Expansion of Bega Cheese in the Dairy Market of China

This article explores the possibilities of expansion of Bega Cheese in the People’s Republic of China along with a detailed assessment of its attractiveness for the purpose of expansion. It includes a PESTLE analysis of the dairy industry of China, SWOT analysis of the dairy industry of China, opportunities and challenges that Bega Cheese may have to face in the area of logistics in China, and the international strategy adopted by Bega Cheese to enter into the dairy market of China.

Running head: International Business
International Business

International Business 1
Contents
Introduction.................................................................................................................................................2
Analysis of China’s political, economic, legal and cultural factors and how these may create business
opportunities or challenges for Bega Cheese...............................................................................................3
PESTLE Analysis of the Dairy Industry of China...................................................................................3
SWOT Analysis of the Dairy Industry of China......................................................................................5
Strengths of the dairy industry of China..................................................................................................5
Weaknesses of the dairy industry of China..............................................................................................5
Opportunities in the dairy industry of China............................................................................................5
Threats in the dairy industry of China.....................................................................................................6
Opportunities And Challenges That Bega Cheese may have to face in the Area Of logistics in China
Along With the Assessment of China’s Attractiveness in this regard..........................................................6
The international strategy adopted by Bega Cheese to enter into the dairy market of China.......................8
Entry Mode Adopted by Bega Cheese to enter into the dairy market of China.........................................10
Recommendations and Conclusions..........................................................................................................12
Referencing...............................................................................................................................................13

International Business 2
Introduction
Bega Cheese is a dairy product company based in Bega, New South Wales. It was found
as an agricultural cooperative that was maintained by the suppliers of the dairy products. It was
converted into a public company in 2011 and it is listed on the Australian Securities Exchange. It
is one of the main producers of dairy products in Australia with a net worth of around A$775
Million in 2017 (Reuters, 2018).
Bega Cheese is amongst the major food producers of producing natural and processed
cheese, dairy-based nutritional powders and butter products from six production facilities in
Victoria and New South Wales. Until, it was a small player in the export market with a focus on
manufacturing and packing the cheddar cheese for its domestic market (Gray, 2018).
Through its merger with Tatura Milk Industries in the year 2011, it has invested in
branding and infrastructure so that the company is enabled to avail the opportunity to expand
itself in Asia. The Middle East and Oceania. It is expanding its range of products for supplying
to the markets of Asia that is assisted by reductions in tariff as per the Free Trade Agreement
with Asia.
It now sells its products in more than 40 countries thereby generating more than A$300
Million accounting for its export sales per year. It has now shifted its focus to a high valued and
more technical range of dairy products in order to supply them in the markets of China. The
range comprises of processed cheese and cheddar, butter, cream cheese, infant formulas, milk
powders and protein concentrate and nutritional powders (The Weekend Australian, 2014).

International Business 3
So, in this assignment, the possibilities of expansion of Bega Cheese in the People’s
Republic of China would be explored along with a detailed assessment of its attractiveness for
the purpose of expansion. Furthermore, the entry modes and strategies of internal business would
also be suggested for Bega Cheese to enter in China. Lastly, recommendations would be given
for analyzing the opportunities of expansion of Bega Cheese in the People’s Republic of China.
Analysis of China’s political, economic, legal and cultural factors and how these
may create business opportunities or challenges for Bega Cheese
PESTLE Analysis of the Dairy Industry of China
The analysis of political, economic, legal and cultural factors of Chinese dairy product
market can help in assessing its macro –environmental factors. It may be assessed under the
following factors:
Political factors: The political factors influencing China are regulations of the
government and legal issues. The regulations of the government favor for investing in foreign
subsidiaries with the help of taxation treatments. This would lead to saving the company from
paying the customs duties. Furthermore, China had joined GATT that subsequently became
WTO that was an affirmation by the international community that the country has been
reforming itself (Czinkota & Ronkainen, 2013).
Economic Factors: China enjoys the Most Favored Nation (MFN) tariff status in all its
major markets. Furthermore, the economy of China has been experiencing a significant growth
rate of GDP. It has an abundance of skilled labor and potential urban growth. The growth rate of
GDP suggests that every citizen is contributing more value to the society that is increasing the

International Business 4
purchasing power of the consumers. The labor cost is low in China that suggests that Bega
Cheese can easily enter into the dairy market of China (Adekola & Sergi, 2016).
Social and cultural factors: The social and cultural aspects of China play a crucial role, as
there are changes in the demographic patterns of the country. There are fluctuations in the
growth of population and its age. The size of the families and social behaviors can also influence
the decision-making process of the people. The social factors are lifestyles of the consumers,
emigration, education and religion. The people in China prefer physical stores rather than
purchasing through online so Bega Cheese can after its products in the Chinese market.
Technological factors: A major technical problem in China is that the development of the
B2C industry does not have a table online payment system. The Chinese buyers pertain to the
level of high Uncertainty Avoidance and Long-Term Orientation which strengthens the issue.
So, it can prove to be a problem for Bega Cheese to enter into the Chinese Market (Paliwoda &
Thomas,2013).
Legal Factors: The legal issues such as the regulatory bodies of China affect the
companies who wish to penetrate into the dairy industry of the country. The dairy manufacturers
will have to abide with the all the regulations which are related to displaying of the nutritious
information of all the goods on the labels. It includes the counts of calorie, servings per
container, as well as the information regarding the nutrition.
Environmental Factors: The dairy industry is dependent upon the health and livestock of
the country. With the increase in the income of the people of China, there is an increased
awareness of the Chinese families towards health and nutritional foods. So, there are multiple
opportunities for Bega Cheese to enter into the Chinese markets ( Jia & Jukes,2013).

International Business 5
SWOT Analysis of the Dairy Industry of China
Strengths of the dairy industry of China
China has a huge number of cows. It has the third largest herd after India and Brazil.
Furthermore, there is consolidation and modernization of the production amenities in China.
Many new dairies have come up thereby bringing up the productivity of the Chinese cows. There
have been investments in modern facilities and techniques of feeding the cows.
There has been a rise in the income of the people of China. This has enhanced the value
of a high protein diet in the eating habits of a Chinese family (Scarborough, 2016).
Weaknesses of the dairy industry of China
With the rapid development of the large-scale farms, there has been a problem in the
supply of imported dairy animals, the ability to recruit and holding the skilled livestock
managers, accessibility to a good quality of fodder and managing the waste.
Moreover, the growing population of China along with limited resources has been the
major concerns in the country. Therefore, it is not correct to believe that China is a cheap country
for producing milk (Brush, 2013).
Opportunities in the dairy industry of China
China has been attempting to rebalance its economy. Its strategy is to build up domestic
consumption and creating jobless dependence on the export markets. It can prove to be an
opportunity for the Chinese Dairy Industry. The current industry has a focus on liquid milk but

International Business 6
with the increase in the number of dairy products, there is a scope for Bega Cheese for
penetrating into the Chinese market.
Threats in the dairy industry of China
The major threats to the Chinese dairy industry are political and economic. China is not
considered to be the cheap producer of liquid milk because the cost of investment and quality
fodder is high. The microbiological quality of milk is poor and there are possibilities of increased
chemical contaminants and residual antibiotics in milk due to the increased industrialization in
China. Therefore, Bega Cheese has to consider the threats in the dairy industry of China before
penetrating into its market (Dunning, 2013).
Opportunities And Challenges That Bega Cheese may have to face in the Area Of
logistics in China Along With the Assessment of China’s Attractiveness in this regard
China is a huge market of dairy products with its low consumption levels with an
increased demand. Its annual consumption has doubled over the last five years to around 10 kgs
per capita that are still 10% of the global average of 100kg. The supply chain and logistics in the
Chinese dairy industry are supported by three sources for the supply of raw milk. There are
household producers who deliver the raw product to the collection centers (Piercy, 2016).
There is a minimum refrigeration of milk until it is delivered to the collection centers.
There are collectivized mechanized milking amenities in China. However, the collective farm
model is new to the milk producers in China. It is assisted from the township and the
administration of the country in order to build the dairy facility.

International Business 7
The cows are milked through the pipeline milking system in China. After cooling, the
milk is collected from the refrigerated milk tank on daily basis. It is then transported to the
insulated tanker truck and the individual farmers are paid because of their individual records of
production. The opportunity perceived in the logistics mechanism of collective farm model is
that it increases the productivity and quality of the milk (Killing, 2013).
It is scientific approach under which farmers are trained to identify the health problems of
the dairy animals at a very early stage so that preventive and medical treatment can be executed
at an early stage. However, there are certain challenges posed to the logistics system of the dairy
industry of China.
It is due to the reason that some of the farmers are dispersed on hilly terrains in China.
So, it becomes less economical for them to travel to the collective farms on daily basis. Another
challenge faced by the supply chain of the Chinese Industry is the demand and supply of the
dairy farming business as the demand for milk is magnified due to the inability of the companies
to fulfill the demand of the market. Another challenge faced by the company is blackmailing
done by the labor in the farming business as the processing and supply of milk is the core activity
performed by the labor which is always affected by the blackmailing factor present from the
labor side (Reardon, Timmer & Minten, 2012).
The dairy industry of China has changed drastically about the production techniques and
scales in the recent years. Along with the economic boost in China, these factors have created
business opportunities for the dairy products in the country. Therefore, it has attracted many
foreign diaries for entering into its dairy market.

International Business 8
The dairy sales of China including the alternative milk products has posted an annual
growth rate of 5.3% compound annual growth rate which was accelerated by the rising demand
of 15.6 % (DBS,2017). Apart from this, the demand for ultra-high temperature yogurt has
increased over 20% as many consumers in China are intolerant to lactose and tend to avoid milk.
Moreover, this item need not be stored at low temperatures so it can allow Bega Cheese to
swiftly expand itself into the remote areas of the country.
Moreover, there are new opportunities for the dairy products in China. These could be
developed by implementing latest technologies by Bega Cheese. It has developed a dairy market
with high production output and various types of products. There has been an increase in the
GDP of China and it has become a major component for the growth of global consumption in the
dairy products in China over the last decade (Verbeke, 2013).
With the increase in urbanization and higher incomes with enhanced consumer
preferences, there has been an increase in the interest in the dairy products that was not the part
of the Chinese diet.
The international strategy adopted by Bega Cheese to enter into the dairy market of
China
There are various international strategies adopted by the companies to expand themselves
in the international market. One of them is multi-domestic strategy. A company adopting multi-
domestic strategy sacrifices its efficiency for increasing its responsiveness for meeting the local
requirements within each market (Chen, Zhang & Delaurentis, 2014).

International Business 9
Another strategy is a global strategy in which the firm sacrifices its response to the local
needs within each market segment for increasing its efficiency and expanding itself in the
international market. There might be some trivial modifications made in numerous markets but a
global strategy emphasizes the necessity to achieve economies of scale so that it can offer the
same product in each market.
A firm adopting transnational strategy aims to achieve a mid-way between the global and
multi-domestic strategy. Such companies try to attain a balance between the desires for
efficiency along with the accomplishment of the need for adjusting the local preference in
various countries (Lasserre, 2017).
Global strategy in one of the international strategy, which the company has chosen to
enter into the Chinese dairy market. The global strategy is being adopted to sacrifice the
responsiveness to the regional requirements within each of the market in order to emphasize
upon increasing efficiency. However, some minor modifications can be done to goods and
services in many markets but a global strategy insists on the necessity to achieve economies of
scale so that similar kind of products can be offered in each segment of the Chinese market (Lu,
2018).
The global strategy is the appropriate medium for international expansion as it provides
an opportunity for making profits and enhancing the sales of Bega Cheese. From the perception
of the company, the international expansion provides them with the prospects to secure new
resources and to avail the benefit of low labor costs as Bega Cheese can avail this benefit of
cheap labor in China (Azuayi, 2016).

International Business 10
Bega Cheese would be befitted by adopting the Global strategy to expand itself in the
dairy market of China .It would achieve economies of scope i.e. the savings in the cost of
production is developed when it shares its activities or transfers its capabilities from one part of
the group to the other one. It would also help the company in achieving the economies of scale
i.e. the extra savings in the cost will occur when higher volumes of production reduces the per
unit cost .
By adopting the Global strategy, the company would be benefitted by a global
recognition of the brand. It would also be benefitted by cheap labor and other input costs. The
research and development costs would be recovered when the company shall expand itself in the
international market i.e. China in this case. It would also increase the prospects of the emergence
of new markets at the global level (De Mooij, 2018).
Entry Mode Adopted by Bega Cheese to enter into the dairy market of China
There are various types of entry modes available to enter into the international dairy
market for Bega Cheese.One of them is exporting. It is the most convenient way to enter the
international market. It is the sale of products that are sourced from the home country of the
company.
The advantage of adopting this mode is that the company avoids the expenditure of
establishing its operations in the other country (Terpstra, Foley & Sarathy, 2012).
The other mode is licensing and franchising. An international licensing agreement
permits the firms to entirely or non-exclusively produce the products of the proprietor for a
certain term in a specific market. Under this mode, the licensor in the home country makes a

International Business 11
limited amount of the availability of rights or resources to the licensee situated in the other
country. The resources or rights may comprise of trademarks, patents, technology or managerial
skills which can make it possible for the licensee to produce or sell the products in the other
country (Australian Trade and Investment Commission, 2017).
The system of franchising can comprise of franchisees that gives fees or royalties to the
parent company i.e. the franchiser for indemnifying the trademark to the authority. It can transact
the products and utilize its business format and systems in furtherance of this franchising
agreement.
Turnkey projects refer to the projects in which the client pays to the contractors for
designing and constructing the new amenities and training the personnel. It is a method adopted
by the foreign companies to export their processes and technology to the host country by
constructing their plant in the other country. Another type of entry mode is a wholly owned
subsidiary. It comprise of two types of strategies. One is Greenfield investment and the other is
acquisitions. Through greenfield investment, a wholly owned subsidiary is established. Often it
incurs a great deal of cost but on the other hand, it controls the firm and has the potential for
providing the returns above average (Wilkinson, 2012).
Acquisitions are a famous model of entering into the foreign market due to their faster
accessibility. They are a method for achieving greater market share, which is affected by the
market power. It refers to acquiring a distributor, competitor, supplier or business operating in a
highly related industry so that competitive advantage and core competency in the market can be
captured (Beamish, 2013).

International Business 12
The other modes are strategic alliance and joint venture. The company adopts the method
of a joint venture for market entry, sharing of risks, rewards, technology, developing the product
jointly, and conforming to the regulations of the government.
The strategic alliance is a cooperatives agreement between various firms like shared
research, and minority participation of equity. Bega Cheese should adopt the entry mode of
forming a strategic alliance, as it would enable the two companies to exchange their technology.
It would also help in increasing the core competencies and help it in sustaining in the globalized
environment. It would also help Bega Cheese in increasing its economies of scale and reducing
the risks (Meyer, 2017).
Recommendations and Conclusions
Hence, to conclude, it can be said that Bega Cheese can enter into the dairy market of
China. It would be benefitted in various ways. China is a developing economy with friendly
foreign policies so it provides more opportunities for any foreign entity to invest or export its
goods to the country. It can adopt the international global strategy, as it would help it in gaining
economies of scale and scope.
The company would also be benefitted by the increase in its popularity on the global
level with reduced labor and input costs.Bega Cheese is benefitted by adopting the entry mode of
a strategic alliance with a company operating in the dairy industry of China. It would assist Bega
Cheese in fighting the global competition and surviving in the international environment in an
efficient way. Pooling the resources would also help in economies of scale and reduced risk for
the company.

International Business 13
Referencing
Adekola, A. & Sergi, B. S. (2016). Global business management: A cross-cultural perspective.
NY: Routledge.1-100 .
Australian Trade and Investment Commission(2017). Bega cheese looks to Asia for growth.
Retrieved 6th October , 2018 from
https://www.austrade.gov.au/australian/export/free-trade-agreements/fta-
case-studies/bega-cheese-looks-to-asia-for-growth
Azuayi, R. (2016).Internationalization Strategies for Global Companies: A Case Study of Arla
Foods, Denmark. Journal of Accounting & Marketing,5(4),1-9.
Beamish, P. (2013). Multinational joint ventures in developing countries (RLE international
business). NY: Routledge. 1-100.
Brush, C. (2013). International entrepreneurship (RLE international business): the effect of firm
age on motives for internationalization. NY: Routledge. 1-100.
Chen, C., Zhang, J. & Delaurentis, T. (2014). Quality control in food supply chain management:
An analytical model and case study of the adulterated milk incident in
China. International Journal of Production Economics, 152(2015), 188-199.
Czinkota, M. R. & Ronkainen, I. A. (2013). International marketing. USA: Cengage
Learning.1-10.
DBS(2017) China Dairy: Downstream is key Retrieved 6th October , 2018 from
https://www.dbs.com.cn/personal/aics/templatedata/article/generic/data/en/

International Business 14
GR/
112017/171130_insights_china_dairy_downstream_is_key.xml&cid=aio_her
oblock_gl_in_04
De Mooij, M. (2018). Global marketing and advertising: Understanding cultural paradoxes.
London: SAGE Publications Limited.
Dunning, J. H. (2013). International Production and the Multinational Enterprise (RLE
International Business). NY: Routledge. 1-100.
Gray, D.(2018). Bega Cheese has taste for growth with plans to raise $250 million. The Sydney
Morning Herald . Retrieved 6th October , 2018 from
https://www.smh.com.au/business/companies/bega-cheese-has-taste-for-
growth-with-plans-to-raise-250-million-20180910-p502ta.html
Jia, C. & Jukes, D. (2013). The national food safety control system of China–a systematic
review. Food Control, 32(1), 236-245.
Killing, P. (2013). Strategies for joint venture success (RLE international business). NY:
Routledge.1-100.
Lasserre, P. (2017). Global strategic management. London: Macmillan International Higher
Education.1-100.
Lu, N. (2018). The dynamics of foreign-policy decisionmaking in China. NY: Routledge.1-100.
Meyer, K.E .(2017) .International business in an era of anti-globalization. Multinational Business
Review, 25(2), 78–90.

International Business 15
Paliwoda, S. & Thomas, M. (2013). International marketing. NY: Routledge.1-100.
Piercy, N. F. (2016). Market-led strategic change: Transforming the process of going to market.
NY: Routledge.1-100.
Reardon, T., Timmer, C. P. & Minten, B. (2012). Supermarket revolution in Asia and emerging
development strategies to include small farmers. Proceedings of the National
Academy of Sciences, 109(31), 12332-12337.
Reuters(2018). Bega Cheese Ltd (BGA.AX). Retrieved 6th October , 2018 from
https://in.reuters.com/finance/stocks/company-profile/BGA.AX
Scarborough, N. M. (2016). Essentials of entrepreneurship and small business management.
London: Pearson.1-100.
Terpstra, V., Foley, J. & Sarathy, R. (2012). International marketing. Naperville : Naper Press.1-
100.
The Weekend Australian (2014). Asia’s dairy appetite drives Bega growth. Retrieved 6th October
, 2018 from https://www.theaustralian.com.au/business/companies/asias-
dairy-appetite-drives-bega-growth/news-story/
78d8fdf69a4b28b3a53038af9a75a5d2
Verbeke, A. (2013). International business strategy. Cambridge University Press.1-20.
Wilkinson, J. (2012). The food processing industry, globalization and developing countries.
In The Transformation of Agri-Food Systems . NY: Routledge., 111-132.