Business Drivers, Trade Barriers, Ethical and Social Issues, and Cultural Preferences for SME Expansion in China

This report discusses the PESTLE analysis of the external environment of a UK SME that is looking to expand in the Chinese market. It covers the business drivers, trade barriers, ethical and social issues, and cultural preferences that need to be considered for successful expansion. The report also highlights the importance of corporate social responsibility in improving business practices and increasing the chances of success in the UHT milk industry.

INTERNATIONAL
BUSINESS

EXECUTIVE SUMMARY
The main purpose of the above report is to explain the different business drivers behind
the decision of expansion of the SME in China, The different ethical and social issues that are
faced by the business, trade barriers and cultural preferences that needs to be considered buy the
business and the suitable expansion method chosen by the business for expansion in the country.

TABLE OF CONTENTS
EXECUTIVE SUMMARY.............................................................................................................2
INTRODUCTION...........................................................................................................................4
TASK...............................................................................................................................................4
Business drivers behind organization’s expansion into China....................................................4
Trade barriers. ............................................................................................................................6
Ethical and social issues to be considered by the UK SME .......................................................8
Cultural preferences to be considered by business.....................................................................9
Expansion methods to be chosen by company..........................................................................11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................14

INTRODUCTION
International business is referred as the process of conducting business practices in different
countries and trade of services, goods, technology etc. of a business at global level. It helps a
business to increase its market share in the global markets wand create a better brand image
among the customers of different countries. The current report will be based on a UK SME
which is related with the trading of UHT milk that is free from germs and spores. This milk is
highly suitable for the kids as it has less side effects and provides the essential vitamins and
nutrients that are present in the milk to the consumers. The UHT milk market is has a global
volume of 118.3 billion litres as per the reports of 2020. The pandemic had a positive impact in
increase the profitability of this industry as people are shifting towards healthier alternatives of
products (UHT Milk Market: Global Industry Trends, Share, Size, Growth, Opportunity and
Forecast 2021-2026, 2019). The SME is looking for expansion in the Chinese market in order to
increase its market share and gain competitive advantage in the industry.
TASK
Business drivers behind organization’s expansion into China
The significant factors that have an influence over the SME in order to successfully expand
in the market of China will be explained with the help of the PESTLE analysis which is an
effective framework used to analyse the external environment of a specific organization or
industry (PESTLE ANALYSIS, 2022). It is an appropriate model which will be useful to explain
the significant drivers behind the expansion of the organization in China. This framework
contains several steps which are as follows:
Political Factors
There are several political factors that have a direct or indirect impact on the SME which has a
negative impact on the industry. There may be an opportunity for the business to expand in the
market of China successfully and gain better advantage in the industry. These aspects may have a
major advantage for the business to target the customers and in the Chinese market and sell their
products to them effectively. The government of China may support the businesses in as it is a
huge sector which has a significant role in supporting the business.
Economic Factors

The economic stability of China is helpful in encouraging the UK SME to expand in their market
and increase their overall profitability. The milk industry in the market may be growing and the
government may also be supporting the new companies in the industry. The China government
may provide the UK SME with several subsidies and benefits in order to successfully expand in
the market which may be useful for the business in order to grow.
Social Factors
The UHT milk is rich in several nutrients and vitamins which is healthy for people to consume in
comparison with the regular milk. It is an attractive feature of the product that may be helpful for
the business in order to increase the engagement of the customers towards the brand. The
business may have a superior image among the customers than the local products as it is a
foreign organization which may be helpful in gaining better advantage in the industry
(Srivastava, Singh and Dhir, 2020). It may attract the customers towards buying the UHT milk
products and increase the profitability of the business. The social image of a foreign brand may
be higher due to the quality which will be offered by the business to the customers.
Technological Factors
The new and advanced machines which have been developed over time may be beneficial for the
organization to process their food products and achieve accuracy. These technological
advancements may be helpful to simplify the process of production and increase the capacity of
the organization to deliver products in high quantity to the customers, It may have a positive
impact on the overall expansion of the business in the Chinese market as there is a huge
population which may be targeted by the SME. In order to successfully provide them with
products on a regular basis the management may require the use of these machines.
Legal Factors
The legal framework of China may impose certain rules and regulations on the organization
which may act as barriers for the company. These factors may have a negative impact on the
organization and may reduce its productivity. The organization may have to take various
permissions and allowances by the legal departments in order to establish their business in the
Chinese market. It may be a tedious task for the company and may be time consuming which can
reduce the overall productivity of the company in the business. These issues may delay the
expansion process of the company and reduce its effectiveness in the international market.
Environmental Factors

This business may have a negative impact on the environment as the SME have to set up a
factory in the Chinese market in order to conduct the daily business practices (Sharma and et.al.,
2020). The setup of a factory and its daily working may release various harmful gases and may
have a negative impact upon the environment. This aspect of the business may have a deep
impact on the environment which may create certain issues for the business in order to
successfully expand in the market of China. It may degrade the quality of air in the region and
create several environmental issues such as global warming.
This external analysis is helpful for the organization to identify the significant business
drivers that may motivate the business to successfully expand in the China market. With the help
of these factors, the UK SME may be able to evaluate the current condition of the industry and
what the positive factors which will be useful for gaining better advantage in the expansion. The
key business drivers such as the technological advancements, social reach of this business in the
China market and economic stability of the market may have a positive influencing in making
the expansion decisions of the business.
Trade barriers.
Import Quotas-
This form of barrier or challenge may put negative impact on success and growth of
SME, in term of decreasing organizational effectiveness to expand venture and sustain for longer
in the existing market (What are Import Quotas, 2022). It is fact that import quota is government
impose limit on quantity of a specific product that may an organization import into a particular
nation such as China. It can be said that a quota prevents a nation’s domestic market from
becoming flooded with international products, which are might be cheaper because of low
manufacturing costs (Loginova, Portmann and Huber, 2021).
Non-tariffs-
Import bans, complex or discriminatory rules, unjustified quality requirements, and other
concepts are included in list of non-traffics barriers. These concepts or terms may put negative
impact on organizational success. It may lead to decrease the operational efficiency of UK SME
related to expansion. It may also lead to increase the cost of doing venture and expanding the
same across national boundary, which affect current planning and further operational as well as
functional practices. It may create barrier in the context of global expansion process in form of
limiting company to expand with number of goods, for which it may need to pay extra.

Voluntary export restraints-
Another trade barrier that affect small and medium size organization located in UK, to
expand business in foreign market such as China, is current one. It is considered as arrangement
between importing and exporting nations in which exporting nation may agree to limit the
quantity of particular export below a specific extent. It may do so to eliminate imposition of
compulsory restriction throughout importing region. It may put a limit on product quantity,
which may restrict organization to enter into new market with value adding resources. Along
with above things, it is fact that voluntary export restraint may raise customer’s surplus in the
export market and decrease the same in import nation market.
Subsidies-
This term refer to domestic subsidy from governmental bodies can give local
organization a company benefits, but create challenge for international enterprise, either small or
large in a nation (Zhu, He and Gu, 2021). This trade barrier may affect negatively upon SME
expansion plan, which drive it attention toward entering into Chinese market for purpose of
selling UHT milk to target audience aged from 3-11 years. It may affect planning, managing and
organizing practices of company, which is not suitable for its rapid growth in the new and
existing market.
Business uncertainties create by trade policies-
Trade policies in the countries may create some venture uncertainties that define in form
of gap between applied and bound rate, that affect current business performance and practices
such as decision-making. High import and export duty is one of the biggest uncertainty that
affect the way firm take decision and implement the same. It may affect negatively and create
more challenges for company to succeed in the context of international and national level. This
uncertainty may have a significant impact on the profitability of the businesses and may reduce
the overall success of the company in the internal market. This aspect of the business may create
difficulty for the business to operate successfully in the country.
Opportunities create by trade policies-
The trade policies may also provide benefits to the SME in order to successfully expand
the business in the market of China and gain competitive advantage in the industry. The
organization may be able to reduce the chances of the failure of supply chain by following the

policies of the business. If the SME considers the policies effectively, it may have a positive
impact on the sustainability of the organization in the foreign market.
Ethical and social issues to be considered by the UK SME
The UK SME may follow its corporate social responsibility in order to manage their daily
practices effectively and improve their overall working culture. CSR is important for the
organizations to follow in order to reduce the negative impact of various social and ethical issues
upon their organization which may create problems for the organization (Ratten, 2020). It may
consider conducting ethical practices in order to provide better quality products to the customers.
The organization may be able to improve their brand image with the help of the corporate social
opportunities created by the trade policies of the national responsibility and make effective
changes in their current approach which will have a significant impact on the company. The
ethical issues such as privacy of data, using pure raw materials, hygienic process of production
etc. are some major ethical issues which needs to be resolved in order to gain better advantage in
the industry.
These issues may degrade the quality of products and promote a negative image of the
brand among the audience which may not be beneficial for the business to grow. With the help of
appropriate efforts in developing effective strategies for resolving these issues to organization
may increase their stability in the business. In the UHT milk industry, the customers may highly
focus upon the quality of products that are offered by different brands. These ethical issues may
be solved by appropriately organizing their work and allocating the resources to the employees
for increasing the motivation levels towards the work and improving the productivity of the
business. There may be several social issues that may arise for the SME while expanding in the
UK market which may not be beneficial business to grow and achieve better results in the market
(Buckley and Casson, 2019). The issues such as discrimination among employees, abuses of
products and services, etc. may have a negative influence over the organization and may become
a barriers for the organization in order to successfully operate in the business.
The corporate social responsibility is highly significant by the management to consider to
improving their business practices. It may provide a better approach to the company to carry out
their business in the new market and create a better image of their brand than the competitors.
The CSR is helpful for a business to self-regulate its activities and consider the inappropriate
practices as high priority by finding various solutions to solve the problems. This aspect is

beneficial in getting support from the Chinese government as the socially responsible business
have a better advantage in the business environment.
The SME may inculcate ethical and socially responsible practices towards the business
and may focus upon catering the common needs of their stakeholders by allocating all the
services in a suitable manner towards the work. People who are conducting the business
practices may look forward towards the methods they are using to do the business and what is
the need for the company to grow in this a new market. The Chinese population may have a lot
of alternatives that are available for selling the UHT milk to them which may increase the
chances of customers shifting to them (Verbeke and Yuan, 2021). In order to remain relevant in
the industry the organization may control their work and increase their productivity by managing
the ethical and social issues effectively. The issues such as discrimination are not beneficial for
the company in order to motivate their employees to perform better in the environment and it
may reduce their efficiency to perform well in the business. This issue may affect the
relationship between the managers and the employees which may be difficult for the
management to recover as these practices have a psychological impact on them.
This practice may promote a negative image of the brand in the Chinese market and
reduce it changes to gain a better market image among the consumers. These ethical and social
issues may be considered by the business to increase their productivity in the market and
encourage the customers to increase their engagement towards the business. By dev eloping a
better approach towards the expansion the organization may increase its chances to perform well
in the UHT milk market of China. The corporate social responsibility is a crucial aspect for the
business which may be helpful in order to improve the overall operations of the business in the
Chinese market. It may help the business to monitor their practices and increase their benefits in
the working environment.
Cultural preferences to be considered by business
The different cultures and values of the global market that the organization is looking
forward to target needs to be properly assessed by the business as it is a significant factor of
understanding the needs and preferences of the customers of China. There are several differences
in the cultures of both the countries which needs to be properly addressed by the organization in
order to improve their current approach towards expansion. The cultural preferences of the
customers in China may differ from the people of the UK which may be given the due

consideration by the SME in order to prepare effective strategies in order to target them properly
(Hult, Gonzalez-Perez and Lagerström, 2020). The values of people in China may have an
influence over their buying behaviour towards the products of a foreign company such as the UK
SME. It may have a significant impact in attracting them towards the products and services that
are offered by the business to them. These cultural differences between the two nations may have
a deep influence over the decision making of the people in making their purchasing decisions
towards buying products of the SME.
The company may require increasing the encouragement of the customers to buy their
products by promoting an effective image of the brand in the country and improve relationships
with the customers. The company may include the cultural values of China in their
advertisements and strategies for appropriately targeting their potential customers and gaining
better advantage in the industry. The significant needs of the people of China may be assessed by
the organization in order to increase fulfil them properly and increasing the productivity of the
business to provide better products to the consumers (Kahiya, 2020). With the help of these
practices the business will be able to identify the key cultural preferences of the customers and
again their trust towards the business. The lack of knowledge about the local culture of China
may decrease the chances of the organization gain benefit by expanding the global market and
increase its market share in the UHT milk industry. The company may face certain challenges
due to these differences which may reduce its productivity in the industry and have serious
drawbacks on the business.
The SME may require better strategies for appropriately targeting the customers and gain
benefits among the competitors in the industry. The UHT milk market in China may be huge
which may create issues for the business to achieve efficiency and gain a significant market
share. A proper market research may be required by the organization before entering to the
market which may help the business to understand the buying behaviour of the customers of
China. It may help the business to gain the understanding of the cultural identity of the people in
the industry and who are the major stakeholders in the industry. Culture is a crucial aspect of the
appropriate expansion of the SME in the Chinese market which may help in increasing the
overall competitive advantage of the business.
It can be a useful method to increase the success of the business in the global market and
help it to increase its chances to gain better recognition from the new customers (de

Vasconcellos, Garrido and Parente, 2019). These practices may help in reducing the cultural
difference and provide better assistance to the SME in order to improve the overall success of the
business in targeting the customers of China in a better manner. With the help of these expansion
strategies the business will be able to make a better impact in the market of China and gain their
trust towards the business.
Expansion methods to be chosen by company
There are different expansion methods which may be used by the business in order to
successfully expand in the market of China. These methods may explain different styles of
business strategies which can be used by the organization which can be suitable for their
successfully expansion in an international market. Exporting the goods is one of the expansion
methods for the organization in the new market which is popular among the businesses. This
method may require supplying the products through different channels in the market of China
and increasing the popularity of the brand. It may require a proper management of the supply
chain as there may be several key stakeholders in the process (Luo, 2020). Though, it may be a
complex process for the SME as the UHT milk business is a daily consumption segment which
may be difficult and costlier for the organization to export their products in the Chinese market
successfully. The exporting business may have several disadvantages and can increase the risks
of the business in the market.
Another expansion approach for the business can be partnership with people in the
market of China in order to expand their organization in the international market successfully.
The organization might look for reputed and trusted people or organizations in China in order to
make them their partners and conduct business practices with them in order to successfully
expand in the Chinese market (Shams and et.al., 2021). The risk level in this method may be
medium as some issues may arise due to conflicts and disagreements between the partners which
may have a negative impact on the business. The cultural differences among the partners may
lead to certain issues in their ideology and decision making which may reduce the productivity of
the business in the foreign market. This method may be less appropriate for the business in order
to improve the sustainability of the organization in the foreign market and target the customers
appropriately.

One of the most suitable expansion methods for the SME is licensing which may allow a
person or a business entity in China to take permission from the SME in order to use their
company name and conduct business practices in their region. It may help the organization to
delegate their work to the company in the market of China which may manage the daily practices
of the business in the foreign market. As the people associated with the business may be known
to the Chinese culture, it will be beneficial for the company to gain benefit in the industry and
increase the productivity of their expansion process in the international market. The SME may
prove the Chinese organization with the due resources for labelling and branding which may help
in displaying the name of the UK SME and increase its popularity in the market (Sniazhko,
2019). It may be a useful method for the business as the risk level for this method is low and the
organization may not require many efforts that needs to be put in the other methods of
expansion. It may be a simpler method of expansion which can be suitable for the business as the
UHT business is a daily production and consumption business which may be costly for the
business by exporting the products on a regular basis.
The licensing method may reduce several issues of the business and provide a better
approach in order to develop a better framework for expansion and increase the efficiency of the
business in the foreign market. With the help of this approach the business may increase its
possibilities to grow and successfully target the Chinese market which may enhance the
expansion process of the company. This expansion technique may provide the SME with
appropriate knowledge about the demand and supply in the market of China which may help in
developing better policies and procedures for the licensee in order to carry out the business
properly.
CONCLUSION
According to the above report it has been concluded that the UK SME has been successful
in there have been various drivers which have a major influence over the expansion of the
business in the global market. The organization have analysed the trade barriers appropriately in
order to develop better strategies for making the effective changes in the current expansion
practices of the business. The organization have reduced the negative impact of various social
and ethical issues by following their corporate social responsibility which is crucial in order to
increase the overall profitability of the business in the market. The SME has been able to gain
benefit by analysing the cultural preferences of the people of China and targeting their

effectively in order to grow their market share in the country effectively. The licensing strategy
that has been adopted by the organization for expansion in the market of China has been useful
in order to increase the efficiency of the work and gain better advantage in the industry.

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