External Environment Analysis of Chinese Market and Dairy Industry for UK SMEs

This report evaluates the business drivers of company when expanding into China. Pestle analysis is done of Chinese market in the dairy industry and trade barriers are identified. Ethical and social issues are undertaken with UK SME's and determine the importance of corporate social responsibility when the company is operating internationally.

INTERNATIONAL
BUSINESS

EXECUTIVE SUMMARY
In this the external environment analysis is done to identify the Chinese market and the dairy
industry so that the opportunities and uncertainties are identified. Trade barriers are also
identified for the Chinese market so that this have to be looked by the company for better flow of
import and export. Ethical and social consideration are important that are identified in this for the
SME companies.

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................2
MAIN BODY..................................................................................................................................2
Milk Industry background...........................................................................................................2
Trade barriers in Chinese market.................................................................................................4
Businesses uncertainty and opportunities....................................................................................5
Ethical and social issues for consideration..................................................................................5
Cultural preference needs to be considered by the business........................................................7
Expansion methods used by the company...................................................................................8
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................12
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INTRODUCTION
The international business is defined as trade of commodities, capital, technology at
international level. In this basically distribution of goods and services across the boundaries of
the countries (Wettstein and et. al., 2019). There are some globalisation which are act as markets,
their different types of barriers and changing environment in the preferences of the customers.
The companies which are doing the international transactions of business are characterised into
international businesses. To do multinational business the organisation have to deal all the
factors which are influencing the action of business. This report will evaluate the business
drivers of company when expanding into China. Pestle analysis is done of Chinese market in the
dairy industry and trade barriers are identified. Further the ethical and social issues are
undertaken with UK SME's and determine the importance of corporate social responsibility
when the company is operating internationally. Moreover, the cultural preference are also
considered by business and expansion methods that are undertaken by SME.
MAIN BODY
Milk Industry background
The UK market is basically have around 16.9 percentage of over production of milk in
the year of 2018. the cows are being regularly demonising in the UK around 27 percentage
which is big number. Yet the maximum production of milk in UK comes in the year of 2018
with 15 billion litres. Whereas the china is one of the leading country in the dairy industry all
over the globe with the annual earning around 359 billion yuan in 2017 (Nielsen and Raswant,
2018). The government also being supporter for this industry, mostly the customer of china are
preferring milk and milk powder product as this are one of the most popular over their. The UK
stands at 11 position in production of milk in all over the world. Their cheese and butter products
are not having negative trade balance and the milk is highly in demand. The supply chain of milk
get impact when the pandemic time started.
Business drivers: The business drivers are the main contribution and the actions that perform the
financial and operation data of the business (Malyarets and et. al., 2017). The main business
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drivers are the people who uses to sale the products, number of stores, pricing of the
commodities, website traffics.
PESTLE analysis
The pestle analysis is tool to inspect the extrinsic factors that are influencing the SME's. Pestle
stands for Political, economical, social, technological, legal, environmental factors of the
country. SME's can inspect the market of china with the help of this analysis tool.
Political factor: The dairy industry in China market are having effective growth as the current
condition of politics in china is stabilised and the government is providing benefits to the dairy
industry to perform their activities (Poulis and Poulis, 2018). The trade relationship between the
UK and china dairy market is better and the SME can effectively entire in the china market
because china politics promote the milk product. The trading relations in china are continuously
improving as different companies are try to operate internationally.
Economical factor: In china market the government are trying to enhance the market of dairy
industry and dairy is also one of the major sector which is having a favourable contribution in the
GDP of the company. The growth rate of the china is enhancing regularly and continuously as
they are trying to capture the best method of producing their commodities. The people of china
are also preferred milk product more than compared to other so the SME of UK who operates in
milk have an opportunity to offer better quality of milk products in china effectively.
Social factors: The people of china preferring more product of milk in their daily life then UK
customer base of SME. The majority of people are more skilled and know the uses and benefits
of dairy products. The people always tries to make use of healthy products that will help to
improve their health. UK SME can easily find a better space in china market to grow the
business of dairy because the Chinese market is one of the biggest market.
Technological factors: The Chinese dairy company are making use of UHT milk technology to
process its milk and provide that to the final customer as this technology is not effective for the
children over their so the SME company of UK have the opportunity to enter the Chinese market
with the effective technology that will not harm the children health (Jezowski, Thome and
Calvert, 2018). With the SME technology of UK will be offered in the Chinese market and
effectively grow in the market.
Legal factors: The china is a developed country have a defined legal law for all the industries
who are operating in the country. The dairy industry are also having some laws which are
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different from other and government of china also promote the dairy industry as compared to
other in the globe. The SME have an opportunity to expand its market in china with better
regulation and laws.
Environment factors: There are various environment at every economy and multinational
organisation have to adjust its activities according to the respective environment. The dairy
industry in china gets better environment because the economy is supporting for the Dairy
industry so SME can effectively perform its task in the Chinese market.
Trade barriers in Chinese market
In different marketplace there are different barriers which cause traffic in the way of
going the trade between two countries (Sponheimer and et. al., 2019). The common trading
barriers are tariffs, non-tariff, quotas. Some of the trade barriers to enter in the Chinese market
are:
Tariff: This is one of the tax which is being charged from the company who is selling its
products in other countries so when the receiving company purchase the goods from other
country then import of the company. This tax is charged by national government this tax tends to
increase the prices of the commodities which are imported. This tax are known as duties or
import duties which are developed to control the imports of foreign product in the country.
Moreover this tax also good for the economy because high amount of tax are collected by the
government. The china is also charging tariff which is ranging from 0 to 100 percentage for
importing goods. Basically the tariff charges are sub-divided into three parts added taxation,
general duties of custom, consumption tax (Li, He and Lin, 2018).
Quota: This are the barriers which are basically for an particular product category which are
being imported to any country. This quota can be legal or voluntary which is enforced with one
country to another. This are non-tariff trade barriers which set an quantitative limit for the
product which are imported and limitations are helpful to protect the domestic industry who
produce same commodities. As the Chinese market is also get some limited amount of quota
which is also putted when the SME will enter in the Chinese market. In this every business
activity there are some quota is set with the licensing this is one of the biggest tariff for SME
when they are expanding in Chinese company (Poulis and Poulis, 2018).
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Subsidies: This are kind of benefits for the domestic producers who can avail the advantage by
reducing their cost. The china companies operating in dairy are making use of it as there are
different companies who are not able to compete in term of the price they have in the market.
SME also have to compete in the domestic market of china with the domestic product of UK
(Han and Wu, 2019). In this certain advantages are involved this are cash subsidies, VAT rebates
and many more so the SME's can effectively make use of this subsidies in the Chinese market.
Exchange rates: This is basically the price of an particular currency with respect to another
nation currency (Malyarets and et. al., 2017). This may be fixed as well as floating in nature, the
payment that an company pay to import goods from another country is totally based on the rate
of exchange. As the UK currency is more power full then the chain so the charge which SME
will pay to enter the market of china is being less and the company can easily export is good over
their and enhance its profitability.
Businesses uncertainty and opportunities
The china has its separate trading policies which are significant and liberal for proving
competition environment. There are number of company which are operating in the china are
multinational company (Jiao and Wei, 2020). The conflicts within the countries are also affect
the trading between them because when the SME will enter in the market where the country is
not having good relations then there are chances that the company may face issues and
uncertainty in negative way. The china market is also having different opportunities for the dairy
industry so SME can also grab the positive aspects. Along with this another opportunity for
entering within the Chinese market is that there is a rise in per capita income of the consumers.
Hence, this will provide a better and effective environment to the company for UHT milk. Along
with this, there is a development of national transportation and infrastructure. Hence, this will
also provide a good opportunity to deliver the products on time and product will not deteriorate.
Ethical and social issues for consideration
There are ethical and social issues which are being considered when the company uses to
enter in another country. Some of them are as under:
Quality: The SME who is going to expand its business in the china have an efficient quality in
its products which are effectively meet the standard of the dairy product of china (Angehrn and
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et. al., 2020). As the international food standard is also providing benefits when they are being
used by the SME company. The product of SME is also inspecting under a test as per the world
dairy industry productions.
Efficiency: The company must be an effective channel of distribution of the product and the
logistics are also included in this export and import of goods (Nielsen and Raswant, 2018). The
product which are offered by the SME in the Chinese market must be efficient not been less in
quality or less hygienic.
Pricing: The approach that SME will use must be affordable and reasonable which is equal to
the value that product is offering to the customer. When the product of SME are higher then the
value their product is offers must be equal then customer will not prefer the product of that
company (Zhong and et. al., 2018).
CSR activities: The SME also have to perform the CSR activity with this practise the image of
the company get more sustainable and its market value also raises. The company have less
plastic uses in the packaging inside of this they are making use of biodegradable things. They are
also sponsor such things which have environment friendly and effective as well (Wettstein and
et. al., 2019).
Hygienic condition: the SME should store its products in the hygienic place which are cleaned
regularly and on particular time frame. Their must be proper refrigerated area so that the
products are fresh and hygiene. When the product are hygienic then they are safer and quality of
the product. The product of SME will be sold it the separate store as well as supermarket so this
must be an proper hygienic conditions.
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Cultural preference needs to be considered by the business
Culture can be defined as shared behaviour, knowledge, belief and value that exist
between group of individual. Company while expanding its business operation in china needs to
consider the china culture and preference of people in order to plan appropriate strategies that
could be used to gain maximum benefits. China is an multi-religious country as it follows all
the traditions such as Taosim, Islam, Buddhism, Protestantism and Catholicism. Likewise, in
china, there is highly inequality among individual that is subordinate and superior relationship
tends to be polarized. At the same time there is no defense against the power abuse that has been
done by the superior. It has also been find out that china have highly collectivist culture in which
each people have act in interest of the group thus they are more focused on “We” as compared to
“ I”. So company while delivering services to people living in china needs to focus on needs and
requirements of customers or group of individual rather than one person (Wulf, 2021).
Furthermore, it can be stated that China have culture in which each and every individual wants to
achieve greater success and growth in future circumstances. Such as they more focused on hard-
working rather than taking rest. So, UHT milk can find employees that are highly dedicated,
determined to work for growth and development of organization. In addition to this, it is
significant for company to consider the culture preference while planning expansion of business
in china because it helps in understanding customers wants. Thereby planning appropriate
strategies that could be used by the firm to attract and retained range of customers within the
organization.
Customers are most important individual for any organization as they are responsible for
making purchase of products and services in order to satisfy their respective wants in the best
possible manner. So, they have set of belief, practices and method so company by adapting its
practice as per them can sustain and grow its business operation to maximum extend. Along with
it the firm can easily plan marketing mix strategies that it can use to connect and build
relationship with customers. So, that they are motivated to be part of organization rather than
other firm operating in similar industry. So it helps in planning products that needs to be offered,
the way they need to be promoted to customers so that they are motivated to be part of specific
firm as compared to others (Fan and et.al., 2019.). Likewise, the people prefer highly innovative,
better products and services so by offering UHT milk, the SME can easily grow and expand
business in china market and earn huge profitability. Therefore, it can be stated that manager of
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company through considering the culture preference of China market will able to grow and
sustain business for longer time frame in competitive environment. Furthermore, it has been
identified that culture helped in understanding the language, education and mentally of people
thereby helps company in deciding whether to make investment in China or not (Caputo, Ayoko
and Amoo, 2018).
Expansion methods used by the company
In the present competitive era it is very essential for the companies to expand their
business so that it can grow and develop and face intense competition. For effectively managing
the business it is very essential that time to time expansion of the business is being undertake so
that there is proper acquaintance with the latest changes and trends undertaking place within the
external environment. Hence, the different types of the market expansion methods for the UHT
milk products are as follows-
Ansoff matrix- the ansoff matrix is a tool which is assistive in strategic planning tool
which outlines the framework to assist companies in expanding their business in proper and
effective manner. There are different strategies like the market development, product
development, market penetration and diversification (Dawes, 2018). All these strategies are
helpful for UHT milk products in order to expand within the Chinese market. But out of all these
strategies the most beneficial for UHT milk products is the use of market development strategy.
The reason underlying selection of this market development is that the company is expanding
within the new market and because of this the use of market development strategy is being
undertaken. When the market will be developed then automatically the business will be
developed. This is pertaining to the fact that when the new market will be developed then this
will automatically result in development of the business.
The major strength of market development of UHT milk products is that this will assist in
developing and growing the business in proper and effective manner.
On the other hand, the drawback of this methodology is that the risk associated with
expanding within the new market is very high. this is pertaining to the fact that when the new
market is entered then there are many risk like consumer might not like the product, or the
technology might not be supporting or any other risk.
Porter generic strategy- this is a strategic tool or model which is assistive to the
company to attain competitive advantage. This model generally involves the three different
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strategies that is cost leadership, differentiation and focus strategy. All these strategy provides a
good base to the company for growth and development (Firoz Suleman, Rashidirad and Firoz
Suleman, 2019). For the growth and expansion of the business providing UHT milk in Chinese
market will undertake the use of cost leadership. the reason underlying this fact is that if the cost
of the product will be high then the product will not get successful. Hence, this will not be a
good option for the company. Thus, for this the major focus under Porter generic strategy is cost
will be focused so that it can be minimised. For promoting the UHT milk product in Chinese
market it is essential that cost is being minimised. This is particularly when cost of UHT milk
product will be low then there are more chances that profitability of the company will increase.
The major benefit of this strategy is that this will provide a cost effective strategy for the
expansion of the UHT milk products in the Chinese market. Thus, when the cost will be
minimum then the profits of the company will be high.
Along with this the drawback of this strategy is that if the cost will not be assessed in
proper manner and if the cost is very high then this will not be good for the company. thus, this
can cause loss for the company.
Market segmentation and target market- deciding the market segment and target
consumer is very essential for the business to get successful. The reason behind this fact is that
the market segment will provide an idea to the business that which segment of market will be
beneficial to the company and which target consumer will provide maximum benefit to the
company in Chinese market. The segment will be selected of children belonging to the age group
of 3- 11. In addition to this the target market will be pre-school children belonging to 1- 5
because the UHT milk products are very good for the children within this age group.
The major benefit of selecting the effective market segment and target is that this will
provide the company a way or direction that how they have to market the product in order to
increase awareness and effective entry within the Chinese market.
On the other hand, the major drawback is that if the target will not be selected in proper
and effective manner then this will result in loss for the company. Hence, the UHT milk will not
be entering in proper and successful manner in Chinese market (Shi and et.al., 2020).
For attracting the target market, the use of social media marketing and other digital
marketing techniques along with sales promotion strategies will be undertaken.
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Absolute and comparative advantage- the absolute advantage is being defined as the
uncontested superiority of country or the business for producing the product in good better. On
the other hand, the comparative advantage provides opportunity cost as a factor for analysing the
different options for better and effective attainment of business objectives. Hence in case of UHT
milk products expanding in Chinese market the focus on comparative advantage will be much
better as compared to absolute advantage (Dean and et.al., 2020).
The major benefit of focusing on comparative advantage is that this will provide the
benefit and different opportunities for other services as well which is not in case of absolute
advantage.
However, the major drawback is that the comparative advantage can increase the cost of
the company to a great extent which is not good for the company and its operational efficiency.
Hence, in the end it can be stated that the use of the expansion strategy is very essential
for the business. this is pertaining to the fact that when the business will be expanded timely then
this will improve the working of the company in highly competitive market. Hence, all the
methods discussed above will assist the company in expanding the UHT milk products within the
Chinese market in successful and effective manner. Also, the use of these expansion methods
will also help in improving the operations in proper and effective manner and to maintain the
profits. Moreover, this will also assist the company in facing the competition in proper and
effective manner so that all the competitors will come to know that how the UHT milk products
of the company are different from one another.
CONCLUSION
This report concludes that the international businesses are being highly in trend and for
growth every business need to expand in international market. SME in dairy industry are having
lots of opportunities and uncertainties in the international market that comes when company take
step to do multinational business. The china dairy industry is having an outstanding opportunity
to grow as the dairy industries are highly promoting by the government. The external
environment in china are also providing different opportunities to grab when the SME enter in
china market. The uncertainties are also there with the company performing its task
internationally. When the SME will sale its product in china when there are number of benefits
that can be grab by the company yet there are some uncertainties that are also bear by company.
The trade barriers are also their when the SME will perform internationally and SME also have
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to perform its task by following ethical consideration. Hence, it can be concluded that it will be
beneficial for expanding the business of UHT milk in Chinese market will be beneficial for the
company. For expansion the major target was pre-school children belonging to 1- 5 years of age
and marketing practice of social media marketing will be undertaken.
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