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| Seen is Philip Morris Korea's production facility in Yangsan, South Gyeongsang Province. / Courtesy of Philip Morris Korea |
By Park Jae-hyuk
Korea will have Asia's first manufacturing facility for HEETS, Philip Morris International's specially designed heated tobacco unit that is intended for exclusive use with the IQOS holder.
According to Philip Morris Korea, Sunday, the company will invest 470 billion won ($420 million) and hire 700 additional employees by the end of 2019 to expand its existing plant in Yangsan, South Gyeongsang Province, to produce HEETS for the domestic market.
The factory, which has produced cigarette brands such as Marlboro, Parliament, Virginia Slims and Lark for both domestic and overseas markets, is expected to begin producing HEETS in the second quarter next year.
"The announcement regarding our planned factory expansion is a further reflection of our commitment to the development of the local economy through investment and the creation of jobs, which is one of the core objectives of the current administration," Philip Morris Korea Managing Director Chong Il-woo said.
After the additional employment, the Yangsan plant will have 1,070 employees, while the entire number of workers for Philip Morris Korea will reach 1,450.
The company will likely export HEETS produced here to Japan, where IQOS accounts for 12 percent of the country's tobacco market. The tobacco maker has imported the heated tobacco units for Japan from Italy, so it will be able to reduce transportation costs after expanding the Korean factory.
The production of HEETS in Korea will also allow Philip Morris Korea to be free of a 40 percent tariff imposed on the product, enhancing its price competitiveness, amid the increasing taxes on tobacco sticks for heat-not-burn (HNB) devices.
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| Philip Morris International's HEETS tobacco sticks for IQOS. / Courtesy of Philip Morris International |
As the National Assembly passed the bill to raise taxes on HNB products, Philip Morris Korea decided recently to increase the retail price of HEETS from 4,300 won a pack to 4,500 won, starting Wednesday. It registered the adjusted retail price to the Ministry of Strategy and Finance.
The markup on the product was lower than expected, given the total tax imposed on tobacco stick will rise to 2,986 won from 1,739 won.
Philip Morris Korea said the decision was made to prevent panic buying prior to the tax hike.
"We minimized the increase, considering the government and lawmakers strongly urged us not to shift the tax hike onto consumers," Chong said. "For our vision of a smoke-free future, we struggled to find a price range that does not hinder smokers from switching from regular cigarettes to IQOS."
Philip Morris Korea accounts for 80 percent of Korea's HNB tobacco market. KT&G and British American Tobacco Korea have yet to announce their plans to raise the prices of their tobacco sticks.
