for mutually planned branding and operating has been synergy. Synergy is still rare in the tea trade, especially in the main producing region, Asia. Unilever, the Anglo-Dutch gigantic conglomerate, approaches synergy with Lipton, Brooke Bond, and hundreds of other consumer products, distributed worldwide. Unilever’s synergy involves coordinated marketing and advertising, plus distribution piggybacking, especially to supermarkets. Unilever also shows the continued relevance of vertical integration, announcing the majority purchase of Rossell Industries Ltd.
Looking at another colossus, Tata Tea’s strategy to buy Tetley attracts attention for the several hundred million dollar purchase price, the wealthiest such marriage in tea history. However, any big long-term profit will be based on as-yet-unproven synergies. Tetley, based in the U.K., combines very high brand recognition with reportedly serious middle-management dissatisfaction, on both sides of the Atlantic. Tata Tea has the reverse situation, with dedicated, professional middle-managers combined with only minimal global consumer brand recognition. Tata’s deep pockets and solid management can attain synergy with Tetley’s strength in branding, packaging, and bagging. The buyout will incur added debt, forcing harsh cost-effective decisions, and Tata will likely jettison a big chunk of Tetley’s problematic middle echelon.
Synergy is far more complex than merely streamlining subsidiary operations for greater efficiency and economies-of-scale. To attain synergy, the combination of subsidiaries must create a whole company greater than the sum of its parts. Williamson Magor previously merged subsidiaries Namdang Tea Co. and Makum Tea Co., as per the Group’s strategic plan. One remaining subsidiary, Bishnauth Tea Co. Ltd, produces about 18 million kilograms of tea. Currently, WM is divesting engineering subsidiaries and focusing on branded consumer products, like tea and batteries. WM’s planning also encompasses their powerhouse subsidiary Mcleod Russel Tea Division, which markets brands Tez and Premium Gold.
Distinctly regional types of tea corporate structure exist, most notably the family-based dynastic system common in Asia. This old-style corporate structure is evolving suitable flexibility to embrace required technological change and the new demands of export globalization. WM Group, controlling Eveready, Bishnauth, George Williamson & Co. (UK), George Williamson Kenya, and Mcleod Russel, is jointly owned by the Khaitan family and the Magor family in the U.K. The personnel involved in top management and based in India are: B.M. Khaitan, D. Khaitan, A. Khaitan, and P.K. Khaitan, with Philip Magor who is the managing director of the George Williamson & Co. Limited in the U.K. This is an excellent example of synergy, their Eveready (India) Ltd owns 500 vans that transport batteries to many thousands of venues, and these vans distribute Mcleod Russel tea along with the millions of batteries.
R.S. Jhawar, an Eveready director whose authority extends over Mcleod Russel, allocates much of his time to linking corporate, governmental, and trade association sectors. Some governmental agencies and trade associations are gaining strength, whether because of new laws, like those allowing tea futures markets, or because of new consumer demand, like organic. Many organizations are regional, like SAARC, coaxing more leaders from neighboring nations into regular personal meetings.
International meetings of tea leaders are an increasingly large business. Private companies that specialize in these power-elite pow-wows are now important suppliers to the tea trade. The progress of K W Conferences Pvt Ltd shows the significance of formal meetings and conventions for tea trade leaders’ personal networking. KW is the company managing this spring’s top forum for the global tea business: the unique, influential International Millennium Tea Convention, in Delhi, March 22-24, where the new era will be strategized during chin-wags, chow-downs and schmooze-fests.
Globalization really is a new era, one that challenges regional identities like “South Asia,” “East Africa” or “European Union.” The primary bureaucratic manifestation of globalization is the World Trade Organization. The tea trade’s official associations, whether governmental or independent, pay less attention to the United Nations (UN) - the archetypal international bureaucracy - and more attention to the WTO. The only nation fully divergent from this trend is Iraq. Iraq’s exception proves the rule, because they lost sovereign trading power after their invasion of Kuwait triggered defeat in the Persian Gulf War. Iraq buys tea under the constraints of a UN sanctions program.
Tea executives confidentially profess confusion about the WTO’s increasing role in their business. Tea earns “hard” currency for producing nations’ treasuries only in international trade. The WTO possesses jurisdiction over tea as an export commodity, ultimately having authority as a dispute mediator. Trade tariffs for tea are allowed, but subject to WTO regulation. The WTO is itself a successor regulatory bureaucracy, risen from the ashes of GATT (General Agreement on Tariffs and Trade). One tea trend currently confounding trade regulatory organizations is re-export (and even re-re-export), usually as blended tea. Most confounding is the reported rise in mass shipments of smuggled tea, such as large tonnage boatloads from China into India, or between India and Sri Lanka.
Re-export, legal or illegal, is growing within individual tea regions. The re-export issue is trickiest today between Sri Lanka and India. These neighboring nations both belong to SAARC. Ceylon tea is almost entirely oriented to export markets, a necessary situation in a very low-population nation. Plus, the Sri Lankan government badly needs “foreign” currency earned from export, to pay for a budget-busting war against heavily armed, expansively entrenched, separatist extremists. Top Ceylon executives plan to blend their tea with Indian, then re-export to major world markets, including back into India’s huge tea-consuming domestic market. A final quirk involves a third SAARC member, Nepal, now planning to expand branded tea re-exports out of Calcutta; Nepal uses Calcutta as a hub for shipping unblended Nepali to the affluent Western markets, filling a niche for “exotic” origin tea.
Tea c.e.o.’s - often at variance with their own nationalistic political officials - know the re-export trend will continue. Top multi-national executives are working to promote the regulatory and enforcement environment best suited for their companies. M. H. Ashraff, executive director of Tata Tea, takes the moderate position between complete free trade and high trade barriers, recognizing the trend toward more Ceylon-Indian legitimate trade. Ashraff chairs the powerful, media-savvy United Planters Association of Southern India (UPASI). Skillfully, Ashraff checks trade arrangements for WTO regulatory compatibility before providing his support.
At the time of this writing, the WTO is pressuring the European Union (EU) - which covers a prime region for tea consumption, especially value-added - to kill tea tariff “preference” to Kenya. The EU’s tariff preference to Kenyan tea bestows major price advantage to that nation. Kenya is no match for the WTO, and lacks the power to maintain this EU tea trade preference if WTO objections persist.
The intertwining of regional and global sectors places more work on the desks of tea trade associations, especially when these organizations are governmentally affiliated or are covering new markets, like the Indian Bio Organic Tea Association. Individual tea companies are rarely large enough to afford veteran international trade experts on staff. The role of representing tea executives falls, by default, to their national, regional, or global trade associations. Tea c.e.o.’s need this new-generation international trade advice.
Trends molding the world tea industry range from re-export to futures markets. One young organization, the WTO, possesses power reaching into every tea region. New technology and market mechanisms are irreversible factors, boosting profit while burdening tea executives with an added layer of complexity. Keeping informed, networked, and energized is all part of the job.
Randy Altman is an intertational journalist covering the tea market. He has advised the United Nations and other transnational organizations, and has held directorships and offerships at various non-profit corporations. He also holds several adjunct academic appointments.