knowledge and infrastructure as we leverage KT&G's smoke-free products," PMI CEO Andre Calantzopoulos said. "Our agreement will benefit adult smokers by providing a wide array of better choices."
KT&G introduced lil in November 2017 as a response to IQOS' entrance to Korea in June that year. Since then, the two companies are engaged in heavy competitions in the growing domestic tobacco market. Wednesday's partnership is widely viewed as a "win-win as KT&G was hoping to get momentum to boost its product sales outside the country while PMI has long been asked to expand its product portfolio for smoke-free products.
"The brand awareness of lil and IQOS are at par in Korea, but IQOS is in the superior position in global markets," said Lim Wang-seop, who heads KT&G's Next Generation Product division. "Also, our overseas sales infrastructure is not as well established as that of PMI, so we believe the collaboration of our products and PMI's infrastructure has advantages both in terms of cost and profitability."
PMI also said it has high expectation on selling KT&G products, as the company expects lil devices will play a complimentary role for IQOS devices.
"We hope KT&G's portfolio will be complementary to our portfolio and minimalize cannibalization," PMI Chief Strategy Officer Deepak Mishra told reporters during the press conference.
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