When the Indian conglomerate Tata Enterprises bought Britain's Tetley Tea, the world's second largest tea company, last February, it undertook much more than simply the largest overseas acquisition ever made by an Indian company. Tea, of course, was critical in helping the East India Company, the famous trading company founded in London in 1600, develop into one of the strongest economic forces of its day and one of the most lucrative components of Britain's colonial empire. So Tata was reversing history — and hinting at things to come as developing nations start to compete in areas far beyond traditional primary production.
As Tata's vice chairman, R.K. Krishna Kumar, put it, the deal represented an important first step in bridging the "historic gap between producing countries and consuming countries." His reference is to a central grievance of developing nations: that Third-World producers — not just of tea, but also of important commodities such as oil, sugar, and coffee — don't really earn all they should. Why? Because when firms in the developed world control the distribution channels, they capture a disproportionate share of earnings, leaving little for the producers. Worse, the decade-long decline in raw materials prices has squeezed producers even more.
In the 1970s, developing nations addressed this issue with cartels, which were supposed to reduce price fluctuations and transfer market power (and profits) from distributors in developed nations to producers in developing nations. Outside the oil industry, however, cartels have proved merely transitory. And even the oil cartel has been notable in the past 10 to 15 years for its inability to control prices.
Tata's Tetley purchase suggests a new model to reorient profits in primary goods production — the vertical integration of commodity industries, with producing nations in control. Imagine a Tata that ran everything from growing and wholesaling to the establishment and marketing of "tea rooms" (to take a leaf from the Starbucks craze).
Such thinking, however, confuses the symptom with the disease. Developing countries typically haven't controlled the distribution channels for their commodities because they haven't had the expertise to market to developed countries. In the 18th century, India's ruling Moghuls would have found it difficult to run the shipping, inventory, and sales operations the East India Company carried out.
That makes Tata's acquisition of Tetley of even greater significance than it first appears to be. The purchase was possible solely because Tata now has more business expertise than Tetley. India not only won, it beat England at its own game: business. This proves that the Third World is forming the talent not just to grow and extract, but also to sell around the world. That is why India's - and every developing country's — economic growth depends crucially on the development and success of firms like Tata.
Stephan-Götz Richter, [email protected]
Stephan-Götz Richter is publisher and editor-in-chief of The Globalist.com (www.theglobalist.com), a leading Web-based daily magazine covering the global economy. A weekly columnist for the Financial Times Deutschland, Mr. Richter has written for the New York Times, the Wall Street Journal, Foreign Affairs, South China Morning Post, Le Monde, and other publications covering world affairs.