International Business: Expanding into the Chinese Market

This document provides an overview of international business expansion into the Chinese market. It covers key drivers, trade theories, trade barriers, and the importance of corporate social responsibility. The document also discusses the impact of culture and provides recommendations for targeting the Chinese market.

International Business

EXECUTIVE SUMMARY
International business is defined as trade of goods, technology, capital and services across
the boundaries of a nation. In addition to this, it describes the purchasing & selling of goods as
well as services across national boundaries. In order to expand business activities, small and
medium enterprises enter into other markets as it help them to increase their level of sales and
profitability level.

Table of Contents
EXECUTIVE SUMMARY ............................................................................................................2
INTRODUCTION...........................................................................................................................5
Business drivers behind company’s expansion into the given country.......................................5
PESTLE Analysis........................................................................................................................5
Trade theory: ..............................................................................................................................7
TRADE BARRIERS...................................................................................................................7
Consequences of ignoring trade barriers:....................................................................................8
Business Uncertainties and Business opportunities-...................................................................8
Importance of Corporate Social Responsibility when operating globally..................................9
Theory of ethics ..........................................................................................................................9
Importance of culture................................................................................................................10
Expansion methods to be chosen by organisation.....................................................................11
Ansoff Matrix ...........................................................................................................................11
RECOMMENDATIONS...............................................................................................................12
CONCLUSION .............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
International business consist of all the commercial activities which take place in to
promote transfer of products, resources, ideas, technologies and services beyond national
boundaries. Business which are done beyond the national boundaries is defined as international
business. It is analysed that international business involves trading of goods as well as services
between two countries that is also termed as globalisation (Aguilera and Grøgaard, 2019). For
the present report, Fayrefield foods is taken into consideration It is an independent marketing
dairy company which was established in the year 1982. The head office of company is located in
Crewe, England. The company offered products such as cheese, butter, UHT milk and other
dairy products. The higher authorities of Fayrefield foods is planning to enter in china market by
its UHT (ultra high temperature) milk that is for children belong from age group 3 to 11 years.
The report will cover important key drivers for internationalisation and trade theories relevant to
business expansion. In addition to this, there is discussion about trade barriers associated with
expansion of business and various social as well as ethical issues undertaken by respective
organisation. Later, several internationalisation methods is describe and some recommendations
is given to the company for targeting the Chinese market. If talking about the major players of
UHT Milk Industry within the UK market areDANS Dairy Group, Regilait, MINA-MINA Dairy
Products and so on. It has also been said that consumption of milk within China rise by around
13% within the end of year 2025. in addition to this, around 60% of the China population
consumes UHT milk as compare to ordinary milk. In the marketplace of China Inner Mongolia
Yili Industrial Group is the leader as it holds around 38% market share. It is said that the top
most players within the market occupy around 74% market share (Leading UHT Milk Brands in
China, 2019). The development pace of economy as well as GDP of China is about 10% as it
says that China is developing with fastest growing rate.
Business drivers behind company’s expansion into the given country
Competition: For each and every business entity, competition is one of the major factor.
Large number of business organisation adopt business expansion in order to reduce or eliminate
the competition arise at the marketplace. Therefore, business entity requires expansion for
reducing competition.

Expansion of technology: Technologies within the business entity made it quite possible
for them to acquire wide range of global market. Therefore, for adopting or for expanding the
technologies, business entity requires expansion of the company at the new or international
marketplace.
PESTLE Analysis
PESTLE analysis define as the effective framework which assist a business manager in
order to examine the influence of external business environment which are political, economical,
technical, social, legal as well as environmental which is situated externally of the business
entity. All these factors have their influence on the overall business entity which highly affect the
functioning of an entity. The PESTLE Analysis for the marketplace of UK-SME are going to be
discussed as follows:
Political Factors: It is said that the marketplace of China is political stable where
different countries have the opportunities to expand their business functioning. In relation to the
Fayrefield foods, the company wants to expand their business functions at the marketplace of
China where the beneficial part is the political stability of the country which help in smooth and
effective functioning of operational activities (Gnangnon, 2017).
Economic Factors: Economic factors are the enhancement of national income, tax rates,
import duty, employment rate and many more which highly affect the overall business
operations of the business entity. It is said that China growth rate is around 10%, which have the
strongest economic system help in enhancing the overall sales of the company.
Social Factors: These are the factors which includes changes in needs, trends and
demands of the society. In the current environment, requirements of consumers changes in
fastest speed which requires continuous modification in the offering. If talking about the market
situation of China, people are more advanced in the country which attracts them towards UHT
Milk (Perera, 2017). Therefore, business expansion within China is more suitable for the
company if considering the social factor of the country.
Technological Factors: Talking about UHT milk, a business organisation need highly
advanced technology with the help of which milk can be sterilised at am ultra-high temperatures
so that the shelf life increases of the goods. In references to the market of China, there are highly
advanced technologies available at the marketplace which are quite beneficial for Fayrefield
foods to expand their business operations at the marketplace of China in an effective way.

Legal Factors: Each and every country have their own legal policies which are different
from other countries. For UHT milk, there are large number of health related regulations are
implemented on the company as it directly consumes by children which have the direct influence
on their healthy. These legal factors highly influences the business functions which needs to be
required by the higher authorities at the time of business expansion.
Environmental Factors: It is said that in the current environment, business organisation
need to adopt every policies related to environment so that it creates positive impact of the
company among their customers. In reference to Fayrefield foods, higher authorities of the
company perform all the business functions as per the environmental rules and regulations which
assist them to maintain the position of the company at the competitive marketplace for a longer
period of time.
Above mention analysis of PESTLE framework help in understanding the current market
position so that a business entity can easily expand their functioning at the new marketplace.
Adopting PESTLE analysis help in examining the market in an effective manner which as a
result assist them to perform all the business functions in an effective manner (Ervural, 2018).
Trade theory:
Factors of production refers to the inputs which is required for the development of goods
as well as services which are of high quality. It is said that there are mainly 4 factors of
production which are land, capital, labour as well as entrepreneurship. It has been analysed that
the factors of products which are land, labour, capital were originally examined by political
economists which are David Ricardo, Adam Smith and Karl Marx. At present, it is said that two
factors which are capital as well as labour remain two main inputs for effective and appropriate
productive processes along with the creation of profit margin by a business entity (Abdel-Basset,
2018). In reference to the marketplace of China, these are the factors which consume lot of cost
and efforts in order to adopt these resources. Land and labour are the costly resources and factors
which highly affect the overall costing of the business entity. In relation to UHT milk for
children aged from 3-11 years, the main factor of production is the labour and capital on the
basis of which overall business functioning depends.
TRADE BARRIERS
There are a number of trade barriers when Fayrefield Foods Ltd. will venture into Chinese
market. Some of the major barriers are mentioned below:

 Tariffs and Quotas: There are a number of duties and various additional taxes that are to
paid by companies who are venturing in China. It acts as a trade barrier for Fayrefield
Foods. Due to this company can not adopt low pricing system in Chinese market as well.
It is necessary that all the taxes that will be applicable on the business are considered at
the beginning. Legal Issues: the product with which company will venture in market is a product for
small kids. Therefore it is necessary for Fayrefield Foods Ltd to keep a check on health
and safety standards (Zhang, Haviarova and Zhou, 2020). Organisation is required to
effectively look into all the matters that might stand in way of rules and regulations made
in China. There are also guidelines for packaging and containing which is essential to
follow. Not doing so might result in legal proceeding over business which affect profits
as well as reputation of organisation.
 Competitors: 60%of population in China are consuming UHT milk as it is a better option
than dairy milk which is available in market. There are top 3 players in this business
sector who have occupied 74% of market share. This is an important trade barrier as it
will effect the business of Fayrefield food in China.
Consequences of ignoring trade barriers:
It becomes essential for managers in business to look for all the trade barriers as they
might effect the business negatively while venturing into Chinese market. There are huge
business investments required when companies are expanding into different nation. When
organisations ignore trade barriers and do not take care of it earlier it leads to effect the
profitability in organisations. Various mistakes made while assessing the trade barriers might
lead to huge losses for an organisation (He and et. al., 2019). These losses will not only effect
international but domestic business of company as well. There for Fayrefield Foods is suggested
to properly evaluate trade barriers beforehand and take preventive steps. Ignorance and
negligence of organisations should not lead to serious consequences in the organisation.
Business Uncertainties and Business opportunities-
The trade war which is ongoing between China and US is effecting the trade in both these
countries along with international trade. The Chinese imports have reduced by $59 Billion and
imports of US have also declined by $42 billion that is a huge amount. This is adversely
affecting the NDP of both the nations (Impact of US China Trade War, 2020)

BREXIT and various trade policies adopted by China and UK have helped both the
countries to effectively set up their trade relations. As considering the past data China have been
6th largest market of export for UK and 4th largest source for imports. The uncertainties between
various countries is also results into impacting the relation between both of those countries.
Examples can be taken as Brexit as well as US-China trade war is resulting in increased as well
as positive practices of trade between these two countries. Therefore, the management of
Fayrefield food Ltd needs to consider all of these uncertainties and look for opportunities in
these (Statistics on UK Trade with China, 2019)
Importance of Corporate Social Responsibility when operating globally
Corporate Social Responsibility in an organisation is important for every business in
order to use the resources provided to them efficiently as well as ethically. The effects of CSR in
society is seen in a positive way. Similarly the impact of Corporate Social Responsibility for an
organisation which is working internationally is also important.
When taking Fayrefield Foods Ltd into consideration it becomes important for company
to invest some of its earning in China itself. This is important as the company is earning from
China and all the profits are from that nation. It is their duty to do well for the society and
surroundings in which they are operating their business. This is ethical as well as social
responsibility of company to develop the society and country they are running their business in.
The benefits that an organisation gains from CSR activities are good brand value, brand image
and goodwill in the marketplace. In international trade the competition for domestic producers
are often increased up to certain limits(Wang and et. al., 2019). They are also affecting the own
production of host nation in process of expanding. All these reasons makes MNC's more
obligated to fulfil the requirements of corporate social responsibility. It is required by managers
and executives at Fayrefield to make sure that they are creating a plan for corporate social
responsibility of company. It is necessary that that they are taking up various projects for
development of society. In this way they can build brand image in society and market from the
first day they start running their business in China.
Theory of ethics
According to the concepts of Utilitarianism ethical theories, a choice has made by the
managers of company that derives beneficial and and advantage for stakeholders and is ethically
correct. It is significant for higher authorities of Fayrefield foods to undertake ethical issues

that is exist in China so that all the activities is implemented in a systematic and timely manner.
For instance, environmental pollution is the main issue that comes under business ethics in
China. The government of chin has increased its concern towards environmental protection and
also charge higher penalties if laws associated wit it it not properly followed by companies.
Further, employees safety & labour issues are also major concerned that is faced by organisation
prevailing in China. It is important for Fayrefield foods to consider law related to labour
protection and employee safety so that it can systematically execute out activities and develop a
positive image at marketplace.
Importance of culture
Culture signifies beliefs, arts, laws as well as knowledge of individual person within
organisation. There are various significance of culture such as it offers vital social as well as
economic advantages. In addition to this, it aid assistance in increasing quality of life in order to
enhance whole well-being for both communities as well as individual person. Culture plays an
important role for smooth running of organisation during the time period. Therefore, it is
necessary for organisation to follow culture in order to operate different activities and functions
in an appropriate manner (Cotton and et. al, 2020). In addition to this, chins is considered as a
country with different background as well ass culture and it is important for administration of
UK. Hence, SME is to determine several facet of Chinese cultures in relation to boosting
functions and operation in China. It is significant to observe that Chinese Culture is not
considered as a single linguistic nations, it has more than 15 languages with various dialects.
Therefore, the meaning of single work is favourable in one language might be considered as a
adverse meaning in other linguistic approach. For labelling of goods, it is necessary for
organisation to use the word which should not have contradictory meaning. Therefore, the
products as well as services provided in UK must have a superior brand image and goodwill in
Chinese culture and it is determined as a opportunity for administration of UK, SME required to
be determined. Chinese culture is depend upon social groups and considered as offensive
statement for person that offended a overall group of consumer. Hence, it is significant for
organisation to determine all factors in relation to cultural preferences of individual person in
China for taking superior managerial decisions. Culture differences impose direct impact on
SME business which is not advantageous for Fayrefield Foods Ltd, UK. Thus, there are various
types of difference in culture such as language differences, labelling as well as perception of

consumer. If the organisation of UK operate their business in Chinese market, then it is
necessary to have awareness regarding language of country in which organisation operate their
business (Que,and et. al., 2019). In addition to this, it is important to conduct appropriate
research regarding perception of an individual person that helps company in providing product as
per the need of customer in Chinese market. It is also helpful in achieving competitive advantage
over rival firm at marketplace. In assistance of this, it is also helpful in building brand image and
reputation of company in front of customer at marketplace. Hence, company focuses on offering
unique and innovative products according to the culture of Chinese market which will profitable
in future period of time. The SME company also focus on labelling of its products which is
identical for individual person of china that helps in increasing profit margin in future time
period. Therefore, it is easy for organisation to conduct different activities and functions in
Chinese market in an appropriate manner which will be beneficial for organisation in future time
period.
Expansion methods to be chosen by organisation
Licensing: it is basically a permission granted by the owner to a licensee which is in the
form of contract. Herein, the licensee buys the right in order to exploit technology as well as
goods from the licensor that is protected through intellectual property rights such as copyright,
patent, trademarks and so on.
Joint Venture: It is defined as a business arrangement where in more than two parties is
agree to use their resources for attaining particular task. Herein, each participants is responsible
for the losses, profits as well as cost related with it (Chi, 2019). It is analysed that a joint venture
can result in the development of separate, new business entity or cab operate mutually as depend
on the agreements.
Franchising: Herein, the franchisee buys the right in order to undertake activities of
business using the franchiser's trademark or name instead of any patented technology. It is
analysed that using these method assist in establishing business within short period of time and
also involves little investment by the franchisor.
By analysing the above form of expansion methods, it is determine that Franchising is
one of the suitable and appropriate expansion method for Fayrefield foods. It is analysed that
such expansion method occur less cost to company and also involve less risk as compare to other
methods of expansion.

Ansoff Matrix
It is defined as a product or market expansion strategy that is used by an entity to analyse
strategy for growth (Cherunilam, 2020). It consist of four strategies which is given below in
relation to respective
company:
Market penetration: In this growth strategy, organisation uses its products within
existing market by offering various discounts, declining processing time and so on. It assist
company to enhance its market share level and gain profits in an effective manner.
Product development: Herein, the company produce a new product and offer it in the
existing market in order to meet with the requirements of customer and retain them for longer
time period.
Market development: In this strategy, the company enter into new market with the
existing goods and services with an aim to expand business and earn higher profits as well.
Herein, it is important for an organisation to gain knowledge about market trends and culture as
it raise the chance of acceptance and product success at marketplace.
Diversification: Herein, the organisation enter into a new market with the new offerings
with an aim to capture large market share and earn higher profits as well(Kahiya, 2020). In
addition to this, adoption of such strategy involve a great potential of increase in revenue and
market performance of company.
From the above discussion, it is analysed that Fayrefield foods can make use of Market
development strategy as it is appropriate and suitable for attaining higher growth at marketplace.
In addition to this, it help respective company to gain higher profits and enhance its market share
in an effective manner.
RECOMMENDATIONS
From the above discussion, some of the recommendations were given to the higher
authorities of Fayrefield foods in order to target Chinese market is given below:
 It is suggested to the company to make use pricing strategy as it help in attracting large
number of people towards the brand which has positive influence on sales as well as
profitability level of the respective company (Sharma, 2019).

 Along with this, it is recommended to adopt differentiation strategy in order to uniquely
position the product in Chinese market that enhance the chance of acceptance of UHT
milk at marketplace.
 The higher authorities of Fayrefield foods can make use of social media applications
such as Facebook, YouTube and Instagram in order to aware large number of people an
enhance the customer base level in an effective manner.
 It is suggested to the top level authorities of respective organisation to make use of
selective distribution strategy which means the products of Fayrefield foods is offered in
more than one location in Chinese market or at the few popular dairy product stores of
China (Sinkovics and Sinkovics, 2019).
 Further, it is recommended to the company to adopt Franchising method as a expansion
method as it involve less risk and also occur less cost to the company.
CONCLUSION
From the above study, it is concluded that expanding business at an international level
assist an entity to increase the level of profits and revenue in an effective manner. There are
various business key drivers that is the reason behind an organisation expansion such as financial
resources, competition, innovative technology and so on. It is important for an organisation to
gain an insight about the culture and ethics before offering into the new market as it enhance the
level of acceptance and decline the level of risk of business failure. Moreover, it is significant for
an entity to choose the appropriate expansion or internationalisation method so that there is
increase in the chance of business success and growth at marketplace.

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