Individual International Business Report

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Executive Summary

Generally, during the conduction and establishment of the entire study of the report, the study has evaluated and analysed the condition of the Chinese market for Milky’s Limited by utilising the tools like PESTEL, Porter’s Five Forces, and Product Re-Cycle Theory. Moreover, four trade barriers and the business uncertainty an opportunity by governmental trade policy of China have been demonstrated in this study. Furthermore, the ethical and social issues, the importance of corporate social responsibility for Milky’s Limited during its business operation in the international market of China have been briefly discussed in the study. In addition to this, the study also has considered the cultural preferences and has explained the methods for expanding the business in the market of China.

Table of Contents

1. Introduction

The United Kingdom significantly holds 11^th position in the world atlas of dairy production. UK has been accounted for 16.9% of total agricultural output in 2018 that helps to grow the national GDP of this developed nation chiefly. UHT milk is mainly known as the Ultra-high-temperature procedure which is an advanced food processing technology that helps to heat the milk at 135⁰C only in 2 to 5 seconds (Flint, et al., 2020). This fast and high heating technology helps the milk to kill numerous bacterial endospores that help to preserve the milk produced for the children aged 3 to 11. During past years, the demand for UHT milk products is increasing rapidly. In 2018, the market value of the dairy industry was €18.4b billion and in that year itself, the UK has abolished all the past old records since 1999 and has marked a new history by producing $15.0 billion litters of milk production.

As the UHT milk comes with better quality and taste and can be preserved for a longer period, the demand is rising exponentially around the world. In China the consumption of milk products is huge (O’Connor, 2017). Considering the growing demand, the sale of milk in China is expected to reach from 11.95 billion to 12.83 billion RMB with a 1.7% annual growth rate. The Milky’s (UK) Limited based in London, UK is a dairy manufacturing company. Milky’s company runs with 18 employees and generates $8.29 million annually. This high-income generation and being the land of excellent quality, transparency, and significant demand of UHT milk in China has given high hope to Milky’s to tap into the Chinese market by 2021-2022 focusing on producing UHT milk for the specific 3-11 years old children.

2. Identification of Business Drivers for Organisational Expansion in China

2.1 Conduction of PESTEL Analysis

Factors	Descriptions
Political factors	Political stability is a considerably vital factor that predominantly affects the operation of any organization. In this regard, there are plenty of different sets of laws and regulations from the Chinese Government that will be instructed to follow to productively run the MILKY’s Limited in the Chinese market (Robinson, Lakner, and Otter, 2019). However, the Chinese government is more alarmed regarding intellectual property protection when a foreign company like MILKY’s is enthusiastic to penetrate the Chinese market.
Economic Factors	Resilient financial stability helps a business to enlarge and enhance its profitability. In this case, the foreign exchange rate and the Chinese currency will leave a significant impact on the profitability of MILKY’S limited (Stewart, N.D.). Other economic aspects like the unemployment rate, GDP of China, inflation rate, interest rate, etc. will prominently hit the operation and goal of MILKY’s organization.
Social Factor	Social Factors like demography, the skill level of the Chinese population, leisure interest, attitude of the Chinese people, and their needs should be considered before planning and strategizing the operation of MILKY’S limited (Gooch, Hoskin and Law, 2017). Most significantly, the competitive and trending market of china and the distinctive needs in comparison to the UK should be paid a huge consideration while entering into the market of China (Robinson, Lakner, and Otter 2019).
Technological Factor	To meet the demand for sufficient, most advanced quality food in China, MILKY’S Limited needs to implement various technological items and use the potential of advanced pieces of machinery for raising the quality and taste of raw milk and liquid milk.
Environmental Factor	Environmental factors like environmental rules, climate changes are not a matter of concern for MILKY’s but the reduction of water and air pollution will help the organization to keep its consistency.
Legal Factors	Legal activities like anti-trust law, employment law, data protection law, e-commerce law, consumer protection laws are very much important for maintaining Milky’s continuous growth.

The vision of Milky’s limited is vivid and the high demand for milk products and the encouragement from the Chinese government to establish a foreign business are working as a favour for Milky’s production. Growing demand and technological factors are very much influential for the future vision of the Milky’s production and others factors like environment, the social factor has provided the opportunity for the business to expand.

2.2 Implementation of Porter’s Five Forces

Forces	Description
Bargaining Power of Buyers	The MILKY’S Limited will face huge competition as there are several reputed milk production companies in the market (Hongli et al., 2020). To gain a competitive advantage, MILKY’S foundation has to provide high-quality milk products considering the food quality requirements of a child.
Bargaining Power of Suppliers	As the Chinese market has a vast range of supply chain management that will surely lead to the high bargaining power of suppliers (Holmström and Von Homeyer, 2018). Due to having a vast choice for the suppliers, the MILKY’S organization will face this issue considerably.
Threats of Substitute	The wide range of dairy products has a huge demand among the Chinese people. Considering this, the MILKY’S foundation should be encouraged to enhance more the substitute milk products to persuade the consumers (Hongli et al., 2020).
Threats of New Entrants	Due to the established numerous large organization inside the Chinese market, MILKY’S Limited will face little difficulty. Hence, effective planning and impactful strategies can reduce this issue.
Rivalries	To gain a competitive advantage against large organizations like Inner Mongolia Yili Industrial Group Co, Beijing Sanyuan Foods Co Ltd, and Bright Food Co Ltd., etc., MILKY’S foundation must initiate prominent methods and strategies for the successful development of the business.

Considering all these threats, there are several solutions for these issues, and Milky needs to implement impactful strategies and the right planning of the operation. Apart from these threats, the Chinese market provides ample amount of opportunity as the highest population

2.3 Utilisation of Trade Theory

2.3.1 Product Life Cycle Theory

The Product Life Cycle theory demonstrates the phases, a product goes through from its launching to its withdrawal. This theory allows an organization to apply marketing strategies during the journey through these phases.

Figure 1: Product Life Cycle Theory

(Source: Jian, Cai, and Chen, 2017)

The four stages of this theory are,

Introduction: In this initial stage Milky’s Limited has to focus on product advertising and product marketing to increase brand awareness among the Chinese people. For marketing purposes, the company has to offer the products at a discounted price and with good quality (Jian, Cai, and Chen, 2017). Along with this, the company needs to focus on the influencers of China; their review leaves a huge impact on society. Apparently, this phase will not be much profitable as the cost will be high and the profit margin will be below.

Growth: In this phase, Milky’s needs to focus on growing its investment to grow more by increasing sales through reaching small retailers to big supermarkets (Jian, Cai, and Chen, 2017). From the niche areas, the company needs to lead towards mass marketing, and Milky’s needs to shift more towards customer support for increasing the Chinese customer base.

Maturity: In the maturity stage the brand will reach its peak height. During this phase, Milky’s Limited needs to raise the price and increase its profitability (Mishra, 2019). Also, Milky’s Limited should focus on improving the product quality and increase their potential item differentiation by launching new ad attractive items for the Chinese consumers.

Decline: In this declining phase, the value of the product starts to fall. The only way to handle this situation, Milky’s needs to be aware of the competition and increase its competitive advantage by decreasing the price of the products offered by the competitive company.

3. Identification and Analysis of the Trade Barriers

3.1 Identification of Four Trade Barriers

Trade barriers are the restrictions on international trade that set boundaries for foreign businesses to operate freely within the national markets. These barriers are considered as restrictions and create interventions in the market while operating internationally. Primarily, trade barriers are some sort of cost implied on the trading that leads to high-price and decrease product availability. Several trade barriers are,

Tariffs: The Chinese Government has implemented a huge amount of tax on product importation from foreign countries that will surely impact the business operation in a significant manner (He, Zhao, and Lin, 2020). Another issue is that the government is fining penalty as more amount of tax has become a huge threat for the business operation in the Chinese market (Li, and Zhu, 2020).

Import Quotas: A significant barrier in international markets is import quota. The Chinese government has critical limitations and has set an amount for importing products for foreign organizations (Liang, 2020). These restrictions are made to shift these organizations to depend on the local suppliers of China.

Voluntary Export restraints: Due to the limitation of product importation for foreign countries, MILKY’S limited will be forced to rely on the local Chinese suppliers for raw materials needed for the business (Murali, Manral, and Ayyub, 2020). This will hamper the business operation as it will create a high amount of expenses for MILKY’S limited.

Non- Tariffs: Different kinds of rules and regulation that can hamper the business operation of an organization is called non-tariff. The Chinese government has released manufacturing laws, international trade rules for foreign companies and that will hamper the business operation of MILKY’S. In this manner, the Milky’s will face a little difficulty while operating in the Chinese market.

3.2 Demonstration of Business Uncertainties and Opportunities by Trade Policies of the National Government of the Target Market

An overview of China’s trade-level development strategic plan and trade policy reforms, as well as an evaluation of the sustainable growth and advancement, along with a number of challenges which China should address in an evolving international business climate, even though China has conducted its governmental market policies and open-door policies. Since 1949, China was industrialised in the pattern of the former Soviet Union, and import replacement has been a major feature of China’s trade strategy for a long time since the early 1990s (Davis, Liu and Sheng, 2019). Strengthening the development of heavy-duty industries, China enacted the “forward-link approach” for the dairy industry to import replacement by promoting industrialisation from the industrial sector in which China had the least competitive benefits in terms of providing equipment for wealth and transitional goods and services to other industries.

The approach was modified in 1980 because of Mr Deng Xiaoping’s well-known economic reform and open-door policy. Signified, when producers recognised and predicted a ‘correct’ comparative market price, exporters thrived in labour-intensive industries such as dairy. Nevertheless, in terms of the degree of compensation for structural adjustment, export incentive policy still seems to be minor. Only the trial implementation of regional investment incentives, the holding mechanism for foreign exchange and the secondary foreign exchange has been implemented. Comparing to the worldwide rate; nevertheless, the amount of trade protection was still considerable. The effective amount imposed was 43%, while the non-tariff barrier penetration was 51% (Song and Zhou, 2020). Export industries were unfavourable to the restraint and manipulation of the foreign exchange management platform. The real RMB currency was overvalued by an average of around 44%. In order to alleviate export undercutting and low price competitiveness on the worldwide market, export licencing requisite and the export tax system were also strengthened in the administration.

A huge proportion of trade legislation and rules, such as the central government restrictions, details of enacting policies, local and temporary legislation, were updated and evaluated in terms of the legal and success factors, so as to abolition of all domestic treatment legislation and WTO inaccurate indicators. Regulatory measures have also been developed in court monitoring plans and organisations. If the decision does not come to any party, it may be reconsidered or appealed to the court underneath the “Act of Administrative Reconsideration” (Karabag, 2020). Furthermore, since 2004, the “Administrative Permission Law” has been adopted, providing an overarching legislative and administration structure for China’s WTO commitments. They make trade policies and measures more transparent, consistent, and coherent.

4. Consideration of Ethical and Social Issues by the UK SME

4.1 Identification and Discussion of the Importance of Corporate Social Responsibility during International Operation

The phrase Corporate Social Responsibility provides all workers of companies the opportunity to participate in the community, the ecosystem, the nation, etc. A smile on the lives of individuals since Milky’s Limited has promised not only a sense of internal pleasure however also dignity and satisfaction to train the underprivileged youngsters of a certain community (Feng, Zhu and Lai, 2017). The role of society and the environment in social life should never be forgotten. It is approximately time the corporation started to reflect on individuals who are less affluent and lucky than them around the Milky Limited. Corporate social responsibility provides Milky’s Limited the chance to contribute towards improving society and making it a healthier environment to inhabit.

The social responsibility of companies goes a long way in the development of a favourable voice for the overall company. In addition to taking Milky’s Limited to a higher level on the Chinese Market, stakeholders, consumers are doing something for the community and would guarantee long-term development and prosperity. The social responsibility of companies plays a significant part in generating the business attractive not only between commercial rivals, but also within the media, other organisations and, above all, primary consumers (Lim and Greenwood, 2017).Individuals generate a good sentiment for a brand to educate impoverished children, grow more plants for a healthy ecosystem, provide energy to a town, and create jobs for individuals, and so on. Milky’s Limited does not actually have to invest heavily in social accountability. Many organisations, some of which are not even known as an effort of corporate social responsibility, use distant communities.

Workers also get a sense of incomparable satisfaction from corporate social responsibility. Workers are proud to train impoverished persons or youngsters who are not able to enjoy normal schools and education. CSR initiatives enhance worker bonding. Individuals become used to work together as one entity to serve others. They actually start to love working together and eventually also become excellent friends (Halkos and Skouloudis, 2017). They also acquire a sense of devotion and commitment to their organisation that thinks of society at least. People begin thinking about the brand, and they can do nothing more than entrust them and their brand with potential consumers. Positive speech finally helps the organisation produce more money.

5. Consideration of Cultural Preferences by the Business

5.1 Identification of the Significance of Culture within Different Functions Associated with International Business in the Chinese Market

Three essential cultural variables like communication, principles and morals and cultural preferences must thus be considered by the company in Milky’s Limited perspective. This might lead the international firms to function in the Chinese market. In the Chinese market, language is the most important aspect of the business (Li, Liu and Qian, 2019). In the worldwide commercial operation of Milky’s Limited, on the other hand, individual influences also play a vital role. The organisation will be able to learn, based on cultural inclinations, that the customer population of China needs what type of goods and services.

In this regard, while starting up their operations in the Chinese market, the company carried out a market analysis procedure. As obtained from the statistical results, the organisation chose children between the age of 3 and the age of 11 to give UHT milk. The Chinese customer segment is very much in favour of this (Ali et al., 2018). In addition, Milky’s Limited must take into account the ethics and values of its worldwide business operations at the start of a company on the China market. Through this, the organisation may conduct its company efficiently, with the current rivals having a minimal competitive advantage.

5.2 Explanation and Implementation of Hofstede’s Cultural Theoretical Framework

Figure 2: Hofstede’s Cultural Dimension Theory

(Source: Soleman et al., 2017)

Indulgence vs. Restraint: Indulgence often means poor management and retention means significant influence. In this respect, Milky’s Limited is a UK leader in changing the milk industry trends that fall within the confined dimension (Ahmad and Ab Hamid, 2019). On the contrary, the organisation took the effort to develop its company in the Chinese market, where the communities choose items that correspond to their preferences.

Long-Term vs. Short-Term: The UK consumer community must appreciably learn new trends in the milk product or taste it. Milky’s Limited, therefore, has begun producing UHT dairy, which will benefit the association’s long-term process (Merth, 2019). Nevertheless, the sale of UHT milk on the Chinese market may not be the corporation’s viable method.

Masculinity vs. Femininity: The strength and sensitivity of the market allude mostly to masculinity and femininity (Solemanet al., 2017). Here, it may be difficult for Milky’s Limited as a new competitor to begin the firm on the Chinese market.

Tolerance of Uncertainty: In addition, Milky’s Limited must equip itself for market insecurity in China before the start of foreign commercial operations. The market uncertainty was heightened by the emergence of the corona epidemic (Ahmad and Ab Hamid, 2019). The organisation must thus prepare itself for coherence through applying several methods.

Individuality: Milky’s Limited must apply its cooperation strategies with the local organisation of China in order to develop the organisational business in the Chinese market (Merth, 2019). This enables the organisation to receive the administration’s assistance for doing its operations properly.

Power Distance: In general, China’s consumers favour local brands to meet their requirements (Solemanet al., 2017). In this respect, it may be challenging to run their business smoothly in accordance with the discerning tastes of the China consumer community during the worldwide operation of MIlky’s Limited.

6. Explanation of the Expansion Methods Selected by the Company

6.1 Identification of the Range of Internationalisation Methods

Joint Ventures: Joint companies are a favourite technique for entering an external market. A global and local shareholder firm and joint-venture management. It is simpler for the local partner to deal with the authorities and the general public (Bell and Cooper, 2018). As such a partner may provide a cultural bridge between the producer and the market; it can make a considerable influence on the profitability of a firm to select the correct local partner for a joint venture.

Mergers and Acquisition: Fusions and acquisitions have been a long-standing common approach to the new global business expansion market. It provides immediate access for everyone to marketplaces and transportation infrastructure (Kusa and Dębkowska, 2020). Another key feature of mergers and acquisitions in the purchase of new technology or a patent right. The other benefits of decreasing competitiveness include fusions and purchases.

Licencing and Franchising: In one jurisdiction, a firm (licensor) can utilise its IP under global licencing in another country (licensee). The holder pays the holder fees or charges (Bell and Cooper, 2018). Franchising is a licence type in which a parent firm provides the license to do operations in a certain way to an individual entity (the franchisor).

Contract Manufacturing: Contract manufacturing is when a firm contract internationally to make or assemble items with companies in other nations while keeping marketing (Kusa and Dębkowska, 2020).

 

6.2Identification and Discussion of the Suitable Options of Strategic Framework for Supporting SME

Ansoff Matrix

Figure 3: Ansoff Matrix

(Sources: Mittal et al., 2018)

Market Penetration: In order to become a leading brand in a new market with newly created goods, the company must concentrate on the sale of additional products for UHT Milk in its present UK market.

Product Development: Milky’s Limited has many sorts of scientific processes to employ in its milk products. This enables it to improve its product for new markets and customers.

Market Development: Thus, the company must use various forms of foreign marketing tactics to penetrate into the market in China in order to enter a new market (Mittal et al., 2018).

Diversification: By evaluating the Chinese market demands, Milky’s Limited has to deliver its UHT milk products to the Chinese market in accordance with the customer requirements.

 

Porter’s Generic Strategy

Figure 4: Porter’s Generic Strategy

(Source: Gebremichael, Gebremeskel and Bisrat, 2020)

Cost Leadership: Milky’s Limited must supply highly desired UHT milk at the lowest feasible cost throughout operations in the Chinese market (Mittal et al., 2018).

Differentiation: In addition, the company must focus on providing some distinctive characteristics such as its UHT milk products due to the increased demand for various milk commodities in China.

Cost Focus: Thus the organisation has to set its costs in comparison with its rivals within the provision of uniquely high-quality items such as UHT milk (Mittal et al., 2018).

Differentiation Focus: Milky’s Limited must thus offer its distinctive, highly requested UHT dairy products in the lowest feasible range during the whole business (Mittal et al., 2020).

Analysis of Market Segmentation and Target Market

Figure 5: STP Analysis

(Source: Gebremichael, Gebremeskel and Bisrat, 2020)

Segmentation: The Company must split its customer group from age 3 years to 11 years in the organisation performance of Milky’s Limited (Mittal et al., 2020).

Targeting: The Company often target pre-school children between the age of 1 and the age of 5 years to sell its UHT milk product on the market in China (Gebremichael, Gebremeskel and Bisrat, 2020).

Positioning: Through sales of distinctive goods in the lowest possible range, MIlky’s Limited will be able to acquire a prominent place within the Chinese market (Mittal et al., 2020).

Conclusion

During the examination of the complete study, Milky’s Limited has determined that it has a large market share in the UK market. The organisation thus took the opportunity today to extend its operations on the Chinese foreign market. In this regard, the organisation must take many aspects into consideration and analyse the worldwide market prior to starting up its company in the Chinese market. The PESTEL analysis and Porter’s Five Forces hence effectively assist the organisation in analysing China’s competitive environment. Throughout this study, nevertheless, the organisation realised that there were several types of trade obstacles during the period when Milky’s Limited entered the market. The organisation’s company globalisation technique and worldwide marketing strategy have been applied and applied in this area. This will enable the organisation to grow its commercial operations in the worldwide platform.

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