Case Study on Quam Milk - SWOT Analysis

Running head: INTERNATIONAL BUSINESS
International business
Name of the student
Name of the university
Author note

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Executive summary
The aim of this report is to discuss about the possibilities, opportunities and challenges to be
faced by Quam Milk in entering in the Chinese market. In doing so, different strategic
management models such as PESTLE and Porter five forces have been used. It is identified that
there are multiple opportunities can be tapped by Quam Milk in terms of the different external
market factors in China. However, challenges such as regulations and corruption will pose
challenges for them. Different trade barriers and social factors are also discussed from the
perspective of the Chinese operation of Quam Milk. This report concluded that they should
follow multi domestic approach of international business and joint venture entry strategy to
operate in the Chinese market. It will ensure the maximum benefits and return from the
international business of Quam Milk.

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Table of Contents
Introduction......................................................................................................................................3
Industry analysis..........................................................................................................................4
Determination of the external business drivers...............................................................................4
Political factors............................................................................................................................4
Economic factors.........................................................................................................................6
Social factors...............................................................................................................................7
Technological factors...................................................................................................................8
Environmental factors................................................................................................................10
Legal factors..............................................................................................................................10
Industry analysis............................................................................................................................11
Bargaining power of the buyers.................................................................................................11
Bargaining power of the suppliers.............................................................................................12
Threat of new entrants...............................................................................................................12
Threat of substitutes...................................................................................................................12
Competitive rivalry....................................................................................................................13
Identification of the potential trade barriers..................................................................................13
Identification of the socio cultural issues......................................................................................14
Identification of alternative expansion methods............................................................................15
Recommended expansion and entry modes...................................................................................16

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Conclusion.....................................................................................................................................17
Reference.......................................................................................................................................18

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Introduction
In the current business scenario, international expansion is one of the most important
factors to be considered by the contemporary entities. This is due to the reason that in the current
era of globalization, global market across different countries can be easily tapped and
competition is also growing on international basis. Hence, in order to deal with the growing
competition in the domestic market, expansion in the international market is one of the most
viable options available. In the recent time, it is identified that majority of the international
market expansion and business investment is going towards the developing countries such as
India, China and Brazil (Cavusgil et al. 2013). This is due to the reason that these countries are
witnessing higher growth of economy compared to the developed countries. Coupled with the
huge population in these countries, business opportunities are growing at leaps and bounds in
these countries.
Recently, UHT milk or Ultra High Temperature processed milk is witnessing popularity
in the marker due to its long lasting ability, ready to drink convenience and free of any bacterial
issues. It is also proved to be healthy for the children as well. Hence UHT milk market in the
global scenario is one of the most booming and potential business scopes available in the recent
time. Quam Milk is a new entity based in London. They are offering different varieties of milk
and milk based products in the domestic market of the United Kingdom and planning to market
their UHT milk in the Chinese market.
This report will discuss about the industry opportunities and potentialities for Quam Milk
in entering in the dairy sector of China. In addition, the external business factors to be considered

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by Quam Milk in doing business in the Chinese market will be discussed. The potential trade
barriers and market entry modes will be discussed and evaluated.
Industry analysis
It is reported that China will be the largest dairy market in the world with the booming
dairy industry by 2022. This is mainly due to the reason that China is the largest country in the
world in terms of population and hence, the level of consumption is higher. On the other hand,
the booming economy is further amplifying the demand for the dairy products (Griffin and
Pustay 2010). Moreover, Quam Milk will witness more opportunities due to the reason that
import of powdered milk is banned in China and preferences for UHT milk is growing with the
growing health consciousness. As of 2017, the industry revenue of the Chinese dairy sector
stands at 359 billion Yuan approximately. Thus, it can be concluded that industry opportunities
for Quam Milk are going to be high in operating in the Chinese market. Specifically for the UHT
milk, the market size grew from 19 million RMB in 2003 to 90 billion RMB by 2017. This
shows the opportunities that are waiting for Quam Milk in China (Zhong et al. 2014).
Determination of the external business drivers
It is important for Quam Milk to determine the external business factors relevant in the
Chinese scenario because it will help in identifying the potential opportunities and challenges.
PESTLE analysis will be done to identify each of the major elements in the following sections.
Political factors
As per the global economy.com, China can be considered as the country with low
political risk. This is due to the reason that China is a communist country with having stable

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political infrastructure. There are no backgrounds of army coups or any instability in the political
factors. Hence the business will have stable political environment in operating in the country. In
addition, the political stability indicator of China is also increasing since 2015, denoting the
positive factor for the businesses. Chinese government roles will also help Quam Milk in
enhancing their business opportunities. This is due to the reason that Chinese government
included the dairy consumption in their latest 13th five year plan. Hence, the political willingness
towards the dairy industry is largely positive, which will further act as the driving factor Quam
Milk in operating in the country. However, on the other hand, it should also be noted that Quam
Milk will face the challenge in terms of corruption in the business (Charles 2012). This is due to
the fact that as per transparency international, though China is improving their ranking in the
global corruption index, still they are standing at 41 as of 2019 (TheGlobalEconomy.com 2020).
Hence, this is one of the major political challenges to be faced by Quam Milk in operating in
China.

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Fig: 1
Corruption ranking of China
Source: (TheGlobalEconomy.com 2020)
Economic factors
In terms of the economical factors, the major driving force in doing business in China is
their national economy growth. This is due to the reason that China is the leading country in the
world in terms of economical growth. Hence, the business opportunities are also growing
because the more will be the growth of the economy, the more will be the purchasing power and
affordability of the consumers. The premium positioning of Quam Milk will thus get justified. In
terms of the global economic forum, the business competitiveness is also increasing the country.
This shows that Quam Milk will face more competitive environment in operating in China,
which will further be beneficial in developing and improving their efficiencies. On the other
hand it should be noted that China was long accused for lack of economic freedom in the
country, which is also getting reduced. This is due to the reason that as per the global economy
index, the ranking of China in terms of economic freedom is improving, which refers to the fact
that Quam Milk will gain the access to higher economic and business freedom in doing business
in China (TheGlobalEconomy.com 2020). However, the major challenge that will be faced by
Quam Milk in terms of the economic factors is the increasing rate of inflation. This is due to the
reason that since the last few years, China is witnessing growing rate of inflation, which is
increasing the commodity and goods price. It might be challenging for Quam Milk to meet the
market expectations with the increasing rate of commodity prices.

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Fig: 2
Economic freedom index of China
Source: (TheGlobalEconomy.com 2020)
Social factors
Social factors are also relevant for Quam Milk due to the reason that changes in the tastes
and preference pattern of the customers will determine the extent to which, the products of them
will get accepted in the market. One of the major social driving factors for Quam Milk in
operating in the Chinese market is the upward trend of social globalization
(TheGlobalEconomy.com 2020). This refers to the fact that average Chinese customers are more
getting accustomed with the global trends and practices. In view to the UHT milk products of
Quam Milk, Chinese culture is getting accustomed with this trend and the health benefits
associated with it. Thus, expanding in the Chinese market will be beneficial for Quam Milk in

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terms of the favorable social trends as well. As of now, Quam Milk is only based and operating
in the United Kingdom. Cultural and social diversity in China is low compared to that in the
United Kingdom. Hence, Quam Milk will have to face lower challenges diversity in their product
offerings. The huge population in China will further drive the business there for Quam Milk.
Fig: 3
Social globalization index of China
Source: (TheGlobalEconomy.com 2020)
Technological factors
Technological factors are also important to consider by Quam Milk because and it will
determine the extent to which, the products getting offered in the market are compatible to the
local trends. In addition, the cost factor is also associated with the technological prowess. China

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is considered as a leading country in terms of technological development and in much affordable
form. Thus, Quam Milk will find it easy to gain the access of developed and advanced
technologies for their operations in China. The average costs will also be low due to the low
costs of resources in the country. As per the data of the global economy, China is currently
standing at 54 in terms of global innovation index and is showing upward trend. This is a major
driving force for Quam Milk in operating in the Chinese market. However, on the other hand, it
should also be noted that Quam Milk might face challenges in terms of patent and copyright.
This is due to the fact that China is having stricter rules and policies in terms of transferring of
technologies especially to the foreign companies.
Fig: 4
Innovation index of China
Source: (TheGlobalEconomy.com 2020)

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Environmental factors
Quam Milk should adhere to the environmental factors because business processes of the
dairy industry are having direct impact on the environment such as the animal rearing facilities.
In the United Kingdom, they are already adhering to the local rules and standards, which will be
lower in the Chinese operation. However, as per the recent data, China is the most polluted
country in the world and thus newer environmental rules and regulations are coming up.
Considering the adherence of the current practices of Quam Milk with the environmental
standards in the United Kingdom, it is predictable that fewer challenges will get originated in the
Chinese operation.
Legal factors
Currently, China is one of the most businesses friendly countries in the world with their
government are coming up with more convenient policies in attracting the foreign investors.
However, it should also be considered that legal structure in China is different to that of the
western countries. According to the reports of the global economy, legal effectiveness in China is
increasing and it is surely a major positive factor for Quam Milk. On the other hand, there are
few legal issues that might also to be faced by them. For example, the interference of the
government in the private business is a major challenge.

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Fig: 5
Legal effectiveness of China
Source: (TheGlobalEconomy.com 2020)
Industry analysis
Determination of the industry where Quam Milk is going to operate in China is also
important to consider due to the reason that the business strategies should be based accordingly.
In addition, industry analysis will also ensure the impact different competing factors will have on
the business of Quam Milk (Porter 1990). The following section will discuss these competing
factors on the basis of Porter five forces theory.
Bargaining power of the buyers

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Bargaining power of the buyers will be high for Quam Milk in China because there are
large number of global and local dairy brands operating and offering UHT milk. Moreover,
Quam Milk will also find it difficult to gain the market share with their relatively new brand
name in the Chinese market. The switching costs of the buyers are also low because all the
competing products are available at one and same place and does not involved any added costs
for changing brand (Zhong et al. 2018). In this case, Quam Milk should come up with
differentiated approach and propositions to deal with the high bargaining power of the buyers.
Bargaining power of the suppliers
Bargaining power of the suppliers is moderate due to the reason that there is number of
suppliers operating in the dairy industry in China as well as number of brands. However, in the
dairy industry, suppliers majorly consist of the dairy farmers, which are mainly organized in
China. Thus, it is expected that Quam Milk will have the upper hand in bargaining with their
suppliers but with the market oriented price because other competitors are also sourcing the raw
materials on the basis of standard price structure (Guo et al. 2016).
Threat of new entrants
Quam Milk will face moderate level of threat of new entrants due to the reason that there
are number of small and medium scale entrants venturing in the booming dairy sector in China.
On the other hand, the required level of investments and expertise to compete with the larger
dairy brands is fending off some sections of the potential entrants. In respect to the business
operation of Quam Milk, they should further develop their business process and propositions to
extend the competitive advantages over the new and potential entrants.
Threat of substitutes

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Threat of substitutes is high for Quam Milk because there are multiple dairy brands
operating in the Chinese market offering the same UHT milk for the children and infants.
Customers are having more substitute options to choose from. In this case, Quam Milk should
differentiate their product portfolio compared to their competitors to create the unique
propositions for the customers. This will also enhance the point of differences between them and
their competitors.
Competitive rivalry
Competitiveness in the industry where Quam Milk is going to operate in China is highly
competitive in nature. This is due to the fact that large number of small and big dairy brands is
operating. However, competitive rivalry specifically for the segment, which Quam Milk is going
to target will be lower because more number of brands are operating in the mass market
segments rather than in the high profile segment. Quality will be the key factor of competitive
advantage for Quam Milk in dealing with their competitors in this segment.
Identification of the potential trade barriers
Irrespective of the growth opportunities to be gained by Quam Milk in operating in the
Chinese market, there are few barriers also to be faced by them. The following section will
identify the major four of them.
 One of the major trade barriers is the absence of free trade agreements between the
United Kingdom and China. This would restrict Quam Milk in importing their products
directly from their UK operations. Hence, Quam Milk will have to face the risk of
business uncertainties of directly investing in China (Imbruno 2016).

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 Number of developing and developed countries restricted the import of milk and milk
products from China due to the presence of melamine. Hence, Quam Milk will face the
challenge of using their Chinese facility as export hub and exporting to other countries.
 Another trading barrier to be faced by Quam Milk is the high level of bureaucracy. It is
reported that there are number of licensing and permissions to be taken prior to starting
business in China. This also includes the transfer of technologies. Hence, Quam Milk will
be at risk of getting obstacle in the forms of regulations (Li, He and Lin 2018).
 Interference of the government in the business processes and practices is also a barrier
because China is infamous for regulating and controlling the private businesses. This will
create difficulties in smooth and independent business operations in the country by Quam
Milk.
Identification of the socio cultural issues
It should be noted that prior to entering in the Chinese market, Quam Milk should have
the proper policy regarding corporate social responsibilities. This is due to the reason that Quam
Milk is a lesser known brand internationally and especially in the Chinese market and extensive
social activities will be effective in gaining the brand identity. Also, the Chinese culture is
different to that of western social structures and trends and majorly is isolated from the rest of
the world (Kirkman 2006). Thus, it is important for Quam Milk to initiate extensive social
activities, which will be Chinese specific. The social activities should involve the Chinese
stakeholders and should be ideal in enhancing their goodwill. The cultural factors should also be
considered by Quam Milk in operating in the Chinese market (Daniels 2015). For example,
English is used as the preferred language of promotion of the products of Quam Milk in the
United Kingdom, which will not be effective in China. Hence, the marketing mix elements of

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Quam Milk should be designed in accordance to the Chinese cultural factors in order to gain
penetration in the target market. Due to the ongoing trade war and political issues between China
and the western nations, Chinese customers does not carry positive attitudes towards the foreign
brands. In this case, it is important for Quam Milk to portray their business as China specific in
order to gain positive word of mouth (Krugman 1980). Cultural preferences will also include the
variants of the UHT milk to be offered in the Chinese market. This is due to the reason that taste
and preference pattern of the Chinese customers is different to that of the UK customers. Hence,
the taste and variants and flavors of the UHT milk to be offered by Quam Milk in China should
be based on local trends. In this case, it is recommended that market adaptable approach should
be followed.
Identification of alternative expansion methods
There are number of market entry and expansion methods that can be followed by Quam
Milk in operating in the Chinese market. According to Bartlett & Ghoshal matrix, transnational
and multi domestic methods will be effective for Quam Milk in doing business in China. With
the help of the transnational model, Quam Milk can have their existing products being offered in
the Chinese market but with a few market specific elements (Krugman and Obstfeld 2008). For
example, the UHT milk being offered by Quam Milk in the United Kingdom can be offered in
the Chinese market as well but with local culture based packaging and other marketing mix
elements. This will reduce the investment for Quam Milk in developing completely new products
for the Chinese market and will also help in maintaining the uniform product portfolio across the
world.

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On the other hand, multi domestic approach will be beneficial for Quam Milk in
effectively targeting the Chinese market. With the help of this approach, Quam Milk will have
completely new products, which will be based on the cultural and other local factors of China.
Hence, the UHT milk to be offered in the Chinese market will be effective in meeting the local
preference patterns. However, in this case, the risks of investment will be more (Morrison 2010).
Fig: 5
Bartlett & Ghoshal matrix
Recommended expansion and entry modes
It is recommended that Quam Milk should follow the multi domestic approach in
expanding their business in China because as discussed earlier, Chinese customers are entirely
different from the global trends and hence marketing of existing products might not be effective

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for them. In this case, with the help of multi domestic approach, Quam Milk will be able to
further penetrate in the Chinese market and gained a viable market share. In terms of the market
entry strategy, it is recommended that Quam Milk should follow joint venture strategy. This is
due to the reason that with the help of joint venture strategy, the risks related to investment will
get halved. Moreover, the local entity to be partnered will have better knowledge about the local
market trends (Lakshman, Lakshman and Estay 2017). This will help Quam Milk to design the
product portfolio of UHT milk for the Chinese market. It is expected that following this strategy
will ensure Quam Milk in getting the maximum benefits and return from the Chinese market
along with the most extensive expansion across the target market (Brouthers, Nakos and
Dimitratos 2015).
Conclusion
Thus, it can be concluded that doing business in the Chinese market will have both
opportunities as well as challenges for Quam Milk. In this report, the major advantages to be
gained by Quam Milk in entering in the Chinese market along with the probable challenges to be
faced are identified. In addition, it is also identified that a number of trade barriers will play an
important role in the business of Quam Milk. On the basis of the analysis being done in this
report, it is identified that they should follow multi domestic approach and joint venture mode of
entry in expanding the business in the Chinese market.

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