Chinese Tea and British Tea

Research Proposal

Comparative Study on the International Competitiveness of Chinese Tea and British Tea

3. Aims and Objectives:

This dissertation is going to explore the differences in the international competitiveness of tea industry between China and United Kingdom.

The specific objectives are:

* To analyze the status quo of China’s tea production, consumption and trade and the influencing factors of the international competitiveness of tea;

* To analyze the status quo of British tea production, consumption and trade, and its influencing factors, and the influencing factors of the international competitiveness of tea;

* To examine different variables affecting international competitiveness of tea industry in the two countries;

* To seek relations between tea industry of the two countries

* To put forward some suggestions for tea industry of the two countries.

4. The Context and Background of the Proposal

Tea as an important drink is very popular throughout the world. China and Britain are two countries so far from each other, but they share the same drinking habit–love for tea. Tea was first cultivated and brewed in China. It was then spread to other countries and regions worldwide. Tea industry carries great meaning to China in both economic terms and cultural terms. Chinese tea is an important symbol of Chinese culture. Speaking of tea, westerners naturally relate it to Chinese culture. According to Lu Yu, writer of the book Tea Classics during the Tang Dynasty, Chinese tea has enjoyed a history of more than 4000 years. In the West Zhou Period in ancient China, tea was used as religious offerings. Since the Han Dynasty, tea leaves were infused in boiling water. The new drink made tea into a major commodity. Tea as a drink prospered during the Tang Dynasty, and tea became popular among common people. Tea became an important crop during the Song Dynasty. Tea farms covered more than 200 counties. Tea planted in Zhejiang and Fujian provinces were used as expensive tribute tea, some of which was even exported to Southeast Asian and the Arab countries (Tea history, 2010).

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In the Ming and Qing Dynasties, tea trade began to play an important role in the government’s economic plans and the “Tea and Horse Bureau” was set up to supervise the tea trade. In the Song Dynasty, Arabic merchants exported tea from Quanzhou city of Fujian Province. In the Ming Dynasty, tea was sold to Southeast Asian and South African countries. In the year 1610 tea went to Europe via Macau in a Dutch merchant ship. Tea then became an international drink. From Tang Dynasty to the nineteenth century, China was the only large country that exported tea in world market (Tea history, 2010).

After 1830s, India, which was then British colony and the tea producing base of Great Britain, had learned how to make tea and began to compete with China in world tea market. For historical reasons and other reasons, China began to lose its dominant position in the tea market till the Opium War in mid nineteenth century. From then, China’s tea industry was almost destroyed and lost its dominant position to India. The competitiveness of Chinese tea decreased little by little and fell to its lowest point in history in the first half twentieth century, before the People’s Republic of China was founded. After then, China’s tea export started to restore and increase its share in world market. However, the golden days of Chinese tea is gone forever.

Tea history in United Kingdom is relatively short, which dates back to mid seventeenth century. However, tea has got great popularity since it was brought to Britain by the queen consort of Charles Ⅱof England. Since then Britain has formed a rich tea culture which is a very important part of British culture today. Tea was first imported to Britain through Amsterdam or other eastern boats. When British East India Company was established, regular trade began in China’s Guangzhou Province. The East India Company traded many products with China, and tea was the most successful one and accounted a large part in Britain’s global trade, which to some degree contributed to Britain’s global dominance in late eighteenth century (Britain Express, 2010). Afternoon tea, a key express of British tea culture was introduced by Anna, the seventh Duchess of Bedford in 1840. Afternoon tea was served between lunch and dinner, which was a long period. The Duchess found she would get hungry at about 4 o’clock in the afternoon, so she brought tea and together with some bread and butter to her room, which began British afternoon tea custom (Historic-UK, 2010). Afternoon tea is so popular in British life that speaking of tea most people naturally relate it to Britain as well.

Chinese people have totally different tea culture and drinking habits from Britons. Chinese like drinking green tea, which is seen as medicine and has the functions to cure diseases and refresh people. British people are fond of black tea with milk and sugar. However, Chinese tea industry and British tea converged in some very important historic periods. Tea was first spread to Britain from China. China lost its dominant position to Britain in tea trade. In 2008 Paralympics Games, the London 2012 section of the Paralympics handover in Beijing involved tea as part of the routine. These events all witness deep relations between Chinese tea and British tea.

China is now still the largest tea producing countries in the world. However, it has no such world famous tea brand as Lipton of Britain. Although Britain has no large tea gardens and has no great number of tea farmers, it is the largest transfer trader of tea. The international competitiveness of China’s tea lags far behind that of British tea. China indeed has rich resources to plant tea, but has not yet made full use of them. China still competes in world market with low-priced products. This paper is specific to probe into the status quo of China’s tea industry and British tea industry, their competitiveness in world market, and eventually provide a brighter way which could make Chinese tea producers more competitive in world market.

5. Preliminary Literature Review

5.1 Studies on International Competitiveness

Theory of international competitiveness started as early as mercantilism, according to mercantilists, national wealth of a country is measured by gold and silver. Through exporting, the country can get gold and silver from other countries and thus accumulate wealth. So the country should export the maximum of its product and import the minimum of the product from other countries. Mercantilism dominated the international trade theory till Adam Smith published his master piece The Wealth of Nations (Smith, 1776, cited in Ezeala-Harrison, 1999). Smith viewed trade as positive-sum game instead of zero-sum game in Mercantilism. According to Smith, a country should produce and export the product in which it had absolute advantage and import the product it had no advantage at all.

After Adam Smith, there were many other economists making important contribution to the theory. The most important one is David Ricardo’s competitive advantage theory. Ricardo (1817) put forward his theory by solving a problem in absolute advantage theory, that is, what if the country has absolute advantage in both goods? Ricardo thought that the better country should produce the product which it has greatest advantage in. The other country should specialize where it has the least absolute disadvantage. Even if a country has no advantage in any good, it still can benefit from international trade. After Ricardo, there were also many theories of international competitiveness, among which the factor endowments theory in early twentieth century by Heckscher and Ohlin had great implication to the international trade. HO model tells us that each country has its well-endowed factors, and it should produce and export the product whose production is intensive in the well-endowed factor (cited in Dong-Sung Cho, Hwy-Chang Moon, 2000).

Those classic theories of international trade have great influence on the later economists. In the late 20th century Michael Porter of Harvard Business School published the book The Competitive Advantage of Nations that attempts to determine why some nations succeed and others fail in international competition (Porter, 1995). Porter’s basic thesis is that four broad attributes of a nation shape the environment in which local firms compete, and these attributes are factor endowments, demand conditions, relating and supporting industries, firm strategy, structure and rivalry. These attributes constitute “the diamond.” Porter maintains that two additional variables can also influence the national diamond in important ways: chance and government.

Source: Drawn from M.E. Porter, “The Competitive Advantage of Nations,” Harvard Business Review.

5.2 Measuring Parameters of International Competitiveness

There are some important parameters that can reflect the international competitiveness of a product, including world market share rate (WMS), price and cost, normalized trade balance (NTB) and revealed competitive advantage (RCV). World market share rate (WMS) refers to rate of the export value of one product in a particular country to the world total export value of that product, that is WMSi= Xi/Xw. WMSi is the world market share rate of country i, and Xi is the export value of given product of country i, Xw refers to the export value of given product of the world.

Normalized trade balance refers to the rate of net import value or net export value to the total trade value of a particular product. That is, NTBi= (Xi-Mi)/ (Xi+Mi). X is the export value and M is the import value and i refers to product i. If the import value of one product surpasses its export value, the product is import oriented. Otherwise, the product is export oriented. If the rate is very near to 1, it means that that product is highly competitive in the international market. And no matter what the import value and export value are, the rate is between -1 and 1 (P.LelioIapadre, 2001).

Revealed competitive advantage is an index used in international economics for calculating the relative advantage or disadvantage of a certain country in a certain class of goods or services as evidenced by trade flows. It is based on the comparative advantage concept of David Richard. It most commonly refers to an index introduced by Balassa. The Balassa index basically measures normalized export shares, with respect to the exports of the same industry in a group of reference countries. The Revealed Comparative Advantage (RCA) index is measured by this formula: RCAi = (Eij / Eit) / (Enj / Ent), where i is country index, j is commodity index, n refers to a set of countries and t is a set of commodities. If RCAi ＞1, it means that the country has revealed advantage in commodity j; If RCAi ＜1, the country has no revealed advantage in this commodity. The bigger RCA is, the more competitive the country is in the particular commodity (Balassa, 1989).

5.3 International Competitiveness of China’s Tea

Xu (2001) compared export price of China’s tea with that of other major tea countries and believed that economic benefits of China’s tea lagged far behind other major tea nations. Xu also proposed that China’s tea industry enjoyed advantages on natural resources, geography, varieties of tea and technology. He also emphasized that China was the largest green tea producers and exporters in the world and had great potentials in the field. Chen (2002) analyzed the statistics of tea export volume and believed that China had great competitive advantage in green tea and oolong tea, while lacked competitive advantage in black tea. However, the markets of green tea and oolong tea were relatively small. Su (2001) proposed that since China had little competitiveness in producing black tea and also confronted great limits when introducing black tea from abroad, it could invest in such countries that had advantages in producing black tea, cooperated with them and took advantage of their resources to produce and market black tea. Su also believed that competitive advantage of China’s tea had for a long time lied in its factor endowment advantages but it was the industry organizing system that had great impact on competitiveness. Thus, he suggested China should optimize the organizing structure of its tea industry.

5.4 International Competitiveness of British Tea

Britain is small country in terms of tea production. It is absolutely the large consumer of tea. It mainly imports its tea form other countries. But Britain is also a large tea exporter. The transfer trade of tea in Britain accounts for a large part of the total tea. The processed tea is sold in nearly every part of the world. The developing history of Britain’s largest tea brand, Lipton, can convey to us some important information about the competitiveness of British tea. Lipton has had more than 100 years’ history. It is now the world largest tea brand. Lipton has its own research centre to research tea’s health mental benefits, and tea’s growing, processing and tasting. Lipton teas are blend from many countries like China, India. Sri Lanka. Lipton also has its own producing bases in Africa to ensure its sustainable development (Lipton, 2010).

However, Bruce Richardson (2006), a columnist for Fresh Cup Magazine pointed that British tea was confronting a tempest. On one hand, some famous British tea brand faced fierce competition of American coffee brand like Starbucks in the world market. The decline in sales for the traditional British tea market was 9.5% from 2002 to 2003. On the other hand, several tea auctions in London were closed. Some famous tea companies were bought out by Indian companies. For example, the 100-year-old Tyohoo Tea brand was sold to the Appejay Surrendra Group in India (Richardson, 2006).

5.5 Tea Trade between China and Britain

It can be said that commerce first brought east and west into contact. In the early nineteenth century, the English East Indian Company was responsible enjoyed the monopoly to import and export things with China. Chinese tea provided about one-tenth of the total revenue of England and all the profit of the East India Company. The tea trade formed a triangle which involved China, India and Britain. China had little need of British goods then, so as an alternative, Britain began to export opium to China, which eventually led to the Opium War between China and Britain (Michael Greenberg, 1951). After the Opium War, China was in a deep recession and Chinese people were in great misery. Then East India Company took tea plants from China to India and tea planting got popular in India. Since then China had lost its dominant position in tea to India. India had become the tea producing base for Britain. Tea trade between China and Britain fell to the lowest point. After China’s opening and reform policy was carried out, China also witnessed great improvement in tea production and trade. Now, China is on one hand the exporter of British tea, on the other hand, China is also the big consumer of British bag tea.

6. Methodology

The paper applies mainly secondary data approach and comparative analysis which include comparative analysis, factor analysis and SWOT analysis.

6.1 Secondary data approach

A secondary data approach will be used for the purpose of this study. Secondary research provides a useful starting point for any research by providing an opportunity to absorb what is already known and what remains to be identified in one particular topic (Steward and Kamins, 1993). Secondary sources also suggests problem formulations and further research directions, and allows the researcher to address issues and detect gaps in existing literature regarding different segments of this research area. Secondary data include the results of other people’s primary data-collection as reported in a wide variety of formats, such as company annual report, technical manuals, government and trade body publications, books and journals. Using secondary data is obviously the enormous saving in time and money. This paper will refer to many books and articles and most importantly to the database under FAO (Food and Agriculture Organization of United Nations) for the latest data of tea production, consumption and trade volume.

6.2 Comparative analysis

Business dictionary defines comparative analysis approach as item by item comparison of two or more comparable alternatives, process, products, systems and so on (Business Dictionary, 2010). The paper compares China with Britain in tea production, export and some important indexes to measure international competitiveness. China and Britain also compares with itself in different periods. The paper pays much attention to analyzing external and internal factors that influence the competitiveness of China’s tea and British tea.

7. Anticipated outcomes

This research will look into the similarity and differences of Chinese tea and British tea industry and intend to get the results useful for tea consumers and companies in both the two countries. By checking data and analyzing the results with appropriate theory or framework, it is anticipated to find the following.

* The status quo of international competitiveness of China’s and British tea industry;

* The parameters to measure international competitiveness;

* Different factors that influence tea industry of the two countries;

* What Chinese tea industry can learn from British tea companies and vise versa. .

8. Target dates and deadlines

Research proposal submitted to controller, supervisor, and adviser. It includes a literature review, research methodology, data collection methods, and analysis methods.

Reading reference books or articles and check databases.

Analysis and preparatory interpretation of the results is completed.

Final report submitted to course controller.

References

Balassa, B. (1989), Comparative Advantage, Trade Policy and Economic Development, New York: Harvester Wheatsheaf.

Britain Express (2010) The history of tea in Britain. Retrieved from: http://www.britainexpress.com/History/tea-in-britain.htm. Date Accessed: [Mar.10th, 2010]

Bruce Richardson (2006) A Tempest in the British Cup of Tea. Fresh Cup magazine. June 2006 Edition.

Business Dictionary. Retrieved from: http://www.businessdictionary.com/definition/comparative-analysis.html . Date Accessed: [Mar10th, 2010]

Chen Z. (2002) Influence of Chinese Commitment to WTO on Tea Industry and Countermeasures. Journal of Tea Science. Apr.2002.

Chinese Tea Culture. Retrieved from: http://www.china-fun.net/LearnCHS/Article/200703311/2125421.shtml . Date Accessed: [Mar.10th, 2010]

Cho. D. S. and Moon, H. C. (2000) From Adam Smith to Michael Porter: evolution of competitiveness theory. Singapore: World Scientific Publishing Co. Pte. Ltd.

FAOSTAT (FAO). Retrieved from: http://faostat.fao.org/site/291/default.aspx. Date Accessed: [Mar.10th, 2010]

Fidelis E. H. (1999) Theory and Policy of International Competitiveness. Praeger Publishers.

Greenberg, M. (1951). British trade and the opening of China, 1800-1842. Cambridge University Press Library Edition.

Iapadre, P.L. (2001) Measuring international specialization. International Advances in Economic Research. (Volume 7, May 2001)

Porter. M. E. (1995) The Competitive Advantage of Nations. The Macmillan Press Ltd.London and Basingstoke, 1995.

Steward, D. W. & Kamins, M. A. (1993) Secondary Research: Information Sources and Methods (2nd edition). Newbury Park, CA, Sge.

Su Z. (2001). Study on structure and performance of China tea. Zhejiang: Zhejiang University. Paper for doctor degree.

Xu, Y. (2006) Comparative Study on the International Competitiveness of Chinese Tea. World Agriculture, Jan.2006.

Historic-UK.com. (2010) Afternoon tea: a very British tradition. Retrieved from:http://www.historic-uk.com/CultureUK/AfternoonTea.htm. Date Accessed: [Mar.11th, 2010]

Lipton. (2010). The power of tea. Retrieved from: http://www.time-for-tea.com/home.asp . Date Accessed:[Mar.12th, 2010]

Tea History. Retrieved from: http://www.tenren.com/teahistory.html. Date Accessed: [Mar.11th, 2010]