International Business Report: UK SME in Chinese Market

This report serves as an international business consultant's analysis for a UK-based SME aiming to enter the Chinese market with UHT milk targeting children aged 3-11. It begins with an executive summary and introduction outlining the UHT milk industry in both the UK and China, including production, supply, and demand dynamics. The report identifies key business driving forces, employing PESTLE analysis to evaluate political, economic, social, technological, legal, and environmental factors. It also analyzes trade barriers, including tariffs, documentation, and labeling regulations, and discusses the impact of Chinese government policies. Ethical and social issues, such as bribery and unethical practices, are also considered. The report explores various expansion methods, including export-based, non-equity, and equity-based strategies, before concluding with a comprehensive overview of the challenges and opportunities. It also applies relevant international trade theories to the UK/China context, providing a thorough assessment of market entry strategies and considerations.

International Business
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Management 1
Executive summary
International marketing is the application of the principle of marketing in order to satisfy the
diverse needs and wants of the different people residing across the national borders. In the
competitive environment, many companies are performing their business operations in more than
one market. The expansion is done by the companies so that they can perform their business
operations in overseas market. Being appointed as the international business consultant for an
upcoming high profile UK SME that is based in London, the objective of the company is to tap
into the Chinese market in the near future. The findings of report show the market analysis of
China and the barriers the company will face while expanding their business from UK to china.

Management 2
Contents
Introduction......................................................................................................................................3
Business driving forces....................................................................................................................4
PESTLE analysis.........................................................................................................................4
Trade barriers...................................................................................................................................7
Government policies of China that create impact on UHT milk company.................................8
Ethical and social issues..................................................................................................................8
Social issues.................................................................................................................................9
Cultural preference to be considered by the business....................................................................10
Expansion methods........................................................................................................................12
Export based method.................................................................................................................12
Non-equity based method..........................................................................................................12
Equity based methods................................................................................................................13
Conclusion.....................................................................................................................................15
References......................................................................................................................................16

Management 3
Introduction
The aim of the report is to throw light on the international expansion of the company into the
Chinese market. The company is willing to expand their business with the UHT product in the
market of China for children aged from 3-11 years. The company is the expected to focus
majorly on the specific target audience for UHT from UK as better proposition comparted to the
present local options.
Industry review of UHT in UK
Ultra-high temperature refers to the sterilized milk that has been subjected to the thermal
treatment. In the processing of the UHT milk, it kills the spores and germs that are majorly
present in the milk but preserves the required nutrients as well as vitamins. The industry of the
UHT milk is the growing not only in UK but also across the world. UHT production is predicted
to be approx. 120 million litres. This has been found that UK annual UHT consumption is
approx. 240 million (NFU, 2016). This shows that the people of UK consume this much UHT
that it is equal to the twice of the purchase. The margin on the sales of the product is the low but
the product face the tough competition in the UK market from the imports and this has been
found that UK based UHT plants are closing in the past few years (Wan, 2017). Furthermore,
UK dairy processors generally do not produce the formats of the flavoured milk that is generally
consumed by the people in UK.
Industry review of UHT in China
In most of the Asia-pacific countries, it has been found that the purchasing behaviour of the
people has been changing. In china, 60% of the total milk that is consumed is UHT milk.

Management 4
Further, the global urban population that was more than 690 million in the year 2011, comprises
of approx. half of the country’s population of China (Weston, 2014). By the year 2030, the
country is expected to add another 300-400 million people to the urban population. In the
country, urban people are more influenced with the western culture due to which their better
incomes. This rise in the income of the people will lead to the increase in the UHT milk demand
in China. This has been found that the country is considered as one of the imports large
quantities of UHT milk that is growing with the tremendous rate. The UHT milk imports have
increased almost six-fold in the last 4 years. This is the reason due to which most of the players
like to invest in China UHT milk market.
Business driving forces
This section of the report includes the identification of the major driving forces that provide the
support to the venture. This identification is done with the help of the PESTLE analysis that
helps in analysing the external environment of UK with China (Armstrong, Adam, Denize and
Kotler, 2014).
PESTLE analysis
PESTLE analysis is external market analyses that evaluate factors that create the impact on the
working of the business (Baker, 2014). The factors that drive the business of UHT milk is given
below: -
Political factors: - The political factors majorly include the changes in the rules and regulations
that can affect the entrance of the UHT milk company in the market of China. It has been found
that the political stability is present in the market of china. It has been found that from past 30
years the government of china has evolved from the centrally planned system to the international

Management 5
trade to make the market oriented economy of the country (Chernev, 2018). The retail market of
china remained open to foreign MNEs due to the china entry into WTP that has removed the
trade barriers majorly for the foreign investors. This has been found that presently only one third
of the companies are state controlled. The government of UK also promote their companies to
expand their business operations in other market. Thus, this leads to the opportunity for the UHT
milk in the market of China.
Economic factors: - The economic factors majorly include GDP, inflation, purchasing power of
the customers and many others. China is developing with the positive rate and due to which it
has GDP of around 12.24 lakhs approx. This is the reason due to which the country is standing
on the position of second position. The economic performance of the country is improving due to
which UHT company would like to invest in China because economic performance is improved
which leads to the rise in purchasing power of the customers (Trading economics, 2019). This
makes the UHT company to earn high revenue in the market of china.
(Source: Trading economics, 2019)

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The graph given above shows the GDP of the china is improving which shows the upward shift
in the customer purchasing power.
Social factors: - The rise in education among the people towards the food makes them diet
conscious. This awareness make the people to remain more focused towards the healthy and
dietary products (Mueller, 2017). UHT milk is considered as one of the good option for the
people present in china as it contain nutrition and vitamins that are good for the children with the
age of 3-11 years. This milk is effective for the children with the weak immune system as high
nutrients are essential for their growth. Thus, the social factors of china drive the growth of the
business in the market (David, 2011).
Technological factors: - The technology factor includes the up gradation and change in the
technology as this can affect the working of the company. China technology is highly upgraded
due to which the company can easily manufacture and sell the products in the market (Dawson,
2014). The supply of the UHT milk is essential across China due to which an effective supply
chain management is required. IT capabilities of the country are every essential for effective
supply of the UHT milk in the market of China.
Legal factors: - The legal factors include the change in regulations and legal elements that can
affect the working of the company. Every company has their own legal system as this has been
found that legal system of UK is different from China (Ho, 2014). Presently china has removed
the major legal barriers that support the company in expanding business of UHT milk.
Environmental factors: - The environmental factor can influence the working of the company
in the Chinese market. Chinese government has abolished the use of the plastic bags as it creates
the impact on the environment. Thus, this is the reason due to which the company will not be

Management 7
able to sell the UHT milk in the plastic bottle. The company need to sell the UHT milk in the
tetra pack. In addition, the companies need to follow the programs of the recycling programs so
that they can bring the improvement towards the environment (Frynas and Mellahi, 2015).
Trade barriers
Import tariffs: - In China market, the import tariffs are on higher side due to which the
government has divided in into the 6 different categories which include tariff rate, agreement
rates, general rates, provisional rates, favoured rates and quota rates (Export.gov, 2019).
However, the trade tariffs in UK are less than the China because businesses highly engage in the
trading in UK and this is considered as their source of foreign exchange. Thus, these tariffs might
work as barrier for the UHT milk provider company.
Documentation: - Company who is going to expand the business operations in the market of
China need to deal with the high documentation in the country. The major documentation that
will be required by the company includes bill of landing, insurance policy, sales contract and
many other things. All these documentation for the business will take long time and investment
that might work as an barrier for the company (Acs and Virgill, 2010).
Trade barriers by other countries: - Across the world, the level of intense competition has
increased which made some of the countries like US to put the trade restrictions on trade. This
restriction stops the US ally’s countries to enter into the market of China (Export.gov, 2019).
Labelling regulations: - Chinese import inspection authority reflects that labelling restrictions
are essential to be implemented by the companies who are performing their business operations.
Food safety law of 2015, makes the company to mention all the ingredients and nutrition that

Management 8
they are offering to the customers through their product (Export.gov, 2019). The labelled
information must include net content, manufacturing date, specification, name, information
related to nutrition and vitamins, the ingredients that are used by the company. In addition to
this, many other things are required to be mentioned by the company at the times of labelling of
the product. In China, it has been found that these trade restrictions are more than the UK market
due to which it might become the barrier for the company.
Government policies of China that create impact on UHT milk company
Home production companies: - The government of china provide the more opportunities as
well as support to the companies who are home-grown SMEs. The reason behind it is that
government the country to be strong, as this will reduce the imports and reliance of the company
on the raw material from the other countries. This might restrict the government benefit to the
companies that are present in the Chinese market (Luo, Xue and Han, 2010).
Cultural issues: - The major cultural issues that will be faced by the company for the UHT milk
is that people in china like to consume the products from the Chinese origin shops only they have
less reliance on the western culture. This affects the sales of the company in the Chinese market.
Ethical and social issues
It is very clear that every company who is willing to expand their business in the overseas market
need to deal with the ethical as well as the social issues. It is essential for the SME who is
offering the UHT milk to consider the challenges deeply as this will create the impact on the
business performance.

Management 9
Bribery: - The rise in corruption has been witnessed not only in china but also in other parts of
the world. It is essential for UK Company to do not get involved in any kind of bribery as for this
they have to select the right mode of medium that allows them stay away from the bribery. The
company should always put the investment in front of the people who are not involved in the
ethical issues.
Unethical practices: - The unethical practices can be considered as saying lie to sell the
products, dealing with the emotions of the people and many other that different in both the
countries. These are considered as unethical practices that should not be done by any of the
company who is performing their business operations in the market of China (Marquis and
Raynard, 2015). In addition, the company should their practices related to the marketing, as this
is essential for the survival in the market.
Social issues
UHT milk company need to consider the social issues as these are considered as most important
when it comes to the expansion of the business in the market. Some of the social issues that are
essential to be considered are given below
Cultural values: - The values of Chinese people and UK citizen vary a lot, the people in china
are remaining connected with their historical value they respect and obey these values in the
modern world. However, on the other hand people in UK are more advances due to which they
follow the western culture. Thus, the company need to consider this while expanding the
business because it is essential that they obey and respect the decision of Chinese people for the
purchase and sell of the products.

Management 10
Consumer preference: - The customer preference is also one of the leading social issues, this
has been found that people in china shop on the weekly basis. On the other hand, UK people can
place the online order for the products either on regular basis or monthly or weekly depending on
their needs. Thus, this behaviour is required to be considered by the company, as these
differences will create the impact on the operations. For example; considering these issues, the
UHT Company will make the supply chain management system so that they can provide the
goods and services on time to the customers.
Corporate social responsibility: - The country like china that is increasing when it comes to the
population includes poverty. Many poor areas are present where the company need to consider
that they are able to provide the benefits to the society and community (Lin, 2010). It is essential
for the company to understand their responsibility and to achieve it as this will help them to form
a good brand value which is essential for effective business operations of UHT milk.
It is very clear that the business of UHT milk falls under the segment of farming which require
development. The consumption of the product is increasing which might leads to the resources
into the scare resources due to which it becomes essential for the company to perform the
sustainable practices. The sustainability in the operations of business is very essential as this
business is creating the impact on environment. The activities of CSR help in improving the
relationship with the suppliers that are present in the market. The primary sector of the country
leads to the development majorly at the rural areas (Moon and Shen, 2010). The stakeholders of
the company remain benefits, as they will be able to safeguard their interest.

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Cultural preference to be considered by the business
In the present world, there is huge cultural dissimilarity among the countries like UK and china
in the business environment. It is required for the company to take care the different culture
preferences in the market of china (Hollensen, 2015). The company of UHT milk should
consider the culture preferences: -
Attachment with the Chinese identity: - People of Chinese likes to make the purchase of the
product with the Chinese identity. This has been found that the attachment is not at all good for
the expansion of any company in the market of UK. It is crucial for the company to determine
the ways through which they can make the space in the local market. The traditional values of
the people play a vital role in china while making the purchase of the products.
Prefer low cost products: - The culture of the china always promotes the low cost products due
to which they always prefer the products which are easily available at the low or affordable
price. UK company prefer to go into the big supermarkets in order to make the purchase while
the case is slightly bad when it comes to Chinese people. The Chinese people make the purchase
of the products from any of the local shops. Thus, the supply chain system of the company needs
to be strong enough.
Different choices: - This has been found that the Chinese people have different or diverse
choices when it comes to buying the product in the market. The company provide the choices to
the people at the different prices. Thus, UHT milk needs to be available with the different
flavours that will help the company in forming the effective place in the market. Thus, this has
been found in such product they also sought health benefits that they can avail with the
consumption of the product.