Tea as an of import drink is really popular throughout the universe. More and more people have formed the wont of imbibing tea because of its healthy benefits. China and India are the two largest tea states in the universe so far. Tea was foremost cultivated and brewed in China. It was so spread to other states and parts worldwide. Tea industry carries great significance to China in both economic footings and cultural footings. Chinese tea is an of import symbol of Chinese civilization. Chinese tea industry has dominated in the universe for 1000s of old ages. Speaking of tea, westerners of course relate it to Chinese civilization.
The cultivation of tea in India besides has a long history. Tea was cultivated and consumed in eastern and northern India for 1000s of old ages, but it is the reaching of the British East India Company that make production of tea in India commercialized. Tea is autochthonal to India and is the industry which the state is really much proud of. India has emerged to be the universe leader in tea production, ingestion and export in the past two centuries. India is one of the largest tea devouring states with 70 % of its tea production consumed by itself.
As the two oldest ancient eastern states, both China and India have distinguished tea civilization and imbibing wonts. The two peoples have shared the similar wont of imbibing green tea which is seen as medical specialty and has the maps to bring around diseases and refresh people. Chinese tea industry and Indian tea industry emerged in a really of import historical period, the 1830s. After 1830s, India, which was so British settlement and the tea bring forthing base of Great Britain, had learned how to do tea and began to vie with China in universe tea market. For historical grounds and other grounds, China began to lose its dominant place in the tea market in mid 19th century. From so, China ‘s tea industry was about destroyed and lost its dominant place to India.
The fight of Chinese tea decreased small by small and fell to its lowest point in history in the twelvemonth 1949, before the People ‘s Republic of China was founded. After so, China ‘s tea production and export started to reconstruct. During 1950s, China was bring forthing about 13.6 % of universe tea, and in 2007 the per centum was increased to 25 per centum. However, the portion of India during 1950s was 40 per centum and declined to about 24 per centum during 2007. China was exporting approximately 5.4 per centum of universe export during 1950s, while increased its portion to around 17.8 per centum in the recent two old ages. On the other side, India ‘s portion in universe export declined from 42 per centum during 1950s to about 13 per centum in the twelvemonth 2007 ( FAOSTATIS ) . Hence the inquiry arises about what are the factors responsible for the diminution of India ‘s tea production and the portion of its export in universe tea export.
China is now still the largest tea bring forthing states in the universe. However, it has no such universe celebrated tea trade name as Tata in India and the celebrated tea seting countries like Indian Darjeeling and Assam. Some Indian tea companies have even acquired celebrated foreign tea trade names which include British trade names Tetley and Typhoo. Although Chinese tea production has overtaken India in recent old ages, the international fight of China ‘s tea lags behind that of Indian tea in some facets. China so has rich resources to works tea, but has non yet made full usage of them. China still competes in universe market with low-cost merchandises. Additionally, China has absolute advantage in bring forthing green tea but deficiency fight in black tea. However, the universe tea market is dominated by black tea.
From the reappraisal of earlier literature, it can be seen that earlier surveies were chiefly about China ‘s ain public presentation in tea or India ‘s ain experience. Few surveies have focused on the comparing between Chinese and Indian tea, the two largest typical tea manufacturers in the universe, so it is gratuitous and meaningful of farther survey concentrating on this facet. This paper is specific to examine into the position quo of Chinese tea industry and Indian tea industry, their production, ingestion and trade, their international fight in universe market, and figure out the advantages and disadvantages of tea industry in both states and finally supply a brighter manner which could do the two tea manufacturers more competitory in universe market.
Chapter 2 Literature Review
2.1 Surveies on Classical International Competitiveness
Theory of international fight started every bit early as mercantile system, harmonizing to mercantilists, national wealth of a state is measured by gold and Ag. Through exportation, the state can acquire gilded and Ag from other states and therefore accumulate wealth. So the state should export the upper limit of its merchandise and import the lower limit of the merchandise from other states. Mercantilism dominated the international trade theory boulder clay Adam Smith published his maestro piece The Wealth of Nations ( Smith, 1776, cited in Ezeala-Harrison, 1999 ) . Smith viewed trade as positive-sum game alternatively of zero-sum game in Mercantilism. Harmonizing to Smith, a state should bring forth and export the merchandise in which it had absolute advantage and import the merchandise it had no advantage at all.
After Adam Smith, there were many other economic experts doing of import part to the theory. The most of import one is David Ricardo ‘s competitory advantage theory. Ricardo ( 1817 ) put frontward his theory by work outing a job in absolute advantage theory, that is, what if the state has absolute advantage in both goods? Ricardo thought that the better state should bring forth the merchandise which it has greatest advantage in. The other state should specialise where it has the least absolute disadvantage. Even if a state has no advantage in any good, it still can profit from international trade. After Ricardo, there emerged many theories of international fight, among which the factor endowments theory in early 20th century by Heckscher and Ohlin had great deduction to the international trade. HO theoretical account tells us that each state has its bosomy factors, and it should bring forth and export the merchandise whose production is intensive in the bosomy factor ( cited in Dong-Sung Cho, Hwy-Chang Moon, 2000 ) . Those authoritative theories of international trade have great influence on the ulterior economic experts.
2.2 Porter ‘s Competitive Advantage of States
In the late twentieth century Michael Porter of Harvard Business School published the book The Competitive Advantage of Nations that attempts to find why some states win and others fail in international competition. Porter ‘s basic thesis is that four wide properties of a state form the environment in which local houses compete, and these properties are factor gifts, demand conditions, associating and back uping industries, house scheme, construction and competition. These properties constitute “ the diamond ” ( Porter, 1998 ) .
Factor gift refers to the factors of production that determine the industry ‘s comparative advantage in the international market. Basic factors such as the natural resources, clime and location can supply the basic advantages. Demand conditions mean that such industry that can make place demand has comparative advantages. Industries can make this by bettering the merchandise and supplying superior-quality merchandise or service. The related and back uping industries are regarded as the complementary merchandises of the industry. The close relation and the coordination of related and back uping industries can increase the fight of the specific industry ( Porter, 1998 ) .
Porter ‘s diamond model combines the comparative advantage of different industries with the theory of competitory scheme. Different industries vary from each other in resources and capablenesss, which leads to the advantage and disadvantage in the dynamic environment fortunes. Harmonizing to Porter, it is the houses instead than the state that affair. The chief function of the state is the “ place base ” of the houses which helps in determining the individuality of the houses, the direction characteristics, the handinesss of the resources to the house. Firm scheme, construction and competition are the of import factors to find its fight. For illustration, the domestic competition may do the force per unit area on the house to introduce, lower its costs and better quality. Thus it can increase the competitory advantage of the industry.
The four factors in the diamond model are correlated with each other and work together to determine the competitory advantage of the industry over clip. Besides, Porter maintains that two extra variables can besides act upon the national diamond in of import ways: opportunity and authorities. The function of authorities is moving as a “ accelerator ” , encouraging houses to raise their public presentation and bring forth high-quality merchandises. Government besides works in exciting local competition through set uping anti-trust ordinances and restricting monopoly.
Figure 1 Determinants of National Competitive Advantage: Porter ‘s Diamond
Beginning: Drawn from Porter M.E. “ The Competitive Advantage of Nations ”
2.3 Surveies on Chinese Tea Industry
Since tea industry is of so great significance to China, many Chinese bookmans have contributed to the field of China ‘s tea. Fuping Huang ( 2000 ) compared export monetary value of China ‘s tea with that of India and Sri Lanka and believed that economic benefits of China ‘s tea lagged far behind other major tea states. Changxing Xu ( 2001 ) proposed that China ‘s tea industry enjoyed advantages on natural resources, geographics, assortments of tea and engineering. He besides emphasized that China was the largest green tea manufacturers and exporters in the universe and had great potencies in the field. Zhigang Xu ( 2001 ) made a research on China ‘s green tea, tested the comparative advantage of China ‘s tea from the twelvemonth 1990 to 2000 by using cost index method and concluded that China has no comparative advantage in bring forthing tea and therefore resource distribution in tea industry would take to blow and loss. However, he pointed that Shaanxi, Sichuan and Guizhou states of China still had some comparative advantage in tea planting.
Zhucheng Su ( 2001 ) proposed that China could larn from Japan who had invested in Australia and made usage of its resources to bring forth green tea. Since China had small fight in bring forthing black tea and besides confronted great bounds when presenting black tea from abroad, it could put in such states that had advantages in bring forthing black tea, cooperated with them and took advantage of their resources to bring forth and market black tea. Su besides believed that competitory advantage of China ‘s tea had for a long clip lied in its factor gift advantages but it was the industry forming system that had great impact on fight. Therefore, he suggested China should optimise the organizing construction of its tea industry.
Zhongyu Chen ( 2002 ) analyzed the statistics of tea export volume and besides believed that China had great competitory advantage in green tea and oolong tea, while lacked competitory advantage in black tea. However, the markets of green tea and oolong tea were comparatively little. What ‘s worse, Vietnam, India, Sri Lanka and Indonesia began to increase the production of green tea and competed with China in universe market. So, he believed that China ‘s tea industry still has a long manner to thrive.
Some foreign experts have besides done a batch of research on China ‘s tea industry. Forster Keith has one time researched Chinese tea during the whole 1990s. Forster ( 1993 ) pointed out that China ‘s tea industry had long been capable to assortments of monetary value and production controls by the Chinese authorities. Since 1980, the production and selling system of the tea industry have been changed a batch and the province reduced its function in purchase and gross revenues of tea, and tea plantation owners had more freedom to turn and market their tea, which has led to the great development of China ‘s tea industry.
2.4 Surveies on Indian Tea Industry
Equally early as in 1991, Neelanjana Mitra figured out the jobs that Indian tea industry was confronting over the period 1960-90. One of the major jobs had been the slow growing in tea production compared to the steady rise in domestic ingestion. Over the period 1960-90, the one-year growing of tea production had been merely 2 per centum, while the growing of domestic ingestion had been approximately 5 per centum. The slow growing in tea production was of course accompanied by a diminution in universe market portion of Indian tea export. Therefore India failed to take the advantage of the spread outing universe tea market.
In the recent instance survey of Indian tea sector, Himanshu Dutt ( 2007 ) has done a really through analysis of Indian tea industry. Harmonizing to Dutt, the production and export of Indian tea has been sing great ruin in recent old ages. Domestic ingestion has besides witnessed diminution. Higher labour cost, clime alteration and more ferocious competition from Kenya, Sri Lanka and China are the chief grounds. Application of industrial labor Torahs for public assistance and societal security has greatly increased the labor cost. Under the free trade understanding of WTO, inexpensive tea merchandises from other chief tea manufacturers began to vie in universe market, which has led to the monetary value downswing of tea in universe market.
Dr. B.H. Nagoor ( 2009 ) , a lector from Karnatak University, has studied in inside informations the public presentation of India ‘s tea export. He pointed out by mentioning to the information of Indian tea from 1950 to 2004 that India ‘s portion in universe export has declined from 42 per centum during 1950s to about 22 per centum in 1981-90 and farther to 13.3 per centum during 2001 -04. The trade release under WTO has non benefited Indian tea industry. Nagoor suggested that the chief factors doing the hapless public presentation of India ‘s tea export are the lifting domestic demand, slow addition in output, slow enlargement of tea seting country, failure to vie with other major tea states, increase supply of tea in universe market and besides the loss of traditional market like UK, Russia ( Nagoor, 2009 ) . However, the physician besides saw the positive side of Indian tea export and he believed the chances of Indian tea export was bright since the import of developing states was increasing and Indian tea should seek new chances and happen some new markets like Pakistan, Iraq, Kazakhstan and so on.
Dan Robertson ( 2010 ) analyzed the province of Indian tea industry by comparing with China. Robertson proposed India tea was dawdling and has lost its dominant place to China in both production and export. Many grounds were responsible for the diminution. The major 1 was that few tea estates in India were aggressive in marketing their merchandises. Although India has celebrated tea like Assam and Darjeeling, aliens still cognize small about what Assam tea is and where it comes from. Furthermore, Indian tea estates pay small attending to giving their tea a fancy name or bundle.
However, Jayanta Roy and Kaushik Das ( 2009 ) have held the belief that the mentality of Indian tea industry in the short and average term was positive. From 2008, the domestic demand has increased steadily. Because of the deficit in production in many other states, the Indian tea has witnessed an addition in export. The mean domestic monetary value has besides seen the addition by about 28 per centum, which led to the betterment of net incomes of tea manufacturers. For the Indian tea industry, the chief driver of demand lies in the domestic market, so the addition of domestic demand has improved the public presentation of Indian tea industry as a whole. The chief ground for demand addition is the effectual selling scheme taken by the tea participants which include the positioning tea as healthy drink. The richness of Indian people is another ground. In the medium term, the uninterrupted addition in domestic demand and export will maintain the monetary value at high lever in the average term. However, if the industry is unable to keep the current export degree or if the production of other major tea states restore to high degree, the domestic tea monetary value will increase due to the higher supply in domestic market ( Jayanta Roy, Kaushik Das, 2009 ) .
2.5 Measuring Parameters of International Competitiveness
There are some of import parametric quantities that can reflect the international fight of a merchandise, including universe market portion rate ( WMS ) , monetary value and cost, normalized trade balance ( NTB ) and revealed competitory advantage ( RCV ) . World market portion rate ( WMS ) refers to rate of the export value of one merchandise in a peculiar state to the universe entire export value of that merchandise, that is WMSi= Xi/Xw. WMSi is the universe market portion rate of state I, and Xi is the export value of given merchandise of state I, Xw refers to the export value of given merchandise of the universe.
Normalized trade balance refers to the rate of net import value or net export value to the entire trade value of a peculiar merchandise. That is, NTBi= ( Xi-Mi ) / ( Xi+Mi ) . Ten is the export value and M is the import value and one refers to merchandise I. If the import value of one merchandise surpasses its export value, the merchandise is import oriented. Otherwise, the merchandise is export oriented. If the rate is really close to 1, it means that that merchandise is extremely competitory in the international market. And no affair what the import value and export value are, the rate is between -1 and 1 ( P. Lelio Iapadre, 2001 ) .
Revealed competitory advantage is an index used in international economic sciences for ciphering the comparative advantage or disadvantage of a certain state in a certain category of goods or services as evidenced by trade flows. It is based on the comparative advantage construct of David Richard. It most normally refers to an index introduced by Balassa. The Balassa index fundamentally measures normalized export portions, with regard to the exports of the same industry in a group of mention states. The Revealed Comparative Advantage ( RCA ) index is measured by this expression: RCAi = ( Eij / Eit ) / ( Enj / Ent ) , where I is state index, J is trade good index, n refers to a set of states and T is a set of trade goods. If RCAi i?z1, it means that the state has revealed advantage in trade good J ; If RCAi i??1, the state has no revealed advantage in this trade good. The bigger RCA is, the more competitory the state is in the peculiar trade good ( Balassa, 1989 ) . In the on the job paper Revealed Comparative Advantage, an Analysis for India and China, Amita Batra and Zeba Khan ( 2005 ) foremost applies the Balassa index to measure the revealed comparative advantage for India and China in the planetary market, which provides an of import resource for research workers to make comparative analysis between China and India.
Chapter 3 Historical Development of Chinese & A ; Indian Tea Industries
Chinese and Indian tea industries both enjoy really old history of tea. Chinese tea industry has got international repute and scale economic system at times every bit early as Tang Dynasty, while the development of India tea industry started much later. It was the reaching of East India Company in1820s that made India tea into the universe phase. It can be said that the diminution of Chinese tea industry since 1840 had accompanied with the rise of India tea industry. Today the two states stand together as the two largest tea states, but the bring forthing, operating and marketing systems of Chinese and Indian tea industries are different from each other.
3.1 Historical Development of Chinese Tea Industries
Harmonizing to Lu Yu, author of the book Tea Classics during the Tang Dynasty, Chinese tea has enjoyed a history of more than 4000 old ages. In the West Zhou Period in ancient China, tea was used as spiritual offerings. Since the Jin Dynasty ( 265-420 AD ) , tea imbibing had spread to all parts of the state. The new drink made tea into a major trade good. Tea as a drink prospered during the Tang Dynasty ( 618-907 AD ) , and tea became popular among common people. Tea became an of import harvest during the Song Dynasty ( 960-1279 AD ) . Tea farms covered more than 200 counties. Tea planted in Zhejiang and Fujian states were used as expensive testimonial tea, some of which was even exported to Southeast Asian and the Arab states ( Tea history, 2010 ) .
In the Ming ( 1368-1643 AD ) and Qing Dynasty ( 1643-1910 AD ) , tea trade began to play an of import function in the authorities ‘s economic programs and the “ Tea and Horse Bureau ” was set up to oversee the tea trade. In the Song Dynasty, Arabic merchandisers exported tea from Fujian Province, China. In the Ming Dynasty, tea was sold to Southeast Asian and South African states. In the twelvemonth 1610 tea went to Europe via Macau in a Dutch merchandiser ship. Tea so became an international drink. From Tang Dynasty to the 19th century, China was the lone big state that exported tea in universe market ( Tea history, 2010 ) .
After 1830s, India, which was so British settlement and the tea bring forthing base of Great Britain, had learned how to do tea and began to vie with China in universe tea market. For historical grounds and other grounds, China began to lose its dominant place in the tea market till the Opium War in mid 19th century. From so, China ‘s tea industry was about destroyed and lost its dominant place to India. The fight of Chinese tea decreased small by small and fell to its lowest point in history in the twelvemonth 1949, before the People ‘s Republic of China was founded. After so, China ‘s tea export started to reconstruct and increase its portion in universe market.
China now is largest manufacturers of tea in the universe, followed by India, Sri Lanka and Kenya. China ‘s tea industry has enjoyed great advantages on natural resources, geographics, assortments of tea and engineering. Besides, China is the largest green tea manufacturers and exporters in the universe and has great potencies in the field. However, China has less competitory advantage in black tea. Since the universe market has really low demand for green tea and oolong tea and higher demand of black tea, it is pressing for China to set more resources to increase the international fight of black tea. Furthermore, in China ‘s tea industry, small-scale husbandmans still account a larger portion in tea planting, which leads to the low productiveness of tea. It is hard to recognize industrialised production. China ‘s deficiency of large tea trade names is the chief barrier of its tea industry.
3.2 Historical Development of Indian Tea Industry
The production of tea in India besides has a long history. The ingestion of tea in India can be traced back to 700-500 BC, in the Ramayana. It is proved that tea was cultivated in eastern and northern India for 1000s of old ages. However, it is the reaching of the British East India Company in the early 1820s that made tea production in India commercialized. In the early 1820s, British East India Company began to bring forth tea in Assam of India in a larger graduated table. In the twelvemonth 1837, the first English tea garden was established in Upper Assam. The Assam Tea Company began the commercial production of tea in the part in 1840. From the beginning of 1850s, Indian tea industry quickly expanded. Assam has besides become the taking tea seting country in the universe ( Adivasis in Assam, 2008 ) .
Indian tea production is concentrated in rural hills and backward countries of South India and North India, and tea production in North India accounts 75 % of the entire tea end product. In Northern India, Assam Tea Company and Sikkim are the taking tea sets and are celebrated for its high-quality tea throughout the universe. In Southern India, Dilgiri, Kerala and Karnataka are the chief tea manufacturers. One of the typical feature of India ‘s tea production is its high degree of industrial concentration. 88 % tea gardens cover 8 hectares in country and the per centum of tea gardens which cover more than 400 hectares is 2.5 % . In Assam entirely there are 740 tea gardens, and each has 303 hectares in country and separate processing mill, packing mill and export subdivision. India chiefly produces black tea, but in recent old ages, its production of green tea has besides witnessed a rise. The assortments of tea planted in India scope from the original Orthodox to CTC to Green tea, from the Darjeeling tea to the strong Assam and Nilgiri Tea. Orthodox tea is produced for exporting. Production of green tea in India is comparatively little.
Indian tea has long been the most of import foreign exchange earner for the state. UK has been the chief purchaser for Indian tea. Russia is besides the chief consumer of Indian tea. However, because of the competition from China, Kenya and Sri Lanka, export of Indian tea to UK and Russia has declined in recent old ages. China is the major state to bring forth green tea, while Kenya and Sri Lanka competes with India in Orthodox assortments of tea.
In the past one and half century, India was the largest manufacturer of tea, but late, China has regained its dominant place in tea production due to the increased land handiness. Despite of this, India has establishes some really celebrated tea trade name in the universe like Tata Tea Group of India, which appears to be the largest tea trade name in India and besides the universe ‘s 2nd largest maker and distributer of tea ( Tata Tea Company Profile, 2010 ) . The company owns more than 50 tea estates in India, particularly in Assam and Darjeeling. Tata Tea Group is one of the first Indian multinational companies. Tata Tea has achieved great success in the planetary market. In 2000, Tata Tea acquired Tetley Group based in the United Kingdom. That was an of import event in Tata ‘s history because Tetley was the 2nd largest tea company in the universe, merely 2nd to Unilever ‘s Lipton. The acquisition prompted greatly the development of Tata Tea Group in the universe tea market.
Chapter 4 Methodology
The aims of this undertaking are to place the position quo and international fight of Chinese tea industry and Indian tea industry, why the Indian tea production and export declined in the past five decennaries and why Chinese tea industry has non establishes its tea trade names in universe market, and what aspects the two states can larn from each other. In order to run into the aims, this portion provides chiefly the secondary research method by which the research worker refers to the existed literature and statistics. Based on the 2nd informations from assorted resources, the writer chiefly applies Porter ‘s diamond model to analyse the factors that influence the international fight of Chinese tea industry and Indian tea industry. Then the writer will do a through comparing between the tea industries of the two states.
4.1 Secondary Research Approach
Secondary research is a really of import beginning to acquire utile information. Secondary information refers to the beginning of informations and other information collected by others people and archived in some signifier, including authorities studies, archived informations, industry surveies, traditional books and diaries. The obvious advantage of secondary research is convenience and handiness to acquire the secondary information ( David, Michael, 1993 ) .
The survey is based on clip series informations during the period 2000-2008. Data is got from FAOSTATS, WTO, Tea Board of India and China. To analyze the international fight of Chinese tea and Indian tea, some mensurating parametric quantities of international fight are applied including universe market portion rate ( WMS ) , monetary value and cost, normalized trade balance ( NTB ) and revealed competitory advantage ( RCA ) . WMS and NTB can be computed from the informations in FAOSTATS. The monetary value refers to the mean monetary value of the exported tea, which is the ratio of the export volume in dollars and the export volume in dozenss. As to RCA, an earlier paper, Revealed Competitive Advantage: an Analysis for India and China has already covered this and acted as a elaborate mention for this paper.
4.2 Comparative analysis
Business dictionary defines comparative analysis attack as point by point comparing of two or more comparable options, procedure, merchandises, systems and so on ( Business Dictionary, 2010 ) . As the two largest tea states in the universe both with a long history, China and India portion both similarities and differences in tea production, ingestion and operation manners. The paper compares China with India in tea production, export and some other of import indexes to mensurate their international fight. Besides China and India besides compares with itself in different periods. As to the factors that determine the international fight of tea industry, the paper pays much attending to analysing the factors included in Porter ‘s Diamond that have influence on the fight of Chinese and Indian tea industry.