Business Report Summary on Expanding UHT Milk in China

This report evaluates the business drivers, PESTLE analysis, cultural factors, trade barriers, tariffs, non-tariffs, ethical and social issues, and methods of expansion for UHT milk in China. The target city for expansion is Guangzhou.

Business Report Summary

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
Business Drivers..............................................................................................................................3
PESTLE ANALYSIS..................................................................................................................4
Cultural factors................................................................................................................................7
Trade barriers, tariffs and non-tariffs...............................................................................................9
Ethical and social issues................................................................................................................11
Methods of expansion....................................................................................................................11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Business report is basically evaluating the particular issue, financial operations or set of
circumstances which directly or indirectly affects the performance of the business. The main
purpose of this is communicating relevant and asppropriate information efficiently and
succinctly. UHT Milk is produced more than 120 million litres in UK but it is consumed more
than 250 litres in the same country which means it is consumed twice as much as it is produced.
This can be observed that the margins are very low in UK regarding UHT and also it is
considered to be a product which faces great competition from the competitor products which are
imported and this is why various UHT plants in UK have been closed. There is a need to increase
the demand of UHT ilk because the volumes of UHT sold is less as compared to fresh milk. This
is why; it is decided to expand this UHT milk in China. UHT milk is demanded highly in China
having competitors Nestle SA, lactalis group, danone group and many more (Xiong and et.al.,
2018). This report will shed light on the business drivers in China regarding the expansion of
UHT milk in China by using models like PESTEL and Porter. The target city or province in
China will also be highlighted. This will be followed by mentioning the cultural factors which
can help the business of UK to be successful in China. The report will also evaluate the trade
barriers, tariffs and non-tariffs which will be aligned with the UHT milk. Furthermore, the
ethical and social issues will also be mentioned and described along the way in which the
company can expand which means the method of expansion will also be highlighted.
Business Drivers
China is the world's leading cow producer, producing 31 million metric tons of milk in
2019. According to the USDA, China's milk production is expected to increase 4.5% in 2021 to
34.5 million tonnes. The milk market is divided into North America, Europe, Asia Pacific and
other regions. Europe is an early adopter of UHT milk and is currently leading the global market
with the largest market penetration. However, since the recent eurozone crisis, Europe is
expected to witness a slowdown in the market during the forecast period 2013-2019 (Yang,
Ramsaran and Wibowo, 2018).
Imports of dairy products and milk ingredients are also expected to increase, driven by
consumer demand and food processing industry in China. As a result of large-scale dairy farms
(more than 100 cows per farm), dairy cow productivity continues to improve. They are similar in
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terms of nutrients, but differ in taste, shape, and price. Milk powder consists of a process of
dehydration and evaporation, which aids in storage. Although it loses its taste during
dehydration, it is a perfect match for soft drinks, tea and filter coffee. On the other hand, milk is
more nutritious and tastes better than formula milk.
The largest segment of milk powder is considered to be UHT milk. According to MarketLine,
UHT milk is popular with milk consumers in China as opposed to Western consumers who like
fresh liquid milk. The Chinese milk powder segment is for both adults and infants. According to
Nielsen China, online and offline milk powder sales in 2018 amounted to 1.8 billion won and 1.5
billion won, respectively. In particular, according to IBISWorld, the infant formula sector is
experiencing rapid growth and high profitability. The market size will reach 175.5 billion yuan in
2019 and is expected to reach 216.3 billion yuan in 2024 (Zhang and Jin, 2020). With the
enforcement of the two-child policy, the demand for infant formula is increasing rapidly.
Adults, especially families, are steadily increasing their consumption of infant formula. Online
shopping has driven the growth of this sector. Infant formula for adults in China is in the early
stages of its product life cycle, given market size and profitability. Therefore, the market size of
this sector remains stable due to the lack of awareness of the product by Chinese milk
consumers.
The global UHT milk market is lucratively competitive and consists of many major international
producers and regional players. Many supermarkets also own their own UHT milk brand. These
brands will be additionally distributed depending on the major trademarks and regional dairy
processors. Price cuts have long been a winning strategy for key market participants (Zhang and
Jin, 2020).
The major companies mentioned are Nestle SA, Groupe Lactalis S.A., Danone Limited, China
Mengniu Dairy Company Limited, Grupo Lala and S.A.B. de CV, Inner Mongolia Yili Industrial
Group Co. Ltd., Fonterra Cooperative Group Limited and Parmalat in Canada SA.
PESTLE ANALYSIS
Political: Political factors play an important role in determining the factors that can influence
China Dairy Corporation Limited's long-term earnings in a particular country or market. China
Dairy Corporation Limited operates food, beverage and tobacco businesses in more than 12
countries and is exposed to the risks of different types of political environment and systems.
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Achieving cross-country success in these dynamic food, beverage and tobacco industries is
diversifying the systematic risks of the political environment. China Dairy Corporation Limited
can scrutinize the following factors before entering or investing in a particular market: Risk of
military invasion, Level of corruption, especially regulatory levels in the food, beverage and
tobacco sectors, Government bureaucracy and interference in the food, beverage and tobacco
industries, Legal Framework of Contract Enforcement, Protection of Intellectual Property, Trade,
Regulations and Tariffs Related to Food, Beverage and Tobacco, Favourable Vendors and many
more (Shao and et.al., 2020). This is how; political factors will affect the expansion of UHT milk
in China.
Economical: Macro-environmental factors such as inflation, savings, interest rates, exchange
rates and economic cycles determine aggregate demand and investment in the economy. Micro-
environmental factors such as competition norms affect a company's competitive advantage.
China Dairy Corporation Limited has industrial economic indicators such as growth rate,
inflation, food, beverage and tobacco industry growth rate, using national economic factors such
as consumer spending, as well as sector name sector. The thing which can be predicted is that the
trajectory of its growth of the organization. The economic factors that China Dairy Corporation
Limited considers during the PESTEL analysis include type of economic system in China and
UK, skill level of workforce in the company, exchange rates and stability of host country
currency, infrastructure quality, labour costs and productivity in the economy, unemployment
rate, inflation rate, interest rate, education level in the economy, business cycle stage etc. These
can affect the profitability gained by UHT milk in China (Böhme, 2021).
Social: A society's culture and way of doing things influence the organizational culture of its
environment. The common beliefs and attitudes of the people play a huge role in how marketers
at China Daily Corporation Limited understand their customers in a particular market and how
they design consumer marketing messages for the food, beverage and tobacco industries.
Social Factors Leadership of China Dairy Corporation Limited must analyze For PESTEL
Analysis including the factors such as demographics and population skill level, education level,
leisure interests, culture, entrepreneurial spirit, attitudes, class structure etc. (Xiong and et.al.,
2018).
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Technological: Technology, overall, is rapidly destroying various industries. The transportation
industry is a good example of this. The industry has changed so rapidly over the last five years
that it hasn't even given existing players the opportunity to respond to change. The taxi industry
is currently dominated by players like Uber and Lyft. The automotive industry is rapidly moving
to automation led by technology companies like Google, and the manufacturing industry is
experiencing turmoil with Tesla, which proclaimed the electronic and automotive revolution.
Companies need not only do a technical analysis of the industry, but also the rate at which
technology disrupts that industry (Chen and Yu, 2019). Slower speeds give you more time, and
fast-paced technological turmoil may give your company some time to cope and profit.
Technical analysis involves understanding the impact of factors including recent technological
developments by the competitors, impact of technology on the product offering, impact on the
cost structure, rate of technological diffusion and also the impact of value chain structure etc.
Environmental: Other markets have other norms and environmental standards that can affect
the profitability of an organization in the market. Even in a single country, environmental and
liability laws can often differ from week to week. For example, in the United States, Texas and
Florida have other liability provisions in the event of an accident or environmental disaster.
Similarly, many European countries offer sound tax exemptions to companies operating in the
renewable sector (Xu and et.al., 2020).
Before entering a new market or starting a new business in an existing market, a company must
carefully evaluate the environmental standards required to operate in the market. Some of the
environmental factors businesses of UHT milk should consider in advance include laws
regulating environmental pollution, climate change, recycling, endangered species, air and water
pollution regulations, attitude towards ecological or green products etc.
Legal: In many countries legal systems and institutions are not strong enough to protect an
organization's intellectual property rights. Companies can steal an organization's secret source to
ensure an overall competitive advantage and must be carefully evaluated before entering such a
market (Yang, Ramsaran and Wibowo, 2018). Here are some legal factors that China Dairy
Corporation Limited leadership should consider when entering new markets: discrimination law,
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e-commerce and consumer protection, patents, copyrights and intellectual property law, health
and safety law, data protection, employment law etc.
The target city in China for the UHT milk expansion from UK is the Guangzhou city because
this can be evaluated that this city has the most demand of UHT milk in China. They even
purchased UHT milk from other countries because they are very much particular about UHT
milk. This is why; the UHT milk from UK must decide to expand it in the Guangzhou city for
gaining high competitive advantage as well as profitability.
Cultural factors
There is a difference between the cultures of UK and China. UHT milk needs to expand
from UK to China so the cultural differences between both the countries must be considered.
Hofstede model of culture can be used to analyse the difference in the cultures of both the
countries. This model also helps in distinguishing between dimensions of culture, different
national cultures and assessing their impact on the settings of business. Its factors include power
distance, collectivism v/s individualism, uncertainty avoidance index, femininity v/s masculinity,
short term v/s long term orientation and restraint v/s indulgence.
On-the-go milk consumption has seen a popular growth in recent years. This is one of the major
factors driving the demand for UHT milk worldwide. People today have very busy schedules and
are forced to look for better alternatives to regular liquid milk that requires refrigeration, but only
for a limited period when it comes to safe milk consumption (Xiong and et.al., 2021).
UHT milk is the most popular alternative to regular milk. It has a longer shelf life and does not
require a refrigerated environment. It can be stored at room temperature. This is another
important factor that continues to stimulate demand in the global market. Whereas
conventionally-processed milk requires a high-efficiency refrigeration chain that operates at
mobile high efficiency, UHT Milk eliminates this condition, serving both manufacturers and
distributors and consumers who do not own a refrigerator. The market is expected to gain
maximum traction in developing regions as the shortage of refrigerated space continues over
several years. In addition to rising fertility rates in developing countries, athletes, weightlifters
and bodybuilders around the world are on the rise, consuming milk every day and sometimes
even needing to carry it. The global UHT milk market has great untapped opportunities, which is
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expected to drive up the demand for personal storage packs of UHT milk. Significant consumers
are still reluctant to adopt UHT milk. This is because the nutritional value of this milk can be
much lost during processing, processing and storage of milk. This is expected to be a major
constraint on the global market for UHT milk.
According to the National Bureau of Statistics of China, disposable personal income in China
increased from 28844 Yuan (4578.41 USD) in 2014 to 31195 Yuan (4799.23 USD) in 2015.
China's disposable personal income is reported by the National Bureau of Statistics of China
(Gooch, Hoskin and Law, 2017). The level of family income in China will increase significantly
over the next few years, especially in urban areas. As abundance increases, awareness of the
value that high-quality protein can play in the diet increases. As incomes rise, China's family
meal choices increasingly focus on healthy and nutritious foods, especially in dense urban
environments. Milk and dairy products are nutritious foods.
They contain a unique "Nutrition Package" that is an essential part of a healthy family meal
plan. Milk is not easily interchangeable with other foods. The alternatives are not the same.
Research is confirming the positive ways milk can affect health. Aside from dairy products
building healthy bones, consuming milk, cheese and yogurt can help boost immunity, lower
blood pressure, reduce the risk of diabetes, reduce the risk of some cancers and maintain a
healthy weight (Xiong and et.al., 2021). Milk is a great source of high-quality protein, which is
important throughout life, especially for athletes and seniors. In addition to these health benefits,
milk and dairy products are delicious, convenient, and affordable, providing three nutrients that
Chinese meals often lack: calcium, vitamin D and potassium. According to the International
Dairy Federation, an industry group based in Brussels, China drinks an average of about 2.5
gallons of liquid milk each year, less than a third of Japanese and Koreans, and the US drinks
well below 20.8 gallons (Jia, Wu and Gosling, 2019). According to market researcher at Euro
Monitors International, at is after personal consumption has increased by 90% over the past five
years and has reached $32 billion. Euro monitor expects the gap in milk consumption to close as
more Chinese move to cities, where diets change and spending on dairy grows at a similar rate
over the next few years (Xu, and et.al., 2020).
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Trade barriers, tariffs and non-tariffs
Tariff and Non-Tariff boundaries to alternate are the maximum not unusual place
measures to manipulate their exports and imports. Also for China alternate boundaries, the
previous is ready elevating taxes and the latter approximately introducing limits to the quantity
of products traded. Less not unusual place China alternate boundaries are anti-dumping duties &
export restraints. In all markets there are positive obstacles that may save you from actively
trading. China change obstacles consist of numerous imposed regulations and expenses that
discourage trading. They are regularly break up amongst categories: price lists (TBs) and non-
price lists (NTBs) obstacles to change. The time period tariff refers to taxes, obligations and
expenses paid on a specific import (and, at times, export) class (Cui and Song, M., 2019). On the
alternative hand, non-price lists check with China change obstacles unrelated to extra expenses
which consist of policies, guidelines and license requirements. Compared to different countries,
China is one of the maximum lively on this area, possibly because of the delicate nature of the
non-stop growth, which the authorities seek to protect.
A tariff is largely a tax or obligation that has been imposed upon a specific magnificence of
imports or exports. Tariffs international are an increasing number of being imposed once more
towards items from China, when they had been commonly jointly decreased over the years. In
January 2016, the European Union introduced its plan to impose a brand new variety of price
lists on Chinese imports, mainly inside the metallic and sun industry (Liu and et.al., 2020).
Therefore any capacity tariff need to be researched in addition to be understood earlier than
finding out to import from China. China, likewise, is implementing price lists from zero to 100%
on imported items. Examples for terribly excessive price lists in China are vehicles and different
luxurious merchandise. It is normally outstanding among 3 important tax/tariff classes: a value-
brought tax (VAT), a intake tax and fashionable custom duties. China non-tariff exchange
barriers Firstly, quotas are gradually turning into rescinded in China. Quotas are generally an
import associated China exchange barrier, and are seeking for to impose a quantitative restriction
on a product to guard the home industry. Quotas are normally self-imposed via way of means of
the house country towards different international locations, performing as a barrier to overseas
firms. However, presently there are quotas imposed on round forty special classes of
commodities. By enforcing a quota it prevents home clients shopping for imported items, and
pursuits to boom the international locations personal regionally produced items intake. Currently
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a Chinese imposed quota is carried out to the mining of uncommon earth minerals. However you
should recall quotas imposed via way of means of different international locations towards
Chinese merchandise; for example, the US presently restricts the quantity of textiles that may be
imported. Licenses also are a normally used non-tariff barrier of entry (Steinbock, 2018). In
China but seeing that 2005 the range of merchandise difficulty to import licensing controls is
limited. In 2015, best 2 classes of merchandise had been nonetheless difficulty to licenses, ozone
depleting substances, and key generation used for mechanical and digital merchandise. These
classes cowl one hundred thirty five separate items. These trade barriers increased after the
Brexit came into place. This can also be observed that when UHT milk will be expanded in
China the there will be various trade barriers especially because of the Brexit. China is UK's 1/3
biggest import alternate associate in current years protecting regular at 9% marketplace share
(Shao and et.al., 2020). While alternate talks around 'Brexit' commonly targeted at the alternate
dating among the United Kingdom and the EU, it's also really well worth searching at which
unique merchandise will fall below the 'liberalised' category. China may also become cashing in
on this new regime because of its fee competitiveness. These trade barriers, tariffs and non-tariffs
can become obstacles in the expanding and exporting the UHT milk to China from UK but the
company finds more profitability in China so it needs to pay all types of taxes in order to expand
the business (Li and Belal, 2018).
There are many anti-dumping responsibilities in location presently towards China. It is a device
allowed through the WTO as a guard towards reasonably-priced imports which are a hazard to
the neighborhood enterprise and is aimed toward imports. Many nations impose anti-dumping
responsibilities towards China with examples being exporting chrome steel into India or the EU.
The responsibilities are regularly in location for a fixed wide variety of years, and the Indian and
the European management have imposed those anti-dumping responsibilities to limitation
exports from China detrimental their personal production enterprise (Iqbal, Rahman and
Elimimian, 2019).
Another China change barrier is the self-imposed trade fee controls. The United States of
America has lots of overseas funding regulations, and the extent of overseas direct funding (FDI)
in Chinese corporations is likewise restricted. However those regulations are slowly being lifted,
and 12 months on 12 months a boom within side the stage of FDI is seen. It acts as a barrier to
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change as it restricts how whole lot involvement overseas corporations may have in positive
sectors like manufacturing.
Ethical and social issues
There are social and ethical issues which can be faced in expanding UHT milk from UK
to China. The UHT milk needs to be sold at lower prices as in the new country there are greater
levels of competitions. Expanding the business in other countries presents various ethical issues
before starting of the operations (Roberts and et.al., 2021). These include outsourcing production
jobs. The wages in china are extremely high as compared to UK so this can be costly for the
company to deliver the products which is UHT milk. The other ethical issues can be due to the
worse working conditions in China which force the labourers to work more in hazardous and
uncomfortable environments with inadequate protection. There can also be various social and
ethical issues due to bribery and corruption. Child labour can be considered as other ethical issue
because the people of China might use children as labour because they need to pay less to them
and can gain a lot of work from them (Ma and Bu, 2021). There can also be human rights issues
not only with the children but also with the adults. In case of expansion of UHT milk in China,
there can also be issues of workplace diversity as the workers in China belongs to various other
places. There is not much equal opportunity given to the employees in China. There can be sort
of discrimination among the employees working in the company of UHT milk on the basis of
genders, races or backgrounds.
Methods of expansion
There are various methods which can be used by the UHT milk company in order to
expand in China from UK. These include licensing agreements, exporting goods, partnerships,
mergers and acquisitions and many more. In licensing agreements, there will be contractual
agreements between the organisations in which one can use the other’s intellectual property. The
risk level is low in this but there can be issues regarding legislations. The exporting goods
method helps in getting the products in the market by contractual agreements with distributors,
marketing agencies, retailers or their combination. The risk level is low in this also but can be
costly due to the negative effects of external factors (Hu and et.al., 2018). Partnership can also be
done with another company but it must be ensured that the other one can bring value. The risk
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level is medium because the partner can push anytime in problem. Mergers and acquisitions can
also be done by taking over already published business. High level of risk is there in this case as
this becomes difficult to merge two companies with different cultures and models.
CONCLUSION
The above report shed light on the expansion of UHT milk in China from UK. The
company sees more profitability in China as the demand of UHT milk is more in China as
compared to UK. It also highlighted the business drivers which contribute towards the expansion
in other country. The report also highlighted the impact of external factors on the expansion in
China by focussing on factors like political, economical, social, technological, environmental
and legal. It also evaluated the cultural factors and its impact on the same. The trade barriers,
tariffs and non-tariffs were also highlighted. The ethical and social issues were also analysed and
examined. The modes of expansion were also examined which can help in expanding of UHT
milk in China.
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