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CASE: The Cashews

Summary:

Like Almonds or hazelnut, the cashew nut is endorsed by the people of the world today. The

largest market for cashew nut is USA, which shares about 60% of the world market.

In the pre colonial area, cashew nut was generally produced by one ethnic group of Brazil called

the Tupi Indians. When Brazil was raided by the Portuguese traders, cashew nut got globally

spread. And among the nations, India, for different reasons had a near monopoly on the

processing of the cashews.

The processing of cashew nut is very complex and requires extreme level of manual mastery.

The nut is very fragile and it is a tiresome work to make the nuts ready for the bakery industry.

The labor wage rate is low too.

As days passed, India was gradually facing problems and losing their monopoly. East African

countries began to process the raw nuts themselves. However, they faced difficulty too, since

they did not have adequate training compared to the Indian counterparts. After that some

companies replaced hand processing to mechanized and automated methods. Countries using

these technologies reduced their exports to India. But due to the breakage of nuts by machine,

hand processed nuts were highly valued by the consumers. The improved technology anddevelopment in agricultural sector (like hybridization and low use of fertilizers) helped India to

make a better quality Nut.

Political factors affected the sales of cashew nut in India. For example, due to the political

affinity with former Soviet Union, India endured decreased sales after its breakdown in 1991.

Different Indian research organizations as well as scientists are trying to make alternative use of

the nuts to saturate into large markets. Researchers are now considering cashew nut to use in

different food items like jams, candy, Juice, chutney and beverages. They are also planning to

use the wastage of cashew nut to use as the industrial oil used to remove friction.

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Question No. 1: What trade theories help to explain where cashew tree products have been

produced historically?

The production of cashew nut can be related with the trade theories given below.

1. Natural and Acquired Advantage: The Tupi Indians first harvested the cashew trees. Then

the production of trees shifted in the countries like India, Kenya, Tanzania, Mozambique etc. so,

these countries have a natural advantage.

Indias workers were skilled in manual dexterity than the workers of Africa. So, even though,

India lost the monopoly of producing cashew nut to the African countries, they had to rely on

India for the processing of cashew nut. That evidently proves India had acquired advantage.

2. Factor Proportion Theory: This theory states, factors in relative abundance are cheaper than

factors in relative scarcity. India focused on labor. Since India has population over 1 billion, it

easily emphasized much on labor rather than on capital or technology. This helped India to

achieve gigantic success in the tedious processing of cashew nut cheaply compared to others.

3. Porters Diamond: Indias global advantage in cashew nut production and processing can be

addressed by Porters diamond theory.

Demand Condition: There was a huge demand of cashew nut among the Indian people.Later the demand of Indian cashew nut spread worldwide, especially in USA and UK.

Factor Condition: Indias land was suitable for the cashew nut production. The labor ofIndia was highly adept in processing the cashew nut. India employed the two factors:

Land and Labor to its fullest in achieving global advantage.

Related and Supporting Industries: The expertise of people developed from working inhandicraft industries helped India considerably.

Firm Structure, Size and Rivalry: India faced global competition. East Asian countriesespecially Kenya, Mozambique and Tanzania tried to penetrate into the Indian monopoly.

This movement from the rivalry made India more conscious about their production and

processing which eventually improved the overall quality of Indian nuts.

These are the trade theories that help to explain the historical production cashew tree and the

cashew nut.

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Question No. 2: What factors threaten Indias future competitive position in cashew nut

production?

Although India is having a near monopoly in the processing of cashew nut, several factors might

lessen its competitive factors in the coming future. The probable factors are discussed below.

1. Technological Breakthroughs in Other Countries: The advent of new machineries, better

processing technology and the improvement of new hybridization and newer variant of cashew

trees in the rivalry countries would threaten Indias future competitiveness.

2. Change in Economy in India: India might lose its acquired advantage in delicate hand

operations because of the change in economy. The rising economy and better wage might lure

the cashew nut processors into other jobs.

3. Increase in Global Demand: If the global demand of cashew nut increased, India would not

be able to meet all those demands. So, countries like USA or UK would like to import the nuts

from other suppliers of Africa or countries like Costa Rica, Honduras etc. That will impede

Indias way of becoming prominent cashew nut supplier.

4. Leapfrogging Expansion by African countries: India is having the monopoly in cashew nut

production. So, different countries (especially the African countries) can try to take the position

by leapfrogging expansions. Since, the African countries like Kenya, Tanzania are having high

unemployment, there is much incentive for them to use all possible means to produce and

process their raw nuts.

5. Political Unrests: India is one of the most politically stable countries of the world. However,

Indias major suppliers are not. The countries in Africa are facing political unrests constantly.

Any turbulence in their political stance could hamper Indians global advantages. Even, political

changes (like quota, tariff and non tariff barriers) in the consumer countries will hamper too. For

example, India faced decline in their exports after the collapse of Soviet Union in 1991.

These are the factors that could hinder Indias success on retaining the global competitive

advantage in cashew nut processing.

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Question No. 3: If you were an Indian cashew processor, what alternatives might you

consider to maintain future competitiveness?

If I were an Indian cashew processor, I might have considered the alternatives given below.

1. Using an Automated Process: Cashew nut is produced with extreme manual dexterity and

sophisticated hand work. So the process is time consuming and costly. Had the whole process

reengineered with automated machine, both cost and time would have reduced. So mass

production could have done which in turn will increase the total exports as well as revenue.

2. Agricultural Researches and Improvement: Advent in agricultural sciences like genetic

engineering and hybridization could produce improved variants of cashew trees for more tastier

and nutritious cashew nuts. The new variants could be produced in the divergent climate and soil

conditions (the area in which it is not possible now).

3. Moving into New Markets: So far, India has been considering only the market of USA and

other western countries. However, India should expand its business in the market of Asia. For

example emerging economies like China or Malaysia and in the developing countries like

Bangladesh, Pakistan, and Sri Lanka etc.

4. Making Alternative and New Uses of Cashew Nut: So far the cashew nut is popular mostly

in the bakery industry. As an entrepreneur, I should identify more use of the nuts like for making

chewing gum, jam, juice, chutney, beverages etc. I should also research on how to make the

leftover cashew nut oil more functional in the industry.

5. Managing the Supply Chains Effectively: The longer the supply the chain, the harder it is to

manage. India should invest considerable administrative expertise to make the longer supply

chains as more efficient and responsive as possible. For example, the supply chain used to

deliver nuts in USA.