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Indian Tea Case Study

1690 words - 7 pages

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.

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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).
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).

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

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