Impact of Changing Business Environment on UK SME (Longley Farm) Expansion into Chinese Market

The report analyzes the impact of changing business environment on UK SME (Longley Farm) expansion into Chinese market. It covers trade barriers, ethical and social issues, cultural preferences, and expansion methods.

UK SME (MILK)
(REPORT)
International Business – (MS6LB480)

Executive summary:
The aim of the report is to identify the changing business environmental and the impact
on the small-scale dairy industry that is operating in UK. Also, the report had identified certain
trade barriers and ethical issue for the Longley Farm that wish to operate in China for earning
extra revenues and generating sales of the business. Further, significance of culture and the
expansion methods had also been covered under this study.

TABLE OF CONTENT
INTRODUCTION...........................................................................................................................5
MAIN BODY...................................................................................................................................5
Industry background....................................................................................................................5
Business drivers behind the UK SME expansion into Chinese market.......................................6
Trade barriers...............................................................................................................................9
Ethical and social issues to be considered.................................................................................10
Cultural preferences to be taken into account............................................................................11
Expansion methods by the company..........................................................................................12
Recommendations......................................................................................................................13
CONCUSION ...............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Small scale business industries are ones that have limited number of resources that are
invested in some business to achieve certain targets of goals in the future. Further, the present
report is based on the Longley Farm that wish to expand its business in Chinese markets. Also,
the study will identify the significance of the culture and impact on the people that wish to
purchase some goods. Also, the study will highlight some trade barriers and uncertainties that
quoted firm need to see while expanding into the Chinese markets. Furthermore, the impact of
the Chinese culture on the current business of dairy products will also be discussed in detail
through business examples. Moreover, range of potential internationalization methods such as
mergers, acquisitions, licensing will also be covered under this report in detail. Lastly, certain
recommendations will also be provided under this study.
MAIN BODY
Industry background
In the current times it can be said that UK dairy trends are continuously declining since
there is shift in the product mix and people are more attracted towards nowadays consuming the
plant based dairy alternatives. Also, now the dairy industry in UK also must face certain
sustainability challenges because of which various dairy companies’ business operations have
become difficult. (Holland, and Gutiérrez-Leefmans, 2018). However, it is quite opposite in case
of China where most of the dairy industries are gaining success and industries have much
brighter future than compared to other countries or regions (Dahlstrom and Talmage, 2018).
Also, it is because China is the biggest exporter of the dairy food products and hence most of the
UK dairy business can expand into this country to gain additional revenue advantages and sales
for its business. Also, the major producers of dairy products in Chinese markets are Inner
Mongolia Yili industrial group and Mengniu Dairy company that leading the market. Further, it
is known that each Chinese people have consumed 13 kilograms of the milk products in 2020.

Furthermore, in the context of Longley farm that is dairy product small manufacturing
company in the United Kingdom it can be said that it is great opportunity for company to sell in
the Chinese market. Also, it can be said that China economy has the growing influence of the
developing countries in the form of trade, Ideas, and investment (Shore and et.al., 2020). Thus, it
would be much easier for the quoted firm to influence people to purchase the products of the
company through delivering goods according to the high-quality standards and thus expand
successfully.
Also, in some reports it was found out that the demand for the UHT milk in Chinese
market was very high. Although, it was known that such type of milk losses it flavours after the
dehydration process, but it is perfectly good while making the smoothies, coffee, and tea. On the
other hand, it can be said that the demand for such UHT milk is very less in UK and there are
very fewer producers that willing to produce such type of milk where the nutrients levels are
gone down (Hettihewa and Wright, 2018.). Thus, it would be great for quoted firm to sell UHT
milk in parts of China and continue its business operations for longer time period.
Business drivers behind the UK SME expansion into Chinese market.
The two significant drivers that might be in linked with current case for the Longley farm
company might be as follows:
Competition: It can be said that in UK already there are various milk providers that are
selling variety of milk product both online and offline. Thus, there is intense competition for all
the UK dairy products company that forces them to move to new product line of sectors so that it
might be able to run successfully over the years and also maintain the competitive advantage.

Thus, with intense competition in the current market the company is forced to move to new
market to generate more revenues for the business.
Expansion of technology: It can be further said that firms that are using the less
advanced technology in the business can identify areas where the latest technology might be used
so that processing might be improved and production might be carried out on greater scale
(Murphy, Tocher and Burch, 2019). Also, with the use of technology the quoted firm in china
would be able to attract a greater number of customers and start new product line in the business.
Also, the firm would be able to minimize the overall risk that would otherwise associate when
the business operation is conducted in limited area only.
PESTLE ANALSYIS.
Political
 Though the China political relations are
good with most countries but in case of
political instability due to bad US and
south China relations the dairy business
might be impacted (Aftan and Hanapi,
2018).
 Low labour cost is positive factor in
China that would benefit the quoted
firm.
Social
 Change in lifestyle and the need for
sustainability living among the people
might be both positive and negative for
the Longley farm.
 The growing trend of use of internet
and its users the business has the option
to sell goods online.
Economical
 China has higher GDP that would
increase the purchasing power among
the people and thus firm would be able
to sold milk products at little higher
prices than the current market and
generate profits
 Lower inflation rate would also be
positive for quoted firm.
Technological
 Continuous up gradation in technology
would help the quoted firm to sustain in
any firm as all the processing would be
faster and mass production might be
done in limited time
 Also, innovative technology would help
the firm to expand easily through use of
less labour and more production
Legal Environmental

 There are various laws in China
regarding the working of the industries
that need to be strictly followed so that
there is no negative impact in the future
(Cornée, 2019). Thus, if these laws are
not followed in Chinese market than
there might be business closure and
losses
 Use of sustainability methods in the
processing of various products would
be additional advantage in increasing
sales to the quoted firm in China. As
the use of the less natural resources
would promote the business and build
brand image in chines markets
Competitors analysis
Particulars Longley farm Mengniu Dairy
Product It is concerned with whole
daily range and sells
variety of products such as
cheese, yogurt, drinks etc.
(Longely farm, 2022)
It sells variety of healthy
nutritious and tasty dairy
products that are consumed by
large number of people.
Pricing It had adopted cost plus
pricing technique so that
revenues might be
generated in appropriate
manner (Hughes and Troy,
2020).
It had adopted premium pricing
technique so that best quality
products might be sold in
Chinese market.
Market share It is limited only to UK
market and target all
medium class business
groups.
It is one of the leading dairy
product sellers in China UK and
ranked 8 in the global dairy top
20 list.
USP Variety of dairy products
that are reasonably priced
and widely available.
The main USP of company is
brand value and image that it has
maintained over the years in

Chinese marketplace.
Furthermore, it can be said that quoted firm would be able to identify the key drivers that
are for internalization through the applying the relevant trade theory of factors of production
that states that for any company there are certain factors such as land, labour and capital that are
involved to make the business a success (Ali, Miah and Khan, 2018). Also, in context of the
Longley farm it can be said that while planning to expand to the Chinese market it would allow
the firm to start the operations smoothly as country has superior infrastructure and the transport
facilities that would allow the quoted firm to easily transport various goods and services from
one place to another. Also, the domestic market in China has labour that would work at lower
wages that would reduce the working cots of the business. Moreover, the labour has the high
productivity and the skills that would deliver the best of results for the business. Also, the capital
is easily available if the firm can cover the market easily and build the image that would attract
more investors for the same.
Trade barriers
There are various trade barriers that must considered by the dairy business so that there is
no wastage of resources, and the products might be sold easily. Some of them are briefly
described as follows:
Tariff, quotas: It refers to amount of specific goods that are allowed to be imported over
the specific period at zero rates against some custom duties. Also, such type of barriers for the
quoted firm would create negative impact on the business as it would not be able to bring raw
materials form other regions to carry out the business operations in smooth manner. Furthermore,
it would force business to the increase the price of certain dairy products that would limit the
Chinese market for the Longley farm (KUROCHKINA and et.al., 2019). Also, it can be said that
with upcoming of the new Brexit reforms the quoted firm would not be able to import and export
dairy products (easily) than would also limit the production process and increase in cost of
various products of the company. Thus, this means that reduced in production and increasing
cost of business that would create negative impact on sales.
Cross cultural preferences: Various regions consumes variety of goods that are unique
according to the cultural values and norms. Also, it can be said that it is barrier for the Longley
farm as it has to introduce the extra product line while entering into the Chinese market so that it

might be able to sell successfully. However, wrong analysis of this barrier would only result in
losses to the firm as if the new product line is not according to customer preferences than people
would not buy products of the company
Competitors: This is also the barrier when the firm is planning to move into international
market as in current era most of the business are running online. Hence, for quoted firm it would
be difficult if strong rivalries are already positioned in China markets and is selling large number
of goods.
Thus, it can be said that if SME ignored all these possible consequences, it would only
lead to extra cost and wastage of resources (Kgoroeadira, Burke and van Stel, 2019). Also, it can
be said that if the market analysis is not conducted before entering the new market than there are
chances that firm would be able to sell in effective manner and accomplish goals of earning the
highest revenues.
Furthermore, there are various opportunities that are available to the quoted firm in
accordance with China trade policies. Thus, one of them being China being the favoured nation
in terms of conducting the business and trade. Also, the country has lowered the trade rate from
15.3% in 2001 to 7.5% in 2020 that would allow trading among various business. However, in
contrast to this it can be said that trade policies are also threat to the business especially in times
of war with any country such as US would not allow the Longley farm to sell goods in that
region (Akpan, Udoh and Adebisi, 2020). Moreover, such type of uncertainties would only limit
the growth of the business that wish to conduct its daily routine operations internationally.
However, it can be said that China had reduced alliance of foreign suppliers of technology and in
strategic sectors especially after the pandemic that is another important factor creating
uncertainty for the business.
Ethical and social issues to be considered.
Corporate social responsibility
It is very crucial for any business that wish to conduct operations either nationally or
globally. Furthermore, in context of Longley farm it can be said that it has to follow certain
norms that are followed in the Chinese market so that it would create positive impact on both the
company and the societies. Moreover, it is essential that it is successful in creating the shared
value not only for earning profit but also to bring about innovations and growth in the economy.

Also, quoted firm has to ensure that all the activities are conducted in accordance with minimum
wastage to environmental resources and conduct of sustainable practices. Furthermore, firm need
to ensure that all the activities that are conducted provide something in return to the society
either in form of general donations, grants, and scholarship programs better wages to the labour
and much more (Kansheba, 2020). Thus, when Longley farm conduct such activities than it
would not only able to build better brand image but would also create good brand awareness and
build trust and loyalty among the people of Chinese markets. Hence, quoted firm would be able
increase the financial performance and would be able to access the capital easier in the different
Chinese regions when proper corporate social programs are been developed while planning to
expand into newer markets.
Theory of ethics
The labour issue problem of China might be solved through applying the Utilitarian
theory that states that all types of ethical decision of the business need to be made in accordance
with the wants of majority of the people. Also, the firm need to analyse the consequences of in
future before making any kind of final decisions. Moreover, it was seen in certain reports that
China had faced many issues regarding the workplace environment, pollution, corporate social
responsibility and thus while using such type of ethical theory the quoted firm would be able to
make the right business decision so that majority of people especially workers that help the
organization grow would be benefited and increase the efficiency for the business for the same.
However, using such type of theory will also create negative outcome as decision makers would
be forced to guess the outcome of their choice (Aladejebi and Oladimeji, 2019). Also, it is
known that this theory might not work as every time outcome of the decision might not be
predicted. Hence, the quoted firm instead of solving the major China issues would land in
creating more problems for the business if poor planning has been made. Moreover, in context of
China it can be said that it oversees UK as very stable economy where proper rules and
regulations are made to guide various business in proper manner. Furthermore, it believes that
UK is very much concern with consumers and proper working environment of the business is
encouraged and thus strict actions are taken against those firms that fails to follow to maintain
such rules.
Cultural preferences to be taken into account
Significance of culture

Culture plays a very important role in framing certain norms, values and belief of the
individual so that people are able to follow it in strict manner. Also, for any business it crucial to
identify what are the preferences and the systems that are followed by people of any country
before expanding so that the business can operate successfully (The cultural advantage, 2022).
Furthermore, in context of Longley Farm it can be said that there are various activities that must
be performed while carrying out the business in the Chinese markets and hence one of them
being that Chinese people are more concern in buying goods that are best in quality and available
at lower prices so that certain demands might be fulfilled. Also, people are concerned with
consuming innovative products and hence the dairy products that are new and available in
various size must be offered by the company so that more people are able to the purchase the
products. Furthermore, Chinese culture is concern with building the long-lasting relationships
and hence quoted firm need to focus on developing products that are liked by majority of people
for example: China people consume most of the yogurt and thus it would be additional advantage
to the quoted firm to sell various varieties of such product in Chinese market as it is already
dealing in such product line in UK.
Impact of Chinese culture on UK SME
The current way quoted firm is operating in UK it can be said that it would be largely
impacted both in positive and negative manner. Also, it would be positive in way as it would
provide large number of customers for the business to increase the sales that would be able to
consume the product that is liked by them the most in reasonable prices. Moreover, Chinese
culture would allow the business to identify new ways of processing so that supply of goods
might be done in faster and efficient manner. However, the negative impact of the Chinese
culture would be that the firm need to change the packaging methods as all the information on
the dairy products need to be mentioned in Chinese language so that local people are able to
understand the product and are able to purchase (Pozo, Akabane and Tachizava, 2019). Also,
due to the language barriers the company would not be able to advertise and create awareness
of the new products in best of manner. Furthermore, if quoted firm tries to sell the goods though
online medium in Chinese market because of its growing internet popularity than there are
chances that large amount needs to be invested in advertising and promoting various goods.
Thus, it will impact the revenues of the business on larger scale and there would be difficulties in

completing the distribution process easily as new suppliers need to be identified that would help
the firm in making the goods available in various regions of China.
Expansion methods by the company
Range of methods
There are various methods through which Longley farm would be able to operate in the
Chinese market and sells variety of goods for the same. Also, the most common methods that
might be used by the firm are the merger where two dairy companies of UK might join hands
together to form completely new company to start the operations in China. Also, another method
is through acquiring any existing dairy business in China so that certain modifications and
rebranding process might be undertaken (Bismala, Handayani and Andriany, 2018).
Furthermore, licencing method might also be used where the certain right might be provided by
the company to another party to sell products in company name for limited time frame. Also,
another technique is through using the organic growth technique where certain targets of the
company might be achieved through increasing the output and enhancing the sales of the
business.
However, according to the current business goals the one that would be best suited for
Longley farm would be licencing method that would allow the firm to reach the international
markets in better manner as local business company would be expert in marketing the products
in Chinese market thus saving the additional cost and time of the business. Furthermore, it is the
best strategy that would allow the firm to enter foreign market without investing much on the
infrastructure and other resources that are essential to carry out for the business. However, major
disadvantage of using this method is that there is no guarantee on the revenue as the business is
based on the percentage of profits and if licensee fails to generate profits than there will be no
revenue. Also, chances of having conflicts are more as there might be communication issues of
the lack of coordination between both the firms. Thus, to avoid such cases the quoted firm need
to follow the strategic framework where benchmarks are been set, performances are measured,
and corrective actions are being found out through analysing the variances.
Recommendations
 It is recommended to quoted firm that it should use the Ansoff matrix to analyse the best
strategy to work successfully in changing business environment. Also, it would allow the

firm to devise new products or analyse the existing markets within or outside the country
for the purpose of expansion.
 Moreover, it is suggested to Longley Farm that it should focus on short term objective of
developing the efficient price strategy that would allow in operating in various
international markets so that more people are able to attract towards the company
products (Schwatka and et.al., 2020). Also, there are various strategies such as price
skimming, premium pricing, bundle pricing etc. that might be used by the business.
 Further, it is recommended that quoted firm should adopt better advertising strategy that
would help the firm to advertise various products in international market efficiently.
 Also, it is suggested that quoted firm should opt for the greenfield investment that is
related to the foreign direct investment where the parent company sells goods to the
different country through forming the subsidiary. Thus, it would not degrade the brand
image and goodwill if things don't work out well in that country.
 Lastly, firm might also opt for various distribution strategies that would help in making
the sales process efficient and would increase the revenues in limited time. Also,
distribution might be made either through the retailer, wholesaler, franchisor or any other
third party that would be proved advantageous.
CONCUSION
From the above report it can be concluded that for small business to run successfully in
international markets it is very important that various factors are identified closely so that
goodwill of the company might be maintained in newer markets. Also, the report had identified
that there are various drives of the globalization such as competition and the expansion of
technology that would impact the business and its operations. Moreover, the study had conducted
various analysis such as PESTLE and competitor analysis along with applying the relevant trade
theory such as factors of production. Moreover, the study had also highlighted the trade barriers
that would impact the quoted firm while selling the goods in the market. Also, the ethical and
social issues related to the UK and chines market had also been explained in detail under this
report. Lastly, different forms of entering the international market had also been discussed along
with providing relevant recommendations for future improvement of the business.

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