Arla Foods' International Business: Expanding into the Chinese Market

This report provides an overview of Arla Foods' international business expansion into the Chinese market, focusing on the company's strategy to offer UHT milk for children. It includes an external analysis using the PESTLE framework to identify factors influencing business operations, such as political and economic stability, social considerations like China's large population, technological advancements, legal constraints, and environmental guidelines. The report also addresses trade barriers like high tariffs and cultural differences, as well as social and ethical issues related to corporate social responsibility (CSR). It further discusses various expansion methods employed by the company to increase its market share and profitability in the Chinese market, emphasizing the importance of adhering to local laws and cultural norms for sustainable growth. Desklib provides access to this and many other solved assignments.

International Business

Executive summary
This report is based on the international business expansion of the organisation. The
international business is defined as the offering of the products and services. It is very important
for the organisation to expand its business in order to achieve the goals and objectives in a
effective and efficient manner. This report is based on the Arla food company which offers the
organic milk. The company is expanding the business in Chinese market with producing the
UHT milk for children. The target audience of the company is pre age children of the market.
This report has included that various external analysis in order to identify the factors which can
influence the organisation in performing its business operations.

Table of Contents
INTRODUCTION ..........................................................................................................................3
TASK...............................................................................................................................................3
Business drivers that helps in the expansion of the company.....................................................3
Trade Barriers:............................................................................................................................5
Social issues and Ethical issues which should be considered by the SME of UK......................6
Cultural preferences of the company:.........................................................................................8
Expansion Methods used by the company:.................................................................................8
CONCLUSION .............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
International business is commonly refers to dealing of offering across the nation at the
time when the firm scale their business around the geographical boundaries, so it is called as
international business. If the firm desires to enhance their demand in the market then it is
essential for the firm in enhance their market share(Ahsan,and Musteen, 2021). The following
report is based on the company Arla food that offers organic milk to their consumers. The
organisation was founded in the year 2003 and having their headquarters in the Leeds, United
Kingdom. There are other firm in the market that offers the similar product but the goodwill of
the Arla is more and because of this firm is planning to enhance their market share in order to
earn more income. The following report will include about the business drivers, barriers in trade
as well as social and ethical issues, cultural preference in the expanding nation and scaling ways
in company. In the following report it will mentioned that how firm will make their services to
increase their marker share around the nation so that more income can be earned.
TASK
Business drivers that helps in the expansion of the company
It is essential to show the several aspect of the Arla's vision as well as mission which are
to be things which offers crucial area as when Arla execute their way of business and several
strategies. In addition to this PESTLE analysis is commonly a idea of evaluating the external
principles of the business and it is also utilised by business in which it is functioning or planning
to expand by introducing their goods as it will assist in increasing the income of the organisation.
 Political Factor – This factor includes the several fiscal policies like trade tariffs,
taxation policy and other more. This factor have an effect on the long term development
and growth of the organisation in the market area(Amore, and Corina, 2021). There are
several political aspects which are democracy, governance system, government stability,
laws of the nations and various more. In case of the company Arla Foods, it has been
evaluated that the nation is having the political stability in their system. Additionally,
organisation can make several techniques which are based on to their political
atmosphere in order increase their profitability and goodwill.
 Economic Factor – This factor has a crucial effect on the organisation's entire economix
success and growth. It can also be the reason the company's failure or decline as well as

how they function for the long time. If there is any fluctuation in such element like
economy, rate of inflation, rate of interest, foreign exchange and other more, then it may
effect the smooth working of the company(Bermúdez Abreu, and Esis Villarroel, 2021).
In context to Arla Foods, as the cost of labour in China is very low and therefore, it is
beneficial for the company to hire worker from China. Moreover, in the China cost of
raw material is also low so this can be beneficial for the long term growth of the
organisation as well as in their enhanced profits margins.
 Social Factor – This factor means to the social status that impacts the behaviour as well
as attitude of the customers of the company. In addition to this, the socio cultural
situation of any nation majorly impact the organisation and country's economy. In context
to Arla Foods, management is planning to expand their operations in China, which has a
solid population. Hence, the company can get experts worker at the lower cost as well as
because of the population of country it can be more beneficial for the firm to expand
because of the demand of the product which the firm is offering.
 Technological Factor – This factor involves the latest technology which can be helpful
for the organisation. As currently, it assist the firms in increasing the efficiency as well as
effectiveness of the company. Additionally, technology and businesses are elaborately
linked to each other. As technical innovation impacts the capacity of manufacturing,
giving an outcome in rise in the income of business. In context to Arla Foods, China is
majorly focused in advancement in their tech innovations as it has modified their mode of
manufacturing and distribution of their products. Company can also increase their sale
with the help of E commerce to supply their product.
 Legal Factor – All the businesses has to encounter with several legal problems. As this
factor refers to the many kinds of rules or laws linked to the employee or consumer
safety, health and environment and many more(Cervantes, 2021). Various legal situation
might have an effect on the working of the business. In relation to Arla Foods, in China
there are several strict laws on the investment and expansion of the international
organisation which can be act as the threat to the long term sustainability of the company
in the expanding nation.
 Environmental Factor - This element in today's time have a essential impact of the
external environment in which the firm is functioning and it also refers to the ecological

components. Though, this element does not mainly impact the growth of the business but
it have few of the major indirect effect. In case of Arla Foods, management need to
follow all the specific guidelines regarding the betterment of environment which are
made by the government of China in order to operate their business. As these guidelines
aims to maintain the environmental standards of manufacturing.
Trade Barriers:
There are various barriers that an organization can encounter when it decides to expand
its business operation in the international market. These barriers can influence the overall global
operations of an organisation and result in reduced productivity as well as performance. In
addition to this, the barriers can lead to failed expansion operations which have a negative impact
on both the financial as well as the brand image of the business(Tsang, 2021Zuo, 2021). In
context to Arla Foods its is crucial for the organisation to evaluate each of the barriers to enter
the international market in order to ensure higher level of success as well as growth. Given
below are the various barriers the organization can encounter when expanding its operations to
China:
Barriers of internationalization:
 High tariffs- This barrier of internationalization is based on the overall rates of tariffs
that can influence the overall operations of an organisation. The changes in tariff rates
can impact the financial resource of an organization(Drummond Jr, 2021). It is crucial
for a business that is expanding its business operation into a foreign market to evaluate
these tariff rates as it can impact the overall cost of operation, ultimately influencing the
cost of products and services. In context to Arla Foods, the management of the
organization must ensure that the tariff rates of the Chinese market are aligned with the
expansion strategy of the business. This will allow the business to be pro-active in nature
and be prepared for the dynamic changes in the rates of tariffs.
 Trade restrictions - There can can be various trade restriction that an organisation that
is expanding into a new international market might have to face. These rules and laws
related to training can become barriers for a business and negatively influence its
operations in the new market. In addition to this, it will impact the overall brand image of
the organisation if it is not able to deliver desired products due to trade restriction. In
context to Arla Foods, the trade restrictions can impact the expansion opportunity into

China as there are prohibitions of various items within the country. It is vital for the
organization to ensure that all the essential requirements of the organisation do not come
under the trade restriction elements in order to operate in the international market in an
optimal manner.
 Cultural difference - The overall culture in the new international market differs from the
domestic market of the organization(Fainshmidt, Haensel, and Andrews, 2021). This can
be a barrier for the business and its employees as it can be difficult to adapt to the values
and culture of a new region. It is vital for a business to ensure that its follows all the
cultural beliefs of the internal market in order to have a positive brand image relative to
its new potential customers. In context to Arla Foods, the culture of China is rich with
heritage which makes its vital for the business to ensure that it follows all the values and
ethics of the international market. This is important as it will help the business to develop
a positive brand image in the market as well as allow the business to keep the Chinese
workers aligned with is business operations.
 Financial resources - The overall need of large financial resource can be a barrier for an
organisation that is planning to expand its business operation in a new international
market. This aspect is vital for a business as financial resource need to be allocated in an
optimal manner in order to reduce the risk of failure(Hnatkovych, and et.al., 2021). This
is important as in order to develop new establishments as well as structured in the
international market required high amount of finances which can impact the other
operations of the business. In context to Arla Foods, the barrier of financial resource can
be a major challenge for the business when expanding into China as although the labour
cost is relatively less in the region, the business will require huge cost in order to
establish its organisation in the new market. In addition to this, the high level of
competition in the market is also a contributing factor that can impact the financial
resource of the business and negatively influence its expansion operations into China.
Social issues and Ethical issues which should be considered by the SME of UK
Corporate social responsibility is commonly self governance that assist a firm to be
openly aware about their stakeholders as well as consumers. It is also known as the corporate
citizenship. Firms can be aware of the type about the effect they are possessing on the economic,
social and environment. It assist in enhancing the interest of the organisation in the commercial

manner. Organisations which opts several programs of corporate social responsibilities have
made their firms in the market so that organisation can offer back to the people or environment.
CSR can be implemented by the big firms. In case of the Arla Food offers top quality goods to
their consumers at the very reasonable amount so that consumers can conveniently buy the
product or services of the organisation(Klarin, and et.al., 2021). As this firm offers healthy
products of food with having unique packaging which does not have any health regarding
effects. As if the packaging of the goods will not be appropriate then it can impact the health of
the customers in the market that can act as the limitation of the company in the market area.
Organisations are always looking for the new methods to be more competitive by offering top
quality goods at low rates to their consumers. As the business scales globally, management
should always focus on the vision, goals, strategies and policies but they also should concentrate
on the ethical as well as legal problems in the global business. At the time when organisations
plans their long lasting expansion in the international atmosphere, they should handle serious
ethical and morla issues and making of the decisions in accordance to make their scaling in the
market of China success and appropriate for their long term growth there in the nation.
Few of the most basic issues which are related to the ethical and social issues in global
business environment for the Arla Food, involves working standards, condition of the work,
outsourcing, child labour, equal opportunities, diversity in the working place, integrity, trust,
environmental laws, safety laws, federal policies, civil rights laws, monetary as well as financial
accounting , religion, discrimination in the workforce, corruption and bribery as well.
Organisations trading globally as assumed to appropriately comply with the state safety and
federal laws, environmental policies, civil right regulations, monetary and financial accounting
statuses. In addition to this, cultural understanding can also break or make the firm operating
business internationally(LeClair, and et.al., 2021). Culture of China has their own customs,
values, traditions, history and code of conduct. Moreover to this, barriers in culture involves
language that majorly refer to the firm should depend on the several translators at the time of
communicating to the business consumers and contacts of the Arla Food company. Gender can
also act as an issue in the country like China where women do not possess equal rights as men in
few circumstances. Cultural events and other religious holidays can restrict trade in the nation at
specific times. Operating in accordance to the cultural values and ethical is essential for the

international organisation to gain more consumer base, support and business need to accomplish
and gain the edge over their competitors in the market area.
Cultural preferences of the company:
In order to enhance the profit in the market evaluating the organisational culture is very
essential as it supports in determining the need of the buyers that later assist in increasing the
productivity of the company(Montiel, and et.al., 2021). Moreover to this, culture means to the
idea, concept, traditions and behaviours which are there in the team of the people. These
traditions, ideas, behaviours and traditions are move from one generation to the other one and
majorly can fluctuate. In the global nation, people possess several taste concerning to their needs
and wants on which the firm need to innovate their offering due to the situation which the
management of the organisation will not support with the expectation for the customers then it
can impact the growth of the company in the market. The issue of cross cultural management
increases as the link between China and their partners with having different culture focuses on
enhancing at the new pace.
In Addition to this, Chinese daily meals includes four type of food groups that are meat,
grains, fruits and vegetables and firm has to focus on the need of different culture and
concentrating on which they need to create their products and services in order to offer the better
quality services to their consumers. Chinese culture is ascertain from the people of other nations
that are more preferring the taste instead of the nutrient content. If the firm need to enhance their
revenue they require to concentrate on the choice of people by involving nutritions in the
products as well. Moreover to this, if the firm will not concentrate on it then it can impact the
operations of the organisation that can effect the goodwill as well as long term sustainability of
the company(Pla-Barber, Botella-Andreu, and Villar, 2021). Business should instruct the
search so that the culture can be impose properly that will assist the firm in increasing their
income.
Expansion Methods used by the company:
There are various expansions methods that are present in that market through which a
company or organisation can increase the operations of their business
(Saleem, and Akpinar, 2021). Arla foods can increase the operations of their business by
adopting various methods that are discussed below:

 Licensing:- It means that when one company gives permission to the other business or
company to sell out their products and services in the market. Arla foods is one of the
most famous and well established dairy company that is present in the market. They have
supremacy in the dairy products as they sells the best quality of milk products in the
market (Dau, Morck, and Yeung, 2021). They can easily expand their business in the
market by using licensing methods. They can transfers the right to another business
which helps them in selling the products of their company. This will helps them in
increasing the sales of the company as well as the brand image in the market.
 Franchising:- In this type of expansion an individual or the group of buyer pays an
significant amount to the company for managing and running the company's branches on
the behalf of the particular company. This gives an opportunities to the businesses to
expand their business in the international market. Arla foods have operations in
approximately 32 countries. They can easily expand in more countries as they have a
strong brand image in the market (Rathnayake, 2021). They have the opportunity to enter
into the new territories very easily as they have the valuable brand image in the eyes of
their customers.
 Management contract:- These are the contracts in which the management of the one
company have fully controls over the another business management by coming into an
legal agreement. This agreement is done by the companies in order to perform better in
the market. Arla foods are well established in the market and they have an effective
management team who manages all the work of the company. This type of agreement is
not suitable for them.
 Joint venture:- This is the safest way to expand the business in the international market.
This means that a company expand their business by forming a joint venture with the
other company that are present in the market (Rygg, Paula, and Løhre, 2021).. This
helps to divide the risks in the international market. Joint venture mostly get success in
the business as all the resources get doubled when two companies combines in order to
run a particular business. Arla foods can also expand their business in the international
market by forming joint venture with the other company.
 Turnkey operations:- This means that a business or a company make a structure in the
form of building for the ultimate consumers. This types of method includes services like

construction, architecture, engineering and consulting. This type of method is not suitable
for every types of company. Alra foods have operations in the milk products and they
sell variety of products in the market . This types of method is not at all suitable for them
as they have only deals in the dairy products.
It has been evaluated from the various options that the franchising would be the best method for
the Arla foods to expand the operations of the business in the international market. As Arla foods
have strong brand image in the market and it becomes easy for the company to sell their
franchise in the market of china.
CONCLUSION
From the above discussed report it has been concluded that, global methods will utilised
in the commercial business management in accordance to manage the ways and transactions in
the area of the market. It will immediately enhance the profitability and performance of the firm
in regards to manage the growth of the business. By evaluating the several set of different culture
it can be convenient for the firm to maintain the culture with the different countries that has a
crucial roe at the time of making effectual decisions. As the firm will make their offering in
accordance to the way of the growth of the company in the respective industry it is working in.
The mentioned report will represent the areas with the assistance of the PESTLE framework in
order to examine the external environment of the organisation. These element may be understood
with the way to eliminate the risk linked to the several factors of the company. The organisation
need to make the advancement which will savvy the portion of the customer in which the firm
can manage their transactions in an effectual and efficient way. Moreover to this, expanding a
company into the nation like China needs that the firm worker the appropriate techniques which
is possible to make a operation which does not prefer to go against the expectations of the
people. It will possess the common set of demands in which respective firm will have the
optimistic reputation in the market which will assist them to manage their stability.

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