The Impact of Value Chain Orchestration on Sustainable Upgrading: A Study of the Chinese Tea Industry

Abstract

Tea is the second most consumed and second-cheapest beverage in the world, only surpassed by water. Tea is known to originate in China and China remains the largest producer and exporter of tea globally. The industry is essential for upgrading agricultural structures, increasing farmers’ income, constructing sustainable rural areas, foreign exchange earnings, employment, and government revenue. This research aimsto assess the effects of the orchestration in the tea value chain focusing on China and the possibilities of upgrading. The objectives are to identify the main actors, establish the interactions within the orchestration, determine how sustainability initiatives can be incorporated, and assess the alignment of interest among the key actors. In terms of the overall research design, the research methodology employed in this thesis is the interpretive case study approach. This thesis adopts an explanatory research approach accompanied by descriptive research. It further utilises the abductive approach to theory development. The collected data is comprised of five interviews with actors representing buyers/lead firms and certifications/NGOs in the global tea value chain. This thesis applies orchestration as an umbrella term for global value chain governance (GVC) that includes both public and private governance. Value chain mapping identifies the main actors and value chain analysis scrutinises the role of governance, institutions, and interfirm relationships. These concepts are combined with the enabling factors of orchestration: combinatory effects, issue visibility, interest alignment, and regulatory uncertainty. Finally, the choice of governance and orchestration influences the trajectory of upgrading. Economic, social, and environmental upgrading entails developing capabilities and gaining access to new market segments through participation in specific chains. When analysing the global tea value chain, we start by identifying the main actors in the chain and assemble them into a value chain map. Thereby, we can see where each actor links with another. The identified actors in the value chain map are farmers/producers, distribution partners, lead firms/buyers, consumers, certifications/NGOs, governments, and international food standards. These actors are used as a basis for the remaining analysis. Following the value chain map, we apply the governance types of the value chain’s lead firm and identify the polarity of the GVC. We relate the governance types to the compliance and commitment approaches. Then, we analyse the Chinese state’s role in and interaction with the GVC. Likewise, we study how the interviewed standard owner characterises typical certifications, and how they influence and implement sustainability initiatives in the value chain. In the conclusion of the orchestration section, we emphasise how horizontal and vertical governance are expressed and influence each other. We complete the analysis chapter by comparing the different views on sustainability that the value chain actors employ. This thesis looks at the orchestration of the value chain through the enabling factors to identify the institutional gap in public sustainability governance. We further discuss the possibilities for both economic, social, and environmental upgrading in the global tea value chain. Before concluding on our findings and answering our research question, we propose recommendations for the key actors in the tea value chain. These recommendations are directed to buyers, certifications, farmers, and governments. Our findings conclude that the correct orchestration can be beneficial for the value chain upgrading in the Chinese tea industry. We determine the four enabling factors vital for the possibilities of value chain upgrading. However, at the moment, the enabling factors of orchestration remain medium or low. Thus, the possibilities of upgrading lie within the improvement of the enabling factors and linkages among the actors.