International Business Report: UK SME Expansion in the Chinese Market

This report examines the internationalization of a UK-based SME looking to expand into the Chinese market. It begins by identifying key business drivers for expansion, including strategy, marketing, product offerings, infrastructure, and pricing strategies. The report then analyzes trade protectionism, discussing both economic and non-economic barriers like tariffs, quotas, licenses, and standards. Ethical and social issues, such as employment, pollution, and human rights, are addressed in the context of the Chinese market. The influence of cultural preferences, including language, religion, social institutions, and historical context, on business operations is also explored. Finally, the report outlines various expansion methods available to the SME, including joint ventures, trade agreements, franchising, and licensing, offering insights into how the company can successfully establish its presence in China.

IB Assignments
1

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
Assignment......................................................................................................................................3
1) Business Drivers Behind Expansion.......................................................................................3
2) Trade Protectionism.................................................................................................................4
3) Ethical and Social Issues.........................................................................................................5
4) Cultural Preferences................................................................................................................6
5) Expansion Methods.................................................................................................................7
CONCLUSION................................................................................................................................8
References......................................................................................................................................10
2

INTRODUCTION
Internationalization of companies has taken a rapid growth in the current 21st century.
The below study is about a UK based SME in London which wants to tap into the Chinese
market for providing products to kids. The business has attained a high growth in recent years
and looking forward to continue with that (Jenkins, 2013). Also business has been awarded with
various awards for its products. Present report will discuss the business drivers that can help in
the expansion of the company in the new market. Government regulations and trade barriers will
be illustrated in this assignment.
ASSIGNMENT
1) Business Drivers Behind Expansion
While moving into international market an organization needs to identify its key business
drivers to increase its profitability. A key business driver impacts a companies performance in a
major way. In General sales and revenue are the drivers of business and it is easy to monitor
them (Alon and Herath, 2014). There are some internal and external factors which impacts the
performance of the firm, among them what are entities key drivers those are to be focused on.
Some of the key drivers which can drive UK based SME in Chinese markets are:
 Strategy: A idea that turns into a business plan is what strategy is. Strategy for the UK
based SME is to enter into the new markets with majorly focusing on the sale of its two
products - Oat Porridge and Oat Breakfast Biscuits to the kids. As per condition of
Chinese market, firm needs to make strategy by understanding the perception of people
what they want. That would help them in successfully establishing their brand in the new
location.
 Marketing: This is the era of digital things and for a product to be successful in the
markets no traditional marketing will become the game changer (Piekkari, Welch and
Welch, 2014). In order to make aware people about your product, about your presence in
the market companies needs to market its product through various social media channels
since usage of social platforms in china has grown rapidly as per the previous reports.

 Products and services: For UK based SME they should provide products which are
likable in the locality of china. The company needs to modify their products according to
the taste and preferences of the people.
 Infrastructure: Building an outlet which is accessible from anywhere in the city and
convenient for the people is what drives the sales(Dinnie, 2015). Also the infrastructure is
about the space, processes that needs to be modified as per the location company is
working in.
 Pricing strategies: For the UK based SME company thinking about moving into the new
locations is challenging because different people have different perceptions and income
level, knowing your product and knowing what customers will pay for that particular
product is what has to be examined from the point of view of china.
2) Trade Protectionism
Moving into the global markets firms need to have a look on the restrictions on trade of
the country that are planning to move into. These trade protectionism is applied by the
governments to keep unlawful or hazardous products out of the country. Trade protectionism is a
policy of restriction of imports of foreign goods into country (Trade Protectionism: 4 Methods
with Examples, Pros and Cons, 2017). This is been applied by governments to improve the
BOT(balance of trade) of the country. They want to increase the exports of the country. There
are different type of trade barriers which is divided into two categories that are Non-economic
barriers and Economic barriers.
Non-Economic Barriers:
 Licenses: This is the most used form of Non-economic barriers on the regulation of
imports. In this system authority issues permits for doing transactions in foreign. This
may take some forms and procedures to have a license to set a business at our desired
locations. UK based SME needs to consider this factor and has to identify the Chinese
government regulations before entering into this market (Dinnie, 2015).
 Import Deposits: Import deposits are kind of deposits which is charged from importer
and importer must pay to bank amount which may be or may be not equal to the costs of
goods that are imported. It may be possible that UK based SME can afford such import
deposit then it would be difficult for it to survive in the Chinese market for longer

duration . By looking upon this factor it would be able to make strategy so that it can
sustain in the new market for longer period.
 Standards: Standards are also the most commonly used barriers by the governments of
the country in order to protect its people from harmful products(Enqvist, Graham and
Nikkinen, 2014). This type of barrier is usually impose on the factors like labeling,
testing of products, in order to sell domestic products. If SME offers Chinese population
below standard products then it may be possible that it would face huge loss. It has to
maintain these standards so that it can establish its venture in the new market for longer
duration.
Economic Barriers:
 Tariff: Tariff is a tax on some imported goods. Through Tariff price of goods which are
imported are raised. It makes the product more expensive and people tends to perceive
lower products than expensive one's and thus the domestic one's are given advantage over
the foreign(Zapletalova, 2014).
 Embargo: Embargo is not a kind of tax or limitation, it is an order which is given by the
government to completely prohibit the trade with another country. Not every country is
completely banned, some from whom relations are not up to the mark those are banned.
 Quotas: It is a limitation on a particular type of good which is imported into the country.
Also through it governments try to protect the domestic business from foreign
competition. In some cases the countries who are importing request the exporting
countries to impose voluntary export restraints.
 Subsidies: Subsidies are given by government to promote the business of domestic
industry which in turn will create a competitive advantage of domestic business over the
foreign businesses(Polsa, 2013).
3) Ethical and Social Issues
When a company plans to move into the new markets, company will find it several times
that legality and ethical framework of different countries are different in nature. Organization
needs to address those issues accordingly in order to get success in the expanding countries.
Some of the issues that needs to be taken care of for UK based SME while moving into the
Chinese markets are:

 Employment: Employment generation is the biggest issue when firms are moving to new
markets, even when a company have qualified with all the legal matters organization
needs to think on the hiring of the people to work for them and needs to make decisions
on the pay levels for them(Boussebaa and Morgan, 2014). By this way UK bases SME
will be able to manage its operations well and staff members will be able to make
connection with the Chinese audience significantly.
 Pollution: Many foreign countries have environmental laws that makes companies to
work ethically and not discharge the harmful products into the environment. In case of
UK based SME they don't generate any harmful products so they did not want to worry
about this issue, But should keep in mind for the future purposes (Dinnie, 2015).
 Human Rights: Most basic and sensitive issue which comes with expanding to foreign
markets is human rights improvements. Based on your presence that supports or serve as
catalyst for human rights. Some human rights may include freedom of speech, freedom of
movement, etc.
4) Cultural Preferences
Culture of any country where an organization wants to expand to is always been the
important factor in success of that expansion. A culture of a country includes its religion,
language, political- economic systems, education level, social class. So, When to discuss about a
particular countries Influence on business, these factors or elements needs to be considered. these
factors reflect habits, attitudes, beliefs of the society and with these factors effect of culture on
international trade will be clear(Pereira-Moliner and et.al 2015). Here are some of the elements
of culture which have its implications on international businesses.
 Languages: Language is crucial in interacting with your business partners and colleagues
and helps in understanding their part of information as well. Use of language is necessary
when it comes to doing business in foreign countries. As china is concerned for healthier
growth of business local language should be adopted by the firm. UK based SME has to
train its staff members accordingly so hat it can make good connection with the
consumers and can satisfy their needs.
 Religions: Religion is an important factor when we talk of culture preferences in relation
to international businesses. Religions can impact the purchasing behavior through

fundamental principles and values that it possess(Leung and Morris, 2015). An
individuals attitude towards purchasing a product or service reflects his/her behavior
towards it.
 Social Institutions: Social institutions are refers to the set of roles, norms, values which
in a particular social constitution is configured comparatively stable form of human
resources. China is a country with compelling social associations, which affect Chinese
enterprise activities a lot. So SME needs to give preference to this element when it enters
into the new market (Dinnie, 2015).
 History: History is the reflection of the society. For a company to enter into foreign
markets historical characteristics of that country needs to be considered to make sure that
firms products are suitable to the habits, tastes and values. For china companies need to
look up at the traditions which includes Chinese items more in the food sector, so the
approach of the organization to introduce new product in Chinese market should be that it
relates with taste and preferences of the people.
5) Expansion Methods
Due to the rise of globalization it has been easier to move to new countries for small
business concern and startups. So being a small medium enterprise based in London it will be
easy to expand its business in china with its two products at the initial level. There are still some
barriers with rules and regulations, culture, languages and religions play their part as well, but
technology has been the key every time and in the present era it has impacted and helped in a
significant way (Seven Ways to Expand: From Local to Global, 2014). Many businesses think of
going to global markets but end up nowhere because they did not employ significant expansion
methods which they can, in order to mark there presence in international market. Above are
some of the expansion methods through which UK based SME can expand to china:
 Joint Ventures: Joint venture is just a type of partnership business between two or more
people or firms. It is different from partnership business due to the its terms of agreement
between the parties. UK based SME can adopt the joint venture practices to make its
place in the markets of china (Dinnie, 2015).
 Trade agreements: Through trade agreements company can enter into the markets of
china. A trade agreement is an agreement which is done between two countries in order

to promote each other domestic businesses and rules of trade is governed by the countries
itself.
 Franchising: Franchising is the best option among the other expansion methods to enter
into the Chinese markets for the company because here through franchising there will be
less barriers like language barriers will get evaporated because of local people taking
franchise of the business(Alimov, 2015). Franchising is a type of license where other
person has been granted a right to carry on the business, who is known as franchisee.
 Licensing: Through licensing also a company can enter into foreign markets. The
licensing is an agreement between two parties license and licensee, the party who grants
license and the party who receives license. Here the right is given to licensee that licensee
can produce and sell the licensor's products. So this will allow SME to join hands with
one of the domestic companies of the Chinese markets.
As per my opinion, UK based SME who wants to expand to china with the offering of
products in breakfast kids range with majorly emphasizing on two products needs to take the
route of Franchising as their expansion method. This will benefit company in most appropriate
manner then any other method (Dinnie, 2015). Through Franchising firm can achieve Motivated
management, Growth speed, Ease of supervision, Improved valuations, Reduced risk, Language
barrier is reduced, investment is reduced.
CONCLUSION
Based on this report, it has been concluded that while moving into international market
there are lot of factors that needs to be kept in mind for success and growth of the business. As
per this report business drivers are the key to enter in global markets. While moving to new
markets it is essential to understand the government policies of the respective country firm is
moving in. Also things like social issues, cultural preferences needs to be considered and finally
firm has to make decisions on the methods through which they are going to make their presence
in global markets.

REFERENCES
Books and Journals
Alimov, A., 2015. Labor market regulations and cross-border mergers and acquisitions. Journal
of International Business Studies. 46(8). pp.984-1009.
Alon, I. and Herath, R. K., 2014. Teaching international business via social media
projects. Journal of Teaching in International Business. 25(1). pp.44-59.
Boussebaa, M. and Morgan, G., 2014. Pushing the frontiers of critical international business
studies: The multinational as a neo-imperial space.critical perspectives on international
business. 10(1/2). pp.96-106.
Dinnie, K., 2015. Nation branding: Concepts, issues, practice. Routledge.
Enqvist, J., Graham, M. and Nikkinen, J., 2014. The impact of working capital management on
firm profitability in different business cycles: Evidence from Finland. Research in
International Business and Finance. 32. pp.36-49.
Jenkins, R., 2013. Transnational Corporations and Uneven Development (RLE International
Business): The Internationalization of Capital and the Third World. Routledge.
Leung, K. and Morris, M. W., 2015. Values, schemas, and norms in the culture–behavior nexus:
A situated dynamics framework. Journal of International Business Studies, 46(9), pp.1028-
1050.
Pereira-Moliner, J. and et.al., 2015. The Holy Grail: Environmental management, competitive
advantage and business performance in the Spanish hotel industry. International Journal of
Contemporary Hospitality Management. 27(5). pp.714-738.
Piekkari, R., Welch, D. and Welch, L. S., 2014. Language in international business: The
multilingual reality of global business expansion. Edward Elgar Publishing.
Polsa, P., 2013. The crossover-dialog approach: The importance of multiple methods for
international business. Journal of Business Research. 66(3). pp.288-297.
Zapletalova, S., 2014. The internationalization process of Czech companies.International
Business Management. 8(6). pp.361-368.
Online

Seven Ways to Expand: From Local to Global, 2014. [Online] Available through:
<http://www.cf-sn.ca/business/business_expansion/expansion.php>. [Accessed on 15th
March 2017].
Trade Protectionism: 4 Methods with Examples, Pros and Cons, 2017.[Online] Available
through: <https://www.thebalance.com/what-is-trade-protectionism-3305896>. [Accessed
on 15th March 2017].