Strategy experts suggest that Sri Lanka’s tea industry should consider adopting the blue ocean strategy for profitably and sustainability.
The comments were made at a seminar organized by Tea Exporters Association (TEA) recently under the theme of ‘Inventing New Horizons for Ceylon Tea’ with the objective of finding new strategies for the development of tea industry which is currently at cross roads due to a number of internal and external factors.
Dr. Ravi Fernando, a well-known corporate strategy expert, Dr. Chandra Embuldeniya, first Vice Chancellor of Uva Wellasssa University and Dr. Udaya Indraratne, former advisor to Dubai and Abu Dhabi governments, were the three eminent speakers at the event which was attended by Secretary, Ministry of Plantation Industries and Agriculture Exports, Chairman, Sri Lanka Tea Board and many other senior government officials and tea industry stakeholder members.
Welcoming the participants Sanjaya Herath, Chairman of Tea Exporters Association assured that, TEA is ready to do its best to uplift the tea industry and work together with other stakeholders. Tea is one industry and belongs to all stakeholders and everybody should come out from their water tight compartments to understand each other’s problems. The industry should be run by the stakeholders and therefore joining hands with each other is necessary to take the industry forward.
Jayampathy Molligoda, Chairman of SLTB addressing the participants stated that, Ministry of Plantation Industries and Colombo Tea Traders Association are currently working on two strategy documents, one looking at the industry issues from grower level up to the end consumer and the other one looking from the international demand for Ceylon Tea down to the tea small holder grower. In Sri Lanka’s context what is important is to have a strategy plan that is implementable as many studies done in the past have ended up in the respective organizations without taking any action.
Tea industry is the most organized agriculture sector in the country which has survived for the last 152 years and SLTB is committed to guide the industry to make a bigger contribution to the national economy. One drawback in implementing strategies is lack of funding and the government is looking at possibilities of obtaining equity through multinational agencies to revive the tea industry.
Any misunderstandings among the stakeholders should be addressed through dialogue to uplift the status of tea industry. It should have a proper value addition at each stakeholder level and if not no one will be interested in investing in the tea industry.
Dr. Ravi Fernando spoke on the theme of ‘Creating Blue Oceans for Sri Lanka tea industry”. The essence of blue ocean strategy is to open up new market opportunities and create new demand where competition will be irrelevant. It is about creating and capturing uncontested market opportunities where competition does not exists. In the blue ocean strategy, the demand is created rather than fought over with other competitors. The strategy focuses on identifying opportunities for rapid growth and profitability. The competition is rather irrelevant as the company is targeting at unexplored market space. The strategy also speaks on “Red Ocean” or current market space where the boundaries or the limits and competition are known. The companies who are in red ocean try to out-perform the competitors to get a share of the current demand. Dr. Fernando identified four factors that will influence any initiative to take the tea industry forward.
- Team performance – all stakeholders to work as a team
- Tea is a beverage – Ceylon Tea has to be relevant to tomorrows consumers and not to the past
- Tea is an agro based industry – climate change impact is already set in on the agriculture sector. Any strategy should take this fact in to consideration.
- Create value in consumer mind / at consumer end to get better prices for Ceylon Tea.
- He opined that currently Sri Lanka tea industry is in the red ocean trap due to following factors.
- The mistake of expecting consumers to be loyal to Ceylon Tea forever.
- Expecting new generation to make and drink Ceylon Tea in the same way without paying much attention to demand for convenience and changing consumer habits.
- Country can manure with standards and quality of tea and expect world consumers to accept it.
- Innovation in all sectors is not needed.
- No urgency for having Ceylon Tea GI and facilities for testing tea locally.
Sri Lankan tea exporters should explore new markets where opportunities and profits are. The existing markets for Ceylon Tea should be sustained as the industry has invested heavily to capture these markets but if the value of tea exports to be enhanced getting in to new markets is important. The exporters are facing more competition in existing markets and profitability from these markets appears to be low.
The Sri Lankan tea industry should also look at developing new products to be more competitive in the world tea market. The world consumers may have been loyal to Ceylon Tea for the last 150 years but there is no guarantee that the new generation will be loyal to Ceylon Tea as consumer taste, habits etc have changed. The competition from other beverages that have innovated with the change of time could attract tea consumers to their products and hence having a unique product that can appeal to the younger generation is vital for sustainability of the industry.
He further stated that, the taste bud of future consumers should be the parameter for deciding consumer liking of Ceylon Tea and not the taste buds of tea tasters of individual tea companies. The convenient factor, ethics, tea and health aspects, sustainability of industry, innovation to suite the future demand are necessary to enhance the demand for Ceylon Tea and profitability of the industry. He also stressed that stakeholders should pay attention to the following market changes as well.
- Consumers who drink tea now could move away to other beverages in the future- loss of market opportunities
- Unexplored non tea consumers- that may provide a new opportunity as they may want to drink tea now
- Those who refusing to drink tea – haven’t drunk tea before but may want to drink tea now- an opportunity
Today the consumers decide the future of a product. The competition in existing markets or red ocean will eat in to profits of companies. Therefore, creating new opportunities without delay with exploring new markets with new products would be the key to profitability and sustainability in the tea industry.
Dr. Chandra Embuldeniya also stressed the fact that Sri Lanka tea industry should move away from red ocean trap and embrace the blue ocean strategy for its sustainability. Tea as we are selling today will not add value and it can be unsustainable soon. He explained that Sri Lanka should think beyond the primary level production of tea for its profitability and sustainability.
Even if the country spends the entire amount of tea promotion fund on promotion of Ceylon Tea with the same model in our traditional markets, it will not be able to enhance the export revenue beyond US$ 1.6 billion unless the whole model of the industry is changed. Presenting his views on the theme of “US$ 4 billion of tea export revenue in 5 years – reality or hype”, Dr. Embuldeniya stated the country would not be able to achieve this target even after 10 years unless industry players understand the changing global tea market requirements and adjust the domestic structure to cater to it.
Reliance on high risk markets
As per available data, over 75 percent of Sri Lanka tea exports are absorbed by 15 importing countries, most of them are high risk markets due to political and economic factors, but this has not changed significantly in the last few decades leaving Sri Lanka in the red ocean trap. Commenting on the tea auction prices, he mentioned that, though the Colombo Tea Auction prices are above the prices of all other tea auction centers, the gap is gradually coming down with decline in demand for Ceylon Tea or due to heavy reliance on high risk markets that are unable to pay high prices.
Dr. Embuldeniya highlighted the need to change at the right time. Quoting examples of KODACK and SEARS super market chain in USA that collapsed due to their failure to change with the time, he advised the stakeholders to change with the demand and habits of global tea consumers.
Ceylon Tea has not changed enough during the last 150 years. It is clear that, government cannot financially support the industry any longer. It is necessary that all stakeholders adopt changes now before it can be too late. He also highlighted the importance of having a balance sheet for the entire tea industry.
Though individual companies in the tea industry have their own balance sheets no study has been done to determine the profitability of the entire industry. It is necessary to develop a tea industry cash flow statement for the last few years to know where we stand.
Sri Lanka tea land productivity compared to other countries is very low and soon the industry may not be sustainable. At present, the world is going through the forth industrial revolution and some of the key factors of current revolution are disappearing of physical, digital and bio-logical boundaries.
We are still in the first and second industrial revolution era that prevents or delay the change in the model of production and marketing of Ceylon Tea. The problems in the tea industry are related to entrepreneurship, end of life circle for many tea plantations, low yield etc.
His suggestion was to add value through use of new technology as many areas of the tea industry are still not using the new technology including the sale of tea at the Colombo Tea Auction. The technology should be used both in tea manufacture and marketing. The strategy for the tea sector should include a consolidated account for entire tea industry for the last 10 years, plan for next 10 – 25 years and value creation through non tea products. Some of the tea based products may not be in the same domain where we are currently in.
In his opinion, tea is not only a beverage. Research teams should work on creating value through new products, finding markets and also new marketing channels for Ceylon Tea. The value of tea as a beverage is slowly declining and other tea based products in cosmetic and pharmaceutical sectors are gradually emerging as value creators for the tea industry.
The Sri Lankan tea industry should work on identifying research lab facilities with food technology, capacity to develop health, wellness and beauty products etc. The research team should share and transfer the knowledge to the tea industry and then setting up public and private sector partnership for commercials scale production. Research on consumer preferences and value addition to different products are also important in this exercise.
Dr. Udaya Indraratne, who spoke on ‘Building resilience through strategic approach for competitive advantage for Sri Lanka Tea Industry’ emphasized the importance of creating competitive leaders to guide the industry. The owners or CEOs of tea companies should build up knowledge based leadership qualities to face the challenges post by the world competition. The economic maturity, ability to enhance the production to feed the consumers and ability to identify & face global competition are some of the major characters required for a good leader who can drive the tea industry through the rough water.
Sri Lanka is a low value addition country not only in tea but in many other sectors as well and the exception could be in the apparel sector. Sri Lanka’s export per capita is US$ 543 compared to US$ 1,619 for Vietnam, US$ 3,530 for Thailand and US$ 50,299 for Singapore.
Strategy for value addition locally
The value addition to tea takes place outside Sri Lanka and country should have a strategy to retain it locally. The export basket of tea has not changed for many years, another reason for low value addition in the tea sector. A good leader will identify the gaps and determine where the company or industry currently stands and the way forward to achieve the final objectives.
A good leader identifies the strength and weakness of the company and the industry and then plans a suitable strategy with wisdom and knowledge. The industry faces challenges as small holder growers do not follow good agricultural practices (GAP), low application of technology, unethical competition, low quality and productivity etc. The large plantation companies also lack innovation and value addition in their sector. Even the exporters lack innovation for use of more technology in creating new products and value.
In his opinion, a paradigm shift in all sectors of the industry is required to overcome the current issues. The industry should set up clusters under each sector and each cluster should analyze its internal and external environment, resources, vision and mission, develop options, do rational selection, and find strategies for way forward for implementation.
Analyzing market-based environment to find a strategic route forward is a key factor in this regard. Developing academic type economic models will not help to address the tea industry issues. According to available information only about 3 percent of farmers in agriculture sector in Sri Lanka are skilled farmers. The same scenario may apply to tea cultivation by small holder growers also though the percentages may be different. The skill development in tea cultivation is necessary as the product is manufactured for export market.
He advised the tea companies to consider Singapore formula of MPH for running their business. The basics of MPH module are, right people should be appointed to run the organization (meritocracy). The application of solution without being boarded with any ideology or fixed ideas (pragmatism) is also necessary. Having honest people in the organization and industry is also a key to the success of implementing strategies for the betterment of the Sri Lanka tea industry.