International Business: Strategies for UHT Milk Expansion in China

This report discusses the strategies for expanding UHT milk business in China, covering business drivers, trade barriers, ethical and social issues, cultural preferences, and expansion techniques. Rachel's Organic, a UK-based organic dairy products organization, is taken as an example.

International Business

EXECUTIVE SUMMARY
This project report summarises the knowledge about international business in regards with UHT
milk in China. This report encompasses of relevant data regarding business drivers, cultural
preferences and expansion strategies that needs to be undertaken by SMEs in order to diversify
their operations.

Contents
EXECUTIVE SUMMARY ............................................................................................................2
INTRODUCTION...........................................................................................................................1
MAIN BODY ..................................................................................................................................1
Business drivers that are need to be undertaken for expansion into a given country .................1
Trade barriers that needs to be addressed by chosen establishment ...........................................3
Ethical and social issues needs to be undertaken by chosen establishment.................................4
Cultural preferences that needs to be undertaken by businesses ................................................6
Expansion techniques can be undertaken by organisations ........................................................7
CONCLUSION ...............................................................................................................................8
REFERENCES..............................................................................................................................10

INTRODUCTION
International business can be described as trade of goods, capital, services and technology
across national borders at a transactional level (Aguilera and Grøgaard, 2019). It majorly
concentrates on varied resources in regards with global scale in consideration of business
objectives. It essentially encompasses of all commercial activities that are undertaken for
transferring the goods, service and technology across borders. Organisations faces varied
challenges like language barriers, cultural differences and many more while indulging in doing
international business. In order to better understand about varied aspects regarding international
business, Rachel's Organic is taken into consideration. Rachel's is an UK based organic dairy
products organisation which has its headquarters at Wales, United Kingdom. This company is
covered under the organic milk industry and essentially deals in yogurt, milk, rice pudding and
are planning to move in to the China market by targeting small children of age 3 to 11 for their
UHT milk. This milk is considered as best possible choice for small children as it is processed
and sterilised at ultra high temperature.
It is also considered as a rich source which essentially provides essential nutrients for
gaining healthy benefits. Demand of UHT milk is high in Chinese market as its shelf life is long
and can be got with convenience as compared to other dairy products. In 2021, China has an
output of 36.8 million metric tons which is largest among several past years (Cow's milk
production volume in China from 2011 to 2021, 2021).
This report highlights varied key drivers which are considered as essential for the purpose
of internationalisation. This also demonstrates an understanding about varied trade barriers
which can create threats for business organisations in case of entering into a new country. It also
enlightens the issues in regards with social and ethical environment that is to be considered by
chosen company.
MAIN BODY
Business drivers that are need to be undertaken for expansion into a given country
Business drivers can be explained as conditions, resources and methods which are
considered as crucial in regards with success as well as growth of business organisations
(Buckley, Enderwick, and Cross, 2018). It is critical for managers of Rachel's Organic to
identify their significant business drivers which aid them in boosting productivity and generating
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profits in order to keep their business operations sustainable. In relevance with Rachel's Organic,
managers have to perform extensive market research in order to enter into the market of China.
In order to understand the Chinese marketplace in an efficient manner, managers of Rachel's
Organic has taken PESTLE analysis into consideration.
PESTLE analysis can be understood as a strategic framework which is used by
establishments for evaluating varied forces which can have a direct impact on their business
operations (Casson and Wadeson, 2018). It is essential for business organisations to formulate
strategies by evaluating varied macro environmental which can impact their decisions. China is
considered as a country which is popular among entrepreneurs for their low cost labour as well
as ideal business environment. All the factors of PESTLE analysis in accordance with Rachel's
Organics are mentioned below:
Political factors are essentially concerned with government and related aspects such as
trade tariffs, taxation and fiscal policies of a certain country (Chabowski, Samiee and Hult,
2017). Political landscape of China is stable and government also promotes foreign direct
investment as well as provides subsidies to small & medium sized companies for their
development. This is considered as opportunity for Rachel's Organic as they can get subsidies
and low cost labour for setting up of a plant in regards with manufacturing of UHT milk.
Economic factors encompasses of varied elements in relation with income level, inflation
rates, unemployment and GDP rates of a particular country (Cherunilam, 2020). In relevance
with China, GDP rates are comparatively higher which led to increase in purchasing power of
people. However, due to global pandemic, inflations rates are getting increase and GDP rates are
decreasing which can impact the operations of Rachel's Organics. This can create threats for
Rachel's Organics as they are planning to enter into a market which have relative low GDP rates.
Social factors comprises of varied perceptions, attitudes and changed dynamics of people
towards a specified product or service related to a certain country (Chi and Et. Al., 2019). In
accordance with China, people are aware about their health and willingly adopt healthy practices.
They prefer to procure healthy products for their family members. This force is considered as
advantageous for Rachel's Organics as through this they can compel people of China to procure
their UHT milk products. Apart from this, after covid pandemic, preferences of people has been
shifted towards healthy practices which led them to appreciate the entrance of Rachel's Organics
in China which led them to boost their profitability level.
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Technological factors essentially involves aspects of introducing a new technology or
bringing ant innovative practices of a specified nation (Collinson and Et. Al., 2020). China has
shown significant advancements in relation to technological innovations. Use of technology has
made people of China to use varied technology in an effective manner. Rachel's Organics use
varied technologies for their production practices and for making their products their effective.
This technological-based behaviour can help managers of Rachel's Organics to expand their
operations in China in a strategic manner.
Legal forces consists of varied legislations formulated by government in regards with
protecting the safety and health of customers as well as employees of a certain nation. In
relevance with China, several social networking sites are banned which has impact on business
organisations to make a reach to massive number of customers. They have formulated varied
other laws which aid in protecting the interests of their customers as well as employees. At
Rachel's Organics, health and safety guidelines are followed by managers in their UHT milk
manufacturing units. This force has proved to be a opportunity for Rachel's Organics for entering
in to the Chinese market.
Environmental forces involves the aspects related to disposal of industries effluents,
issues related to environment and energy consumption of a specified country (Drummond, 2021).
In context to China, government has frame guidelines for the business organisations which has a
purpose of securing environmental standards regarding production of goods or services. In
relevance with Rachel's Organics, they follow all the guidelines in regards with disposal of their
manufacturing plant waste. This is advantageous for Rachel's Organics as this force supports
them in entering into China's market with their UHT milk products.
Trade barriers that needs to be addressed by chosen establishment
Trade barriers are considered as government-induced restrictions in relation to
international trade practices (Gomez-Trujillo and Gonzalez-Perez, 2020). These trade barriers
can make business operations difficult as well as expensive. They can often be called as
protection as their main purpose is to build a shield for specified industries or economic segment.
Government used these trade barriers in order to control the practices related to foreign trade
which aid them in protecting domestic manufacturing units from facing high competition. Trade
barriers like tariffs can impact on prices as well as available quantities of products or services. In
order to curb these barriers, free trade agreements are signed among countries which in turn
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assist in creating varied new opportunities for businesses. China is considered as leading
economy in the world and UK is an significant trading partner which in turn supports varied
jobs and help to sustain several livelihoods. Focus of Chinese government on supporting
innovative practices, developing excellent consumer products or services represent an important
opportunity for companies having their headquarters at United Kingdom. Varied trade barriers
that can be faced by managers of Rachel's Organics are mentioned below:
Foreign investment law- This legislation is passed by Chinese government in March
2019 which sets out a basis to build a balance among domestic manufacturers and foreign direct
investment. This majorly includes sections which protects intellectual property and data
protection acts. These are also concerned with formulating anti-fair competition laws for
enhancing trade secret protection. In order to enter into Chinese marketplace, managers of
Rachel's Organics have to undertake this legislation for formulating varied strategies as per its
accordance.
Tax and import duty- Higher corporate tax rates and import duties have impact
immensely on the increase in the prices of their goods and services (Hamilton and Webster,
2018). Import duties are the tax which is collected by government authorities in order to cross
national boundaries. These can increase the prices of products whose pressure is put on the
customers. Knowledge of framed regulations regarding import duties needs to assess by
managers of Rachel's Organics while planning to enter into Chinese markets.
Non -tariff barriers- These are considered as obstacles for international trade which are
implemented by government officials of a specified country for stopping the transfer of goods to
their country in order to promote local producers (Hannibal and Knight, 2018). World trade
organisation has strictly abolished the implementation of import quotas as well as voluntary
export restraints. These are concerned with regulations and formalities which are posed by
government officials. These needs to be address carefully by the managers of Rachel's Organics
in regards with Chinese market for avoiding any litigation procedures.
Tariff barriers- A tariff can be explained as imposed tax by a country officials on the
goods which they have imported from other nation (Killing, 2017). These tariffs can increase the
price of products which are to paid by customers. This has made imported goods less attractive
as compared to domestic goods. These should be addressed by managers of Rachel's Organics in
order to perform efficiently in new market of China.
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Ethical and social issues needs to be undertaken by chosen establishment
It is imperative for businesses to critically assess varied social and ethical issues that are
prevailing in society while entering into a new market (Kolk, Rivera-Santos and Rufín, 2018). It
is important for business organisations to ascertain and formulate strategies for facing social as
well as ethical challenges while planning to diversify the operations effectively.
Corporate social responsibilities are concerned with a management concept which aid in
integrating companies with social and environmental aspects in an effective manner in order to
make interactions with varied stakeholders (Kourula, Pisani and Kolk, 2017). It is self-regulating
compliance which provide establishments a sense of accountability as well as commitment for
make effective contributions with well-being of society. Corporate social responsibility practices
are considered as helpful for organisations for enhancing their procedures relating to making
critical decisions as well as building goodwill in market. Corporate social responsibilities in
relation with Rachel's Organics is considered as important for them to build awareness about
their UHT products in their targeted market, China. In order to avoid ethical issue of low quality
of raw materials for manufacturing their products, they can simply source their raw inputs from
local organic farm from Britain. CSR practices help managers of Rachel's Organics in attracting
as well as retaining employees for a long period of time. Varied CSR activities help managers of
Rachel's Organics to solve varied social and ethical issues as well as compel targets customers to
purchase their products. Varied social and ethical issues which can be faced by Rachel's
Organics are mentioned below:
Corruption- Establishments can involve in activities like bribery and corruption for
making their operations their simpler and effective (Mäkelä and Kinnunen, 2018). This can
hamper their position and affect their brand in a negative aspect. China is currently facing huge
cases of corruption whereby organisations provide bribery to the government officials for
avoiding trade barriers and other related operations. It led to reduce accountability as well as
responsiveness of organisations which can adversely impact their performance and brand image.
In relevance with Rachel's Organics, it is imperative for managers to ensure that their employees
or organisations does not indulge themselves in these type of cases. It is imperative for Rachel's
Organics to value the laws of the foreign land where is is planning to operate their activities.
Inequality- Chinese government has taken varied initiatives in regards with maintaining
equality irrespective of their caste, gender and creed. Government has taken serious actions for
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removing harassment, discrimination and inequality at workplace. In China, gender pay gap is
also a significant topic whereby female are getting less pay as compared to man which is a sort
of inequality at workplace. In relevance with Rachel's Organics, managers should implement
varied legislations framed by Chinese government in regards with gender discrimination at
workplace. They should frame strategies for their employees in case they face any sort of
discrimination. This can help them to make brand image positive as well as viable.
Cultural preferences that needs to be undertaken by businesses
Culture can be described as a practice which underpins varied underlying beliefs, values
and principles which are held by employees to a large extent and it impacts their behaviour in a
significant manner (Reshetnikova and Et. Al., 2018). It is imperative for organisations to
understand varied aspects in relations to cultural preferences of that nation in which they are
planning to expand. It is essential for managers of Rachel's Organics to have a critical
understanding of cultural preferences of Chinese market which help them to solve varied issues
and boost productivity. In China, a fixed culture is practices which led managers of Rachel's
Organics to understand their preferences for formulating strategies to perform effective
marketing operations for appealing to large number of customers. It is imperative for managers
of Rachel's Organics to perform their operations by keeping cultural practices of China in mind
which helps them to appeal to a maximum number of people with their UHT milk products.
Varied cultural preferences of China that needs to be undertaken by managers of Rachel's
Organics are as follows:
Language- It is considered as a crucial aspect for the establishments who are planning to
expand in the China. Chinese people are felt proud of their language and praise those
organisations who use their local language for selling their products or services. It is imperative
for managers of Rachel's Organics to collaborate with locals and provide provide training to their
employees for adopting marketing practices in China. They can also use technological softwares
for transmitting their language into Chines which led them to appeal people for purchasing their
UHT products in an effective manner. They should design labels and other advertisements in
Chines in order to make an attractive appeal to their targeted customers in an effective manner.
Lifestyle- It is important for establishments who are planning to expand their operations
in other country to understand the lifestyle dynamics which help them to appeal their customers
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(Santacreu-Vasut, Shenkar and Shoham, 2017). It is imperative for establishments to critically
assess varied lifestyle aspects of Chines people in order to make them attract towards their
products. In relevance with Rachel's Organics, managers need to assess the changed lifestyle
trends and awareness towards healthy products of Chinese people.
Diversity- It is vital aspect which needs to be analysed by organisational managers when
planning to expand in other nation (Srivastava, Singh and Dhir, 2020). This factor can be
critically assessed by managers of Rachel's Organics through involving their human resources
department for ascertaining the diversity level in market. In relevance with Rachel's Organics,
managers should evaluate diversity in regards with choices and demands of differential people at
China. This led them to formulate strategies for gaining understanding about diversion practices
in an effective manner.
It is desirable for managers of Rachel's Organics to critically analyse influence of cultural
preferences while determining the methods relating to expansion strategies in regards with
entering the Chinese market.
Expansion techniques can be undertaken by organisations
It is imperative for establishments to critically access varied methods while planing to
enter into a new market. In order to adopt best practice for expanding their business operations,
organisational managers need to perform extensive market research for determining the best
suitable option. In relevance with Rachel's Organics, managers need to formulate strategies in
order to opt for a best suitable for expanding into Chinese market. Varied probable expansion
methods in context to Rachel's Organics are mentioned below:
Export- based methods- Under this method, an organisation manufacture their products
in their domestic market but transfer a proportion of their produce to foreign markets. It is
considered as an oldest manner for making the business international. This method is bifurcated
into two types, namely, direct and indirect exporting. Under indirect exporting methods, business
organisations operate their international activities through collaborating with intermediaries.
Whereas, under direct exporting, establishment is directly relates to their international
operations. It is considered as a long term commitment whereby firm chooses a local agent and
distributors for transacting their goods and services.
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Non -equity based methods- Under this technique, a business organisation sell their
technology or engage with other through contract which essentially involves copyrights, patents
and trademarks. This is further bifurcated into two parts, namely, licensing and franchising.
Licensing can be understood as a practice whereby licensor or owner of property provides
license to other party for using their technology,infrastructural, products and intellectual property
in exchange of royalty or fee. This type of contracts are common to companies which indulge
fixed costs. Franchising can be explained as an exercise whereby franchisee procures the rights
to use trademark and logo of other party which led them to pay a specified fees to them.
Equity-based methods- Under this practice, an establishment invests their resources in
order to expand their operations in a foreign country. It is considered as advantageous for
corporations as through this firm can assess highest level of control on their operations. This
method is segregated into several other practices such as acquisition, joint ventures and mergers.
Acquisition refers to an exercise whereby an organisation acquires another for entering into a
foreign land. It provides readily access knowledge in regards with local market to the
organisational managers. Joint ventures are constituted whereby both the parties get equal
opportunities to for formulating strategies as well as take critical decisions. This exercise aid in
accessing technology of partners as well as accumulate their learning processes for gaining
competitive advantage in an effective manner. Merging involves procuring of stake as well as
holding of another company in form of equities which will provide them access to use their
infrastructure and knowledge.
From the above analysis, it is imperative for managers of Rachel's Organics to opt for
joint venture for expanding in the markets of China with their UHT milk product. This would
help them to have access in relation to knowledge of domestic markets, infrastructure and
technology. Through this, they can get access to new markets with the help of company already
subsisting there. This will also help them to share varied risks and losses which led them to
operate their activities with efficiency and productivity.
CONCLUSION
From the above stated information, it has been concluded that international business can
be understood as trading of goods, services, technology and capital across national borders which
led companies to boost their productivity as well as profitability. It is imperative for
organisational managers to determine their expansion strategy in order to make their business
8

organisation international. PESTLE analysis can be understood as a technique which is used by
organisations for evaluating varied forces which can impact their operations in adverse manner.
This evaluation helps them in gaining competitive advantage and boost productivity as well as
profitability in a significant manner. It is essential for organisational managers to critically
analyse varied expansion strategies like joint venture, acquisition, mergers, licensing, franchising
and many more. It is imperative for organisational managers to ascertain varied cultural
differences in respect to the country they want to expand their operations. This cultural
difference is related to language barriers, identity, personality which can create issues for the
organisations and hamper their productivity level. Varied cultural preferences which are need to
be undertaken by organisational managers are diversity, lifestyle, communications which helps
them to operate their activities in an effective manner.
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REFERENCES
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Online:
Cow's milk production volume in China from 2011 to 2021, 2021. [Online] Available through:
<https://www.statista.com/statistics/275794/milk-production-in-china/#:~:text=In
%202021%2C%20China%20had%20an,annually%20in%20the%20past%20decade.>
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