FITNAT ZEIDAN 1.docx

Name: Fitnat Zeidan – Student ID: 11372770 – MGT330 Assignment 1

India's Cup of Tea

Prepared for Fiona Hamilton

Prepared by Fitnat Zeidan - Student Number: 11372770

Date submitted 12.12.2014

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Name: Fitnat Zeidan – Student ID: 11372770 – MGT330 Assignment 1

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TABLE OF CONTENTS Page Executive summary .................................................................................................3 Background .............................................................................................................4 Analysis ...................................................................................................................5 

PESTEL analysis………………………,………………………………………..5 a. Political factors……………………………………………………5 b. Economic factors…………………………………………………6 c. Social factors……………………………………………………...6 d. Technological factors…………………………………………….6 e. Environmental factors………………………………………...….7 f. Legal factors…………………………………………………...….7

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Porter’s five forces analysis…………………………………………………..…7 1. Competition from substitutes………………………………………..7 2. Threat of entry………………………………………………………...7 3. Rivalry between established competitors…………………………..7 4. Bargaining power of customers……………………………………..8 5. Bargaining power of suppliers……………………………………....8

Summary ..................................................................................................................9 Recomendation.........................................................................................................9 Reference................................................................................................................10

Name: Fitnat Zeidan – Student ID: 11372770 – MGT330 Assignment 1

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EXECUTIVE SUMMARY Tea is a beverage that is enjoyed by many people around the world and has major production in four countries being China, Kenya, Sri Lanka and India. India is the world’s fourth largest producer of tea. The purpose of this report is to analyses the external Indian tea industry. The analysis is carried out by considering the PESTEL analysis tool to understand the macro environment in addition to PORTERS five forces analysis tool to explore the micro environment surrounding the tea industry. Furthermore, the report concludes with a recommendation to improve production of the Indian tea industry thus ensuring its growth and survival of the industry.

Name: Fitnat Zeidan – Student ID: 11372770 – MGT330 Assignment 1

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BACKGROUND India is the world’s largest producer, consumer and exporter of tea. In 1823 tea plants were discovered in India’s north-eastern region in the state of Assam. Fifteen years later the first Indian tea from Assam was exported to Britain in 1838. India ranks with the world’s top four exporter of teas and has complete control over the Darjeeling and Assam orthodox teas Grant, Butler, Orr, and Murray (2014). There are three types of tea which depend on the fermentation that the tea has gone through. Unfermented tea is known as green tea and is the healthiest option of the three. Oolong tea is partially fermented. Lastly there is black tea which is fermented. All types of tea come from the same green plant known as the camellia sinensis. In 1954 the Indian government created the tea board to regulate the tea industry since it played such a crucial role to the economy. The board offers various incentives to protect tea workers such as welfare arrangements. It also assists with marketing, research and development. Interestingly, India is the world’s largest consumer of tea, consuming 25 percent of all global production, the second largest producer of tea accounting for 30 percent of all global tea production and the fourth largest exporter of tea. India’s tea industry incurs higher costs due to its implementation of social responsibility measures. The plantation labor act, 1951 states; that any tea grower who employs more than 15 workers or owns a plantation greater than 5 acres must provide a range of benefits to workers; with some tea growers offering even more incentives to encourage workers to remain working on the tea plantations instead of seeking work elsewhere Grant et al. (2014).

Name: Fitnat Zeidan – Student ID: 11372770 – MGT330 Assignment 1

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India has approximately 160,000 small growers who account for 26 percent of India’s tea production. Such proliferation of small growers led to the establishments of ‘bought leaf’ factories which grow, pluck and sell loose leaves to corporate growers in their vicinity Grant et al. (2014).

ANALYSIS In order to understand the external powers that influence the Indian tea industry the PESTEL and Porters five forces tool are used. PESTEL represents the Political, Economic, Social, Technological, Environmental and Legal factors that affect an organisation. Using this analysis tool details the external forces that influence India’s tea market and performance. The five forces analysis is used to analyse the micro environment and studies the customers, suppliers, new market entrants, rivals and substitutes. PESTEL ANALYSIS a. Political factors The Indian government plays a vital and important role in the regulation of the tea industry as it understands the importance such government intervention provides in strengthening the economy and building economic stability. The first factor examined in India’s tea external macro environment is the political factor in which the Indian tea industry functions. In 1954 the Indian government established the tea board to regulate the Indian tea industry. The tea board exists to regulate the production and cultivation of tea, to offer marketing assistance and promote research and development; to encourage cooperation between growers of tea and the manufacturers; to provide for better working conditions and provisions such as welfare schemes for workers. For example under the plantation act 1951 employers must provide the worker with accommodation, medical, schooling in addition to food aid Grant et al. (2014). These incentives increase production costs, however these benefits are the right of every worker so in order to generate fair and

Name: Fitnat Zeidan – Student ID: 11372770 – MGT330 Assignment 1

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profitable business practice it is important that tea growers follow efficient production practices. The Indian government has also established a system for certifying the authenticity of exported Darjeeling teas. Finally the tea board offers tea estates 70 percent reimbursement of the cost of replacing old tea bushes with new ones in order to ensure growth and endurance of the tea industry.

Name: Fitnat Zeidan – Student ID: 11372770 – MGT330 Assignment 1

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b. Economic factors Domestic demand is growing rapidly. India consumes 25 per cent of the

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Name: Fitnat Zeidan – Student ID: 11372770 – MGT330 Assignment 1

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world’s production of tea and produces 30 per cent of the world’s production. India’s tea exports have been in decline dropping from 222.02 million kg in 2010 to 186.7 million kg in 2011, causing international competitiveness in exports to decline. However; India’s tea industry has a growth of 15 percent per annum Grant et al. (2014).

A particular issue which is both a social and economic one is identifying the threat of urbanisation as workers leave for the city in search of better opportunities. This is of particular concern as the recent economic boom in India has resulted in a significant shortage of plantation labor. If tea grower employees lose hope in the opportunities present in the tea industry, it would result in the industry gaining a reputation that would be difficult to change.

c. Social factors Tea has been promoted as a health drink. The workers pick the tea leave, then roll dry and heat them. Tea in India is a very popular drink and an important part of their social lives. Its importance in their daily life increases when the local population is responsible for the cultivation of the crop. Furthermore, people all around the world value the relaxation a cup of tea of tea provides. Tea is also an important drink in many social occasions. As a result, demand for tea is very high and this is especially important as demand for a particular product is the main driver of sales and thus profit.

d. Technological factors Most of the work is done by the workers as the tea leaves need to be handpicked. The tea industry is a labor intensive and technological factors play a minimal role.

Name: Fitnat Zeidan – Student ID: 11372770 – MGT330 Assignment 1

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e. Environmental factors Environmental factors play a vital role in the cultivation of tea. As it is a crop, its relationship with the environment is very important. The main issue Indian tea producer’s face is ensuring the government and producers implement measures that restores the environment in order to overcome sustainability challenges. To protect the tea leaves from pest infestation it is vital that pesticides be sprayed however it is the environment that bears the cost as environmental and health problems arise. The health of the soil is vital to ensure high quality tea is cultivated. Furthermore this adds to production cost. Another challenge is the ageing tree crops.

f. Legal factors The tea industry is protected by legislation as the government understands the importance to protect such an industry that provides many job opportunities and income to the country stimulating the economy. In 1954 the Indian government set up the Indian tea board whose purpose was to regulate the tea industry Grant et al. (2014).

PORTER'S FIVE FORCES ANALYSIS 1. Competition from substitutes The competition from substitutes is medium risk. Although tea is the preferred beverage consumed in India; fizzy drinks, health beverages and coffee are major competitors. Competition can also come from other tea producers from china.

2. Threat of entry This is a low risk as there are already well recognized tea producers around the world who are leaders in their field. In addition the tea industry is highly competitive and is well regulated.

Name: Fitnat Zeidan – Student ID: 11372770 – MGT330 Assignment 1

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3. Rivalry between established competitors This is high risk because there are many tea companies in India and the rivalry between them is very high.

4. Bargaining power of customers This risk is high as there is a high demand of tea hence there is a large number of customers buying the product. The customers also have many options to choose from and consume most of the industries production.

5. Bargaining power of suppliers This risk is low as there are many companies that produce tea in India in addition to there being other substitutes to tea like coffee and fizzy drinks which are more favored by the youth.

Name: Fitnat Zeidan – Student ID: 11372770 – MGT330 Assignment 1

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SUMMARY The Indian tea industry is a strong and successful industry providing many benefits to the economy and population. The industry faces certain challenges in social, production, economical and agricultural areas which can be overcome if the government and tea grower employers focus on how best to develop sustainable and innovative production practices, teaching programs for employees and implement environmentally safe practices, that can ensure the Indian tea industry can increase production to gain greater international market share, increase employee benefits and morale and develop and maintain a sustainable business model.

RECOMMENDATION In order to address the social, production, economical and agricultural challenges the industry faces, it is important to implement certain changes. These include; 

Government and employers focusing on developing and implementing

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sustainable and innovate production practices for the future Teach employees how to grow and protect crops efficiently Address the overuse of pesticides in the industry on consumer health and researching more organic and healthy organic alternatives

Name: Fitnat Zeidan – Student ID: 11372770 – MGT330 Assignment 1

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Researching the market potential in organic produce and the potential it offers both in terms of improved health, decrease in the harm to the environment, increase in both local and international interest and greater

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potential to enter new markets and increase profits Employee incentives so they don’t leave work

The Indian tea industry has a very bright future however it is important that the industry keeps on track and explores opportunities to help it gain global competitive advantage.

Name: Fitnat Zeidan – Student ID: 11372770 – MGT330 Assignment 1

REFERENCES

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Name: Fitnat Zeidan – Student ID: 11372770 – MGT330 Assignment 1

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Grant, R., Butler, B., Orr, S., and Murray, P. (2014), Contemporary Strategic Management: An Australasian Perspective, (2nd Edition). John Wiley & Sons Australia,, 08/2013. VitalBook file.

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