INDIAN TEA INDUSTRY - AN ANALYSIS USING CONCEPT OF

FORWARD ENGINEERING

Shweta Jain,ABES-IT Group of Institutions,

Campus-2, NH-24, Vijay Nagar, Ghaziabad- 201008, U.P., Indiasjainshweta@gmail.com

ABSTRACT Tea is one of the most popular and widely consumed hot beverages worldwide. More

than 30 countries grow tea. Tea Industry has seen a lot of changes in the past few

years, the world’s largest tea producer, India, lost its position to China for the first

time, in the last 110 years. Despite its fluctuating position in the world market, India

is a key source for tea as well as the largest market. There is a need to understand the

factors which influence the demand and supply scenario in the Indian Tea Industry, in

order to facilitate, practitioners’ ability to modify and adapt to the changing

environment. This paper seeks to address this issue. This paper aims at studying the

Indian Tea Industry by applying the concept of “Forward Engineering”. This paper

examines this concept through qualitative analysis of data and information gathered

through interviews with Tea Board Officials, public documents (e.g. annual reports),

and related research literature. The study tends to reveal the strategies and action

plans for Indian Tea Industry based on mind pooling, METRIC analysis and other

forward engineering tools.

Keywords: Tea Industry, India, Forward Engineering.

INTRODUCTION:

Global Tea Scenario:

Tea is one of the most popular and widely consumed hot beverages all over the world.

Today cultivation of tea is spread over all the continents wherein more than 30

countries are into tea production. The estimated global production is 3800 million kg,

out of which 43% is exported and the world consumption being 3700 million kg

approx., the global production and consumption are finely balanced with production

little ahead of demand. Tea, being an agricultural commodity, its production is bound

to fluctuate due to vagaries of nature; the prevailing difference between production

and demand is well below any reasonable limits.

Amongst all tea producing countries, the major producers are India, China, Sri Lanka,

Kenya and Indonesia. These five countries contribute 77% of the total world

production and 80% of global exports.

In the past few decades, many new entrants have joined the tea family; notable among

them are African countries like Kenya, Malawi and Turkey etc. In the international

market, the Vietnam and China have emerged as the prominent forces to reckon with,

during the last decade.

Across various countries, the average per head consumption of tea varies widely, from

more than 2 kg in Ireland and the U.K. and around 1 kg in Sri Lanka and Pakistan to

only 800 grams in India. Still despite having one of the lowest per head consumption

in the world, the total consumption in India is the largest due to its population size.

This distinct position is in sharp contrast with other producing countries, which hardly

have any domestic demand.

In the last decade, there has been a relative decline in the production of black teas and

an increase in the production of green tea which has more than doubled 692 m.kgs

in1998 to 1490 m.kg in 2007; this is mainly due to a huge expansion in China. Over

the past ten years, the entire increase in global production is accounted by the Green

Tea since the black tea production remained static around 2300 million which could

be attributed to the scientific studies linking green tea drinking with reduced cancer

risk whilst the latest studies have proved that black teas too have the same healthy

properties as that of green tea.

Since 2001 China’s production has grown by 464 m.kgs i.e. 8.8% cumulative annual

growth and because of this steady growth, India’s position has been pushed to 2nd

place since 2006 when China’s production exceeded India’s for the first time in 110

years and has continued to be higher since then.

Indian Tea Scenario:

In India, tea cultivation on commercial scale was first started in Assam in 1839 and

then it was extended to other parts of the country between 50’s and 60’s of the 19 th

century. However, due to certain specific soil and climatic requirements its cultivation

was confined to only certain parts of the country.

Major tea producing states in the country are Assam, West Bengal, Tamil Nadu and

Kerala. 75% of the total tea produced in India is accounted by Assam and West

Bengal together. Some of the world’s finest teas are produced in India. While Assam

teas are famous for their strong, brisk and full bodied liquor; Nilgiri teas are well

known for their delicate flavor, strength and brightness; and the production of the

famous Darjeeling tea is aided by the low temperature in the hills of Darjeeling. With

their own diverse agro-climatic conditions, other areas produce medley of tea which

suits many different tastes. The distinct characteristics of each region set them apart

from one another in many different ways.

In India, tea industry is one of the oldest agro-based well organized industries. More

than a million workers get direct employment from this industry of which a sizeable

number are women. A large number of temporary workers are also engaged during the

plucking season.

The labor cost is the largest cost overhead accounting for about 60% of the total cost

of production of Indian tea because the tea plantations are not just economic

production units, but rather social institutions, which controls the lives of their

resident work force to a large extent. Apart from employment, the plantations are also

responsible for providing house, water, welfare and many other facilities that affect

the daily lives of the workers. This is because most of the employees come from

socially and economically weaker sections of the society and majority of employees

are women who work and reside in an ideal industrial community. Their livelihood is

directly linked with the prosperity of the tea industry. Therefore, the tea industry must

grow, not only to fulfill its primary function of producing a wholesome beverage for

domestic and overseas consumer, but also to fulfill its social obligations in sustaining

and improving the well being of all those who are dependent on its fortunes.

India has been a dominant player in the global tea industry. Despite its fluctuating

situation in the share of world exports, still India is a key source for tea as well as the

largest market.

The industry faced steep decline in prices during 1999 to 2006, which brought out the

vulnerable areas that need to be addressed for guarding against reoccurrence of such

eventualities and also achieve sustainable global competitiveness and sustainable

livelihood to millions of workers employed in the industry. Around 130 gardens were

closed, abandoned or suspended their operations for some time due to this recession

of which majority of tea gardens have reopened with the gradual improvement in tea

prices from 2008 onwards. The decline in the prices has mainly been due to strong

growth in supply in the face of sluggish demand.

The tea industry sees fluctuating trends due to agricultural nature of the operations,

long gestation periods and unstable prices of tea which are not likely to undergo any

changes in the future. In the past, tea prices have shown brief periods of boom

followed by longer periods of depression.

During recession, the root causes for the closure of tea gardens in several parts of the

country, as reported by the experts, are that these gardens were inherently weak and

suffered from low productivity and lack of investment on developmental activities.

Therefore, it becomes very important that suitable packages for raising the

productivity with cost effectiveness suiting to the conditions of under/less developed

sectors are devised and put into place quickly.

The problem of ageing and senile bushes is a major problem for the Indian Tea

Industry. More than 21.2 Million hectares constituting a substantial chunk of Indian

Tea gardens are in the end of economic life age category at present, because of which

the industry is running down gradually in vitality and productivity and faces a high

cost of production. This situation can endanger the prospects of keeping the

plantations in a state of maximum vigor if not countered effectively now.

Renovation of the field assets and R&D on a sound footing- financially,

organizationally and managerially would help succeed in meeting the challenges of

the future. The research institutes are expected to continuously develop appropriate

technology suiting to the demands of the industry and disseminate the same.

Therefore, research requires backing from well spread, fine tuned, efficient extension

services, covering different regions and all segments of the industry. Adequate

technical support is not available to the small and medium size producers. Thus, it

becomes necessary for the research institutes to set up a dedicated extension service

exclusive for the benefit of small and medium producers.

Over the past 10-15 years, the emergence of small sector had assumed a form of a

socio-economic movement and served as a vehicle for social transformation in the

N.E. region as well as in North Bengal and Bihar state which has also opened up

avenues for setting up of new tea factories in the small scale industry sector leading to

generation of employment in the tea industry. 26% of the total production of India is

accounted for by this tiny sector. This sector has its strength in the young and most

productive age of the plantations of the reasonably high clonal composition, low cost

of production and the youth segment of the entrepreneurs with receptiveness to a new

and improved agro-technique. In both Kenya and Sri Lanka too, most of the success

of the tea industry is linked to the growth of the small holder sector over past few

decades. The size of production from the small sector in Kenya and Sri Lanka are

interestingly at par with the volume of tea produced by the small growers in India.

Because of the scattered nature of holdings, the major problem faced by the small

growers in India is the inadequacy of the technical guidance.

2009-10 witnessed international prices bouncing back even surpassing the highs

attained in 2008 which was primarily driven by almost unprecedented drop in

production due to unfavorable weather in India, Sri Lanka and Kenya proving once

again that climate related swings are the key determinants of the global demand-

supply balance. Despite economic downturn, the facts that demand for tea has

remained relatively robust have strengthened the belief that the prices will remain

firm even when production returns to normal levels. Even though the stock has

depleted in the major importing countries and consumption growth in India and

China, it is optimistically expected that the prices will not sink back to the previously

depressed levels.

Therefore, there arises a need to understand the factors which influence the demand

and supply scenario and the price fluctuations in the Indian Tea Industry so that the

practitioners’ can modify their strategies and adapt to the changing environment for

their own benefits as well as aim at induction of professionalism in plantation

management and improve labor productivity. This paper seeks to address this issue

and find out the ways to combat this situation. This paper aims at studying the Indian

Tea Industry by applying the concept of “Forward Engineering” which is based on a

new paradigm of a fusion between rationality and creativity, and it combines the

rational-analytic and the intuitive creative approaches to find unique solutions

(Sharma, 2009). This paper examines this concept through qualitative analysis of data

and information gathered through interviews with Tea Board Officials, Tea Garden

owners, Intermediaries, Auction houses, Suppliers etc. , public documents (e.g. annual

reports), and related research literature. The study using Forward engineering tries to

provide a foundational premise for the strategic gearing of Indian Tea Industry

keeping in view its existing and new capabilities with respected to current and

anticipated challenges in a competitive environment. Thus, it tends to reveal the

strategies and action plans for Indian Tea Industry based on mind pooling, METRIC

analysis and other forward engineering tools.

LITERATURE REVIEW:

Tea Industries in the developing countries of Asia are facing huge competition due to

inefficiency in the value chain management especially related to land management,

plucking efficiency and manufacturing cost (Huque, 2007). Further, Asopa (2007) had

implied that virtually, Indian tea has lost all global markets since it continues to be

traded as a commodity besides the value addition is limited or can be said, late. It is

only being sold in the markets of consumers with shallow pockets who still buy it as a

commodity, but this share is fast depleting. Thus, the industry needs to be competitive

in production, marketing, logistics and product forms. Despite being one of the largest

producers of tea, India lacks properly organized production systems where small tea

producers could manage to find a respectable place. The industry desperately needs

capital at globally competitive rates and not subsidies in any form. So, the Indian Tea

Industry needs to face the market realities, redefine its business strategies and

reposition its products to gain a competitive edge over its competitors in the global

market. For this, the first step that needs to be taken in this direction is the complete

restructuring of the tea industry, redefining the roles of various agencies like the Tea

Board and the producers’ organizations, and developing a healthy partnership with the

labor. Despite all these facts, major global tea companies such as Unilever and Tata

Tea are reaping large profits but are failing to take sufficient responsibility to

safeguard the rights and livelihoods of the millions of tea growers and workers who

contribute to their profits (Goddard, 2005).

Later, Nagoor (2009) examined the performance of India’s tea exports and figured out

that tea, which was a major exportable commodity in India’s agricultural exports, is

declining steadily. The export performance over the last three decades shows that the

percentage share of India’s tea export in total world tea exports has declined

drastically. During 1981-90, the share was 21.91%, which declined to 13.35% in

2001-2004. The decade of the nineties and beginning of the twenty first century has

been quite depressing for the tea industry in India.

As far as the exports are concerned, Indian Tea Industry still faces diminishing trends.

In 2009, tea exports decreased by 11.6 million kgs, that is by 5.7% as compared to

2008. In 2009, India exported 191.5 million kgs of tea whereas it exported 203.1

million kgs in the previous year. Tea exports to Iraq increased significantly in 2009

but tea export to UK, Iran, UAE and Egypt saw the same diminishing trend (Hussain

& Hazarika, 2010). Almost 20% of the tea produced in 2009, 973 million kg, was

exported. Over the years, Indian Tea Industry has experienced a shift in the proportion

of export to domestic consumption of the total tea produced in the country, with

domestic consumption far more than exports. Changing consumer tastes and

preferences in the export market has led to the drop in exports for which the main

reason is the increasing popularity of green tea as well as orthodox tea

(Ramakrishnan, 2010). Further, Ramakrishnan emphasized that there is a need to

work out suitable strategies for both domestic as well as international market

expansion and penetration.

SCP Model, structure-conduct-performance, stems the fundamental paradigm for

competitive strategy (Bain, 1956). Sharma (2000) presented a conceptual framework

of ‘forward engineering’ for strategic gearing of organizations which undertakes

Rationality + Creativity paradigm to enable them to sustain and perform in the highly

competitive environment. Further, the author had mentioned that in forward

engineering exercise, analytical tools and techniques such as METRIC Analysis,

BOW Analysis, CINE Matrix, FATE Analysis, SPOT Analysis, Anti-Benchmarking,

are used. These all tools and techniques used together are a refinement to the

conventional and widely used SWOT Analysis framework of strategic management

and could be considered innovations in the entire stock of skills, techniques and

devices used in the industry. These tools combined together will help in articulating

the Indian Tea Industry’s ViSA (Vision- Strategies and Action Plan) document.

By ‘forward engineering’, the author implied creative, proactive and responsive

actions in the context of dynamic competitive environment. The same approach has

been used in this paper to gear up Indian Tea Industry with some analytical tools to

bounce back in the global tea market.

METHODOLOGY:

This paper examines the concept of Forward Engineering through qualitative analysis

of data and information gathered through interviews with company executives, public

documents (e.g. annual reports), and related research literature.

Type of data: The type of data taken in the study is primary as well as secondary. The

primary data are collected through interview with 46 personnel from the Tea Board of

India, Bhupender Tea Co., Dalmia Tea Marketing (P) Ltd., JFK International,

Occidental Trading and others. And the secondary data are collected from newspaper,

reports, handouts, and journals. In addition to this, relevant materials are also

collected through the internet as well.

Tool of data collection: Schedules have been used to take in-depth interviews of the

various personnel so as to get their views on the topic in detail.

Locale: The study was conducted to gain an insight into the Indian Tea Industry, so

Kolkata and Delhi were taken as the research areas form where the various personnel

were taken.

Tools for data analysis: The various analytical tools which come under “Forward

Engineering” had been used for a qualitative analysis of data, namely

ViSA: Vision, Strategies and Action Plans

METRIC Analysis: Market, Economic, Technological, Resources, Institutional

Capacity

FATE Analysis: An analysis of future anticipated trends and events

BOW Analysis: An analysis of the barriers, obstacles and weaknesses

CINE Matrix: A matrix of controllable and non-controllable internal and

external factors influencing a decision situation

SO-SO Window: An analytical window to compare Indian Tea Industry’s

strengths and weaknesses with that of the other tea producing countries

SPOT Analysis: Space and Pace of Opportunities and Threats

Mind Pooling: A method for pooling collective intuitional wisdom leading to

institutional visioning

DATA ANALYSIS:

Keeping in view the existing and new capabilities of Indian Tea Industry with respect

to the current and anticipated challenges in the domestic and world tea market, this

paper provides a foundational premise for the strategic gearing of the Indian Tea

Industry using the concepts of Forward Engineering. It involves creative imaging,

envisioning, anticipatory witnessing and mind pooling for creative solutions to help

the Indian Tea Industry face the new challenges of fast paced dynamic environment.

The various analytical tools progress as described below:

Backbone Analysis

BOW Analysis

METRIC Analysis

CINE Matrix

SO-SO Window

FATE Analysis

SPOT Framework

Mind-Pooling

Anti-Benchmarking

ViSA

In backbone analysis; the strengths, capabilities and competencies of the Indian tea

industry have been analyzed in the following exhibit.

Exhibit 1: Backbone Analysis:

STRENGTHS:

Production base is very strong

Strong research backed by well established research institutions

Labor welfare laws protecting workforce

Availability of modernized and upgraded manufacturing facilities

Strong domestic market

Second consistent supplier of tea after China

CAPABILITIES:

Production of wide range of teas- black, (ctc, orthodox), organic teas, green teas

High quality specialty teas- Assam, Darjeeling, high range Nilgiris, orthodox etc.

COMPETENCIES:

Competent managerial power

The strong production base and the high domestic demand are the major strengths,

production of wide range and high quality specialty teas are the capabilities and the

efficient managerial power is the key competency of the Indian Tea Industry. Despite

such robust backbone, Indian Tea is facing a challenging phase in the global scenario

because of the old age of the bushes, unskilled labor, and lack of infrastructure, poor

price realization, legal problems, outdated machinery, high fixed and labor cost,

inefficient Tea Board, and other various factors mentioned in the BOW analysis

further.

Exhibit 2: BOW Analysis

BARRIERS:

Inadequate Land

Different Climatic conditions

Unskilled labor

Lack of mechanization

Inadequate R & D

Inadequate HRD

Lack of infrastructural facilities in terms of power

Erratic supply of inputs such as fertilizers, gas etc.

No control over price realization

OBSTACLES:

Terrorism

Government Interference

Poor communication facilities

Trade Unionism

Low level of Professionalism

Export Bottlenecks

Plantation Labor Acts

Environmental degradation- floods and soil erosion

WEAKNESSES:

Antiquated Market system

Antiquated Machines

Lack of vision

Low level of motivation of staff

Inadequacy of health care

Poor health of work force

High fixed cost

Debility of soil after use of 100 years or so

Low productivity levels

High cost of production

R&D transfer too slow

Poor operations of Tea Board

Declining prices

Disregard in quality

Social fronts

Trade front issues

Inefficient auction system

Poor infrastructure for transportation

Sales and taxation

No effective cost management system

Slow increase in yield

Incompetent products

High selling price

High amount of Surplus

Unawareness about the domestic demand

Modified from Sharma, Subhash, 2009, “New mantras in Corporate Corridors”, New Age International Publishers

All the above mentioned factors are making Indian Tea incompetent in the global

market, since it is currently being dominated by other players like China, Sri Lanka,

Kenya and others who have better operating systems in terms of infrastructure, labor,

age of bushes, Tea Board, and most importantly very low internal demand except

China which posses a high internal demand like India. Indian Tea is declining on its

quality aspect, as it still considers tea as a commodity, whereas the other tea

producing nations are working hard towards improving the quality aspect and

converting tea into a specialty product as per the demand of the consumers. Other

factors in the market, economic, technological, resources and institutional capacity are

mentioned in the METRIC analysis below.

Exhibit 3: METRIC Analysis

MARKET:

Over supplies

Slow growth in demand

Fierce competition

Changing customer preferences

Shift towards branding

Demand for quality teas

Niche markets for good quality teas

Identify USP (Unique Strategic Positioning) of tea

ECONOMIC:

Social cost

High Cost of production

Excessive Supply

Marginally increasing demand

High price

TECHNOLOGICAL:

Introduction of e-auction

Technological up gradation

Modernization of tea factories

Information Technology

RESOURCES:

Low productivity of land

Low productivity of labor

Low productivity of capital

Knowledge levels of workforce not up to the mark

INDUSTRIAL CAPACITY:

Managerial capacity

Capacity building of small and tiny growers

HRD Initiatives

Strengthening grass root institutions

Modified from Sharma, Subhash, 2009, “New mantras in Corporate Corridors”, New Age International Publishers

It is evident from the above classification that the changing consumer preferences,

marginally increasing demand (Refer to appendix 2), fierce competition and the tea

surplus combined are shifting the market from production driven to consumer driven.

Social cost as per the Labor Laws and high production cost have made the Indian Tea

quite expensive in the world market as compared to other countries i.e. $2.45/kg for

India as against $1.99/kg for Kenya, $2.10/kg for China and $3.26/kg for Sri Lanka

(Refer to Appendix 5), keeping in mind that Sri Lanka mainly deals in orthodox tea

leaves and is not much into the black tea segment, it can be clearly concluded that

Indian tea is the costliest in the world market.

To overcome the communication barriers as well as to ensure proper price realization,

Tea Board of India, introduced e-auctioning of tea in the year 2009 which is expected

to bring transparency in the entire process as well as ensure good prices for the sellers

(http://www.assamtribune.com/oct3109/horizon.html). To add to the difficulties, the

resources i.e. land, labor, capital and knowledge are also very low on productivity,

which is being tried to overcome by enhancing the industrial capacity in terms of

manpower training and HRD initiatives. To help out in the decision situation, the

various factors that need to be considered have been classified on the basis of internal

and external, as controllable and non-controllable, in the CINE Matrix.

Exhibit 4: CINE Matrix

INTERNAL

Productivity

Auctions

Transportation

Tea Board Operations

Assam teas- high price

No cost management system

Fertilizer application

Labor deployment ratio

Wages

Labor health

Soil erosion

High labor ratio

High cost of production

Ineffective spraying

Cattle trespass

Labor welfare

Habitual absenteeism

Production and quality

Use of stores/ machines

Working team spirit

Proper communication of

instructions

Proper planning

Sanitation and hygiene

Land encroachment by labor

Quality control

EXTERNAL

Weak case in countries with high

purchasing power

Wage fixation

Extremist menace

Telephone & Roads

Communication

Power crisis

Land purchase

Cattle trespass

Damage/destruction of properties

Destruction of water supply

Land encroachment

Financial stringency

Menace of wild animals

Housing finance

Forest degradation

Political interference

Alcoholism

Problem of residence of non-workers

Borrowings

Head office expenses

Input/material purchasing

Seasonal nature of Assam teas Declining sales volume

C

Taxation

Power & fuel consumption

Cattle trespass

Medical expenditure

Low productivity of labor

Absenteeism

Location of tea gardens

Transportation of green leaf/other

inputs

Geological conditions

Topographical imbalance

Trade union activities

Population increase

Semi-literacy of workers

Attitude of workers

Imports of tea in domestic market

Stagnant demand for tea

Changing preference of consumers

Power & fuel supply

Climatic changes

Blockage of drain outlets

Wild elephant menace

Bundhs/strikes- local & outside

Riots/extremist activities

Fire hazards

Social and political disturbances

Cost increase of inputs

Price fluctuations

Auctions price realizations

Natural calamities

Taxation

Modified from Sharma, Subhash, 2009, “New mantras in Corporate Corridors”, New Age International Publishers

Of all the adversities, low productivity, high cost of production, financial stringency,

quality control, declining sales volume and changing preference of consumers need to

be addressed and can be taken care of with the existing capabilities of the Indian Tea

industry.

Huge domestic market and wide range of teas is the area where Indian tea market has

an extra edge over its competitors, whereas, Kenya has taken over in terms of export

quantities and is the highest exporter of tea (Refer to appendix 4), Sri Lanka owes the

best quality orthodox teas and China enjoys the market leader position in terms of

production (Refer to appendix 1). Apart of all other weaknesses, Indian Tea Industry

lacks visions which has helped other players in making their mark and subsequently

lose India its position in the world trade in terms of exports as well as production.

Other strengths, weaknesses and natural strategic advantages of the major tea

producing nations are mentioned in the SO-SO Window.

Exhibit 5: SO-SO Window

STRENGTHS WEAKNESSES NATURAL

STRATEGIC

ADVANTAGES

INDIA High quality products

Global market exporter

Lack of vision

High fixed cost

Enjoyed leadership

position for very

N

Competent managerial

power

Strong research

Very strong domestic

market

Debility of soil after use

of 100 years or so

Low productivity levels

High cost of production

Poor operations of Tea

Board

Declining prices

Disregard in quality

Social fronts

Trade front issues

Inefficient auction system

Poor infrastructure for

transportation

Sales and taxation

Incompetent products

High selling price

High amount of Surplus

Unawareness about the

domestic demand

long period

Strong production

base

Production of wide

range of teas

KENYA Continuous production

Offset rising labor

Pakistan exports

Exports to Egypt

Quality tea bags

Low domestic

consumption

Less exposure to global

market

Restricted entry to

specific markets

Decline in domestic

consumption

Black tea production

Good quality teas

SRI LANKA Global market player

Rules tea bag segment

High production

Under cultivation area

Low market share

Overall poor export

performance

Very good quality

orthodox teas

CHINA Expansion in domestic

market

Utilization of cultivation

area

Increased production

Removal of export quota

Large domestic

consumption

Under-cultivation area

Social problems

Largest producer of

tea

Huge domestic

market

Increased share of exports

High export growth rate

Consistent supplier

Biggest employer

FATE Analysis:

Future Anticipated Trends and events: Seeing the today’s global tea scenario, it can be

clearly stated that tea would not be sold further as a commodity but rather as a

specialty product. And thus, anticipating the same trend, tea growing nations are now

watching the production of good quality teas and ensuring the export of such teas

only, as Sri Lanka, ensured that only good quality teas were exported to bounce back

into tea trade when once it was losing on its market share due to poor quality teas. The

share of nations and buyers who used to buy tea as a commodity is decreasing day by

day.

The tea surplus is another problem which is not allowing price realization of tea in an

appropriate manner. Disposing off 16million kg of surplus tea is a major issue (Asopa,

2007). Still, there are many nations who are in process of expanding their tea

cultivation area which would further add to the problem. So either of the two

solutions needs to be applied- cut on supply or enlarge the markets.

Also, with latest studies depicting health benefits of tea, consumption of tea

worldwide is expected to rise significantly.

Exhibit 6: SPOT Frame work:

OPPORTUNITIES

Expansion in US and USSR markets

Brand building

Geographical diversification

Niche market segmentation

Re-alignment of product mix

Home market opening

Global market

Kenya’s market share

Export quality tea to Germany, Iraq,

Pakistan etc.

THREATS

Major producers like China, Kenya,

Sri Lanka etc.

Other global players

Other emerging competitors

Declining share in global market

(Refer to Appendix 3)

Imports of tea in domestic market

Changing demands of consumers

Declining exports to UK and Ireland

Increasing demand of other

beverages like cold drinks etc.

Losing market share to competitors

Low demand for Indian Tea in

international market

Increasing area under tea by China

and Kenya

By analyzing the above mentioned opportunities and threats for Indian Tea, it can be

placed in the SPOT framework as follows:

1 2

3 4

As it can be pointed out from the above framework, Slot 1 defines that the

opportunities are high but the space for the Indian Tea is very low in the current

scenario because most of the market has been captured by one or the other player in

the market. Kenya took 66% share in Pakistan imports in 2003 (Asopa, 2007).

Russian market is being taken away by Kenya and Sri Lanka. India in itself has a

huge demand in the domestic market, which if taken care of properly, would yield

high profits. Plus, with health benefits of black tea being much talked about, the

demand for black tea is expected to grow heavily in the coming years.

With so many new entrants in the Tea Industry, the second slot signifies that the

threats are very high and space is almost occupied since the industry is already facing

a huge surplus disposal problem.

The third slot depicts that the pace at which the industry is growing with the

opportunities is very low since the demand for tea has increased almost negligibly

over the past few years (Refer to appendix 2). And the last slot clearly describes that

the threats and the pace at which they are growing is very high, since many new

entrants have and are entering the market. Along with this, the perspective of Indian

producers and marketers to still trade tea as a commodity in the scenario where it is

being considered as a specialty product is quite disappointing, which makes the

situation of Indian Tea in the global scene even worse.

Mind pooling:

SPACE

PACE

OPPORTUNITIES THREATS

Indian Tea holds a strong position in terms of brand name, being the largest source

and the largest market for tea, wide range of teas, large production base as it is the

second consistent supplier of tea after China and a first mover to launch e-auctioning

of tea. After having studied all the tools in the forward engineering framework, it can

be pointed out that the major problems being faced by the Indian Tea Industry in the

present are the declining sales volume in the international market, despite being the

second largest producer of tea, India is facing imports of tea from other nations, which

is further expected to increase in the coming years; the quality of exported Indian Tea

has declined which spoiled its brand image in the global market, very high production

costs, lack of infrastructure and communication facilities. The situation is being

further depleted by the old age of bushes and unskilled labor, due to which the quality

is further declining. If proper attention is not paid to the changing market, Indian Tea

will lose its hold, not only in the international market, but in the domestic market as

well. Therefore, this issue needs to be addressed with full alacrity and Indian Tea

Industry should move in the direction that generates desirable results.

Anti-Benchmarking:

Contrary to the notion of benchmarking wherein the market leader is followed,

Forward Engineering believes in the concept of anti-benchmarking i.e. creating own

unique path for excellence, wherein after studying all the above tools, the path for

Indian Tea Industry takes it back to its domestic market and concentrate on the same.

As for the international market, it needs to be captured back with perseverance with

exporting good quality teas at competitive prices to the international consumers.

Domestic Market

Anti-benchmarking

India China (International Market)

Benchmarking

Since, Indian Teas are very costly in the global market due to various reasons

discussed earlier and there are many other factors which make it uncompetitive in the

global scenario, Indian players should put their main focus on the domestic consumers

and try to capture that will full alacrity and leave no space for foreign players to enter.

To bounce back into the international markets, Indian Tea Industry should keep its

focus on the quality aspect and then trade it as a specialty product rather than as a

commodity as done till date.

ViSA:

Vision: To achieve sustainable domestic as well as global competitiveness.

Strategies: It is now that India needs to focus towards a competitive tea strategy,

which will help to keep a check on the quantity of tea produced and enhance the

quality of tea which is produced. Indeed, it is a highly appropriate time to elaborate

the strategy at this time because it shows exactly what type of consumer segment

should the Indian Tea Industry caters in the coming period. To become a globally

competitive tea player, the main success factor would be driven by strong focus on

quality and less attention being paid to the production levels. Therefore, a strong

commitment is required from both the government sector and private sector in order

to realize significant improvements in terms of quality, market share in tea exports

and most importantly in the domestic market. The government should restrict imports

of tea and the private players should try to explore the domestic market with further

efforts directed towards increasing the per capita consumption of tea in the domestic

market. The major strategic goals can be listed as:

1. To improve the quality of black tea.

2. To expand the domestic market by converting non-drinkers of tea to drinkers

and increase the consumption levels of the existing consumers.

3. To diversify the product portfolio i.e. introduce other varieties of tea, for

example green teas and flavored teas.

4. To add value in Packaged and Blended teas by paying proper attention to

processing and improving the quality by proper blending and marketing–for

higher price realization of their products.

Action Plan: Undoubtedly, all the objectives would require significant investments to

produce sophisticated and unique high quality tea products. Both government and the

private sector need to commit financially and operationally to achieve the goals. The

action plan required to be implemented can be divided into three main categories

namely Product Development, Marketing & promotion and Institutionalization.

Product Development

Extensive research

Training support for

workers

Road infrastructure

Transportation

Marketing & Promotion

International

Promotional

Campaign

National Promotional

campaign to

Institutionalization

Redefine Tea Board

activities

An inspection

agency to check the

quality of tea being

Power & Fuel

Supply

Appropriate

Machinery

Regulate supply and

concentrate on

quality

stimulate domestic

consumption

Highlight the

benefits of black tea

Improvement in

supply chain using e-

auctions efficiently

exported

Introduction of

stringent competition

laws by Government

to restrict price

manipulation by

corporate houses

The need for reducing the unit cost of production through productivity gains, capacity

building of small growers, streamlining marketing channels, improving infrastructure,

tailoring marketing activities to individual country’s demand, propagating health

benefits of tea and promotion of organic tea using the tea mark was suggested by the

United nations Food & Agriculture Organization (FAO,2001). And this is precisely

what the Indian Tea companies need to do for their survival. Another step that needs

to be taken is “Zero duty on machine imports” (Dasgupta, 2011) which would make

Indian Tea standards acceptable in the global market by good quality products and

packaging.

CONCLUSION:

This study examined the various factors responsible for low productivity, high prices

and declining share on Indian Tea in the world market. The internal and the external

factors contributing to the same have also been discussed. Comparison with other

major global players has also been done. The study also looked at the demand and

supply of tea in the global scenario along with India’s share in total world production

and exports in the previous years.

Tea Industry, where India took a lot of pride as the largest producer and exporter, has

been facing a lot of glitches since the past two decades which has brought down

India’s position in the world trade i.e. exports to #4 and in world production to #2.

The major factors identified as being responsible for India’s poor performance are

high input costs, the old age of the bushes, unskilled labor, and lack of infrastructure,

poor price realization, legal problems, outdated machinery, high fixed and labor cost,

inefficient Tea Board , inability to compete with other tea producing nations in terms

of price, quality, packaging, etc.; slow increase in world demand for tea as compared

to the subsequent increase in its supply, losing traditional international buyers and

more inclination towards domestic market in comparison to the international market.

Analyzing all the aspects in the study responsible for India’s poor performance, it is

clearly evident that Indian Tea prospects for bouncing back in the global tea market

are very weak. Therefore, as of now, it should focus on the domestic market; try to

simulate the demand in this market to ensure that it does not lose this portion to other

players once the tea imports are open in India. Subsequently, Indian practitioners

should improve their export strategy by producing good quality teas at competitive

prices. To do the same, India needs to work in three directions namely product

development, marketing & promotion and institutionalization. By improving the

quality as per the consumers’ taste and preference, India should also look for other tea

importing countries like Pakistan, US, USSR, Iraq, Germany, etc.

RECOMMENDATIONS:

Recommendations remain the same as mentioned in the action plan of ViSA and are

as follows:

Focus on quality improvement, proper blending and marketing for higher price

realization of tea in comparison to the quantity produced.

Revitalization of image of India Tea in the international market by aggressive

promotional campaigns including India Tea logos trying to make Indian Tea

acceptable in the global market.

Tailor made marketing activities specific to individual country’s demand.

Propagation of health benefits of black tea to simulate the demand in the

national as well as international markets.

Keeping a check on the quality of tea exported by appointing an inspection

agency to ensure the same.

Reduction in cost of production by improving supply chain, proper inputs,

improving infrastructure, extensive research and appropriate machinery.

Introduction of new laws to discourage the price movements by big players.

Improving supply chain management by full utilization of e-auctioning.

Redefining Tea Board activities and duties to ensure proper support and

cooperation from Government to small plantations and players.

BIBLIOGRAPHY:

Asopa, V.N (2007), ‘Tea Industry of India: The cup that cheers has tears’,

Indian Institute of Management, Ahmedabad, India W.P.NO.2007-07-02, July

Bain, J.S. (1956), Barriers to new competition, Cambridge, MA: Harward

University Press

Barthakur, Ranjit & Kripalini Dipak ‘Vision 2020 Reinventing the Indian Tea

Industry to Achieve Sustainable Global Competitiveness and Sustainable

Livelihood.’ Global Managed Service (GMS)..

http://www.gmsworldnet.com/images/vision_2020_reinventing_indian_tea_in

dustry.pdf

Goddard, Samantha (2005), ‘Tea Break: A crisis brewing in India’,

http://www.actionaid.org/docs/tea_break.pdf accessed on 4th April, 2011

Huque, S.M.R (2007), ‘Strategic Cost Management of Tea Industry: Adoption

of Japanese Tea Model in Developing Country Based on Value Chain

Analysis’

Hussain, M.M. and Hazarika, S.D. (2010), ‘Assam Tea Industry and its crisis’,

http://www.asthabharati.org/Dia_July%20010/moon.htm accessed on 28th

February, 2011

Nagoor, B.H (2009), ‘Performance of India’s Tea Exports: A Comparative

Study of Major Tea Countries of the World’, Quantitative Approaches to

Public Policy, PP-062-21

Sharma, Subhash (2000), 'Forward Engineering for Strategic Gearing: A

Conceptual Framework', Indian Journal of Public Administration, Vol.XLVI,

No.4, pp.667-674

Tea Board of India official website http://teaboard.gov.in accessed on 10th

April, 2011

http://www.assamtribune.com/oct3109/horizon.html accessed on 28th March,

2011

http://www.bloomberg.com/news/2011-02-25/india-must-extend-zero-duty-

on-machine-imports-tea-group-says.html accessed on 30th March, 2011

APPENDICES:

Appendix 1: India’s share in World Production

Country 2008(P) 2007 2006 2005

In

M.Kgs.

% of total

production

In

M.Kgs.

% of total

production

In

M.Kgs.

% of total

production

In

M.Kgs.

% of total

production

China 1160.00 30.94 1140.00 29.98 1028.06 28.78 934.86 27.03

India 980.82 26.16 986.43 25.94 981.81 27.48 945.97 27.36

Sri Lanka 317.70 8.47 304.61 8.01 310.82 8.69 317.20 9.17

Kenya 345.82 9.22 369.61 9.72 310.58 8.69 323.50 9.36

Turkey 155.00 4.13 178.00 4.68 142.00 3.97 135.00 3.90

Indonesia 148.31 3.96 149.51 3.93 140.05 3.92 156.27 4.52

Vietnam 144.00 3.84 148.27 3.89 142.50 3.98 133.35 3.86

Banglades

h

58.75 1.57 57.96 1.52 53.27 1.49 60.60 1.75

Malawi 41.64 1.11 48.14 1.27 45.01 1.26 37.98 1.09

Uganda 42.75 1.14 44.91 1.18 36.73 1.03 37.73 1.09

Tanzania 31.61 0.84 34.86 0.92 31.35 0.88 30.36 0.88

Others 323.38 8.62 340.64 8.95 350.48 9.81 344.77 9.97

Total 3749.78 100 3802.94 100 3572.66 100 3457.59 100

Source: Tea Board of India official website www.teaboard.gov.in

Note: (P) Provisional and subject to revision

Calculated from "Supplement to ITC Annual Bulletin 2008"

Appendix 2: World Demand and Supply of tea

Year World supply World Demand (+) or (-)

2004 3334.53 3192.93 (+) 141.60

2005 3457.59 3348.52 (+) 109.07

2006 3572.66 3466.99 (+) 105.67

2007 3802.94 3710.84 (+) 92.10

2008 (P) 3749.78 3596.17 (+) 153.61

Source: Tea Board of India official website www.teaboard.gov.in

Appendix 3: Region wise Import of Tea for Consumption from India (in %)

Region 2006 2007 2008 (P)

E.E.C. 16.62 14.45 14.13

Other West Europe 0.81 2.84 1.48

CIS 20.63 21.4 21.89

Other East Europe 10.21 12.24 8.57

North America 7.74 8.34 8.38

Latin America 0.16 0.12 0.53

WANA 17.93 11.99 16.01

Asia other than West** 10.38 7.37 0.09

Africa other than North 9.74 3.55 2.17

Oceania 23.41 25.86 26.95

Grand Total 14.76 11.99 13.47

** Includes the figures of import for re-export by India and Sri Lanka.

Source: Tea Board of India official website www.teaboard.gov.in

(P) Provisional and subject to revision

Calculated from "Supplement to ITC Annual Bulletin 2008"

Appendix 4: India’s share in World Export

Country 2008(P) 2007 2006 2005

In

M.Kgs.

% of total

exports

In

M.Kgs.

% of total

exports

In

M.Kgs.

% of total

exports

In

M.Kgs.

% of total

exports

Kenya 383.44 23.19 343.70 21.82 312.16 19.74 348.28 22.18

Sri Lanka 298.79 18.07 294.25 18.68 314.92 19.91 298.77 19.02

China 296.94 17.96 289.43 18.38 286.59 18.13 286.56 18.25

India 203.12 12.28 178.75 11.35 218.73 13.83 199.05 12.67

Vietnam 115.00 6.96 110.93 7.04 105.12 6.65 87.92 5.59

Indonesia 95.00 5.75 83.66 5.31 95.34 6.03 102.29 6.51

Argentina 75.50 4.57 74.23 4.71 70.72 4.47 66.39 4.23

Malawi 40.06 2.42 46.59 2.96 41.96 2.65 42.98 2.74

Uganda 42.39 2.56 43.64 2.77 32.70 2.07 33.07 2.11

Tanzania 24.77 1.49 29.13 1.85 24.13 1.53 22.50 1.43

Bangladesh 8.39 0.51 10.56 0.67 4.79 0.30 9.01 0.57

Zimbabwe 5.50 0.33 7.60 0.48 11.38 0.72 8.45 0.54

Others 64.39 3.89 62.52 3.97 62.47 3.95 64.84 4.13

Total 1653.29 100 1574.99 100 1581.01 100 1570.11 100

Source: Tea Board of India official website www.teaboard.gov.in

(P) Provisional and subject to revision

Calculated from "Supplement to ITC Annual Bulletin 2008"

Appendix 5: Unit Export Prices of Tea of Major Producing Exporting Countries

(in US $ per kg.)

Country 2004 2005 2006 2007

India 2.06 2.09 2.03 2.45

Sri Lanka 2.41 2.58 2.64 3.26

Kenya 1.61 1.59 2.07 1.99

China 1.56 2.06 1.88 2.10

Source: Tea Board of India official website www.teaboard.gov.in, Annual Bulletin of Statistics-2008, ITC London.