International Business: Expanding into Macau, China

This report discusses the expansion of a UK high profile SME into the Macau, China market, focusing on the PESTLE analysis, trade barriers, ethical and social issues, cultural differences, and the chosen method of expansion.

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INTERNATIONAL BUSINESS
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Executive Summary
International business refers to establishing all the commercial activities, which take place to
transfer of goods & services, people, idea, resources, etc. across boundaries or at a global
level. The international business is all about exporting, importing or doing any trade activity.
Once, companies start trading at international level they must change their way of delivering
and other various items. The factors, which required change immediately, are communication
structure, infrastructure, innovation, etc. The dairy industry refers to making, harvesting or
processing dairy products through animal milk for human consumption. This report is all
about as UK high profile SME wants to expand its business in Macau, China for the
consumption of UHT milk as local competitors lost the faith on customers due to milk
scandal in 2008. To examine the macro environment of a country PESTLE analysis
framework is used so that the impact on organization performance can be controlled. Trade
barriers are examined so that required majors can take place in advance. The company has to
study the importance of social and ethical issues at the internal level as they start operating its
global level. They are also requiring understanding the CSR and contributing a certain
amount of profit in CSR activities to attain more customers from China. The culture theories
are examined so that the company can understand the difference in culture. If culture is
properly, understand they cannot do anything, which is harmful to their culture. Power
distance is understood with the help of certain figures. Consumer behavior is studied so that
products are launch according to customer’s preferences. The last which expansion Method
Company will choose to expand at an international level. In the light of the evidence as
according to PESTLE company must go for expansion and must examine tariff as well as
non-tariff rates. The company has chosen the joint venture method to make strong brand
awareness as well as the image in the eye of China customers. It is only possible if they make
a joint venture with a big Chinese company.

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Table of Contents
Executive Summary ..................................................................................................................1
Introduction................................................................................................................................3
Task 1.........................................................................................................................................3
The business drivers...............................................................................................................3
PESTLE Analysis...............................................................................................................4
Task 2.........................................................................................................................................6
Trade barriers for entering China market...............................................................................6
Task 3.........................................................................................................................................8
Ethical and social issues considered by UK SME while expanding at international level....8
Task 4.......................................................................................................................................10
The culture difference of China as compared to the United Kingdom.................................10
Task 5.......................................................................................................................................12
International business expansion and expanding method used by company.......................12
Conclusion................................................................................................................................13

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Introduction
International business refers to doing business across the borders with the government or with
the company. If companies are doing international business, they must understand that
particular country legislation and law by which companies get the opportunity to conduct
trade stress-free. (Harmilton & Webster, 2018). It includes all the activities such as selling
and purchase of all commodities as well as services outside national boundaries. This report
is based on the dairy farming industry, which includes producing milk, cheese curd, etc. Milk
can be produced directly or either through the firm as well as at the dairy plant. This report
includes an expansion business in Macau, China. Trade barriers are examined so that the flow
of trade is maintained properly as well as opportunities available in other countries can be
identified or threats can be minimized. The company has to study the culture difference and
customer preferences so that products must be available according to Chinese customers, the
last company will choose to certain method expand its business in Macau, Chinese market.
The method must have international potential so that huge profit generates and products must
be according to customer preference and trade.

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Task 1
The business drivers
The business driver refers to activity and key indicators by which organizational operational,
as well as financial results, will be affected. They have a major impact on the performance of
the specified business. To control business driver’s impact certain strategies are formed. The
components of the international environment are PESTLE, so expanding at international level
it is essential to examine. The business environment has a direct relationship with
organizational activities. Once the international environment examines successfully, after that
stress-free trade can take place. The analysis of external drivers is-
PESTLE Analysis
Pestle analysis is a technique to analyze the external environment of the country. The
company understands the Chinese business environment with the help of external analysis. It
refers to the framework to analyze the macro environment of the country due to which the
company's performance gets affected (Falkner, 2008). This tool is very useful and uses by the
organization while entering into the new market, launching a new product or starting a new
business in the foreign market. The PESTLE analyses of China is-
 Political: - It refers to certain government factors due to which industry gets
influenced and economy. As, if the government of China changes its taxation system
then revenue generating policy changes need to change all over again. The factors
include fiscal policy, trade traffics, fiscal policy, etc. that is levied by the government
as which affects the business operations (Zhu & Zhang, 2016). To start trading in
Macau Company must consider all these factors. In China, the government is unstable
as since 1979 China has been developing at breakneck speed and they forced a lot
thing to companies like since last few years government forced companies to trade
online as an e-commerce company.
 Economic: - It refers to certain determinants of an economic performance, which
directly influences the company's performance in the long term. The factors include
are interest rates, inflation rates, foreign exchange rates, economic growth pattern, etc.
As, when China's inflation rate increased then prices of product and services will also
get affected or it can also affect the demand/ supply as well as the purchasing power
of the buyer. In the last few years, the GDP rate of China is very much increasing, due

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to which SME's growths get as buying power is increasing of a consumer as well as
labor rate is low in China (Lippt, 2019). This is the only reason why leading
companies hire labor from that country. Their inflation rate is lower so it is beneficial
for the company to expand business in China. The cost of production is lower as
compared to other countries. The current Chinese interest rate is 4.350%, which was
higher than the other countries like United States, Australia, Europe, etc. The inflation
rate is 3% in the recent year 2018 so it is beneficial for the companies to expand the
business in China.
 Social factors: - It refers to certain gauge determinants due to which companies
business get affected. The determinants include culture trends, demographics, and the
population of a particular country. Social trends and cultural values can be altered due
to fluctuation in population size or due to age distribution (China PESTLE Analysis &
Macroeconomic Trends Market Research Report., 2010-2019). They can also start
their business online as China 90% of the population has internet access. There is a
huge customer base, as in China due to a scandal in 2008 local sellers of UHT milk
lost customer loyalty. The product of a local seller is not safe for children of age
between “3-10”. The small children need milk, which is pure, and not the milk, which
is made up of pasteurization as it has fewer vitamins.
 Technology: - It refers to certain advancement in technology or innovation in
technology due to which operations of business or industry positively as well as
negatively. The companies conduct research so that these factors can be controlled by
the organization and operations cannot get the effect (Wang, 2016). The major
technology problem is in China is that there is not a stable technology system for the
business of the B2C industry as there is no security system for the platform. In China,
there is always innovation in technology by which production becomes stress-free.
 Legal: - It refers to factors due to which companies internal as well as external both
the sides can be affected. In China, there is the recordation of tracking all the hours of
the work. As per the law, the employees have to work for a fixed period. The work of
the employees is clearly mentioned in the contract so there is no any kind of conflicts
has been seen in the company. There is also a high rate in the realization, which has
the benefit to the company. Due to the legal things in China, the utilization of the
resources is done at the maximum level.
 Environmental: - It refers to factors, which affects the business or affected by
surrounding of the environment. When companies expand their business to foreign

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market then environmental factor must be analyzed so that trade becomes soothing
(Tietenberg & Lewis, 2016). These factors are not just limited to climate,
geographical location, climate, etc. The change in economic development it
automatically affects the surrounding in China. In China air, water pollution is
increasing, deforestation, industrial wastage, and climate change can affect the
business operation. Therefore, they must make their strategies according to while
considering these factors.
(Source: (Assignment on PESTLE, 2015)
Task 2
Trade barriers for entering in China market
China is considering a very challenging place for doing business, as China faced many
hurdles. There is slow economic growth, increased pressure from the domestic industry, the
cost of production is also increasing some times and there is an unfavorable interpretation
between laws and legislation (Chandra, 2016). Since China becomes a member of the world
trade organization, they reduced the restriction on trade or liberalized foreign trading system.
The trade barrier of China is dividing into two parts one is tariff and other is non-tariff. The
tariff barrier is related to taxes impose export and import of goods (Lmbrumo, 2016). The
non-tariff barrier means policies, licenses requirement, regulations and legislation other than
fees. China is considered as the most active country in terms of trade. The barriers are-
 Tariff trade barriers: - It refers to taxes and duties imposed by the government upon a
particular class of products import and export. The taxes cost is huge for SME to start

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a business in China (Han, Liu, Marchand, & Zhang, 2016). As VAT and consumption
taxes are very much high, the VAT range is 10%- 15% for particular items. In China,
tariffs calculation based on product transaction. It includes insurance, freight,
packaging, and other prior works. The other tariffs rates of China have required
license fees, inspection, verification, quotes, etc.
 Non-Tariff barriers: - Every company has to be ensuring that products must get
customer clearances otherwise trade become difficult (Orefics, 2016). If proper
clearances are not done with the products then companies faced difficulty in mapping
brand awareness. Before exporting goods laws and legislation are required to follow.
 Labeling and packaging: - The third barrier is the company has ensured proper
labeling and packaging of products. The china has different and array requirements
for packaging which company have to fulfill before exporting goods to China or
expanding business in China (Bai, Zhou, Hu, Sun, & Xu, 2017). The products have to
be shipped with the help of registered agent otherwise, delay and refusal can happen
at Chinese custom.
 Quotas: The biggest trade barrier of the Trade is quota in which restrictions are put on
the quantity, which can be imported into the country. The subsidy is also the biggest
example of the trade barrier in China. It is the trade barrier for international trade in
China as the foreign firms are unable to compete in the market by the price wise.
(Source: - (Hofstede Insight, 2019)

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Task 3
Ethical and social issues considered by UK SME while expanding at an international
level
When the business is expanding at international level companies not just consider vision,
mission, goals, and strategies but also required taking into account the legal and ethical issues
at a global level (Crane & Matten, Buiness Ethics, 2016). The business has to full-fledged
follow the state & safety regulation, fiscal and monetary as well as civil rights law (Deresky
Helen, 2008). One country considered certain ethical practices unethical whether as for other
countries that practices consider as ethical. There are common ethical & social issues, which
companies required to consider while expanding business at the global level is-
 Employment practices and laws: - The working environment at global countries is
very different and in some country, a condition is inferior too. So, companies have to
understand the full legislation. Even if after understanding local legal requirement
some countries have own conditions and companies faced certain problems while
paying wages to employees. To have effective working conditions companies must
consider its own standards as to protect their employees.
 The corruption: - The companies have to make a secure network of payment
otherwise; they faced a huge problem while making a certain transaction. The laws of
China have to follow so that the company can control corruption. Corruption is a
basic problem of every society, and remains continue. (Chandra, 2016) The
government of a particular country needs to ensure that no corruption takes place
while manufacturing products. The UK SME has to follow all rules of China as well
as do ethical work ion organization. The scandal is also corruption, which is taken by
a local competitor due to which no one uses UHT local milk in China.
 Human rights: - The customer’s safety needs to be the utmost concern for the
company. They have to make products, which do not harm the customer’s health. Due
to that scandal in China health of most, the customers get affected. As in scandal,
human rights are exploiting; local UHT milk suppliers do not provide safe milk for
children. The company always make a product, which is customer safe as well, the
procedure needs to safe for an employee while making that product. (Harmilton &
Webster, 2018) The UK SME must provide healthy and safe products which
customers get to retain as well as brand value maintain properly. The UHT milk is for

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children so it needs to be safe. If a product is safe and secure then ethics of country is
also maintained.
 Moral obligation: - It is a moral responsibility of companies, which do not exploit
society. That scandal in 2008 destroys moral values by which the health of certain
customers is affected. The UK SME has to follow all moral values and make
products, which is safe for customers. (Harigan, 1986) To make strong brand
awareness in the eye of China public it is essential for a company to provide healthy
products for their child. Customers are very much concern about their children health,
so it UHT milk must safe otherwise brand value cannot maintain as well as customers
loyalty.
 Environmental pollution: - Every country has its own environmental laws and
regulation to make the surrounding clean. So many ethical issues arise, as companies
are aware of laws related to dumping toxic material, emission of pollutants, etc. The
developing nations do not have strong legislation but developed nation have strict
rules which company have to follow otherwise they faced a huge problem in the long
term. The UK SME has examined properly every law so that the environment of
China is not affected while producing UHT milk. The importance of CSR activity
while expanding business at the global level
Corporate social responsibility is an essential element of every company. The
organization has to be concern about society and make a product by which society gets
better (Brejning, 2011). The UK SME is entering into a new market, which Macau and
company have to contribute a small amount of profit in CSR activity. The core
responsibility of a company is to make huge profit creation for owners, its employees,
shareholders and for stakeholders, is only possible when a company has a positive image
in the market. Once the company started, doing social work it makes a better reputation in
the market and good brand image in public. Due to that scandal in UHT, milk, local
competitors harm society (Crane, Mattern, & Spence, Corporate Social Responsibility,
2014). Therefore, UK SME has to provide authenticated products in the China market as
well as do some work in the benefits society.

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Task 4
The culture difference of China as compared to the United Kingdom
The culture of China is very different from the UK, so the company has to understand the
culture of china properly. The culture difference is to examine with the help of Hofstede
Theory, which states that difference in culture makes difficult for an organization to
effectively communicate which affects the connection building and employees of UK SME
faced difficulty in motivating people of China to buy UHT milk for children (Cultural
difference between China and UK, 2019). Chinese culture is better as compare to other
countries culture. The dimensions through which cultural difference can be understood are-
 Power distance: - This dimension states that every person in the organization is equal.
As according to rank employees, get treatment. The people do not have aspiration
beyond their job role (Liu, Lu, & Wang, 2018). Subordinated are influenced if their
formal power or some higher authority push the employee to do the job ethically, no
scandal will take place in a country. If UK SME makes sure that ethics are followed
then organization value will be increased.
 Individualism: - It refers to issues arise in a society that people are strongly
interdependence. In this, people are only concern about themselves not for society,
but in collectivism, people do not just care about themselves but also for society. In
China, people are concern society rather than for themselves. The employee
commitment is low as compared to the UK, but relationships maintained with
subordinates are also cold or even aggressive. As this situation affects the company’s
reputation. Employees have to help each other so that collectivism is maintained and
goals are effectively achieved.
 Masculinity: - If this dimension is high, then society faced huge competition, success,
and achievement. The china culture is drive through success and achievement whereas
UK culture is not just drive by achievement. There are many people in China who
sacrifices family and priorities their work. As workers are more dedicated to, if they
are, require to do late night work they are ready to do.
 Uncertainty Avoidance: - This dimension deals that the company has to understand
the uncertainty cannot control in advance. Solutions are not found in advance to avoid
uncertainty. It also required time after uncertainty happen and the company cannot
avoid it. Chinese always face uncertainty; they never avoid a situation or run away
from the situation. They are very much adaptable and flexible in every situation

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(Zheng, Guo, Dong, & Owens, 2015). Therefore, the UK SME has to be adaptable as
well as flexible in nature while adopting Chinese culture.
 Indulgence: - This dimension is all about people have to control their desire and
impulsions. China has low in a dimension in which people have to care for each other.
Due to that, scandal in 2008 china faced many issues for society, as companies are
contributing to the betterment of society. The UK has tended to display the gender
gap while China does not exhibit the gender gap between the men and the women.
The Chinese’s has a culture of aggression while the UK has a less aggressive side.
 The consumer behavior in China is very much different as compared to other
countries; people are collective and care for society. If a company do certain social
work then brand value and awareness will automatically build (Wei & Miraglia,
2017). Culture must be properly examined then no customer of China faced a problem
with the product. The product has to be secure so that no scandal takes place again in
China.
Task 5
International business expansion and expanding method used by the company
International business means doing all the activities of business across the border. The
companies expand to lower down production cost, generating higher profit, making an
international presence, etc. To make global appearance SME of the UK planned to expand its
business in China by offering them UHT milk as local dealers lost the faith of customers
(Khan, Shenkar, & Lew, 2015). SME has faced many hurdles while expanding across the
border. To take a small business at a global level is a very much dynamic and complex
process. The companies have to understand or gain knowledge related to various aspects like
a deep understanding of competitors, market trends, customer base and successfully
launching the product in a new market (Handford, Elliott, & Campbell, 2016). In China, for
UHT milk local competitors are declines due to a scandal. The company requires the
appropriate strategies from before entering in Macau market, which is a new market for the
company. As a company, do not have global expansion but have a high profile even in SME.
The international expansion can increase companies image while operating at a global level
helps in building brand image and get certain recognition which actuals their business for the
long term (Pisani, Caldart, & Hopma, 2017). Diversification helps companies in maintaining

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equal growth rate as well as a positive revenue stream can be built. As an expansion, establish
a new market for companies to make a profit. As, according to industry, operation and
control over market expansion Method Company will choose. The SME does not have a
strong brand image at a global level so to launch their product in the new market company is
using joint venture method. For companies, every country has its opportunities and threats for
a particular company (Ali & Larimo, 2016).
UHT Milk Company wants to expand its business in China for making customers aware of
the products they choose joint venture method, once the market is established agreement will
over and joint venture comes to end. The aim of this joint venture is to obtain resources,
which is difficult for small companies to obtain that resource like research & development,
intellectual property, and technology (Yan & Luo, International Joint Venture, 2015). After
adopting this method to expand in another country a company is able to make a strong market
space and retain huge customer's base.
Conclusion
In light of the evidence, that company have to expand its business in China and launched safe
UHT milk for kids. The required research has to be done before the launch of a product with
the help of PESTLE analysis. The government is stable so no policies are required to change
in short span. Some barriers make opportunities or few barriers make threats for the
company. Ethical issues have to follow properly and company must do CSR activities for a
particular company. Once the culture difference is, understand by the company then trade
become more stress-free. The method which company has chosen is a Joint venture, by which
it becomes easy to make strong brand awareness.

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