Business Expansion in China: A County Milk Report Analysis

This business report provides an in-depth analysis of County Milk's planned international expansion into China, focusing on the introduction of its UHT milk product. The report begins with an executive summary and introduction, outlining the company's objectives and the growing market for UHT milk. It explores the business drivers behind the expansion, including technological advancements, liberalization of cross-border movements, and the application of country similarity theory. The report then utilizes Porter's Five Forces to analyze the Chinese market and evaluates trade barriers such as tariffs, quotas, ethical considerations, and cultural preferences. Business uncertainties, including Brexit and the China-US trade war, are also discussed. The report also addresses ethical and social issues such as corporate social responsibility and international corporate social responsibility. The report concludes with recommendations and references to support its findings, providing a comprehensive overview of the challenges and opportunities associated with County Milk's international expansion strategy.

International Business

EXECUTIVE SUMMARY
This business report explains process of business expansion internationally; it
summarises various issues and ways of expanding business across borders. Economic and
political condition of China is also explained together with various business drivers which can
impact business growth of company. Issues which can become hurdle in running a successful
business in china are also explained along with various expansion methods.

Table of Contents
Contents
EXECUTIVE SUMMARY.............................................................................................................2
INTRODUCTION...........................................................................................................................1
Business drivers behind company’s expansion...........................................................................1
Trade barriers in expansion.........................................................................................................3
Ethical and social issues to be considered...................................................................................5
Cultural references to be considered...........................................................................................6
Expansion methods to be chosen by company............................................................................7
CONCLUSION................................................................................................................................9
RECOMMENDATIONS.................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
International business relates to cross-border trade of manufactured products or any kind of
resources at global scale between two or more countries. International business can take place for
providing services as well such as banking, finance, insurance, construction etc. Company
manufactures goods or services and sell these across borders for expansion of business and earn
more profit. This report is in context of County milk products company which is situated in UK,
and produces ultra-high temperature (UHT) milk. Company works with best farmers to produce
high quality products and uses UHT process to pasteurize milk which is one of company’s
bestselling products. County milk products is planning to expand its business in China by
introducing UHT milk in that country. organisation wants to use UK’s reputation of quality,
reliability and transparency.
UHT milk is sterilized milk which is produced through thermal treatment which kills
spores and germs in milk and preserve important vitamins, nutrients. This milk can be directly
used for its cartoon or container there is no need to boil that milk. This type of milk can be very
useful at places where, there is scarcity of milk and do not have refrigerating systems. Market of
UHT milk is growing and it has reached USD 3.5 billion in 2020 with a CAGR of 13.5%.
Market is projected to grow at USD 6.7 billion by 2025 acceding to the forecast conducted in
2020. In UK almost 120 million of UHT milk is produced annually and Crediton dairy in Devon
is largest producer of UHT milk in UK. In china production of dairy products in comparison of
its population is not sufficient but it is growing rapidly since demand for such products has
increased. Pasteurized milk industry of china is constantly growing according to current needs.
Country has a population of around 1.4 billion and current GDP growth rate is 6.1%.
Business drivers behind company’s expansion
Business drivers are condition or processes which play a vital role in continuous growth and
success of company. Business can use its key drivers for expansion, modification or change in
business for purpose of increasing profit margin and growth. These drivers are also helpful in
showing early signs of low performing operations or individuals of company (Aarikka-Stenroos,
and et. al. 2018). Production of goods and services has increased around the globe so companies
are expending their business across borders even in remote areas. There are number of factors
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which have encouraged companies to expand in international market these factors are known as
business drives 2 business drivers are explained below.
Expansion of technology: This is one of the principle drivers of international business
expansion. In UK competent human resources and advanced technology is available with help of
these company wants to pull some business from China. Advanced information technology has
transformed business sector like never before. Goods or services can be ordered and delivered
across the borders with help of internet and technology.
Liberalization of cross-border movements: This is a process of removing trade barriers such
as duties, tariffs, also non-tariff barriers like quotas and licensing rules. Most of the countries has
open trade barriers for other countries by applying liberalisation (Aggarwal, Jindal, and Seth,
2019). Tariff levels have been fallen and trade policies have become less complex so that
companies can invest across borders. Company can easily expand its business in China since
there are less barriers and legalities.
Trade theory
It refers to that theory that discusses the concept of exchanging goods and services between
two or more entity. It is done by the people or an organisation in believe of gaining benefits from
the exchange of goods and services with other country. In context of UHT milk, country
similarity theory is to be adopted. This theory demonstrated that an organisation first produced
or manufactures the products and services for domestic country and at the time of exporting the
firm focus on finding that country where customer’s preferences are the same so that more
successful results are attained on time. In terms of UHT milk, manager of business enterprise
focus on exploring the market in China because people at Chine are more focus on purring the
milk products that is beneficial for customers. Here customers are highly preferences quality and
transparent products. This helps in developing brand name in market and it also attract
purchasing processes that helps in taking decision making effectively and efficiently. To offer
the products at China now manager of UHT milk focus on preparing porter’s five forces model
that is presented below.
As County milk products wants to expend its business internationally, Porter’s five force
analysis can be used for market analysis of China. In this framework five forces present market
condition these forces are explained below.
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Bargaining power of buyers: This depends on number of buyer company have or what is
the economic class of buyers of company. China has stable economy but distribution of income
is not appropriate. UHT milk is purchased by elite customers and middle income customers both
so bargaining power of customers can be different in different areas of country. So China has
high bargaining power of buyers.
Bargaining power of suppliers: Country has lots of manufacturers so supply for
industrial goods is sufficient in China. Company has a plus point here because there are number
of suppliers available in country. So company can purchase raw material for production pf
pasteurized milk on comparatively cheaper rates from suppliers thus bargaining power of
suppliers is low in China.
Industry rivalry: In china industrialisation is at peek so there is lot of competition in
market. If company wants to expand its business for UHT milk product in China it will have to
face huge competition because country already has various UHT milk production companies.
Company will have to use its USP to standout in market.
Threat of new entrance: Other people’s ability to enter into company’s market refers to
threat of new entrance. China has growing industrialisation so new start-ups are coming every
day in UHT milk products. It can become a threat for company unless company provides best
quality of pasteurized milk products and use point of differentiation in its products.
Threat of substitution: Dairy products can be substituted very easily because there are
many substitutes for milk products are available in Chinese market. If company wants to reduce
this threat it will have to keep innovating new ways of creating UHT milk or company can
introduce some unique useful feature in its products so that demand for product can be increased
in Chinese market.
Trade barriers in expansion
Barrier is obstacle or hurdle in movement of business from one state to another. Trade barriers
are policies or restrictions imposed by government on international trade. This is restriction
imposed by government on cross border exchange of goods and services (Bailey, 2017). China
has various restrictions, charges and barriers that discourage trading in country. Tariff and non-
tariff barriers are imposed by country to increase tax and have a control over trade of goods and
services. There are various restrictions and fee which makes trade difficult in China some of
these trade barriers are explained below.
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Tariffs and quotas: This is tax imposed by government on import of goods and services,
this is source of revenue for government also government can safeguard domestic companies
with help of these barriers. Various countries are imposing tariffs against goods and services
from China, these barriers were reduced earlier but countries are imposing again, European
union also imposed tariff barriers on china in 2016. If county milk products want to invest in this
country, it should research and understood all tariff barriers imposed by Chinese government.
China has also imposed a range of tariffs on imported goods such as luxury products, cars etc.
Government also imposes restrictions in form of quotas, these import quotas put a restriction on
amount or quantity of items that can be imported in a country at a time. Such quotas are
generally imposed by government to protect domestic industries from competition. These tariff
or quotas are helpful for country because it helps nation in using resources of country for
meeting needs of goods and services.
Ethical barriers: These are ethical issues which occurs in diversity and equal opportunity,
human rights, religion, bribery, corruption, working standards and child labour etc. When
company plans to expend internationally it should focus on moral and ethical practise of that
particular country (Bookman, 2020). All important decision making regarding expansion is
based on these ethical issues country have for success of international expansion. Company have
to comply with all federal and state laws to such as environmental laws, civil right laws, fiscal
reporting laws etc.
Cultural preferences or taste: These trade barriers refer to cultural or social differences
of two countries, these difference restrain business of company in other country. Not only
understanding of language but cultural differences also hamper business expansion of country in
other nations. Two cultures have to blend together for growth of business, existing red tape and
individualism can also impact expansion of company’s business. For understanding cultural
deviations of China, company will have to research Chinese UHT milk industry and its operating
characteristics. Various business leaders have generated business models or theories to explain
cultural differences of countries.
Business uncertainty is a condition of lack of certainty and sureness in market conditions,
these issues often impact decision making process of company. Some business uncertainties of
UK and China are explained below.
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Brexit: This is a combination of two words Britain and exit; it relates to Britain’s departure from
European union. Britain has permanently left European union on 31st January and it is only
formal country who has left European union (Cairns, and Sliwa, 2017). It took 4 years in
Britain’s exit from EU. Constraints on immigration have been imposed which may impact UK’s
labour force. Free movement between UK and European union has ended which is impacting not
only these countries but global market as well. China is promoting yuan in London so it can
bring trouble for country as it is ‘From London to the world’ strategy.
China trade war: This is an ongoing economic conflict between China and United States.
Former president of United States Donald Trump launched this trade war to put pressure over
Beijing to stop its unfair trade practices such as subsides to state-owned enterprise, limited
market access and I P theft. This trade war has left negative impact on global market including
UK. According to UK businesspersons operating in China, operating costs of business has been
increased and supply chains also got affected because of this trade war.
According to British supplementary treaty of the Bogue China has given UK status of most
favoured nation which gives British citizens extraterritoriality. Thus it can be good for
company’s international expansion.
Ethical and social issues to be considered
Corporate social responsibility is a business model in which companies fulfil their social
responsibilities voluntarily or on basis of ethically-oriented practices. According to this a
company is responsible for its stakeholders and public, companies can also identify all aspects of
society such as social, economic and environmental with help of CSR (Cao, Navare, and Jin,
2018). These programmes of CSR increase morale value of company. ICSR international
corporate social responsibility occurs when company expands its business across borders and
operates internationally. These ICSR programmes are not only beneficial for society and
environment of China but also for county milk products because it creates strong reputation of
company in market so it impacts brand image of company as well. By reducing use of energy in
production of UHT milk company can save cost as well as it can attain status of ‘green’
company. If county milk products want to become eligible for government subsidies and loans
company will have to demonstrate its performance of OECD guidelines. Companies have to
work with social sectors for fulfilling social responsibilities. China has decided focus on
healthcare, poverty alleviation, food safety and education as main corporate social
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responsibilities to fulfil. Mandatory environmental information disclosure has been implemented
by Chinese government also for betterment of stakeholders companies will have to disclose
financial reports as well.
Ethical theory: Theory of business ethics, help with solutions to handle issues which
occur in business environment. Ethical theories provide guidelines for justifying if action is right
or wrong when any human conflict happens. Utilitarianism ethical theory is explained below.
Utilitarianism: This theory refers to justification of an action being right or wrong on basis of its
impact on majority of people. If any practice of company has more positive impacts than
negative impacts on society then it is ethically right (Casson, and Wadeson, 2018). According to
this theory an action is evaluated on basis of its usefulness for greatest amount of people. Cost
benefit analysis and risk management are taken into consideration in Utilitarianism theory for
decision making. This theory concentrates on maximizing happiness of individuals which are
impacted.
There are various ethical issues such as corruption, bribery, environmental issues etc. in
China which can be considered before expansion of business there. some ethical issues of China
are explained below.
Corruption: This refers to misuse of political powers for meeting private ends. In china
there are three common types of corruption rent seeking, graft and prebendalism. Rent seeking
is a misuse of public policies to increase self-wealth and graft also a way of corruption used by
political leaders whereas prebendalism refers to political leaders who think using public revenues
for public use is right. China has imposed strong anti-corruption laws for controlling corruption
in country. PRC criminal law is imposed by government for controlling and reducing official and
commercial bribery.
Labour issues: China has various labour issues which are widely spread around country.
In various places young, adults and older peoples are enslaved, wages of workers are hold as
arrears by owners, pensions are not paid on time or not paid at all, adequate compassion is not
provided for industrial injuries, workers have to work extra hours and others are some of labour
issues of China. Country has labour laws which are fully imposed these laws ensure alleviation
of common abuse such as payment to employees, equal treatment at workplace etc.
Environmental issues: In china there are several environmental issues that are not only
impacting human health but climate as well. China was ranked 120th out of 180 countries in
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environment performance index. Rapid growth of industrialisation and not having appropriate
control over environmental laws are major reasons of this ranking (Chan, and et. al. 2018). There
is various environmental protest held in china by people and these protests resulted in little
improvements but adequate measures of change were not taken by government. Coastal
reclamation, pollution, population, climate change, and deforestation are some of major
environmental issues company is facing right now. China has updated its environment protection
laws and some new laws are introduced currently such as prevention and control of
environmental pollution caused by solid waste.
Cultural references to be considered
Culture is combination of norms and values of society which are passed by one generation to
another. County milk product wants to expand its business in China for expansion of its UHT
milk production and sale (Chow, and Schoenbaum, 2020). If company wants to enter in that
country and continue doing its business, then organisation will have to face cultural differences.
United Kingdom is a western country whereas China is an Asian country so there are huge
cultural differences between both countries. For having a successful business in China foreign
businesspersons will have to understand long history and culture. These differences form
business barriers which can hamper company’s overall growth. If language, values and
geographical factors of two countries are similar they can easily trade with each other but it is
difficult for County milk to work in China if company do not have proper knowledge and
understanding of their culture. There are various factors which show culture of China these
factors are explained below.
Collectivism: In Chinese culture group culture is preferred over individualism, because of this
better team work effort are shown in consensual decision making and information sharing
(Clougherty, and et. al. 2017). In any process of decision business making member of team feel
obligated to take opinion from others and so rewards and blames are shared equally in team.
Meetings and greetings: There is a different way of greeting people when meet them in
China, so to meet any Chinese businessman, foreigner will have to show respect and sincerity.
Business cards should be expected by both hands when meeting also when Chinese people greet
each other they do not look into each other’s eyes.
Face: This is taken as combination of pride and dignity, so people can easily get offended by
even a slight mistake. Lose face is criticizing someone in front of anyone and giving face is
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complimenting and appraising people (Dana, 2017). If give face is used by foreign person it can
earn loyalty and respect for company and that individual.
Gifts: Chinese people consider gifting as a sign of friendship and good future business
connections. Giving gift or present is essential on first meetings or business meeting it
strengthens business connections.
Confucianism: Hierarchal nature is existed in China so it is very necessary to treat people
according to their positions, and unequal treatment should be given on basis of age, seniority,
educational background and management positions.
Guanxi: This means network or interaction which is very necessary for business interactions.
Chinese people prefer to work with people whom they know and trust so Gunaxi is a way to
create relations (Dow, 2017). If company has well established connections with Chinese families
of business partners and knowledge of their culture it becomes easy for growing business.
Expansion methods to be chosen by company
Exports: Export is one of ways in which an organisation can expand their market. It helps them
to sale their product and service to different countries (Hahn, and Ang, 2017). By using this
medium to expand business of County Milk Product can have produced their product in their
country and can export their product as well service to China. This helps organisation in
providing This medium helps an organisation in providing more than one market for their
offering. By using this method, form need to product more product which provide them economy
of scale and reduce their overall production cost. But there is some limitation of this method for
company as they need to bear some administration cost arise with using this method as firm need
to follow sone regulation to sale their goods outside country.
Franchising: Franchising is one of method which helps company in increasing their market
share. In this method, franchisor provide all rights to franchisee to do business in their name.
This method in expansion of business in which franchisor get fees from franchisee (Hill, and et.
al. 2017). There is various advantage of using this method to County milk product as it helps
them in reducing risk of business and provide them increase market share of their offering. But
at same tie this method has limitation too. As cost of using this method is high which ca affect
total cost of business. It is difficult for a business to identify franchisee for their business.
Licensing: Licencing is one of those method which include agreement between company and
another organisation. In this agreement organisation provide permission to another organisation
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to produce product of company for a certain payment (Ivanova-Gongne, and Törnroos, 2017).
This provide benefit to organisation of County milk product as they did not need to incur cost for
promotion of their products. It also provides extra income to business and also create new
opportunity in market place. There is various limitation of this method including it create
dependency of company on licensor and also create competition of firm in market. This method
is existed for limited period of time and also affect reputation of company.
Joint Venture: Joint venture is one of method for expansion of business. In this method business
entity is create by two or more organisations and they use share ownership (Kamp, and de
Apodaca, 2017). This method provide benefit to County milk product to expertise as they hey
expertise from company. It also helps them to access various resources and reduce cost and risk
factors of both parties related to contract. Limitation of this method is that it does not provide
flexibility to organisation. It does not include equal involvement of both parties.
Strategic Alliance: Strategic alliance is one of method of expansion of business which
include agreement between two or more countries to agree upon objectives required to maintain
independency of organisation (Mautner, and Rainer, 2017). This method provides benefit of
County milk product as it helps both companies in growing their business share. It provides them
extended customer base and provide innovation to their business. It provides network
opportunity to company as they can get benefit of network of another company. This method has
some limitation as it includes it create conflict related to ownership of business. It also helps
company to create expenses of other company. It also creates clash of culture between
organisation and can impact on their operation.
CONCLUSION
This report concludes international business and its process or methods. International
business is done between two or more countries for manufacturing and selling goods and
services. Company wants to expand its business in China so this report concludes beneficial
factors and issues of working in china. Various business driver or factors that can help in
expansion of company’s business in China are explained along with trade barriers which exists in
that country. Ethical and social issues which can be considered by small and medium sized
enterprises are conclude along with cultural preferences in china. In the end methods of
expansion which company can use to expand its business are enlightened.
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