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22 The Cost and Management, January-February, 2010 23The Cost and Management, January-February, 2010 24 The Cost and Management, January-February, 2010 TheCost andManagement, January-February,2010

37The Cost and Management, January-February, 2010 14 The Cost and Management, January-February, 2010 15The Cost and Management, September-October, 2009 16 The Cost and Management, September-Oc

Attractiveness of Tea Industry in Bangladesh:A Projection Based on Porters Five Forces Model

MohammedRafiqulAlam,FCMA*

Dr.M.TahlilAzim,FCMA**

EshitaI slam***

* Mr.Moh ammedRafiqulAlam,MBA,F CMA,Adjun ctF aculty,S ch oolofBusiness,Independent University,Bangladesh,Chitta gongCampus, Mobile:01711-300366,E-mail:ramctg@ya hoo.com

** Dr.M.T ahlilAzim,AssociateProfessor,S choolofBusin ess,In dependen tUniversity,Bangladesh, ChittagongCampus, Mobile:01711-300366,E-mail:tahlilazim@yahoo.com.

***Eshita Islam,Student,MB AProgram, SchoolofBus iness,ChittagongCamp us,IndependentUniversity, Bangladesh

Abstract : Thisstudy isconducted todetermine theattractiveness ofTeaIndustry (producers/gardeners)inBangladesh basedonthewell-knownPorters FiveForcesModel ofIndustry Analysis(1990). Itincludesidentifyingthe barriersto entry,understandingtherivalryamong establishedcompanies, determiningthe bargainingpower ofbuyers, verifyingthe bargainingpower ofsuppliers,

andtracingthesubstitutep roductsandtheirthreats.Ananalysisoff iveforcesitisobservedthatthethreatsfrom allf iveforcesinthetea industryof Bangladeshare ratherweak hencemaking itan attractiveindustry forlong-term investmentandfinancing,forbothlocal andforeigninvestors.

1.0 Introduction

Teaisthe most populardrink in Bangladesh.It isalso one of themajor exportable commodities of the country. In the form of

employment generation,earning foreign exchange and balancingtrade deficitit playsan importantrole in the economy.The industryemploys about 1,50,000 ethnic people (with about 5,00,000

dependents)living in farflung areasof the country.Atotal of 163 teagardensproduce approximately 60 million kilogramsof teaannually(Bangladesh teaBoard). Roughly about25% alltea producedin the

country are exported annually to countries like Pakistan, UAE,

Kazakhstan,Uzbekistan,India, Poland,Russia,Iran, andUK, while therestare soldin the localmarket.The totalexport earning isaround20

million USdollars. While the share of totalforeign currency earningfrom teahas droppedsubstantially in recentyears, the demandforteain the localmarket hasgone up significantly in the same time

period.In last 10 years demand of tea had been increased quitesharply in localmarket taking the teaconsumption to 48 million kgperyear.On an average percapitaconsumption of teain Bangladesh

isabout 390gms.

The majorplayersin the production andmarketing processof teaare

the Producing firms (gardeners), the tea brokers and organizedbuyerslike, teatraders andexporters who buy teain the form of anindustrialgood.Teais pluckedfrom the gardensandprocessed in the

manufacturers'factories.Chests andpackages of teaare then senttothe brokers who then use theirin-house teatasters to grade the

tea,determine itsquality andseta base price.Brokersalso arrange tosendtealeaf samplesto potentialbuyersto help them determinetheirbidding price.The actualbuying andselling takes place at an

auction arrangedby the brokers t ypically once in aweek beginningearly May of every yearandspanning untilthe March of the followingyear by which the entire crop is disposed off. Tea brokers charges

1% of the sale price asbrokerage andalso an additional1% as leviedby the Bangladesh TeaBoardon allproducers.

In viewof the upwardtrend in demandof teain internationalaswellasdomestic market,one can reasonably expecttea industry to be a

prospective areaof investment.However,the attractiveness of theindustry not only includes the demand of the product.It also

comprises the strength of the competition,suppliers power,investment warranted etc.Tea, being a major export item and apopulardrink of the country,the needfor acomprehensive study on

the attractivenessof thisindustry asapotentialarea of focuscan onlybe overemphasized.The presentstudy isan attempt to analyze theattractiveness of the Tea industry in Bangladesh from Producers

(gardeners)perspective basedon MichelPorters(1990) well-knownFive ForcesModel.

Both primary ands econdary datasources are usedto conductthestudy. Primary data sources include interviews and informalconversation with the industry experts. Secondary data are collected

from relevantliterature such asthe AnnualReportof BrokersHouses,Annual Bulletin of International Tea Committee, and otherpublicationsof Bangladesh TeaBoard.

2.0 Porters FiveForces Model

The firstfundamental determinantof afirm'sprofitability isindustryattractiveness.Competitive strategy mustgrow outof asophisticated

understanding of the rules of competition that determine anindustry'sattractiveness. The ultimate aim of competitive strategy isto cope with and,ideally,to change those rules in the favorof firm.

According to Michel Porter (1990),in any industry, whether it isdomesticor internationalorit producesa productor aservice,therules of competition are embodied in five competitive forces: the

entry of newcompetitors, the threatof substitutes,the bargainingpowerof buyers,the bargaining powerof suppliers,and the rivalryamong the existing competitors(Porter,1990)

Industry attractiveness is the presence or absence of threatsexhibitedby each of the industry forces.The greaterthe threatposed

by an industry force,the less attractive the industry becomes.Firmsshouldattempt to seek outmarkets in which the threatsare lowandthe attractiveness is high.Understanding what industry forces are at

work enablesfirmsto developstrategiesto dealwith them.Thesestrategies, in turn, can help to find unique ways to satisfy their

customersin orderto developa competitive advantage overindustryrivals.(Porter,1990)

Figure#1:Porters FiveForces Model

The five forces determine industry profitability because they

influence the prices,costs,and requiredinvestment of f irmsin anindustry - the elements of return on investment. Buyer powerinfluencesthe pricesthat firmscan charge.The powerof buyerscan

also influence cost and investment, because powerful buyersdemandcostly service.The bargaining powerof suppliersdeterminesthe costsof rawmaterials andother inputs.The intensity of rivalry

influencespricesas wellasthe costsof competing in areassuch asproduction, product development,and advertising.The threat ofentry placesa limiton prices,and shapesthe investmentrequired to

deterentrants. In any particularindustry,not allof the five forceswillbe equally importantand the particularstructuralfactorsthatareimportantwill differ.Every industry isunique andhasits own unique

structure.The five forcesframework allowsa firm to see through thecomplexity andpinpointthose factorsthat are criticalto competition

in itsindustry.

3.0.Porters FiveForces Modelin the contextof TeaIndustryin Bangladesh

The following sections discuss the statusof each of the five forces

with relation to the teaindustry (Producers/gardeners)in Bangladeshso asto determine the industry'sattractiveness.

3.1 Barriers toEntry

If the threatfrom newentrantsinto the productcategory ishigh,theattractivenessof the industry diminishes.On the otherhand,if the

risk of new entry is low the firms in the industry can take theadvantage to raise price andearn greaterprofits. The strength of thecompetitive force of potentialrivalsislargely a function of the height

of barriersto entry thatmake itcostly forfirms to enteran industry.High entry barrierskeep potentialcompetitorsout of an industryeven when industry returnsare high (Hill&Jones,2002).In case of tea

industry of Bangladesh following factors can be consideredas theinfluentialsourcesof barriersto entry:

3.1.1 Scarcityof Land

Teaisan agriculturalproduct andthe production volume,quality etc.

dependon the nature,climate,rainfall etc.(Islam, 2008).Teais grownatonly 80-300 feetabove sealevel.The main teagrowing areasinBangladesh lie to the Eastof the Ganga-Jamunafloodplain - in the

hilly areasbordering India.Mostof the teagrowsin Sylhet,the NorthEastpartof the country.Tea isalso grown in Chittagong and theChittagong hilltracts.The factthattea isgrown only in selectedlands

aroundthe country,itservesas abarrierfornewentrantsandthusincreasesthe attractivenessthe industry.

3.1.2 Brand Loyalty

Brandloyalty isthe outcome of yearsof presence in the marketwithreputation asa supplierof quality products which,in turn,calls for

productinnovation through superbR&D,momentouspromotion andcontinuousfocus on customerchoice. Brandloyalty make itdifficultfornewentrantsto enter into the industry andreducesthreatof

entry by potential competitors since they may see the task ofbreaking down wellestablished consumerpreferences astoo costly.(Hill& Jones,2002). In the Teaindustry of Bangladesh,large buyers

like Unilever,M.M. Ispahani,HRC etc.are foundto have loyalty to theteaof certain gardens- such asKazi &Kazi, Madhupur,Longla,Kaliti,N a lu a , P h oo l tol a , D a ra g a on , D e u nd i , N o ya p ar a , A mr ai l ,

Shamshernager, Karimpur, Habibnagar, Baraoora, Sathgaon,Luskerpur,Rajkie,Rasidpur,NewSamanbagh,Rajghatetc.Overthe

yearsthese gardenshave builta strong brandimage because of theirquality, appearance and liquor of tea. (S. Islam, PersonalCommunication 14 March 2009). The loyalty of the huge buyers

towardsthese gardensmake itdifficultfornewentrantsto enterinthe industry and thus it reduces the threat of entry by potentialcompetitors.

3.1.3 Economies of Scale

The costadvantage associatedwith large volume of outputis calledeconomiesof scale.If thiscost advantage issignificant,a newentrant

facesthe dilemmaof either entering on asmall scale andsuffering asignificantcost disadvantage ortaking avery large risk by enteringon a large scale and bearing significant costs of capital. Cost

reduction through mass production of standardized tea andspreading of fixedcost such asland,building,factory, administrativeexpenses,employee welfare,etc overa large production volume of

teaare the two most importantsources of scale economiesin thecontextof teaindustry in Bangladesh.

3.1.4 High Investment

Entering the tea industry in Bangladesh requires a high initialinvestment,often costing asmuch asTk.10,00,000,00 /-.It also takesa

significantamount of time before firmsstart seeing thismoney payoff in termsof profit.Hence, the investmentinto the teaindustry isalong-term investment andthis servesas an immense deterrentfor

newentrants.(S. Islam,PersonalCommunication 14 March 2009).

3.1.5 Unavailabilityof Skilled Workers

Teagarden workersare from differentethnic origin andbelong to

certain ethnicgroups. Many of them came from Indiaand settledhere.They live in groups and dont move or migrate in large groups

because of theirlifestyle.As aresult, some gardenshave laborsurplus

andothers have laborshortage. Shortage of laborseriously hampers

production and processing activities. In cases,the gardens with

scarcity of labormay hire laborfrom gardenswith excess supply but

ata higherrate.Both laborshortage and surpluslead to increased

cost of production.Gardens which have excess laborneed to incur

costfor those additionallaborswhich shrink theirprofitability.On the

otherhand,gardenswith paucity of labor also needto incur cost

either in the form of disruption in production activities or higher

hiring cost.(S.Islam,PersonalCommunication 14 March 2009).

3.1.6 GovernmentRegulations

Governmentregulationssometimesadd upto barriersto entry in

many industries.However,there isno assuch restriction observedin

case of teaindustry in Bangladesh. Ratherthe Governmentprovides

incentives, such as, loan at a lower interest rate from banks,

particularly from Krishi Bank to invest in the industry. (S. Islam,

PersonalCommunication 14 March 2009).

The table belowsummarizes the impactof the factorsaffecting the

barriers to entry from the view point of an existing firm. In the

assessment column, a Plus sign (++) indicates that the factor

contributespositively to the attractiveness of the industry,while a

minussign (- ) indicatesthatthe factorimpactsnegatively to the

attractivenessof the industry.

Table# 1:Impactof Factors Associated with Barriers toEntry

Factors Analysis Assessment

S c ar c it y o f Land S u it ab le l and f or t eap r oduct i on i s i nadequat e . + + I n la st 2 5 ye ar s, t he re w er e in ve st me nt s in

two new estates only.

B ra n d Lo ya lt y A s te a is a n u nd if fe re n ti at e d pr o du ct t h e _ _ e xt en t o f br a nd l oy a lt y is l im it e d in t e a in d us tr y.

E c onomi es o f Sc a le C ost r educt i on t h r oughm ass p r oduc ti ono f + + s ta nd ar di ze d te a, a nd s pr ea di ng o f fi xe d

co st so ve rl ar ge vo lu me of te a.

H ig h I nv es tm en t T he t e a in d us tr y de ma nd s h ug e a mo u nt o f + + i nv es tm en t wi th l on ge r pa y ba ck p er io d.

U na v ai la b il it y o f S om e ga r de n s ha ve l a bo r su rp lu s a nd + +

Ski lledworkers somehavelaborshortagebothof w hi ch i nc re as e co st o f pr od uc ti on f or

the existing firms.

G ove r nm en t N ogove r nmen t r est r ic t ion __Regulations

3.2 Rivalryamong Established Companies

Weak rivalry amongstthe establishedfirms offersan opportunity to

raise pricesand earn greaterprofits.On the contrary,strong rivalryleads to price wars and higher cost of doing business whichultimately limitthe profitability andgrowth prospectof the firm.The

following factorsare seemedto have contribution in determining theextentof rivalry in Bangladesh TeaIndustry.

international market diminishes competition by providing greaterroom forexpansion.Growing demandstend to reduce rivalry amongthe producersfor allcompanies can selltheir produce withouttaking

market share away from others.Tea drinking in Bangladesh whichstartedduring the last century isnow getting momentum with thepace of urbanization andimprovement in the standardof living.The

internalconsumption of teain Bangladesh isrising steadily.Figure #2and3 illustrate the trendof domesticconsumption of teafrom 1997-2005 andglobalconsumption of tea from 1996 to 2005 respectively.

Figure# 2:Domestic Consumption of Tea

Figure# 3:Global Consumption of Tea

Both the charts show an upward trend which indicate that theconsumption of teain domesticas wellasglobalmarkethasbeen

increasing which consecutively,speaks for less rivalry among thecompetitors.

3.2.5 ExitBarriers

Exit barriers are economic, strategic and emotional factors thatinduce firmsin an industry to continue even in the face of lowreturn.If exitbarriers are high companiesmay turn outto be lockedinto an

unprofitable industry.(Hill&Jones, 2002)

In the tea industry of Bangladesh, high fixed cost or higher

investment in plant,garden, equipment etc could constitute thebarriersto exitforany firm.However,asthere isscarcity of landforteaproduction,companies are in aposition to selloff theirgardens ata

much higherrate than their investment.Increasing demandof tea

both in local market and international market attract the newinvestorsto investin tea industry andacquire garden,which reducethe exitbarriers to quitfrom the industry.In the periodof lasttwo

governments,many gardenswere soldat ratesmore than double theinvested amounts.However, no investor is found to have interestaboutfirms which require extensive rehabilitation both in fieldsand

factories.So these gardensfindit difficultto quitfrom the industry.

Thusbased on the above discussion,the table belowsummarizesthe

impactof the factorsaffecting the rivalry among establishedfirmsonthe attractivenessof the teaindustry in Bangladesh.

Table# 3:Impactof Factors Associated with RivalryamongEstablished Companies

3.3 TheBargaining Power of Buyers

The buyers may be the customers,individualor organizationswhoultimately consume the products or they may also be the

organizationsthatpurchase forresell to the endusers. Buyerscan beviewed as a competitive threat when they are in a position todemandlowerpricesand/orbetterserviceswhich,in turn increase

the costsof doing business.On the otherhand,when the buyersareweak,a firm can raise itsprices andearn greaterprofits,thus makingthe industry more attractive.(Porter,1990)In case of tea industry in

Bangladesh, the companies that purchase tea from auctions tomarket it either in local or export market can be considered asbuyers.The following factorscan influence the bargaining powerof

buyersforthe case of Bangladesh TeaIndustry.

3.3.1 PurchaseVolumeof Buyers

When the buyerspurchase in large quantities in such circumstancesbuyers can use their purchasing power as leverage to bargain for

RiskofEntryby PotentialCompetitors

AbsoluteCost Advantages LearningCurve Economiesof Scale AccesstoInputs Govt. Regulations Capital Requirements BrandIdentity SwitchingCosts

Bargaining Power

ofBuyers

Buyer Volume Accessto Information Brand Identity Price Sensitivity Threat of Backward

Integration

Bargaining PowerofSuppliers

Supplier Concentration Importance of Volume Differentiation of Inputs Switching Cost of Firms Presence of Substitute

Inputs

Rivalry AmongEstablished Firms

Industry Concentration Industry Growth Exit Barriers Demand Condition Product Differentiation Switching Costs

ThreatofSubstituteProducts

Switching Cost Buyer Inclination to

Substitutes Price Performance

Trade off ofSubstitutes

IndustryAttractiveness

because of theirlifestyle.As aresult,some gardenshave laborsurplusandothers have laborshortage.Shortage of laborseriously hampers

production and processing activities. In cases,the gardens withscarcity of labormay hire laborfrom gardenswith excess supply butata higherrate.Both laborshortage andsurplusleadto increased

cost of production.Gardens which have excess laborneed to incurcostfor those additionallaborswhich shrink theirprofitability.On theotherhand,gardenswith paucity of laboralso needto incurcost

either in the form of disruption in production activities or higherhiring cost.(S.Islam,Personal Communication 14 March 2009).

3.1.6 GovernmentRegulations

Governmentregulationssometimesaddup to barriersto entry inmany industries.However,there isno assuch restriction observedin

case of teaindustry in Bangladesh. Ratherthe Governmentprovidesincentives, such as, loan at a lower interest rate from banks,particularly from Krishi Bank to invest in the industry.(S. Islam,

PersonalCommunication 14 March 2009).

The table belowsummarizes the impactof the factorsaffecting thebarriers to entry from the view point of an existing firm. In theassessment column, a Plus sign (++) indicates that the factor

contributes positively to the attractiveness of the industry,while aminussign (__)indicatesthatthe factorimpactsnegatively to theattractivenessof the industry.

Table# 1:Impactof Factors Associated with Barriers toEntry

F

actors Analysis Assessment

S c ar c it y o f Land S u it ab le l and f or t eap r oduct i on is i nadequat e . + +

I n la st 2 5 ye ar s, t he re w er e in ve st me nt s in

two new estates only.

B ra nd L o ya lt y A s te a is a n u nd if fe re n ti at e d pr od u ct t h e _ _ e xt e nt o f b ra n d lo ya lt y is l im it e d in t e a in d us tr y.

E c onomi es o f Sc a le C ost r educt i on t h r oughm as s p r oduct i ono f + +

s ta nd ar di ze d te a, a nd s pr ea di ng o f fi xe d

c os ts ov er la rg ev ol um eo ft ea .

H ig h I nv e st me n t T he t e a in du s tr y de ma n ds h u ge a m ou n t of + +

i nv es tm en t wi th l on ge r pa y ba ck p er io d.

U n av ai la b il it y of S om e g ar de n s ha ve l a bo r su r pl us a n d + +

Ski l ledworkers somehavelaborshortagebothof

w hi ch i nc re as e co st o f pr od uc ti on f or

the existing firms.

G ove r nmen t N ogove r nmen t r es t ri c ti on __

Regulations

3.2 Rivalryamong Established Companies

Weak rivalry amongstthe establishedfirms offersan opportunity toraise pricesand earn greaterprofits. On the contrary,strong rivalry

leads to price wars and higher cost of doing business whichultimately limitthe profitability andgrowth prospectof the firm.Thefollowing factorsare seemedto have contribution in determining the

extentof rivalry in Bangladesh TeaIndustry.

3.2.1 CompetitiveStructure

Competitive Structure refersto the numberands ize of distribution of

companies in an industry.St ructure vary from fragmented toconsolidatedandhave differentimplicationsfor rivalry.Afragmented

industry consistsof large number of smallandm ediumnone of which is in a position to dominate the indus

consolidatedindustry consistsof smallnumber of largecommodity type products which are hard to differentifragmentedindustriest hateventually depressindustry p

price waramong the rivals.(Hill& Jones,2002).

Bangladesh tea industry is a fragmented industry con

categoriesof producerssuch as,(i)Sterling Companies, TeaCompany (NTC),(iii)Bangladesh TeaBoard (BTB),(iv)Private Limited Companies(BPLC) and (v)Bangladeshi

Following chartindicatesthe size of landand productiolarge, medium and small size producers in the teaBangladesh.

Table#2:Ownership-wiseLand and Yield

Categoryof No.ofTea GrantArea(ha . ) TeaArea Land Use ProductioM an ag em en t Es ta te s T ea (h a. ) ( ha .) ( %) ( 20 06 )

S t er l in g C o. 2 8 3 9 3 86 . 02 ( 34 %) 2 0 21 9 .1 6 5 1 % 2 4 02 7 52

B TB 3 2 55 9. 39 (2 %) 1 44 5. 55 5 7% 1 53 64 80

N TC 1 3 1 12 79 .9 5( 10 %) 5 58 3. 66 5 0% 4 76 03 00

B PL C 6 1 4 06 52 .0 5( 35 %) 1 57 16 .6 5 3 9% 1 58 15 70

P r op r ie t ar y 5 8 2 1 65 6 .0 0 (1 9 %) 9 3 45 . 85 4 3 % 7 2 05 1 19

T ot al 1 63 1 15 55 3. 41 (1 00 %) 5 23 10 .8 7 4 5% 5 33 45 12

Small hol ding 96.35 96.35 100 62615

GrandTotal 163 115629.76(100%) 52407.22 45% 5340773

Source Bangladesh TeaBoard(www.teaboard.g

Based on the production and the size of the estaCompany gardens and Private Limited Company gardlarge gardens;Proprietary andNational TeaCompany

medium sizedwhile North Bengaland TeaBoards gardsmallfirms in Bangladesh teaindustry.

3.2.2 Low Switching Cost

Lowswitching costincreases the rivalry in the industry a

can switch between the suppliers. Tea is difficult to which allows the buyers to switch between produceswitching cost.However, sometimes switching from

suppliersmay tax the buyersin terms of problemsin timpaymentetc.The reputedbuyerslike Unilever(BangladeIspahani Ltd.and HRC usually purchase the produce

Company gardensfor their appearance,liquor, andquacompanies want to switch between suppliers they m

compromise with the quality.However,the switching cofractional as the quality of packaged tea marketed by depends on the blending of different types of tea fro

gardensratherthan the rawtea.

3.2.3 ProductDifferentiation

Teais acommodity type productwhich isdifficult toHowever,certain gardens,particularly,the Sterling Commanage to differentiate theirtea in termsof quality,app

liquorowing to theirstate of the arttechnology,better iworkersand professionalmanagement. Asa result,Sterl

gethigherprices fortheirproduce in comparison to othe

3.2.4 Demand Condition

An industrys demand condition is another determinintensity of rivalry. Growing demand of tea in th

22.2

25.17

32.11

38.7936.95

41.5

37.44

43.32 43.3

0

5

10

15

20

25

30

35

40

45

1 9 9 7 1 9 9 8 1 9 9 9 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5

Years

Quantityin

MillionKg

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Consumption

inThousandMetricTones

1996 1998 2000 2002 2004

Years

Factors

CompetitiveStructure

LowSwitching

Cost

ProductDifferentiation

DemandCondition

ExitBarriers

Analysis

Bangladesh tea industry is a fragmentedindustry consisting of large number of small,medium andbig size producers. Rivalry of thecompaniesis notthat intense asthe demandofteaisincreasing.

Teais difficult to differentiate which allowsthebuyers to switch between producers at a lowswitching cost.However some switching costmay be involved among some buyers if theywantto switch from Sterling Companiesto othercompaniesby compromising on quality.

Teais difficult to differentiate.Though SterlingGardens differentiate their tea in terms ofquality,and appearance of tea due to trainedand exper ienced workers , profess ionalmanagementandsuperior processthatgive thecompetitive advantage overotherproducers. SoSterling gardens get higher prices for theirproduce comparedto others.

Increasing teaconsumption both internally and

internationally provide opportunity forthe teacompanies to earn greater revenue withoutincreasing the extentof rivalry.

High fixedcostori nvestmentin plant,garden orequipmentconstitutes the barriersto exitfromthe teaindustry in Bangladesh.But asthere isscarcity of landfor teaproduction,firms are in aposition to selloff theirgardensat ahigh price.

Assess-ment

+ +

__

+ +

+ +

+ +

price reduction. (Hill & Jones,2002) Even though many different

companiespurchase teafrom auctions in large volume to meettheirlocaland export demands,the auction system restricts the buyersfrom using theirpurchasing powerforprice reduction. The following

table indicatesthe purchase volume of some large andsmall buyersin 2007-2008.

Table.4:Volumepf Purchasethrough auctions (2007-08)

Buyer Leaf (in Kg)

M.M. Ispahani Ltd. 1,10,97,350

HRC Syndicate Ltd. 74,47,990

Abul Khair Ltd. 45,98,275

U ni le ve rB an gl ad es h Lt d. 2 6, 60 ,6 25

Eli te I nternational Ltd. 17 ,36,570

Shaw Wallace ( BD) Ltd. 10,61,170

Tetley ACI Ltd. 9,46,605

M .Ahmed Tea &Lands Co. 7,61,64 0

Meghna Tea Co. 7,04,495

A gr ic ul tu ra l Ma rk et in g C o. Lt d. 6 ,0 7, 25 5

Bara Awlia Store 1,66,925

Chittagong Tea House 1,27,270

M .M. Tea Enterpri se, Ctg. 1,22,48 5

Shawpna Tea House 58,630

Rose Tea House 56,650

Comilla Tea Supply 47,575

Tajnur Food Products 6,875

Nizam Tea House 1,650

Source:National BrokersLtd

3.3.2 Dependencyof Suppliers on Buyers

When the suppliersdepend on buyers forlarge percentage for itstotal orders buyers have more bargaining power over suppliers.(Porter,1990 ) In the tea industry, producers sell tea through the

brokersin auction.Teabrokerstaste the teaand setthe pricesbasedon the several factors such as quality,price received in previousauction by the similar tea, demand condition, production in

internationalmarketetc. Buyersneed to purchase teabased on theirestimateddemandin the localandinternationalmarketfor whichthey needto bidhigher than theircompetitors.Increasing localand

internationaldemandindicate thatbuyers willbuy more to meettheincreasing demand.So the suppliersare less vulnerable in termsofpurchase quantity of the buyers.

3.3.3 VerticalIntegration

Whenthebuyerscan usethe threattosupply theirownneeds through

verticalintegrationas amechanismforforcingdownpricesthenthebuyershavemorebargainingpower (Hill&Jones,2002). Teabuyersarenotinapositiontothreattoverticalintegrationtoforcedownprices

duetotheauctionsystem.Allcompanieshaveto purchaseteafromtheauction.Evenif anybuyerhas itsown teaproduction,theyneed topurchasefromauction.Only JamesFinlayBangladeshLtd andDuncan

Brothersareallowedto collecttheirtea fromtheir owngardensbasedontheirlocalandexportdemandtherestoftheteaoftheirgardensaresentto thebrokersto sellthroughthe auction.

The table belowsummarizes the impactof the factorsaffecting the

bargaining powerof buyerson the attractivenessof the Bangladeshteaindustry.

Table# 5:Impactof Factors Associated with theBargainingPower of Buyers

3.4 TheBargaining Power of Suppliers

Supplierscanbeviewedasthreatwhentheyareabletoeitherforceupthe pricethata companymustpay foritsinputsor reducethe

quality of the inputs they supply,thereby diminish the firmsprofitability.Onthe otherhand,whensuppliersare weak,the firmenjoysanopportunity toforcedown pricesand demandhigherinput

quality.Aswithbuyers,theabilityofsuppliersto makedemandsonafirmdependson theirpowerrelative tothat ofthe buyer.(Hill&Jones,2002).Thefollowingfactorsaffect thebargainingpowerof suppliers.

3.4.1 Number of Suppliers

When the inputsrequired are available only to asmall number ofsuppliersthen the suppliershave more bargaining powerandare in a

position to raise price and/oroffer less quality of product or poorservices. With respect to the tea industry,the suppliers are

fragmentedand consistof large numberof small,medium andbigsize suppliers of different inputs including hardware, lubricants,fertilizers,insecticides, pesticides,medicines, C.I. Sheets, petroleum,

tractors,bearings,machinery andspares,MSrodand sheetsetc.Sothe industry structure limitsthe powerof suppliersandalmost everyareathey have to compete basedon aggressive bidding.

3.4.2 Importanceof theBuyer Industry

Whenthefirmsindustryisnotimportantcustomertothe suppliers,thesuppliersarelessvulnerableasregardtothe salestothebuyers

which,inturn,impliesthatthesupplierswillhavelittleincentivestoreducepriceor improvequality(Porter,1990).Whilethe teaindustryis

important,thesuppliers arenot dependentsolelyon it.As Bangladeshisan agriculturalcountry,thereis hugemarketother thanteagardens.So, in line with this reasoning,the suppliers of tea industry inBangladesh seem to have more power over buyers (gardeners).

F

actors

PurchaseVolumeof

Buyers

DependencyofSuppliers on

Buyers

VerticalIntegration

Analysis

Differentcompanies purchase teafrom auctionin large volume to meettheirlocal andexportdemand,but due to the auction system buyersare not in a position to use their purchasingpowerforprice reduction.

Producersselltea through the brokersin auctionandbuyersneed to purchase teabasedon theirestimateddemandin the localandinternationalmarket.Buyersneed to bidin the auction morethan their competitors . So suppliersdependency on buyersfor large percentage oftotalsalesis less.

Tea buyers are not in a position to threat tosupply their own needs through verticalintegration asa device forforcing down pricesbecause due to the auction system allcompanies should have to purchase tea fromthe auctions. So if any company invests ingarden andstart teaproduction stillit needstopurchase from auction.

Assess-

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3.4.3 Differentiated Productand Switching Cost

Suppliers offering differentiated products point to high switchingcostfor buyers.In such casesfirms (buyers)depend on the suppliers

and consequently suppliers have the benefit of having morebargaining power over buyers.(Porter, 1990). Buyers in the teaindustry in Bangladesh can switch between supplierseasily as there

are large numberof suppliersof inputs.The extentof differentiationis also limited. But there are some suppliers of inputs such asfertil izers, insecticides, pesticides, and medicines who could

differentiate their products in terms of quality and brand image.Switching from those suppliersto others involve high switching costin the form of poorerquality and inconsistency of delivery. These

suppliers have more bargaining power over buyers. Examples ofthese suppliers include ChattralHardware Store,General Hardware

Stores,S.A. Enterprise,Hossain Enterprise (generalhardware),KAFCO,Azim andCo. (fertilizers),Syngenta Ltd(insecticides andpesticides), TSAEnterprise Ltd(Machinery)etc.

3.4.4 Threatof Forward Integration

Suppliersare more powerfulwhen they are in a position to integrateforwardto industry andcompete directly with the firm (Hill&Jones,

2002).However,asfar asthe suppliersof teaindustry in Bangladesh isconcerned,itis impliedthatthey are notin aposition to integrateforward and compete with the firms that are involved in tea

production asitis adifferentsectorandrequiresdifferentexpertise.Again there are some otherfactors such asscarcity of land,higherinvestment,unavailability of skilledworkers, andeconomies of scale

achievedby the existing producers etc.limit the threatof forwardintegration by the suppliers.Thus forward integration is not be athreatfor the buyers(gardeners).

Basedon the above facts,the impact of factorsassociatedwith the

bargaining power of suppliers on the attractiveness of theBangladesh teaindustry can be summarizedasbelow:

Table6:Impactof Factors associated with theBargaining Powerof Suppliers

3.5 Threatof SubstituteProduct

Products from one business can be replaced by products fromanother.If the firm produces commodity product that cannot be

differentiated easily,customers can switch away to a competitorsproduct with less consequences.On the contrary, there may be adistinct penalty for switching if product is unique oressential for

customersbusiness. (AICC,2004).The following factorscan influencethe threatof substitute forthe teaindustry:

3.5.1 Low Switching Cost

When itiseasy fora customerto switch to a substitute productat a

less or no switching cost substitute product poses greater threat(ICMBA, 1999). However,tea is a low cost product compared topotentialsubstitutes like coffee andsoft drinks.Switching from teato

coffee forwould involve highermonetary costandthus the threatofsubstitution islimited.

3.5.2 Customers Loyalty

When customershave lowlevel of loyalty andprice isthe primarymotivator,the threatof substitutesis greater(ICMBA, 1999).Being atraditionaldrink, loyalty of consumerstowardstea in comparison to

otherdrinksishigher.Besides,if price is consideredasthe primarymotivator, consumers are likely to be more loyal to tea as it isrelatively cheaper.

3.5.3 Incomelevelof customers

Consumers of all income groups cannot consume the othersubstituteslike coffee,softdrinksetc.due to the highermonetary

cost. Higherincome segmentof the marketmay be habituatedorloyalto othersubstitutes,butteahas itseverlasting appealto themasspeople.

3.5.4 Tasteand Preferences

Changing the taste andhabitof customersis very difficult.Overtime,the people of Bangladesh became habituatedto teaand fora large

population ithas become anecessity.Thisis very difficultto changeandhence the threatfrom substitutesislower.

3.5.5 Frequencyof Consumption

Table7:Impactof Factors associated with theThreatof

SubstituteProducts

Frequency of teaconsumption is also high among the consumers

comparedto othersubstitutes. The highercost andnature of otherdrinksmake them expensive to be consumedas frequently asteais. Thislimits the threatof substitutesandcreate opportunitiesfor the

teaindustry to earn greaterrevenue.

The table below summarizes the impact of the factors associated

with the threatof substitute productson the attractiveness of theBangladesh teaindustry.

4.0 Summaryand Conclusion

This study is conducted to determine the attractiveness of TeaIndustry (producers/gardeners) in Bangladesh based on the well-known Porters Five ForcesModel of Industry Analysis. The study

includesidentifying the barriersto entry, understanding the rivalryamong establishedcompanies,determining the bargaining powerofbuyers,verifying the bargaining powerof suppliers,and tracing the

substitute productsand theirthreats.

Asfarasthe barriersto entry in Teaindustry isconcerned,itis found

thatsuitable landfor teaproduction in Bangladesh isinadequate.Inlast25 years,there were investmentsonly in two newestates.Extentof brandloyalty of buyersis limitedin teaindustry though buyersare

loyalto Sterling Companiesdue to betterquality tea.Exist ing teagardenshave cost advantages- especially Sterling gardens,due to

skilled or trained workforce, high reinvestment in gardens, andefficientmanagementsystem.Investmentin teaindustry isa long-term investmentwhich requireshuge amountto invest with longer

pay back period.Some gardenshave labors urplusand some havelaborshortages which also increase costof production.Thusthreatfrom newentrantsisrather lowin Bangladesh TeaIndustry.

Bangladesh tea industry isa fragmentedindustry in which certaincompanies,most notably the Sterling Companies,are in aposition to

dominate.Rivalriesamong the companiesare notthatintense asthe

demandfor teais increasing.Teais difficultto differentiate,butthereissome switching costinvolved among some buyersif they wantto

switch from Sterling Companies' tea to other companies bycompromising on quality.The Sterling gardensget higherprices fortheircrops comparedto others.Increasing teaconsumption provides

opportunity forthe teacompanies to earn greater revenue withoutincreasing the extentof rivalry.So rivalry among the producersisnotthatintense.

Buyersare not in aposition to dominate the teaindustry asbuyersneedto compete in the auction to purchase teaby bidding for higher

price than their competitors.Due to the auction system,buyerscannot use their purchasing power for price reduction.The teaproducers have lessdependency on buyersfor large percentage of

total orders.Even though, in auction,buyers can switch ordersbetween firms(gardens)at alow costbut they (buyers)can notforce

down pricesin every situation.Teabuyersare also not in aposition tothreaten to supply theirown needs through verticalintegration asadevice forforcing down prices,since allfirmsmust purchase teafrom

the auction.Therefore,the bargaining powerof buyersislimited.

The industry structure limitsthe powerof suppliers.Tea producers

procure theirinputsandlogistics from suppliersthrough competitivebidding. The tea producers have alternatives in selecting thesuppliers,and the rivalry of the supply industry limitsthe power of

suppliers. As the buyers (tea gardeners) industry is not thatimportant customer for the suppliers,the buyers are, in a sense,

incapable of influencing them to reduce price - whic

suppliershaving more powerover buyers.Switching colowfor the buyersto switch between suppliers,but thesuppliersof inputswho have differentiatedtheirproducts

quality and brand image.Suppliers of tea industry aposition to integrate forwardand compete with the fiinvolved in tea production which limits the threat

integration by the suppliers.

To switch from teato coffee orany othersoft drinksin

monetary costwhich confinesthreat of substitutes.Degrtowardsteais higherthan othersubstitutesbecause ofand image of traditional drink of the region. The

Bangladesh became habituated to tea and for a lapopulation it has became almost a necessity. Frequ

drinking isalso high among the consumers in comparisubstitutes.So threatfrom substitutes are also very limite

Thus,an analysisof five forcesof an Industry,asidentifiePorter(1990), itcan be concludedthatthe threatsfrom ain the teaindustry of Bangladesh are ratherweak hen

an attractive industry for long-term investment and fiboth localandforeign investors.r

Bibliography

AICC (AgriculturalInnovation &Commercialization Center).(20Analysis :The Five Forces. Retr ieved September 200

AgriculturalInnovation &Commercialization Centerretr2009 from www.agecon.purdue.edu/planner.

Bangladesh TeaBoard.(2001).Strategic Plan forMarketing of Ba

Chittagong

Bangladesh Tea Board.(2006). Various Information and StaIndustry.RetrievedJune,2009,from www.teaboard.gov.bd

Hill,W.L .,Char les ,andJones ,R .,G..(2002).StrategicManageme

Houghton Mifflin Company:.

ICMBA(InternetCenter forManagementand BusinessAdminist

PortersFive Forces:A ModelFor Industry Analysis.Retrievfrom www.QuickMBA.com

InternationalTeacommittee.(2006).Annual Bulletin of Statistics.

Lehmann,R .D. and Winer,S. , R .(2005).P roduct ManagemeMcGrawHill.

NationalBrokersLtd.(2006). AnnualReport.Chittagong

Porter,E.,Mi chael(199 0).The Competitive Advantage of Nati

Free Press

F

actors

Numberof

Suppliers

DependencyofSupplierson

Buyers

Differentiated

ProductandSwitching

cost

ThreatofForward

Integration

Analysis

The industry structure limits the power of suppliers.Accordingtotherequi rementsofthegardens,suppl iersgive price quotation and the tea producers giverequisi tiontothesuppl iersthatarepr icecompetiti ve.

Importanceofthe BuyerIndustry Asthe buyers

industry is not that important, the suppliersbuyersareunable toinf luencethemto reduceprice.Suppliershave lit t le incentivesto reduce

priceandhavemorepoweroverbuyers.

Extent of differentiation is limited - which indicatesswi tchingcosti s lessforthebuyers.Buttherearesomesuppl iersof inputswhodi fferentiatedthei rproducts interms quality and brand image and these suppliersnaturall yhavemorepoweroverbuyers.Buttheintensecompetitioninthesupply industry l imi tsthei rpower.

Suppliersofteaindustryarenotinaposi tiontointegrateforwardand competewiththe companiesthatare involvedintea production,asi t i sa di fferentsectorandrequi redi fferentexperti se.Thusforwardintegrationwi l lnotbe athreatfor thebuyers.

Assess-

ment

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_ _

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F

actors

SwitchingCost

Customers

Loyaltys

Incomelev elofcustomers

TasteandPreferences

FrequencyofConsumption

Analysis

Toswi tchfromtea tocoffeeor anyother softdr inksinvolve higher monetary cost. This makes the teaindustrymore attractive

Loyal tyof consumerstowardstea comparedto otherdr inksishigherbecauseofi ts low cost.

A l l i ncomegroup consumerscan tconsumethe othersubstitutes due to higher monetary cost. Hence, thedegreeofloyal ty towardstea isgreaterand threatofsubstituteis verymarginal.

PeopleofBangladeshgraduall ybecamehabi tuatedtoteaandfor alargepopulationi thas becamealmostanecessity much more so than other substituteproducts.

Frequency of tea drinking is also high among theconsumers in comparison to other substitutes. Thehighercostand natureof otherdr inksl imi tthreatofsubstitutes.

Assess-ment

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Opportunities l Webbasedtrading l Diversifiedproductsand marketssuch asderivatives,OTCmarket,Bond

marketetc., l Highereconomicgrowth l Moremacrostability

l Structuralreformsnotably privatization ofSOEs

l Specificpolicy changesnotably domesticfinancialreform andcapitalaccountliberalization

l Increasing focuson alternativeinvestment

l Attractmorefundmanagement companies

l Attracting foreign companiesfora listing atCSE

l Growing interestofinternationalinvestors

l Increasing growth potential

l Improving infrastructuresuch asdeep sea

l Productandservice expansion

Threats

l Uncertainty aboutfuturepolitical situation

l Country economicslowdown

l Globalmeltdown

l Lackofinvestorsconfidence

l Newentrantsuch asnationalstockexchange

l High interestrateofferedby financialinstitutions

l Ifnothing changes,growth potentialwill berestricted

l Rapidtechnologicalchanges

l FailuretoCopt with changing scenario

It is tobe notedthattheelementsunderSWOTanalys ismay notbefullyappropriatein allthe cases.Itis justa broadguideline.Concerned authoritieswill review the elements and select appropriate ones for identifying the

SWOTandfind outthestatusl eading tocorrectiveactions whereneededandfeasible.

Innovation of New Ideas, Concepts, Philosophy,MethodandTechniques fortheOverallDevelopmentoftheExchangeAfteranalys ing SWOT,CEO willtakeevery steptoevolveinnovativeideasthrough research,discussions,or imparting knowledgefrom fieldor globalsources for implementation by which he will be able to utilize strengths,removing weaknesses,capitali ze opportunities and minimize the risk ofthreats.

ConclusionFromthe forgoing discussionsit may be undoubtedly concludedthat thatCEOhasavitalroletoplay in dynamicandstablegrowth ofstockexchange.In thiscontext,this conceptpaper providesideas andunderstanding oftheexisting system,identifying theexisting weaknessesandcapability tohandletheseproblemseffectively. Innovation ofsophisticatedideas formaterialisingSWOTisa continuousleading roletobe playedby theCEOof thestockexchange.Theserolescan beillustratedby as impleexample.For instance,stockexchange may haveso many lighting pointsof which someare notinoperation, some are inactive and inadequate and some are foundunnecessary .AsaCEO,hehasto takeown init iat ivetooperationaliseallthelighting feasiblepointsin ordertoovercomeexisting shortfall.Again,supposestockexchangeisautomatedvehicle,economy isa superhighway,CEOasadriverrunsthe vehicleas speedieras superhighway allowshim.So heshouldbe dynamic,updated at the time and should have vision,mission andobjectivein linewith thevision,mission, andobjectivesof stockexchange.Allthesewith resultin stableand dynamicgrowth ofstockexchange having apositive impact on sustainable economic development of a country likeBangladesh.r

DynamicandStrategicLeadingRolestobePlayedbyCEOintheDevelopmentofStockExchange:ARoadmap

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