International Business Report: Milky UK's China Market Entry

This report provides a comprehensive analysis of Milky UK's plan to expand its UHT milk business into the Chinese market. It begins with an executive summary and table of contents, followed by an introduction outlining the company's background and the industry context of milk products in London. The report identifies key business drivers, including political, economic, social, technological, environmental, and legal factors, using the PESTLE model. It then delves into trade barriers in China, such as tariffs, non-tariff barriers like quotas and licenses, and subsidies. The report also discusses the uncertainties and opportunities associated with trading in China and explores ethical and social issues, including product quality, hygienic conditions, efficient distribution, pricing strategies, and CSR activities. Furthermore, it examines the cultural preferences that Milky UK needs to consider, such as face culture and relation building. Finally, it offers recommendations for the company's expansion strategy, including the Ansoff matrix and market entry strategies, and concludes with a summary of key findings and references.

INTERNATIONAL
BUSINESS
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Executive summary
International businesses can be defined as company that is having its operation across
worldwide whose motivate is to enjoy huge profit through delivering range of services to
customers. There are different external environment drivers that impact on growth and
development of company, so they need to effectively adapt in limited time frame. Moreover, it
has consisted of Ansoff matrix that has helped in identifying strategies that could be used by firm
to expand its business operation in external environment. At last has explained about strategies
that could be used by firm to expand its businesses in international market.
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TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
Industry background in milk products in London.......................................................................3
Business drivers...........................................................................................................................3
Trade barriers in China................................................................................................................5
Uncertainty and opportunities in trading with China..................................................................6
Ethical and social issues for consideration..................................................................................6
Cultural preferences considered by Company.............................................................................7
Expansion method to be selected by company............................................................................8
Recommendation.......................................................................................................................12
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14
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INTRODUCTION
International business refers to organisation that has operation across worldwide or
different parts of country or trade of good, services and capital across national borders. Company
while expanding its business into new market needs to conduct effective analysis of market
situation as well as circumstances. In order to understand the taste, preferences of people,
government policies and market condition of country to find appropriate strategies that could be
used to motivate individuals to be part of organisation. This report is about Milky UK Limited
company operating in London, United Kingdom have generated $8.29 million sales and having
around 18 employees that are working for growth of firm. Company is planning to expand its
market in china so the report has covered key points related to business drivers, trade barriers,
ethical and social issue and cultural or preferences of people. Furthermore include detailed
related to strategies that are used by company to expand its business operation in international
market for its growth and development.
Industry background in milk products in London
4.43bn GBP is the value of mil product in United Kingdom and around 15bn is milk
production thus company have huge opportunities to expand its operation in order to enjoy high
profit margin. Moreover, UK is 11 largest milk producer across worldwide that is it account for
16.9% of total agricultural output. Around 98.5% of UK household still make purchase of milk
products so market size is £7bn with number of businesses 109 which is employing around
12292 individuals in the firm. 14 billion litre of milk has been prepared by UK dairy farmer each
year. Milky UK has been initially incorporated in 2003 that deals in dairy products
manufacturing, creamery butter and many more products in order to satisfy the needs of
customers. So, it is small medium enterprise based in London manufacturing UTH milk products
to customers to earn sufficient amount of revenue or profit margin.
Business drivers
Business driver can be defined as key input and activities that drive operational and
financial results of business or it is marketing term that include elements which forces business
to undertake particular operation. Likewise there are numerous changes in external environment
that directly impact on the business operation such as policies of government, taste and
preferences of customers, technology development and economic condition of country. So in
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order to understand the significant business drivers for internationalisation, Pestle model has
been used such as:
 Political factor: Government is solely responsible for formulating all rules and
regulation that needs to be abided by organisation in order to grow and sustain business
operation for longer time frame in competitive environment (Knudsen and Moon, 2017).
Such as globalisation has provided opportunity to Milky UK Limited to expand its
business operation in international market that is China to enjoy more customers and
profit margin.
 Economic factor: In current scenario, the economic condition of United Kingdom is not
well due to impact of Brexit that has resulted in forcing company to move its operation in
different parts of world to sustain business for longer time frame. Milky UK Limited
through providing milk products at reasonable rates to customers is able to influence
them to be part of organisation rather than other for satisfaction of their wants. Therefore,
company through focus on brining economic of scale or optimum use of resources is able
to grow and expand business and attained the end objectives.
 Social factor: It can be stated that taste and preferences of people keeps on changing
with changes in circumstances, famous and trends. But Milk is an essential product that is
intake by each and every individual to stay health and fit for longer time frame. So
demand of milk products by most of the people has provided opportunity to Milky UK
Limited to expand not only in London but also in different countries such as China
market to earn maximum profit margin (Verbeke, van Tulder and Puck, 2017). Thereby,
individuals wants to have quality milk products at reasonable rates so Milky UK Limited
providing the same is able to attracted and retained large number of customers in the
firm.
 Technology factor: In external environment, there are continuous developments in
technology that has enforced business to make use of them in order to sustain in
competitive market. Likewise, most of the companies have started making use of digital
technology or social media channel in order to generate awareness among people so that
they can take right decision to purchase for fulfilment of their desired. Thereby the Milky
UK Limited has an option to make use of social media platform to connect and build
strong relationship with customers for benefits of organisation (Cravino and Levchenko,
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2017). It can also make use of social media platform to know about customers taste and
preferences in new market thereby find appropriate strategies to satisfy their wants.
Therefore, technology factor has also drive the business or contribute in achievement of
end objectives of firm.
 Environmental factor: With ineffective utilisation of resources or increase in number of
pollution, company are driving to undertake steps related to protection of resources and
environment for benefits of all. So, Milky UK Limited has emphasis on ethical and social
responsibilities that contribute in building and retaining strong relationship with
customers. Company has tried to make best or optimum use of resources, with minimum
wastage so that maximum value can be delivered to customers at minimum prices
possible (Teagarden, Von Glinow and Mellahi, 2018).
 Legal factor: There are various legal law and policies that need to be followed by
business such as health and safety, discrimination and equality while operating its
business functions. Milky UK Limited has tried to follow all the legal laws, trade and
tariff while operating its business that has lead in its growth and success. Therefore, it can
be stated that it has save company from legal complication and contributed in smooth
functions to maximum extend.
Trade barriers in China
Tariffs
Tariff is a tax or duty which was imposed on particular class of exports and imports.
Tariffs are again increased in China after a while, as before they were reduced. Same is the case
for Milky UK who shall have to face tariff rates high in the country. China is imposing tariffs
which range from 0 to 100% on goods imported. Example there are high tariffs on some food
products in China. Tariffs here are distinguishable in three main categories which are value
added tax, consumption tax and general duties of custom (Wang and et.al., 2019).
Non-tariff trade barrier
Quota is a non-tariff trade barrier which puts a quantitative limit on product for protection
against domestic industry. Quotas have been put by China which can act as a barrier to foreign
firms like Milky UK. As of now, there have been quotas imposed on 40 types of commodities.
By implementation of it, quota prevents the domestic consumers on buying imported goods.
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Licenses is a type of non-tariff barrier and number of products are as well prone to licensing
controls (Li, He and Lin, 2018).
Subsidies
They are incentives for domestic producer who gain advantage from reduced costs. This
is used by China for competing against firms from outside countries who may be unable to
compete in terms of price. Milky UK thus will have to compete in price terms with the domestic
products. If a domestic factory is located in special economic Zone, they can benefit from
corporation tax reduction and there are benefits which include VAT rebates, cash subsidies
which are direct and there are discounted rates of utility (Wang and et.al., 2019). Milky UK has
to compete with these companies who are getting benefit which it is not getting.
Exchange rate
Exchange rates can affect income of a company. For instance, if the currency rate is
valued higher then exports will not gain much income and due to fluctuation in the currency the
rates can go high and low affecting the profit of companies like Milky UK.
Uncertainty and opportunities in trading with China
China’s trade policies have been of significant liberalisation for proving effectiveness in
competition environment. There has been an influx of trade since 1990s and also much emphasis
has been given on manufacturing in China. There are many MNCs from the western world
operating in China. However, uncertainty has come in with Chinese products not meeting quality
standards of durability and trade war between US and China affecting the growth of SMEs from
US and UK being ally of China (Li, He and Lin, 2018).
Ethical and social issues for consideration
There has to be ethical business when a foreign company plans to do business in another
country. They can be:
aa Quality: Milky UK has to provide milk and dairy products which meet standards of the
food authority by China. Global food standards can be an added advantage which shall be
an authentication for the product. The studies reveal that milk quality has been
deteriorating in the tests done of milk samples world over.
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aa Hygienic conditions: The storage of products has to be in a hygienic place which is
regularly sanitised and in refrigerated conditions at a temperature which is suitable for the
products. This shall help ensure the safety and quality of the product. Products being sold
at small shops have to be following the same hygienic conditions as in a mall.aa Efficiency: There has to be efficient distribution of products meaning the logistics
involved have to be vigilant in delivering the goods safely and timely. It has to be noted
that the distribution chain has to note that there are no products supplied which have
exceeded the expiry date.aa Pricing: The strategy for pricing has to be reasonable and customers should be getting
value for the product. If a product is priced higher of Milky UK, then customer should
feel the difference in product quality. There is also a bar set by the government of the
country which has to be followed in pricing the products (Han and Wu, 2019).aa CSR activities: Milky UK has to participate in CSR activities which shall make its image
as one which is sustainable in operations. It can avoid using plastics in the product,
promote paper cups for ice-creams as a product, it can take participation in sponsoring an
environmental activity which can be for green cover repletion.
Cultural preferences considered by Company
Face first
The face culture is prominent in China which includes visitors for recognising importance of
saving face and giving face (Yao, Boardman and Vazquez, 2019). Thus, people value ethics in
business which shall see that the business is respected. Trust is very important in China to
maintain for the business. Milky UK has to maintain the trust by giving quality products for the
customers which can help business succeed.
Relation building
In China, visitors have to lay importance of maintaining network or connection in business as
this is important for getting business done properly. For getting clients, face to face meetings are
important with channels of good communication, there has to be importance given to socialising
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and relationship building activities are prominent in completion of tasks which are tangible.
Milky UK have to establish communication to expand their business.
Eating habits of Chinese
It is necessary for a business to know about the eating habits of Chinese what they like to prefer
or what they consume less. Accordingly, a strategy can be made for product expansion of the one
which is more popular among the people. Catering to the demand of people based on research,
shall lead to an increase of revenue for the business. Milky UK has to do research beforehand in
terms of dairy products and make those products available for the people they prefer most.
Expansion method to be selected by company
For expanding the business there are a range of different methods through which
company can go for the internationalisation. But there are many different options and methods
through which Milky UK Limited can go within the Chinese market. These different methods of
internationalisation is as follows-
Ansoff matrix- this is a tool which is used by the companies in order to plan for the
strategies which can provide growth to the company ad for its better development. This method
of ansof matrix involves use of four different methods of market expansion which are market
penetration, product development, market development and the diversification (Loredana, 2017).
Hence, when Milky need to expand its working and operation in Chinese market then they can
go for the strategy of market development strategy. This is particularly because of the reason that
with help of the market development technique Milky will be in good position to capture the
Chinese market.
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(Source: Ansoff matrix. 2021)
The major strength of the market development in Chinese market is that there is high
demand of the UHT milk products in China and in case Milky will expand the market then this
will be beneficial to the company.
In against of this the major weakness of entering within the Chinese Market with help of
the market development technique is that already the competition is hi in Chinese market. Hence
in case if the company will enter within the Chinese market then they will have to face intense
competition.
Porter generic strategy- this is also another method through which the company can
decide to enter within the Chinese market. This is a model which states that there are three
different strategies being available to the company so that it can effectively expand the business
in other countries as well. This porter generic strategy involves three different strategic options
that are cost leadership, differentiation and focus (Saputra, Haryono and Untoro, 2019). All these
three strategies are helpful for Milky in expanding the business in other countries. But out of all
the strategies the most common strategy which will be helpful in expanding the UHT milk
product in china is differentiation strategy. This is particularly because of the reason that with
help of differentiation strategy the company will be providing some or the other improvement
which will attract the consumers.
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The major strength of using the differentiation strategy is that I'm these differentiation
points will attract the consumers of Chinese Market to a great extent for stop the reason
underlying this part is that the consumer will get something different and this will be like by the
consumer.
On the other hand the major weakness of undertaking the differentiation strategy and the
porter generic strategy is that it might also be possible that the consumer does not like the
differentiated product and may prefer the regular product is sold by the existing companies and
Chinese Market.
Market segmentation and target market- for the successful operation of the business it
is very essential that they select the market segmentation and target market in effective manner
(Camilleri, 2018). This is pertaining to the part that in case Milky has a good market segment
and clear target then this will assist them in marketing the product in effective and efficient
manner. Hands at time of expanding the market within the Chinese Market the major segment
will be on the basis of age that is children belonging to age of 3 to 11. For the target market of
the company within Chinese Market will be pre- school audience that is 1 to 5.
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Hence the major strength of this target market and market segmentation is that this will
attract to the most like the consumer or the audience. This is pertaining to the fact that the UHT
milk products are majorly made for the consumption of the children.
However in contrast to this the major weakness of using this market segment and target
market at time of Chinese Market expansion can be that already the competitors are many within
the Chinese Market. Hence this can cause decrease in the likelihood of the products by the
Chinese consumer.
Absolute and comparative advantage- The absolute advantage is being defined as the
uncontested superiority of the country or any business to produce a particular product. In against
of this the comparative advantage is being defined as the opportunity cost for choosing between
the different options for product diversification. Hence in case Milky will expand their business
within the Chinese Market then this will provide a comparative advantage to the company (Dean
and et.al., 2020). The reason underlying this part is that the company is producing and expanding
within the Chinese Market in against of any other opportunity which they have lost.
Hence the major strength of this comparative advantage is that this will assist the
company introducing particular goods at the lower opportunity cost as compared to the trading
partners.
In against of this the major weakness of this strategic option for the expansion method is
that already the competitors are very high in Chinese Market like Yili, Mengniu, Bright dairy
and many other competitors which are already in the same field. This might not provide a
comparative advantage to the company in case they went for market expansion within Chinese
Market.
Hence in the end it is stated that before entering to any other country it is very essential
for the company to analyse and evaluate all the various methods through which the company can
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