Business Strategy versus Performance Trade-offs: Evidence from the Indian Tea Industry

The study is to map competitive strategy in the Indian tea industry based on a sample of the 14 largest players. Tea industry in India occupies a dominant presence in national economy where it serves not only domestic consumption but also for export market. Over the years, there has been a shift in the proportion of export to domestic consumption of tea produced in the country, with domestic usage now far exceeding exports. Changing consumer tastes and preferences in the export market has led to the drop in exports. Even though overall domestic consumption has been increasing with a

commensurate increase in per capita consumption, this growth rate appears inadequate and there is a need to work out suitable strategies for both domestic market expansion and penetration. Even though there are approximately 1,600 registered tea manufacturers, this industry is highly fragmented, intense rivalry with the top four firms constituting less than 30 per cent of the total market share. Competitive strategy stems from the structureconductperformance model. Industry structure is a function of the nature of forces at play in the competitive environment. Competitive strategies (conduct) are formulated on the basis of the market structure. Competitive strategy is concerned with how to compete in a particular industry and improvement of performance is the core of strategic management. The importance of business performance to strategic management on three dimensions: theoretical, empirical and managerial. Most competitive strategy research has focused on relationships between competitive strategy and individual measures of performance in isolation, rather than as inter-related complexes. Therefore this research attempt to conduct multidimensional mapping of competitive strategy with several variables and measurement: a. Efficiency and parsimony, consist variables cost efficiency, labour expenditure, capital intensity, and value added. b. Differentiation, reflected by variable advertising expenditure to measure of a differentiation approach. c. Scope, consist variables distribution expenditure and export performance, to measure increasing product market scope and international presence. d. Profitability, consist variable return on assets and return on sales to reflect effeciency of asset utilization and the operating margin. e. Market position,consist variable market share and relative market share

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Growth, reflected by relative sales growth to measure the true growth in sales of the firm.

The research brings several results of two dimensional plot of the competitive strategy and performance variables. 1. The pursuit of growth simultaneously promotes the building up of market position. 2. Profitability seems opposed to both growth and market position, that is, the pursuit of profitability may lead to deceleration in growth and market position and vice versa. 3. Aiming only for growth or market position in the Indian tea industry may be suboptimal. 4. Business strategies that increase product market scope and international scope/presence in the Indian tea industry lead to enhanced performance on all the three fronts, that is, profitability, market position and growth. 5. Advertising spends seem to be positively affecting growth and market position to a relatively greater extent than their effect on profitability. 6. The strategy of efficiency thus positively affects all the three performance variables: profitability, growth and market position. The strategy of asset parsimony negatively affects profitability but is favourable for growth and market position. Four strategic groups emerge frim the analysis, they are as follows: 1. Profitability pursuers: Companies that appear to form one strategic group with a focus on enhancing their scope through higher distribution spends and exports with a view to increasing their profitability. 2. Value adders: Companies that appear to constitute a strategic group concentrating on growth through enhancing asset parsimony by adding value to sales. 3. Efficiency deficient: Companies that appear to be inefficient due to high cost of sales and wage expenses. They are also pursuing growth through high capital intensity on plant and machinery. 4. Market leaders: Companies that appear to form a strategic group of market leaders enjoying relatively higher market share and growth. They are following a strategy of differentiation as well as lowering inefficiencies. They are also involved in the strategy of enhancing scope through exports.