The Weak Control Systems of Kazi and Kazi Tea Estate - Coursework Example

Case Analysis: Teatulia Case Analysis: Teatulia Problem ment Kazi & Kazi Tea E Limited (KKTE) was besieged with numerousinternal problems like lack of fiscal discipline and operational inefficiencies. The eagerness to acquire land and develop it for plantation as fast as possible had led to certain corrupt practices within the organization. The weak control systems of KKTE led to the continuation of such malpractices. Hiring and retaining competent managerial and supervisory personnel was a challenge. The company had business operations in remote areas where fragile law and order mechanisms created a major setback. KKTE managed to control many of these problems. The main stumbling block was however the statutory requirement of selling 85 percent of the produce through organized auctions which was thwarting international growth. Internal and External Environment Internal Environment KKTE’s operations were set up with the help of experienced consultants from abroad. Japanese farmer/philosopher Masanobu Fukoka, an authority on natural farming, provided the initial hand holding as the founding members of KKTE and the local residents had limited expertise in the domain. Kazi Anis Ahmed (hereafter referred to as Anis), the CEO plugged loopholes and streamlined many internal processes. External Environment The economic environment in Bangladesh has remained stable. The country can be considered to be an exception as it managed to ward off the ill effect of the latest recession of 2008. A decent GDP growth rate of 5 to 6 percent has been registered in recent years. The country however lags behind neighbors India and Pakistan in terms of per capita income. The social environment of the country also appears favorable for business. The country has improved on numerous social and cultural parameters like female education and public health leading to increase in life span and decrease in infant mortality and maternal death. The tea operations of KKTE are labor intensive and suited to the local economic and climatic conditions. The natural resources provide an ideal platform for tea cultivation in the region. The land had lain fallow; it was unadulterated and had no residue of pesticides, herbicides and synthetic fertilizers. All these external environmental forces provided an ideal platform for KKTE’s business operations. Porter’s Five Forces Model KKTE operates in the organic tea plantation and cultivation industry. Worldwide, tea is the second most commonly used prepared beverage after water. In 2012, the combined tea production was 5 million metric tons. The ensuing discussion is gauges the industry attractiveness with the help of Michael Porter’s Five Forces Framework. Rivalry amongst Existing Players The tea cultivation industry is highly competitive. There were many other tea gardens spread in other regions of Bangladesh. Tea as a commodity was also being exported to various parts of the world by China and India. Tata Global Beverages and Unilever were multinational behemoths operating in Bangladesh as well as other parts of the world. Ispahani was the largest domestic brand in China. Ispahani purchased tea at auctions for onward selling under its brand name. The success of Teatulia prompted six other players to set up tea production gardens in the Teatulia area. Threat of Substitutes Coffee and other tea brands, whether grown organically or not, are direct substitutes of Teatulia brand. Other beverages like carbonated drinks, juices, smoothies and even shakes pose as indirect substitutes as they have the potency to satisfy the same needs. The substitute products may be manufactured by a home-grown company or by an international player. The threat of substitutes is therefore high. Threat of New Entrants KKTE enriched the quality of soil by using cow dung and leguminous cover crops for nitrogen fixation. This method of soil enrichment was costly as compared to traditional methods. The payback period was also long and therefore the threat of new entrants in the organic tea production industry is low. KKTE’s model can be replicated by small entrepreneurs; however achieving KKTE’s scale of business operations appears to be an insurmountable task. The lawlessness that prevailed in the remote, tea growing regions of Bangladesh would also deter new entrants. Overall, the threat of new entrants is low. Bargaining Power of Suppliers KKTE has developed an innovative co-op membership program to ensure regular and timely supply of cow dung; one of the vital input in organic tea cultivation. The program worked on a barter system and was a win-win situation for the company as well as the suppliers. The bargaining power of suppliers was literally reduced to zero with the help of the co-op membership program, a practical alternative of micro credit mechanism in Bangladesh. Bargaining Power of Buyers Majority of the tea produce was sold at organized auctions. This regulatory requirement proved to be a boon for tea manufacturers as the tea prices had increased three times from 2000 to 2013. The rest of the produce is sold as branded tea both domestically and internationally. Thus the bargaining power of buyers is also low. Is The Industry Attractive? The industry is attractive since there is tremendous potential to sell organic products. Companies can differentiate their products on different parameters and command a high price. Such companies are bound to find favor with the customers as well as the government given the community development associated with the industry. Performance Measures KKTE has managed to scale up its business operations tremendously. The company produced more than 3, 00,000 kilograms of tea in 2012. Financial Performance The financial condition of KKTE is good. The company has achieved cash break even and has turned profitable. The company faced a major dip in profitability in 2008 when in recorded negative profit of 73.7 percent. The poor performance in 2008 can be attributed to massive infestation of tea gardens by moths and red spiders. The profit margins have again dipped in 2012 due to increase in energy and other costs. The company is well poised to return to profitability in the future. Employee Satisfaction The number of employees has steadily increased from 800 in 2008 to 964 in 2012. The work environment at KKTE is conducive. The employees are paid market-rate wages. These wages are paid on time and in full. The employees are also imparted training in the domain of composting, mulching and pest management. Community Betterment The operations of the KKTE have benefitted the entire community. A bazzar and poultry farm has come up in the region. Many farmers have started growing tea and earning a livelihood. The ‘cow co-op’ program has enabled many local residents to own a cow. The overall development has led to the employment of 2,200 people, many of whom are women. KKTE has actively discharging its corporate social responsibility. The company’s volunteers train local people in computers, provide adult education and guide them on health and hygiene programs. In nutshell, KKTE was providing means of livelihood and improved living conditions to the country’s poorest and least educated people. Core Competency KKTE’s parent company Gemcon has been operating in the area since mid-1980s and has played an instrumental role in uplifting the social standard of the local community. Kazi Shahid Ahmed, Gemcon’s founder, has built a multiline business corporation. The diverse business operations include seafood, print media, steel, retail, garments, gem jute and tea. The common thread running between all these wide-spectrum enterprises is the guiding philosophy of being futuristic. The diverse business lines have been pioneers in their respective fields and have thrived because of their unrelenting commitment to quality and social responsibility. This core competence successfully fits into the VRIO framework. The philosophy has added a lot of value to all the stakeholders. It is rare as most of the ‘for-profit’ organizations hanker after economic objectives only. Moreover, the intangible nature of the competence makes it difficult to imitate. KKTE is organized to make full use of the core competence as the philosophy of the founder has been carried on by the next generation. The top management has the necessary education and business acumen to take the business to the next level of success. Strategy Corporate Level Strategy KKTE has adopted growth as its corporate level strategy. Kazi Shahid Ahmed started acquiring land for tea gardens in 1999. The astute entrepreneur had the necessary experience and financial muscle to take calculated risks. With each passing year, more land was purchased while the existing properties were upgraded and cultivation was started on them. By 2013, the company had acquired 3,000 acres of land of which tea had been planted on 900 acres. Business Level Strategy KKTE follows the strategy of differentiation. The tea is organically produced, picked and processed with utmost care. The high quality and flavor enable the company adopt the price skimming strategy and sell the Teatulia brand at a premium. The guiding philosophy of producing great tea through organic sustainable methods has enabled KKTE stand apart from other tea manufacturers. The owners of the business have been conducting business in a profitable, sustainable business and have ensured that they pay back to the community in which they operate. International Strategy Teatulia set foot on the U.S. soil by forging a partnership with Linda Appel Lipsius taking on the mantle of co-founder and CEO. Lipsius was instrumental in establishing the Teatulia brand as a premium-quality tea, making it available at all best-quality restaurants and retail outlets and setting up excellent customer services. During the second phase of expansion in the U.S., the brand aimed to expand distribution and gain more visibility. The company contemplated inking a pact with Target, one of the biggest mass-market retailers in North America. Teatulia did not adopt a joint venture route to enter the foreign markets to ensure that its brand maintains the ‘organic’ positioning plank. Teatulia was shipped from KKTE’s processing facility in Bangladesh to the California coast. The company stored the imported tea in a rented facility just east of Denver. The company has adopted a global strategy as its tea product is standardized, the scale of operation has been increased and the same product is being sold in the domestic as well as international market. To set the Teatulia brand apart from numerous other tea brands available in the market, Lipsius demonstrated on TV shows, consumer shows and associated the brand with ‘green’ events. The endeavor was to highlight the organic, sustainable farming and community betterment aspects to create an aura about the brand. An attention-grabbing, compostable package made from recycled material was also created for the U.S. market. By 2012, sales of Teatulia brand were growing at an impressive 60 percent. Company Structure and Control The organizational structure at KKTE is contrary to the super-flat structure advised by foreign consultants. The company keeps a buffer by adding a second tier of personnel especially in important functions. The task of recruitment and training the second line personnel is included in the manager’s key performance indicator (KPI). This structure entails extra cost however the demerit is overshadowed with the additional gains in operational stability. KKTE was earlier riddled with inefficiencies, corruption and lackadaisical approach of the workers when Anis took over as the CEO. Anis was fully aware that stringent systems and processes that require high degree of diligence tend to fall apart in developing countries like Bangladesh. Anis therefore assigned KPIs for all possible tasks, demanded timely completion of routine operations and created an appropriate reporting system. Training and meetings were frequently organized with the objective of performance monitoring and measurement as well as providing valuable feedback to the employees. KKTE managed to achieve efficiencies by sticking to the basics. Mergers and Acquisitions KKTE has hitherto grown through the organic route. The company has made minimal use of mergers and acquisitions. KKTE can adopt the acquisition route to growth especially if it wants to expand to other international markets. Acquiring other companies will provide KKTE a readymade infrastructure to work with. Corporate Governance KKTE is essentially a family run business and therefore there is no conflict of interest between the management and owners. Various facets of business are run on the co-operative model which aligns various business objectives and the suppliers and vendor’s interests. The activities are closely monitored by the CEO personally. The company encountered certain corporate governance issues especially with land acquisition. However, it can be said that the issues were not of the company’s own making. Rather the fragmented and remote land holdings precipitated some unethical business practices. Recommendation The present business model has paid rich dividends to KKTE. The company however faces a regulatory hindrance in terms of growth. The statutory requirement of selling 85 percent of the produce in auctions restricts the quantum of produce that can be sold oversees under the Teatulia brand name. KKTE should contemplate starting cultivation in India and China. These neighboring countries are already the leading producers of tea in the world. With no regulatory restrictions, KKTE can sell its produce to numerous other international markets and increase its top line as well as bottom line. The objective of ameliorating the condition of people in its home country Bangladesh can be achieved through philanthropic acts. Meanwhile, the existing operations of KKTE would continue to carry on the good work. Read More