Business Drivers behind UK-SME Expansion into the Chinese Market

Executive Summary
This report is based on analysing the expansion of UK SME in China in order to provide UHT
milk for children with the age range of 3 to 11 years. The yearly UHT consumption in the United
Kingdom is approximately 240 million litres. China's share in the global dairy market increased
from less than 5 percent in 2002 to 12 percent in 2016. Very few companies are providing UHT
milk in China, indicating that competition is quite low in the Chinese dairy market for UHT milk
providers. It is examined that the political, legal, social as well as the technological environment
of China is in favour of UK-SME delivering its UHT milk in China. However, the competition is
quite low, which can create an opportunity to gain a higher competitive advantage. China focuses
on environmental sustainability, so UK-SME should ensure to adopt SCR activities. It is also
analysed that environmental issues and language barriers between UK and China can impact the
successful expansion of the company in China. It can expand in China using exporting expansion
strategy to gain higher profitability. In the end, recommendations are provided for UK-SME to
effectively expand its business in China. These recommendations include value -based pricing,
product development, social media marketing and franchising strategies in short and long terms
perspectives.

Table of Contents
Executive Summary......................................................................................................................2
1.0 Introduction............................................................................................................................5
1.1 Industry Background...........................................................................................................5
2.0 Business Drivers behind UK-SME Expansion into the Chinese Market...........................6
2.1 Competition..........................................................................................................................6
2.2 Technology Expansion.........................................................................................................7
2.3 PESTLE Analysis.................................................................................................................7
1.3.1 Political Factors............................................................................................................7
1.3.2 Economic Factors..........................................................................................................7
1.3.3 Social Factors................................................................................................................8
1.3.4 Technological Factors...................................................................................................8
1.3.5 Environmental Factors..................................................................................................8
1.3.6 Legal Factors.................................................................................................................8
2.4 Competitor Analysis.............................................................................................................8
3.0 Trade Barriers........................................................................................................................9
3.1 Tariffs...................................................................................................................................9
3.2 Regulation...........................................................................................................................10
3.3 Ethical Issues......................................................................................................................10
3.4 Consequences of Trade Barriers.........................................................................................10
3.5 Business Uncertainties and Opportunities..........................................................................11
4.0 Ethical and Social Issues to be Considered by UK SMEs.................................................11
4.1 Significance of Corporate Social Responsibility to Operate Internationally......................11
4.2 Ethical Issues in China........................................................................................................11
4.2.1 Labour Issues...............................................................................................................11

4.2.2 Environmental issue.....................................................................................................12
5.0 Cultural Preferences.............................................................................................................12
5.1 Significance of Culture for Doing International Business in the Chinese Market.............12
5.2 Impacts of Chinese Culture on the UK's SME...................................................................13
5.2.1 Language Barrier.........................................................................................................13
5.2.3 Online Shopping..........................................................................................................13
6.0 Expansion Methods..............................................................................................................13
6.1 Acquisition..........................................................................................................................13
6.2 Merger.................................................................................................................................13
6.3 Partnership..........................................................................................................................14
6.4 Licensing.............................................................................................................................14
6.5 Franchising.........................................................................................................................14
6.6 Greenfield investment.........................................................................................................14
6.7 Exporting............................................................................................................................14
6.8 Organic Growth..................................................................................................................14
8.0 Expansion Method for the UK-SME...................................................................................14
9.0 Conclusion.............................................................................................................................15
10.0 Recommendations...............................................................................................................15
10.1 Long-Term Recommendations.........................................................................................15
10.2 Short-Term Recommendations.........................................................................................15
References....................................................................................................................................17
1.0 Introduction
Company Name: UK-SME

1.1 Industry Background
This trend may be noticed in the Northeast, where dairy farming is currently consolidating into
fewer but larger farms. In 2020, milk production in the United Kingdom was expected to account
for 16.4 percent of total agricultural output, with a market value of £4.4 billion (Statista, 2022).
Although exact figures are difficult to come by, it is estimated that the United Kingdom's annual
UHT output is roughly 120 million litres (Statista, 2022). The yearly UHT consumption in the
United Kingdom is approximately 240 million litres; as a result, we consume twice as much
UHT as we produce in the country (Statista, 2021a). In the United Kingdom, there are
approximately 12,000 dairy farms. Every year, the United Kingdom produces approximately 14
billion litres of commercial milk.
Figure 1: UHT Milk Demand in the UK (Statista, 2021a).
The rise in demand for dairy products in China is the primary driver of growth in dairy markets
around the world. According to Euromonitor data, China's share in the global dairy market
increased from less than 5 percent in 2002 to 12 percent in 2016 (Statista, 2021b). According to
forecasts, pre-packaged UHT milk will account for 980,000 metric tonnes (MT) of Chinese milk
imports in 2021, representing a 5% rise over the previous year, driven by consumer demand and
the food processing industry (Gooch et al., 2017). Inner Mongolia Yili Industrial Group, the
market leader in ultra-pasteurised milk in China, maintained a market share of approximately