International Business Report: Milky Way's Chinese Market Entry

This report provides a comprehensive analysis of the international business environment, specifically focusing on Milky Way, a UK-based UHT milk company, and its potential expansion into the Chinese market. The report begins with an executive summary and introduction, outlining the company's objectives and the scope of the analysis. The main body delves into the industry background, highlighting the increasing demand for UHT milk globally and in the UK and Chinese markets. It then examines the business drivers, including a PESTLE analysis of the Chinese market, and explores relevant trade theories such as factor of production, comparative advantage, and absolute advantage. The report identifies potential trade barriers, including tariffs, quotas, regulations, and legal issues, and discusses their consequences. Ethical and social issues, cultural preferences, and expansion methods are also considered. The report concludes with recommendations for Milky Way's market entry strategy and provides a list of references.

International
Business
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Table of Contents
EXECUTIVE SUMMARY.............................................................................................................3
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................4
Industry background....................................................................................................................4
BUSINESS DRIVERS................................................................................................................5
TRADE THEORIES...................................................................................................................6
TRADE BARRIERS...................................................................................................................7
ETHICAL AND SOCIAL ISSUES ...........................................................................................9
CULTURAL PREFERENCES.................................................................................................10
EXPANSION METHODS .......................................................................................................11
CONCLUSION..............................................................................................................................12
RECOMMENDATIONS ..............................................................................................................12
REFERENCES..............................................................................................................................14
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EXECUTIVE SUMMARY
International business consist of different activities that needs to be conducted in
effective manner. This will helps in enhancing sales of products and services into new market
area. It is important to consider various factors while offering products or services to new or
different market area. This will support in better decision making in order to improve brand
image as well as increase profitability of organisation. There are different trade theories that
needs to be identified and analysed properly so that company can get maximum benefits from
trading products at international level. There are several barriers that will affect organisation to
perform business at international market level. It is essential for company to conduct business
activities while considering business ethics and morals.
INTRODUCTION
International business can be describe as encompasses of various business activities in
new market areas. It includes promotion or transfer of goods and services offered by company to
completely new market place (Dunning, 2013). It is crucial to correctly manage business
activities at international level as this will lead to have great impact on organisation performance.
Business can get several advantages by conducting business activities at international market
area. This report is based on Milky way company which is a UHT milk company. This is UK
based SME company that is planning to tap into new market area for enhance its business
activities and profits. UHT milk company is focusing on is Chinese market place to offer its
products and services. This company is offering milk to pre- school aged children and this
organisation is located in London. This report includes analysis and evaluation of UHT milk in
UK market area as well as Chinese. It consist of various business drivers that have impact on
business and its performance. In this report includes PESTLE analyse as well as different trade
theories. In this trade barriers has been identified in order to analyse possible consequences or
uncertainties to business. Apart from this various ethical and social issues has been identified
with relevant theories. Cultural preferences has been determined in order to conduct business
activities in effective manner.
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MAIN BODY
Industry background
Demand of ultra high temperature milk in rapidly increasing in global milk market. There
are various benefits of UHT milk for consumers that lead to increase the preferences of ultra high
temperature milk in market. UHT milk can be describe as the liquid milk that is sterilized at ultra
high temperature. Global revenues of ultra high temperature milk in 2012 was approx US $
60.8 Billions and its was expected to be around US $ 137.7 billions by the end of 2019 (Global
market study of UHT milk, 2019).
What is the demand of UHT milk in the UK market?
It has been analysed that growth of UHT milk consumption has be rising in UK market
area. There are various factors that is supporting growth of dairy products in Europe market are
new and emerging trends and life style of consumers (Shenkar, Luo and Chi, 2014). Raw milk
requires usage of refrigerators and high cost of refrigerators in market as well as low space for
refrigerators lead to increase the demand of UHT milk (Global UHT Milk Market Size, Share,
Development, Growth and Demand Forecast to 2020, 2020). This type of milk can be stored
without refrigerators and has more shelf life as compare to raw milk.
What is the demand of UHT milk in Chinas market?
Shifting of consumer habits of China population lead to growth in demand of UHT milk.
It has been determined that with the increase in apartment culture and urbanisation requirement
of ultra high temperature milk is rapidly increasing. In developing country like China behaviour
of customers and their attitude towards packed food products is changing. It has been analysed
that about 60 % of UHT milk is consumed in China (Over 60% of milk consumed in China is
UHT, says new report, 2020).
Discussion about Chinese economy. How much percentage of money comes to them by
producing this milk?
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China has one of the strong economic country in the world. Economic rate of China is
continuous growing and in 2018 GDP of China was nominal to US dollars $ 13.4 that can be
consider as 65.3 % of US economy (8 things you need to know about China’s economy, 2020.).
BUSINESS DRIVERS
Chinese PESTLE environment and link it to how it will affect UK SME.
PESTLE analysis is helpful tool in identifying and analysing different factors that could
have impact on business and its performance. This analysis will support respective company to
take better decision that will lead to growth and development of business. Different factors of
PESTLE analysis is mention below. Political factor – This factor have significant impact on performance of SME company.
Political factor consist of various regulations that is set for companies. China has strong
political party and system which will affect the respective business activities. Economical factor – China country economy is continuously growing and its excellent
growth will have significant impact on SME company that is operating in Chinese market
(Verbeke, 2013). This factor will lead to increase the purchasing power of citizens and
enhance sales of respective company. Social factor – This factor includes society culture as well as the way in which customers
are behaving. Attitude and belief of customers towards UHT milk will affect the sales
and performance of respective company in market area. It is crucial for UHT Milk SME
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Illustration 1: Economy contribution.
Sources: 8 things you need to know about China’s economy. 2020.

company to consider perception and preferences of customers while offering its to
population of Chinese customers. Technological factor - Recent and trending technology will affect the performance of
SME company that is conducting business activities in Chinese market area. This is one
of the crucial factor that will affect the growth and development of respective company.
Innovation in technology have impact over value chain structure of Milky way UHT milk
provider company. Environmental factor - It is important for SME organisation to consider this factor while
developing and creating UHT milk products (Killing, 2013). Environmental factor
consist of weather, climate change, laws regarding pollution, recycling and so on. This
factors support SME company to provide high quality products to customers without
harming environment and society.
 Legal factor – This includes framework as well as institution that is developed for
maintaining safety and security of customers and employees. Legal factor will lead to
great impact on performance and productivity of organisation. It is crucial for respective
company to consider all of these factors for smooth functioning of respective
organisation.
TRADE THEORIES
There are different types of trade theory that is support for organisation to take better and
effective decision for growth and development. Trade theories has helpful for company while
entering into new international market as well as foreign trade. There are several trade theories
such as factor of production, absolute advantage and comparative advantages. Trade theories are
considered to be beneficial for effective allocation of resources as well as specialization.
Factor of production
This theory is developed by Eli Heckscher and Bretil Ohlin that is focusing of those
factors of production that will help in creating effective products (Kolk, 2016). This trade theory
is developed with the motive of gaining comparative advantages by developing products that
utilized all those factors that were abundance in the country. Factor of production theory consist
of various factors of country in production such as land, labor as well as capital. All of these
factors are supportive in providing funds for the investment in equipments and plants. All those
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factors or resources that is in more demand are expensive and resources that is in great supply
are cheaper.
Comparative advantage
This is a trade theory that helps organisation to gain comparative advantage. This can be
describe as a ability of economy to produce commodity and goods at lower operational cost. It is
essential for organisation to develop products and services at minimum cost in order to earn
more profits. Comparative advantage gives opportunity to company so that they can sell products
and lower price. This will help company to attract more customer as well as realise strong
margin of sales.
Absolute advantage
This theory is developed by Adam Smith in 1776 and the motive of creating this trade
theory is to indicate the specialization of products as well as division of labor (DohRodrigues
and Saka-Helmhout, 2017). Absolute advantage can be describe as the difference in ability of
company as well as nations to manufacture goods efficiency. This refers to the absolute
advantage of particular country in production of products.
Benefits of theory in Chinese market.
Factor of products will be most suitable trade theory while considering market of China.
As per this theory it is determined that cost of resource or function will lead to have impact on
supply and demand of product. China market has more resources and labor that will support in
conducting business task in better manner. High supply of labor and other resources will lead to
conducting task in cost effective manner. This will help Milky way company to offer products
and services in effective manner as factors of production will support in timely supply of UHT
milk products to customers.
TRADE BARRIERS
There are several trade barriers that could faced by company while performing business
activities at international level. It is crucial for respective company to identify and analyse these
trade barriers in order to take better decision for business.
Trade relationships of UK and China.
China and UK trade relationship are very strong which includes various rules and
regulation for free trade between country (Clarke, Tamaschke and Liesch, 2013). This can be
consider as opportunities for SME companies to expand business into Chinese market area.
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Companies will face less trade restrictions while performing business activities at China. This
will be cost and time saving for Milky way company. Trade relationship of China and UK will
be beneficial for both the countries as this will lead to increase economy. Imports and export
refer as the exchange of goods and services between different countries. This is an effective
methods that will lead to boast international trade activities among UK and China.
The possible trade barriers this product may face when exporting it to the Chinese market.
There are different types of trade barriers that could be faced by respective company
while exporting its UHT milk to Chinese market area (Strange and Zucchella, 2017). Trade
barriers can lead to have major negative impact on business. It includes tariffs, quotas,
regulations, legal issues, ethical issues, competitors and so on. Tariffs and quotas – This includes the taxes and tariffs that is imposed by government
while importing and exporting products. Tariff quotas are developed with the motive of
protection of trade and high amount charged by government will lead to have negative
impact on business activities and profits. Regulations – There are various regulation developed by political party and government
of nation. These regulations will lead to have direct and indirect impact on performance
of business activities. It is very difficult for SME company to full fill regulations while
exporting products.
 Legal issues – It is crucial for respective organisation to determine legal issues and
problems while exporting products to international market (Majaro, 2013). Legal issues
will lead to have major negative impact on performance and sales of products or services
into new market areas. Legal issues faced by company can lead to failure of business at
international market.
There are several consequences that could faced by company if these trade barriers are
not followed properly while performing business activities at international market. The major
issues and consequences that faced by company if these are ignored is less in sales, lower profits
and negative affect on performance of business activities.
Demonstration the business uncertainties.
There are several uncertainties that could be occur while conducting business task and
activities at international market area. The major uncertainties that will affect respective SME
company operation are trade war between China and US. This will affect the trade relationship
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between both countries and increase in trade restrictions. Negative impact of BREXT on China
will affect the overall performance of company as well as lead to increase cost of business at
international market area.
There are several opportunities for SME company while operating business activities at
UK market areas. This is considered as most favoured nation as it is providing equal and fair
opportunities to business. UK market area is considered as land of quality as well as reliability.
ETHICAL AND SOCIAL ISSUES
What is Chinas expectations of foreign companies, look at the corporate and social
responsibilities.
It is very important for company to follow ethics and moral while developing products
and services. This will help respective organisation to enhance business activities as well as
performance of organisation. It is essential for respective company to conduct business activities
by considering ethical as well as social issues of China.
Importance of Corporate social responsibilities
There are several advantages for company by conducting corporate social responsibilities
in China market. This will aid in developing strong relationship with customers and improving
sales of SME company (Cravino and Levchenko, 2017). Corporate social responsibilities will
lead to create high brand image in market area for growth and development of business. These
activities will lead to resolve issues of society as well as provide better living standers to citizen
of Chinese citizen.
RELEVANT THEORY ON ETHICS
There are some theories that is developed for providing guidance to organisation. So that
they can perform business activities in ethical manner. Business ethics and morale play
significant role in growth or development of business. Different relevant theory on ethics are
mention below. Corruption labour issues – These are issues that is majorly related to labour that is working
with in organisation. It is essential for company to provide right and safe treatment to labour
as well as reduces issues of corruption labour. This will help in conducting task and activities
in effective and efficient manner.
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 Environmental issues – It is important for company to consider issues of environment while
manufacture as well as delivering of products. This ethical theory will support organisation to
conduct business task in accurate manner without harming environment factors.
CULTURAL PREFERENCES
It is important to prefer the culture of China while performing business activities in this
market area. Identification of customer preferences and culture will support in better decision
making that will lead to growth and development of business (Khakhar and Rammal, 2013).
Culture play crucial role in growth and development of business at this helps in conducting task
and activities in effective manner. Culture incudes different factors such as language, attitude,
perception of customers and so on. This will lead to have major impact on UK SME company
that is performing business operation is China market.
What is Chinese culture like?
Chinese culture is rapidly increasing towards major cities as well as urbanization. This
will lead to increase the consumption of UHT milk as compare to raw milk. Now a day most of
the parents are working and due to apartment culture there is less space at home. This reduces the
space for refrigerators and enhance the preference of UHT milk for children. Powdered and
UHT milk has more shelf life and it is easy to use while travelling.
Chinese people has positive attitude towards foreign products. They consider foreign
products lead to resolve their issues in creative and innovative manner. UK is considered as
country which has one of the most advance technology in world. Chinese customer have
positive reaction towards UK products and services.
Language will be the major barrier for that will affect the respective company while
performing business activities at Chine market. Chinese language is very different from English
language. It is very important for UK SME company to communicate features of products in
local language of China. Products of UHT milk needs to be labelled in Chinese and English
language as this help people to understand detail about ingredients and its usage properly.
There are different ways through which UK SME company can present UHT milk
product to customers (Caprar and et.al., 2015). It is crucial for Milky way company to use
attractive and creative methods to influence customers. This company should focus on
developing strong brand image and right perception about UHT products in market area.
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Changes in perception of customers towards raw milk and UHT milk products will support in
increasing sales of products.
EXPANSION METHODS
There are different types of expansion method that could be adopted by company while
expanding products and services in new international market area (Cantwell, 2017). Methods of
expansion will support business to increase sales and revenues of business by expanding offering
to different area. Different methods of expansion is mention below. Acquisition – This refers to expansion of organisation by purchasing shares of other
company. In acquisition method company can offering its products and services to new
market areas by acquiring assets of company. Joint Venture - This method is useful for expanding business operation to new country.
In joint venture method, two or more companies are working together in order to enhance
business activities. Licensing – This is an effective method as in this company needs to full fill legal
formalities and procedure while conducting business activities at international market
area. In licensing method business needs to seek special permission to perform task and
activities. Franchising - This can be describe as the arrangements in which both parties agrees to
work together for expanding business operations at international market (Temiz and
Gökmen, 2014). This marketing strategies will lead to business expansion.
 Greenfield investment – This can be describe as the type of foreign direct investment that
support organisation to perform business activities at international market area.
Greenfield investment is an effective way through which company can perform business
activities at new and international market place.
Thus, most suitable method for Milky way company for expanding business operations
at China market is Joint venture. This is an effective way that support respective organisation to
conduct task in accurate manner. Joint venture will be more beneficial for company to perform
task at international market area.
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CONCLUSION
As per the above report it has been concluded that it is crucial for organisation to enhance
and grow business activities at international market. This will help in growth and development of
country as well as support to increase profits. There are various theories of international trade
that will helps company to select most appropriate region to market offering of country. Trade
barriers will lead to have major impact on performance of business at international market. It is
crucial for organisation to analyse trade barriers in order to develop better strategies for business
growth. Ethical and social issues needs to be consider while conducting business activities as
cultural preferences will support in organisational overall performance.
RECOMMENDATIONS
There are various recommendation for respective company in order to perform business
activities at international market area. It is crucial for manager of this organisation to consider
these factors in order to enhance business activities as well as accomplishment of goals.
Recommendations are mention below in detail.
 It is important for respective company to consider different cultural values and beliefs
while performing business activities in new market area. This will help company to
develop effective relationship with employees as well as perform task in accurate
manner.
 Organisation needs to develop strategies as per requirement of customers as well as their
preferences. It is important for analyse the market gap in order to take correct and
accurate decision for growth of business.
 Company needs to follow various rules and regulation which is set by China
government. This will support in smooth performance of business without legal and
political issues.
 Corporate social responsibilities play important role in business performance. It is
essential for company to conduct several CRS activities that will help in promotion of
products and services in new market area.
 It is required to develop strong strategies as well as plan while performing business
activities at new market area. Plan and strategies developed by company will support in
taking correct and accurate decision as well as help in gaining competitive advantage
over other rival companies.
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