Strategic Report: UK SME's International Business Expansion in China

This report delves into the strategic approach of a UK-based Small and Medium Enterprise (SME) aiming to expand its business operations into the Chinese market, specifically focusing on offering high-quality Ultra-High Temperature (UHT) milk to children aged 3-11 years. The study examines various business drivers for expansion, including leveraging the UK's reputation for quality and addressing the health needs of Chinese children. It utilizes Porter's Five Forces analysis to assess the competitive landscape of the Chinese dairy industry, considering factors such as customer bargaining power, supplier power, threats of new entrants and substitutes, and rivalry among existing firms. The report also addresses potential trade barriers like tariffs, import quotas, and non-tariff barriers, along with ethical and social issues, including Corporate Social Responsibility (CSR) and health and safety considerations. Furthermore, it explores cultural preferences and suitable expansion methods for the UK SME to effectively establish its presence and achieve sustainable growth in the Chinese market. Desklib provides access to similar solved assignments and past papers for students.

International Business

Table of Contents
INTRODUCTION ..........................................................................................................................3
MAIN BODY...................................................................................................................................3
Business drivers for business expansion......................................................................................3
Trade barriers ..............................................................................................................................7
Ethical and social issues need to consider by the UK SME .......................................................9
Cultural preferences considered by the UK SME......................................................................10
Expansion methods....................................................................................................................11
CONCLUSION..............................................................................................................................12
REFERENCES................................................................................................................................1

INTRODUCTION
International business can be defined as the trade of goods, technology and services
across national level at a global scale (Srivastava, Singh and Dhir, 2020). This present study is
based on UK’s small size company that wants to expand its business in China. It wants to offer
qualitative UHT milk for 3-11 years of children for increasing market share and sales as well.
The aim of chosen company it to obtain benefits in competitive business world, as it had faced
the worst issue such as to gain competitive benefit. The selected company is connected to China
on the basis of establishing venture in this nation, in order to overcome the adverse impact of
issue that it face. This study is going to discuss effectiveness porter’s five forces and other
analysis that can help out company in knowing current market condition so that it can develop
strategies accordingly. Further, it will discuss some trade theories by which it can expand its
business in new market with effectiveness. It will discuss some trade barriers that can affect
business expansion along with ethical and other social issues that companies may face while
operating their business.
MAIN BODY
Business drivers for business expansion
This high-profile UK medium size company, based in London wants to tap into Chinese
market by 2022-2023. The main aim of this company is to promote its UHT milk for children 3-
11 years for improving their health. Nowadays, children are suffering from low bone intensity
and poor health problems. For this reason, it wants to promote this product and along with this, it
wants to make use of UK’s reputation as a land of quality, transparency and reliability.
The reason of targeting this age group of children is: idle match for ambassador for
product due to their comprehension of what they like and they do not like. This company wants
to tap into Chinese market but for successful expansion, it requires identifying current business
environmental situation (Robinson, Lakner and Otter, 2019). There are number of external
environmental factors that can affect organisational performance and when companies want to
enter in other market then they need to analyse all these factors. In the world of business, number
of external or internal business environmental analysis models and frameworks accessible, that
aid a company to specify number of drivers that put direct impact on business expansion process,
either in negative or positive manner.
Porter’s five forces analysis-

This analysis also plays a vital role as it helps out companies in knowing current
competitive situation so that they can develop strategies accordingly and can make an effective
position in the market. There are five forces on which basis, current competitive situation of
China in regard to dairy industry can be known such as:
Porter’s five forces Intensity Description
Customers’ bargaining power High As there are number of
dairies in China and
customers have number of
options to buy dairy products.
There is low switching cost
so, people have high
bargaining power. For
increasing profit and
retaining customers, this
company will require
improving relations with
them and will need to provide
high quality of milk (Irawan
and Darmansyah, 2021).
Organization will take
initiative to overcome the
adverse impact of this factor
upon success in the Chinese
market in form of adding
more value in UHT milk as
compare to rivals.
Suppliers’ bargaining power Low As it is already stated that
there are number of cows in
China and there are number
of suppliers in this industry
so companies have number of

options to switch suppliers.
This small company of UK
will require improving
relations with suppliers so
that it can get all essential
resources at affordable price
(Kutnohorská and
Krištůfková, 2019). It will
take approach to build strong
relation with sustainable
suppliers who are able to
provide and deliver UHT
milk to target market.
Threats of new entrants Medium Dairy products and milk is
basic thing that everyone
requires. For earning money,
people of China are investing
their money in establishing
those businesses that are
essential. But for entering in
this industry, people require
skilled employees and require
money as well. They will
require buying cow and
maintain them so, for this
reason, this power has
medium intensity and this
small company of UK will
require bringing innovative
ways and abiding all rules so
that it can attract customers

(Fatih and et.al., 2021). There
are fewer companies enter
into Chinese market, for
purpose of selling or
providing UHT milk to
people, but these are less
effective.
Threats of substitutes Low Dairy products and milk that
is being offered for children
cannot be substituted easily
with other products. So, this
force is in favour of this
company and it may have
positive impact on its
performance. The main
reason behind low rate of this
factor is consumer taste. As
individual person may do not
prefer to switch to those
products that encompasses
poor quality and quantity.
UHT milk is the best, for
their health and because of
this reason customer will do
not initiate to switch to other
brand goods. It will affect
positively upon SME success
in form of increasing
profitability.
Rivals High In china there are number of
dairies that provides and offer

qualitative milk as well as
other dairy products. So, on
the basis of this, it can be said
that this small company will
have to strive hard for being
in the competition and
making an effective position
in the market. The extent of
this force is high, which will
put negative impact on
London Based SME, that had
taken initiative to provide
UHT milk in the nation and
plan to enter into Chinese
market. In the chosen nation,
Inner Mongolia Yili
Industrial group is one of the
biggest competitor of SME
that establish in the UK
market, who may give tough
competition.
Competitors, suppliers, customers needs or bargaining power, new entrance and
substitute products are considered as 5 forces or drivers, that will affect directly upon business
success in the new market such as China.
From above discussion, it has been summarized that government is also considered as
external force or driver of business growth, that holds power to change or modify the decision-
making process of companies, either small or large. Customer taste that may drive their attention
toward taking decisions to purchase a product or not. In case of London base Sme, this driver
will put positive impact in form of increasing profit, productivity and customer base, which is
not possible for any company that offer same product such as UHT milk to do that. It will lead to

increase profitability and generate unpredictable revenue, that will make company successful in
Chinese market.
Trade barriers
Trade barriers creates the limited choices over the product and services therefore it forced
the consumers to pay the great cost and to accept the inferior quality of the products. It usually
favours the countries of good economy, as these are the countries who set the international trade
standards (Kahiya, 2018). As for the UK based company to sell their product UHT milk in china
market certain e trade barriers are as follows:
Tariffs: Tariff refer as the taxes in the import’s items. It rises the cost over the imported
goods to create the imports as less competitive. As the government system imposed the standards
level on both the import or export of the commodities. In china import tariff rates are divided
into the 6 distinct categories that are general, preferential and provisional rates also in tariff quota
rate, as for the UHT milk the expected tariff rate is 17 percent for the milk product. Thus, UK
based company can proceed to use the bonded warehousing techniques to delay the cost or
payment for the tariffs, thus as a part of this techniques the commodities are bonded in a
warehouse which is mainly specified by the government as the duties are not paid when the
commodities are imported. It will help them to efficiently sells their UHT milk product in the
Chinese market.
Import Quotas: It is the type of the trade barrier which sets the physical limit over the
good quantity which can be imported into the country in a given specific time frame (Yao1a and
Wei). Quotas are the trade restrictions which mainly benefits the good producers in economy.
Countries uses these quotas to help in regulating the trade volume among the countries, it boosts
the domestic production by prohibiting the foreign competition (Nicita, 2018). Thus, for the
UHT milk product it is important for company to come up with suitable strategy in order to
overcome this barrier.
Non-tariff It is the trade prohibition which is used by the countries to fulfil their
governmental and economic goals. Countries mainly opt for the non-tariff barriers which
involves the quotas, sanctions. It is the set of the rules which is employed on company’s product
which dictates as how the product should be manufactured, handled or advertised. It also needed
a proof as from which country the good is originated. It is found that6 in China have applied the

MFN which is most favoured nation tariff rate which is lowering from 15.3 percent which is in
year 2001 to the 7.5 percent in year 2020.
Subsidy: It is another common barrier which is government subsidy it is financial aid
which is exclaimed by the government to provide it to the good producer. It is mainly designed
for enhancing the competitiveness of the specific industry. It makes the goods or commodities as
cheaper to manufacture than in the foreign market. It gives the outcomes as to decrease the
domestic price, subsidies rise the cost over the foreign goods which aims to decrease the imports.
Partnership: It is the association of the two organisation which operates in completely different
market, it is the strategy to earn revenue and come out as a single or strong brand. Thus UHT
milk can also proceed with this strategy to enter into the Chinese market.
Thus, above are the list of the international trade barriers which can be faced by the UK
SME for their UHT milk product. In order to successfully established in the Chinese market,
they need to come up with specific strategy and to follow all the customs and trade standards in
order to prevent from legal actions (Dincer and Tekin‐Koru, 2020).
Ethical and social issues need to consider by the UK SME
Ethical policies and social factors play a significant role when going overseas for business.
these are those which makes the company to settled down in the global market. As the business
expand must not only concern with the organisational vision, mission but also required to
account the ethical as well as legal factors. Some ethical and social consideration are the
outsourcing, workplace diversity, integrity, human rights, corruption, bribery and other political
factors. Thus, for the UK SME it is required to follow all the ethical consideration in order to
operate in Chinese market. CSR corporate social responsibility is the major factor, it will guide
the firm to operate in the global market or to create their brand’s positive impact over the
consumers, employees and communities or environment (Irwin, 2019). With the help of CSR
values UK SME can easily optimise their business in Chinese market, as well as they will
enhance their sales over the UHT milk product and to achieve the customer loyalty. It is
important factor to give greater recognition in international market.
Some ethical and social issues which the firm need to overcome are as follows:
Health and safety: It is the type of the ethical issue which is often secured by the health
and safety law. As it is seen that most of the companies do not focus on employee safety as they
think it as an extra investment. But it can cause the high turnover of employee also cause the life-

threatening situation for the workers. Thus, in such it is important for UK SME to ensure that
they are providing insurance and health safety to their employees in global market just to avoid
any kind of miserable situation. As China country mainly strict to their health and safety
standards thus UHT company also need to follow its rules for avoiding any miserable situation.
Social &Environmental issues: Most important factor for international trade, as for the UK
SME required to ensure that their products are not causing environmental impact and not raising
the vulnerable climate change situation. It will help them to create brand awareness of their
products. Company can also proceed to connect with the local communities for their business
betterment as well as to promote the support in society which ultimately makes their business to
increase market share by earning large revenues.
As CSR standards in UK stands for motivating the businesses to perform in ethical
manner and to ensure the sustainable growth of economy, as UHT is UK based SME which is
sure that they operate with CSR values, thus it will help them to develop in Chinese market. CSR
helps the businesses in every aspect as implementation of CSR goals and objectives helps in
improvising the judgement and recognition of business among its consumers (Alshenqeeti,
2019). As for the strong competitive market it helps in boosting the companies to stand out from
them rivalries. Thus, UK SME can also proceed to follow CSR in Chinese market to create their
reach in market as well as with this they can easily prompt their potential workers to commit
themselves to the organisation and to advertise its values in their personal lives as well.
Cultural preferences considered by the UK SME
Cultural aspect are the belief, religion, values, customs, origin and language or so on.
These plays a crucial role in every manner, as for the international trade these are important
factor which the company need to consider. For UK SME it is essential to respect the cultural
values of the people in global market, as to established successfully they need to follow all the
customs and norms to maintain the dignity of their brand in Chinese market (Tien, Phu and Chi,
2019). Having a knowledge of cultural values will help the organisation to know the buying
behaviour of the customer in global market, which helps in designing, producing or marketing of
the products.
Language preference Language is the one from which the messages or information can
easily deliver. As for the UK SME it is clearly seen that they have to face the language barrier
when they enter into the Chinese market. In china people prefers the mandarin Chinese language

which is spoken by the 730 million people. In china the business protocols are- as exchange of
the business card is consider as importance in the Chinese business culture. Ideally one side is
print in English language and other in their Chinese language, in China it is important to have the
third party support for the business negotiations. Thus, for overcoming this they need to train
their employees to learn about the Chinese language to communicate with the consumers in local
market. Company can also proceed to hire the candidates from China’s market it will help them
to interact with customers as well as it will drive values at their work place culture (Bonsu and
Twum-Danso, 2018). It is also seen that cultural conflicts among the work place restricts the firm
to accomplish their business, for that SME required to implement inclusive work place
environment and to conduct several activities which helps the employees to connect with each
other and to respect each other’s cultural background.
Customs and rituals: All cultures have their different customs and rituals, thus in such
UK SME also needs to consider all customs in China’s market so that their product will be
acceptable by the customer (Liu and et.al 2018). As for the Chinese business customs it is
popular that for the meetings businesses required to be time punctual or to come before meeting
or to bow when first meet in business conferences. Thus, UK SME also required to value the
cultural aspect of the customer in order to increase sales of their product in global market.
Thus, for avoiding any kind of cultural miserable situation company need to ensure that
their business is following all the customs and regulation in order to prevent from any situation
which cause lots of barriers to their business. And for the work place they can proceed to
organise activities for the employees and ensure all will taking a part in interaction meetings to
understand each other for better team productivity.
Expansion methods
For the international expansion companies always looks for the opportunity to develop in
global market, they often collaborate or select other options to make entry in new market. There
are some expansion methods which the UK SME can proceed to select-
Licensing arrangements: It can be an optimal solution also less risky method for the
international expansion. It is the legal written contracts between the two parties where the owner
of the property allows the other party to use their trademark to sell the product (Garrett and et.al
2020). Thus, it is a convenient approach which the UK SME can proceed to undertake as with
this method they can easily connect with the local company to avoid any risk also it helps in

creating brand awareness of their products. Example company can use the design for the popular
character it helps in brand awareness. As for the UHT milk they will be benefited with better
marketing opportunities but also they have the face the risk of the unintended competition.
Partnership: Strategic alliances with the domestic organisation is linked within the
country is also appropriate method for the international expansion. It is the agreement between
the two or more businesses in which both parties share the equal shares. Thus, with this UK SME
can also be benefited by sharing the labour cost as well it will help them to make their business
productive. Thus, company can proceed to go with this option. Thus company can be less formal
to the few legal obstacle when they proceed with such process. But it is found that they will
likely to face the selling complications.
Mergers and acquisition: It refer as where the two business parties can easily consolidate
each other. It is the rapid option to enter into the new market. As in merger two firms connect
and make a new single entity to run the business, meanwhile acquisition refer as to acquire the
business of other company (Velikorossov and et.al 2020). As merger and acquisition helps in
developing the shareholder values. Thus, UK SME can also proceed to consider this option for
expansion in Chinese market. This method will help them in lowering the labour cost as well as
to enhance their economical scale by driving good revenues. Another benefit is to enhance their
market share or also to hire the fresh and skill full talent in the global market. Along with benefit
there are some cons to which company are likely to face which are increment in legal costs.
All are the above expansion method which the company can proceed to follow with these
they can easily create their brand awareness in international market.
Factory mobility theories:
It refer to the free movement of the production element that are capital across the borders.
As it involves the movement of factor within the industry, thus for the UHT milk if they want to
close their business in UK market and start in Chinese market then they can proceed to sell their
product to same industry in china.
Ricardian Comparative advantage theory:
It refer to the cause attribute and advantage of the global trade to differences in relative
opportunity price for manufacturing the same products among the countries. Thus it can be
understood as if the UHT company sells or come up with the different company who sells same