Somerdale International: Evaluating Chinese Market via PESTLE Analysis

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Added on 2024/07/03

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This report conducts a PESTLE analysis to evaluate the potential for Somerdale International, a UK-based dairy company, to enter the Chinese market. It examines political, economic, social, technological, legal, and environmental factors influencing business growth in China. The analysis reveals opportunities such as a growing middle class, increasing youth population interested in Western foods, and availability of cheap labor. However, it also highlights challenges including strict legal and environmental regulations, and competition from local enterprises favored by the Chinese government. The report concludes that Somerdale can succeed by developing strategies that account for these market dynamics, potentially leading to significant business growth.

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Table of Contents
INTRODUCTION........................................................................................................................... 3
BODY.............................................................................................................................................. 4
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................ 8
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List of Figures
Figure 1: PESTLE Analysis.............................................................................................................4
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INTRODUCTION
China is one of the biggest consumer markets in the world. Many foreign investors, especially
from the UK, are trying to enter this lucrative market (Chang, et al. 2014). There are three major
reasons which are attraction foreign companies:
 Large market size
 Availability of cheap labour at low cost
 Low consumption of dairy products in China
 The growth of the Chinese middle class (Zou and Petrick, 2017)
By measuring these factors, food industries across the world are trying to capture the Chinese
market single-handedly.
The trade of dairy products between the UK and China is at £1.4 billion which is increasing and
accounts for nearly 11.5 ton of cheese exports from UK to China every year (Perrea, et al. 2015).
Somerdale is a dairy company established at Wellington, the UK in 1990 and expertise in
exporting more than 500 varieties of cheeses all over the world (Lee, 2015). The company is
trying to foray into the Chinese market so as to entertain Chinese people with its products in a
best possible way.
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BODY
PESTLE Analysis
Figure 1: PESTLE Analysis
Source: [Islam and Mamun, 2017]
It is a management tool which has been effectively utilised by companies to effectively assess
macro-environmental factors which are conducted usually for projects and businesses (Fisher,
2018). It has the following factors:
 Political factors
 Economical Factors
 Social Factors
 Technological Factors
 Legal Factors
 Environmental Factors
PESTLE Analysis on Chinese Market
The given analysis is conducted by Somerdale so as to understand the market scenario in China
before planning a full-scale entrance into the Chinese market for opening up its own local stores
across various Chinese cities.
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These factors related to China which would have a significant impact on the business are:
Political Factors:
The political system of China is that of the communist type which implies high stability,
dynamic economic, less bureaucracy and more opportunities for investment. Furthermore, the
government of China has entered into a trade agreement with the WTO to promote investment in
food and dairy products which would enable the government to generate more revenue (Chen,
2018). On the flip-side, the government still favours local enterprises over the international one
and provide all tax and other benefits to the former one.
For Somerdale, there would be a significant impact on its business due to political factors. With
relative stability and high growth, the company would be able to explore its business without
getting more worried about taxation (Ding, et al. 2018). However, it would have to face stiff
competition from local dairy industries as the Chinese government would favour these local
enterprises.
Economical Factors
China is the second largest economy in the world and its economy is growing at an
overwhelming rate of 10% (Fisher, 2018). Besides, it has high labour resources which are
available at a cheap cost which would be beneficial for foreign companies to set up their industry
here.
For Somerdale, it has a significant opportunity to enter the Chinese market with a bang because
the high economic growth would allow it to reach even the remotest part of China. Moreover, it
would be beneficial for the company to set up its business here than in the UK due to a large
number of labour resources available at an affordable price (Yu and Liu, 2018).
Social Factors
There has been growth in youth population in China who wants to taste the western food and as
cheese is not much used in Chinese food market, it would be a significant boost to the dairy
companies (Yang, et al 2018). Furthermore, the rise in the middle class has resulted in an
increase in the requirement for dairy products for their kids which was ignored in China in past.
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Somerdale would be greatly benefited with the increase in youth population as well as middle
class. As cheese is seldom used in Chinese traditional food menus, the introduction of varieties
of cheese would help the company to expand its footprint whole over the country (Lee, 2015).
Technological Factors
China has highly advanced technology as compared to other developed countries and it uses new
equipment of high quality for processing as well as manufacturing of food products.
Furthermore, there are high standards of maintaining hygiene so as to prepare good quality food
and dairy products (Perrea, et al. 2015). Somerdale would benefit by utilising advanced
technologies for manufacturing its cheese products and would help it increase its profit and
decrease its operational cost.
Legal Factors
As China is a communist regime, there are very strict laws regarding the quality of food. In 2015,
China had banned the import of cheese products from the UK for one year because the cheese
products were of degraded quality. Furthermore, the violation of rules would results in severe
punishments with fine (Liu and Hong, 2016). Although Somerdale produces good quality cheese
products, its business would be impacted as it would have to keep a vigil over its production and
should prevent any violation of rules otherwise it would lose its market share in China
completely.
Environmental Factors
China has strict environmental laws related to the protection of forests, water bodies and other
aspects. As cheese industry have been found to consume a large quantity of water for its
manufacturing and polluting the water bodies with waste residuals, China has implemented
Environmental Protection Law strictly so as to prevent misuse and polluting of the water bodies
(Zou and Petrick, 2017). Somerdale would have a serious impact as it has to restrict the
production of cheese at large scale and minimise the consumption of water for its production
which would hamper its growth in the country.
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CONCLUSION
The given study has been based on identifying the factors which impact the growth of business in
the Chinese market via PESTLE Analysis. Somerdale International, an expertise in dairy
products in the UK has been taken into consideration. The study revealed that there has been
significant growth in the Chinese market in recent years and it was also found that dairy products
have been less consumed in China. Besides this, less restriction, the rise of the middle class and
young population and availability of large labour force at cheap price have boosted the prospects
of the company in conducting business in China. However, the strict legal and environmental
laws could hamper the growth of the company across the country. Thus, if the company develop
its policies keeping in mind various aspects of the Chinese market, it would surely meet with
great success.
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REFERENCES
Chang, E.C., Luo, Y. and Ren, J., 2014. Short-selling, margin-trading, and price efficiency:
Evidence from the Chinese market. Journal of Banking & Finance, 48, pp.411-424.
Chen, C.J., 2018. Analysing the Strategies of Developing the Third-Party Payment Platform in
China: A Case Study on Alipay.
Ding, H., Fu, Y., Zheng, L. and Yan, Z., 2018. Determinants of the competitive advantage of
dairy supply chains: Evidence from the Chinese dairy industry. International Journal of
Production Economics.
Fisher, N.I., 2018. Stakeholder Value as an Organizing Principle for Strategic Planning. Journal
of Creating Value, p.2394964318771251.
Islam, F.R. and Mamun, K.A., 2017. Possibilities and Challenges of Implementing Renewable
Energy in the Light of PESTLE & SWOT Analyses for Island Countries. In Smart Energy Grid
Design for Island Countries (pp. 1-19). Springer, Cham.
Lee, J., 2015. Critical exposition of Japanese takeover law in an international context.
Liu, C. and Hong, J., 2016. Strategies and service innovations of haitao business in the Chinese
market: A comparative case study of Amazon. cn vs Gmarket. co. kr. Asia Pacific Journal of
Innovation and Entrepreneurship, 10(1), pp.101-121.
Perrea, T., Grunert, K.G. and Krystallis, A., 2015. Consumer value perceptions of food products
from emerging processing technologies: A cross-cultural exploration. Food Quality and
Preference, 39, pp.95-108.
Yang, R., Ramsaran, R. and Wibowo, S., 2018. An investigation into the perceptions of Chinese
consumers towards the country‐of‐origin of dairy products. International Journal of Consumer
Studies, 42(2), pp.205-216.
Yu, Y. and Liu, Y., 2018. Country‐of‐Origin and Social Resistance in Host Countries: The Case
of a Chinese Firm. Thunderbird International Business Review, 60(3), pp.347-363.
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Zou, S.S. and Petrick, J.F., 2017. Tapping the Chinese Market: an Examination of Chinese
Tourists' Images and Constraints towards Cruising. Tourism Review International, 21(4),
pp.347-364.
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