Two Ways Traditional Tobacco Firms Enter Vaping: Subsidiaries and OEMs

In 2014, when the National Bureau established the strategic decision to develop new tobacco products, it assigned different tobacco industrial enterprises to conduct research and development in various fields of "new tobacco". For example, Yunnan Tobacco was tasked with "heat-not-burn" products, Shanghai Tobacco Group with "oral tobacco", and Hubei Tobacco with "electronic cigarettes (vapor type)". However, these industrial enterprises later did not confine themselves to specific categories but broadly ventured into various areas, eventually focusing on "heat-not-burn" as a development priority.

From April 14 to 16, 2019, the first "Shenzhen International Electronic Cigarette Industry Expo" was held at the Shenzhen Convention and Exhibition Center. Two of the aforementioned enterprises, Yunnan Tobacco and Hubei Tobacco, participated in this exhibition as representatives of traditional tobacco companies crossing into the electronic cigarette market. Also participating were "Heilongjiang Tobacco Industry" and the industry's dark horse in recent years, "Sichuan Tobacco". The approaches these four enterprises took to enter the electronic cigarette market basically represent two styles of traditional tobacco companies venturing into electronic cigarettes.

1. National Style 1.0: "Establishing a Tertiary Industry" by Yunnan Tobacco
 
Huayu Technology is a wholly-owned subsidiary of Yunnan Tobacco's "Tiancheng (Pacific) Co., Ltd.", a high-tech enterprise specializing in the research, production, and sales of new tobacco products. In industry terms, it can be considered Yunnan Tobacco's "tertiary industry".
  As the industry leader, Yunnan Tobacco has a broad layout in new tobacco products. According to relevant information from Huayu Technology, Yunnan Tobacco's new tobacco products encompass "heat-not-burn", "electronic cigarettes", "oral tobacco", and "e-liquids". Among them, the "heat-not-burn" devices include brands similar to "IQOS" like "MC" and "Webacco", as well as localized modifications that can roast traditional cigarettes under the brand "Just a Hug". The "electronic cigarettes" include a pod system brand "YUNER" that uses nicotine salt technology and a large vapor device called "Zhihui".

2. National Style 1.0: "Establishing a Tertiary Industry" by Hubei Tobacco
 
Xiao'ou Technology is a joint venture established by Wuhan Huanghelou New Materials Technology Development Co., Ltd. and (Hong Kong) Unified Federal International Co., Ltd. Among them, "Huanghelou Technology Park (Group) Co., Ltd." is the legal entity of "Wuhan Huanghelou New Materials Company", while "Hubei Tobacco Investment Management Company" and "Hongjinlong (Group) Co., Ltd." are the legal entities of "Huanghelou Technology Park (Group) Company". The 17 local branches of Hubei Tobacco and Hubei Tobacco itself are also legal entities of the aforementioned two companies. Therefore, to some extent, we can consider Xiao'ou Technology as Hubei Tobacco's "tertiary industry".

At this exhibition, Hubei Tobacco mainly showcased its "heat-not-burn" device brand "MOK" and electronic cigarette (pod) brand "UMOK". According to relevant information from Xiao'ou Technology, "MOK" has already established large flagship stores in Wuhan, Hubei, and Seoul, South Korea.

3. National Style 2.0: "Giant OEM" by Sichuan Tobacco
 
At this exhibition, Sichuan Tobacco mainly promoted its products using the booth of "Shenzhen Huachang Industry", which is a multi-brand operating subsidiary of the Borton Group and has no ownership relationship with Sichuan Tobacco. The Borton Group's subsidiary, Jirui Holdings, has manufactured the "KuanZhao Kungfu" heat-not-burn device for Sichuan Tobacco.

As a new tobacco company established at the end of 2015, Sichuan Tobacco was not included in the first batch of enterprises assigned by the National Tobacco Monopoly Bureau to develop new tobacco products. Its achievements in the field of new tobacco products are commendable, given its proactive high-level decisions. Sichuan Tobacco is the first domestic company to scale production and export heat-not-burn cigarettes, with its product "KuanZhao BNB" exported to multiple countries including South Korea, Japan, Russia, and Morocco.

Currently, Sichuan Tobacco has a broad product reserve in new tobacco products. In addition to heat-not-burn, it also offers snuff "KuanZhao Xiushuang" and "Dao" series pipe tobacco.

4. National Style 2.0: "Giant OEM" by Heilongjiang Tobacco Industry
 
Special note: Heilongjiang Tobacco Industry Company, along with Jilin Tobacco Industry Company, Hongta Liaoning Tobacco Co., Ltd., and six other companies, all belong to the "China Tobacco Industry Development Center" and are not part of the China Tobacco Company. The term "Longjiang Tobacco" in the image should be a misnomer by the cooperating party.

At this exhibition, Heilongjiang Tobacco Industry Company mainly promoted its products using the booth of "Guojian Huayan", which is primarily engaged in computer software development and electronic product research, sales, and agency. The heat-not-burn device "LOPATO" developed by Heilongjiang Tobacco Industry Company is speculated (by the author) to be similar to the "KOKEN" device represented by Shenzhen Qianhai Guojian Huayan, with technology sourced from Japan's Kankei Co., Ltd., and production handled by Guigang Guojian Biological.
Heilongjiang Tobacco Industry Company has also collaborated with the "Shanghai New Tobacco Products Research Institute" to develop oral tobacco "Jinlu - Yabuli" and has reserved LOPATO water pipe paste.

In summary, it can be concluded that traditional tobacco production enterprises have two ways to develop new tobacco products. Large tobacco giants like Yunnan Tobacco, Hubei Tobacco, and Shanghai Tobacco Group can directly engage in the market by establishing tertiary industries or directly forming departments as policies allow. Smaller tobacco companies like Sichuan Tobacco and Heilongjiang Tobacco Industry Company find it more practical to collaborate with professional giants, at least to build up product reserves.

Since 1843, when cigarette manufacturers in France and Cuba established cigarette factories and began mass production of cigarettes, 176 years have passed. In these 176 years, aside from adding a filter, the burning and inhalation methods of cigarette products have not undergone significant changes. However, just like the world, smoking will eventually change. Therefore, for the long-term job security of industry workers, actively embracing change and leading transformation is the key to success.