International Business Report: SME Expansion in the Chinese Market

This international business report examines the expansion of a UK-based SME, Grassfield, specializing in UHT milk, into the Chinese market. The report begins with an executive summary and introduction, setting the context of the UHT milk market in China and the SME's objectives. The main body of the report delves into critical aspects of international business, including business drivers analyzed through PESTEL analysis, with a focus on political, economic, social, technological, environmental, and legal factors influencing the UHT milk market. It also explores trade barriers such as taxes, licenses, quotas, and bureaucratic hurdles that the SME might face. Furthermore, it addresses ethical and social issues like workplace diversity, child labor, and corruption. Cultural factors, including the use of Hofstede's framework, are discussed to understand the cultural nuances relevant to the Chinese market. Finally, the report outlines various methods of expansion, concluding with a summary of the findings and a list of references.

INTERNATIONAL BUSINESS REPORT

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................3
INTRODUCTION...........................................................................................................................4
MAIN BODY...................................................................................................................................4
Business Drivers..........................................................................................................................4
Trade barriers...............................................................................................................................6
Ethical and social issue................................................................................................................7
Cultural factors.............................................................................................................................9
Method of expansion..................................................................................................................11
CONCLUSION..............................................................................................................................13
REFERENCES................................................................................................................................1

EXECUTIVE SUMMARY
Expansion reefers to making exploration of the business of the company in some other
country. It helps the company to raise its business along with grabbing more customers of
different countries. Expansion will help the company to lead its business and explore the
opportunities in various other countries. This report will study about the concept of expansion
and the various elements are also being studied in this report that are concerning with expansion
of the business of the company. Business drivers, cultural factors, trade barriers, ethical and
social issues and methods of expansions are those methods which are being discussed in this
report.

INTRODUCTION
SME are one of the leading element of the economy of UK that support the entire
economy in terms of financially. As the Grassfield one of the SME is dealing its business in
UHD milk which is one of the high quality milk specially for the children. Also as it is planning
its expansion in Chine with targeting the children that belong to preschool and upwards. Since
there are many existing companies in China to that deal with the UHD milk but by depicting the
purity and popularity, reliability of UK in terms of its pure and original product, SME can meet
and target the children of China. The main aim of this report is to have a focus over the various
aspects which a SME need to consider before expansion of its business in some other country.
MAIN BODY
Business Drivers
The key business driver is all about the importance of new trends, demand in marketplace.
Generally, UHT milk is based on milk Production Company, which operate in China, provide the
various kind facilities or services.
Pestle analysis is based on the strategic tool or framework to analyse macro environment of
UHT milk in china. Pestle stands for political, economic, social, technological and
environmental. These are considering important factors that impact on the environment of UHT
milk in china (Garcia, 2020). Pestle analysis is become consider as important aspect of UHT
milk enterprise and sometimes, company will face certain kind of problem or issue in regards of
environment other than competitive force.
Milk industry may be considered as highly profitable with strong growth trajectory but it
won’t be good for UHT in China. In this way, it has been conducted the pestle analysis of China
where UHT milk business expand in marketplace.
Political Factor-
This factor is related to identify the significant impact on UHT milk in long-term
profitability in China. UHT is one of the enterprise which has been exposed itself to different
kind of political environment. Sometimes, it would be identified different political system risk or
threat. The overall success of business is depending upon the diversification of systematic risks
in regards of political environment. UHT Milk is closely analysing the political factors before
entering or investing in certain marketplace. Sometimes, Company will identify the political

instability which means that increase level of corruption, interferences in other food or beverage
by government. For Example- in China, UHT milk industry has been established a stable
position in Chinese market but different political parties in china influence milk business to
follow certain strict rules or regulations.
Economic Factor-
This factor is related the inflation rate, interest rate, foreign exchange and economic cycle
which identified the accurate demand of UHT milk in china. While consideration of
environmental factors such as competition standards, norms which are directly impacts on the
competitive advantage in marketplace (Robinson, Lakner and Otter, 2019). For Example- UHT
milk industry can be affected by economic factor in China country in term of growth or
development. But at certain point, UHT milk is affected by low financial performance. At some
point, it would be increased capital expenditure in local markets.
Social Factor-
This factor is directly impact on the UHT milk enterprise because it has been
continuously changing the preferences, taste and demand of consumers. Society culture and way
of doing thing which may influence culture or environment of enterprise. but UHT milk
enterprise is always understanding the need or requirement for potential consumers of China
market. That’s why, it is always focused on the change the business policies and procedures.
Additionally, an effective leadership style is influencing the people to use UHT milk on regular
basis. This can possible when organisation is always considering demand of client and change
their service according to the business trend or demand (Sarif, 2020). For Example- in China
country, it has been increased the demand of UHT milk among Chinese people, who are majorly
influence with quality of services.

Technological Factor-
An advancement of modern technology that impact on UHT milk in china. Technology is
become consider as important part of enterprise which allow for UHT milk enterprise to provide
milk a reasonable price and always improve quality of service. For Example- Chinese
government initiative towards modern technique in which influence UHT milk production in
order to follow a certain procedure such as preserve milk without refreezing. In this way,
technology has been acquired consumer and business additional pioneering item such as UHT
milk, high technology packaging, maintain standards etc.
Environmental Factor-
In recent times, it has been rapidly increasing the environmental issues which become
consider as important aspect that can implement suitable actions. In china, it has been already
increase the level of pollution rate. That’s why, UHT milk enterprise can be used the perishable
as milk packaging and also become recycle (Robinson, Lakner and Otter, 2019). In this way, it
may support for reducing the environmental pollution rate in China. For Example- Cow-dung is
basically uses for Bio-gas system. this kind of process will be used in China country.
Legal Factor-
This type of factor is related to environmental aspect which means that comply with rules
and regulation. UHT milk has been followed suitable regulation that help for maintaining the
proper standards between employee and employer. A specific rule or regulation is playing
important role in the UHT milk so that they can operate business in Chinese marketplace. For
Example- in china, it should have setup particular laws by Chinese government so that UHT milk
follows them accordingly.

Trade barriers
Trade barriers are those barriers that have an impact over the operation and the expansion
of trade. It can also be understood as those barriers that are imposed by the government of the
specific country in order to protect the interest of local companies and the local marketers (Egan
and Guimarães, 2017). However, as the Grassfield is planning its expansion in China so it needs
to carefully analyse all the associated trade barriers that could affect its business and its
expansion. The trade barriers may include:
Taxes on import:
It refers to the taxes that are being imposed on imports. This is one of the common and
important trade barrier that is being imposed by the countries in order to restrict the import and
export of the goods within the country. Government of the country usually impose taxes on the
import so that minimum import will take place and focus will be lied on the local market to
produce the same product so that import will not be being required to be done (Peters and Peters,
2017). China also imposed various trade barriers in its country in order to regulate the import and
export procedure. Out of them taxes are one of the common and widely used method by China.
Thus, Grassfield need to carefully consider this barrier before planning its expansion in China.
Licenses:
It is also a common trade barrier wherein the trade of specific item will be restricted
through licence. This means that only after acquiring the licence the trade of specific item would
being able to operate. In case of milk industry, the procedure of getting licences are somewhat
difficult. This is because it needs to pursue through a series of formalities including certification,
testing, labelling and many more. Thus, the companies and Grassfield which is belonging to this
sector need to carefully analyse these conditions before expansion and getting licence for
expansion.
Quotas:
It is also one of the major and common trade barriers wherein countries set the specific
number of good that is a country can export and import during a specific time period. It is
usually done by countries in order to regulate the volume of trade between them and other
countries (Elliott, 2019). Some countries also imposed quota for some specific good and its
volume that it will not being allowed to import and export after a certain specific limit is being
crossed.

Excessive bureaucracy:
It is a major trade barrier specially in the sector of milk industry. As Grassfield is
engaged in selling of UHD milk for the child in China so it needs to comply with lots of
procedures and rules. Excessive bureaucracy system of China will make it mandatory for the
Grassfield to have compliance of various policies before operating the business of milk in China.
However, such restrictions are usually imposed in order to make the availability of the best
product to the citizens of the country.
Thus, Grassfield have to carefully analyse all such trade barrier before making its
expansion in China. Because no company and Grassfield can make expansion of its business
without complying all such trade barriers.
China’s import and export data:
Figure 1China's export
Source: Trade business in China, 2020

Figure 2China's import
Source: Trade business in China, 2020
From the above graphical data, it is clear that the percentage of the china’s import is being
raised from 6.5% in December while its export percentage is grown up to 18.1% in December,
2020. This figures clearly indicate that the China is having trade barriers with regard to import in
order to decline its percentage along with a rise in the export percentage. Thus, these barriers are
needed to be analysed before exporting to Chine by the Grassfield.
Ethical and social issue
There are various ethical and social issue that are needed to be considered while making
expansion of business and tapping into international economy. These are needed to be considered
because this has direct impact over the business and its operation along with customers. In
reference to Grassfield the ethical and social issue may consist of:
Workplace diversity and equal opportunities:
This is one of the most important and ethical principle that it has to consider. As the
workplace of the Grassfield is diverse which comprised different people of different cultural
background. Availing equal opportunities can be understood as providing equal opportunities to
employees within the workplace and those who belonging to local as well the country that it is
planning its expansion. Equal opportunities can also be understood as providing same

opportunities to men and women (Scarborough, Lambouths and Holbrook, 2019). Implement-ion
of this practice will help the Grassfield to grows and generate employment opportunities in
China too. Along with that it would also help it in exploration of its business in China because
this will along with expansion of business also avail employment opportunities in China too.
Child labour:
This is also an ethical principle that plays an important role in the success of the
company. Since child labours are usually banned in every county but being becoming supporter
of this movement it can not only implement ethical principle in its corporation but it can also
raise its public image too (Asad, Haider and Fatima, 2018). This ethical concept will play an
important role in the success of the Grassfield along with its expansion.
Corruption:
Making the business non corrupt and corruption free is one of the best ethical practice
that every company including Grassfield also need to consider. As if the company will work on
the principle of non-corruption and anti-corruption policy then this will not only help in raising
and maintaining employees level of satisfaction but this will also build a good brand image
(Mladenovic, Martinov-Bennie and Bell, 2019). Then this will again lead to making the
expansion of the Grassfield easy. This means that through following the policy no discrimination
and corruption it can easily establish its place in the new market.
Corporate social responsibility (CSR):
It is one of the most important concept that every company and Grassfield need to follow
and implement in its workplace. As per this concept along with the operation of the business of
the company it is also the duty of the company that it can perform some activities for the
betterment of the society (Agudelo, Jóhannsdóttir and Davídsdóttir, 2019). It is all considered
under the concept of CSR. In simple words, it refers to doing something in return for the society.
Since compliance of CSR will help the Grassfield in terms of raising its brand image,
meeting high strength competition, raise customer share, brings benefits for the employees and
many more.
So this concept plays an important role in the internalization and expansion of the
business. This is because while operating the business in new country it is mandatory and
important that the operation of the business of the company will not harm the natural resources
of the concerned country. As if the Grassfield is already the follower of the concept of CSR then

it can easily perform its expansion along with meeting the compliance of the rules of the Chinese
market.
Cultural factors
Cultural factors are one of the important factor which are needed to be analysed by every
company before making expansion of its business. Since he cultures of every country in terms of
business perspective, operation and working culture is different from each other. Thus, it makes
it more essential for the companies to have analysation of culture. As Grassfield is expanding its
business from UK to China so it makes it more necessary for it to have an analysation of culture
of both the countries so that it can succeed its expansion. In order to analyse the culture of both
the countries along with its comparison it can adopt and implement:
Hofstede’s theoretical framework:
As per this model there are 6 categories on which culture are being divided:
Power Distance index:
This is the best method that can be used to determine the culture of a particular country.
As per this method if the score of power distance index is high then it shows that the culture of
that country is hierarchy follower. This means that the culture of that country predict the
distribution of power as per hierarchical structure. However, if the score of this index is low then
this indicates that the people of that country are not the follower and acceptor of hierarchical
structures (Kristjánsdóttir and et.al., 2017). Instead of this they will question the manager to have
distribution of power equally. So consideration of this index by Grassfield will help it to
distribute power and make its structure as per the culture of the China.
Individualism vs collectivism:
This concept depicts the culture of the society of a country that whether the concerned
societies are the follower of individualistic concept of collectivism concept. As if they are the
follower of individualism then this shows that they are concerned with their own goals and
perspective, and they work on the concept of I. However, if they are the follower of collectivism
then this shows their group behaviour and group achievement of objective (Taras, 2017). Thus,
analysation of this cultural aspect will assist the Grassfield to plan its expansion strategies
accordingly so that it can meet the objective by targeting the society accurately.
Uncertainty avoidance index:

This index shows the tolerance of society towards ambiguity. If the score of this index is
high in a specific country then this shows that people are the strict followers of guidelines, laws,
and truth. However, a low score denotes more acceptance of different thoughts and ideas and
under this society wants few impositions of rules and regulations. This index will help the
Grassfield while expansion of its business because this will help it to know the perspective of
society so that it can easily explore its business.
Masculinity vs femininity:
Analysis of this concept by Grassfield will help it to determine the nature and perspective
of the culture of the China where it is planning its expansion. As masculinity concept is the
depiction of heroism, material reward, assertiveness while femininity is a concept where co-
operation, care, equal participation is seen. Analysis of these concepts will help the Grassfield to
make its establishment strategy accordingly.
Long terms vs short term orientation:
This shows the nature of people and overall the culture of the country and its people. This
means that long term orientation shows that the people are concerned about the future and long
term success instead of short term success and gratification. This will help the Grassfield in
taking decision that whether its product would meet the need of its customers or not.
Indulgence vs restraints:
As per this concept there are two aspects that is being followed by people of society. This
means that those who are follower of indulgence, they like gratification, and they want to enjoy
the life. They are fun-loving and want to live life (Jackson, 2020). However, in case of restraints,
the people are follower of societal norms. They are the followers of rules and principles. Thus,
study of this element will enable the Grassfield to target its audience by making the plans
accordingly.
Implication of this model will help the Grassfield in analysing the cultural prospective of
China so that it can make its expansion in such a manner that it can moult its activities as per the
culture of the China and its people. This will help it in expanding its business as well as grabbing
more customer share.

Method of expansion
There are various methods by which the (supplier) of UHT milk will expand its business and
establish its operation in China. Out of those methods some are:
Joint venture:
It is one of the best and successful method by which the business of UHT would be able
to establish in Chine too. As per this method the company can make an agreement with one of
the other company, and they both by pooling their resources form a new company or the business
by which they can run their business (Nippa and Reuer, 2019). This is considered as best method
because the sharing of resources is usually the equal along with the formation of new business.
Merger and acquisition:
This is also a best method by which expansion of business is being possible. As per the
method of acquisition one company will make the purchase of other company (Lin and Ho,
2019). This means that the purchase of company that is being operating in China. This is a best
method because this will allow the company to have access of local customer as well as market
knowledge too.
While in case of merger two companies will merge their business and then continue it under one
name. This means that there will be merger of companies and the operation of business.
Franchising:
This is also categorized as one of the best method by which company will make
expansion of the business as per this method the franchisor will grant a licence to franchisee to
manufacture and sale the product for a specified period under its own brand name (Rosado-
Serrano and Paul, 2018). Through this method company can by saving the cost of establishment
can easily make expansion of its business in the new country.
As the Grassfield want to expand its business and tap into the China, so out of the above
method the best method that it can choose for its expansion include Joint Venture and
franchising. This is because through this method it can not only make expand its business but
with minimum level of risk. Also, the number of advantage that it can grab from these methods
are also more in comparison of any other method. This can be understood as with less
compliance of laws and with good customer share it can not only make expansion of its business
but at the same time it can also achieve success. In addition, of this an expansion with the policy
of joint venture will enable the Grassfield to save its cost of operation because of the sharing of

resources and technology. Likewise, an expansion through joint venture also enables the
Grassfield in having access to new market, new technology and brand name too. One more
advantage that is associated with the joint venture is the persistence of both the business. This
means that in order to start new business the old business need not be closed. Thus, due to
existence of such advantages related with joint venture the Grassfield need to adopt this method.
Likewise, an expansion through the process of franchising will also enable the Grassfield to tap
international market along with taking minimum risk. Similarly, an expansion through the
procedure of franchising will lead the Grassfield to have less compliance of laws and policies.
Also, the cost of operation will be lower down because of the non-distribution of cost regarding
the procedural requirement. Thus, due to the presence of these advantages and features the
Grassfield should make expansion through these methods.
Also the expansion would consider to be incomplete if the Grassfield will not consider
the adequate marketing strategy. This means for the expansion and success of the business it is
also essential that the marketing of the Grassfield would also be good and efficient that it cannot
only tap the Chinese market but at the same time it can also grab many customers so that its sales
and profit objective will also be accomplished.
Marketing strategy:
These are those strategies that help the company to achieve success and accomplish its
objective in the form of raising revenue and sales percentages. It comprised of consideration of
these elements:
Product:
It refers to the physical product or the services that is being offered by the company to its
customers for the satisfaction of their needs. It is one of the important strategies that could help
the company in terms of achievement of objective related with raising sales.
Price:
This is also an important marketing strategy that could lead the company in terms of sales
of its products. As if the price of the product will be high then no customer will buy that product
similar a low price may lead the company to incurred loss (Thabit and Raewf, 2018).
Place:
It refers to the place where the products are being distributed. It also includes
determination of distribution channel by which products will reach to the customers.

Promotion:
Without adopting adequate promotion strategy no product of the company would being
able to sell (Solan, 2020). This means that it helps the company to create brand awareness as
well as awareness regarding its product among the customers.
As the Grassfield is planning its expansion in China's market so adoption of adequate
expansion strategy in the form of Joint venture and franchising along with adequate
consideration towards marketing strategies including product, price, place and promotion will
help company in terms of grabbing Chinese market along with high customer's share. This is
because through these strategies it can meet customer need by providing the best product at
affordable prices so that along with customer's need its business objective will also accomplish.
CONCLUSION
From the above report it is concluded that in order to make expansion in China Grassfield
need to consider various elements and factors because they have great influence over the
decision of expansion. It means that if these factors will not be favourable then it can't persist its
expansion. As it is understood from the report that cultural, ethical are those factors which is
very important to be considered before executing expansion of business. Likewise, selecting an
appropriate mode of expansion, consideration towards tariff and non-tariff trade barriers and
business drivers also plays an important role. By having a detailed analysation of these factors
Grassfield can easily execute its plan of expansion and tap into the market of China.

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Online references:
Trade business in China. 2020 [online] Available through:<https://news.cgtn.com/news/2021-
01-14/China-s-foreign-trade-up-1-9-percent-in-2020-X2poTHxMxW/index.html>
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