Export Strategy for Green Tea from Thailand to UK - Case Study Example

Export Strategy for Green Tea (Ichitan) from Thailand to UK Export Strategy for Green Tea (Ichitan) from Thailand to UK Brief Synopsis of the Issue The article is about the development of an effective strategy to export Green Tea (Ichitan) by Thailand to UK. Ichitan has never been exported to UK markets by Thailand and, therefore, the country needs a proactive and satisfactory trading strategy to undertake this mission. There are only two export strategies that can be adopted by Thailand in its bid to enter the UK markets; Direct and Indirect export strategy. In this article, the best approach is the indirect export strategy through the intermediaries. The indirect approach is selected over the direct approach because; the exporting country will benefit from the intermediaries in a number of reasons thus increasing possibility of success at a reduced cost. One of the pros of the indirect approaches is that the intermediary undertakes market research on behalf of the firm and recommends the feasible foreign markets as well as potential bias. The country will use the services of EMCs and ECTs, international trade consultants to achieve the indirect approach to export the green tea. In addition, the intermediaries present a lucrative opportunity for an exporting country through the provision of access to well-established expertise and trade contacts. Interestingly, the exporter mutually benefits with most of control over the process still vested in it. Thailand still benefits from such exporting experiences like learning about foreign competitors, market opportunities, as well as new technologies. Furthermore, because this is a new product that has never been exported to UK markets, it is prudent that the Thailand works with these intermediaries. Subsequently, Thailand gets the best of the arrangement since the intermediaries will present vast and valuable information lacking in the direct exporting strategy. On the other hand, direct approach is not recommended for Thailand in this arrangement. Despite direct export strategy ambitiousness, it is difficult as the Thailand will individually execute every aspect of exporting progression right from market research and planning for overseas dissemination and collection. However, a successful implementation of the direct approach calls for massive commitment management in time and attention. Therefore, as Thailand enters the new UK markets, it is justifiable to benefit from the indispensable service of the trade consultants. It will also benefit from EMCs, ECTs and qualified intermediaries and can shift to direct export in the future once established. Recommendation(s) Issue: It is recommended that Thailand exports the green tea (Ichitan) to UK markets via indirect strategy. Since the importer has never imported such a product, it will generate more income due to limited competition. Also, Thailand will enjoy the reduced management commitment in time and money compared to the direct approach. Product: The product recommended for export from Thailand to UK market is the green tea since UK has never imported such a product and little or no competition leading to higher sales and subsequent increase in profitability. Export Strategy: It is recommended that Thailand exports its green tea to UK market through an indirect method. This leads to benefiting from the indispensable services of qualified intermediaries, trade consultants and ECTs and EMCs. Thailand may in the future shift to direct strategy once established. Background Presently the export promotional strategies must keep pace with the ever-changing trends in international trade environment to greatly impact the business. The establishment of World Trade Organization (WTO) presents an effective ground for business global expansion (Page 1990). Countries that appreciate the need to have a global coverage have netted in a lot of income. The competitive advantage that arises from a global firm underpins the domestic coverage ever and thus local firms are thwarted or pushed to the corner. Narrowing down to this context, Thailand stands to benefit from the lucrative UK markets through the exportation of the Ichitan. However, great care must be taken to compete favorably with firms already exporting substitutes. Despite the fact that UK has never imported that green tea is never a guarantee of Thailand to joyride. Other countries exporting substitutes to green tea will try to either collide or attack. They may readjust quickly and even ultimately start exporting the green tea. Therefore, in this context Thailand must fully plan proactively and put its competition strategies on a standby for effectiveness in competition. Entry of Thailand will immediately attract counteractive strategies from firms already exporting and established in UK and even the native firms. In addition, those firms not exporting in UK may also readjust effectively and start exporting other products. The success of the green tea exportation by Thailand to UK is never a simple task. In addition, there are various challenges that will be affecting the country as it exports other than those rated competitive. The export faces serious challenges such as negative BOP that affects the domestic economy. In addition, the importing firm benefit from such arrangement as it is a developed nation at the expense of the exporting country, Thailand. In addition, Thailand faces the challenge of upgrading its infrastructure to export products that meet the international standards. The gathering of trade information and commercial intelligence calls for sufficient market research and information analysis that may be a threat to a developing country like Thailand. Market competition is also a daunting challenge to Thailand as it executes its export arrangement. Therefore, Thailand might be unable effectively to employ the competitive costing and pricing mechanism. In addition, technology requirement may be a challenge to Thailand thus lowering the quality and inflating costs culminating into uncompetitive product. Research on the Assessment Topic Risk of import, export The risks of imports and export are best understood with respect to importer and exporter. The international trade should be based on mutual agreement between the two countries. However, in practice this seems ridiculous. One country has always benefited at the expense of another. Notably, the BOP has always favored that developed country. Putting this into perspective, UK stands to benefit greatly from this arrangement. Therefore, the balance of payment deficit will negatively impact on the Thailand economy will advantageous to UK. In addition, BOT is another evil that shapes the international trade (export and imports). Thailand (developing country/exporter) must conduct an advanced market research to gauge the modalities necessary to succeed in finally implementing its indirect export strategy. Both ideas will be recommended, in this case, where both countries will import and export to mutually benefit as this may allow the weakness of one be balanced by the strength of the other strategy. Arguments against the Recommendation(s) The Balance of payment determines the success of an exporting country. Where the exports only result in the balance of payment, then the country should reconsider its strategies and quite the trade. In addition, indirect export strategy may result in increased costs of export due to the payments to intermediaries and other trade consultants. Direct export strategy leads to increase in profits as the country does not need to cling on to money agencies. Therefore, a well-coordinated and planned direct export strategy is recommended as it is profitable in the long run as compared to the indirect strategy (Mellahi 2003). The firm should thus consider integrating direct export strategies to eliminate the wastages payable to intermediaries and consultants. In addition, the country exporting personnel’s will be experienced if they execute the whole process by themselves. Indirect export strategy may be shuttered if the important consultant or intermediary quits the contract. Therefore, the success of the exporting country hinges on the intermediaries and consultants. In addition, there is limited control of the whole process by the exporting firm as part of control is vested to the intermediaries and consultants. Therefore, Thailand ought to have adopted the direct export strategy rather than the indirect export strategy to remain in control of the process. Arguments in support of the Recommendation(s) In supporting the first recommendation, that is, Thailand’s need to export the green tea, it is a feasibility opportunity since UK markets lack this product. With this in mind, the country stands to benefit from foreign markets and hence increasing its BOP. In addition, because the green tea will be new to the UK market, it will take the competitors some considerable time to readjust and compete favorably. Such a period will be long enough for Thailand to control the UK markets and draw huge foreign exchange. In addition, the exporting country may also readjust and introduce other new products to UK market once the green tea market is saturated during such long period when competitors will be readjusting. Indirect export strategy is also a justifiable recommendation. The product is introduced into the market for the first time in UK. Therefore, Thailand may be unwise to commit much time and resources required in direct export strategy. The commitments range from market research to collection. Accordingly, the country will benefit from the indispensable services from qualified intermediaries and trade consultants. Implementation of Recommendations Thailand needs to remain strictly within the boundaries of its strategic objectives as it executes the green tea indirect export strategy. The consistency with its strategic objectives is a fundamental issue that will guide its firms as they export to UK. The strategic objectives will help the country never to be lured into signing some contracts which may be appealing on paper but practically injustices. For instance, the Company might lose focus on its green tea export and start substituting it for other imports from UK without prior assess and determination of its feasibility leading to BOP deficits and reduced GDP. However, in the future, the firm might ultimately diversify its strategy by integrating both direct and indirect exports once established and proper risks and benefits to such actions proactively determined. In addition, there is a future need for Thailand to import from the UK markets to ensure that its people have a greater variety of products. However, such imports must be internally controlled and not externally controlled by the pressure from UK markets. Importing without proper agreements may lead to increased domestic competition in Thailand with the cheap and readily available products. In such a case, fewer exports than imports leading to negative BOP (Mead, & Council on Foreign Relations 2003). In addition, domestic firms may be extinguished by low-cost foreign firms in the country and a threat to employment and living standards of its people who shall have been retrenched. Based on the logistics process, the Thailand firms’ will export the green tea via air in order to eliminate the possibility of perishability that may cause great losses to the country GDP. In addition, the UK markets are developed and advanced markets that have led to higher GDP compared to the developing Thailand. A great care must be taken by the exporting country to ensure that its products meet the global standards to benefit from such large and ready markets in UK. Bibliography Food and Agriculture Organization of the United Nations, 1987, Economic cooperation among developing countries in agricultural trade. Rome: Food and Agriculture Organization of the United Nations. In El-Naggar, S, International Monetary Fund & Arab Monetary Fund, 1987, Adjustment policies and development strategies in the Arab world. International Monetary Fund, 1993, World economic outlook: May 1993. Washington, DC: International Monetary Fund. Linnemann, H, Dijck, P, Verbruggen, H, & Council for Asian Manpower Studies, 1987, Export-oriented industrialization in developing countries. Singapore: Published for Council for Asian Manpower Studies, Manila by Singapore University Press. Mead, WR, & Council on Foreign Relations, 2003, The bridge to a global middle class: Development, trade and international finance. Boston, Mass. [u.a.: Kluwer Academic Publ. Mellahi, K, 2003, Global Strategic Management. Page, S, 1990, Trade, finance, and developing countries: Strategies and constraints in the 1990s. Savage, Md: Barnes & Noble. Appendices Thai protests: the economic impact By Shanaz Musafer Business reporter, BBC News 18 May 2010 From the section Business The night market at Patpong is usually packed with tourists As clashes between Thai forces and anti-government protesters in Bangkok continue, there are growing fears about the impact the protests are having on the Thai economy. The protesters, called red-shirts after the colour they have adopted, converged on Bangkok in March. They want Prime Minister Abhisit Vejjajiva to resign, with many supporting former prime minister, Thaksin Shinawatra, who was ousted in a coup in 2006. The latest round of violence has left 36 dead and some 250 injured. The crisis has left the city a virtual no-go zone for tourists with hotels, shops and restaurants faced with a sharp drop in the number of visitors. Some businesses in Bangkoks shopping district had to close their doors altogether when anti-government protesters occupied the area last month. And there are now fears that the political unrest could harm Thailands economic growth and put off foreign investors. Fewer tourists Tourism makes up about 6% of Thailands economy, but accounts for 15% of the countrys workforce. The British Foreign and Commonwealth Office currently advises against all but essential travel to Bangkok, but Abta, the UK travel association, says that while British tourists are rearranging their holidays, they are not cancelling altogether. RED-SHIRT PROTEST 14 Mar: Red-shirts converge on Bangkok, occupy government district 16 Mar: Protesters splash their own blood at Government House 30 Mar: Talks with government ends in deadlock 3 Apr: Occupy Bangkok shopping district 10 Apr: Troops try to clear protesters; 25 people are killed and hundreds injured 13-17 May: 36 killed in Bangkok clashes Bangkok protests day-by-day Thai protests: Eyewitness accounts "The majority of the country is not a problem at all," Abta says. "Places like Ko Samui and Phuket - seen as the real Thailand - are not affected by this. "Many people may have been planning on just going to Bangkok for a couple of days of their trip. What we suggest people do and what they are doing is amending their itineraries so they dont go to Bangkok now." But while the island resorts may still be attracting the tourists, the capital certainly is not. Following clashes last month between soldiers and protesters, hotel occupancy in Bangkok was down to 20% at a time when it is normally at 80% or 90%, government spokesman Puttipong Punnakan has said. Shops and mall operators have not only had to deal with fewer tourists, but the red shirts occupation of the Rachaprasong shopping district has also forced many to shut up shop. "Shops and department stores in the red zone have now lost about 1bn baht ($31m; £21m) a day," Thanapol Tangkananan, president of the Thai Retailers Association said after Aprils clashes. Growth revisions Thai Finance Minister Korn Chatikavanij has forecast economic growth of between 4.5% and 5% this year, but the civil unrest is threatening to reduce that figure. After meeting with business associations, Mr Chatikavanij has said the protests could cut 0.3% off his forecast. Analysts have said growth could be as much as 2% lower than the government estimate if the clashes continue. Protesters have been holding rallies in Ratchaprasong shopping district Thailands economy relies heavily on exports and how the economy performs this year will largely depend on whether or not exporters are hit. Richard Han, chief executive of electronic components manufacturer Hana Microelectronics, said in a recent interview that as long as the airports are open, business would be able to continue. But he did voice longer-term concerns as to what customers would think about dealing with Thai companies in the future if the situation is not resolved. Foreign investor fears Meanwhile, Amata Corp, Thailands biggest industrial land developer, is already having to deal with customer concerns. It has revealed that some Japanese clients have delayed signing contracts because of the unrest and warned that sales might suffer. Foreign investors have already shown some signs of withdrawing from Thailand - since violence broke out last month, foreign investors have sold $584m in Thai shares, leaving Thai stocks among the cheapest in Asia. Investment firm Fidelity had said that should the ongoing crisis affect corporate earnings, it would reconsider its investment decisions. "Our decisions around investing in Thailand are more driven by the underlying fundamentals of the companies," Gregor Carle, investment director at Fidelity, said. But he went on: "If we feel that there is an escalation in events in Thailand that threatens the corporate environment, obviously we will adjust the portfolio to reflect that."    As. J. Food Ag-Ind. 2008  , 1(01) 14turns a dark brown or black. It is at this stage that the aroma changes from that of a pungent plant to the familiar earthy tea perfume. The black tea is ejected from the hotchamber into chests. Next it is sorted into grades, or leaf particle sizes, by being passedthrough a series of wire mesh sifts of varying sizes into containers. It is then weighedand packed into chests or "bags" for loading onto pallets. The bigger curly leaves areused for loose-leaf packet tea while the finer particles are used for tea bags.Factory tea-tasters will taste the finished "make" to ensure that no mistakes have beenmade during the manufacture or that the tea has not been tainted by anything withinthe factory. After each make the tea factory is washed from top to bottom to ensurethat the character of the completed make does not transmit to the next make of tea.Black tea processing uses as raw material the young shoot of the tea plant, comprisingthe terminal bud and the two adjacent leaves. This is known as the "flush". The "flush"is processed in distinct stages: withering, rolling, oxidizing, firing (drying) andgrading. Each stage involves characteristic changes in the physical and biochemicalcomposition of the leaves and the cumulative effects of these changes are ultimatelyreflected in the quality of the finished black tea product. Marketing World tea production from 1990-1998 grew at a yearly rate of 1.81% and consumptionkept pace at a slightly higher growth rate of 2.05% per annum. World tea productionhas been dominated by India where output peaked at over 870,000 tonnes in 1998. Thesecond largest producer is China with its highest output also recorded in 1998 when production reached 665,000 tonnes. Kenya follows at a distant third at 294,200 tonnes,Sri Lanka at 280,100 tonnes. Indonesia, Argentina and Bangladesh follow as fifth,sixth and seventh respectively. [FAO].In 1998, global tea production increased nearly 9% to reach its highest level ever. TheWorld output reached 2.963 million metric tons, surpassing the previous record 2.724million tons in 1997. Key producers all brought in record-setting crops during 1998:Indian production was 870,405 tons; Sri Lankas was 280,674 tons; and Kenyas was294,165 tons. Other 1998 production figures included the following: China, 665,034metric tons; Indonesia, 166,121 tons; Turkey, 177,838 tons; Japan, 82,609 tons; Iran,60,000 tons; Bangladesh, 55,700 tons; Argentina, 50,000 tons; Vietnam, 42,000 tons;Malawi, 40,360 tons; Uganda, 26,422 tons; Tanzania, 24,333 tons; Taiwan, 22,641tons; Zimbabwe, 17,755 tons; Rwanda, 14,850 tons; and South Africa, 10,845 tons.[ITC].More recent detailed figures on production, marketing and consumption are available, butexpensive. World tea production in 2004 reached 3.2 million tonnes. The FAO CompositePrice averaged $US 1.65 per Kg in 2004, about 9% higher than 2003. At a time when pricesare usually low, the continued firm prices reflect a possible crop shortage in 2005. [FAO.May 2005]. Thailand is a member of the FAO Intergovernmental Group on Tea andregularly attends the sessions.Appendix A lists the standards currently applicable for tea production.    As. J. Food Ag-Ind. 2008  , 1(01) 15 Conclusion Tea production and marketing is a growth area for Thailand. While the fad for bottledcold tea has diminished somewhat, tea retains an important role in the beverage sector.For Thailand to become a major player in world markets, several factors are necessary.The first is government attitude and support for the industry, which could be greatlyenhanced if all involved formed some sort of association. The second is the possibleintervention for biotechnology to improve yield and quality for smallholders, similar towhat Indonesia has undertaken. Finally, as more evidence comes forwardregarding the health benefits of tea, innovative ideas and products should be tested andintroduced, according to market demands. The possibility of soaps for spas is but oneexample. References and Further Reading http://www.teahealth.co.uk/tea_healthcentre_01a.html http://www.tea.ca/media_healthresearch.asp?section=healthpro http://www.fao.org/unfao/bodies/ccp/Ccp62/W5955E.htm See also, WTO Committee on Technical Barriers to Trade: Notification: Thailand:Tea:http://www.ipfsaph.org/servlet/CDSServlet?status=ND1jdGh0dHB3d3dmYW9vcmdh b3NpcGZzYXBoaW5mb3JtYXRpb25zb3VyY2V3dG8uV1RPVEJUTkYwMTA0MjMmNj1lbiYzMz1mb3JtYWxfdGV4dCYzNz1pbmZv  APPENDIX A  Standards ISO 1572:1980 Tea: Preparation of ground sample of known dry matter content.ISO 1573:1980 Tea: Determination of loss in mass at 103 O C.ISO 1575:1987 Tea: Determination of total ash.ISO 1576:1988 Tea: Determination of water-soluble ash and water-insoluble ash.ISO 1577:1987 Tea: Determination of acid-insoluble ash.ISO 1578:1975 Tea: Determination of alkalinity of water-soluble ash.ISO 1839:1980 Tea: Sampling.ISO 3103:1980 Tea: Preparation of liquor for use in sensory tests.ISO 3720:1986 Black Tea: Definition and basic requirements.ISO 3720:1986/Cor 1:1992ISO 3720:1986/Cor 2:2004ISO 6078:1982 Black Tea: Vocabulary.ISO 6079:1990 Instant Tea in solid form: Specification.ISO 6770:1982 Instant Tea: Determination of free-flow and compacted bulk densities.    As. J. Food Ag-Ind. 2008 , 1(01) 16ISO 7513:1990 Instant Tea in solid form: Determination of moisturecontent (loss in mass at 103 O C).ISO 7514:1990 Instant Tea in solid form: Determination of total ash.ISO 7516:1984 Instant Tea in solid form: Sampling.ISO 9768:1994 Tea: Determination of water extract.ISO 9768:1994/Cor 1:1998ISO 9884-1:1994 Tea Sacks: Specification: Part1: Reference sack for  palletised and containerised transport of tea.ISO 9884-2:1999 Tea Sacks: Specification: Part2: Performancespecification for sacks for palletised and containerisedtransport of tea.ISO 10727:2002 Tea and instant tea in solid form: Determination of caffeine content: Me Read More