Any product has a life cycle and the same concept applies to tea.
Diversification is a process that takes place when the product reaches the stage of ‘declination’ in the market with the passing of time. Although it happened to the production of tea a few decades ago, the decision makers have been ignorant due to reasons best known to the industry.
One can question if bulk tea sold through auctions count as a product or raw-material to begin with? Raw materials are used in the primary stages or rather the manufacturing process of a good.
Raw materials are often referred to as commodities, which are bought and sold at commodity exchanges around the world. Black tea was treated as a raw material and therefore remained over a century in the commodity market without being developed into a product. Had this been done, a reasonable price would have been created and product positioning would have occurred in the minds of the consumer globally.
Attributes of a product include size, color, functionality, components and features that affect the product’s appeal or acceptance in the market. If products were developed out of tea, then there won’t be a need for an auction system as products are marketed and not auctioned. Products also need to be developed and diversified at the appropriate time. Therefore, the decision makers and the government must be conscious enough to refrain from spending millions on marketing raw materials overseas based on the disguise of ‘tea promotion’.
The decision makers of the tea industry here did not only avoid making a sellable product but were equally guilty of generating low revenue as a consequence of remaining in the commodity market. The profits generated were hardly sufficient to plough back to improve new plantations in order to maintain economic viability, hence sustainability. Thereby, they failed to pay a decent livable wage to attract and retain the best talents for the industry. So, the fundamental mistake with the tea industry of Sri Lanka is the lack of a product and the product mix that should be appealing to different market segments. We are still not late to obtain services of food scientists, market researchers, engineers and other similar and relevant professionals.
The low competency in top management therefore, had paid a supreme price costing a national economy and a wonderful industry. However, blindly trusting the law, all parties wait to watch as to how the Companies Act 2007 is going to be applied on the incompetent, top most executives of the tea industry managing the RPCs.
Meanwhile, the counterparts of Sri Lankan planters in other countries of the region handled matters differently and the following success story will bear evidence in a nutshell for the above mentioned.
Product diversification
Diversification of the product is the ‘process of expanding business opportunities through the additional market potential of an existing product. Diversification may be achieved by entering into additional markets and/or pricing strategies. Often the product may be improved, altered or changed, or new marketing activities can be developed.
The planning process includes market research, product adaptation analysis and legal review’. In the light of this definition, all of us are well aware that very little has been done by the RPC management to create a product except may be by a few. We salute those who made maximum use of the existing body of knowledge on developing a product mix and marketing those products globally. However, we do blame the rest for putting the industry at stake. The few who did well and majority who failed are partners of the same industry here which helps observers to separate the men from boys. Therefore it is clear that the incompetence in management and negligence to develop a sellable product together laid the foundation for the downfall of this industry.
Five point strategy of Starbucks
According to Forbes’ Business 2013, China with a long history of drinking tea just like Sri Lanka has a strong culture associated with tea. Not a soul could have guessed that the Chinese would drink coffee instead of tea in the future. Yet, Starbucks has successfully opened more than 570 stores in 48 cities since it first entered China twelve years ago. Building on this momentum, Starbucks planned to open 1,500 stores by 2015. What did the Seattle-based coffee company do right in China? Here are five theories to learn from Starbucks’s success.
* Think different
Given the fact that Chinese people have traditionally favored tea, it seemed impossible that Starbucks would be able to break into this market. However, Starbucks did not let this skepticism stop them. A careful market study revealed that as the Chinese middle class emerged, there existed an opportunity for Starbucks to introduce a Western coffee experience, where people could meet with their friends while drinking their favorite beverages.
The mere thought to step away from societal expectations gave them the nudge to act out on their view. There appears to be a lot more to learn from this strategy for our tea, provided we have the right product.
* Position smart
Once when Starbucks decided to enter China, they implemented a smart market entry strategy. They did not use any advertising or promotions that could be perceived by the Chinese as a threat to their tea-drinking culture. Instead, they focused on selecting high-visibility and high-traffic locations to project and magnify their brand image. Next, Starbucks capitalized the tea-drinking culture of the Chinese consumers by introducing beverages using popular local ingredients such as green tea. This strategy effectively turned potential obstacles into Starbucks’ favor. Chinese consumers quickly developed a taste for Starbucks coffee, which was essential to Starbucks’ success in China. We can really benefit from the application of this strategy to our plantations industry.
Starbucks is one sole company, but we have 22 companies over here. Nothing of this sort has been done over the past 40 years since we got full control over the industry. Where are our goals and strategies to move this industry forward? We do not even have a vision, let alone goals and strategies. Who do we blame for the dire state of this industry?
* Global brand
Starbucks understood the value of its global brand and took steps to maintain brand integrity. One of Starbucks’ best practices is to send their best baristas from established markets to new markets and train new employees. These baristas act as brand ambassadors to help establish the Starbucks culture in new locations and ensure that service at each local store meet their global standards. Who’s stopping us from taking a similar step forward? The few companies that have taken the risk ended up with successful stories so what about the rest? What happens to the majority of the industry?
* Local partner
China is not one homogeneous market. There are many areas in China. The culture from northern China is very different from that of the east. Consumer spending power in land is not on par with that of the coastal cities.
To address this complexity of the Chinese market, Starbucks partnered with three regional partners as part of their expansion plans. We too could have attempted to form a partnership with other tea drinking societies in the world. It’s still not too late to make a change.
* Long term commitment
China is not an easy market to crack. It requires a long term commitment. An important strategy is to invest in employees. During a visit to a Starbucks branch in Shanghai back in 2007, quite an impression was made by the cheerful greetings of Chinese baristas, which set Starbucks apart from the impersonators. Starbucks has done an excellent job in recruiting and training its employees. This is a win-win strategy because employees are at the heart of delivering the “Starbucks Experience” to customers. They are the best marketing ambassadors for the company.
So what have we done as a much more powerful industry to get tea across the globe? Have we been able to make at least a selling product out of tea like Starbucks did with their ready-to-drink products of coffee?
Looking at the scenario in the Sri Lankan plantations industry where training is more talked about than implemented; it is clear that failure was pre-written. But we believe that the tea industry can be turned around to become a US $ 5 billion industry by 2020.
Advocated by TRI – Tea as a beverage
Amidst all, the Tea Research Institute has been advocating the planters to develop a range of products for a long time now. This was proven futile however as it was equivalent to blowing trumpets for deaf elephants as many would not understand the language of the scientists due to the fact that most of the planters come from Commerce backgrounds.
Wages and retention of talent
The wages earned by workmen must be weighed against the cost of living in a country before making silly statements such as ‘highly paid workers in Asia but with less productivity”, etc.We must never forget that we live in a country that most employees pay almost 90 percent of their earnings merely to purchase basic food items just for survival.
The situation in the plantations industry is not different. Affordability is a key factor against retention of talent in consumer societies like Sri Lanka. Lower wages in the industry may have been a major contributory factor for the shortage of employees, high level of alcoholism and malnutrition associated sicknesses. All RPC companies experience an adverse development against attracting talent to the industry.
However, the out migration and senile aging population will bar plantations from the desired level of business performances if not handled soon. Just like the employees of these RPCs, tea-pluckers too cannot get higher poundage from senile tea bushes and nutrient depleted soils. We appreciate Lakshman Kiriella for his genuine and rational statements regarding the need of the daily wage of the employees of the plantations industry. We also identify those “special correspondents” who may be representing invisible hands with ulterior motives to blindfold the general public with irrational statements, but we being the practitioners, fully endorse the views expressed by Kiriella. Affordability is a different issue that should not be coined with the deserving wages.
Change
We also agree with the President of Sri Lanka that change has to be driven at times. Sri Lankans do have a proud history but not a proud present. This has to be investigated and treated fast. We have exported organically grown rice earlier to many parts of the world but today we export our mothers and sisters to Middle East for slavery.
How times have changed. If prosperity is a need and if that is the common choice, we need to remember the lessons of ‘benevolent dictatorship’. Change is compulsory and it has to be managed as there is no pleasure without pain. However, we need to be mindful whether it is the constitution of the country or the policies of the tea industry that are in need of change. There are four areas that need to be altered simultaneously if change is to be effective: Strategy, Structure, Technology and People.
Sri Lankan tea fetches some of the highest prices in the world and that is due to the selective hand-plucking of green leaves, but we end up consuming polyphenols, more commonly known as ‘kahata’. It is these polyphenols that are responsible for all the health benefits of tea. So why not review polyphenols as the new and emerging product with its constituents tested and labelled to create a new market segment and penetrate into other global markets?
The sudden change by the tea brokering firms since nationalization of the plantations in 1975 is another shocking area worth the investigation by the government. Whose side do the SL tea brokers represent now? This has to be investigated publicly. Do they act as double agents? What is the value addition they do to the process of selling? Why is the state supporting and nourishing the brokers when they hardly add value to the process!
The state regulation of tea marketing is also responsible for the limited performances of the RPCs. While any tea company in our neighbor India can sell all their products outside India, we in Sri Lanka cannot do the same. Our legal system that is affecting the selling of tea has to go through the tea brokers. Parallels can be drawn only from drug industry wide cartels like cocaine. We do sympathize with the CEOs of the RPCs only on this matter as this is just like asking a person to clap with one hand. Let the CEOs of the RPCs be given the freedom to market tea as a product globally without having to go through the Colombo tea auction system. Therefore it is vital that open market policies are implemented!
As much as we need good cultivars, we also need to understand our soil and climate as crops are weather sensitive and the weather is undependable due to climate change. If the transport of green leaves of smallholders is the killer of quality then the new system must cater to making the production at the smallholder’s facility itself. Miniature tea manufacturing machinery that can be produced locally should be the answer to overcome this issue. The government must fund and facilitate such support. A combination of business process re-engineering and value engineering may be helpful in replacing high-energy consuming bulky iron machinery with the aid of smart technology.
The new production and marketing process must be done with low cycle time, faster money circulation, reduction of costs and appealing to all stake holders that fit in the new value chain.
High cost and productivity
The industry in general is caught up in a situation where it says that the majority of the industry players are unable to plough back sufficient funds to improve profitability. It is revealed that the corporate sector has exhausted all borrowing capacities and the banks are unable to help them anymore. We need meaningful corporatization to revive all RPCs and the industry in general.
Building of soils and need for fertilizer
We agree that fertilizers play a key role in agriculture today. Fertilizing is virtually a ritual in planting, due to inadequate scientific knowledge of both soil and fertilizer by the management. That being said, hats off to some planters, who make good use of organic, control release, slow release, nano and effective micro-organism based fertilizers rather than whining and pining for artificial NPK. The concept of NPK again is due to the lack of understanding about “change”. Times have passed since NPK fertilizers were recommended although it is no surprise that the local plantation management is not aware of the advancement in the world. Today, the actual need may be micro nutrients rather than macro. Some trials have already proved this point. Over the years, with the introduction of chemical fertilizers the companies as well as the small farmers have neglected organic supplements.
We are still not too late to start a new journey with the end in mind. The tea industry of Sri Lanka is in a calamitous state and precautions must be taken before its utter downfall. Taking all that is stated above into consideration, let us work to help this industry grow to be bigger and better. The time has come for a new state of mind and some positive thinking because even at this latter stage a turnaround is still very much a possibility.
Let’s not give up now. It is still within reach. 5 billion US$ by 2020! That is the challenge. The decision makers must separate the men from the boys and know the difference! The CEOs of the RPCs who manage their plantations strategically must be admired publicly and felicitated in a most fitting manner and in the process the rest must be encouraged to follow suit.
We do strongly believe that the plantations industry in general and the tea industry in particular can be turned around with right policies put in place by the government and the owners of RPCs replacing their top executives with that of highly competent in management & in HRM concepts in particular. (The writer is a former Editor, Ceylon Planter’s Society Bulletin)
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