Business Report Summary on Expanding UHT Milk in China

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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