International Business: Expanding UHT Milk in China Market

This report is based on Daioni Organic, a UK SME that produces UHT milk and aims to tap into the Chinese market. It discusses the business drivers behind the expansion, trade barriers, ethical and social issues, and cultural preferences considered by UK SME. The report also demonstrates the expansion methods chosen by Daione Organic.

INTERNATIONAL
BUSINESS

EXECUTIVE SUMMARY
International business refers to trade of goods, capital, knowledge, services across the
national borders and a global transactional scale. This type of business involves cross border
transactions of goods and services between two or more than two countries. Globalisation is
termed as international business that is emerging for developing economy of country. This report
is based on Daioni Organic that is a UK SME i.e. Who produces the UHT milk. The main
objective of this organisation is to tap into the Chinese market. The company offer UHT milk to
customers and become a eading in UK. To become famous in foreign market they want to
expand their production in China where they target the children age group of 3-11 years. This
particular report helps in gaining knowledge on business drivers in expansion of company along
with understand trade barriers. Further it demonstrate ethical and social issues that has been
faced by UK sme in promote the UHT milk and cultural preferences. Although in this expansion,
methods is also elaborated that is useful for SME to expand business operation in other country.

Table of Contents
EXECUTIVE SUMMARY ............................................................................................................1
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Business drivers behind company expansion into China Market ..............................................3
Trade barrier................................................................................................................................5
Ethical and Social issues considered by UK SME......................................................................6
Cultural preferences considered by business..............................................................................7
Expansion methods chosen by UK SME, Diaone Organic.......................................................10
CONCLUSION .............................................................................................................................11
REFERENCES..............................................................................................................................12
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INTRODUCTION
International business defined as an exchange of goods and services between two parties
of different nation. It is mainly involve those transactions that express crossing of national
boundaries (Collinson and et. al., 2020). It mainly helps in strengthen the economic relation
between countries. Although, these type of businesses support other countries by exporting them
goods of their requirements. This project report is based on UK sme, Diaone organic who tap
into China market to promote UHT milk. This report explain business drivers that help UK SME
to expand UHT milk in China market. For this pestle analysis is best tool, by using this firm
examine several external factors that impact on operations of organisation. Further it also
highlight the trade barrier, business uncertainties, opportunities created by trade policy. At last it
reflect ethical and social issues along with cultural preferences that is useful for SME to expand
business. Diaone organic is a family owned business who offer premium quality products that
are good for people, environment and communities. The main motive of company is offer
goodness to people.
MAIN BODY
Business drivers behind company expansion into China Market
It is crucial for business to understand the expansion in foreign market. In terms of
expanding UHT milk by Daioni Organic in Chinese market it is crucial to emphasis on business
drivers that are reflected using PESTLE analysis. The Pestle analysis of Chinese market is
presented below:
Pestle analysis
China is represented as most attractive nation in world because it enhances the concept of
international business (Kurzer, 2019). Many companies want to expand their business in China
because of several aspects i.e. size of market, low cost labour, China growth potential etc. To
effectively understand business drivers by Diaone organic for expanding UHT milk, six factors
under pestle analysis are presented below:
 Political factor- It mainly includes government regulations, stability of government etc.
Country like China has good trade relation with most powerful nations nut disputed with
US and countries of South China ruin their political stability (China PESTEL Analysis,
2021.). The country maintain low cost of raw material because in in China low cost
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labour are present that reflects as a good choice for business to expand business in China.
In terms of Daione Organic who want to expand their UHT milk products in China gain
benefits in terms of getting low cost labour. As government of Chine promotes the
business in positive manner to improve economy.
 Economical factor- This directly linked with growth of the country. China has
impressive growth that express as ideal location for expanding business. Due to low cost
labour available in China, Daione Organic prefer to expand their business. Although the
purchasing power of customers are also good that helps UK sme to gain more profitable
results in China market.
 Social factor- The socio culture factor of any country impact the business and country
economic. In context of China where huge population exist and among them 90% of
them are literate. Although, business who want to operate or establish in China get low
cost labour with efficient skills (Aguilera and Grøgaard, 2019). The main reason of low
is high population. China is a country where people taste are frequently change. In terms
of UK SME, Diaone organic who want to expand their UHT milk in China get high level
of opportunity because people of China really like it in terms of getting healthy diet to
become fit.
 Technological factor- Technology and business are both intricately each other. China is
a country who chow advancement in technology and according to this business change
their mode of production and distribution. In context of Daioni Organic who tap into
China market with their UHT milk for children aged 3to 11 years. By using technology in
terms of digitisation firm attract customers towards their UHT milk. They operate their e-
store where they sell their UHT milk to customers so that large number of customers are
attracted towards it.
 Legal factor- China imposed many restrictions on investment of foreign companies due
to this it decrease the platform for earning revenue. This create threat and difficulty for
UK sme, Diaone Organic to tap into China market with their UHT milk because it is a
UK based company who want to expand their business in China.
 Environmental factor- China is a country whose aim to become environment friendly
country. For this they need to emphasis on using eco-friendly practices in manufacturing
products and services. In terms of Diaone Organic, who tap into China market with UHT
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milk easily because they adopts environmental practice while producing UHT milk for
customers mainly for children (3-11 years).
Trade barrier
Trade barrier represent as a government induced restrictions on international trade. It
express as a negative impression but helps company to increase economy by reducing imports.
There are various types of trade barrier that organisation face while expanding their business in
foreign country. In terms of UK SME, Diaone organic some of the trade barriers are
demonstrated below:
 Tariffs- It refers to an aspect which was imposed by government on import goods and
services. They are basically denoted as the duties. Tariffs are generally executed to raise
the cost of products to customers in order to make them expensive so that foreign
country customers neglect to their products effectively and efficiently (Cavusgil and et.
al., 2020). In terms of Daione organics who wants to tap into Chinese market with their
UHT milk for children. As it is a UK based company where cost of labour is high to
overcome with this fact company need to expand their business in China where labour
cost is low due to this cost of UHT milk is also low. It help company to generate more
profitable results. Due to this UK people buy Diaone products in low cost. It create
restrictions for UKSME to tap into Chinese market.
 Non-tariff barrier to trade- It is type of restrictions such as embargo, Sanction that
nations adopts in aspect of political and economic goals. Countries mainly adopts this
trade barrier at the time of internationalisation. In context of Diaone Organic, who tap
into the China market face this trade barrier while expanding. In this county limits the use
of license while import goods to specific businesses.
 Trade restrictions- It is a type of artificial restriction on the trade of offerings (goods
and services) among two or more than two countries. It is a controversial term in which
one see as a trade restrictions while other may see as a way to protect consumers from the
products that are harmful to them (Guercini and Milanesi,2020). In terms of UK SME,
Diaone organic who tap into chinese market with UHT milk face this type of restriction.
 Quotas- A quota is a type of restriction which was imposed by government by limiting
the number of value of goods that a particular nation can export or import during a
specific period of time. Therefore many countries adopts the use of quotas while
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international trade to support the volume of trade between other countries. Hence, quotas
also helps in boosting the domestic production by restrict the competition present in
foreign market. If in Chine there is highly restrictive quotas are adopted that high level
of disputes are creates and this also create problems between the nations. In terms of UK
and China there is good relation in terms of trade of dairy products, UHT milk etc. if
China imposed high level of trade restrictions that it could create more disputes among
UK and China that is not effective for Diaone organic. It is so because due to this SME
face more loss in profit while tapping into China market.
Demonstrate business uncertainties and opportunities created by trade policies of national
government of target market
Trade barrier such as quotas, tariffs raise prices, deduct the available quantity of goods
and services for UK businesses and consumers in terms of reduced employment, low income,
lower economic output etc. In context of UK SME who tap into China market with the product
UHT milk attain several opportunity in terms of getting low cost labour (Hurtado-Torres,
Aragón-Correa and Ortiz-de-Mandojana, 2018). In terms of diary products China contain more
products from UK that helps UK SME to gain more profitable results in terms of gaining
profitable and sustainable results within marketplace.
Ethical and Social issues considered by UK SME
At the time of internationalisation, UK SME considered several ethical and social issues
while tapping UHT milk in China. Some of the issues are presented below:
 Working condition and standards- At the time of outsource the production work
results in low cost of labour that sometime brings ethical and social issues in front of
management. In UK the cost of labour is more as compare to China. This impact the
workforce of UK in terms of negative manner because in China people work more and
pay less whereas in UK people work according to their pay (Wulff and Villadsen, 2020).
For instance- In Diaone organic i.e. UK SME want to tap into China market to develops
the profit by selling UHT milk for this they start production in China where labour charge
low cost. It impact negatively the working condition when UK employees compare with
China employees.
 Social and cultural consideration- Understand culture difference make difference
between success and failure in global market. Therefore every country have their own
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values, customs, preferences and code of ethics. The major issue is language. To
overcome with this issues Diaone Organic, UK SME hire a translator to reduce the
miscommunication and understand the norms, values of China society so that they easily
promote their UHT milk by targeting children effectively by hurting any people
sentiments.
Therefore to overcome the ethical and social issues UK SME considered the CSR
approach. Corporate social responsibility is defined as a practice or policy that are undertaken by
the business enterprises to enhance the welfare of society and environment. It generally means to
properly considered the rights of human, environment and society in which they operate their
business to generate profits and longer sustainability. In terms of UK SME, Diaone organic who
tap into China market, this CSR policies highly helped in. Some of the points are elaborated
below:
Importance of corporate social responsibility at the time of operate on international level
 Developed public image- if an organisation adopts the practices of corporate social
responsibility than it attracts large base of customers because of this customer decide
whether they buy the good and services from you (Czinkota, Ronkainen and Gupta,
2021). In terms of Dianone Organic, company emphasis on charity where they deliver
UHT milk to those children who needs but not have enough money to pay for it. This
attracts customers attention towards company products and it also helps in doing business
on international level.
 It helps in gaining advantage from competitors- By adopting the CSR policies,
organisation gained the competitive advantage within marketplace. Hence by follow
corporate social responsibility an individual business firm stand out from the rivalry
within industry. Therefore they establish themselves to attain high profitable results even
in global marketplace (Jackson and Deeg, 2019). For instance- UK SME, Diaone
organic adopts CSR approach such as offering welfare to customers helps in gaining
success at the time of tapping in China market.
Cultural preferences considered by business
There are variety of cultural preferences which are considered by UK SME, Diaone
organic while tapping business into China Market by targeting children for selling their UHT
milk. Some of the cultural preferences are presented below:
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 Material culture- This mainly includes technological goods that are mainly used by the
majority of population, availability of resources such as internet, telephone, wireless
communication etc. in context of Diaone Organic. Company emphasis on this cultural
preference while doing business in China market because people in China are highly
advanced in terms of using technology. In this company adopts the use of e-commerce
sites to promote and sell their products and services so that large number of customers are
attracted towards it (van Tulder, Verbeke, and Piscitello, 2019). In this Diaone Organic
tap into China market with UHT milk to target children of age group of 3-11. In this they
attracts parents or gurdian towards UHT milk using e-commerce sites so that more
profitable results are attained by company within international market.
 Culture preferences- It is another preference based on culture on which company must
focus while doing international business. Therefore, every international market have
distinct in preferences for foods, quality in foods, brands and many more. Hence, these
differences are taken into considerations while doing business to attain high success. In
terms of Daione organics, that is a UK SME mainly produces UHT milk to target the
China market and generate more profitable results. In this manager of Diaone organic
understand the preference of food specially diary products in China than they noticed that
mainly Children preferred UHT milk. This help SME to develop plan for attracting
parents who buy UHT milk for their child so that they stay healthy.
 Languages- It is another cultural preference on which companies must focus while doing
international business. Hence the language used in the country impact on brand names,
collection of information by interviews or questionnaire, advertising and maintaining the
relationship in business (McWilliam and et. al., 2020). Languages are might different in
regions of a nation, two different countries etc. For example- UK people prefer to use
British language whereas people of Chine prefer to use Chinese language. Therefore to
understand the language of foreign country is crucial to do business. In context of Diaone
organic, they hire a local candidate who understand the Chinese language so that
activities and task are done accordingly. Therefore, it also helps in understand the
requirements of customers and whom to target. Hence, due to this company gain high
level of success.
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 Ethics and Values- This is highly significant cultural preference that are emphasis by
companies while doing international business. It is very essential to understand the status,
religion, ethnicity of country in which the organisation want to expand (Schmitthoff,
2020). For instance- in terms of Diaone organic it is to be essential to gain knowledge
about the religion and values of China and promote their UHT milk in such a manner that
does not harm any customer in China. This helps in gaining high profitable results to
company.
Significant of culture in international business in Chinese market
There are various number of importance of culture while doing international business.
Culture defines are norms, values, taste and preference of people of communities etc. on the
basis of which organisation develops their culture and thinks to globalise. In terms of Diaone
Organics, culture is very important to tap into Chinese market. In which some culture
preferences that is considered by UK SME while tapping into international market are presented
below:
 Communication- The main importance of Culture within international business is that
by effectively understand the expanding business culture companies or country can easily
communicate the facts related to products and services to customers (Buckley, 2019). In
context of UK SME, Diaone organic manager properly research the language, value,
norms etc. of China country that helps them to easily operate their UHT milk and target
the children (3-11 years). Hence it is crucial to understand the culture to do a
international business. Therefore, by gaining the knowledge of culture of foreign country
UK SME easily communicate the features of their UHT milk to the parents so that they
buy the UHT milk for their children. Thus it enhances company profits and revenue while
doing international business.
 Developed flexibility- It is another significant of culture while doing international
business. For instance- UK and China follows different culture and if the Diaone organic
i.e. UK based SME operate their business in China market than it developed the
flexibility in employees because there are different culture employees work in one
organisation (Morris and Oldroyd, 2020). Due to which they emphasis on gaining
knowledge of different culture and become flexible while performing activities.
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 Strengthen harmony- It is another importance of culture in international business.
International business is effective to develop the unity in employees due to which
activities are performed effectively that gives proficient results in company sustainability
while doing international business.
Expansion methods chosen by UK SME, Diaone Organic
Business expansion is a stage in a company life that is based on both factors i.e.
opportunities and perils. There are various options to expand the business effectively and
efficiently. In this manager of Diaone organic emphasis on expansion their business with UHT
milk in China market for this they need to analyse various factors so that best one is chosen
from. Some of them are elaborated below:
 Merger and Acquisition- It is one of an effective way of expanding the business in
foreign market. A merger occurs when the two separate entities are combine to generate a
new joint organisation (Shams and et. al., 2021). It is a type of voluntary fusion who
works on equal basis who combine to gain market share, expand business into new nation
etc. it is very suitable for SME companies to gain more profitable outcomes.
 Franchising- It is another option for expanding business in foreign country. It is a type of
license where a person or an organisation give right to use their name, products, business
model to make successful within business industry. In this a franchiser represented as an
original company that grants franchise license to another person that is known as
franchisee. In this franchisee company offer similar products to customers as a franchiser
developed to maintain the goodwill and reputation of products and services within the
market.
 Joint ventures- This method is one of the best method that is used by SME to expand
their business on global market (Lundan and Li, 2019). A joint venture is a type of
temporary business association that is done between two or more people and companies.
In this type of expansion method company share the amount of burden that they face so
that more profitable results are attained smoothly. To effectively implement this process
integrity, honesty, communication are very essential. Hence, joint venture is dissolved
when the objectives of developing JV is completed.
 Licensing- This is crucial method of expanding business in which agreement is done
between two companies in which one gives special permissions in terms of using patents,
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exchange of payments etc. the main benefit of using this method of expanding
internationally is that it provide the ability to reach new market that is generally closed
due to many trade restrictions (Vrontis and et. al., 2020). It also offers ability to expand
market without facing high risk or capital investment.
From the above information based on methods of expansion it is to be demonstrated that
for UK SME, Diaone organic licensing is one of the best option to expand the business in China
market. It is effective method to expand business effectively because it helps company to reach
the China market that imposed variety of trade restriction. It is a legal term that represent as
secured form of expansion method that is beneficial for SME to operate profits effectively and
efficiently.
CONCLUSION
From the above report it is concluded that international business is one of essential
concept in business industry. To internationalise business, globalisation is high important.
Therefore this particular report is very useful to understand the expansion of SME in foreign
market for gaining profitable results. As it involves business drivers using pestle analysis so that
organisation effectively take decisions to expand business. It also helps in developed the
knowledge regarding trade barrier that company face while internationalisation. This also gain
understanding regarding cultural preferences which are considered by business and expansion of
methods used by SME so that high successful results are attained.
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REFERENCES
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Czinkota, M.R., Ronkainen, I.A. and Gupta, S., 2021. International business. Cambridge
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Guercini, S. and Milanesi, M., 2020. Heuristics in international business: a systematic literature
review and directions for future research. Journal of International Management. 26(4).
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internationalization in multinational firms affect their innovative performance? The
moderating role of international collaboration in the energy industry. International
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Jackson, G. and Deeg, R., 2019. Comparing capitalisms and taking institutional context
seriously. Journal of International Business Studies. 50(1). pp.4-19.
Kurzer, P., 2019. Business and banking. Cornell University Press.
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McWilliam, S.E. and et. al., 2020. Global value chain governance: Intersections with
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Morris, S. and Oldroyd, J., 2020. International business. John Wiley & Sons.
Schmitthoff, C.M., 2020. International business law: a new law merchant. In Current Law and
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van Tulder, R., Verbeke, A. and Piscitello, L. eds., 2019. International business in the
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Vrontis, D. and et. al., 2020. Cause-related marketing in international business: what works and
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Online
China PESTEL Analysis, 2021. [Online]. Available through:
<https://www.edrawmax.com/article/china-pestel-analysis.html>
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