Q.

1
Pakistan imported about 8178.88 metric tonnes (MT) of black tea worth
$16.1 million during March 2014, as compared with 9096.48 metric tonnes in
March 2013 worth $18.5 million. According to these numbers provided by
PTA, imports witnessed a decline of 10 percent. The apparent reason for the
decreasing value of decline was a hike in the prices of commodities and
petrol prices in general; it is significant to mention over here that the
international tea prices also witnessed their peak in the past few months.
Probably that is the reason why the existing importers in the country could
not import the expected quantity of tea.
This decline did not really affect the consumption pattern of the population
as people consumed tea like they did in the past; the change in consumption
pattern did not show a descending trend because of the existence of
smuggled tea.
Pakistans per capita consumption of tea is 1 kg per annum, but the country
relies almost completely on imported tea. Its import volume is third highest
behind Russia and the United Kingdom. Pakistan imports tea from 21
countries and the major portion is imported from Kenya. During March, 58.81
percent of the total quantity of imported tea was bought from Kenya as
compared with 49.63 percent imported in the corresponding period last year.
According to an interview given to Daily Times by the President of Pakistan
Tea Association (PTA) Hanif Janoo, legal importers of the commodity are
facing a critical situation because of increase in smuggling over the past few
years. The countrys annual consumption of tea stood at 170-175 million kg,
the third highest in the world. Mr. Hanif Janoo also stated that only 100
million kg of tea is brought into the country through legal process while the
rest is smuggled under the garb of Afghan Transit Trade.

It is to be noted that the government is annually losing Rs 5 billion to Rs 5.5

billion revenue due to smuggling. This loss could easily be neutralized by
making the legal trade regime easy and by placing minimum duties on
regular imports as is the practice in almost all the tea-importing countries.
The set of solutions suggested by Mr. Janoo included the reduction of import
duty from 10 percent to zero, placing the black tea in negative list or putting
a quantity quota like India-Nepal agreement. Other than the suggestions
mentioned above regarding the steps that could be taken by the
government, it is imperative to mention that in-house production and
cultivation of tea leaves would also help us add more money to our local
exchequer. If we spend approximately Rs. 20 million just for the cause of
importing tea every month, we can easily calculate the amount we would
save by initiating the local production in the coming few years. The import
quantity would hence only increase with the increasing population.

PEST ANALYSIS:

The external macro environment in which a firm operates can be expressed

in terms of the following factors

Political
Economic
Social
Technological

PEST analysis is used to describe a framework for the analysis of these

macro environment factors.
POLITICAL FACTORS:

These factors and government interventions can make or break the industry.
The political factors have played a very benign role for the tea industy. The
political arena has a huge influence upon the regulations of the businesses,
and spending power of consumers and other businesses. The political

environment of Pakistan is relatively unstable in the current situation. The

investors are not willing to invest in Pakistan. However, WTO and trade
policies encourage the import of raw materials for Tea industry.
Tea Import Quota
It is an important consideration. Each year there is a certain quota on tea
import in total imports of Pakistan. Each player is given quota to import and
manufacture so one can say that it is a very regulated industry.
Diplomatic Relations
The relations with the tea producing nations and Pakistan play a vital role as
large part of imports comes from Kenya, but now Pakistan is also importing
tea from India.
Unstable Geographic Conditions
Pakistan is situated at a very critical and geographically strategic location.
Due to the uncertainty new investors are not ready to invest in Pakistan.
ECONOMIC FACTORS:

Economic conditions of an environment have a direct impact on the

development of any industry. The recent economic recession in the world has
had an impact on Pakistans economy as well.
Pakistan's

economy

mainly

encompasses textiles, chemicals, food

processing, agriculture and other industries. In 2005, it was the third fastest
growing economy in Asia. Since the beginning of 2008, Pakistan's economic
outlook has taken a dramatic downturn. Security concerns stemming from
the nation's role in the War on Terror have created great instability and led to
a decline in FDI from a height of approximately $8 bn to $3.5bn for the
current fiscal year. Concurrently, the insurgency has forced massive capital
flight from Pakistan to the Gulf. Combined with high global commodity prices,
the dual impact has shocked Pakistan's economy, with gaping trade deficits,

high inflation and a crash in the value of the Rupee, which has fallen from
60-1 USD to over 80-1 USD in a few months. For the first time in years, it
may have to seek external funding as Balance of Payments support.
Inflation
Inflation remains the biggest threat to the economy, jumping to more than
9% in 2005 before easing to 7.9% in 2006. In 2008, following the surge in
global petrol prices inflation in Pakistan has reached as high as 25.0%. The
central bank is pursuing tighter monetary policy while trying to preserve
growth. Foreign

exchange reserves

are

bolstered

by

steady

worker

remittances, but a growing current account deficit - driven by a widening

trade gap as import growth outstrips export expansion - could draw down
reserves and dampen GDP growth in the medium term.
Social Factors
The social and cultural influences on business vary from country to country. It
is very important that such factors are considered. People are socializing
more may it be events or casual visits to friends and family. Tea has always
been an integral part of Pakistani culture and rituals. It is understood that tea
would be present at all events.
Changing Trends
As work environment is becoming more stressful, people require different
forms of refreshment and intakes to increase their energy levels. This further
increase the intake of tea at workplaces, tea is not only just available to the
employees when needed but is also served twice a day in order to keep them
going. On the other hand, media expansion, growth of advertising as a
separate industry has resulted in greater exposure of all the brands and
masses. Hence social factors and changing mindsets have positively affected
this industry
Tea has always been acceptable in all social classes because of its usage.
Green tea has recently gained a lot of popularity due to health reasons and is

largely consumed. Another factor is the emergence of ice tea which is

indirectly competing with soft drinks.
TECHNOLOGICAL FACTORS:

Technology is important to gain an edge over competitors and it drives

globalization. Technology helps companies to reduce cost and achieve
economies of scale. Technology also leads to the development of new
products and sometimes even segments.
Tea manufacturers like Unilever and Tapal already manufacture tea of the
highest quality and they achieve it by the state of the art production facility
that they have. Lipton has also installed its own plant of Danedar tea
production.
Q.2

PORTERS FIVE FORCES:

Micahel Porter provided a framework that models an industry as being

influenced by five factors. The strategic business manager seeking to
develop an edge over rival firms can use this model to better understand the
industry in context in which the firm operates

COMPETITIVE

The

RIVALRY

intensity

of

industry is fairly high. There are

and

Brooke

Bond

in

the

competition

in

the

tea

few established names like Lipton

market. Now Tetley has also

been

introduced in the market. So

these and also Khulli Chai as

Tapal is competing with all of

well. Talking about Lipton and Brooke

Bond they are brands of

Unilever which is known to

be a giant in the FMCG

industry.

impossible that any local

brand would even survive

It

seemed

when competing with them but Tapal proved them wrong through smart
advertising and high quality product it has already given Brooke Bond a run
for its money and now facing Lipton.
The rivalry can be observed when we look at the ad spend of these
companies. All of them advertise heavily to gain a competitive advantage
over the other.
THREAT OF NEW ENTRANTS

Threat of new entrants is high. This is evident by the immense growth in the
industry and government policies are also encouraging new Tea houses to
emerge on the scene. The taxes on import of tea are reduced thereby
decreasing the cost of production. It can be taken as positive sign by a
prospect player.
Initially it was thought that no company would survive against the giants of
Unilever but since Tapal people have started thinking that local brands can
do well and new players might decide to come into this market.

THREAT OF SUBSTITUTES

In this case tea will always remain an integral part of our culture. Having said
that there is a low switching cost associated with the trade off of substitutes.
In case of tea substitute is coffee and even cold drinks in some case.
It can easily be assumed that the demand for tea is nothing but increasing.
Currently majority of the consumers have not developed the taste for coffee
so it cannot be seen as a potential threat. Change in patterns can be
observed because consumers are shifting from normal tea to green tea but
again the broad category of the product remains the same.
BARGAINING POWER OF BUYERS

The bargaining power of buyers is low because of the high demand. Although
due to increased competition prices remain competitive but buyers have
little or no bargaining power. In case of tea an element of brand loyalty is
also associated so a consumer would want to use a same brand which gives
in his bargaining power. Also with tea people prefer quality over its price.
BARGAINING POWER OF SUPPLIERS

Bargaining Power of supplier is high because there are few suppliers of tea.
The reason why there are few is because there is a specific taste of tea that
consumers like so the manufacturers are forced to choose from few options.
In Pakistan tea is imported majorly from Kenya and Srilanka so the supplier is
at power to influence the price due to the limited availability of the raw tea.
In Pakistan recent plantation of tea farms may favor the local manufacturers
and foreign suppliers may find a reduction in their bargaining power.