This article first appeared in The Edge Financial Daily, on March 7, 2016.

KUALA LUMPUR: Japan Tobacco International’s (JTI) new general manager for Malaysia Guilherme Silva has experienced his first major shock since taking up the local post in January this year. But it has nothing to do with cultural differences.

For the 35-year-old Brazilian, the shock is Malaysia’s high illicit tobacco trade.

Silva’s posting comes at a time when the tobacco business faces challenging market conditions in terms of higher taxes, burgeoning illegal cigarette trade and increasing popularity of electronic cigarettes, otherwise known as vaping.

He recently spoke to The Edge Financial Daily (TEFD) about the challenges facing JTI and his plans for the company. Herewith are some excerpts from the interview:

TEFD: You took over the helm at JTI Malaysia in January this year. How do you want to position the company? What is your management style?

Silva: There won’t be many changes in the company’s direction. Rob (Robert Stanworth, the former managing director who has assumed a new role in another JTI market in Asia-Pacific) did a brilliant job over the last three years here.

What will be different is the personal characteristic [of running the company]. I always try to get to know as much as possible about the people [I work with] and I try to be present in the day-to-day running of the company. Usually, the risk of being a general manager is that it becomes too hierarchical and you don’t get the information that you need to run the business.

I inherited from Rob a very dynamic, ambitious and happy company. We have a very engaged workforce. I know that sometimes we are seen as the “evil” [being in the tobacco industry], but we are running a legal business. We try to treat our employees doubly better because of this. I consider myself lucky to inherit a growing company and we are on a good track.

TEFD: Is there a difference between the tobacco industry in Malaysia and those that you have worked in? (Silva joined JTI Brazil back in 2005, and has been posted to Switzerland, South Africa, Mexico, Thailand, the Philippines and Cambodia prior to coming to Malaysia.)

Silva: There are two major differences.

One is the trading environment. Cambodia is a developing country, where only 2% or 3% of total tobacco volume is sold through the organised channel of trade, such as convenient stores and gas stations, whereas in Malaysia, the number is 35%.

The other difference is the regulatory aspect. Malaysia’s tobacco industry is highly regulated in terms of tax and price control, and the use of compulsory pictorial health warnings on tobacco products. The excise duty on cigarettes is also very high here.

TEFD: Is too much regulation good or bad for Malaysia’s tobacco industry?

Silva: When we look into Malaysia specifically, there has been a lot of tax increases, including a hefty one in November last year. This is part of the government’s strategy [to prevent and reduce smoking]. We, as an industry, try not to judge that, but what I find more risky is when governments try to take measures without understanding the specific characteristics of each country.

For example, Singapore is currently having discussions on introducing plain packaging, like what Australia has done, as well as considering a ban on the display of tobacco products in stores. If Malaysia decides to take these steps here, it could pose a huge risk [to the industry] because already it has one of the highest illicit cigarette trade in Asia today, if not the world. Over 42% of the cigarettes consumed in Malaysia are illicit.

If cigarettes are sold in plain packages and retailers cannot put legal products on the shelves, it will push consumers further to buy illicit products because there is no brand differentiation.

Being highly regulated is neither good nor bad. When it is sensible regulation, we are supportive of it. After all, we are one of the first companies that obey the rules.

TEFD: Are there plans by JTI Malaysia to introduce vaping and e-cigarette products in Malaysia?

Silva: We are ready to tap into the alternative cigarette segment should the government give a clearer stance on regulating the vaping and e-cigarette industry. We are in favour of regulating the industry, setting up a level playing field. If that happens, JTI will definitely participate in this segment. But until then, we prefer not to enter.

From our standpoint, banning [vaping] is not a solution.

We are a multinational company [and] we don’t want to run the risk of launching a product, and then find out some states have banned vaping, while others allow its sale and use. There are a lot of investments involved.

We are already having a problem with cigarettes, competing with the illicit [trade]. We don’t want to start competing in another industry, where everybody does everything and we are the ones paying the bill. That is what is happening in the tobacco industry today.