International Business: Lillie Brothers Ltd's China Expansion Strategy

This report provides a comprehensive analysis of Lillie Brothers Ltd's planned expansion into the Chinese market, specifically focusing on Shanghai. It begins by introducing the concept of international business and the company's background, highlighting its UHT milk production. The report then delves into key business drivers, utilizing PESTEL analysis to examine political, economic, social, technological, environmental, and legal factors impacting the business in China. Trade barriers, including tariff and non-tariff measures, are discussed, along with ethical and social issues and the importance of understanding cultural preferences. Various expansion methods are explored, and the report concludes with a summary of the key considerations for Lillie Brothers Ltd's successful entry into the Chinese market. Desklib offers a wealth of similar solved assignments and past papers for students.

International business

EXECUTIVE SUMMARY
The business expansion is a major approach which helps business to focus on
development of a business. In this project there is brief explanation of key points related to
expansion of a business. This report covers key development areas of a business which are
affected by its external and internal environment. It is major role of a company to take assistance
of information and technology in order to expand globally. This project will include key focus on
ethical and social issues which play an important role in business development. This project will
also cover key aspects of culture which are helpful in increasing the key role of management in
order to develop best business practices.

Contents
EXECUTIVE SUMMARY.............................................................................................................2
INTRODUCTION ..........................................................................................................................4
TASK...............................................................................................................................................5
Key business drivers help in expansion of business in country...................................................5
Trade Barriers .............................................................................................................................7
Ethical and Social issues ...........................................................................................................10
Cultural preferences ..................................................................................................................11
Expansions methods ..................................................................................................................13
CONCLUSION .............................................................................................................................15
REFERENCES..............................................................................................................................16
Appendix........................................................................................................................................18

INTRODUCTION
International business is considered as the concept of business that consist the trade of
organisation goods, services, technology and capital from one country to another at global level.
The concept of internationalisation helps business to expand their operations at global level and
take competitive advantages. Milk and dairy business is related to the agriculture sector. In this
report chosen organisation is Lillie Brothers Ltd that is established in 1974 and provides milk
and other products that produced from milk. It is small business enterprises as well as
implementing UHT technology for providing quality dairy products to customers. UHT
technology is used high temperature to heat liquid products that enable organisation to kill
bacterial endospores. Respected organisation this technology for with the objective of producing
skimmed milk, organic milk, UHT milk, skimmed milk, organic milk and dairy products. Lillie
Brothers Ltd organisation is planning to expand its business in the market of China in Shanghai.
As in China few organisations are involved in providing China and the revenue of dairy market
is 359.041 billion yuan in China market as well as consumption rate of product also very high
UHT milk that provides competitive advantages and opportunity to organisation on the other
hand changing demand of customers create threat for business. This report covers business
drivers that help to expand business in other country and Pestel analysis. Along with the different
trade barriers, social and ethical issues, cultural factors and mode of expansion in international
business are explained. In China the demand of UHT milk is increasing day by day due to
increasing demand due business environment. There are many customers who will be ready to
take UHT milk home delivery if the market expands. The demand of UHT milk will be analysed
with the market survey of China in order to develop focused practices. The foreign companies
are continuously supplying UHT milk in China and earning huge profit. The history of UHT
milk in China states that in the past there is an increased demand with 40% in the last 5 years.

TASK
Key business drivers help in expansion of business in country
External business environment consists various factors that plays important role in the expansion
of business in another country. PESTEL analysis is the framework that help business to identify
different external environment factors that directly and indirectly impact on business
performance in efficiency in Chinese market (Buckley, Enderwick, and Cross, 2018). These
factors in the context of Lillie Brothers Ltd are mentioned below:
 Political factors: Political factors are defined as the government interface on business,
political system, government regulations and deregulations, stability of government and
others. In the context of China, government regulation are complicated that impact
overall business performance and functionality. Rules and regulation of Chinese
government are changed overnight that impact domestic and foreign business. Regular
changes in government policies create threat for business because they are not able to
develop long term business plans. Lillie Brothers Ltd expends its business in China but as
the instable government policy and changes, it is difficult for business to run its
operations properly. It is important for organisation to have knowledge of these
regulations and consider them in business policies. In order to sell UHT milk in the
foreign market, it is essential for the business to develop focused strategy which deals
with political factors. It is crucial role of a business to develop a major approach in
dealing with consequences of marketplace. The UHT milk will be selling in the
marketplace by following rules and regulations developed and formulated by Chinese
government.
 Economic factors: In economic factors various aspects are includes such as interest rate,
growth and inflation rate, disposable income, GDP and other. Current growth economic
performance of China is very high. It enhances purchasing power of people and living
standard (Chabowski, Samiee, and Hult, 2017). It is beneficial for the organisation to get
skilled labour from Chinese market who perform business operations efficiently. Lillie
Brothers Ltd expand business operations in China that helps business to enhances
organisational sales and profitability through provide quality UHT milk to customers.
The UHT milk selling should involve analysis of key economic factors like inflation and

deflation in order to know focused areas of economic development for better financial
position. The UHT milk selling company should analyse the trend of Net Disposable
income in China and take advantage of the situation to focus on development of revenue
and profitability.
 Social factors: In social factor culture, belief, norms, values, preference etc. are included
that impacts on business overall performance. China is the country that contains higher
cultural values and social trends. Literacy rate of China is very high that develops
positive consumer behaviour and make them aware regarding current trends. It is
important for Lillie Brothers Ltd to consider all these factors before expanding business
operations in China. The new UHT milk selling company should deeply understand the
impact of social factors like culture and traditions.
 Technological factors: Now these days innovation, automation, research and
development are happened in technology. China is the country in which advanced
technologies are used by businesses. In country most of people are preferring the use of
online shopping on the other hand there is no appropriate online payment system. Lillie
Brothers Ltd can get various business development opportunities through expanding
business in Chinese market (Elo, and Minto-Coy, 2018). Organisation need to use
different and latest technologies to sale organisational products and services because
major population of China use internet. It enables business reach higher customer base
and attain higher market share. The major technological factors can impact on the
functioning of company and help in providing supportive measures to deal with key
operations and tasks.
 Environmental factors: Environment factors consists various aspects such as weather
conditions, climate change, population level, carbon footprints and others. China is the
country that has highest population and generated pollution so, it becomes important to
obey various environmental standards that help to maintain environment safe and healthy.
Lillie Brothers Ltd needs to follow different environmental regulations, adopt waste
management technologies and develop strategies to reduce the level of carbon footprint
that maintains differentiate image of organisation from other competitors and protect
business from different government interferences and penalties. The environmental

factors of China should play an important role in increasing chances of selling of UHT
milk if it adopts sustainability.
 Legal factors: There are various legal laws and regulations are developed by the
government such as health and safety laws, employment, privacy, consumer protection
and other laws that differ from oner country to another. China has developed new rules in
E-commerce sectors as it fastest growing sector of the country. China has followed all
trade policies very strictly and it is expected that import tax are going to reduced (Friberg,
and Sanctuary, 2018). Lillie Brothers Ltd need to consider all trade regulations of China
that helps business to run its operations with greater efficiency and effectiveness and get
long-term competitive advantages. As respective organisation deals in UHT milk to the
target customers such as children aged from 3 to 11so organisation have to follow health
and safety regulations properly. The legal acts and policies of Chinese government
should be followed by a business entity to develop focused approach. In order to follow
the laws and policies, it is essential for the UHT milk selling to follow legal acts
formulated by local authorities of China. The UHT milk selling should focus on
increasing the chances of business development by considering major factors that affect
foreign suppliers. Rules and regulations which are developed systematically by
government and World Trade organisation should be ethically followed by all foreign
suppliers of UHT milk in China. In order to take hygiene certification aspect of
processing milk deliveries for Chinese market.
All these factors plays important role in conducting business operations in other country and run
organisational operations and functions accordingly. along with that there are various other key
drivers that impact overall performance and efficiency of business such as number of suppliers
present in Chinese market, market size, culture and regulations and aspects that creates positive
and negative impact on organisational efficiency in the market.
Trade Barriers
Trade barriers are referred as the government policies as well as restrictions that are imposed by
business to conduct operations within or outside the boundaries of country. There are various
rules and regulations are developed by the government of China with the objective of decreasing
the level of import as well as changes high custom duty, corporate tax and tariff in order to
discouraging import trading that protect internal business of country and reduce the level of

competition for them (Goyal, Esposito, and Kapoor, 2018). Lillie Brothers Ltd decides to expand
business in China market and provide UHT milk to the local customers of the country. Some
barriers that are imposed by government of business are explained below:
Treats associated with stoppages of imports:
Any kind of war and aggression situation can increase the chances of conflicts between
the public and government. This can act as a major barrier and can impact on selling of UHT
milk in China. The main role of government is to bring new plans and policies which are
effective in making the companies more stable. The rules and regulations formulated by
government should be developed with primary focus on treats in order to spread social and
corporate peace.
Tariff trade barrier:
Tariff trade barriers are considered as the rate of taxes and duties on specific import of
products and services from different country. Tariff barriers are implemented by the different
countries to reduce the import and encourage domestic business to serve it products to country.
Tariff rates enhances the prices of imported products and make import less competitive. There
are various taxes are imposed by the Chinese government such as custom duty, exercise duty and
others charges. It is important for the Lillie Brothers Ltd to consider the rates of tariff barriers
and take business decisions accordingly. Along with that, China also imposed value-added tax
(VAT), consumption duties and other general custom duties with the objective of limiting
imports.
Non- tariff trade barriers
Non-tariff trade are the rules and regulations that make international trade more difficult and
complex. If an organisation trading with foreign country than it has to adhere with con plex
manufacturing laws that make it difficult for organisation to trade in efficient manner. China
develops various regulations regarding quantity of import products. In regulation a quantitative
limit or quota specific limit is decided for importing products from other country. China has
created non-tariff barriers on almost 40 products (Hamilton, and Webster2018). Country also
developed regulations to quantity if UHT milk that is exported by UK organisation in specific
period of time. Strict manufacturing and licencing laws make it difficult for foreign organisation
to trade with other country.
Exchange rates control

Exchange rates control is created barrier for the international organisations to trade in other
country and provide organisation provides products and services to the customers of other
country. In this trade barrier, government established higher exchange rates for converting
domestic currency into foreign currency. There are self-imposed exchange rates policies are used
by China with the objective of controlling exchange rates. It plays important role in restricting
foreign organisations to involve in international trading and impact their expansion and
functionality in negative manner.
Voluntary Export Restraints (VER):
Voluntary Export Restraints is the trade barrier which is similar to the quotas in which
countries are agree to limit the number of imports from other foreign country. This trade barrier
is used to protect domestic organisation from the higher competition and develop them through
expanding their market share in domestic market place.
Lillie Brothers Ltd need to consider all these rules and regulations of Chinese
government regarding the trade barriers that impact the overall performance and efficiency of
business in foreign country.
Trade Policy of China: There are various trade policies are developed by the national
government of target market such as economic policy like liberalisation and privatization of
some specific industries or sectors that create impact on the performance of organisation that
expand its business in that country. China has taken various actions to enhances the level of
exports in order to create positive trade balance. It is measured that saving as well as investment
gap of China has reduced that can be seen in GDP of country. It is important for the country to
enhances consumption level of country (Jackson, and Deeg, 2019). There is various factor in
economy that creates uncertainties and opportunities for business. Some opportunities and
uncertainties that are faced by organisation are mentioned below:
Opportunity factors in Economy: China is the country that has higher and surplus that
create positive impact or develop various opportunities for organisation which expand its
operations in that country. China’s effective trade policies enhances export of country and make
domestic organisations more capable. Lillie Brothers Ltd can take various advantage or
opportunities through providing UHT milk to the specific market segment which is school going
kids. As trade policies of China enhances purchasing power of customer that facilitates business
to enhance its sales and profitability.

Risk factors in Economy: The concept of trade policy also creates negative impact on
business because there are various strict regulations are imposed by the China on business.
There is high manufacturing, licencing and other regulations that impact in business overall
performance and efficiency. In China, regular changes are happened in policies and regulations
that created uncertainties for the business Lillie Brothers Ltd is need to consider all trade policy
of China in efficient manner and keep updated regarding them as well as consider these policies
in business strategies to run business operations in properly (Kourula, Pisani, and Kolk, 2017).
Ethical and Social issues
It is important for the business to consider various ethical and social issues in business
while operations business functions at international level. Ethical issues are problem that created
negative impact on both organisation and society. On the other hand, social issues are influence
by the large population and impacts on lifestyle of people. Lillie Brothers Ltd faces various
social and ethical issues in China that are explained as follows:
Corporate social responsibility: Corporate social responsibility is the concept that
enables organisation to compile all legal, social, ecological and other standard to perform
business operations with greater efficiency and effectiveness. It enables business to realise it
social obligations beyond generating profits. Social responsibility facilitates organisation to
enhance profitability through fulfilling responsibility towards society (Corporate social
responsibility,2021). Lillie Brothers Ltd provides UHT milk to the customers of China through
ensuring that various standards are being followed in the respect of quality, hygiene, consistency,
price and others. Implementation of CSR policies in business creates strong image of
organisation in market and enabled it to get support from local people that provides competitive
advantages to the organisation in the market of China (Li, Zhou, and Wu, 2017). In the process
of conducting business operations at international level, corporate social responsibility plays
important role and created better positioning of business than other competitors.
Workplace diversity and equal opportunity: In organisation, number of people are
come from different background having different capabilities, age, education is defined as work
place diversity. As Lillie Brothers Ltd conducts its operations in China where people have
different attitude than UK so, it creates problem for business handle employees and lead their
efforts in right direction (Workplace diversity, 2021). Respective organisation ensures that equal
opportunities and supportive environment is provided to employees that motivated them to retain

with organisation and helps to maintain strong image. Organisation do not discriminate
employees on the behalf of any aspects.
Trust and integrity: It is important for the organisation to maintain trust and integrity with
customers and employees because it lead business towards growth and development. It is the
ethical and social aspects that enables business to gain competitive advantages (Likoko, and
Kini, 2017). Lillie Brothers Ltd ensures that quality UHT milk and other dairy products are
provided to the pre-school children aged between 3 to 11 and fair wages are provided to
employees that enhances their engagement with business operations and maintain strong
relationship with customers.
Consumer rights: In China, various issues are raised due to customer so, it becomes
important for the Lillie Brothers Ltd to follow all food safety and other consumer laws
regulations strictly that maintains strong image of organisation in marker and enhances
customers trust on business products and services. Implementation of these laws helps business
to prevent from any obligations and problems.
Environment pollution: In the country of China, pollution is very high because of
higher industrial process. Now these days, organisation using the alternative resources that
reduces business cost but enhances the level of pollution in environment of country. Due to these
issues, it becomes important for the Lillie Brothers Ltd to follow different environmental laws to
protect environment from being pollutant.
Cultural preferences
Cultural factors are related to the different constraints such as culture, values and beliefs that that
impacts Lillie Brothers Ltd operations and functions in China Shanghai. Organisation uses
Hofstede’ cultural dimension to analyse different cultural factors of China. It is essential for the
organisation to analyse these aspects of culture od country before taking decision of expanding
business (Mäkelä, Saarenpää, and McNulty, 2017). As Lillie Brothers Ltd provides UHT milk in
China market through getting idea of its culture. Different factors of cultural model are
mentioned below:
Power distance index: It is dimension that consists the inequality as well as power that can
be tolerated. High Power distance index is the culture that contains higher inequality and power
difference. On the other hand, low Power distance index is the structure in which organisation

uses participative management style to take decisions. UK power distance index is 35 which is
less than China that is 80.
Individualism and collectivism: Individualism is the extant in which people feel
independent and concentrates of attaining personal goals and objectives whereas, collectivism is
related to being interdependent on the members of larger community (Pride, and et. al., 2020). In
UK Individualism culture is highly followed as compared to China and their indexes are
continuously 89 and 20.
Long term orientation vs. short-term orientation: Both aspects are related to implementing
change as well as culture that believes that world keep spinning, welcome changes and look
calmly towards future. China is emphasised on long-term orientation and UK adopts short-term
orientation and their percentages are continuously 87 and 51.
Uncertainty Avoidance Index: These cultural aspects are related to the uncertainty as
well as ambiguity that can be tolerated. It is not related to the avoiding risk although, it is the
anxiety and distrust that people have in facing unknown and absence of truth. The dimension
states that how unknown situations are handled in the organisation. UK uncertainty avoidance is
higher than China and their indexes are 35 and 30.
Masculinity vs. Femininity: These aspects reflect the attitude of society towards
achievement and attitude to sexual equality. Masculinity is related to the distinct gender role,
wealth building on the other hand femininity is related to fluid gender roles as well as quality of
life. In terms of masculinity and femininity both countries UK and China are equal and their
index is 66.
Indulgence vs. Restraint: These dimensions are related to the tendency of society to
accomplishing their needs and how society manage their desires. Indulgence is related to how
society allows the factors of enjoying life whereas, restraint states how society suppress the need
as well as regulate them through different social norms (Pucik, Evans, and Björkman, 2017).
Indulgence of UK is 69 which is more than China that is 24.
This cultural dimension model helps organisation to gain insight regarding cultural aspects
of country in which organisation going to perform its operations. It helps Lillie Brothers Ltd to
gain knowledge and understand regarding different dimensions of culture in countries.
Respective organisation need to analyse all these index and take actions accordingly that help
business to conduct its operations in the market of China.