International Business: Industry Background, Business Drivers, Trade Barriers, Ethical and Social Issues

This report provides an overview of the industry background of the UK and China market in the context of international business. It discusses the business drivers, trade barriers, and ethical and social issues that SMEs must consider. The report also highlights the significance of culture and expansion methods for companies looking to expand their business in the international market.

International Business

Executive Summary
The report outlines the industry background of UK and China Market. The project highlights
the business drivers, trade barriers, ethical and social issues which must be considered by SME.
It also includes the significance of culture and expansion method which Company must choose
while expanding their business in International Market.

Table of Contents
INTRODUCTION...........................................................................................................................4
Business Driver behind Company’s Expansion...............................................................................4
Business driver for Internationalisation for UK-SME............................................................4
Porter’s Five Forced Factors..................................................................................................5
Trade Barriers..................................................................................................................................7
Trade Barriers.........................................................................................................................7
Consequences if Trade Barriers get Ignored..........................................................................8
Business Uncertainties and Opportunities..............................................................................8
Ethical and Social issues to be Considered by UK SME.................................................................9
Importance of Corporate Social Responsibility.....................................................................9
Theories on Ethics................................................................................................................10
Cultural Preference to be Considered by Business........................................................................10
Significance of Culture.........................................................................................................10
Expansion method..........................................................................................................................11
Potential Internationalisation Method..................................................................................11
Strategic Evaluation..............................................................................................................11
CONCLUSION..............................................................................................................................12
RECOMMENDATION.................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
UHT stands for Ultra-high temperature processing; it is a technology through which milk is
heated at a temperature above 135 degree Celsius, it is required to kill the bacterial endospores
and it is heated for only 2-3 seconds. In 1993, UHT milk was introduced to United States by
Parmalat but American people are uneasy about consuming milk which doesn’t require
refrigerator. In 2008, UK Government proposed to produce UHT milk as they think that the
properties of milk will cut the need of refrigerator and reduce the greenhouse emission which
creates benefit for environment (Ruiz-Pava and Forero-Pineda, 2018). In UK, UHT Milk is
widely available and become a sort of fall back product which can be thrown in cupboard for
emergencies. UHT Milk came as a blessing in Europe especially in Southern Europe as it is one
of the hottest Countries. The Milk didn’t go off in high temperature and didn’t need to keep
under refrigerator. The Milk market in China consist fresh liquid milk, powdered milk,
concentrated milk and Ultra high temperature processing milk which comes from diary. China is
an emerging market oriented economy and world’s largest economy and exporter of goods.
China plays prominent role in International trade, largest sector of Chinese economy are
services, manufacturing and agriculture (Ashournia, 2018). The report is based on UK SME,,
there objective is to tap into Chinese market for their UHT Milk for children aged from 3-11
years. The SME Company is focusing on specific target audience within Chinese Market that
would see UHT Milk from UK as a better proposition compared to the current local options. The
Chosen SME for this project is Udderly Fresh Raw Milk it is an UK based Company that deals in
dairy product. They want to expand their business in Chinese Market and increase their growth
and productivity.
Business Driver behind Company’s Expansion
Business driver for Internationalisation for UK-SME
Business drivers are the activities that drive financial and operational results of business.
The business drivers being company expansion are competition and expansion of technology.
Competition-
Udderly Fresh Raw material is looking to expand their business in Chinese market; they
may face heavy competition as there are several companies who already produce UHT Milk to
Chinese people. So, it becomes difficult for SME to create their presence in Chinese Market. The

Company is ready to face the competition in Chinese Market due to its pure UHT milk they can
grab an opportunity to target Chinese Market (Duh, Ye and Yu, 2020).
Expansion of Technology-
The SME want to expand its technology due to which they are looking to increase their
business in Chinese Market. If company expand their business in China they can grab new
technologies and make their business more productive by using latest technologies. The latest
technologies can make the Company more profitable and increase their growth (Ulubeyli and
Yorulmaz, 2019).
Porter’s Five Forced Factors
Porter’s five forces model helps in determining the strength and weakness of Industry.
With the help of five forces model an Organisation can determines its Corporate Strategy. This
model makes company to look at the balance of power in Market and find the attractiveness and
potential profitability of Industry.
Bargaining power of Buyers
The Customer has the power to pull down the price of the Products. For expanding the
company in Chinese market, Udderly Fresh Raw Material must know about its target audience.
As there target people are Children of 3-11, they are consumers who will consume the milk, the
real buyers are their parents. So, proper analyses must be conducted before entering into new
market, if Organisation has smaller and few customers they have a power to negotiate for lower
price and if firm has smaller and independent buyers they cannot negotiate for the price (Ye,
2019).
Bargaining power of suppliers
The Bargaining power of Suppliers reflects that how much power and control suppliers of
the Organisation have to increase the price and reduce the quality of products and services.
Udderrly Fresh Raw Material must maintain a healthy relationship with their suppliers and deal
with many suppliers so that in case of emergency they may not face any trouble or issue in
delivering products to customers (Yakubovskiy, Rodionova and Derkach, 2019). The Fewer
suppliers have more power as compare to multitude of suppliers.
Threat of new entrant
New Entrant in Industry brings new ideas and innovation which can create an impact on
the performance of Organisation. The threat of new entrant depends on the barriers to enter into

Industry; if barrier to entry is high it reduces the threat of existing companies (Miocevic and
Morgan, 2018). Udderly Fresh Raw Material must create a great presence in Chinese Market by
attracting customers and gain their loyalty so that they may not face the threat of new entrant.
The Company must develop an innovative idea to create a value among Chinese People and offer
them a product which is unique from its Competitors. It could be done by attracting them
through packaging or reducing the price of UHT milk.
Threat of Substitute products
When there is existing product in Market it becomes threat for the Organisation as
customer can switch to alternative. The Company must look beyond the similar product so that
they can remain competitive in Market and people also not switch their brand (Song and Wang,
2018). Udderly Fresh Raw Material must think innovatively to grab an attention of Chinese
Customers and give more productive outcomes from its competitors. They should know how to
attract the people and make them stay with Company.
Rivalry among existing Competitors
Rivalry against the competitors is the last forces of Porter’s Five Forces Model in which the
competition level is determine in Market. China is a developing economy having various
industries which deals with innovative products; it becomes difficult for the company to create
their presence in Market and Compete with existing competitors. When there are lot of
competitors rivalry gets high, the organisations get into price wars and advertising which hurts
bottom line of business. Udderly Fresh Raw material must know about its competitor’s before
entering into Chinese Market and analyse their actions and move (Pattnaik, Singh and Gaur,
2020).
The relevant trade theories that would help company to identify key business drivers is
absolute advantage.
Absolute Cost Advantage Theory-
The Absolute cost advantage theory states that business has an ability to sell more, produce
more products and services from its competitors by using the resources which they are using
already. But Company must know how to properly utilise the resources without creating waste.
Udderly Fresh Raw material must sue absolute advantage in UHT milk production relative to
their competitors so that they can gain competitive advantage in Market and compete with its
competitors.

Trade Barriers
Trade Barriers are the restriction which is imposed by the government on International
Trade. Trade barriers are divided into two categories they are tariff barriers and non tariff
barriers. Tariff Barriers includes the custom levy on goods which is entering in Country and the
tariff is imposed by government whereas Non tariff barriers includes unfair rules and decision,
red tape or any other things which stop companies to competing effectively.
Trade Barriers
China imposed various trade restriction and fees discourage the trading process. The
Import Quotas of China is applied to more than 40 products including textile products, watches,
kind of food products and cars.
Tariff and Quotas:
China has divided its import into three parts including permitted, prohibited and restricted.
The products such as toxics and wastes are banned to import in China, for the products in
restricted category requires Quotas or licenses. So, Udderly Fresh Raw Material must understand
the tariff and quotas of China while trading.
Legal Issues:
The Developing rate of Chins is high even though they have faced recession in past. The
China law have eight legal issues which company must consider while entering into Market.
These legal issues are Form of representation, registration, certificates and licensing
requirements, business scope, intellectual property protection, foreign exchange regulations,
local tax and import duties, dispute resolution and labour law compliance. The Company must go
through the legal laws of China before expanding the business in China Market (Wu and Park,
2019).
Competitors:
China Government has also developed competitor’s policy through which they can
promote development and prosperity of Market Economy. The policy plays a vital role in
maintain fair competition, promoting system reforms, social benefits, increasing market
efficiency and encouraging market innovation. China Government has also strengthened
competition policy position in national policy system.

Consequences if Trade Barriers get Ignored
Udderly Fresh Raw Material may face various consequences if they don’t follow the trade
barriers. It can directly create an impact on the performance and growth of the company, it is
important to understand the tariff, quotas, competitor’s policy and legal issues of the Country in
which they are going to expand the business (Tiwari, Jana and Roubaud, 2019). As if they don’t
know about the policies and tariff they cannot survive in the Country and even company may
face lots of problem and trouble which is created by Chinese Government.
Business Uncertainties and Opportunities
Brexit is one of the uncertainties which create an impact on the businesses of UK and China.
It is a situation when UK withdrew from European Union. Brexit affects the development of
Chinese enterprise both in Europe and UK. The Chinese Companies has reduced its investment
in UK Projects. The Chinese Organisation has changed its international operation strategy which
influences UK market (Yayla and et. al., 2018).
The opportunity which China has gained due to Brexit is UK as a most favoured nation.
After the Brexit UK has maintained a healthy relationship with China and export them various
goods and services. The Country Exports mineral fuels, pharmaceutical products, electronic
equipment, copper, plastic and many other things (Tang, 2020).
(Figure 1: UK Exports to China, 2020)

(Figure 2: UK Exports to China, 2020)
Ethical and Social issues to be Considered by UK SME
Importance of Corporate Social Responsibility
The Corporate Social responsibility determines that how much businesses take interest in
social issues rather than focusing only on earning profit. The Customers get attracted with the
Organisation that conduct CSR activities and share some values. It is an approach which is used
by businesses for sustainable development by delivering social, environmental and economic
benefits. There are various importances of Corporate Social responsibility when operating
business internationally, if company have social responsibility policy it helps in building strong
relationship with customers. By using CSR activities, the Organisation can engage people with
new ways (Ellis-Hall, 2020). The Message of CSR must be unique and good and related to the
customers which attract them more. Udderly Fresh raw Material must use CSR activities in
Chinese Market as it helps in increasing the brand awareness and recognition, if the company is
committed to ethical practices. It also provides greater employee engagement by ensuring that
they should know about the CSR strategies.

Theories on Ethics
Bribery Corruption-
Bribery is a crime in China, Under PRC Criminal Law the person who is offering the bribe
and the person who is receiving the bribe is considered as serious criminal offence in China. The
Offences are categorised in Bribe accepting and Bribe giving offences. The Commercial Bribery
is punishable by administrative and economic sanctions which are prohibited under Anti Unfair
Competition Law. The Law prohibits if any person give or receive bribe during purchasing or
selling of products. The bribery corruption creates an effect on sustainable development and
respect for human rights.
Labour Issues-
The Labour issues includes labour abuses such as workers being laid off, long working
hours, contraction of work related, irregulatory in pension payments, owing worker wages in
arrears and lack of compensation for industrial injuries. China has a labour law which shows the
importance it gives to employment contracts. The Labour law states that Organisation can extend
the working hours of employees by negotiating with them, if they have need in manufacturing
and production process. Overtime cannot exceed more than one hour. In special circumstances,
company can increase the over time of employees but could not exceed 36 hours a month.
Cultural Preference to be Considered by Business
Significance of Culture
Culture helps in increasing the quality of life and well being for people and communities. It
provides benefits related to economic and social and also improve learning and health of people.
By culture the group and people define themselves from which Country they are and shares
values by contributing to Society. The Culture includes language, norms, technologies, products,
institution, organisation and customs (Rao and Mishra, 2020). As Udderly Fresh Raw Material is
expanding its business in china it creates a great cultural difference for Company. The
Organisation is from UK, they are unaware about the languages, labelling and customer
perception of China. It becomes difficult for them to establish their business in Chinese Market
which could also create an impact on its performance and growth. For overcoming this problem,
the company must analyse about the customer perception related to UK’s product and
Companies so that they can know about the perception of Chinese People. The Organisation

must also know the language of China so that it becomes easy for them to deal with Chinese
people. If they don’t know the language of China they can hire employees who know Chinese
language and also native language of UK. So, that they can manage and handle the customers
queries and questions.
Expansion method
Potential Internationalisation Method
Acquisition Method-
The UK Company can purchase the shares of another company which is in China and gain
control of that Organisation. With the help of acquisition method, the company can get
immediate presence in Market which helps in gaining knowledge of local market and fast returns
on Capital. This method is expensive method which requires lot of investment to purchase the
shares of any Chinese Company.
Licensing-
Licensing is the other method through which UK Company can enter into China Market.
In licensing method Chinese Firm transfer the right to use the product and services to UK
Company. The Organisation of UK has to pay the fee in order to use the right of property.
Franchising-
Franchising is a similar method to licensing, it works when company have repeatable
business model that can be easily transfer to UK Market.
Joint Venture-
Joint Venture consists when two companies mutually establishing a jointly owned
business. In this partnership one company will be local and other one will be foreign
Organisation. The Mutually Joined Business will establish a new Organisation with new
management and share control of the Joint Venture (Carmona and et. al., 2018).
Strategic Evaluation
From the above expansion method the most suitable method for expanding business in
Chinese Market is Joint Venture. As it helps in getting know more about the Chinese market if
UK Company will use joint venture method for expanding their business. They can gain more
knowledge about the China Market and even they can overcome their problem of language
barriers and customer perception of UK products and companies. Udderly Fresh Raw Material is

expanding its business first time it become easy for them to enter into Chinese market by pairing
up with China local company so that they may not face loss individually if business cannot run
successfully in China. The Company earns profit at low cost and in early stage of their business
they can manage the activities easily.
Ansoff Matrix
Ansoff Matrix is the tool which helps organisation to develop market launch strategies. With
the help of Ansoff Matrix, companies can plan and analyse their strategies for growth. In Ansoff
Matrix there are four strategies they are-
Market Penetration-
In Market penetration strategy, Organisation grows their business in existing market with
their existing products and services. By using this strategy, company try to increase their market
share in UK market only. They also find new customers in existing market thorough which their
sales and growth get increased.
Market Development-
Market Development strategy is used when an organisation tries to expand their business
in new market with existing product. Before Entering into Chinese Market, the company must
evaluate the market by conducting pestle and porter’s five forces (Soe and Kakinaka, 2018).
Product Development-
In product development strategy, organisation develops new product and offer in existing
Market. For using this strategy the company need to conduct the research and development and
identify the needs and requirement of customers than only develop the products.
Diversification-
Diversification strategy includes when firm enters into new market with new product. The
Diversification strategy is considered as a riskiest strategy and requires lot of investment as new
product is developed and in new market the company is going to enter.
The suitable strategy for Udderly Fresh Raw Material is Market development strategy
through which the company can enter into new market with its UHT Milk product. The
Organisation will also gain the new customers and grab an opportunity of increasing its growth
and revenue.

CONCLUSION
From the above information it is been concluded that for expanding business Internationally
it is important o conduct the research and analysis through which Organisation can gain the
information related to Market, customers, taste and preference, trends, etc. The Company must
also know about the trade barrier of Country in which they are going to expand business. If they
don’t research on the Country, organisation may face the trouble and problem in establishing
business in International Market.
RECOMMENDATION
To expand business in Chinese Market it is important to conduct the research and analysis
on Country and know about the price, competitors, trends and customer taste and preference. As
China is leading Country in the World, there are many competitors which deals in UHT Milk to
create a presence in Market it is important to sale the product with innovative and unique ideas
which grab an attention of Chinese people and make them purchase the products of Company.
The Company can reduce the price of UHT Milk as compare to Chinese dealers so that customer
gets attracted. The Organisation must use different advertising strategy from its competitions by
sharing an emotional message that attracts parents of Children to buy the products.

REFERENCES
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