Tan Cuong Hoang Binh Prepared by the Kenan Institute Asia November 2010 Case learning objectives The Tan Cuong Hoang Binh Group (TCHB) case study will explore the concept of using a company philosophy focused on farmer and environmental protection to differentiate a product in a crowded market. Tea is a staple crop of Vietnam, and Thái Nguyên province is known for its tea. However, tea is not all of the same quality, and the conditions by which companies employ or contract tea farmers varies widely. By producing high quality tea in a conscientious way, TCHB has had great success. The Tan Cuong Hoang Binh Group (TCHB) case study will explore how a company can promote healthy working conditions, environmental sustainability, and greater economic incentives for producers to give their product a competitive advantage. By reading the case and completing the exercise, students will have a better understanding of: How to use CSR to differentiate a product Benefits of focusing on high quality and high standards Benefits of producing organic tea The value of employing a respectful partnership and strategy with farmers The value of a commitment to the local community Lead author Christine Davis, Senior Associate, Kenan Institute Asia Co-author Pham Lam Thuy Quynh, Training Coordinator, Vietnam Chamber of Commerce and Industry Research, editing, production and translation team Richard Bernhard, David Lehr, Stephanie Soderborg and Kamonphorn Kanchana This case study was developed under the Global Compact Network Vietnam (GCNV). The Vietnamese Chamber of Commerce and Industry (VCCI) is the national implementing partner of GCNV with financial support provided by the United Nations Development Programme (UNDP). Kenan Institute Asia was selected as the project consultant for the Embedding Corporate Social Responsibility in the Vietnam through Research, Training and Curriculum Development Component. Tan Cuong Hoang Binh 1 Tan Cuong Hoang Binh Tan Cuong Hoang Binh (TCHB) was founded in 2001, joining the Tan Cuong Hoang Binh group of companies. It does not have a long and storied history, but rather one that was born from an educational trip and a creative suggestion from a professor. Hoang Binh Furniture Company was a small enterprise of 15 employees, producing wood furniture. In 2001, the company CEO, Mr. Vu Duong Binh, was pursuing his MBA and traveled to the U.S. on a field trip as part of his studies. He visited a California vineyard where the grapes were organically grown, but also delivered a good price margin to wine producers in the area. One of Mr. Binh’s professors there encouraged him to think beyond traditional business (and his current furniture company) and consider other options with potential. He suggested agriculture, particularly since there were still many agri-business opportunities in Vietnam. In addition to the vineyard, Mr. Binh visited a lot of farms and was impressed and influenced by what he saw – not just the agri-business benefits and the logic of organic, chemical-free farming, but also the benefits the farms were having on their neighbors who lived and worked nearby. He saw positive influences – jobs, community service, contributions to education, etc. — in their communities. Upon returning to Vietnam, he began to take note of agriculture products: cashews of Binh Phuoc, coffee of Trung Nguyen, pomelos of Phuc Trach. He decided to focus on tea, as his home province of Thái Nguyên is well known for tea and there appeared to be a growing market for it. After researching suitable locations, Mr. Binh settled on the area of Tan Cuong Commune, which was known to have soil and climate that supported good tea production. “The land of Tan Cuong can give birth to excellent tea; just as the land of France gives birth to excellent grapes…the tea is of this place only,” said Mr. Binh. The Tan Cuong Hoang Binh Group case study will explore the concept of using a Corporate Social Responsibility (CSR) philosophy focused on farmer and environmental protection to differentiate a product in a crowded market. 2 Tan Cuong Hoang Binh The important role of tea in culture and business alike Tea has been planted for over 3,000 years, and Vietnam’s tropical climate is well suited to tea cultivation. Tea plantations are concentrated in the north and central regions of the country, and tea is a high value product for both domestic consumption and international export. The tea industry is important for Vietnam; it is the fifth largest exporter of tea worldwide. Tea cultivation has grown over recent years, from approximately 5,400 hectares in 1975 to more than 130,000 hectares in 20091. The tea industry exported more than 117,000 tonnes in 2009 and labor productivity in tea production has risen by 4% annually during the last ten years.2 Drinking tea is common everywhere in Vietnam; it acts as a bridge, a link between people in both family and business life. Drinking tea is a traditional daily pleasure and custom for most families. For business meetings, tea is often offered to guests. For such a modest product, tea plays a special and traditional cultural role in Vietnam. Thái Nguyên City is the capital of Thái Nguyên Province, a mountainous region in northeastern Vietnam. Beginning as a small township, Thái Nguyên officially became a city in1962, and is currently one of the fastest growing cities in the north, with a population of 1,149,100 people. Thái Nguyên is best known around Vietnam for its vast tea plantations, and famous for its delicious bitter-sweet green tea. Tan Cuong is a region of Thái Nguyên, made up of three districts (communes): Tan Cuong, Phuc Xuan, and Phuc Triu. Tan Cuong produces a unique tea, aromatic and sweet, which lingers on the tongue after it is swallowed. Tan Cuong is protected from hot winds by the Tam Dao mountain range, and also benefits from fresh water sources flowing from the Cong and Nui Coc Rivers. The average daily temperature ranges about 8 degrees Celsius, a much higher fluctuation than other regions of the country. These Tea farmers in Tan Cuong factors contribute to the growing of exceptional black and green tea. About 80% of the population in Tan Cuong makes their livelihoods from growing tea, and approximately 10,000 tonnes of tea are produced per year.3 1 ThanhHienNews.com, August 20, 2010 2 Vietnam Export Portal - VNEX.com.vn 3 Bi Quyet de co mot thuong hieu manh, pg. 254 Tan Cuong Hoang Binh 3 Introducing Tan Cuong Hoang Binh Tan Cuong is the home to Tan Cuong Hoang Binh, a Vietnamese tea company. Tan Cuong tea is a traditional agricultural product grown, produced and marketed in ways that differentiate the product and provide positive community impact. Its production demonstrates that success can be achieved when an enterprise shows respect to people and nature. “Why not tea? Why not make this popular tea of Tan Cuong a well known, quality product, making Tan Cuong worthy of being called the ‘Land of Tea?’” company CEO Mr. Binh asked at a 2001 business forum about how to improve and promote local Vietnamese brands. To focus his core businesses more effectively, in 2007 he separated the businesses of his growing company into the Tan Cuong - Hoang Binh Group JSC, a group of more than 10 different units. Tan Cuong Hoang Binh (TCHB), one of the group companies, was created to focus on black and green tea. Tan Cuong has 95 employees in the tea processing factory, sourcing tea from over 1,000 farmers. With more than 1,000 hectares of tea plantations, Tan Cuong tea is now well known in the Vietnam market and packaged tea is exported to the U.S., Europe, Japan, Taiwan, Korea and Germany. In addition, tea is sold in bulk to China and Pakistan. Mr. Binh’s strategy appeared to be sound. A Department of Agriculture and Rural Development assessment for the period 2006-2010 determined that Thái Nguyên province tea development was the most effective strategy for creating market stability and sustainable tea production.4 Overall, the province holds a 70% market share of products for domestic consumption and 30% for export. A significant factor for this is the high quality tea varieties and innovative propagation and stem cutting methodologies which TCHB has championed. Key issues to overcome Two key problems existed when the company began. While market research uncovered that tea from Tan Cuong was well known, 100% Tan Cuong tea was actually difficult to find in the market. Many teas are advertised as “Tan Cuong tea” but are not certified. Some are even cultivated in other regions but advertised under this name.5 TCHB needed to figure out how it would differentiate itself from the already flooded tea market. The other major issue concerned farmers. Many come from generations of tea growing traditions, some which are not very efficient despite being established and accepted methods. Most growers are families, and many tea companies weakened their market power by grouping the families into small clusters with little communication, unsophisticated cultivation and processing techniques, limited price knowledge and no labor security. The growers were 4 http://www.tainguyenmoitruong.com.vn 5 This problem is not an isolated one. For example, coffee from the high altitude farms around Antigua is considered some of the best in the world, with more coffee labeled and sold as ‘Antiguan Highlands’ than is actually produced there. According to Fedecocagua, this excess is likely grown in Honduras and deliberately mislabeled. Co-author David Lehr’s interviews with Fedecocagua, 2006 4 Tan Cuong Hoang Binh generally not aware that they were being taken advantage of or missing out on opportunities for growth and security, as they had been growing and selling their tea the “same old way” for generations.