SECOND largest tobacco company in Malaysia, JT International Berhad, will be carrying out a downsizing exercise that could see some 40% or 170 of its staff members being laid off over the next two years, reported The Star.

The report said the company’s shared services division will be affected the most, as operations are expected to cease and moved to another country.

Sources said retrenchment had become a necessity as the market faces massive challenges due to the proliferation of the illegal cigarettes and the unregulated vape industry.

“The market condition here has not improved. Profitability for the industry has halved since 2015 when there was a huge increase in excise duty.

“Retailers get margins from the industry but the industry cannot be supporting a bleeding situation,” a source was quoted as saying.

The source said there was a global review of Japan Tobacco Inc’s operations and this includes Malaysia.

It is learnt that the management had informed JTI Malaysia staff about its rationalisation plan on August 30.

Sources say the sales of legitimate cigarettes that were in the tune of 20 billion sticks per annum has plummeted significantly, as the industry is struggling to even hit seven billion sticks.

JTI Malaysia managing director Cormac O’Rourke told The Star that the company had decided to make changes to its operations, including downsizing, after reviewing the company’s business operations, structures and processes.

“We have entered into a consultation process on the matter.

“As this process is ongoing, we are not yet in a position to comment nor confirm what the potential changes may be, but will provide further clarity in due course.”

O’Rourke said the operating environment has been very challenging in the last few years, due to illegal tobacco products, which makes up about 60% of the market.

He added that the illegal vape segment is growing rapidly and significantly, accounting for 10% of the market.

“This development has led to more than 30% decline in the size of the overall legitimate industry. As a result of these challenges, a transformation of the operations in Malaysia is necessary to ensure overall business sustainability,” he said in a statement.

JTI Malaysia’s investments, including the retail trade will undergo a complete review.

O’Rourke said the changes made to the company’s operations will allow it to improve operational efficiencies and meet business needs while meeting the challenges ahead.

Japan Tobacco Inc recently announced plans to cut 3,720 positions over the course of three years. – September 16, 2019.