International Business Expansion Plan: Dairy Crest in China

This report provides a detailed analysis of Dairy Crest's international business expansion plan, specifically focusing on the Chinese market. It begins with an executive summary outlining the report's objectives and structure. The report then delves into a market analysis of China using PESTEL and Porter's Five Forces to assess the political, economic, social, technological, environmental, and legal factors influencing Dairy Crest's expansion. It also evaluates the competitive landscape, potential trade barriers, and ethical and social considerations, including CSR and cultural preferences in the Chinese market. The report further explores various expansion methods and identifies the most suitable market entry option for Dairy Crest, supported by strategic evaluation frameworks. The analysis considers factors like the high population and cheap labor availability in China, while also acknowledging the challenges posed by government regulations and competition from local firms. Ultimately, the report aims to guide Dairy Crest in making informed decisions regarding its international business ventures.

INTERNATIONAL BUSINESS
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Executive Summary
This report has tried to demonstrate a knowledge of International Business and the key drivers
for the company’s expansion plans. For such reasons, an analysis of the macro environment of
the target location shall be conducted using various tools. Following which the trade barriers that
the organisation may face will also be examined. In addition to that, the social and ethical issues
to be considered by the business will be provided. the report will also provide an assessment of
the cultural preferences in the Chinese markets. The report shall present an elaboration of the
methods of expansion to be chosen by the concerned company. Ultimately, the report will
identify the most suitable expansion option for the company, followed by relevant strategic
evaluation frameworks.
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Table of Contents
Introduction......................................................................................................................................4
Market analysis of the targeted location and Key Drivers of expansion.....................................5
PESTEL.......................................................................................................................................5
Porter’s Five Forces.....................................................................................................................8
Porter’s Generic Strategy...........................................................................................................10
Trade Barriers................................................................................................................................11
Four Tariff barriers....................................................................................................................11
Four Non-tariff Barriers.............................................................................................................11
Business uncertainties and opportunities created by trade policies of the national government
of the target market....................................................................................................................12
Ethical and Social Issues to be considered by the UK SME.........................................................13
Importance of CSR in the International market.........................................................................13
Cultural preferences to be considered by the business..................................................................14
Significance of cultural activities in the Chinese market..........................................................14
Expansion method used by the company.......................................................................................15
Different methods of potential expansion..................................................................................15
Best Suited market entry option................................................................................................16
Conclusion.....................................................................................................................................17
References......................................................................................................................................18
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Introduction
The concept of International Business has widened ever since the advent of globalisation.
International Business is defined as all the activities associated with a business, done outside its
national borders. Such activities include selling goods and services in international contexture.
Thus, exploring International Business, this report will conceptualise the basics of International
Business with help of a UK-based organisation. At first, the environmental analysis of the target
market will be done using various matrices. The drivers of the expansion will also be discussed.
Advancing, the report will analyse the possible trade barriers, uncertainties and opportunities of
trade policies of the chosen territory. Corporate social responsibilities and the cultural nuances of
the business activities within the destination market shall also be laid down. The closing
arguments of the report shall focus on the various methods of expansion as the most suitable
option available for the concerned company.
The preferential organisation for the supplementation of this report is chosen as Dairy Crest. This
organisation is a subsidiary of Saputo Dairy UK limited. Established in the year 1981, this
organisation is headquartered in Surrey, UK (saputo.com, 2021). The revenue estimation of the
company for the year 2018 has been £456.8 million and the number of employees includes 1097
people approximately.
Focusing on its 2021-2022 business key objectives, the organisation is determined to enter the
Chinese market with the product profile called “UHT milk, for children aged 3-11 years. With
this proposition, the company is intended to make its global expansion in China and avail as
much reputation and loyalty as it does in the British market.
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Market analysis of the targeted location and Key Drivers of expansion
To be successful in its business expansion plan in the Chinese territory, Dairy Crest first should
conduct a qualitative and quantitative assessment of the business environment therein. Thus, the
analytical used for this purpose is PESTEL, which would reveal the uncertainties and
opportunities of entry.
PESTEL
Factors Components Impacts
Political  Inflexibility in
government
regulations
 China’s age-old rigid
regulations
concerning trade and
business have been a
discouraging factor
for expansion for most
foreign countries
(thediplomat.com,
2021). While these
regulations hit home
sales, they sweep the
foreign organisations.
Economic  COVID-19  The proliferation of
the global pandemic
within the Chinese
economy in fact
escalated by 2.3%
than the previous
year. This was made
possible because of
strict lockdown and
containment SOPs.
Social  High population  China’s population is
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 Cheap labour
availability
the highest in the
world at present. This
means that it offers
the highest consumer
market on the whole.
Dairy Crest should
avail of this
opportunity in its
expansion plans.
 Currently, the Chinese
market has the
advantage of the
availability of
labourers at cheap
rates
(thediplomat.com,
2021). However, with
an increase in its
GDP, the labour cost
is expected to inflate.
This is a factor that
Dairy Crest must take
into consideration
before stepping into
Chinese.
Technological  Tech leader  China has emerged as
a tech giant in the
Asian continent.
Expanding in China
can be advantageous
for Dairy Crest in this
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regard as the
technological
advancement of the
Chinese automation.
Environmental  Environmental
guidelines and
standards
 Expectantly, the
Chinese government
is likely to implement
environment
protection regulations
that would increase
the production cost
and decrease
profitability. If such is
the case, then it is
advisable for Dairy
Crest that the
organisation adopts
strategic measures
through which
profitability can be
gained.
Legal  No substantial e-
commerce laws
 The Chinese
government does not
presently validate any
online contract
between buyer and
seller. Keeping this in
mind the Dairy Crest
authorities should
tread carefully into the
Chinese market.
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 FDI  As per the data of the
UNCTAD, the World
Investment Report
2021, the FDI influx
within China has risen
by 6% in the year
2020. This means that
despite the global
pandemic China has
successfully managed
to attract foreign
direct investment as
well the portfolio
inflow into china.
Figure 01: PESTEL Analysis of China
Source: (Created by the learner)
Porter’s Five Forces
The following Porter’s Five Forces matrix is used to determine the threat level for Dairy Crest in
its expansion plans in the Chinese territory:
The threat of new entrants: The government of china barricades the entrance of foreign
countries into the Chinese territory and supports the growth of the local firms. Further, the
insurance agencies tend to defraud the new business organisations with the support of the
government. This hurdle could be a major threat level for Dairy Crest. However, Dairy Crest
may address this issue by investing heavily on research and development and make efforts into
investing in the schemes of startup investigation. Thus, it can be commented that this threat level
is moderately high for Dairy Crest.
The bargaining power of the customers in China: The bargaining power of the Chinese
customers are expected to be high since Dairy Crest is a rookie business organisation exploring
the Chinese economy. Unless and until Dairy Crest opts to revise its pricing strategy in China,
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the customers are likely to exert higher negotiation power upon the UHT milk formula of Dairy
Crest.
The threat of substitution: Dairy Crest is the new entrant in the Chinese Market. The Company
in China would think of Dairy Crest as a Substitutional threat to the companies. The Milk
Producing companies would think of Dairy Crest as their rival. The Substitution Threat for Dairy
Crest in a country like China is low. Dairy Crest also has the opportunity by reducing the
consumers’ switching costs from the other Companies.
The bargaining power of the Chinese suppliers: The Bargaining power of the suppliers in
China would be high. The dairy Crest suppliers are the farmers. The company when launching in
China would face strong bargaining power from the suppliers. The Suppliers would negotiate for
higher prices for the supply of the required products.
Competitive rivalry: Bengbu Farm is the largest dairy products business in China, and it has a
single consisting of 40,000 animals. The rivalry in the country for Dairy Crest would be high.
The company would be new in the market, the existing top companies like Yili and Mengniu
Dairy would be tough for the Diary Crest. Yili is the 5th top milk-producing company in the
globe. In 2019, the number of cattle in the Yili rosed to 6 million. Mengniu Dairy is the top 8th
dairy company in the world. In 2020, the turnover of the company was reported to be €10.3
billion. These farms and diaries are great rivalries to the business of Dairy Crest.
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Porter’s Generic Strategy
 Cost Leadership: This strategy suggests that lowering the prices of its product to acquire
the consumer base. Cost Leadership is proving its dominance by reducing the costs for
production (Hu et al., 2018). The strategy gains the competitive advantage for an
organization in the new markets. Dairy Crest could reduce its prices comparing to its
competitors like Yili and Mengniu Dairy. The diary could take the benefits of the
economies of scale by producing in high quantity and selling it at low costs.
 Differentiation Strategy: Differentiation strategy involves, producing the product
differently and with innovation to make it unique as compared to the other products in the
market. The strategy aims to fulfill the needs and demands of the customers in the
market. Dairy Crest could analyze the market in China and would introduce different
products in the market with low costs. The Milk Producing company could produce with
the innovation and trends which prevail in China.
 Cost Focus Strategy: This strategy implies the production of the company to be for a
particular segment of society. In the above study, the Milk formula is suitable for children
of the ages 3 to 11. This is the focused segment and the costs for the products could be
below. Dairy Crest by using this strategy focuses on the particular segment, this could be
more beneficial as the targeted audience has a large base. The company would also gain
as the consumer behavior of the parents inclines towards the good health of their
children.
 Differentiation Focus Strategy: This approach talks about the focus on a particular
market segment and producing the product for the needs. This approach focuses on the
strategies which innovate the product for the consumer demands and needs (Lai, 2019).
Dairy Crest is a milk-producing company could use this strategy by studying the
demands of the parents in the market. At the same time, the company could consider the
demands and the attractions of the children to make the Milk tastier to consume.
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Trade Barriers
The Trade Barriers are the taxes and the duties which are imposed by the Home Country on the
products from foreign countries. The barriers are put for the protection of the domestic market
from the foreign market. The barriers imposed increases the costs of the products and thus the
imported goods and services become costly to the customers in the country.
Four Tariff barriers
 Import Tariffs: This is the tax which is imposed on the goods from the foreign country
market, to increase its costs in the domestic market. China recently has reduced the tariffs on
imports on agricultural produce, which includes Dairy products as well. The old tariff for the
grated cheese was 12% which was reduced to 8% in the year 2020. This is beneficial for
Dairy Crest to import its products to China
 Export Tariffs: This is the tax, which is levied by the Government of the home country, to
increase the price of the products in the foreign market (Fan et al., 2019). This is done to
reduce the world supply of the goods so that the domestic market would get the benefit of
these prices. The Dairy Crest to seek
 Protective Tariffs: It is the tariff that is imposed to reduce the imports into the country.
China has increased the imports from the UK especially of the Diary products since 2018.
The demand for Dairy products from the UK by the consumers in China is high. Dairy Crest
would be benefitted from this and seek an opportunity in the Chinese market.
 Revenue Tariffs: These are the taxes or the tariffs which are imposed for the Revenue
Generation of the Home country (Carroll and Hur, 2020). The trade relations of the Chinese
government with the UK government are good. Thus, there are not many tariffs especially on
dairy products from the UK. Dairy products also face a high demand by the people in China.
Four Non-tariff Barriers
 Protectionist Barriers: These are the Barriers that are not related to money or Cash.
These can be in the form of licenses or the quotas or dumping duties (Barattieri et al.,
2021). Since 2018, the relations between the two countries are good and thus there has
been trading between the two countries. The consumers demand Dairy products from
China and thus this could be a con for Dairy Crest.
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 Assistive Policies: There are different procedures for a good or service to enter the
market in another country. This is the Assistive Policies. These are not direct restrictions
but are considered to be indirect. Dairy Crest could look upon the Assistive policies
between the two countries.
 Non- Protectionist Policies: These are the policies that are to protect the health,
sanitation, animal protection, and plant protection. Dairy Crest would seek opportunity by
proving that these regulations are followed.
 Embargoes: These are the total bans on the products of the foreign country (Erickson,
2020). These are not implied to the products from the UK. The relations are good
between the two countries.
Business uncertainties and opportunities created by trade policies of the
national government of the target market
The Chinese Government through the country’s relations is in good condition with the UK, think
of protecting its domestic market. The Country has different policies for protection. The
uncertainties could include the pricing strategies by the existing companies in the market. It
could further include the national political problems and ideologies which would affect Business
in China. There are very few uncertainties as compared to the opportunities. Dairy Crest would
seek the opportunity in the aspects like fewer pricing strategies in the country, by flooding the
market with a high volume of the products. The tariffs are been reduced for the agricultural
products from the UK and thus this could lead to the advantage of the Company.
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